General Communication Inc.
Annual Report 2009

Plain-text annual report

 UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2009oro TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For 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 92-0072737 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 2550 Denali Street Suite 1000 Anchorage, Alaska 99503 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (907) 868-5600Securities registered pursuant to Section 12(b) of the Exchange Act: NoneSecurities registered pursuant to Section 12(g) of the Exchange Act: Class A common stock Class B common stock (Title of class) (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 o No x 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 o No x 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 Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-K or any amendment to this Form 10-K. o 1 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the ExchangeAct.Large accelerated filer oAccelerated filer xNon-accelerated filer o (Do not check if a smaller reporting company)Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No xThe aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average high and lowprices of such stock as of the close of trading as of the last business day of the registrant’s most recently completed second fiscal quarter ofJune 30, 2009 was $193,446,082. Shares of voting stock held by each officer and director and by each person who owns 5% or more of theoutstanding voting stock (as publicly reported by such persons pursuant to Section 13 and Section 16 of the Exchange Act) have beenexcluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusivedetermination for other purposes.The number of shares outstanding of the registrant’s common stock as of March 1, 2010, was:Class A common stock – 51,912,000 shares; and,Class B common stock – 3,186,000 shares.Documents Incorporated by ReferencePortions of the Registrant's definitive proxy statement relating to its 2010 Annual Meeting of Shareholders are incorporated by reference inPart III of this Annual Report on Form 10-K where indicated. Alternatively, the Registrant may file an amendment to this Form 10-K toprovide such information within 120 days following the end of Registrant's fiscal year ended December 31, 2009. 2 GENERAL COMMUNICATION, INC.2009 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTSCautionary Statement Regarding Forward-Looking Statements 4 Part I 4 Item 1. Business 4 Item 1A. Risk Factors 25 Item 1B. Unresolved Staff Comments 32 Item 2. Properties 32 Item 3. Legal Proceedings 32 Item 4. Submissions of Matters to a Vote of Security Holders 32 Part II 33 Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 33 Item 6. Selected Financial Data 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 36 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 58 Item 8. Consolidated Financial Statements and Supplementary Data 58 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 58 Item 9A. Controls and Procedures 58 Item 9B. Other Information 60 Part III 60 Item 10. Directors, Executive Officers and Corporate Governance 60 Item 11. Executive Compensation 61 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 61 Item 13. Certain Relationships and Related Transactions, and Director Independence 61 Item 14. Principal Accountant Fees and Services 61 Part IV 62 Item 15. Exhibits, Consolidated Financial Statement Schedules 62 SIGNATURES 121This Annual Report on Form 10-K is for the year ending December 31, 2009. This Annual Report modifies and supersedes documents filedprior to this Annual Report. The Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that wefile with them, which means that we can disclose important information to you by referring you directly to those documents. Informationincorporated by reference is considered to be part of this Annual Report. In addition, information that we file with the SEC in the future willautomatically update and supersede information contained in this Annual Report. 3 Cautionary Statement Regarding Forward-Looking StatementsYou should carefully review the information contained in this Annual Report, but should particularly consider any risk factors that we set forthin 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 tohistorical information, we state our future strategies, plans, objectives or goals and our beliefs of future events and of our future operatingresults, 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 negativeof those words and other comparable words. All forward-looking statements involve known and unknown risks, uncertainties and otherimportant factors that may cause our actual results, performance, achievements, plans and objectives to differ materially from any futureresults, performance, achievements, plans and objectives expressed or implied by these forward-looking statements. In evaluating thosestatements, you should specifically consider various factors, including those identified under “Risk Factors,” and elsewhere in this AnnualReport. Those factors may cause our actual results to differ materially from any of our forward-looking statements. For these forward-lookingstatements, we claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Actof 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 orundertaking to update or revise any forward-looking statement to reflect any change in our expectations with regard to these statements orany other change in events, conditions or circumstances on which any such statement is based. New factors emerge from time to time, andit 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 orthe extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.Part IItem 1. BusinessGeneralIn this Annual Report, “we,” “us,” “our,” "GCI" and “the Company” refer to General Communication, Inc. and its direct and indirectsubsidiaries.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 thestate of Alaska.Availability of Reports and Other InformationInternet 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/. TheCompany hosts Internet services at http://www.gci.net/, broadband delivery of health services at http://www.connectmd.com, andSchoolAccess® services at http://www.schoolaccess.net/. Our online telephone directory and yellow pages are hosted athttp://www.gcidirectory.com/.We make available on the http://www.gci.com/ website, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports onForm 10-Q, Current Reports on Form 8-K, Proxy Statement on Schedule 14A and amendments to those materials filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after we electronically submitsuch 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. 4 Financial Information about Industry SegmentsOur 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 FinancialCondition and Results of Operations.” Also refer to note 9 included in “Part II — Item 8 — Consolidated Financial Statements andSupplementary Data.”Narrative Description of our BusinessGeneralGCI is the largest communications provider in Alaska as measured by revenues. We offer facilities-based local and long-distance voiceservices, cable television, data and Internet access to residential and business customers across the state under our GCI brand. In addition,we provide wireless telephone services over our own facilities under the GCI, Alaska DigiTel and Alaska Wireless brand names. Due to theunique nature of the markets we serve, including harsh winter weather and remote geographies, our customers rely extensively on oursystems to meet their communication and entertainment needs. We benefit from the attractive demographic and economic characteristics ofAlaska. Also, the state of Alaska does not levy personal income taxes or collect sales taxes.Since our founding in 1979 as a competitive long distance provider, we have consistently expanded our product portfolio and facilities tobecome the leading integrated communication services provider in our markets. Our facilities include redundant and geographically diversedigital undersea fiber optic cable systems linking our Alaska terrestrial networks to the networks of other carriers in the lower 48 contiguousstates. As of December 31, 2009, our cable systems passed 89% of Alaska’s households, and we have achieved 56% basic cablepenetration of the homes we reach. We believe GCI offers superior video services relative to digital broadcast satellite (“DBS”), which islimited by Alaska’s geographic location, challenging climate and terrain features. We have continued our statewide deployment of digital localphone service (“DLPS”) utilizing our own coaxial cable facilities enabling us to move off of facilities that we previously leased from telecomincumbents. At December 31, 2009, 74% of the local access lines we served were carried on our own last mile facilities. In recent years, weexpanded our efforts in wireless and presently operate the only statewide wireless network. Our network provides access for both globalsystem for mobile communications (“GSM”) and code division multiple access (“CDMA”) based devices, and can provide us with aneventual path to fourth generation Long Term Evolution (“LTE”) based wireless communications.Our Consumer segment serves residential customers. Our Network Access segment serves other common carriers. Our Commercialsegment serves small businesses, local, national and global businesses, governmental entities, and public and private educationalinstitutions. Our Managed Broadband segment serves rural school districts, hospitals and health clinics. The financial results of the long-distance, local access and Internet services sold to consumer and commercial customers that we serve due to our acquisitions of UnitedUtilities, Inc. (“UUI”) and United-KUC, Inc. (“United-KUC”) are reported in the Regulated Operations segment.For the year ended December 31, 2009, we generated consolidated revenues of $595.8 million. We ended the period with approximately100,600 long-distance customers, 144,700 local access lines in service, 147,600 basic cable subscribers, 125,400 wireless subscribers and110,700 cable modem subscribers.Recent DevelopmentsLoan/grant Approval. In January 2010 the U.S. Department of Agriculture’s Rural Utilities Service (“RUS”) approved our wholly-ownedsubsidiary, UUI's application for an $88.2 million loan/grant combination to extend terrestrial broadband service for the first time to BristolBay and the Yukon-Kuskokwim Delta, an area in Alaska roughly the size of the state of North Dakota. Upon completion, UUI’s project,TERRA-Southwest (“TERRA-SW”), will be able to serve 9,089 households and 748 businesses in the 65 covered communities. Theproject will also be able to serve numerous public/non-profit/private community anchor institutions and entities, such as regional health careproviders, school districts, and other regional and Alaska Native organizations. The RUS award, consisting of a $44.2 million loan and a$44.0 million grant, will be made under the RUS Broadband Initiatives Program established pursuant to the American Recovery andReinvestment Act. The grant portion of the award will fund backbone network facilities that we would not otherwise be able to constructwithin our return-on-investment requirements. UUI expects to start construction on TERRA-SW in 2010 and complete the project by the endof 2012. 5 Senior Credit Facility. On January 29, 2010, we signed an agreement for a new $75.0 million line of credit under our Senior Credit Facility.The line of credit replaces our previous line of credit and extends the maturity date to January 2015.Development of our Business During the Past Fiscal YearWireless Business Strategy. During 2009 we continued our GSM and CDMA network expansion. We have expended $30.8 million in2009 and plan to spend approximately $41.0 million over the next two years.Debt Refinance. In November 2009, our subsidiary, GCI, Inc. issued $425.0 million principal amount of Senior Notes. These Senior Notesbear interest at 8.625% and are due in November 2019. GCI, Inc. used the proceeds from the issuance of these Senior Notes to repay allindebtedness under our Senior Credit Facility totaling $389.8 million and for general corporate purposes.You should see “Part I — Item 1. Business — Regulation” for regulatory developments.Business StrategyWe intend to continue to increase revenues using the following strategies:Offer Bundled Products. We offer innovative service bundles to meet the needs of our consumer and commercial customers. We believethat bundling our services significantly improves customer retention, increases revenue per customer and reduces customer acquisitionexpenses. Our experience indicates that our bundled customers are significantly less likely to churn, and we experience less price erosionwhen we effectively combine our offerings. Bundling improves our top line revenue growth, provides operating cost efficiencies that expandour margins and drives our overall business performance. As a measure of success to date, over 59,700 of our residential customerssubscribe to one of our service bundles that include two or more services.Maximize Sales Opportunities. We successfully sell new and enhanced services and products between and within our business segmentsto our existing customer base to achieve increased revenues and penetration of our services. Through close coordination of our customerservice and sales and marketing efforts, our customer service representatives suggest to our customers other services they can purchase orenhanced versions of services they already purchase. Many calls into our customer service centers or visits into one of our 32 retail storesresult 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 communicationsmarket. We have organized our operations to effectively focus on our customers. We operate our own customer service department andmaintain and staff our own call centers. We have empowered our customer service representatives to handle most service issues andquestions on a single call. We prioritize our customer services to expedite handling of our most valuable customers’ issues, particularly forour largest commercial customers. We believe our integrated approach to customer service, including service set-up, programming variousnetwork databases with the customer’s information, installation, and ongoing service, allows us to provide a customer experience thatfosters customer loyalty.Leverage Communications Operations. We continue to expand and evolve our integrated network for the delivery of our services. Ourbundled strategy and integrated approach to serving our customers creates efficiencies of scale and maximizes network utilization. By offeringmultiple services, we are better able to leverage our network assets and increase returns on our invested capital. We periodically evaluate ournetwork assets and continually monitor technological developments that we can potentially deploy to increase network efficiency andperformance.Expand Our Product Portfolio and Footprint in Alaska. Throughout our history, we have successfully added and expect to continue to addnew products to our product portfolio. We have a demonstrated history of new product evaluation, development and deployment for ourcustomers, and we continue to assess revenue-enhancing opportunities that create value for our customers. In addition to new services suchas additional high definition television ("HDTV") channels, video-on-demand, on-line advertising placement, on-line content delivery such asstreaming music, and mobile high speed data, we are also expanding the reach of our core products to new markets. Where feasible andwhere economic analysis supports geographic expansion of our network coverage, we are currently pursuing or expect to pursueopportunities to increase the scale of our facilities, enhance our ability to serve our existing customers’ needs and attract new customers.Make Strategic Acquisitions. We have a history of making and integrating acquisitions of in-state telecommunications providers. In 2008,we completed three acquisitions of telecommunications providers in various 6 Alaska communities. Our management team is adept at sourcing, acquiring and integrating these acquired companies, and we will continueto actively pursue and buy companies that we believe fit with our strategy and networks and that are accretive to earnings.Description of our Business by Reportable SegmentOverviewOur five reportable segments are Consumer, Network Access, Commercial, Managed Broadband, and Regulated Operations. Ourreportable segments are business units that offer different products, are each managed separately, and serve distinct types of customers. Following are our segments and the services and products each offers to its customers: Reportable SegmentsServices and ProductsConsumerNetwork AccessCommercialManagedBroadbandRegulatedOperationsVoice: Long-distanceXXX XLocal AccessXXX XDirectories X VideoX X Data: InternetXXXXXData Networks XXX Managed Services XX Managed Broadband Services X WirelessXXX Many of our networks and facilities are utilized by more than one segment to provide services and products to our customers. The followingdescription of our business by reportable segment includes a comprehensive discussion within the Consumer segment section withreferences to that section if such common network and facility use exists in another segment. Similarly, many of the same services andproducts are sold to our customers in different segments.The following discussion includes information about significant services and products, sales and marketing, facilities, competition andseasonality 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.”Consumer SegmentConsumer segment revenues for 2009, 2008 and 2007 are summarized as follows (amounts in thousands): Year Ended December 31, 2009 2008 2007 Total revenues 1 $294,925 255,632 223,502 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 9 included in“Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performanceof our Consumer segment. Services and ProductsOur Consumer segment offers a full range of voice, video, data and wireless services and products to residential customers. 7 Voice Services and ProductsRevenues derived from Consumer segment voice services and products in 2009, 2008, and 2007 totaled $52.7 million, $47.0 million, and$46.2 million, respectively, or 9%, 8%, and 9% of our total revenues, respectively.Long-DistanceWe are a full-service long-distance provider including intrastate, interstate and international calling. The value of our long-distance services isgenerally designed to be equal to or greater than that for comparable services provided by our competitors.Local AccessWe 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 thataccess the ILEC unbundled network elements ("UNE") loops allow us to offer full featured local service products to customers. In areaswhere we do not have our own DLPS facilities or access to ILEC UNE loop facilities, we offer service using total service resale of the ILEC’slocal service or UNE platform.Video Services and ProductsRevenues derived from Consumer segment video services and products in 2009, 2008, and 2007 totaled $111.0 million, $105.2 million, and$96.3 million, respectively, or 19%, 18%, and 19% of our total revenues, respectively.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. Our video service offerings include the following:Basic cable. Our basic cable service consists of digital basic service with access to between 13 and 21 channels of programming and anexpanded digital basic service with access to between 40 and 102 additional channels of programming. These services generally consist ofprogramming provided by national and local broadcast networks, national and regional cable networks, and governmental and public accessprogramming. We transmit an entirely digital signal for all cable television channels in all markets we serve.High-definition television. Our high definition television ("HDTV") service provides our digital subscribers with improved, high-resolutionpicture quality, improved audio quality and a wide-screen, theater-like display. Our HDTV service offers a broad selection of high-definitionprogramming with access of up to 82 high-definition channels including most major broadcast networks, leading national cable networks,premium channels and national sports networks.Digital video recorder. Our advanced digital video recorder ("DVR") service lets digital cable subscribers select, record and store programsand 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 motionpictures 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, scheduled individual featuremotion pictures and special event programs, such as professional boxing, professional wrestling and concerts, on an unedited, commercial-free basis.Data Services and ProductsRevenues derived from Consumer segment data services and products in 2009, 2008, and 2007 totaled $50.3 million, $42.7 million, and$34.2 million, respectively, or 8%, 7%, and 7% of our total revenues, respectively. 8 InternetWe 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 e-mail virus prevention, personal web site and domain hosting, and additional e-mail accounts, areavailable for additional charges. Our consumer high-speed cable modem Internet service offers up to 12 Mbps download and 2 Mbps uploadspeeds as compared with up to 56 Kbps upload and download speeds through standard copper wire dial-up modem access. Our fixedwireless Internet product is available in 120 communities.Wireless Services and ProductsRevenues derived from Consumer segment wireless services and products in 2009, 2008, and 2007 totaled $81.0 million, $60.7 million,and $46.7 million, respectively, or 14%, 11%, and 9% of our total revenues, respectively.We offer mobile wireless voice and data services by selling services over our own facilities under the GCI, Alaska DigiTel, and AlaskaWireless brand names. We offer fixed wireless local access services over our own facilities and have purchased personal communicationservices ("PCS") and local multipoint distribution system ("LMDS") wireless broadband licenses in Federal Communications Commission("FCC") auctions covering markets in Alaska. We offer mobile wireless service to our customers in the state’s five largest population centers,Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, Juneau and many other small Alaska communities.We offer our customers a variety of rate plans so they can choose the plan that best fits their expected calling needs. Consumer voice serviceis generally offered on a contract basis for one or two year periods. Under the terms of these contracts, service is billed and provided on amonthly basis according to the applicable rate plan chosen. Our offerings include regional and national rate plans at a variety of pricing tiers.Our wireless voice plans generally combine a fixed monthly access charge, a designated number of minutes-of-use, per minute usagecharges for minutes in excess of the included amount and additional charges for certain custom-calling features. Most of our plans includebasic features such as voice messaging, caller ID, call forwarding and call waiting, and two-way text messaging. Wireless data service isincluded in certain plans or can be purchased as a feature to a plan.We sell a variety of handsets and personal computer wireless data cards manufactured by various suppliers for use with our wirelessservices. We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items. We providecontract subscribers substantial equipment subsidies to initiate, continue or upgrade service.Bundled Services and ProductsWe combine one or more of our individual service and product offerings into bundles that we sell to our Consumer segment customers atattractive prices. Our most popular bundled offering includes long-distance, cable television, cable modem Internet access and local accessservices. In addition to several other bundled offerings we also offer a bundle of wireless services, cable television and cable modem Internetaccess.Sales and MarketingOur 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.FacilitiesWe operate a modern, competitive communications network employing digital transmission technology based upon fiber optic facilitieswithin Alaska and between Alaska and the lower 48 states. Our facilities include three self-constructed digital undersea fiber optic cablesystems linking our Alaska terrestrial networks to the networks of other carriers in the lower 49 states:· Alaska United East was placed into service in 1999 and connects Whittier, Valdez and Juneau, Alaska and Seattle, Washington,· Alaska United West was placed into service in 2004 and connects Seward, Alaska to Warrenton, Oregon, and· Alaska United Southeast was placed into service in 2008 and connects Ketchikan, Wrangell, Petersburg, Angoon and Sitka, Alaskato Alaska United West.The combination of our Alaska United East, Alaska United West and Alaska United Southeast systems provides us with the ability to providefully protected geographically diverse routing of service between Alaska and the lower 48 states. 9 Our Alaska United North-West self-constructed terrestrial fiber optic cable system connects Anchorage and Fairbanks, Alaska along the ParksHighway corridor and we own a terrestrial fiber optic cable system that extends from Prudhoe Bay, Alaska to Valdez, Alaska via Fairbanks,Alaska.We have indefeasible rights to use ("IRU") capacity in the Kodiak-Kenai Cable Company, LLC’s undersea fiber optic cable system linkingAnchorage to Kenai, Homer, Kodiak, Narrow Cape on Kodiak Island, and Seward, Alaska.Another carrier operates a pair of fiber optic cable facilities connecting points in Alaska to the lower 48 states. The additional fiber systemprovides direct competition to services we provide on our owned fiber optic cable facilities.We serve many rural and remote Alaska locations solely via satellite communications. Each of our C-band and Ku-band satellitetransponders is backed up on the same spacecraft with multiple backup transponders. The primary spacecrafts we use to provide voice, dataand Internet services to our rural Alaska customers are Intelsat’s Galaxy 18 for C-band and Intelsat's Horizons 1 for Ku-band, but we alsolease 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, digitallyencoded video programming and services to remote locations within Alaska. We may use this transponder along with two others that wereserve on AMC-7 to restore service during any fiber outage that may occur in our network.We operate digital microwave systems to link Anchorage with the Kenai Peninsula, our Prudhoe Bay Earth Station with Deadhorse, Alaska,and to link Bethel, Alaska with 40 rural communities. Virtually all switched services are computer controlled, digitally switched, andinterconnected 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 thecommunities in their vicinity, and at Issaquah, Washington, which provides interconnection to Seattle and the lower 48 states for traffic toand from major Alaska earth stations. The Eagle River earth station is linked to the Anchorage distribution center by fiber optic facilities.We use a synchronous optical network ("SONET") as a service delivery method for our terrestrial metropolitan area networks and long-haulterrestrial and undersea fiber optic cable systems.A fiber optic cable system from our Anchorage distribution center connects to the Matanuska Telephone Association (“MTA”), Eagle Rivercentral office and to our major hub earth station in Eagle River. The Issaquah earth station is connected with the Seattle distribution center bymeans 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 Peninsulacommunities. We maintain earth stations in Fairbanks (linked by digital microwave to the Fairbanks distribution center), Juneau (collocatedwith the Juneau distribution center), Anchorage (Benson earth station), and in Prudhoe Bay as fiber network restoration earth stations. OurBenson earth station also uplinks our statewide video service; such service may be pre-empted if earth station capacity is needed to restoreour fiber network between Anchorage and Prudhoe Bay.We use our demand assigned multiple access ("DAMA") facilities to serve 69 additional locations throughout Alaska. DAMA is a digitalsatellite earth station technology that allows calls to be made between remote villages using only one satellite hop, thereby reducing satellitedelay and capacity requirements while improving quality. In addition, 54 (for a total of 123) C-band facilities provide dedicated Internet accessand private network services to rural public schools, hospitals, health clinics, and natural resource development industries throughoutAlaska. 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 companiesand, 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, 10 Fairbanks, and Juneau facilities also include digital access cross-connect systems, frame relay data switches, Internet platforms, and inAnchorage and Fairbanks, collocation facilities for interconnecting and hosting equipment for other carriers. We also maintain an operator andcustomer service center in Wasilla, Alaska. Our operator services traffic is processed by an integrated services platform that also hostsanswering 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 toprovide local access service to our customers and avoid paying local loop charges to the ILEC.Our statewide cable systems consist of 3,023 miles of installed cable plant having 450 to 625 MHz of channel capacity. Our cable televisionbusinesses are located throughout Alaska and serve 40 communities and areas in Alaska, including the state’s five largest populationcenters, Anchorage, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and Juneau. Our facilities include cable plant and head-end distribution equipment. Some of our locations on the fiber routes are served from the head-end distribution equipment in Anchorage. Allof our cable systems are completely digital.We provide access to the Internet using a platform that includes many of the latest advancements in technology. The physical platform isconcentrated 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 serversproviding authentication and user demographic data, layer 2 gigabit switch networks for intercommunications and broadbandservices.Our dedicated Internet access and Internet protocol ("IP") data services are delivered to a router located at the service point. Our Internetmanagement platform constantly monitors this router and continual communications are maintained with all of the core and distributionrouters in the network. The availability and quality of service, as well as statistical information on traffic loading, are continuously monitoredfor quality assurance. The management platform has the capability to remotely access routers, servers and layer two switches, permittingchanges in configuration without the need to be physically located at the service point.We own state-wide wireless facilities that cover 94% of the population providing service to urban and rural Alaska communities and we willcontinue to expand these networks throughout the terrestrially and satellite served portions of Alaska in 2010. We own GSM and CDMAwireless facilities serving urban Alaska locations. Our urban network includes Ericsson and Nortel wireless switches located in Anchorageand more than 160 cell sites that serve the following areas of Alaska: Anchorage and Eagle River, the Matanuska-Susitna Valley, KenaiPeninsula, Southeast, Kodiak and Fairbanks. Our rural network consists of GSM facilities that are located through out Alaska’s ruralvillages and communities. We extend our network coverage through roaming arrangements with other GSM and CDMA carriers.CompetitionA discussion of competition by product and service in our Consumer segment follows.Voice Services and Products CompetitionLong-DistanceThe long-distance industry is intensely competitive and based upon price and bundling.In the intrastate, interstate and international long-distance market, we compete against AT&T Alascom, Inc. (“AT&T Alascom”), AlaskaCommunications Systems Group, Inc. (“ACS”), MTA, long-distance resellers, and certain smaller rural local telephone companies. AT&TAlascom, as a subsidiary of AT&T, Inc., has access to greater financial, technical and marketing resources than we have. There is also thepossibility that new competitors will enter the Alaska market. In addition, wireless and voice over Internet protocol ("VoIP") services continueto grow as an alternative to wireline services as a means of reaching customers. Wireless local number portability allows consumers toretain 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 desirablebundles of services. Discounts have been eroded in recent years due to lowering of prices by AT&T Alascom and entry of other competitorsinto the long-distance markets we serve. In addition, our competitors offer their own bundles of services. 11 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 pricingstrategies.Local AccessWe compete against ACS, the ILEC, in Anchorage, Juneau, Fairbanks and the Kenai Soldotna area. We compete against MTA, the ILEC, inthe Matanuska-Susitna Valley. We compete against other smaller ILECs in other communities.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 orremoved. These initiatives include requirements that ILECs negotiate with entities, including us, to provide interconnection to the existinglocal 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, atrates 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 beensuccessful 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 customersof 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 CompetitionOur cable television systems face competition from alternative methods of receiving and distributing television signals, including directbroadcast satellite ("DBS"), digital video over telephone lines, broadband IP-based services, wireless and satellite master antenna television("SMATV") systems, and from other sources of news, information and entertainment such as Internet services, off-air television broadcastprogramming, newspapers, movie theaters, live sporting events, interactive computer services, and home video products, including videodisks. Our cable television systems also face competition from potential overbuilds of our existing cable systems by other cable televisionoperators and municipally-owned cable systems, and alternative methods of receiving and distributing television signals. The extent to whichour cable television systems are competitive depends, in part, upon our ability to provide quality programming and other services atcompetitive prices.We believe that the greatest source of potential competition for video services could come from the DBS industry. Two major companies, TheDirecTV Group, Inc. and EchoStar Communications Corporation are currently offering nationwide high-power DBS services. The ILECs inthe Matanuska-Susitna Valley and Ketchikan offer digital video service over telephone lines in limited areas. Their product offerings and pricepoints are similar to our product offerings. With the addition of Anchorage local broadcast stations, increased marketing, ILEC and DBSalliances, and emerging technologies creating new opportunities, competition from these sources has increased and will likely continue toincrease.Competitive forces will be counteracted by offering expanded programming through digital services. Digital delivery technology is beingutilized in all of our systems. We have retransmission agreements with Anchorage broadcasters and provide for the uplink/downlink of theirsignals into all our systems, and local programming for our customers.Other new technologies may become competitive with non-entertainment services that cable television systems can offer. The FCC hasauthorized television broadcast stations to transmit textual and graphic information useful to both consumers and businesses. The FCC alsopermits commercial and non-commercial FM stations to use their subcarrier frequencies to provide non-broadcast services including datatransmissions. The FCC established an over-the-air interactive video and data service that will permit two-way interaction with commercialand educational programming along with informational and data services. ILECs and other common carriers also provide facilities for thetransmission and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data andother non- 12 video services. The FCC has conducted spectrum auctions for licenses to provide PCS, as well as other services. PCS and other serviceswill enable license holders, including cable operators, to provide voice and data services. We own a statewide PCS license in Alaska.Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. The 1992 Cable Act gives localfranchising authorities jurisdiction over basic cable service rates and equipment in the absence of “effective competition,” prohibits franchisingauthorities 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) maybecome 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 areavailable off-air or through other alternative delivery sources. Additionally, we believe we offer superior technical performance and responsivecommunity-based customer service. Increased competition, however, may adversely affect our market share and results of operations fromour cable services product offerings.Data Services and Products CompetitionThe Internet industry is highly competitive, rapidly evolving and subject to constant technological change. Competition is based upon priceand pricing plans, service bundles, the types of services offered, the technologies used, customer service, billing services, and perceivedquality, reliability and availability. We compete with other Alaska based Internet providers and domestic, non-Alaska based providers thatprovide national service coverage. Several of the providers headquartered outside of Alaska have substantially greater financial, technical andmarketing resources than we do.With respect to our high-speed cable modem service, ACS and other Alaska telephone service providers are providing competitive high-speeddata subscriber line services over their telephone lines in direct competition with our high-speed cable modem service. Competitive local fixedwireless providers are providing service in certain of our markets as is a national WiMax-based provider in Anchorage with plans for Juneauand 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-speedenterprise 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, listservices and e-mail.Wireless Services and Products CompetitionWe compete against AT&T Mobility, ACS, MTA, and resellers of those services in Anchorage and other markets. The GCI and Alaska DigiTelbrands compete against each other.Regulatory policies favor robust competition in wireless markets. Wireless local number portability, which was implemented by the FCC latein 2003, has also increased the level of competition in the industry. Number portability allows subscribers to switch carriers without having tochange their telephone numbers.The communications industry continues to experience significant technological changes, as evidenced by the increasing pace ofimprovements in the capacity and quality of digital technology, shorter cycles for new products and enhancements and changes in consumerpreferences and expectations. Accordingly, we expect competition in the wireless communications industry to continue to be dynamic andintense 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, the type of wireless handsets offered, and the availability of differentiated features andservices. Our ability to compete successfully will depend, in part, on our marketing efforts and our ability to anticipate and respond to variouscompetitive factors affecting the industry.SeasonalityOur Consumer segment services and products do not exhibit significant seasonality. Our ability to implement construction projects ishampered during the winter months because of cold temperatures, snow and short daylight hours. 13 Network Access SegmentNetwork Access segment revenues for 2009, 2008 and 2007 are summarized as follows (amounts in thousands): Year Ended December 31, 2009 2008 2007 Total revenues 1 $122,072 153,821 163,377 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 9 included in“Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performanceof our Network Access segment.Services and ProductsOur Network Access segment offers wholesale voice, data, and wireless services and products to other common carrier customers. Weprovide network transport, billing services and access to our network to other common carriers. These services allow other common carriersto provide services to their customers that originate or terminate on our network, or on the networks of other communication companies towhich we connect.Voice Services and ProductsRevenues derived from Network Access segment voice services and products in 2009, 2008, and 2007 totaled $49.8 million, $79.7 million,and $96.9 million, respectively, or 8%, 14%, and 19% of our total revenues, respectively.We are engaged in the transmission of interstate and intrastate-switched message telephone service. We terminate northbound messagetelephone service traffic for several large resellers who do not have facilities of their own in Alaska. We also provide origination of southboundcalling card, toll-free services, and toll services for interexchange carriers. Services are generally provided pursuant to contracts.Data Services and ProductsRevenues derived from Network Access segment data services and products in 2009, 2008, and 2007 totaled $63.9 million, $71.4 million,and $61.2 million, respectively, or 11%, 12%, and 12% of our total revenues, respectively.Data network services include multi-protocol label switching, frame relay, private line and dedicated Internet service.Wireless Services and ProductsRevenues derived from Network Access segment wireless services and products in 2009, 2008, and 2007 totaled $8.4 million, $2.7 million,and $5.3 million, respectively, or 1%, 0%, and 1% of our total revenues, respectively. We provide roaming services on our wireless networkwithin Alaska to other GSM and CDMA wireless carriers.Sales and MarketingOur Network Access segment sales and marketing efforts are primarily directed toward increasing the number of other common carriers weserve, the number of billable minutes of long-distance and wireless traffic we carry over our network and the number of voice and datatransmission circuits leased. We sell our voice, data and wireless services primarily through direct contact marketing.FacilitiesOur Network Access segment shares common facilities used for voice, data and wireless services by other segments. You should refer to“Consumer Segment — Facilities” above for additional information.Major CustomerDuring the years ended December 31, 2009, 2008 and 2007, we had Verizon as a major customer. Revenues attributed to our majorcustomer during the years ended December 31, 2009, 2008 and 2007, totaled $64.5 million, $65.0 million and $71.5 million or 11%, 11%and 14% of total revenues, respectively.CompetitionOur Network Access segment competes against AT&T Alascom, ACS, and certain smaller rural local telephone carrier affiliates. There is alsothe possibility that new competitors will enter the Alaska market. You should refer to “Consumer Segment — Competition” above foradditional information. 14 Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to our carrier customers by theircustomers. Pricing pressures, new program offerings, revised business plans, and market consolidation continue to evolve in the marketsserved by our carrier customers. If, as a result, their traffic is reduced, or if their competitors’ costs to terminate or originate traffic in Alaska arereduced, our traffic will also likely be reduced, and we may have to respond to competitive pressures. We are unable to predict the effect ofsuch changes on our business.Historically, we have competed in the Network Access segment market by offering rates comparable to or less than our competitors, byproviding a comprehensive service model to meet the complete needs of our carrier customers, and by providing responsive customerservice.SeasonalityNetwork Access segment long-distance and wireless services revenues derived from our other common carrier customers have historicallybeen highest in the summer months because of temporary population increases attributable to tourism and increased seasonal economicactivity such as construction, commercial fishing, and oil and gas activities. Our Network Access segment data services do not exhibitsignificant seasonality.Commercial SegmentWe offer a full range of communications services and products to commercial and governmental customers. Commercial segment revenuesfor 2009, 2008 and 2007 are summarized as follows: Year Ended December 31, 2009 2008 2007 Total revenues 1 $110,135 114,660 104,640 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 9 included in“Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performanceof our Commercial segment.Services and ProductsOur Commercial segment offers a full range of voice, video, data, wireless and managed services and products to small businesses, local,national and global businesses, governmental entities, and public and private educational institutions.Voice Services and ProductsRevenues derived from Commercial segment voice services and products in 2009, 2008, and 2007 totaled $30.8 million, $29.4 million,and $30.8 million, respectively, or 5%, 5%, and 6% of our total revenues, respectively.Long-DistanceWe are engaged in the transmission of interstate and intrastate-switched message telephone service between the major communities inAlaska, and the remaining United States and foreign countries. Our message toll services include intrastate, interstate and internationaldirect dial, toll-free services, calling card, operator and enhanced conference calling services. Small business subscribers generally maycancel long-distance service at any time. Certain small business and most large business, governmental and educational institutioncustomers generally contract with us for service over one to five year periods.Local AccessWe offer full featured local access service to our Commercial segment customers using our own fiber and coax facilities and collocatedremote facilities that access the ILEC’s UNE loops and wholesale facilities. In areas where we do not have our own facilities or access toILEC 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, three-way calling, callforwarding, and call waiting.Directories ServicesWe sell advertising in our yellow pages directories to Commercial segment customers, distribute white and yellow pages directories or CDdirectories to customers in certain markets we serve, and offer an on-line directory. We offer three yellow pages directories with each directorycovering multiple locations and including custom features for each area. Our directories cover the following communities: Anchorage and 15 Southcentral Alaska; Fairbanks and vicinity; and Juneau and Southeast AlaskaVideo Services and ProductsRevenues derived from Commercial segment video services and products in 2009, 2008, and 2007 totaled $9.2 million, $9.6 million, and$8.0 million, respectively, or 2% of our total revenues.Commercial segment subscribers such as hospitals, hotels and motels are charged negotiated monthly service fees. Our video on demandplatform is available to hotels in Anchorage that are connected using our fiber facilities. Programming services offered to our cable televisionsystems 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 ProductsRevenues derived from Commercial segment data services and products in 2009, 2008, and 2007 totaled $63.4 million, $70.1 million, and$61.1 million, respectively, or 11%, 12%, and 12% of our total revenues, respectively.InternetWe currently offer several Internet service packages for commercial use. Our business high-speed cable modem Internet service offersaccess speeds ranging from 512 Kbps to 12 Mbps, free monthly data transfers of up to 250 gigabytes and free 24-hour customer service andtechnical support.We also provide dedicated access Internet service to commercial and public organizations in Alaska. We offer a premium service and currentlysupport many of the largest organizations in the state such as BP Exploration (Alaska) Inc. and the State of Alaska. We have hundreds ofother enterprise customers, both large and small, using this service.Data NetworksData network services utilize voice and data transmission circuits, dedicated to particular subscribers, which link a device in one location toanother in a different location. Private IP, private lines, metro Ethernet and frame relay offer a secure solution for frequent communication oflarge amounts of data between sites.Managed ServicesWe design, sell, install, service and operate, on behalf of certain customers, communications and computer networking equipment andprovide field/depot, third party, technical support, communications consulting and outsourcing services. We supply integrated voice and datacommunications systems incorporating private IP, interstate and intrastate digital data networks, point-to-point and multipoint data networkand small earth station services.Wireless Services and ProductsRevenues derived from Commercial segment wireless services and products in 2009, 2008, and 2007 totaled $6.7 million, $5.6 million,and $4.8 million, respectively, or 1% of our total revenues.Wireless services and products offered to our Commercial segment customers are the same as those described in the Consumer WirelessServices and Products section above. You should refer to “Consumer Segment — Services and Products” above for additional information.Bundled Services and ProductsWe combine one or more of our individual service or product offerings into bundles that we sell to our Commercial segment customers atattractive prices as described further in the Consumer segment Services and Products section above. You should refer to “ConsumerSegment — Services and Products” above for additional information. Additionally, we use master service agreements with larger enterprisecustomers to capture the overall relationship.Sales and MarketingOur 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 andproducts primarily through direct contact marketing. 16 FacilitiesOur Commercial segment uses many facilities to provide services and products that are common to the Consumer segment. You shouldrefer 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 anddeployment of SONET, optical ethernet, and gigabit passive optical network fiber transmission facilities, digital loop carrier facilities, andleased facilities. Our dedicated Internet access and Internet protocol/Multi-Protocol Label Switching data services are delivered to an Ethernet port located at theservice point. Our management platform constantly monitors this port and continual communications are maintained with all of the core anddistribution elements in the network. The availability and quality of service, as well as statistical information on traffic loading, arecontinuously monitored for quality assurance. The management platform has the capability to remotely access routers, servers and layer twoswitches, permitting changes in configuration without the need to physically be at the service point. This management platform allows us tooffer network monitoring and management services to businesses and governmental entities. Many of the largest commercial networks inAlaska use this service, including the State government.CompetitionMany of our Commercial segment voice, video, data and wireless services and products are also common to the Consumer segment. Youshould refer to “Consumer Segment — Competition” above for additional information.We expect continued competition in commercial customer telephone access, Internet access, wireless and data markets. Competition isbased upon price and pricing plans, the type of services offered, customer service, billing services, performance, and 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 positionbased on customer support services rather than price competition alone. These services are blended with other transport products into uniquecustomer 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 advertisingand listing prices, broad circulation, and directory quality and features.SeasonalityOur Commercial segment voice, video, data and wireless services do not exhibit significant seasonality. Our ability to implementconstruction projects to expand our outside plant facilities is hampered during the winter months because of cold temperatures, snow andshort daylight hours.Managed Broadband SegmentManaged Broadband segment revenues for 2009, 2008 and 2007 are summarized as follows: Year Ended December 31, 2009 2008 2007 Total revenues 1 $44,875 37,047 28,792 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 9 included in“Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performanceof our Managed Broadband segment. Services and ProductsOur 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. OurSchoolAccess® division provides Internet and distance learning services designed exclusively for the school environment. The Schools andLibraries Program of the Universal Service Fund ("USF") makes discounts available to eligible rural school districts for telecommunication 17 services and monthly Internet service charges. The program is intended to ensure that rural school districts have access to affordableservices.Our network, Internet and software application services provided through our Managed Broadband segment’s Medical Services division arebranded as ConnectMD®. Our ConnectMD® services are currently provided under contract to medical businesses in Alaska, Washington andMontana. The Rural Health Care Program of the USF makes discounts available to eligible rural health care providers for telecommunicationservices and monthly Internet service charges. The program is intended to ensure that rural health care providers pay no more fortelecommunications services in the provision of health care services than their urban counterparts. Customers utilize ConnectMD® servicesto 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 collaborationenvironments. 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 servicesavailable to patients. The product bundles our data products, video conferencing services and optional rental of video conferencing endpointequipment. Our video conferencing services include multipoint conferencing, integrated services digital network gateway and transcodingservices, online scheduling and conference control, and videoconference recording, archiving and streaming. We provide 24-hour technicalsupport via telephone or online.Our videoconferencing network is the largest in Alaska, and network coverage includes parts of the states of Washington and Montana. Thenetwork supports all H.323 IP videoconferencing standards including the newer H.264 standard, and supports call data rates from 128 Kbper second up to and including multi-megabit high definition calls. In 2009 and 2008, we terminated over 32,000 and 30,000, respectively,videoconferencing endpoint connections amounting to over 2.0 million and 1.8 million, respectively, videoconferencing minutes on ournetwork.Sales and MarketingOur Managed Broadband segment sales and marketing efforts focus on increasing the number of subscribers we serve, selling bundledservices, and generating incremental revenues through product and feature up-sell opportunities. We sell our Managed Broadband segmentservices and products primarily through direct contact marketing.FacilitiesOur Managed Broadband segment services and products are delivered using a platform including many of the latest advancements intechnology through a locally available circuit, our existing lines, and/or satellite earth stations. Our Internet services are partially provisionedover a satellite based digital video broadcast carrier that reduces the requirement for new satellite transponder bandwidth to support growth inrural 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 andSchoolAccess® 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 configuredintermediate 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 providedvia 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 adedicated (usually on premise) very small aperture terminal ("VSAT") satellite station. The VSAT connects to an intermediatedistribution facility located in Anchorage.Our facilities include DeltaNet, a long-haul broadband microwave network ringing the Yukon-Kuskokwim Delta – a region of approximately50,000 square miles in western Alaska. DeltaNet links more than 30 villages to Bethel, the region’s hub. We utilize DeltaNet to supportgrowth in wireless and broadband services including rural health and SchoolAccess®.You should refer to “Consumer Segment — Facilities” above for additional information. 18 CompetitionThere are several competing companies in Alaska that actively sell broadband services. Our ability to provide end-to-end broadband servicessolutions has allowed us to maintain our market position based on “value added” services and products rather than solely based on pricecompetition. 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.SeasonalityOur Managed Broadband segment does not exhibit seasonality.Regulated Operations SegmentWe 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 were $23.8 million and $14.3 million in 2009 and from the June 1, 2008 date of acquisition of UUIand United-KUC through December 31, 2008, respectively.Services and ProductsOur Regulated Operations segment offers wireline communications services to our residential and commercial customers, including localaccess, long-distance, and Internet services and products.Sales and MarketingOur Regulated Operations segment sales efforts are primarily directed toward increasing the number of subscribers we serve. We sell ourRegulated Operations segment services through local media advertising, retail stores, and through our website.FacilitiesOur Regulated Operations segment services are delivered by switching, outside plant, terrestrial microwave, and satellite facilities. Ouroutside plant is primarily aerial and buried copper and fiber optic cables.CompetitionIn the intrastate, interstate and international long-distance market, we compete against AT&T Alascom. AT&T Alascom, as a subsidiary ofAT&T, Inc., has access to greater financial, technical and marketing resources than we have. Our Regulated Operations segment has nocompetition for its local access services.SeasonalityOur Regulated Operations segment services do not exhibit significant seasonality.Sales and Marketing – Company-wideOur sales and marketing strategy hinges on our ability to leverage (i) our unique position as an integrated provider of multiplecommunications, Internet and cable services, (ii) our well-recognized and respected brand names in the Alaskan marketplace and (iii) ourleading market positions in the services and products we offer. By continuing to pursue a marketing strategy that takes advantage of thesecharacteristics, we believe we can increase our customer market penetration and retention rates, increase our share of our customers’aggregate voice, video, data and wireless services expenditures and achieve continued growth in revenues and operating cash flow.Environmental RegulationsWe may undertake activities that, under certain circumstances may affect the environment. Accordingly, they are subject to federal, state, andlocal regulations designed to preserve or protect the environment. The FCC, the Bureau of Land Management, the United States ForestService, and the National Park Service are required by the National Environmental Policy Act of 1969 to consider the environmental impactbefore 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 ourfacilities on the environment would be in the form of construction of facilities and networks at various locations in Alaska and betweenAlaska, Seattle, Washington, and Warrenton, Oregon. Our facilities have been constructed in accordance with federal, state and localbuilding codes and zoning regulations whenever and wherever applicable. Some facilities may be on lands that may be subject to state andfederal wetland regulation. 19 Uncertainty as to the applicability of environmental regulations is caused in major part by the federal government’s decision to consider achange in the definition of wetlands. Most of our facilities are on leased property, and, with respect to all of these facilities, we are unaware ofany violations of lease terms or federal, state or local regulations pertaining to preservation or protection of the environment.The engineered routes of our projects to construct terrestrial and undersea fiber optic cable facilities pass over wetlands and otherenvironmentally 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 oversight of our cable deployment efforts are the United States Army Corpsof Engineers, National Marine Fisheries Service, United States Fish and Wildlife Service, United States Coast Guard, National Oceanic andAtmospheric 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 byapplicable 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 ofthose systems. We do not believe that these materials, when used in accordance with manufacturer instructions, pose an unreasonablehazard to those who use them or to the environment.Patents, Trademarks and LicensesWe do not hold patents, franchises or concessions for communications services or local access services. We do hold registered service marksfor the letters GCI®, and for the terms SchoolAccess®, Alaska United Fiber Optic Cable System®, GCI ConnectMD®, ConnectMD®, GCIHypernet®, My GCI®, MyGCI®, Keep Talking Alaska®, Digiminutes®, Unicom®, Cell-ID®, and United-KUC®. The Communications Act of1934, as amended, 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 oflong-distance services provided by our Consumer, Commercial and Network Access segments.We are licensed for use of a 30 MHz block of spectrum for providing PCS services in Alaska. The PCS license was renewed in 2005 for anadditional 10 year term. Licenses may be revoked and license renewal applications may be denied for cause.We hold the following licenses, among others:· 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 therequirement to provide “substantial service” in the service region,· Two licenses for use of a 30 MHz block of spectrum, which together authorize provision of PCS services in Alaska. Both licenseshave an expiration date of June 23, 2015. Licenses may be revoked and license renewal applications may be denied for cause. Weexpect the PCS license will be renewed in due course, when, at the end of the license period, a renewal application will be filed,· A cellular A license 25 MHz for sites located in the Bethel AK-2 B2 portion of RSA 316, serving the Aleutians West Census Area,and· Several cellular B licenses 25 MHz are held by our subsidiary Unicom for sites located in the Wade Hampton AK-1 portion of CMA315 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 identicalearth stations (e.g., VSATs). Our operations may require additional licenses in the future.RegulationOur businesses are subject to substantial government regulation and oversight. The following summary of regulatory issues does notpurport to describe all existing and proposed federal, state, and local laws and regulations, or judicial and regulatory proceedings that affectour businesses. Existing laws and regulations are reviewed frequently by legislative bodies, regulatory agencies, and the courts and aresubject to change. Any change in the Act that loosened regulatory oversight of ILECs’ control of bottleneck facilities could have an adverseimpact on our businesses. We cannot predict at this time the outcome of any present or future consideration of proposed changes togoverning laws and regulations. 20 Wireline Voice Services and ProductsGeneral. As an Interexchange carrier, we are subject to regulation by the FCC and Regulatory Commission of Alaska ("RCA") as a non-dominant provider of interstate, international, and intrastate long-distance services. As a state-certificated competitive local exchange carrier,we are subject to regulation by the RCA and the FCC as a non-dominant provider of local communications services. Military franchiserequirements 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 interconnectionrequirements under Section 251(c) of the 1996 Telecom Act, including the obligation to negotiate Section 251(b) and (c) interconnectionrequirements in good faith, unless and until a state regulatory commission lifts such “rural exemption” or otherwise finds it not to apply. AllILECs in Alaska are Rural Telephone Companies except ACS in its Anchorage study area. We have had to participate in numerousproceedings regarding the rural exemptions of various ILECs, including ACS for its Fairbanks and Juneau operating companies, MTA andKetchikan, in order to achieve the necessary Interconnection Agreements with the remaining ILECs. In other cases the InterconnectionAgreements were reached by negotiation without regard to the implications of the ILEC’s rural exemption.We have completed negotiation and/or arbitration of the necessary interconnection provisions and the RCA has approved current wirelineInterconnection Agreements between GCI and all of the major ILECs. We have entered all of the major Alaskan markets with local accessservices.See “Description of Our Business by Reportable Segment — Consumer — Competition — Voice Services and Products Competition” formore information.Access Charges and Other Regulated Fees. The FCC regulates the fees that local telephone companies charge long-distance companiesfor access to their local networks. The FCC is considering proposals to restructure and possibly reduce interstate access charges. Changes tothe interstate access charge regime or introduction of new technologies not subject to access charges could fundamentally change theeconomics 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 anyprovider are currently governed by a federal law that was effective through December 31, 2009. We cannot predict at this time the effect of theexpiration 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 UNEs is an important element of our local access services business. Wecannot predict the extent to which existing FCC rules governing access to and pricing for UNEs will be sustained in the face of additional legalaction and the impact of any further rules that are yet to be determined by the FCC. Moreover, the future regulatory classification of servicesthat are transmitted over facilities may impact the extent to which we will be permitted access to such facilities. Changes to the applicableregulations could result in a change in our cost of serving new and existing markets.Recurring and non-recurring charges for UNE-loops and other UNEs may increase based on the rates adopted in RCA proceedings toestablish new Interconnection Agreements or renew existing agreements. These increases could have an adverse effect on our financialposition, results of operations or liquidity.Universal Service. The USF pays Eligible Telecommunications Carrier's ("ETC") to support the provision of facilities-based wirelinetelephone service in high-cost areas. Under FCC regulations and RCA orders, we are an authorized ETC for purposes of providing wirelinelocal exchange service in Anchorage, Juneau, Fairbanks, and the MTA study area (which includes the Matanuska-Susitna Valley) and othersmall areas throughout Alaska. Without ETC status, we would not qualify for USF support in these areas or other rural areas where wepropose to offer facilities-based wireline telephone services, and our net cost of providing local telephone services in these areas would bematerially adversely affected.On May 1, 2008, the FCC issued an order adopting the recommendation of the Federal State Joint Board on Universal Service (“JointBoard”) 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 FCCadopted a limited exception from the cap for competitive ETCs serving tribal lands or Alaska Native regions. While the operation of the capwill generally reduce the high cost fund amounts available to competitive ETCs as new competitive ETCs are designated and as existingcompetitive ETCs acquire new customers, providers like us who serve tribal lands or Alaska Native regions were provided some relief. OnMarch 5, 2009, the FCC issued an additional order waiving a previously adopted limitation to the exception, the result of which is to provideuncapped support 21 for all lines served by competitive ETCs for tribal lands or Alaska Native regions during the time the interim cap is in effect. The uncappedsupport 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 forlong 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 generalregulations concerning building codes and local licensing. The 1996 Telecom Act requires that fees charged to communications carriers beapplied in a competitively neutral manner, but there can be no assurance that ILECs and others with whom we will be competing will bearcosts similar to those we will bear in this regard.Video Services and ProductsGeneral. 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 isthe franchising authority for all of Alaska. We believe that we have generally met the terms of our franchises, which do not require periodicrenewal, and have provided quality levels of service. Military franchise requirements also affect our ability to provide video services to militarybases.The RCA is also certified under federal law to regulate rates for the Basic Service tier on our cable systems. Under state law, however, cabletelevision service is exempt from regulation unless subscribers petition the RCA. At present, regulation of basic cable rates takes place onlyin Juneau. The RCA does not regulate rates for cable modem service.Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal carriage requirements that allow local commercialtelevision broadcast stations to elect once every three years to require a cable system to carry the station, subject to certain exceptions, or tonegotiate 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 FCCrequirement that cable operators carry both the analog and digital programming streams of broadcast television stations while broadcastersare transitioning from analog to digital transmission does not apply to all-digital systems like ours. Further, the FCC has declined to requireany cable operator to carry multiple digital programming streams from a single broadcast television station, but should the FCC change thispolicy, we would be required to devote additional cable capacity to carrying broadcast television programming streams, a step that couldrequire 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 tolocal cable-franchise fees, as cable service may be, or any explicit requirements for “open access.” The Supreme Court affirmed the FCC’sposition 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 cablesystems expand their broadband delivery of Internet services. Proposals have been advanced at the FCC and Congress to require cableoperators to provide access to unaffiliated Internet service providers and online service providers and to govern the terms under which contentproviders and applications are delivered by all broadband network operators. If such requirements were imposed on cable operators, it couldburden the capacity of cable systems and frustrate our plans for providing expanded Internet access services. These access obligations couldadversely 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 mustsegregate the security function from the navigation function. The new devices are more expensive than existing equipment, and compliancewould increase our cost of providing cable services. 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 all-digital cable networks.Pole Attachments. The Communications Act requires the FCC to regulate the rates, terms and conditions imposed by public utilities forcable systems’ use of utility pole and conduit space unless state authorities can demonstrate that they adequately regulate pole attachmentrates. In the absence of state regulation, the FCC administers pole attachment rates on a formula basis. This formula governs the maximumrate certain utilities may charge for attachments to their poles and conduit by companies providing communications services, including cableoperators. The RCA, however, does not use the federal formula and instead 22 has adopted its own formula that has been in state regulation since 1987. This formula could be subject to further revisions upon petition tothe RCA and the FCC has an open rulemaking proceeding to consider application of the federal formula. We cannot predict at this time theoutcome of any such proceedings.Copyright. Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. Inexchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool that varies depending onthe size of the system, the number of distant broadcast television signals carried, and the location of the cable system, cable operators canobtain blanket permission to retransmit copyrighted material included in broadcast signals. The possible modification or elimination of thiscompulsory copyright license is the subject of continuing legislative review. We cannot predict the outcome of this legislative review, whichcould adversely affect our ability to obtain desired broadcast programming. Copyright clearances for non-broadcast programming services arearranged through private negotiations.Internet-based Services and ProductsGeneral. There is no one entity or organization that governs the Internet. Each facilities-based network provider that is interconnected withthe global Internet controls operational aspects of their own network. Certain functions, such as IP addressing, domain name routing, andthe 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.Although the FCC does not regulate the prices charged by Internet service providers or Internet backbone providers, the vast majority of usersconnect to the Internet over facilities of existing communications carriers. Those communications carriers are subject to varying levels ofregulation at both the federal and the state level. Thus, non-Internet-specific regulatory decisions exercise a significant influence over theeconomics of the Internet market.Many aspects of the coordination and regulation of Internet activities and the underlying networks over which those activities are conductedare evolving. Internet-specific and non-Internet-specific changes in the regulatory environment, including changes that affect communicationscosts or increase competition from ILECs or other communications services providers, could adversely affect the prices at which we sellInternet-based services.Wireless Services and ProductsGeneral. The FCC regulates the licensing, construction, interconnection, operation, acquisition, and transfer of wireless network systems inthe United States pursuant to the Communications Act. As a licensee of PCS, LMDS, and other wireless services, we are subject toregulation by the FCC, and must comply with certain build-out and other license conditions, as well as with the FCC’s specific regulationsgoverning the PCS and LMDS services (described above). The FCC does not currently regulate rates for services offered by commercialmobile radio service providers.Commercial mobile radio service wireless systems are subject to Federal Aviation Administration and FCC regulations governing thelocation, lighting and construction of antenna structures on which our antennas and associated equipment are located and are also subject toregulation under federal environmental laws and the FCC’s environmental regulations, including limits on radio frequency radiation fromwireless handsets and antennas on towers.Interconnection. We have completed negotiation and the RCA has approved current direct wireless Interconnection Agreements betweenGCI and all of the major ILECs. These are in addition to indirect interconnection arrangements utilized elsewhere.Universal Service. The USF pays ETCs to support the provision of facilities-based wireless telephone service in high-cost areas. A wirelesscarrier may seek ETC status so that it can receive support from the USF. Several wireless carriers, including us, have successfully applied tothe RCA for ETC status in Alaska. Under FCC regulations and RCA orders, we are an authorized ETC for purposes of providing wirelesstelephone service in Anchorage, Juneau, Fairbanks, and the MTA study area (which includes the Matanuska-Susitna Valley) and other smallareas throughout Alaska. Without ETC status, we would not qualify for USF support in these areas or other rural areas where we propose tooffer facilities-based wireless telephone services, and our net cost of providing wireless telephone services in these areas would be materiallyadversely affected.See “Description of Our Business by Reportable Segment — Regulation — Wireline Voice Services and Products — Universal Service” formore information. 23 Emergency 911. The FCC has imposed rules requiring carriers to provide emergency 911 services, including enhanced 911 services thatprovide to local public safety dispatch agencies the caller’s communications number and approximate location. Providers are required totransmit 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 tonegotiate 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 rateregulation when market conditions fail to adequately protect customers and such service is a replacement for a substantial portion of thetelephone wireline exchange service within a state. No state currently has such a petition on file, and all prior efforts have been rejected. Inaddition, 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 thewireless industry. State attorneys general have also become more active in enforcing state consumer protection laws against sales practicesand services of wireless carriers. States also may impose their own universal service support requirements on wireless and othercommunications 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. Wheresuccessful, 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 maycategorically prohibit the construction of wireless facilities in any community or take actions, such as indefinite moratoria, which have theeffect of prohibiting construction. Nonetheless, securing state and local government approvals for new tower sites has been and is likely tocontinue to be difficult, lengthy and costly.Financial Information about our Foreign and Domestic Operations and Export SalesAlthough we have several agreements to help originate and terminate international toll traffic, we do not have foreign operations or exportsales. We conduct our operations throughout the western contiguous United States and Alaska and believe that any subdivision of ouroperations into distinct geographic areas would not be meaningful.Customer-Sponsored ResearchWe have not expended material amounts during the last three fiscal years on customer-sponsored research activities.Geographic Concentration and the Alaska EconomyWe offer voice, data and wireless telecommunication services and video services to customers primarily throughout Alaska. Because of thisgeographic concentration, growth of our business and operations depends upon economic conditions in Alaska. The economy of Alaska isdependent upon the natural resource industries, and in particular oil production, as well as investment earnings, tourism, government, andUnited States military spending. Any deterioration in these markets could have an adverse impact on us. A significant part of the Alaskaeconomy 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 2009that oil, federal funding, and investment revenues supplied 89%, 7% and 4%, respectively, of the State's unrestricted revenues. In fiscal2010 state economists forecast that Alaska’s oil, federal funding and investment revenues will supply 87%, 8% and 5%, respectively, of theState’s 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 dayin fiscal 1988. Production has been declining over the last several years with an average of 0.69 million barrels produced per day in fiscal2009. The State forecasts the production rate to decline from 0.66 million barrels produced per day in fiscal 2010 to 0.52 million barrelsproduced per day in fiscal 2019.Market prices for North Slope oil averaged $68.34 in fiscal 2009 and are forecasted to average $66.93 in fiscal 2010. The closing price perbarrel was $78.48 on February 2, 2010. To the extent that actual oil prices vary materially from the State’s projected prices, the State’sprojected revenues and deficits will change. The production policy of the Organization of Petroleum Exporting Countries and its ability tocontinue to act 24 in concert represents a key uncertainty in the State’s revenue forecast.Should new oil discoveries or developments not materialize or the price of oil become depressed, the long term trend of continued decline inoil production from the Prudhoe Bay area is inevitable with a corresponding adverse impact on the economy of the State, in general, and ondemand for telecommunications and cable television services, and, therefore, on us, in particular. Periodically there are renewed efforts toallow exploration and development in the Arctic National Wildlife Refuge (“ANWR”). The United States Energy Information Agency hasestimated 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 levelsto 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 developingexisting fields which are economic to develop and produce oil with access to the pipeline or other means of transport to market. We are notable 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 naturalgas supplies. There are two competing companies that are studying the economic viability of a natural gas pipeline, which depends upon theprice of and demand for natural gas.The State of Alaska maintains the Constitutional Budget Reserve Fund (“CBRF”) that is intended to fund budgetary shortfalls. If the State’scurrent projections are realized and no surpluses are deposited into the CBRF it is projected that the fund would not be depleted before 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 toincrease revenues and reduce spending in order to balance the budget. The governor of the State of Alaska and the Alaska legislaturecontinue to evaluate cost cutting and revenue enhancing measures.We have, since our entry into the telecommunication marketplace, aggressively marketed our services to seek a larger share of the availablemarket. The customer base in Alaska is limited, however, with a population of approximately 690,000 people. The State of Alaska’spopulation is distributed as follows: ·42% are located in the Municipality of Anchorage, ·14% are located in the Fairbanks North Star Borough, ·12% are located in the Matanuska-Susitna Borough, ·8% are located in the Kenai Peninsula Borough, ·4% are located in the City and Borough of Juneau, and· The remaining 20% are located in other communities across the State of Alaska.EmployeesWe employed 1,635 persons as of December 31, 2009, and we are not subject to any collective bargaining agreements with our employees.We believe our future success will depend upon our continued ability to attract and retain highly skilled and qualified employees. We believethat relations with our employees are satisfactory.OtherNo material portion of our business 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 ResultsAdditional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adverselyaffect our business operations. Any of the following risks could materially and adversely affect our business, financial position, results ofoperations or liquidity. 25 We depend on a small number of customers for a substantial portion of our revenue and business. The loss of any of suchcustomers would have a material adverse effect on our financial position, results of operations or liquidity.For the year ended December 31, 2009, we provided services to a major customer which generated revenues of 11% of our total 2009revenues. This customer is free to seek out long-distance communications services from our competitors upon expiration of its contracts orearlier upon the occurrence of certain contractually stipulated events including a default, the occurrence of a force majeure event, or asubstantial change in applicable law or regulation under the applicable contract. Additionally, the contracts provide for periodic reviews toassure 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 itwould not permit it to terminate its existing contracts with us without a negotiated settlement, but it could in the future result in thetermination 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 ofthose customers for long-distance services. The loss of our major customer, a material adverse change in our relationships with it or amaterial loss of or reduction in its long-distance customers would have a material adverse effect on our financial position, results ofoperations 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, local access,wireless, Internet and video services are increasingly becoming blurred. Through mergers and various service integration strategies, majorproviders are striving to provide integrated communications services offerings within and across geographic markets. We face increasingvideo 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 whichof many possible future technologies, products or services will be important to maintain our competitive position or what expenditures will berequired to develop and provide these technologies, products or services. Our ability to compete successfully will depend on marketing andon 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 withtechnological advances or fail to timely respond to changes in competitive factors in our industry and in our markets, we could lose marketshare or experience a decline in our revenue and net income. Competitive conditions create a risk of market share loss and the risk thatcustomers shift to less profitable lower margin services. Competitive pressures also create challenges for our ability to grow new businessesor introduce new services successfully and execute our business plan. Each of our business segments also faces the risk of potential pricecuts 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 — NarrativeDescription of our Business — Description of our Business by Reportable Segment.”Our business is subject to extensive governmental legislation and regulation. Applicable legislation and regulations andchanges 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 andrelated services from local exchange carriers on terms that are reasonable and that are based on the cost of providing these services. Ourlocal telephone services business faces the risk of the impact of the implementation of current regulations and legislation, unfavorablechanges in regulation or legislation or the introduction of new regulations. Our ability to enter into the local telephone market depends on ournegotiation or arbitration with local exchange carriers to allow interconnection to the carrier’s existing local telephone network, to establishdialing parity, to obtain access to rights-of-way, to resell services offered by the local exchange carrier, and in some cases, to allow thepurchase, at cost-based rates, of access to UNEs. In some Alaska markets, it also depends on our ability to gain interconnection at economiccosts. Future arbitration proceedings with respect to new or existing markets could result in a change in our cost of serving these markets viathe facilities of the ILEC or via wholesale offerings. 26 Video Services. The cable television industry is subject to extensive regulation at various levels, and many aspects of such regulation arecurrently the subject of judicial proceedings and administrative or legislative proposals. The law permits certified local franchising authoritiesto order refunds of rates paid in the previous 12-month period determined to be in excess of the reasonable rates. It is possible that ratereductions or refunds of previously collected fees may be required of us in the future. Currently, pursuant to Alaska law, the basic cable ratesin Juneau are the only rates in Alaska subject to regulation by the local franchising authority, and the rates in Juneau were reviewed andapproved by the RCA in September 2009.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 televisionindustry in general, or on our activities and prospects in the cable television business in particular, can be predicted at this time. There can beno assurance that future regulatory actions taken by Congress, the FCC or other federal, state or local government authorities will not have amaterial 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 Internetservice providers. As of the date of this report, the FCC has declined to impose such requirements. If the FCC or other authorities mandateadditional 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, FCCregulation, judicial action or local regulation that affect communications costs or increase competition from the ILEC or other communicationsservices 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 adverselyaffect the manner and price of providing service.Wireless Services. The licensing, construction, operation, sale and interconnection arrangements of wireless communications systemsare regulated by the FCC and, depending on the jurisdiction, state and local regulatory agencies. In particular, the FCC imposes significantregulation 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, as amended, 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 practices andconsumer-related issues. These regulations could increase the costs of our wireless operations. The FCC grants wireless licenses for termsof generally ten years that are subject to renewal and revocation. FCC rules require all wireless licensees to meet certain build-outrequirements and substantially comply with applicable FCC rules and policies and the Communications Act of 1934, as amended, in orderto retain their licenses. Failure to comply with FCC requirements in a given license area could result in revocation of the license for thatlicense area. There is no guarantee that our licenses will be renewed.The FCC has initiated a number of proceedings to evaluate its rules and policies regarding spectrum licensing and usage. Changes proposedby the FCC could adversely impact our utilization of our licensed spectrum and our operation costs.Commercial mobile radio service providers must implement enhanced 911 ("E911") capabilities in accordance with FCC rules. Failure todeploy E911 service consistent with FCC requirements could subject us to significant fines.The FCC, together with the Federal Aviation Administration, also regulates tower marking and lighting. In addition, tower construction isaffected by federal, state and local statutes addressing zoning, environmental protection and historic preservation. The FCC adoptedsignificant changes to its rules governing historic preservation review of projects, which makes it more difficult and expensive to deployantenna 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. 27 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 support.The USF pays support to ETCs to support the provision of facilities-based wireline and wireless telephone service in high-cost areas. If wewere to lose our ETC status in any of the study areas where we are currently an authorized ETC, we would be ineligible to receive USFsupport for providing service in that area. Loss of our ETC status could have an adverse effect on our business, financial position, results ofoperations or liquidity.Revenues and accounts receivable from USF support may be reduced or lost.We receive support from each of the various USF programs: high-cost, low income, rural health care, and schools and librariesprograms. The programs are subject to change by legislative or regulatory actions taken by the FCC. Changes to any of the USF programsthat we participate in could result in a material decrease in revenue and accounts receivable, which could have an adverse effect on ourbusiness, financial position, results of operations or liquidity.See “Description of Our Business by Reportable Segment — Regulation — Wireline Voice Services and Products — Universal Service” formore information.We may not be able to satisfy the requirements of the loan/grant we obtained to build TERRA-SW and/or we may have to spendconsiderably more than expected to complete the project.The TERRA-SW project requires us to construct network facilities in rural areas of Alaska where extensive network facilities have never beenbuilt. Our ability to complete the TERRA-SW project will require us to obtain permits from various government agencies as well as constructfacilities in rural locations. We will be unable to meet the requirements of the grant if we are unable to obtain necessary construction permitsand if we are unable to construct the necessary facilities in the rural locations. Additionally, we may be required to incur significantunplanned costs if we encounter unplanned construction challenges. These additional unplanned costs may require us to modify our othernetwork expansion plans so that we may meet the requirements of the grant. Our inability to meet the requirements of the grant and/orsignificant cost overruns in the construction of TERRA-SW could have an adverse effect on our business, financial position, results ofoperations or liquidity.Failure to complete development, testing and deployment of new technology that supports new services could affect our abilityto 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 supportingnew services and features and reducing the costs associated with providing those services or features. Successful development andimplementation of technology upgrades depend, in part, on the willingness of third parties to develop new applications in a timelymanner. We may not successfully complete the development and rollout of new technology and related features or services in a timelymanner, and they may not be widely accepted by our customers or may not be profitable, in which case we could not recover our investmentin the technology. Deployment of technology supporting new service offerings may also adversely affect the performance or reliability of ournetworks with respect to both the new and existing services. Any resulting customer dissatisfaction could affect our ability to retaincustomers 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 economic downturn in the United States, could negatively affect ourbusiness. While it is often difficult for us to predict the impact of general economic conditions on our business, these conditions couldadversely affect the affordability of and demand for some of our products and services and could cause customers to shift to lower pricedproducts and services or to delay or forgo purchases of our products and services. One or more of these circumstances could cause ourrevenue to decline. Also, our customers may not be able to obtain adequate access to credit, which could affect their ability to make timelypayments to us. If that were to occur, we could be required to increase our allowance for doubtful accounts, and the number of daysoutstanding for our 28 accounts receivable could increase. For these reasons, among others, if the current economic conditions persist or decline, this couldadversely affect our financial position, results of operations, or liquidity, as well as our ability to service debt, pay other obligations andenhance shareholder returns. The government has taken various measures in an attempt to help improve the economy, however, we areunable to predict the success or outcome of such programs.Our businesses are currently geographically concentrated in Alaska. Any deterioration in the economic conditions in Alaskacould 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 geographicconcentration, our growth and operations depend upon economic conditions in Alaska. The economy of Alaska is dependent upon naturalresource industries, in particular oil production, as well as tourism, and government spending, including substantial amounts for the UnitedStates military. Any deterioration in these markets could have an adverse impact on the demand for communication and cable televisionservices and on our results of operations and financial condition. In addition, the customer base in Alaska is limited. Alaska has a populationof approximately 690,000 people, 54% of whom are located in the Anchorage and Matanuska-Susitna Borough region. We have alreadyachieved 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 theAlaskan economy will continue to grow and increase the size of the markets we serve or increase the demand for the services we offer. As aresult, the best opportunities for expanding our business may arise in other geographic areas such as the lower 49 states. There can be noassurance that we will find attractive opportunities to grow our businesses outside of Alaska or that we will have the necessary expertise totake advantage of such opportunities. The markets in Alaska for voice, data and wireless communications and video services are unique anddistinct within the United States due to Alaska’s large geographical size, its sparse population located in a limited number of clusters, and itsdistance from the rest of the United States. The expertise we have developed in operating our businesses in Alaska may not provide us withthe necessary expertise to successfully enter other geographic markets.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 ournetworks and the networks of others for substantially all of our revenues. We are able to deliver services only to the extent that we can protectour network systems against damage from power or communication failures, computer viruses, natural disasters, unauthorized access andother disruptions. While we endeavor to provide for failures in the network by providing back-up systems and procedures, we cannotguarantee 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 ongoingcustomers 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 inappropriatedisclosure of confidential information, we may incur liability and suffer from adverse publicity. In addition, we may incur additional costs toremedy 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 belimited 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 undersea fiber optic cable systems that carry a large portion of our traffic to and from the contiguouslower 48 states one of which provides an alternative geographically diverse backup communication facility to the other. If a failure of bothsides of the ring of our undersea fiber optic facilities occurs and we are not able to secure alternative facilities, some of the communicationsservices we offer to our customers could be interrupted which could have a material adverse effect on our business, financial position, resultsof operations or liquidity. Damage to an undersea fiber optic cable system can result in significant unplanned expense which could have amaterial adverse effect on our business, financial position, results of operations or liquidity. 29 If a failure occurs in our satellite communications systems, our ability to immediately restore the entirety of our service may belimited.Our communications facilities include satellite transponders that we use to serve many rural and remote Alaska locations. Each of our C-band and Ku-band satellite transponders is backed up on the same spacecraft with multiple backup transponders. If a failure of our satellitetransponders occurs and we are not able to secure alternative facilities, some of the communications services we offer to our customers couldbe interrupted which could have a material adverse effect on our business, financial position, results of operations or liquidity.We depend on a limited number of third-party vendors to supply communications equipment. If we do not obtain the necessarycommunications 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 ourproviders 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 theAlaska communications markets (i.e., remote locations, rural, satellite-served, low density populations, and our leading edge services andproducts), in many situations we deploy and utilize specialized, advanced technology and equipment that may not have a large market ordemand. Our vendors may not succeed in developing sufficient market penetration to sustain continuing production and may fail. Vendorbankruptcy (or acquisition without continuing product support by the acquiring company) may require us to replace technology before itsotherwise 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 uninsuredliabilities that adversely affect our financial position, results of operations or liquidity.As is typical in the communications industry, we are self-insured for damage or loss to certain of our transmission facilities, including ourburied, undersea and above-ground transmission lines. If we become subject to substantial uninsured liabilities due to damage or loss tosuch 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. Impairmenttesting may result in a material, non-cash write-down of our cable certificate, wireless license, or goodwill assets and couldhave a material adverse impact on our results of operations.In accordance with accounting principles generally accepted in the United States of America (“GAAP”), we must test our goodwill and otherintangible assets with indefinite lives for impairment at least annually. Our cable certificate and wireless license assets are our onlyindefinite-lived intangible assets other than goodwill as of December 31, 2009. Our goodwill, cable certificate and wireless license assets aretested annually for impairment, and are tested for impairment more frequently if events and circumstances such as, but not limited to anextended decline in our stock price or a significant decrease in future expected cash flows indicate that the asset might be impaired. Theimpairment test consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of the assets exceedsits fair value, an impairment loss is recognized in an amount equal to that excess. Impairment testing of these assets in future periods mayresult in a material, non-cash write-down of these assets and could have a material adverse impact on our results of operations.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, 2009, we had total debt of $877.9 million. Our debtbalance is expected to increase by $44.2 million with the construction of TERRA-SW between 2010 and 2012. Our high level of debt couldhave important consequences, including the following: ·Use of a large portion of our cash flow to pay principal and interest on our senior notes and our other debt, which will reduce theavailability of our cash flow to fund working capital, capital expenditures, research and development expenditures and other businessactivities; ·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. 30 We will require a significant amount of cash to service our debt, complete our planned network expansion and to meet otherobligations. Our ability to generate cash depends on many factors beyond our control. If we are unable to meet our futurecapital needs it may be necessary for us to curtail, delay or abandon our business growth plans. If we incur significantadditional indebtedness to fund our plans, it could cause a decline in our credit rating and could increase our borrowing costsor limit our ability to raise additional capital.We will continue to require a significant amount of cash to satisfy our debt service requirements and to meet other obligations. We expect toincur $44.2 million in additional debt for the construction of TERRA-SW in 2010-2012 and, to meet our capital needs, we may incuradditional debt in the future. Our ability to make payments on and to refinance our debt and to fund planned capital expenditures andacquisitions will depend on our ability to generate cash and to arrange additional financing in the future. These abilities are subject to, amongother factors, our credit rating, our financial performance, general economic conditions, prevailing market conditions, the state of competitionin our market, the outcome of certain legislative and regulatory issues and other factors that may be beyond our control. Our business maynot generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to enable us to payour debt or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We may not be ableto refinance any of our debt on commercially reasonable terms or at all.The terms of our debt impose restrictions on us that may affect our ability to successfully operate our business and our abilityto make payments on the Senior Notes.The indentures governing our Senior Notes and/or the credit agreements governing our Senior Credit Facility and other loans contain variouscovenants that could materially and adversely affect our ability to finance our future operations or capital needs and to engage in otherbusiness 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 maybe affected by events beyond our control, such as prevailing economic conditions and changes in regulations, and if such events occur, wecannot be sure that we will be able to comply. A breach of these covenants could result in a default under the indenture governing our SeniorNotes and/or the Senior Credit Facility. If there were an event of default under the indenture for the Senior Notes and/or the Senior CreditFacility, 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 Credit Facility when it becomes due, the lenders under the Senior Credit Facilitycould proceed against certain of our assets and capital stock of our subsidiaries that we have pledged to them as security. Our assets or cashflow 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 thesedevices. Purported class actions and other lawsuits have been filed against numerous other wireless carriers seeking not only damages butalso 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 beadversely affected by litigation of this nature or public perception about health risks. The actual or perceived risk of mobile communicationsdevices could adversely affect us through a reduction in subscribers. Further research and studies are ongoing, and we cannot be sure thatadditional 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 insubscribers. Studies have indicated that using wireless devices while driving may impair a driver’s attention. Many state and locallegislative bodies have passed or proposed legislation to restrict the use of wireless telephones while driving vehicles. Concerns over safetyand the effect of future legislation, if adopted and enforced in the areas we serve, could limit our ability to market and sell our wirelessservices. Litigation relating to accidents, deaths or serious bodily injuries allegedly incurred as a result of wireless 31 telephone use while driving could result in adverse publicity and further governmental regulation. Any of these results could have a materialadverse 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 cancontrol shareholder decisions on very important matters.As of December 31, 2009, our executive officers and directors and their affiliates owned 8% of our combined outstanding Class A and class Bcommon stock, representing 16% 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 ofdirectors to the Board.Item 1B. Unresolved Staff Comments.None.Item 2. PropertiesOur properties do not lend themselves to description by location of principal units. The majority of our properties are located in Alaska. It isnot practicable to allocate our properties to our reportable segments since many of our properties are employed by more than one segment toprovide common services and products. Additionally our properties are managed at the consolidated company level rather than at thesegment level.We lease our executive, corporate and administrative facilities and business offices. Our operating, executive, corporate and administrativeproperties are in good condition. We consider our properties suitable and adequate for our present needs and they are being fully utilized.Our properties consist primarily of undersea and terrestrial fiber optic cable networks, switching equipment, satellite transponders and earthstations, microwave radio and cable and wire facilities, cable head-end equipment, wireless towers and equipment, coaxial distributionnetworks, connecting lines (aerial, underground and buried cable), routers, servers, transportation equipment, computer equipment andgeneral office equipment, land, land improvements, landing stations and other buildings. Substantially all of our properties are located on orin leased real property or facilities. Substantially all of our properties secure our Senior Credit Facility. See note 6 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information.Item 3. Legal ProceedingsExcept 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 anymaterial pending legal proceedings. We are parties to various claims and pending litigation as part of the normal course of business. We arealso 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, in September2008, the FCC's Office of Inspector General ("OIG") initiated an investigation regarding Alaska DigiTel’s compliance with program rules andrequirements under the Lifeline Program. The request covers the period beginning January 1, 2004 through August 31, 2008 and relates tothe amounts received for Lifeline service. Alaska DigiTel was an Alaska based wireless communications company of which we acquired an81.9% equity interest on January 2, 2007 and the remaining 18.1% equity interest on August 18, 2008 and was subsequently merged withone of our wholly owned subsidiaries in April 2009. Prior to August 18, 2008, our control over the operations of Alaska DigiTel was limited asrequired by the FCC upon its approval of our initial acquisition completed in January 2007. We have been and intend to continue fullycomplying with this request on behalf of Alaska DigiTel and the GCI companies as affiliates. The OIG investigation is still pending, and wepresently are unable to assess the ultimate resolution of this matter.Item 4. Submissions of Matters to a Vote of Security HoldersNo matters were submitted during the fourth quarter of 2009 to a vote of security holders, through the solicitation of proxies or otherwise. 32 Part IIItem 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket Information for Common StockShares 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 Associationof Securities Dealers. Each share of Class B common stock is convertible, at the option of the holder, into one share of Class A commonstock.The following table sets forth the high and low sales price for our common stock for the periods indicated. Market price data for Class A shareswere obtained from the Nasdaq Stock Market System quotation system. Market price data for Class B shares were obtained from reportedOver-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. Class A Class B High Low High Low 2008: First Quarter $8.44 5.09 8.75 4.50 Second Quarter $8.31 6.03 8.00 3.00 Third Quarter $10.78 6.82 10.60 5.70 Fourth Quarter $8.87 5.32 8.60 3.00 2009: First Quarter $8.61 3.78 6.00 6.00 Second Quarter $8.06 6.32 6.75 2.00 Third Quarter $7.21 6.41 7.00 6.40 Fourth Quarter $6.82 5.87 5.00 5.00 HoldersAs of December 31, 2009 there were 2,287 holders of record of our Class A common stock and 380 holders of record of our Class Bcommon stock (amounts do not include the number of shareholders whose shares are held of record by brokers, but do include thebrokerage house as one shareholder).DividendsWe have never paid cash dividends on our common stock, and we have no present intention of doing so. Payment of cash dividends in thefuture, if any, will be determined by our Board of Directors in light of our earnings, financial condition and other relevant considerations. Ourexisting debt agreements contain provisions that limit payment of dividends on common stock, other than stock dividends (see note 6included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information).Stock Transfer Agent and RegistrarBNY Mellon Shareowner Services is our stock transfer agent and registrar.Performance GraphThe following graph includes a line graph comparing the yearly percentage change in our cumulative total shareholder return on our Class Acommon stock during the five-year period 2005 through 2009. This return is measured by dividing (1) the sum of (a) the cumulative amountof dividends for the measurement period (assuming dividend reinvestment, if any) and (b) the difference between our share price at the endand the beginning of the measurement period, by (2) the share price at the beginning of that measurement period. This line graph iscompared in the following graph with two other line graphs during that five-year period, i.e., a market index and a peer index. 33 The market index is the Center for Research in Securities Price Index for the Nasdaq Stock Market for United States companies. It presentscumulative total returns for a broad based equity market assuming reinvestment of dividends and is based upon companies whose equitysecurities are traded on the Nasdaq Stock Market. The peer index is the Center for Research in Securities Price Index for NasdaqTelecommunications Stock. It presents cumulative total returns for the equity market in the telecommunications industry segment assumingreinvestment of dividends and is based upon companies whose equity securities are traded on the Nasdaq Stock Market. The line graphsrepresent 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 hasbeen converted into a fixed investment, stated in dollars, in our Class A common stock (or in the stock represented by a given index, in thecases 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 ofthat 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 pointmultiplied 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, comparisonssimilar to those previously described for the Class A common stock are not directly available. However, the performance of Class B commonstock may be analogized to that of the Class A common stock in that the Class B common stock is readily convertible into Class A commonstock by request to us.Comparison of Five-Year Cumulative ReturnPerformance Graph for General Communication, Inc. Prepared by Zacks Investment Research Inc. All indexes used with permission. All rights reserved. 34 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH FOR GENERALCOMMUNICATION, INC., NASDAQ STOCK MARKET INDEX FORUNITED STATES COMPANIES, AND NASDAQ TELECOMMUNICATIONS STOCK1,2,3,4 Measurement Period(Fiscal Year Covered) Company ($) Nasdaq StockMarketIndex for U.S.Companies($) NasdaqTelecommunicationsStock ($) FYE 12/31/04 100.00 100.00 100.00 FYE 12/31/05 93.57 102.13 95.04 FYE 12/31/06 142.49 112.19 124.97 FYE 12/31/07 79.25 121.68 111.16 FYE 12/31/08 73.27 58.64 63.87 FYE 12/31/09 57.78 84.28 95.77 1The lines represent annual index levels derived from compounded daily returns that include all dividends. 2The indexes are reweighted daily, using the market capitalization on the previous trading day. 3If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. 4The index level for all series was set to $100.00 on December 31, 2004.Item 6. Selected Financial DataThe following table presents selected historical information relating to financial condition and results of operations over the past fiveyears. The consolidated financial results have been recast for all periods presented to reflect the retrospective application of adopting thepresentation and disclosure requirements of ASC Topic 810-10-65-1, “Consolidation” (formerly SFAS No. 160, “Non-Controlling Interests inConsolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51”). Years ended December 31, 2009 2008 2007 2006 2005 (Amounts in thousands except per share amounts) Revenues $595,811 575,442 520,311 477,482 443,026 Income (loss) before income tax expense andcumulative effect of a change in accounting principle $7,452 (2,295) 25,859 34,253 36,835 Cumulative effect of a change in accounting principal,net of income tax expense of $44 in 2006 $--- --- --- 64 --- Net income (loss) $3,516 (3,372) 13,697 18,520 20,831 Net loss attributable to the non-controlling interest $--- 1,503 36 --- --- Net income (loss) attributable to GCI commonstockholders $3,516 (1,869) 13,733 18,520 18,325 Basic net income (loss) attributable to GCI per commonshare $0.07 (0.04) 0.26 0.34 0.34 Diluted net income (loss) attributable to GCI percommon share $0.06 (0.04) 0.23 0.33 0.33 Total assets $1,418,397 1,335,301 984,233 914,659 873,775 Long-term debt, including current portion and net ofunamortized discount $776,380 716,831 538,398 489,462 475,840 Obligations under capital leases, including currentportion $95,914 100,329 2,851 2,857 672 Redeemable preferred stock: Series B $--- --- --- --- 4,249 Series C $--- --- --- --- --- Total GCI stockholders’ equity $266,317 258,915 259,433 246,278 243,620 Dividends declared per common share $0.00 0.00 0.00 0.00 0.00 35 The Selected Financial Data should be read in conjunction with “Part II — Item 7 — Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIn 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 GAAP. The preparation of these financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate ourestimates and judgments, including those related to the allowance for doubtful receivables, unbilled revenues, accrual of the USF high-costarea 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 (exclusive of depreciation and amortization expense ("Costof Goods Sold")), depreciation, and contingencies and litigation. We base our estimates and judgments on historical experience and onvarious other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. See also our “Cautionary Statement Regarding Forward-Looking Statements.”The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and supplementary data as presented in Item 8 of this Form 10-K.General OverviewThrough our focus on long-term results, acquisitions, and strategic capital investments, we strive to consistently grow our revenues andexpand our margins. We have historically met our cash needs for operations, regular capital expenditures and maintenance capitalexpenditures through our cash flows from operating activities. Historically, cash requirements for significant acquisitions and major capitalexpenditures have been provided largely through our financing activities. The ongoing weakness in the national economy continues tonegatively impact consumer confidence and spending. There are some indicators that consumer confidence might be improving; however,there is no clear indication that the economy is in a recovery. Continued stress in the economy could lead to reductions in consumerspending which could impact our revenue growth. We believe the Alaska economy continues to perform well compared to most other statesat the current time. Mortgage foreclosure rates in Alaska are the lowest in the nation and the commercial real estate market is steady. Alaskaappears to be relatively well positioned to weather recessionary pressures. The State of Alaska has large cash reserves that should enable itto 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 andsecond largest source of gross state product. The majority of our revenue is driven by the strength of the Alaska economy which appearsrelatively well positioned to weather the recessionary pressures, nonetheless we cannot predict the impact the economic crisis may have onus.Effective June 1, 2008, we purchased 100% of the outstanding stock of UUI and Unicom. The financial results of the long-distance, localaccess and Internet services sold to consumer and commercial customers of certain of these acquired companies are reported in theRegulated Operations segment. The financial results of the long-distance services sold to other common carrier customers and the managedbroadband 36 services components of certain of these acquired companies are included in the Network Access and Managed Broadband Servicessegments, respectively. Effective July 1, 2008, we closed on our purchase of 100% of the ownership interests of Alaska Wireless whoseresults are included in the Consumer segment.Results of OperationsThe following table sets forth selected Statements of Operations data as a percentage of total revenues for the periods indicated (underlyingdata rounded to the nearest thousands): PercentageChange 1 PercentageChange 1 2009 2008 Year Ended December 31, vs. vs. (Unaudited) 2009 2008 2007 2008 2007 Statements of Operations Data: Revenues: Consumer segment 49% 45% 43% 15% 14%Network Access segment 21% 27% 31% (20%) (6%)Commercial segment 18% 20% 20% (4%) 10%Managed Broadband segment 8% 6% 6% 21% 29%Regulated Operations segment 4% 2% 0% 68% NM Total revenues 100% 100% 100% 4% 11%Selling, general and administrative expenses 36% 37% 34% 1% 20%Depreciation and amortization expense 21% 20% 17% 8% 31%Operating income 11% 8% 12% 39% (22%)Other expense, net 10% 9% 7% 17% 42%Income (loss) before income taxes 1% 0% 5% 425% (109%)Net income (loss) 1% (1%) 3% 204% (125%)Net loss attributable to the non-controlling interest 0% 0% 0% 100% 4,075%Net income (loss) attributable to GCI 1% 0% 3% 288% (114%)________________________________1 Percentage change in underlying data.NM – Not meaningful. Year Ended December 31, 2009 (“2009”) Compared to Year Ended December 31, 2008 (“2008”)Overview of Revenues and Cost of Goods SoldTotal revenues increased 4% from $575.4 million in 2008 to $595.8 million in 2009. Revenue increases in our Consumer, ManagedBroadband and Regulated Operations segments were partially off-set by decreases in our Network Access and Commercial segments. Seethe discussion below for more information by segment. 37 Total Cost of Goods Sold decreased 5% from $203.1 million in 2008 to $193.7 million in 2009. Cost of Goods Sold increases in ourConsumer, Managed Broadband and Regulated Operations segments were partially off-set by decreases in our Network Access andCommercial segments. See the discussion below for more information by segment.Consumer Segment OverviewConsumer segment revenue represented 49% of 2009 consolidated revenues. The components of Consumer segment revenue are asfollow (amounts in thousands): Percentage 2009 2008 Change Voice $52,654 47,042 12%Video 110,986 105,238 5%Data 50,327 42,692 18%Wireless 80,958 60,660 33%Total Consumer segment revenue $294,925 255,632 15%Consumer segment Cost of Goods Sold represented 50% of 2009 consolidated Cost of Goods Sold. The components of Consumer segmentCost of Goods Sold are as follows (amounts in thousands): 2009 2008 PercentageChange Voice $14,952 18,121 (17%)Video 45,350 40,279 13%Data 4,367 6,554 (33%)Wireless 32,225 24,899 29%Total Consumer segment Cost of Goods Sold $96,894 89,853 8%Consumer segment earnings before depreciation and amortization expense, income tax expense, share-based compensation expense andnon-cash contribution adjustment ("adjusted EBITDA"), representing 45% of 2009 consolidated adjusted EBITDA, is as follows (amounts inthousands): Percentage 2009 2008 Change Consumer segment adjusted EBITDA $86,587 58,949 47%Selected key performance indicators for our Consumer segment follow: December 31, Percentage 2009 2008 Change Voice: Long-distance subscribers1 90,500 88,600 2%Long-distance minutes carried (in millions) 114.7 128.6 (11%)Total local access lines in service2 84,200 80,700 4%Local access lines in service on GCI facilities2 75,200 68,700 9% Video: Basic subscribers3 130,500 132,500 (2%)Digital programming tier subscribers4 79,600 71,900 11%HD/DVR converter boxes5 81,500 67,800 20%Homes passed 232,400 229,300 1%Average monthly gross revenue per subscriber6 $70.36 $67.40 4% Data: Cable modem subscribers7 100,200 94,400 6% Wireless: Wireless lines in service8 115,100 88,700 30%Average monthly gross revenue per subscriber9 $58.23 $55.23 5% 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-distancecall 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 telephonenetwork.3 A basic cable subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of thenumber of outlets purchased. On January 1, 2009, our Consumer segment transferred 2,900 basic cable subscribers to ourCommercial segment.4 A digital programming tier subscriber is defined as one digital programming tier of service delivered to an address or separate subunitsthereof regardless of the number of outlets or digital programming tiers purchased. Digital programming tier subscribers are a subset ofbasic subscribers.5 A HD/DVR converter box is defined as one box rented by a digital programming or basic tier subscriber. A digital programming or basictier 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 andending 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 entitypurchases multiple cable modem service access points, each access point is counted as a subscriber. Cable modem subscribers mayalso 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 andending of the period. 38 Consumer Segment RevenuesThe increase in voice revenue is primarily due to a $3.7 million or 82% increase in recognized support from the USAC and an increase inmonthly recurring local service fee revenue. The increase in USAC support is primarily due to an FCC order issued in March 2009, theresult of which provided uncapped support for all lines served by competitive ETCs for tribal lands or Alaska Native regions retroactive toAugust 2008. The issuance of this order allowed us to recognize in 2009 $674,000 in additional USAC support for services provided fromAugust 2008 to December 2008 that is included in the revenue increase discussed above, and the removal of the cap allowed us to increasethe USAC support revenue that we recognized in 2009.The increase in monthly recurring local service fee revenue is due to increased subscribers. The increase in voice revenue was partiallyoffset by decreased long-distance billable minutes carried.The increase in video revenue is primarily due to the following: ·A 4% increase in programming services revenue to $88.1 million in 2009 primarily resulting from an increase in digitalprogramming tier subscribers in 2009 and a rate increase on certain cable service offerings beginning in August 2009, and ·A 12% increase in equipment rental revenue to $21.6 million in 2009 primarily resulting from our customers’ increased use of ourHD/DVR converter boxes.The increase in data revenue is primarily due to a 19% increase in cable modem revenue to $43.4 million due to increased subscribers andtheir selection of more value-added features.The increase in wireless revenue is primarily due to the following:· An $11.9 million or 162% increase in recognized support from the USAC primarily due to the following:o Increased wireless subscribers in areas that receive USAC support,o Recognition of $3.1 million to be received from the USAC for interstate common line support for a new local access area forwhich we received ETC status in May 2009 of which $1.7 million was related to services provided during2008. Collectability was not reasonably assured until we were awarded ETC status, therefore, we deferred revenuerecognition until such status was confirmed,o Recognition of $1.1 million upon a change in our estimate of support to be received from the USAC for interstate commonline support of which $77,000 was related to 2008. We accrue estimated program revenue quarterly and adjust our revenueas we obtain new information that changes the variables used to calculate our estimate, ando The FCC order issued in March 2009, the result of which provides uncapped support for all lines served by competitiveETCs for tribal lands or Alaska Native regions retroactive to August 2008. The issuance of this order allowed us to recognize$810,000 in additional USAC support from August 2008 to December 2008 in 2009 that is included in the revenue increasediscussed above.· An increase in the number of wireless subscribers. 39 The increase in wireless revenue was partially off-set by receipt of $2.8 million in July 2008 from the USAC for retroactive interstatecommon line support at Alaska DigiTel for which revenue was recognized in 2008.Consumer Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to cost savings resulting from the increased deployment of local access servicesDLPS lines on our own facilities during 2009 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 toprogrammers, increased costs associated with delivery of digital services offered over our HD/DVR converter boxes due to the increasednumber of boxes in service, an increase in digital programming tier subscribers, and the recognition of a $594,000 liability in 2009 to settle abilling issue with a cable programmer.The decrease in data Cost of Goods Sold is primarily due to the transition of traffic to our own facilities from leased facilities and the additionof more peering partners for Internet traffic, which was partially offset by an increase in costs due to an increased number of cable modemsubscribers.The increase in wireless Cost of Goods Sold is primarily due to increased costs for wireless handset equipment sales associated with theincreased number of wireless subscribers and the inclusion of premium wireless handsets which have higher costs in certain promotionsoffered in 2009. The increase was partially offset by decreased costs due to the June 4, 2008 implementation of the new distributionagreement with AT&T Mobility.AT&T Mobility acquired Dobson, including its Alaska properties, on November 15, 2007. In December 2007 we signed an agreement withAT&T Mobility that provided for an orderly transition of our wireless customers from the Dobson/AT&T network in Alaska to our wirelessfacilities that we began building in 2008 and are expected to be substantially completed in 2010 or 2011. The agreement required ourcustomers to be on our wireless network by June 30, 2009, but allowed our customers to use the AT&T Mobility network for roaming duringthe transition period. We started transitioning our customers to our wireless facilities in November 2008. We successfully migrated all but200 customers from the AT&T Mobility network to our network by the required transition date of June 30, 2009. The four-year transitionperiod, which expires June 30, 2012, provides us adequate time to replace the Dobson/AT&T network in Alaska with our own wirelessfacilities. Under the agreement, AT&T Mobility’s obligation to purchase network services from us terminated as of July 1, 2008. AT&T Mobilityprovided us with a large block of wireless network usage at no charge to facilitate the transition of our customers to our facilities. We will payfor usage in excess of that base transitional amount. Under the previous agreement with Dobson, our margin was fixed. Under the newagreement with AT&T Mobility, we will pay for usage in excess of the block of no charge minutes on a per minute basis. The block ofwireless network usage at no charge has substantially reduced our wireless product Cost of Goods Sold beginning June 4, 2008 throughDecember 31, 2009. We expect such reductions to continue through June 30, 2012.Consumer Segment Adjusted EBITDAThe increase in adjusted EBITDA is primarily due to increased revenue as described above in "Consumer Segment Revenues," which waspartially offset by increased Cost of Goods Sold as described above in "Consumer Segment Cost of Goods Sold" and an increase in theselling, general and administrative expense that was allocated to our Consumer segment primarily due to an increase in the 2008 segmentmargin upon which the allocation is based.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Network Access Segment OverviewNetwork access segment revenue represented 21% of 2009 consolidated revenues. The components of Network Access segment revenueare as follows (amounts in thousands): 40 Percentage 2009 2008 Change Voice $49,837 79,744 (38%)Data 63,862 71,414 (11%)Wireless 8,373 2,663 214%Total Network Access segment revenue $122,072 153,821 (21%) Network Access segment Cost of Goods Sold represented 14% of 2009 consolidated Cost of Goods Sold. The components of NetworkAccess segment Cost of Goods Sold are as follows (amounts in thousands): Percentage 2009 2008 Change Voice $16,522 27,149 (39%)Data 9,444 11,539 (18%)Wireless 1,287 1,638 (21%)Total Network Access segment Cost of Goods Sold $27,253 40,326 (32%) Network Access segment adjusted EBITDA, representing 30% of 2009 consolidated adjusted EBITDA, is as follows (amounts in thousands): Percentage 2009 2008 Change Network Access segment adjusted EBITDA $57,563 73,647 (22%)Selected key performance indicators for our Network Access segment follow: December 31, Percentage 2009 2008 Change Voice: Long-distance minutes carried (in millions) 840 1,094 (23%) Data: Total Internet service provider access lines in service1 1,700 1,800 (6%) 1 An Internet service provider access line in service is defined as a revenue generating circuit or channel connecting a customer to thepublic switched telephone network. Network Access Segment RevenuesThe decrease in voice revenue is due in part to the June 4, 2008 implementation of the new distribution agreement with AT&T Mobility asdescribed in "Part II – Item VII – Management's Discussion and Analysis of Financial Condition and Results of Operations – ConsumerSegment Cost of Goods Sold." The voice revenue decrease also resulted from a decrease in our average rate per minute on billable minutescarried for our common carrier customers and the transition of voice traffic to dedicated networks. The average rate per minute decrease isprimarily due to a change in the composition of traffic and a 3.0% interstate rate decrease mandated by federal law. Voice revenue continuesto decline as expected due to increased competition in the Network Access business. The increased competition will continue to compressthe rates we may charge our customers and, therefore, we expect a continued decline in Network Access segment voice revenue.The decrease in data revenue is primarily due to a change in the composition of traffic resulting in IRU operating leases and serviceagreements replacing data network service agreements.The increase in wireless revenue is primarily due to increased roaming revenue in 2009 primarily due to the construction of our state-wideGSM network starting in 2008 and the 2008 expansion of our CDMA network. 41 Network Access Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to decreased long-distance minutes carried and the movement of more traffic ontoour network in lieu of carrying traffic on third party networks.The decrease in data Cost of Goods Sold is primarily due to a change in the composition of traffic resulting in IRU operating leases andservice agreements replacing data network service agreements and a $585,000 favorable adjustment resulting from a refund of fiber repaircosts. The fiber repair costs were originally recognized in the first quarter of 2008. Due to the uncertainty surrounding the recovery of thefiber repair costs, we deferred recognition until collection of the refund was reasonably assured.Network Access Segment Adjusted EBITDAThe adjusted EBITDA decrease is primarily due to decreased revenue as described above in "Network Access Segment Revenues," which ispartially off-set by decreased Cost of Goods Sold as described above in “Network Access Segment Cost of Goods Sold” and a decrease in theselling, general and administrative expense that was allocated to our Network Access segment primarily due to a decrease in the 2008segment margin upon which the allocation is based.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Commercial Segment OverviewCommercial segment revenue represented 18% of 2009 consolidated revenues. The components of Commercial segment revenue are asfollows (amounts in thousands): Percentage 2009 2008 Change Voice $30,830 29,398 5%Video 9,175 9,604 (4%)Data 63,383 70,068 (10%)Wireless 6,747 5,590 21%Total Commercial segment revenue $110,135 114,660 (4%)Commercial segment Cost of Goods Sold represented 27% of 2009 consolidated Cost of Goods Sold. The components of Commercialsegment Cost of Goods Sold are as follows (amounts in thousands): 2009 2008 Percentage Change Voice $18,563 19,581 (5%)Video 1,956 1,551 26%Data 28,661 34,391 (17%)Wireless 3,065 3,957 (23%)Total Commercial segment Cost of Goods Sold $52,245 59,480 (12%)Commercial segment adjusted EBITDA, representing 12% of 2009 consolidated adjusted EBITDA, is as follows (amounts in thousands): Percentage 2009 2008 Change Commercial segment adjusted EBITDA $23,174 20,710 12% Selected key performance indicators for our Commercial segment follow: December 31, Percentage 2009 2008 ChangeVoice: Long-distance subscribers1 9,500 9,700 (2%)Total local access lines in service2 47,700 46,200 3% 42 Local access lines in service on GCI facilities 2 19,600 18,700 5%Long-distance minutes carried (in millions) 123.2 129.5 (5%) Data: Cable modem subscribers3 10,500 8,900 18% Wireless: Wireless lines in service4 10,300 7,600 36% 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-distancecall 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 telephonenetwork.3 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entitypurchases 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 RevenuesThe increase in voice revenue is primarily due to increased local access lines in service and a $1.3 million or 109% increase in recognizedsupport from the USAC primarily due to increased local subscribers and the FCC order issued in March 2009, the result of which providesuncapped support for all lines served by competitive ETCs for tribal lands or Alaska Native regions retroactive to August 2008. The issuanceof this order allowed us to recognize $386,000 in additional USAC support from August 2008 to December 2008 in 2009 that is included inthe revenue increase discussed above. The increase in voice revenue was partially off-set by decreased long-distance subscribers anddecreased voice minutes carried.Commercial segment data revenue is comprised of monthly recurring charges for data services and charges billed on a time and materialsbasis largely for personnel providing on-site customer support. This latter category can vary significantly based on project activity. Thedecrease in data revenue is primarily due to a $7.2 million or 19% decrease in managed services project revenue partially off-set by a $1.0million or 6% increase in Internet revenue primarily due to an increase in cable modem subscribers.The increase in wireless revenue is primarily due to an increase in the number of wireless subscribers.Commercial Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to cost savings resulting from an increase in local access lines in service on ourown facilities during 2009 and decreased long-distance billable minutes carried.The decrease in data Cost of Goods Sold is primarily due to a $5.7 million or 22% decrease in managed services project Cost of Goods Sold.Commercial Segment Adjusted EBITDAThe adjusted EBITDA increase was primarily due to decreased Cost of Goods Sold as described above in “Commercial Segment Cost ofGoods Sold” that was partially offset by a decrease in revenue as described above in "Commercial Segment Revenues."See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Managed Broadband Segment OverviewManaged Broadband segment revenue, Cost of Goods Sold and adjusted EBITDA represented 8%, 6% and 10% of 2009 consolidatedrevenues, Cost of Goods Sold and adjusted EBITDA, respectively. 43 Managed Broadband Segment RevenuesManaged Broadband segment revenue, which includes data products only, increased 21% to $44.9 million in 2009 as compared to 2008.The increase is primarily due to increased circuits purchased by our Rural Health customers and a $5.3 million increase from our acquisitionof Unicom effective June 1, 2008. The increase is partially off-set by a decrease in revenue associated with product sales.Managed Broadband Segment Cost of Goods SoldManaged Broadband segment Cost of Goods Sold increased from $10.3 million in 2008 to $11.1 million in 2009 primarily due to an increasein costs associated with the increased revenue partially off-set by a decrease in costs associated with product sales.Managed Broadband Segment Adjusted EBITDAManaged Broadband segment adjusted EBITDA increased 37% to $19.6 million in 2009 primarily due to an increase in revenue asdescribed above in "Managed Broadband Segment Revenues."See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Regulated Operations Segment OverviewRegulated Operations segment revenue, Cost of Goods Sold and adjusted EBITDA represented 4%, 3% and 3% of 2009 consolidatedrevenues, Cost of Goods Sold and adjusted EBITDA, respectively.Selected key performance indicators for our Regulated Operations segment follow: December 31, Percentage 2009 2008 Change Voice: Long-distance subscribers1 600 900 (33%)Long-distance minutes carried (in thousands) 1,107 844 31%Total local access lines in service2 11,100 12,100 (8%) 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-distancecall 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 telephonenetwork. Regulated Operations Segment RevenuesRegulated Operations segment revenues increased from $14.3 million in 2008 to $23.8 million in 2009 primarily due to our acquisition ofUUI effective June 1, 2008.Regulated Operations Segment Cost of Goods SoldRegulated Operations segment Cost of Goods Sold increased from $3.1 million in 2008 to $6.1 million in 2009 primarily due to ouracquisition of UUI effective June 1, 2008.Regulated Operations Segment Adjusted EBITDARegulated Operations segment adjusted EBITDA was $6.0 million in 2009 and $3.6 million in 2008 primarily due to our acquisition of UUIeffective June 1, 2008.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased from $210.3 million in 2008 to $212.7 million in 2009 primarily due to the following:· A $4.5 million increase in labor costs,· $4.1 million in additional expense resulting from our June 1, 2008, acquisition of UUI and Unicom,· A $1.4 million increase in our company-wide success sharing bonus accrual in 2009,· $1.1 million in additional expense incurred in 2009 for the conversion of our customers' wireless phones to our facilities, and· A $1.1 million increase in lease related expense. 44 The increases were partially off-set by the following:· A $4.9 million decrease in contract labor costs,· A $4.5 million decrease in share-based compensation expense primarily due to the reversal of expense properly recognized inprevious periods for certain performance-based stock options and restricted stock awards that are not expected to vest, and· The absence of $1.8 million to terminate a management agreement that was paid in 2008 upon the acquisition of our non-controllinginterest in Alaska DigiTel.As a percentage of total revenues, selling, general and administrative expenses decreased to 36% in 2009 from 37% in 2008, primarily dueto increases in revenue without a proportional increase in selling, general and administrative expenses.Depreciation and Amortization ExpenseDepreciation and amortization expense increased 8% to $123.4 million in 2009. The increase is primarily due to our $322.3 millioninvestment in equipment and facilities placed into service during 2008 for which a full year of depreciation was recorded in 2009, and the$182.4 million investment in equipment and facilities placed into service during the year ended December 31, 2009 for which a partial yearof depreciation was recorded in 2009. The increase is partially off-set by a $12.0 million depreciation charge in 2008 to change the estimateduseful life of certain assets that were decommissioned at the end of 2008.Other Expense, NetOther expense, net of other income, increased 17% to $58.7 million in 2009 primarily due to the following:· A $3.7 million decrease in capitalized interest in 2009 compared to 2008,· $2.7 million in additional interest expense resulting from the Galaxy 18 capital lease commencing in May 2008, and· A $1.9 million increase in interest expense resulting from the write-off of the original issue discount on our Senior Credit Facility.The interest expense increase is partially off-set by the absence of a $921,000 loss that was recorded in 2008 relating to the fair value changeon a derivative instrument.Income Tax ExpenseIncome tax expense totaled $3.9 million and $1.1 million in 2009 and 2008, respectively. Our effective income tax rate increased from 47%in 2008 to 53% in 2009 primarily due to the increase in the amount of permanent differences in 2009 as compared to our pretax net incomebefore income tax expense.At December 31, 2009, we have tax net operating loss carryforwards of $211.3 million that will begin expiring in 2011 if not utilized, andalternative minimum tax credit carryforwards of $1.9 million available to offset regular income taxes payable in future years.We have recorded deferred tax assets of $82.7 million associated with income tax net operating losses that were generated from 1996 to2009 and that expire from 2011 to 2029, and with charitable contributions that were converted to net operating losses in 2004 through 2009,and that expire in 2024 through 2029, respectively.Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through future reversals ofexisting taxable temporary differences and future taxable income exclusive of reversing temporary differences and carryforwards. The amountof deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period arereduced which would result in additional income tax expense. We estimate that our effective annual income tax rate for financial statementpurposes will be 69% to 72% in the year ended December 31, 2010, primarily due to the large amount of permanent differences in 2010 ascompared to our net income before income tax expense. 45 Year Ended December 31, 2008 (“2008”) Compared to Year Ended December 31, 2007 (“2007”)Overview of Revenues and Cost of Goods SoldTotal revenues increased 11% 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 thediscussion below for more information by segment.Total Cost of Goods Sold increased 4% from $195.8 million in 2007 to $203.1 million in 2008. Cost of Goods Sold increases in ourConsumer, Commercial, Managed Broadband and Regulated Operations segments were partially off-set by decreases in our NetworkAccess segment. See the discussion below for more information by segment.Consumer Segment OverviewConsumer segment revenue represented 45% of 2008 consolidated revenues. The components of Consumer segment revenue are asfollow (amounts in thousands): Percentage 2008 2007 Change Voice $47,042 46,212 2%Video 105,238 96,327 9%Data 42,692 34,230 25%Wireless 60,660 46,733 30%Total Consumer segment revenue $255,632 223,502 14%Consumer segment Cost of Goods Sold represented 44% of 2008 consolidated Cost of Goods Sold. The components of Consumer segmentCost of Goods Sold are as follows (amounts in thousands): 2008 2007 PercentageChange Voice $18,121 20,364 (11%)Video 40,279 34,301 17%Data 6,554 5,313 23%Wireless 24,899 28,721 (13%)Total Consumer segment Cost of Goods Sold $89,853 88,699 1%Consumer segment adjusted EBITDA, which represented 35% of 2008 consolidated adjusted EBITDA, is as follows (amounts inthousands): Percentage 2008 2007 Change Consumer segment adjusted EBITDA $58,949 46,808 26%Selected key performance indicators for our Consumer segment follow: December 31, Percentage 2008 2007 Change Voice: Long-distance subscribers1 88,600 89,900 (2%)Long-distance minutes carried (in millions) 128.6 135.8 (5%)Total local access lines in service2 80,700 74,400 9%Local access lines in service on GCI facilities2 68,700 50,700 36% Video: Basic subscribers3 132,500 128,000 4%Digital programming tier subscribers4 71,900 65,800 9%HD/DVR converter boxes5 67,800 50,200 35%Homes passed 229,300 224,700 2%Average monthly gross revenue per subscriber6 $67.40 $64.01 5% 46 Data: Cable modem subscribers7 94,400 88,000 7% Wireless: Wireless lines in service8 88,700 70,000 27%Average monthly gross revenue per subscriber9 $55.23 $58.29 (5%) 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-distancecall 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 telephonenetwork.3 A basic cable subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of thenumber of outlets purchased.4 A digital programming tier subscriber is defined as one digital programming tier of service delivered to an address or separate subunitsthereof regardless of the number of outlets or digital programming tiers purchased. Digital programming tier subscribers are a subset ofbasic subscribers.5 An HD/DVR converter box is defined as one box rented by a digital programming or basic tier subscriber. A digital programming or basictier 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 andending 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 entitypurchases multiple cable modem service access points, each access point is counted as a subscriber. Cable modem subscribers mayalso 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 andending of the period. Consumer Segment RevenuesThe increase in voice revenue is primarily due to a $2.8 million or 15% increase in the monthly local service network access fee andsubscriber line charges as a result of increased local access lines partially offset by a $854,000 or 16% decrease in recognized support fromthe USAC primarily due to a change in our revenue accrual estimation to more precisely consider changes in FCC reimbursement and toconsider 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% increase in programming services revenue to $84.5 million in 2008 primarily resulting from an increase in basic and digitalprogramming tier subscribers in 2008, and ·A 19% increase in equipment rental revenue to $19.4 million in 2008 primarily resulting from our customers’ increased use of ourHD/DVR converter boxes.The increase in data revenue is primarily due to a 26% increase in cable modem revenue to $36.4 million due to increased subscribers andtheir 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 linesupport for prior periods. Due to the uncertainty in our ability to retroactively claim reimbursement under the program, we accounted for thispayment as a gain contingency and, accordingly, recognized revenue only upon receipt of payment when realization was certain.Consumer Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to cost savings resulting from the increased deployment of local access servicesDLPS lines on our own facilities during 2008 and decreased voice minutes carried. 47 The video Cost of Goods Sold increase is primarily due to increased channels offered to our subscribers, increased rates paid toprogrammers, increased costs associated with delivery of digital services offered over our HD/DVR converter boxes due to the increasednumber 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 anincreased 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 newdistribution agreement with AT&T Mobility as described in "Part II – Item VII – Management's Discussion and Analysis of FinancialCondition and Results of Operations – Year Ended December 31, 2009 Compared to Year Ended December 31, 2008 – Consumer SegmentCost of Goods Sold." The decrease was partially off-set by costs associated with the increased number of wireless subscribers.Consumer Segment Adjusted EBITDAThe increase in adjusted EBITDA was primarily due to increased revenue in 2008 as described in "Consumer Segment Revenue" andreduced wireless Cost of Goods Sold as described in “Consumer Segment Cost of Goods Sold,” which was partially offset by an increase inthe selling, general and administrative expense that was allocated to our Consumer segment primarily due to an increase in the 2007segment margin upon which the allocation is based.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Network Access Segment OverviewNetwork access segment revenue represented 27% of 2008 consolidated Revenues. The components of Network Access segment revenueare as follows (amounts in thousands): Percentage 2008 2007 Change Voice $79,744 96,896 (18%)Data 71,414 61,199 17%Wireless 2,663 5,282 (50%)Total Network Access segment revenue $153,821 163,377 (6%) Network Access segment Cost of Goods Sold represented 20% of 2008 consolidated Cost of Goods Sold. The components of NetworkAccess segment Cost of Goods Sold are as follows (amounts in thousands): Percentage 2008 2007 Change Voice $27,149 31,042 (13%)Data 11,539 12,081 (5%)Wireless 1,638 745 120%Total Network Access segment Cost of Goods Sold $40,326 43,868 (8%) Network Access segment adjusted EBITDA, which represented 43% of 2008 consolidated adjusted EBITDA, is as follows (amounts inthousands): Percentage 2008 2007 Change Network Access segment adjusted EBITDA $73,647 82,441 (11%) 48 Selected key performance indicators for our Network Access segment follow: December 31, Percentage 2008 2007 Change Voice: Long-distance minutes carried (in millions) 1,094 1,251 (13%) Data: Total Internet service provider access lines in service1 1,800 2,600 (31%) 1 An Internet service provider access line in service is defined as a revenue generating circuit or channel connecting a customer to thepublic switched telephone network. Network Access Segment RevenuesThe decrease in voice revenue is primarily due to the June 4, 2008 implementation of the new distribution agreement with AT&T Mobility asdescribed in "Part II – Item VII – Management's Discussion and Analysis of Financial Condition and Results of Operations – Year EndedDecember 31, 2009 Compared to Year Ended December 31, 2008 – Consumer Segment Cost of Goods Sold." The voice revenue decreasealso resulted from an 8% decrease in our average rate per minute on billable minutes carried for our common carrier customers and thetransition of voice traffic to dedicated networks. The average rate per minute decrease is primarily due to a change in the composition of trafficand a 3.0% rate decrease mandated by federal law.The increase in data revenue is primarily due to an increase in circuits sold and from other common carriers moving switched voice servicesto data networks.The decrease in wireless revenue results primarily from a decrease in our rate per minute on billable minutes carried for customers roamingon our networkNetwork Access Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to decreased long-distance minutes carried. Partially offsetting this decrease is theabsence of an $879,000 favorable adjustment based upon a refund for which negotiations were completed in 2007. In the course ofbusiness, we estimate unbilled long-distance services Cost of Goods Sold based upon minutes of use processed through our network andestablished rates. Such estimates are revised when subsequent billings are received, payments are made, billing matters are researchedand resolved, tariffed billing periods lapse, or when disputed charges are resolved.Network Access Segment Adjusted EBITDAThe adjusted EBITDA decrease was primarily due to decreased revenue as described in "Network Access Segment Revenues."See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Commercial Segment OverviewCommercial segment revenue represented 20% of 2008 consolidated revenues. The components of Commercial segment revenue are asfollows (amounts in thousands): Percentage 2008 2007 Change Voice $29,398 30,761 (4%)Video 9,604 8,018 20%Data 70,068 61,052 15%Wireless 5,590 4,809 16%Total Commercial segment revenue $114,660 104,640 10% 49 Commercial segment Cost of Goods Sold represented 29% of 2008 consolidated Cost of Goods Sold. The components of Commercialsegment Cost of Goods Sold are as follows (amounts in thousands): 2008 2007 PercentageChange Voice $19,581 20,225 (3%)Video 1,551 1,616 (4%)Data 34,391 27,469 25%Wireless 3,957 4,182 (5%)Total Commercial segment Cost of Goods Sold $59,480 53,492 11%Commercial segment adjusted EBITDA, which represented 12% of 2008 consolidated adjusted EBITDA, is as follows (amounts inthousands): Percentage 2008 2007 Change Commercial segment adjusted EBITDA $20,710 16,164 28% Selected key performance indicators for our Commercial segment follow: December 31, Percentage 2008 2007 ChangeVoice: Long-distance subscribers1 9,700 10,500 (8%)Total local access lines in service2 46,200 43,100 7%Local access lines in service on GCI facilities 2 18,700 12,500 50%Long-distance minutes carried (in millions) 129.5 131.3 (1%) Data: Cable modem subscribers3 8,900 8,500 5% Wireless: Wireless lines in service4 7,600 7,300 4% 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-distancecall 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 telephonenetwork.3 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entitypurchases 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 RevenuesThe decrease in voice revenue is primarily due to decreased long-distance subscribers and decreased voice minutes carried partially off-set byincreased 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 Olympicsprogramming 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 materialsbasis largely for personnel providing on-site customer support. This latter category can vary significantly based on project activity. Theincrease in data revenue is primarily due to a $6.8 million or 23% increase in managed services project revenue, and a $2.7 million or 19%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. 50 Commercial Segment Cost of Goods SoldThe 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 GoodsSold due to the increase in managed services project revenue discussed above under "Commercial Segment Revenues."Commercial Segment Adjusted EBITDAThe adjusted EBITDA increase was primarily due to increased revenue as described in "Commercial Segment Revenues."See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Managed Broadband Segment OverviewManaged Broadband segment revenue, Cost of Goods sold and adjusted EBITDA represented 6%, 5% and 8% of 2008 consolidatedrevenues, Cost of Goods Sold and adjusted EBITDA, respectively.Managed Broadband Segment RevenuesManaged Broadband segment revenue, which includes data products only, increased 29% 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 $4.8million from our acquisition of Unicom effective June 1, 2008. The Rural Health customer increase from 2007 to 2008 is primarily due tothe addition of numerous customers with low recurring revenues. The increase is partially off-set by a $753,000 decrease in School Accessrevenue primarily due to the decision to temporarily stop revenue recognition for services provided to a customer whose funding from theUSAC was denied. Our customer is appealing the USAC's decision; however, we have placed a reserve against the revenue as we areunable to predict the outcome of the USAC's decision.Managed Broadband Segment Cost of Goods SoldManaged Broadband segment Cost of Goods Sold increased 5% to $10.3 million in 2008 primarily due to costs associated with the increasedrevenue.Managed Broadband Segment Adjusted EBITDAManaged Broadband segment adjusted EBITDA increased 71% to $14.2 million in 2008 primarily due to an increase in the margin resultingfrom increased circuits sold to our rural health and SchoolAccess® customers.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Regulated Operations Segment OverviewRegulated Operations segment revenue, Cost of Goods sold and adjusted EBITDA represented 2%, 2% and 2% of 2008 consolidatedrevenues, Cost of Goods Sold and adjusted EBITDA, respectively.Selected key performance indicators for our Regulated Operations segment follow: December 31, Percentage 2008 2007 ChangeVoice: Long-distance subscribers1 900 NA NALong-distance minutes carried (in thousands) 844 NA NATotal local access lines in service2 12,100 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-distancecall 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 telephonenetwork.NA – Not Applicable 51 Regulated Operations Segment RevenuesWe 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 remainingrevenues recorded in the Network Access and Managed Broadband segments.Regulated Operations Segment Cost of Goods SoldIn connection with our acquisition of UUI and Unicom we recognized Cost of Goods Sold of $4.2 million during 2008 with $3.1 millionrecorded in the Regulated Operations segment and the remaining Cost of Goods Sold recorded in the Network Access and ManagedBroadband segments.Regulated Operations Segment Adjusted EBITDARegulated Operations segment adjusted EBITDA was $3.6 million in 2008.See note 9 in the "Notes to Consolidated Financial Statements" included in Part II of this annual report on Form 10-K for a reconciliation ofconsolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated income (loss) before income taxes.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased 20% 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,· $1.8 million paid to terminate a management agreement upon the acquisition of our non-controlling interest in 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 toimprovements in our collections of consumer accounts receivable.As a percentage of total revenues, selling, general and administrative expenses increased to 37% in 2008 from 34% in 2007, primarily dueto the net increases described above without a proportional increase in revenues.Depreciation and Amortization ExpenseDepreciation and amortization expense increased 31% to $114.4 million in 2008. The increase is primarily due to our $112.7 millioninvestment in equipment and facilities placed into service during 2007 for which a full year of depreciation was recorded in 2008, the $322.3million investment in equipment and facilities placed into service during the year ended December 31, 2008 for which a partial year ofdepreciation was recorded in 2008, and a $12.0 million depreciation charge in 2008 to reflect a decrease in the estimated useful life of certainassets decommissioned in 2008. Effective January 1, 2008, we prospectively changed our accounting policy for recording depreciation on our property and equipment placed inservice. 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 itresults in more precise recognition of depreciation expense over the estimated useful life of the asset. No retroactive adjustment has beenmade. As a result of this accounting change, our reported amount of depreciation expense has decreased $521,000, our reported operatingincome has increased $521,000, and our reported net loss attributable to GCI has decreased $214,000. Our change in accounting policywould not have changed our reported basic or diluted EPS attributable to GCI in 2008. 52 Other Expense, NetOther expense, net of other income, increased 42% to $50.0 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 ourSenior Credit Facility to $17.7 million resulting from additional debt from the Additional Incremental Term Loan agreementbeginning 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, 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 ExpenseIncome tax expense totaled $1.1 million and $12.2 million in 2008 and 2007, respectively. Our effective income tax rate was 47% in 2008and 2007.Multiple System Operator (“MSO”) Operating StatisticsOur operating statistics include capital expenditures and customer information from our Consumer and Commercial segments which offerservices utilizing our cable services’ facilities.The standardized definition of a customer relationship is the number of customers that receive at least one level of service utilizing our cableservice facilities, encompassing voice, video, and data services, without regard to which services customers purchase. At December 31,2009, 2008 and 2007 we had 133,900, 133,400 and 129,000 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 telephonycustomers, not counting additional outlets. At December 31, 2009, 2008 and 2007 we had 343,200, 327,200 and 295,200 revenuegenerating units, respectively.Liquidity and Capital ResourcesOur principal sources of current liquidity are cash and cash equivalents. We believe, but can provide no assurances, that we will be able tomeet our current and long-term liquidity and capital requirements and fixed charges through our cash flows from operating activities, existingcash, cash equivalents, credit facilities, and other external financing and equity sources. Our TERRA-SW facilities expansion will be fundedby a combination of loans and grants through RUS. Should operating cash flows be insufficient to support additional borrowings andprincipal payments scheduled under our existing credit facilities, capital expenditures will likely be reduced.While our short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to fundcapital expenditures and acquisitions as opportunities arise, the continued turmoil in the global financial markets may negatively impact ourability to further access the capital markets in a timely manner and on attractive terms, which may have a negative impact on our ability togrow our business.We monitor the third-party depository institutions that hold our cash and cash equivalents on a daily basis. Our emphasis is primarily onsafety of principal and secondarily on maximizing yield on those funds.Our net cash flows provided by and (used for) operating, investing and financing activities, as reflected in the Consolidated Statements ofCash Flows for 2009 and 2008, are summarized as follows: 2009 2008 Operating activities $100,919 175,335 Investing activities (125,877) (290,967)Financing activities 43,830 132,462 Net increase in cash and cash equivalents $18,872 16,830 53 Operating ActivitiesThe decrease in cash flows provided by operating activities is due primarily to the absence of $49.2 million of cash received from IRUcapacity agreements that was recorded as long-term deferred revenue in 2008 and a $33.6 million increase in accounts receivable that is dueto the timing of receipt of payments.Investing ActivitiesNet cash used in investing activities consists primarily of cash paid for capital expenditures and acquisitions. Our most significant recurringinvesting activity has been capital expenditures and we expect that this will continue in the future. A significant portion of our capitalexpenditures is based on the level of customer growth and the technology being deployed. The decrease in cash flows used for investingactivities is due primarily to a decrease in spending for property and equipment, including construction in progress in 2009, and the absenceof any business acquisitions in 2009 compared to 2008.Capital ExpendituresOur cash expenditures for property and equipment, including construction in progress, totaled $121.0 million and $221.5 million during theyears ended December 31, 2009 and 2008, respectively. Our capital expenditures decreased in 2009 primarily due to decreased investmentin our wireless network. We expect our 2010 expenditures for property and equipment for our core operations, including construction inprogress, to total $95.0 million to $105.0 million, depending on available opportunities and the amount of cash flow we generate during 2010,and excluding our TERRA-SW project.We have an agreement with a customer to build-out our CDMA network to provide expanded roaming area coverage. If we fail to meet theschedule, the customer has the right to terminate the agreement and we may be required to pay up to $16.0 million as liquidateddamages. We expect to meet the deadlines imposed by the build-out schedule and therefore expect our expenditures to result in anexpansion of our wireless facilities rather than payment of the liquidated damages.AcquisitionsWe had no acquisitions in 2009. In 2008, our acquisitions consisted of the purchase of UUI and Unicom for $40.6 million, net of cashreceived, the purchase of the remaining minority interest in Alaska DigiTel for $10.4 million, and the purchase of Alaska Wireless for $14.5million. In February 2010, we made the final contingent payment of $5.2 million for the Alaska Wireless acquisition, which was accrued ingoodwill as of December 31, 2009.Financing ActivitiesNet cash provided by financing activities consists primarily of our proceeds from borrowings offset by our debt repayments and anyrepurchases of our common stock. Proceeds from borrowings fluctuate from year to year based on the amounts paid for capital expendituresand to fund acquisitions. We may use excess cash to make optional repayments on our debt or repurchase our common stock depending onvarious factors, such as market conditions. The decrease in cash flows provided by financing activities is due primarily to reduced borrowingin 2009.Available Borrowings Under Senior Credit FacilityAs of December 31, 2009, we had a $75.0 million revolving credit facility under our Senior Credit Facility with a $25.0 million sublimit forletters of credit. We have letters of credit outstanding totaling $2.8 million, which leaves $72.2 million available for borrowing under therevolving credit facility as of December 31, 2009, if needed.On January 29, 2010, we replaced our existing Senior Credit Facility with a new Senior Credit Facility that provides a $75.0 millionrevolving credit facility and that extends the maturity through January 29, 2015.Debt CovenantsWe are subject to covenants and restrictions set forth in the indentures governing our Senior Notes, Senior Credit Facility, RUS loans, andCoBank loans. We are in compliance with the covenants, and we believe that neither the covenants nor the restrictions in our indentures orloan documents will limit our ability to operate our business.Share RepurchasesGCI's Board of Directors has authorized a common stock buyback program for the repurchase of our common stock in order to reduce ouroutstanding shares of common stock. Under the buyback program we had made repurchases of $68.9 million through December 31,2007. Our Board of Directors authorized us to repurchase outstanding shares of our Class A and Class B common stock in 2010. We didnot repurchase any shares of our common stock pursuant to the buyback program during the years ended December 31, 2009 and 2008. In2008 we retired 540,000 shares of our Class A common stock, all of which were repurchased in 2007 pursuant to the buyback program. Wedid not retire any shares in 2008 or 2009 that were repurchased pursuant to the buyback program. 54 Schedule of Certain Known Contractual ObligationsThe following table details future projected payments associated with certain known contractual obligations as of December 31, 2009: Payments Due by Period Total Less than 1Year 1 to 3Years 4 to 5Years More Than 5Years (Amounts in thousands) Long-term debt $781,998 5,133 9,966 330,126 436,773 Interest on long-term debt 487,273 63,144 124,383 112,159 187,587 Capital lease obligations, including interest 148,786 11,656 23,405 23,494 90,231 Operating lease commitments 145,889 19,785 31,874 25,485 68,745 Purchase obligations 49,325 25,995 22,554 776 --- Total contractual obligations $1,613,271 125,713 212,182 492,040 783,336 For long-term debt included in the above table, we have included principal payments on our Senior Credit Facility, Senior Notes, RuralUtilities Services debt and CoBank Mortgage note payable. We had no amounts outstanding under our Senior Credit Facility at December31, 2009, therefore, we estimated no future interest payments. Our 2014 Senior Notes require semi-annual interest payments of $11.6million through February 2014 and our 2019 Senior Notes require semi-annual interest payments of $18.3 million through November 2019.Our Rural Utilities Services debt and CoBank Mortgage note payable have fixed interest rates ranging from 2.0% to 6.8%. For a discussionof our Senior Notes, Senior Credit Facility, Rural Utilities Services debt and CoBank Mortgage note payable 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 operatingleases, see note 12 in the accompanying “Notes to Consolidated Financial Statements.”Purchase obligations include the following:· A non-cancelable commitment to purchase hardware and software capable of providing wireless service to small markets in ruralAlaska of $18.9 million,· Cancelable open purchase orders for goods and services for capital projects and normal operations totaling $11.7 million which arenot included in our Consolidated Balance Sheets at December 31, 2009, because the goods had not been received or the serviceshad not been performed at December 31, 2009, and· A $5.2 million contingent payment for Alaska Wireless made in February 2010.Off-Balance Sheet ArrangementsWe have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt oroperating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationshipswith entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availabilityof our capital resources.New Accounting StandardsFASB Accounting Standards Update (“ASU”) 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors toaccount for products or services (“deliverables”) separately rather than as a combined unit. Specifically, this guidance amends the criteria inSubtopic 605-25, “Revenue Recognition - Multiple-Element Arrangements”, for separating consideration in multiple-deliverablearrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a)vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocationand requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling pricemethod. In addition, this guidance significantly expands required disclosures related to a vendor's multiple-deliverable revenuearrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially 55 modified in fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 is not expected to have a material impact on ourincome statement, financial position or cash flows.ASU 2009-17 addresses a revision to former SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” ("SFAS 167"). ASU 2009-17amends previous accounting related to the consolidation of variable interest entities ("VIE") to require an enterprise to qualitatively assess thedetermination of the primary beneficiary of a variable interest entity based on whether the entity (1) has the power to direct the activities of aVIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right toreceive benefits from the entity that could potentially be significant to the VIE. Also, SFAS No. 167 requires an ongoing reconsideration of theprimary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are alsorequired to provide information about an enterprise’s involvement in a VIE. This statement will be effective as of the beginning of eachreporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reportingperiod, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of ASU 2009-17 is not expectedto have a material impact on our income statement, financial position or cash flows.ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” requiresnew disclosures and clarifies existing disclosure requirements about fair value measurement as set forth in Subtopic 820-10. The FASB’sobjective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amendsSubtopic 820-10 to now require that (a) a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1and Level 2 fair value measurements and describe the reasons for the transfers; and (b) in the reconciliation for fair value measurementsusing significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, andsettlements.In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures: · For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgmentin determining the appropriate classes of assets and liabilities; and · A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for bothrecurring and nonrecurring fair value measurements.ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures aboutpurchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures areeffective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application ispermitted. The adoption of ASU 2010-06 is not expected to have a material impact on our income statement, financial position or cash flows.Critical Accounting PoliciesOur accounting and reporting policies comply with GAAP. The preparation of financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions. The financial position and results of operations can be affected by these estimates andassumptions, which are integral to understanding reported results. Critical accounting policies are those policies that management believesare 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 areconsidered in determining whether or not a policy is critical in the preparation of financial statements. These factors include, among otherthings, whether the estimates are significant to the financial statements, the nature of the estimates, the ability to readily validate theestimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economic conditionsand whether alternative accounting methods may be utilized under GAAP. For all of these policies, management cautions that future eventsrarely develop exactly as forecast, and the best estimates routinely require adjustment. Management has discussed the development and theselection of critical accounting policies with our Audit Committee.Those policies considered to be critical accounting policies for the year ended December 31, 2009 are described below.Revenue RecognitionThe accounting estimates related to revenues from the high cost, rural health and schools and libraries USF programs are dependent onvarious inputs including current line counts, the most current rates paid to us, and our assessment of the impact of new FCCregulations, the potential outcome of FCC proceedings and the potential outcome of USAC contract reviews. Some of the inputs aresubjective and based 56 on our judgment regarding the outcome of certain variables and is subject to upward or downward adjustment in subsequentperiods. Significant changes to our estimates could result in material changes to the revenues we have recorded and could have amaterial effect on our financial condition and results of operations.Allowance for Doubtful AccountsWe maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make requiredpayments. We also maintain an allowance for doubtful accounts based on our assessment of the likelihood that our customers willsatisfactorily comply with rules necessary to obtain supplemental funding from the USAC for services provided by us under ourpackaged communications offerings to rural hospitals, health clinics and school districts. We base our estimates on the aging of ouraccounts 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 deteriorateor if they are unable to emerge from reorganization proceedings, resulting in an impairment of their ability to make payments, additionalallowances 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 financial condition and results of operations.Impairment and Useful Lives of Intangible AssetsWe record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value. Goodwilland indefinite-lived assets such as our cable certificates and wireless licenses are not amortized but are subject, at a minimum, toannual tests for impairment and quarterly evaluations of whether events and circumstances continue to support an indefinite usefullife. Other intangible assets are amortized over their estimated useful lives primarily using the straight-line method, and are subject toimpairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and otherintangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates ofthe applicability of quoted market prices in active markets and, if quoted market prices are not available and/or are not applicable, how theacquired 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 estimatesinclude, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures andtechnology, and changes in discount rates, performance compared to peers, material and ongoing negative economic trends, and specificindustry or market sector conditions. In determining the reasonableness of cash flow estimates, we review historical performance of theunderlying asset or similar assets in an effort to improve assumptions utilized in our estimates. In assessing the fair value of goodwilland other intangibles, we may consider other information to validate the reasonableness of our valuations including third-partyassessments. These evaluations could result in a change in useful lives in future periods and could result in write-down of the value ofintangible assets. Our cable certificates, wireless licenses and goodwill assets are our only indefinite-lived intangible assets and becauseof the significance of these assets to our consolidated balance sheet, our annual impairment analyses and quarterly evaluations ofremaining useful lives are critical. Any changes in key assumptions about the business and its prospects, changes in market conditionsor other externalities, or recognition of previously unrecognized intangible assets for impairment testing purposes could result in animpairment charge and such a charge could have a material adverse effect on our results of operations.Adverse economic conditions have continued to impact the U.S. financial markets. Should economic conditions in the State of Alaskaand other indicators deteriorate such that they impact our ability to achieve levels of forecasted operating results and cash flows, shouldour stock price and market capitalization decline below our book value for a sustained period of time, or should other events occurindicating the carrying value of goodwill and intangible assets might be impaired, we would test our intangible assets for impairment andmay recognize an impairment loss to the extent that the carrying amount exceeds such asset’s fair value. Any future impairmentcharges could have a material adverse effect on our results of operations. 57 Accruals for Unbilled CostsWe estimate unbilled long-distance services Cost of Goods Sold based upon minutes of use carried through our network and establishedrates. We estimate unbilled costs for new circuits and services, and network changes that result in traffic routing changes or a change incarriers. Carriers that provide service to us regularly make network changes that can lead to new, revised or corrected billings. Suchestimates are revised or removed when subsequent billings are received, payments are made, billing matters are researched andresolved, tariffed billing periods lapse, or when disputed charges are resolved. Revisions to previous estimates could either increase ordecrease costs in the year in which the estimate is revised which could have a material effect on our financial condition and results ofoperations.Valuation Allowance for Net Operating Loss Deferred Tax AssetsOur income tax policy provides for deferred income taxes to show the effect of temporary differences between the recognition of revenueand expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reportedamounts in the financial statements. We have recorded deferred tax assets of $82.7 million associated with income tax net operatinglosses that were generated from 1996 to 2009, and that expire from 2011 to 2029, and with charitable contributions that were convertedto net operating losses in 2004 through 2009, and that expire in 2024 through 2029, respectively. Pre-acquisition income tax netoperating losses associated with acquired companies are subject to additional deductibility limits. We have recorded deferred tax assets of$1.9 million associated with alternative minimum tax credits that do not expire. Significant management judgment is required indeveloping our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowancesthat may be required against the deferred tax assets. We have not recorded a valuation allowance on the deferred tax assets as ofDecember 31, 2009 based on management’s belief that future reversals of existing taxable temporary differences and estimated futuretaxable income exclusive of reversing temporary differences and carryforwards, will, more likely than not, be sufficient to realize thebenefit of these assets over time. In the event that actual results differ from these estimates or if our historical trends change, we may berequired to record a valuation allowance on deferred tax assets, which could have a material adverse effect on our consolidated financialposition or results of operations.Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are neverthelessimportant to an understanding of the financial statements. A complete discussion of our significant accounting policies can be found in note 1in the accompanying “Notes to Consolidated Financial Statements.”Regulatory DevelopmentsSee “Part I — Item 1 — Business — Regulation” for more information about regulatory developments affecting us.InflationWe do not believe that inflation has a significant effect on our operations.Item 7A. Quantitative and Qualitative Disclosures about Market RiskWe are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes. We do nothold derivatives for trading purposes. Our Senior Credit Facility carries interest rate risk, however, we have no outstanding debt on ourSenior Credit Facility as of December 31, 2009. All of our material borrowings have a fixed interest rate.Item 8. Consolidated Financial Statements and Supplementary DataOur consolidated financial statements are filed under this Item, beginning on page 63. Our supplementary data is filed under Item 7,beginning on page 36.Item 9. Changes In and Disagreements With Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that wefile or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported as specified inthe 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 58 effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a - 15(e)) under thesupervision 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", ourmanagement, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedureswere effective as of December 31, 2009.The certifications attached as Exhibits 31 and 32 to this report should be read in conjunction with the disclosures set forth herein.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is definedin Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officerand our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on theframework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations (COSO).Based on our evaluation of the effectiveness of our internal control over financial reporting, our management concluded that as of December31, 2009, we maintained effective internal control over financial reporting.Grant Thornton, LLP, our independent registered public accounting firm, has issued an audit report on our internal control over financialreporting as of December 31, 2009, which is included in Item 8 of this Form 10-K.Changes in Internal Control Over Financial ReportingIn the fourth quarter of 2009 we completed remediation of certain material weaknesses by implementing the changes in internal control overfinancial reporting described below.Our entity-level control related to the selection and application of accounting policies in accordance with U.S. GAAP was not designed toinclude policies and procedures to periodically review our accounting policies to ensure ongoing U.S. GAAP compliance. This led toineffective procedures for recording depreciation expense that were identified in the second quarter of 2008, which caused material errors ininterim financial reporting which were corrected through the restatement of our 2007 interim financial information. In 2008 we expanded ouraccounting policy documentation and in the fourth quarter of 2009 we completed the implementation of policies and procedures to periodicallyreview our accounting policies to ensure ongoing U.S. GAAP compliance.The internal control over financial reporting at Alaska DigiTel did not include i) activities adequate to timely identify changes in financialreporting risks, ii) activities adequate to monitor the continued effectiveness of controls, and iii) staff with adequate technical expertise toensure that policies and procedures necessary for reliable interim and annual financial statements were selected and applied. Prior to August18, 2008, our control over the operations of Alaska DigiTel was limited as required by the FCC upon its approval of our initial acquisitioncompleted in January 2007. These control deficiencies in our Alaska DigiTel business represented material weaknesses in our internalcontrol over financial reporting and led to the failure to timely identify and respond to triggering events which necessitated a change in usefullife of depreciable assets to ensure reporting in accordance with U.S. GAAP. These material weaknesses led to errors in our interim financialreporting which were corrected through the restatement of our interim financial information for the March 31 and June 30, 2008 quarterlyperiods. We acquired the Alaska DigiTel minority interest on August 18, 2008, which gave us 100% ownership and control over thissubsidiary. In the fourth quarter of 2009, we completed the integration of Alaska DigiTel’s accounting processes and general ledger into ourprocesses and systems. Additionally, Alaska DigiTel became subject to the improvements in our selection and application of accountingpolicies in accordance with U.S. GAAP previously discussed.In the fourth quarter of 2009 we identified and remediated a material weakness associated with inadequately designed internal controls in ourfinancial reporting process related to the initial recording and accrual of wireless usage and plan fee revenue. Our revenue and accountsreceivable were corrected prior to the issuance of our 2009 consolidated financial statements. To remediate we strengthened the design andoperation of our analytical review procedures over our wireless revenue stream to ensure they operate at a precision level high enough toprovide for effective analysis of wireless usage and plan fees and improved our journal entry review and approval over wireless usage andplan fee revenue adjustments. 59 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) ofthe Exchange Act) identified in connection with the evaluation of our controls performed during the quarter ended December 31, 2009 thathave 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 offinancial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. A company's internalcontrol 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 transactionsare recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets thatcould 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 humandiligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financialreporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that materialmisstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherentlimitations 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 InformationNone.Part IIIItem 10. Directors, Executive Officers and Corporate GovernanceInformation regarding our directors and executive officers and compliance with Section 16(a) of the Exchange Act appearing under theheading “Management of the Company” will be included in our definitive proxy statement relating to our 2010 Annual Meeting ofShareholders and is hereby incorporated by reference. Alternatively, we may file an amendment to this Form 10-K to provide suchinformation within 120 days following the end of our fiscal year ended December 31, 2009.Information regarding our code of ethics appearing under the heading “Code of Business Conduct and Ethics” will be included in ourdefinitive proxy statement relating to our 2010 Annual Meeting of Shareholders and is hereby incorporated by reference. Alternatively, wemay file an amendment to this Form 10-K to provide such information within 120 days following the end of our fiscal year ended December31, 2009.The Audit Committee, composed entirely of independent directors (as such term is prescribed by Nasdaq Stock Market Rule 5605(a)(2)),meets periodically with our independent auditors and management to review our financial statements and the results of audit activities. TheAudit Committee, in turn, reports to the Board of Directors on the results of its review and recommends the selection of independentauditors.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 registrationstatements, accounting consultations); ·Audit-related (employee benefit plan audits, subsidiary financial statements and regulatory reports); and ·Income tax services (review of corporate and partnership income tax returns, and consultations regarding income tax matters). 60 There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors fromthose procedures described in our definitive proxy statement relating to our 2009 Annual Meeting of Shareholders.The report of our Audit Committee, information regarding the independence of our Audit Committee and our Audit Committee financialexpert appearing under the heading “Management of Company” will be included in our definitive proxy statement relating to our 2010 AnnualMeeting of Shareholders and is hereby incorporated by reference. Alternatively, we may file an amendment to this Form 10-K to provide suchinformation within 120 days following the end of our fiscal year ended December 31, 2009.Item 11. Executive CompensationInformation regarding the compensation of our directors and executive officers appearing under the heading “Management of the Company”will be included in our definitive proxy statement relating to our 2010 Annual Meeting of Shareholders and is hereby incorporated byreference. Alternatively, we may file an amendment to this Form 10-K to provide such information within 120 days following the end of ourfiscal year ended December 31, 2009.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation 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 our definitive proxy statement relating to our 2010 Annual Meeting of Shareholders and ishereby incorporated by reference. Alternatively, we may file an amendment to this Form 10-K to provide such information within 120 daysfollowing the end of our fiscal year ended December 31, 2009.Information regarding securities authorized for issuance under our equity compensation plans appearing under the heading “Management ofthe Company” will be included in our definitive proxy statement to our 2010 Annual Meeting of Shareholders and is hereby incorporated byreference. Alternatively, we may file an amendment to this Form 10-K to provide such information within 120 days following the end of ourfiscal year ended December 31, 2009.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation regarding transactions with our directors, executive officers, certain beneficial owners and related persons appearing under theheading “Certain Transactions” will be included in our definitive proxy statement relating to our 2010 Annual Meeting of Shareholders and ishereby incorporated by reference. Alternatively, we may file an amendment to this Form 10-K to provide such information within 120 daysfollowing the end of our fiscal year ended December 31, 2009.Information regarding the independence of our board of directors appearing under the heading “Company Annual Meeting: Director Elections”will be included in our definitive proxy statement relating to our 2010 Annual Meeting of Shareholders and is hereby incorporated byreference. Alternatively, we may file an amendment to this Form 10-K to provide such information within 120 days following the end of ourfiscal year ended December 31, 2009.Item 14. Principal Accountant Fees and ServicesInformation regarding the fees paid to our principal accountant and the pre-approval policies and procedures of our audit committee appearingunder the heading “Relationship with Independent Public Accountants” will be included in GCI’s definitive proxy statement relating to our2010 Annual Meeting of Shareholders and is hereby incorporated by reference. Alternatively, we may file an amendment to this Form 10-K toprovide such information within 120 days following the end of our fiscal year ended December 31, 2009. 61 Part IVItem 15. Exhibits, Consolidated Financial Statement Schedules(l) Consolidated Financial Statements Page No. Included in Part II of this Report: Reports of Independent Registered Public Accounting Firms 63-65 Consolidated Balance Sheets, December 31, 2009 and 2008 66-67 Consolidated Statements of Operations, years ended December 31, 2009, 2008 and 2007 68 Consolidated Statements of Stockholders’ Equity, years ended December 31, 2009, 2008 and 2007 69 Consolidated Statements of Cash Flows, years ended December 31, 2009, 2008 and 2007 70 Notes to Consolidated Financial Statements 71-112 (2) Consolidated Financial Statement Schedules Schedules are omitted, as they are not required or are not applicable, or the required information isshown in the applicable financial statements or notes thereto. (3) Exhibits 113 62 Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders General Communication, Inc.:We have audited the accompanying consolidated balance sheet of General Communication, Inc. and subsidiaries (an Alaska corporation) asof December 31, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year endedDecember 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our auditWe conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GeneralCommunication, Inc. as of December 31, 2009, and the results of their operations and their cash flows for the year ended December 31,2009 in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), GeneralCommunication, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our reportdated March 12, 2010 expressed an unqualified opinion thereon.(signed) Grant Thornton LLPSeattle, WashingtonMarch 12, 2010 63 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders General Communication, Inc.:We have audited the accompanying consolidated balance sheet of General Communication, Inc. and subsidiaries (the Company) as ofDecember 31, 2008 and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the years in thetwo 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). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating 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 GeneralCommunication, Inc. and subsidiaries as of December 31, 2008 and the results of their operations and their cash flows for each of the yearsin the two year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.As discussed in Note 13 to the consolidated financial statements, the consolidated financial statements have been adjusted for theretrospective application of the presentation and disclosure requirements of Financial Accounting Standards Board (FASB) Statement ofFinancial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin (ARB) No. 51, (subsequently codified as ASC Topic 810-10-65, Consolidation), which was adopted January 1,2009. Additionally, as discussed in Note 1(aj) to the consolidated financial statements, the Company has elected to change its method ofaccounting for recording depreciation on their property and equipment placed in service commencing in 2008.(signed) KPMG LLPAnchorage, AlaskaMarch 20, 2009 except for Note 13, as to which the date is March 12, 2010 64 Report of Independent Registered Public Accounting FirmBoard of Directors and Stockholders General Communication, Inc.: We have audited General Communication, Inc.’s (an Alaska Corporation) internal control over financial reporting as of December 31, 2009,based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). General Communication, Inc.’s management is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on GeneralCommunication, Inc.’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). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financialreporting 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, testing and evaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides 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 offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate. In our opinion, General Communication, Inc. maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheet of General Communication, Inc. and subsidiaries (an Alaska corporation) as of December 31, 2009, and the relatedconsolidated statements of operations, stockholders’ equity, and cash and our report dated March 12, 2010 expressed an unqualified opinionthereon.(signed) Grant Thornton LLP Seattle, WashingtonMarch 12, 2010 65 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (Amounts in thousands) December 31, ASSETS 2009 2008 Current assets: Cash and cash equivalents $48,776 29,904 Receivables 147,859 113,136 Less allowance for doubtful receivables 7,060 2,582 Net receivables 140,799 110,554 Deferred income taxes 17,618 7,843 Inventories 9,278 7,085 Prepaid expenses 4,491 5,960 Investment securities 895 1,563 Other current assets 4,977 647 Total current assets 226,834 163,556 Property and equipment in service, net of depreciation 823,080 793,051 Construction in progress 26,161 54,098 Net property and equipment 849,241 847,149 Cable certificates 191,565 191,565 Goodwill 73,452 66,868 Wireless licenses 25,967 25,967 Other intangible assets, net of amortization 19,561 22,976 Deferred loan and senior notes costs, net of amortization of $4,662 and $3,900 at December 31, 2009 and2008, respectively 13,168 6,496 Other assets 18,609 10,724 Total other assets 342,322 324,596 Total assets $1,418,397 1,335,301 See accompanying notes to consolidated financial statements. (Continued) 66 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Continued) (Amounts in thousands) December 31, LIABILITIES AND STOCKHOLDERS’ EQUITY 2009 2008 Current liabilities: Current maturities of obligations under long-term debt and capital leases $9,892 12,857 Accounts payable 30,697 40,497 Accrued payroll and payroll related obligations 21,874 22,632 Deferred revenue 21,404 22,095 Accrued liabilities 15,037 11,043 Accrued interest 14,821 10,224 Subscriber deposits 1,549 1,262 Total current liabilities 115,274 120,610 Long-term debt, net 771,247 708,406 Obligations under capital leases, excluding current maturities 89,279 94,029 Obligation under capital lease due to related party 1,876 1,868 Deferred income taxes 100,386 86,187 Long-term deferred revenue 52,342 49,998 Other liabilities 21,676 15,288 Total liabilities 1,152,080 1,076,386 Commitments and contingencies Stockholders’ equity: Common stock (no par): Class A. Authorized 100,000 shares; issued 51,899 and 50,062 shares at December 31, 2009 and2008, respectively; outstanding 51,627 and 49,593 at December 31, 2009 and 2008, respectively 150,911 151,262 Class B. Authorized 10,000 shares; issued 3,186 and 3,203 shares at December 31, 2009 and 2008,respectively; outstanding 3,186 and 3,201 at December 31, 2009 and 2008, respectively; convertibleon a share-per-share basis into Class A common stock 2,684 2,706 Less cost of 272 and 471 Class A and Class B common shares held in treasury at December 31,2009 and 2008, respectively (2,339) (2,462)Paid-in capital 30,410 27,233 Retained earnings 84,651 80,176 Total stockholders’ equity 266,317 258,915 Total liabilities and stockholders’ equity $1,418,397 1,335,301 See accompanying notes to consolidated financial statements. 67 GENERAL COMMUNICATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007(Amounts in thousands, except per share amounts) 2009 2008 2007 Revenues $595,811 575,442 520,311 Cost of goods sold (exclusive of depreciation and amortization shown separately below) 193,676 203,058 195,799 Selling, general and administrative expenses 212,671 210,306 175,752 Depreciation and amortization expense 123,362 114,369 87,615 Operating income 66,102 47,709 61,145 Other income (expense): Interest expense (including amortization and write-off of deferred loan fees) (58,761) (50,363) (35,830)Interest and investment income 111 576 544 Other --- (217) --- Other expense, net (58,650) (50,004) (35,286)Income (loss) before income tax expense 7,452 (2,295) 25,859 Income tax expense 3,936 1,077 12,162 Net income (loss) 3,516 (3,372) 13,697 Net loss attributable to the non-controlling interest --- 1,503 36 Net income (loss) attributable to General Communication, Inc. $3,516 (1,869) 13,733 Basic net income (loss) attributable to General Communication, Inc. commonstockholders per Class A common share $0.07 (0.04) 0.26 Basic net income (loss) attributable to General Communication, Inc. commonstockholders per Class B common share $0.07 (0.04) 0.26 Diluted net income (loss) attributable to General Communication, Inc. commonstockholders per Class A common share $0.06 (0.04) 0.23 Diluted net income (loss) attributable to General Communication, Inc. commonstockholders per Class B common share $0.06 (0.04) 0.23 See accompanying notes to consolidated financial statements. 68 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYYEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (Amounts in thousands) Class ACommonStock Class BCommonStock Class Aand BSharesHeld inTreasury Paid-inCapital NotesReceivablewithRelatedParties RetainedEarnings Non-controllingInterest TotalStockholders’Equity Balances at January 1,2007 157,502 2,846 (1,436) 20,641 (738) 67,463 --- 246,278 Non-controlling interestattributable to acquiredsubsidiary --- --- --- --- --- --- 6,514 6,514 Net income (loss) --- --- --- --- --- 13,733 (36) 13,697 Common stockrepurchases --- --- (2,000) --- --- (15,076) --- (17,076)Common stockretirements (11,420) --- --- --- --- 11,420 --- --- Shares issued understock option plan 3,311 --- --- --- --- --- --- 3,311 Issuance of restrictedstock awards 6,492 --- --- (6,492) --- --- --- --- Share-basedcompensation expense --- --- --- 5,983 --- --- --- 5,983 Payments received onnotes receivable withrelated parties issuedupon stock optionexercise --- --- --- --- 738 --- --- 738 Other 95 (95) (12) --- --- --- --- (12)Balances at December31, 2007 155,980 2,751 (3,448) 20,132 --- 77,540 6,478 259,433 Net loss --- --- --- --- --- (1,869) (1,503) (3,372)Acquisition of remainingshares of non-controlling interest --- --- --- --- --- --- (4,975) (4,975)Common stockretirements (5,465) --- --- --- --- 5,465 --- --- Shares issued understock option plan 415 --- --- --- --- --- --- 415 Issuance of restrictedstock awards 331 --- --- (331) --- --- --- --- Share-basedcompensation expense --- --- --- 7,432 --- --- --- 7,432 Reclassification fromtreasury stock to be heldfor general corporatepurposes to commonstock to be retired --- --- 960 --- --- (960) --- --- Other 1 (45) 26 --- --- --- --- (18)Balances at December31, 2008 151,262 2,706 (2,462) 27,233 -- 80,176 --- 258,915 Net income --- --- --- --- --- 3,516 --- 3,516 Common stockretirements (950) (9) 9 --- --- 950 --- --- Shares issued understock option plan 423 --- --- --- --- --- --- 423 Issuance of restrictedstock awards 398 --- --- (398) --- --- --- --- Share-basedcompensation expense --- --- --- 3,575 --- --- --- 3,575 Other (222) (13) 114 --- --- 9 --- (112)Balances at December31, 2009 $150,911 2,684 (2,339) 30,410 --- 84,651 ---- 266,317 69 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2009, 2008 AND 2007(Amounts in thousands) 2009 2008 2007 Cash flows from operating activities: Net income (loss) $3,516 (3,372) 13,697 Adjustments to reconcile net income (loss) to net cash provided by operating activities,net of effect of acquisitions: Depreciation and amortization expense 123,362 114,369 87,615 Deferred income tax expense 3,936 1,077 11,649 Other noncash income and expense items 14,919 8,896 7,638 Share-based compensation expense 2,804 7,278 4,944 Change in operating assets and liabilities, net of effect of acquisitions (47,618) 47,087 (15,255)Net cash provided by operating activities 100,919 175,335 110,288 Cash flows from investing activities: Purchases of property and equipment, including construction period interest (120,983) (221,458) (153,030)Purchase of businesses and non-controlling interest, net of cash received (109) (65,335) (19,530)Purchase of software licenses and other assets (5,093) (8,974) (7,183)Proceeds from sale of marketable securities 613 4,800 --- Purchase of marketable securities (305) --- --- Restricted cash --- --- 4,612 Other --- --- 44 Net cash used in investing activities (125,877) (290,967) (175,087) Cash flows from financing activities: Borrowing on long-term debt 3,884 114,486 10,000 Borrowing on Senior Credit Facility 30,000 30,000 50,000 Issuance of 2019 Senior Notes 421,473 --- --- Repayment of debt and capital lease obligations (402,710) (10,248) (27,152)Payment of debt issuance costs (9,006) (2,118) (527)Proceeds from common stock issuance 423 415 3,311 Purchase of treasury stock to be held for general corporate purposes --- (3) (2,000)Purchase of treasury stock to be retired --- --- (13,337)Other (234) (70) (69)Net cash provided by financing activities 43,830 132,462 20,226 Net increase (decrease) in cash and cash equivalents 18,872 16,830 (44,573)Cash and cash equivalents at beginning of period 29,904 13,074 57,647 Cash and cash equivalents at end of period $48,776 29,904 13,074 See accompanying notes to consolidated financial statements. 70 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes 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)BusinessGCI, 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 throughout Alaska, ·Incumbent local access services in rural Alaska, ·Long-distance telephone service between Alaska and the remaining United States and foreign countries, ·Sale of postpaid and prepaid wireless telephone services and sale of wireless telephone handsets and accessories, ·Data network services, ·Internet access services, ·Wireless roaming for certain wireless carriers, ·Broadband services, including our SchoolAccess® offering to rural school districts, our ConnectMD® offering to ruralhospitals 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 ofinterstate and intrastate data, switched message long-distance and Internet services within Alaska and between Alaskaand 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 andon-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 avariable interest entity in which we were the primary beneficiary prior to August 18, 2008 when we acquired the remaining 18.1%equity interest and voting control of Alaska DigiTel, LLC (“Alaska DigiTel”). All significant intercompany transactions between non-regulated affiliates of our company are eliminated. Intercompany revenue and expenses generated between regulated and non-regulated affiliates of the company are not eliminated in consolidation. (c)Acquisitions Effective June 1, 2008, we closed on our purchase of 100% of the outstanding stock of United Utilities, Inc. (“UUI”) and Unicom, Inc.(“Unicom”), which were subsidiaries of United Companies, Inc. (“UCI”). UUI, together with its subsidiary, United-KUC, Inc.(“United-KUC”), provides local telephone service to 60 rural communities in the Bethel, Alaska area. Unicom operates DeltaNet, along-haul broadband microwave network ringing the Yukon-Kuskokwim Delta. This investment expanded our Managed Broadbandservices in rural Alaska. The UUI and Unicom acquisition were stock purchases but we elected to treat them as an asset purchasefor income tax purposes, resulting in goodwill being deductible for tax purposes. Effective July 1, 2008, we closed on our purchase of 100% of the ownership interests of Alaska Wireless Communications, LLC(“Alaska Wireless”), which provides wireless and Internet services in the Dutch Harbor, Sand Point, Akutan, and Adak, Alaskaareas. Such purchase was treated as an asset purchase for income tax purposes. This investment expanded our wireless servicesin the Aleutian Chain region of rural Alaska. We consider this business combination to be immaterial to our consolidated financialstatements. (Continued)71 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to 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 AlaskaDigiTel for $10.4 million. Prior to August 18, 2008, our ability to control the operations of Alaska DigiTel was limited as required bythe FCC upon their approval of our initial acquisition of 81.9% of the non-controlling equity interest obtained in January2007. Subsequent to the acquisition of the non-controlling interest, we own 100% of the outstanding common ownership units andvoting control of Alaska DigiTel. Such purchase was treated as an asset purchase for income tax purposes. We purchased AlaskaDigiTel as a way to participate in the future growth of the Alaska wireless industry. We consolidated 100% of Alaska DigiTel's assetsand liabilities at fair value beginning on January 1, 2007, when we determined that Alaska DigiTel was a variable interest entity ofwhich we were the primary beneficiary. Upon our acquisition of the non-controlling interest in Alaska DigiTel on August 18, 2008, werecorded 18.1% of the change in fair value between the assets and liabilities on January 1, 2007 and the fair value of the assets andliabilities on August 18, 2008.On the closing date of the UUI and Unicom acquisition, $8.0 million of the purchase price was deposited in an escrow account tocompensate us for any indemnification claims we may haveafter the acquisition and was included in the purchase price. As of December 31, 2009, $5.0 million is remaining in the escrowaccount. At this time, we are not aware of any indemnification claims and expect the portion of the purchase price in the escrowaccount 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 onsequential year-over-year revenue growth for specified customers. We have agreed to make an additional payment for AlaskaWireless in 2010 that is contingent on meeting certain financial conditions. During the year ended December 31, 2009, we paid anadditional $109,000 to UUI. As of December 31, 2009, we have recorded an accrual of $388,000 and $5.2 million for contingentpayments to UUI and to Alaska Wireless, respectively. We are unable to reasonably estimate the remaining contingent considerationamounts that may be paid for the UUI acquisition, but do not believe any amount paid will be significant. Our business acquisitions and the acquisition of the non-controlling interest in Alaska DigiTel were recorded with the purchase priceallocated based on the fair values of the assets acquired and liabilities assumed. In addition, the acquired companies' results ofoperations are included since the effective date of each acquisition. The purchase prices, including contingent payments, for our 2008 acquisitions, net of cash received of approximately $1.7 millionfrom UUI and Unicom, are as follows (amounts in thousands): As OriginallyReported atDecember 31,2008 Adjustments RevisedPurchasePrice atDecember31, 2009 UUI and Unicom $40,575 497 41,072 Alaska Wireless $14,508 5,157 19,665 Alaska DigiTel $10,434 --- 10,434 (Continued)72 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements The purchase price for the UUI and Unicom acquisition has been finalized and allocated as of December 31, 2009 as follows(amounts in thousands): OriginallyRecorded atDecember 31,2008 Adjustments RevisedBalance atDecember31, 2009 Current assets $15,008 --- 15,008 Property and equipment, including construction in progress 59,629 68 59,697 Intangible assets 8,175 --- 8,175 Wireless licenses 100 --- 100 Goodwill 9,102 1,427 10,529 Deferred income taxes --- 679 679 Other assets 3,106 --- 3,106 Total assets acquired 95,120 2,174 97,294 Current liabilities 4,916 96 5,012 Long-term debt, including current portion 43,614 --- 43,614 Other long-term liabilities 4,335 1,581 5,916 Total liabilities assumed 52,865 1,677 54,542 Net assets acquired $42,255 497 42,752 The purchase price for the Alaska DigiTel acquisition has been finalized and allocated as of December 31, 2008 as follows (amountsin thousands): AlaskaDigiTel Current assets $2,220 Property and equipment, including construction in progress 6,015 Intangible assets 1,468 Wireless licenses 4,396 Goodwill 4,534 Other assets 1 Total assets acquired 18,634 Current liabilities 2,588 Long-term debt, including current portion 5,515 Other long-term liabilities 97 Total liabilities assumed 8,200 Net assets acquired $10,434 Goodwill increased $6.6 million at December 31, 2009 as compared to December 31, 2008, primarily to record a $930,000adjustment for grant deferred revenue to the UUI and Unicom purchase price allocations and for the additional $5.2 million and$497,000 contingent payments to Alaska Wireless and UUI, respectively.We modified the initial preliminary UUI and Unicom purchase price allocation during 2008 by increasing current assets$548,000, decreasing property and equipment $8.5 million, increasing intangible assets $1.7 million, increasing goodwill $3.1million, increasing other assets $695,000, increasing current liabilities $464,000, increasing long-term debt $910,000, anddecreasing other long-term liabilities $3.9 million for adjustments due to the refinement of the estimated fair value. (Continued)73 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements We modified the initial preliminary Alaska DigiTel purchase price allocation for the purchase of the non-controlling interest during2008 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 thevaluation. 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 areallocated to our Consumer, Network Access, Managed Broadband, and Regulated Operations segments. The following unaudited pro forma financial information is presented as if we had acquired the companies as of the beginning of theperiods presented. The pro forma results of operations as if the acquisitions occurred on January 1, 2007 or 2008 for the years endedDecember 31 are as follows (amount in thousands): (unaudited) 2008 2007 Pro forma consolidated revenue $588,691 546,728 Pro forma net income (loss) $(2,932) 12,773 EPS: Basic – pro forma $(0.06) 0.24 Diluted – pro forma $(0.06) 0.22 (d)Regulatory Accounting and Regulation We account for our regulated operations in accordance with the accounting principles for regulated enterprises. This accountingrecognizes the economic effects of rate regulation by recording cost and a return on investment as such amounts are recoveredthrough rates authorized by regulatory authorities. Accordingly, plant and equipment is depreciated over lives approved by regulatorsand certain costs and obligations are deferred based upon approvals received from regulators to permit recovery of such amounts infuture years. Our cost studies and depreciation rates for our regulated operations are subject to periodic audits that could result in achange to recorded revenues. (e)Earnings per Common Share We compute net income per share of Class A and Class B common stock using the “two class” method. Therefore, basic net incomeper share is computed by dividing net income applicable to common stockholders by the weighted average number of commonshares outstanding during the year. Diluted net income per share is computed by dividing net income applicable to GCI by theweighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of thedilutive net income per share of Class A common stock assumes the conversion of Class B common stock to Class A commonstock, while the dilutive net income per share of Class B common stock does not assume the conversion of those shares.Additionally in applying the “two-class” method, undistributed earnings are allocated to both common shares and participatingsecurities. Our restricted stock grants are entitled to dividends and meet the criteria of a participating security. Undistributed earnings for each year are allocated based on the contractual participation rights of Class A and Class B commonshares as if the earnings for the year had been distributed. In accordance with our Articles of Incorporation which provide that, if andwhen dividends are declared on our common stock in accordance with Alaska corporate law, equivalent dividends shall be paid withrespect to the shares of Class A and Class B common stock. Both classes of common stock have identical dividend rights and wouldtherefore share equally in our net assets in the event of liquidation. As such, we have allocated undistributed earnings on aproportionate basis. (Continued)74 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements EPS and common shares used to calculate basic and diluted EPS consist of the following (amounts in thousands, except per shareamounts): Year Ended December 31, 2009 Class A Class B Basic net income per share: Numerator: Allocation of undistributed earnings $3,305 211 Denominator: Weighted average common shares outstanding 50,159 3,195 Basic net income attributable to GCI common stockholders per share $0.07 0.07 Diluted net income per share: Numerator: Allocation of undistributed earnings for basic computation $3,305 211 Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares 211 --- Reallocation of undistributed earnings as a result of conversion of Class B to Class A sharesoutstanding --- (29)Effect of share based compensation that may be settled in cash or shares (454) --- Net income adjusted for allocation of undistributed earnings and effect of share based compensationthat may be settled in cash or shares $3,062 182 Denominator: Number of shares used in basic computation 50,159 3,195 Conversion of Class B to Class A common shares outstanding 3,195 --- Unexercised stock options 258 --- Effect of share based compensation that may be settled in cash or shares 236 --- Number of shares used in per share computations 53,848 3,195 Diluted net income attributable to GCI common stockholders per share $0.06 0.06 Years Ended December 31, 2008 2007 Class A Class B Class A Class B Basic net income (loss) per share: Numerator: Allocation of undistributed earnings (losses) $(1,754) (115) $12,884 849 (Continued)75 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Denominator: Weighted average common shares outstanding 49,080 3,241 49,678 3,273 Basic net income (loss) attributable to GCI common stockholders percommon share $(0.04) (0.04) 0.26 0.26 Diluted net income (loss) per share: Numerator: Allocation of undistributed earnings (losses) for basic computation $(1,754) (115) 12,884 $849 Reallocation of undistributed earnings (losses) as a result ofconversion of Class B to Class A shares (115) --- 849 --- Reallocation of undistributed earnings due to conversion of Class Bto Class A shares outstanding --- --- --- (96)Allocation of effect of share based compensation that may be settledin cash or shares --- --- (1,329) --- Net income (loss) adjusted for allocation of undistributed earnings(losses) and effect of shared based compensation that may besettled in cash or shares $(1,869) (115) 12,404 753 Denominator: Number of shares used in basic computation 49,080 3,241 49,678 3,273 Conversion of Class B to Class A common shares outstanding 3,241 --- 3,273 --- Effect of share based compensation that may be settled in cash orshares --- --- 318 --- Unexercised stock options, net --- --- 1,288 --- Unvested stock awards --- --- 24 --- Number of shares used in per share computations 52,321 3,241 54,581 3,273 Diluted net income (loss) attributable to GCI common stockholders percommon share $(0.04) (0.04) 0.23 0.23 Weighted average shares associated with outstanding share awards for the years ended December 31, 2009, 2008 and 2007 whichhave 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): (Continued)76 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Years Ended December 31, 2009 2008 2007 Shares associated with anti-dilutive unexercised stock options 3,753 4,238 1,909 Share-based compensation that may be settled in cash or shares the effectof which is anti-dilutive --- 289 --- Shares associated with unvested contingent options and awards for whichthe contingency has not been met 420 258 306 4,173 4,785 2,215 (f)Common StockFollowing are the changes in issued shares of common stock for the years ended December 31, 2009, 2008 and 2007 (shares,in thousands): Class A Class B Balances at January 1, 2007 50,191 3,370 Shares retired (843) --- Shares issued under stock option plan 477 --- Share awards issued 499 --- Class B shares converted to Class A 113 (113)Balances at December 31, 2007 50,437 3,257 Shares retired (540) --- Shares issued under stock option plan 71 --- Share awards issued 45 --- Class B shares converted to Class A 54 (54)Other (5) --- Balances at December 31, 2008 50,062 3,203 Shares retired (219) (2)Shares issued under stock option plan 77 --- Share awards issued 1,964 --- Class B shares converted to Class A 15 (15)Balances at December 31, 2009 51,899 3,186 GCI's Board of Directors authorized a common stock buyback program for the repurchase of our Class A and Class B common stockin order to reduce our outstanding shares of Class A and Class B common stock. During the years ended December 31, 2009 and2008, we repurchased no shares of our Class A and B common stock. Under the buyback program we made repurchases of $68.9million through December 31, 2007. During the year ended December 31, 2007, we repurchased 1,252,000 shares of our Class Aand B common stock at a cost of $15.1 million. The cost of the repurchased common stock is recorded in Retained Earnings on ourConsolidated Balance Sheets. In 2008 we retired 540,000 shares of our Class A common stock all of which we repurchased in2007. All shares of our Class A common stock repurchased for retirement were retired as of December 31, 2008. (g)Investment Securities We have investment securities of $895,000 and $1.6 million at December 31, 2009 and 2008, respectively that are classified astrading securities. Our investments consist primarily of money market funds and U.S. government securities. Trading securitiesare recorded at fair value with unrealized holding gains and losses included in net income (loss) attributable to GCI. During the yearsended December 31, 2009 and 2008, the change in net unrealized holding gains and losses included in earnings was a net gain(loss) of $(24,000) and $43,000, respectively. (Continued)77 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (h)Redeemable Preferred Stock We have 1,000,000 shares of preferred stock authorized with no shares issued and outstanding at December 31 2009, 2008 and2007. (i)Treasury Stock We account for treasury stock purchased for general corporate purposes under the cost method and include treasury stock as acomponent of Stockholders’ Equity. Treasury stock purchased with intent to retire (whether or not the retirement is actuallyaccomplished) is charged entirely to Retained Earnings until the stock is formally retired at which time it is charged entirely to ClassA Common Stock. (j)Cash Equivalents Cash equivalents consist of overnight sweep investments and certificates of deposit which have an original maturity of three monthsor 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 December31, 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 ourbest estimate of the amount of probable credit losses in our existing accounts receivable. We base our estimates on the aging of ouraccounts receivable balances, financial health of specific customers, regional economic data, changes in our collections process,regulatory requirements, and our customers’ compliance with Universal Service Administrative Company ("USAC") rules. Wereview 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 accountsgreater than 120 days past due, a specific identification method, or a combination of the two methods. When a specific identificationmethod is used, past due balances over 90 days old and balances less than 90 days old but potentially uncollectible due tobankruptcy or other issues are reviewed individually for collectability. Account balances are charged off against the allowance whenwe feel it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to ourcustomers. (m)Inventories Wireless handset inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the averagecost method. Handset costs in excess of the revenues generated from handset sales, or handset subsidies, are expensed at the timeof sale. We do not recognize the expected handset subsidies prior to the time of sale because the promotional discount decision ismade 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 averagecost method. (n)Property and Equipment Property and equipment is stated at cost. Construction costs of facilities are capitalized. Equipment financed under capital leases isrecorded 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 serviceon December 31, 2009 that management intends to place in service during 2010. (Continued)78 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Depreciation is computed using the straight-line method based upon the shorter of the estimated useful lives of the assets or thelease term, if applicable, in the following ranges:Asset Category Asset LivesTelephony distribution equipment 12 yearsFiber optic cable systems 12-30 yearsCable television distribution equipment and systems 10 yearsSupport equipment and systems 3-5 yearsTransportation equipment 3 yearsProperty and equipment under capital leases 12-20 yearsBuildings 20 years Amortization of property and equipment under capital leases is included in Depreciation and Amortization Expense on theConsolidated 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 ofproperty and equipment. (o)Intangible Assets and Goodwill Goodwill, cable certificates (certificates of convenience and public necessity) and wireless licenses are not amortized. Cablecertificates represent certain perpetual operating rights to provide cable services. Wireless licenses represent the right to utilizecertain radio frequency spectrum to provide wireless communications services. Goodwill represents the excess of cost over fairvalue of net assets acquired in connection with a business acquisition. Goodwill is not allocated to our reportable segments as ourChief Operating Decision Maker does not review a balance sheet by reportable segment to make decisions about resourceallocation or evaluate reportable segment performance. All other amortizable intangible assets are being amortized over 1 to 20 year periods using the straight-line method. (p)Impairment of Intangibles, Goodwill, and Long-lived Assets Cable certificates and wireless license assets are the right to solicit and service potential customers and the right to deploy and marketnew services, such as interactivity, wireless broadband and video, in the service areas covered by currently held cable certificate andwireless licenses. Cable certificates and wireless license assets are treated as indefinite-lived intangible assets and are testedannually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might beimpaired. The impairment test consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amountof the assets exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. After an impairment loss isrecognized, the adjusted carrying amount of the asset becomes its new accounting basis. Impairment testing of our cable certificateand wireless license assets as of October 31, 2009 and December 31, 2008 used a direct value method. Our goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicatethat the assets might be impaired. We use an income approach to determine the fair values used in the goodwill impairment test. Inaddition, a market-based approach is used where possible to corroborate the fair values determined by the income approach. (Continued)79 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements During the third quarter of 2009, we changed the date of our annual impairment test from the last day of the fiscal year to the last dayof the tenth month of the fiscal year for all of our indefinite-lived intangibles. As we grew, it became increasingly difficult to completethe various impairment analyses in a timely manner, therefore, we believed the change in accounting principle related to the annualtesting date was preferable as it provided us additional time to complete the impairment test and report the results of that test in ourannual filing on Form 10-K. We believe that the change to the annual testing date did not delay, accelerate or avoid an impairmentcharge. We determined that this change in accounting principle was preferable under the circumstances and it did not result inadjustments to our financial statements when applied retrospectively. The annual impairment test was performed as of December31, 2008 and was performed again as of October 31, 2009, therefore, less than 12 months elapsed between impairment tests. Wecompleted our annual review and no impairment charge was recorded in 2009. Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not berecoverable. Recoverability of an asset group to be held and used is measured by a comparison of the carrying amount of an assetgroup to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an assetgroup exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which thecarrying amount of the asset group exceeds the fair value of the asset group. (q)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 debtinstrument is a substantial modification, all or a portion of the applicable debt issuance costs are written off. If a debt instrument isrepaid prior to the maturity date we will write-off a proportional amount of debt issuance costs. (r)Other Assets Other Assets primarily include long-term deposits, prepayments, and non-trade accounts receivable. (s)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 theConsolidated Balance Sheets if the fair value of the liability can be reasonably estimated. When the liability is initially recorded, wecapitalize a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its presentvalue each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, weeither 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 supportequipment from leased property. Following is a reconciliation of the beginning and ending aggregate carrying amount of our liabilityfor asset retirement obligation (amounts in thousands):Balance at December 31, 2007 $4,173 Liability incurred 1,408 Additions upon acquisition of UUI, Unicom, Alaska Wireless and Alaska DigiTel 803 Accretion expense 396 Liability settled (601)Balance at December 31, 2008 6,179 Liability incurred 5,764 (Continued)80 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Accretion expense 634 Liability settled (63)Balance at December 31, 2009 $12,514 During the years ended December 31, 2009 and 2008 we recorded additional capitalized costs of $5.8 million and $1.4 million,respectively, in Property and Equipment in Service, Net of Depreciation.Certain of our network facilities are on property that requires us to have a permit and the permit contains provisions requiring usto remove our network facilities in the event that the permit is not renewed. We expect to continually renew our permits andtherefore cannot estimate any liabilities associated with such agreements. A remote possibility exists that we would not be ableto successfully renew a permit, which could result in us incurring significant expense in complying with restoration or removalprovisions. (t)DerivativesWe 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 no longer have significant exposure from floating-ratefinancial instruments since we repaid the outstanding indebtedness under our Senior Credit Facility with the proceeds from theissuance of the 2019 Notes. We do not apply hedge accounting to our derivative instruments and therefore treat theseinstruments as “economic hedges.” Derivative instruments are accounted for at fair value as either assets or liabilities on thebalance 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 performunder the terms of the derivative contract. We minimize the credit risk in derivative instruments by entering into transactionswith 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 othermarket variables. The market risk associated with interest-rate contracts is managed by establishing and monitoring parametersthat 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 matureon July 1, 2010. The initial cost of the caps was $928,000. These derivative instruments are being used to manage the interestrate risk on our Senior Credit Facility, which is indexed to the London Interbank Offered Rate ("LIBOR"). The following is a summary of the derivative contracts outstanding in the balance sheet at December 31, 2009 (dollar amounts inthousands): Fair Value as of December31, Number ofContracts NotionalValue BalanceSheetLocation 2009 2008 Interest rate caps 2 $180,000 Other Assets $---$7 (Continued)81 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Amount of Gain (LossRecognized) December 31,Derivatives not designated as hedging instrumentsLocation of Gain (Loss) Recognized 2009 2008Interest rate capsInterest expense $(7) (921) (u)Revenue Recognition All revenues are recognized when the earnings process is complete. Revenue recognition is as follows: ·Revenues generated from long-distance service usage and plan fees, Internet service excess usage, and managedservices are recognized when the services are provided, ·We recognize unbilled revenues when the service is provided based upon minutes of use processed, and/orestablished rates, net of credits and adjustments, ·Cable television service package fees, local access and Internet service plan fees, and private line telecommunicationrevenues are billed in advance, recorded as Deferred Revenue on the balance sheet, and are recognized as theassociated service is provided, ·Certain of our wireless services offerings have been determined to be revenue arrangements with multipledeliverables. Revenues are recognized as each element is earned based on objective evidence regarding the relativefair value of each element and when there are no undelivered elements that are essential to the functionality of thedelivered elements. Revenues generated from wireless service usage and plan fees are recognized when the servicesare provided. Revenues generated from the sale of wireless handsets and accessories are recognized when title to thehandset and accessories passes to the customer. As the non-refundable, up-front activation fee charged to thecustomer does not meet the criteria as a separate unit of accounting, we allocate the additional arrangementconsideration received from the activation fee to the handset (the delivered item) to the extent that the aggregatehandset and activation fee proceeds do not exceed the fair value of the handset. Any activation fees not allocated to thehandset would be deferred upon activation and recognized as service revenue on a straight-line basis over theexpected customer relationship period, ·The majority of our equipment sale transactions involve the sale of communications equipment with no otherservices involved. Such equipment is subject to standard manufacturer warranties and we do not manufacture any ofthe equipment we sell. In such instances the customer takes title to the equipment generally upon delivery. Werecognize revenue for such transactions when title passes to the customer and the revenue is earned and realizable.On certain occasions we enter into agreements to sell and satisfactorily install or integrate telecommunicationsequipment for a fixed fee. Customers may have refund rights if the installed equipment does not meet certainperformance criteria. We defer revenue recognition until we have received customer acceptance per the contract oragreement, and all other required revenue recognition elements have been achieved. Revenues from contracts withmultiple element arrangements, such as those including installation and integration services, are recognized as eachelement is earned based on objective evidence regarding the relative fair value of each element and when there are noundelivered 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 aprorated basis over the term of the contracts, ·Revenues from white and yellow page directories are recognized ratably during the period following publication, whichtypically begins with distribution and is complete in the month prior to publication of the next directory, (Continued)82 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements · We account for fiber capacity Indefeasible Rights to Use ("IRU") agreements as an operating lease or service arrangementand we defer the revenue and recognize it ratably over the life of the IRU or as service is rendered, · Access revenue is recognized when earned. We participate in access revenue pools with other telephone companies. Suchpools are funded by toll revenue and/or access charges regulated by the Regulatory Commission of Alaska ("RCA") withinthe intrastate jurisdiction and the Federal Communications Commission (“FCC”) within the interstate jurisdiction. Much ofthe interstate access revenue is initially recorded based on estimates. These estimates are derived from interim financialinformation, available separation studies and the most recent information available about achieved rates of return. Theseestimates are subject to adjustment in future accounting periods as additional information becomes available. To the extentthat a dispute arises over revenue settlements, our policy is to defer revenue collected until the dispute is resolved, ·As an Eligible Telecommunications Carrier ("ETC"), we receive support from the Universal Service Fund ("USF") tosupport the provision of local access service in high-cost areas. We accrue estimated program revenue quarterlybased on current line counts, the most current rates paid to us, our assessment of the impact of current FCCregulations, and our assessment of the potential outcome of FCC proceedings. Our estimated accrued revenue issubject to our judgment regarding the outcome of many variables and is subject to upward or downward adjustmentin subsequent periods. Our ability to collect our accrued USF support is contingent upon continuation of the USFprogram 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 programchange or we assess the likelihood that such a change has increased or decreased revenue. The payment from theUSF is generally received approximately nine months subsequent to the services being performed. At December 31,2009 we have $28.5 million in accounts receivable related to the USF high-cost area program. We do not recognizerevenue until our ETC status has been approved by the RCA, ·We receive refunds from time to time from incumbent local exchange carriers (“ILECs”), with which we do businessin respect of their earnings that exceed regulatory requirements. Telephone companies that are rate regulated by theFCC using the rate of return method are required by the FCC to refund earnings from interstate access chargesassessed to long-distance carriers when their earnings exceed their authorized rate of return. Such refunds arecomputed based on the regulated carrier’s earnings in several access categories. Uncertainties exist with respect tothe amount of their earnings, the refunds (if any), their timing, and their realization. We account for such refundableamounts as gain contingencies, and, accordingly, do not recognize them until realization is a certainty upon receipt, ·We receive grant revenue for the purpose of building communication infrastructure in rural areas. We defer therevenue and recognize it over the life of the asset that was constructed using grant funds, 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 theuncertainty in our ability to retroactively claim reimbursement under the program, we accounted for this payment as a gaincontingency and, accordingly, recognized revenue only upon receipt of payment when realization was certain. (v)Payments Received from Suppliers Our Consumer segment occasionally receives reimbursements for video services costs to promote suppliers’ services, calledcooperative advertising arrangements. The supplier payment is classified as a reduction of selling, general and administrativeexpenses if it reimburses specific, incremental and identifiable costs incurred to resell the suppliers’ services. Recognition occursupon receipt of the payment because collection is not assured. (Continued)83 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (w)Advertising Expense We expense advertising costs in the year during which the first advertisement appears. Advertising expenses were $4.1 million, $5.6million and $5.6 million for the years ended December 31, 2009, 2008 and 2007, respectively. (x)Leases Scheduled operating lease rent increases are amortized over the expected lease term on a straight-line basis. Rent holidays arerecognized 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 leaseholdimprovement over a term that includes assumption of a lease renewal if the renewal is reasonably assured. Leaseholdimprovements acquired in a business combination are amortized over the shorter of the useful life of the assets or a term thatincludes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. Leaseholdimprovements that are placed in service significantly after and are not contemplated at or near the beginning of the lease term areamortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemedto be reasonably assured at the date the leasehold improvements are purchased. Leasehold improvements made by us and fundedby landlord incentives or allowances under an operating lease are recorded as deferred rent and amortized as reductions to leaseexpense over the lease term. (y)Interest Expense Material interest costs incurred during the construction period of non-software capital projects are capitalized. Interest costs incurredduring the development period of a software capital project are capitalized. Interest is capitalized in the period commencing with thefirst expenditure for a qualifying capital project and ending when the capital project is substantially complete and ready for its intendeduse. We capitalized interest cost of $548,000, $4.2 million and $3.3 million during the years ended December 31, 2009, 2008 and2007, respectively. (z)Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for their futuretax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxableearnings in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance isrecognized if it is more likely than not that some portion or all of the deferred tax asset will not be realized. 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 taxexaminations by tax authorities for years before 2006 except that certain U.S. federal income tax returns for years after 1997 are notclosed 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 administrativeexpenses. We did not have any unrecognized tax benefits as of December 31, 2009, 2008 and 2007, and, accordingly, we did notrecognize any interest expense. Additionally, we recorded no penalties during the years ended December 31, 2009, 2008 and 2007,respectively. (aa)Share-based Payment Arrangements We currently use the Black-Scholes-Merton option-pricing model to value stock options granted to employees. We use these values torecognize stock compensation expense for stock options. Compensation expense is recognized in the financial statements for share-based awards based on the grant date fair value of those awards. 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 generallycommensurate with the vesting term. See note 8 for information on the assumptions we used to calculate the fair value of share-based compensation. (Continued)84 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements We are required to report the benefits associated with tax deductions in excess of recognized compensation cost as a financing cashflow rather than as an operating cash flow. (ab)Stock Options and Stock Warrants Issued for Non-employee Services Stock options and warrants issued in exchange for non-employee services are accounted for based upon the fair value of theconsideration 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-employeeservices are provided, if stated, or the stock option or warrant vesting period. (ac)Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America(“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Significant items subject to estimates and assumptions include the allowance for doubtful receivables, unbilledrevenues, accrual of the USF high-cost area program subsidy, share-based compensation, inventory reserves, reserve for futurecustomer credits, valuation allowances for deferred income tax assets, depreciable and amortizable lives of assets, the carrying valueof long-lived assets including goodwill, cable certificates and wireless licenses, purchase price allocations, deferred lease expense,asset retirement obligations, the accrual of Cost of Goods Sold, and the accrual of contingencies and litigation. Actual results coulddiffer from those estimates. (ad)Concentrations of Credit RiskFinancial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents andaccounts receivable. Excess cash is invested in high quality short-term liquid money instruments. At December 31, 2009 and2008, substantially all of our cash and cash equivalents were invested in short-term liquid money instruments. At December31, 2009 and 2008, cash balances were in excess of Federal Deposit Insurance Corporation insured limits. We have one major customer (see note 9). Our remaining customers are located primarily throughout Alaska. Because of thisgeographic concentration, our growth and operations depend upon economic conditions in Alaska. (ae)Software Capitalization Policy Internally used software, whether purchased or developed, is capitalized and amortized using the straight-line method over anestimated useful life of five years. We capitalize certain costs associated with internally developed software such as payroll costs ofemployees devoting time to the projects and external direct costs for materials and services. Costs associated with internallydeveloped software to be used internally are expensed until the point the project has reached the development stage. Subsequentadditions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform atask 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. (Continued)85 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (af)Guarantees Certain of our customers have guaranteed levels of service. We accrue for any obligations under these guarantees as they becomeprobable and estimable. (ag)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 agross basis in our statement of operations of $4.4 million, $4.1 million and $4.2 million for the years ended December 31, 2009,2008 and 2007, respectively. (ah)Recently Adopted Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 105 “Generally Accepted AccountingPrinciples” (formerly Statement of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles”). Topic 105 establishes the FASB AccountingStandards Codification (“Codification”) as the source of authoritative GAAP recognized by the FASB and is to be applied bynongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sourcesof authoritative GAAP for SEC registrants. The Codification became effective for financial statements issued for interim andannual periods ending after September 15, 2009. The adoption of the Codification impacted our financial statement disclosuresbeginning in the quarter ended September 30, 2009 as all references to authoritative accounting literature are referenced inaccordance with the Codification. There is no change to the content of our financial statements or disclosures as a result ofimplementing the Codification other than updating our descriptions to describe the codified standards.On January 1, 2009 we adopted ASC Topic 810-10-65-1, “Consolidation” (formerly SFAS No. 160, “Non-Controlling Interests inConsolidated Financial Statements, an Amendment of Accounting Research Bulletin (“ARB”) No. 51”). Topic 810-10-65-1requires non-controlling interests to be treated as a separate component of equity, but apart from the parent’s equity, and not as aliability or other item outside of equity. This topic also specifies that consolidated net income attributable to the parent and to non-controlling interests be clearly identified and presented on the face of the consolidated statement of operations. Previously, wehad reported minority interests (non-controlling interests) as a reduction in arriving at income before income tax expense. Inaddition, this standard specifies that changes to the parent’s ownership interest while it retains a controlling financial interestshould be accounted for as equity transactions. This topic also expands disclosure in the financial statements to include areconciliation of the beginning and ending balances of the equity attributable to the parent and non-controlling owners and aschedule showing the effects of changes in a parent’s ownership interest in a subsidiary on the equity attributable to theparent. The presentation and disclosure requirements of this topic were applied retrospectively for all periods presented; as aresult, our statements of operations and our statement of stockholders’ equity for the years ended December 31, 2008 and 2007were recast to reflect the adoption of this topic. (ai) Recently Issued Accounting PronouncementsFASB Accounting Standards Update (“ASU”) 2009-13 addresses the accounting for multiple-deliverable arrangements to enablevendors to account for products or services (“deliverables”) separately rather than as a combined unit. Specifically, this guidanceamends the criteria in Subtopic 605-25, “Revenue Recognition - Multiple-Element Arrangements”, for separating considerationin multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of adeliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance alsoeliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of thearrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands requireddisclosures related to a vendor's multiple-deliverable revenue arrangements. ASU 2009-13 is effective (Continued)86 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010. The adoption of ASU 2009-13 is not expected to have a material impact on our income statement, financial position orcash flows.ASU 2009-17 addresses a revision to former SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” ("SFAS167"). ASU 2009-17 amends previous accounting related to the consolidation of variable interest entities ("VIE") to require anenterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity based on whether theentity (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2)has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significantto the VIE. Also, SFAS No. 167 requires an ongoing reconsideration of the primary beneficiary, and amends the events thattrigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about anenterprise’s involvement in a VIE. This statement will be effective as of the beginning of each reporting entity’s first annualreporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interimand annual reporting periods thereafter. Earlier application is prohibited. The adoption of ASU 2009-17 is not expected to have amaterial impact on our income statement, financial position or cash flows.ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair ValueMeasurements” requires new disclosures and clarifies existing disclosure requirements about fair value measurement as setforth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparencyin financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require that (a) a reporting entityshould disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements anddescribe the reasons for the transfers; and(b) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should presentseparately information about purchases, sales, issuances, and settlements.In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:· For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to usejudgment in determining the appropriate classes of assets and liabilities; and· A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value forboth recurring and nonrecurring fair value measurements.ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosuresabout purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Thosedisclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.Early application is permitted. The adoption of ASU 2010-06 is not expected to have a material impact on our income statement,financial position or cash flows. (aj)Changes in Accounting Policy Effective January 1, 2008, we prospectively changed our accounting policy for recording depreciation on our property and equipmentplaced in service. For assets placed in service on or after January 1, 2008, we are using a mid-month convention to recognizedepreciation expense. Previous to this change we used the half-year convention to recognize depreciation expense in the year anasset was placed in service, regardless of the month the property and equipment was placed in service. We believe the mid-monthconvention is preferable because it results in more precise recognition of depreciation expense over the estimated useful life of theasset. No retroactive adjustment was made. The following table sets forth the impact of this accounting change on depreciation andamortization expense, operating income (loss) and net income (loss) for the years ended December 31, 2009 and 2008 (amounts inthousands, except per share amounts): (Continued)87 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Year Ended December 31, 2009 2008 Depreciation and amortization expense $321 (521)Operating income (loss) (321) 521 Net income (loss) attributable to GCI (189) 214 Basic and diluted EPS attributable to GCI common stockholders per share 0.00 0.00 (ak)ReclassificationsReclassifications have been made to the 2008 and 2007 financial statements to make them comparable with the 2009presentation.(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, 2009 2008 2007 Increase in accounts receivable $(33,555) (5,209) (19,713)Decrease in prepaid expenses 1,923 488 949 (Increase) decrease in inventories (2,109) (3,336) 1,455 (Increase) decrease in other current assets (4,272) (69) 1,089 Increase in other assets (10,742) --- --- Increase (decrease) in accounts payable (1,889) (4,198) 2,738 Increase (decrease) in accrued payroll and payroll related obligations (752) 5,437 620 Increase (decrease) in deferred revenue (787) 4,543 (2,000)Increase in accrued interest 4,597 1,226 217 Increase (decrease) in accrued liabilities (1,608) 2,695 (1,330)Increase in subscriber deposits 287 84 194 Increase in long-term deferred revenue 763 49,153 --- Increase (decrease) in components of other long-term liabilities 526 (3,727) 526 $(47,618) 47,087 (15,255)The following items are for the years ended December 31, 2009, 2008 and 2007 (amounts in thousands):Net cash paid (received): 2009 2008 2007 Interest, net of amounts capitalized $51,161 46,781 34,046 Income taxes paid $--- 884 293 Income taxes received $(911) (83) (213)The following items are non-cash investing and financing activities for the years ended December 31, 2009, 2008 and 2007 (amountsin thousands): 2009 2008 2007 Non-cash additions for purchases of property and equipment$4,427 12,124 8,965 Asset retirement obligation additions to property and equipment$5,764 1,408 260 Assets acquired in acquisition$6,475 --- --- Capital lease obligation incurred$--- 99,873 --- (Continued)88 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Warranty receivable applied to capital lease obligation$465 8,415 --- Stock tender in lieu of cash on note receivable with related party$--- --- 1,740 Common stock retired$950 5,465 11,420 Satellite warranty receivable$--- 8,880 --- Additional Non-cash Financing Activities 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 millionof the term loan to repay the revolver portion of our Senior Credit Facility and our loan proceeds were reduced by $2.9 million for anoriginal issue discount and $1.5 million for bank and legal fees associated with the new term loan. (3)Receivables and Allowance for Doubtful Receivables Receivables consist of the following at December 31, 2009 and 2008 (amounts in thousands): 2009 2008 Trade $145,220 109,835 Employee 315 243 Other 2,324 3,058 Total Receivables $147,859 113,136 Changes in the allowance for doubtful receivables during the years ended December 31, 2009, 2008 and 2007 are summarized below(amounts in thousands). Additions Deductions Description Balance atbeginning ofyear Charged tocosts andexpenses Charged toOtherAccounts Write-offs netof recoveries Balance atend of year December 31, 2009 $2,582 3,818 1,734 1,074 7,060 December 31, 2008 $1,657 3,471 --- 2,546 2,582 December 31, 2007 $2,922 4,822 --- 6,087 1,657 Charged to Other Accounts for the year ended December 31, 2009 consists of a $914,000 adjustment recorded upon the conversion ofour Alaska DigiTel customer accounts into our primary Consumer customer billing system that grossed up accounts receivable andthe allowance for doubtful receivables to record termination fees for tracking purposes. Additionally, the year ended December 31, 2009includes an adjustment of $820,000 due to the decision to temporarily stop revenue recognition for services provided to a customerwhose funding from the USAC was denied. In both years we recorded accounts receivable and an allowance for doubtful receivables. (4)Net Property and Equipment in Service Net property and equipment in service consists of the following at December 31, 2009 and 2008 (amounts in thousands): 2009 2008 Land and buildings $33,033 32,134 Telephony distribution systems 925,395 809,356 (Continued)89 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Cable television distribution systems 208,478 194,616 Support equipment 153,248 144,457 Transportation equipment 11,004 10,550 Property and equipment under capital leases 102,972 102,972 1,434,130 1,294,085 Less accumulated depreciation 598,687 495,953 Less amortization 12,363 5,081 Net property and equipment in service $823,080 793,051 (5) Intangible Assets and GoodwillAs of October 31, 2009 cable certificates, wireless licenses and goodwill were tested for impairment and the fair values were greaterthan the carrying amounts, therefore these intangible assets were determined not to be impaired at December 31, 2009. Theremaining useful lives of our cable certificates, wireless licenses and goodwill were evaluated as of October 31, 2009 and events andcircumstances continue to support an indefinite useful life.There are no indicators of impairment of our intangible assets subject to amortization as of December 31, 2009.Other Intangible Assets subject to amortization include the following at December 31, 2009 and 2008 (amounts in thousands): 2009 2008 Software license fees $22,459 18,377 Customer relationships 11,217 11,467 Customer contracts 3,538 3,538 Right-of-way 783 783 Other 529 803 38,526 34,968 Less accumulated amortization 18,965 11,992 Net other intangible assets $19,561 22,976 Changes in Other Intangible Assets are as follows (amounts in thousands): Balance at December 31, 2007 $11,769 Asset additions upon acquisition of UUI, Unicom, Alaska Wireless, and the minority interest in Alaska DigiTel 10,861 Asset additions 6,303 Less amortization expense 5,948 Less asset write-off 9 Balance at December 31, 2008 22,976 Asset additions 4,772 Less amortization expense 7,628 Less asset write-off 559 Balance at December 31, 2009 $19,561 Goodwill increased $6.6 million at December 31, 2009 as compared to December 31, 2008, primarily to record a $930,000adjustment for grant deferred revenue to the UUI and Unicom purchase price allocations and for the additional $5.2 million and$497,000 contingent payments to Alaska Wireless and UUI, respectively. (Continued)90 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements 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 interestin Alaska DigiTel. Goodwill and the wireless licenses are indefinite lived assets. The increase in other intangible assets is due to therecognition of customer relationships, contracts, and the Alaska DigiTel trademark. The intangible assets added during 2008 have aweighted average amortization period of 3.6 years. Amortization expense for amortizable intangible assets for the years ended December 31, 2009, 2008 and 2007 follow (amounts inthousands): Years Ended December 31, 2009 20082007 Amortization expense for amortizable intangible assets$7,628 5,948 3,332 Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts inthousands):Years Ending December 31, 2010 $6,048 2011 3,980 2012 3,032 2013 1,756 2014 851 (6)Long-term DebtLong-term debt consists of the following (amounts in thousands): December 31, 2009 2008 2019 Notes (a) $425,000 --- 2014 Notes (b) 320,000 320,000 Senior Credit Facility (c) --- 362,529 Rural Utilities Services debt (d) 34,721 35,328 CoBank Mortgage note payable (d) 2,277 3,539 Mortgage --- 490 Debt 781,998 721,886 Less unamortized discount paid on the 2019 Notes 3,460 --- Less unamortized discount paid on the 2014 Notes 2,158 2,589 Less unamortized discount paid on Senior Credit Facility --- 2,466 Less current portion of long-term debt 5,133 8,425 Long-term debt, net of unamortized discount $771,247 708,406 (a)On November 3, 2009 (“Closing Date”), GCI, Inc., our wholly-owned subsidiary, completed an offering of $425.0 million inaggregate principal amount of its 8 5/8% 2019 Notes at an issue price of 99.17% ("2019 Notes") to qualified institutional buyersin reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the UnitedStates in accordance with Regulation S under the Securities Act. We used the net proceeds from this offering to repay and retirethe outstanding amount of $389.8 million under our Senior Credit Facility and for general corporate purposes. (Continued)91 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements The 2019 Notes mature on November 15, 2019. Interest is payable semi-annually in cash on May 15 and November 15 of eachyear, beginning on May 15, 2010. The 2019 Notes are carried on our Consolidated Balance Sheet net of the unamortized portionof the discount, which is being amortized to Interest Expense over the term of the 2019 Notes using the effective interest methodand an effective interest rate of 9.07%.The 2019 Notes are senior unsecured obligations which rank equally in right of payment with the existing and future seniorunsecured debt, including our 2014 Notes described below, and senior in right of payment to all future subordinatedindebtedness.The 2019 Notes were issued pursuant to an Indenture, dated as of the Closing Date, between us and Union Bank, N.A., astrustee.We are not required to make mandatory sinking fund payments with respect to the 2019 Notes.Upon the occurrence of a change of control, each holder of the 2019 Notes will have the right to require us to purchase all or anypart (equal to $1,000 or an integral multiple thereof, except that no 2019 Note will be purchased in part if the remaining portionthereof would not be at least $2,000) of such holder’s 2019 Notes at a purchase price equal to 101% of the principal amount ofsuch 2019 Notes, plus accrued and unpaid interest on such 2019 Notes, if any. If we or certain of our subsidiaries engage inasset sales, we must generally either invest the net cash proceeds from such sales in our business within a period of time,prepay debt under any outstanding credit facility, or make an offer to purchase a principal amount of the 2019 Notes equal to theexcess net cash proceeds, with the purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, ifany.The covenants in the Indenture restrict GCI, Inc. and certain of its subsidiaries from incurring debt, but permits debt under theSenior Credit Facility and vendor financing as long as our leverage ratio, as defined does not exceed 5.5 to one; enter into saleand leaseback transactions; pay dividends or distributions on capital stock or repurchase capital stock; issue stock ofsubsidiaries; make certain investments; create liens on assets to secure debt; enter into transactions with affiliates; merge orconsolidate with another company; and transfer and sell assets. These covenants are subject to a number of limitations andexceptions, as further described in the Indenture. Additionally, we have agreed to file a registration statement for the 2019 Noteswithin 120 days of the issue date, however, if we do not file the registration statement within 120 days we are required to payadditional interest of 0.25% per annum.We paid closing costs totaling $9.1 million in connection with the offering, which were recorded as deferred loan costs and arebeing amortized over the term of the 2019 Notes. Unamortized deferred loan costs related to the Senior Credit Facility totaling$1.4 million were written off for the year ended December 31, 2009.We were in compliance with all 2019 Notes loan covenants at December 31, 2009. (b)We pay interest of 7.25% on notes that are due in 2014 (“2014 Notes”). The 2014 Notes are an unsecured senior obligation ofGCI, Inc. The 2014 Notes are carried on our Consolidated Balance Sheet net of the unamortized portion of the discount based onan effective interest rate of 7.50%, which is being amortized to Interest Expense over the term of the 2014 Notes using theeffective interest method.The 2014 Notes are redeemable at our option, in whole or in part, on not less than thirty days nor more than sixty days notice, atthe following redemption prices, plus accrued and unpaid interest (if any) to the date of redemption: (Continued)92 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements If redeemed during the twelve month period commencing February 1 of the yearindicated: Redemption Price 2010 102.417% 2011 101.208% 2012 and thereafter 100.000% The 2014 Notes restrict GCI, Inc. and certain of its subsidiaries from incurring debt, but permits debt under the Senior CreditFacility and vendor financing as long as our leverage ratio, as defined does not exceed 6.0 to one. In addition, certain other debtis permitted regardless of our leverage ratio, including debt under the Senior Credit Facility not exceeding (and reduced by certainstated 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 2014 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 2014 Notes are structurally subordinate to our Senior Credit Facility.Our 2014 Notes’ key debt covenants require our Total Leverage Ratio (as defined) be 6.0:1.0 or less and our Senior LeverageRatio (as defined) be 3.0:1.0 or less if our Senior Debt (as defined) is greater than $250.0 million.We were in compliance with all 2014 Notes loan covenants at December 31, 2009. (c)In November 2009, we completed our offering of the 2019 Notes and used the net proceeds from this offering to repay theoutstanding amount of $389.8 million under our Senior Credit Facility, including $349.8 million outstanding on the term loanand $40.0 million outstanding on the revolving portion of the Senior Credit Facility. The term loan was retired upon therepayment but the revolving portion was still available to us at December 31, 2009.The Senior Credit Facility includes a $75.0 million revolving credit facility with a $25.0 million sublimit for letters of credit. Wehave letters of credit outstanding totaling $2.8 million, which leaves $72.2 million available for borrowing under the revolvingcredit facility as of December 31, 2009 if needed. The revolving credit facility component of our Senior Credit Facility interest rate is LIBOR plus the following Applicable Marginset forth opposite each applicable Total Leverage Ratio below:Total Leverage Ratio (as defined) Applicable Margin>3.75 4.25%>3.25 but <3.75 3.75%>2.75 but <3.25 3.25%<2.75 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.Borrowings under the Senior Credit Facility are subject to certain financial covenants and restrictions on indebtedness, dividendpayments, financial guarantees, business combinations, and other (Continued)93 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements related items. Our Senior Credit Facility Total Leverage Ratio (as defined) may not exceed (i) 5.25:1.00 for the period beginningMay 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 ending on September 30, 2009, and (ii) 2.75:1.00 for the period beginningOctober 1, 2009, and ending on August 31, 2012. We were in compliance with all loan covenants relating to our Senior CreditFacility at December 31, 2009.Our Senior Credit Facility also limits the amount of capital expenditures, excluding acquisitions, that we can incur each yearbased on the following (amounts in thousands):Year Ended: MaximumCapitalExpenditureAmount 2009 $125,000 2010 $125,000 2011 and thereafter $100,000 If our capital expenditures for a given year are less than the maximum, the cumulative difference between the amount incurredand the maximum capital expenditure limitation may be carried over to the following year if certain levels of earnings beforedepreciation and amortization expense, income tax expense, share-based compensation expense and non-cash contributionadjustment ("adjusted EBITDA") are met.In May 2008, we had signed an agreement to add a term loan of $145.0 million ("Additional Incremental Term Loan") to ourthen existing Senior Credit Facility. We used $30.0 million of the proceeds to repay the revolver portion of our Senior CreditFacility and our loan proceeds were reduced by $2.9 million for an original issue discount and $1.5 million for bank and legalfees associated with the new term loan. The discount on the term loan was being amortized into interest expense using theeffective interest method.The transaction in May 2008 to add the Additional Incremental Term Loan was a partial substantial modification of our existingSenior Credit Facility resulting in a $667,000 write-off of previously deferred loan fees during the year ended December 31, 2008in our Consolidated Statements of Operations. Deferred loan fees of $58,000 associated with the portion of our then existingSenior Credit Facility determined not to have been substantially modified were deferred and subsequently written-off in 2009 dueto the November 2009 Senior Credit Facility retirement.Additionally, in connection with the Additional Incremental Term Loan, we paid bank fees and other expenses of $1.6 millionduring 2008, of which $527,000 were immediately expensed in the year ended December 31, 2008 and $1.1 million weredeferred and subsequently written-off in 2009 due to the November 2009 Senior Credit Facility retirement.Our Senior Credit Facility was amended in October 2008 to allow and additional $15.0 million in capital expenditures for theyear ended December 31, 2008. In connection with the October 2008 amendment, we paid loan fees of $453,000 which werebeing amortized over the remaining life of the Senior Credit Facility and were subsequently written-off in 2009 due to theNovember 2009 Senior Credit Facility retirement. The October amendment to the Senior Credit Facility was determined not tobe a substantial modification. (d)We acquired long-term debt upon our acquisition of UUI and Unicom effective June 1, 2008, from the Rural Utility Services(“RUS”) and CoBank. The long-term debt is due in monthly installments of principal based on a fixed rate amortizationschedule. The interest rates on the various loans to which this debt relates range from 2.0% to 6.8%. Through UUI andUnicom, we have $17.0 million available for borrowing for specific capital expenditures under existing borrowingarrangements. Substantially all of the assets of UUI and Unicom are collateral for the amounts due to RUS and CoBank. (Continued)94 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Maturities of long-term debt as of December 31, 2009 are as follows (amounts in thousands):Years ending December 31, 2010 $5,133 2011 5,004 2012 4,962 2013 5,218 2014 324,908 2015 and thereafter 436,773 781,998 Less unamortized discount paid on 2019 Notes 3,460 Less unamortized discount paid on 2014 Notes 2,158 Less current portion of long-term debt 5,133 $771,247 (7)Income TaxesTotal income tax expense of $3.9 million, $1.1 million and $12.2 million for the years ended December 31, 2009, 2008 and 2007,respectively, was allocated to income/loss in each year. We did not record any excess tax benefit generated from stock options exercisedduring the years ended December 31, 2009, 2008, and 2007 since we are in a net operating loss carryforward position and the incometax deduction will not yet reduce income taxes payable. The cumulative excess tax benefits generated for stock options exercised thathave not been recognized is $4.7 million at December 31, 2009.We have income tax receivables for federal and state alternative minimum tax of $1.2 million and $899,000 at December 31, 2009and 2008, respectively.Income tax expense consists of the following (amounts in thousands): Years ended December 31, 2009 20082007 Current tax expense: Federal taxes$--- --- 436 State taxes --- --- 77 --- --- 513 (Continued)95 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Deferred tax expense: Federal taxes 3,494 922 9,785 State taxes 442 155 1,864 3,936 1,077 11,649 $3,936 1,077 12,162 Total income tax expense differed from the “expected” income tax expense determined by applying the statutory federal income tax rateof 35% as follows (amounts in thousands): Years ended December 31, 2009 2008 2007 “Expected” statutory tax expense (benefit) $2,608 (803) 9,050 State income taxes, net of federal expense (benefit) 456 (48) 1,585 Income tax effect of nondeductible entertainment expenses 703 725 569 Impact of non-controlling interest attributable to non-tax paying entity --- 526 13 Income tax effect of nondeductible lobbying expenses 380 424 468 Other, net (211) 253 477 $3,936 1,077 12,162 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2009and 2008 are summarized below (amounts in thousands): 2009 2008 Current deferred tax assets, net of current deferred tax liability: Compensated absences, accrued for financial reporting purposes $2,565 2,771 Net operating loss carryforwards 8,354 --- Workers compensation and self insurance health reserves, principally due to accrual for financialreporting purposes 580 869 Accounts receivable, principally due to allowance for doubtful accounts 2,981 980 Deferred compensation expense for tax purposes in excess of amounts recognized for financial reportingpurposes (270) 966 Other 3,408 2,257 Total current deferred tax assets $17,618 7,843 (Continued)96 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements 2009 2008 Long-term deferred tax assets: Net operating loss carryforwards $74,345 65,890 Deferred revenue for financial reporting purposes 22,422 20,658 Alternative minimum tax credits 1,892 3,055 Deferred compensation expense for financial reporting purposes in excess of amounts recognized for taxpurposes 1,093 1,274 Asset retirement obligations in excess of amounts recognized for tax purposes 1,775 1,812 Share-based compensation expense for financial reporting purposes in excess of amounts recognized fortax purposes 3,026 2,079 Other 4,132 115 Total long-term deferred tax assets 108,685 94,883 Long-term deferred tax liabilities Plant and equipment, principally due to differences in depreciation 170,260 108,015 Intangible assets 38,811 73,000 Other --- 55 Total long-term deferred tax liabilities 209,071 181,070 Net long-term deferred tax liabilities $100,386 86,187 At December 31, 2009, we have tax net operating loss carryforwards of $211.3 million that will begin expiring in 2011 if not utilized,and alternative minimum tax credit carryforwards of $1.9 million available to offset regular income taxes payable in future years. Ourutilization of remaining acquired net operating loss carryforwards is subject to annual limitations pursuant to Internal Revenue Codesection 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 2006 except that certain U.S. federalincome tax returns for years after 1997 are not closed by relevant statutes of limitations due to unused net operating losses reported onthose 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 $759 759 2018 1,937 1,911 2019 25,942 25,391 2020 44,744 43,797 2021 29,614 28,987 2022 14,081 13,788 2023 3,968 3,903 2024 544 --- 2025 1,342 --- 2026 337 --- 2027 116 --- 2028 39,535 39,097 2029 48,370 47,570 Total tax net operating loss carryforwards $211,289 205,203 (Continued)97 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through taxable incomeearned in carryback years, future reversals of existing taxable temporary differences, and future taxable income exclusive of reversingtemporary differences and carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced ifestimates of future taxable income during the carryforward period are reduced.(8)Stockholders’ EquityCommon StockGCI’s Class A and Class B common stock are identical in all respects, except that each share of Class A common stock has one voteper share and each share of Class B common stock has ten votes per share. Each share of Class B common stock outstanding isconvertible, at the option of the holder, into one share of Class A common stock.During the years ended December 31, 2009, 2008 and 2007 we repurchased 0, 0, and 1.3 million, respectively, shares of our Class Aand Class B common stock at a cost of $0, $0 and $15.1 million, respectively, pursuant to the Class A and Class B common stockrepurchase program authorized by our Board of Directors. During the years ended December 31, 2009, 2008 and 2007 we retired219,000, 540,000, and 843,000 shares, respectively, of our Class A and Class B common stock.Share-Based CompensationOur 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 occurrenceof stock dividends, stock splits, mergers, consolidations or certain other changes in corporate structure or capitalization. If an awardexpires or terminates, the shares subject to the award will be available for further grants of awards under the Stock Option Plan. TheCompensation Committee of GCI’s Board of Directors administers the Stock Option Plan. Substantially all restricted stock awardsgranted vest over periods of up to three years. Substantially all options vest in equal installments over a period of five years and expireten years from the date of grant. The requisite service period of our awards is generally the same as the vesting period. Optionsgranted 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 areexercised or restricted stock awards are made. Our share repurchase program as described above may include the purchase of sharesissued pursuant to our Stock Option Plan.The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of our commonstock. We use a Black-Scholes-Merton option pricing model to estimate the fair value of stock options issued. 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 activityexisted among employee job categories. Therefore, we have categorized these awards into two groups of employees for valuationpurposes.We estimated the expected term of options granted by evaluating the vesting period of stock options, employee’s past exercise and post-vesting employment departure behavior, and expected volatility of the price of the underlying shares.We estimated the expected volatility of our common stock at the grant date using the historical volatility of our common stock over themost recent period equal to the expected stock option term and evaluated the extent to which available information indicated that futurevolatility 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 bondswith maturities similar to those of the expected term of the award being (Continued)98GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements valued. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in theforeseeable 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 duringthe years ended December 31, 2009, 2008 and 2007: 200920082007Expected term (years)5.2 – 6.85.2 – 6.85.2 – 6.8Volatility53.6% – 59.1%47.6% – 55.4%41.5% – 54.3%Risk-free interest rate1.7% – 3.2%1.6% – 3.4%3.5% – 4.7% We estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actualforfeitures differ from those estimates. We record share-based compensation expense only for those awards expected to vest using anestimated forfeiture rate based on our historical pre-vesting forfeiture data.A summary of option activity under the Stock Option Plan as of December 31, 2009, and changes during the year then ended ispresented below (share amounts in thousands):Options Shares WeightedAverageExercise Price WeightedAverageRemainingContractualTerm AggregateIntrinsic Value Outstanding at January 1, 2009 6,815 $8.88 Granted 153 $6.65 Exercised (77) $ 5.52 Forfeited and retired (5,264) $ 9.34 Outstanding at December 31, 2009 1,627 $7.35 4.8 $365 Exercisable at December 31, 2009 1,051 $7.04 3.3 $363 Available for grant at December 31, 2009 4,121 The weighted average grant date fair value of options granted during the years ended December 31, 2009, 2008 and 2007 was $3.49 pershare, $3.10 per share and $7.03 per share, respectively. The total fair value of options vested during the years ended December 31,2009, 2008 and 2007 was $110,000, $3.3 million and $3.3 million, respectively. The total intrinsic values, determined as of the date ofexercise, of options exercised in the years ended December 31, 2009, 2008 and 2007 were $120,000, $214,000 and $3.5 million,respectively. We received $423,000, $416,000 and $3.3 million in cash from stock option exercises in the years ended December 31,2009, 2008 and 2007, respectively. A summary of the status of nonvested shares under the Stock Option Plan as of December 31, 2009, and changes during the yearended December 31, 2009, is presented below (share amounts in thousands):Nonvested Restricted Stock Awards Shares WeightedAverageGrant DateFair Value Nonvested at January 1, 2009 390 $12.38 Granted 1,964 $ 4.63 Vested (128) $ 11.23 Forfeited (1) $ 1.26 Nonvested at December 31, 2009 2,225 $5.69 (Continued)99 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements The following is a summary of our share-based compensation expense for the years ended December 31, 2009, 2008, and 2007 (inthousands): 2009 2008 2007 Employee share-based compensation expense $5,709 7,282 6,273 Expense reversal for performance based options and awards that are not expected to vest (2,134) --- --- Adjustment to fair value of liability classified awards (771) (4) (1,329)Total share-based compensation expense $2,804 7,278 4,944 Share-based compensation expense is classified as selling, general and administrative expense in our consolidated Statements ofOperations. During the third quarter of 2009, we recorded a $2.1 million decrease to share-based compensation expense when wedetermined that it was probable that certain performance based stock options and restricted stock awards would not vest. Unrecognizedshare-based compensation expense was $7.5 million relating to 1.6 million restricted stock awards and $788,000 relating to 574,000unvested stock options as of December 31, 2009. We expect to recognize share-based compensation expense over a weighted averageperiod of 1.6 years for stock options and 2.0 years for restricted stock awards.The following is a summary of activity for stock options granted not pursuant to the Stock Option Plan for the years ended December31, 2009, 2008 and 2007 (share amounts in thousands): Shares WeightedAverageExercise Price Outstanding at December 31, 2007, 2008, and 2009 150 $6.50 Available for grant at December 31, 2009 --- In January 2001 we entered into an aircraft operating lease agreement with a company owned by our President and CEO. The leasewas amended effective January 1, 2002 and February 25, 2005. Upon signing the lease, the lessor was granted an option to purchase250,000 shares of GCI Class A common stock at $6.50 per share, of which 150,000 shares remain available for purchase and expireon March 31, 2010.On August 6, 2009, we filed a Tender Offer Statement on Schedule TO (the “Exchange Offer”) with the SEC. The Exchange Offerwas an offer by us to eligible officers, employees and stakeholders, other than officers of GCI who also serve on our Board of Directors(“Participants”) to exchange, on a grant-by-grant basis, their outstanding eligible stock options that were granted under our Stock OptionPlan, whether vested or unvested, for shares of restricted stock of GCI Class A common stock that we granted under the Stock OptionPlan (“Restricted Stock”). Generally, eligible options included all options issued pursuant to the Stock Option Plan between January 1,1999, and February 15, 2009, excluding any options that vest based on EBITDA performance (“Eligible Options”). We accepted forcancellation, Eligible Options to purchase 5,241,700 shares of GCI Class A common stock from 166 Participants, representingapproximately 86% of the options eligible for exchange in the offer with a fair value of $6.2 million as of the date of the exchange. Weissued 1,908,890 shares of Restricted Stock to Participants, with a fair value of $7.1 million as of the date of the exchange, in eachcase, in accordance with the terms of the Exchange Offer.In accordance with the terms of the Restricted Stock agreement, one-half of the Restricted Stock received in exchange for eligibleoptions will vest on December 20, 2011 with the remainder vesting on February 28, 2012. The number of shares of Restricted Stockthat were offered in exchange for each eligible option was equal to the lesser of (i) a number of shares of Restricted Stock having a fairvalue equal to 100% of the fair value of the eligible options exchanged for shares of Restricted Stock, or (ii) a number of shares ofRestricted Stock equal to 40% of the number of shares issuable pursuant to the eligible options surrendered. (Continued)100 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements The exchange of stock options for Restricted Stock was treated as a modification of the stock options. The remaining unamortized stockcompensation expense related to the original options will continue to be amortized over the vesting period of the Restricted Stock. Thecompensation expense for the incremental difference between the fair value of the Restricted Stock and the fair value of the originaloptions on the date of modification, reflecting the current facts and circumstances on the modification date, will be amortized over thevesting period of the Restricted Stock. The incremental share-based compensation expense related to the modification, net ofestimated forfeitures, is $940,000, of which $122,000 was expensed in the year ending December 31, 2009. We used a lattice modelto value the options exchanged for Restricted Stock for purposes of determining our incremental share-based compensation.Employee Stock Purchase PlanIn 1986, we adopted an Employee Stock Purchase Plan (the “GCI 401(k) Plan”) qualified under Section 401 of the Internal RevenueCode of 1986. The 401(k) Plan provides for acquisition of GCI’s Class A common stock at market value as well as various mutualfunds. The GCI 401(k) Plan permits each employee who has completed one year of service to elect to participate. Eligible employeescould elect to reduce their compensation by up to 50 percent of such compensation (subject to certain limitations) up to a maximum of$16,500 during the year ended December 31, 2009 and will be able to elect to reduce their compensation by up to 50 percent of suchcompensation (subject to certain limitations) or elect contributions to the Roth option of the GCI 401(k) plan up to a combinedmaximum of $16,500 during the year ended December 31, 2010.Eligible employees were allowed to make catch-up contributions of no more than $5,500 during the year ended December 31, 2009and will be able to make such contributions limited to $5,500 during the year ended December 31, 2010. We do not match employeecatch-up contributions.We may match up to 100% of employee salary reductions on after tax contributions in any amount, decided by our Board of Directorseach year, but not more than 10 percent of any one employee’s compensation will be matched in any year. Matching contributions vestover the initial six years of employment. For the year ended December 31, 2009, the combination of pre-tax contributions, after taxcontributions and matching contributions could not exceed the lesser of 100 percent of an employee’s compensation or $49,000(determined after salary reduction). For the year ended December 31, 2008, the combination of pre-tax contributions, after taxcontributions and matching contributions could not exceed the lesser of 100 percent of an employee’s compensation or $46,000(determined after salary reduction).Employee contributions receive up to 100% matching and employees self-direct their matching investment. Our matchingcontributions allocated to participant accounts totaled $6.4 million, $5.8 million, and $5.5 million for the years ended December 31,2009, 2008, and 2007, respectively. We used cash to fund all of our employer-matching contributions during the years endedDecember 31, 2009, 2008 and 2007.Employees of our subsidiaries UUI and Unicom who meet certain age and length of service requirements may participate in a profitsharing and 401(k) deferred contribution plan. We may match up to 100% of employee salary reductions up to the first 4% of anemployee’s contribution. The annual contribution to the profit sharing plan is at the discretion of the UUI and Unicom Board ofDirectors. Matching contributions totaled $174,000 and $104,000 for the year ended December 31, 2009 and from the period fromJune 1, 2008 through December 31, 2008, respectively. Subsequent to December 31, 2009, the profit sharing and 401(k) deferredcontribution plans of UUI and Unicom were merged in the GCI 401(k) Plan.(9) Industry Segments DataOur reportable segments are business units that offer different products and are each managed separately. (Continued)101 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements 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.Commercial - We offer a full range of voice, video, data and wireless services to small businesses, local, national and globalbusinesses, governmental entities and public and private educational institutions.Managed Broadband - We offer data services to rural school districts, hospitals and health clinics through our SchoolAccess® andConnectMD® initiatives and managed video conferencing.Regulated Operations - We offer voice and data services to residential, business, and governmental customers in areas of ruralAlaska. Corporate related expenses including engineering, information technology, accounting, legal and regulatory, human resources, and othergeneral and administrative expenses for the years ended December 31, 2009, 2008, and 2007 are allocated to our Consumer, NetworkAccess, Commercial, and Managed Broadband segments using segment margin for the years ended December 31, 2008, 2007, and2006, respectively. Bad debt expense for the years ended December 31, 2009, 2008, and 2007 is allocated to our Consumer, NetworkAccess, Commercial and Managed Broadband segments using a combination of specific identification and allocations based uponsegment revenue for the years ended December 31, 2009, 2008 and 2007, respectively. Corporate related expenses and bad debtexpense 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 thesame as those described in the summary of significant accounting policies in note 1. Intersegment sales are recorded at cost plus anagreed 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 theUnited States of America, except 82% of our undersea fiber optic cable systems which transit international waters and all of our satellitetransponders. Summarized financial information for our reportable segments for the years ended December 31, 2009, 2008 and 2007 follows(amounts in thousands): Consumer NetworkAccess Commercial ManagedBroadband RegulatedOperations TotalReportableSegments 2009 Revenues: Intersegment $--- 419 5,729 --- 192 6,340 External 294,925 122,072 110,135 44,875 23,804 595,811 Total revenues 294,925 122,491 115,864 44,875 23,996 602,151 Cost of Goods Sold: Intersegment 419 600 2,694 --- 192 3,905 External 96,894 27,253 52,245 11,135 6,149 193,676 Total Cost of Goods Sold 97,313 27,853 54,939 11,135 6,341 197,581 Contribution: Intersegment (419) (181) 3,035 --- --- 2,435 (Continued)102 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements External 198,031 94,819 57,890 33,740 17,655 402,135 Total contribution 197,612 94,638 60,925 33,740 17,655 404,570 Less SG&A 112,883 38,348 35,363 14,450 11,627 212,671 Plus share-based compensation 1,145 891 549 219 --- 2,804 Plus non-cash contribution expense 294 201 98 47 --- 640 Adjusted EBITDA $86,587 57,563 23,174 19,556 6,028 192,908 2008 Revenues: Intersegment $84 916 5,808 --- 157 6,965 External 255,632 153,821 114,660 37,047 14,282 575,442 Total revenues 255,716 154,737 120,468 37,047 14,439 582,407 Cost of Goods Sold: Intersegment 656 685 2,821 125 97 4,384 External 89,853 40,326 59,480 10,265 3,134 203,058 Total Cost of Goods Sold 90,509 41,011 62,301 10,390 3,231 207,442 Contribution: Intersegment (572) 231 2,987 (125) 60 2,581 External 165,779 113,495 55,180 26,782 11,148 372,384 Total contribution 165,207 113,726 58,167 26,657 11,208 374,965 Less SG&A 110,364 43,057 36,191 13,132 7,562 210,306 Plus share-based compensation 2,891 2,443 1,392 552 --- 7,278 Plus non-cash contribution expense 199 177 76 28 --- 480 Plus non-controlling interest 661 589 253 --- --- 1,503 Plus other expense (217) --- --- --- --- (217)Adjusted EBITDA $58,949 73,647 20,710 14,230 3,586 171,122 2007 Revenues: Intersegment $--- 2,978 5,471 --- --- 8,449 External 223,502 163,377 104,640 28,792 --- 520,311 Total revenues 223,502 166,355 110,111 28,792 --- 528,760 Cost of Goods Sold: Intersegment 2,067 1,303 2,487 --- --- 5,857 External 88,699 43,868 53,492 9,740 --- 195,799 Total Cost of Goods Sold 90,766 45,171 55,979 9,740 --- 201,656 Contribution: Intersegment (2,067) 1,675 2,984 --- --- 2,592 External 134,803 119,509 51,148 19,052 --- 324,512 Total contribution 132,736 121,184 54,132 19,052 --- 327,104 Less SG&A 89,723 38,859 36,060 11,110 --- 175,752 Plus share-based compensation 1,715 1,775 1,069 385 --- 4,944 Plus non-controlling interest 13 16 7 --- --- 36 Adjusted EBITDA $46,808 82,441 16,164 8,327 --- 153,740 (Continued)103 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements A reconciliation of reportable segment revenues to consolidated revenues follows (amounts in thousands):Years ended December 31, 2009 2008 2007 Reportable segment revenues $602,151 582,407 528,760 Less intersegment revenues eliminated in consolidation 6,340 6,965 8,449 Consolidated revenues $595,811 575,442 520,311 A reconciliation of reportable segment adjusted EBITDA, to consolidated income (loss) before income taxes follows (amounts inthousands):Years ended December 31, 2009 2008 2007 Reportable segment adjusted EBITDA $192,908 171,122 153,740 Less depreciation and amortization expense 123,362 114,369 87,615 Less share-based compensation expense 2,804 7,278 4,944 Less non-cash contribution expense 640 480 --- Less net loss attributable to non-controlling interest --- 1,503 36 Plus other expense --- 217 --- Consolidated operating income 66,102 47,709 61,145 Less other expense, net 58,650 50,004 35,286 Consolidated income (loss) before income taxes $7,452 (2,295) 25,859 Assets at December 31, 2009, 2008 and 2007 and capital expenditures for the years ended December 31, 2009, 2008 and 2007 arenot allocated to reportable segments as our Chief Operating Decision Maker does not review a balance sheet or capital expenditures bysegment 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 $64.5 million, $65.0 million and $71.6 million for the years ended December 31, 2009, 2008 and 2007,respectively. As a percentage of total revenues, our major customer’s revenues totaled 11%, 11% and 14% for the years endedDecember 31, 2009, 2008 and 2007, respectively (Continued)104 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (10)Financial InstrumentsFair Value of Financial InstrumentsThe fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction betweenwilling parties. At December 31, 2009 and 2008 the fair values of cash and cash equivalents, net receivables, current portion of notesreceivable, accounts payable, accrued payroll and payroll related obligations, accrued interest, accrued liabilities, and subscriberdeposits approximate their carrying value due to the short-term nature of these financial instruments. The carrying amounts andestimated fair values of our financial instruments at December 31, 2009 and 2008 follow (amounts in thousands): 2009 2008 Carrying Amount Fair Value Carrying Amount Fair Value Current and long-term debt and capital leaseobligations $872,294 834,152 817,160 723,403 Other liabilities 72,770 71,623 63,867 63,727 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 2019 Notes, 2014 Notes, RUS debt, CoBank mortgagenote payable, and capital leases are valued based on quoted market prices on the same or similar issues or on the current rates offered tous of the same remaining maturities. The fair value of our Senior Credit Facility is estimated to approximate the carrying value becausethe instrument is subject to variable interest rates. Other Liabilities: Deferred compensation liabilities are carried at fair value, which is the amount payable 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. Leaseescalation liabilities are valued at the discounted amount of future cash flows using quoted market prices on current rates offered to us.Our non-employee share-based compensation awards are reported at their fair value at each reporting period.Fair Value MeasurementsFair Value Measurements and Disclosures under ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. Level 1 inputs, the highestpriority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included inLevel 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservableinputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. We have applied theprovisions of Topic 820 to our trading securities, the assets of our deferred compensation plan (primarily money market funds andmutual funds) and interest rate caps. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 were as follows (amounts in thousands): Fair Value Measurement at Reporting Date Using December 31, 2009 Assets Quoted Pricesin ActiveMarketsfor IdenticalAssets (Level1) SignificantOtherObservableInputs (Level 2) SignificantUnobservableInputs (Level 3) Money market funds $12 --- --- U.S. government and agency obligations 883 --- --- (Continued)105 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Deferred compensation plan assets (money market funds) 1,522 --- --- Derivative financial instruments --- --- --- Total assets at fair value $2,417 --- --- December 31, 2008 Assets Money market funds $590 --- --- U.S. government and agency obligations 973 --- --- Derivative financial instruments --- 7 --- Total assets at fair value $1,563 7 --- The valuation of our marketable securities, money market funds, and mutual funds are determined using quoted market prices inactive markets utilizing market observable inputs. Derivative financial instruments are valued using mid-market quotations in activemarkets that are based on actual bid/ask quotations shown on reliable electronic information screens as of December 31, 2009.(11)Related Party TransactionsWe entered into a long-term capital lease agreement in 1991 with the wife of our President and CEO for property occupied by us. Theleased asset was capitalized in 1991 at the owner’s cost of $900,000 and the related obligation was recorded in the accompanyingfinancial statements. The lease agreement was amended in April 2008 and we have increased our existing capital lease asset andliability 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 leasewas amended effective January 1, 2002 and February 25, 2005. The lease term is month-to-month and may be terminated at any timeupon one hundred and twenty days written notice. The monthly lease rate is $75,000. Upon signing the lease, the lessor was grantedan option to purchase 250,000 shares of GCI Class A common stock at $6.50 per share, of which 150,000 shares remain and wereexercisable at December 31, 2008. We paid a deposit of $1.5 million in connection with the lease. The deposit will be repaid to us uponthe earlier of six months after the agreement terminates, or nine months after the date of a termination notice. The lessor may sell tous 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 thestock option to repay the deposit, if allowed by our debt instruments in effect at such time.(12)Commitments and ContingenciesOperating Leases as LesseeWe lease business offices, have entered into site lease agreements and use satellite transponder and fiber capacity and certainequipment pursuant to operating lease arrangements. Many of our leases are for multiple years and contain renewal options. Rentalcosts, including immaterial amounts of contingent rent expense, under such arrangements amounted to $29.5 million, $35.7 millionand $34.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.Capital Leases as LesseeWe entered into a long-term capital lease agreement in 1991 with the wife of our President and CEO for property occupied by us asfurther described in note 11. (Continued)106 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements On March 31, 2006, through our subsidiary GCI Communication Corp. we entered into an agreement to lease transponder capacity onIntelsat, Ltd.’s (“Intelsat”) Galaxy 18 spacecraft that successfully launched on May 21, 2008. We are also leasing capacity on theHorizons 1 satellite, which is owned jointly by Intelsat and JSAT International, Inc. The leased capacity replaced our existingtransponder 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 ofthe lease payments, excluding telemetry, tracking and command services and back-up protection, was $98.6 million. We recorded acapital 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 therecognition of an $8.8 million warranty receivable. We applied $8.4 million of the warranty receivable to offset our cash obligationrelating to the capital lease during the year ended December 31, 2008, resulting in an outstanding warranty receivable of $465,000 asof December 31, 2008. During the year ended December 31, 2009, we applied the remaining $465,000 of the warranty receivable tooffset our cash obligation.A summary of future minimum lease payments (amounts in thousands) follows:Years ending December 31: Operating Capital 2010 $19,785 11,656 2011 17,152 11,672 2012 14,722 11,732 2013 13,402 11,742 2014 12,083 11,752 2015 and thereafter 68,745 90,232 Total minimum lease payments $145,889 148,786 Less amount representing interest 52,872 Less current maturity of obligations under capital leases 4,759 Long-term obligations under capital leases, excluding current maturity $91,155 The leases generally provide that we pay the taxes, insurance and maintenance expenses related to the leased assets. Several of ourleases include renewal options, escalation clauses and immaterial amounts of contingent rent expense. We expect that in the normalcourse of business leases that expire will be renewed or replaced by leases on other properties.Operating Leases as Lessor and IRU RevenueWe enter into lease or service arrangements for IRU capacity on our fiber optic cable systems with third parties and for many of theseleases or service arrangements, we received up-front cash payments. We have $52.9 million in deferred revenue at December 31,2009 representing cash received from customers for which we will recognize revenue in the future. The arrangements underoperating lease or service arrangements expire on various dates through 2029. The revenue will be recognized over the term of theagreements. (Continued)107 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements A summary of minimum future lease or service arrangement cash receipts including IRUs and the provision of certain other serviceare as follows (amounts in thousands):Years ending December 31, 2010 $7,006 2011 6,753 2012 6,142 2013 6,075 2014 5,581 2015 and thereafter 41,770 Total minimum future service revenues $73,327 The cost of assets that are leased to customers is $251.5 million and $226.0 million as of December 31, 2009 and 2008,respectively. The carrying value of assets leased to customers is $166.2 million and $152.1 million as of December 31, 2009 and2008, respectively.Letters of CreditWe have letters of credit totaling $2.8 million outstanding under our Senior Credit Facility as follows: ·$2.4 million to secure payment of certain access charges associated with our provision of telecommunications services withinthe State of Alaska, ·$282,000 to meet obligations associated with our insurance arrangements, and ·$100,000 to secure right of way access.Wireless Service Equipment ObligationWe have entered into an agreement to purchase hardware, software, and equipment capable of providing wireless service to smallmarkets in rural Alaska as a reliable substitute for standard wire line service. The agreement has a total remaining commitment of$18.9 million. We paid $5.2 million in 2009 and expect to pay $4.0 million and $14.9 million during the years ended December 31,2010, and 2011, respectively.IRU Purchase CommitmentOn July 31, 2006, through our subsidiary GCI Communication Corp. we entered into an agreement to purchase IRU capacity in theKodiak-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 December2006 and the second installment in January 2009. We have committed to purchase a minimum of $3.4 million to $5.3 million inadditional IRU capacity in two installments through 2013.Guaranteed Service LevelsCertain customers have guaranteed levels of service with varying terms. In the event we are unable to provide the minimum servicelevels we may incur penalties or issue credits to customers.Self-InsuranceWe are self-insured for losses and liabilities related primarily to health and welfare claims up to $200,000 per incident and $2.0 millionper lifetime per beneficiary above which third party insurance applies. A reserve of $1.1 million and $1.9 million was recorded atDecember 31, 2009 and 2008, respectively, to cover estimated reported losses, estimated unreported losses based on past experiencemodified for current trends, and estimated expenses for settling claims. We are self-insured for losses and liabilities related to workers’compensation claims up to $500,000 on a per claim basis above which third party insurance applies. A reserve of $72,000 and$157,000 was recorded at December 31, 2009 and 2008, respectively, to cover estimated reported losses and estimated expenses forinvestigating and settling (Continued)108 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements claims. Actual losses will vary from the recorded reserves. While we use what we believe are pertinent information and factors indetermining the amount of reserves, future additions to the reserves may be necessary due to changes in the information and factorsused.We are self-insured for damage or loss to certain of our transmission facilities, including our buried, undersea, and above-groundtransmission lines. If we become subject to substantial uninsured liabilities due to damage or loss to such facilities, our financialposition, results of operations or liquidity may be adversely affected.Litigation, Disputes, and Regulatory MattersWe are involved in various lawsuits, billing disputes, legal proceedings, and regulatory matters that have arisen from time to time inthe normal course of business. While the ultimate results of these items cannot be predicted with certainty we do not expect, at thistime, that the resolution of them will have a material adverse effect on our financial position, results of operations or liquidity.In addition, in September 2008, the FCC's Office of Inspector General ("OIG") initiated an investigation regarding Alaska DigiTel’scompliance with program rules and requirements under the Lifeline Program. The request covers the period beginning January 1,2004 through August 31, 2008 and relates to the amounts received for Lifeline service. Alaska DigiTel was an Alaska based wirelesscommunications company of which we acquired an 81.9% equity interest on January 2, 2007 and the remaining 18.1% equity intereston August 18, 2008 and was subsequently merged with one of our wholly owned subsidiaries in April 2009. Prior to August 18, 2008,our control over the operations of Alaska DigiTel was limited as required by the FCC upon its approval of our initial acquisitioncompleted in January 2007. We intend to fully comply with this request on behalf of Alaska DigiTel and the GCI companies asaffiliates. The OIG investigation is still pending, and we presently are unable to assess the ultimate resolution of this matter.Universal ServiceThe USF pays ETCs to support the provision of local service in high cost areas. Under FCC regulations and RCA orders, GCI is anauthorized ETC for purposes of providing wireless and wireline telephone service in Anchorage, Juneau, Fairbanks, and the MTAstudy area (which includes the Matanuska-Susitna Valley) and other small areas throughout Alaska. Without ETC status, we wouldnot qualify for USF support in these areas or other rural areas where we propose to offer wireline and wireless local services, and ourrevenue for providing local 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 onhigh cost funds to be distributed to competitive ETCs. As part of the revised policy, the FCC adopted a limited exception from the capfor competitive ETCs serving tribal lands or Alaska Native regions. While the operation of the cap will generally reduce the high costfund amounts available to competitive ETCs as new competitive ETCs are designated and as existing competitive ETCs acquire newcustomers, providers like us who serve tribal lands or Alaska Native regions were provided some relief. On March 5, 2009, the FCCissued an additional order waiving a previously adopted limitation to the exception, the result of which was to provide uncapped supportfor all lines served by competitive ETCs for tribal lands or Alaska Native regions during the time the interim cap is in effect. Theuncapped support for tribal lands or Alaska Native regions and the cap for all other regions will be in place until the FCC takes action onproposals for long term reform. On April 8, 2009, the FCC issued a Notice of Inquiry to review aspects of its high cost supportprogram. Comments were filed on May 8, 2009, and replies were filed on June 8, 2009. We cannot predict at this time the outcomeof this proceeding or its affect on high cost support available to us.Cable Service Rate ReregulationFederal law permits regulation of basic cable programming services rates. However, Alaska law provides that cable television service isexempt from regulation by the RCA unless 25% of a system’s subscribers request such regulation by filing a petition with the RCA. AtDecember 31, 2009, only the Juneau system is subject to RCA regulation of its basic service rates. No petition requesting regulation (Continued)109 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements has been filed for any other system. The Juneau system serves 7% of our total basic service subscribers at December 31, 2009.Dobson Resale AgreementAT&T Mobility, LLC (“AT&T Mobility”) acquired Dobson Communications Corporation (“Dobson”), including its Alaska properties, onNovember 15, 2007. In December 2007 we signed an agreement with AT&T Mobility that provided for an orderly transition of ourwireless customers from the Dobson/AT&T network in Alaska to our wireless facilities that we began building in 2008 and are expectedto be substantially completed in 2010 or 2011. The agreement required our customers to be on our wireless network by June 30,2009, but allowed our customers to use the AT&T Mobility network for roaming during the transition period. We successfully migratedall but 200 customers from the AT&T Mobility network to our network by the required transition date of June 30, 2009. The four-yeartransition period, which expires June 30, 2012, provides us adequate time to replace the Dobson/AT&T network in Alaska with ourown 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 toour facilities. We will pay for usage in excess of that base transitional amount. Under the previous agreement with Dobson, ourmargin was fixed. Under the new agreement with AT&T Mobility, we will pay for usage in excess of the block of no charge minutes ona per minute basis. The block of wireless network usage at no charge is expected to substantially reduce our wireless product Cost ofGoods Sold during the approximate four year period beginning June 4, 2008 and ending June 30, 2012.Rural Health Care Division RevenueWe have a customer who participates in the Rural Health Care Division support program that is operated by the USAC. We have beenproviding service to this customer pursuant to a contract since July 1, 2008, however, our customer has not received a fundingcommitment from the USAC. Although we believe all of the revenue recognition requirements have been met, our history with thisprogram demonstrates that the majority of our customers receive funding commitments, and there are sufficient funds available underthis program, in the event that this funding commitment is not approved, we would be required to establish a reserve for theserevenues. At December 31, 2009, we have recorded accounts receivable of $16.8 million for this agreement.CDMA Network ExpansionDuring 2007 Alaska DigiTel and GCI signed an agreement with a customer to build-out Alaska DigiTel's CDMA network with variousmilestones through 2012 to provide expanded roaming area coverage. If we fail to meet the schedule, the customer has the right toterminate the agreement and we may be required to pay up to $16.0 million as liquidated damages. We expect to meet the deadlinesimposed by the build-out schedule and therefore expect our expenditures to result in an expansion of our wireless facilities rather thanpayment of the liquidated damages.Alaska Wireless Contingent PaymentOn July 1, 2008 we completed the acquisition of all of the ownership interests in Alaska Wireless. We made an initial payment on theacquisition date and an additional payment of $5.2 million in February 2010 that was contingent on the achievement of certain financialconditions and was accrued at December 31, 2009.(13)Non-controlling InterestOn January 1, 2009 we adopted ASC Topic 810-10-65-1, “Consolidation” (formerly SFAS No. 160, “Non-Controlling Interests inConsolidated Financial Statements, an Amendment of Accounting Research Bulletin (“ARB”) No. 51”) as noted in Note 1 (ah). As aresult of the required retrospective application of the presentation and disclosure provisions our income (loss) before income taxexpense changed from $(792) previously reported to $(2,295) for the year ended December 31, 2008 and from $25,895 previouslyreported to $25,859 for the year ended December 31, 2007. Our net income (loss) previously reported was $(1,869) and is now$(3,372) for the year ended December 31, 2008 and our net income (loss) previously reported was $13,733 and is now $13,697 forthe year ended December 31, 2007. There was no (Continued)110 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements change in total stockholder’s equity as of December 31, 2008. For the year ended December 31, 2007, total stockholder’s equity aspreviously reported was $252,955 and is now $259,433. There were no adjustments to the consolidated statements of cash flows orbasic or diluted EPS attributable to GCI for the years ended December 31, 2008 and 2007.(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, 2009 and 2008 (amountsin thousands, except per share amounts): FirstQuarter Second Quarter ThirdQuarter FourthQuarter 2009 Total revenues $148,689 148,796 150,816 147,510 Operating income $13,512 18,559 20,730 13,301 Net income (loss) attributable to GCI $354 2,564 4,336 (3,738)Basic net income (loss) attributable to GCI per common share $0.01 0.05 0.08 (0.07)Diluted net income (loss) attributable to GCI per common share $0.00 0.05 0.08 (0.07) (Continued)111GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements  2008 Total revenues $134,674 142,461 151,660 146,647 Operating income $9,714 14,045 15,980 7,970 Net income (loss) attributable to GCI $436 1,832 265 (4,402)Basic net income (loss) attributable to GCI per common share $0.01 0.04 0.01 (0.08)Diluted net income (loss) attributable to GCI per common share $0.00 0.03 0.00 (0.08)During the fourth quarter of 2009, we recognized $1.9 million in interest expense resulting from the write-off of the original issuediscount on our Senior Credit Facility, our interest expense increased $1.0 million due to the issuance of $425.0 million in additionalSenior Notes, we recognized $1.0 million in interest expense resulting from the write-off of deferred loan costs on our Senior CreditFacility, we recorded an $862,000 adjustment to decrease wireless revenue to correct the accrual of wireless plan fee and usagerevenue reported in prior quarters, and we recorded a $760,000 increase to the Allowance for Doubtful Accounts to reserve for a certaincustomer account receivable.During the fourth quarter of 2008, we recognized additional expense of $1.6 million related to the conversion of customer wirelessphones 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.(15)Subsequent EventsIn January 2010 the U.S. Department of Agriculture’s RUS approved our wholly-owned subsidiary, UUI's application for an $88.2million loan/grant combination to extend terrestrial broadband service for the first time to Bristol Bay and the Yukon-Kuskokwim Delta,an area in Alaska roughly the size of the state of North Dakota. Upon completion, UUI’s project, TERRA-Southwest (“TERRA-SW”),will be able to serve 9,089 households and 748 businesses in the 65 covered communities. The project will also be able to servenumerous public/non-profit/private community anchor institutions and entities, such as regional health care providers, school districts,and other regional and Alaska native organizations. The RUS award, consisting of a $44.2 million loan and a $44.0 million grant, willbe made under the RUS Broadband Initiatives Program established pursuant to the American Recovery and Reinvestment Act. Thegrant portion of the award will fund backbone network facilities that we would not otherwise be able to construct within our return-on-investment requirements. UUI expects to start construction on TERRA-SW in 2010 and complete the project by the end of 2012.On January 29, 2010, GCI Holdings, Inc., a wholly owned subsidiary of GCI, entered into a Second Amended and Restated Creditand Guarantee Agreement with Calyon New York Branch, as administrative agent, Royal Bank of Canada, as syndication agent, andCoBank, ACB, Union Bank of California, N.A. and Wells Fargo Bank, N.A., as documentation agents ("amended Senior CreditFacility"). The amended Senior Credit Facility provides a $75.0 million revolving credit facility with a $25.0 million sublimit for lettersof credit. The amended Senior Credit Facility replaced the Senior Credit Facility described in Note 6(c). The interest rate under theamended Senior Credit Facility is LIBOR plus a margin dependent upon our Total Leverage Ratio ranging from 2.5% to 4.0%. Theamended Senior Credit Facility will mature on January 29, 2015. The terms of the amended Senior Credit Facility include customaryrepresentations and warranties, customary affirmative and negative covenants and customary events of default. At any time after theoccurrence of an event of default under the amended Senior Credit Facility, the lenders may, among other options, declare anyamounts outstanding under the amended Senior Credit Facility immediately due and payable and terminate any commitment to makefurther loans under the amended Senior Credit Facility. The obligations under the amended Senior Credit Facility are secured by asecurity interest on substantially all of the assets of GCI Holdings, Inc. and the subsidiary guarantors, and on the stock of GCIHoldings, Inc 112 Item 15(b). ExhibitsListed 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 Restated Articles of Incorporation of the Company dated August 20, 2007 (37) 3.2 Amended and Restated Bylaws of the Company dated August 20, 2007 (36) 4.1 Certified copy of the General Communication, Inc. Amendment No. 1, dated as of June 25, 2007, tothe Amended and Restated 1986 Stock Option Plan (33) 10.3 Westin Building Lease (3) 10.4 Duncan and Hughes Deferred Bonus Agreements (4) 10.5 Compensation Agreement between General Communication, Inc. and William C. Behnke datedJanuary 1, 1997 (13) 10.6 Order approving Application for a Certificate of Public Convenience and Necessity to operate as aTelecommunications (Intrastate Interexchange Carrier) Public Utility within Alaska (2) 10.13 MCI Carrier Agreement between MCI Telecommunications Corporation and GeneralCommunication, Inc. dated January 1, 1993 (5) 10.14 Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation andGeneral Communication, Inc. dated January 1, 1993 (5) 10.15 Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, datedAugust 13, 1993 (6) 10.16 Deferred Compensation Agreement between General Communication, Inc. and Ronald A. Duncan,dated August 13, 1993 (6) 10.17 Pledge Agreement between General Communication, Inc. and Ronald A. Duncan, dated August 13,1993 (6) 10.20 The GCI Special Non-Qualified Deferred Compensation Plan (7) 10.21 Transponder Purchase Agreement for Galaxy X between Hughes Communications Galaxy, Inc. andGCI Communication Corp. (7) 10.25 Licenses: (3) 10.25.1 214 Authorization 10.25.2 International Resale Authorization 10.25.3 Digital Electronic Message Service Authorization 10.25.11 Certificate of Convenience and Public Necessity – Telecommunications Service (Local Exchange)dated July 7, 2000 (29) 10.26 ATU Interconnection Agreement between GCI Communication Corp. and Municipality of Anchorage,executed January 15, 1997 (12) 10.29 Asset Purchase Agreement, dated April 15, 1996, among General Communication, Inc., ACNFI,ACNJI and ACNKSI (8) 10.30 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and AlaskaCablevision, Inc. (8) 10.31 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., andMcCaw/Rock Homer Cable System, J.V. (8) 10.32 Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., andMcCaw/Rock Seward Cable System, J.V. (8) 10.33 Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, amongGeneral Communication, Inc., and the Prime Sellers Agent (9) 10.34 First Amendment to Asset Purchase Agreement, dated October 30, 1996, among GeneralCommunication, Inc., ACNFI, ACNJI and ACNKSI (9) 10.36 Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order U-96-89(5) dated January 14, 1997 (12) 10.37 Amendment to the MCI Carrier Agreement executed April 20, 1994 (12) 10.38 Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994 (11) 10.39 MCI Carrier Addendum—MCI 800 DAL Service effective February 1, 1994 (11) 113 10.40 Third Amendment to MCI Carrier Agreement dated as of October 1, 1994 (11) 10.41 Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995 (11) 10.42 Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996 (12) 10.43 Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996 (11) 10.44 Seventh Amendment to MCI Carrier Agreement dated November 27, 1996 (14) 10.45 First Amendment to Contract for Alaska Access Services between General Communication, Inc. andMCI Telecommunications Corporation dated April 1, 1996 (14) 10.46 Service Mark License Agreement between MCI Communications Corporation and GeneralCommunication, Inc. dated April 13, 1994 (13) 10.47 Radio Station Authorization (Personal Communications Service License), Issue Date June 23,1995 (13) 10.50 Contract No. 92MR067A Telecommunications Services between BP Exploration (Alaska), Inc. andGCI Network Systems dated April 1, 1992 (14) 10.51 Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective August 1,1996 (14) 10.52 Lease Agreement dated September 30, 1991 between RDB Company and GeneralCommunication, Inc. (2) 10.54 Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings datedSeptember 23, 1996 (13) 10.55 Order Granting Extension of Time and Clarifying Order dated October 21, 1996 (13) 10.58 Employment and Deferred Compensation Agreement between General Communication, Inc. andJohn M. Lowber dated July 1992 (13) 10.59 Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall datedAugust 15, 1994 (13) 10.60 Transponder Lease Agreement between General Communication Incorporated and HughesCommunications Satellite Services, Inc., executed August 8, 1989 (6) 10.61 Addendum to Galaxy X Transponder Purchase Agreement between GCI Communication Corp. andHughes Communications Galaxy, Inc. dated August 24, 1995 (13) 10.62 Order Approving Application, Subject to Conditions; Requiring Filing; and Approving Proposed Tariffon an Inception Basis, dated February 4, 1997 (13) 10.66 Supply Contract Between Submarine Systems International Ltd. And GCI Communication Corp.dated as of July 11, 1997. (15) 10.67 Supply Contract Between Tyco Submarine Systems Ltd. And Alaska United Fiber SystemPartnership Contract Variation No. 1 dated as of December 1, 1997. (15) 10.71 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. andits wholly owned subsidiary GCI Communication Corp., and MCI WorldCom NetworkServices, 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 NetworkServices, 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 NetworkServices, 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. and GeneralCommunication, Inc. and its wholly owned subsidiary GCI Communication Corp. dated March12, 2002 # (21) 114 10.102 First Amendment to Lease Agreement dated as of September 2002 between RDB Company and GCICommunication Corp. as successor in interest to General Communication, Inc. (22) 10.103 Agreement and plan of merger of GCI American Cablesystems, Inc. a Delaware corporation and GCICablesystems of Alaska, Inc. an Alaska corporation each with and into GCI Cable, Inc. an Alaskacorporation, adopted as of December 10, 2002 (22) 10.104 Articles of merger between GCI Cablesystems of Alaska, Inc. and GCI Cable, Inc., adopted as ofDecember 10, 2002 (22) 10.105 Aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560Company, Inc., an Alaska corporation, dated as of January 22, 2001 (22) 10.106 First amendment to aircraft lease agreement between GCI Communication Corp., and Alaskacorporation and 560 Company, Inc., an Alaska corporation, dated as of February 8, 2002 (22) 10.108 Bonus Agreement between General Communication, Inc. and Wilson Hughes (23) 10.109 Eighth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom NetworkServices, Inc. # (23) 10.110 Settlement and Release Agreement between General Communication, Inc. and WorldCom, Inc. (23) 10.112 Waiver letter agreement dated as of February 13, 2004 for Credit, Guaranty, Security and PledgeAgreement (24) 10.113 Indenture dated as of February 17, 2004 between GCI, Inc. and The Bank of New York, astrustee (24) 10.114 Registration Rights Agreement dated as of February 17, 2004, among GCI, Inc., and DeutscheBank Securities Inc., Jefferies & Company, Inc., Credit Lyonnais Securities (USA), Inc., Blaylock& Partners, L.P., Ferris, Baker Watts, Incorporated, and TD Securities (USA), Inc., as InitialPurchasers (24) 10.121 First amendment to contract for Alaska Access Services between Sprint Communications CompanyL.P. and General Communication, Inc. and its wholly owned subsidiary GCI Communication Corp.dated July 24, 2002 # (26) 10.122 Second amendment to contract for Alaska Access Services between Sprint CommunicationsCompany L.P. and General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp. dated December 31, 2003 (26) 10.123 Third amendment to contract for Alaska Access Services between Sprint Communications CompanyL.P. and General Communication, Inc. and its wholly owned subsidiary GCI CommunicationCorp. dated February 19, 2004 # (26) 10.124 Fourth amendment to contract for Alaska Access Services between Sprint CommunicationsCompany L.P. and General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp. dated June 30, 2004 # (26) 10.126 Audit Committee Charter (as revised by the board of directors of General Communication, Inc.effective as of February 3, 2005) (27) 10.127 Nominating and Corporate Governance Committee Charter (as revised by the board of directors ofGeneral Communication, Inc. effective as of February 3, 2005) (27) 10.128 Fifth amendment to contract for Alaska Access Services between Sprint Communications CompanyL.P. and General Communication, Inc. and its wholly owned subsidiary GCI CommunicationCorp. dated January 22, 2005 # (27) 10.129Ninth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom NetworkServices, Inc. # (28) 10.130Amended and Restated Credit Agreement among GCI Holdings, Inc. and Calyon New York Branchas Administrative Agent, Sole Lead Arranger, and Co-Bookrunner, The Initial Lenders and InitialIssuing Bank Named Herein as Initial Lenders and Initial Issuing Bank, General Electric CapitalCorporation as Syndication Agent, and Union Bank of California, N.A., CoBank, ACB, CITLending Services Corporation and Wells Fargo Bank, N.A. as Co-Documentation Agents, datedas of August 31, 2005 (28) 115 10.131 Amended and Restated 1986 Stock Option Plan of General Communication, Inc. as of June7, 2005 (28) 10.132 Amendment No. 1 to $150 Million EBITDA Incentive Program dated December 30, 2005 (29) 10.134 Full-time Transponder Capacity Agreement with PanAmSat Corporation dated March 31, 2006# (30) 10.135 Tenth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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, TheMembers of Alaska DigiTel, LLC, AKD Holdings, LLC and The Members of Denali PCS, LLCdated as of June 16, 2006 (Nonmaterial schedules and exhibits to the Reorganization Agreementhave been omitted pursuant to Item 601b.2 of Regulation S-K. We agree to furnish supplementallyto 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 omittedschedule or exhibit.) # (32) 10.138 Sixth amendment to contract for Alaska Access Services between Sprint Communications CompanyL.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 CommunicationsCompany L.P. and General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp. dated January 17, 2007 # (33) 10.140 General Communication, Inc. Director Compensation Plan dated June 29, 2006 (33) 10.141 Eleventh Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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 Holdings, Inc., GCICommunication Corp., GCI Cable, Inc., GCI Fiber Communication Co., Potter ViewDevelopment Co., Inc., and Alaska United Fiber System Partnership, GCI, Inc., the banks,financial institutions, and other lenders party hereto and Calyon New York Branch asAdministrative Agent, dated as of September 14, 2007 (36) 10.143 Joinder Agreement dated as of September 28, 2007 among BNP Paribas, U.S. Bank NationalAssociation, GCI Holdings, Inc., GCI Communication Corp., GCI Cable, Inc., GCI FiberCommunication Co., Potter View Development Co., Inc., and Alaska United Fiber SystemPartnership, GCI, Inc., and Calyon New York Branch as Administrative Agent (36) 10.144 Strategic Roaming Agreement dated as of October 30, 2007 between Alaska DigiTel, LLC. AndWirelessCo L.P. # (37) 10.145 CDMA Build-out Agreement dated as of October 30, 2007 between Alaska DigiTel, LLC. andWirelessCo L.P. (Nonmaterial schedules and exhibits to the Reorganization Agreement havebeen omitted pursuant to Item 601b.2 of Regulation S-K. We agree to furnish supplementally tothe 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, LLC. andSprintCom, Inc. # (37) 116 10.147 Twelfth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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 omittedpursuant to Item 601b.2 of Regulation S-K. We agree to furnish supplementally to theCommission upon request a copy of any omitted schedule or exhibit.) # (37) 10.148 Stock Purchase Agreement dated as of October 12, 2007 among GCI Communication Corp., UnitedCompanies, Inc., Sea Lion Corporation and Togiak Natives LTD. (Nonmaterial schedules andexhibits to the Reorganization Agreement have been omitted pursuant to Item 601b.2 ofRegulation S-K. We agree to furnish supplementally to the Commission upon request a copy ofany omitted schedule or exhibit.) (37) 10.149 Fourth Amendment to the Amended and Restated Credit Agreement dated as of May 2, 2008 by andamong GCI Holdings, Inc., the other parties thereto and Calyon New York Branch, asadministrative agent, and the other Lenders party thereto (38) 10.150 Second Amendment to Lease Agreement dated as of April 8, 2008 between RDB Company and GCICommunication Corp. as successor in interest to General Communication, Inc. (39) 10.151 Audit Committee Charter (as revised by the board of directors of General Communication, Inc.effective as of April 27, 2007) (39) 10.152 Nominating and Corporate Governance Committee Charter (as revised by the board of directors ofGeneral Communication, Inc. effective as of April 27, 2007) (39) 10.153 Thirteenth Amendment to Contract for Alaska Access Services between General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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) 10.154 Fourteenth Amendment to Contract for Alaska Access Services between General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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) 10.155 Contract for Alaska Access Services between the Company and Verizon, dated January 1, 1993 (41) 10.156 Third Amendment to Contract for Alaska Access Services between the Company and Verizon, datedFebruary 27, 1998 (41) 10.157 Fourth Amendment to Contract for Alaska Access Services between the Company and Verizon, datedJanuary 1, 1999 (41) 10.158 Fifth Amendment to the Amended and Restated Credit Agreement dated as of October 17, 2008 byand among Holdings, Inc. the other parties thereto and Calyon New York Branch, asadministrative agent, and the other Lenders party thereto (42) 10.159 Amendment to Deferred Bonus Agreement dated December 31, 2008 by and among the Company,the Employer and Mr. Duncan (43) 10.160 Amendment to Deferred Compensation Agreement dated December 31, 2008 by and among theCompany, the Employer and Mr. Duncan (43) 10.161 First Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedFebruary 15, 2008 # (44) 10.162 Second Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) betweenIntelsat Corporation, formerly known as PanAmSat Corporation and GCI Communication Corp.dated April 9, 2008 # (44) 10.163 Third Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedJune 4, 2008 # (44) 117 10.164 Fourth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedJune 4, 2008 # (44) 10.165 Fifth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedSeptember 30, 2008 # (44) 10.166 Sixth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedOctober 31, 2008 # (44) 10.167 Seventh Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) betweenIntelsat Corporation, formerly known as PanAmSat Corporation and GCI Communication Corp.dated November 6, 2008 # (44) 10.168 Eighth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between IntelsatCorporation, formerly known as PanAmSat Corporation and GCI Communication Corp. datedJune 8, 2009 # (44) 10.169 Fifteenth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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 5, 2009 # (44) 10.170 Second Amended and Restated Credit Agreement dated as of January 29, 2010 by and among GCIHoldings, Inc., the other parties thereto and Calyon New York Branch, as administrative agent,and the other Lenders party thereto (45) 10.171 Sixteenth Amendment to Contract for Alaska Access Services between General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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 October 13, 2009 #* 10.172 Seventeenth Amendment to Contract for Alaska Access Services between General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI CommunicationsServices, 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 December 8, 2009# * 14 Code Of Business Conduct and Ethics (originally reported as exhibit 10.118) (25) 18.1 Letter regarding change in accounting principle (39) 21.1 Subsidiaries of the Registrant * 23.1 Consent of Grant Thornton LLP (Independent Public Accountant for Company)* 23.2 Consent of KPMG LLP (Independent Public Accountant for Company) * 31 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 * 99 Additional Exhibits: 99.1 The Articles of Incorporation of GCI Communication Corp. (1) 99.2 The Bylaws of GCI Communication Corp. (1) 99.7 The Bylaws of GCI Cable, Inc. (10) 99.8 The Articles of Incorporation of GCI Cable, Inc. (10) 99.15 The Bylaws of GCI Holdings, Inc. (13) 99.16 The Articles of Incorporation of GCI Holdings, Inc. (13) 99.17 The Articles of Incorporation of GCI, Inc. (12) 99.18 The Bylaws of GCI, Inc. (12) 99.27 The Partnership Agreement of Alaska United Fiber System (15) 99.28 The Bylaws of Potter View Development Co., Inc. (19) 99.29 The Articles of Incorporation of Potter View Development Co., Inc. (19) 99.34 The Bylaws of GCI Fiber Communication, Co., Inc. (20) 99.35 The Articles of Incorporation of GCI Fiber Communication, Co., Inc. (20) 118 ________________#CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential treatment by us to, and the materialhas been separately filed with, the Securities and Exchange Commission. Each omitted Confidential Portion ismarked by three asterisks. *Filed herewith. ________________ExhibitReferenceDescription1Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 19902Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 19913Incorporated by reference to The Company’s Registration Statement on Form 10 (File No. 0-15279), mailed to theSecurities and Exchange Commission on December 30, 19864Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1989.5Incorporated by reference to The Company’s Current Report on Form 8-K dated June 4, 1993.6Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1993.7Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1995.8Incorporated by reference to The Company’s Form S-4 Registration Statement dated October 4, 1996.9Incorporated by reference to The Company’s Current Report on Form 8-K dated November 13, 1996.10Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1996.11Incorporated by reference to The Company’s Current Report on Form 8-K dated March 14, 1996, filed March 28, 1996.12Incorporated by reference to The Company’s Form S-3 Registration Statement (File No. 333-28001) dated May 29,1997.13Incorporated by reference to The Company’s Amendment No. 1 to Form S-3/A Registration Statement (File No. 333-28001) dated July 8, 1997.14Incorporated by reference to The Company’s Amendment No. 2 to Form S-3/A Registration Statement (File No. 333-28001) dated July 21, 1997.15Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1997.16Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1998.17Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 1999.18Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001.19Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001.20Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2001. 119 21Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.22Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2002.23Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2003.24Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2003.25Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004.26Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004.27Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005.28Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.29Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filedMarch 16, 2006.30Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.31Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006.32Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filedMarch 19, 2007.33Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007.34Incorporated by reference to The Company’s Form S-8 filed with the SEC on July 27, 2007.35Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007.36Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007.37Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filedMarch 7, 2008.38Incorporated by reference to the Company's Report on Form 8-K for the period May 2, 2008 filed May 8, 2008.39Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008.40Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008.41Incorporated by reference to The Company's Report on Form 8-K for the period September 19, 2008 filed on September22, 2008.42Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2008.43Incorporated by reference to The Company's Report on Form 8-K for the period December 31, 2008 filed January 6,2009.44Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.45Incorporated by reference to The Company's Report on Form 8-K for the period January 29, 2010 filed February 3, 2010. 120 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportto 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 12, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the date indicated.Signature Title Date /s/ Stephen M. Brett Chairman of Board and Director March 9, 2010Stephen M. Brett /s/ Ronald A. Duncan President and Director March 12, 2010Ronald A. Duncan (Principal Executive Officer) /s/ Jerry A. Edgerton Director March 12, 2010Jerry A. Edgerton /s/ Scott M. Fisher Director March 1, 2010Scott M. Fisher /s/ William P. Glasgow Director March 5, 2010William P. Glasgow /s/ Mark W. Kroloff Director March 1, 2010Mark W. Kroloff Director Stephen R. Mooney /s/ James M. Schneider Director March 12, 2010James M. Schneider /s/ John M. Lowber Senior Vice President, Chief Financial March 12, 2010John M. Lowber Officer, Secretary and Treasurer(Principal Financial Officer) /s/ Lynda L. Tarbath Vice President, Chief Accounting Officer March 12, 2010Lynda L. Tarbath (Principal Accounting Officer) 121 Exhibit 10.171  *** Confidential Portion has been omitted pursuant to a request for confidential treatment by the Company to, and thematerial has been separately filed with, the SEC. Each omitted Confidential Portion is marked by three Asterisks.SIXTEENTH AMENDMENT TO CONTRACT FOR ALASKA ACCESS SERVICESThis SIXTEENTH AMENDMENT TO THE CONTRACT FOR ALASKA ACCESS SERVICES (“Sixteenth Amendment”) is entered intoeffective as of October 13, 2009 (“Effective Date”), by and between GENERAL COMMUNICATION, INC. and its indirectly, wholly-ownedsubsidiary, GCI COMMUNICATION CORP., both Alaska corporations (together, “GCI”) with offices located at 2550 Denali Street, Suite1000, Anchorage, Alaska 99503-2783 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 (“Verizon”) withoffices located at 1133 19th Street N.W. Washington, D.C. 20036 (GCI with Verizon, collectively the “Parties,” and individually, a “Party”).RECITALSWHEREAS, GCI and Verizon entered into that certain Contract for Alaska Access Services dated January 1, 1993 (“OriginalAgreement”), as amended by (i) the First Amendment to Contract for Alaska Access Services dated as of March 1, 1996, (ii) the SecondAmendment to Contract for Alaska Access Services dated as of January 1, 1998, (iii) the Third Amendment to Contract for Alaska AccessServices dated as of March 1, 1998, (iv) the Fourth Amendment to Contract for Alaska Access Services dated as of January 1, 1999, (v) theFifth Amendment to Contract for Alaska Access Services dated as of August 7, 2000, (vi) the Sixth Amendment to Contract for Alaska AccessServices dated as of February 14, 2001, (vii) the Seventh Amendment to Contract for Alaska Access Services dated as of March 8, 2001, (viii)the Eighth Amendment to Contract for Alaska Access Services dated as of July 1, 2003, (ix) the Ninth Amendment to Contract for AlaskaAccess Services dated as of January 23, 2005, (x) the Tenth Amendment to Contract for Alaska Access Services dated as of May 1, 2006, (xi)the Eleventh Amendment to Contract for Alaska Access Services dated as of January 1, 2007, (xii) the Twelfth Amendment to Contract forAlaska Access Services dated as of December 13, 2007, (xiii) the Thirteenth Amendment to Contract for Alaska Access Services dated as ofDecember 21, 2007, (xiv) the Fourteenth Amendment to Contract for Alaska Access Services dated as of May 15, 2008, and the FifteenthAmendment to Contract for Alaska Access Services dated as of May 5, 2009 (collectively, “Agreement”), which set forth the general termsand conditions under which GCI provides certain telecommunications services to Verizon; andWHEREAS, the Parties desire to further modify the Agreement in accordance with the terms and conditions set forth herein.AGREEMENTNOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Partiesagree as follows:I. Term. The final three sentences shall be deleted in their entirety and the following shall be added to the end of the existingtext of Section 3, Term, in the Agreement:“The term for the *** for *** shall *** on ***, ***, unless the *** the *** and the ***. In the *** (i) the *** the G***and the *** (ii) the term of the ***, *** the ***. Such *** shall be *** the *** that the ***, as ***.”II. Effect of Amendment. All other terms and conditions of the Agreement not expressly modified by this SixteenthAmendment shall remain in full force and effect. The Parties hereby affirm and agree such terms remain binding.III. Further Assurances. The Parties shall cooperate in good faith, and enter into such other instruments and take suchactions, as may be necessary or desirable, to fully implement the intent of this Sixteenth Amendment.IV. Counterparts; Signatures. This Sixteenth Amendment may be executed in counterparts, each of which shall bedeemed an original and both of which shall constitute one and the same instrument. When signed by each Party’s authorizedrepresentative, a facsimile copy of this Sixteenth Amendment shall have the same force and effect as one bearing an originalsignature.V. Entire Agreement. This Sixteenth Amendment, together with the Agreement, including exhibits hereto and otherdocuments incorporated by reference, contains the complete agreement of the Parties with regard to the subject matter herein andsupersedes and replaces all other prior contracts and representations concerning its subject matter. In the event of a conflict betweenthe terms of this Sixteenth Amendment and the Agreement, the terms of this Sixteenth Amendment shall control. Any furtheramendments to the Agreement must be in writing and signed by authorized representatives of both Parties.IN WITNESS WHEREOF, the Parties hereto each acting with proper authority have executed this Sixteenth Amendment as of theEffective Date.MCI COMMUNICATIONS SERVICES, INC.By: /s/ Peter H. ReynoldsPrinted Name: Peter H. ReynoldsTitle: DirectorGCI COMMUNICATION CORP.By: /s/ Natalie BlaylockNatalie BlaylockVice President & General Manager, Network Access ServicesGENERAL COMMUNICATION, INC.By: /s/ Natalie BlaylockNatalie BlaylockVice President & General Manager, Network Access Services  Exhibit 10.172  *** Confidential Portion has been omitted pursuant to a request for confidential treatment by the Company to, and thematerial has been separately filed with, the SEC. Each omitted Confidential Portion is marked by three Asterisks.SEVENTEENTH AMENDMENT TO CONTRACT FOR ALASKA ACCESS SERVICESThis SEVENTEENTH AMENDMENT TO THE CONTRACT FOR ALASKA ACCESS SERVICES (“Seventeenth Amendment”) is enteredinto effective as of December 8, 2009 (“Effective Date”), by and between GENERAL COMMUNICATION, INC. and its indirectly, wholly-owned subsidiary, GCI COMMUNICATION CORP., both Alaska corporations (together, “GCI”) with offices located at 2550 Denali Street,Suite 1000, Anchorage, Alaska 99503-2783 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 (“Verizon”) withoffices located at 1133 19th Street N.W. Washington, D.C. 20036 (GCI with Verizon, collectively the “Parties,” and individually, a “Party”).RECITALSWHEREAS, GCI and Verizon entered into that certain Contract for Alaska Access Services dated January 1, 1993 (“OriginalAgreement”), as amended by (i) the First Amendment to Contract for Alaska Access Services dated as of March 1, 1996, (ii) the SecondAmendment to Contract for Alaska Access Services dated as of January 1, 1998, (iii) the Third Amendment to Contract for Alaska AccessServices dated as of March 1, 1998, (iv) the Fourth Amendment to Contract for Alaska Access Services dated as of January 1, 1999, (v) theFifth Amendment to Contract for Alaska Access Services dated as of August 7, 2000, (vi) the Sixth Amendment to Contract for Alaska AccessServices dated as of February 14, 2001, (vii) the Seventh Amendment to Contract for Alaska Access Services dated as of March 8, 2001, (viii)the Eighth Amendment to Contract for Alaska Access Services dated as of July 1, 2003, (ix) the Ninth Amendment to Contract for AlaskaAccess Services dated as of January 23, 2005, (x) the Tenth Amendment to Contract for Alaska Access Services dated as of May 1, 2006, (xi)the Eleventh Amendment to Contract for Alaska Access Services dated as of January 1, 2007, (xii) the Twelfth Amendment to Contract forAlaska Access Services dated as of December 13, 2007, (xiii) the Thirteenth Amendment to Contract for Alaska Access Services dated as ofDecember 21, 2007, (xiv) the Fourteenth Amendment to Contract for Alaska Access Services dated as of May 15, 2008, and the FifteenthAmendment to Contract for Alaska Access Services dated as of May 5, 2009, and the Sixteenth Amendment to Contract for Alaska AccessServices dated as of October 13, 2009(collectively, “Agreement”), which set forth the general terms and conditions under which GCI providescertain telecommunications services to Verizon;WHEREAS, MCI Communications, Inc. exercised its option to terminate the switched access portion of the Agreement effective asof December 8, 2009, via a notice for Termination of Services. The Parties have reached an agreement in principle on the terms for thatservice, but are negotiating, but have not completed, a definitive agreement to include all of the terms and conditions for switched accessservices. The Parties therefore mutually agree to void the aforementioned notice for Termination of Services, and continue to have GCIprovide switched access services to Verizon in accordance with the terms of the Agreement;; andWHEREAS, the Parties desire to further modify the Agreement in accordance with the terms and conditions set forth herein.  AGREEMENTNOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Partiesagree as follows: 1.The above Recitals are true and correct and the Parties agree to incorporate same into the Agreement. 11.Term. Section 3, Term shall be deleted in its entirety and replaced with the following:“3.A. For all *** provided by *** to *** under this Agreement, except for the *** term set forth in subsection B,below and the *** term in section C, below, the term of this Agreement is *** from ***, *** (through ***), *** (***)*** (***) ***, which shall be *** unless *** the *** by providing written notice of *** (***) *** to the commencementof any renewal option. For SEDs Services (Networx ***) as added by the Fifteenth Amendment, such *** are ***provisions set forth in ***, ***, of the Agreement.B. For *** provided by *** to *** hereunder only, the term *** is ***, with *** to *** the *** by *** of *** at ***(***) *** the *** of any *** or *** the *** agreement for *** is *** Parties.C. For *** provided by *** to *** hereunder ***, ***, ***, *** the *** the *** and the ***. In the *** (i) the *** the*** and the *** (ii) the *** the ***, ***may *** the ***. Such *** shall be *** the *** that the ***, as ***.III. Effect of Amendment. All other terms and conditions of the Agreement not expressly modified by this SeventeenthAmendment shall remain in full force and effect. The Parties hereby affirm and agree such terms remain binding.IV. Further Assurances. The Parties shall cooperate in good faith, and enter into such other instruments and take suchactions, as may be necessary or desirable, to fully implement the intent of this Seventeenth Amendment.V. Counterparts; Signatures. This Seventeenth Amendment may be executed in counterparts, each of which shall bedeemed an original and both of which shall constitute one and the same instrument. When signed by each Party’s authorizedrepresentative, a facsimile copy of this Seventeenth Amendment shall have the same force and effect as one bearing an originalsignature.VI. Entire Agreement. This Seventeenth Amendment, together with the Agreement, including exhibits hereto and otherdocuments incorporated by reference, contains the complete agreement of the Parties with regard to the subject matter herein andsupersedes and replaces all other prior contracts and representations concerning its subject matter. In the event of a conflict betweenthe terms of this Seventeenth Amendment and the Agreement, the terms of this Seventeenth Amendment shall control. Any furtheramendments to the Agreement must be in writing and signed by authorized representatives of both Parties.IN WITNESS WHEREOF, the Parties hereto each acting with proper authority have executed this Seventeenth Amendment as of theEffective Date.MCI COMMUNICATIONS SERVICES, INC.By: /s/ Peter H. ReynoldsPrinted Name: Peter H. ReynoldsTitle: DirectorGCI COMMUNICATION CORP.By: /s/ Natalie BlaylockNatalie BlaylockVice President & General Manager, Network Access ServicesGENERAL COMMUNICATION, INC.By: /s/ Natalie BlaylockNatalie BlaylockVice President & General Manager, Network Access Services    Exhibit 21.1 Exhibit 21.1SUBSIDIARIES OF THE REGISTRANTEntityJurisdiction ofOrganizationName Under Which Subsidiary Does BusinessAlaska United Fiber System PartnershipAlaskaAlaska United Fiber System Partnership, Alaska UnitedFiber System, Alaska United GCI Communication Corp.AlaskaGCI, GCC, GCICC, GCI Communication Corp. GCI, Inc.AlaskaGCI, GCI, Inc. GCI Cable, Inc.AlaskaGCI Cable, GCI Cable, Inc. GCI Holdings, Inc.AlaskaGCI Holdings, Inc. Potter View Development Co., Inc.AlaskaPotter View Development Co., Inc. GCI Fiber Communication, Co., Inc. AlaskaGCI Fiber Communication, Co., Inc., GFCC, Kanas Unicom, Inc.AlaskaUnicom, Inc., UnicomUnited-KUC, Inc.AlaskaUnited-KUC, Inc., United-KUC, KUCUnited Utilities, Inc.AlaskaUnited Utilities, Inc. United Utilities, UUI  Exhibit 23.1  CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated March 12, 2010, with respect to the consolidated financial statements and internal control over financialreporting incorporated by reference in the Annual Report of General Communication, Inc. on Form 10-K for the year ended December 31,2009. We hereby consent to the incorporation by reference of said reports in the Registration Statements of General Communication, Inc. onForms S-8 (File No.’s 33-60728, effective April 5, 1993, 333-8760, effective September 27, 1995, 333-66877, effective November 6,1998, 333-45054, effective September 1, 2000, 333-106453, effective June 25, 2003, 333-152857, effective August 7, 2008, 33-60222,effective April 5, 1993, 333-8758, effective August 24, 1995, 333-8762, effective February 20, 1998, 333-87639, effective September 23,1999, 333-59796, effective April 30, 2001, 333-99003, effective August 30, 2002, 333-117783, effective July 30, 2004, and 333-144916,effective July 27, 2007). /s/ GRANT THORNTON LLP Seattle, WashingtonMarch 12, 2010  Exhibit 23.2  Consent of Independent Registered Public Accounting Firm The Board of Directors General Communication, Inc.: We consent to the incorporation by reference in the registration statements (No.’s 33-60728, 333-8760, 333-66877, 333-45054, 333-106453, 333-152857, 33-60222, 333-8758, 333-8762, 333-87639, 333-59796, 333-99003, 333-117783 and 333-144916) on Form S-8of General Communication, Inc. of our report dated March 20, 2009, except for Note 13, as to which the date is March 12, 2010, with respectto the consolidated balance sheet of General Communication, Inc. and subsidiaries as of December 31, 2008, and the related consolidatedstatements of operations, stockholders’ equity, and cash flows for each of the years in the two year period ended December 31, 2008, whichreport appears in the December 31, 2009, annual report on Form 10-K of General Communication, Inc. Our report dated March 20, 2009, except for Note 13, as to which the date is March 12, 2010, refers the retrospective application of thepresentation and disclosure requirements of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No.160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin (ARB) No. 51,(subsequently codified as ASC Topic 810-10-65, Consolidation) and additionally refers to the Company’s election to change its method ofaccounting for recording depreciation on their property and equipment placed in service commencing in 2008. /s/ KPMG LLP Anchorage, AlaskaMarch 12, 2010    Exhibit 31.1SECTION 302 CERTIFICATIONI, Ronald A. Duncan, certify that:1.I have reviewed this annual report on Form 10-K of General Communication, Inc. for the period ended December 31, 2009;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  SECTION 302 CERTIFICATION b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 12, 2010 /s/ Ronald Duncan Ronald A. Duncan President and Director    Exhibit 31.2SECTION 302 CERTIFICATIONI, John M. Lowber, certify that:1.I have reviewed this annual report on Form 10-K of General Communication, Inc. for the period ended December 31, 2009;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  SECTION 302 CERTIFICATION b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 12, 2010 /s/ John M. Lowber John M. Lowber Senior Vice President, Chief Financial Officer, Secretary and Treasurer    Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the Annual Report of General Communication, Inc. (the “Company”) on Form 10-K for the period ended December 31,2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald A. Duncan, Chief Executive Officerof the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations ofthe Company.Date: March 12, 2010 /s/ Ronald A. Duncan Ronald A. Duncan Chief Executive Officer General Communication, Inc.    Exhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002In connection with the Annual Report of General Communication, Inc. (the “Company”) on Form 10-K for the period ended December 31,2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John M. Lowber, Chief Financial Officer ofthe Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations ofthe Company.Date: March 12, 2010 /s/ John M. Lowber John M. Lowber Chief Financial Officer General Communication, Inc.  

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