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, 2008
or
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-15279
GENERAL COMMUNICATION, INC.
(Exact name of registrant as specified in its charter)
State of Alaska
(State or other jurisdiction of
incorporation or organization)
2550 Denali Street
Suite 1000
Anchorage, Alaska
(Address of principal executive offices)
92-0072737
(I.R.S Employer
Identification No.)
99503
(Zip Code)
Registrant’s telephone number, including area code: (907) 868-5600
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Class A common stock
(Title of class)
Class B common stock
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:134) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Securities Act.
Yes (cid:134) No ⌧
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 ⌧ No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this
chapter) 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.
(cid:134)
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:134)
Non-accelerated filer (cid:134) (Do not check if a smaller reporting company)
Accelerated filer ⌧
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No ⌧
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the
average high and low prices of such stock as of the close of trading as of the last business day of the registrant’s most
recently completed fiscal quarter of June 30, 2008 was $199,624,000. Shares of voting stock held by each officer and
director and by each person who owns 5% or more of the outstanding voting stock (as publicly reported by such persons
pursuant to Section 13 and Section 16 of the Exchange Act) have been excluded in that such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant’s common stock as of February 27, 2009, was:
Class A common stock – 49,846,000 shares; and,
Class B common stock – 3,203,000 shares.
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GENERAL COMMUNICATION, INC.
2008 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Glossary
Cautionary Statement Regarding Forward-Looking Statements
Part I
Part II
Part III
Part IV
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submissions of Matters to a Vote of Security Holders
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits, Consolidated Financial Statement Schedules
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SIGNATURES
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This Annual Report on Form 10-K is for the year ending December 31, 2008. This Annual Report modifies and
supersedes documents filed prior to this Annual Report. The Securities and Exchange Commission (“SEC”) allows us to
“incorporate by reference” information that we file with them, which means that we can disclose important information to
you by referring you directly to those documents. Information incorporated by reference is considered to be part of this
Annual Report. In addition, information that we file with the SEC in the future will automatically update and supersede
information contained in this Annual Report.
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Glossary
We and our industry use many terms and acronyms that may not be familiar to you. To assist you in reading this
document, we have provided below definitions of some of these terms.
Alaska DigiTel — Alaska DigiTel, LLC — An Alaska based wireless communications company of which we acquired an
81.9% equity interest on January 2, 2007 and the remaining 18.1% equity interest on August 18, 2008. Prior to August
18, 2008, our control over the operations of Alaska DigiTel was limited as required by the FCC upon their approval of our
initial acquisition completed in January 2007.
Alaska Wireless — Alaska Wireless Communications, LLC — An Alaska based wireless communications company based
in Dutch Harbor, Alaska that we acquired on July 1, 2008.
Alaska United East — An undersea fiber optic cable system connecting Whittier, Valdez and Juneau, Alaska to Seattle,
Washington, which was placed into service in February 1999.
Alaska United Southeast — An undersea fiber optic cable system connecting Ketchikan, Wrangell, Petersburg, Angoon
and Sitka, Alaska to Alaska United West.
Alaska United North — A terrestrial fiber optic cable system connecting Anchorage and Fairbanks, Alaska along the Parks
Highway corridor.
Alaska United West — An undersea fiber optic cable system connecting Seward, Alaska to Warrenton, Oregon which was
placed into service in June 2004.
Basic Service — The basic service tier includes, at a minimum, signals of local television broadcast stations, any public,
educational, and governmental programming required by the franchise to be carried on the basic tier, and any additional
video programming service added to the basic tier by the cable operator.
BOC – Bell system operating companies.
CDMA —Code Division Multiple Access — A digital wireless phone technology offered under our Alaska DigiTel brand
name.
CLEC — Competitive Local Exchange Carrier — A company that provides its customers with an alternative to the ILEC
for local transport of communications services, as allowed under the 1996 Telecom Act.
Collocation — The ability of a competitive access provider or CLEC to connect its network to the LEC’s central offices.
Physical collocation occurs when a connecting carrier places its network connection equipment inside the LEC’s central
offices. Virtual collocation is an alternative to physical collocation pursuant to which the LEC permits a competitive access
provider or CLEC to connect its network to the LEC’s central offices on comparable terms, even though the competitive
access provider’s or CLEC’s network connection equipment is not physically located inside the central offices.
DAMA — Demand Assigned Multiple Access — Digital satellite earth station technology that allows calls to be made
between remote villages using only one satellite hop thereby reducing satellite delay and capacity requirements while
improving quality.
Data Network – A communications network with restricted (controlled) access usually made up of dedicated circuits to
connect customer's equipment at both ends of the line. Does not provide any switching capability (unless supported by
customer premise equipment).
DBS — Direct Broadcast Satellite — Subscription television service obtained from satellite transmissions using frequency
bands that are internationally allocated to the broadcast satellite services. The major providers of DBS are currently The
DirecTV Group, Inc. and EchoStar Communications Corporation (marketed as the DISH Network).
DLC — Digital Loop Carrier — A digital transmission system designed for subscriber loop plant. DLC multiplexes a
plurality of circuits onto very few wires or onto a single fiber pair.
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DLPS — Digital Local Phone Service — A term we use referring to our deployment of voice telephone service utilizing our
hybrid-fiber coax cable facilities.
DSL — Digital Subscriber Line — Technology that allows Internet access and other high-speed data services at data
transmission speeds greater than those of modems over conventional telephone lines.
DVR — Digital Video Recorder — A service that allows digital cable subscribers to select, record and store programs and
play them at whatever time is convenient. DVR service also provides the ability to pause and rewind “live” television.
Equal Access — Connection provided by a LEC permitting a customer to be automatically connected to the Interexchange
carrier of the customer’s choice when the customer dials “1.” Also refers to a generic concept under which the BOC must
provide access services to AT&T’s competitors that are equivalent to those provided to AT&T.
ETC — Eligible Telecommunications Carrier — A telephone service provider that has agreed to hold out service to all
customers (excluding those who fail to pay for service) in the area for which the carrier is designated as an ETC. In return,
the carrier is eligible for state and federal USF.
EVDO Rev A (Evolution – Data Optimized Revision A) — A digital wireless data technology offered under both our Alaska
DigiTel and GCI brands to allow third generation ("3G") data speeds on cellular phones and personal computers.
FCC — Federal Communications Commission — A federal regulatory body empowered to establish and enforce rules
and regulations governing public utility companies and others, such as the Company.
Frame Relay — A wideband (64 kilobits per second to 1.544 Mbps) packet-based data interface standard that transmits
bursts of data over WANs. Frame-relay packets vary in length from 7 to 1024 bytes. Frame Relay is data oriented and it is
generally not used for voice or video.
GCI — General Communication, Inc. — An Alaska corporation and the Registrant.
GSM — Global System for Mobile Communications — A digital wireless phone technology offered under our GCI brand
name.
HDTV — High-Definition Television — A digital television format delivering theater-quality pictures and CD-quality sound.
HDTV offers an increase in picture quality by providing up to 1,920 active horizontal pixels by 1,080 active scanning lines,
representing an image resolution of more than two million pixels. In addition to providing improved picture quality with
more visible detail, HDTV offers a wide screen format and Dolby® Digital 5.1 surround sound.
ILEC — Incumbent Local Exchange Carrier — With respect to an area, the LEC that — (A) on the date of enactment of
the Telecommunications Act of 1996, provided telephone exchange service in such area; and (B)(i) on such date of
enactment, was deemed to be a member of the exchange carrier association pursuant to section 69.601(b) of the FCC’s
regulations (47 C.F.R. 69.601(b)); or (ii) is a person or entity that, on or after such date of enactment, became a successor
or assign of a member described in clause (i).
Interexchange — Communication between two different local access and transport areas or, in Alaska, between two
different Local Exchange serving areas.
IP — Internet Protocol — The method or protocol by which data is sent from one computer to another on the Internet.
Each computer (known as a host) on the Internet has at least one IP address that uniquely identifies it from all other
computers on the Internet.
IRU — Indefeasible Rights to Use — The exclusive right to use a specified amount of capacity or fiber for a specified
term.
ISDN — Integrated Services Digital Network — A set of standards for transmission of simultaneous voice, data and video
information over fewer channels than would otherwise be needed, through the use of out-of-band signaling. The most
common ISDN system provides one data and two voice circuits over a traditional copper wire pair, but can represent as
many as 30 channels. Broadband ISDN extends the ISDN capabilities to services in the Gigabit per second range.
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ISP — Internet Service Provider — A company providing retail and/or wholesale Internet services.
LAN — Local Area Network — The interconnection of computers for sharing files, programs and various devices such as
printers and high-speed modems. LANs may include dedicated computers or file servers that provide a centralized source
of shared files and programs.
LEC — Local Exchange Carrier — A company providing local telephone access services. Each BOC is a LEC.
LMDS — Local Multipoint Distribution System — LMDS uses microwave signals (millimeter wave signals) in the 28 GHz
spectrum to transmit voice, video, and data signals within small cells 3-10 miles in diameter. LMDS allows license holders
to control up to 1.3 GHz of wireless spectrum in the 28 GHz Ka-band. The 1.3 GHz can be used to carry digital data at
speeds in excess of one gigabit per second. The extremely high frequency used and the need for point to multipoint
transmissions limits the distance that a receiver can be from a transmitter. This means that LMDS will be a “cellular”
technology, based on multiple, contiguous, or overlapping cells. LMDS is expected to provide customers with multichannel
video programming, telephony, video communications, and two-way data services. ILECs and cable companies may not
obtain the in-region 1150 MHz license for three years following the date of the license grant. Within 10 years following the
date of the license grant, licensees will be required to provide ‘substantial service’ in their service regions.
Local Exchange — A geographic area generally determined by a state regulatory body, in which calls generally are
transmitted without toll charges to the calling or called party.
Local Number Portability — The ability of an end user to change local or wireless service providers while retaining the
same telephone number.
Lower 48 States or Lower 48 — Refers to the 48 contiguous states south of or below Alaska.
Lower 49 States or Lower 49 — Refers to Hawaii and the Lower 48 States.
MAN — Metropolitan Area Network — LANs interconnected within roughly a 50-mile radius. MANs typically use fiber optic
cable to connect various wire LANs.
Matanuska-Susitna Valley — The Matanuska and Susitna valleys are located in south-central Alaska, to the north of
Anchorage, and include the communities of Palmer and Wasilla and the immediately surrounding areas.
PCS — Personal Communication Services — PCS encompasses a range of advanced wireless mobile technologies and
services. It promises to permit communications to anyone, anywhere and anytime while on the move. The Cellular
Telecommunications Industry Association defines PCS as a “wide range of wireless mobile technologies, chiefly cellular,
paging, cordless, voice, personal communications networks, mobile data, wireless private branch exchange, specialized
mobile radio, and satellite-based systems.” The FCC defines PCS as a “family of mobile or portable radio
communications services that encompasses mobile and ancillary fixed communications services to individuals and
businesses and can be integrated with a variety of competing networks.”
RCA — Regulatory Commission of Alaska — A state regulatory body empowered to establish and enforce rules and
regulations governing public utility companies and others, such as the Company, within the State of Alaska (sometimes
referred to as Public Service Commissions, or PSCs, or Public Utility Commissions, or PUCs).
SchoolAccess® — Our Internet and related services offering to schools in Alaska, and some sites in Arizona, Montana
and New Mexico. The federal mandate through the 1996 Telecom Act to provide universal service resulted in schools
across Alaska qualifying for varying levels of discounts to support the provision of Internet services. The USAC through its
Schools and Libraries Division administers this federal program.
SDN — Software Defined Network — A switched long-distance service for very large users with multiple locations.
Instead of putting together their own network, large users can get special usage rates for calls carried on regular switched
long-distance lines.
SMATV — Satellite Master Antenna Television — Multichannel video programming distribution systems that serve
residential, multiple-dwelling units, and various other buildings and complexes. A SMATV system typically offers the same
type of programming as a cable system, and the operation of a SMATV system largely resembles that of a cable system
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— a satellite dish receives the programming signals, equipment processes the signals, and wires distribute the
programming to individual dwelling units. The primary difference between the two is that a SMATV system typically is an
unfranchised, stand-alone system that serves a single building or complex, or a small number of buildings or complexes in
relatively close proximity to each other. Also known as "private cable systems."
SONET — Synchronous Optical Network — A 1984 standard for optical fiber transmission on the public network. 51.84
Mbps to 9.95 Gigabits per second, effective for ISDN services including asynchronous transfer mode.
T-1 — A data communications circuit capable of transmitting data at 1.5 Mbps.
TCP/IP — Transmission Control Protocol/Internet Protocol — A suite of network protocols that allows computers with
different architectures and operating system software to communicate with other computers on the Internet.
UNE — Unbundled Network Element — A discrete component of a telephone network. Unbundled network elements are
the basic network functions, i.e., the components needed to provide a full range of communications services. They are
physical facilities as well as all the features and capabilities provided by those facilities.
Unicom — Unicom, Inc. — An Alaska based provider of terrestrial broadband services, wireless service, and long-
distance telecommunications service that we acquired on June 1, 2008.
United-KUC — United-KUC, Inc. — An Alaska based provider of local telephone service to rural Alaska that we acquired
on June 1, 2008. United-KUC is a wholly-owned subsidiary of UUI.
USAC — Universal Service Administrative Company — An independent not-for-profit corporation designated as the
administrator of the federal USF by the FCC.
USF — Universal Service Fund — Programs administered by USAC for high-cost companies serving rural areas, low-
income consumers, rural health care providers, and schools and libraries.
UUI — United Utilities, Inc. — An Alaska based provider of local telephone service to rural Alaska that we acquired on
June 1, 2008.
VoIP — Voice over Internet Protocol — Technology that allows voice telephone service over broadband Internet
connections via digital packets rather than traditional protocols.
VSAT — Very Small Aperture Terminal — A small, sometimes portable satellite terminal that allows connection via a
satellite link.
WAN — Wide Area Network — A remote computer communications system. WANs allow file sharing among
geographically distributed workgroups (typically at higher cost and slower speed than LANs or MANs). WANs typically use
common carriers’ circuits and networks. WANs may serve as a customized communication backbone that interconnects
all of an organization’s local networks with communications trunks that are designed to be appropriate for anticipated
communication rates and volumes between nodes.
1992 Cable Act — The Cable Television Consumer Protection and Competition Act of 1992.
1996 Telecom Act — The Telecommunications Act of 1996 — The 1996 Telecom Act was signed into law February 8,
1996. Under its provisions, BOCs were allowed to immediately begin manufacturing, research and development; GTE
Corp. could begin providing Interexchange services through its telephone companies nationwide; laws in 27 states that
foreclosed competition were pre-empted; co-carrier status for CLECs was ratified; and the physical collocation of
competitors’ facilities in LECs central offices was allowed.
The purpose of the 1996 Telecom Act was to move from a regulated monopoly model of telecommunications to a
deregulatory competitive markets model. The act eliminated the old barriers that prevented three groups of companies,
the LECs, including the BOCs, the long-distance carriers, and the cable TV operators, from competing head-to-head with
each other. The act requires LECs to let new competitors into their business. It also requires the LECs to open up their
networks to ensure that new market entrants have a fair chance of competing. The bulk of the act is devoted to
establishing the terms under which the LECs must open up their networks.
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The 1996 Telecom Act substantially changed the competitive and regulatory environment for telecommunications
providers by significantly amending the Communications Act of 1934 including certain of the rate regulation provisions
previously imposed by the Cable Television Consumer Protection and Competition Act of 1992 (the “1992 Cable Act”).
The 1996 Telecom Act eliminated rate regulation of the cable programming service tier in 1999. Further, the regulatory
environment will continue to change pending, among other things, the outcome of legal challenges, legislative activity, and
FCC rulemaking and enforcement activity in respect of the 1992 Cable Act and the completion of a significant number of
continuing FCC rulemakings under the 1996 Telecom Act.
Cautionary Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this Annual Report, but should particularly consider any risk
factors that we set forth in this Annual Report and in other reports or documents that we file from time to time with the
SEC. In this Annual Report, in addition to historical information, we state our future strategies, plans, objectives or goals
and our beliefs of future events and of our future operating results, financial position and cash flows. In some cases, you
can identify those so-called “forward-looking statements” by words such as “may,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” “project,” or “continue” or the negative of those words and
other comparable words. All forward-looking statements involve known and unknown risks, uncertainties and other
important factors that may cause our actual results, performance, achievements, plans and objectives to differ materially
from any future results, performance, achievements, plans and objectives expressed or implied by these forward-looking
statements. In evaluating those statements, you should specifically consider various factors, including those identified
under “Risk Factors,” and elsewhere in this Annual Report. Those factors may cause our actual results to differ materially
from any of our forward-looking statements. For these forward-looking statements, we claim the protection of the safe
harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
You should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement,
and the related risks, uncertainties and other factors speak only as of the date on which they were originally made and we
expressly disclaim any obligation or undertaking to update or revise any forward-looking statement to reflect any change
in our expectations with regard to these statements or any other change in events, conditions or circumstances on which
any such statement is based. New factors emerge from time to time, and it is not possible for us to predict what factors
will arise or when. In addition, we cannot assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements.
Item 1. Business
General
Part I
In this Annual Report, “we,” “us,” “our” and “the Company” refer to GCI and its direct and indirect subsidiaries.
GCI was incorporated in 1979 under the laws of the State of Alaska and has its principal executive offices at 2550 Denali
Street, Suite 1000, Anchorage, AK 99503-2781 (telephone number 907-868-5600).
GCI is primarily a holding company and together with its direct and indirect subsidiaries, is a diversified communications
provider in the state of Alaska.
Availability of Reports and Other Information
Internet users can access information about the Company and its services at http://www.gci.com/,
http://www.gcinetworksolutions.com/, http://www.unicom-alaska.com/, http://www.alaskadigitel.com/, http://www.alaska-
wireless.com/, and http://www.alaskaunited.com/. The Company hosts Internet services at http://www.gci.net/, broadband
delivery of health services at http://www.connectmd.com, and SchoolAccess® services at http://www.schoolaccess.net/.
Our online telephone directory and yellow pages are hosted at http://www.gcidirectory.com/.
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We make available on the http://www.gci.com/ website, free of charge, access to our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statement on Schedule 14A and amendments to
those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon
as reasonably practicable after we electronically submit such material to the SEC. In addition, the SEC’s website is
http://www.sec.gov/. The SEC makes available on this website, free of charge, reports, proxy and information statements,
and other information regarding issuers, such as us, that file electronically with the SEC. Information on our websites or
the SEC’s website is not part of this document.
Financial Information about Industry Segments
Our five reportable segments are Consumer, Network Access, Commercial, Managed Broadband, and Regulated
Operations services.
For financial information about our reportable segments, see “Part II — Item 7 — Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” Also refer to note 10 included in “Part II — Item 8 — Consolidated
Financial Statements and Supplementary Data.”
Narrative Description of our Business
General
We are Alaska’s leading provider of long-distance, cable television, data and Internet services, as measured by revenues,
we are the second largest local access provider, as measured by local access lines, and we are the third largest wireless
service provider as measured by lines in service. A pioneer in bundled service offerings, we provide facilities-based local
and long distance voice, resale of local voice, cable video, Internet and data communication services, consulting services,
network and desktop computing outsourced services, and facilities-based and resale wireless telephone services, to
consumer, network access, commercial and managed broadband customers under our GCI brand. We provide wireless
telephone services over our own facilities under the Alaska DigiTel and Alaska Wireless brand names. We provide
Internet services under the Alaska Wireless Internet brand name. We provide facilities-based local voice services and
local exchange carrier services in the Yukon-Kuskokwim Delta region under the brand names of United Utilities and
United-KUC. We also provide long-distance voice, wireless telephone service, and Internet service in the Yukon-
Kuskokwim Delta region under the Unicom brand name. Over the next two years we plan to expand our CDMA and GSM
wireless facilities throughout the terrestrially served portions of Alaska.
We generated consolidated revenues of $575.4 million in 2008. We ended 2008 with 99,300 long-distance subscribers,
140,800 local access lines in service, 147,800 basic cable subscribers, 96,300 wireless lines in service, and 103,300
cable modem subscribers. A substantial number of our customers subscribe to product bundles that include two or more
of our services.
Since our founding in 1979, we have consistently expanded our product portfolio to satisfy our customers’ needs. We
have benefited from the attractive and unique demographic and economic characteristics of the Alaska market. We
believe our integrated strategy of providing innovative bundles of voice, video, data and wireless services provides us with
an advantage over our competitors and will allow us to continue to attract new customers, retain existing customers and
expand our addressable market. We hold leading market shares in long-distance, cable video and Internet services and
have gained significant market share in the local access market against an incumbent provider. We are increasing our
market share in the wireless services market against the incumbent providers.
Through our focus on long-term results and strategic capital investments, our revenues have grown. Our integrated
strategy provides us with competitive advantages in addressing the challenges of converging telephony, video and
broadband markets and has been a key driver of our success. We use our extensive communications networks to provide
our customers with integrated communication services packages that we believe are unmatched by any other competitor
in Alaska.
We believe that the size and growth potential of the voice, video and data market, and the increased convergence of
telephony, wireless, and cable services continue to offer us considerable opportunities to integrate our communications,
Internet and cable services and expand into communications markets within Alaska.
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Considerable deregulation has already taken place in the United States with the barriers to competition between long-
distance, local access and cable providers lowered. We believe our continued development of cable video service, local
access service, Internet services, broadband services, and wireless services leave us well positioned to continue to take
advantage of deregulated markets.
Development of our Business During the Past Fiscal Year
Wireless Business Strategy. During 2008 we expanded Alaska DigiTel’s CDMA network and started constructing a state-
wide GSM network. We estimate we will spend approximately $165.0 million to construct wireless facilities throughout
Alaska. We have expended $80.0 million in 2008 and plan to spend $85.0 million over the next three years.
Dobson /AT&T Agreement. AT&T Mobility, LLC (“AT&T Mobility”) acquired Dobson Communications Corporation
(“Dobson”), including its Alaska properties, on November 15, 2007. In December 2007 we signed an agreement with
AT&T Mobility that provides for an orderly transition of our wireless customers from the Dobson/AT&T network in Alaska
to our wireless facilities that we began building in 2008 and are expected to be substantially completed in 2010 or 2011.
The agreement requires our customers to be on our wireless network by June 30, 2009, but allows our customers to use
the AT&T Mobility network for roaming during the transition period. The four-year transition period, which expires June
30, 2012, provides us adequate time to replace the Dobson/AT&T network in Alaska with our own wireless facilities.
Under the agreement, AT&T Mobility’s obligation to purchase network services from us terminated as of July 1, 2008.
AT&T Mobility provided us with a large block of wireless network usage at no charge to facilitate the transition of our
customers to our facilities. We will pay for usage in excess of that base transitional amount. Under the previous
agreement with Dobson, our margin was fixed. Under the new agreement with AT&T Mobility, we will pay for usage in
excess of the block of free minutes on a per minute basis. The block of wireless network usage at no charge is expected
to substantially reduce our wireless product cost of goods sold exclusive of depreciation and amortization (“Cost of Goods
Sold”) during the approximate four year period beginning June 4, 2008 and ending June 30, 2012.
UUI and Unicom Acquisition. Effective June 1, 2008, we closed on our purchase of 100% of the outstanding stock of UUI
and Unicom, which were subsidiaries of United Companies, Inc. ("UCI"). UUI, together with its subsidiary, United-KUC,
provides local telephone service to 60 rural communities in the Bethel, Alaska area. Unicom operates DeltaNet, a long-
haul broadband microwave network ringing the Yukon-Kuskokwim Delta.
Alaska Wireless Acquisition. Effective July 1, 2008, we closed on our purchase of 100% of the ownership interests of
Alaska Wireless, which provides wireless and Internet services in the Dutch Harbor, Sand Point, Akutan, and Adak,
Alaska areas.
Acquisition of Remaining Alaska DigiTel Interest. On August 18, 2008, we exercised our option to acquire the remaining
18.1% of the equity interest and voting control of Alaska DigiTel for $10.4 million. Prior to August 18, 2008, our control
over the operations of Alaska DigiTel was limited as required by the FCC upon their approval of our initial acquisition
completed in January 2007. Subsequent to the acquisition of the minority interest, we own 100% of the outstanding
common ownership units and voting control of Alaska DigiTel.
Southeast Alaska Fiber Optic Cable Network. We completed construction of a fiber optic cable network in Southeast
Alaska. The 802 miles of fiber optic cable connect Ketchikan, Wrangell, Petersburg, Angoon and Sitka, Alaska to our
Alaska United West undersea fiber optic cable connecting Alaska to the Lower 48. This fiber optic cable provides a
second fiber link to Juneau, Alaska creating a SONET ring that provides alternative routing and overflow traffic-handling
capabilities.
Capital Lease Obligation. On March 31, 2006, through our subsidiary GCI Communication Corp., we entered into an
agreement to lease transponder capacity on Intelsat, Ltd.’s (“Intelsat”) Galaxy 18 spacecraft that successfully launched
May 21, 2008. We continue to lease capacity on the Horizons 1 satellite, which is owned jointly by Intelsat and JSAT
International, Inc. The leased capacity replaced our existing transponder capacity on Intelsat’s Galaxy XR satellite.
The Intelsat Galaxy 18 C-band and Ku-Band transponders are being leased over an expected term of 14 years. The
present value of the lease payments, excluding telemetry, tracking and command services and back-up protection, is
$98.6 million. We have recorded a capital lease obligation and an addition to our Property and Equipment at December
31, 2008.
10
IRU Agreements. During 2008 we signed agreements to provide long-haul fiber capacity IRU totaling $53.1 million. The
capacity will be used by our competitors to meet bandwidth requirements for their customers. Substantially all of the cash
for these capacity arrangements was received in 2008.
Senior Credit Facility. In May 2008 we signed an agreement to add an Additional Incremental Term Loan of $145.0 million
to our existing Senior Credit Facility. The $145.0 million Additional Incremental Term Loan will become due under the
same terms and conditions as set forth in the existing Senior Credit Facility.
You should see “Part I — Item 1. Business — Regulation” for regulatory developments.
Competition in the Communications Industry
There is substantial competition in the communications industry. The traditional dividing lines between providers offering
long-distance, local and wireless telephone services, Internet services and video services are increasingly becoming
blurred. Through mergers and various service integration and product bundling strategies, major providers, including us,
are striving to provide integrated communications service offerings within and across geographic markets. The converging
communications industry is competing to deliver service bundles that include voice, broadband Internet access, and video
content. We maintain a strong competitive position; however, there is active competition in the sale of substantially all
services and products we offer. For more information about competition in each of our reportable segments, you should
refer to each section titled “Competition” in “Description of our Business by Reportable Segment” below.
Competitive Strengths
Market Leader. We are Alaska’s leading provider of long-distance, cable television and data and Internet services, as
measured by revenues, we are the second largest local access provider, as measured by local access lines, and we are
the third largest wireless service provider as measured by wireless revenues and lines in service. We attribute our
leadership position to our commitment to provide our customers with high-quality products in bundled offerings that
maximize their satisfaction.
Advanced Infrastructure and Robust Network Assets. We own and operate advanced networks that provide integrated
end-to-end solutions. Our hybrid-fiber coax cable network enables us to offer last-mile broadband connectivity to our
customers. Our interstate and undersea fiber optic cable systems connect our major markets in Alaska to the Lower 48
States. We employ satellite transmission for rural intrastate and interstate traffic in markets where terrestrial based
network alternatives are not available. We have or expect to be able to obtain satellite transponders to meet our current
satellite capacity requirements. In our local access service markets, we offer services using our own facilities, unbundled
network elements and wholesale/resale of third party facilities.
Bundled Service Offerings. Ownership and control of our network and communications assets have enabled us to
effectively market bundled service offerings. Bundling facilitates the integration of operations and administrative support to
meet the needs of our customers. Our product and service portfolio includes stand-alone offerings and bundled
combinations of local and long-distance voice and data services, cable video, broadband (cable modem, fixed wireless
and DSL), dedicated Internet access services, mobile wireless and other services.
Well-recognized Brand Name. Our GCI brand is the oldest brand among major communications providers in Alaska and
positively differentiates our services from those of our competitors. We believe our customers associate our brand name
with quality products. We continue to benefit from high name recognition and strong customer loyalty, and the majority of
our customers purchase multiple services from us. We have been successful in selling new and enhanced products to our
customers based on perceived quality of products and brand recognition. Our United Utilities, Inc. and United-KUC brand
names have been in the Alaska marketplace since 1984 and we believe our customers associate these brand names with
quality products. Our Alaska DigiTel brand name has been in the Alaska marketplace since 1998 and we believe our
customers associate this brand name with quality wireless products. Our Alaska Wireless brand name has been in the
Dutch Harbor/Unalaska, Alaska marketplace since 2003 and we believe our customers associate this brand name with
quality wireless products.
Favorable Alaskan Market Dynamics. The Alaskan communications market is characterized by its large geographic size
and isolated markets that include a combination of major metropolitan areas and small, dense population clusters, which
create a deterrent to potential new entrants. Due to the remote nature of its communities, the state’s residents and
businesses rely extensively on our systems to meet their communications needs. We believe that, when compared to
national averages, Alaskan households spend more on communication services. According to the United States Census
Bureau, the median household income in Alaska was 27% higher than the 2007 United States national average. See the
11
“Geographic Concentration and the Alaska Economy” section of “Part II — Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for a discussion of Alaska’s economic outlook. We believe
there is a positive outlook for continued growth due to our planned facilities expansion and marketing strategy.
Experienced Management Team. Our experienced management team has a proven track record and has consistently
expanded our business and improved our operations. Our senior management averages more than 29 years of
experience in the communications industry and more than 19 years with GCI.
Business Strategy
We intend to continue to increase revenues and cash flow using the following strategies:
Continue to Offer Bundled Products. We offer innovative service bundles to meet the needs of our consumer and
commercial customers. We believe that bundling our services significantly improves customer retention, increases
revenue per customer and reduces customer acquisition expenses. Our experience indicates that our bundled customers
are significantly less likely to churn, and we experience less price erosion when we effectively combine our offerings.
Bundling improves our top line revenue growth, provides operating cost efficiencies that expand our margins and drives
our overall business performance. As a measure of success to date, over 55,600 of our consumer customers subscribe to
one of our service bundles.
Maximize Sales Opportunities. We successfully sell new and enhanced services and products between and within our
business segments to our existing customer base to achieve increased revenues and penetration of our services.
Through close coordination of our customer service and sales and marketing efforts, our customer service representatives
suggest to our customers other services they can purchase or enhanced versions of services they already purchase.
Many calls into our customer service centers result in sales of additional services and products. We actively encourage
our existing customers to acquire higher value, enhanced services.
Deliver Industry Leading Customer Service. We have positioned ourselves as a customer service leader in the Alaska
communications market. We have organized our operations to effectively focus on our customers. We operate our own
customer service department and maintain and staff our own call centers. We have empowered our customer service
representatives to handle most service issues and questions on a single call. We prioritize our customer services to
expedite handling of our most valuable customers’ issues, particularly for our largest commercial customers. We believe
our integrated approach to customer service, including service set-up, programming various network databases with the
customer’s information, installation, and ongoing service, allows us to provide a customer experience that fosters
customer loyalty.
Leverage Communications Operations. We continue to expand and evolve our integrated network for the delivery of our
services. Our bundled strategy and integrated approach to serving our customers creates efficiencies of scale and
maximizes network utilization. By offering multiple services, we are better able to leverage our network assets and
increase returns on our invested capital. We periodically evaluate our network assets and continually monitor
technological developments that we can potentially deploy to increase network efficiency and performance.
Expand Our Product Portfolio and Footprint in Alaska. Throughout our history, we have successfully added and expect to
continue to add new products to our product portfolio. Management has a demonstrated history of new product
evaluation, development and deployment for our customers, and we continue to assess revenue-enhancing opportunities
that create value for our customers. In addition to new services such as additional HDTV channels, video-on-demand, on-
line advertising placement, on-line content delivery such as streaming music, and mobile high speed data, we are also
expanding the reach of our core products to new markets. Where feasible and where economic analysis supports
geographic expansion of our network coverage, we are currently pursuing and expect to pursue opportunities to increase
the scale of our facilities, enhance our ability to serve our existing customers’ needs and attract new customers.
Description of our Business by Reportable Segment
Overview
Our five reportable segments are Consumer, Network Access, Commercial, Managed Broadband, and Regulated
Operations. Our reportable segments are business units that offer different products, are each managed separately, and
serve distinct types of customers.
12
Following are our segments and the services and products each offers to its customers:
Services and Products
Consumer
Reportable Segments
Network
Access Commercial
Managed
Broadband
Regulated
Operations
Voice:
Long-distance
Local Access
Directories
Video
Data:
Internet
Data Networks
Managed Services
Managed Broadband Services
Wireless
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Our Consumer segment customers are residential customers. Our Commercial segment customers include small
businesses, local, national and global businesses, governmental entities, and public and private educational institutions.
Our Network Access segment customers are other common carriers. Our Managed Broadband segment customers are
rural school districts, hospitals and health clinics. Effective June 1, 2008, we purchased 100% of the outstanding stock of
UUI and Unicom. The financial results of the long-distance, local access and Internet services sold to consumer and
commercial customers of certain of these acquired companies are reported in the Regulated Operations segment. The
financial results of the long-distance services sold to other common carrier customers and the managed broadband
services components of certain of these acquired companies are included in the Network Access and Managed
Broadband Services segments, respectively. Effective July 1, 2008, we closed on our purchase of 100% of the ownership
interests of Alaska Wireless whose results are included in the Consumer segment. We distribute information about our
services and products to these customers through a variety of channels, including direct sales, telemarketing and media
advertising.
Many of our networks and facilities are utilized by more than one segment to provide services and products to our
customers. The following description of our business by reportable segment includes a comprehensive discussion within
the Consumer segment section with references to that section if such common network and facility use exists in another
segment. Similarly, many of the same services and products are sold to our customers in different segments.
The following discussion includes information about significant services and products, sales and marketing, facilities,
customers, competition and seasonality for each of our five reportable segments. For a discussion and analysis of
financial condition and results of operations please see “Part II – Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
13
Consumer Segment
We offer a full range of communications services and products to our consumer customers. Consumer segment revenues
for 2008, 2007 and 2006 are summarized as follows:
2008
Year Ended December 31,
2007
(in thousands)
2006
Total revenues 1
$ 255,632
223,502
178,951
1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
note 10 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information
regarding the financial performance of our Consumer segment.
Services and Products
Our Consumer segment offers a full range of voice, video, data and wireless services and products to residential
customers.
Voice Services and Products
Long-Distance
We are engaged in the transmission of interstate and intrastate-switched message telephone communications service
between the major communities in Alaska, and the remaining United States and foreign countries. Our message toll
services include intrastate, interstate and international direct dial, toll-free 800, 888, 877 and 866 services, and our calling
card, operator and enhanced conference calling.
We have positioned ourselves as a price, quality, and customer service leader in the Alaska communications market. The
value of our long-distance services is generally designed to be equal to or greater than that for comparable services
provided by our competitors.
Local Access
We offer Local Access services in many communities and areas in Alaska, including the state’s five largest population
centers, Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and Juneau. Our own DLPS facilities
and collocated remote facilities that access the ILEC’s UNE loops allow us to offer full featured local service products to
consumer customers. In areas where we do not have our own DLPS facilities or access to ILEC loop facilities, we offer
service using total service resale of the ILEC’s local service or UNE platform.
Our package offerings are competitively priced and include popular features, including caller ID, voice messaging, call
forwarding, and call waiting.
Video Services and Products
Our cable television systems serve 40 communities and areas in Alaska, including the state’s five largest population
centers, Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and Juneau.
We offer a full range of video services over our broadband cable systems. We tailor our channel offerings for each system
serving a particular geographic area according to applicable local and federal regulatory requirements, programming
preferences, demographics and the capabilities of our cable facilities in each system. Our video service offerings include
the following:
Basic cable. Our basic cable service consists of digital Basic Service with access to between 12 and 19 channels of
programming and an expanded digital Basic Service with access to between 36 and 59 additional channels of
programming. These services generally consist of programming provided by national and local broadcast networks,
national and regional cable networks, and governmental and public access programming. We transmit an entirely digital
signal for all cable television channels in all markets we serve as of December 31, 2008.
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Digital cable. Our digital cable service uses a digital set-top box to deliver up to 52 channels of video programming, 47
music channels and an interactive program guide.
High-Definition Television. Our HDTV service provides our digital subscribers with improved, high-resolution picture
quality, improved audio quality and a wide-screen, theater-like display. Our HDTV service offers a broad selection of high-
definition programming with access of up to 54 high-definition channels including most major broadcast networks, leading
national cable networks, premium channels and national sports networks.
Digital Video Recorder. Our advanced DVR service lets digital cable subscribers select, record and store programs and
play them at whatever time is convenient. DVR service also provides the ability to pause and rewind “live” television.
Premium channel programming. Our premium channel programming service, which includes cable networks such as
Home Box Office, Showtime, Starz and Cinemax, generally offers, without commercial interruption, feature motion
pictures, live and taped sporting events, concerts and other special features.
Video on Demand. Our Video on Demand service permits our cable subscribers to order at their convenience, individual
feature motion pictures and special event programs, on an unedited, commercial-free basis.
Pay-per-view programming. Our pay-per-view service permits our cable subscribers to order, for a separate fee, individual
feature motion pictures and special event programs, such as professional boxing, professional wrestling and concerts, on
an unedited, commercial-free basis.
Data Services and Products
Internet
We primarily offer four types of Internet access for consumer use: high-speed cable modem, dial-up, mobile wireless and
fixed wireless. Value-added Internet features, such as email virus prevention, personal web site and domain hosting, and
additional email accounts, are available for additional charges. Our consumer high-speed cable modem Internet service
offers up to 10 Mbps download and 2 Mbps upload speeds as compared with up to 56 Kbps upload and download speeds
through standard copper wire dial-up modem access. Our fixed wireless Internet product is available in 126 communities.
Three distinct products are offered; 56 Kbps, 256 Kbps, and 256 Kbps for multiple computers. We provide 24-hour
customer service and technical support via telephone or online.
An entry-level cable modem service also offers free data transfer up to one gigabyte per month at a rate of 64 Kbps and
can be connected 24-hours-a-day, 365-days-a-year, allowing for real-time information and e-mail access. This product
acts as a dialup replacement and upgrade since it is always connected and provides more efficient data transfer. Cable
modems use our coaxial cable plant that provides cable television service instead of the traditional ILEC copper wire.
Coaxial cable has a much greater carrying capacity than telephone copper wire and can be used to simultaneously deliver
both cable television (analog or digital) and Internet access services.
Wireless Services and Products
We offer mobile wireless services by selling services over our own facilities and reselling AT&T Mobility's services under
the GCI brand name and by selling services over our own facilities under the Alaska DigiTel and Alaska Wireless brand
names. We offer fixed wireless local access services over our own facilities and have purchased PCS and LMDS wireless
broadband licenses in FCC auctions covering markets in Alaska. We offer mobile wireless service to our customers in 76
Alaska communities, including the state’s five largest population centers, Anchorage, Fairbanks, the Matanuska-Susitna
Valley, the Kenai Peninsula, and Juneau, Alaska.
In December 2007 we signed an agreement with AT&T Mobility that provides for an orderly transition of our wireless
customers from the AT&T Mobility network in Alaska to our wireless facilities. The agreement requires our customers to
be on our wireless network by June 30, 2009, but allows our customers to use the AT&T Mobility network for roaming
during the transition period. The four-year transition period, which expires June 30, 2012, provides us adequate time to
replace the AT&T Mobility network in Alaska with our own wireless facilities. We started transitioning our customers to our
wireless facilities in November 2008.
We offer our customers a variety of rate plans so they can choose the plan that best fits their expected calling needs. We
focus our offers to take advantage of the GSM network using the GCI and Alaska Wireless brand names or the CDMA
network using the Alaska DigiTel brand name. Consumer voice service is generally offered on a contract basis for one or
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two year periods. Under the terms of these contracts, service is billed and provided on a monthly basis according to the
applicable rate plan chosen. Our offerings include regional and national rate plans at a variety of pricing tiers. Our rate
plans generally combine a fixed monthly access charge, a designated number of minutes-of-use, per minute usage
charges for minutes in excess of the included amount and additional charges for certain custom-calling features. Most of
our plans include basic features such as voice messaging, caller ID, call forwarding and call waiting, and two-way text
messaging.
We sell a variety of handsets and personal computer wireless data cards manufactured by various suppliers for use with
our wireless services. We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers
and other items. We provide contract subscribers substantial equipment subsidies to initiate or upgrade service.
Bundled Services and Products
We combine one or more of our individual service and product offerings into bundles that we sell to our Consumer
segment customers at attractive prices. Our most popular bundled offering includes long-distance, cable television, cable
modem Internet access and local access services. In addition to several other bundled offerings we also offer a bundle of
wireless services, cable television and cable modem Internet access.
Sales and Marketing
Our Consumer segment sales efforts are primarily directed toward increasing the number of subscribers we serve, selling
bundled services, and generating incremental revenues through product and feature up-sell opportunities. We sell our
Consumer segment services through telemarketing, direct mail advertising, door-to-door selling, up-selling by our
customer service and call center personnel, local media advertising, retail stores, and through our website.
Facilities
Voice Facilities
We operate a modern, competitive communications network employing digital transmission technology based upon fiber
optic facilities within and between Anchorage, Fairbanks, Prudhoe Bay, and Juneau, Alaska. Our facilities include two
self-constructed digital undersea fiber optic cable systems linking our Alaska terrestrial networks to the networks of other
carriers in the Lower 49 States. Alaska United East was placed into service in February 1999 and connects Whittier,
Valdez and Juneau, Alaska and Seattle, Washington. Alaska United West was placed into service in June 2004 and
connects Seward, Alaska to Warrenton, Oregon. The Seward cable landing station connects to our switching and
distribution center in Anchorage and the Warrenton cable landing station connects to our switching and distribution center
in Seattle via long-term leased capacity. The combination of our Alaska United East and Alaska United West systems
provides us with the ability to provide fully protected geographically diverse routing of service between Alaska and the
Lower 48 States.
In 2008 we completed construction of an undersea fiber optic cable system in Southeast Alaska that connects Ketchikan,
Wrangell, Petersburg, Angoon and Sitka to Alaska United West. In 2008, we also completed construction of a terrestrial
fiber optic cable system that connects Anchorage and Fairbanks, Alaska along the Parks Highway corridor.
We have IRU capacity in the Kodiak-Kenai Cable Company, LLC’s marine-based fiber optic cable system linking
Anchorage to Kenai, Homer, Kodiak, Narrow Cape on Kodiak Island, and Seward, Alaska.
These undersea fiber optic cable systems allow us to carry our military base traffic and our Anchorage, Delta Junction,
Eagle River, Fairbanks, Glenallen, Homer, Juneau, Kenai, Kodiak, Palmer, Prudhoe Bay, Seward, Soldotna, Valdez,
Wasilla, and Whittier, Alaska traffic to and from the Lower 48 States and between these instate locations over terrestrial
circuits, eliminating the one-half second round trip delay associated with satellite circuits.
Another carrier completed construction of fiber optic cable facilities connecting points in Alaska to the Lower 48 States in
1999. The additional fiber system provides direct competition to services we provide on our owned fiber optic facilities;
however, this fiber system also provides an alternative routing path for us for a limited amount of traffic in case of a major
fiber outage in our systems. A competitor is constructing an undersea fiber optic cable system between Homer, Alaska
and Florence, Oregon expected to be placed in service in early 2009.
We use satellite transponders to transmit voice and data traffic to remote areas of Alaska. We successfully transitioned
our traffic from Galaxy XR to Galaxy 18 in 2008. We further augmented capacity with leased capacity on the Horizons 1
satellite.
16
We continue to develop and deploy new technology to further increase the efficiency of bandwidth utilization for our
satellite network. With a sparse population spread over a large geographic area, neither terrestrial microwave nor fiber
optic transmission technology is considered to be economically feasible in rural Alaska in the foreseeable future. For more
information see “Part I — Item 1A — Risk Factors — If a failure occurs in our satellite communications systems, our ability
to immediately restore the entirety of our service may be limited.”
We operate digital microwave systems to link Anchorage with the Kenai Peninsula, our Prudhoe Bay Earth Station with
Deadhorse, Alaska, and to link Bethel with 40 rural communities. Digital microwave facilities are also used between our
Fairbanks earth station and our Fairbanks distribution center. Virtually all switched services are computer controlled,
digitally switched, and interconnected by a packet switched SS7 signaling network.
Other facilities include major earth stations at Adak, Barrow, Bethel, Cordova, Dillingham, Dutch Harbor, Eagle River,
Galena, Juneau, Ketchikan, King Salmon, Kodiak, Kotzebue, McGrath, Nome, Prudhoe Bay, Sitka, Unalakleet, and
Yakutat, all in Alaska, serving the communities in their vicinity, and at Issaquah, Washington, which provides
interconnection to Seattle and the Lower 48 States for traffic to and from major Alaska earth stations. The Eagle River
earth station is linked to the Anchorage distribution center by fiber optic facilities.
We use SONET as a service delivery method for our terrestrial metropolitan area networks as well as our long-haul
terrestrial and undersea fiber optic cable networks.
A fiber optic cable system from our Anchorage distribution center connects to the Matanuska Telephone Association
(“MTA”), Eagle River central office and to our major hub earth station in Eagle River. The Issaquah earth station is
connected with the Seattle distribution center by means of diversely-routed leased fiber optic cable transmission systems,
each having the capability to restore the other in the event of failure. The Juneau earth station and distribution centers are
collocated. We have digital microwave facilities serving the Kenai Peninsula communities. We maintain earth stations in
Fairbanks (linked by digital microwave to the Fairbanks distribution center), Juneau (collocated with the Juneau
distribution center), Anchorage (Benson earth station), and in Prudhoe Bay as fiber network restoration earth stations. Our
Benson earth station also uplinks our statewide video service; such service may be pre-empted if earth station capacity is
needed to restore our fiber network between Anchorage and Prudhoe Bay.
We use our DAMA facilities to serve 69 additional locations throughout Alaska. DAMA is a digital satellite earth station
technology that allows calls to be made between remote villages using only one satellite hop, thereby reducing satellite
delay and capacity requirements while improving quality. In addition, 54 (for a total of 123) C-band facilities provide
dedicated Internet access and private network services to rural public schools, hospitals, health clinics, and natural
resource development industries throughout Alaska. Our network of 83 Ku-band facilities provides dedicated Internet
access and private network services to rural public schools, hospitals, health clinics, and natural resource development
industries throughout Alaska, and in ten locations in the Lower 48 States.
Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic switches to route calls to and from local
exchange companies and, in Seattle, to obtain access to other carriers to distribute our southbound traffic to the
remaining 49 states and international destinations. Our extensive metropolitan area fiber network in Anchorage supports
cable television, Internet and telephony services. The Anchorage, Fairbanks, and Juneau facilities also include digital
access cross-connect systems, frame relay data switches, Internet platforms, and in Anchorage and Fairbanks,
collocation facilities for interconnecting and hosting equipment for other carriers. We also maintain an operator and
customer service center in Wasilla, Alaska. Our operator services traffic is processed by an integrated services platform
that also hosts answering services, directory assistance, and internal conferencing services.
We continue our DLPS deployment utilizing our coaxial cable facilities. This delivery method allows us to utilize our own
cable facilities to provide local access service to our customers and avoid paying local loop charges to the ILEC.
Video Facilities
Our statewide cable systems consist of 2,853 miles of installed cable plant having 450 to 625 MHz of channel capacity.
Our cable television businesses are located throughout Alaska and serve 40 communities and areas in Alaska, including
the state’s five largest population centers, Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and
Juneau. Our facilities include cable plant and head-end distribution equipment. Certain of our head-end distribution
centers are collocated with customer service, sales and administrative offices. Some of our locations on the fiber routes
are served from the head-end distribution equipment in Anchorage. All of our cable systems are completely digital.
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Data Facilities
We provide access to the Internet using a platform that includes many of the latest advancements in technology. The
physical platform is concentrated in Anchorage and is extended into many remote areas of the state. Our Internet platform
includes the following:
• Our Anchorage facilities are connected to multiple Internet access points in Seattle through multiple, diversely
routed networks;
• We use multiple routers on each end of the circuits to control the flow of data and to provide resiliency; and
• Our Anchorage facility consists of routers, a bank of servers that perform support and application functions,
database servers providing authentication and user demographic data, layer 2 gigabit switch networks for
intercommunications and broadband services (cable modem, wireless and DSL), and access servers for dial-
up users.
Our dedicated Internet access and IP data services are delivered to a router located at the service point. Our Internet
management platform constantly monitors this router and continual communications are maintained with all of the core
and distribution routers in the network. The availability and quality of service, as well as statistical information on traffic
loading, are continuously monitored for quality assurance. The management platform has the capability to remotely
access routers, servers and layer two switches, permitting changes in configuration without the need to be physically
located at the service point.
Bandwidth is made available for our Internet services through our Alaska United East, Alaska United West and Alaska
United Southeast undersea fiber cable systems, our Alaska United North terrestrial fiber cable system and our Galaxy 18
transponders.
Our GCI.net product offers a unique combination of innovative network design and aggressive performance management.
Our Internet platform has received a certification that places it in the top one percent of all service providers worldwide
and is the only ISP in Alaska with such a designation. We operate and maintain what we believe is the largest, most
reliable, and highest performance Internet network in Alaska.
Wireless Facilities
We had a distribution agreement with Dobson allowing us to resell Dobson wireless services. In November 2007 AT&T
Mobility acquired Dobson, including its Alaska properties, and in December 2007 we signed an agreement with AT&T
Mobility that provides for an orderly transition of our wireless customers from the Dobson/AT&T network in Alaska to our
wireless facilities that we began building in 2008 and are expected to be substantially completed in 2010 or 2011. The
agreement requires our customers to be on our wireless network by June 30, 2009, but allows our customers to use the
AT&T Mobility network for roaming during the transition period. The four-year transition period, which expires June 30,
2012, provides us adequate time to replace the Dobson/AT&T network in Alaska with our own wireless facilities.
Commencing in 2008 we started expanding Alaska DigiTel’s CDMA network to improve coverage and add the EVDO Rev
A data platform and we started constructing a GSM network throughout the terrestrially served portions of Alaska
including the cities of Anchorage, Fairbanks, and Juneau. We extend our network coverage in Alaska, the Lower 49
States and Canada through roaming arrangements with other GSM carriers.
We provide limited wireless local access and Internet services using our own facilities utilizing our 30-MHz PCS license
and unlicensed 2.4 GHz spectrum. We provide the service through 802.11 (a set of wireless standards) and wireless
DOCSIS (a data over cable service interface specification).
Our subsidiary, Alaska DigiTel, holds the 30-MHz “A” Block PCS license in Major Trading Area 49, the state of Alaska.
The Alaska DigiTel network includes a Nortel wireless switch located in Anchorage and more than 100 cell sites that cover
more than 75% of the populated areas of Alaska, including Anchorage and Eagle River, the Matanuska-Susitna Valley,
Kenai Peninsula, Juneau and Fairbanks. Alaska DigiTel extends its network coverage in Alaska, the Lower 49 States and
Canada through roaming arrangements with other CDMA carriers.
Through our acquisition of Alaska Wireless, we hold a cellular A license (25MHz) for sites located in the Bethel AK-2 B2
portion of RSA 316, serving Aleutians West Census Area. Network coverage under Alaska Wireless is extended in
Alaska and the Lower 49 States through roaming arrangements with other GSM carriers.
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Customers
A discussion of Consumer segment customers by product type follows.
Voice Customers
Long-Distance
We had 88,600, 89,900, and 89,800 Consumer segment long-distance subscribers at December 31, 2008, 2007 and
2006, respectively. The decrease from 2007 to 2008 is primarily due to a decrease in the total number of long-distance
services subscribers in the markets we serve resulting from customers substituting wireless phone, prepaid calling card,
VoIP and email usage for direct dial minutes.
Equal Access conversions have been completed in all communities that we serve with owned facilities. Equal Access is in
progress in several small communities where we are expanding our owned facilities. We estimate that we carry greater
than 50% of combined consumer and commercial traffic as a statewide average for both originating interstate and
intrastate message telephone service.
Revenues derived from Consumer segment long-distance services in 2008, 2007 and 2006 totaled $19.8 million, $20.3
million and $20.6 million, respectively, or 3.5%, 3.9% and 4.3% of our total revenues, respectively.
A summary of our Consumer segment switched long-distance message telephone service traffic (in minutes) follows:
Consumer long-distance minutes: 1
Interstate
Intrastate
International
Total
2008
Year Ended December 31,
2007
(in millions)
105.0
25.0
5.8
135.8
100.0
22.9
5.7
128.6
2006
109.1
27.2
5.6
141.9
1 All minutes data were taken from our internal billing statistics reports.
Although we have several agreements to facilitate the origination and termination of international toll traffic, we have
neither foreign operations nor export sales. See “Part I — Item 1 — Business — Financial Information about our Foreign
and Domestic Operations and Export Sales” for more information.
Local Access
We had 80,700, 74,400 and 66,200 Consumer segment local access lines in service at December 31, 2008, 2007 and
2006, respectively. We ended 2008 with market share gains in substantially all market segments.
Revenues derived from Consumer segment local access services in 2008, 2007 and 2006 totaled $27.2 million, $25.9
million and $25.0 million, respectively, or 4.7%, 5.0% and 5.2% of our total revenues, respectively.
Video Customers
Our cable systems passed 229,300, 224,700 and 219,900 homes at December 31, 2008, 2007 and 2006, respectively,
and served 132,500, 128,000 and 124,000 basic Consumer segment subscribers at December 31, 2008, 2007 and 2006,
respectively. Revenues derived from Consumer segment video services totaled $105.2 million, $96.3 million and $90.2
million in 2008, 2007 and 2006, respectively, or 18.3%, 18.5% and 18.9% of our total revenues, respectively.
Data Customers
We had 94,400, 88,000 and 78,500 active Consumer segment cable modem Internet subscribers at December 31, 2008,
2007 and 2006, respectively. Revenues derived from Consumer segment Internet services totaled $42.7 million, $34.2
million and $29.4 million, in 2008, 2007 and 2006, respectively, or 7.4%, 6.6% and 6.2% of our total revenues,
respectively.
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Wireless Customers
We had 88,700, 70,000 and 24,400 total Consumer segment wireless lines in service at December 31, 2008, 2007 and
2006, respectively. The total wireless lines in service at December 31, 2008 include Alaska DigiTel and Alaska Wireless
lines in service. The total wireless lines in service at December 31, 2007 include Alaska DigiTel lines in service. Our
Consumer segment wireless services revenue totaled $60.7 million, $46.7 million and $13.7 million in the years ended
December 31, 2008, 2007 and 2006, respectively, or 10.5%, 9.0% and 2.9% of total revenues, respectively. The total
wireless revenue at December 31, 2008 includes Alaska DigiTel and Alaska Wireless revenue. The total wireless
revenue at December 31, 2007 includes Alaska DigiTel revenue.
Competition
A discussion of competition by product and service in our Consumer segment follows. See “Item 1A. — Risk Factors —
We face intense competition that may reduce our market share and harm our financial performance.”
Voice Services and Products Competition
Long-Distance
The long-distance industry is intensely competitive and subject to constant technological change. Competition is based
upon price and pricing plans, the type of services offered, customer service, billing services, performance, perceived
quality, reliability and availability. Current or future competitors could be substantially larger than we are, or have greater
financial, technical and marketing resources than we do.
In the intrastate, interstate and international long-distance market, we compete against AT&T Alascom, Inc. (“AT&T
Alascom”), Alaska Communications Systems Group, Inc. (“ACS”), MTA, long-distance resellers, and certain smaller rural
local telephone companies. AT&T Alascom, as a subsidiary of AT&T, Inc., has access to greater financial, technical and
marketing resources than we have. There is also the possibility that new competitors will enter the Alaska market. In
addition, wireless and VoIP services continue to grow as an alternative to wireline services as a means of reaching
customers. Wireless Local Number Portability allows consumers to retain the same phone number as they change service
providers allowing for interchangeable and portable fixed-line and wireless numbers. Some consumers now use wireless
service as their primary voice phone service for local and long-distance calling.
We have competed in the long-distance market by offering discounts from rates charged by our competitors and by
providing desirable bundles of services. Discounts have been eroded in recent years due to lowering of prices by AT&T
Alascom and entry of other competitors into the long-distance markets we serve. In addition, our competitors offer their
own bundles of services.
Our ability to compete successfully will depend on our ability to anticipate and respond to various competitive factors
affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic
trends, economic conditions and pricing strategies.
Under the terms of the acquisition of Alascom by AT&T Inc., which were retained in the subsequent acquisition of AT&T
by SBC Communications Inc., AT&T Alascom's rates and services must mirror those offered by AT&T Inc., so changes in
AT&T Inc. prices indirectly affect our rates and services. AT&T Inc.’s and AT&T Alascom’s interstate prices are regulated
under a price cap plan whereby their rate of return is not regulated or restricted. Price increases by AT&T Inc. and AT&T
Alascom generally improve our ability to raise prices while price decreases pressure us to follow. We believe we have, so
far, successfully adjusted our pricing and marketing strategies to respond to AT&T Inc. and other competitors’ pricing
practices. However, if competitors significantly lower their rates, we may be forced to reduce our rates, which could have
a material adverse effect on our financial position, results of operations or liquidity.
Local Access
Data obtained from the RCA indicates that there are 23 ILECs and 10 CLECs certified to operate in the State of Alaska at
December 31, 2008. We compete against ACS, the ILEC, and AT&T Alascom in Anchorage, Juneau and Fairbanks.
AT&T Alascom offers local exchange service only to consumer customers through total service resale. We compete
against MTA, the ILEC, in the Matanuska-Susitna Valley and ACS, the ILEC, in the Kenai-Soldotna area. We compete
against other smaller ILECs in certain smaller communities, including Cordova, Homer, Ketchikan, Kodiak, Nome,
Seward, Sitka, and Valdez. We plan to provide local telephone service in other locations in the future where we would
face other competitors. We also can expect further competition in the marketplaces we serve as other companies may
receive certifications in the future.
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In the local telephone services market, the 1996 Telecom Act, judicial decisions, state and federal legislative and
regulatory developments, and new technologies have increased the overall likelihood that barriers to local telephone
competition will be substantially reduced or removed. These initiatives include requirements that ILECs negotiate with
entities, including us, to provide interconnection to the existing local telephone network, to allow the purchase, at cost-
based rates, of access to UNEs, to establish dialing parity, to obtain access to rights-of-way and to resell services offered
by the ILEC. We have been able to obtain interconnection, access and related services from the ILECs, at rates that allow
us to offer competitive services. However, if we are unable to continue to obtain these services and access at acceptable
rates, our ability to offer local access services, and our revenues and net income, could be materially adversely affected.
To date, we have been successful in capturing a significant portion of the local telephone market in the locations where
we are offering these services. However, there can be no assurance that we will continue to be successful in attracting or
retaining these customers.
We believe that we have certain advantages over ILECs in providing communications services, including awareness by
Alaskan customers of the GCI brand name, our facilities-based communications network, and our prior experience in, and
knowledge of, the Alaskan market.
See “Regulation — Wireline Voice Services and Products” below for more information.
Video Services and Products Competition
Our cable television systems face competition from alternative methods of receiving and distributing television signals,
including DBS and digital video over telephone lines, broadband IP-based services, wireless and SMATV systems, and
from other sources of news, information and entertainment such as Internet services, off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive computer services, and home video products,
including video disks. Our cable television systems also face competition from potential overbuilds of our existing cable
systems by other cable television operators and municipally-owned cable systems, and alternative methods of receiving
and distributing television signals. The extent to which our cable television systems are competitive depends, in part, upon
our ability to provide quality programming and other services at competitive prices.
We believe that the greatest source of potential competition for video services could come from the DBS industry. Two
major companies, The DirecTV Group, Inc. and EchoStar Communications Corporation are currently offering nationwide
high-power DBS services. We also are subject to competition from providers of digital video over telephone lines in the
Matanuska-Susitna Valley and in Ketchikan. With the addition of Anchorage local broadcast stations, increased
marketing, ILEC and DBS alliances, and emerging technologies creating new opportunities, competition from these
sources has increased and will likely continue to increase.
DBS is more competitive with cable in the Alaska market than it once was because technological advances have
improved signal quality and reduced equipment costs and local programming is more widely available than it once was.
In the past, the majority of Alaska DBS subscribers were required to bear the cost of and install larger satellite dishes
(generally three to six feet in diameter) because of the weaker satellite signals available in northern latitudes, particularly
in communities surrounding, and north of, Fairbanks. In addition, the satellites had a relatively low altitude above the
horizon when viewed from Alaska, making their signals subject to interference from mountains, buildings and other
structures. Satellite placements have provided Alaska residents with a DBS package that requires a smaller satellite dish
(typically 18 inches); however, a second larger dish is required if the subscriber wants to receive a channel line-up similar
to that provided by our cable systems with high-definition programming. In addition to the dish and equipment cost
deterrents, DBS signals are subject to degradation from atmospheric conditions such as rain and snow. The changing
nature of technology and of the DBS business may result in greater satellite coverage within Alaska.
The ILECs in the Matanuska-Susitna Valley and Ketchikan offer digital video service over telephone lines in limited areas.
Their product offerings and price points are similar to our product offerings.
Competitive forces will be counteracted by offering expanded programming through digital services and by providing high-
speed data services. System upgrades have been completed to make our systems reverse activated, providing the
necessary infrastructure to offer cable modem service to greater than 99% of our homes passed. Digital delivery
technology is being utilized in all of our systems. We have retransmission agreements with Anchorage broadcasters some
of which expire in 2009 and provide for the uplink/downlink of their signals into all our systems, and local programming for
our customers.
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Other new technologies may become competitive with non-entertainment services that cable television systems can offer.
The FCC has authorized television broadcast stations to transmit textual and graphic information useful to both
consumers and businesses. The FCC also permits commercial and non-commercial FM stations to use their subcarrier
frequencies to provide non-broadcast services including data transmissions. The FCC established an over-the-air
interactive video and data service that will permit two-way interaction with commercial and educational programming
along with informational and data services. LECs and other common carriers also provide facilities for the transmission
and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data
and other non-video services. The FCC has conducted spectrum auctions for licenses to provide PCS, as well as other
services. PCS and other services will enable license holders, including cable operators, to provide voice and data
services. We own a statewide license to provide PCS in Alaska.
Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. The 1992 Cable Act
gives local franchising authorities jurisdiction over basic cable service rates and equipment in the absence of “effective
competition,” prohibits franchising authorities from unreasonably denying requests for additional franchises and permits
franchising authorities to operate cable systems. Well-financed businesses from outside the cable industry (such as the
public utilities that own certain of the poles on which cable is attached) may become competitors for franchises or
providers of competing services.
We expect to continue to provide, at reasonable prices and in competitive bundles, a greater variety of communication
services than are available off-air or through other alternative delivery sources. Additionally, we believe we offer superior
technical performance and responsive community-based customer service. Increased competition, however, may
adversely affect our market share and results of operations from our cable services product offerings.
Data Services and Products Competition
The Internet industry is highly competitive, rapidly evolving and subject to constant technological change. Competition is
based upon price and pricing plans, service bundles, the types of services offered, the technologies used, customer
service, billing services, perceived quality, reliability and availability. As of December 31, 2008, we competed with more
than eight Alaska based Internet providers, and competed with other domestic, non-Alaska based providers that provide
national service coverage. Several of the providers headquartered outside of Alaska have substantially greater financial,
technical and marketing resources than we do.
With respect to our high-speed cable modem service, ACS and other Alaska telephone service providers are providing
competitive high-speed DSL services over their telephone lines in direct competition with our high-speed cable modem
service. Competitive local fixed wireless providers are providing service in certain of our markets as is a national WiMax-
based provider in Anchorage with plans for Juneau and Fairbanks. WiMax is a standards-based wireless technology that
provides high-throughput broadband connections over long distances. WiMax can be used for a number of applications,
including last mile broadband connections, hotspots and cellular backhaul, and high-speed enterprise connectivity for
business. DBS providers and others provide wireless high speed Internet service in competition with our high-speed cable
modem services.
Niche providers in the industry, both local and national, compete with certain of our Internet service products, such as web
hosting, list services and email.
Wireless Services and Products Competition
We compete against AT&T Mobility, ACS, MTA, and resellers of those services in Anchorage and other markets. We
competed against Dobson until its acquisition by AT&T Mobility in November 2007. The GCI and Alaska DigiTel brands
compete against each other.
We also compete, to a lesser extent, with mobile satellite service providers, as well as from resellers of these services.
The FCC has granted mobile satellite service providers the flexibility to deploy an ancillary terrestrial component to their
satellite services. This added flexibility may enhance their ability to offer more competitive mobile services.
Regulatory policies favor robust competition in wireless markets. Wireless Local Number Portability, which was
implemented by the FCC late in 2003, has also increased the level of competition in the industry. Number portability
allows subscribers to switch carriers without having to change their telephone numbers.
The communications industry continues to experience significant technological changes, as evidenced by the increasing
pace of improvements in the capacity and quality of digital technology, shorter cycles for new products and enhancements
22
and changes in consumer preferences and expectations. Accordingly, we expect competition in the wireless
communications industry to continue to be dynamic and intense as a result of the development of new technologies,
services and products.
We compete for customers based principally upon price, bundled services, the services and enhancements offered,
network quality, customer service, network coverage and capacity, and the availability of differentiated features and
services. Our ability to compete successfully will depend, in part, on our marketing efforts and our ability to anticipate and
respond to various competitive factors affecting the industry.
Seasonality
Our Consumer segment voice, video, and data services do not exhibit significant seasonality. Our ability to implement
construction projects is hampered during the winter months because of cold temperatures, snow and short daylight hours.
Network Access Segment
We offer wholesale voice and data services and products to other common carrier customers. Network Access segment
revenues for 2008, 2007 and 2006 are summarized as follows:
2008
Year Ended December 31,
2007
(in thousands)
2006
Total revenues 1
$ 153,821
163,377
166,471
1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
note 10 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information
regarding the financial performance of our Network Access segment.
Services and Products
Our Network Access segment offers wholesale voice and data services and products to other common carrier customers.
We provide network transport, billing services and access to our network to other common carriers. These services allow
other common carriers to provide services to their customers that originate or terminate on our network, or on the
networks of other communication companies to which we connect.
We are engaged in the transmission of interstate and intrastate-switched message telephone service, Internet service,
and data network communications service between the major communities in Alaska, and the remaining United States
and foreign countries. Our message toll services include intrastate and interstate direct dial, toll-free 800, 888, 877 and
866 services, our calling card, directory assistance, operator and enhanced conference calling, frame relay, Multi-Protocol
Label Switching (“MPLS”), IP, SDN, and ISDN technology based services. MPLS is a data-carrying mechanism which
emulates certain properties of a circuit-switched network over a packet-switched network. We terminate northbound
message telephone service traffic for Verizon and several large resellers who do not have facilities of their own in Alaska.
We also provide origination of southbound calling card and toll-free 800, 888, 877 and 866 toll services for Verizon and
other Interexchange carriers. Services are generally provided pursuant to contracts with terms of up to five years in
length. Toll, data network, and related services account for 26.7%, 31.4%, and 34.9% of our 2008, 2007 and 2006
revenues, respectively. Data network services utilize voice and data transmission circuits, dedicated to particular
subscribers, which link a device in one location to another in a different location.
We have positioned ourselves as a price, quality, and customer service leader in the Alaska communications market. The
value of our voice and data services is generally designed to be equal to or greater than that for comparable services
provided by our competitors.
Sales and Marketing
Our Network Access segment sales and marketing efforts are primarily directed toward increasing the number of other
common carriers we serve, the number of billable minutes of long-distance traffic we carry over our network and the
number of voice and data transmission circuits leased. We sell our voice and data services primarily through direct
contact marketing.
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Facilities
Our Network Access segment shares common facilities used for voice and data services by other segments. You should
refer to “Consumer Segment — Facilities” above for additional information.
Customers
A summary of our Network Access segment switched long-distance message telephone service traffic (in minutes)
follows:
Network Access long-distance minutes: 1
South-bound Interstate
North-bound Interstate
Intrastate
Other
Total
2008
545.9
502.6
24.9
20.6
1,094.0
Year Ended December 31,
2007
(in millions)
690.2
476.5
63.2
20.7
1,250.6
2006
662.0
574.6
60.9
19.1
1,316.6
1 All minutes data were taken from our internal billing statistics reports.
During the years ended December 31, 2008, 2007 and 2006, we had one major customer. Revenues attributed to our
major customer during the years ended December 31, 2008, 2007 and 2006, totaled $65.0 million, $71.5 million and
$93.4 million or 11.3%, 13.8% and 19.6% of total revenues, respectively. Our contract with our major customer has a term
through December 2009, with five, one year automatic extensions thereafter. We believe that our major customer will
continue to make use of our services during the extended term.
The loss of our major customer or a material adverse change in our relationship with them could have a material adverse
effect on our financial position, results of operations or liquidity. There are no other individual Network Access segment
customers, the loss of which would have a material impact on our revenues or operating income.
Voice Customers
Long-Distance
Revenues derived from Network Access segment long-distance services totaled $74.8 million, $91.8 million and $105.1
million, respectively, or 13.0%, 17.6% and 22.0% of our total revenues in 2008, 2007 and 2006, respectively.
Local Access
Revenues derived from Network Access segment local access services totaled $4.9 million, $5.1 million and $5.7 million,
respectively, or 0.9%, 1.0% and 1.2% of our total revenues in 2008, 2007 and 2006, respectively.
Data Customers
Revenues derived from Network Access segment data services, including Internet and data network services, totaled
$71.4 million, $61.2 million and $55.6 million, or 12.4%, 11.8% and 11.7% of our total revenues in 2008, 2007 and 2006,
respectively.
Wireless Customers
Revenues derived from Network Access segment wireless services totaled $2.7 million and $5.3 million or 0.5% and 1.0%
of our total revenues in 2008 and 2007, respectively. Alaska DigiTel provides roaming services to other CDMA wireless
carriers in Alaska.
Competition
Our Network Access segment competes against AT&T Alascom, ACS, MTA, and certain smaller rural local telephone
carrier affiliates. There is also the possibility that new competitors will enter the Alaska market. You should refer to
“Consumer Segment — Competition” above for additional information.
Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to our carrier
customers by their customers. Pricing pressures, new program offerings, revised business plans, and market
24
consolidation continue to evolve in the markets served by our carrier customers. If, as a result, their traffic is reduced, or if
their competitors’ costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, and we
may have to respond to competitive pressures, consistent with federal law. We are unable to predict the effect of such
changes on our business.
Historically, we have competed in the Network Access segment market by offering rates comparable to or less than our
competitors, by providing a comprehensive service model to meet the complete needs of our carrier customers, and by
providing responsive customer service.
See “Item 1A. — Risk Factors — We face intense competition that may reduce our market share and harm our financial
performance.”
Seasonality
Network Access segment long-distance services revenues derived from our other common carrier customers have
historically been highest in the summer months because of temporary population increases attributable to tourism and
increased seasonal economic activity such as construction, commercial fishing, and oil and gas activities. Our Network
Access segment data services do not exhibit significant seasonality.
Commercial Segment
We offer a full range of communications services and products to commercial and governmental customers. Commercial
segment revenues for 2008, 2007 and 2006 are summarized as follows:
2008
Year Ended December 31,
2007
(in thousands)
2006
Total revenues 1
$ 114,660
104,640
105,929
1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
note 10 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information
regarding the financial performance of our Commercial segment.
Services and Products
Our Commercial segment offers a full range of voice, video, data and wireless services and products to commercial and
governmental customers.
Voice Services and Products
Long-Distance
We are engaged in the transmission of interstate and intrastate-switched message telephone service between the major
communities in Alaska, and the remaining United States and foreign countries. Our message toll services include
intrastate, interstate and international direct dial, toll-free 800, 888, 877 and 866 services, our calling card, operator and
enhanced conference calling services. Small business subscribers generally may cancel long-distance service at any
time. Certain small business and most large commercial and governmental customers generally contract with us for
service over one to five year periods.
We have positioned ourselves as a price, quality, and customer service leader in the Alaska communications market. The
value of our long-distance services is generally designed to be equal to or greater than that for comparable services
provided by our competitors.
Local Access
We offer full featured local access service to our Commercial segment customers using our own fiber facilities and
collocated remote facilities that access the ILEC’s UNE loops. In areas where we do not have our own facilities or access
to ILEC loop facilities, we offer service using total service resale of the ILEC’s local service or UNE platform.
25
Our package offerings are competitively priced and include popular features, including caller ID, voice messaging, call
forwarding, and call waiting.
Directories Services
We sell advertising in our yellow pages directories to commercial customers, distribute white and yellow pages directories
to customers in certain markets we serve, and offer an on-line directory. We offer three yellow pages directories with
each directory covering multiple locations and including custom features for each area. Our directories cover the following
communities:
• Anchorage, Elmendorf Air Force Base, Fort Richardson, Bird, Girdwood, Hope, Indian, Portage, Rainbow,
Sunrise, Eagle River, Chugiak, Big Lake, Houston, Palmer, Wasilla, Willow, Talkeetna, Anderson, Clear,
Cantwell, Healy, Denali National Park, Tyonek, Beluga, Kenai, North Kenai, Soldotna, Kasilof, Clam Gulch,
Sterling, Cooper Landing, Homer, Anchor Point, Halibut Cove, Nanwalek, Ninilchik, Port Graham, Seldovia;
• Fairbanks, North Pole, Eielson Air Force Base, Fort Wainwright, Delta Junction, Fort Greeley, Nenana; and
• Juneau, Auke Bay, Douglas, Lemon Creek, Mendenhall Valley
Video Services and Products
Commercial segment subscribers such as hospitals, hotels and motels are charged negotiated monthly service fees.
Programming services offered to our cable television systems subscribers differ by system as described in the Consumer
segment Video Services and Products section above. You should refer to “Consumer Segment — Services and Products”
above for additional information.
Data Services and Products
Internet
We currently offer several Internet service packages for commercial use: dial-up access, DSL, passive optical networking,
fixed wireless, T-1 and fractional T-1 leased line, metro Ethernet, multi-megabit and high-speed cable modem Internet
access. Our business high-speed cable modem Internet service offers access speeds ranging from 512 Kbps to 2.4
Mbps, free monthly data transfers of up to 30 gigabytes and free 24-hour customer service and technical support. Our
DSL offering can support speeds of up to 1.5 Mbps over the same copper line used for phone service. Business services
also include a personalized web page, domain name services, and e-mail.
We also provide dedicated access Internet service to commercial and public organizations in Alaska. We offer a premium
service and currently support many of the largest organizations in the state such as BP Exploration (Alaska) Inc. and the
State of Alaska. We have hundreds of other enterprise customers, both large and small, using this service. Additional
cable modem service packages tailored to high-use commercial Internet users are also available.
Data Networks
Data network services utilize voice and data transmission circuits, dedicated to particular subscribers, which link a device
in one location to another in a different location. Private IP, data lines, metro Ethernet and frame relay offer a secure
solution for frequent communication of large amounts of data between sites.
Managed Services
We design, sell, install, service and operate, on behalf of certain customers, communications and computer networking
equipment and provide field/depot, third party, technical support, communications consulting and outsourcing services.
We supply integrated voice and data communications systems incorporating private IP, interstate and intrastate digital
data networks, point-to-point and multipoint Private Network and small earth station services.
Wireless Services and Products
Wireless services and products offered to our Commercial segment customers are the same as those described in the
Consumer Wireless Services and Products section above. You should refer to “Consumer Segment — Services and
Products” above for additional information.
Bundled Services and Products
We combine one or more of our individual service or product offerings into bundles that we sell to our Commercial
segment customers at attractive prices as described further in the Consumer segment Services and Products section
above. You should refer to “Consumer Segment — Services and Products” above for additional information.
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Sales and Marketing
Our Commercial segment sales and marketing efforts focus on increasing the number of subscribers we serve, selling
bundled services, and generating incremental revenues through product and feature up-sell opportunities. We sell our
Commercial segment services and products primarily through direct contact marketing. We also use direct mail
advertising, door-to-door selling, up-selling by our customer service and call center personnel, local media advertising,
retail stores, and our website.
Facilities
Our Commercial segment uses many facilities to provide services and products that are common to the Consumer
segment. You should refer to “Consumer Segment — Facilities” above for additional information.
We provide our own facilities-based local access services to many of Anchorage’s larger business customers through
expansion and deployment of SONET, Ethernet, and Gigabit Passive Optical Network fiber transmission facilities, DLC
facilities, and leased T-1 facilities.
Our dedicated Internet access and IP data services are delivered to an Ethernet port located at the service point. Our
management platform constantly monitors this port and continual communications are maintained with all of the core and
distribution routers in the network. The availability and quality of service, as well as statistical information on traffic
loading, are continuously monitored for quality assurance. The management platform has the capability to remotely
access routers, servers and layer two switches, permitting changes in configuration without the need to physically be at
the service point. This management platform allows us to offer outsourced network monitoring and management services
to businesses and governmental entities. Many of the largest commercial networks in Alaska use this service, including
the state government.
Customers
A discussion of Commercial segment customers by product type follows.
Voice Customers
Long-Distance
We had 9,700, 10,500 and 11,100 active Commercial segment long-distance subscribers at December 31, 2008, 2007
and 2006, respectively. The 2008 and 2007 decrease is primarily due to a decrease in the total number of long-distance
services subscribers in the markets we serve resulting from customers substituting wireless phone, prepaid calling card,
VoIP and email usage for direct dial minutes.
Commercial segment long-distance services revenues totaled $10.5 million, $12.8 million and $12.9 million, or 1.8%,
2.5% and 2.7% of our total revenues in 2008, 2007 and 2006, respectively.
Equal Access conversions have been completed in all communities that we serve with owned facilities. Equal Access is in
progress in several small communities where we are expanding our owned facilities. We estimate that we carry greater
than 50% of combined commercial and consumer traffic as a statewide average for both originating interstate and
intrastate message telephone service.
A summary of our Commercial segment switched long-distance message telephone service traffic (in minutes) follows:
Commercial long-distance minutes: 1
Intrastate
Interstate
International
Total
2008
78.2
49.5
1.8
129.5
Year Ended December 31,
2007
(in millions)
2006
79.4
49.7
2.2
131.3
79.7
49.8
2.3
131.8
1 All minutes data were taken from our internal billing statistics reports.
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Although we have several agreements to facilitate the origination and termination of international toll traffic, we have
neither foreign operations nor export sales. See “Part I — Item 1 — Business — Financial Information about our Foreign
and Domestic Operations and Export Sales” for more information.
Local Access
We had 46,200, 43,100 and 41,900 Commercial segment local access lines in service at December 31, 2008, 2007 and
2006, respectively.
Commercial segment local access services revenues totaled $18.0 million, $17.1 million and $16.6 million, or 3.1%, 3.3%
and 3.5% of our total revenues in 2008, 2007 and 2006, respectively.
Video Customers
We served 15,200, 15,300 and 15,200 basic Commercial segment video subscribers at December 31, 2008, 2007 and
2006, respectively. Commercial segment video services revenues totaled $9.6 million, $8.0 million and $8.0 million, or
1.7%, 1.5% and 1.7% of our total revenues in 2008, 2007 and 2006, respectively.
Data Customers
Internet
We had 8,900, 8,500 and 7,800 active Commercial segment cable modem subscribers at December 31, 2008, 2007 and
2006, respectively. Commercial segment Internet services revenues totaled $17.2 million, $14.4 million and $16.3 million,
or 3.0%, 2.8% and 3.4% of our total revenues in 2008, 2007 and 2006, respectively.
Data Networks
We had 234, 230 and 237 total active Commercial segment data networks subscribers at December 31, 2008, 2007 and
2006, respectively. Commercial segment data networks services revenues totaled $16.6 million, $16.8 million and $16.9
million, or 2.9%, 3.2% and 3.5% of our total revenues in 2008, 2007 and 2006, respectively.
Managed Services
Our Managed Services revenues totaled $36.3 million, $29.8 million and $30.0 million, or 6.3%, 5.7% and 6.3% of total
revenues in 2008, 2007 and 2006, respectively.
Wireless Customers
We had 7,600, 7,300 and 4,600 total Commercial segment wireless lines in service at December 31, 2008, 2007 and
2006, respectively. The total wireless lines in service at December 31, 2008 and 2007 include Alaska DigiTel lines in
service. Our Commercial segment wireless services revenue totaled $5.6 million, $4.8 million and $2.5 million,
respectively, or 1.0%, 0.9% and 0.5% of total revenues in 2008, 2007 and 2006, respectively. Total wireless revenue at
December 31, 2008 and 2007 includes Alaska DigiTel revenue.
Competition
Many of our Commercial segment voice, video, data and wireless services and products are also common to the
Consumer segment. You should refer to “Consumer Segment — Competition” above for additional information.
We expect further competition in commercial customer telephone access, Internet access, DSL and data markets.
Competition is based upon price and pricing plans, the type of services offered, customer service, billing services,
performance, perceived quality, reliability and availability.
Presently, there are a number of competing companies in Alaska that actively sell and maintain data and voice
communications systems. Our ability to integrate communications networks and data communications equipment has
allowed us to maintain our market position based on “value added” support services rather than price competition. These
services are blended with other transport products into unique customer solutions, including managed services and
outsourcing.
We compete with two other major yellow page directories and several local community directories. We compete based on
reduced advertising and listing prices, broad circulation, and directory quality and features.
See “Item 1A. — Risk Factors — We face intense competition that may reduce our market share and harm our financial
performance.”
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Seasonality
Our Commercial segment voice, video, and data services do not exhibit significant seasonality. Our ability to implement
construction projects is hampered during the winter months because of cold temperatures, snow and short daylight hours.
Managed Broadband Segment
We offer Internet access and related services for rural schools and health organizations using a platform including many
of the latest advancements in technology. Managed Broadband segment revenues for 2008, 2007 and 2006 are
summarized as follows:
2008
Year Ended December 31,
2007
(in thousands)
2006
Total revenues 1
$ 37,047
28,792
26,131
1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
note 10 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information
regarding the financial performance of our Managed Broadband segment.
Services and Products
Our Managed Broadband segment offers Internet access and related services to rural schools and health organizations.
SchoolAccess® is a suite of services designed to advance the educational opportunities of students in underserved
regions of the country. Our SchoolAccess® division provides Internet and distance learning services designed exclusively
for the school environment. The Schools and Libraries Program of the USF makes discounts available to eligible rural
school districts for telecommunication services and monthly Internet service charges. The program is intended to ensure
that rural school districts have access to affordable services.
Our network, Internet and software application services provided through our Managed Broadband segment’s Medical
Services division are branded as ConnectMD®. Our ConnectMD® services are currently provided under contract to
medical businesses in Alaska, Washington and Montana. The Rural Health Care Program of the USF makes discounts
available to eligible rural health care providers for telecommunication services and monthly Internet service charges. The
program is intended to ensure that rural health care providers pay no more for telecommunications services in the
provision of health care services than their urban counterparts. Customers utilize ConnectMD® services to securely move
data, images, voice traffic, and real time multipoint interactive video.
We offer a managed video conferencing product for use in distance learning, telemedicine and group communication and
collaboration environments. The product is designed to offer customers enhanced communication services that support
video, audio and data presentation. Our product benefits customers by reducing travel costs, improving course equity in
education and increasing the quality of health services available to patients. The product bundles our data products, video
conferencing services and optional rental of video conferencing endpoint equipment. Our video conferencing services
include multipoint conferencing, integrated services digital network gateway and transcoding services, online scheduling
and conference control, and videoconference recording, archiving and streaming. We provide 24-hour technical support
via telephone or online.
Our videoconferencing network is the largest in Alaska, and network coverage includes parts of the state of Washington
and Montana. The network supports all H.323 IP videoconferencing standards including the newer H.264 standard, and
supports call data rates from 128 kilobits per second up to and including multi-megabit high definition calls. In 2008 and
2007, we terminated over 30,000 and 37,000, respectively, videoconferencing endpoint connections amounting to over
1.8 million and 2.8 million, respectively, videoconferencing minutes on our network.
Sales and Marketing
Our Managed Broadband segment sales and marketing efforts focus on increasing the number of subscribers we serve,
selling bundled services, and generating incremental revenues through product and feature up-sell opportunities. We sell
our Managed Broadband segment services and products primarily through direct contact marketing.
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Facilities
Our Managed Broadband segment services and products are delivered using a platform including many of the latest
advancements in technology through a locally available circuit, our existing lines, and/or satellite earth stations. Our
Internet services are partially provisioned over a satellite based digital video broadcast carrier that reduces the
requirement for new satellite transponder bandwidth to support growth in rural health, SchoolAccess® and other
broadband services.
We employ a packet data satellite transmission technology for the efficient transport of broadband data in support of our
rural health and SchoolAccess® initiatives. Our SchoolAccess® Internet service is delivered as follows:
•
•
•
In communities where we have terrestrial interconnects or provide existing service over regional earth stations,
we have configured intermediate distribution facilities. Schools that are within these service boundaries are
connected locally to one of those facilities;
In communities where we have extended communications services via our DAMA earth station program,
SchoolAccess® is provided via a satellite circuit to an intermediate distribution facility at the Eagle River Earth
Station; and
In communities or remote locations where we have not extended communications services, SchoolAccess® is
provided via a dedicated (usually on premise) VSAT satellite station. The VSAT connects to an intermediate
distribution facility located in Anchorage.
Effective June 1, 2008, we purchased the stock of Unicom which operates DeltaNet, a long-haul broadband microwave
network ringing the Yukon-Kuskokwim Delta – a region of approximately 50,000 square miles in western Alaska. DeltaNet
links more than 30 villages to Bethel, the region’s hub. We utilize DeltaNet to support growth in wireless and broadband
services including Rural Health and SchoolAccess®.
You should refer to “Consumer Segment — Facilities” above for additional information.
Customers
Our Managed Broadband segment revenue totaled $37.0 million, $28.8 million and $26.1 million, or 6.4%, 5.5% and 5.5%
of total revenues in 2008, 2007 and 2006, respectively. Our SchoolAccess® Internet service was delivered to 54
customers at December 31, 2008 representing over 130 schools in rural Alaska and 16 schools in Montana, New Mexico
and Arizona. Our SchoolAccess® Internet service was delivered to 51 customers at December 31, 2007 representing
over 162 schools in rural Alaska and 9 schools in Montana, New Mexico and Arizona. Our SchoolAccess® Internet
service was delivered to 48 customers at December 31, 2006 representing over 203 schools in rural Alaska and 9 schools
in Montana, New Mexico and Arizona. Our rural health service was delivered to 53 customers in Alaska, Washington and
Montana at December 31, 2008, 2007 and 2006.
Competition
There are several competing companies in Alaska that actively sell broadband services. Our ability to provide end-to-end
broadband services solutions has allowed us to maintain our market position based on “value added” services and
products rather than solely based on price competition. These services are blended with other transport and software
products into unique customer solutions, including SchoolAccess® and rural health applications such as video
conferencing and unique web content services.
See “Item 1A. — Risk Factors — We face intense competition that may reduce our market share and harm our financial
performance.”
Seasonality
Our Managed Broadband segment does not exhibit seasonality.
Regulated Operations Segment
We offer voice and data services and products to commercial and residential customers in 60 rural communities in the
Bethel, Alaska area. Regulated Operations segment revenues from the June 1, 2008 date of acquisition of UUI and
United-KUC through December 31, 2008 were $14.3 million.
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Services and Products
Our Regulated Operations segment offers wireline and wireless communications services to our residential and
commercial customers, including long-distance, voice and data services and products.
Sales and Marketing
Our Regulated Operations segment sales efforts are primarily directed toward increasing the number of subscribers we
serve. We sell our Regulated Operations segment services through local media advertising, retail stores, and through our
website.
Facilities
Our Regulated Operations segment services are delivered by switching, outside plant, terrestrial microwave, and satellite
facilities. Our outside plant is primarily aerial and buried copper and fiber optic cables.
Customers
We had 900 long-distance subscribers and 12,100 total local access lines in service as of December 31, 2008. We
carried 843,700 long-distance minutes between June 1, 2008 and December 31, 2008.
Competition
In the intrastate, interstate and international long-distance market, we compete against AT&T Alascom. AT&T Alascom,
as a subsidiary of AT&T, Inc., has access to greater financial, technical and marketing resources than we have. Our
Regulated Operations segment has no competition for its local access services.
Seasonality
Our Regulated Operations segment services do not exhibit significant seasonality.
Sales and Marketing – Company-wide
Our sales and marketing strategy hinges on our ability to leverage (i) our unique position as an integrated provider of
multiple communications, Internet and cable services, (ii) our well-recognized and respected brand names in the Alaskan
marketplace and (iii) our leading market positions in long-distance, wireless, Internet and cable television services. By
continuing to pursue a marketing strategy that takes advantage of these characteristics, we believe we can increase our
consumer and commercial customer market penetration and retention rates, increase our share of our customers’
aggregate voice, video and data services expenditures and achieve continued growth in revenues and operating cash
flow.
Environmental Regulations
We may undertake activities that, under certain circumstances may affect the environment. Accordingly, they are subject
to federal, state, and local regulations designed to preserve or protect the environment. The FCC, the Bureau of Land
Management, the United States Forest Service, and the National Park Service are required by the National Environmental
Policy Act of 1969 to consider the environmental impact before the commencement of facility construction.
We believe that compliance with such regulations has had no material effect on our consolidated operations. The principal
effect of our facilities on the environment would be in the form of construction of facilities and networks at various
locations in Alaska and between Alaska, Seattle, Washington, and Warrenton, Oregon. Our facilities have been
constructed in accordance with federal, state and local building codes and zoning regulations whenever and wherever
applicable. Some facilities may be on lands that may be subject to state and federal wetland regulation.
Uncertainty as to the applicability of environmental regulations is caused in major part by the federal government’s
decision to consider a change in the definition of wetlands. Most of our facilities are on leased property, and, with respect
to all of these facilities, we are unaware of any violations of lease terms or federal, state or local regulations pertaining to
preservation or protection of the environment.
Our Alaska United projects consist, in part, of deploying land-based and undersea fiber optic cable facilities between
Anchorage, Juneau, Seward, Valdez, and Whittier, Alaska, Seattle, Washington, and Warrenton, Oregon. The engineered
routes pass over wetlands and other environmentally sensitive areas. We believe our construction methods used for
buried cable have a minimal impact on the environment. The agencies, among others, that are involved in permitting and
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oversight of our cable deployment efforts are the United States Army Corps of Engineers, National Marine Fisheries
Service, United States Fish and Wildlife Service, United States Coast Guard, National Oceanic and Atmospheric
Administration, Alaska Department of Natural Resources, and the Alaska Office of the Governor-Governmental
Coordination. We are unaware of any violations of federal, state or local regulations or permits pertaining to preservation
or protection of the environment.
In the course of operating our cable television and communications systems, we have used various materials defined as
hazardous by applicable governmental regulations. These materials have been used for insect repellent, paint used to
mark the location of our facilities, and pole treatment, and as heating fuel, transformer oil, cable cleaner, batteries, diesel
fuel, and in various other ways in the operation of those systems. We do not believe that these materials, when used in
accordance with manufacturer instructions, pose an unreasonable hazard to those who use them or to the environment.
Patents, Trademarks and Licenses
We do not hold patents, franchises or concessions for communications services or local access services. We do hold
registered service marks for the letters GCI®, and for the terms SchoolAccess®, Alaska United Fiber Optic Cable System®,
GCI ConnectMD®, ConnectMD®, GCI Hypernet®, My GCI®, MyGCI®, Info Anchorage GCI Internet Hot Spot®, Info
Fairbanks GCI Internet Hot Spot®, and Info Juneau GCI Internet Hot Spot®. The Communications Act of 1934 gives the
FCC the authority to license and regulate the use of the electromagnetic spectrum for radio communications. We hold
licenses through our subsidiary GCI Communication Corp. for our satellite and microwave transmission facilities for
provision of long-distance services provided by our Consumer, Commercial and Network Access segments.
Our wholly-owned subsidiary, Alaska DigiTel, holds registered service marks for the terms Keep Talking Alaska® and
Digiminutes®.
We acquired a license for use of a 30-MHz block of spectrum for providing PCS services in Alaska. The PCS license was
renewed in 2005 for an additional 10-year term. Licenses may be revoked and license renewal applications may be
denied for cause.
We acquired a LMDS license in 1998 for use of a 150-MHz block of spectrum in the 28 GHz Ka-band for providing
wireless services. The LMDS license was renewed in 2008 for an additional 10-year term, following the grant of an
extension until June 1, 2012 of the requirement to provide “substantial service” in the service region. Our operations may
require additional licenses in the future.
Alaska DigiTel holds two licenses for use of a 30-MHz block of spectrum, which together authorize its provision of PCS
services in Alaska. Both licenses have an expiration date of June 23, 2015. Licenses may be revoked and license
renewal applications may be denied for cause. We expect the PCS license will be renewed in due course, when, at the
end of the license period, a renewal application will be filed.
Through our acquisition of Alaska Wireless, we hold a cellular A license (25MHz) for sites located in the Bethel AK-2 B2
portion of RSA 316, serving Aleutians West Census Area.
Unicom holds several cellular B licenses (25MHz) for sites located in the Wade Hampton AK-1 portion of CMA 315 and
the Bethel AK-2 portion of CMA 316, throughout the Yukon-Kuskokwim Delta.
Earth stations are licensed generally for fifteen years. The FCC also issues a single blanket license for a large number of
technically identical earth stations (e.g., VSATs).
Regulation
Our businesses are subject to substantial government regulation and oversight. The following summary of regulatory
issues does not purport to describe all existing and proposed federal, state, and local laws and regulations, or judicial and
regulatory proceedings that affect our businesses. Existing laws and regulations are reviewed frequently by legislative
bodies, regulatory agencies, and the courts and are subject to change. For example, critics continue to ask Congress to
modify, if not altogether rework, the 1996 Telecom Act. Any change in the Act that loosened regulatory oversight of ILECs’
control of bottleneck facilities could have an adverse impact on our businesses. We cannot predict at this time the
outcome of the debate over the 1996 Telecom Act or any other existing or proposed laws and regulations.
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Wireline Voice Services and Products
General. As an Interexchange carrier, we are subject to regulation by the FCC and RCA as a non-dominant provider of
interstate, international, and intrastate long-distance services. As a state-certificated CLEC, we are subject to regulation
by the RCA and the FCC as a non-dominant provider of local communications services. Military franchise requirements
also affect our ability to provide communications services to military bases.
Rural Exemption and Interconnection. A Rural Telephone Company is exempt from compliance with certain material
interconnection requirements under Section 251(c) of the 1996 Telecom Act, including the obligation to negotiate Section
251(b) and (c) interconnection requirements in good faith, unless and until a state regulatory commission lifts such “rural
exemption” or otherwise finds it not to apply. All ILECs in Alaska are Rural Telephone Companies except ACS in its
Anchorage study area. We have had to participate in numerous proceedings regarding the rural exemptions of various
ILECs, including ACS for its Fairbanks and Juneau operating companies, MTA and Ketchikan, in order to achieve the
necessary Interconnection Agreements with the remaining ILECs. In other cases the Interconnection Agreements were
reached by negotiation without regard to the implications of the ILEC’s rural exemption.
As of December 31, 2008, we have completed negotiation and/or arbitration of the necessary interconnection provisions
and the RCA has approved current wireline Interconnection Agreements between GCI and all of the ACS companies,
MTA, the City of Ketchikan d/b/a Ketchikan Public Utilities (“KPU”), Copper Valley Telephone Cooperative (“CVTC”),
TelAlaska Inc. d/b/a Mukluk Telephone Company, Inc. (“Mukluk”) and TelAlaska Inc. d/b/a Interior Telephone Company,
Inc. (“Interior”), Alaska Telephone Company (“ATC”), Cordova Telephone Cooperative (“CTC”), and Arctic Slope
Telephone Association Cooperative (“ASTAC”). We have entered the markets served by ACS, KPU, CVTC, Mukluk,
Interior and ASTAC with local access services. We intend to enter the markets served by ATC and CTC in 2009.
See “Description of Our Business by Reportable Segment — Consumer — Competition — Voice Services and Products
Competition” for more information.
Access Charges and Other Regulated Fees. The FCC regulates the fees that local telephone companies charge long-
distance companies for access to their local networks. The FCC is considering proposals to restructure and possibly
reduce interstate access charges. Changes to the interstate access charge regime or introduction of new technologies not
subject to access charges could fundamentally change the economics of some aspects of our business.
Carriers also pay fees for switched wholesale transport services in and out of Alaska. The rates for such services offered
by and to any provider are currently governed by a federal law that is effective through December 31, 2009. We cannot
predict at this time the effect of the expiration of the applicable federal law, but a decrease in the rates for services would
result in a reduction of revenues.
Access to Unbundled Network Elements. The ability to obtain unbundled network elements is an important element of our
local access services business. We cannot predict the extent to which existing FCC rules governing access to and pricing
for unbundled network elements will be sustained in the face of additional legal action and the impact of any further rules
that are yet to be determined by the FCC. Moreover, the future regulatory classification of services that are transmitted
over facilities may impact the extent to which we will be permitted access to such facilities. Changes to the applicable
regulations could result in a change in our cost of serving new and existing markets.
Recurring and non-recurring charges for UNE-loops and other unbundled network elements may increase based on the
rates adopted in RCA proceedings to establish new Interconnection Agreements or renew existing agreements. These
increases could have an adverse effect on our financial position, results of operations or liquidity.
On September 30, 2005, the ACS subsidiary serving Anchorage filed a petition with the FCC, seeking forbearance from
the requirement that it provide access to UNEs, and that to the extent it voluntarily did so, that the pricing provisions of the
Act would not apply. We filed our opposition on January 9, 2006 and our reply on February 23, 2006. On December 28,
2006, the FCC granted ACS the requested relief from the provision of unbundled loops and transport in five of its eleven
tariffed wire centers. The relief is conditioned on the requirement that ACS make loops and certain subloops available in
those wire centers where relief was granted, by no later than a one-year transition period, at the same rates, terms and
conditions as those negotiated between GCI and ACS for Fairbanks, until commercially negotiated rates were reached.
On March 15, 2007, GCI and ACS entered into an agreement (the "Settlement Agreement") to settle issues related to the
FCC’s December 28, 2006 decision and other matters. Under the Settlement Agreement, ACS and GCI entered into a
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Global Interconnection Agreement that covers all ACS study areas, including ACS’s Sitka-Bush and Glacier State study
areas. The Settlement Agreement also provides that ACS will continue to provide GCI with access to UNE loops in the
Anchorage, Fairbanks, and Juneau study areas at a rate of $23.00 per UNE loop per month. The per-loop price is subject
to an upward or downward adjustment depending on the aggregate number of UNE and wholesale lines GCI is
purchasing from ACS in all of ACS’s study areas. The initial term of the Settlement Agreement is five years.
On March 21, 2007, GCI and ACS filed motions to withdraw their appeals of the FCC decision, before United States Court
of Appeals for the District of Columbia Circuit and the United States Court of Appeals for the Ninth Circuit, respectively,
which motions have been granted. Additional appeals that were filed by others have been dismissed and on June 28,
2007, the RCA approved the Global Interconnection Agreement that incorporated the terms of the settlement.
On May 22, 2006, the ACS subsidiary serving Anchorage filed a petition with the FCC, seeking forbearance from
regulation of interstate broadband and access services. On August 20, 2007, the FCC granted in part and denied in part
the requested relief, requiring that ACS comply with certain safeguards to ensure the relief granted would not result in
harm to consumers or competition. On September 19, 2007, GCI and ACS both filed petitions for reconsideration on
discrete findings in the order. The petitions are pending and we cannot predict the final outcome of the proceeding at this
time. On October 22, 2008, ACS filed a petition to convert to price cap regulation the access services it provides in each
of its operating areas. We cannot predict at this time the outcome of the proceeding or the effect on our cost of
purchasing ACS access services.
Universal Service. The USF pays subsidies to ETCs to support the provision of facilities-based wireline telephone service
in high-cost areas. Under FCC regulations, we have qualified as a competitive ETC in the Anchorage, Fairbanks, Juneau,
Matanuska-Susitna Valley, Ketchikan, and Glacier State service areas. Without ETC status, we would not qualify for USF
subsidies in these areas or other rural areas where we propose to offer facilities-based wireline telephone services, and
our net cost of providing local telephone services in these areas would be materially adversely affected.
On May 1, 2008, the FCC issued an order adopting the recommendation of the Federal State Joint Board on Universal
Service (“Joint Board”) to impose a state-by-state interim cap on high cost funds to be distributed to competitive ETCs. As
part of the revised policy, the FCC adopted a limited exception from the cap for competitive ETCs serving tribal lands or
Alaska Native regions. While the operation of the cap will generally reduce the high cost fund amounts available to
competitive ETCs as new competitive ETCs are designated and as existing competitive ETCs acquire new customers,
providers like us who serve tribal lands or Alaska Native regions were provided some relief. On March 5, 2009, the FCC
issued an additional order waiving a previously adopted limitation to the exception, the result of which is to provide
uncapped support for all lines served by competitive ETCs for tribal lands or Alaska Native regions during the time the
interim cap is in effect. The uncapped support for tribal lands or Alaska Native regions and the cap for all other regions
will be in place until the FCC takes action on proposals for long term reform.
Local Regulation. We may be required to obtain local permits for street opening and construction permits to install and
expand our networks. Local zoning authorities often regulate our use of towers for microwave and other communications
sites. We also are subject to general regulations concerning building codes and local licensing. The 1996 Telecom Act
requires that fees charged to communications carriers be applied in a competitively neutral manner, but there can be no
assurance that ILECs and others with whom we will be competing will bear costs similar to those we will bear in this
regard.
Video Services and Products
General. Because cable communications systems use local streets and rights-of-way, they generally are operated
pursuant to franchises (which can take the form of certificates, permits or licenses) granted by a municipality or other state
or local government entity. The RCA is the franchising authority for all of Alaska. We believe that we have generally met
the terms of our franchises, which do not require periodic renewal, and have provided quality levels of service. On
December 20, 2006, the FCC adopted rules to ensure a reasonable franchising process for new video market entrants;
these rules have not had a material effect on our operations. Military franchise requirements also affect our ability to
provide video services to military bases.
The RCA is also certified under federal law to regulate rates for the Basic Service tier on our cable systems. Under state
law, however, cable television service is exempt from regulation unless subscribers petition the RCA. At present,
regulation of basic cable rates takes place only in Juneau. The RCA does not regulate rates for cable modem service.
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Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal carriage requirements that allow local
commercial television broadcast stations to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for “retransmission consent” to carry the station.
The FCC has adopted rules to require cable operators to carry the digital programming streams of broadcast television
stations. The FCC requirement that cable operators carry both the analog and digital programming streams of broadcast
television stations while broadcasters are transitioning from analog to digital transmission does not apply to all-digital
systems like ours. Further, the FCC has declined to require any cable operator to carry multiple digital programming
streams from a single broadcast television station, but should the FCC change this policy, we would be required to devote
additional cable capacity to carrying broadcast television programming streams, a step that could require the removal of
other programming services.
Cable System Delivery of Internet Service. The FCC has defined high-speed Internet over cable as an “information
service” not subject to local cable-franchise fees, as cable service may be, or any explicit requirements for “open access.”
The Supreme Court affirmed the FCC’s position in a decision issued in 2005.
Although there is at present no significant federal regulation of cable system delivery of Internet services, this situation
may change as cable systems expand their broadband delivery of Internet services. Proposals have been advanced at
the FCC and Congress to require cable operators to provide access to unaffiliated Internet service providers and online
service providers and to govern the terms under which content providers and applications are delivered by all broadband
network operators. If such requirements were imposed on cable operators, it could burden the capacity of cable systems
and frustrate our plans for providing expanded Internet access services. These access obligations could adversely affect
our financial position, results of operations or liquidity.
Segregated Security for Set-top Devices. The FCC mandated, effective July 1, 2007, that all new set-top video navigation
devices must segregate the security function from the navigation function. The new devices are more expensive than
existing equipment, and compliance would increase our cost of providing cable services. A waiver has been granted to
one small cable system conditioned upon, among other things, its commitment to fully digitize analog signals throughout
its cable network. The FCC has also indicated that enforcement of the separate security requirement may be deferred
with respect to small cable operators that meet certain criteria and are unable to receive compliant set-top devices in a
timely manner from manufacturers. Subject to a waiver granted by the FCC on May 4, 2007, we may continue providing
low-cost integrated set-top boxes to consumers to facilitate our transition to all-digital cable networks, which has been
completed.
Pole Attachments. The Communications Act requires the FCC to regulate the rates, terms and conditions imposed by
public utilities for cable systems’ use of utility pole and conduit space unless state authorities can demonstrate that they
adequately regulate pole attachment rates. In the absence of state regulation, the FCC administers pole attachment rates
on a formula basis. This formula governs the maximum rate certain utilities may charge for attachments to their poles and
conduit by companies providing communications services, including cable operators. The RCA has largely retained the
existing pole attachment formula that has been in state regulation since 1987. This formula could be subject to further
revisions upon petition to the RCA and the FCC has initiated a rulemaking to consider application of the federal formula.
We cannot predict at this time the outcome of any such proceedings.
Copyright. Cable television systems are subject to federal copyright licensing covering carriage of television and radio
broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal
copyright royalty pool that varies depending on the size of the system, the number of distant broadcast television signals
carried, and the location of the cable system, cable operators can obtain blanket permission to retransmit copyrighted
material included in broadcast signals. The possible modification or elimination of this compulsory copyright license is the
subject of continuing legislative review. We cannot predict the outcome of this legislative review, which could adversely
affect our ability to obtain desired broadcast programming. Copyright clearances for non-broadcast programming services
are arranged through private negotiations.
Internet-Based Services and Products
General. There is no one entity or organization that governs the Internet. Each facilities-based network provider that is
interconnected with the global Internet controls operational aspects of their own network. Certain functions, such as IP
addressing, domain name routing, and the definition of the TCP/IP protocol, are coordinated by an array of quasi-
governmental, intergovernmental, and non-governmental bodies. The legal authority of these bodies is not precisely
defined.
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The 1996 Telecom Act provides little direct guidance as to whether the FCC has authority to regulate Internet-based
services. Given the absence of clear statutory guidance, the FCC must determine on a case-by-case basis whether it has
the authority or the obligation to exercise regulatory jurisdiction over specific Internet-based activities.
Although the FCC does not regulate the prices charged by ISPs or Internet backbone providers, the vast majority of users
connect to the Internet over facilities of existing communications carriers. Those communications carriers are subject to
varying levels of regulation at both the federal and the state level. Thus, non-Internet-specific regulatory decisions
exercise a significant influence over the economics of the Internet market.
Many aspects of the coordination and regulation of Internet activities and the underlying networks over which those
activities are conducted are evolving. Internet-specific and non-Internet-specific changes in the regulatory environment,
including changes that affect communications costs or increase competition from ILECs or other communications services
providers, could adversely affect the prices at which we sell Internet-based services.
Wireless Services and Products
General. The FCC regulates the licensing, construction, interconnection, operation, acquisition, and transfer of wireless
network systems in the United States pursuant to the Communications Act. As a licensee of PCS, LMDS, and other
wireless services, we are subject to regulation by the FCC, and must comply with certain build-out and other license
conditions, as well as with the FCC’s specific regulations governing the PCS and LMDS services (described above). The
FCC does not currently regulate rates for services offered by commercial mobile radio service providers.
Commercial mobile radio service wireless systems are subject to Federal Aviation Administration and FCC regulations
governing the location, lighting and construction of antenna structures on which our antennas and associated equipment
are located and are also subject to regulation under federal environmental laws and the FCC’s environmental regulations,
including limits on radio frequency radiation from wireless handsets and antennas on towers.
Interconnection. As of December 31, 2008, we have completed negotiation and the RCA has approved current direct
wireless Interconnection Agreements between GCI and all of the ACS companies, Adak Eagle Enterprises, ASTAC, ATC,
Bettles Telephone Company, CTC, Interior, Mukluk, and North Country Telephone Cooperative. These are in addition to
indirect interconnection arrangements utilized elsewhere.
Assignments or Transfers of Control. The FCC (and in some instances, the Department of Justice) must grant prior
approval to any assignment or transfer of control of an FCC spectrum license. In 2008 the FCC approved the transfer of
control of the AKD licenses and the Unicom cellular licenses, as well as the assignment of the Alaska Wireless licenses.
Universal Service. The USF pays subsidies to ETCs to support the provision of facilities-based wireless telephone service
in high-cost areas. A wireless carrier may seek ETC status so that it can receive subsidies from the USF. Several wireless
carriers, including us, have successfully applied to the RCA for ETC status in Alaska. Under FCC regulations, GCI has
qualified as a competitive ETC in the Mukluk, Ft. Wainwright/Eielson, and Adak service areas. Alaska DigiTel has
qualified as a wireless ETC in the Anchorage, Fairbanks, Juneau, Matanuska-Susitna Valley, Ft. Wainwright/Eielson and
Glacier State service areas. Without ETC status, we would not qualify for USF subsidies in these areas or other rural
areas where we propose to offer facilities-based wireless telephone services, and our net cost of providing wireless
telephone services in these areas would be materially adversely affected.
On May 1, 2008, the FCC issued an order adopting the recommendation of the Joint Board to impose a state-by-state
interim cap on high cost funds to be distributed to competitive ETCs. As part of the revised policy, the FCC adopted a
limited exception from the cap for competitive ETCs serving tribal lands or Alaska Native regions. While the operation of
the cap will generally reduce the high cost fund amounts available to competitive ETCs as new competitive ETCs are
designated and as existing competitive ETCs acquire new customers, providers like us who serve tribal lands or Alaska
Native regions were provided some relief. On March 5, 2009, the FCC issued an additional order waiving a previously
adopted limitation to the exception, the result of which is to provide uncapped support for all lines served by competitive
ETCs for tribal lands or Alaska Native regions during the time the interim cap is in effect. The uncapped support for tribal
lands or Alaska Native regions and the cap for all other regions will be in place until the FCC takes action on proposals for
long term reform.
Emergency 911. The FCC has imposed rules requiring carriers to provide emergency 911 services, including enhanced
911 services that provide to local public safety dispatch agencies the caller’s communications number and approximate
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location. Providers are required to transmit the geographic coordinates of the customer’s location within accuracy
parameters set forth by the FCC, either by means of network-based or handset-based technologies. Providers may not
demand cost recovery as a condition of doing so, although they are permitted to negotiate cost recovery if it is not
mandated by the state or local governments.
State and Local Regulation. While the Communications Act generally preempts state and local governments from
regulating the entry of, or the rates charged by, wireless carriers, it also permits a state to petition the FCC to allow it to
impose commercial mobile radio service rate regulation when market conditions fail to adequately protect customers and
such service is a replacement for a substantial portion of the telephone wireline exchange service within a state. No state
currently has such a petition on file, and all prior efforts have been rejected. In addition, the Communications Act does not
expressly preempt the states from regulating the “terms and conditions” of wireless service.
Several states have invoked this “terms and conditions” authority to impose or propose various consumer protection
regulations on the wireless industry. State attorneys general have also become more active in enforcing state consumer
protection laws against sales practices and services of wireless carriers. States also may impose their own universal
service support requirements on wireless and other communications carriers, similar to the contribution requirements that
have been established by the FCC.
States have become more active in attempting to impose new taxes and fees on wireless carriers, such as gross receipts
taxes. Where successful, these taxes and fees are generally passed through to our customers and result in higher costs
to our customers.
At the local level, wireless facilities typically are subject to zoning and land use regulation. Neither local nor state
governments may categorically prohibit the construction of wireless facilities in any community or take actions, such as
indefinite moratoria, which have the effect of prohibiting construction. Nonetheless, securing state and local government
approvals for new tower sites has been and is likely to continue to be difficult, lengthy and costly.
Financial Information about our Foreign and Domestic Operations and Export Sales
Although we have several agreements to help originate and terminate international toll traffic, we do not have foreign
operations or export sales. We conduct our operations throughout the western contiguous United States and Alaska and
believe that any subdivision of our operations into distinct geographic areas would not be meaningful.
Customer-Sponsored Research
We have not expended material amounts during the last three fiscal years on customer-sponsored research activities.
Backlog of Orders and Inventory
As of December 31, 2008 and 2007, our Network Access segment had a backlog of data network orders of $11,000 and
$40,000, respectively, which represents recurring monthly charges for data network services. As of December 31, 2008
and 2007, our Commercial segment had a backlog of data network orders of $35,000 and $19,000, respectively, which
represents recurring monthly charges for data networks. We expect that all of the data network orders in backlog at the
end of 2008 will be delivered during 2009.
Geographic Concentration and Alaska Economy
We offer voice and data communications and video services to customers primarily in the State of Alaska. Because of this
geographic concentration, growth of our business and operations depends upon economic conditions in Alaska. The
economy of the State of Alaska is dependent upon natural resource industries, in particular oil production, as well as
investment earnings (including earnings from the State of Alaska Permanent Fund), tourism, government, and United
States military spending. Any deterioration in these markets could have an adverse impact on us. Oil revenues are the
second largest source of state revenues, following funds from investment sources. To the extent that our large common
carrier customers experience reduced demand for traffic destined for and originating in Alaska, it could adversely affect
our common carrier traffic and associated revenues. See “Part I — Item 1A — Risk Factors — Our business is currently
geographically concentrated in Alaska,” and “Part II — Item 7 — Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for more information about the effect of geographic concentration and the Alaska
economy on us.
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Employees
We employed 1,628 persons as of January 2, 2009, and we are not party to union contracts with our employees. We
believe our future success will depend upon our continued ability to attract and retain highly skilled and qualified
employees. We believe that relations with our employees are satisfactory.
Other
No material portion of our businesses is subject to renegotiation of profits or termination of contracts at the election of the
federal government.
Item 1A. Risk Factors.
Factors That May Affect Our Business and Future Results
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially
and adversely affect our business operations. Any of the following risks could materially and adversely affect our
business, financial position, results of operations or liquidity.
We depend on a small number of customers for a substantial portion of our revenue and business. The loss of
any of such customers would have a material adverse effect on our financial position, results of operations or
liquidity.
For the year ended December 31, 2008, we provided services to a major customer which generated revenues of 11.3% of
our total 2008 revenues. This customer is free to seek out long-distance communications services from our competitors
upon expiration of its contracts in December 2009 or earlier upon the occurrence of certain contractually stipulated events
including a default, the occurrence of a force majeure event, or a substantial change in applicable law or regulation under
the applicable contract. Additionally, the contracts provide for periodic reviews to assure that the prices paid by our major
customer for its services remain competitive.
Mergers and acquisitions in the communications industry are relatively common. If a change in control of our major
customer were to occur it would not permit it to terminate its existing contracts with us without a negotiated settlement, but
it could in the future result in the termination of or a material adverse change in our relationships with this customer.
In addition, our major customer’s need for our long-distance services depends directly upon its ability to obtain and retain
its own long-distance and wireless customers and upon the needs of those customers for long-distance services.
The loss of our major customer, a material adverse change in our relationships with it or a material loss of or reduction in
its long-distance customers would have a material adverse effect on our financial position, results of operations and
liquidity.
We face competition that may reduce our market share and harm our financial performance.
There is substantial competition in the communications industry. The traditional dividing lines between long-distance
telephone service, local access telephone service, wireless telephone service, Internet services and video services are
increasingly becoming blurred. Through mergers and various service integration strategies, major providers are striving to
provide integrated communications services offerings within and across geographic markets. We face increasing video
services competition from DBS providers.
We expect competition to increase as a result of the rapid development of new technologies, services and products. We
cannot predict which of many possible future technologies, products or services will be important to maintain our
competitive position or what expenditures will be required to develop and provide these technologies, products or
services. Our ability to compete successfully will depend on marketing and on our ability to anticipate and respond to
various competitive factors affecting the industry, including new services that may be introduced, changes in consumer
preferences, economic conditions and pricing strategies by competitors. To the extent we do not keep pace with
technological advances or fail to timely respond to changes in competitive factors in our industry and in our markets, we
could lose market share or experience a decline in our revenue and net income. Competitive conditions create a risk of
market share loss and the risk that customers shift to less profitable lower margin services. Competitive pressures also
create challenges for our ability to grow new businesses or introduce new services successfully and execute our business
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plan. Each of our business segments also faces the risk of potential price cuts by our competitors that could materially
adversely affect our market share and gross margins.
For more information about competition by segment, see the sections titled “Competition” included in “Item 1 — Business
— Narrative Description of our Business — Description of our Business by Reportable Segment.”
Our business is subject to extensive governmental legislation and regulation. Applicable legislation and
regulations and changes to them could adversely affect our business, financial position, results of operations or
liquidity.
Local Access Services. Our success in the local telephone market depends on our continued ability to obtain
interconnection, access and related services from local exchange carriers on terms that are reasonable and that are
based on the cost of providing these services. Our local telephone services business faces the risk of the impact of the
implementation of current regulations and legislation, unfavorable changes in regulation or legislation or the introduction of
new regulations. Our ability to enter into the local telephone market depends on our negotiation or arbitration with local
exchange carriers to allow interconnection to the carrier’s existing local telephone network, to establish dialing parity, to
obtain access to rights-of-way, to resell services offered by the local exchange carrier, and in some cases, to allow the
purchase, at cost-based rates, of access to unbundled network elements. In some Alaska markets, it also depends on our
ability to gain interconnection at economic costs. Future arbitration proceedings with respect to new or existing markets
could result in a change in our cost of serving these markets via the facilities of the ILEC or via wholesale offerings.
Video Services. The cable television industry is subject to extensive regulation at various levels, and many aspects of
such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. The law
permits certified local franchising authorities to order refunds of rates paid in the previous 12-month period determined to
be in excess of the reasonable rates. It is possible that rate reductions or refunds of previously collected fees may be
required of us in the future. Currently, pursuant to Alaska law, the basic cable rates in Juneau are the only rates in Alaska
subject to regulation by the local franchising authority, and the rates in Juneau were reviewed and approved by the RCA
in January 2007.
Other existing federal regulations, currently the subject of judicial, legislative, and administrative review, could change, in
varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor
their impact upon the cable television industry in general, or on our activities and prospects in the cable television
business in particular, can be predicted at this time. There can be no assurance that future regulatory actions taken by
Congress, the FCC or other federal, state or local government authorities will not have a material adverse effect on our
business, financial position, results of operations or liquidity.
Proposals may be made before Congress and the FCC to mandate cable operators provide “open access” over their
cable systems to Internet service providers. As of the date of this report, the FCC has declined to impose such
requirements. If the FCC or other authorities mandate additional access to our cable systems, we cannot predict the effect
that this would have on our Internet service offerings.
Internet Services. Changes in the regulatory environment relating to the Internet access market, including changes in
legislation, FCC regulation, judicial action or local regulation that affect communications costs or increase competition
from the ILEC or other communications services providers, could adversely affect the prices at which we sell Internet
services. Legislative or regulatory proposals under the banner of “net neutrality”, if adopted, could interfere with our ability
to reasonably manage and invest in our broadband network, and could adversely affect the manner and price of providing
service.
Wireless Services. The licensing, construction, operation, sale and interconnection arrangements of wireless
communications systems are regulated by the FCC and, depending on the jurisdiction, state and local regulatory
agencies. In particular, the FCC imposes significant regulation on licensees of wireless spectrum with respect to:
• How radio spectrum is used by licensees;
• The nature of the services that licensees may offer and how such services may be offered; and
• Resolution of issues of interference between spectrum bands.
The Communications Act of 1934 preempts state and local regulation of market entry by, and the rates charged by,
commercial mobile radio service providers, except that states may exercise authority over such things as certain billing
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practices and consumer-related issues. These regulations could increase the costs of our wireless operations. The FCC
grants wireless licenses for terms of generally ten years that are subject to renewal and revocation. FCC rules require all
wireless licensees to meet certain build-out requirements and substantially comply with applicable FCC rules and policies
and the Communications Act of 1934 in order to retain their licenses. Failure to comply with FCC requirements in a given
license area could result in revocation of the license for that license area. There is no guarantee that our licenses will be
renewed. You should also see the risk factor below titled “We may not fully develop our wireless services, in which case
we could not meet the needs of our customers who desire packaged services.”
The FCC has initiated a number of proceedings to evaluate its rules and policies regarding spectrum licensing and usage.
New uses could adversely impact our utilization of our licensed spectrum and our operational costs.
Commercial mobile radio service providers must implement E911 capabilities in accordance with FCC rules. Failure to
deploy E911 service consistent with FCC requirements could subject us to significant fines.
The FCC, together with the FAA, also regulates tower marking and lighting. In addition, tower construction is affected by
federal, state and local statutes addressing zoning, environmental protection and historic preservation. The FCC adopted
significant changes to its rules governing historic preservation review of projects, which makes it more difficult and
expensive to deploy antenna facilities. The FCC is also considering changes to its rules regarding environmental
protection as related to tower construction, which, if adopted, could make it more difficult to deploy facilities.
For more information about Regulations affecting our operations, see “Competition” contained in “Item 1 — Business —
Regulation.”
Loss of our ETC status would disqualify us for USF subsidies.
The USF pays subsidies to ETCs to support the provision of facilities-based wireline and wireless telephone service in
high-cost areas. Under FCC regulations, GCI has qualified as a competitive ETC in the Anchorage, Fairbanks, Juneau,
Matanuska-Susitna, Ketchikan, Fort Wainwright/Eielson, and Glacier State service areas and as a wireless ETC in the
Mukluk, Ft. Wainwright/Eielson and Adak service areas. Alaska DigiTel has qualified as a wireless ETC in the Anchorage,
Fairbanks, Juneau, Matanuska-Susitna Valley, Ft. Wainwright/Eielson and Glacier State service areas. Without ETC
status, we would not qualify for USF subsidies in these areas or other rural areas where we propose to offer facilities-
based wireline and wireless telephone services. Loss of our ETC status could have an adverse effect on our business,
financial position, results of operations or liquidity.
Revenues from universal service and access charges may be reduced or lost.
The USF pays subsidies to ETCs to support the provision of local access service in high-cost areas. Without ETC status,
we would not qualify for USF subsidies in the areas in which we qualify or other rural areas where we propose to offer
local access services, and our revenue for providing local access services in these areas would be materially adversely
affected.
On May 1, 2008, the FCC issued an order adopting the recommendation of the Joint Board to impose a state-by-state
interim cap on high cost funds to be distributed to competitive ETCs. As part of the revised policy, the FCC adopted a
limited exception from the cap for competitive ETCs serving tribal lands or Alaska Native regions. While the operation of
the cap will generally reduce the high cost fund amounts available to competitive ETCs as new competitive ETCs are
designated and as existing competitive ETCs acquire new customers, providers like us who serve tribal lands or Alaska
Native regions were provided some relief. On March 5, 2009, the FCC issued an additional order waiving a previously
adopted limitation to the exception, the result of which is to provide uncapped support for all lines served by competitive
ETCs for tribal lands or Alaska Native regions during the time the interim cap is in effect. The uncapped support for tribal
lands or Alaska Native regions and the cap for all other regions will be in place until the FCC takes action on proposals for
long term reform.
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Failure to complete development, testing and deployment of new technology that supports new services could
affect our ability to compete in the industry. In addition, the technology we use may place us at a competitive
disadvantage.
We develop, test and deploy various new technologies and support systems intended to enhance our competitiveness by
both supporting new services and features and reducing the costs associated with providing those services or features.
Successful development and implementation of technology upgrades depend, in part, on the willingness of third parties to
develop new applications in a timely manner. We may not successfully complete the development and rollout of new
technology and related features or services in a timely manner, and they may not be widely accepted by our customers or
may not be profitable, in which case we could not recover our investment in the technology. Deployment of technology
supporting new service offerings may also adversely affect the performance or reliability of our networks with respect to
both the new and existing services. Any resulting customer dissatisfaction could affect our ability to retain customers and
may have an adverse effect on our financial position, results of operations, or liquidity.
Unfavorable general economic conditions in the United States could have a material adverse effect on our
financial position, results of operations and liquidity.
Unfavorable general economic conditions, including the current recession in the United States and the recent financial
crisis affecting the banking system and financial markets, could negatively affect our business. While it is often difficult for
us to predict the impact of general economic conditions on our business, these conditions could adversely affect the
affordability of and consumer demand for some of our products and services and could cause customers to shift to lower
priced products and services or to delay or forgo purchases of our products and services. One or more of these
circumstances could cause our revenue to decline. Also, our customers may not be able to obtain adequate access to
credit, which could affect their ability to make timely payments to us. If that were to occur, we could be required to
increase our allowance for doubtful accounts, and the number of days outstanding for our accounts receivable could
increase. For these reasons, among others, if the current economic conditions persist or decline, this could adversely
affect our financial position, results of operations, or liquidity, as well as our ability to service debt, pay other obligations
and enhance shareholder returns. Congress has approved a stimulus package to help improve the economy, however,
we are unable to predict the success or outcome of programs created in the stimulus plan.
Our businesses are currently geographically concentrated in Alaska. Any deterioration in the economic
conditions in Alaska could have a material adverse effect on our financial position, results of operations and
liquidity.
We offer voice, data and wireless communication and video services to customers primarily in Alaska. Because of this
geographic concentration, our growth and operations depend upon economic conditions in Alaska. The economy of
Alaska is dependent upon natural resource industries, in particular oil production, as well as tourism, and government
spending, including substantial amounts for the United States military. Any deterioration in these markets could have an
adverse impact on the demand for communication and cable television services and on our results of operations and
financial condition. In addition, the customer base in Alaska is limited. Alaska has a population of approximately 670,000
people, 54% of whom are located in the Anchorage and Matanuska-Susitna Borough region. We have already achieved
significant market penetration with respect to our service offerings in Anchorage and in other locations in Alaska.
We may not be able to continue to increase our market share of the existing markets for our services, and no assurance
can be given that the Alaskan economy will continue to grow and increase the size of the markets we serve or increase
the demand for the services we offer. As a result, the best opportunities for expanding our business may arise in other
geographic areas such as the Lower 49 States. There can be no assurance that we will find attractive opportunities to
grow our businesses outside of Alaska or that we will have the necessary expertise to take advantage of such
opportunities. The markets in Alaska for voice and data communications and video services are unique and distinct within
the United States due to Alaska’s large geographical size, its sparse population located in a limited number of clusters,
and its distance from the rest of the United States. The expertise we have developed in operating our businesses in
Alaska may not provide us with the necessary expertise to successfully enter other geographic markets.
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We may not fully develop our wireless services, in which case we could not meet the needs of our customers
who desire such services.
We offer wireless mobile services over our own facilities and by distributing other providers’ wireless mobile services. We
offer wireless local telephone services over our own facilities, and have purchased personal communications system, or
PCS, and local multipoint distribution system, or LMDS, wireless broadband licenses in FCC auctions covering markets in
Alaska. In 2007 we acquired a substantial ownership interest in Alaska DigiTel and in 2008 we acquired the remaining
ownership interest in Alaska DigiTel (see “Part I — Item 1 — Business — Development of our Business during the Past
Fiscal Year — Alaska DigiTel Acquisition” for more information.") Prior to August 18, 2008, our control over the
operations of Alaska DigiTel was limited as required by the FCC upon their approval of our initial acquisition completed in
January 2007. We have fewer subscribers to our wireless services than to our other service offerings. Currently the
geographic coverage of our wireless services is smaller than the geographic coverage of our other services. Some of our
competitors offer or propose to offer an integrated bundle of communications, entertainment and information services,
including wireless services. If we are unable to continue to expand our wireless facilities and further develop our wireless
services, we may not be able to meet the needs of customers who desire such services, and our competitors who offer
these services would have an advantage. This could result in the loss of market share for our other service offerings.
As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must comply with certain build-out and other
conditions of the licenses, as well as with the FCC’s regulations governing the PCS and LMDS services. The FCC
renewed our PCS Block B license in 2005 for an additional 10-year term. The PCS Block A licenses held by Alaska
DigiTel expire in 2015, and we expect their renewal in the normal course. Our LMDS license was renewed in 2008 for an
additional 10-year term, with a four-year extension of the initial build-out period.
Prolonged service interruptions could affect our business.
We rely heavily on our network equipment, communications providers, data and software to support all of our functions.
We rely on our networks and the networks of others for substantially all of our revenues. We are able to deliver services
only to the extent that we can protect our network systems against damage from power or communication failures,
computer viruses, natural disasters, unauthorized access and other disruptions. While we endeavor to provide for failures
in the network by providing back-up systems and procedures, we cannot guarantee that these back-up systems and
procedures will operate satisfactorily in an emergency. Should we experience a prolonged failure, it could seriously
jeopardize our ability to continue operations. In particular, should a significant service interruption occur, our ongoing
customers may choose a different provider, and our reputation may be damaged, reducing our attractiveness to new
customers.
To the extent that any disruption or security breach results in a loss or damage to our customers’ data or applications, or
inappropriate disclosure of confidential information, we may incur liability and suffer from adverse publicity. In addition, we
may incur additional costs to remedy the damage caused by these disruptions or security breaches.
If failures occur in our undersea fiber optic cable systems, our ability to immediately restore the entirety of our
service may be limited and we could incur significant costs, which could lead to a material adverse effect on our
business, financial position, results of operations or liquidity.
Our communications facilities include two undersea fiber optic cable systems that carry a large portion of our voice, data
and Internet traffic to and from the contiguous Lower 48 States one of which provides an alternative geographically
diverse backup communication facility to the other. If a failure of both sides of the ring of our undersea fiber optic facilities
occurs and we are not able to secure alternative facilities, some of the communications services we offer to our customers
could be interrupted which could have a material adverse effect on our business, financial position, results of operations
or liquidity. Damage to an undersea fiber optic cable system can result in significant unplanned Cost of Goods Sold which
could have a material adverse effect on our business, financial position, results of operations or liquidity.
If a failure occurs in our satellite communications systems, our ability to immediately restore the entirety of our
service may be limited.
We serve many rural and remote Alaska locations solely via satellite communications. Each of our C-band and Ku-band
satellite transponders is backed up on the same spacecraft with multiple backup transponders. The primary spacecrafts
we use to provide voice, data and Internet services to our rural Alaska customers is Intelsat’s Galaxy 18 for C-band and
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Intelsat's Horizons 1 for Ku-band, but we also lease capacity on two other spacecraft for services we provide, SES
Americom’s AMC-7 and AMC-8.
We also lease one 36 MHz transponder on SES Americom's AMC-7 spacecraft. We use this transponder to distribute
multi-channel, digitally encoded video programming and services to remote locations within Alaska. We may use this
transponder along with two others that we reserve on AMC-7 to restore service during any fiber outage that may occur in
our network.
We may not be able to successfully complete integration of the businesses we acquired in 2008.
The continuing process of integrating the operations of Alaska DigiTel, UUI, Unicom and Alaska Wireless with ours may
cause interruptions of or loss of momentum in our business and financial performance. Prior to August 18, 2008, our
control over the operations of Alaska DigiTel was limited as required by the FCC upon their approval of our initial
acquisition completed in January 2007. The diversion of management’s attention and any delays or difficulties
encountered in connection with the integration of the companies’ operations may have an adverse effect on our business,
financial condition, or results of operations. We may also incur additional and unforeseen expenses in connection with the
integration efforts. There can be no assurance that the expense savings and synergies that we anticipate from the
acquisitions will be realized fully or will be realized within the expected timeframe.
We depend on a limited number of third-party vendors to supply communications equipment. If we do not obtain
the necessary communications equipment, we will not be able to meet the needs of our customers.
We depend on a limited number of third-party vendors to supply cable, Internet, DLPS, wireless and telephony-related
equipment. If our providers of this equipment are unable to timely supply the equipment necessary to meet our needs or
provide them at an acceptable cost, we may not be able to satisfy demand for our services and competitors may fulfill this
demand. Due to the unique characteristics of the Alaska communications markets (i.e., remote locations, rural, satellite-
served, low density populations, and our leading edge services and products), in many situations we deploy and utilize
specialized, advanced technology and equipment that may not have a large market or demand. Our vendors may not
succeed in developing sufficient market penetration to sustain continuing production and may fail. Vendor bankruptcy (or
acquisition without continuing product support by the acquiring company) may require us to replace technology before its
otherwise useful end of life due to lack of on-going vendor support and product development.
We do not have insurance to cover certain risks to which we are subject, which could lead to the incurrence of
uninsured liabilities that adversely affect our financial position, results of operations or liquidity.
We are self-insured for damage or loss to certain of our transmission facilities, including our buried, undersea and above-
ground transmission lines. If we become subject to substantial uninsured liabilities due to damage or loss to such facilities,
our financial position, results of operations or liquidity may be adversely affected.
We must perform impairment tests of our goodwill, cable certificate and wireless license assets on an annual
basis. Impairment testing may result in a material, non-cash write-down of our cable certificate, wireless license,
or goodwill assets and could have a material adverse impact on our results of operations.
Under Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” we must
test our goodwill and other intangible assets with indefinite lives for impairment at least annually. Our cable certificate and
wireless license assets are our only indefinite-lived intangible assets other than goodwill as of December 31, 2008. Our
cable certificate and wireless license assets are tested annually for impairment, and are tested for impairment more
frequently if events and circumstances such as, but not limited to an extended decline in our stock price or a significant
decrease in future expected cash flows indicate that the asset might be impaired. The impairment test consists of a
comparison of the fair value of the asset with its carrying amount. If the carrying amount of the assets exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess. Our goodwill assets are tested annually for
impairment, and are tested for impairment more frequently if events and circumstances such as, but not limited to an
extended decline in our stock price or a significant decrease in future expected cash flows indicate that the assets might
be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Impairment testing of these assets in future periods may result in a material, non-cash write-down of these assets and
could have a material adverse impact on our results of operations.
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Our significant debt could adversely affect our business and prevent us from fulfilling our obligations under our
senior notes.
We have and will continue to have a significant amount of debt. On December 31, 2008, we had total debt of $817.2
million. Our high level of debt could have important consequences, including the following:
• Use of a large portion of our cash flow to pay principal and interest on our senior notes, the senior secured credit
facility and our other debt, which will reduce the availability of our cash flow to fund working capital, capital
expenditures, research and development expenditures and other business activities;
Increase our vulnerability to general adverse economic and industry conditions;
•
• Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• Restrict us from making strategic acquisitions or exploiting business opportunities;
• Make it more difficult for us to satisfy our obligations with respect to the senior notes and our other debt;
• Place us at a competitive disadvantage compared to our competitors that have less debt; and
• Limit, along with the financial and other restrictive covenants in our debt, among other things, our ability to borrow
additional funds, dispose of assets or pay cash dividends.
In addition, a substantial amount of our debt bears interest at variable rates. If market interest rates increase, variable-rate
debt will create higher debt service requirements, which would adversely affect our financial position, results of operations
or liquidity.
We will require a significant amount of cash to service our debt, complete our planned network expansion,
complete acquisitions and to meet other obligations. Our ability to generate cash depends on many factors
beyond our control. If we are unable to meet our future capital needs it may be necessary for us to curtail, delay
or abandon our business growth plans. If we incur significant additional indebtedness to fund our plans, it could
cause a decline in our credit rating and could increase our borrowing costs or limit our ability to raise additional
capital.
We will continue to require a significant amount of cash for our planned wireless network expansion, to satisfy our debt
service requirements and to meet other obligations. To meet our capital needs we may incur additional debt in the future.
Our ability to make payments on and to refinance our debt and to fund planned capital expenditures and acquisitions will
depend on our ability to generate cash and to arrange additional financing in the future. These abilities are subject to,
among other factors, our credit rating, our financial performance, general economic conditions, prevailing market
conditions, the state of competition in our market, the outcome of certain legislative and regulatory issues and other
factors that may be beyond our control. Our ability to obtain suitable financing when needed has become more difficult
due to the downturn in economic conditions in 2008 and 2009 and our failure to obtain suitable financing could, among
other things, result in our inability to continue to expand our business and meet competitive challenges. If we incur
significant additional indebtedness, or if we do not continue to generate sufficient cash from our operations, our credit
rating could be adversely affected, which would likely increase our future borrowing costs and could affect our ability to
access capital.
The terms of our debt impose restrictions on us that may affect our ability to successfully operate our business
and our ability to make payments on the senior notes.
The indenture governing our senior notes contains and/or the credit agreement governing our senior secured credit facility
contains covenants that, among other things, limit our ability to:
Incur additional debt and issue preferred stock;
•
• Pay dividends or make other restricted payments;
• Make certain investments;
• Create liens;
• Allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments to us;
• Sell assets;
• Merge or consolidate with other entities; and
• Enter into transactions with affiliates.
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The senior secured credit facility also requires us to comply with specified financial ratios and tests, including, but not
limited to, minimum interest coverage ratio, maximum leverage ratio and maximum annual capital expenditures.
These covenants could materially and adversely affect our ability to finance our future operations or capital needs and to
engage in other business activities that may be in our best interest.
All of these covenants may restrict our ability to expand or to pursue our business strategies. Our ability to comply with
these covenants may be affected by events beyond our control, such as prevailing economic conditions and changes in
regulations, and if such events occur, we cannot be sure that we will be able to comply. A breach of these covenants
could result in a default under the indenture governing our senior notes and/or the senior secured credit facility. If there
were an event of default under the indenture for the senior notes and/or the senior secured credit facility, holders of such
defaulted debt could cause all amounts borrowed under these instruments to be due and payable immediately.
Additionally, if we fail to repay the debt under the senior secured credit facility when it becomes due, the lenders under the
senior secured credit facility could proceed against certain of our assets and capital stock of our subsidiaries that we have
pledged to them as security. Our assets or cash flow may not be sufficient to repay borrowings under our outstanding debt
instruments in the event of a default thereunder.
Concerns about health risks associated with wireless equipment may reduce the demand for our wireless
services.
Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency
emissions from these devices. Purported class actions and other lawsuits have been filed against numerous other
wireless carriers seeking not only damages but also remedies that could increase the cost of doing business. We cannot
be sure of the outcome of those cases or that the industry will not be adversely affected by litigation of this nature or
public perception about health risks. The actual or perceived risk of mobile communications devices could adversely
affect us through a reduction in subscribers. Further research and studies are ongoing, and we cannot be sure that
additional studies will not demonstrate a link between radio frequency emissions and health concerns.
Additionally, new government regulations on the use of a wireless device while driving may affect us through a reduction
in subscribers. Studies have indicated that using wireless devices while driving may impair a driver’s attention. Many
state and local legislative bodies have passed or proposed legislation to restrict the use of wireless telephones while
driving vehicles. Concerns over safety and the effect of future legislation, if adopted and enforced in the areas we serve,
could limit our ability to market and sell our wireless services and decrease our revenue from customers who now use
their wireless telephones while driving. Litigation relating to accidents, deaths or serious bodily injuries allegedly incurred
as a result of wireless telephone use while driving could result in adverse publicity and further governmental regulation.
Any of these results could have a material adverse effect on our financial position, results of operations or liquidity.
A significant percentage of our voting securities are owned by a small number of shareholders and these
shareholders can control shareholder decisions on very important matters.
As of December 31, 2008, our executive officers and directors and their affiliates owned 4.7% of our combined
outstanding Class A and class B common stock, representing 17.1% of the combined voting power of that stock. These
shareholders can significantly influence, if not control, our management policy and all fundamental corporate actions,
including mergers, substantial acquisitions and dispositions, and election of directors to the Board.
Corporate governance rules may impose increased costs and internal control assessment requirements on us.
The Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, the Public Company Accounting
Oversight Board, and the Nasdaq National Market have required changes in corporate governance practices of public
companies. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we and our auditor evaluate and
report on our system of internal controls over financial reporting. We expect to incur ongoing costs to comply with these
rules and regulations and may incur increased legal and financial compliance costs that may negatively affect our results
of operations.
45
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to
accurately report our financial results. As a result, current and potential shareholders could lose confidence in
our financial reporting, which would harm our business and the trading price of our stock.
Our management has determined that as of December 31, 2008, we did not maintain effective internal controls over
financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control-Integrated Framework as a result of identified material weaknesses in our internal control
over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or
interim financial statements will not be prevented or detected on a timely basis. For a detailed description of these
material weaknesses and our remediation efforts and plans, see “Part II — Item 9A — Controls and Procedures.” If the
result of our remediation of the identified material weaknesses is not successful, or if additional material weaknesses are
identified in our internal control over financial reporting, our management will be unable to report favorably as to the
effectiveness of our internal control over financial reporting and/or our disclosure controls and procedures, and we could
be required to further implement expensive and time-consuming remedial measures and potentially lose investor
confidence in the accuracy and completeness of our financial reports which could have an adverse effect on our stock
price and potentially subject us to litigation.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties
General
Our properties do not lend themselves to description by location of principal units. Our investment in property and
equipment in our consolidated operations consisted of the following at December 31:
Telephone distribution systems
Cable television distribution systems
Support equipment
Property and equipment under capital leases
Construction in progress
Land and buildings
Transportation equipment
Total
2008
60.1%
14.4%
10.7%
7.6%
4.0%
2.4%
0.8%
100.0%
2007
63.6%
16.2%
10.8%
0.3%
6.9%
1.4%
0.8%
100.0%
It is not practicable to allocate our properties to our operating segments since many of our properties are employed by
more than one segment to provide common services and products. Additionally our properties are managed at the
consolidated company level rather than at the segment level.
These properties consist primarily of undersea and land-based fiber-optic networks, switching equipment, satellite
transponders and earth stations, microwave radio and cable and wire facilities, cable head-end equipment, coaxial
distribution networks, routers, servers, transportation equipment, computer equipment and general office equipment. Land
and buildings consist of land, land improvements and landing stations and other buildings. Substantially all of our
properties secure our Senior Credit Facility. See note 6 included in “Part II — Item 8 — Consolidated Financial
Statements and Supplementary Data” for more information.
Our cable television plant and related equipment are generally attached to utility poles under pole rental agreements with
local public utilities and telephone companies and in certain locations are buried in underground ducts or trenches. We
own or lease real property for signal reception sites.
Our local access services outside plant consists of connecting lines (aerial, underground and buried cable), the majority of
which is on or under public roads, highways or streets, while the remainder is on or under private property.
46
Our construction in progress totaled $54.1 million at December 31, 2008, consisting of long-distance, video, local, wireless
and Internet services, and support systems projects that were incomplete at December 31, 2008. Our construction in
progress totaled $69.4 million at December 31, 2007, consisting of long-distance, video, local and Internet services, and
support systems projects that were incomplete at December 31, 2007. The property, plant and equipment included in
construction in progress at December 31, 2008 are expected to be placed in service in 2009.
We lease our executive, corporate and administrative facilities and business offices. Our operating, executive, corporate
and administrative properties are in good condition. We consider our properties suitable and adequate for our present
needs and they are being fully utilized.
Capital Expenditures
Capital expenditures consist primarily of (a) gross additions to property, plant and equipment having an estimated service
life of one year or more, plus the incidental costs of preparing the asset for its intended use, and (b) gross additions to
capitalized software. Significant additions to property, plant and equipment will be required in the future to meet the
growing demand for communications, Internet and entertainment services and to continually modernize and improve such
services to meet competitive demands.
Additions to property and equipment and construction in progress including non-cash capital expenditures for 2004
through 2008 were as follows (in millions):
2004
2005
2006
2007
2008
$ 112.6
$
81.2
$ 105.1
$ 154.5
$ 328.9
We expect our 2009 expenditures for property and equipment for our core operations, including construction in progress
to total $115.0 million to $120.0 million, depending on available opportunities, available credit, and the amount of cash
flow we generate during 2009. We have made capital and operating purchase commitments totaling $54.8 million at
December 31, 2008. A majority of the expenditures are expected to expand, enhance and modernize our current
networks, facilities and operating systems, and to develop other businesses.
We funded our normal business capital requirements through internal sources during 2008 and, to the extent necessary,
from external financing sources. We expect expenditures for 2009 to be financed through internal sources and, to the
extent necessary through external financing sources.
Insurance
We have insurance to cover risks incurred in the ordinary course of business, including general liability, property
coverage, director and officers and employment practices liability, auto, crime, fiduciary, aviation, and business
interruption insurance in amounts typical of similar operators in our industry and with reputable insurance providers.
Central office equipment, buildings, furniture and fixtures and certain operating and other equipment are insured under a
blanket property insurance program. This program provides substantial limits of coverage against “all risks” of loss
including fire, windstorm, flood, earthquake and other perils not specifically excluded by the terms of the policies. As is
typical in the communications industry, we are self-insured for damage or loss to certain of our transmission facilities,
including our buried, undersea, and above-ground transmission lines. We self-insure with respect to employee health
insurance and workers’ compensation, subject to stop-loss insurance with other parties that caps our liability at specified
limits. We believe our insurance coverage is adequate; however, if we become subject to substantial uninsured liabilities
due to damage or loss to such facilities, our financial position, results of operations or liquidity may be adversely affected.
Item 3. Legal Proceedings
Except as set forth in this item, neither the Company, its property nor any of its subsidiaries or their property is a party to
or subject to any material pending legal proceedings. We are parties to various claims and pending litigation as part of the
normal course of business. We are also involved in several administrative proceedings and filings with the FCC and state
regulatory authorities. In the opinion of management, the nature and disposition of these matters are considered routine
and arising in the ordinary course of business. In addition, the FCC's Office of Inspector General has initiated an
investigation of our compliance with program rules and requirements under certain USF programs. The request covers
the period beginning January 1, 2004 through August 31, 2008, and relates to amounts received by Alaska DigiTel and its
47
affiliates during that period. Management believes these matters would not have a materially adverse affect on our
business or financial position, results of operations or liquidity.
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 2008 to a vote of security holders, through the solicitation of
proxies or otherwise.
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market Information for Common Stock
Shares of GCI’s Class A common stock are traded on the Nasdaq Global Select MarketSM under the symbol GNCMA.
Shares of GCI’s Class B common stock are traded through the Over-The-Counter Bulletin Board service offered by the
National Association of Securities Dealers. Each share of Class B common stock is convertible, at the option of the
holder, into one share of Class A common stock.
The following table sets forth the high and low sales price for the above-mentioned common stock for the periods
indicated. Market price data for Class A shares were obtained from the Nasdaq Stock Market System quotation system.
Market price data for Class B shares were obtained from reported Over-the-Counter Bulletin Board service market
transactions. The prices represent prices between dealers, do not include retail markups, markdowns, or commissions,
and do not necessarily represent actual transactions.
2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Class A
Class B
High
Low
High
Low
$
$
$
$
$
$
$
$
16.10
15.20
14.00
12.47
8.44
8.31
10.78
8.87
13.64
12.42
11.03
7.51
5.09
6.03
6.82
5.32
15.10
14.80
14.05
11.85
8.75
8.00
10.60
8.60
14.20
12.00
12.10
8.00
4.50
3.00
5.70
3.00
Holders
As of December 31, 2008 there were 2,176 holders of record of our Class A common stock and 385 holders of record of
our Class B common stock (amounts do not include the number of shareholders whose shares are held of record by
brokers, but do include the brokerage house as one shareholder).
Dividends
We have never paid cash dividends on our common stock, and we have no present intention of doing so. Payment of
cash dividends in the future, if any, will be determined by our Board of Directors in light of our earnings, financial condition
and other relevant considerations. Our existing bank loan agreements contain provisions that limit payment of dividends
on common stock, other than stock dividends (see note 6 included in “Part II — Item 8 — Consolidated Financial
Statements and Supplementary Data” for more information).
Stock Transfer Agent and Registrar
BNY Mellon Shareowner Services is our stock transfer agent and registrar.
48
Performance Graph
The following graph includes a line graph comparing the yearly percentage change in our cumulative total shareholder
return on our Class A common stock during the five-year period 2004 through 2008. This return is measured by dividing
(1) the sum of (a) the cumulative amount of dividends for the measurement period (assuming dividend reinvestment, if
any) and (b) the difference between our share price at the end and the beginning of the measurement period, by (2) the
share price at the beginning of that measurement period. This line graph is compared in the following graph with two other
line graphs during that five-year period, i.e., a market index and a peer index.
The market index is the Center for Research in Securities Price Index for the Nasdaq Stock Market for United States
companies. It presents cumulative total returns for a broad based equity market assuming reinvestment of dividends and
is based upon companies whose equity securities are traded on the Nasdaq Stock Market. The peer index is the Center
for Research in Securities Price Index for Nasdaq Telecommunications Stock. It presents cumulative total returns for the
equity market in the telecommunications industry segment assuming reinvestment of dividends and is based upon
companies whose equity securities are traded on the Nasdaq Stock Market. The line graphs represent annual index levels
derived from compounding daily returns.
In constructing each of the line graphs in the following graph, the closing price at the beginning point of the five-year
measurement period has been converted into a fixed investment, stated in dollars, in our Class A common stock (or in the
stock represented by a given index, in the cases of the two comparison indexes), with cumulative returns for each
subsequent fiscal year measured as a change from that investment. Data for each succeeding fiscal year during the five-
year measurement period are plotted with points showing the cumulative total return as of that point. The value of a
shareholder’s investment as of each point plotted on a given line graph is the number of shares held at that point
multiplied by the then prevailing share price.
Our Class B common stock is traded through the Over-The-Counter Bulletin Board service on a more limited basis.
Therefore, comparisons similar to those previously described for the Class A common stock are not directly available.
However, the performance of Class B common stock may be analogized to that of the Class A common stock in that the
Class B common stock is readily convertible into Class A common stock by request to us.
Comparison of Five-Year Cumulative Return
Performance Graph for General Communication, Inc.
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
Dec-2003
Dec-2004
Dec-2005
Dec-2006
Dec-2007
Dec-2008
General Communication Inc.
NASDAQ Stock Market (US Companies)
NASDAQ Telecommunications Stock
Prepared by Zacks Investment Research Inc. All indexes used with permission. All rights reserved.
49
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE
GRAPH FOR GENERAL
COMMUNICATION, INC., NASDAQ STOCK MARKET INDEX FOR
UNITED STATES COMPANIES, AND NASDAQ TELECOMMUNICATIONS STOCK1,2,3,4
Measurement Period
(Fiscal Year
Covered)
Company ($)
Nasdaq Stock
Market
Index for U.S.
Companies ($)
Nasdaq
Telecommunications
Stock ($)
FYE 12/31/03
FYE 12/31/04
FYE 12/31/05
FYE 12/31/06
FYE 12/31/07
FYE 12/31/08
100.0
126.9
118.7
180.8
100.6
93.0
100.0
108.8
111.2
122.1
132.4
63.8
100.0
106.6
101.3
133.3
118.5
68.1
1 The lines represent annual index levels derived from compounded daily returns that include all dividends.
2 The indexes are reweighted daily, using the market capitalization on the previous trading day.
3
4 The index level for all series was set to $100.00 on December 31, 2003.
If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
Item 6. Selected Financial Data
The following table presents selected historical information relating to financial condition and results of operations over the
past five years.
Years ended December 31,
2005
2006
2007
2008
(Amounts in thousands except per share amounts)
2004
Revenues
Income (loss) before income tax
expense and cumulative effect of a
change in accounting principle
Cumulative effect of a change in
accounting principal, net of income
tax expense of $44 in 2006
Net income (loss)
Net income (loss) available to common
shareholders
Basic net income (loss) available to
common shareholders per common
share
Diluted net income (loss) available to
common shareholders per common
share
$
$
$
$
$
$
$
575,442
520,311
477,482
443,026
424,826
(792)
25,895
34,253
36,835
38,715
---
---
64
---
---
(1,869)
13,733
18,520
20,831
21,252
(1,869)
13,733
18,520
18,325
19,749
(0.04)
0.26
0.34
0.34
0.35
(0.04)
0.23
0.33
0.33
0.34
Total assets
Long-term debt, including current
portion and net of unamortized
discount
Obligations under capital leases,
including current portion
$ 1,335,301
984,233
914,659
873,775
849,191
$
$
716,831
538,398
489,462
475,840
437,137
100,329
2,851
2,857
672
39,661
50
Years ended December 31,
2005
2006
2007
2008
(Amounts in thousands except per share amounts)
2004
Redeemable preferred stock:
Series B
Series C
Total stockholders’ equity
$
$
$
---
---
---
---
---
---
4,249
4,249
---
---
258,915
252,955
245,473
243,620
234,270
Dividends declared per common share $
0.00
0.00
0.00
0.00
0.00
The Selected Financial Data should be read in conjunction with “Part II — Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
In the following discussion, General Communication, Inc. and its direct and indirect subsidiaries are referred to as “we,”
“us” and “our.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated
financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the 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. On an on-going basis, we
evaluate our estimates and judgments, including those related to the allowance for doubtful receivables, unbilled
revenues, accrual of the USF high-cost area program subsidy, share-based compensation, reserve for future customer
credits, valuation allowances for deferred income tax assets, depreciable and amortizable lives of assets, the carrying
value of long-lived assets including goodwill, cable certificates and wireless licenses, our effective tax rate, purchase price
allocations, the accrual of Cost of Goods Sold, depreciation, and contingencies and litigation. We base our estimates and
judgments on historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. See also our “Cautionary Statement Regarding Forward-Looking Statements.”
We reclassified $16.7 million and $12.7 million of network maintenance and operations expense from selling, general and
administrative expense to Cost of Goods Sold for 2007 and 2006, respectively. We believe this change in presentation
more closely aligns our maintenance and operations components to the nature of expenses included in our financial
statement captions.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with
our consolidated financial statements and supplementary data as presented in Item 8 of this Form 10-K.
General Overview
Through our focus on long-term results, acquisitions, and strategic capital investments, we strive to consistently grow our
revenues and expand our margins. We have historically met our cash needs for operations, regular capital expenditures
and maintenance capital expenditures through our cash flows from operating activities. Historically, cash requirements for
significant acquisitions and major capital expenditures have been provided largely through our financing activities. The
ongoing weakness in the national economy and credit market turmoil continue to negatively impact consumer confidence
and spending. If these trends continue, they could lead to reductions in consumer spending which could impact our
revenue growth. We believe the Alaska economy continues to perform well compared to most other states at the current
time. Mortgage foreclosure rates in Alaska are the lowest in the nation and the commercial real estate market is steady.
Alaska appears to be relatively well positioned to weather recessionary pressures despite the recent steep decline in
energy prices. The State of Alaska has large cash reserves that should enable it to maintain its budget for at least the next
two fiscal years. This is important for Alaska’s economy as the State is the largest employer and second largest source of
gross state product. The majority of our revenue is driven by the strength of the Alaska economy which appears relatively
51
well positioned to weather the recessionary pressures, nonetheless we cannot predict the impact the economic crisis may
have on us.
Our five reportable segments are Consumer, Network Access, Commercial, Managed Broadband and Regulated
Operations. Our reportable segments are business units that offer different products, are each managed separately, and
serve distinct types of customers. The Network Access segment provides services to other common carrier customers
and the Managed Broadband segment provides services to rural school districts, hospitals and health clinics. Effective
June 1, 2008, we purchased 100% of the outstanding stock of UUI and Unicom. The financial results of the long-distance,
local access and Internet services sold to consumer and commercial customers of certain of these acquired companies
are reported in the Regulated Operations segment. The financial results of the long-distance services sold to other
common carrier customers and the managed broadband services components of certain of these acquired companies are
included in the Network Access and Managed Broadband Services segments, respectively. Effective July 1, 2008, we
closed on our purchase of 100% of the ownership interests of Alaska Wireless whose results are included in the
Consumer segment.
Following are our segments and the services and products each offers to its customers:
Services and Products
Consumer
Reportable Segments
Network
Access Commercial
Managed
Broadband
Regulated
Operations
Voice:
Long-distance
Local Access
Directories
Video
Data:
Internet
Data Networks
Managed Services
Managed Broadband Services
Wireless
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
An overview of our services and products follows.
Voice Services and Products
Long-distance
We generate long-distance services revenues from monthly plan fees and usage charges.
Factors that have the greatest impact on year-to-year changes in long-distance services revenues include the rate per
minute charged to customers and usage volumes expressed as minutes of use.
Common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to our common carrier
customers by their customers. Pricing pressures, new program offerings, and market and business consolidations
continue to evolve in the markets served by our other common carrier customers. If, as a result, their traffic is reduced, or
if their competitors’ costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, and
our pricing may be reduced to respond to competitive pressures, consistent with federal law. Additionally, disruption in the
economy resulting from terrorist attacks and other attacks or acts of war could affect our carrier customers. We are unable
to predict the effect on us of such changes. However, given the materiality of other common carrier revenues to us, a
significant reduction in traffic or pricing could have a material adverse effect on our financial position, results of operations
and liquidity.
Due in large part to the favorable synergistic effects of our bundling strategy focused on consumer and commercial
customers, long-distance services continue to be a significant contributor to our overall performance, although the
migration of traffic from our voice products to our data and wireless products continues.
52
Our long-distance service faces significant competition from AT&T Alascom, ACS, MTA, long-distance resellers, and
certain smaller rural local telephone companies that have entered the long-distance market. We believe our approach to
developing, pricing, and providing long-distance services and bundling different services will continue to allow us to be
competitive in providing those services.
Local Access
We generate local access services revenues from four primary sources: (1) basic dial tone services; (2) data network and
special access services; (3) origination and termination of long-distance calls for other common carriers; and (4) features
and other charges, including voice mail, caller ID, distinctive ring, inside wiring and subscriber line charges.
The primary factors that contribute to year-to-year changes in local access services revenues include the average number
of subscribers to our services during a given reporting period, the average monthly rates charged for non-traffic sensitive
services, the number and type of additional premium features selected, the traffic sensitive access rates charged to
carriers and amounts received from the USAC.
We estimate that our December 31, 2008, 2007 and 2006 total lines in service represent a statewide market share of
33%, 28% and 26%, respectively. At December 31, 2008, 2007 and 2006 71.6%, 53.8% and 36.8%, respectively, of our
lines, including the lines of UUI at December 31, 2008, are provided on our own facilities.
Our local access service faces significant competition in Anchorage, Fairbanks, and Juneau from ACS, which is the
largest ILEC in Alaska, and from Alascom in Anchorage for consumer services. Alascom has received certification from
the RCA to provide local access services in Fairbanks and Juneau. In the Matanuska-Susitna Valley our local access
service faces competition from MTA, the ILEC in this area. In October 2007, we began offering local access service in the
Kenai-Soldotna area and face competition from ACS, the ILEC in this area. We compete against other smaller ILECs in
certain smaller communities. We believe our approach to developing, pricing, and providing local access services and
bundling different services will allow us to be competitive in providing those services.
We are continuing to expand our local access service areas and will offer service in these new areas using a combination
of methods. To a large extent, we plan to use our existing fiber and coaxial cable networks to deliver local access
services. Where we do not have our own facilities, we may resell other carriers’ services, lease portions of an existing
carrier’s network or seek wholesale discounts.
We plan to continue to deploy DLPS lines which utilize our coaxial cable facilities. This service delivery method allows us
to utilize our own cable facilities to provide local access service to our customers and avoid paying local loop charges to
the ILEC.
On May 1, 2008, the FCC issued an order adopting the recommendation of the Joint Board to impose a state-by-state
interim cap on high cost funds to be distributed to competitive ETCs. As part of the revised policy, the FCC adopted a
limited exception from the cap for competitive ETCs serving tribal lands or Alaska Native regions. While the operation of
the cap will generally reduce the high cost fund amounts available to competitive ETCs as new competitive ETCs are
designated and as existing competitive ETCs acquire new customers, providers like us who serve tribal lands or Alaska
Native regions were provided some relief. On March 5, 2009, the FCC issued an additional order waiving a previously
adopted limitation to the exception, the result of which is to provide uncapped support for all lines served by competitive
ETCs for tribal lands or Alaska Native regions during the time the interim cap is in effect. The uncapped support for tribal
lands or Alaska Native regions and the cap for all other regions will be in place until the FCC takes action on proposals for
long term reform.
The Joint Board has recommended for FCC consideration long-term options for reforming USF support, including
establishing separate funds for mobility and broadband support. Separately, the FCC has issued two reform proposals for
changing the basis for support amounts. We cannot predict at this time the outcome of the FCC proceedings to consider
USF reform proposals or their respective impacts on us. Both these and any future regulatory, legislative, or judicial
actions could affect the operation of the USF and result in a change in our revenue for providing local access services in
new and existing markets and facilities-based wireless services in new markets.
UUI and its subsidiary, United-KUC, which were acquired by us effective June 1, 2008, are ILECs and therefore are
subject to regulation by the RCA. UUI and United-KUC do not face significant competition.
53
Directories
We sell advertising in our yellow pages directories to commercial customers, distribute white and yellow pages directories
to customers in certain markets we serve, and offer an on-line directory.
Video Services and Products
We generate cable services revenues from three primary sources: (1) digital programming services, including monthly
basic and premium subscriptions, pay-per-view movies, video on demand and one-time events, such as sporting events;
(2) equipment rentals; and (3) advertising sales.
Our cable systems serve 40 communities and areas in Alaska, including the state’s five largest population centers,
Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and Juneau. We transmit an entirely digital
signal for all cable television channels in all markets we serve as of December 31, 2008.
The primary factors that contribute to period-to-period changes in cable services revenues include average monthly
subscription rates and pay-per-view buys, the mix among basic, premium and digital tier services, the average number of
cable television subscribers during a given reporting period, set-top box utilization and related rates, revenues generated
from new product offerings, and sales of cable advertising services.
Our cable service offerings are bundled with various combinations of our long-distance, local access, and Internet
services. Value-added premium services are available for additional charges.
Our cable television systems face competition primarily from alternative methods of receiving and distributing television
signals, including DBS and digital video over telephone lines, and other sources of news, information and entertainment,
including Internet services.
Data Services and Products
Internet
We generate Internet services revenues from three primary sources: (1) access product services, including cable modem,
dial-up, and dedicated access; (2) network management services; and (3) wholesale access for other common carriers.
The primary factors that contribute to year-to-year changes in Internet services revenues include the average number of
subscribers to our services during a given reporting period, the average monthly subscription rates, the amount of
bandwidth purchased by large commercial customers, and the number and type of additional premium features selected.
Marketing campaigns continue to be deployed featuring bundled products. Our Internet offerings are bundled with various
combinations of our long-distance, cable, and local access services and provide free or discounted basic or premium
Internet services. Value-added premium Internet features are available for additional charges.
We compete with a number of Internet service providers in our markets. We believe our approach to developing, pricing,
and providing Internet services allows us to be competitive in providing those services.
Data Networks
We generate data network services revenue from two primary sources: (1) leasing capacity on our facilities that utilize
voice and data transmission circuits, dedicated to particular subscribers, which link a device in one location to another in a
different location and (2) through the sale of IP based data services on a secured shared network to businesses linking
multiple enterprise locations. The factor that has the greatest impact on year-to-year changes in data network services
revenues is the number of data networks in use. We compete against Alascom, ACS and other local telecommunication
service providers.
Managed Services
We design, sell, install, service and operate, on behalf of certain customers, communications and computer networking
equipment and provide field/depot, third party, technical support, communications consulting and outsourcing services.
We also supply integrated voice and data communications systems incorporating interstate and intrastate digital data
networks, point-to-point and multipoint private network and small earth station services. There are a number of competing
companies in Alaska that actively sell and maintain data and voice communications systems.
54
Our ability to integrate communications networks and data communications equipment has allowed us to maintain our
market position based on “value added” support services rather than price competition. These services are blended with
other transport products into unique customer solutions, including managed services and outsourcing.
Managed Broadband Services
We generate managed broadband services revenue through our SchoolAccess®, ConnectMD® and managed video
conferencing products. Our customers may purchase end-to-end broadband services solutions blended with other
transport and software products. There are several competing companies in Alaska that actively sell broadband services.
Our ability to provide end-to-end broadband services solutions has allowed us to maintain our market position based on
“value added” products and services rather than solely based on price competition.
SchoolAccess® is a suite of services designed to advance the educational opportunities of students in underserved
regions of the country. Our SchoolAccess® division provides Internet and distance learning services designed exclusively
for the school environment. The Schools and Libraries Program of the USF makes discounts available to eligible rural
school districts for telecommunication services and monthly Internet service charges. The program is intended to ensure
that rural school districts have access to affordable services.
Our network, Internet and software application services provided through our Managed Broadband segment’s Medical
Services Division are branded as ConnectMD®. Our ConnectMD® services are currently provided under contract to
medical businesses in Alaska, Washington and Montana. The Rural Health Care Program of the USF makes discounts
available to eligible rural health care providers for telecommunication services and monthly Internet service charges. The
program is intended to ensure that rural health care providers pay no more for telecommunications in the provision of
health care services than their urban counterparts. Customers utilize ConnectMD® services to securely move data,
images, or voice traffic, to include real time multipoint interactive video.
We offer a managed video conferencing product for use in distance learning, telemedicine and group communication and
collaboration environments. The product is designed to offer customers enhanced communication services that support
video, audio and data presentation. Our product benefits customers by reducing travel costs, improving course equity in
education and increasing the quality of health services available to patients. The product bundles our data products, video
conferencing services and optional rental of video conferencing endpoint equipment. Our video conferencing services
include multipoint conferencing, ISDN gateway and transcoding services, online scheduling and conference control, and
videoconference recording, archiving and streaming. We provide 24-hour technical support via telephone or online.
Wireless Services and Products
We generate wireless services and equipment revenues from four primary sources: (1) monthly plan fees; (2) usage and
roaming charges; (3) wireless Internet access; and (4) handset and accessory sales.
We offer wireless services by selling services over our own facilities and reselling AT&T Mobility's services under the GCI
brand name and by selling services over our own facilities under the Alaska DigiTel and Alaska Wireless brand names.
We compete against AT&T Mobility, ACS, MTA, and resellers of those services in Anchorage and other markets. The
GCI and Alaska DigiTel brands compete against each other.
In December 2007 we signed an agreement with AT&T Mobility that provides for an orderly transition of our wireless
customers from the AT&T Mobility network in Alaska to our wireless facilities. The agreement requires our customers to
be on our wireless network by June 30, 2009, but allows our customers to use the AT&T Mobility network for roaming
during the transition period. The four-year transition period, which expires June 30, 2012, provides us adequate time to
replace the AT&T Mobility network in Alaska with our own wireless facilities. We started transitioning our customers to our
wireless facilities in November 2008.
On July 1, 2008, we completed the acquisition of all of the ownership interests in Alaska Wireless for an initial acquisition
payment of $14.3 million. In addition to the initial acquisition payment, we have agreed to a contingent payment in 2010 if
certain financial conditions are met. Alaska Wireless is a GSM cellular provider and an Internet service provider serving
subscribers in the Dutch Harbor, Sand Point, and Akutan, Alaska areas. In addition to the acquisition, we entered into a
management agreement with the previous owners of Alaska Wireless. The business continues to operate under the
Alaska Wireless name and the previous owners continue to manage its day-to-day operations. The results of operations
generated by Alaska Wireless are included in wireless services in our Consumer segment.
55
We acquired the remaining minority interest in Alaska DigiTel for a total consideration of $10.4 million effective August 18,
2008. We now own 100% of Alaska DigiTel. Prior to August 18, 2008, our control over the operations of Alaska DigiTel
was limited as required by the FCC upon their approval of our initial acquisition completed in January 2007. In
conjunction with this acquisition we paid $1.8 million to terminate the management agreement entered into upon our
acquisition of 82% of the equity interest of Alaska DigiTel in January 2007. The termination cost is recorded in selling,
general and administrative expense during the year ended December 31, 2008.
Results of Operations
The following table sets forth selected Statements of Operations data as a percentage of total revenues for the periods
indicated (underlying data rounded to the nearest thousands):
Year Ended December 31,
2008
2006
2007
Percent-
age
Change 1
2008
vs.
2007
Percent-
age
Change 1
2007
vs.
2006
44.5%
26.7%
19.9%
6.4%
2.5%
100.0%
43.0%
31.4%
20.1%
5.5%
0.0%
100.0%
37.5%
34.9%
22.2%
5.4%
0.0%
100.0%
14.4%
(5.9%)
9.6%
28.7%
NM
10.6%
24.9%
(1.9%)
(1.2%)
10.2%
NM
9.0%
36.6%
33.8%
33.3%
19.7%
10.6%
19.9%
8.3%
8.4%
16.8%
11.8%
6.8%
17.2%
14.1%
6.9%
30.5%
(22.0%)
37.6%
6.7%
(9.2%)
6.6%
(0.1%)
5.0%
7.2%
(96.9%)
(24.4%)
(0.3%)
(0.3%)
2.6%
2.6%
3.9%
3.9%
(113.6%)
(113.6%)
(25.6%)
(25.9%)
(Unaudited)
Statements of Operations Data:
Revenues:
Consumer segment
Network Access segment
Commercial segment
Managed Broadband segment
Regulated Operations segment
Total revenues
Selling, general and
administrative expenses
Depreciation and amortization
expense
Operating income
Other expense, net
Income (loss) before income
taxes and cumulative effect of a
change in accounting principle
in 2006
Income (loss) before cumulative
effect of a change in accounting
principle in 2006
Net income (loss)
________________________________
1 Percentage change in underlying data.
NM – Not meaningful.
________________________________
Year Ended December 31, 2008 (“2008”) Compared to Year Ended December 31, 2007 (“2007”)
Overview of Revenues and Cost of Goods Sold
Total revenues increased 10.6% from $520.3 million in 2007 to $575.4 million in 2008. Revenue increases in our
Consumer, Commercial, Managed Broadband and Regulated Operations segments were partially off-set by decreases in
our Network Access segment. See the discussion below for more information by segment.
Total Cost of Goods Sold increased 3.7% from $195.8 million in 2007 to $203.1 million in 2008. Cost of Goods Sold
increases in our Consumer, Commercial, Managed Broadband and Regulated Operations segments were partially off-set
by decreases in our Network Access segment. See the discussion below for more information by segment.
56
Consumer Segment Overview
Consumer segment revenue represented 44.5% of 2008 consolidated revenues. The components of Consumer segment
revenue are as follow (amounts in thousands):
Voice
Video
Data
Wireless
Total Consumer segment revenue
$
2008
47,042
105,238
42,692
60,660
$ 255,632
2007
46,212
96,327
34,230
46,733
223,502
Percentage
Change
1.8%
9.3%
24.7%
29.8%
14.4%
Consumer segment Cost of Goods Sold represented 44.3% of 2008 consolidated Cost of Goods Sold. The components of
Consumer segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Consumer segment Cost of Goods Sold
2008
18,121
40,279
6,554
24,899
89,853
$
$
2007
20,364
34,301
5,313
28,721
88,699
Percentage
Change
(11.0%)
17.4%
23.4%
(13.3%)
1.3%
Consumer segment adjusted EBITDA, representing 34.5% of 2008 consolidated adjusted EBITDA, is as follows (amounts
in thousands):
Consumer segment adjusted EBITDA
2008
58,949
$
2007
46,808
Percentage
Change
25.9%
Selected key performance indicators for our Consumer segment follow:
Voice:
Long-distance subscribers1
Long-distance minutes carried (in millions)
Total local access lines in service2
Local access lines in service on GCI facilities2
Video:
Basic subscribers3
Digital programming tier subscribers4
HD/DVR converter boxes5
Homes passed
Average monthly gross revenue per subscriber6
Data:
Cable modem subscribers7
Wireless:
Wireless lines in service8
Average monthly gross revenue per subscriber9
December 31,
2008
2007
Percentage
Change
88,600
128.6
80,700
68,700
132,500
71,900
67,800
229,300
$67.40
89,900
135.8
74,400
50,700
128,000
65,800
50,200
224,700
$64.01
(1.5%)
(5.3%)
8.5%
35.5%
3.5%
9.3%
35.1%
2.1%
5.3%
94,400
88,000
7.3%
88,700
$55.23
70,000
$58.29
26.7%
(5.3%)
1 A long-distance customer is defined as a customer account that is invoiced a monthly long-distance
plan fee or has made a long-distance call during the month.
57
2 A local access line in service is defined as a revenue generating circuit or channel connecting a
customer to the public switched telephone network.
3 A basic cable subscriber is defined as one basic tier of service delivered to an address or separate
subunits thereof regardless of the number of outlets purchased.
4 A digital programming tier subscriber is defined as one digital programming tier of service delivered to
an address or separate subunits thereof regardless of the number of outlets or digital programming
tiers purchased. Digital programming tier subscribers are a subset of basic subscribers.
5 A high definition/digital video recorder (“HD/DVR”) converter box is defined as one box rented by a
digital programming or basic tier subscriber. A digital programming or basic tier subscriber is not
required to rent an HD/DVR converter box to receive service.
6 Year-to-date average monthly consumer video revenues divided by the average of consumer video
basic subscribers at the beginning and ending of the period.
7 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level
of service purchased. If one entity purchases multiple cable modem service access points, each
access point is counted as a subscriber. Cable modem subscribers may also be video basic
subscribers though basic cable service is not required to receive cable modem service.
8 A wireless line in service is defined as a revenue generating wireless device.
9 Year-to-date average monthly consumer wireless revenues divided by the average of consumer
wireless subscribers at the beginning and ending of the period.
Consumer Segment Revenues
The increase in voice revenue is primarily due to a $2.8 million or 14.9% increase in the monthly local service network
access fee and subscriber line charges as a result of increased local access lines partially offset by a $854,000 or 16.0%
decrease in recognized support from the USAC primarily due to a change in our revenue accrual estimation to more
precisely consider changes in FCC reimbursement and to consider uncertainties we believe may impact the amount of
reimbursement we will receive.
The increase in video revenue is primarily due to the following:
• A 7.4% increase in programming services revenue to $84.5 million in 2008 primarily resulting from an increase in
basic and digital programming tier subscribers in 2008, and
• A 19.1% increase in equipment rental revenue to $19.4 million in 2008 primarily resulting from our customers’
increased use of our HD/DVR converter boxes.
The increase in data revenue is primarily due to a 26.4% increase in cable modem revenue to $36.4 million due to
increased subscribers and their selection of more value-added features.
The increase in wireless revenue is primarily due to an increase in the number of wireless subscribers and receipt of
interstate common line support for prior periods. Due to the uncertainty in our ability to retroactively claim reimbursement
under the program, we accounted for this payment as a gain contingency and, accordingly, recognized revenue only upon
receipt of payment when realization was certain.
Consumer Segment Cost of Goods Sold
The decrease in voice Cost of Goods Sold is primarily due to cost savings resulting from the increased deployment of
local access services DLPS lines on our own facilities during 2008 and decreased voice minutes carried.
The video Cost of Goods Sold increase is primarily due to increased channels offered to our subscribers, increased rates
paid to programmers, increased costs associated with delivery of digital services offered over our HD/DVR converter
boxes due to the increased number of boxes in service, and increased subscribers.
The data Cost of Goods Sold increase is primarily due to increased internet circuit costs due to increased usage by
customers and an increased number of cable modem subscribers.
The decrease in wireless Cost of Goods Sold is primarily due to decreased costs due to the June 4, 2008 implementation
of the new distribution agreement with AT&T Mobility as described in "Part I – Item 1 – Development of our Business
During the Past Fiscal Year." The decrease was partially off-set by costs associated with the increased number of
wireless subscribers described above.
58
Consumer Segment Adjusted EBITDA
The increase in adjusted EBITDA was primarily due to increased margin resulting from increased subscribers for most
product lines in 2008 and reduced wireless Cost of Goods Sold as described in “Consumer Segment Cost of Goods Sold”
above. The increased margin was partially offset by an increase in the selling, general and administrative expense that
was allocated to our Consumer segment primarily due to an increase in the 2007 segment margin upon which the
allocation is based.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Network Access Segment Overview
Network access segment revenue represented 26.7% of 2008 consolidated Revenues. The components of Network
Access segment revenue are as follows (amounts in thousands):
Voice
Data
Wireless
Total Network Access segment revenue
$
2008
79,744
71,414
2,663
$ 153,821
2007
96,896
61,199
5,282
163,377
Percentage
Change
(17.7%)
16.7%
(49.6%)
(5.9%)
Network Access segment Cost of Goods Sold represented 19.9% of 2008 consolidated Cost of Goods Sold. The
components of Network Access segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Data
Wireless
$
2008
27,149
11,539
1,638
2007
31,042
12,081
745
Percentage
Change
(12.5%)
(4.5%)
119.9%
Total Network Access segment Cost of Goods
Sold
$
40,326
43,868
(8.1%)
Network Access segment adjusted EBITDA, representing 43.0% of 2008 consolidated adjusted EBITDA, is as follows
(amounts in thousands):
Network Access segment adjusted EBITDA
2008
73,647
$
2007
82,441
Percentage
Change
(10.7%)
Selected key performance indicators for our Network Access segment follow:
December 31,
2008
2007
Percentage
Change
Voice:
Long-distance minutes carried (in millions)
1,094
1,251
(12.5%)
Data:
Total Internet service provider access lines in
service1
1,800
2,600
(30.8%)
1 An Internet service provider access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone network.
59
Network Access Segment Revenues
The decrease in voice revenue is primarily due to the June 4, 2008 implementation of the new distribution agreement with
AT&T Mobility as described in "Part I – Item 1 – Development of our Business During the Past Fiscal Year." The voice
revenue decrease also resulted from an 8% decrease in our average rate per minute on billable minutes carried for our
common carrier customers and the transition of voice traffic to dedicated networks. The average rate per minute
decrease is primarily due to a change in the composition of traffic and a 3.0% rate decrease mandated by federal law
which will result in annual rate decreases of 3.0%.
The increase in data revenue is primarily due to an increase in circuits sold and from other common carriers moving
switched voice services to data networks.
The decrease in wireless revenue results primarily from a decrease in our rate per minute on billable minutes carried for
customers roaming on our network
Network Access Segment Cost of Goods Sold
The decrease in voice Cost of Goods Sold is primarily due to decreased long-distance minutes carried. Partially offsetting
this decrease is the absence of an $879,000 favorable adjustment based upon a refund for which negotiations were
completed in 2007. In the course of business, we estimate unbilled long-distance services Cost of Goods Sold based
upon minutes of use processed through our network and established rates. Such estimates are revised when subsequent
billings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or
when disputed charges are resolved.
The decrease in data Cost of Goods Sold is primarily due to the absence of $878,000 in costs to repair breaks in our
undersea and terrestrial fiber-optic cable systems in 2007 that did not recur in 2008.
Network Access Segment Adjusted EBITDA
The adjusted EBITDA decrease was primarily due to decreased margin resulting from the decreased rate per minute on
billable minutes carried for our common carrier customers. The decreased margin was partially offset by an increase in
data circuits sold in 2008.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Commercial Segment Overview
Commercial segment revenue represented 19.9% of 2008 consolidated revenues. The components of Commercial
segment revenue are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Commercial segment revenue
$
2008
29,398
9,604
70,068
5,590
$ 114,660
2007
30,761
8,018
61,052
4,809
104,640
Percentage
Change
(4.4%)
19.8%
14.8%
16.2%
9.6%
Commercial segment Cost of Goods Sold represented 29.3% of 2008 consolidated Cost of Goods Sold. The components
of Commercial segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Commercial segment Cost of Goods Sold
2008
19,581
1,551
34,391
3,957
59,480
$
$
2007
20,225
1,616
27,469
4,182
53,492
Percentage
Change
(3.2%)
(4.0%)
25.2%
(5.4%)
11.2%
60
Commercial segment adjusted EBITDA, representing 12.1% of 2008 consolidated adjusted EBITDA, is as follows
(amounts in thousands):
Commercial segment adjusted EBITDA
2008
20,710
$
2007
16,164
Percentage
Change
28.1%
Selected key performance indicators for our Commercial segment follow:
Voice:
Long-distance subscribers1
Total local access lines in service2
Local access lines in service on GCI facilities 2
Long-distance minutes carried (in millions)
Data:
Cable modem subscribers3
Wireless:
Wireless lines in service4
December 31,
2008
2007
Percentage
Change
9,700
46,200
18,700
129.5
10,500
43,100
12,500
131.3
(7.6%)
7.2%
49.6%
(1.3%)
8,900
8,500
4.7%
7,600
7,300
4.1%
1 A long-distance customer is defined as a customer account that is invoiced a monthly long-distance
plan fee or has made a long-distance call during the month.
2 A local access line in service is defined as a revenue generating circuit or channel connecting a
customer to the public switched telephone network.
3 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level
of service purchased. If one entity purchases multiple cable modem service access points, each
access point is counted as a subscriber.
4 A wireless line in service is defined as a revenue generating wireless device.
Commercial Segment Revenues
The decrease in voice revenue is primarily due to decreased long-distance subscribers and decreased voice minutes
carried partially off-set by increased local access lines in service.
The increase in video revenue is primarily due to an increase in sales of cable advertising services due to the summer
Olympics programming and state and federal political advertising.
Commercial segment data revenue is comprised of monthly recurring charges for data services and charges billed on a
time and materials basis largely for personnel providing on-site customer support. This latter category can vary
significantly based on project activity. The increase in data revenue is primarily due to a $6.8 million or 23.1% increase in
managed services project revenue, and a $2.7 million or 18.6% increase in Internet revenue primarily due to increased
dedicated access service and enterprise data network service sales, and a non-recurring $500,000 credit issued to a
customer in June 2007.
Commercial Segment Cost of Goods Sold
The decrease in voice Cost of Goods Sold resulted primarily from an increase in local access lines in service on GCI
facilities.
The increase in data Cost of Goods Sold resulted primarily from an increase in contract labor and internal labor classified
as Cost of Goods Sold due to the increase in managed services project revenue discussed above under "Commercial
Segment Revenues."
61
Commercial Segment Adjusted EBITDA
The adjusted EBITDA increase was primarily due to increased margin resulting from increased dedicated access service
and enterprise data network service sales, additional managed services projects and increased subscribers for most
product lines in 2008.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Managed Broadband Segment Overview
Managed Broadband segment revenue, Cost of Goods sold and adjusted EBITDA represented 6.4%, 5.1% and 8.3% of
2008 consolidated revenues, Cost of Goods Sold and adjusted EBITDA, respectively.
Selected key performance indicators for our Managed Broadband segment follow:
Managed Broadband segment:
SchoolAccess® customers
Rural health customers
December 31,
2008
2007
Percentage
Change
54
53
51
21
5.9%
152.4%
Managed Broadband Segment Revenues
Managed Broadband segment revenue, which includes data products only, increased 28.7% to $37.0 million in 2008 as
compared to 2007. The increase is primarily due to increased circuits purchased by our Rural Health and SchoolAccess®
customers and revenue totaling $4.8 million from our acquisition of Unicom effective June 1, 2008. The Rural Health
customer increase from 2007 to 2008 is primarily due to the addition of numerous customers with low recurring revenues.
Managed Broadband Segment Cost of Goods Sold
Managed Broadband segment Cost of Goods Sold increased 5.4% to $10.3 million in 2008 primarily due to costs
associated with the increased revenue.
Managed Broadband Segment Adjusted EBITDA
Managed Broadband segment adjusted EBITDA increased 70.9% to $14.2 million in 2008 primarily due to an increase in
the margin resulting from increased circuits sold to our rural health and SchoolAccess® customers.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Regulated Operations Segment Overview
Regulated Operations segment revenue represented 2.5% of 2008 consolidated revenues, Cost of Goods Sold
represented 1.5% of 2008 consolidated Cost of Goods Sold and adjusted EBITDA represented 2.1% of 2008 consolidated
adjusted EBITDA. The Regulated Operations segment includes voice, data and wireless services.
Selected key performance indicators for our Regulated Operations segment follow:
Voice:
Long-distance subscribers1
Long-distance minutes carried (in thousands)
Total local access lines in service2
December 31,
2008
2007
Percentage
Change
900
844
12,100
NA
NA
NA
NA
NA
NA
1 A long-distance subscriber is defined as a customer account that is invoiced a monthly long-distance
plan fee or has made a long-distance call during the month.
2 A local access line in service is defined as a revenue generating circuit or channel connecting a
customer to the public switched telephone network.
62
NA – Not Applicable
Regulated Operations Segment Revenues
We completed our acquisition of UUI and Unicom effective June 1, 2008. In connection with this acquisition, we
recognized revenues of $21.1 million from the acquired operations during 2008 with $14.3 million recorded in the
Regulated Operations segment and the remaining revenues recorded in the Network Access and Managed Broadband
segments.
Regulated Operations Segment Cost of Goods Sold
In connection with our acquisition of UUI and Unicom we recognized Cost of Goods Sold of $4.2 million during 2008 with
$3.1 million recorded in the Regulated Operations segment and the remaining Cost of Goods Sold recorded in the
Network Access and Managed Broadband segments.
Regulated Operations Segment Adjusted EBITDA
Regulated Operations segment adjusted EBITDA was $3.6 million in 2008.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 19.7% to $210.3 million in 2008 primarily due to the following:
• A $15.8 million increase in labor costs,
• $7.5 million in additional expense resulting from our June 1, 2008, acquisition of UUI and Unicom,
• A $2.3 million increase in our share-based compensation expense,
• Upon our acquisition of the remaining 18% of Alaska DigiTel we paid $1.8 million to terminate the management
agreement entered into in January 2007, when we acquired 82% of the outstanding shares of Alaska DigiTel,
• A $1.8 million increase in our company-wide success sharing bonus accrual in 2008,
• A $1.4 million increase in our facilities lease expense, and
• $1.2 million in additional expense incurred in 2008 for the conversion of our customers’ wireless phones to our
facilities.
The selling, general and administrative expenses increase is partially off-set by a $1.4 million decrease in bad debt
expense primarily due to improvements in our collections of consumer accounts receivable.
As a percentage of total revenues, selling, general and administrative expenses increased to 36.6% in 2008 from 33.8%
in 2007, primarily due to the net increases described above without a proportional increase in revenues.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 30.5% to $114.4 million in 2008. The increase is primarily due to our
$112.7 million investment in equipment and facilities placed into service during 2007 for which a full year of depreciation
was recorded in 2008, the $322.3 million investment in equipment and facilities placed into service during the year ended
December 31, 2008 for which a partial year of depreciation was recorded in 2008, and a $12.0 million depreciation charge
in 2008 to reflect a decrease in the estimated useful life of certain assets decommissioned in 2008.
Effective January 1, 2008, we prospectively changed our accounting policy for recording depreciation on our property and
equipment placed in service. For assets placed in service on or after January 1, 2008, we are using a mid-month
convention to recognize depreciation expense. Previous to this change, we used the half-year convention to recognize
depreciation expense in the year an asset was placed in service, regardless of the month the property and equipment was
placed in service. We believe the mid-month convention is preferable because it results in more precise recognition of
depreciation expense over the estimated useful life of the asset. No retroactive adjustment has been made. As a result of
this accounting change, our reported amount of depreciation expense has decreased $521,000, our reported operating
income has increased $521,000, and our reported net loss has decreased $214,000. Our change in accounting policy
would not have changed our reported basic or diluted EPS in 2008.
63
Other Expense, Net
Other expense, net of other income, increased 37.6% to $48.5 million in 2008 primarily due to the following:
• A $13.9 million increase in interest expense to $48.3 million in 2008 due to a $6.4 million increase in interest
expense on our Senior Credit Facility to $17.7 million resulting from additional debt from the Additional
Incremental Term Loan agreement beginning in May 2008 and the increased interest rate on our Senior Credit
Facility beginning May 2008,
• $3.9 million in additional interest expense resulting from the Galaxy 18 capital lease commencing in May 2008,
• A loss of $921,000 relating to the fair value change on derivative instruments was reported in interest expense,
and
• $906,000 of additional interest expense as a result of our acquisition of UUI in June 2008.
The increases described above are partially offset by an increase in capitalized interest from $3.3 million in 2007 to $4.2
million in 2008.
Income Tax Expense
Income tax expense totaled $1.1 million and $12.2 million in 2008 and 2007, respectively. Our effective income tax rate
increased from 47.0% in 2007 to 136.0% in 2008 primarily due to the large amount of permanent differences in 2008 as
compared to our net loss before income tax expense.
At December 31, 2008, we have (1) tax net operating loss carryforwards of $160.9 million that will begin expiring in 2011 if
not utilized, and (2) alternative minimum tax credit carryforwards of $3.1 million available to offset regular income taxes
payable in future years.
We have recorded deferred tax assets of $67.3 million associated with income tax net operating losses that were
generated from 1995 to 2008, and that expire from 2011 to 2028, and with charitable contributions that were converted to
net operating losses in 2004 through 2007, and that expire in 2024 through 2027, respectively.
Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through
future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced if
estimates of future taxable income during the carryforward period are reduced which would result in additional income tax
expense. We estimate that our effective annual income tax rate for financial statement purposes will be 49% to 51% in the
year ended December 31, 2009.
Year Ended December 31, 2007 (“2007”) Compared to Year Ended December 31, 2006 (“2006”)
Overview of Revenues and Cost of Goods Sold
Total revenues increased 9.0% from $477.5 million in 2006 to $520.3 million in 2007. Revenue increases in our
Consumer and Managed Broadband segments were partially off-set by decreases in our Network Access and
Commercial segments. See the discussion below for more information by segment.
Total Cost of Goods Sold increased 15.8% from $169.1 million in 2006 to $195.8 million in 2007. Cost of Goods Sold
increased in all of our segments. See the discussion below for more information by segment.
Consumer Segment Overview
Consumer segment revenue represented 43.0% of 2007 consolidated revenues. The components of Consumer segment
revenue are as follow (amounts in thousands):
Voice
Video
Data
Wireless
Total Consumer segment revenue
$
2007
46,212
96,327
34,230
46,733
$ 223,502
2006
45,625
90,226
29,406
13,694
178,951
Percentage
Change
1.3%
6.8%
16.4%
241.3%
24.9%
64
Consumer segment Cost of Goods Sold represented 45.3% of 2007 consolidated Cost of Goods Sold. The components of
Consumer segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Consumer segment Cost of Goods Sold
2007
20,364
34,301
5,313
28,721
88,699
$
$
2006
22,165
31,124
4,489
13,885
71,663
Percentage
Change
(8.1%)
10.2%
18.4%
106.9%
23.8%
Consumer segment adjusted EBITDA representing 30.5% of 2007 consolidated adjusted EBITDA is as follows (amounts
in thousands):
Consumer segment adjusted EBITDA
2007
46,808
$
2006
32,550
Percentage
Change
43.8%
Selected key performance indicators for our Consumer segment follow:
Voice:
Long-distance subscribers1
Long-distance minutes carried (in millions)
Total local access lines in service2
Local access lines in service on GCI facilities2
Video:
Basic subscribers3
Digital programming tier subscribers4
HD/DVR converter boxes5
Homes passed
Average monthly gross revenue per subscriber6
Data:
Cable modem subscribers7
Wireless:
Wireless lines in service8
Average monthly gross revenue per subscriber9
December 31,
2007
2006
Percentage
Change
89,900
135.8
74,400
50,700
128,000
65,800
50,200
224,700
$64.01
89,800
141.9
66,200
31,400
124,000
58,700
29,200
219,900
$61.57
0.1%
(4.3%)
12.4%
61.5%
3.2%
12.1%
71.9%
2.2%
4.0%
88,000
78,500
12.1%
70,000
$58.29
24,400
$52.21
186.9%
11.6%
All footnote references correspond to the footnotes in the table under "Year Ended December 31, 2008
Compared to Year Ended December 31, 2007" – Consumer Segment Overview.
Consumer Segment Revenues
The increase in voice revenue is primarily due to a $991,000 or 15.8% increase in the monthly local service network
access fee in April 2007 and a $508,000 or 4.6% increase due to increased local access lines partially offset by a
$474,000 or 44.7% decrease in support from the USF Program.
The increase in video revenue is primarily due to the following:
• A 22.7% increase in equipment rental revenue to $16.3 million in 2007 primarily resulting from our customers’
increased use of HD/DVR converter boxes, and
65
• A 4.1% increase in programming services revenue to $78.6 million in 2007 primarily resulting from an increase in
digital programming tier subscribers in 2007 and increased rates charged for certain cable services primarily
effective in the fourth quarter of 2006.
The increase in data revenue is primarily due to a 17.0% increase in cable modem revenue to $28.8 million primarily due
to increased subscribers.
The increase in wireless revenue is due to our January 1, 2007 acquisition of Alaska DigiTel and a $9.9 million or 72.3%
increase in the wireless revenue from our resale agreement primarily due to increased subscribers. Consumer segment
wireless revenues from our Alaska DigiTel investment totaled $23.1 million in 2007.
Consumer Segment Cost of Goods Sold
The decrease in voice Cost of Goods Sold is primarily due to cost savings resulting from the increased deployment of
DLPS lines during the year ended December 31, 2007 and decreased voice minutes carried.
The voice Cost of Goods Sold decrease is partially off-set by an increased UNE loop cost charged by ACS due to the
Settlement Agreement, as further described and defined above in “Part I – Item 1 – Regulation.”
The video Cost of Goods Sold increase is primarily due to increased channels offered to our subscribers in three of
Alaska’s five largest population centers and increased rates paid to programmers, increased costs associated with
delivery of digital services offered over our HD/DVR converter boxes due to the increased number of boxes in service,
and increased subscribers.
The data Cost of Goods Sold increase is primarily due to increased satellite costs due to increased usage by existing
customers and an increased number of cable modem subscribers.
The wireless Cost of Goods Sold increase is primarily due to our January 1, 2007 acquisition of Alaska DigiTel and a $7.3
million or 52.8% increase in our wireless service Cost of Goods Sold related to increased wireless service revenue from
our resale agreement. Consumer segment wireless Cost of Goods Sold from our Alaska DigiTel investment totaled $6.4
million in 2007.
Consumer Segment Adjusted EBITDA
The increase in adjusted EBITDA was primarily due to increased margin resulting from increased subscribers for most
product lines in 2007. The increased margin was partially offset by an increase in the selling, general and administrative
expense that was allocated to our Consumer segment primarily due to an increase in the 2006 segment margin upon
which the allocation is based.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Network Access Segment Overview
Network access segment revenue represented 31.4% of 2007 consolidated Revenues. The components of Network
Access segment revenue are as follows (amounts in thousands):
Voice
Data
Wireless
Total Network Access segment revenue
NM – Not meaningful.
$
2007
96,896
61,199
5,282
$ 163,377
2006
110,834
55,637
---
166,471
Percentage
Change
(12.6%)
10.0%
NM
(1.9%)
66
Network Access segment Cost of Goods Sold represented 22.4% of 2007 consolidated Cost of Goods Sold. The
components of Network Access segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Data
Wireless
Total Network Access segment Cost of Goods
Sold
NM – Not meaningful.
$
2007
31,042
12,081
745
2006
30,390
9,567
---
Percentage
Change
2.1%
26.3%
NM
$
43,868
39,957
9.8%
Network Access segment adjusted EBITDA, representing 53.6% of 2007 consolidated adjusted EBITDA is as follows
(amounts in thousands):
Network Access segment adjusted EBITDA
2007
82,441
$
2006
93,450
Percentage
Change
(11.8%)
Selected key performance indicators for our Network Access segment follow:
December 31,
2007
2006
Percentage
Change
Voice:
Long-distance minutes carried (in millions)
1,251
1,317
(5.0%)
Data:
Total Internet service provider access lines in
service1
2,600
3,100
(16.1%)
1 An Internet service provider access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone network.
Network Access Segment Revenues
The decrease in voice revenue is primarily due to decreased billable minutes and a 6.4% decrease in our rate per minute
on billable minutes carried for our common carrier customers. The average rate per minute decrease is primarily due to a
change in the composition of traffic and a 3.0% rate decrease mandated by federal law which will result in annual rate
decreases of 3.0%.
The increase in data revenue is primarily due to an increase in circuits sold.
The Network Access segment wireless revenue results from our January 1, 2007 acquisition of Alaska DigiTel.
Network Access Segment Cost of Goods Sold
The increase in voice Cost of Goods Sold is primarily due to an average cost per minute increase due to a change in the
composition of traffic and is partially off-set by decreased long-distance minutes carried.
The increase in data Cost of Goods Sold is primarily due to costs associated with the increased circuits sold discussed
above and $878,000 in costs to repair breaks in our undersea and terrestrial fiber-optic cable systems.
The Network Access segment wireless Cost of Goods Sold results from our January 1, 2007 acquisition of Alaska DigiTel.
Network Access Segment Adjusted EBITDA
The adjusted EBITDA decrease was primarily due to decreased margin resulting from the decreased rate per minute on
billable minutes carried for our common carrier customers. The decreased margin was partially offset by a decrease in
the selling, general and administrative expense allocated to our Network Access segment primarily due to a decrease in
the 2006 segment margin upon which the allocation is based.
67
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Commercial Segment Overview
Commercial segment revenue represented 20.1% of 2007 consolidated revenues. The components of Commercial
segment revenue are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Commercial segment revenue
$
2007
30,761
8,018
61,052
4,809
$ 104,640
2006
32,162
7,993
63,276
2,498
105,929
Percentage
Change
(4.4%)
0.3%
(3.5%)
92.5%
(1.2%)
Commercial segment Cost of Goods Sold represented 27.3% of 2007 consolidated Cost of Goods Sold. The components
of Commercial segment Cost of Goods Sold are as follows (amounts in thousands):
Voice
Video
Data
Wireless
Total Commercial segment Cost of Goods Sold
2007
20,225
1,616
27,469
4,182
53,492
$
$
2006
21,640
1,442
24,619
2,608
50,309
Percentage
Change
(6.6%)
12.1%
11.6%
60.4%
6.3%
Commercial segment adjusted EBITDA, representing 10.5% of 2007 consolidated adjusted EBITDA, is as follows
(amounts in thousands):
Commercial segment adjusted EBITDA
2007
16,164
$
2006
21,164
Percentage
Change
(23.6%)
Selected key performance indicators for our Commercial segment follow:
Voice:
Long-distance subscribers1
Total local access lines in service2
Local access lines in service on GCI facilities 2
Long-distance minutes carried (in millions)
Data:
Cable modem subscribers3
Wireless:
Wireless lines in service4
December 31,
2007
10,500
43,100
12,500
131.3
2006
11,100
41,900
8,400
131.8
Percentage
Change
(5.4%)
2.9%
48.8%
(0.4%)
8,500
7,800
9.0%
7,300
4,600
58.7%
All footnote references correspond to the footnotes in the table under "Year Ended December 31, 2008
Compared to Year Ended December 31, 2007" – Commercial Segment Overview.
We leased a portion of our 800-mile fiber optic system capacity that extends from Prudhoe Bay to Valdez via Fairbanks,
and provided management and maintenance services for this capacity to a significant customer. The lessee signed a
68
contract with a competitor in March 2005, started the transition of their circuits from our fiber optic cable system to our
competitor’s microwave system in June 2006, and completed the transition in April 2007. In November 2006, we signed
an agreement with our competitor to lease capacity on our fiber optic cable system and provide certain other services to
them in association with their contract.
Commercial Segment Revenues
The decrease in voice revenue is due to decreased long distance subscribers and decreased minutes carried. Revenues
associated with increased local access lines in service partially off-set this decrease.
The decrease in data revenue is primarily due to a $7.9 million or 58.2% decrease in revenue earned from the lease and
provision of management and maintenance services on a portion of our 800-mile fiber optic system capacity that extends
from Prudhoe Bay to Valdez via Fairbanks as described above and a decrease in revenue earned from a large customer
who reduced their services with us. The decrease is partially off-set by a $4.6 million increase in managed services
project revenue and growth in our private IP product resulting from new customers and increased coverage for existing
customers.
The increase in wireless revenue is primarily due to increased subscribers to our wireless offerings from our resale
agreement.
Commercial Segment Cost of Goods Sold
The decrease in voice Cost of Goods Sold is due to savings resulting from increased provision of services through our
own facilities in 2007, decreased voice minutes carried, and decreased costs associated with decreased long-distance
subscribers. The voice Cost of Goods Sold decrease is partially off-set by an increased UNE loop cost charged by ACS
due to the Settlement Agreement, as further described and defined above in “Part I – Item 1 – Regulation.”
The increase in data Cost of Goods Sold resulted primarily from an increase in contract labor and internal labor classified
as Cost of Good Sold due to the increase in managed service project revenue discussed above.
The wireless Cost of Goods Sold increase is primarily due to increased wireless service revenue from our resale
agreement.
Commercial Segment Adjusted EBITDA
The adjusted EBITDA decrease was primarily due to the decreased revenue discussed above without a similar decrease
in expenses.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Managed Broadband Segment Overview
Managed Broadband segment revenue and Cost of Goods sold represented 5.5% and 5.0% of 2007 consolidated
revenues and Cost of Goods Sold, respectively. Managed Broadband segment adjusted EBITDA represented 5.4% of
2007 consolidated adjusted EBITDA.
Selected key performance indicators for our Managed Broadband segment follow:
Managed Broadband segment:
SchoolAccess® customers
Rural health customers
December 31,
2007
2006
Percentage
Change
51
21
48
21
6.3%
0.0%
Managed Broadband Segment Revenues
Managed Broadband segment revenue, which includes data products only, increased 10.2% to $28.8 million in 2007 as
compared to 2006. The increase is primarily due to increased circuits purchased by our Rural Health and SchoolAccess®
customers and several 2007 product sales that did not occur in 2006.
69
Managed Broadband Segment Cost of Goods Sold
Managed Broadband segment Cost of Goods Sold increased $2.6 million to $9.7 million from 2006 to 2007 primarily due
to costs associated with the product sales and increased circuits purchased as discussed above.
Managed Broadband Segment Adjusted EBITDA
Managed Broadband segment adjusted EBITDA decreased $762,000 to $8.3 million in 2007 primarily due to an increase
in Cost of Goods Sold resulting from increased circuits sold to our rural health and SchoolAccess® customers.
See note 10 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for
a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before
income taxes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 10.6% to $175.8 million in 2007 primarily due to the following:
• Recognition of $15.5 million in additional expense resulting from our January 1, 2007 acquisition of Alaska
DigiTel,
• A $3.8 million increase in labor and benefits costs, and
• A $1.4 million increase in bad debt expense primarily due to the realization of recoveries for certain Managed
Broadband services customers and MCI, Inc. (merged with Verizon Communications, Inc.) in 2006 through a
reduction to bad debt expense which did not recur in 2007.
The selling, general and administrative expenses increase is partially off-set by the following:
• A $2.2 million decrease in certain promotion expenses, and
• A $658,000 decrease in our company-wide success sharing bonus accrual in 2007.
As a percentage of total revenues, selling, general and administrative expenses increased to 33.8% in 2007 from 33.3%
in 2006, primarily due to the net increases described above without a proportional increase in revenues.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 6.7% to $87.6 million in 2007. The increase is primarily due to our
$83.4 million investment in equipment and facilities placed into service during 2006 for which a full year of depreciation
was recorded in 2007, the $113.3 million investment in equipment and facilities placed into service during the year ended
December 31, 2007 for which a partial year of depreciation was recorded in 2007, and the increased depreciation and
amortization expense recognized in 2007 on the depreciable and amortizable assets recorded upon the acquisition and
consolidation of Alaska DigiTel. The depreciation and amortization expense increase is partially off-set by the $790,000
software impairment recognized in 2006 upon the closure of an operating segment.
Other Expense, Net
Other expense, net of other income, increased 6.6% to $35.3 million in 2007 primarily due to the following:
• A $2.5 million or 7.2% increase in interest costs due to an increase in our average outstanding debt balance in
2007 as compared to 2006,
• A $1.3 million or 70.5% decrease in interest income in 2007 resulting from a decrease in our average cash and
•
cash equivalents balance in 2007 as compared to 2006, and
In the third quarter of 2007, we substantially modified our Senior Credit Facility resulting in loan fee expense of
$611,000.
The increases described above are partially offset by an increase in capitalized interest from $820,000 in 2006 to $3.3
million in 2007 primarily due to increased qualifying capital expenditures upon which capitalized interest is calculated.
Income Tax Expense
Income tax expense totaled $12.2 million and $15.8 million in 2007 and 2006, respectively. Our effective income tax rate
increased from 46.1% in 2006 to 47.0% in 2007 primarily due to increases in permanent differences in 2007.
70
Cumulative Effect of a Change in Accounting Principle
On January 1, 2006 we adopted SFAS No. 123(R), “Share-Based Payment.” SFAS 123(R) requires us to estimate pre-
vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. We record share-based compensation expense only for those awards expected to
vest using an estimated forfeiture rate based on our historical pre-vesting forfeiture data. Previously, we accounted for
forfeitures as they occurred under the pro forma disclosure provisions of SFAS 123 for periods prior to 2006. The
transition impact (benefit) of adopting SFAS No. 123(R) attributed to accruing for expected forfeitures on outstanding
share-based awards totaled $108,000, which was reduced by income tax expense of $44,000, and is reported as a
cumulative effect of a change in accounting principle during the year ended December 31, 2006 in the accompanying
Consolidated Statements of Operations.
Multiple System Operator (“MSO”) Operating Statistics
Our operating statistics include capital expenditures and customer information from our Consumer and Commercial
segments which offer services utilizing our cable services’ facilities.
Our capital expenditures including non-cash additions by standard reporting category in 2008, 2007 and 2006 follow
(amounts in thousands):
Line extensions
Customer premise equipment
Scalable infrastructure
Upgrade/rebuild
Commercial
Support capital
Sub-total
Remaining reportable segments capital
expenditures
$
2008
35,813
22,821
2,985
2,705
2,206
1,277
67,807
2007
62,984
23,554
4,749
1,451
392
1,317
94,447
2006
24,126
14,771
1,062
4,145
138
1,146
45,388
261,063
$ 328,870
64,569
159,016
59,672
105,060
The standardized definition of a customer relationship is the number of customers that receive at least one level of service
utilizing our cable service facilities, encompassing voice, video, and data services, without regard to which services
customers purchase. At December 31, 2008, 2007 and 2006 we had 133,400, 129,000 and 125,300 customer
relationships, respectively.
The standardized definition of a revenue generating unit is the sum of all primary analog video, digital video, high-speed
data, and telephony customers, not counting additional outlets. At December 31, 2008, 2007 and 2006 we had 327,200,
295,200 and 249,300 revenue generating units, respectively.
Liquidity and Capital Resources
Our principal sources of current liquidity are cash and cash equivalents. We believe, but can provide no assurances, that
we will be able to meet our current and long-term liquidity and capital requirements and fixed charges through our cash
flows from operating activities, existing cash, cash equivalents, credit facilities, and other external financing and equity
sources. Should operating cash flows be insufficient to support additional borrowings and principal payments scheduled
under our existing credit facilities, capital expenditures will likely be reduced.
Global capital and credit markets have recently experienced increased volatility and disruption. Despite this volatility and
disruption, we continue to have full access to our Senior Credit Facility. Although there can be no assurances in these
difficult economic times that financial institutions will continue to provide financing, we believe that the lenders
participating in our credit facilities will be willing and able to provide financing to us in accordance with their legal
obligations under our credit facilities. While our short-term and long-term financing abilities are believed to be adequate as
a supplement to internally generated cash flows to fund capital expenditures and acquisitions as opportunities arise, the
current decline in the global financial markets may negatively impact our ability to access the capital markets in a timely
manner and on attractive terms, which may have a negative impact on our ability to grow our business.
We monitor the third-party depository institutions that hold our cash and cash equivalents on a daily basis. Our emphasis
is primarily on safety of principal and secondarily on maximizing yield on those funds.
71
Our net cash flows provided by and (used for) operating, investing and financing activities, as reflected in the
Consolidated Statement of Cash Flows for 2008 and 2007, are summarized as follows:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
2008
175,335
(290,967)
132,462
16,830
$
$
2007
110,288
(175,087)
20,226
(44,573)
Operating Activities
The increase in cash flows provided by operating activities is due primarily to a $49.2 million increase in long-term
deferred revenue due to cash received from IRU capacity agreements.
Investing Activities
The increase in cash flows used for investing activities is due primarily to 2008 cash expenditures of $221.5 million for
property and equipment, including construction in progress, the purchase of the stock of the UUI and Unicom subsidiaries
of UCI for $40.2 million, net of cash received, the purchase of the remaining minority interest in Alaska DigiTel for $10.4
million, and the purchase of the stock of Alaska Wireless for $14.5 million.
Financing Activities
The increase in cash flows provided by financing activities is due primarily to borrowing of $144.5 million in 2008.
Senior Notes
We have outstanding Senior Notes of $317.4 million at December 31, 2008. We pay interest of 7.25% on the Senior
Notes and they are due in 2014. The Senior Notes are carried on our Consolidated Balance Sheet net of the unamortized
portion of the discount, which is being amortized to Interest Expense over the term of the Senior Notes.
The Senior Notes are not redeemable prior to February 15, 2009. At any time on or after February 15, 2009, the Senior
Notes are redeemable at our option, in whole or in part, on not less than thirty days nor more than sixty days notice, at the
following redemption prices, plus accrued and unpaid interest (if any) to the date of redemption:
If redeemed during the twelve month period
commencing February 1 of the year
indicated:
2009
2010
2011
2012 and thereafter
Redemption Price
103.625%
102.417%
101.208%
100.000%
The Senior Notes restrict GCI, Inc. and certain of its subsidiaries from incurring debt, but permits debt under the Senior
Credit Facility and vendor financing as long as our leverage ratio does not exceed 6.0 to one. In addition, certain other
debt is permitted regardless of our leverage ratio, including debt under the Senior Credit Facility not exceeding (and
reduced by certain stated items):
• $250.0 million, reduced by the amount of any prepayments, or
• 3.0 times earnings before interest, taxes, depreciation and amortization for the last four full fiscal quarters of GCI,
Inc. and its subsidiaries.
The Senior Notes limit the ability of our subsidiaries to make cash dividend payments to GCI.
Semi-annual interest payments of $11.6 million are payable in February and August of each year.
The Senior Notes are structurally subordinate to our Senior Credit Facility.
Our Senior Notes’ key debt covenants require our Total Leverage Ratio (as defined) be 6.0:1.0 or less and our Senior
Leverage Ratio (as defined) be 3.0:1.0 or less if our Senior Debt (as defined) is greater than $250.0 million.
72
We were in compliance with all Senior Notes loan covenants at December 31, 2008.
Senior Credit Facility
The Senior Credit Facility includes a $360.0 million term loan, including the Additional Incremental Term Loan discussed
below, and a $100.0 million revolving credit facility with a $25.0 million sublimit for letters of credit. Our term loan is fully
drawn.
In May 2008, we signed an agreement to add an Additional Incremental Term Loan of $145.0 million to our then existing
Senior Credit Facility. The Additional Incremental Term Loan will become due under the same terms and conditions as
set forth in the existing Senior Credit Facility.
The Additional Incremental Term Loan increased the interest rate on the term loan component of our Senior Credit Facility
from LIBOR plus 2.00% to LIBOR plus 4.25%. The Additional Incremental Term Loan increased the revolving credit
facility interest rate for our Senior Credit Facility from LIBOR plus a margin dependent upon our Total Leverage Ratio
ranging from 1.50% to 2.25% to LIBOR plus the following Applicable Margin set forth opposite each applicable Total
Leverage Ratio below:
Total Leverage
Ratio (as defined)
>3.75
>3.25 but <3.75
>2.75 but <3.25
<2.75
Applicable
Margin
4.25%
3.75%
3.25%
2.75%
The commitment fee we are required to pay on the unused portion of the commitment is 0.5%.
Substantially all of the Company's assets collateralize the Senior Credit Facility.
$145.0 million was drawn on the Additional Incremental Term Loan at the time of the debt modification. We used $30.0
million of the proceeds to repay the revolver portion of our Senior Credit Facility and our loan proceeds were reduced by
$2.9 million for an original issue discount and $1.5 million for bank and legal fees associated with the new term loan. We
borrowed $10.0 million under our revolving credit facility in October 2008 and we have letters of credit outstanding totaling
$4.0 million, which leaves $86.0 million available for borrowing under the revolving credit facility as of December 31, 2008
if needed.
The Term Loan allows for the repurchase of our common stock under our buyback program when our total debt leverage
is below 4.0 times adjusted EBITDA. The amendment revised various financial covenants in the agreement and made
conforming changes to various covenants to permit our 2008 acquisitions. Additionally, our loan proceeds were reduced
by $2.9 million for an original issue discount. The discount on the term loan is being amortized into interest expense using
the effective interest method.
Borrowings under the Senior Credit Facility are subject to certain financial covenants and restrictions on indebtedness,
dividend payments, financial guarantees, business combinations, and other related items. At December 31, 2008 we
were in compliance with all loan covenants relating to our Senior Credit Facility.
Our Senior Credit Facility, which was further amended in October 2008 to allow an additional $15.0 million in capital
expenditures for the year ended December 31, 2008, also limits the amount of capital expenditures, excluding acquisitions
that we can incur each year.
If our capital expenditures for a given year are less than the maximum, the difference between the amount incurred and
the maximum capital expenditure limitation may be carried over to the following year if certain levels of EBITDA are met.
The transaction in May 2008 to add an Additional Incremental Term Loan of up to $145.0 million to our existing Senior
Credit Facility was a partial substantial modification of our existing Senior Credit Facility resulting in a $667,000 write-off of
previously deferred loan fees during the twelve months ended December 31, 2008 in our Consolidated Statement of
73
Operations. Deferred loan fees of $58,000 associated with the portion of our existing Senior Credit Facility determined
not to have been substantially modified continue to be amortized over the remaining life of the Senior Credit Facility.
Additionally, in connection with the Additional Incremental Term Loan, we paid bank fees and other expenses of $1.6
million during 2008, of which $527,000 were immediately expensed in 2008 and $1.1 million were deferred and are being
amortized over the remaining life of the Senior Credit Facility.
In connection with the October 2008 amendment to the Senior Credit Facility, we paid loan fees of $453,000 which are
being amortized over the remaining life of the Senior Credit Facility. The October amendment to the Senior Credit Facility
was determined not to be a substantial modification.
Rural Utilities Services and CoBank Mortgage Note Payable
We acquired long-term debt of $43.6 million upon our acquisition of UUI and Unicom effective June 1, 2008. As of
December 31, 2008, the long-term debt consists of $35.3 million from the Rural Utility Services (“RUS”) and $3.5 million
mortgage note payable due to CoBank. The long-term debt is due in monthly installments of principal based on fixed rate
amortization schedules. The interest rates on the various loans to which this debt relates range from 2.0% to 6.76%.
Through UUI and Unicom, we have $9.9 million available for borrowing for specific capital expenditures under existing
borrowing arrangements. At December 31, 2008 we were in compliance with all loan covenants relating to our RUS and
CoBank debt. Substantially all of the assets of our subsidiaries, UUI and Unicom are collateral for the amounts due to
RUS and CoBank.
Total Long-term Debt
As of December 31, 2008 maturities of long-term debt were as follows (amounts in thousands):
Years ending December 31,
2009
2010
2011
2012
2013
2014 and thereafter
Less unamortized discount paid on Senior Notes
Less unamortized discount paid on Senior Credit Facility
Less current portion of long-term debt
$
$
8,425
8,657
188,147
176,323
4,749
335,585
721,886
2,589
2,466
8,425
708,406
See note 6 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a
discussion of our debt.
Capital Lease Obligation
On March 31, 2006, through our subsidiary GCI Communication Corp. we entered into an agreement to lease transponder
capacity on Intelsat, Ltd.’s (“Intelsat”) Galaxy 18 spacecraft that successfully launched on May 21, 2008. We are also
leasing capacity on the Horizons 1 satellite, which is owned jointly by Intelsat and JSAT International, Inc. The leased
capacity replaced our existing transponder capacity on Intelsat’s Galaxy XR satellite.
The Intelsat Galaxy 18 C-band and Ku-Band transponders are being leased over an expected term of 14 years. The
present value of the lease payments, excluding telemetry, tracking and command services and back-up protection, is
$98.6 million. We have recorded a capital lease obligation and an addition to our Property and Equipment at December
31, 2008.
In June 2008 Galaxy XR was taken out of service resulting in the removal of the remaining $8.8 million net book value and
the recognition of an $8.8 million warranty receivable. We applied $8.4 million of the warranty receivable to offset our
cash obligation relating to the capital lease during the year ended December 31, 2008, resulting in an outstanding
warranty receivable of $465,000 as of December 31, 2008.
74
A summary of estimated future minimum lease payments for this lease follows (amounts in thousands):
Years ending December 31:
2009
2010
2011
2012
2013
2014 and thereafter
$
Total minimum lease payments $
11,160
11,160
11,160
11,160
11,160
93,930
149,730
Working Capital
Capital Expenditures
Our cash expenditures for property and equipment, including construction in progress, totaled $221.5 million and $153.0
million during the years ended December 31, 2008 and 2007, respectively. Our capital expenditures requirements in
excess of approximately $25.0 million per year are largely success driven and are a result of the progress we are making
in the marketplace. We expect our 2009 expenditures for property and equipment for our core operations, including
construction in progress to total $115.0 million to $120.0 million, depending on available opportunities and the amount of
cash flow we generate during 2009.
Planned capital expenditures over the next five years include those necessary for the expansion of Alaska DigiTel’s
CDMA network, construction of our GSM network, maintenance of existing facilities, growth of our long-distance, local
access, cable and Internet facilities, improving network integrity, continuing deployment of DLPS, adding new products,
and introducing other new facilities and automation to reduce costs.
During 2007 Alaska DigiTel and GCI signed an agreement with a customer to build-out Alaska DigiTel's CDMA network to
provide expanded roaming area coverage. If we fail to meet the schedule, the customer has the right to terminate the
agreement and we may be required to pay up to $16.0 million as liquidated damages. We expect to meet the deadlines
imposed by the build-out schedule and therefore expect our expenditures to result in an expansion of our wireless
facilities rather than payment of the liquidated damages. We spent $28.1 million in 2008 to partially complete the CDMA
network build-out.
On July 31, 2006, through our subsidiary GCC we entered into an agreement to purchase IRU capacity in the Kodiak-
Kenai Cable Company, LLC’s marine-based fiber optic cable system linking Anchorage to Kenai, Homer, Kodiak and
Seward, Alaska. The new system was placed into service in December 2006. We accepted the first installment of our IRU
capacity in December 2006. We have committed to purchase a minimum of $5.0 million to $5.5 million in additional IRU
capacity in two installments through 2011.
We have entered into an agreement to purchase hardware and software capable of providing wireless service to small
markets in rural Alaska as a reliable substitute for standard wire line service. The agreement has a total commitment of
$20.6 million. We paid $3.8 million and $3.5 million in 2008 and 2007, respectively, and expect to pay $4.8 million and
$5.1 million during 2009 and 2010, respectively.
In 2008 and 2007 we paid $22.8 million and $2.5 million, respectively, for submarine cable, amplifiers and line terminal
equipment for our Southeast Alaska submarine fiber optic system project. In addition to providing the equipment for the
new submarine line, the contracts include additional equipment to upgrade the Alaska United West submarine cable
system and also include an option to increase capacity on the Alaska United East submarine cable system.
75
Operating Leases
A summary of estimated future minimum lease payments for operating leases follows (amounts in thousands):
Years ending December 31:
2009
2010
2011
2012
2013
2014 and thereafter
Total minimum lease payments
$
$
16,401
8,703
7,387
5,601
4,797
17,429
60,318
Share Repurchases
GCI’s Board of Directors has authorized a common stock buyback program for the repurchase of our Class A and Class B
common stock in order to reduce our outstanding shares of Class A and Class B common stock. The Term Loan
agreement entered into in May 2008 and described above allows for the repurchase of our common stock under our
buyback program when our total debt leverage is below 4.0 times adjusted EBITDA. Under the buyback program we had
made repurchases of $68.9 million through December 31, 2007. During the year ended December 31, 2008 we
repurchased no shares of our Class A and B common stock. In 2008 we retired 540,000 shares of our Class A common
stock, all of which were repurchased in 2007.
Other Expenditures and Commitments
Effective January 1, 2007 we invested $29.5 million in Alaska DigiTel in exchange for an 81.9% equity interest. We funded
the transaction from existing cash balances and by drawing down $15.0 million under the revolving portion of our Senior
Credit Facility. In August 2008, we acquired the remaining minority interest in Alaska DigiTel for total consideration of
$10.4 million.
In June 2008, we purchased the stock of the UUI and Unicom, telecommunications subsidiaries of UCI, for $40.6 million,
net of cash received. We funded the transaction by drawing down additional debt.
In July 2008, we purchased all of the interests in Alaska Wireless for $14.5 million. We funded the transaction by drawing
down additional debt.
We received cash of $46.0 million for long-haul fiber capacity IRU agreements that were signed in 2008.
The long-distance, local access, cable, Internet and wireless services industries continue to experience substantial
competition, regulatory uncertainty, and continuing technological changes. Our future results of operations will be affected
by our ability to react to changes in the competitive and regulatory environment and by our ability to fund and implement
new or enhanced technologies. We are unable to determine how competition, economic conditions, and regulatory and
technological changes will affect our ability to obtain financing under acceptable terms and conditions.
New Accounting Standards
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" which requires the acquiring entity in a
business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values,
changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition
and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS
141(R) also requires additional disclosure of information surrounding a business combination, such that users of the
entity's financial statements can fully understand the nature and financial impact of the business combination. We will
implement SFAS No. 141(R) on January 1, 2009 and we will apply it to any business combinations with an acquisition
date after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements"
which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also established reporting requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests of the noncontrolling owner. We will
76
implement SFAS No. 160 on January 1, 2009. We do not expect the adoption of this standard to have a material impact
on our statement of operations, financial position or cash flows.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." This
statement requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect a company’s financial position,
financial performance, and cash flows. We will implement SFAS No. 161 on January 1, 2009. We do not expect the
adoption of this standard to have a material impact on our statement of operations, financial position or cash flows.
In April 2008, FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the
factors that must be considered in developing renewal or extension assumptions used to determine the useful life over
which to amortize the cost of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. FSP
142-3 requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset. FSP 142-3 also requires the disclosure of the weighted-average period prior
to the next renewal or extension for each major intangible asset class, the accounting policy for the treatment of costs
incurred to renew or extend the term of recognized intangible assets and for intangible assets renewed or extended during
the period, if renewal or extension costs are capitalized, the costs incurred to renew or extend the asset and the weighted-
average period prior to the next renewal or extension for each major intangible asset class. FSP 142-3 is effective for
financial statements for fiscal years beginning after December 15, 2008. The adoption of FSP 142-3 is not expected to
have a material impact on the Company’s financial condition and results of operations.
On January 1, 2008, we partially adopted SFAS No. 157 “Fair Value Measurements,” which did not have a material
impact on our consolidated financial statements. We partially adopted SFAS No. 157 due to the issuance of FSP FASB
157-2, “Effective Date of FASB Statement No. 157.” SFAS No. 157 defines fair value, establishes a common framework
for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements for assets and
liabilities. SFAS No. 157 does not require additional assets or liabilities to be accounted for at fair value beyond that
already required under other U.S. GAAP accounting standards. FSP No. 157-2 deferred the effective date of SFAS No.
157 for all nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Included in the scope of FSP No. 157-2 are nonfinancial assets and
liabilities acquired in business combinations and impaired assets. The effective date for nonfinancial assets and
nonfinancial liabilities has been delayed by one year to fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years. We continue to assess the deferred portion of SFAS No. 157.
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. FSP EITF 03-6-1 requires that unvested share-based payment awards
containing nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) be considered participating
securities and included in the computation of EPS pursuant to the two-class method of SFAS No. 128, “Earnings per
Share.” We will implement FSP EITF 03-6-1 on January 1, 2009. All prior-period EPS data presented shall be adjusted
retrospectively to conform to this FSP. This FSP is not anticipated to have a material impact on our EPS attributable to
common stockholders.
In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active.” FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and addresses
application issues such as the use of internal assumptions when relevant observable data does not exist, the use of
observable market information when the market is not active and the use of market quotes when assessing the relevance
of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS No. 157.
The guidance in FSP 157-3 is effective immediately and did not have an impact on the Company upon adoption. See
note 11 for information and related disclosures regarding the Company’s fair value measurements.
Critical Accounting Policies
Our accounting and reporting policies comply with GAAP. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions. The financial position and results of operations can be
affected by these estimates and assumptions, which are integral to understanding reported results. Critical accounting
policies are those policies that management believes are the most important to the portrayal of our financial condition and
results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are
not considered by management to be critical accounting policies. Several factors are considered in determining whether
77
or not a policy is critical in the preparation of financial statements. These factors include, among other things, whether the
estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate the
estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in
economic conditions and whether alternative accounting methods may be utilized under GAAP. For all of these policies,
management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require
adjustment. Management has discussed the development and the selection of critical accounting policies with our Audit
Committee.
Those policies considered to be critical accounting policies for the year ended December 31, 2008 are described below.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments. We also maintain an allowance for doubtful accounts based on our assessment of the
likelihood that our customers will satisfactorily comply with rules necessary to obtain supplemental funding from the
USAC for services provided by us under our packaged communications offerings to rural hospitals, health clinics and
school districts. We base our estimates on the aging of our accounts receivable balances, financial health of specific
customers, regional economic data, changes in our collections process, regulatory requirements, and our customers’
compliance with USAC rules. If the financial condition of our customers were to deteriorate or if they are unable to
emerge from reorganization proceedings, resulting in an impairment of their ability to make payments, additional
allowances may be required. If their financial condition improves or they emerge successfully from reorganization
proceedings, allowances may be reduced. Such allowance changes could have a material effect on our consolidated
financial condition and results of operations.
Impairment and Useful Lives of Intangible Assets
We record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair
value as required by SFAS No. 141, “Business Combinations.” Goodwill and indefinite-lived assets such as our cable
certificates and wireless licenses are not amortized but are subject, at a minimum, to annual tests for impairment and
quarterly evaluations of whether events and circumstances continue to support an indefinite useful life as required by
SFAS No. 142, “Goodwill and Other Intangible Assets.” Other intangible assets are amortized over their estimated
useful lives primarily using the straight-line method, and are subject to impairment if events or circumstances indicate
a possible inability to realize the carrying amount as required by SFAS No. 142 and SFAS No. 144. The initial goodwill
and other intangibles recorded and subsequent impairment analysis requires management to make subjective
judgments concerning estimates of the applicability of quoted market prices in active markets and, if quoted market
prices are not available and/or are not applicable, how the acquired asset will perform in the future using a discounted
cash flow analysis. Estimated cash flows may extend beyond ten years and, by their nature, are difficult to determine
over an extended timeframe. Events and factors that may significantly affect the estimates include, among others,
competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and
technology, and changes in discount rates, performance compared to peers, material and ongoing negative economic
trends, and specific industry or market sector conditions. In determining the reasonableness of cash flow estimates,
we review historical performance of the underlying asset or similar assets in an effort to improve assumptions utilized
in our estimates. In assessing the fair value of goodwill and other intangibles, we may consider other information to
validate the reasonableness of our valuations including third-party assessments. These evaluations could result in a
change in useful lives in future periods and could result in write-down of the value of intangible assets. Our cable
certificates, wireless licenses and goodwill assets are our only indefinite-lived intangible assets and because of the
significance of these assets to our consolidated balance sheet, our annual and quarterly impairment analyses and
quarterly evaluations of remaining useful lives are critical. Any changes in key assumptions about the business and its
prospects, changes in market conditions or other externalities, or recognition of previously unrecognized intangible
assets for impairment testing purposes could result in an impairment charge and such a charge could have a material
adverse effect on our consolidated results of operations.
For the period from January 1, 2008 to December 31, 2008, the U.S. financial markets have been impacted by
continued deterioration in economic conditions. Should economic conditions in the State of Alaska and other
indicators deteriorate such that they impact our ability to achieve levels of forecasted operating results and cash
flows, should our stock price and market capitalization decline below our book value for a sustained period of time, or
should other events occur indicating the carrying value of goodwill and intangible assets might be impaired, we would
test our intangible assets for impairment and may recognize an impairment loss to the extent that the carrying amount
exceeds such asset’s fair value. Any future impairment charges could have a material adverse effect on our results
of operations.
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Accruals for Unbilled Costs
We estimate unbilled long-distance services Cost of Goods Sold based upon minutes of use carried through our
network and established rates. We estimate unbilled costs for new circuits and services, and network changes that
result in traffic routing changes or a change in carriers. Carriers that provide service to us regularly make network
changes that can lead to new, revised or corrected billings. Such estimates are revised or removed when subsequent
billings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or
when disputed charges are resolved. Revisions to previous estimates could either increase or decrease costs in the
year in which the estimate is revised which could have a material effect on our consolidated financial condition and
results of operations.
Valuation Allowance for Net Operating Loss Deferred Tax Assets
Our income tax policy provides for deferred income taxes to show the effect of temporary differences between the
recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of
assets and liabilities and their reported amounts in the financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” We have recorded deferred tax assets of $67.3 million associated with income tax
net operating losses that were generated from 1995 to 2008, and that expire from 2011 to 2028, and with charitable
contributions that were converted to net operating losses in 2004 through 2007, and that expire in 2024 through 2027,
respectively. Pre-acquisition income tax net operating losses associated with acquired companies are subject to
additional deductibility limits. We have recorded deferred tax assets of $3.1 million associated with alternative
minimum tax credits that do not expire. Significant management judgment is required in developing our provision for
income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that may
be required against the deferred tax assets. We have not recorded a valuation allowance on the deferred tax assets
as of December 31, 2008 based on management’s belief that future reversals of existing taxable temporary
differences and estimated future taxable income exclusive of reversing temporary differences and carryforwards, will,
more likely than not, be sufficient to realize the benefit of these assets over time. In the event that actual results differ
from these estimates or if our historical trends change, we may be required to record a valuation allowance on
deferred tax assets, which could have a material adverse effect on our consolidated financial position or results of
operations.
Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed
above, are nevertheless important to an understanding of the financial statements. Policies related to revenue recognition,
share-based expense, and financial instruments require difficult judgments on complex matters that are often subject to
multiple sources of authoritative guidance. Certain of these and other matters are among topics currently under
reexamination by accounting standards setters and regulators. No specific conclusions reached by these standard setters
appear likely to cause a material change in our accounting policies, although outcomes cannot be predicted with
confidence. A complete discussion of our significant accounting policies can be found in note 1 in the accompanying
“Notes to Consolidated Financial Statements.”
Geographic Concentration and the Alaska Economy
We offer voice, data and wireless telecommunication services and video services to customers primarily throughout
Alaska. Because of this geographic concentration, growth of our business and of our operations depends upon economic
conditions in Alaska. The economy of Alaska is dependent upon the natural resource industries, and in particular oil
production, as well as investment earnings, tourism, government, and United States military spending. Any deterioration in
these markets could have an adverse impact on us. A significant part of the Alaska economy is the state government. All
of the federal funding and the majority of investment revenues are dedicated for specific purposes, leaving oil revenues as
the primary source of general operating revenues for the State of Alaska. The State of Alaska reported in fiscal 2008 that
oil revenues, federal funding revenues, and investment revenues supplied 93%, 5% and 2%, respectively, of the State's
unrestricted revenues. In fiscal 2009 state economists forecast that Alaska’s oil revenues, federal funding and investment
revenues will supply 87%, 8% and 5%, respectively, of the state’s total projected unrestricted revenues.
The volume of oil transported by the TransAlaska Oil Pipeline System over the past 20 years has been as high as 2.0
million barrels per day in fiscal 1988. Production has been declining over the last several years with an average of 0.72
million barrels produced per day in fiscal 2008. The state forecasts the production rate to decline from 0.69 million barrels
produced per day in fiscal 2009 to 0.59 million barrels produced per day in fiscal 2018.
79
Market prices for North Slope oil averaged $96.51 in fiscal 2008 and are forecasted to average $77.66 in fiscal 2009. The
closing price per barrel was $37.68 on February 2, 2009. To the extent that actual oil prices vary materially from the
State’s projected prices, the State’s projected revenues and deficits will change. The production policy of the Organization
of Petroleum Exporting Countries and its ability to continue to act in concert represents a key uncertainty in the state’s
revenue forecast.
The State of Alaska maintains the Constitutional Budget Reserve Fund (“CBRF”) that is intended to fund budgetary
shortfalls. If the State’s current projections are realized and no surpluses are deposited into the CBRF it will be depleted in
December 2020. The date the CBRF is depleted is highly influenced by the price of oil. If the fund is depleted, aggressive
state action will be necessary to increase revenues and reduce spending in order to balance the budget. The governor of
the State of Alaska and the Alaska legislature continue to evaluate cost cutting and revenue enhancing measures.
Should new oil discoveries or developments not materialize or the price of oil become depressed, the long term trend of
continued decline in oil production from the Prudhoe Bay area is inevitable with a corresponding adverse impact on the
economy of the State, in general, and on demand for telecommunications and cable television services, and, therefore, on
us, in particular. Periodically there are renewed efforts to allow exploration and development in the Arctic National Wildlife
Refuge (“ANWR”). The United States Energy Information Agency has estimated that it could take nine years to begin oil
field drilling after approval of ANWR exploration.
No assurance can be given that the driving forces in the Alaska economy, and in particular, oil production, will continue at
appropriate levels to provide an environment for expanded economic activity.
No assurance can be given that oil companies doing business in Alaska will be successful in discovering new fields or
further developing existing fields which are economic to develop and produce oil with access to the pipeline or other
means of transport to market. We are not able to predict the effect of changes in the price and production volumes of
North Slope oil on Alaska’s economy or on us.
Deployment of a natural gas pipeline from the State of Alaska’s North Slope to the Lower 48 States has been proposed to
supplement natural gas supplies. There are two competing companies that are studying the economic viability of a natural
gas pipeline, which depends upon the price of and demand for natural gas.
Development of the ballistic missile defense system project has had a significant impact on Alaskan telecommunication
requirements. The system is a fixed, land-based, non-nuclear missile defense system with a land and space based
detection system capable of responding to limited strategic ballistic missile threats to the United States. The system
includes deployment of up to 100 ground-based interceptor silos and battle management command and control facilities
at Fort Greely, Alaska.
The United States Army Corps of Engineers awarded a construction contract and construction of test bed facilities began
in 2002. As of January 2009 a total of thirty ground-based missile interceptors have been placed in underground silos.
Tourism, air cargo, and service sectors have helped offset the prevailing pattern of oil industry downsizing that has
occurred during much of the last several years.
We have, since our entry into the telecommunication marketplace, aggressively marketed our services to seek a larger
share of the available market. The customer base in Alaska is limited, however, with a population of approximately
670,000 people. The State of Alaska’s population is distributed as follows:
• 42% are located in the Municipality of Anchorage,
• 13% are located in the Fairbanks North Star Borough,
• 12% are located in the Matanuska-Susitna Borough,
• 8% are located in the Kenai Peninsula Borough,
• 5% are located in the City and Borough of Juneau, and
• The remaining 20% are located in other communities across the State of Alaska.
Seasonality
Revenue derived from our long-distance services product in our Network Access segment have historically been highest
in the summer months because of temporary population increases attributable to tourism and increased seasonal
80
economic activity such as construction, commercial fishing, and oil and gas activities. Our long-distance services product
in our Consumer and Commercial segments and our other products in all our segments do not exhibit significant
seasonality. Our ability to implement construction projects is hampered during the winter months because of cold
temperatures, snow and short daylight hours.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not
have any arrangements or relationships with entities that are not consolidated into our financial statements that are
reasonably likely to materially affect our liquidity or the availability of our capital resources.
Schedule of Certain Known Contractual Obligations
The following table details future projected payments associated with certain known contractual obligations as of
December 31, 2008:
Payments Due by Period
Long-term debt
Interest on long-term debt
Capital lease obligations,
including interest
Operating lease commitments
Purchase obligations
Total contractual obligations
Total
$ 721,886
195,987
160,431
60,318
54,826
$ 1,193,448
Less than 1
Year
1 to 3
Years
(Amounts in thousands)
196,804
8,424
87,324
44,037
4 to 5
Years
181,072
53,026
11,646
16,401
25,134
105,642
23,328
16,089
24,412
347,957
23,474
10,399
5,280
273,251
More
Than 5
Years
335,586
11,600
101,983
17,429
---
466,598
For long-term debt included in the above table, we have included principal payments on our Senior Credit Facility and
Senior Notes. Interest on amounts outstanding under our Senior Credit Facility is based on variable rates. We used the
current rate paid on the Senior Credit Facility to estimate our future interest payments. Our Senior Notes require semi-
annual interest payments of $11.6 million through February 2014. For a discussion of our Senior Notes and Senior Credit
Facility see note 6 in the accompanying “Notes to Consolidated Financial Statements.”
Capital lease obligations include our obligation to lease transponder capacity on Galaxy 18. For a discussion of our
capital and operating leases, see note 13 in the accompanying “Notes to Consolidated Financial Statements.”
Purchase obligations include a commitment to purchase hardware and software capable of providing wireless service to
small markets in rural Alaska of $21.4 million. The contract associated with this commitment is non-cancelable. Purchase
obligations also include open purchase orders for goods and services for capital projects and normal operations totaling
$11.7 million which are not included in our Consolidated Balance Sheets at December 31, 2008, because the goods had
not been received or the services had not been performed at December 31, 2008. The open purchase orders are
cancelable.
Regulatory Developments
See “Part I — Item 1 — Business — Regulation” for more information about regulatory developments affecting us.
Inflation
We do not believe that inflation has a significant effect on our operations.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various types of market risk in the normal course of business, including the impact of interest rate
changes. We do not hold derivatives for trading purposes.
Our Senior Credit Facility carries interest rate risk. Amounts borrowed under this Agreement bear interest at LIBOR plus
4.25% or less depending upon our Total Leverage Ratio (as defined). Should the LIBOR rate change, our interest
expense will increase or decrease accordingly. In July 2008, we entered into an interest rate cap agreement with a two
year term to limit the LIBOR rate on $180.0 million of variable interest rate debt to 4.5%. The agreement is being
accounted for as a derivative under SFAS 133 "Accounting for Derivative Instruments and Hedging Activities." As of
December 31, 2008, we have borrowed $360.1 million subject to interest rate risk. On this amount, each 1% increase in
the LIBOR interest rate would result in $3.6 million of additional gross interest cost on an annualized basis.
Item 8. Consolidated Financial Statements and Supplementary Data
Our consolidated financial statements are filed under this Item, beginning on page 89. Our supplementary data is filed
under Item 7, beginning on page 52.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by
us in reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed,
summarized and reported as specified in the SEC’s rules and forms. As of the end of the period covered by this Annual
Report on Form 10-K, we carried out an evaluation of the effectiveness of the design and operation of our “disclosure
controls and procedures” (as defined in Exchange Act Rule 13a - 15(e)) under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial Officer.
Based on that evaluation and as described below under “Management’s Report on Internal Control Over Financial
Reporting" (Item 9A(b)), we have identified material weaknesses in our internal control over financial reporting. Because
of these material weaknesses, our management, including our Chief Executive Officer and our Chief Financial Officer,
concluded that our disclosure controls and procedures were not effective as of December 31, 2008.
The certifications attached as Exhibits 31 and 32 to this report should be read in conjunction with the disclosures set forth
herein.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations (COSO).
We acquired UUI, Unicom and Alaska Wireless during 2008, and have excluded from our assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2008, UUI’s, Unicom’s and Alaska Wireless’ internal
control over financial reporting associated with total assets of $108.9 million and total revenues of $23.4 million included in
our consolidated financial statements as of and for the year ended December 31, 2008. Goodwill and intangible assets
associated with these acquisitions totaled $28.1 million as of December 31, 2008, and the internal control over financial
reporting associated with such goodwill and intangible assets has been subjected to our assessment of effectiveness.
82
Based on our evaluation of the effectiveness of our internal control over financial reporting, our management concluded
that as of December 31, 2008, we did not maintain effective internal control over financial reporting due to the existence of
the following material weaknesses:
• Our entity-level control related to the selection and application of accounting policies in accordance with GAAP
was not designed to include policies and procedures to periodically review our accounting policies to ensure
ongoing GAAP compliance. This led to ineffective procedures for recording depreciation expense which caused
material errors in interim financial reporting which were corrected through the restatement of our 2007 interim
financial information.
• The internal control over financial reporting at Alaska DigiTel does not include activities adequate to i) timely
identify changes in financial reporting risks, ii) monitor the continued effectiveness of controls, and iii) does not
include staff with adequate technical expertise to ensure that policies and procedures necessary for reliable
interim and annual financial statements are selected and applied. Prior to August 18, 2008, our control over the
operations of Alaska DigiTel was limited as required by the FCC upon their approval of our initial acquisition
completed in January 2007. These control deficiencies in our Alaska DigiTel business represent material
weaknesses in our internal control over financial reporting and led to the failure to timely identify and respond to
triggering events which necessitated a change in useful life of depreciable assets to ensure reporting in
accordance with GAAP. These material weaknesses led to errors in our interim financial reporting which were
corrected through the restatement of our interim financial information for the March 31 and June 30, 2008
quarterly periods.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis.
KPMG LLP, the Company’s independent registered public accounting firm, has issued an audit report on the Company’s
internal control over financial reporting as of December 31, 2008, which is included in Item 8 of this Form 10-K.
(c) Managements Plan for Remediation of Material Weaknesses
As previously disclosed under “Item 9(A) – Controls and Procedures” in our Annual Report on Form 10-K/A #2 for the year
ended December 31, 2007, we concluded that our internal control over financial reporting was not effective. During 2008,
we implemented the activities described below to remediate certain material weaknesses which existed as of December
31, 2007.
Information technology program development and change controls over the unified billing system and the interface with
the general ledger were not designed effectively. As a result, our automated interface between the unified billing system
and the general ledger was not appropriately configured. In addition, our management review control over unreconciled
transactions recorded in accounts receivable general ledger accounts was not designed at the level of precision to detect
and correct errors that could be material to annual or interim financial statements. As a result of these deficiencies, errors
existed in our accounts receivable and revenues that were corrected prior to the issuance of our Annual Report on Form
10-K/A #2 for the year ended December 31, 2007. In 2008 we remediated the material weaknesses associated with the
unified billing system by taking the following actions:
• We enhanced the design of our detective monitoring control over of the recording of receivables and revenues by:
1) Performing the monitoring at a level of precision to detect all transactions that could aggregate to a material
component of the account balances, and
2) Ensuring differences identified during the monitoring process are resolved in a timely manner.
• With regards to our system development and change controls we incorporated more thorough end-user testing of
developments and changes to ensure the outputs of transactions processed are recorded correctly in the general
ledger before the system changes are implemented, and
• Our management review control over unreconciled transactions recorded in accounts receivable general ledger
accounts has been designed at the level of precision to detect and correct errors that could be material to annual
or interim financial statements.
Our policies and procedures to ensure that our accounting personnel are sufficiently trained on technical accounting
matters did not operate effectively. More specifically, our accounting personnel did not have the necessary knowledge and
83
training to adequately account for and disclose certain share-based compensation awards in accordance with Statement
of Financial Accounting Standard No.123(R), Share-Based Payment. In addition, our accounting personnel lacked
adequate training on the operation of certain aspects of the software used to calculate our share-based compensation
expense. As a result of these deficiencies, errors existed in our share-based compensation expense that were corrected
prior to the issuance of our Annual Report on Form 10-K/A #2 for the year ended December 31, 2007. In 2008 we
completed the final steps to remediate the share-based payments material weakness by implementing the following
controls:
•
Independently recalculating shared-based compensation expense on a sample of options and restricted stock
awards on a quarterly basis and comparing the expense to the amounts reported by our stock option plan
administration software to validate correct settings were entered into the software. This independent verification is
reviewed and approved on a quarterly basis, and
• Requiring our staff to continue to attend training related to the application of SFAS No. 123(R), “Share-Based
Payment,” and related interpretations and obtain further training in using our stock option plan administration
software as appropriate.
In 2008 we remediated the material weakness associated with our policies and procedures for the recording of
depreciation expense during interim reporting periods that were not designed to ensure reporting in accordance with
GAAP by revising our accounting policies and implementing procedures to ensure depreciation is recorded consistent with
GAAP for interim and annual reporting periods.
As described in Item 9(b) above our entity-level control related to the selection and application of accounting policies in
accordance with GAAP was not designed to include policies and procedures to periodically review our accounting policies
to ensure ongoing GAAP compliance. Although we began to remediate this material weakness in June 2008, by
expanding our accounting policy documentation we have not had sufficient time to fully implement the control changes
necessary to ensure a misstatement of interim or annual financial reporting does not occur. We will continue to remediate
this deficiency in 2009 by implementing policies and procedures to periodically review our accounting policies to ensure
ongoing GAAP compliance.
As previously disclosed under “Item 4(a) – Controls and Procedures” in our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2008, we concluded that our internal control over financial reporting was not
effective related to internal control over financial reporting at Alaska DigiTel, as described in Item 9(b) above.
We have made progress towards remediation with the acquisition of the Alaska DigiTel minority interest on August 18,
2008, which gave us 100% ownership and control over this subsidiary. During the fourth quarter of 2008 we made
progress towards integrating Alaska DigiTel into our financial reporting process by replacing the accounting management
with GCI accounting management. During the first quarter of 2009 we will integrate the internal control over financial
reporting at Alaska DigiTel by including Alaska DigiTel’s accounting process in our general ledger system. Additionally,
Alaska DigiTel will become subject to the improvements we anticipate due to the fourth quarter of 2008 expansion of our
accounting policy documentation and the 2009 implementation of a procedure to periodically review our accounting
policies to ensure ongoing GAAP compliance.
We cannot assure you that these remediation efforts will be successful or that our internal control over financial reporting
will be effective in accomplishing all control objectives all of the time. See “Part I — Item 1A — Risk Factors.”
(d) Changes in Internal Control Over Financial Reporting
In the fourth quarter of 2008 we completed remediation of certain material weaknesses by implementing the changes in
internal control over financial reporting described below.
We remediated the material weaknesses associated with the unified billing system by taking the following actions:
• We enhanced the design of our detective monitoring control over of the recording of receivables and revenues by:
1) Performing the monitoring at a level of precision to detect all transactions that could aggregate to a material
component of the account balances, and
2) Ensuring differences identified during the monitoring process are resolved in a timely manner.
84
• With regards to our system development and change controls we incorporated more thorough end-user testing of
developments and changes to ensure the outputs of transactions processed are recorded correctly in the general
ledger before the system changes are implemented, and
• Our management review control over unreconciled transactions recorded in accounts receivable general ledger
accounts has been designed at the level of precision to detect and correct errors that could be material to annual
or interim financial statements.
We completed the final steps to remediate the share-based payments material weakness by independently recalculating
shared-based compensation expense on a sample of options and restricted stock awards on a quarterly basis and
comparing the expense to the amounts reported by our stock option plan administration software to validate correct
settings were entered into the software. This independent verification is reviewed and approved on a quarterly basis.
We remediated the material weakness associated with our policies and procedures for the recording of depreciation
expense during interim reporting periods that were not designed to ensure reporting in accordance with GAAP by revising
our accounting policies and implementing procedures to ensure depreciation is recorded consistent with GAAP for interim
and annual reporting periods.
Except as described above there were no changes in our internal control over financial reporting (as defined in Rules 13a-
13(f) and 15d-15(f) of the Exchange Act) identified in connection with the evaluation of our controls performed during the
quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis
by internal control over financial reporting. However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this
risk.
We may enhance, modify, and supplement internal controls and disclosure controls and procedures based on experience.
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our directors and executive officers and compliance with Section 16(a) of the Exchange Act
appearing under the heading “Management of the Company” will be included in GCI’s definitive proxy statement relating
to our 2009 Annual Meeting of Shareholders and is hereby incorporated by reference. Alternatively, the Registrant may
file an amendment to this Form 10-K to provide such information within 120 days following the end of the Registrant’s
fiscal year ended December 31, 2008.
85
Information regarding our code of ethics appearing under the heading “Code of Business Conduct and Ethics” will be
included in GCI’s definitive proxy statement relating to our 2009 Annual Meeting of Shareholders and is hereby
incorporated by reference. Alternatively, GCI may file an amendment to this Form 10-K to provide such information within
120 days following the end of its fiscal year ended December 31, 2008.
The Audit Committee, composed entirely of independent directors (as such term is prescribed by Nasdaq Stock Market
Rule 4200(a)(15)), meets periodically with our independent auditors and management to review our financial statements
and the results of audit activities. The Audit Committee, in turn, reports to the Board of Directors on the results of its
review and recommends the selection of independent auditors.
The Audit Committee has approved the independent auditor to provide the following services:
• Audit (audit of financial statements filed with the SEC, quarterly reviews, comfort letters, consents, review of
registration statements, accounting consultations);
• Audit-related (employee benefit plan audits and accounting consultation on proposed transactions); and
•
Income tax services (review of corporate and partnership income tax returns, and consultations regarding income
tax matters).
There have been no material changes to the procedures by which security holders may recommend nominee’s to our
board of directors from those procedures described in GCI’s definitive proxy statement relating to our 2008 Annual
Meeting of Shareholders.
The report of our Audit Committee, information regarding the independence of our Audit Committee and our Audit
Committee financial expert appearing under the heading “Management of Company” will be included in GCI’s definitive
proxy statement relating to our 2009 Annual Meeting of Shareholders and is hereby incorporated by reference.
Alternatively, GCI may file an amendment to this Form 10-K to provide such information within 120 days following the end
of its fiscal year ended December 31, 2008.
Item 11. Executive Compensation
Information regarding the compensation of our directors and executive officers appearing under the heading
“Management of the Company” will be included in GCI’s definitive proxy statement relating to our 2009 Annual Meeting of
Shareholders and is hereby incorporated by reference. Alternatively, GCI may file an amendment to this Form 10-K to
provide such information within 120 days following the end of its fiscal year ended December 31, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information regarding the security ownership of our directors, executive officers and certain beneficial owners appearing
under the heading “Ownership of the Company” will be included in GCI’s definitive proxy statement relating to our 2009
Annual Meeting of Shareholders and is hereby incorporated by reference. Alternatively, the Registrant may file an
amendment to this Form 10-K to provide such information within 120 days following the end of Registrant’s fiscal year
ended December 31, 2008.
Information regarding securities authorized for issuance under our equity compensation plans appearing under the
heading “Management of the Company” will be included in GCI’s definitive proxy statement to our 2009 Annual Meeting of
Shareholders and is hereby incorporated by reference. Alternatively, GCI may file an amendment to this Form 10-K to
provide such information within 120 days following the end of its fiscal year ended December 31, 2008.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding transactions with our directors, executive officers, certain beneficial owners and related persons
appearing under the heading “Certain Transactions” will be included in GCI’s definitive proxy statement relating to our
2008 Annual Meeting of Shareholders and is hereby incorporated by reference. Alternatively, GCI may file an amendment
to this Form 10-K to provide such information within 120 days following the end of its fiscal year ended December 31,
2008.
86
Information regarding the independence of our board of directors appearing under the heading “Company Annual
Meeting: Director Elections” will be included in GCI’s definitive proxy statement relating to our 2009 Annual Meeting of
Shareholders and is hereby incorporated by reference. Alternatively, GCI may file an amendment to this Form 10-K to
provide such information within 120 days following the end of its fiscal year ended December 31, 2008.
Item 14. Principal Accountant Fees and Services
Information regarding the fees paid to our principal accountant and the pre-approval policies and procedures of our audit
committee appearing under the heading “Relationship with Independent Public Accountants” will be included in GCI’s
definitive proxy statement relating to our 2009 Annual Meeting of Shareholders and is hereby incorporated by reference.
Alternatively, the Registrant may file an amendment to this Form 10-K to provide such information within 120 days
following the end of Registrant’s fiscal year ended December 31, 2008.
87
Item 15. Exhibits, Consolidated Financial Statement Schedules
Part IV
(l) Consolidated Financial Statements
Included in Part II of this Report:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2008 and 2007
Consolidated Statements of Operations, years ended December 31, 2008, 2007 and
2006
Consolidated Statements of Stockholders’ Equity, years ended December 31, 2008,
2007 and 2006
Consolidated Statements of Cash Flows, years ended December 31, 2008, 2007 and
2006
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules
Schedules are omitted, as they are not required or are not applicable, or the required
information is shown in the applicable financial statements or notes thereto.
(3) Exhibits
Page No.
89 – 91
92 – 93
94
95 – 96
97
98 – 140
141
88
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
General Communication, Inc.:
We have audited the accompanying consolidated balance sheets of General Communication, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of General Communication, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1(ai) to the financial statements, the Company has elected to change its method of accounting for
recording depreciation on their property and equipment placed in service in 2008.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), General Communication, Inc.’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated March 20, 2009 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting.
(signed) KPMG LLP
Anchorage, Alaska
March 20, 2009
89
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
General Communication, Inc.:
We have audited General Communication, Inc.’s internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). General Communication, Inc.'s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A(b)).
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will
not be prevented or detected on a timely basis. Material weaknesses related to the following have been identified and
included in management’s assessment:
• The entity-level control related to the selection and application of accounting policies in accordance with GAAP was
not designed to include policies and procedures to periodically review accounting policies to ensure ongoing GAAP
compliance.
• The internal control over financial reporting at Alaska DigiTel (a wholly-owned subsidiary) does not include activities
adequate to i) timely identify changes in financial reporting risks, ii)monitor the continued effectiveness of controls, and
iii) does not include staff with adequate technical expertise to ensure that policies and procedures necessary for
reliable interim and annual financial statements are selected and applied.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of General Communication, Inc. and subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2008. These material weaknesses were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report does not
affect our report dated March 20, 2009, which expressed an unqualified opinion on those consolidated financial
statements.
90
In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of
the control criteria, General Communication, Inc. has not maintained effective internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
General Communication, Inc. acquired United Utilities, Inc., Unicom, Inc. and Alaska Wireless, LLC (collectively, the
Acquired Entities) during 2008, and management excluded from its assessment of the effectiveness of General
Communication Inc.’s internal control over financial reporting as of December 31, 2008, the Acquired Entities’ internal
control over financial reporting associated with total assets of $108.9 million, of which $28.1 million represents goodwill
and intangible assets within the scope of the assessment, and total revenues of $23.4 million included in the consolidated
financial statements of General Communication, Inc. and subsidiaries as of and for the year ended December 31, 2008.
Our audit of internal control over financial reporting of General Communication, Inc. also excluded an evaluation of the
internal control over financial reporting of the Acquired Entities except for the $28.1 million of goodwill and intangible
assets.
(signed) KPMG LLP
Anchorage, Alaska
March 20, 2009
91
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
December 31,
2008
2007
Current assets:
Cash and cash equivalents
Receivables
Less allowance for doubtful receivables
Net receivables
Deferred income taxes
Inventories
Prepaid expenses
Investment securities
Other current assets
Total current assets
Property and equipment in service, net of depreciation
Construction in progress
Net property and equipment
Cable certificates
Goodwill
Wireless licenses
Other intangible assets, net of amortization
Deferred loan and senior notes costs, net of amortization of $3,900 and $2,787
at December 31, 2008 and 2007, respectively
Other assets
Total other assets
Total assets
See accompanying notes to consolidated financial statements.
$
29,904
13,074
113,136
2,582
110,554
7,843
7,085
5,960
1,563
647
163,556
793,051
54,098
847,149
191,565
66,868
25,967
22,976
6,496
10,724
324,596
1,335,301
$
97,913
1,657
96,256
5,734
2,541
5,356
---
717
123,678
504,273
69,409
573,682
191,565
42,181
25,757
11,769
6,202
9,399
286,873
984,233
92
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
December 31,
2008
2007
Current liabilities:
Current maturities of obligations under long-term debt and capital
leases
Accounts payable
Accrued payroll and payroll related obligations
Deferred revenue
Accrued liabilities
Accrued interest
Subscriber deposits
Total current liabilities
Long-term debt
Obligations under capital leases, excluding current maturities
Obligation under capital lease due to related party, excluding current
maturity
Deferred income taxes
Long-term deferred revenue
Other liabilities
Total liabilities
Minority interest
Commitments and contingencies
Stockholders’ equity:
Common stock (no par):
$
12,857
40,497
22,632
22,095
11,043
10,224
1,262
120,610
708,406
94,029
1,868
86,187
49,998
15,288
1,076,386
2,375
35,747
16,329
16,600
7,536
8,927
877
88,391
536,115
2,290
469
84,294
845
12,396
724,800
---
6,478
Class A. Authorized 100,000 shares; issued 50,062 and 50,437
shares at December 31, 2008 and 2007, respectively; outstanding
49,593 and 49,425 at December 31, 2008 and 2007, respectively
Class B. Authorized 10,000 shares; issued 3,203 and 3,257 shares
at December 31, 2008 and 2007, respectively; outstanding 3,201
and 3,255 at December 31, 2008 and 2007, respectively;
convertible on a share-per-share basis into Class A common
stock
Less cost of 471 and 473 Class A and Class B common shares
held in treasury at December 31, 2008 and 2007, respectively
Paid-in capital
Retained earnings
Total stockholders’ equity
Total liabilities, minority interest and stockholders’ equity
$
151,262
155,980
2,706
2,751
(2,462 )
27,233
80,176
258,915
1,335,301
(3,448 )
20,132
77,540
252,955
984,233
See accompanying notes to consolidated financial statements.
93
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Amounts in thousands, except per share amounts)
Revenues
2008
2007
$ 575,442 520,311
2006
477,482
Cost of goods sold (exclusive of depreciation and
amortization shown separately below)
Selling, general and administrative expenses
Depreciation and amortization expense
Operating income
Other income (expense):
Interest expense
Interest and investment income
Amortization and write-off of loan fees
Minority interest
Other
Other expense, net
Income (loss) before income tax expense and
cumulative effect of a change in accounting principle
Income tax expense
Income (loss) before cumulative effect of a change in
203,058 195,799
210,306 175,752
87,615
114,369
61,145
47,709
169,107
158,950
82,099
67,326
(48,303)
576
(2,060)
1,503
(217)
(48,501)
(34,407 )
544
(1,423 )
36
---
(35,250 )
(34,413)
1,841
(964)
463
---
(33,073)
(792)
1,077
25,895
12,162
34,253
15,797
accounting principle
(1,869)
13,733
18,456
Cumulative effect of a change in accounting principle,
net of income tax expense of $44
Net income (loss)
---
(1,869)
---
13,733
$
64
18,520
Basic net income (loss) per share of Class A and Class B
common stock:
Income (loss) before cumulative effect of a change in
accounting principle
Cumulative effect of a change in accounting principle
Net income (loss)
$
$
(0.04)
---
(0.04)
Diluted net income (loss) per share of Class A and Class B
common stock:
Income (loss) before cumulative effect of a change in
accounting principle
Cumulative effect of a change in accounting principle
Net income (loss)
$
$
(0.04)
---
(0.04)
See accompanying notes to consolidated financial statements.
0.26
---
0.26
0.23
---
0.23
0.34
---
0.34
0.33
---
0.33
94
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Amounts in thousands)
Balances at January 1, 2006
SAB 108 cumulative adjustment, net
of income tax expense
Net income
Cumulative effect adjustments upon
implementation of Statement of
Financial Accounting Standard No.
123(R)
Common stock repurchases
Common stock retirements
Shares issued under stock option
plan
Class B shares converted to Class A
Issuance of service awards
Share-based compensation expense
Payments received on notes
receivable with related parties
issued upon stock option exercise
Reclassification from treasury stock to
be held for general corporate
purposes to common stock to be
retired
Other
Balances at December 31, 2006
Net income
Common stock repurchases
Common stock retirements
Shares issued under stock option
plan
Issuance of restricted stock awards
Class B shares converted to Class A
Issuance of service awards
Share-based compensation expense
Payments received on notes
receivable with related parties
issued upon stock option exercise
Other
Balances at December 31, 2007
Class A
Common
Stock
Class B
Common
Stock
Class A
and B
Shares
Held in
Treasury
Notes
Receivable
with
Related
Parties
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
$ 178,351
3,247
(1,730)
16,425
(1,722 )
49,854
244,425
---
---
---
---
1,104
18,520
1,104
18,520
---
---
---
---
---
---
(32,571 )
11,690
32
---
---
---
---
(369)
---
(32)
---
---
---
---
---
(3)
---
---
---
14
---
(108)
---
---
---
---
---
4,407
---
---
---
---
---
---
---
---
(34,672)
32,940
---
---
---
---
---
---
---
---
---
1,001
---
---
157,502
---
---
(11,420 )
3,311
6,492
95
---
---
---
---
2,846
---
---
---
---
---
(95)
---
---
283
---
(1,436)
---
(2,000)
---
---
---
---
28
---
---
(83)
20,641
---
---
---
---
(6,492)
---
---
5,983
---
(17 )
(738 )
---
---
---
(283)
---
67,463
13,733
(15,076)
11,420
---
---
---
---
---
---
---
---
---
---
(108 )
(34,675 )
---
11,690
---
14
4,407
1,001
---
(100 )
246,278
13,733
(17,076 )
---
3,311
---
---
28
5,983
---
---
155,980
---
---
2,751
---
(40)
(3,448)
---
---
20,132
738
---
---
---
---
77,540
738
(40 )
252,955
95
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Continued)
Class A
Common
Stock
$ 155,980
---
(5,465 )
415
331
45
---
---
(Amounts in thousands)
Balances at December 31, 2007
Net loss
Common stock retirements
Shares issued under stock option
plan
Issuance of restricted stock awards
Class B shares converted to Class A
Issuance of service awards
Share-based compensation expense
Reclassification from treasury stock
to be held for general corporate
purposes to common stock to be
retired
Other
Balances at December 31, 2008
(44 )
$ 151,262
Class A
and B
Shares
Held in
Treasury
(3,448)
---
---
Paid-in
Capital
20,132
---
---
Retained
Earnings
77,540
(1,869 )
5,465
Total
Stockholders’
Equity
252,955
(1,869 )
---
---
---
---
28
---
---
(331)
---
---
7,432
---
---
---
---
---
415
---
---
28
7,432
960
(2)
(2,462)
---
---
27,233
(960 )
---
80,176
---
(46 )
258,915
Class B
Common
Stock
2,751
---
---
---
---
(45)
---
---
---
---
2,706
See accompanying notes to consolidated financial statements.
96
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Amounts in thousands)
Cash flows from operating activities:
2008
2007
2006
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
$
(1,869)
13,733
18,520
provided by operating activities, net of effect of
acquisitions:
Depreciation and amortization expense
Deferred income tax expense
Other noncash income and expense items
Share-based compensation expense
Change in operating assets and liabilities, net of
effect of acquisitions
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment, including
construction period interest
Purchase of businesses and minority interest, net of
cash received
Purchase of software licenses and other assets
Proceeds from sale of marketable securities
Restricted cash
Other
Net cash used in investing activities
Cash flows from financing activities:
Borrowing on long-term debt
Borrowing on revolving credit facility, net
Payment of debt
Payment of debt issuance costs
Proceeds from common stock issuance
Purchase of treasury stock to be held for general
corporate purposes
Purchase of treasury stock to be retired
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of period
114,369
1,077
7,393
7,278
87,615
11,649
7,602
4,944
82,099
15,384
4,924
6,365
47,087
175,335
(15,255 )
110,288
(4,510 )
122,782
(221,458)
(153,030 )
(95,998 )
(65,335)
(8,974)
4,800
---
---
(290,967)
(19,530 )
(7,183 )
---
4,612
44
(175,087 )
---
(4,751 )
---
(4,612 )
3,326
(102,035 )
114,486
30,000
(10,248)
(2,118)
415
(3)
---
(70)
132,462
10,000
50,000
(27,152 )
(527 )
3,311
(2,000 )
(13,337 )
(69 )
20,226
---
15,000
(1,725 )
(44 )
11,472
(3 )
(32,561 )
399
(7,462 )
16,830
13,074
(44,573 )
57,647
13,285
44,362
Cash and cash equivalents at end of period
$
29,904
13,074
57,647
See accompanying notes to consolidated financial statements.
97
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l)
Business and Summary of Significant Accounting Principles
In the following discussion, General Communication, Inc. (“GCI”) and its direct and indirect subsidiaries
are referred to as “we,” “us” and “our.”
(a) Business
GCI, an Alaska corporation, was incorporated in 1979. We offer the following services:
• Origination and termination of traffic in Alaska for certain common carriers,
• Cable television services throughout Alaska,
• Competitive local access services in Anchorage, Fairbanks, Juneau, Wasilla, Eagle River,
Kodiak, Palmer, Kenai, Soldotna, Seward, Chugiak, Sitka, Valdez, Ketchikan, Nome, and
Homer, Alaska as of December 31, 2008 with on-going expansion into additional Alaska
communities,
Incumbent local access services in rural Alaska,
•
• Long-distance telephone service between Alaska and the remaining United States and
foreign countries,
• Sale and resale of postpaid and sale of prepaid wireless telephone services and sale of
wireless telephone handsets and accessories,
• Data network services,
•
• Broadband services, including our SchoolAccess® offering to rural school districts, our
Internet access services,
ConnectMD® offering to rural hospitals and health clinics, and managed video
conferencing,
• Managed services to certain commercial customers,
• Sales and service of dedicated communications systems and related equipment,
• Lease, service arrangements and maintenance of capacity on our fiber optic cable
systems used in the transmission of interstate and intrastate data, switched message
long-distance and Internet services within Alaska and between Alaska and the remaining
United States and foreign countries, and
• Distribution of white and yellow pages directories to residential and business customers in
certain markets we serve and on-line directory products.
(b) Principles of Consolidation
The consolidated financial statements include the consolidated accounts of GCI and its wholly-
owned subsidiaries, as well as a variable interest entity in which we were the primary beneficiary
as defined by Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 46R,
“Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” through August 17,
2008. We purchased the minority interest of the variable interest entity on August 18, 2008 as
further described in note 1(c). All significant intercompany transactions between non-regulated
affiliates of our company are eliminated. Statement of Financial Accounting Standard ("SFAS")
No. 71, "Accounting for the Effects of Certain Types of Regulation" requires intercompany revenue
and expenses generated between regulated and non-regulated affiliates of the company not be
eliminated on consolidation. Intercompany revenue and expenses with affiliates not subject to
SFAS 71 have been eliminated.
(c) Acquisitions
Effective June 1, 2008, we closed on our purchase of 100% of the outstanding stock of UUI and
Unicom, which were subsidiaries of UCI. UUI, together with its subsidiary, United-KUC, provides
local telephone service to 60 rural communities in the Bethel, Alaska area. Unicom operates
DeltaNet, a long-haul broadband microwave network ringing the Yukon-Kuskokwim Delta. We
view this investment as an opportunity to expand our Managed Broadband services in rural
Alaska. The UUI and Unicom acquisition were stock purchases but we elected to treat them as an
asset purchase for income tax purposes, resulting in goodwill being deductible for tax purposes.
98
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective July 1, 2008, we closed on our purchase of 100% of the ownership interests of Alaska
Wireless, which provides wireless and Internet services in the Dutch Harbor, Sand Point, Akutan,
and Adak, Alaska areas. Such purchase was treated as an asset purchase for income tax
purposes. We view this investment as an opportunity to expand our wireless services in the
Aleutian Chain region of rural Alaska. We consider this business combination to be immaterial to
our consolidated financial statements.
On August 18, 2008, we exercised our option to acquire the remaining 18.1% of the equity interest
and voting control of Alaska DigiTel for $10.4 million. Prior to August 18, 2008, our ability to
control the operations of Alaska DigiTel was limited as required by the FCC upon their approval of
our initial acquisition of 81.9% of the noncontrolling equity interest obtained in January 2007.
Subsequent to the acquisition of the minority interest, we own 100% of the outstanding common
ownership units and voting control of Alaska DigiTel. Such purchase was treated as an asset
purchase for income tax purposes. We purchased Alaska DigiTel as a way to participate in the
future growth of the Alaska wireless industry. We consolidated 100% of Alaska DigiTel's assets
and liabilities at fair value beginning on January 1, 2007, when we determined that Alaska DigiTel
was a variable interest entity of which we were the primary beneficiary. Upon our acquisition of
the minority interest in Alaska DigiTel on August 18, 2008, we recorded 18.1% of the change in
fair value between the assets and liabilities on January 1, 2007 and the fair value of the assets
and liabilities on August 18, 2008.
On the closing date of the acquisition of UUI and Unicom, $8.0 million of the purchase price was
deposited in an escrow account to compensate us for any indemnification claims we may have
after the acquisition and was included in the purchase price. At this time, we are not aware of any
indemnification claims and expect the portion of the purchase price in the escrow account to be
paid to the seller in the future.
We have agreed to make additional payments for UUI and Unicom in each of the years 2009
through 2013 that are contingent on sequential year-over-year revenue growth for specified
customers. We have agreed to make an additional payment for Alaska Wireless in 2010 that is
contingent on meeting certain financial conditions. The amount of the 2009 UUI and Unicom
contingent payment is not expected to be significant and we are unable to reasonably estimate the
remaining contingent consideration amounts that may be paid for either acquisition, but do not
believe any amount paid will be significant.
We recorded our business acquisitions and the acquisition of the minority interest in Alaska
DigiTel based on the provisions of SFAS No. 141, "Business Combinations," and accordingly, the
purchase price has been allocated based on the fair values of the assets acquired and liabilities
assumed. In addition, the acquired companies' results of operations are included since the
effective date of each acquisition.
The purchase prices for our 2008 acquisitions, net of cash received of approximately $1.7 million
from UUI and Unicom, are as follows (amounts in thousands):
UUI and Unicom
Alaska Wireless
Alaska DigiTel
$ 40,575
$ 14,508
$ 10,434
99
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We are in the process of determining the fair value of goodwill and certain tax liabilities for UUI
and Unicom, therefore, the purchase price allocations for UUI and Unicom have not been finalized
at December 31, 2008 and the goodwill and the tax liabilities associated with UUI and Unicom are
subject to refinement. The purchase price for all acquisitions except for UUI and Unicom have
been finalized and allocated as of December 31, 2008 as follows (amounts in thousands):
Current assets
Property and equipment, including construction in
progress
Intangible assets
Wireless licenses
Goodwill
Other assets
Total assets acquired
Current liabilities
Long-term debt, including current portion
Other long-term liabilities
Total liabilities assumed
Net assets acquired
UUI and
Unicom
Alaska
DigiTel
$
15,008
2,220
59,629
8,175
100
9,102
3,106
95,120
4,916
43,614
4,335
52,865
42,255
6,015
1,468
4,396
4,534
1
18,634
2,588
5,515
97
8,200
10,434
$
We modified the initial preliminary UUI and Unicom purchase price allocation during the third and
fourth quarters of 2008 by increasing current assets $548,000, decreasing property and
equipment $8.5 million, increasing intangible assets $1.7 million, increasing goodwill $3.1 million,
increase other assets $695,000, increasing current liabilities $464,000, increasing long-term debt
$910,000, and decreasing other long-term liabilities $3.9 million for adjustments due to the
refinement of the estimated fair value.
We modified the initial preliminary Alaska DigiTel purchase price allocation for the purchase of the
minority interest during the fourth quarter of 2008 by decreasing property and equipment
$202,000, increasing intangible assets $503,000, decreasing goodwill $88,000, and increasing
liabilities $253,000 for adjustments to the fair value of the fixed assets and intangibles due to
refinement of the valuation. An adjustment to the fair value of the liabilities was due to refinement
of the estimated fair value.
All of our 2008 acquisitions resulted in goodwill which is deductible over 15 years for income tax
purposes.
Revenues from the date of acquisition, net of intercompany revenue, for our acquisitions of UUI,
Unicom and Alaska Wireless are allocated to our Consumer, Network Access, Managed
Broadband, and Regulated Operations segments. As a result of the acquisition of UUI and
Unicom, we have a new operating segment for our regulated activities.
UUI and Unicom had outstanding debt of $38.9 million at December 31, 2008 that is collateralized
by substantially all of UUI's and Unicom's assets. UUI and Unicom's creditors do not have
recourse to GCI's assets.
The following unaudited pro forma financial information is presented as if we had acquired the
companies as of the beginning of the periods presented. The pro forma results of operations as if
the acquisitions occurred on January 1, 2007 or 2008 for the years ended December 31 are as
follows (amount in thousands):
100
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pro forma consolidated revenue
Pro forma net income (loss)
EPS:
Basic – pro forma
Diluted – pro forma
(unaudited)
2008
2007
588,691
(2,932)
546,728
12,773
(0.06)
(0.06)
0.24
0.22
$
$
$
$
(d) Regulatory Accounting and Regulation
We account for our regulated operations in accordance with the accounting principles for regulated
enterprises prescribed by SFAS No. 71. This accounting recognizes the economic effects of rate
regulation by recording cost and a return on investment as such amounts are recovered through rates
authorized by regulatory authorities. Accordingly, under SFAS No. 71, plant and equipment is
depreciated over lives approved by regulators and certain costs and obligations are deferred based
upon approvals received from regulators to permit recovery of such amounts in future years. Our cost
studies and depreciation rates for our regulated operations are subject to periodic audits that could
result in reductions of revenues. Based upon the purchase price allocation described in note 1(c), the
effects of regulation for the year ended December 31, 2008 are not material to the consolidated
financial statements.
(e) Earnings per Common Share
We compute net income (loss) per share of Class A and Class B common stock in accordance
with SFAS No. 128, “Earnings per Share” (“SFAS 128”) using the two class method. Under the
provisions of SFAS 128, basic net income (loss) per share is computed by dividing net income
(loss) applicable to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted net income (loss) per share is computed by dividing net
income (loss) applicable to common stockholders by the weighted average number of common
and dilutive common equivalent shares outstanding during the period. The computation of the
dilutive net income (loss) per share of Class A common stock assumes the conversion of Class B
common stock to Class A common stock, while the dilutive net income (loss) per share of Class B
common stock does not assume the conversion of those shares.
In accordance with EITF 03-06, “Participating Securities and the Two Class Method under FASB
No. 128,” the undistributed earnings for each year are allocated based on the contractual
participation rights of Class A and Class B common shares as if the earnings for the year had
been distributed. Considering the terms of our Articles of Incorporation which provides that, if and
when dividends are declared on our common stock in accordance with Alaska corporate law,
equivalent dividends shall be paid with respect to the shares of Class A common stock and Class
B common stock and that both classes of common stock have identical dividend rights and would
share equally in our net assets in the event of liquidation, we have allocated undistributed
earnings (losses) on a proportionate basis.
EPS and common shares used to calculate basic and diluted EPS consist of the following
(amounts in thousands, except per share amounts):
Year Ended
December 31, 2008
Class A
Class B
Basic net loss per share:
Numerator:
Allocation of undistributed losses
$(1,754)
(115)
Denominator:
101
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Weighted average common shares
outstanding
Basic net loss per share
Diluted net loss per share:
Numerator:
Year Ended
December 31, 2008
Class A
Class B
49,080
$(0.04)
3,241
(0.04)
Allocation of undistributed losses for basic
computation
$(1,754)
(115)
Reallocation of undistributed losses as a
result of conversion of Class B to Class
A shares
Allocation of undistributed losses
(115)
$(1,869)
---
(115)
Denominator:
Number of shares used in basic
computation
Conversion of Class B to Class A
common shares outstanding
Number of shares used in per share
computations
Diluted net loss per share
49,080
3,241
3,241
52,321
$(0.04)
---
3,241
(0.04)
Basic net income per share:
Numerator:
Allocation of undistributed earnings
before cumulative effect of a change in
accounting principle
Allocation of undistributed earnings from
cumulative effect of a change in
accounting principle
Allocation of undistributed earnings after
cumulative effect of a change in
accounting principle
Denominator:
Weighted average common shares
outstanding
Basic net income per share before cumulative
effect of a change in accounting policy
Basic net income per share from cumulative
effect of a change in accounting policy
Basic net income per share after effect of a
Years Ended December 31,
2007
2006
Class A
Class B
Class A
Class B
$12,884
849
17,250
1,206
---
---
60
4
$12,884
849
17,310
1,210
49,678
3,273
50,260
3,517
$0.26
---
0.26
---
0.34
---
0.34
---
change in accounting policy
$0.26
$0.26
$0.34
$0.34
Diluted net income per share:
Numerator:
Allocation of undistributed earnings for
basic computation
$12,884
$849
17,250
1,206
Reallocation of undistributed earnings as
a result of conversion of Class B to
Class A shares
849
---
1,206
---
102
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Reallocation of undistributed earnings
due to conversion of Class B to Class A
shares outstanding
Allocation of effect of share based
compensation that may be settled in
cash or shares
Allocation of undistributed earnings
before cumulative effect of a change in
accounting principle
Allocation of undistributed earnings from
cumulative effect of a change in
accounting principle
Allocation of undistributed earnings after
cumulative effect of a change in
accounting principle
Denominator:
Number of shares used in basic
computation
Conversion of Class B to Class A
common shares outstanding
Effect of share based compensation that
may be settled in cash or shares
Unexercised stock options, net
Unvested stock awards
Number of shares used in per share
Years Ended December 31,
2007
2006
Class A
Class B
Class A
Class B
---
(96)
(1,329)
---
---
---
(44)
---
12,404
753
18,456
1,162
---
---
60
4
$12,404
753
18,516
1,166
49,678
3,273
50,260
3,517
3,273
318
1,288
24
---
---
---
---
3,517
---
1,548
---
---
---
---
---
computations
54,581
3,273
55,325
3,517
Diluted net income per share before
cumulative effect of a change in accounting
policy
Diluted net income per share from cumulative
effect of a change in accounting policy
Diluted net income per share after effect of a
change in accounting policy
$0.23
---
$0.23
0.23
---
0.23
0.33
0.00
0.33
0.33
0.00
0.33
Weighted average shares associated with outstanding share awards for the years ended
December 31, 2008, 2007 and 2006 which have been excluded from the computations of diluted
EPS because the effect of including these share awards would have been anti-dilutive, consist of
the following (shares, in thousands):
Weighted average shares associated with
outstanding stock options
Effect of share-based compensation that may be
settled in cash or shares
2008
2007
2006
4,238
1,909
1,394
289
4,527
---
1,909
99
1,493
Additionally, 258,000, 306,000, and 0 weighted average shares associated with contingent awards
for years ended December 31, 2008, 2007, and 2006, respectively were excluded from the
computation of diluted EPS because the contingencies of these awards have not been met at
December 31, 2008, 2007, and 2006, respectively.
103
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Common Stock
Following are the changes in issued shares of common stock for the years ended December 31,
2008, 2007 and 2006 (shares, in thousands):
Balances at January 1, 2006
Shares retired
Shares issued under stock option plan
Share awards issued
Class B shares converted to Class A
Balances at December 31, 2006
Shares retired
Shares issued under stock option plan
Share awards issued
Class B shares converted to Class A
Balances at December 31, 2007
Shares retired
Shares issued under stock option plan
Share awards issued
Class B shares converted to Class A
Other
Balances at December 31, 2008
Class A
51,200
(2,770 )
1,706
17
38
50,191
(843)
477
499
113
50,437
(540)
71
45
54
(5 )
50,062
Class B
3,843
(435 )
---
---
(38 )
3,370
---
---
---
(113 )
3,257
---
---
---
(54 )
---
3,203
GCI's Board of Directors has authorized a common stock buyback program for the repurchase of
our Class A and Class B common stock in order to reduce our outstanding shares of Class A and
Class B common stock. The Additional Incremental Term Loan agreement entered into in May
2008 and described in note 6 allows for the repurchase of our common stock under our buyback
program when our total debt leverage is below 4.0 times earnings before depreciation and
amortization expense, net interest expense, income taxes, share-based compensation expense,
and non-cash contribution adjustment (“adjusted EBITDA”).
Under the buyback program we had made repurchases of $68.9 million through December 31,
2007. During the year ended December 31, 2008 we repurchased no shares of our Class A and B
common stock. During the years ended December 31, 2007 and 2006, we repurchased 1,252,000
and 2,858,000 shares of our Class A and B common stock at a cost of $15.1 million and $34.7
million, respectively. The cost of the repurchased common stock is recorded in Retained Earnings
on our Consolidated Balance Sheets. In 2008 we retired 540,000 shares of our Class A common
stock all of which we repurchased in 2007. All shares of our Class A common stock repurchased
for retirement have been retired as of December 31, 2008.
(g)
Investment Securities
We have investment securities of $1.6 million at December 31, 2008 that are classified as trading
under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Our
investments consist primarily of money market funds and U.S. government securities. Trading
securities are recorded at fair value with unrealized holding gains and losses included in net
income (loss). In 2008, the change in net unrealized holding gains/losses in the trading portfolio
included in earnings was a net gain of $43,000.
(h) Redeemable Preferred Stock
We have 1,000,000 shares of preferred stock authorized with no shares issued and outstanding at
December 31 2008, 2007 and 2006.
104
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Treasury Stock
We account for treasury stock purchased for general corporate purposes under the cost method
and include treasury stock as a component of Stockholders’ Equity. Treasury stock purchased
with an intent to retire (whether or not the retirement is actually accomplished) is charged entirely
to Retained Earnings.
(j) Cash Equivalents
Cash equivalents consist of overnight sweep investments and certificates of deposit which have
an original maturity of three months or less at the date acquired and are readily convertible into
cash.
(k) Restricted Cash
We had provided a $4.6 million bank depository account as collateral for a term loan from a bank
to Alaska DigiTel as of December 31, 2006. The cash was released from the restriction in
January 2007 subsequent to our initial investment in Alaska DigiTel.
(l) Accounts Receivable and Allowance for Doubtful Receivables
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our
existing accounts receivable. We base our estimates on the aging of our accounts receivable
balances, financial health of specific customers, regional economic data, changes in our
collections process, regulatory requirements, and our customers’ compliance with USAC rules.
We review our allowance for doubtful accounts methodology at least annually.
Depending upon the type of account receivable our allowance is calculated using a pooled basis
with an allowance for all accounts greater than 120 days past due, a specific identification method,
or a combination of the two methods. When a specific identification method is used past due
balances over 90 days old and balances less than 90 days old but potentially uncollectible due to
bankruptcy or other issues are reviewed individually for collectability. Account balances are
charged off against the allowance when we feel it is probable the receivable will not be recovered.
We do not have any off-balance-sheet credit exposure related to our customers.
(m) Inventories
Wireless handset inventories are stated at the lower of cost or market (net realizable value). Cost
is determined using the average cost method. Handset costs in excess of the revenues generated
from handset sales, or handset subsidies, are expensed at the time of sale. We do not recognize
the expected handset subsidies prior to the time of sale because the promotional discount
decision is made at the point of sale and/or because we expect to recover the handset subsidies
through service revenue.
Inventories of other merchandise for resale and parts are stated at the lower of cost or market.
Cost is determined using the average cost method.
(n) Property and Equipment
Property and equipment is stated at cost. Construction costs of facilities are capitalized.
Equipment financed under capital leases is recorded at the lower of fair market value or the
present value of future minimum lease payments at inception of the lease. Construction in
progress represents distribution equipment and systems and support equipment and systems not
placed in service on December 31, 2008 that management intends to place in service during
2009.
Depreciation is computed using the straight-line method based upon the shorter of the estimated
useful lives of the assets or the lease term, if applicable, in the following ranges:
105
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Asset Category
Telephony distribution equipment
Fiber optic cable systems
Cable television distribution equipment and systems
Support equipment and systems
Transportation equipment
Property and equipment under capital leases
Buildings
Asset Lives
12 years
12-30 years
10 years
3-5 years
3 years
12-20 years
20 years
Amortization of property and equipment under capital leases is included in Depreciation and
Amortization Expense on the Consolidated Statements of Operations.
Repairs and maintenance are charged to expense as incurred. Expenditures for major renewals
and betterments are capitalized. Accumulated depreciation is removed and gains or losses are
recognized at the time of retirements, sales or other dispositions of property and equipment.
(o) Long-lived Assets to be Disposed of
Long-lived assets to be disposed of, including those of discontinued operations, if any, are
measured at the lower of carrying amount or fair value less cost to sell, if applicable. We classify a
long-lived asset to be disposed of other than by sale as held and used until it is disposed of. We
classify a long-lived asset to be sold as held for sale in the period in which the criteria established
by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” are met. We
do not depreciate or amortize long-lived assets to be sold.
(p)
(q)
A loss is recognized for any initial or subsequent write-down to fair value less cost to sell. A gain is
recognized for any subsequent increase in fair value less cost to sell, but not in excess of the
cumulative loss previously recognized (for a write-down to fair value less cost to sell). The loss or
gain adjusts only the carrying amount of a long-lived asset, whether classified as held for sale
individually or as part of a disposal group. A gain or loss not previously recognized that results
from the sale of a long-lived asset (disposal group) is recognized at the date of sale.
Intangible Assets and Goodwill
Goodwill, cable certificates (certificates of convenience and public necessity) and wireless
licenses are not amortized. Cable certificates represent certain perpetual operating rights to
provide cable services. Wireless licenses represent the right to utilize certain radio frequency
spectrum to provide wireless communications services. Goodwill represents the excess of cost
over fair value of net assets acquired in connection with a business acquisition. Goodwill is not
allocated to our segments as our Chief Operating Decision Maker does not review a balance
sheet by segment to make decisions about resource allocation or evaluate segment performance.
Goodwill is allocated to all reporting segments for the sole purpose of the annual impairment test.
All other amortizable intangible assets are being amortized over 1 to 20 year periods using the
straight-line method.
Impairment of Intangibles, Goodwill, and Long-lived Assets
Cable certificate assets and wireless licenses are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances indicate that the asset might be
impaired. The impairment test consists of a comparison of the fair value of the asset with its
carrying amount. If the carrying amount of the assets exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess. After an impairment loss is recognized, the
adjusted carrying amount of the asset becomes its new accounting basis. Impairment testing of
our cable certificate assets and wireless licenses as of December 31, 2008 and 2007 used a direct
value method.
106
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our goodwill assets are tested annually for impairment, and are tested for impairment more
frequently if events and circumstances indicate that the assets might be impaired. An impairment
loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This
determination is made at the reporting unit level and consists of two steps. First, we determine the
fair value of a reporting unit and compare it to its carrying amount. Second, if the carrying amount
of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the
carrying amount of the reporting unit’s goodwill asset over the implied fair value of that asset. The
implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a
manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business
Combinations.”
Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable. Recoverability of an asset
group to be held and used is measured by a comparison of the carrying amount of an asset group
to estimated undiscounted future cash flows expected to be generated by the asset group. If the
carrying amount of an asset group exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset group
exceeds the fair value of the asset group.
For the period from January 1, 2008 to December 31, 2008, the U.S. financial markets have been
impacted by continued deterioration in economic conditions. Should economic conditions in the
State of Alaska and other indicators deteriorate such that they impact our ability to achieve levels
of forecasted operating results and cash flows, should our stock price and market capitalization
decline below our book value for a sustained period of time, or should other events occur
indicating the carrying value of goodwill and intangible assets might be impaired, we would test
our intangible assets for impairment and may recognize an impairment loss to the extent that the
carrying amount exceeds such asset’s fair value. Any future impairment charges could have a
material adverse effect on our results of operations.
(r) Amortization and Write-off of Loan Fees
Debt issuance costs are deferred and amortized using the effective interest method. If a
refinancing or amendment of a debt instrument is a substantial modification, all or a portion of the
applicable debt issuance costs are written off. If a debt instrument is repaid prior to the maturity
date we will write-off a proportional amount of debt issuance costs.
(s) Other Assets
Other Assets primarily include long-term deposits, prepayments, and non-trade accounts
receivable.
(t) Asset Retirement Obligations
We record the fair value of a liability for an asset retirement obligation in the period in which it is
incurred in Other Liabilities on the Consolidated Balance Sheets. Additionally, a conditional asset
retirement obligation is recognized as a liability if the fair value of the liability can be reasonably
estimated. When the liability is initially recorded, we capitalize a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, we either settle the obligation for its recorded amount or incur a gain or
loss upon settlement.
The majority of our asset retirement obligation is the estimated cost to remove telephony
distribution equipment and support equipment from leased property.
Following is a reconciliation of the beginning and ending aggregate carrying amount of our liability
for asset retirement obligation (amounts in thousands):
107
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Balance at December 31, 2006
Liability incurred
Additions upon consolidation of Alaska DigiTel
Accretion expense
Liability settled
Balance at December 31, 2007
Liability incurred
Additions upon acquisition of UUI, Unicom, Alaska Wireless
and Alaska DigiTel
Accretion expense
Liability settled
Balance at December 31, 2008
$ 3,408
260
365
144
(4 )
4,173
1,408
803
396
(601 )
$ 6,179
During the years ended December 31, 2008 and 2007 we recorded additional capitalized costs of
$1.4 million and $260,000, respectively, in Property and Equipment in Service, Net of
Depreciation.
(u) Derivatives
We enter into derivative contracts to manage exposure to variability in cash flows from floating-
rate financial instruments, particularly on our long-term debt instruments and credit facilities. We
do not apply hedge accounting to our derivative instruments and therefore treat these instruments
as “economic hedges.” Consistent with the guidance in SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” derivative instruments are accounted for at fair value as
either assets or liabilities on the balance sheet. Changes in the fair value of derivatives are
recognized in earnings each reporting period.
Derivative financial instruments are subject to credit risk and market risk. Credit risk is the failure
of the counterparty to perform under the terms of the derivative contract. We minimize the credit
risk in derivative instruments by entering into transactions with high-quality counterparties.
Market risk is the adverse effect on the value of a derivative instrument that results from a change
in interest rates or other market variables. The market risk associated with interest-rate contracts
is managed by establishing and monitoring parameters that limit the types and degree of market
risk that may be undertaken.
In the third quarter of 2008, we entered into two interest rate caps with a combined notional value
of $180.0 million that mature on July 1, 2010. The initial cost of the caps was $928,000. These
derivative instruments are being used to manage the interest rate risk on our Senior Credit
Facility, which is indexed to the London Interbank Offered Rate ("LIBOR"). In prior reporting
periods, we did not own any derivative instruments.
The following is a summary of the derivative contracts outstanding in the balance sheet at
December 31, 2008 (dollar amounts in thousands):
Interest rate caps
2
$ 180,000
Number of
Contracts
Notional Value
Balance Sheet
Location
Other Assets
Fair Value
$7
During the year ended December 31, 2008, a loss of $921,000 relating to the fair value change on
derivative instruments was reported in interest expense.
108
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(v) Revenue Recognition
All revenues are recognized when the earnings process is complete in accordance with SEC Staff
Accounting Bulletins (“SAB”) No. 104, “Revenue Recognition” as follows:
• Revenues generated from long-distance service usage and plan fees, Internet service
excess usage, and managed services are recognized when the services are provided,
• We recognize unbilled revenues when the service is provided based upon minutes of
use processed, and/or established rates, net of credits and adjustments,
• Cable television service package fees, local access and Internet service plan fees, and
private line telecommunication revenues are billed in advance, recorded as Deferred
Revenue on the balance sheet, and are recognized as the associated service is
provided,
• Certain of our wireless services offerings have been determined to be revenue
arrangements with multiple deliverables. Revenues are recognized as each element is
earned based on objective evidence regarding the relative fair value of each element and
when there are no undelivered elements that are essential to the functionality of the
delivered elements. Revenues generated from wireless service usage and plan fees are
recognized when the services are provided. Revenues generated from the sale of
wireless handsets and accessories are recognized when title to the handset and
accessories passes to the customer. As the non-refundable, up-front activation fee
charged to the customer does not meet the criteria as a separate unit of accounting, we
allocate the additional arrangement consideration received from the activation fee to the
handset (the delivered item) to the extent that the aggregate handset and activation fee
proceeds do not exceed the fair value of the handset. Any activation fees not allocated to
the handset would be deferred upon activation and recognized as service revenue on a
straight-line basis over the expected customer relationship period,
The majority of our equipment sale transactions involve the sale of communications
equipment with no other services involved. Such equipment is subject to standard
manufacturer warranties and we do not manufacture any of the equipment we sell. In
such instances the customer takes title to the equipment generally upon delivery. We
recognize revenue for such transactions when title passes to the customer and the
revenue is earned and realizable pursuant to the provisions of SAB 104. On certain
occasions we enter into agreements to sell and satisfactorily install or integrate
telecommunications equipment for a fixed fee. Customers may have refund rights if the
installed equipment does not meet certain performance criteria. We defer revenue
recognition until we have received customer acceptance per the contract or agreement,
and all other required revenue recognition elements have been achieved. Revenues
from contracts with multiple element arrangements, such as those including installation
and integration services, are recognized as each element is earned based on objective
evidence regarding the relative fair value of each element and when there are no
undelivered elements that are essential to the functionality of the delivered elements,
Technical services revenues are derived primarily from maintenance contracts on
equipment and are recognized on a prorated basis over the term of the contracts,
•
•
• Revenues from white and yellow page directories are recognized ratably during the
period following publication, which typically begins with distribution and is complete in the
month prior to publication of the next directory,
• We account for fiber capacity IRU agreements as an operating lease or service
arrangement and we defer the revenue and recognize it ratably over the life of the IRU or
as services are rendered,
109
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
• Access revenue is recognized when earned. We participate in access revenue pools with
other telephone companies. Such pools are funded by toll revenue and/or access charges
regulated by the RCA within the intrastate jurisdiction and the FCC within the interstate
jurisdiction. Much of the interstate access revenue is initially recorded based on estimates.
These estimates are derived from interim financial information, available separation studies
and the most recent information available about achieved rates of return. These estimates are
subject to adjustment in future accounting periods as additional information becomes
available. To the extent that a dispute arises over revenue settlements, our policy is to defer
revenue collected until the dispute is resolved,
• As an ETC, we receive subsidies from the USF to support the provision of local access
service in high-cost areas. We accrue estimated program revenue quarterly based on current
line counts, the most current rates paid to us, our assessment of the impact of current FCC
regulations, and our assessment of the potential outcome of FCC proceedings. Our estimated
accrued revenue is subject to our judgment regarding the outcome of many variables and is
subject to upward or downward adjustment in subsequent periods. Our ability to collect our
accrued USF subsidies is contingent upon continuation of the USF program and upon our
eligibility to participate in that program, which is subject to change by future regulatory,
legislative or judicial actions. We adjust revenue and the account receivable in the period the
FCC makes a program change or we assess the likelihood that such a change has increased
or decreased revenue. The payment from the USF is generally received approximately nine
months subsequent to the services being performed. At December 31, 2008 we have $8.7
million in accounts receivable related to the USF high-cost area program,
• We receive refunds from time to time from Incumbent Local Exchange Carriers
(“ILECs”), with which we do business in respect of their earnings that exceed regulatory
requirements. Telephone companies that are rate regulated by the FCC using the rate of
return method are required by the FCC to refund earnings from interstate access
charges assessed to long-distance carriers when their earnings exceed their authorized
rate of return. Such refunds are computed based on the regulated carrier’s earnings in
several access categories. Uncertainties exist with respect to the amount of their
earnings, the refunds (if any), their timing, and their realization. We account for such
refundable amounts as gain contingencies, and, accordingly, do not recognize them until
realization is a certainty upon receipt, and
• Other revenues are recognized when the service is provided.
We recognized $2.8 million of wireless revenue in July 2008 from USAC for interstate common
line support. Due to the uncertainty in our ability to retroactively claim reimbursement under the
program, we accounted for this payment as a gain contingency and, accordingly, recognized
revenue only upon receipt of payment when realization was certain.
(w) Payments Received from Suppliers
Our Consumer and Commercial segments occasionally receive reimbursements for video services
costs to promote suppliers’ services, called cooperative advertising arrangements. The supplier
payment is classified as a reduction of selling, general and administrative expenses if it
reimburses specific, incremental and identifiable costs incurred to resell the suppliers’ services.
Occasionally our Consumer and Commercial segments enter into a binding arrangement with a
supplier in which we receive a rebate dependent upon us meeting a specified goal. We recognize
the rebate as a reduction of Cost of Goods Sold systematically as we make progress toward the
specified goal, provided the amounts are probable and reasonably estimable. If earning the rebate
is not probable and reasonably estimable, it is recognized only when the goal is met.
(x) Advertising Expense
We expense advertising costs in the year during which the first advertisement appears.
Advertising expenses were $5.6 million, $5.6 million and $3.5 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
110
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(y) Leases
We account for capital and operating leases as lessee as required by SFAS No. 13, “Accounting
for Leases” and in subsequently issued amendments and interpretations of SFAS No. 13.
Scheduled operating lease rent increases are amortized over the lease term on a straight-line
basis. Rent holidays are recognized on a straight-line basis over the operating lease term
(including any rent holiday period).
Leasehold improvements are amortized over the shorter of their economic lives or the lease term.
We may amortize a leasehold improvement over a term that includes assumption of a lease
renewal if the renewal is reasonably assured. Leasehold improvements acquired in a business
combination are amortized over the shorter of the useful life of the assets or a term that includes
required lease periods and renewals that are deemed to be reasonably assured at the date of
acquisition. Leasehold improvements that are placed in service significantly after and are not
contemplated at or near the beginning of the lease term are amortized over the shorter of the
useful life of the assets or a term that includes required lease periods and renewals that are
deemed to be reasonably assured at the date the leasehold improvements are purchased.
Leasehold improvements made by us and funded by landlord incentives or allowances under an
operating lease are recorded as deferred rent and amortized as reductions to lease expense over
the lease term.
(z)
Interest Expense
Material interest costs incurred during the construction period of non-software capital projects are
capitalized. Interest costs incurred during the development period of a software capital project are
capitalized. Interest is capitalized in the period commencing with the first expenditure for a
qualifying capital project and ending when the capital project is substantially complete and ready
for its intended use. We capitalized interest cost of $4.2 million, $3.3 million and $820,000 during
the years ended December 31, 2008, 2007 and 2006, respectively.
(aa) Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and
liabilities are recognized for their future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable earnings in the years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets recognized are reduced by a valuation allowance to the
extent that the benefits are more likely to be realized than not.
We file federal income tax returns in the U.S. and in various state jurisdictions. We are no longer
subject to U.S. or state tax examinations by tax authorities for years before 2005 except that
certain U.S. federal income tax returns for years after 1997 are not closed by relevant statutes of
limitations due to unused net operating losses reported on those income tax returns.
We recognize accrued interest on unrecognized tax benefits in interest expense and penalties in
selling, general and administrative expenses. We did not have any unrecognized tax benefits as
of December 31, 2008, 2007 and 2006, and, accordingly, we did not recognize any interest
expense. Additionally, we recorded $0 in penalties during the years ended December 31, 2008,
2007 and 2006, respectively.
(ab) Share-based Payment Arrangements
We apply the provisions SFAS No. 123(R), “Shared-Based Payment,” in the measurement and
recognition of compensation expense for all share-based payment awards to employees and
directors based on estimated fair values. We currently use the Black-Scholes-Merton option-
pricing model to value stock options granted to employees. We use these values to recognize
stock compensation expense for stock options in accordance with SFAS No. 123(R). Among
other things, SFAS 123(R) requires that compensation expense be recognized in the financial
111
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
statements for share-based awards based on the grant date fair value of those awards.
Additionally, share-based compensation expense includes an estimate for pre-vesting forfeitures
and is recognized over the requisite service periods of the awards on a straight-line basis, which is
generally commensurate with the vesting term. See note 9 for information on the assumptions we
used to calculate the fair value of share-based compensation.
Additionally, SFAS 123(R) requires the benefits associated with tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow rather than as an operating
cash flow.
(ac) Stock Options and Stock Warrants Issued for Non-employee Services
Stock options and warrants issued in exchange for non-employee services are accounted for
pursuant to the provisions of SFAS 123(R), Emerging Issues Task Force ("EITF") 96-3 and EITF
96-18 based upon the fair value of the consideration or services received or the fair value of the
equity instruments issued using the Black-Scholes-Merton method, whichever is more reliably
measurable.
The fair value determined using these principles is charged to operating expense over the shorter
of the term for which non-employee services are provided, if stated, or the stock option or warrant
vesting period.
(ad) Use of Estimates
The preparation of financial statements in conformity with GAAP requires us 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. Significant items subject to estimates and
assumptions include the allowance for doubtful receivables, unbilled revenues, accrual of the USF
high-cost area program subsidy, share-based compensation, reserve for future customer credits,
valuation allowances for deferred income tax assets, depreciable and amortizable lives of assets,
the carrying value of long-lived assets including goodwill, cable certificates and wireless licenses,
purchase price allocations, the accrual of Cost of Goods Sold, and the accrual of contingencies
and litigation. Actual results could differ from those estimates.
(ae) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily cash
and cash equivalents and accounts receivable. Excess cash is invested in high quality short-term
liquid money instruments issued by highly rated financial institutions. At December 31, 2008 and
2007, substantially all of our cash and cash equivalents were invested in short-term liquid money
instruments at two highly rated financial institutions.
We have one major customer, (see note 10). Our remaining customers are located primarily
throughout Alaska. Because of this geographic concentration, our growth and operations depend
upon economic conditions in Alaska. The economy of Alaska is dependent upon the natural
resources industries, and in particular oil production, as well as tourism, government, and United
States military spending. Any deterioration in these markets could have an adverse impact on us.
Though limited to one geographical area and except for our major customer, the concentration of
credit risk with respect to our receivables is minimized due to the large number of customers,
individually small balances, and short payment terms.
(af) Software Capitalization Policy
Internally used software, whether purchased or developed, is capitalized and amortized using the
straight-line method over an estimated useful life of five years. We capitalize certain costs
associated with internally developed software such as payroll costs of employees devoting time to
the projects and external direct costs for materials and services. Costs associated with internally
developed software to be used internally are expensed until the point the project has reached the
development stage. Subsequent additions, modifications or upgrades to internal-use software are
(Continued)
112
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
capitalized only to the extent that they allow the software to perform a task it previously did not
perform. Software maintenance and training costs are expensed in the period in which they are
incurred. The capitalization of software requires judgment in determining when a project has
reached the development stage.
(ag) Guarantees
Certain of our customers have guaranteed levels of service. We accrue for any obligations under
these guarantees as they become probable and estimable.
(ah) Classification of Taxes Collected from Customers
We report sales, use, excise, and value added taxes assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between us and a customer on a net basis in
our statements of operations. We report a certain surcharge on a gross basis in our statement of
operations of $4.1 million, $4.2 million and $4.6 million for the years ended December 31, 2008,
2007 and 2006, respectively.
(ai) Changes in Accounting Policy
Effective January 1, 2008, we prospectively changed our accounting policy for recording
depreciation on our property and equipment placed in service. For assets placed in service on or
after January 1, 2008, we are using a mid-month convention to recognize depreciation expense.
Previous to this change we used the half-year convention to recognize depreciation expense in
the year an asset was placed in service, regardless of the month the property and equipment was
placed in service. We believe the mid-month convention is preferable because it results in more
precise recognition of depreciation expense over the estimated useful life of the asset. No
retroactive adjustment has been made. The following table sets forth the impact of this accounting
change on depreciation and amortization expense, operating income and net loss for the year
ended December 31, 2008 (amounts in thousands, except per share amounts):
Year Ended December 31,
Depreciation and amortization expense
Operating income
Net loss
Basic EPS
Diluted EPS
$
2008
(521 )
521
214
0.00
0.00
(aj) Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" which requires
the acquiring entity in a business combination to record all assets acquired and liabilities assumed
at their respective acquisition-date fair values, changes the recognition of assets acquired and
liabilities assumed arising from contingencies, changes the recognition and measurement of
contingent consideration, and requires the expensing of acquisition-related costs as incurred.
SFAS 141(R) also requires additional disclosure of information surrounding a business
combination, such that users of the entity's financial statements can fully understand the nature
and financial impact of the business combination. We will implement SFAS No. 141(R) on
January 1, 2009 and we will apply it to any business combinations after the effective date.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of consolidated net
income attributable to the parent and to the noncontrolling interest, changes in a parent's
ownership interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS No. 160 also established reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owner. We will implement SFAS No. 160 on January 1, 2009.
113
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We do not expect the adoption of this standard to have a material impact on our statement of
operations, financial position or cash flows.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and
Hedging Activities." This statement requires companies to provide enhanced disclosures about (a)
how and why they use derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect a company’s financial position, financial performance,
and cash flows. We will implement SFAS No. 161 on January 1, 2009. We do not expect the
adoption of this standard to have a material impact on our statement of operations, financial
position or cash flows.
In April 2008, FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets”,
which amends the factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the cost of a recognized
intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. FSP 142-3 requires an
entity to consider its own assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset. FSP 142-3 also requires the disclosure of the
weighted-average period prior to the next renewal or extension for each major intangible asset
class, the accounting policy for the treatment of costs incurred to renew or extend the term of
recognized intangible assets and for intangible assets renewed or extended during the period, if
renewal or extension costs are capitalized, the costs incurred to renew or extend the asset and the
weighted-average period prior to the next renewal or extension for each major intangible asset
class. FSP 142-3 is effective for financial statements for fiscal years beginning after December 15,
2008. The adoption of FSP 142-3 is not expected to have a material impact on our statement of
operations, financial position or cash flows.
On January 1, 2008, we partially adopted SFAS No. 157 “Fair Value Measurements,” which did
not have a material impact on our consolidated financial statements. We partially adopted SFAS
No. 157 due to the issuance of FSP FASB 157-2, “Effective Date of FASB Statement No. 157.”
SFAS No. 157 defines fair value, establishes a common framework for measuring fair value under
U.S. GAAP, and expands disclosures about fair value measurements for assets and liabilities.
SFAS No. 157 does not require additional assets or liabilities to be accounted for at fair value
beyond that already required under other U.S. GAAP accounting standards. FSP No. 157-2
deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities
that are not recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually). Included in the scope of FSP No. 157-2 are nonfinancial assets and liabilities
acquired in business combinations and impaired assets. The effective date for nonfinancial assets
and nonfinancial liabilities has been delayed by one year to fiscal years beginning after November
15, 2008, and interim periods within those fiscal years. We continue to assess the deferred portion
of SFAS No. 157.
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires
that unvested share-based payment awards containing nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) be considered participating securities and included
in the computation of EPS pursuant to the two-class method of SFAS No. 128. We will implement
FSP EITF 03-6-1 on January 1, 2009. All prior-period EPS data presented shall be adjusted
retrospectively to conform to this FSP. This FSP is not anticipated to have a material impact on
our EPS attributable to common stockholders.
In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active.” FSP 157-3 clarifies the application of SFAS 157 in
a market that is not active and addresses application issues such as the use of internal
assumptions when relevant observable data does not exist, the use of observable market
information when the market is not active and the use of market quotes when assessing the
114
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in
accordance with SFAS No. 157. The guidance in FSP 157-3 is effective immediately and did not
have an impact on the Company upon adoption. See note 11 for information and related
disclosures regarding the Company’s fair value measurements.
(ak) SAB No. 108
SAB No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” requires a dual approach for quantifying
misstatements using both a method that quantifies a misstatement based on the amount of
misstatement originating in the current year statement of operations, as well as a method that
quantifies a misstatement based on the effects of correcting the misstatement existing in the
balance sheet. Prior to the adoption of SAB No. 108, we quantified any misstatements in our
consolidated financial statements using the income statement method in addition to evaluating
qualitative characteristics. As this method focuses solely on the statement of operations, this can
lead to the accumulation of misstatements in the balance sheet that may become material if
recorded in a particular period.
Prior to January 1, 2006, only the interest costs incurred during the construction period of
significant capital projects, such as construction of an undersea fiber optic cable system, were
capitalized. Beginning January 1, 2006, we modified our interest capitalization policy resulting in
the capitalization of material interest costs incurred during the construction period of non-software
capital projects and the capitalization of interest costs incurred during the development period of a
software capital project.
These misstatements accumulated over several years and were immaterial when quantifying the
misstatements using the income statement method. Upon adoption of SAB No. 108 on January 1,
2006, we recorded a $3.5 million increase to property and equipment in service and $1.6 million
increase to accumulated depreciation for the cumulative misstatement as of December 31, 2005.
Accordingly, we increased retained earnings by $1.1 million and recorded $772,000 as a long-
term deferred tax liability.
(al) Reclassifications
Reclassifications have been made to the 2007 and 2006 financial statements to make them
comparable with the 2008 presentation.
We reclassified $16.7 million and $12.7 million of network maintenance and operations expense
from selling, general and administrative expense to Cost of Goods Sold for 2007 and 2006,
respectively. We believe this change in classification more closely aligns our maintenance and
operations components to the nature of expenses included in our financial statement captions,
and will improve the comparability of our financial statement presentation with our industry peers.
115
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Consolidated Statements of Cash Flows Supplemental Disclosures
Changes in operating assets and liabilities, net effect of acquisitions, consist of (amounts in
thousands):
Year ended December 31,
Increase in accounts receivable
Decrease in prepaid expenses
(Increase) decrease in inventories
(Increase) decrease in other current assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued payroll and
payroll related obligations
Increase (decrease) in deferred revenue
Increase (decrease) in accrued interest
Increase (decrease) in accrued liabilities
Increase in subscriber deposits
Increase in long-term deferred revenue
Increase (decrease) in components of other
long-term liabilities
$
2008
(5,209 )
488
(3,336 )
(69 )
(4,198 )
5,437
4,543
1,226
2,695
84
49,153
2007
(19,713 )
949
1,455
1,089
2,738
620
(2,000 )
217
(1,330 )
194
---
(3,727 )
47,087
526
(15,255 )
$
2006
(5,649)
863
(1,732)
1,965
3,790
(3,397)
(998)
(878)
804
128
---
594
(4,510)
We paid interest, net of amounts capitalized, totaling $46.8 million, $34.0 million and $35.1 million
during the years ended December 31, 2008, 2007 and 2006, respectively.
We paid income taxes totaling $884,000, $293,000 and $689,000 during the years ended December
31, 2008, 2007 and 2006, respectively. We received $83,000, $213,000 and $5,000 in income tax
refunds during the years ended December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2008, we financed $98.6 million for the use of satellite
transponders through a capital lease obligation. We also financed $1.3 million in capital expenditures
through the extension of a previously existing capital lease.
We received cash proceeds of $110.6 million from the $145.0 million term loan that we obtained in May
2008. We used $30.0 million of the term loan to repay the revolver portion of our Senior Credit Facility
and our loan proceeds were reduced by $2.9 million for an original issue discount and $1.5 million for
bank and legal fees associated with the new term loan.
In June 2008 the Galaxy XR satellite was taken out of service resulting in the removal of the remaining
$8.8 million net book value and the recognition of an $8.8 million warranty receivable. We applied $8.4
million of the warranty receivable to offset our cash obligation relating to the capital lease during the
year ended December 31, 2008, resulting in an outstanding warranty receivable of $465,000 as of
December 31, 2008.
During the year ended December 31, 2008, we had $12.1 million, in non-cash additions for unpaid
purchases of property and equipment.
During the year ended December 31, 2007, $9.0 million in non-cash additions to property and
equipment were recorded consisting of $6.7 million in unpaid purchases as of December 31, 2007 and
$2.3 million in land and buildings that were transferred from property held for sale.
During the year ended December 31, 2006, we had $3.7 million, in non-cash additions for unpaid
purchases of property and equipment.
116
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the years ended December 31, 2008, 2007 and 2006, we had $1.4 million, $260,000 and
$30,000, respectively, in non-cash additions to property and equipment for assets added when
recording asset retirement obligations.
We retired common stock shares in the amount of $5.5 million, $11.4 million and $32.9 million during
the years ended December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2006 a company owned by our President and CEO tendered
100,000 shares of its GCI Class A common stock to us at the then existing market value of $15.34 per
share for a total value of $1.5 million. Additionally, during the year ended December 31, 2006 our
President and CEO tendered 50,000 shares of his GCI Class A common stock to us at the then
existing market value of $15.34 per share for a total value of $767,000. The stock tenders were in lieu
of cash payments on behalf of our President and CEO on a note receivable with related party and a
note receivable with related party issued upon stock option exercise.
In February 2007, our President and Chief Executive Officer tendered 113,000 shares of his GCI Class
A common stock to us at $15.50 per share for a total value of $1.7 million. The stock tender was in lieu
of a cash payment on his note receivable with related party and a note receivable with related party
issued upon stock option exercise, both of which originated in 2002.
We recorded a net cumulative effect adjustment (benefit) of $64,000 during the year ended December
31, 2006 for share-based compensation instruments outstanding at December 31, 2005 for which the
requisite service was not expected to be rendered.
During the year ended December 31, 2006 our Senior Vice President, Strategic Initiatives, tendered
40,000 shares of his GCI Class A common stock to us at the then existing market value of $12.50 per
share for a total value of $500,000. The stock tender was in lieu of a cash payment on a note receivable
with related party.
During the year ended December 31, 2006 we financed $2.2 million for the acquisition of two buildings
through capital lease obligations.
As described in note 1(ak) we adopted SAB No. 108 effective January 1, 2006, resulting in a
modification of our interest capitalization policy. Upon adoption of SAB No. 108 we recorded a $3.5
million increase to Property and Equipment in Service and a $722,000 increase to Deferred Tax Liability
during the year ended December 31, 2006.
(3) Receivables and Allowance for Doubtful Receivables
Receivables consist of the following at December 31, 2008 and 2007 (amounts in thousands):
Trade
Employee
Other
Total Receivables
2008
109,835
243
3,058
113,136
$
$
2007
95,941
198
1,774
97,913
117
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Changes in the allowance for doubtful receivables during the years ended December 31, 2008, 2007
and 2006 are summarized below (amounts in thousands).
Additions
Deductions
Balance at
beginning
of year
1,657
Charged
to costs
and
expenses
3,471
Charged
to Other
Accounts
---
Write-offs
net of
recoveries
2,546
Balance at
end of year
2,582
2,922
4,822
5,317
3,057
---
---
6,087
1,657
5,452
2,922
Description
December 31, 2008
December 31, 2007
December 31, 2006
$
$
$
(4) Net Property and Equipment in Service
Net property and equipment in service consists of the following at December 31, 2008 and 2007
(amounts in thousands):
Land and buildings
Telephony distribution systems
Cable television distribution systems
Support equipment
Transportation equipment
Property and equipment under capital leases
$
Less accumulated depreciation
Less amortization
Net property and equipment in service
$
2008
2007
32,134
809,356
194,616
144,457
10,550
102,972
1,294,085
495,953
5,081
793,051
14,424
640,001
161,934
110,619
8,102
3,086
938,166
432,829
1,064
504,273
(5)
Intangible Assets and Goodwill
As of December 31, 2008 cable certificates, wireless licenses and goodwill were tested for impairment
and the fair values were greater than the carrying amounts, therefore these intangible assets were
determined not to be impaired at December 31, 2008. The remaining useful lives of our cable
certificates, wireless licenses and goodwill were evaluated as of December 31, 2008 and events and
circumstances continue to support an indefinite useful life.
There are no indicators of impairment of our intangible assets subject to amortization as of December
31, 2008.
118
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other Intangible Assets subject to amortization include the following at December 31, 2008 and 2007
(amounts in thousands):
Software license fees
Customer relationships
Customer contracts
Right-of-way
Other
Less amortization
Net other intangible assets
2008
2007
$
$
18,377
11,467
3,538
783
803
34,968
11,992
22,976
12,094
4,528
---
783
261
17,666
5,897
11,769
Changes in Other Intangible Assets are as follows (amounts in thousands):
Balance at December 31, 2006
$
Asset additions upon consolidation of Alaska DigiTel
Asset additions
Less amortization expense
Less asset write-off
Balance at December 31, 2007
Asset additions upon acquisition of UUI, Unicom, Alaska
Wireless, and the minority interest in Alaska DigiTel
Asset additions
Less amortization expense
Less asset write-off
Balance at December 31, 2008
7,011
4,469
3,738
3,332
117
11,769
10,861
6,303
5,948
9
$ 22,976
During the year ended December 31, 2008, goodwill increased $24.7 million, customer relationships
increased $6.8 million, customer contracts increased $3.5 million, other intangible assets increased
$542,000, and wireless licenses increased $210,000 upon the acquisition of UUI, Unicom, Alaska
Wireless, and the minority interest in Alaska DigiTel. Goodwill and the wireless licenses are indefinite-
lived assets. The increase in other intangible assets is due to the recognition of customer relationships,
contracts, and the Alaska DigiTel trademark. The intangible assets added during 2008 have a
weighted average amortization period of 3.6 years.
Amortization expense for amortizable intangible assets for the years ended December 31, 2008, 2007
and 2006 follow (amounts in thousands):
Amortization expense for amortizable intangible assets
$
5,948
3,332
1,804
Years Ended December 31,
2006
2007
2008
119
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is
estimated to be (amounts in thousands):
Years Ending
December 31,
2009
2010
2011
2012
2013
$ 7,364
5,494
3,422
2,421
1,092
For the period from January 1, 2008 to December 31, 2008, the U.S. financial markets have been
impacted by continued deterioration in economic conditions. Should economic conditions in the State of
Alaska and other indicators deteriorate such that they impact our ability to achieve levels of forecasted
operating results and cash flows, should our stock price and market capitalization decline below our
book value for a sustained period of time, or should other events occur indicating the carrying value of
goodwill and intangible assets might be impaired, we would test our intangible assets for impairment
and may recognize an impairment loss to the extent that the carrying amount exceeds such asset’s fair
value. Any future impairment charges could have a material adverse effect on our results of
operations.
(6)
Long-term Debt
Long-term debt consists of the following (amounts in thousands):
Senior Credit Facility (a)
Senior Notes (b)
Rural Utilities Services Debt (c)
CoBank Mortgage Note Payable (c)
Mortgage
Note Payable
Debt
$
Less unamortized discount paid on the Senior Notes
Less unamortized discount paid on Senior Credit Facility
Less current portion of long-term debt
Long-term debt, net of unamortized discount
$
December 31,
2008
362,529
320,000
35,328
3,539
490
--
721,886
2,589
2,466
8,425
708,406
2007
220,760
320,000
--
--
529
100
541,389
2,991
---
2,283
536,115
120
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(a) The Senior Credit Facility includes a $360.0 million term loan, including the Additional Incremental
Term Loan discussed below, and a $100.0 million revolving credit facility with a $25.0 million
sublimit for letters of credit. Our term loan is fully drawn and becomes due in stages between 2011
and 2012.
In May 2008, we signed an agreement to add a term loan of $145.0 million ("Additional
Incremental Term Loan") to our then existing Senior Credit Facility. The Additional Incremental
Term Loan is due under the same terms and conditions as set forth in the existing Senior Credit
Facility.
The Additional Incremental Term Loan increased the interest rate on the term loan component of
our Senior Credit Facility from LIBOR plus 2.00% to LIBOR plus 4.25%. The Additional
Incremental Term Loan increased the interest rate for the revolving credit facility component of our
Senior Credit Facility from LIBOR plus a margin dependent upon our Total Leverage Ratio ranging
from 1.50% to 2.25% to LIBOR plus the following Applicable Margin set forth opposite each
applicable Total Leverage Ratio below:
Total Leverage
Ratio (as defined)
>3.75
>3.25 but <3.75
>2.75 but <3.25
<2.75
Applicable
Margin
4.25%
3.75%
3.25%
2.75%
The commitment fee we are required to pay on the unused portion of the commitment is 0.5%.
Substantially all of the Company's assets collateralize the Senior Credit Facility.
$145.0 million was drawn on the Additional Incremental Term Loan at the time of the debt
modification. We used $30.0 million of the proceeds to repay the revolver portion of our senior
credit facility and our loan proceeds were reduced by $2.9 million for an original issue discount
and $1.5 million for bank and legal fees associated with the new term loan. We borrowed $10.0
million under our revolving credit facility in October 2008 and we have letters of credit outstanding
totaling $4.0 million, which leaves $86.0 million available for borrowing under the revolving credit
facility as of December 31, 2008 if needed.
The Term Loan allows for the repurchase of our common stock under our buyback program when
our total debt leverage is below 4.0 times adjusted EBITDA. The amendment revised various
financial covenants in the agreement and made conforming changes to various covenants to
permit our 2008 acquisitions. Additionally, our loan proceeds were reduced by $2.9 million for an
original issue discount. The discount on the term loan is being amortized into interest expense
using the effective interest method.
Borrowings under the Senior Credit Facility are subject to certain financial covenants and
restrictions on indebtedness, dividend payments, financial guarantees, business combinations,
and other related items. As a result of the Additional Incremental Term Loan, our Senior Credit
Facility key debt covenants changed to the following: our Senior Credit Facility Total Leverage
Ratio (as defined) may not exceed (i) 5.25:1.00 for the period beginning May 2, 2008 and ending
on June 30, 2009, (ii) 5.00:1.00 for the period beginning on July 1, 2009, and ending on December
31, 2009, and (iii) 4.50:1.00 for the period beginning January 1, 2010, and ending on August 31,
2012; the Senior Leverage Ratio (as defined) may not exceed (i) 3.25:1.00 for the period
beginning on May 2, 2008 and ending on June 30, 2009, and (ii) 3.00:1.00 for the period
beginning July 1, 2009, and ending on August 31, 2012; the Fixed Charge Coverage Ratio (as
defined) must be 1.0:1.0 or greater beginning December 31, 2009; and the Interest Coverage
Ratio (as defined) must not be less than (i) 2.50:1.00 for the period beginning on May 2, 2008 and
(Continued)
121
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ending on September 30, 2009, and (ii) 2.75:1.00 for the period beginning October 1, 2009, and
ending on August 31, 2012.
Our Senior Credit Facility, which was further amended in October 2008 to allow an additional
$15.0 million in capital expenditures for the year ended December 31, 2008, also limits the amount
of capital expenditures, excluding acquisitions, that we can incur each year based on the following
(amounts in thousands):
Year Ended:
2008
2009
2010
2011 and thereafter
Maximum Capital
Expenditure Amount
$240,000
$125,000
$125,000
$100,000
If our capital expenditures for a given year are less than the maximum, the cumulative difference
between the amount incurred and the maximum capital expenditure limitation may be carried over
to the following year if certain levels of EBITDA are met.
The transaction in May 2008 to add the Additional Incremental Term Loan was a partial
substantial modification of our existing Senior Credit Facility resulting in a $667,000 write-off of
previously deferred loan fees during the year ended December 31, 2008 in our Consolidated
Statements of Operations. Deferred loan fees of $58,000 associated with the portion of our
existing Senior Credit Facility determined not to have been substantially modified continue to be
amortized over the remaining life of the Senior Credit Facility.
Additionally, in connection with the Additional Incremental Term Loan, we paid bank fees and
other expenses of $1.6 million during 2008, of which $527,000 were immediately expensed in the
twelve months ended December 31, 2008 and $1.1 million were deferred and are being amortized
over the remaining life of the Senior Credit Facility.
In connection with the October 2008 amendment to the Senior Credit Facility, we paid loan fees of
$453,000 which are being amortized over the remaining life of the Senior Credit Facility. The
October amendment to the Senior Credit Facility was determined not to be a substantial
modification.
(b) We pay interest of 7.25% on Senior Notes that are due in 2014. The Senior Notes are an
unsecured senior obligation of GCI, Inc. The Senior Notes are carried on our Consolidated
Balance Sheet net of the unamortized portion of the discount based on an effective interest rate of
7.50%, which is being amortized to Interest Expense over the term of the Senior Notes using the
effective interest method.
The Senior Notes are not redeemable prior to February 15, 2009. At any time on or after February
15, 2009, the Senior Notes are redeemable at our option, in whole or in part, on not less than thirty
days nor more than sixty days notice, at the following redemption prices, plus accrued and unpaid
interest (if any) to the date of redemption:
If redeemed during the twelve month
period commencing February 1 of the
year indicated:
2009
2010
2011
2012 and thereafter
Redemption Price
103.625%
102.417%
101.208%
100.000%
122
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Senior Notes restrict GCI, Inc. and certain of its subsidiaries from incurring debt, but permits
debt under the Senior Credit Facility and vendor financing as long as our leverage ratio, as
defined does not exceed 6.0 to one. In addition, certain other debt is permitted regardless of our
leverage ratio, including debt under the Senior Credit Facility not exceeding (and reduced by
certain stated items):
• $250.0 million, reduced by the amount of any prepayments, or
• 3.0 times earnings before interest, taxes, depreciation and amortization for the last four full
fiscal quarters of GCI, Inc. and its subsidiaries.
The Senior Notes limit the ability of our subsidiaries to make cash dividend payments to GCI.
Semi-annual interest payments of $11.6 million are payable in February and August of each year.
The Senior Notes are structurally subordinate to our Senior Credit Facility.
Our Senior Notes’ key debt covenants require our Total Leverage Ratio (as defined) be 6.0:1.0 or
less and our Senior Leverage Ratio (as defined) be 3.0:1.0 or less if our Senior Debt (as defined)
is greater than $250.0 million.
(c) We acquired long-term debt of $43.6 million upon our acquisition of UUI and Unicom effective
June 1, 2008. As of December 31, 2008, the long-term debt consists of $35.3 million from the
Rural Utility Services (“RUS”) and $3.5 million mortgage note payable due to CoBank. The long-
term debt is due in monthly installments of principal based on a fixed rate amortization schedule.
The interest rates on the various loans to which this debt relates range from 2.0% to 6.76%.
Through UUI and Unicom, we have $9.9 million available for borrowing for specific capital
expenditures under existing borrowing arrangements. Substantially all of the assets of our
subsidiaries, UUI and Unicom are collateral for the amounts due to RUS and CoBank.
Maturities of long-term debt as of December 31, 2008 are as follows (amounts in thousands):
Years ending December 31,
2009
2010
2011
2012
2013
2014 and thereafter
Less unamortized discount paid on Senior Notes
Less unamortized discount paid on Senior Credit Facility
Less current portion of long-term debt
$
$
8,425
8,657
188,147
176,323
4,749
335,585
721,886
2,589
2,466
8,425
708,406
(7) Comprehensive Income (Loss)
During the years ended December 31, 2008, 2007 and 2006 we had no other comprehensive income.
Total comprehensive income (loss) which was equal to net income (loss) during the years ended
December 31, 2008, 2007 and 2006 was $(1.9) million, $13.7 million and $18.5 million, respectively.
123
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8)
Income Taxes
Total income tax expense was allocated as follows (amounts in thousands):
Years ended December 31,
2007
2008
2006
Income (loss) before cumulative effect of a
change in accounting principle
SAB 108 cumulative adjustment
Cumulative effect of a change in accounting
principle
Net income (loss)
$
$
(792 )
---
---
(792 )
12,162
---
---
12,162
15,797
772
44
16,613
We did not record any excess tax benefit generated from stock options exercised during the years
ended December 31, 2008, 2007, and 2006 since we are in a net operating loss carryforward position
and the income tax deduction will not yet reduce income taxes payable. The cumulative excess tax
benefits generated for stock options exercised that have not been recognized is $4.6 million at
December 31, 2008.
We have an income tax receivable for federal and state alternative minimum tax paid in 2008 of
$899,000 at December 31, 2008.
Income tax expense consists of the following (amounts in thousands):
Years ended December 31,
2007
2008
2006
Current tax expense (benefit):
Federal taxes
State taxes
$
---
---
---
436
77
513
(278)
(81)
(359)
124
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31,
2007
2008
2006
Deferred tax expense:
Federal taxes
State taxes
922
155
1,077
1,077
9,785
1,864
11,649
12,162
12,514
3,642
16,156
15,797
$
Total income tax expense differed from the “expected” income tax expense determined by applying the
statutory federal income tax rate of 35% as follows (amounts in thousands):
Years ended December 31,
2007
2008
2006
“Expected” statutory tax expense (benefit)
State income taxes, net of federal expense
(benefit)
Income tax effect of nondeductible
entertainment expenses
Income tax effect of nondeductible lobbying
expenses
Income tax effect of nondeductible
expenditures and other
items, net
Other, net
$
(277 )
9,063
11,988
(48 )
1,585
2,529
725
424
569
468
423
409
247
6
1,077
500
(23 )
12,162
60
388
15,797
$
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and
liabilities at December 31, 2008 and 2007 are summarized below (amounts in thousands):
Current deferred tax assets, net of current deferred tax
liability:
Compensated absences, accrued for financial
reporting purposes
Net operating loss carryforwards
Workers compensation and self insurance health
reserves, principally due to accrual for financial
reporting purposes
Accounts receivable, principally due to allowance for
doubtful accounts
Deferred compensation expense for tax purposes in
excess of amounts recognized for financial reporting
purposes
Other
Total current deferred tax assets
$
2008
2007
$
2,771
---
2,196
2,033
869
980
966
2,257
7,843
694
629
(401)
583
5,734
125
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Long-term deferred tax assets:
Net operating loss carryforwards
IRU revenue deferred for financial reporting purposes
Alternative minimum tax credits
Deferred compensation expense for financial reporting
purposes in excess of amounts recognized for tax
purposes
$
Asset retirement obligations in excess of amounts
recognized for tax purposes
Share-based compensation expense for financial
reporting purposes in excess of amounts recognized
for tax purposes
Other
Total long-term deferred tax assets
2008
2007
65,890
20,658
3,055
45,518
---
3,160
1,274
2,690
1,812
1,444
2,079
115
94,883
---
222
53,034
Long-term deferred tax liabilities
Plant and equipment, principally due to differences in
depreciation
Intangible assets
Other
Total long-term deferred tax liabilities
Net long-term deferred tax liabilities
108,015
73,000
55
181,070
86,187
68,278
68,588
462
137,328
84,294
$
At December 31, 2008, we have (1) tax net operating loss carryforwards of $160.8 million that will
begin expiring in 2011 if not utilized, and (2) alternative minimum tax credit carryforwards of $3.1 million
available to offset regular income taxes payable in future years. Our utilization of remaining acquired
net operating loss carryforwards is subject to annual limitations pursuant to Internal Revenue Code
section 382 which could reduce or defer the utilization of these losses.
We are no longer subject to U.S. or state tax examinations by tax authorities for years before 2005
except that certain U.S. federal income tax returns for years after 1997 are not closed by relevant
statutes of limitations due to unused net operating losses reported on those income tax returns.
Our tax net operating loss carryforwards are summarized below by year of expiration (amounts in
thousands).
Years ending December 31,
Federal
State
$
2011
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Total tax net operating loss carryforwards
$
759
25,942
44,744
29,614
14,081
3,968
544
1,342
337
116
39,400
160,847
759
25,552
43,797
28,987
13,788
3,903
---
---
---
---
43,663
160,449
126
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Tax benefits associated with recorded deferred tax assets are considered to be more likely than not
realizable through taxable income earned in carryback years, future reversals of existing taxable
temporary differences, and future taxable income exclusive of reversing temporary differences and
carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced if
estimates of future taxable income during the carryforward period are reduced.
(9) Stockholders’ Equity
Common Stock
GCI’s Class A and Class B common stock are identical in all respects, except that each share of Class
A common stock has one vote per share and each share of Class B common stock has ten votes per
share. Each share of Class B common stock outstanding is convertible, at the option of the holder, into
one share of Class A common stock.
During the years ended December 31, 2008, 2007 and 2006 we repurchased 0, 1.3 million, and 2.9
million, respectively, shares of our Class A and Class B common stock at a cost of $0, $15.1 million
and $34.7 million, respectively, pursuant to the Class A and Class B common stock repurchase
program authorized by our Board of Directors. The Term Loan agreement entered into in May 2008
and described in note 6 allows for the repurchase of our common stock under our buyback program
when our total debt leverage is below 4.0 times adjusted EBITDA. During the years ended December
31, 2008, 2007 and 2006 we retired 540,000, 843,000, and 3.2 million shares, respectively, of our
Class A and Class B common stock that we purchased pursuant to the Class A and Class B common
stock repurchase program.
Verizon owned 1,276,000 shares of our Class B common stock that represented 38 percent of the
issued and outstanding Class B shares at December 31, 2006, and 15 percent of voting interest at
December 31, 2006. In March 2007, Verizon sold all of their GCI Class B common stock to two
individuals in a private transaction.
Share-Based Compensation
Our 1986 Stock Option Plan, as amended ("Stock Option Plan"), provides for the grant of options and
restricted stock awards (collectively "award") for a maximum of 15.7 million shares of GCI Class A
common stock, subject to adjustment upon the occurrence of stock dividends, stock splits, mergers,
consolidations or certain other changes in corporate structure or capitalization. If an award expires or
terminates, the shares subject to the award will be available for further grants of awards under the
Stock Option Plan. The Compensation Committee of GCI’s Board of Directors administers the Stock
Option Plan. Substantially all restricted stock awards granted vest over periods of up to five years.
Substantially all options vest in equal installments over a period of five years and expire ten years from
the date of grant. The requisite service period of our awards is generally the same as the vesting
period. Options granted pursuant to the Stock Option Plan are only exercisable if at the time of
exercise the option holder is our employee, non-employee director, or a consultant or advisor working
on our behalf. New shares are issued when stock option agreements are exercised or restricted stock
awards are made. Our share repurchase program as described above may include the purchase of
shares issued pursuant to stock option agreement exercise transactions.
The fair value of restricted stock awards is determined based on the number of shares granted and the
quoted price of our common stock. We use a Black-Scholes-Merton option pricing model to estimate
the fair value of stock options issued under SFAS 123(R). The Black-Scholes-Merton option pricing
model incorporates various and highly subjective assumptions, including expected term and expected
volatility. We have reviewed our historical pattern of option exercises and have determined that
meaningful differences in option exercise activity existed among employee job categories. Therefore,
we have categorized these awards into two groups of employees for valuation purposes.
We estimated the expected term of options granted by evaluating the vesting period of stock option
awards, employee’s past exercise and post-vesting employment departure behavior, and expected
volatility of the price of the underlying shares.
127
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We estimated the expected volatility of our common stock at the grant date using the historical volatility
of our common stock over the most recent period equal to the expected stock option term and
evaluated the extent to which available information indicated that future volatility may differ from
historical volatility.
The risk-free interest rate assumption was determined using the Federal Reserve nominal rates for
U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award
being valued. We have never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. Therefore, we assumed an expected dividend
yield of zero.
The following table shows our assumptions used to compute the share-based compensation expense
for stock options granted during the years ended December 31, 2008, 2007 and 2006:
Expected term (years)
Volatility
Risk-free interest rate
2008
5.2 – 6.8
47.6% – 55.4%
1.6% – 3.4%
2007
5.2 – 6.8
41.5% – 54.3%
3.5% – 4.7%
2006
5.4 – 8.0
43.3% – 61.4%
4.7% – 5.0%
SFAS 123(R) requires us to estimate pre-vesting option forfeitures at the time of grant and periodically
revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We record
share-based compensation expense only for those awards expected to vest using an estimated
forfeiture rate based on our historical pre-vesting forfeiture data. Previously, we accounted for
forfeitures as they occurred under the pro forma disclosure provisions of SFAS 123 for periods prior to
2006. The transition impact of adopting SFAS No. 123(R), attributed to accruing for expected forfeitures
on outstanding share-based awards, totaled $108,000, which was reduced by income tax expense of
$44,000 and is reported as cumulative effect of a change in accounting principle in the accompanying
Consolidated Statement of Operations for the year ended December 31, 2006.
During the year ended December 31, 2008, we modified the option price of several performance based
stock options as consideration for a modification of the performance target. SFAS No. 123(R) requires
that we recognize incremental compensation expense based on the difference between the fair value of
the modified option as compared to the original option as of the modification date. The modification
resulted in $372,000 incremental expense that is expected to be recognized over the weighted average
period of 1.0 years.
The weighted average grant date fair value of options granted during the years ended December 31,
2008, 2007 and 2006 was $3.10 per share, $7.03 per share and $6.92 per share, respectively. The
total fair value of options vesting during the years ended December 31, 2008, 2007 and 2006 was $3.3
million, $3.3 million and $3.6 million, respectively.
We have recorded share-based compensation expense of $7.3 million for the year ended December
31, 2008, which consists of $7.3 million for employee share-based compensation expense and a
$4,000 decrease in the fair value of liability-classified share-based compensation. We recorded share-
based compensation expense of $4.9 million for the year ended December 31, 2007, which consists of
$6.2 million for employee share-based compensation expense and a $1.3 million decrease for liability-
classified share-based compensation. We recorded share-based compensation expense of $6.4
million for the year ended December 31, 2006, which consists of $4.8 million for employee share-based
compensation expense and $1.6 million for liability-classified share-based compensation. Share-based
compensation expense is classified as selling, general and administrative expense in our consolidated
Statements of Operations. Unrecognized share-based compensation expense was $2.8 million relating
to 413,000 restricted stock awards and $9.7 million relating to 2.5 million unvested stock options as of
December 31, 2008. We expect to recognize share-based compensation expense over a weighted
average period of 2.7 years for stock options and 1.7 years for restricted stock awards.
128
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of our Stock Option Plan activity for the years ended December 31, 2008,
2007 and 2006 (in thousands):
Outstanding at December 31, 2005
Options granted
Options exercised
Options forfeited and retired
Outstanding at December 31, 2006
Options granted
Restricted stock awards granted
Options exercised
Restricted stock awards vested
Options forfeited and retired
Outstanding at December 31, 2007
Options granted
Restricted stock awards granted
Options exercised
Restricted stock awards vested
Options forfeited and retired
Shares
6,543
Weighted
Average
Exercise Price
$7.27
1,003
(1,606)
(73)
5,867
983
499
(477)
(23)
(98)
6,751
751
45
(71)
(131)
(140)
$12.11
$6.74
$8.83
$8.22
$12.85
$13.04
$6.93
$13.34
$9.69
$9.37
$7.80
$7.36
$5.77
$12.05
$9.57
Outstanding options and restricted stock
awards at December 31, 2008
7,205
$9.08
Available for grant at December 31, 2008
918
The following is a summary of activity for stock options granted not pursuant to the Stock Option Plan
for the years ended December 31, 2008, 2007 and 2006 (in thousands):
Outstanding at December 31, 2006, 2007,
and 2008
Available for grant at December 31, 2008
Weighted
Average
Exercise Price
$6.50
Shares
150
---
In January 2001 we entered into an aircraft operating lease agreement with a company owned by our
President and CEO. The lease was amended effective January 1, 2002 and February 25, 2005. Upon
signing the lease, the lessor was granted an option to purchase 250,000 shares of GCI Class A
common stock at $6.50 per share, of which 150,000 shares remain available for purchase and expire
on March 31, 2010.
129
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of all outstanding stock options at December 31, 2008:
Options Outstanding
Weighted Average
Remaining
Aggregate
Range of
Exercise Prices
Shares
(thousands)
$3.11-$6.00
$6.01-$6.35
$6.36-$6.50
$6.51-$7.12
$7.13-$7.25
$7.26-$8.40
$8.41-$9.86
$9.87-$12.99
$13.00-$15.31
$15.32-$15.48
$3.11-$15.48
664
41
747
108
1,050
1,422
705
1,680
394
1
6,812
Contractual Life Weighted Average Intrinsic Value
(thousands)
Exercise Price
(years)
3.40
2.01
1.85
2.08
3.10
7.29
5.65
7.90
7.47
8.08
5.54
$5.50
$6.12
$6.50
$7.09
$7.25
$8.04
$9.54
$11.91
$13.21
$15.48
$8.88
$1,721
$81
$1,188
$108
$882
$189
$---
$---
$---
$---
$4,169
We had 6,812,000 total outstanding shares that excluded 393,000 restricted stock awards at December
31, 2008.
Options Exercisable
Weighted Average
Remaining
Aggregate
Range of
Exercise Prices
Shares
(thousands)
$3.11-$6.00
$6.01-$6.35
$6.36-$6.50
$6.51-$7.12
$7.13-$7.25
$7.26-$8.40
$8.41-$9.86
$9.87-$12.99
$13.00-$15.31
$15.32-$15.48
$3.11-$15.48
664
41
747
108
1,008
518
501
525
163
0
4,275
Contractual Life Weighted Average Intrinsic Value
(thousands)
Exercise Price
(years)
3.40
2.01
1.85
2.08
3.10
4.65
5.36
7.34
7.48
8.08
4.03
$5.50
$6.12
$6.50
$7.09
$7.25
$8.17
$9.48
$11.48
$13.24
$15.48
$7.95
$1,721
$81
$1,188
$108
$847
$70
$---
$---
$---
$---
$4,015
The total intrinsic values, determined as of the date of exercise, of options exercised in the years ended
December 31, 2008, 2007 and 2006 were $214,000, $3.5 million and $9.8 million, respectively. We
received $416,000, $3.3 million and $11.5 million in cash from stock option exercises in the years
ended December 31, 2008, 2007 and 2006, respectively. We used cash of $0, $0, and $5.8 million to
settle stock option agreements in the years ended December 31, 2008, 2007 and 2006, respectively.
We discontinued offering a cash-settlement exercise option to employees on October 23, 2006 and do
not intend to cash-settle option exercises in the future.
130
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Employee Stock Purchase Plan
In December 1986, we adopted an Employee Stock Purchase Plan (the “401(k) Plan”) qualified under
Section 401 of the Internal Revenue Code of 1986. The 401(k) Plan provides for acquisition of GCI’s
Class A and Class B common stock at market value. The 401(k) Plan permits each employee who has
completed one year of service to elect to participate in the 401(k) Plan. Through December 31, 2008,
eligible employees could elect to reduce their compensation by up to 50 percent of such compensation
(subject to certain limitations) up to a maximum of $15,500. Beginning January 1, 2009, eligible
employees can elect to reduce their compensation by up to 50 percent of such compensation (subject
to certain limitations) up to a maximum of $16,500. Eligible employees may contribute up to 10 percent
of their compensation with after-tax dollars, or they may elect a combination of salary reductions and
after-tax contributions.
Eligible employees were allowed to make catch-up contributions of no more than $5,000 during the
year ended December 31, 2008 and will be able to make such contributions limited to $5,500 during the
year ended December 31, 2009. We do not match employee catch-up contributions.
We may match up to 100% of employee salary reductions and after tax contributions in any amount,
decided by our Board of Directors each year, but not more than 10 percent of any one employee’s
compensation will be matched in any year. Matching contributions vest over the initial six years of
employment. For the year ended December 31, 2008, the combination of salary reductions, after tax
contributions and matching contributions could not exceed the lesser of 100 percent of an employee’s
compensation or $46,000 (determined after salary reduction). For the year ended December 31, 2007,
the combination of salary reductions, after tax contributions and matching contributions could not
exceed the lesser of 100 percent of an employee’s compensation or $45,000 (determined after salary
reduction).
Employee contributions may be invested in GCI Class A common stock or various mutual funds.
In 2006 employee contributions received up to 100% matching, as determined by our Board of
Directors each year, in GCI common stock. As of January 1, 2007, employee contributions receive up
to 100% matching and employees self-direct their matching investment. Our matching contributions
allocated to participant accounts totaled $5.8 million, $5.5 million, and $4.6 million for the years ended
December 31, 2008, 2007, and 2006, respectively. The 401(k) Plan may, at its discretion, purchase
shares of GCI common stock from GCI at market value or may purchase GCI’s common stock on the
open market. We funded all of our employer-matching contributions through market purchases during
the years ended December 31, 2008, 2007 and 2006.
Employees of our subsidiaries UUI and Unicom who meet certain age and length of service
requirements may participate in a profit sharing and 401(k) deferred contribution plan. We may match
up to 100% of employee salary reductions up to the first 4% of an employee’s contribution. The annual
contribution to the profit sharing plan is at the discretion of the UUI and Unicom Board of Directors.
Matching contributions totaled $104,000 from June 1, 2008 through December 31, 2008.
(10)
Industry Segments Data
Our reportable segments are business units that offer different products and are each managed
separately.
A description of our five reportable segments follows:
Consumer - We offer a full range of voice, video, data and wireless services to residential
customers.
Network Access - We offer a full range of voice, data and wireless services to common carrier
customers.
131
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Commercial - We offer a full range of voice, video, data and wireless services to business and
governmental customers.
Managed Broadband - We offer data services to rural school districts and hospitals and health clinics
through our SchoolAccess® and ConnectMD® initiatives.
Regulated Operations - We offer voice, data and wireless services to residential, business, and
governmental customers in areas of rural Alaska.
Corporate related expenses including engineering, information technology, accounting, legal and
regulatory, human resources, and other general and administrative expenses for the years ended
December 31, 2008, 2007, and 2006 are allocated to our Consumer, Network Access, Commercial,
and Managed Broadband segments using segment margin for the years ended December 31, 2007,
2006, and 2005 respectively. Bad debt expense for the years ended December 31, 2008, 2007, and
2006 is allocated to our Consumer, Network Access, Commercial and Managed Broadband segments
using a combination of specific identification and allocations based upon segment revenue for the years
ended December 31, 2008, 2007 and 2006, respectively. Corporate related expenses and bad debt
expense are specifically identified for our Regulated Operations segment and therefore, are not
included in the allocations.
We evaluate performance and allocate resources based on adjusted EBITDA. The accounting policies
of the reportable segments are the same as those described in the summary of significant accounting
policies in note 1. Intersegment sales are recorded at cost plus an agreed upon intercompany profit.
We earn all revenues through sales of services and products within the United States. All of our long-
lived assets are located within the United States of America, except 82% of our undersea fiber optic
cable systems which transit international waters and all of our satellite transponders.
Summarized financial information for our reportable segments for the years ended December 31, 2008,
2007 and 2006 follows (amounts in thousands):
2008
Revenues:
Intersegment
External
Total revenues
Cost of Goods Sold:
Intersegment
External
Total Cost of Goods
Sold
Contribution:
Intersegment
External
Total contribution
Consumer
Network
Access
Commer-
cial
Managed
Broadband
Regulated
Operations
Total
Reportable
Segments
$
84
255,632
255,716
916
153,821
154,737
5,808
114,660
120,468
---
37,047
37,047
656
89,853
685
40,326
2,821
59,480
125
10,265
157
14,282
14,439
97
3,134
6,965
575,442
582,407
4,384
203,058
90,509
41,011
62,301
10,390
3,231
207,442
(572 )
165,779
165,207
231
113,495
113,726
2,987
55,180
58,167
(125)
26,782
26,657
60
11,148
11,208
2,581
372,384
374,965
132
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Less SG&A
Plus share-based
compensation
Plus non-cash contribution
expense
Plus minority interest
Plus other expense
Adjusted EBITDA
2007
Revenues:
Intersegment
External
Total revenues
Cost of Goods Sold:
Intersegment
External
Total Cost of Goods
Sold
Contribution:
Intersegment
External
Total contribution
Less SG&A
Plus share-based
compensation
Plus other income
Adjusted EBITDA
2006
Revenues:
Intersegment
External
Total revenues
Cost of Goods Sold:
Intersegment
External
Total Cost of Goods
Sold
Contribution:
Intersegment
External
Total contribution
Less SG&A
Plus share-based
compensation
Plus other income
Adjusted EBITDA
Consumer
110,364
Network
Access
43,057
Commer-
cial
36,191
Managed
Broadband
13,132
Regulated
Operations
7,562
2,891
2,443
1,392
552
199
661
(217 )
58,949
177
589
---
73,647
$
76
253
---
20,710
$
---
223,502
223,502
2,978
163,377
166,355
5,471
104,640
110,111
2,067
88,699
1,303
43,868
2,487
53,492
90,766
45,171
55,979
(2,067 )
134,803
132,736
89,723
1,715
13
46,808
$
1,675
119,509
121,184
38,859
1,775
16
82,441
2,984
51,148
54,132
36,060
1,069
7
16,164
$
---
178,951
178,951
---
166,471
166,471
5,335
105,929
111,264
---
71,663
636
39,957
2,353
50,309
71,663
40,593
52,662
---
107,288
107,288
76,819
(636)
126,514
125,878
35,542
2,081
---
32,550
2,478
---
93,450
$
2,982
55,620
58,602
35,793
1,337
---
21,164
28
---
---
14,230
---
28,792
28,792
---
9,740
9,740
---
19,052
19,052
11,110
385
---
8,327
---
26,131
26,131
---
7,178
7,178
---
18,953
18,953
10,796
469
463
9,089
---
---
---
---
3,586
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
Total
Reportable
Segments
210,306
7,278
480
1,503
(217)
171,122
8,449
520,311
528,760
5,857
195,799
201,656
2,592
324,512
327,104
175,752
4,944
36
153,740
5,335
477,482
482,817
2,989
169,107
172,096
2,346
308,375
310,721
158,950
6,365
463
156,253
133
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of reportable segment revenues to consolidated revenues follows (amounts in
thousands):
Years ended December 31,
Reportable segment revenues
Less intersegment revenues eliminated
in consolidation
Consolidated revenues
2008
582,407
6,965
575,442
$
$
2007
528,760
8,449
520,311
2006
482,817
5,335
477,482
A reconciliation of reportable segment earnings from adjusted EBITDA, as adjusted to consolidated net
income (loss) before income taxes and cumulative effect of a change in accounting principle follows
(amounts in thousands):
Years ended December 31,
2008
2007
2006
Reportable segment adjusted EBITDA
Less depreciation and amortization
expense
Less share-based compensation
expense
Less non-cash contribution expense
Less other income
Plus other expense
Consolidated operating income
Less other expense, net
Consolidated income (loss) before
income taxes and cumulative
effect of a change in accounting
principle
$
171,122
153,740
156,253
114,369
87,615
82,099
7,278
480
1,503
217
47,709
48,501
4,944
---
36
---
61,145
35,250
6,365
---
463
---
67,326
33,073
$
(792)
25,895
34,253
Assets at December 31, 2008, 2007 and 2006 and capital expenditures for the years ended December
31, 2008, 2007 and 2006 are not allocated to reportable segments as our Chief Operating Decision
Maker does not review a balance sheet or capital expenditures by segment to make decisions about
resource allocations or to evaluate segment performance.
We earn revenues included in the Network Access segment from a major customer. We earned
revenues from our major customer, net of discounts, of $65.0 million, $71.6 million and $93.4 million for
the years ended December 31, 2008, 2007 and 2006, respectively. As a percentage of total revenues,
our major customer’s revenues totaled 11.3%, 13.8% and 19.6% for the years ended December 31,
2008, 2007 and 2006, respectively
(11) Financial Instruments
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties. At December 31, 2008 and 2007 the fair values of cash and
cash equivalents, net receivables, current portion of notes receivable, accounts payable, accrued
payroll and payroll related obligations, accrued interest, accrued liabilities, and subscriber deposits
approximate their carrying value due to the short-term nature of these financial instruments. The
carrying amounts and estimated fair values of our financial instruments at December 31, 2008 and
2007 follow (amounts in thousands):
134
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2008
2007
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Current and long-term debt and
capital lease obligations
Other liabilities
$ 817,160
63,867
723,403
63,727
541,249
11,596
512,853
11,380
The following methods and assumptions were used to estimate fair values:
Current and long-term debt and capital lease obligations: The fair value of our Senior Notes is
estimated based on the quoted market price for the same issue. The fair value of our Senior Credit
Facility is estimated to approximate the carrying value because these instruments are subject to
variable interest rates. The fair value of the Rural Utilities Services Debt and CoBank Mortgage
Note Payable are valued at the discounted amount of future cash flows using our current
incremental rate of borrowing on our Senior Credit Facility. The fair value of our capital leases
and capital leases due to related party are estimated based upon the discounted amount of future
cash flows using our current incremental rate of borrowing on our Senior Credit Facility.
Other Liabilities: Deferred compensation liabilities have no defined maturity dates therefore the
fair value is the amount payable on demand as of the balance sheet date. Asset retirement
obligations are recorded at their fair value and, over time, the liability is accreted to its present
value each period. Lease escalation liabilities are valued at the discounted amount of future cash
flows using the Senior Credit Facility interest rate at December 31, 2008. Our non-employee
share-based compensation awards are reported at their fair value at each reporting period.
Fair Value Measurements
On January 1, 2008, we partially adopted SFAS No. 157 “Fair Value Measurements,” which did not
have a material impact on our consolidated financial statements. We partially adopted SFAS No. 157
due to the issuance of FSP FASB 157-2, “Effective Date of FASB Statement No. 157.” SFAS No. 157
defines fair value, establishes a common framework for measuring fair value under U.S. GAAP, and
expands disclosures about fair value measurements for assets and liabilities. SFAS No. 157 does not
require additional assets or liabilities to be accounted for at fair value beyond that already required
under other U.S. GAAP accounting standards. FSP No. 157-2 deferred the effective date of SFAS No.
157 for all nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). Included in the scope of FSP
No. 157-2 are nonfinancial assets and liabilities acquired in business combinations and impaired
assets. The effective date for nonfinancial assets and nonfinancial liabilities has been delayed by one
year to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.
We continue to assess the deferred portion of SFAS No. 157.
In accordance with the provisions of FSP No. 157-2, we have applied the provisions of SFAS No. 157
only to our financial assets and liabilities recorded at fair value, which consist of trading securities and
interest rate caps. SFAS No. 157 establishes a three-tiered fair value hierarchy that prioritizes inputs to
valuation techniques used in fair value calculations. Level 1 inputs, the highest priority, are quoted
prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices
included in Level 1 that are either observable directly or through corroboration with observable market
data. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability,
such as internally-developed valuation models.
135
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 were as
follows (amounts in thousands):
Observable
Inputs Level 1
Other
Observable
Inputs Level 2
Unobservable
Inputs Level 3
Total
Assets
Money market funds
and U.S. government
securities
Derivative financial
instruments
$
Total assets at fair value $
1,563
---
1,563
---
7
7
---
---
---
1,563
7
1,570
The valuation of our marketable securities is determined using quoted market prices utilizing market
observable inputs. Derivative financial instruments are determined using mid-market quotations that
are based on actual bid/ask quotations shown on reliable electronic information screens as of
December 31, 2008.
(12) Related Party Transactions
We entered into a long-term capital lease agreement in 1991 with the wife of our President and CEO
for property occupied by us. The leased asset was capitalized in 1991 at the owner’s cost of $900,000
and the related obligation was recorded in the accompanying financial statements. The lease
agreement was amended in April 2008 and we have increased our existing capital lease asset and
liability by $1.3 million to record the extension of this capital lease. The amended lease terminates on
September 30, 2026.
In January 2001 we entered into an aircraft operating lease agreement with a company owned by our
President and CEO. The lease was amended effective January 1, 2002 and February 25, 2005. The
lease term is month-to-month and may be terminated at any time upon one hundred and twenty days
written notice. The monthly lease rate is $75,000. Upon signing the lease, the lessor was granted an
option to purchase 250,000 shares of GCI Class A common stock at $6.50 per share, of which 150,000
shares remain and were exercisable at December 31, 2008. We paid a deposit of $1.5 million in
connection with the lease. The deposit will be repaid to us upon the earlier of six months after the
agreement terminates, or nine months after the date of a termination notice. The lessor may sell to us
the stock arising from the exercise of the stock option or surrender the intrinsic value of the right to
purchase all or a portion of the stock option to repay the deposit, if allowed by our debt instruments in
effect at such time.
(13) Commitments and Contingencies
Operating Leases as Lessee
We lease business offices, have entered into site lease agreements and use satellite transponder and
fiber capacity and certain equipment pursuant to operating lease arrangements. Many of our leases are
for multiple years and contain renewal options. Rental costs, including immaterial amounts of
contingent rent expense, under such arrangements amounted to $35.7 million, $34.6 million and $32.8
million for the years ended December 31, 2008, 2007 and 2006, respectively.
Capital Leases
We entered into a long-term capital lease agreement in 1991 with the wife of our President and CEO
for property occupied by us as further described in note 12.
On March 31, 2006, through our subsidiary GCI Communication Corp. we entered into an agreement to
lease transponder capacity on Intelsat, Ltd.’s (“Intelsat”) Galaxy 18 spacecraft that successfully
136
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
launched on May 21, 2008. We are also leasing capacity on the Horizons 1 satellite, which is owned
jointly by Intelsat and JSAT International, Inc. The leased capacity replaced our existing transponder
capacity on Intelsat’s Galaxy XR satellite.
The Intelsat Galaxy 18 C-band and Ku-Band transponders are being leased over an expected term of
14 years. The present value of the lease payments, excluding telemetry, tracking and command
services and back-up protection, is $98.6 million. We have recorded a capital lease obligation and an
addition to our Property and Equipment at December 31, 2008.
In June 2008 Galaxy XR was taken out of service resulting in the removal of the remaining $8.8 million
net book value and the recognition of an $8.8 million warranty receivable. We applied $8.4 million of
the warranty receivable to offset our cash obligation relating to the capital lease during the year ended
December 31, 2008, resulting in an outstanding warranty receivable of $465,000 as of December 31,
2008.
A summary of future minimum lease payments (amounts in thousands):
Years ending December 31:
2009
2010
2011
2012
2013
2014 and thereafter
Total minimum lease payments
Less amount representing interest
Less current maturity of obligations
under capital leases
Long-term obligations under
capital leases, excluding current
maturity
Operating
16,401
8,703
7,387
5,601
4,797
17,429
60,318
$
$
Capital
11,646
11,656
11,672
11,732
11,742
101,983
160,431
60,102
4,432
$
95,897
The leases generally provide that we pay the taxes, insurance and maintenance expenses related to
the leased assets. Several of our leases include renewal options, escalation clauses and immaterial
amounts of contingent rent expense. We have no leases that include rent holidays. We expect that in
the normal course of business leases that expire will be renewed or replaced by leases on other
properties.
Operating Lease and IRU Revenue
We enter into lease or service arrangements for IRU capacity on our fiber optic cable systems with third
parties and for many of these leases or service arrangements, we received up-front cash payments.
We have $52.6 million in deferred revenue at December 31, 2008 representing cash received from
customers for which we will recognize revenue in the future. The arrangements under operating lease
or service arrangements expire on various dates through 2029. The revenue will be recognized over
the term of the agreements.
137
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of minimum future lease or service arrangement cash receipts including IRUs and the
provision of certain other service are as follows (amounts in thousands):
Years ending December 31,
2009
2010
2011
2012
2013
2014 and thereafter
$
18,902
7,356
5,399
4,940
4,936
46,586
Total minimum future service
revenues
$
88,119
The cost of assets that are leased to customers is $226.0 million and $22.9 million as of December 31,
2008 and 2007, respectively. The carrying value of assets leased to customers is $152.1 million and
$13.1 million as of December 31, 2008 and 2007, respectively.
Letters of Credit
We have letters of credit totaling $4.0 million outstanding under our Senior Credit Facility as follows:
• $3.4 million to secure payment of certain access charges associated with our provision of
telecommunications services within the State of Alaska,
• $529,000 to meet obligations associated with our insurance arrangements, and
• $100,000 to secure right of way access.
Wireless Service Equipment Obligation
We have entered into an agreement to purchase hardware and software capable of providing wireless
service to small markets in rural Alaska as a reliable substitute for standard wire line service. The
agreement has a total remaining commitment of $13.3 million. We paid $3.8 million in 2008 and expect
to pay $4.8 million, $5.1 million, and $3.4 million during the years ended December 31, 2009, 2010,
and 2011, respectively.
IRU Purchase Commitment
On July 31, 2006, through our subsidiary GCI Communication Corp. we entered into an agreement to
purchase IRU capacity in the Kodiak-Kenai Cable Company, LLC’s marine-based fiber optic cable
system linking Anchorage to Kenai, Homer, Kodiak and Seward, Alaska. The new system was placed
into service in December 2006. We accepted the first installment of our IRU capacity in December 2006
and the second installment in January 2009. We have committed to purchase a minimum of $5.0
million to $5.5 million in additional IRU capacity in two installments through 2011.
Guaranteed Service Levels
Certain customers have guaranteed levels of service with varying terms. In the event we are unable to
provide the minimum service levels we may incur penalties or issue credits to customers.
Self-Insurance
We are self-insured for damage or loss to certain of our transmission facilities, including our buried,
undersea, and above-ground transmission lines. If we become subject to substantial uninsured
liabilities due to damage or loss to such facilities, our financial position, results of operations or liquidity
may be adversely affected.
Litigation, Disputes, and Regulatory Matters
We are involved in various lawsuits, billing disputes, legal proceedings, and regulatory matters that
have arisen from time to time in the normal course of business. While the ultimate results of these items
138
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
cannot be predicted with certainty we do not expect, at this time, that the resolution of them will have a
material adverse effect on our financial position, results of operations or liquidity.
In the third quarter of 2008, Alaska DigiTel received a request for documents pursuant to a notification
of investigation from the FCC’s Office of the Inspector General in connection with its review of Alaska
DigiTel’s compliance with program rules and requirements under certain USF programs. The request
covers the period beginning January 1, 2004 through August 31, 2008, and relates to amounts received
by Alaska DigiTel and its affiliates during that period. We have been and intend to continue fully
complying with this request on behalf of Alaska DigiTel and the GCI companies as affiliates. This
request has not had a material impact on our statement of operations, financial position or cash flows
but given the preliminary nature of this request we are unable to assess the ultimate resolution of this
matter.
Alaska Communications Systems (“ACS”) Access Service Pricing
On May 22, 2006, the ACS subsidiary serving Anchorage filed a petition with the FCC, seeking
forbearance from regulation of interstate broadband and access services. On August 20, 2007, the
FCC granted in part and denied in part the requested relief, requiring that ACS comply with certain
safeguards to ensure the relief granted would not result in harm to consumers or competition. On
September 19, 2007, GCI and ACS both filed petitions for reconsideration on discrete findings in the
order. The petitions are pending and we cannot predict the final outcome of the proceeding at this
time. On October 22, 2008, ACS filed a petition to convert to price cap regulation the access services it
provides in each of its operating areas. We cannot predict at this time the outcome of the proceeding
or the effect on our cost of purchasing ACS access services.
Universal Service
The USF pays subsidies to ETCs to support the provision of local access service in high-cost areas.
Under FCC regulations, we have qualified as a competitive ETC in the Anchorage, Fairbanks, Juneau,
MTA, Mukluk, Ketchikan, Fort Wainwright/Eielson, and Glacier State study areas. Without ETC status,
we would not qualify for USF subsidies in these areas or other rural areas where we propose to offer
local access services, and our revenue for providing local access services in these areas would be
materially adversely affected.
On May 1, 2008, the FCC issued an order adopting the recommendation of the Federal State Joint
Board on Universal Service (“Joint Board”) to impose a state-by-state interim cap on high cost funds to
be distributed to competitive ETCs. As part of the revised policy, the FCC adopted a limited exception
from the cap for competitive ETCs serving tribal lands or Alaska Native regions. While the operation of
the cap will generally reduce the high cost fund amounts available to competitive ETCs as new
competitive ETCs are designated and as existing competitive ETCs acquire new customers, providers
like us who serve tribal lands or Alaska Native regions were provided some relief. On March 5, 2009,
the FCC issued an additional order waiving a previously adopted limitation to the exception, the result
of which is to provide uncapped support for all lines served by competitive ETCs for tribal lands or
Alaska Native regions during the time the interim cap is in effect. The uncapped support for tribal lands
or Alaska Native regions and the cap for all other regions will be in place until the FCC takes action on
proposals for long term reform.
Cable Service Rate Reregulation
Federal law permits regulation of basic cable programming services rates. However, Alaska law
provides that cable television service is exempt from regulation by the RCA unless 25% of a system’s
subscribers request such regulation by filing a petition with the RCA. At December 31, 2008, only the
Juneau system is subject to RCA regulation of its basic service rates. No petition requesting regulation
has been filed for any other system. The Juneau system serves 7% of our total basic service
subscribers at December 31, 2008.
Dobson Resale Agreement
We had a distribution agreement with Dobson allowing us to resell Dobson wireless services. AT&T
Mobility acquired Dobson, including its Alaska properties, on November 15, 2007. In December 2007
139
(Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
we signed an agreement with AT&T Mobility that provides for an orderly transition of our wireless
customers from the Dobson/AT&T Mobility network in Alaska to our wireless facilities to be built in 2008
and 2009. The agreement allows our current and future customers to use the AT&T Mobility network
for local access and roaming during the transition period. The four-year transition period, which expires
June 30, 2012, provides us adequate time to replace the Dobson/AT&T Mobility network in Alaska with
our own wireless facilities. Under the agreement AT&T Mobility’s obligation to purchase network
services from us terminated as of July 1, 2008. AT&T Mobility has agreed to provide us with a large
block of wireless network usage at no charge to facilitate the transition of our customers. We will pay
for usage in excess of that base transitional amount. This grant of service will reduce the Cost of
Goods Sold during the four-year period ended June 30, 2012, that we would have otherwise
recognized in accordance with the new agreement, however we are unable to estimate the impact this
agreement will have on our Cost of Goods Sold.
CDMA Network Expansion
During 2007 Alaska DigiTel and GCI signed an agreement with a customer to build-out Alaska DigiTel's
CDMA network to provide expanded roaming area coverage. If we fail to meet the schedule, the
customer has the right to terminate the agreement and we may be required to pay up to $16.0 million
as liquidated damages. We expect to meet the deadlines imposed by the build-out schedule and
therefore expect our expenditures to result in an expansion of our wireless facilities rather than
payment of the liquidated damages. We spent $28.1 million in 2008 to partially complete the CDMA
network build-out.
(14) Fluctuations in Fourth Quarter Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations for the years ended December
31, 2008 and 2007(amounts in thousands, except per share amounts):
2008
Total revenues
Operating income
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
2007
Total revenues
Operating income
Net income
Basic net income per share
Diluted net income per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 134,674 142,461
14,045
$
1,832
$
0.04
$
0.03
$
9,714
436
0.01
0.00
151,660 146,647
7,970
(4,402)
(0.08)
(0.08)
15,980
265
0.01
0.00
$ 125,031 129,890
19,444
$
5,918
$
0.11
$
0.11
$
12,570
2,306
0.04
0.04
134,090 131,300
13,959
2,553
0.05
0.04
15,172
2,956
0.06
0.05
During the fourth quarter of 2008, we recognized additional expense of $1.6 million related to the
conversion of customer wireless phones to our facilities, $1.8 million in compensation related costs,
additional depreciation due to the build out of our wireless facilities, and a reduction in revenues due to
continuing implementation of the new distribution agreement with AT&T Mobility.
No significant, unusual or infrequently occurring items were recognized in the fourth quarter of 2007.
140
Item 15(b). Exhibits
Listed below are the exhibits that are filed as a part of this Report (according to the number assigned to them in Item 601
of Regulation S-K):
Exhibit No.
Description
3.1
3.2
4.1
10.3
10.4
10.5
10.6
10.13
10.14
10.15
10.16
10.17
10.20
10.21
10.25
10.25.1
10.25.2
10.25.3
10.25.11
10.26
10.29
10.30
10.31
10.32
10.33
10.34
10.36
10.37
10.38
10.39
Restated Articles of Incorporation of the Company dated August 20, 2007 (37)
Amended and Restated Bylaws of the Company dated August 20, 2007 (36)
Certified copy of the General Communication, Inc. Amendment No. 1, dated as of June
25, 2007, to the Amended and Restated 1986 Stock Option Plan (33)
Westin Building Lease (3)
Duncan and Hughes Deferred Bonus Agreements (4)
Compensation Agreement between General Communication, Inc. and William C.
Behnke dated January 1, 1997 (13)
Order approving Application for a Certificate of Public Convenience and Necessity to
operate as a Telecommunications (Intrastate Interexchange Carrier) Public Utility
within Alaska (2)
MCI Carrier Agreement between MCI Telecommunications Corporation and General
Communication, Inc. dated January 1, 1993 (5)
Contract for Alaska Access Services Agreement between MCI Telecommunications
Corporation and General Communication, Inc. dated January 1, 1993 (5)
Promissory Note Agreement between General Communication, Inc. and Ronald A.
Duncan, dated August 13, 1993 (6)
Deferred Compensation Agreement between General Communication, Inc. and
Ronald A. Duncan, dated August 13, 1993 (6)
Pledge Agreement between General Communication, Inc. and Ronald A. Duncan,
dated August 13, 1993 (6)
The GCI Special Non-Qualified Deferred Compensation Plan (7)
Transponder Purchase Agreement for Galaxy X between Hughes Communications
Galaxy, Inc. and GCI Communication Corp. (7)
Licenses: (3)
214 Authorization
International Resale Authorization
Digital Electronic Message Service Authorization
Certificate of Convenience and Public Necessity – Telecommunications Service
(Local Exchange) dated July 7, 2000 (29)
ATU Interconnection Agreement between GCI Communication Corp. and Municipality
of Anchorage, executed January 15, 1997 (12)
Asset Purchase Agreement, dated April 15, 1996, among General Communication,
Inc., ACNFI, ACNJI and ACNKSI (8)
Asset Purchase Agreement, dated May 10, 1996, among General Communication,
Inc., and Alaska Cablevision, Inc. (8)
Asset Purchase Agreement, dated May 10, 1996, among General Communication,
Inc., and McCaw/Rock Homer Cable System, J.V. (8)
Asset Purchase Agreement, dated May 10, 1996, between General Communication,
Inc., and McCaw/Rock Seward Cable System, J.V. (8)
Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31,
1996, among General Communication, Inc., and the Prime Sellers Agent (9)
First Amendment to Asset Purchase Agreement, dated October 30, 1996, among
General Communication, Inc., ACNFI, ACNJI and ACNKSI (9)
Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by
Order U-96-89(5) dated January 14, 1997 (12)
Amendment to the MCI Carrier Agreement executed April 20, 1994 (12)
Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994 (11)
MCI Carrier Addendum—MCI 800 DAL Service effective February 1, 1994 (11)
141
Exhibit No.
Description
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.50
10.51
10.52
10.54
10.55
10.58
10.59
10.60
10.61
10.62
10.66
10.67
10.71
Third Amendment to MCI Carrier Agreement dated as of October 1, 1994 (11)
Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995 (11)
Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996 (12)
Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996 (11)
Seventh Amendment to MCI Carrier Agreement dated November 27, 1996 (14)
First Amendment to Contract for Alaska Access Services between General
Communication, Inc. and MCI Telecommunications Corporation dated April 1, 1996
(14)
Service Mark License Agreement between MCI Communications Corporation and
General Communication, Inc. dated April 13, 1994 (13)
Radio Station Authorization (Personal Communications Service License), Issue Date
June 23, 1995 (13)
Contract No. 92MR067A Telecommunications Services between BP Exploration
(Alaska), Inc. and GCI Network Systems dated April 1, 1992 (14)
Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective
August 1, 1996 (14)
Lease Agreement dated September 30, 1991 between RDB Company and General
Communication, Inc. (2)
Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings
dated September 23, 1996 (13)
Order Granting Extension of Time and Clarifying Order dated October 21, 1996 (13)
Employment and Deferred Compensation Agreement between General
Communication, Inc. and John M. Lowber dated July 1992 (13)
Deferred Compensation Agreement between GCI Communication Corp. and Dana L.
Tindall dated August 15, 1994 (13)
Transponder Lease Agreement between General Communication Incorporated and
Hughes Communications Satellite Services, Inc., executed August 8, 1989 (6)
Addendum to Galaxy X Transponder Purchase Agreement between GCI
Communication Corp. and Hughes Communications Galaxy, Inc. dated August 24,
1995 (13)
Order Approving Application, Subject to Conditions; Requiring Filing; and Approving
Proposed Tariff on an Inception Basis, dated February 4, 1997 (13)
Supply Contract Between Submarine Systems International Ltd. And GCI
Communication Corp. dated as of July 11, 1997. (15)
Supply Contract Between Tyco Submarine Systems Ltd. And Alaska United Fiber
System Partnership Contract Variation No. 1 dated as of December 1, 1997. (15)
Third Amendment to Contract for Alaska Access Services between General
Communication, Inc. and MCI Telecommunications Corporation dated February 27,
1998 (16)
10.80
Fourth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom. (17)
10.89
Fifth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom Network Services, Inc., formerly known as MCI
Telecommunications Corporation dated August 7, 2000 # (18)
10.90
Sixth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom Network Services, Inc., formerly known as MCI
Telecommunications Corporation dated February 14, 2001 # (18)
10.91
Seventh Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom Network Services, Inc., formerly known as MCI
Telecommunications Corporation dated March 8, 2001 # (18)
10.100
Contract for Alaska Access Services between Sprint Communications Company L.P.
142
Exhibit No.
10.102
Description
and General Communication, Inc. and its wholly owned subsidiary GCI
Communication Corp. dated March 12, 2002 # (21)
First Amendment to Lease Agreement dated as of September 2002 between RDB
Company and GCI Communication Corp. as successor in interest to General
Communication, Inc. (22)
10.103
Agreement and plan of merger of GCI American Cablesystems, Inc. a Delaware
10.104
10.105
10.106
10.108
10.109
10.110
10.112
10.113
10.114
corporation and GCI Cablesystems of Alaska, Inc. an Alaska corporation each with
and into GCI Cable, Inc. an Alaska corporation, adopted as of December 10, 2002
(22)
Articles of merger between GCI Cablesystems of Alaska, Inc. and GCI Cable, Inc.,
adopted as of December 10, 2002 (22)
Aircraft lease agreement between GCI Communication Corp., and Alaska corporation
and 560 Company, Inc., an Alaska corporation, dated as of January 22, 2001 (22)
First amendment to aircraft lease agreement between GCI Communication Corp., and
Alaska corporation and 560 Company, Inc., an Alaska corporation, dated as of
February 8, 2002 (22)
Bonus Agreement between General Communication, Inc. and Wilson Hughes (23)
Eighth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom Network Services, Inc. # (23)
Settlement and Release Agreement between General Communication, Inc. and
WorldCom, Inc. (23)
Waiver letter agreement dated as of February 13, 2004 for Credit, Guaranty, Security
and Pledge Agreement (24)
Indenture dated as of February 17, 2004 between GCI, Inc. and The Bank of New
York, as trustee (24)
Registration Rights Agreement dated as of February 17, 2004, among GCI, Inc., and
Deutsche Bank Securities Inc., Jefferies & Company, Inc., Credit Lyonnais
Securities (USA), Inc., Blaylock & Partners, L.P., Ferris, Baker Watts, Incorporated,
and TD Securities (USA), Inc., as Initial Purchasers (24)
10.121
First amendment to contract for Alaska Access Services between Sprint
10.122
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated July 24, 2002 # (26)
Second amendment to contract for Alaska Access Services between Sprint
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated December 31, 2003 (26)
10.123
Third amendment to contract for Alaska Access Services between Sprint
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated February 19, 2004 # (26)
10.124
Fourth amendment to contract for Alaska Access Services between Sprint
10.126
10.127
10.128
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated June 30, 2004 # (26)
Audit Committee Charter (as revised by the board of directors of General
Communication, Inc. effective as of February 3, 2005) (27)
Nominating and Corporate Governance Committee Charter (as revised by the board
of directors of General Communication, Inc. effective as of February 3, 2005) (27)
Fifth amendment to contract for Alaska Access Services between Sprint
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated January 22, 2005 # (27)
10.129
Ninth Amendment to Contract for Alaska Access Services between General
10.130
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI WorldCom Network Services, Inc. # (28)
Amended and Restated Credit Agreement among GCI Holdings, Inc. and Calyon New
York Branch as Administrative Agent, Sole Lead Arranger, and Co-Bookrunner, The
Initial Lenders and Initial Issuing Bank Named Herein as Initial Lenders and Initial
143
Exhibit No.
Description
10.131
10.132
10.134
10.135
Issuing Bank, General Electric Capital Corporation as Syndication Agent, and Union
Bank of California, N.A., CoBank, ACB, CIT Lending Services Corporation and
Wells Fargo Bank, N.A. as Co-Documentation Agents, dated as of August 31, 2005
(28)
Amended and Restated 1986 Stock Option Plan of General Communication, Inc. as of
June 7, 2005 (28)
Amendment No. 1 to $150 Million EBITDA Incentive Program dated December 30,
2005 (29)
Full-time Transponder Capacity Agreement with PanAmSat Corporation dated March
31, 2006 # (30)
Tenth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI Communications Services, Inc. d/b/a Verizon Business Services
(successor-in-interest to MCI Network Services, Inc., which was formerly known as
MCI WorldCom Network Services) # (31)
10.136
Reorganization Agreement among General Communication, Inc., Alaska DigiTel, LLC,
The Members of Alaska DigiTel, LLC, AKD Holdings, LLC and The Members of
Denali PCS, LLC dated as of June 16, 2006 (Nonmaterial schedules and exhibits to
the Reorganization Agreement have been omitted pursuant to Item 601b.2 of
Regulation S-K. We agree to furnish supplementally to the Commission upon
request a copy of any omitted schedule or exhibit.) # (32)
10.137
Second Amended and Restated Operating Agreement of Alaska DigiTel, LLC dated
as of January 1, 2007 (We agree to furnish supplementally to the Commission upon
request a copy of any omitted schedule or exhibit.) # (32)
10.138
Sixth amendment to contract for Alaska Access Services between Sprint
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated September 20, 2006 (33)
10.139
Seventh amendment to contract for Alaska Access Services between Sprint
Communications Company L.P. and General Communication, Inc. and its wholly
owned subsidiary GCI Communication Corp. dated January 17, 2007 # (33)
10.140
10.141
General Communication, Inc. Director Compensation Plan dated June 29, 2006 (33)
Eleventh Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp., and
MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-
interest to MCI Network Services, Inc., which was formerly known as MCI WorldCom
Network Services) # (35)
10.142
Third Amendment to the Amended and Restated Credit Agreement among GCI
10.143
10.144
10.145
Holdings, Inc., GCI Communication Corp., GCI Cable, Inc., GCI Fiber
Communication Co., Potter View Development Co., Inc., and Alaska United Fiber
System Partnership, GCI, Inc., the banks, financial institutions, and other lenders
party hereto and Calyon New York Branch as Administrative Agent, dated as of
September 14, 2007 (36)
Joinder Agreement dated as of September 28, 2007 among BNP Paribas, U.S. Bank
National Association, GCI Holdings, Inc., GCI Communication Corp., GCI Cable,
Inc., GCI Fiber Communication Co., Potter View Development Co., Inc., and Alaska
United Fiber System Partnership, GCI, Inc., and Calyon New York Branch as
Administrative Agent (36)
Strategic Roaming Agreement dated as of October 30, 2007 between Alaska DigiTel,
LLC. And WirelessCo L.P. # (37)
CDMA Build-out Agreement dated as of October 30, 2007 between Alaska DigiTel,
LLC. and WirelessCo L.P. (Nonmaterial schedules and exhibits to the
Reorganization Agreement have been omitted pursuant to Item 601b.2 of Regulation
S-K. We agree to furnish supplementally to the Commission upon request a copy of
any omitted schedule or exhibit.) # (37)
10.146
Long-term de Facto Transfer Spectrum Leasing agreement between Alaska DigiTel,
144
Exhibit No.
Description
LLC. and SprintCom, Inc. # (37)
10.147
Twelfth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI Communications Services, Inc. d/b/a Verizon Business Services
(successor-in-interest to MCI Network Services, Inc., which was formerly known as
MCI WorldCom Network Services) dated November 19, 2007 (Nonmaterial
schedules and exhibits to the Reorganization Agreement have been omitted
pursuant to Item 601b.2 of Regulation S-K. We agree to furnish supplementally to
the Commission upon request a copy of any omitted schedule or exhibit.) # (37)
Stock Purchase Agreement dated as of October 12, 2007 among GCI Communication
Corp., United Companies, Inc., Sea Lion Corporation and Togiak Natives LTD.
(Nonmaterial schedules and exhibits to the Reorganization Agreement have been
omitted pursuant to Item 601b.2 of Regulation S-K. We agree to furnish
supplementally to the Commission upon request a copy of any omitted schedule or
exhibit.) (37)
Fourth Amendment to the Amended and Restated Credit Agreement dated as of May
2, 2008 by and among GCI Holdings, Inc., the other parties thereto and Calyon
New York Branch, as administrative agent, and the other Lenders party thereto (38)
Second Amendment to Lease Agreement dated as of April 8, 2008 between RDB
Company and GCI Communication Corp. as successor in interest to General
Communication, Inc. (39)
Audit Committee Charter (as revised by the board of directors of General
Communication, Inc. effective as of April 27, 2007) (39)
Nominating and Corporate Governance Committee Charter (as revised by the board
of directors of General Communication, Inc. effective as of April 27, 2007) (39)
Thirteenth Amendment to Contract for Alaska Access Services between General
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI Communications Services, Inc. d/b/a Verizon Business Services
(successor-in-interest to MCI Network Services, Inc., which was formally known as
MCI WorldCom Network Services) dated January 16, 2008 # (39)
10.148
10.149
10.150
10.151
10.152
10.153
10.154
Fourteenth Amendment to Contract for Alaska Access Services between General
10.155
10.156
10.157
10.158
10.159
10.160
14
18.1
21.1
23.1
31
32
Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.,
and MCI Communications Services, Inc. d/b/a Verizon Business Services
(successor-in-interest to MCI Network Services, Inc., which was formally known as
MCI WorldCom Network Services) dated May 15, 2008 (40)
Contract for Alaska Access Services between the Company and Verizon, dated
January 1, 1993 (41)
Third Amendment to Contract for Alaska Access Services between the Company and
Verizon, dated February 27, 1998 (41)
Fourth Amendment to Contract for Alaska Access Services between the Company
and Verizon, dated January 1, 1999 (41)
Fifth Amendment to the Amended and Restated Credit Agreement dated as of
October 17, 2008 by and among Holdings, Inc. the other parties thereto and Calyon
New York Branch, as administrative agent, and the other Lenders party thereto (42)
Amendment to Deferred Bonus Agreement dated December 31, 2008 by and among
the Company, the Employer and Mr. Duncan (43)
Amendment to Deferred Compensation Agreement dated December 31, 2008 by and
among the Company, the Employer and Mr. Duncan (43)
Code Of Business Conduct and Ethics (originally reported as exhibit 10.118) (25)
Letter regarding change in accounting principle (39)
Subsidiaries of the Registrant *
Consent of KPMG LLP (Independent Public Accountant for Company) *
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 *
145
Exhibit No.
Description
99
99.1
99.2
99.7
99.8
99.15
99.16
99.17
99.18
99.27
99.28
99.29
99.34
99.35
Additional Exhibits:
The Articles of Incorporation of GCI Communication Corp. (1)
The Bylaws of GCI Communication Corp. (1)
The Bylaws of GCI Cable, Inc. (10)
The Articles of Incorporation of GCI Cable, Inc. (10)
The Bylaws of GCI Holdings, Inc. (13)
The Articles of Incorporation of GCI Holdings, Inc. (13)
The Articles of Incorporation of GCI, Inc. (12)
The Bylaws of GCI, Inc. (12)
The Partnership Agreement of Alaska United Fiber System (15)
The Bylaws of Potter View Development Co., Inc. (19)
The Articles of Incorporation of Potter View Development Co., Inc. (19)
The Bylaws of GCI Fiber Communication, Co., Inc. (20)
The Articles of Incorporation of GCI Fiber Communication, Co., Inc. (20)
________________
#
*
CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential
treatment by us to, and the material has been separately filed with, the Securities and
Exchange Commission. Each omitted Confidential Portion is marked by three
asterisks.
Filed herewith.
________________
Exhibit
Reference
1
2
3
4
5
6
7
8
9
10
11
12
13
Description
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1990
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1991
Incorporated by reference to The Company’s Registration Statement on Form 10 (File
No. 0-15279), mailed to the Securities and Exchange Commission on December 30,
1986
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1989.
Incorporated by reference to The Company’s Current Report on Form 8-K dated June 4,
1993.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1993.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1995.
Incorporated by reference to The Company’s Form S-4 Registration Statement dated
October 4, 1996.
Incorporated by reference to The Company’s Current Report on Form 8-K dated
November 13, 1996.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1996.
Incorporated by reference to The Company’s Current Report on Form 8-K dated March
14, 1996, filed March 28, 1996.
Incorporated by reference to The Company’s Form S-3 Registration Statement (File No.
333-28001) dated May 29, 1997.
Incorporated by reference to The Company’s Amendment No. 1 to Form S-3/A
Registration Statement (File No. 333-28001) dated July 8, 1997.
146
Exhibit
Reference
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Description
Incorporated by reference to The Company’s Amendment No. 2 to Form S-3/A
Registration Statement (File No. 333-28001) dated July 21, 1997.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1997.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 1998.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 1999.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2001.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2001.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2001.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2002.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2002.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2003.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2003.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2004.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2004.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2005.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 2005.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2005 filed March 16, 2006.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2006.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2006.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2006 filed March 19, 2007.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2007.
Incorporated by reference to The Company’s Form S-8 filed with the SEC on July 27,
2007.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2007.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 2007.
Incorporated by reference to The Company’s Annual Report on Form 10-K for the year
ended December 31, 2007 filed March 7, 2008.
Incorporated by reference to the Company's Report on Form 8-K for the period May 2,
2008 filed May 8, 2008.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2008.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended June 30, 2008.
147
Exhibit
Reference
41
42
43
Description
Incorporated by reference to The Company's Report on Form 8-K for the period
September 19, 2008 filed on September 22, 2008.
Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 2008.
Incorporated by reference to The Company's Report on Form 8-K for the period
December 31, 2008 filed January 6, 2009.
148
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL COMMUNICATION, INC.
By:
/s/ Ronald A. Duncan
Ronald A. Duncan, President
(Chief Executive Officer)
Date:
March 20, 2009
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 registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Stephen M. Brett
Stephen M. Brett
/s/ Ronald A. Duncan
Ronald A. Duncan
/s/ Jerry A. Edgerton
Jerry A. Edgerton
/s/ Scott M. Fisher
Scott M. Fisher
/s/ William P. Glasgow
William P. Glasgow
Mark W. Kroloff
/s/ Stephen R. Mooney
Stephen R. Mooney
/s/ James M. Schneider
James M. Schneider
/s/ John M. Lowber
John M. Lowber
/s/ Lynda L. Tarbath
Lynda L. Tarbath
Chairman of Board and Director
March 20, 2009
March 20, 2009
March 11, 2009
March 3, 2009
March 20, 2009
March 20, 2009
March 20, 2009
March 20, 2009
March 20, 2009
President and Director
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer)
Vice President, Chief Accounting
Officer
(Principal Accounting Officer)
149