General Communication Inc.
Annual Report 2011

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, 2011oro 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 Act: NoneSecurities registered pursuant to Section 12(g) of the 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 Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). Yes x No o 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.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 low prices of such stockas of the close of trading as of the last business day of the registrant’s most recently completed second fiscal quarter of June 30, 2011 was $283,831,960.Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock (as publicly reported bysuch persons pursuant to Section 13 and Section 16 of the Exchange Act) have been excluded in that such persons may be deemed to be affiliates. Thisdetermination of affiliate status is not necessarily a conclusive determination for other purposes.The number of shares outstanding of the registrant’s common stock as of March 1, 2012, was:Class A common stock – 38,358,773 shares; and,Class B common stock – 3,170,522 shares. 2 GENERAL COMMUNICATION, INC.2011 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page No. Cautionary Statement Regarding Forward-Looking Statements4 Part I Item I.Business 4 Item IA.Risk Factors 27 Item IB.Unresolved Staff Comments 34 Item 2.Properties 34 Item 3.Legal Proceedings 34 Item 4.Mine Safety Disclosures 35 PartII Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 35 Item 6.Selected Financial Data 39 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 64 Item 8.Consolidated Financial Statements and Supplementary Data 64 Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 64 Item 9A.Controls and Procedures 64 Item 9B.Other Information 65 Part III Item 10.Directors, Executive Officers and Corporate Governance 65 Item 11.Executive Compensation 71 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 93 Item 13.Certain Relationships and Related Transactions, and Director Independence 97 Item 14.Principal Accountant Fees and Services 99 Part IV Item 15. Exhibits, Consolidated Financial Statement Schedules 101 SIGNATURES 154This Annual Report on Form 10-K is for the year ending December 31, 2011. This Annual Report modifies and supersedes documents filed prior to this AnnualReport. The Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information to you by referring you directly to thosedocuments. Information incorporated by reference is considered to be part of this Annual Report. In addition, information that we file with the SEC in the future will automatically update and supersede information contained in thisAnnual 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 forth in this AnnualReport and in other reports or documents that we file from time to time with the SEC. In this Annual Report, in addition to historical information, we state ourfuture strategies, plans, objectives or goals and our beliefs of future events and of our future operating results, financial position and cash flows. In somecases, you can identify those so-called “forward-looking statements” by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,”“believes,” “estimates,” “predicts,” “potential,” “project,” or “continue” or the negative of those words and other comparable words. All forward-lookingstatements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, achievements, plansand objectives to differ materially from any future results, performance, achievements, plans and objectives expressed or implied by these forward-lookingstatements. In evaluating those statements, you should specifically consider various factors, including those identified under “Risk Factors,” and elsewhere inthis Annual Report. 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 Act of 1995.You should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement, and the related risks, uncertaintiesand other factors speak only as of the date on which they were originally made and we expressly disclaim any obligation or undertaking to update or reviseany forward-looking statement to reflect any change in our expectations with regard to these statements or any other change in events, conditions orcircumstances on which any such statement is based. New factors emerge from time to time, and it is not possible for us to predict what factors will arise orwhen. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actualresults 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 indirect subsidiaries.GCI was incorporated in 1979 under the laws of the State of Alaska and has its principal executive offices at 2550 Denali Street, Suite 1000, Anchorage, AK99503-2781 (telephone number 907-265-5600).GCI is primarily a holding company and together with its direct and indirect subsidiaries, is a diversified communications provider with operations primarilyin the state 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.gci-industrialtelecom.com, http://www.unicom-alaska.com/ and http://www.alaskaunited.com/. The Company hosts Internet services at http://www.gci.net/, broadband delivery of ConnectMD® services athttp://www.connectmd.com, and SchoolAccess® services at http://www.schoolaccess.net/. The Company hosts information about our TERRA-Southwest(“TERRA-SW”) and TERRA-Northwest (“TERRA-NW”) projects at http://terra.gci.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 on Form 10-Q, CurrentReports on Form 8-K, Proxy Statement on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of theSecurities and Exchange Act of 1934 as soon as reasonably practicable after we electronically submit such material to the SEC. In addition, the SEC’s websiteis http://www.sec.gov/. The SEC makes available on this website, free of charge, reports, proxy and information statements, and other information regardingissuers, 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.For financial information about our reportable segments, see “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.” Also refer to note 10 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data.”Narrative Description of our BusinessGeneralWe are the largest Alaska-based communications provider as measured by revenues. We offer facilities-based local and long-distance voice services, wirelesstelephone services, video services, data and Internet access to residential and business customers across the state under our GCI brand. Due to the uniquenature of the markets we serve, including harsh winter weather and remote geographies, our customers rely extensively on our systems to meet theircommunication and entertainment needs. We benefit from the attractive demographic and economic characteristics of Alaska.Since our founding in 1979 as a competitive long distance provider, we have consistently expanded our product portfolio and facilities to become the leadingintegrated communication services provider in our markets. Our facilities include redundant and geographically diverse digital undersea fiber optic cablesystems linking our Alaska terrestrial networks to the networks of other carriers in the lower 48 contiguous states. As of December 31, 2011, our cablesystems passed 79% of Alaska’s households, and we have achieved 52% basic cable penetration of the homes we reach. We believe we offer superior videoservices relative to direct broadcast satellite (“DBS”), which is limited by Alaska’s geographic location, challenging climate and terrain features. At December31, 2011, 80% of the local access lines we served were carried on our own last mile facilities. In recent years, we expanded our efforts in wireless and presentlyoperate the only statewide wireless network. Our network provides access for both global system for mobile communications (“GSM”) and code divisionmultiple access (“CDMA”) based devices, and fourth generation HSPA+ based wireless communications.Our Consumer segment serves residential customers. Our Network Access segment serves other common carriers. Our Commercial segment serves smallbusinesses, local, national and global businesses, governmental entities, and public and private educational institutions. Our Managed Broadband segmentserves rural school districts, hospitals and health clinics. The financial results of the long-distance, local access and Internet services sold to consumer andcommercial customers that we serve in the Bethel, Alaska area are reported in the Regulated Operations segment.For the year ended December 31, 2011, we generated consolidated revenues of $679.4 million. We ended the period with approximately 87,900 long-distancecustomers, 138,100 local access lines in service, 142,600 basic video subscribers, 139,900 wireless subscribers and 119,400 cable modem subscribers.Development of our Business During the Past Fiscal YearTERRA-SW Project. In January 2010 the U.S. Department of Agriculture’s Rural Utilities Service (“RUS”) approved our wholly owned subsidiary, UnitedUtilities, Inc.’s (“UUI”) application for an $88.2 million loan/grant combination to extend terrestrial broadband service for the first time to Bristol Bay and theYukon-Kuskokwim Delta, an area in Alaska roughly the size of the state of North Dakota. UUI began construction on TERRA-SW in 2010 and beganoffering service on this new facility on December 30, 2011. TERRA-SW is now able to serve over 9,000 households and over 700 businesses in the 65covered communities, as well as numerous public/non-profit/private community anchor institutions and entities, such as regional health care providers,school districts, and other regional and Alaska Native organizations.TERRA-NW Project. In August 2011, we entered into a financing arrangement under the New Markets Tax Credit (“NMTC”) program that provided $16.5million in net cash to help fund the extension of terrestrial broadband service for the first time to rural Northwestern Alaska communities via a high capacityhybrid fiber optic and microwave network. When completed, the project, called TERRA-NW, will connect to the TERRA-SW network and provide a highcapacity backbone connection from the served communities to the Internet. 5 In September 2011, the Regulatory Commission of Alaska (“RCA”) approved our application for a $5.3 million grant to help fund TERRA-NW. The grantwas increased to $6.3 million in January 2012. The NMTC arrangement discussed above and this grant award partially fund backbone network facilitiesthat we would not otherwise be able to construct within our return-on-investment requirements. We plan to fund an additional $12.7 million for TERRA-NWand begin construction in 2012 and expect to complete the project in 2014 or earlier if possible.Intrastate Access Reform. On July 1, 2011, changes to the intrastate access charge regime published by the RCA went into effect. These changes generallyshifted revenue to incumbent local exchange carriers (“ILECs”) for transport of intrastate traffic from long distance carriers to the end-user customers throughan increase in fees collected by regulated pools.Universal Service Fund High Cost Support. On November 29, 2011, the Federal Communications Commission (“FCC”) published a final rule to reformthe methodology for distributing Universal Service Fund ("USF") high cost support for voice and broadband services, as well as to the access charge regimefor terminating traffic between carriers. Support for competitive eligible telecommunications carriers (“CETC”) serving areas that generally includeAnchorage, Fairbanks, and Juneau will follow national reforms, capping support per provider per service area as of January 1, 2012, and commencing a five-step phase-down on July 1, 2012. In addition to broader reforms, the FCC tailored revisions specifically for CETCs serving Remote Alaska, intended toaddress the unique challenges for serving these areas. Support to these locations will be capped and distributed on a per-line basis until the later of July 1,2014, or the implementation of a successor funding mechanism. A further rulemaking to consider successor funding mechanisms is underway.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 believe that bundling ourservices significantly improves customer retention, increases revenue per customer and reduces customer acquisition expenses. Our experience indicates thatour bundled customers are significantly less likely to churn, and we experience less price erosion when we effectively combine our offerings. Bundlingimproves our top line revenue growth, provides operating cost efficiencies that expand our margins and drives our overall business performance. As a measureof success to date, over 91,700 of our residential customers subscribe 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 segments to our existingcustomer base to achieve increased revenues and penetration of our services. Through close coordination of our customer service and sales and marketingefforts, our customer service representatives suggest to our customers other services they can purchase or enhanced versions of services they already purchase.Many calls into our customer service centers or visits into one of our 37 retail stores result in sales of additional services and products.Deliver Industry Leading Customer Service. We have positioned ourselves as a customer service leader in the Alaska communications market. We haveorganized our operations to effectively focus on our customers. We operate our own customer service department and maintain and staff our own call centers.We have empowered our customer service representatives to handle most service issues and questions on a single call. We prioritize our customer services toexpedite handling of our most valuable customers’ issues, particularly for our largest commercial customers. We believe our integrated approach to customerservice, including service set-up, programming various network databases with the customer’s information, installation, and ongoing service, allows us toprovide a customer experience that fosters customer loyalty.Leverage Communications Operations. We continue to expand and evolve our integrated network for the delivery of our services. Our bundled strategy andintegrated approach to serving our customers creates efficiencies of scale and maximizes network utilization. By offering multiple services, we are better able toleverage our network assets and increase returns on our invested capital. We periodically evaluate our network assets and continually monitor technologicaldevelopments that we can potentially deploy to increase network efficiency and performance. 6 Expand Our Product Portfolio and Footprint in Alaska. Throughout our history, we have successfully added and expect to continue to add new products toour product portfolio. We have a demonstrated history of new product evaluation, development and deployment for our customers, and we continue to assessrevenue-enhancing opportunities that create value for our customers. In addition to new services such as additional high definition television ("HDTV")channels, we are also expanding the reach of our core products to new markets. Where feasible and where economic analysis supports geographic expansionof our network coverage, we are currently pursuing or expect to pursue opportunities to increase the scale of our facilities, enhance our ability to serve ourexisting customers’ needs and attract new customers. Make Strategic Acquisitions. We have a history of making and integrating acquisitions of in-state telecommunications providers. Our management team isadept at sourcing, acquiring and integrating acquired companies, and we will continue to actively pursue and buy companies that we believe fit with ourstrategy and networks and that enhance earnings.Description of our Business by Reportable SegmentOverviewOur five reportable segments are Consumer, Network Access, Commercial, Managed Broadband, and Regulated Operations. Our reportable segments arebusiness 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 AccessCommercialManaged BroadbandRegulated OperationsVoice: Long-distanceXXX X Local AccessXXX X VideoX X Data: InternetXXXXX Data 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 following description of ourbusiness by reportable segment includes a comprehensive discussion within the Consumer segment section with references to that section if such commonnetwork and facility use exists in another segment. Similarly, many of the same services and products are sold to our customers in different segments.The following discussion includes information about significant services and products, sales and marketing, facilities, competition and seasonality for eachof our five reportable segments. For a discussion and analysis of financial condition and results of operations please see “Part II – Item 7 – Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”Consumer SegmentConsumer segment revenues for 2011, 2010 and 2009 are summarized as follows (amounts in thousands): 7 Year Ended December 31, 2011 2010 2009 Total Consumer segment revenues1$352,574 342,898 294,925 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 10 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performance of our Consumer segment.Services and ProductsOur Consumer segment offers a full range of voice, video, data and wireless services and products to residential customers.Voice Services and ProductsRevenues derived from Consumer segment voice services and products in 2011, 2010, and 2009 totaled $52.1 million, $57.3 million, and $52.7 million,respectively, or 8%, 9%, and 9% of our total revenues, respectively.Long-DistanceWe are a full-service long-distance provider including intrastate, interstate and international calling.Local AccessWe offer local access services in many communities and areas in Alaska, including the state’s five largest population centers, Anchorage, Fairbanks, theMatanuska-Susitna Valley, the Kenai Peninsula, and Juneau. Our own digital local phone service (“DLPS”) facilities and collocated remote facilities thataccess the ILEC unbundled network element ("UNE") loops allow us to offer full featured local service products to customers. In areas where we do not haveour own DLPS facilities or access to ILEC UNE loop facilities, we offer service using total service resale of the ILEC’s local service or UNE platform.Video Services and ProductsRevenues derived from Consumer segment video services and products in 2011, 2010, and 2009 totaled $118.6 million, $118.5 million, and $111.0million, respectively, or 17%, 18%, and 19% of our total revenues, respectively.Our video systems serve 41 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 video service consists of digital basic service with access to between 13 and 21 channels of programming and an expanded digitalbasic service with access to between 40 and 102 additional channels of programming. These services generally consist of programming provided by nationaland local broadcast networks, national and regional cable networks, and governmental and public access programming. We transmit an entirely digital signalfor all cable television channels in all markets we serve.High-definition television. Our high definition television ("HDTV") service provides our subscribers with improved, high-resolution picture quality,improved audio quality and a wide-screen, theater-like display. Our HDTV service offers a broad selection of high-definition programming with access of upto 114 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 video subscribers select, record and store programs and play them atwhatever time is convenient. DVR service also provides the ability to pause and rewind “live” television. 8 Premium channel programming. Our premium channel programming service, which includes cable networks such as Home Box Office, Showtime, Starzand 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 video subscribers to order at their convenience and for a separate fee, individual feature motionpictures and special event programs, on an unedited, commercial-free basis.Pay-per-view programming. Our pay-per-view service permits our video subscribers to order, for a separate fee, scheduled individual feature motion picturesand 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 2011, 2010, and 2009 totaled $72.0 million, $61.4 million, and $50.3 million,respectively, or 11%, 9%, and 8% of our total revenues, respectively.InternetWe primarily offer high-speed cable modem service. Value-added Internet features, such as e-mail virus prevention, personal web site and domain hosting, andadditional e-mail accounts, are available for additional charges. Our consumer high-speed cable modem Internet service offers up to 22 Mbps download and 2Mbps upload speeds.Wireless Services and ProductsRevenues derived from Consumer segment wireless services and products in 2011, 2010, and 2009 totaled $109.9 million, $105.7 million, and $81.0million, respectively, or 16%, 16%, and 14% of our total revenues, respectively.We offer facilities-based mobile wireless voice and data services to our customers in the state’s largest population centers and many other small Alaskacommunities.We offer our customers a variety of post-paid and prepaid wireless rate plans so they can choose the plan that best fits their expected calling needs. Consumervoice service is 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 wirelessvoice plans generally combine a fixed monthly access charge, a designated number of minutes-of-use, per minute usage charges for minutes in excess of theincluded amount and additional charges for certain custom-calling features. Most of our plans include basic features such as voice messaging, caller ID, callforwarding and call waiting, and two-way text messaging. Wireless data service is included 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 wireless services. We also sellaccessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items. We provide contract subscribers substantial equipmentsubsidies 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 at attractive prices. Ourmost popular bundled offering includes long-distance, cable television, cable modem Internet access and local access services. In addition to several otherbundled offerings, we also offer a bundle of wireless services, cable television and cable modem Internet access.Sales and MarketingOur Consumer segment sales efforts are primarily directed toward increasing the number of subscribers we serve, selling bundled services, and generatingincremental revenues through product and feature up-sell opportunities. 9 FacilitiesWe operate a modern, competitive communications network employing digital transmission technology over our fiber optic facilities within Alaska andbetween Alaska and the lower 48 states. Our facilities include three self-constructed digital undersea fiber optic cable systems linking our Alaska terrestrialnetworks to the networks of other carriers in the lower 48 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, Alaska to AlaskaUnited West and Alaska United East.The combination of our Alaska United East, Alaska United West and Alaska United Southeast systems provides us with the ability to provide fully protectedgeographically diverse routing of service between Alaska and the lower 48 states.Our Alaska United Northwest self-constructed terrestrial fiber optic cable system connects Anchorage and Fairbanks, Alaska along the Parks Highwaycorridor 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 linking Anchorage toKenai, Homer, Kodiak, Narrow Cape on Kodiak Island, and Seward, Alaska.We serve many rural and remote Alaska locations solely via satellite communications. Each of our C-band and Ku-band satellite transponders is backed upon alternate spacecraft with multiple backup transponders. The primary spacecraft we use to provide voice, data and Internet services to our rural Alaskacustomers are Intelsat’s Galaxy 18 for C-band and Intelsat's Horizons 1 for Ku-band, but we also lease capacity on two other spacecraft, SES Americom’sAMC-7 and AMC-8.We also lease one 36 MHz transponder on SES Americom's AMC-7 spacecraft. We use this transponder to distribute multi-channel, digitally encoded videoprogramming and services to remote locations within Alaska. We may use this transponder along with four others that we reserve on AMC-7 to restore serviceduring 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 linkBethel, Alaska with 40 rural communities. Virtually all switched services are computer controlled, digitally switched, and interconnected by a packet switchedSS7 signaling network.Other facilities include major earth stations at Adak, Barrow, Bethel, Dillingham, Dutch Harbor, Eagle River, Fairbanks, Galena, King Salmon, Kodiak,Kotzebue, McGrath, Nome, Prudhoe Bay, Sitka, Unalakleet, and Yakutat, all in Alaska, serving the communities in their vicinity. The Eagle River earthstation 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-haul terrestrial andundersea fiber optic cable systems.A fiber optic cable system from our Anchorage distribution center connects to the Matanuska Telephone Association (“MTA”), Eagle River central office andto our major hub earth station in Eagle River. We have digital microwave and fiber IRU facilities serving the Kenai Peninsula communities. We maintain earthstations in Fairbanks (connected via SONET fiber facilities), Anchorage (Benson earth station), and in Prudhoe Bay and Bethel as fiber network restorationearth stations. Our Benson 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, and Anchorage and TERRA-SW communities.We use our demand assigned multiple access ("DAMA") facilities to serve 69 additional locations throughout Alaska. DAMA is a digital satellite earth stationtechnology that allows calls to be made between remote villages using only one satellite hop, thereby reducing satellite delay and capacity requirements whileimproving quality. In addition, 54 (for a total of 123) C-band facilities provide dedicated Internet access and private network services to rural public schools,hospitals, health clinics, and natural resource development industries throughout Alaska. Our network of 83 Ku-band facilities provides dedicated Internetaccess and private network services to rural public schools, hospitals, health clinics, and natural resource development industries throughout Alaska, and inten locations in the lower 48 states. 10 Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic switches to route calls to and from local exchange companies and, in Seattle, toobtain access to other carriers to distribute our southbound traffic to the remaining 49 states and international destinations. Our digital switching systems alsoprovide local service in Anchorage, Fairbanks, Juneau and 13 smaller communities throughout Alaska. Our extensive metropolitan area fiber network inAnchorage supports cable television, Internet and telephony services. The Anchorage, Fairbanks, and Juneau facilities also include digital access cross-connect systems, frame relay data switches, Internet platforms, and in Anchorage and Fairbanks, collocation facilities for interconnecting and hostingequipment for other carriers and commercial entities. We also maintain an operator and customer service center in Wasilla, Alaska. Our operator servicestraffic is processed by an integrated services platform that also hosts answering services, directory assistance, and internal conferencing services.We utilize our coaxial cable facilities for DLPS. This delivery method allows us to utilize our own cable facilities to provide local access service to ourcustomers and avoid paying local loop charges to the ILEC.Our statewide cable systems consist of 3,097 miles of installed cable plant having 450 to 750 MHz of channel capacity. Our cable television businesses arelocated throughout Alaska and serve 41 communities and areas in Alaska, including the state’s five largest population centers, Anchorage, Fairbanks, theMatanuska-Susitna Valley, the Kenai Peninsula, and Juneau. Our facilities include cable plant and head-end distribution equipment. Some of our locations onthe fiber routes are served from the head-end distribution equipment in Anchorage. All of 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 is concentrated inAnchorage and is extended into many remote areas of the state. Our Internet platform includes the following:· Our Anchorage facilities are connected to multiple Internet access points in Seattle through multiple, diversely routed networks;· We use multiple routers on each end of the circuits to control the flow of data and to provide resiliency; and· Our Anchorage facility consists of routers, a bank of servers that perform support and application functions, database servers providingauthentication and user demographic data, layer 2 and layer 3 gigabit and 10 gigabit switch networks for intercommunications and broadbandservices.Our dedicated Internet access and Internet protocol ("IP") data services are delivered to routers located at the multiple service points throughout our service area.Our Internet management platform constantly monitors these routers and continual communications are maintained with all of the core and distribution devicesin the network. The availability and quality of service, as well as statistical information on traffic loading, are continuously monitored for quality assurance.The management platform has the capability to remotely access routers, servers and layer two switches, permitting changes in configuration without the needto be physically located at the service point.We own statewide wireless facilities that cover 98% of the population providing service to urban and rural Alaska communities and we will continue to expandthese networks throughout the terrestrially and satellite served portions of Alaska in 2012. We own GSM/HSPA+ and CDMA/EVDO wireless facilitiesserving urban Alaska locations. Our urban network includes Ericsson and Nortel wireless switches located in Anchorage and 183 cell sites that serve thefollowing areas of Alaska: Anchorage and Eagle River, the Matanuska-Susitna Valley, Kenai Peninsula, Southeast, Kodiak and Fairbanks. Our ruralnetwork consists of GSM facilities that are located throughout Alaska’s rural villages and communities. We extend our network coverage through roamingarrangements with other GSM and CDMA carriers.CompetitionA discussion of competition by product and service in our Consumer segment follows. 11 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”), Alaska CommunicationsSystems Group, Inc. (“ACS”), MTA, long-distance resellers, and certain smaller rural local telephone companies. AT&T Alascom, as a subsidiary ofAT&T, Inc., has access to greater financial, technical and marketing resources than we have. There is also the possibility that new competitors will enter theAlaska market. In addition, wireless and voice over Internet protocol ("VoIP") services continue to grow as an alternative to wireline services as a means ofreaching customers. Wireless local number portability allows consumers to retain the same phone number as they change service providers allowing forinterchangeable and portable fixed-line and wireless numbers. Some consumers now use wireless service as their primary voice phone service for long-distancecalling.We have competed in the long-distance market by offering discounts from rates charged by our competitors and by providing desirable bundles of services.Our ability to compete successfully will depend on our ability to anticipate and respond to various competitive factors affecting the industry, including newservices that may be introduced, changes in consumer preferences, demographic trends, economic conditions and pricing strategies.Local AccessWe compete against ACS, the ILEC in Anchorage, Juneau, Fairbanks and the Kenai Peninsula area; MTA, the ILEC in the Matanuska-Susitna Valley, andother 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 newtechnologies have increased the overall likelihood that barriers to local telephone competition will be substantially reduced or removed. These initiatives includerequirements that ILECs negotiate with entities, including us, to provide interconnection to the existing local telephone network, to allow the purchase, at cost-based rates, of access to UNEs, to establish dialing parity, to obtain access to rights-of-way and to resell services offered by the ILEC. We have been able toobtain interconnection, access and related services from the ILECs, at rates that allow us to offer competitive services. However, if we are unable to continue toobtain these services and access at acceptable rates, our ability to offer local access services, and our revenues and net income, could be materially adverselyaffected. To date, we have been successful in capturing a significant portion of the local telephone market in the locations where we are offering these services.However, there can be no assurance that we will continue to be successful in attracting or retaining these customers. In addition, wireless and VoIP servicescontinue to grow as an alternative to wireline services as a means of reaching customers. Wireless local number portability allows consumers to retain the samephone number as they change service providers allowing for interchangeable and portable fixed-line and wireless numbers. Some consumers now use wirelessservice as their primary voice phone service for local calling.We believe that we have certain advantages over ILECs in providing communications services, including awareness by Alaskan customers of the GCI brandname, 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 video systems face competition from alternative methods of receiving and distributing television signals, including DBS, digital video over telephonelines, broadband IP-based services, wireless and satellite master antenna television ("SMATV") systems, and from other sources of news, information andentertainment such as Internet services, off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive computerservices, and home video products, including video disks. Our video systems also face competition from potential overbuilds of our existing cable systems byother cable television operators and municipally-owned cable systems, and alternative methods of receiving and distributing television signals. The extent towhich our video systems are competitive depends, in part, upon our ability to provide quality programming and other services at competitive prices. 12 We believe that the greatest source of potential competition for video services comes from the DBS industry. Two major companies, DIRECTV and DISH DBSCorporation, are currently offering nationwide high-power DBS services. The ILECs in the Matanuska-Susitna Valley and Ketchikan offer digital videoservice over telephone lines in limited areas. Their product offerings and price points are similar to our product offerings. With the addition of Anchorage localbroadcast stations, increased marketing, ILEC and DBS alliances, and emerging technologies creating new opportunities, competition from these sources hasincreased and will likely continue to increase.Competitive forces will be counteracted by offering expanded programming through digital services. Digital delivery technology is being utilized in all of oursystems. We have retransmission agreements with Anchorage broadcasters and provide for the uplink/downlink of their signals into all our systems, andlocal programming for our customers.Other new technologies may become competitive with non-entertainment services that video systems can offer. The FCC has authorized television broadcaststations to transmit textual and graphic information useful to both consumers and businesses. The FCC also permits commercial and non-commercial FMradio stations to use their subcarrier frequencies to provide non-broadcast services including data transmissions. The FCC established an over-the-airinteractive video and data service that will permit two-way interaction with commercial and educational programming along with informational and dataservices. ILECs and other common carriers also provide facilities for the transmission and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data and other non-video services. The FCC has conducted spectrum auctions for licenses to provide personalcommunication services (“PCS”) as well as other services. PCS and other services will enable license holders, including cable operators, to provide voice anddata services. We own a statewide PCS license in Alaska.Video systems generally operate pursuant to franchises granted on a non-exclusive basis. The 1992 Cable Act gives local franchising authorities jurisdictionover basic video service rates and equipment in the absence of “effective competition.” The 1992 Cable Act also prohibits franchising authorities fromunreasonably denying requests for additional franchises and permits franchising authorities to operate video systems. Well-financed businesses from outsidethe video industry (such as the public utilities that own certain of the poles on which cable is attached) may become competitors for franchises or providers ofcompeting services.We expect to continue to provide, at reasonable prices and in competitive bundles, a greater variety of communication services than are available off-air orthrough other alternative delivery sources. Additionally, we believe we offer superior technical performance and responsive community-based customerservice. Increased competition, however, may adversely affect our market share and results of operations from our video 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 price and pricing plans,service bundles, the types of services offered, the technologies used, customer service, billing services, and perceived quality, reliability and availability. Wecompete with other Alaska based Internet providers and domestic, non-Alaska based providers that provide national service coverage. Several of the providersheadquartered outside of Alaska have substantially greater financial, technical and marketing resources than we do.With respect to our high-speed cable modem service, ACS and other Alaska telephone service providers are providing competitive high-speed data subscriberline services over their telephone lines in direct competition with our high-speed cable modem service. DBS providers and local fixed wireless providerssupply wireless high-speed Internet service in competition with our high-speed cable modem services.Niche providers in the industry, both local and national, compete with certain of our Internet service products, such as web hosting, list services and e-mail.Wireless Services and Products CompetitionWe compete against AT&T Mobility, LLC (“AT&T Mobility”), ACS, MTA, and resellers of those services in Anchorage and other markets. In November2010, Verizon Wireless (“Verizon”) acquired a license for 700 MHz wireless spectrum covering Alaska. We expect Verizon will build a Long Term Evolution(“LTE”) network in 2012 and subsequently they will be an additional competitor where our markets overlap. 13 Regulatory policies favor robust competition in wireless markets. Wireless local number portability helps to maintain a high level of competition in theindustry. Number portability allows subscribers to switch carriers without having to change their telephone numbers.The communications industry continues to experience significant technological changes, as evidenced by the increasing pace of improvements in the capacityand quality of digital technology, shorter cycles for new products and enhancements and changes in consumer preferences and expectations. Accordingly, weexpect competition in the wireless communications industry to continue to be dynamic and intense as a result of the development of new technologies, servicesand products.We compete for customers based principally upon price, bundled services, the services and enhancements offered, network quality, customer service, networkcoverage and capacity, the type of wireless handsets offered, and the availability of differentiated features and services. Our ability to compete successfullywill depend, in part, on our marketing efforts and our ability to anticipate and respond to various competitive factors affecting the industry.SeasonalityOur Consumer segment services and products do not exhibit significant seasonality. Our ability to implement construction projects is hampered during thewinter months because of cold temperatures, snow and short daylight hours.Network Access SegmentNetwork Access segment revenues for 2011, 2010 and 2009 are summarized as follows (amounts in thousands): Year Ended December 31, 2011 2010 2009 Total Network Access segment revenues1$105,456 107,227 122,072 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 10 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performance of our Network Access segment.Services and ProductsOur Network Access segment offers wholesale voice, data, and wireless services and products to other common carrier customers. We provide networktransport, billing services and access to our network to other common carriers. These services allow other common carriers to provide services to theircustomers that originate or terminate on our network, or on the networks of other communication companies to which we connect.Voice Services and ProductsRevenues derived from Network Access segment voice services and products in 2011, 2010, and 2009 totaled $23.6 million, $29.0 million, and $49.8million, respectively, or 3%, 4%, and 8% of our total revenues, respectively.We are engaged in the transmission of interstate and intrastate-switched message telephone service. We terminate northbound message telephone service trafficfor several large resellers who do not have facilities of their own in Alaska. We also provide origination of southbound calling card, toll-free services, and tollservices for interexchange carriers. Services are generally provided pursuant to contracts.Data Services and ProductsRevenues derived from Network Access segment data services and products in 2011, 2010, and 2009 totaled $62.5 million, $61.5 million, and $63.9million, respectively, or 9%, 9%, and 11% of our total revenues, respectively. 14 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 2011, 2010, and 2009 totaled $19.4 million, $16.7 million, and $8.4million, respectively, or 3%, 3%, and 1% of our total revenues, respectively. We provide roaming services on our wireless network within Alaska to otherGSM 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 we serve, the numberof billable minutes of long-distance and wireless traffic we carry over our network and the number of voice and data transmission circuits leased. We sell ourvoice, 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 CustomerWe had no major customer in 2011 or 2010. During the year ended December 31, 2009, Verizon was a major customer. Revenues attributed to our majorcustomer during the year ended December 31, 2009, totaled $64.5 million, or 11% of total revenue for the year.CompetitionOur Network Access segment competes against AT&T Alascom, ACS, and certain smaller rural local telephone carriers. There is also the possibility that newcompetitors will enter the Alaska market.Other common carrier traffic routed to us for termination in Alaska is largely dependent on traffic routed to our carrier customers by their customers. Pricingpressures, new program offerings, revised business plans, and market consolidation continue to evolve in the markets served by our carrier customers. If, asa result, their traffic is reduced, or if their competitors’ costs to terminate or originate traffic in Alaska are reduced, our traffic will also likely be reduced, andwe may have to respond to competitive pressures. We are unable to predict the effect of such changes on our business.Historically, we have competed in the Network Access segment market by offering rates comparable to or less than our competitors, by providing acomprehensive service model to meet the complete needs of our carrier customers, and by providing responsive customer service.Another carrier operates a pair of fiber optic cable facilities connecting points in Alaska to the lower 48 states. This additional fiber system provides directcompetition to services we provide on our owned fiber optic cable facilities.SeasonalityNetwork Access segment long-distance and wireless services revenues derived from our other common carrier customers have historically been highest in thesummer months because of temporary population increases attributable to tourism and increased seasonal economic activity such as construction, commercialfishing, and oil and gas activities. Our Network Access segment data services do not exhibit significant seasonality.Commercial SegmentWe offer a full range of communications services and products to commercial and governmental customers. Commercial segment revenues for 2011, 2010 and2009 are summarized as follows (amounts in thousands): Year Ended December 31, 2011 2010 2009 Total Commercial segment revenues1$136,101 128,458 110,135 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 10 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performance of our Commercial segment. 15 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 globalbusinesses, governmental entities, and public and private educational institutions.Voice Services and ProductsRevenues derived from Commercial segment voice services and products in 2011, 2010, and 2009 totaled $28.7 million, $31.7 million, and $30.8 million,respectively, or 4%, 5% and 5% of our total revenues, respectively.Long-DistanceWe are engaged in the transmission of interstate and intrastate-switched message telephone service between the major communities in Alaska, the remaining 49states, and foreign countries. Our message toll services include intrastate, interstate and international direct dial, toll-free services, calling card, operator andenhanced conference calling services. Small business subscribers generally may cancel long-distance service at any time. Certain small business and mostlarge business, governmental and educational institution customers 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 collocated remote facilities thataccess the ILEC’s UNE loops and wholesale facilities. In areas where we do not have our own facilities or access to ILEC loop facilities, we offer service usingtotal 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, call forwarding, and callwaiting. Small business subscribers generally may cancel local access service at any time. Certain small business and most large business, governmental andeducational institution customers generally contract with us for service over one to five year periods.Video Services and ProductsRevenues derived from Commercial segment video services and products in 2011, 2010, and 2009 totaled $11.6 million, $11.2 million, and $9.2 million,respectively, or 2% of our total revenues for each year.Commercial segment subscribers such as hospitals, hotels and motels are charged negotiated monthly service fees. Our video on demand platform is availableto hotels in Anchorage that are connected using our fiber facilities. Programming services offered to our video systems subscribers differ by system asdescribed in the Consumer segment Video Services and Products section above. You should refer to “Consumer Segment — Services and Products” above foradditional information.Commercial segment also manages our advertising sales. As part of our programming license agreements with programming networks, we generally receive anallocation of scheduled advertising time that we may sell to local, regional and national advertisers. In most cases, the available advertising time is sold by oursales force.Data Services and ProductsRevenues derived from Commercial segment data services and products in 2011, 2010, and 2009 totaled $86.0 million, $76.8 million, and $63.4 million,respectively, or 13%, 12%, and 11% of our total revenues, respectively.InternetWe currently offer several Internet service packages for commercial use. Our business high-speed cable modem Internet service offers access of up to 22 Mbpsdownload and 2 Mbps upload speeds, and free 24-hour customer service and technical support. We also provide dedicated Internet access service tocommercial and public organizations in Alaska. 16 Data NetworksData network services utilize voice and data transmission circuits, dedicated to particular subscribers, which link a device in one location to another in adifferent location. Private IP, private lines, metro Ethernet and frame relay offer a secure solution for frequent communication of large amounts of data betweensites.Managed ServicesWe design, sell, install, service and operate, on behalf of certain customers, communications and computer networking equipment and provide field/depot,third party, technical support, communications consulting and outsourcing services. We supply integrated voice and data communications systemsincorporating private IP, interstate and intrastate digital data networks, point-to-point and multipoint data network and small earth station services.Wireless Services and ProductsRevenues derived from Commercial segment wireless services and products in 2011, 2010, and 2009 totaled $9.8 million, $8.7 million, and $6.7 million,respectively, or 1% of our total revenues for each year.Wireless services and products offered to our Commercial segment customers are the same as those described in the Consumer Wireless Services and Productssection 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 at attractive prices asdescribed further in the Consumer segment Services and Products section above. You should refer to “Consumer Segment — Services and Products” abovefor additional information. Additionally, we use master service agreements with larger enterprise customers 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 generatingincremental revenues through product and feature up-sell opportunities. We sell our Commercial segment services and products primarily through directcontact marketing.FacilitiesOur Commercial segment uses many facilities to provide services and products that are common to the Consumer segment. You should refer to “ConsumerSegment — Facilities” above for additional information.We provide our own facilities-based local access services to many of Anchorage’s larger business customers through expansion and deployment of SONET,optical ethernet, and passive optical network fiber transmission facilities, digital loop carrier facilities, and leased facilities. Our dedicated Internet access and Internet protocol/Multi-Protocol Label Switching data services are delivered to an Ethernet port located at the service point.Our management platform constantly monitors this port and continual communications are maintained with all of the core and distribution elements in thenetwork. The availability and quality of service, as well as statistical information on traffic loading, are continuously monitored for quality assurance. Themanagement platform has the capability to remotely access routers, servers and layer two switches, permitting changes in configuration without the need tophysically be at the service point. This management platform allows us to offer network monitoring and management services to businesses and governmentalentities. Many of the largest commercial networks in Alaska 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. You should refer to“Consumer Segment — Competition” above for additional information. 17 We expect continued competition in commercial customer telephone access, Internet access, wireless and data markets. Competition is based upon price andpricing 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 tointegrate communications networks and data communications equipment has allowed us to maintain our market position based on customer support servicesrather than price competition alone. These services are blended with other transport products into unique customer solutions, including managed services andoutsourcing.SeasonalityOur Commercial segment voice, video, data and wireless services do not exhibit significant seasonality. Our ability to implement construction projects toexpand our outside plant facilities is hampered during the winter months because of cold temperatures, snow and short daylight hours.Managed Broadband SegmentManaged Broadband segment revenues for 2011, 2010 and 2009 are summarized as follows (amounts in thousands): Year Ended December 31, 2011 2010 2009 Total Managed Broadband segment revenues1 $63,248 49,962 44,875 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 10 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performance of our Managed Broadbandsegment.Services and ProductsOur Managed Broadband segment offers Internet access, data network and managed services to rural schools and health organizations.SchoolAccess® is a suite of services designed to advance the educational opportunities of students in underserved regions of the country. Our SchoolAccess®division provides Internet and distance learning services designed exclusively for the school environment. The Schools and Libraries Program of the USFmakes discounts available to eligible rural school districts for telecommunication services and monthly Internet service charges. The program is intended toensure that rural school districts have access to affordable services.Our network, Internet and software application services provided through our Managed Broadband segment’s Medical Services division are branded asConnectMD®. The Rural Health Care Program of the USF makes discounts available to eligible rural health care providers for telecommunication servicesand monthly Internet service charges. The program is intended to ensure that rural health care providers pay no more for telecommunication services in theprovision of health care services than their urban counterparts. Customers utilize ConnectMD® services to securely move data and images, and for voicetraffic and real time multipoint interactive video.We offer a managed video conferencing product for use in distance learning, telemedicine and group communication and collaboration environments. Theproduct is designed to offer customers enhanced communication services that support video, audio and data presentation. Our product benefits customers byreducing travel costs, improving course equity in education and increasing the quality of health services available to patients. The product bundles our dataproducts, video conferencing services and optional rental of video conferencing endpoint equipment. Our video conferencing services include multipointconferencing, integrated services digital network gateway and transcoding services, online scheduling and conference control, and videoconference recording,archiving and streaming. We provide 24-hour technical support via telephone or online. 18 Our videoconferencing network is the largest in Alaska, and network coverage includes parts of the states of Washington and Montana. The network supportsall H.323 IP videoconferencing standards including the newer H.264 standard, and supports call data rates from 128 Kb per second up to and includingmulti-megabit high definition calls.Sales and MarketingOur Managed Broadband segment sales and marketing efforts focus on increasing the number of subscribers we serve, selling bundled services, andgenerating incremental revenues through product and feature up-sell opportunities. We sell our Managed Broadband segment services and products primarilythrough direct contact marketing.FacilitiesOur Managed Broadband segment services and products are delivered using a platform including many of the latest advancements in technology through alocally available circuit, our existing lines, and/or satellite earth stations. Our Internet services are partially provisioned over a satellite based digital videobroadcast carrier that reduces the requirement for new satellite transponder bandwidth to support growth in ConnectMD®, SchoolAccess® and otherbroadband services.We employ a packet data satellite transmission technology for the efficient transport of broadband data in support of our ConnectMD® and SchoolAccess®initiatives. Our SchoolAccess® Internet service is delivered as follows:· In communities where we have terrestrial interconnects or provide existing service over regional earth stations, we have configured intermediatedistribution facilities. Schools that are within these service boundaries are connected locally to one of those facilities;· In communities where we have extended communications services via our DAMA earth station program, SchoolAccess® is provided via a satellitecircuit to an intermediate distribution facility at the Eagle River earth station; and· In communities or remote locations to which we have not extended communications services, SchoolAccess® is provided via a dedicated (usually onpremise) very small aperture terminal ("VSAT") satellite station. The VSAT connects to an intermediate distribution facility located in Anchorage.Our facilities include TERRA-SW, a middle mile long haul broadband network. TERRA-SW provides terrestrial telecommunication service to 65 remoterural Alaska communities located in southwest Alaska through a hybrid microwave and fiber optic network. TERRA-SW includes 395 miles of fiber opticcable stretching from Homer, Alaska to Levelock, Alaska, microwave towers in certain communities and four remote mountaintop microwave repeaters. Weutilize TERRA-SW to support growth in wireless and broadband services including ConnectMD® and SchoolAccess®.You should refer to “Consumer Segment — Facilities” above for additional information.CompetitionThere are several competing companies in Alaska that actively sell broadband services. Our ability to provide end-to-end broadband services solutions hasallowed us to maintain our market position based on “value added” services and products rather than solely based on price competition. These services areblended with other transport and software products into unique customer solutions, including SchoolAccess® and ConnectMD® applications such as videoconferencing and unique web content services.SeasonalityOur Managed Broadband segment does not exhibit seasonality.Regulated Operations SegmentRegulated Operations segment revenues for 2011, 2010 and 2009 are summarized as follows (amounts in thousands): 19 Year Ended December 31, 2011 2010 2009 Total Regulated Operations segment revenues1 $22,002 22,705 23,804 1 See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 10 included in “Part II — Item8 — Consolidated Financial Statements and Supplementary Data” for more information regarding the financial performance of our Regulated Operationssegment.Services and ProductsOur Regulated Operations segment offers wireline communications services, including local access and long-distance, and Internet services and products, toour residential and commercial customers in 60 rural communities primarily in Southwest Alaska.Sales and MarketingOur Regulated Operations segment sales efforts are primarily directed toward increasing the number of subscribers we serve. We sell our Regulated Operationssegment 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. Our outside plant isprimarily aerial and buried copper and fiber optic cables.CompetitionOur Regulated Operations segment has no competition 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 multiple communications, Internet andcable services, (ii) our well-recognized and respected brand names in the Alaskan marketplace and (iii) our leading market positions in the services andproducts we offer. By continuing to pursue a marketing strategy that takes advantage of these characteristics, we believe we can increase our customer marketpenetration and retention rates, increase our share of our customers’ aggregate voice, video, data and wireless services expenditures and achieve continuedgrowth 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, and localregulations designed to preserve or protect the environment. The FCC, the Bureau of Land Management, the United States Forest Service, the United StatesFish and Wildlife Service 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 our facilities on theenvironment would be in the form of construction of facilities and networks at various locations in Alaska and between Alaska, Seattle, Washington, andWarrenton, Oregon. Our facilities have been constructed in accordance with federal, state and local building codes and zoning regulations whenever andwherever applicable. Some facilities may be on lands that may be subject to state and federal wetland regulation.Uncertainty as to the applicability of environmental regulations is caused in major part by the federal government’s decision to consider a change in thedefinition of wetlands. Most of our facilities are on leased property, and, with respect to all of these facilities, we are unaware of any violations of lease terms orfederal, state or local regulations pertaining to preservation or protection of the environment. 20 The engineered routes of our projects to construct terrestrial and undersea fiber optic cable facilities pass over wetlands and other environmentally sensitiveareas. We believe our construction methods used for buried cable have a minimal impact on the environment. The agencies, among others, that are involved inpermitting and oversight of our cable deployment efforts are the United States Army Corps of Engineers, National Marine Fisheries Service, United StatesFish and Wildlife Service, United States Coast Guard, National Oceanic and Atmospheric Administration, Alaska Department of Natural Resources, and theAlaska Office of the Governor-Governmental Coordination. We are unaware of any violations of federal, state or local regulations or permits pertaining topreservation or protection of the environment.In the course of operating our cable television and communications systems, we have used various materials defined as hazardous by applicable governmentalregulations. These materials have been used for insect repellent, paint used to mark the location of our facilities, and pole treatment, and as heating fuel,transformer oil, cable cleaner, batteries, diesel fuel, and in various other ways in the operation of those systems. We do not believe that these materials, whenused in accordance with manufacturer instructions, pose an unreasonable hazard 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 marks, used by each ofour reportable segments, for the letters GCI®, and for the terms SchoolAccess®, Alaska United Fiber Optic Cable System®, GCI ConnectMD®, ConnectMD®,GCI Hypernet®, My GCI®, MyGCI®, Keep Talking Alaska®, Digiminutes®, Unicom®, Cell-ID®, and United-KUC®. The Communications Act of 1934, asamended, gives the FCC the authority to license and regulate the use of the electromagnetic spectrum for radio communications. We hold licenses through oursubsidiary GCI Communication Corp. (“GCICC”) for our satellite and microwave transmission facilities for provision of long-distance services provided byour Consumer, Commercial and Network Access segments.We hold the following licenses, among others:· Two licenses for use of a 30 MHz block of spectrum, which together authorize provision of PCS services in Alaska. Both licenses have an expirationdate of June 23, 2015. Licenses may be revoked and license renewal applications may be denied for cause. We expect the PCS licenses will berenewed in due course when, at the end of the license period, a renewal application will be filed,· A local multipoint distribution system ("LMDS") license which we acquired 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 extensionuntil June 1, 2012 of the requirement to provide “substantial service” in the service region. The commercial availability of equipment to illuminatethis spectrum remains a challenge, and the prospects for renewal at this time are uncertain.· 25 MHz cellular licenses for sites located in the Wade Hampton AK-1 portion of CMA315 (A and B blocks) and in the Bethel AK-2 portion ofCMA 316 (A block), and· Several 25 MHz cellular B licenses are held by our subsidiary Unicom for sites located in the Wade Hampton AK-1 portion of CMA 315 and theBethel AK-2 portion of CMA 316, and operated by GCICC pursuant to a de facto long-term spectrum lease.Earth stations are licensed generally for fifteen years. The FCC also issues a single blanket license for a large number of technically identical earth stations(e.g., VSATs). Our operations may require additional licenses in the future.We are certified through the RCA to provide cable service by Certificates of Public Convenience and Necessity (“CPCN”). These CPCNs are nonexclusivecertificates issued for each community. Although CPCNs have no stated expiration date, they may be revoked due to cause.RegulationOur businesses are subject to substantial government regulation and oversight. The following summary of regulatory issues does not purport to describe allexisting and proposed federal, state, and local laws and regulations, or judicial and regulatory proceedings that affect our businesses. Existing laws andregulations are reviewed frequently by legislative bodies, regulatory agencies, and the courts and are subject to change. Any change in the Act that loosenedregulatory oversight of ILECs’ control of bottleneck facilities could have an adverse impact on our businesses. We cannot predict at this time the outcome ofany present or future consideration of proposed changes to governing laws and regulations. 21 Wireline Voice Services and ProductsGeneral. As an interexchange carrier, we are subject to regulation by the FCC and the RCA as a non-dominant provider of interstate, international, andintrastate 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 franchise requirements also affect our ability to provide communications services to militarybases.Rural Exemption and Interconnection. A Rural Telephone Company is exempt from compliance with certain material interconnection requirements underSection 251(c) of the 1996 Telecom Act, including the obligation to negotiate Section 251(b) and (c) interconnection requirements in good faith, unless anduntil a state regulatory commission lifts such “rural exemption” or otherwise finds it not to apply. All ILECs in Alaska are Rural Telephone Companies exceptACS in its Anchorage study area. We have had to participate in numerous proceedings regarding the rural exemptions of various ILECs, including ACS forits Fairbanks and Juneau operating companies, MTA and Ketchikan, in order to achieve the necessary interconnection agreements with the remaining ILECs.In other cases the interconnection agreements were reached by negotiation without regard to the implications of the ILEC’s rural exemption.We have completed negotiation and/or arbitration of the necessary interconnection provisions and the RCA has approved current wireline InterconnectionAgreements between GCI and all of the major ILECs. We have entered all of the major Alaskan markets with local access services.See “Description of Our Business by Reportable Segment — Consumer — Competition — Voice Services and Products Competition” for more information.Access Charges and Other Regulated Fees. The FCC regulates the fees that local telephone companies charge long-distance companies for access to theirlocal networks. On November 29, 2011, the FCC published a final rule to restructure and reduce over time originating interstate access charges, along with aproposal to adopt similar reforms applicable to terminating interstate access charges. We do not anticipate that these changes, which will begin implementationstarting in 2012, will have a material impact, except that the reduction of interstate access rates generally will result in a cost savings on access charges tous. However, the details of implementation in general and between different classes of technology will be addressed over the coming year, and they could affectthe economics of some aspects of our business. We cannot predict at this time the impact of this implementation but we do not expect it to have a materialimpact on our operations.Carriers also pay fees for switched wholesale transport services in and out of Alaska. The rates for such services offered by and to any provider were governedby a federal law that was effective through December 31, 2009. The expiration of the applicable federal law has resulted in a decrease in the rates for services,resulting in a reduction of revenues, which may continue over time.Access to Unbundled Network Elements. The ability to obtain UNEs is an important element of our local access services business. We cannot predict theextent to which existing FCC rules governing access to and pricing for UNEs will be sustained in the face of additional legal action and the impact of anyfurther rules that are yet to be determined by the FCC. Moreover, the future regulatory classification of services that are transmitted over facilities may impactthe extent to which we will be permitted access to such facilities. Changes to the applicable regulations could result in a change in our cost of serving new andexisting markets.Recurring and non-recurring charges for UNE loops and other UNEs may increase based on the rates adopted in RCA proceedings to establish newInterconnection Agreements or renew existing agreements. These increases could have an adverse effect on our financial position, results of operations orliquidity.Universal Service. The USF pays Eligible Telecommunications Carriers ("ETC") to support the provision of facilities-based wireline telephone service inhigh cost areas. Under FCC regulations and RCA orders, we are an authorized ETC for purposes of providing wireline local exchange service in Anchorage,Juneau, Fairbanks, and the MTA study area (which includes the Matanuska-Susitna Valley) and other small areas throughout Alaska. Without ETC status,we would not qualify for USF support in these areas or other rural areas where we propose to offer facilities-based wireline telephone services, and our net costof providing local telephone services in these areas would be materially adversely affected. 22 On November 29, 2011, the FCC published a final rule to reform the methodology for distributing USF high cost support for voice and broadband services,as well as to the access charge regime for terminating traffic between carriers. Support for CETC serving areas that generally include Anchorage, Fairbanks,and Juneau will follow national reforms, capping support per provider per service area as of January 1, 2012, and commencing a five-step phase-down onJuly 1, 2012. In addition to broader reforms, the FCC tailored revisions specifically for CETCs serving Remote Alaska, intended to address the uniquechallenges for serving these areas. Support to these locations will be capped and distributed on a per-line basis until the later of July 1, 2014, or theimplementation of a successor funding mechanism. A further rulemaking to consider successor funding mechanisms is underway. We cannot predict at thistime the outcome of this proceeding or its effect on Remote high cost support available to us, but our revenue for providing local services in these areas wouldbe materially adversely affected by a substantial reduction of USF support. On February 6, 2012, the FCC released its Report and Order and Further Notice of Proposed Rulemaking to comprehensively reform and modernize theUSF’s Lifeline program. The Lifeline program is administered by the USAC and is designed to ensure that quality telecommunications services are availableto low-income customers at just, reasonable, and affordable rates. Amongst several other less significant changes the order reduces on an interim basis thesupport previously available under Tier I through Tier III support mechanisms, requires an annual recertification of all Lifeline subscribers enrolled as of June1, 2012 to be completed by the end of 2012, adopts a “one per household” rule with “household” defined as an “economic unit,” and requires biennial auditsfor all ETCs receiving more than $5.0 million annually from Lifeline.Local Regulation. We may be required to obtain local permits for street opening and construction permits to install and expand our networks. Local zoningauthorities often regulate our use of towers for microwave and other communications sites. We also are subject to general regulations concerning building codesand local licensing. The 1996 Telecom Act requires that fees charged to communications carriers be applied in a competitively neutral manner, but there canbe no assurance that ILECs and others with whom we will be competing will bear costs similar to those we will bear in this regard.Video Services and ProductsGeneral. Because cable communications systems use local streets and rights-of-way, they generally are operated pursuant to franchises (which can take theform of certificates, permits or licenses) granted by a municipality or other state or local government entity. The RCA is the franchising authority for all ofAlaska. We believe that we have generally met the terms of our franchises, which do not require periodic renewal, and have provided quality levels of service.Military franchise requirements also affect our ability to provide video services to military bases.The RCA is also certified under federal law to regulate rates for the Basic Service tier on our cable systems. Under state law, however, cable television serviceis exempt from regulation unless subscribers petition the RCA. At present, regulation of basic cable rates takes place only in Juneau. The RCA does notregulate rates for cable modem service.Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal carriage requirements that allow local commercial television broadcaststations to elect once every three years to require a cable system to carry the station, subject to certain exceptions, or to negotiate for “retransmission consent” tocarry the station.The FCC has adopted rules to require cable operators to carry the digital programming streams of broadcast television stations. The FCC requirement thatcable operators carry both the analog and digital programming streams of broadcast television stations while broadcasters are transitioning from analog todigital transmission does not apply to all-digital systems like ours. Further, the FCC has declined to require any cable operator to carry multiple digitalprogramming streams from a single broadcast television station, but should the FCC change this policy, we would be required to devote additional cablecapacity to carrying broadcast television programming streams, a step that could require the removal of other programming services. 23 Cable System Delivery of Internet Service. The FCC has defined high-speed Internet over cable as an “information service” not subject to local cablefranchise fees, as cable service may be, or any explicit requirements for “open access.” The Supreme Court affirmed the FCC’s position in a decision issuedin 2005.Although there is at present no significant federal regulation of cable system delivery of Internet services, proposals previously have been advanced at the FCCand before Congress to require cable operators to provide access to unaffiliated Internet service providers and online service providers and to govern the termsunder which content providers and applications are delivered by all broadband network operators. If such requirements were imposed on cable operators, itcould burden the capacity of cable systems and frustrate our plans for providing expanded Internet access services. These access obligations could adverselyaffect our financial position, results of operations or liquidity.Segregated Security for Set-top Devices. The FCC mandated, effective July 1, 2007, that all new set-top video navigation devices must segregate the securityfunction from the navigation function. The new devices are more expensive than existing equipment, and compliance would increase our cost of providingcable 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 facilitateour all-digital cable networks.AllVid Proceeding. On April 21, 2010, the FCC adopted a Notice of Inquiry to consider ways to develop a standardized interface for accessing video content,as an alternative to set-top boxes. Adoption of new rules or standards in this area could affect the manner in which we deliver video products to ourcustomers. We do not know if the FCC will propose rules for further consideration.Pole Attachments. The Communications Act requires the FCC to regulate the rates, terms and conditions imposed by public utilities for cable systems’ use ofutility pole and conduit space unless state authorities can demonstrate that they adequately regulate pole attachment rates. In the absence of state regulation, theFCC administers pole attachment rates on a formula basis. This formula governs the maximum rate certain utilities may charge for attachments to their polesand conduit by companies providing communications services, including cable operators. The RCA, however, does not use the federal formula and insteadhas adopted its own formula that has been in place since 1987. This formula could be subject to further revisions upon petition to the RCA. In addition, onApril 7, 2011, the FCC adopted an order to rationalize different pole attachment rates among types of services. The order has no immediate impact on theterms under which we access poles; however, the order is currently subject to petitions for reconsideration. Though the general purpose of rule changes was toensure pole attachment rates as low and as uniform as possible, due to the pending reconsideration requests, we cannot predict at this time the outcome of thisproceeding.Copyright. Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filingcertain reports and contributing a percentage of their revenues to a federal copyright royalty pool that varies depending on the size of the system, the number ofdistant broadcast television signals carried, and the location of the cable system, cable operators can obtain blanket permission to retransmit copyrightedmaterial included in broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislativereview. We cannot predict the outcome of this legislative review, which could adversely affect our ability to obtain desired broadcast programming. Copyrightclearances for non-broadcast programming services are arranged 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 with the global Internetcontrols operational aspects of their own network. Certain functions, such as IP addressing, domain name routing, and the definition of the TCP/IP protocol,are coordinated by an array of quasi-governmental, intergovernmental, and non-governmental bodies. The legal authority of these bodies is not preciselydefined.Although the FCC does not regulate the prices charged by Internet service providers or Internet backbone providers, the vast majority of users connect to theInternet over facilities of existing communications carriers. Those communications carriers are subject to varying levels of regulation at both the federal andstate level. Thus, non-Internet-specific regulatory decisions exercise a significant influence over the economics of the Internet market. 24 Many aspects of the coordination and regulation of Internet activities and the underlying networks over which those activities are conducted are evolving.Internet-specific and non-Internet-specific changes in the regulatory environment, including changes that affect communications costs or increase competitionfrom ILECs or other communications services providers, could adversely affect the prices at which we sell Internet-based services.On November 20, 2011, FCC issued rules governing the activities of cable operators and other Internet service providers in connection with the provision ofInternet service. The rules generally prohibit blocking lawful content and prohibiting unreasonable discrimination, outside of reasonable networkmanagement, as well as imposing transparency and related disclosure requirements. We do not believe at this time that these requirements represent significantfederal regulation of cable system delivery of Internet services. In addition, these rules are subject to court appeals. Further legislative proposals under thebanner of “net neutrality,” if adopted, could interfere with our ability to reasonably manage and invest in our broadband network, and could adversely affectthe manner and price of providing service.Wireless Services and ProductsGeneral. The FCC regulates the licensing, construction, interconnection, operation, acquisition, and transfer of wireless network systems in the United Statespursuant to the Communications Act. As a licensee of PCS, LMDS, and other wireless services, we are subject to regulation by the FCC, and must complywith certain build-out and other license conditions, as well as with the FCC’s specific regulations governing wireless services, including the PCS and LMDSservices (described above). The FCC does not currently regulate rates for services offered by commercial mobile radio service providers.Commercial mobile radio service wireless systems are subject to Federal Aviation Administration and FCC regulations governing the location, lighting andconstruction of antenna structures on which our antennas and associated equipment are located and are also subject to regulation under federal environmentallaws and the FCC’s environmental regulations, including limits on radio frequency radiation from wireless handsets and antennas on towers.Interconnection. We have completed negotiation and the RCA has approved current direct wireless interconnection agreements between GCI and all of themajor Alaska 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 wireless carrier may seekETC status so that it can receive support from the USF. Several wireless carriers, including us, have successfully applied to the RCA for ETC status inAlaska. Under FCC regulations and RCA orders, we are an authorized ETC for purposes of providing wireless telephone service in Anchorage, Juneau,Fairbanks, and the MTA study area (which includes the Matanuska-Susitna Valley) and other small areas throughout Alaska. Without ETC status, wewould not qualify for USF support in these areas or other rural areas where we propose to offer facilities-based wireless telephone services, and our net cost ofproviding wireless telephone services in these areas would be materially adversely affected.See “Description of Our Business by Reportable Segment — Regulation — Wireline Voice Services and Products — Universal Service” for more information.Emergency 911. The FCC has imposed rules requiring carriers to provide emergency 911 services, including enhanced 911 (“E911”) services that provide tolocal public safety dispatch agencies the caller’s communications number and approximate location. Providers are required to transmit the geographiccoordinates of the customer’s location, either by means of network-based or handset-based technologies, within accuracy parameters recently revised by theFCC, to be implemented over a phase-in period. We are assessing the application of such parameters in Alaska’s relatively low population and rural serviceareas. Providers may not demand cost recovery as a condition of providing E911, although they are permitted to negotiate cost recovery if it is not mandatedby the state or local governments.State and Local Regulation. While the Communications Act generally preempts state and local governments from regulating the entry of, and the ratescharged by, wireless carriers, it also permits a state to petition the FCC to allow it to impose commercial mobile radio service rate regulation when marketconditions fail to adequately protect customers and such service is a replacement for a substantial portion of the telephone wireline exchange service within astate. No state currently has such a petition on file, and all prior efforts have been rejected. In addition, the Communications Act does not expressly preemptthe states from regulating the “terms and conditions” of wireless service. 25 Several states have invoked this “terms and conditions” authority to impose or propose various consumer protection regulations on the wireless industry. Stateattorneys general have also become more active in enforcing state consumer protection laws against sales practices and services of wireless carriers. States alsomay impose their own universal service support requirements on wireless and other communications carriers, similar to the contribution requirements thathave been established by the FCC.States have become more active in attempting to impose new taxes and fees on wireless carriers, such as gross receipts taxes. Where successful, these taxes andfees are generally passed through to our customers and result in higher costs to our customers.At the local level, wireless facilities typically are subject to zoning and land use regulation. Neither local nor state governments may categorically prohibit theconstruction of wireless facilities in any community or take actions, such as indefinite moratoria, which have the effect of prohibiting construction.Nonetheless, securing state and local government approvals for new tower sites has been and is likely to continue to be difficult, lengthy and costly.Financial Information about our Foreign and Domestic Operations and Export SalesAlthough we have several agreements to help originate and terminate international toll traffic, we do not have foreign operations or export sales. We conduct ouroperations throughout the western contiguous United States and Alaska and believe that any subdivision of our operations into distinct geographic areas wouldnot be meaningful.Company-Sponsored ResearchWe have not expended material amounts during the last three fiscal years on company-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 this geographicconcentration, growth of our business and operations depends upon economic conditions in Alaska. The economy of Alaska is dependent upon the naturalresource industries, and in particular oil production, as well as investment earnings, tourism, government, and United States military spending. Anydeterioration in these markets could have an adverse impact on us. A significant part of the Alaska economy is the state government. All of the federal fundingand the majority of investment revenues are dedicated for specific purposes, leaving oil revenues as the primary source of general operating revenues for theState of Alaska. The State of Alaska reported in fiscal 2011 that oil revenues supplied 92% of the State's unrestricted revenues. In fiscal 2012 state economistsforecast that Alaska’s oil revenues will supply 92% of the State’s projected unrestricted revenues.The volume of oil transported by the TransAlaska Oil Pipeline System over its life to date has been as high as 2.011 million barrels per day in fiscal 1988.Production has been declining over the last several years with an average of 603,000 barrels produced per day in fiscal 2011. The State forecasts theproduction rate to decline from 574,000 barrels produced per day in fiscal 2012 to 458,000 barrels produced per day in fiscal 2021.Market prices for North Slope oil averaged $94.49 in fiscal 2011 and are forecasted to average $109.33 in fiscal 2012. The closing price per barrel was$127.34 on March 1, 2012. To the extent that actual oil prices vary materially from the State’s projected prices, the State’s projected revenues and deficits willchange. The production policy of the Organization of Petroleum Exporting Countries and its ability to continue to act in concert represents a key uncertainty inthe 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 in oil production fromthe Prudhoe Bay area is inevitable with a corresponding adverse impact on the economy of the State, in general, and on demand for telecommunications andcable television services, and, therefore, on us, in particular. Royal Dutch Shell plc is working with regulators to secure all the required permits to begindrilling for oil in the Chukchi Sea in the summer of 2012. Periodically there are renewed efforts to allow exploration and development in the Arctic NationalWildlife Refuge (“ANWR”). The United States Energy Information Agency has estimated that it could take nine years to begin oil field drilling after approvalof ANWR exploration. 26 No assurance can be given that the driving forces in the Alaska economy, and in particular, oil production, will continue at appropriate levels to provide anenvironment for expanded economic activity. The governor of the State of Alaska and the Alaska legislature continue to evaluate the state’s oil tax structurewhich may also affect the oil production industry in Alaska.No assurance can be given that oil companies doing business in Alaska will be successful in discovering new fields or further developing existing fields whichare economic to develop and produce oil with access to the pipeline or other means of transport to market. We are not able to predict the effect of changes in theprice and production volumes of North Slope oil on Alaska’s economy or on us.Deployment of a natural gas pipeline from the State of Alaska’s North Slope to the lower 48 states has been proposed to supplement natural gas supplies.Companies that have been studying the economic viability of a natural gas pipeline, which depends upon the price of and demand for natural gas, have notbeen able to secure adequate shipping bids to date. Production of natural gas supplies, whether through a pipeline or other means, continues to be studied bygovernment regulators and the involved parties.The State of Alaska maintains the Constitutional Budget Reserve Fund (“CBRF”) that is intended to fund budgetary shortfalls. If the State’s currentprojections are realized and no surpluses are deposited into the CBRF it is projected that the fund would not be depleted before 2021. The date the CBRF isdepleted is highly influenced by the price of oil. If the fund is depleted, aggressive state action will be necessary to increase revenues and reduce spending inorder to balance the budget. The governor of the State of Alaska and the Alaska legislature continue 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 available market. Thecustomer base in Alaska is limited, however, with a population of approximately 722,000 people. The State of Alaska’s population is distributed as follows:· 41% are located in the Municipality of Anchorage,· 14% are located in the Fairbanks North Star Borough,· 13% 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 1,702 persons as of December 31, 2011, and we are not subject to any collective bargaining agreements with our employees. We believe ourfuture success will depend upon our continued ability to attract and retain highly skilled and qualified employees. We believe that relations with our employeesare 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 adversely affect our businessoperations. Any of the following risks could materially and adversely affect our business, financial position, results of operations or liquidity. 27 We face competition that may reduce our market share and harm our financial performance.There is substantial competition in the telecommunications industry. Through mergers and various service integration strategies, major providers are strivingto provide integrated communications services offerings within and across geographic markets. We face increasing video services competition from DBSproviders.We expect competition to increase as a result of the rapid development of new technologies, services and products. We cannot predict which of many possiblefuture technologies, products or services will be important to maintain our competitive position or what expenditures will be required to develop and providethese technologies, products or services. Our ability to compete successfully will depend on marketing and on our ability to anticipate and respond to variouscompetitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, economic conditions and pricingstrategies by competitors. To the extent we do not keep pace with technological advances or fail to timely respond to changes in competitive factors in ourindustry and in our markets, we could lose market share or experience a decline in our revenue and net income. Competitive conditions create a risk of marketshare loss and the risk that customers shift to less profitable lower margin services. Competitive pressures also create challenges for our ability to grow newbusinesses or introduce new services successfully and execute our business plan. Each of our business segments also faces the risk of potential price cuts byour competitors that could materially adversely affect our market share and gross margins.For more information about competition by segment, see the sections titled “Competition” included in “Item 1 — Business — Narrative Description of ourBusiness — Description of our Business by Reportable Segment.”Our business is subject to extensive governmental legislation and regulation. Applicable legislation and regulations and changes to them couldadversely affect our business, financial position, results of operations or liquidity.Wireless Services. The licensing, construction, operation, sale and interconnection arrangements of wireless communications systems are regulated by theFCC and, depending on the jurisdiction, state and local regulatory agencies. In particular, the FCC imposes significant regulation on licensees of wirelessspectrum 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 radioservice providers, except that states may exercise authority over such things as certain billing practices and consumer-related issues. These regulations couldincrease the costs of our wireless operations. The FCC grants wireless licenses for terms of generally ten years that are subject to renewal and revocation. FCCrules require all wireless licensees to meet certain build-out requirements and substantially comply with applicable FCC rules and policies and theCommunications Act of 1934, as amended, in order to retain their licenses. Failure to comply with FCC requirements in a given license area could result inrevocation of the license for that license 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 proposed by the FCC couldadversely impact our utilization of our licensed spectrum and our operation costs.Commercial mobile radio service providers must implement E911 capabilities in accordance with FCC rules. Failure to deploy E911 service consistent withFCC 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 is affected by federal,state and local statutes addressing zoning, environmental protection and historic preservation. The FCC adopted significant changes to its rules governinghistoric preservation review of projects, which makes it more difficult and expensive to deploy antenna facilities. The FCC is also considering changes to itsrules regarding environmental protection as related to tower construction, which, if adopted, could make it more difficult to deploy facilities. 28 Video Services. The cable television industry is subject to extensive regulation at various levels, and many aspects of such regulation are currently the subjectof judicial proceedings and administrative or legislative proposals. The law permits certified local franchising authorities to order refunds of rates paid in theprevious 12-month period determined to be in excess of the reasonable rates. It is possible that rate reductions or refunds of previously collected fees may berequired of us in the future. Currently, pursuant to Alaska law, the basic video rates in Juneau are the only rates in Alaska subject to regulation by the localfranchising authority, and the rates in Juneau were reviewed and approved by the RCA in July 2010.Proposals may be made before Congress and the FCC to mandate cable operators provide “open access” over their cable systems to Internet service providers.As of the date of this report, the FCC has declined to impose such requirements. If the FCC or other authorities mandate additional access to our cablesystems, we cannot predict the effect that this would have on our Internet service offerings.Other existing federal regulations, currently the subject of judicial, legislative, and administrative review, could change, in varying degrees, the manner inwhich video systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry in general, or on our activities andprospects in the cable television business in particular, can be predicted at this time. There can be no assurance that future regulatory actions taken byCongress, the FCC or other federal, state or local government authorities will not have a material adverse effect on our business, financial position, results ofoperations or liquidity.Internet Services. Changes in the regulatory environment relating to the Internet access market, including changes in legislation, FCC regulation, judicialaction or local regulation that affect communications costs or increase competition from the ILEC or other communications services providers, could adverselyaffect the prices at which we sell Internet services.Local Access Services. Our success in the local telephone market depends on our continued ability to obtain interconnection, access and related services fromlocal exchange carriers on terms that are reasonable and that are based on the cost of providing these services. Our local telephone services business faces therisk of unfavorable changes in regulation or legislation or the introduction of new regulations. Our ability to provide service in the local telephone marketdepends on our negotiation 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 the purchase, at cost-basedrates, of access to UNEs. In some Alaska markets, it also depends on our ability to gain interconnection at economic costs. Future negotiations or arbitrationproceedings with respect to new or existing markets could result in a change in our cost of serving these markets via the facilities of the ILEC or via wholesaleofferings.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 we were to lose ourETC status in any of the study areas where we are currently an authorized ETC, we would be ineligible to receive USF support for providing service in thatarea. Loss of our ETC status could have an adverse effect on our business, financial position, results of operations 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 libraries. This support was 19%,18%, and 14% of our revenue for the years ended December 31, 2011, 2010 and 2009, respectively. We had USF net receivables of $69.8 million and $64.3million at December 31, 2011 and 2010, respectively. The programs are subject to change by regulatory actions taken by the FCC or legislative actions. Forexample, on November 29, 2011, the FCC published a final rule to reform the methodology for distributing USF high cost support for voice and broadbandservices, as well as to the access charge regime for terminating traffic between carriers. As described further in “Part II — Item 7 — Management’s Discussionand Analysis of Financial Condition and Results of Operations” the reform changes reduce our future high cost support revenue. Changes to any of the USFprograms that we participate in could result in a material decrease in revenue and accounts receivable, which could have an adverse effect on our business,financial position, results of operations or liquidity. 29 See “Description of Our Business by Reportable Segment — Regulation — Wireline Voice Services and Products — Universal Service” for more information.We may not be able to satisfy the requirements of our participation in a New Markets Tax Credit program for funding our TERRA-NW project.In 2011 we entered into an arrangement under the NMTC program with US Bancorp to help fund our TERRA-NW project. In connection with the NMTCtransaction we received proceeds which are restricted for use on TERRA-NW. The NMTC is subject to 100% recapture for a period of seven years asprovided in the Internal Revenue Code. We are required to be in compliance with various regulations and contractual provisions that apply to the NMTCarrangement. We have indemnified US Bancorp for any loss or recapture of its $30.7 million in NMTCs until such time as our obligation to deliver taxbenefits is relieved. Non-compliance with applicable requirements could result in projected tax benefits not being realized by US Bancorp and could have anadverse effect on our financial position, results of operations or liquidity. Failure to complete development, testing and deployment of new technology that supports new services could affect our ability to compete in theindustry. In addition, the technology we use may place us at a competitive disadvantage.We develop, test and deploy various new technologies and support systems intended to enhance our competitiveness by both supporting new services andfeatures and reducing the costs associated with providing those services or features. Successful development and implementation of technology upgradesdepend, in part, on the willingness of third parties to develop new applications in a timely manner. We may not successfully complete the development androllout of new technology and related features or services in a timely manner, and they may not be widely accepted by our customers or may not be profitable,in which case we could not recover our investment in the technology. Deployment of technology supporting new service offerings may also adversely affect theperformance or reliability of our networks with respect to both the new and existing services. Any resulting customer dissatisfaction could affect our ability toretain customers and may have an adverse effect on our financial position, results of operations, or liquidity.Unfavorable general economic conditions in the United States could have a material adverse effect on our financial position, results of operationsand liquidity.Unfavorable general economic conditions, including the current economic downturn in the United States, could negatively affect our business. While it isoften difficult for us to predict the impact of general economic conditions on our business, these conditions could adversely affect the affordability of anddemand for some of our products and services and could cause customers to shift to lower priced products and services or to delay or forgo purchases of ourproducts and services. One or more of these circumstances could cause our revenue to decline. Also, our customers may not be able to obtain adequate accessto credit, which could affect their ability to make timely payments to us. If that were to occur, we could be required to increase our allowance for doubtfulaccounts, and the number of days outstanding for our accounts receivable could increase. The government has taken various measures in an attempt to helpimprove the economy, however, we are unable to predict the success or outcome of such programs. For these reasons, among others, if the current economicconditions persist or decline, this could adversely affect our financial position, results of operations, or liquidity, as well as our ability to service debt, payother obligations and enhance shareholder returns.Our business is geographically concentrated in Alaska. Any deterioration in the economic conditions in Alaska could have a material adverseeffect on our financial position, results of operations and liquidity.We offer voice, data and wireless communication and video services to customers primarily in Alaska. Because of this geographic concentration, our growthand operations depend upon economic conditions in Alaska. The economy of Alaska is dependent upon natural resource industries, in particular oilproduction, as well as tourism, and government spending, including substantial amounts for the United States military. Any deterioration in these marketscould have an adverse impact on the demand for communication and video services and on our results of operations and financial condition. In addition, thecustomer base in Alaska is limited. Alaska has a population of approximately 722,000 people, 54% of whom are located in the Anchorage and Matanuska-Susitna Borough region. We have already achieved significant market penetration with respect to our service offerings in Anchorage and in other locations inAlaska. 30 We may not be able to continue to increase our market share of the existing markets for our services, and no assurance can be given that the Alaskan economywill continue to grow and increase the size of the markets we serve or increase the demand for the services we offer. As a result, the best opportunities forexpanding our business may arise in other geographic areas such as the lower 49 states. There can be no assurance that we will find attractive opportunities togrow our businesses outside of Alaska or that we will have the necessary expertise to take advantage of such opportunities. The markets in Alaska for voice,data and wireless communications and video services are unique and distinct within the United States due to Alaska’s large geographical size, its sparsepopulation located in a limited number of clusters, and its distance from the rest of the United States. The expertise we have developed in operating ourbusinesses in Alaska may not provide us with the necessary expertise to successfully enter other geographic markets.Natural disasters, terrorist attacks or breaches of network or information technology security could have an adverse effect on our business.Our technical infrastructure (including our communications network infrastructure and ancillary functions supporting our network such as serviceactivation, billing and customer care) is vulnerable to damage or interruption from technology failures, power surges or outages, natural disasters, fires,human error, terrorism, intentional wrongdoing or similar events. Unanticipated problems at our facilities or with our technical infrastructure, system orequipment failures, hardware or software failures or defects, computer viruses or hacker attacks could affect the quality of our services and cause networkservice interruptions. Unauthorized access to or use of customer or account information, including credit card or other personal data, could result in harm toour customers and legal actions against us, and could damage our reputation. In addition, earthquakes, floods, fires and other unforeseen natural disasters orevents could materially disrupt our business operations or our provision of service in one or more markets. Costs we incur to restore, repair or replace ournetwork or technical infrastructure, as well as costs associated with detecting, monitoring or reducing the incidence of unauthorized use, may be substantialand increase our cost of providing service. Any failure in or interruption of systems that we or third parties maintain to support ancillary functions, such asbilling, point of sale, inventory management, customer care and financial reporting, could materially impact our ability to timely and accurately record,process and report information important to our business. If any of the above events were to occur, we could experience higher churn, reduced revenues andincreased costs, any of which could harm our reputation and have a material adverse effect on our business, financial condition or results of operations.Prolonged service interruptions could affect our business.We rely heavily on our network equipment, communications providers, data and software to support all of our functions. We rely on our networks and thenetworks of others for substantially all of our revenues. We are able to deliver services only to the extent that we can protect our network systems againstdamage from power or communication failures, computer viruses, natural disasters, unauthorized access and other disruptions. While we endeavor to providefor failures in the network by providing back-up systems and procedures, we cannot guarantee that these back-up systems and procedures will operatesatisfactorily in an emergency. Should we experience a prolonged failure, it could seriously jeopardize our ability to continue operations. In particular, should asignificant service interruption occur, our ongoing customers may choose a different provider, and our reputation may be damaged, reducing ourattractiveness to new customers.To the extent that any disruption or security breach results in a loss or damage to our customers’ data or applications, or inappropriate disclosure ofconfidential information, we may incur liability and suffer from adverse publicity. In addition, we may incur additional costs to remedy the damage causedby these disruptions or security breaches. 31 If failures occur in our undersea fiber optic cable systems, our ability to immediately restore the entirety of our service may be limited and we couldincur 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 contiguous lower 48 states oneof which provides an alternative geographically diverse backup communication facility to the other. If a failure of both sides of the ring of our undersea fiberoptic facilities occurs and we are not able to secure alternative facilities, some of the communications services we offer to our customers could be interruptedwhich could have a material adverse effect on our business, financial position, results of operations or liquidity. Damage to an undersea fiber optic cablesystem can result in significant unplanned expense which could have a material adverse effect on our business, financial position, results of operations orliquidity.If a failure occurs in our satellite communications systems, our ability to immediately restore the entirety of our service may be limited.Our communications facilities include satellite transponders that we use to serve many rural and remote Alaska locations. Each of our C-band and Ku-bandsatellite transponders is backed up using on-board transponder redundancy. In the event of a complete spacecraft failure the services are restored usingcapacity on other spacecraft that are held in reserve. If a failure of our satellite transponders occurs and we are not able to secure alternative facilities, some ofthe communications services we offer to our customers could be interrupted which could have a material adverse effect on our business, financial position,results of operations or liquidity.We depend on a limited number of third-party vendors to supply communications equipment. If we do not obtain the necessary communicationsequipment, we will not be able to meet the needs of our customers.We depend on a limited number of third-party vendors to supply video, Internet, DLPS, wireless and other telephony-related equipment. If our providers ofthis 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 satisfydemand for our services and competitors may fulfill this demand. Due to the unique characteristics of the Alaska communications markets (i.e., remotelocations, rural, satellite-served, low density populations, and our leading edge services and products), in many situations we deploy and utilize specialized,advanced technology and equipment that may not have a large market or demand. Our vendors may not succeed in developing sufficient market penetration tosustain continuing production and may fail. Vendor bankruptcy, or acquisition without continuing product support by the acquiring company, may requireus to replace technology before its otherwise useful end of life due to lack of on-going vendor support and product development.We do not have insurance to cover certain risks to which we are subject, which could lead to the incurrence of uninsured liabilities that adverselyaffect 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 our buried, underseaand above-ground transmission lines. If we become subject to substantial uninsured liabilities due to damage or loss to such facilities, our financial position,results of operations or liquidity may be adversely affected.Our significant debt and capital lease obligations could adversely affect our business and prevent us from fulfilling our obligations under ourSenior Notes, Senior Credit Facility, other debt or capital leases.We have and will continue to have a significant amount of debt and capital lease obligations. On December 31, 2011, we had total debt of $861.3 million andtotal capital lease obligations of $125.5 million. Our high level of debt and capital lease obligations could have important consequences, including thefollowing: 32 · Use of a large portion of our cash flow to pay principal and interest on our Senior Notes, Senior Credit Facility, other debt and capital leases, whichwill reduce the availability of our cash flow to fund working capital, capital expenditures and other business activities;· Increase our vulnerability to general adverse economic and industry conditions;· Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;· Restrict us from making strategic acquisitions or exploiting business opportunities;· Make it more difficult for us to satisfy our obligations with respect to the Senior Notes, Senior Credit Facility, other debt and capital leaseobligations;· Place us at a competitive disadvantage compared to our competitors that have less debt and capital lease obligations; and· Limit, along with the financial and other restrictive covenants in our debt, among other things, our ability to borrow additional funds, dispose ofassets or pay cash dividends.We will require a significant amount of cash to service our debt and to meet other obligations. Our ability to generate cash depends on manyfactors beyond our control. If we are unable to meet our future capital needs it may be necessary for us to curtail, delay or abandon our businessgrowth plans. If we incur significant additional indebtedness to fund our plans, it could cause a decline in our credit rating and could increaseour borrowing costs or 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. Our ability to make paymentson and to refinance our debt and to fund planned capital expenditures and acquisitions will depend on our ability to generate cash and to arrange additionalfinancing in the future. These abilities are subject to, among other factors, our credit rating, our financial performance, general economic conditions,prevailing market conditions, the state of competition in our market, the outcome of certain legislative and regulatory issues and other factors that may bebeyond our control. Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us in an amountsufficient to enable us to pay our debt or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. Wemay not be able to 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 ability to make paymentson the Senior Notes.The indentures governing our Senior Notes and/or the credit agreements governing our Senior Credit Facility and other loans contain various covenants thatcould materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in ourbest interest.All of these covenants may restrict our ability to expand or to pursue our business strategies. Our ability to comply with these covenants may be affected byevents beyond our control, such as prevailing economic conditions and changes in regulations, and if such events occur, we cannot be sure that we will beable to comply. A breach of these covenants could result in a default under the indentures governing our Senior Notes and/or the Senior Credit Facility. If therewere an event of default under the indentures for the Senior Notes and/or the Senior Credit Facility, holders of such defaulted debt could cause all amountsborrowed under these instruments to be due and payable immediately. Additionally, if we fail to repay the debt under the Senior Credit Facility when itbecomes due, the lenders under the Senior Credit Facility could proceed against certain of our assets and capital stock of our subsidiaries that we have pledgedto them as security. Our assets or cash flow may not be sufficient to repay borrowings under our outstanding debt instruments in the event of a defaultthereunder.Concerns about health risks associated with wireless equipment may reduce the demand for our wireless services.Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions from these devices. Purportedclass actions and other lawsuits have been filed against numerous other wireless carriers seeking not only damages but also remedies that could increase thecost of doing business. We cannot be sure of the outcome of those cases or that the industry will not be adversely affected by litigation of this nature or publicperception about health risks. The actual or perceived risk of mobile communications devices could adversely affect us through a reduction insubscribers. Further research and studies are ongoing, and we cannot be sure that additional studies will not demonstrate a link between radio frequencyemissions and health concerns. 33 Additionally, new government regulations on the use of a wireless device while driving may affect us through a reduction in usage revenue. Studies haveindicated that using wireless devices while driving may impair a driver’s attention. Many state and local legislative bodies, including Alaska’s, have passedor proposed legislation to restrict the use of wireless telephones while driving vehicles. Concerns over safety and the effect of future legislation, if adopted andenforced in the areas we serve, could limit our ability to market and sell our wireless services. Litigation relating to accidents, deaths or serious bodily injuriesallegedly incurred as a result of wireless telephone use while driving could result in adverse publicity and further governmental regulation. Any of these resultscould have a material adverse effect on our financial position, results of operations or liquidity.A significant percentage of our voting securities are owned by a small number of shareholders and these shareholders can control shareholderdecisions on very important matters.As of December 31, 2011, our executive officers and directors and their affiliates owned 10% of our combined outstanding Class A and Class B commonstock, representing 21% of the combined voting power of that stock. These shareholders can significantly influence, if not control, our management policyand all fundamental corporate actions, including mergers, substantial acquisitions and dispositions, and election of directors 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 is not practicable toallocate our properties to our reportable segments since many of our properties are employed by more than one segment to provide common services andproducts. Additionally our properties are managed at the consolidated company level rather than at the segment level.We lease our executive, corporate and administrative facilities and business offices. Our operating, executive, corporate and administrative properties are ingood 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 earth stations,microwave radio, cable and wire facilities, cable head-end equipment, wireless towers and equipment, coaxial distribution networks, connecting lines (aerial,underground and buried cable), routers, servers, transportation equipment, computer equipment, general office equipment, land, land improvements, landingstations and other buildings. Substantially all of our properties are located on or in leased real property or facilities. Substantially all of our properties secureour Senior Credit Facility. See note 6 included in “Part II — Item 8 — Consolidated Financial Statements and Supplementary Data” for more information.Item 3. Legal ProceedingsWe are involved in various lawsuits, billing disputes, legal proceedings, and regulatory matters that have arisen from time to time in the normal course ofbusiness. While the ultimate results of these items cannot be predicted with certainty, we do not expect at this time for the resolution of them to have a materialadverse effect on our financial position, results of operations or liquidity. In addition we are involved in the following matters:· In September 2008, the FCC's Office of Inspector General ("OIG") initiated an investigation regarding Alaska DigiTel LLC’s (“Alaska DigiTel”)compliance with program rules and requirements under the Lifeline Program. The request covered the period beginning January 1, 2004 throughAugust 31, 2008 and related to amounts received for Lifeline service. Alaska DigiTel was an Alaska based wireless communications companyof which we acquired an 81.9% equity interest on January 2, 2007 and the remaining 18.1% equity interest on August 18, 2008 and wassubsequently merged with one of our wholly owned subsidiaries in April 2009. Prior to August 18, 2008, our control over the operations ofAlaska DigiTel was limited as required by the FCC upon its approval of our initial acquisition completed in January 2007. We responded to thisrequest on behalf of Alaska DigiTel and the GCI companies as affiliates. On January 18, 2011 we reached an agreement with the FCC and theDepartment of Justice to settle the matter, which required us to contribute $1.6 million to the United States Treasury and granted us a broadrelease of claims including those under the False Claims Act. The $1.6 million contribution, of which $154,000, $661,000 and $741,000 wererecognized in selling, general and administrative expense in the income statements in the years ending December 31, 2010, 2009 and 2008,respectively, was paid in January 2011; and· In August 2010, a company-owned aircraft was involved in an accident resulting in five fatalities and injuries to the remaining four passengerson board. We had aircraft and liability insurance coverage in effect at the time of the accident. As of December 31, 2011, all claims paid outhave been covered by insurance and were recorded net of these recoveries in our Consolidated Income Statements. While some of the claims havebeen resolved, we cannot predict the likelihood or nature of the total remaining claims, including environmental remediation, related to theaccident. 34 Item 4. Mine Safety DisclosuresNot Applicable. 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 Association of SecuritiesDealers. Each share of Class B common stock is convertible, at the option of the holder, into one share of Class A common stock.The following table sets forth the high and low sales price for our common stock for the periods indicated. Market price data for Class A shares was obtainedfrom the Nasdaq Stock Market System quotation system. Market price data for Class B shares was obtained from reported Over-the-Counter Bulletin Boardservice market transactions. The prices represent prices between dealers, do not include retail markups, markdowns, or commissions, and do not necessarilyrepresent actual transactions. Class A Class B High Low High Low 2011 First Quarter $13.23 9.61 12.00 12.00 Second Quarter $12.35 10.70 12.69 10.25 Third Quarter $12.52 7.57 12.30 12.30 Fourth Quarter $10.56 7.49 10.15 6.86 2010 First Quarter $6.65 5.32 6.05 6.05 Second Quarter $7.62 5.73 7.00 7.00 Third Quarter $10.21 7.64 9.00 7.50 Fourth Quarter $13.37 9.92 11.50 10.00 HoldersAs of December 31, 2011, there were 2,482 holders of record of our Class A common stock and 365 holders of record of our Class B common stock(amounts do not include the number of shareholders whose shares are held of record by brokers, but do include the brokerage house as one shareholder). 35 DividendsWe have never paid cash dividends on our common stock, and we have no present intention of doing so. Payment of cash dividends in the future, if any, willbe determined by our Board of Directors in light of our earnings, financial condition and other relevant considerations. Our existing debt agreements containprovisions that limit payment of dividends on common stock, other than stock dividends (see note 6 included in “Part II — Item 8 — Consolidated FinancialStatements and Supplementary Data” for more information).Stock Transfer Agent and RegistrarComputershare 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 A common stockduring the five-year period 2007 through 2011. This return is measured by dividing (1) the sum of (a) the cumulative amount of dividends for themeasurement period (assuming dividend reinvestment, if any) and (b) the difference between our share price at the end and the beginning of the measurementperiod, by (2) the share price at the beginning of that measurement period. This line graph is compared in the following graph with two other line graphsduring that five-year period, i.e., a market index and a peer index.The market index is the Center for Research in Securities Price Index for the Nasdaq Stock Market for United States companies. It presents cumulative totalreturns for a broad based equity market assuming reinvestment of dividends and is based upon companies whose equity securities are traded on the NasdaqStock Market. The peer index is the Center for Research in Securities Price Index for Nasdaq Telecommunications Stock. It presents cumulative total returnsfor the equity market in the telecommunications industry segment assuming reinvestment of dividends and is based upon companies whose equity securitiesare traded on the Nasdaq Stock Market. The line graphs represent annual index levels derived from compounding daily returns.In constructing each of the line graphs in the following graph, the closing price at the beginning point of the five-year measurement period has been convertedinto a fixed investment, stated in dollars, in our Class A common stock (or in the stock represented by a given index, in the cases of the two comparisonindexes), with cumulative returns for each subsequent fiscal year measured as a change from that investment. Data for each succeeding fiscal year during thefive-year measurement period are plotted with points showing the cumulative total return as of that point. The value of a shareholder’s investment as of eachpoint plotted on a given line graph is the number of shares held at that point multiplied by the then prevailing share price.Our Class B common stock is traded through the Over-The-Counter Bulletin Board service on a more limited basis. Therefore, comparisons similar to thosepreviously described for the Class A common stock are not directly available. However, the performance of Class B common stock may be analogized to thatof the Class A common stock in that the Class B common stock is readily convertible into Class A common stock by request to us. 36 Prepared by Zacks Investment Research Inc. All indexes used with permission. All rights reserved.COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH FOR GENERAL COMMUNICATION, INC.,NASDAQ STOCK MARKET INDEX FOR UNITED STATES COMPANIES, AND NASDAQ TELECOMMUNICATIONS STOCK1,2,3,4Measurement Period (Fiscal YearCovered)Company ($)Nasdaq Stock Market Index for U.S.Companies ($)Nasdaq Telecommunications Stock ($) FYE 12/31/06 100.00 100.00 100.00 FYE 12/31/07 55.62 108.47 88.95 FYE 12/31/08 51.42 66.35 51.11 FYE 12/31/09 40.55 95.38 76.64 FYE 12/31/10 80.47 113.19 98.95 FYE 12/31/11 62.22 113.81 104.63 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, 2006. 37 Issuer’s Purchases of Equity Securities(a) Not applicable. (b) Not applicable. (c) The following table provides information about repurchases of shares of our Class A common stock during the quarter ended December 31, 2011: (a) Total Number ofShares Purchased1(b) Average Price Paidper Share(c) Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs2(d) Maximum Number (orapproximate Dollar Value)of Shares that May Yet BePurchased Under the Planor Programs3 October 1, 2011 to October 31, 2011 564,600 $8.88 564,600 $101,506,587 November 1, 2011 to November 30, 2011 500,204 $9.38 482,648 $96,989,979 December 1, 2011 to December 31, 2011 652,075 $10.25 408,150 $92,879,920 Total 1,716,879 1 Consists of 1,455,398 shares from open market purchases made under our publicly announced repurchase plan and 261,481 shares from privatepurchases made to settle the minimum statutory tax-withholding requirements pursuant to restricted stock award vesting.2 The repurchase plan was publicly announced on November 3, 2004. Our plan does not have an expiration date, however transactions pursuant to the planare subject to periodic approval by our Board of Directors. We expect to continue the repurchases for an indefinite period dependent on leverage, liquidity,company performance, market conditions and subject to continued oversight by our Board of Directors.3 The total amount approved by our Board of Directors for repurchase under our publicly announced repurchase plan was $295.2 million through December31, 2011 consisting of $290.2 million through September 30, 2011 and an additional $5.0 million during the three months ended December 31, 2011. Wehave made total repurchases under the program of $202.3 million through December 31, 2011. If stock repurchases are less than the total approved quarterlyamount the difference may be carried forward and used to repurchase additional shares in future quarters, subject to board approval. 38 Item 6. Selected Financial DataThe following table presents selected historical information relating to financial condition and results of operations over the past five years. Years Ended December 31, 2011 2010 2009 2008 2007 (Amounts in thousands except per share amounts) Revenues $679,381 651,250 595,811 575,442 520,311 Income (loss) before income taxes $13,086 18,443 7,452 (2,295) 25,859 Net income (loss) $5,601 8,955 3,516 (3,372) 13,697 Net loss attributable to non-controlling interest $238 - - 1,503 36 Net income (loss) attributable to GCI common stockholders $5,839 8,955 3,516 (1,869) 13,733 Basic net income (loss) attributable to GCI per common share $0.13 0.17 0.07 (0.04) 0.26 Diluted net income (loss) attributable to GCI per common share $0.12 0.17 0.06 (0.04) 0.23 Total assets $1,448,904 1,351,760 1,418,397 1,335,301 984,233 Long-term debt, including current portion and net of unamortized discount $861,272 781,717 776,380 716,831 538,398 Obligations under capital leases, including current portion $86,054 91,165 95,914 100,329 2,851 Redeemable preferred stock Series B $- - - - - Series C $- - - - - Total GCI stockholders’ equity $158,861 200,506 266,317 258,915 259,433 Dividends declared per common share $- - - - - The Selected Financial Data should be read in conjunction with “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition andResults of Operations.”Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIn the following discussion, General Communication, Inc. (“GCI”) 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 beenprepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the financial 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 cost Remote areaprogram support, share-based compensation, inventory at lower of cost or market, reserve for future customer credits, valuation allowances for deferredincome tax assets, depreciable and amortizable lives of assets, the carrying value of long-lived assets including goodwill, cable certificates and wirelesslicenses, our effective tax rate, purchase price allocations, the accrual of cost of goods sold (exclusive of depreciation and amortization expense) ("Cost ofGoods Sold"), depreciation, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors thatare believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See alsoour “Cautionary Statement Regarding Forward-Looking Statements.” 39 The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financialstatements and supplementary data as presented in Part IV 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 and expand our margins.We have historically met our cash needs for operations, regular capital expenditures and maintenance capital expenditures through our cash flows fromoperating activities. Historically, cash requirements for significant acquisitions and major capital expenditures have been provided largely through ourfinancing activities.The national economy continues to see persistent unemployment and slow economic growth and even once stabilized is not expected to return quickly to aperiod of strong growth. Should the national economy deteriorate further, it could lead to reductions in consumer spending which could impact our revenuegrowth. We believe the Alaska economy continues to perform well compared to most other states at the current time. The State of Alaska has large cashreserves that should enable it to maintain its budget for at least the short-term. This cash reserve is important for Alaska’s economy as the State is the largestemployer and second largest source of gross state product. The majority of our revenue is driven by the strength of the Alaska economy which appears to haveweathered the recessionary pressures relatively well to date. Nonetheless we cannot predict the impact the nation’s future economic situation may have on us inthe future.As part of an agreement signed in December 2007 with AT&T Mobility, AT&T Mobility has provided to us a large block of wireless network usage at nocharge that we use for roaming. This block of minutes expired in January 2012 and we expect our wireless Cost of Goods Sold to increase $4.8 million to$5.3 million before factoring in the impact of 2012 subscriber growth. Our future wireless Cost of Goods Sold will depend on several factors including: theimpact and timing of our wireless network build-out, the pattern of usage by our wireless subscribers, and negotiated rates with our roaming partners.As an ETC, we receive support from the USF to support the provision of wireline local access and wireless service in high cost areas. On November 29,2011, the FCC published a final rule to reform the methodology for distributing USF high cost support for voice and broadband services, as well as to theaccess charge regime for terminating traffic between carriers (“High Cost Order”). The High Cost Order divided support to Alaska between Urban and Remoteareas. Support for CETCs serving Urban areas that generally include Anchorage, Fairbanks, and Juneau will follow national reforms, capping support perprovider per service area as of January 1, 2012, and commencing a five-step phase-down on July 1, 2012. In addition to broader reforms, the FCC tailoredrevisions specifically for CETCs serving Remote Alaska, intended to address the unique challenges for serving these areas. Support to these locations will becapped and distributed on a per-line basis until the later of July 1, 2014, or the implementation of a successor funding mechanism. A further rulemaking toconsider successor funding mechanisms is underway. We cannot predict at this time the outcome of this proceeding or its effect on Remote high cost supportavailable to us, but our revenue for providing local services in these areas would be materially adversely affected by a substantial reduction of USF support.The High Cost Order Remote and Urban program changes decreased our revenue $3.5 million for the year ended December 31, 2011, primarily impacting ourConsumer segment. The High Cost Order Remote and Urban program changes will decrease our 2012 revenue approximately $4.0 million as compared to2011. At December 31, 2011, we have $33.1 million and $8.5 million in Remote and Urban high cost accounts receivable, respectively.In November 2010, Verizon acquired a license for 700 MHz wireless spectrum covering Alaska. We expect Verizon will build an LTE network in 2012 andsubsequently they will be an additional competitor where our markets overlap. We cannot predict the potential impact this new competition may have on us inthe future.Results of OperationsThe following table sets forth selected financial data as a percentage of total revenues for the periods indicated (underlying data rounded to the nearestthousand): 40 Percentage Percentage Change1 Change1 Year Ended December 31, 2011 2010 2011 2010 2009 vs. 2010 vs. 2009 Statements of Operations Data: Revenues: Consumer segment 52% 53% 49% 3% 16% Network Access segment 16% 16% 21% (2%) (12%) Commercial segment 20% 20% 18% 6% 17% Managed Broadband segment 9% 8% 8% 27% 11% Regulated Operations segment 3% 3% 4% (3%) (5%)Total revenues 100% 100% 100% 4% 9%Selling, general and administrative expenses 35% 35% 36% 3% 8%Depreciation and amortization expense 19% 19% 21% 0% 2%Operating income 13% 14% 11% 2% 34%Other expense, net 11% 11% 10% 11% 19%Income before income taxes 2% 3% 1% (29%) 147%Net income 1% 1% 1% (37%) 155%Net income attributable to GCI 1% 1% 1% (35%) 155% 1 Percentage change in underlying data We evaluate performance and allocate resources based on earnings before depreciation and amortization expense, net interest expense, income taxes, share-basedcompensation expense, accretion expense, loss attributable to non-controlling interest and non-cash contribution adjustment (“AdjustedEBITDA”). Management believes that this measure is useful to investors and other users of our financial information in evaluating operating profitability asan analytical indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current or projected EBITDA are used toestimate current or prospective enterprise value. See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report onForm 10-K for a reconciliation of consolidated Adjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Year Ended December 31, 2011 (“2011”) Compared to Year Ended December 31, 2010 (“2010”)Overview of Revenues and Cost of Goods SoldTotal revenues increased 4% from $651.3 million in 2010 to $679.4 million in 2011. Revenue increases in our Consumer, Commercial and ManagedBroadband segments were partially offset by decreased revenue in our Network Access and Regulated Operations segments. See the discussion below for moreinformation by segment.Total Cost of Goods Sold increased 9% from $207.8 million in 2010 to $227.4 million in 2011. Cost of Goods Sold increased in all of our segments. See thediscussion below for more information by segment.Consumer Segment OverviewConsumer segment revenue represented 52% of 2011 consolidated revenues. The components of Consumer segment revenue are as follows (amounts inthousands): Percentage 2011 2010 Change Voice $52,052 57,317 (9%)Video 118,635 118,475 0%Data 71,977 61,364 17%Wireless 109,910 105,742 4%Total Consumer segment revenue $352,574 342,898 3% 41 Consumer segment Cost of Goods Sold represented 49% of 2011 consolidated Cost of Goods Sold. The components of Consumer segment Cost of GoodsSold are as follows (amounts in thousands): Percentage 2011 2010 Change Voice $10,660 12,042 (11%)Video 53,556 51,246 5%Data 4,771 3,781 26%Wireless 41,706 37,412 11%Total Consumer segment Cost of Goods Sold $110,693 104,481 6%Consumer segment Adjusted EBITDA, representing 50% of 2011 consolidated Adjusted EBITDA, is as follows (amounts in thousands): Percentage 2011 2010 Change Consumer segment Adjusted EBITDA $110,734 114,716 (3%)See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selected key performance indicators for our Consumer segment follow: December 31, Percentage 2011 2010 Change Voice: Long-distance subscribers1 79,500 88,200 (10%)Long-distance minutes carried (in millions) 94.7 106.9 (11%)Total local access lines in service2 77,600 84,800 (8%)Local access lines in service on GCI facilities2 72,000 77,400 (7%) Video: Basic subscribers3 125,000 130,000 (4%)Digital programming tier subscribers4 75,600 81,800 (8%)HD/DVR converter boxes5 89,400 88,100 1%Homes passed 242,100 238,500 2%Average monthly gross revenue per subscriber6 $77.43 $75.83 2% Data: Cable modem subscribers7 108,300 105,700 2% Wireless: Wireless lines in service8 124,600 124,900 0%Average monthly gross revenue per subscriber9 $68.34 $63.96 7% 1 A long-distance subscriber is defined as a customer account that is invoiced a monthly long-distance plan fee or has made a long-distance call during themonth. 2 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network. 3 A basic subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of the number of outlets purchased. 4 A digital programming tier subscriber is defined as one digital programming tier of service delivered to an address or separate subunits thereof regardlessof the number of outlets or digital programming tiers purchased. Digital programming tier subscribers are a subset of basic subscribers. 5 A high-definition/digital video recorder ("HD/DVR") converter box is defined as one box rented by a digital programming or basic tier subscriber. A digitalprogramming or basic tier subscriber is not required to rent an HD/DVR converter box to receive service. 6 Average monthly consumer video revenues divided by the average of consumer basic subscribers at the beginning and end of each month in the period. 7 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entity purchases multiplecable modem service access points, each access point is counted as a subscriber. Cable modem subscribers may also be video basic subscribers thoughbasic 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 Average monthly consumer wireless revenues divided by the average of consumer wireless subscribers at the beginning and end of each month in theperiod. 42 Consumer Segment RevenuesThe increase in data revenue is primarily due to a 19% increase in cable modem revenue to $63.4 million due to increased subscribers, rate increases in Mayand August 2010 and in May 2011 and our subscribers’ selection of plans that offer higher speeds.As discussed in the General Overview section of this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” theFCC published the High Cost Order in November 2011. The High Cost Order Remote and Urban program changes decreased our Consumer Segment Voicerevenue $617,000 for the year ended December 31, 2011, and decreased our Consumer Segment Wireless revenue $2.5 million for the year ended December31, 2011. The High Cost Order Remote and Urban program changes will result in decreased Consumer Segment Voice revenue of approximately $1.6 millionand decreased Consumer Segment Wireless revenue of approximately $1.7 million for the year ending December 31, 2012.On February 6, 2012, the FCC released its Report and Order and Further Notice of Proposed Rulemaking to comprehensively reform and modernize theUSF’s Lifeline program. The Lifeline program is administered by the USAC and is designed to ensure that quality telecommunications services are availableto low-income customers at just, reasonable, and affordable rates. We participate in the Lifeline program and recognized $16.9 million in Consumer WirelessLifeline program support revenue during the year ended December 31, 2011. Following are the reforms included in the order that we expect to impact 2012Consumer Segment Wireless revenue:· The order adopted on an interim basis a flat rate of $9.25 to replace the support previously available under Tier I through Tier III supportmechanisms. The replacement support reduces the wireless subscriber per line support $0.75 which we expect will result in a $300,000 reduction inour revenue for the year ending December 31, 2012. The FCC intends to further investigate whether this support amount is reasonable over the longterm in further rulemaking.· The order adopted a requirement for annual recertification of all Lifeline subscribers enrolled as of June 1, 2012 to be completed by the end of2012. We are evaluating this requirement and possible processes and cannot predict whether this new rule will have a material impact on our incomestatement, financial position or cash flows.Consumer Segment Cost of Goods SoldThe increase in video Cost of Goods Sold is primarily due to increased channels offered to our subscribers, increased rates paid to programmers and increasedcosts associated with delivery of digital services offered through our HD/DVR converter boxes. This increase was partially offset by decreased costs due to adecrease in subscribers.The wireless Cost of Goods Sold increase is primarily due to increased costs for wireless handset equipment sales and a change in the allocation of networkmaintenance costs. The increased wireless handset equipment sale costs are associated with an increased number of premium wireless handsets which havehigher costs and an increased number of handsets issued to new customers and those extending their service. The change in allocation of network maintenancecosts resulted in an increase to our Consumer segment and a decrease to our Network Access, Commercial and Managed Broadband segments. 43 Consumer Segment Adjusted EBITDAThe decrease in Adjusted EBITDA is primarily due to increased Cost of Goods Sold as described above in “Consumer Segment Cost of Goods Sold” and anincrease in the selling, general and administrative expense that was allocated to our Consumer segment due to an increase in the 2010 segment margin uponwhich the selling, general and administrative expense allocation is based and an increase in consolidated selling, general and administrative expense. Theseincreases are partially offset by increased revenue as described above in "Consumer Segment Revenues.”Network Access Segment OverviewNetwork access segment revenue represented 16% of 2011 consolidated revenues. The components of Network Access segment revenue are as follows(amounts in thousands): Percentage 2011 2010 Change Voice $23,553 29,032 (19%)Data 62,456 61,494 2%Wireless 19,447 16,701 16%Total Network Access segment revenue $105,456 107,227 (2%)Network Access segment Cost of Goods Sold represented 13% of 2011 consolidated Cost of Goods Sold. The components of Network Access segment Costof Goods Sold are as follows (amounts in thousands): Percentage 2011 2010 Change Voice $12,194 15,383 (21%)Data 15,386 8,234 87%Wireless 1,164 1,413 (18%)Total Network Access segment Cost of Goods Sold $28,744 25,030 15%Network Access segment Adjusted EBITDA, representing 22% of 2011 consolidated Adjusted EBITDA, is as follows (amounts in thousands): Percentage 2011 2010 Change Network Access segment Adjusted EBITDA $50,209 50,259 0%See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selected key performance indicators for our Network Access segment follow: December 31, Percentage 2011 2010 Change Voice: Long-distance minutes carried (in millions) 760.5 785.4 (3%) Data: Total Internet service provider access lines in service1 1,700 1,700 0% 1 An Internet service provider access line is defined as a revenue generating circuit or channel connecting a customer to the public switched telephonenetwork Network Access Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to a $5.3 million Cost of Goods Sold classification change. Prior to 2011 certain Cost of GoodsSold were classified as Network Access segment voice Cost of Goods Sold. Beginning in 2011 these Cost of Goods Sold were reclassified to data Cost ofGoods Sold for a more accurate presentation. 44 The increase in data Cost of Goods Sold is primarily due to:· · A $5.3 million Cost of Goods Sold classification change. Prior to 2011 certain Cost of Goods Sold were classified as Network Access segment voiceCost of Goods Sold. Beginning in the 2011 these Cost of Goods Sold were reclassified to data Cost of Goods Sold for a more accurate presentation,and· · $1.8 million in Cost of Goods Sold related to special project work.Network Access Segment Adjusted EBITDAThe Adjusted EBITDA decrease is primarily due to decreased revenue and increased Cost of Goods Sold as described above in “Network Access SegmentCost of Goods Sold.” These changes are partially offset by a decrease in the selling, general and administrative expense that was allocated to our NetworkAccess segment primarily due to a decrease in the 2010 segment margin upon which the selling, general and administrative expense allocation is based.Commercial Segment OverviewCommercial segment revenue represented 20% of 2011 consolidated revenues. Commercial segment data revenue is comprised of monthly recurring charges fordata services and charges billed on a time and materials basis largely for personnel providing on-site customer support. This latter category can varysignificantly based on project activity. The components of Commercial segment revenue are as follows (amounts in thousands): Percentage 2011 2010 Change Voice $28,712 31,720 (9%)Video 11,605 11,178 4%Data 85,961 76,823 12%Wireless 9,823 8,737 12%Total Commercial segment revenue $136,101 128,458 6%Commercial segment Cost of Goods Sold represented 29% of 2011 consolidated Cost of Goods Sold. The components of Commercial segment Cost of GoodsSold are as follows (amounts in thousands): Percentage 2011 2010 Change Voice $13,083 15,212 (14%)Video 2,154 2,140 1%Data 45,475 38,586 18%Wireless 4,458 3,947 13%Total Commercial segment Cost of Goods Sold $65,170 59,885 9%Commercial segment Adjusted EBITDA, representing 14% of 2011 consolidated Adjusted EBITDA, is as follows (amounts in thousands): Percentage 2011 2010 Change Commercial segment Adjusted EBITDA $31,222 30,871 1%See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes. 45 Selected key performance indicators for our Commercial segment follow: December 31, Percentage 2011 2010 Change Voice: Long-distance subscribers1 8,300 9,100 (9%) Total local access lines in service2 49,700 48,300 3% Local access lines in service on GCI facilities 27,300 21,200 29% Long-distance minutes carried (in millions) 111.8 116.0 (4%) Data: Cable modem subscribers3 11,100 10,700 4% Wireless: Wireless lines in service4 15,300 13,800 11% 1 A long-distance subscriber is defined as a customer account that is invoiced a monthly long-distance plan fee or has made a long-distance call during themonth. 2 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network. 3 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entity purchasesmultiple 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 data revenue is primarily due to a $5.1 million or 13% increase in managed services project revenue due to special project work.Commercial Segment Cost of Goods SoldThe decrease in voice Cost of goods Sold is primarily due to the Intrastate Access Reform Act (“Intrastate Access Reform”) which went into effect July2011. Intrastate Access Reform eliminated the ILECs’ ability to bill long distance carriers for certain intrastate line charges. This decrease was partially offsetby the absence of a $1.0 million favorable adjustment for refunds from several vendors in 2010. In the course of business we estimate unbilled long-distanceservices Cost of Goods Sold based upon minutes of use processed through our network and established rates. Such estimates are revised when subsequentbillings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or when disputed charges are resolved.The increase in data Cost of Goods Sold is primarily due to a $4.7 million or 15% increase in managed services project Cost of Goods Sold related to theincreased revenue described above in “Commercial Segment Revenues.”Commercial Segment Adjusted EBITDAThe Adjusted EBITDA increase is primarily due to increased revenue as described above in “Commercial Segment Revenues.” This increase was partiallyoffset by increased Cost of Goods Sold as described above in “Commercial Segment Cost of Goods Sold” and an increase in the selling, general andadministrative expense that was allocated to our Commercial segment primarily due to an increase in consolidated selling, general and administrative expense.Managed Broadband Segment OverviewManaged Broadband segment revenue, Cost of Goods sold and Adjusted EBITDA represented 9%, 7% and 13% of 2011 consolidated revenues, Cost ofGoods Sold and Adjusted EBITDA, respectively. 46 Managed Broadband Segment RevenuesManaged Broadband segment revenue, which includes data products only, increased 27% to $63.2 million in 2011 as compared to 2010. The increase isprimarily due to increased monthly contract revenue due to increased data network capacity purchased by our ConnectMD® and SchoolAccess® customersand absence of $1.7 million in denied funding from the USAC for one ConnectMD® customer for the funding year July 2008 to June 2009. We received thefunding commitment letter, which outlined the denied portion, in the second quarter of 2010. The denial has been appealed to the FCC and we cannot predictthe likelihood of success.Managed Broadband Segment Cost of Goods SoldManaged Broadband segment Cost of Goods Sold increased from $14.0 million in 2010 to $17.0 million in 2011 primarily due to the increase in data networkcapacity described above in “Managed Broadband Segment Revenues.”Managed Broadband Segment Adjusted EBITDAManaged Broadband segment Adjusted EBITDA increased 49% to $28.6 million in 2011 primarily due to an increase in revenue as described above in"Managed Broadband Segment Revenues," partially offset by an increase in the Cost of Goods Sold as described above in “Managed Broadband SegmentCost of Goods Sold,” and an increase in the selling, general and administrative expense that was allocated to our Managed Broadband segment. The increasein selling, general and administrative expense is primarily due to an increase in the consolidated selling, general and administrative expense.See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Regulated Operations Segment OverviewRegulated Operations segment revenue, Cost of Goods Sold and Adjusted EBITDA represented 3%, 2% and 1% of 2011 consolidated revenues, Cost of GoodsSold and Adjusted EBITDA, respectively.A selected key performance indicator for our Regulated Operations segment follows: December 31, Percentage 2011 2010 Change Voice: Total local access lines in service on GCI facilities1 9,100 10,000 (9%) 1 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network.Regulated Operations Segment RevenuesRegulated Operations segment revenues decreased from $22.7 million in 2010 to $22.0 million in 2011.Regulated Operations Segment Cost of Goods SoldRegulated Operations segment Cost of Goods Sold increased from $4.4 million in 2010 to $5.8 million in 2011. Beginning July 1, 2011, our RegulatedSegment began purchasing access to carry its traffic in certain regions from our Network Access Segment. Prior to this the traffic in these regions was carriedon its own network plant. Under regulatory accounting these intercompany transactions are not eliminated from the consolidated financial statements.Regulated Operations Segment Adjusted EBITDARegulated Operations segment Adjusted EBITDA decreased 55% to $2.8 million in 2011 primarily due to a decrease in revenue, an increase in Cost of GoodsSold as described above in “Regulated Operations Segment Cost of Goods Sold” and an increase in the selling, general and administrative expense that wasrecorded in our Regulated Operations segment. The increase in selling, general and administrative expense is primarily due to non-capitalizable TERRA-SWexpenses recorded in 2011. 47 See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $6.7 million to $235.5 million in 2011. Individually significant items contributing to the increaseinclude:· A $1.6 million increase in labor costs,· A $1.2 million increase in health benefit costs, and· A $1.2 million increase in bad debt expense primarily due to absence of settlements which resulted in the release of credit reserves in the third quarterof 2010.These increases were partially offset by a $3.8 million decrease in our company-wide success sharing bonus accrual. The remainder of the increase iscomprised of individually insignificant items.As a percentage of total revenues, selling, general and administrative expenses were 35% in 2011 and 2010.Depreciation and Amortization ExpenseDepreciation and amortization expense decreased $372,000 to $125.7 million in 2011.Other Expense, NetOther expense, net of other income, increased 11% to $77.6 million in 2011 primarily due to a $9.1 million loss on extinguishment of debt. On May 23,2011, GCI, Inc., our wholly owned subsidiary, completed an offering of $325.0 million in aggregate principal amount of 2021 Notes. We used the netproceeds from this offering to repay and retire all of our outstanding 2014 Notes. This increase was partially offset by a $2.1 million decrease in interestexpense to $68.3 million. The interest expense decrease is primarily due to the issuance of the 2021 Notes, which have a lower interest rate than the interestrate paid on our 2014 Notes.Income Tax ExpenseIncome tax expense totaled $7.5 million and $9.5 million in 2011 and 2010, respectively. Our effective income tax rate increased from 51% in 2010 to 57% in2011.At December 31, 2011, we have income tax net operating loss carryforwards of $311.3 million that will begin expiring in 2019 if not utilized, and alternativeminimum tax credit carryforwards of $1.9 million available to offset regular income taxes payable in future years.We have recorded deferred tax assets of $127.6 million associated with income tax net operating losses that were generated from 1999 to 2011 and that expirefrom 2019 to 2031, and with charitable contributions that were converted to net operating losses in 2004 through 2007, and that expire in 2024 through 2027,respectively.Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through future reversals of existing taxabletemporary differences and future taxable income exclusive of reversing temporary differences and carryforwards. The amount of deferred tax asset consideredrealizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced which would result in additional incometax expense. We estimate that our effective annual income tax rate for financial statement purposes will be 45% to 50% in the year ending December 31, 2012,primarily due to the large amount of permanent differences expected in 2012 as compared to our net income before income tax expense.Year Ended December 31, 2010 (“2010”) Compared to Year Ended December 31, 2009 (“2009”) Overview of Revenues and Cost of Goods Sold Total revenues increased 9% from $595.8 million in 2009 to $651.3 million in 2010. Revenue increases in our Consumer, Commercial and ManagedBroadband segments were partially offset by decreased revenue in our Network Access and Regulated Operations segments. See the discussion below for moreinformation by segment. 48 Total Cost of Goods Sold increased 7% from $193.7 million in 2009 to $207.8 million in 2010. Cost of Goods Sold increases in our Consumer, Commercialand Managed Broadband segments were partially offset by decreases in our Network Access and Regulated Operations segments. See the discussion below formore information by segment. Consumer Segment Overview Consumer segment revenue represented 53% of 2010 consolidated revenues. The components of Consumer segment revenue are as follow (amounts inthousands): Percentage 2010 2009 Change Voice $57,317 52,654 9%Video 118,475 110,986 7%Data 61,364 50,327 22%Wireless 105,742 80,958 31%Total Consumer segment revenue $342,898 294,925 16%Consumer segment Cost of Goods Sold represented 50% of 2010 consolidated Cost of Goods Sold. The components of Consumer segment Cost of GoodsSold are as follows (amounts in thousands): Percentage 2010 2009 Change Voice $12,042 14,952 (19%)Video 51,246 45,350 13%Data 3,781 4,367 (13%)Wireless 37,412 32,225 16%Total Consumer segment Cost of Goods Sold $104,481 96,894 8%Consumer segment Adjusted EBITDA, representing 52% of 2010 consolidated Adjusted EBITDA, is as follows (amounts in thousands): Percentage 2010 2009 Change Consumer segment Adjusted EBITDA $114,716 86,587 32%See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selected key performance indicators for our Consumer segment follow: December 31, 2010 2009 PercentageChange Voice: Long-distance subscribers 88,200 90,500 (3%) Long-distance minutes carried (in millions) 106.9 114.7 (7%) Total local access lines in service 84,800 84,200 1% Local access lines in service on GCI facilities 77,400 75,200 3% Video: Basic subscribers 130,000 130,500 0% Digital programming tier subscribers 81,800 79,600 3% HD/DVR converter boxes 88,100 81,500 8% Homes passed 238,500 232,400 3% Average monthly gross revenue per subscriber $75.83 $70.36 8% Data: Cable modem subscribers 105,700 100,200 6% Wireless: Wireless lines in service 124,900 115,100 9% Average monthly gross revenue per subscriber $63.96 $61.54 4% 1 A long-distance subscriber is defined as a customer account that is invoiced a monthly long-distance plan fee or has made a long-distance call during themonth. 2 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network. 3 A basic subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of the number of outletspurchased. 4 A digital programming tier subscriber is defined as one digital programming tier of service delivered to an address or separate subunits thereof regardlessof 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 basic tier subscriber isnot required to rent an HD/DVR converter box to receive service. 6 Average monthly consumer video revenues divided by the average of consumer basic subscribers at the beginning and end of each month in the period. 7 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entity purchases multiplecable modem service access points, each access point is counted as a subscriber. Cable modem subscribers may also be video basic subscribers thoughbasic 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 Average monthly consumer wireless revenues divided by the average of consumer wireless subscribers at the beginning and end of each month in theperiod. 49 Consumer Segment RevenuesThe increase in voice revenue is primarily due to a $4.4 million or 54% increase in USAC support. We accrue estimated Rural and Urban high cost supportrevenue quarterly and adjust our revenue as we obtain new information that changes the variables used to calculate our estimate. The increase in USF highcost support is primarily due to changes in the variables used to calculate our estimate and an increase in the number of local subscribers. This increase waspartially offset by an absence of $674,000 in support in 2009 related to services provided during the year ended December 31, 2008. In March 2009, the FCCissued an order which provided uncapped support for all lines served by competitive ETCs for tribal lands in Alaska Native regions retroactive to August2008. This revenue was for the additional support for the period August to December 2008.The increase in video revenue is primarily due to the following:· A 6% increase in programming services revenue to $93.9 million in 2010 primarily resulting from an increase in digital programming tiersubscribers in 2010 and a rate increase on certain cable service offerings beginning in August 2009, and· An 8% increase in equipment rental revenue to $23.4 million in 2010 primarily resulting from our customers’ increased use of our HD/DVRconverter boxes.The increase in data revenue is primarily due to a 23% increase in cable modem revenue to $53.4 million due to increased subscribers, rate increases in Mayand August 2010, our subscribers’ selection of plans that offer higher speeds, and an increase in charges for usage above plan limits.The increase in wireless revenue is primarily due to the following: 50 · A $19.8 million increase in USAC support to $51.4 million. This increase includes a $16.3 million increase in USF high cost support and a $3.5million increase in USF low income support. We accrue estimated rural and urban high cost support revenue quarterly and adjust our revenue as weobtain new information that changes the variables used to calculate our estimate. The increase in USF high cost support is primarily due to changesin the variables used to calculate our estimate, an increase in the number of wireless subscribers and $1.0 million for amended line count filings forwhich the revenue recognition criteria was met in the third quarter of 2010. The increase in USF low income support is due to an increase in thenumber of wireless subscribers who qualify under this program; and· A $7.9 million increase in plan fee revenue to $37.8 million due to an increase in the number of wireless subscribers.These increases were partially offset by the following:· An absence of $1.7 million in support recorded in 2009 related to services provided during the year ended December 31, 2008. The support was fora new local access area for which we received ETC status in May 2009. Collectability was not reasonably assured until we were awarded ETCstatus, therefore we deferred revenue recognition until such status was confirmed, and· An absence of $810,000 recorded in 2009 related to services provided during the year ended December 31, 2008. In March 2009, the FCC issued anorder which provided uncapped support for all lines served by competitive ETCs for tribal lands in Alaska Native regions retroactive to August2008. This revenue was for the additional support for the period August to December 2008.Consumer Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to decreased voice minutes carried, cost savings resulting from the increased deployment of localaccess services lines on our own facilities during 2010, and a $392,000 favorable adjustment based upon refunds from several vendors. In the course ofbusiness we estimate unbilled long-distance services Cost of Goods Sold based upon minutes of use processed through our network and establishedrates. Such estimates are revised when subsequent billings are received, payments are made, billing matters are researched and resolved, tariffed billingperiods lapse, or when disputed charges are resolved.The increase in video Cost of Goods Sold is primarily due to increased channels offered to our subscribers, increased rates paid to programmers, increasedcosts associated with delivery of digital services offered through our HD/DVR converter boxes due to the increased number of boxes in service, and an increasein digital programming tier subscribers. The increases were partially offset by the absence of a $594,000 charge in 2009 to settle a billing issue with a cableprogrammer.The decrease in data Cost of Goods Sold is primarily due to the transition of traffic to our own facilities from leased facilities.The increase in wireless Cost of Goods Sold is primarily due to increased costs for wireless handset equipment sales associated with the increased number ofwireless subscribers and an increased number of premium wireless handsets which have higher costs.Consumer Segment Adjusted EBITDAThe Adjusted EBITDA increase is primarily due to increased revenue as described above in "Consumer Segment Revenues.” The increase was partially offsetby increased Cost of Goods Sold as described above in “Consumer Segment Cost of Goods Sold” and an increase in the selling, general and administrativeexpense that was allocated to our Consumer segment. The increase in allocated selling, general and administrative expense is due primarily to an increase in the2009 segment margin upon which the selling, general and administrative expense allocation is based and an increase in consolidated selling, general andadministrative expense. Network Access Segment Overview Network access segment revenue represented 16% of 2010 consolidated revenues. The components of Network Access segment revenue are as follows(amounts in thousands): 51 Percentage 2010 2009 Change Voice$29,032 49,837 (42%) Data 61,494 63,862 (4%) Wireless 16,701 8,373 99% Total Network Access segment revenue$107,227 122,072 (12%)Network Access segment Cost of Goods Sold represented 12% of 2010 consolidated Cost of Goods Sold. The components of Network Access segment Costof Goods Sold are as follows (amounts in thousands): Percentage 2010 2009 Change Voice$15,383 16,522 (7%) Data 8,234 9,444 (13%) Wireless 1,413 1,287 10% Total Network Access segment Cost of Goods Sold$25,030 27,253 (8%)Network Access segment Adjusted EBITDA, representing 23% of 2010 consolidated Adjusted EBITDA, is as follows (amounts in thousands): Percentage 2010 2009 Change Network Access segment Adjusted EBITDA$50,259 57,563 (13%)See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selected key performance indicators for our Network Access segment follow: December 31, Percentage 2010 2009 Change Voice: Long-distance minutes carried (in millions) 785.4 840.0 (7%) Data: Total Internet service provider access lines in service1 1,700 1,700 0% 1 An Internet service provider access line is defined as a revenue generating circuit or channel connecting a customer to the public switchedtelephone network Network Access Segment RevenuesThe decrease in voice revenue is due to decreases in our average rate per minute on billable minutes carried for our common carrier customers and the transitionof voice traffic to dedicated networks. Voice revenue continues to decline as expected due to increased competition in the Network Access business. Thedecrease is partially offset by a $3.1 million increase from growth of services sold.The decrease in data revenue is primarily due to decreased rates for capacity purchased by our common carrier customers.The increase in wireless revenue is due to increased roaming revenue in 2010 primarily due to improved coverage and new roaming partners. 52 Network Access Segment Cost of Goods SoldThe decrease in voice Cost of Goods Sold is primarily due to decreased long-distance minutes carried, the movement of more traffic onto our network in lieu ofcarrying traffic on third party networks, and a $771,000 favorable adjustment based upon refunds from several vendors. In the course of business weestimate unbilled long-distance services Cost of Goods Sold based upon minutes of use processed through our network and established rates. Such estimatesare revised when subsequent billings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or whendisputed charges are resolved. The decreases were partially offset by a $2.3 million increase from growth of services sold.The decrease in data Cost of Goods Sold is primarily due to the transition of traffic to our own facilities from leased facilities and a $724,000 favorableadjustment based upon refunds from several vendors. In the course of business we estimate unbilled data services Cost of Goods Sold based upon minutes ofuse processed through our network and established rates. Such estimates are revised when subsequent billings are received, payments are made, billingmatters are researched and resolved, tariffed billing periods lapse, or when disputed charges are resolved. The decreases were partially offset by the absence ofa $585,000 favorable adjustment in 2009 resulting from a refund of fiber repair costs. The fiber repair costs were originally recognized in the first quarter of2008. Due to the uncertainty surrounding the refund of the fiber 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 in “Network Access Segment Revenues.” This decrease is partially offsetby decreased Cost of Goods Sold as described in “Network Access Segment Cost of Goods Sold” and a decrease in the selling, general and administrativeexpense that was allocated to our Network Access segment primarily due to a decrease in the 2009 segment margin upon which the selling, general andadministrative expense allocation is based. Commercial Segment Overview Commercial segment revenue represented 20% of 2010 consolidated revenues. Commercial segment data revenue is comprised of monthly recurring chargesfor data services and charges billed on a time and materials basis largely for personnel providing on-site customer support. This latter category can varysignificantly based on project activity. The components of Commercial segment revenue are as follows (amounts in thousands): Percentage 2010 2009 Change Voice$31,720 30,830 3% Video 11,178 9,175 22% Data 76,823 63,383 21% Wireless 8,737 6,747 29% Total Commercial segment revenue$128,458 110,135 17%Commercial segment Cost of Goods Sold represented 29% of 2010 consolidated Cost of Goods Sold. The components of Commercial segment Cost of GoodsSold are as follows (amounts in thousands): Percentage 2010 2009 Change Voice$15,212 18,563 (18%) Video 2,140 1,956 9% Data 38,586 28,661 35% Wireless 3,947 3,065 29% Total Commercial segment Cost of Goods Sold$59,885 52,245 15%Commercial segment Adjusted EBITDA, representing 14% of 2010 consolidated Adjusted EBITDA, is as follows (amounts in thousands): 53 Percentage 2010 2009 Change Commercial segment Adjusted EBITDA$30,871 23,174 33%See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selected key performance indicators for our Commercial segment follow: December 31, Percentage 2010 2009 Change Voice: Long-distance subscribers1 9,100 9,500 (4%) Total local access lines in service2 48,300 47,700 1% Local access lines in service on GCI facilities 21,200 19,600 8% Long-distance minutes carried (in millions) 116.0 123.2 (6%) Data: Cable modem subscribers3 10,700 10,500 2% Wireless: Wireless lines in service4 13,800 10,300 34% 1 A long-distance subscriber is defined as a customer account that is invoiced a monthly long-distance plan fee or has made a long-distance callduring 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 the following:· A $799,000 or 32% increase in USAC support. We accrue estimated USF Rural and Urban high cost support revenue quarterly and adjust ourrevenue as we obtain new information that changes the variables used to calculate our estimate. The increase in USF high cost support isprimarily due to changes in the variables used to calculate our estimate and an increase in the number of local subscribers, and· A $493,000 or 3% increase in local plan fee revenue due to an increase in the number of lines in service.These increases in voice revenue were partially offset by an $822,000 or 6% decrease in long-distance plan fee revenue due to a decrease in subscribers andminutes carried.The increase in video revenue is primarily due to an increase in sales of cable advertising services due to state and federal political advertising and the return ofseasonal tourism advertising which was negatively affected in 2009 by the general economic slowdown.The increase in data revenue is primarily due to an $11.8 million or 41% increase in managed services project revenue due to special project work. 54 The increase in wireless revenue is primarily due to the following:· A $995,000 or 90% increase in USAC support. We accrue estimated USF Rural and Urban high cost support revenue quarterly and adjust ourrevenue as we obtain new information that changes the variables used to calculate our estimate. The increase in USF high cost support isprimarily due to changes in the variables used to calculate our estimate and an increase in the number of wireless subscribers; and· An $812,000 or 54% increase in plan fee revenue mainly 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 the following:· A $1.2 million cost saving from increased deployment of local access services lines on our own facilities during 2010,· A $1.0 million favorable adjustment based upon refunds from several vendors. In the course of business we estimate unbilled long-distance servicesCost of Goods Sold based upon minutes of use processed through our network and established rates. Such estimates are revised when subsequentbillings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or when disputed charges areresolved; and· A $700,000 or 7% decrease in long-distance costs related to the decrease in minutes carried.The increase in data Cost of Goods Sold is primarily due to an $11.1 million or 57% increase in managed services project Cost of Goods Sold related to theincreased revenue described above in “Commercial Segment Revenues.”The increase in wireless Cost of Goods Sold is primarily due to increased costs for wireless handset equipment sales associated with the increased number ofwireless subscribers.Commercial Segment Adjusted EBITDAThe Adjusted EBITDA increase was primarily due to increased revenue as described in “Commercial Segment Revenues.” This increase was partially offsetby increased Cost of Goods Sold as described in “Commercial Segment Cost of Goods Sold,” and an increase in the selling, general and administrativeexpense that was allocated to our Commercial segment primarily due to an increase in consolidated selling, general and administrative expense.Managed Broadband Segment OverviewManaged Broadband segment revenue, Cost of Goods Sold and Adjusted EBITDA represented 8%, 7% and 8% of 2010 consolidated revenues, Cost of GoodsSold and Adjusted EBITDA, respectively.Managed Broadband Segment RevenuesManaged Broadband segment revenue, which includes data products only, increased 11% to $50.0 million in 2010 as compared to 2009. The increase isprimarily due to:· A $3.8 million or 9% increase in monthly contract revenue due to increased data network capacity purchased by our ConnectMD® andSchoolAccess® customers, and· A $1.2 million or 143% increase in product sales to our customers.These increases are partially offset by the $1.7 million in denied funding from the USAC for one ConnectMD® customer for the funding year July 2008 toJune 2009. We received the funding commitment letter, which outlined the denied portion, in the second quarter of 2010. This denial is under appeal to theFCC.Managed Broadband Segment Cost of Goods SoldManaged Broadband segment Cost of Goods Sold increased from $11.1 million in 2009 to $14.0 million in 2010. The increase is primarily due to theincrease in data network capacity described above in “Managed Broadband Segment Revenues.” In addition, the product sales described above in “ManagedBroadband Segment Revenues” resulted in a $756,000 or 99% increase in product sales Cost of Goods Sold. 55 Managed Broadband Segment Adjusted EBITDAManaged Broadband segment Adjusted EBITDA decreased 1% to $19.3 million in 2010 primarily due to an increase in the Cost of Goods Sold as describedabove in “Managed Broadband Segment Cost of Goods Sold,” and an increase in the selling, general and administrative expense that was allocated to ourManaged Broadband segment primarily due to an increase in the consolidated selling, general and administrative expense. These increases were partially offsetby an increase in revenue as described above in "Managed Broadband Segment Revenues."See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Regulated Operations Segment OverviewRegulated Operations segment revenue, Cost of Goods Sold and Adjusted EBITDA represented 3%, 2% and 3% of 2010 consolidated revenues, Cost of GoodsSold and Adjusted EBITDA, respectively.The selected key performance indicator for our Regulated Operations segment follows: December 31, Percentage 2010 2009 Change Voice: Total local access lines in service1 10,000 11,100 (10%) 1 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network. Regulated Operations Segment RevenuesRegulated Operations segment revenues decreased from $23.8 million in 2009 to $22.7 million in 2010 primarily due to projected lower levels of eligible costrecovery resulting from changes in lines in service, traffic sensitive activity levels and reserve adjustments.Regulated Operations Segment Cost of Goods SoldRegulated Operations segment Cost of Goods Sold decreased from $6.1 million in 2009 to $4.4 million in 2010 primarily due to a change in allocation ofnetwork maintenance costs which resulted in a decrease to our Regulated Operations segment and an increase to our Consumer, Network Access, Commercialand Managed Broadband segments.Regulated Operations Segment Adjusted EBITDARegulated Operations segment Adjusted EBITDA increased 6% to $6.4 million in 2010.See note 10 in the "Notes to Consolidated Financial Statements" included in Part IV of this annual report on Form 10-K for a reconciliation of consolidatedAdjusted EBITDA, a non-GAAP financial measure, to consolidated income before income taxes.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $16.1 million to $228.8 million in 2010 primarily due to the following:· A $4.7 million increase in health benefit costs,· A $4.5 million increase in labor costs,· A $3.8 million increase in share-based compensation expense primarily due to the absence of a $2.4 million reversal of expense in 2009. The expensehad been properly recognized in previous periods for certain performance-based stock options and restricted stock awards but in the third quarter of2009 we determined they were not expected to vest,· $2.0 million in costs, including workers compensation expense, related to an accident involving our company-owned aircraft in August 2010, and· A $913,000 increase in our company-wide success sharing bonus accrual. 56 The increases were partially offset by the following:· A $2.4 million decrease in sales expense,· The absence of $1.2 million in costs for the conversion of our customers’ wireless phones to our facilities in 2009, and· The absence of a $640,000 contribution expense recognized upon the gift of an IRU to the University of Alaska that was recorded in 2009.As a percentage of total revenues, selling, general and administrative expenses decreased to 35% in 2010 from 36% in 2009, primarily due to increasingrevenues.Depreciation and Amortization ExpenseDepreciation and amortization expense increased $2.8 million to $126.1 million in 2010 primarily due to new assets placed in service in 2010 partially offsetby assets which became fully depreciated during 2010.Other Expense, NetOther expense, net of other income, increased 19% to $70.1 million in 2010 primarily due to a $13.2 million increase in interest expense to $69.4 million in2010. The interest expense increase is due to the issuance of the 2019 Notes in November 2009, which have a higher interest rate than the interest rate paid onour amended Senior Credit Facility, and a higher average outstanding debt balance during 2010 than 2009. The proceeds from the issuance of the 2019 Noteswere primarily used to repay and retire the outstanding amount due on our amended Senior Credit Facility.Income Tax ExpenseIncome tax expense totaled $9.5 million and $3.9 million in 2010 and 2009, respectively. Our effective income tax rate decreased from 53% in 2009 to 51% in2010. Multiple System Operator (“MSO”) Operating Statistics Our operating statistics include capital expenditures and customer information from our Consumer and Commercial segments which offer services utilizingour 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 cable service facilities,encompassing voice, video, and data services, without regard to which services customers purchase. At December 31, 2011, 2010 and 2009 we had 129,400,134,400, and 133,900 customer relationships, respectively.The standardized definition of a revenue generating unit is the sum of all primary digital video, high-speed data, and telephony customers, not countingadditional outlets. At December 31, 2011, 2010 and 2009 we had 345,900, 350,100, and 343,200 revenue generating 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 to meet our currentand long-term liquidity, capital requirements and fixed charges through our cash flows from operating activities, existing cash, cash equivalents, creditfacilities, and other external financing and equity sources. Should operating cash flows be insufficient to support additional borrowings and principalpayments scheduled under our existing credit facilities, capital expenditures will likely be reduced, which would likely reduce future revenues.As discussed in the General Overview section of this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” theFCC published the High Cost Order in November 2011. The program changes will impact our liquidity minimally in 2012 and we are evaluating the impactthe program changes will have on our liquidity in later years as the FCC considers successor funding mechanisms. Additionally, in February 2012 the FCCreleased reforms to the USF’s Lifeline program. The reforms included a requirement for annual recertification of all Lifeline subscribers enrolled as of June 1,2012 to be completed by the end of 2012. We are evaluating this requirement and possible processes and cannot predict whether this new rule will have amaterial impact on our cash flows.In January 2010 the U.S. Department of Agriculture’s RUS approved our wholly owned subsidiary, UUI’s application for an $88.2 million loan/grantcombination to extend terrestrial broadband service for the first time to Bristol Bay and the Yukon-Kuskokwim Delta, an area in Alaska roughly the size ofthe state of North Dakota. This project, called TERRA-SW, was placed into service in December 2011 and will be able to serve over 9,000 households andover 700 businesses in the 65 covered communities. The network facility will also be able to serve numerous public/nonprofit/private community anchorinstitutions 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, is made under the RUS Broadband Initiatives Program established pursuant to the AmericanRecovery and Reinvestment Act. The award funds backbone network facilities that we would not otherwise be able to construct within our return-on-investment requirements. 57 On May 20, 2011, GCI, Inc., our wholly owned subsidiary, completed an offering of $325.0 million in aggregate principal amount of 6 3/4% Senior Notesdue 2021 (“2021 Notes”) at an issue price of 100%. We used the net proceeds from this offering to repay and retire all $320.0 million of our senior unsecurednotes due 2014 (“2014 Notes”).In June 2011, GCI Holdings, Inc. (“Holdings”), our wholly owned subsidiary, entered into an Add-On Term Loan Supplement No. 1 (“Supplement No. 1”) toour Senior Credit Facility. The Supplement No. 1 provided for an additional $25.0 million term loan with an initial interest rate of LIBOR plus 2.5%, payablein accordance with the terms of our Senior Credit Facility. Holdings used $20.0 million of the term loan proceeds to pay down outstanding revolving loansunder our Senior Credit Facility, thus increasing availability under the revolving portion of our Senior Credit Facility. The remaining $5.0 million was usedfor general corporate purposes.In July 2011, Holdings entered into an Add-On Term Loan Supplement No. 2 (“Supplement No. 2”) to our Senior Credit Facility. The Supplement No. 2provided for an additional $25.0 million term loan with an initial interest rate of LIBOR plus 2.5%, payable in accordance with the terms of our Senior CreditFacility. Holdings used $15.0 million of the term loan proceeds to pay down outstanding revolving loans under our Senior Credit Facility, thus increasingavailability under the revolving portion of our Senior Credit Facility. The remaining $10.0 million was used for general corporate purposes.On August 30, 2011, we entered into a financing arrangement under the NMTC program that provided $16.5 million in net cash to help fund the extension ofterrestrial broadband service for the first time to rural Northwestern Alaska communities via a high capacity hybrid fiber optic and microwavenetwork. When completed, the project, called TERRA-NW, will connect to the TERRA-SW network and provide a high capacity backbone connection fromthe served communities to the Internet.In September 2011, the RCA approved our application for a $5.3 million grant to help fund TERRA-NW. The grant was increased to $6.3 million inJanuary 2012. The NMTC arrangement discussed above and this grant award partially fund backbone network facilities that we would not otherwise be ableto construct within our return-on-investment requirements. We plan to fund an additional $12.7 million for TERRA-NW and begin construction in 2012 andexpect to complete the project in 2014 or earlier if possible. While our short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to fund capitalexpenditures and acquisitions as opportunities arise, turmoil in the global financial markets may negatively impact our ability to further access the capitalmarkets in a timely manner and on attractive terms, which may have a negative impact on our ability to grow our business.We monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal and secondarilyon maximizing yield on those funds.Our net cash flows provided by and (used for) operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows for2011 and 2010, are summarized as follows (amounts in thousands): 2011 2010 Operating activities$ 134,434 171,259 Investing activities (164,193) (104,722) Financing activities 26,076 (82,243) Net decrease in cash and cash equivalents$ (3,683) (15,706) 58 Operating ActivitiesThe decrease in cash flows provided by operating activities is due primarily to an increase in accounts receivable in 2011 as compared to 2010 due to timing ofreceipt of payments.Investing ActivitiesNet cash used in investing activities consists primarily of cash paid for capital expenditures. Our most significant recurring investing activity has beencapital expenditures and we expect that this will continue in the future. A significant portion of our capital expenditures is based on the level of customergrowth and the technology being deployed.Our cash expenditures for property and equipment, including construction in progress, totaled $177.2 million and $96.2 million during 2011 and 2010,respectively. Our capital expenditures increased in 2011 primarily due to our TERRA-SW project. We recovered a substantial portion of our TERRA-SWcapital expenditures through grant funds and loan draws under our TERRA-SW RUS award. We expect our 2012 expenditures for property and equipmentfor our core operations, including construction in progress, to total approximately $135.0 million, depending on available opportunities and the amount ofcash flow we generate during 2012.Under our TERRA-SW RUS award, we had total available grant funds of $44.0 million. We have received $35.1 million in grant funds during the yearended December 31, 2011, leaving $8.9 million remaining grant funds available as of December 31, 2011. We have a $3.1 million grant fund receivablerecorded as of December 31, 2011. On January 23, 2012, we received an additional $1.1 million under the grant portion of the award. After consideration ofthis transaction, we have $7.8 million remaining grant funds available.In 2011, we received $16.5 million in cash from participating in an NMTC financing transaction. The cash is restricted for construction of TERRA-NW.Financing ActivitiesNet cash provided by financing activities in 2011 consists primarily of proceeds from the issuance of our 2021 Notes and Supplements No. 1 and No. 2under our Senior Credit Facility, borrowing under the revolving portion of our Senior Credit Facility, borrowing under our TERRA-SW RUS loan and aninvestment by US Bancorp, a non-controlling interest. These proceeds were offset by retirement of our 2014 Notes and repayments under the revolvingportion of our Senior Credit Facility, payment of debt issuance costs and repurchases of our common stock. Proceeds from borrowings fluctuate from year toyear based on our liquidity needs. We may use excess cash to make optional repayments on our debt or repurchase our common stock depending on variousfactors, such as market conditions.Available Borrowings Under Senior Credit FacilityOur Senior Credit Facility, which at December 31, 2011 includes the Supplements No. 1 and No. 2 as discussed above, includes a $50.0 million term loanand a $75.0 million revolving credit facility with a $25.0 million sublimit for letters of credit. The term loan is fully drawn and a total of $60.0 million isoutstanding as of December 31, 2011. Under the revolving portion of the Senior Credit Facility, we have borrowed $10.0 million and have $349,000 of lettersof credit outstanding, which leaves $64.7 million available for borrowing as of December 31, 2011.Available TERRA-SW Borrowings Under RUSUnder our TERRA-SW RUS award, we had total available loan funds of $44.2 million. We have borrowed $35.2 million in loan funds, leaving $9.0million remaining loan funds available as of December 31, 2011. On January 23, 2012, we received an additional $1.1 million under the loan portion of theaward. After consideration of this transaction, we have $7.9 million remaining loan funds available.Debt CovenantsWe are subject to covenants and restrictions set forth in the indentures governing our 2019 and 2021 Notes, Senior Credit Facility, RUS loans, and CoBankloans. We are in compliance with the covenants, and we believe that neither the covenants nor the restrictions in our indentures or loan documents will limitour ability to operate our business. 59 Share RepurchasesGCI’s Board of Directors has authorized a common stock buyback program for the repurchase of GCI Class A and Class B common stock in order to reducethe outstanding shares of Class A and Class B common stock. Under this program, we are currently authorized to make up to $92.9 million of repurchasesas of December 31, 2011. We are authorized to increase our repurchase limit $5.0 million per quarter indefinitely and to use stock option exercise proceeds torepurchase additional shares. If stock repurchases are less than the total approved quarterly amount the difference may be carried forward and applied againstfuture stock repurchases. During 2011 we repurchased 5.2 million shares of GCI common stock under the stock buyback program at a cost of $52.6million. The common stock buyback program is expected to continue for an indefinite period dependent on leverage, liquidity, company performance, marketconditions and subject to continued oversight by GCI’s Board of Directors. The open market repurchases have and will continue to comply with therestrictions of SEC Rule 10b-18.Schedule of Certain Known Contractual ObligationsThe following table details future projected payments associated with certain known contractual obligations as of December 31, 2011 (amounts in thousands): Payments Due by Period Total Less than 1Year 1 to 3 Years 4 to 5 Years More Than 5Years Long-term debt $864,288 3,241 7,123 66,300 787,624 Interest on long-term debt 518,270 61,545 122,924 119,275 214,526 Capital lease obligations, including interest 125,487 11,732 23,494 23,532 66,729 Operating lease commitments 177,940 25,397 43,112 36,155 73,276 Purchase obligations 40,128 23,628 16,500 - - Total contractual obligations $1,726,113 125,543 213,153 245,262 1,142,155 Long-term debt listed in the table above includes principal payments on our Senior Credit Facility, 2019 and 2021 Notes, Rural Utilities Services debt andCoBank Mortgage note payable. Interest on the amount outstanding under our Senior Credit Facility is based on variable rates. We used the current rate paidon the Senior Credit Facility to estimate our future interest payments. Our 2019 Notes require semi-annual interest payments of $18.3 million throughNovember 2019 and our 2021 Notes require semi-annual interest payments of $11.0 million through June 2021. Our Rural Utilities Services debt andCoBank Mortgage note payable have fixed interest rates ranging from 2.0% to 6.8%. For a discussion of our 2019 and 2021 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 operating leases, see note 13 inthe accompanying “Notes to Consolidated Financial Statements.”Purchase obligations include the following:· A non-cancelable commitment to purchase wireless equipment of $8.6 million, $7.0 million and $8.1 million during the years ended December 31,2012, 2013 and 2014, respectively, and·· Cancelable open purchase orders for goods and services for capital projects and normal operations totaling $15.0 million which are not included inour Consolidated Balance Sheets at December 31, 2011, because the goods had not been received or the services had not been performed at December31, 2011. 60 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 or operating partsof our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidatedinto our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.New Accounting StandardsIn September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, “Intangibles – Goodwilland Other (Topic 350).” The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to performthe two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unitunless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. Theamendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This pronouncement iseffective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to have a material impact on our incomestatements, financial position or cash flows.In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement andDisclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”)” which amends current guidance to achieve common fairvalue measurement and disclosure requirements in GAAP and IFRS. The amendments generally represent clarification of FASB ASC Topic 820, but alsoinclude instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements haschanged. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU2011-04 is not expected to have a material impact on our income statements, financial position or cash flows.Critical Accounting Policies and EstimatesOur accounting and reporting policies comply with GAAP. The preparation of financial statements in conformity with GAAP requires management to makeestimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions, which are integral tounderstanding reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of our financialcondition and results, and require management to make estimates that are difficult, subjective or complex. Most accounting policies are not considered bymanagement to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of financialstatements. These factors include, among other things, whether the estimates are significant to the financial statements, the nature of the estimates, the abilityto readily validate the estimates with other information including third parties or available prices, and sensitivity of the estimates to changes in economicconditions and whether alternative accounting methods may be utilized under GAAP. For all of these policies, management cautions that future events rarelydevelop exactly as forecast, and the best estimates routinely require adjustment. Management has discussed the development and the selection of criticalaccounting policies with our Audit Committee.Those policies and estimates considered to be critical for the year ended December 31, 2011 are described below.Revenue RecognitionThe accounting estimates related to revenues from the Remote high cost, rural health and schools and libraries USF programs are dependent on variousinputs including our estimate of the statewide support cap, our assessment of the impact of new FCC regulations, the potential outcome of FCCproceedings and the potential outcome of USAC contract reviews. Some of the inputs are subjective and based on our judgment regarding the outcome ofcertain variables and are subject to upward or downward adjustment in subsequent periods. Significant changes to our estimates could result in materialchanges to the revenues we have recorded and could have a material effect on our financial condition and results of operations. 61 Allowance for Doubtful ReceivablesWe maintain allowances for doubtful receivables for estimated losses resulting from the inability of our customers to make required payments. We alsomaintain an allowance for doubtful receivables based on notification that a customer may not have satisfactorily complied with rules necessary to obtainsupplemental funding from the USAC for services provided by us under our packaged communications offerings to rural hospitals, health clinics andschool districts. We base our estimates on the aging of our accounts receivable balances, financial health of specific customers, regional economic data,changes in our collections process, regulatory requirements, and our customers’ compliance with USAC rules. If the financial condition of our customerswere to deteriorate or 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 bereduced. Such allowance changes could have a material effect on our financial condition and results of operations.Impairment and Useful Lives of Intangible AssetsWe had $292.5 million of indefinite-lived intangible assets at December 31, 2011 consisting of cable certificates of $191.6 million, goodwill of $74.9million and wireless licenses of $26.0 million. Our indefinite-lived intangible assets are tested annually for impairment during the fourth quarter and atany time upon the occurrence of certain events or substantive changes in circumstances.We are required to determine goodwill impairment using a two-step process. The first step of the goodwill impairment test is used to identify potentialimpairment by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, thesecond step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. Ifthe carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal tothat excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be recognized in a businesscombination.The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with itscarrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.Our cable certificates are our largest indefinite-lived intangible asset and represent agreements with government entities to construct and operate a cablebusiness. The value of our cable certificates is derived from the economic benefits we receive from the right to solicit new customers and to market newservices. The amount we have recorded for cable certificates is primarily from cable system acquisitions. The cable certificates are valued under a directdiscounted cash flow method whereby the cash flow associated with existing customers is isolated after appropriate contributory asset charges and thenprojected based on an analysis of customer churn and attrition characteristics.Our wireless licenses are from the FCC and give us the right to provide wireless service within a certain geographical area. The amount we have recordedis from acquisitions of wireless companies and auctions of wireless spectrum. We use comparable market transactions from recent FCC auctions, asappropriate, and a hypothetical build-up method to value our wireless licenses.Goodwill represents the excess of cost over fair value of net assets acquired in connection with a business acquisition. We use an income approach todetermine the fair value of our reporting units for purposes of our goodwill impairment test. In addition, a market-based approach is used where possibleto corroborate the fair values determined by the income approach.The direct discounted cash flow, hypothetical build-up, and income approach valuation methods require us to make estimates and assumptions includingprojected cash flows, discount rate, customer churn, and customer behaviors and attrition. These estimates and assumptions could have a significantimpact on whether an impairment charge is recognized and the magnitude of any such impairment charge. Fair value estimates are made at a specificpoint in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgment andtherefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Events and factors that may be out ofour control that could affect the estimates include such things as competitive forces, customer behaviors, change in revenue growth trends, cost structuresand technology, and changes in discount rates, performance compared to peers, material and ongoing negative economic trends, and specific industry ormarket sector conditions. Our company is operated and managed with two balance sheets, however, our impairment tests must be performed at thereporting unit level, which requires us to allocate one of our balance sheets. These allocations are subjective and require a significant amount ofjudgment. Changes to the assumptions and allocation methodologies could significantly change our estimates. We may also record impairments in thefuture if there are changes in long term market conditions, expected future operating results, or laws and regulations that may prevent us from recoveringthe carrying value of our goodwill, cable certificates, and wireless licenses. 62 We have allocated all of the goodwill to our reporting units and based on our annual impairment test as of October 31, 2011, the fair value of eachreporting unit exceeded the book value by a range between 20% and 1,033%. The reporting unit that exceeded the book value by 20% passed the goodwillimpairment test by $6.7 million, which we believe is a large margin. We believe none of our reporting units were close to failing step one of the goodwillimpairment test.Based on our annual impairment test as of October 31, 2011, the fair value of our wireless licenses exceeded the book value by 54% and $14.0 million,which we believe is a large margin. The fair value of our cable certificates exceeded the book value by 4% and $7.4 million as of October 31, 2011. Thefair values of our wireless licenses and cable certificates were negatively affected by the FCC’s issuance of the High Cost Order discussed in the GeneralOverview section of this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as it decreased current andforecasted wireless and local services revenue. The wireless revenue decreases affected wireless licenses and the local services revenue decreases affectedcable certificates as our local customers are mainly serviced using our cable plant. We believe that none of our indefinite lived intangible assets were closeto failing the impairment test, however, as discussed in the General Overview section of this Item 7 “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” further rulemaking to consider successor funding mechanisms is underway at the FCC. We cannot predict at thistime the outcome of this proceeding or its effect on us, but our revenue for providing wireless and local services in these areas would be materiallyadversely affected by a substantial reduction of USF support.Accruals for Unbilled CostsWe estimate unbilled long-distance and wireless 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. Such estimates are revisedor removed when subsequent billings are received, payments are made, billing matters are researched and resolved, tariffed billing periods lapse, or whendisputed charges are resolved. Revisions to previous estimates could either increase or decrease costs in the year in which the estimate is revised whichcould have a material effect on our financial condition and results of operations.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 revenue and expenses forfinancial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. Wehave recorded deferred tax assets of $127.6 million associated with income tax net operating losses that were generated from 1999 to 2011, and thatprimarily expire from 2019 to 2031, and with charitable contributions that were converted to net operating losses in 2004 to 2007, and that expire in 2024to 2027, respectively. Pre-acquisition income tax net operating losses associated with acquired companies are subject to additional deductibility limits. Wehave recorded deferred tax assets of $1.9 million associated with alternative minimum tax credits that do not expire. Significant management judgment isrequired in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances thatmay be required against the deferred tax assets. We have not recorded a valuation allowance on the deferred tax assets as of December 31, 2011 based onmanagement’s belief that future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporarydifferences and carryforwards will, more likely than not, be sufficient to realize the benefit of these assets over time. In the event that actual results differfrom these estimates or if our historical trends change, we may be required to record a valuation allowance on deferred tax assets, which could have amaterial adverse effect on our consolidated financial position or results of operations. 63 Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to anunderstanding of the financial statements. A complete discussion of our significant accounting policies can be found in note 1 in the accompanying “Notes toConsolidated 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. Our Senior Credit Facilitycarries interest rate risk. Amounts borrowed under this Agreement bear interest at LIBOR plus 4.0% or less depending upon our Total Leverage Ratio (asdefined) for the revolving portion and LIBOR plus 2.5% for the term portion. Should the LIBOR rate change, our interest expense will increase or decreaseaccordingly. As of December 31, 2011, we have borrowed $60.0 million subject to interest rate risk. On this amount, each 1% increase in the LIBOR interestrate would result in $600,000 of additional gross interest cost on an annualized basis. All of our other material borrowings have a fixed interest rate. We donot hold derivatives for trading purposes.Item 8. Consolidated Financial Statements and Supplementary DataOur consolidated financial statements are filed under this Item, beginning on page 101. Our supplementary data is filed under Item 7, beginning on page 39.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 we file or submitunder the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, accumulated and communicated to our management,including our principal executive and financial officers, to allow timely decisions regarding required financial disclosure, and reported as specified in theSEC’s rules and forms. As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation of the effectiveness of thedesign and operation of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a - 15(e)) under the supervision and with theparticipation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on that evaluation and as described belowunder “Management’s Report on Internal Control Over Financial Reporting", our management, including our Chief Executive Officer and our Chief FinancialOfficer, concluded that our disclosure controls and procedures were effective as of December 31, 2011.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 defined in Exchange ActRule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer,we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations (COSO). 64 Based on our evaluation of the effectiveness of our internal control over financial reporting, our management concluded that as of December 31, 2011, wemaintained 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 financial reporting as ofDecember 31, 2011, which is included in Item 8 of this Form 10-K.Changes in Internal Control Over Financial ReportingIn the second quarter of 2010 we identified a material weakness associated with inadequately designed internal controls in our financial reporting processrelated to the USF high cost program support revenue accrual. We began remediation in the third quarter of 2010 by strengthening the design and operation ofour controls over the preparation and review of the USF high cost program support revenue accrual. Our remediation efforts continued in 2010 and 2011. AtDecember 31, 2011, we believe we have the appropriate controls designed and these controls are operating effectively.Except as described above there were no changes in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) of the ExchangeAct) identified in connection with the evaluation of our controls performed during the quarter ended December 31, 2011 that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with GAAP. A company's internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence andcompliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can becircumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented ordetected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reportingprocess. 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 GovernanceIdentificationAs of December 31, 2011, our board consisted of eight director positions, divided into three classes of directors serving staggered three-year terms. 65 A director on our board is elected at an annual meeting of shareholders and serves until the earlier of his or her resignation or removal, or his or her successoris elected and qualified. Our executive officers generally are appointed at our board's first meeting after each annual meeting of shareholders and serve at thediscretion of the board.The following table sets forth certain information about our directors and executive officers as of December 31, 2011:NameAgePosition Stephen M. Brett171Chairman, Director Ronald A. Duncan159President, Chief Executive Officer and Director John M. Lowber62 Senior Vice President, Chief Financial Officer, Secretary, and TreasurerG. Wilson Hughes66 Executive Vice President and General ManagerWilliam C. Behnke54 Senior Vice PresidentMartin E. Cary47 Vice President – General Manager, Managed Broadband ServicesGregory F. Chapados54 Senior Vice PresidentPaul E. Landes53 Senior Vice President and General Manager, Consumer ServicesGregory W. Pearce48 Vice President and General Manager, Business ServicesTina M. Pidgeon43Senior Vice President, General Counsel and Government Affairs Jerry A. Edgerton169 DirectorScott M. Fisher145Director William P. Glasgow153 DirectorMark W. Kroloff154Director Stephen R. Mooney152 DirectorJames M. Schneider159Director 1The present classification of our board is as follows: (1) Class I – Messrs. Edgerton and Kroloff, whose present terms expire at the time of our 2014 annualmeeting; (2) Class II – Messrs. Brett, Duncan and Mooney whose present terms expire at the time of our 2012 annual meeting; and (3) Class III – Messrs.Fisher, Glasgow, and Schneider, whose present terms expire at the time of our 2013 annual meeting.The board, when considering whether directors have the experience, qualifications, attributes or skills, taken as a whole, to enable the board to satisfy itsoversight responsibilities effectively in light of the Company's business and structure, focused primarily on each person's background and experience. Webelieve that the Company's directors have backgrounds that, when combined, provide us with a board equipped to direct us through an ever challengingcourse in the segments of the telecommunication business in which we are involved. Attributes of members of our board include experience in entrepreneurial,cable service, telecommunication, technological and financial aspects of companies similar to, as well as much larger than, us.In particular, our board considered important the following regarding its members. With regard to Mr. Brett, our board considered his telecommunicationsand cable experience, as well as his over 40 year experience as a corporate lawyer. With regards to Messrs. Fisher and Glasgow, our board considered thebroad backgrounds of these individuals in finance and their operational experience with cable companies. With regards to Messrs. Edgerton and Mooney, ourboard considered the extensive experience and expertise of these individuals in business development in the telecommunications industry. Our board alsoconsidered the broad perspective brought by Mr. Kroloff's experience in operating diverse businesses throughout Alaska as well as his experience as alawyer. With regard to Mr. Schneider, our board considered his significant financial and accounting experience including his time spent as Chief FinancialOfficer of a large public company. 66 Our board also considered the many years of experience with the Company represented by Mr. Duncan, our President and Chief Executive Officer. He hasbeen with the Company since he co-founded it.Many of our directors, including Messrs. Edgerton, Glasgow, Kroloff, Mooney and Schneider, were initially proposed for nomination by (or, in the case ofMr. Kroloff, through a request from Mr. Duncan to) holders of significant amounts of Company shares. Our board has retained each of these directors, evenafter the shareholders have exited the Company or no longer have retained a right to nominate a director, due to the valued expertise our board feels they provideas members.Stephen M. Brett. Mr. Brett has served as Chairman of our board since June 2005 and as a director on our board since January 2001. He has been ofcounsel to Sherman & Howard, L.L.C., a law firm, since January 2001. He was Senior Executive Vice President for AT&T Broadband from March 1999 toApril 2000. His present term as a director on our board expires at the time of our 2012 annual meeting.Ronald A. Duncan. Mr. Duncan is a co-founder of the Company and has served as a director on our board since 1979. Mr. Duncan has served as ourPresident and Chief Executive Officer since January 1989. His present term as director on the board expires at the time of our 2012 annual meeting.John M. Lowber. Mr. Lowber has served as our Chief Financial Officer since January 1987, as our Secretary and Treasurer since July 1988 and as one ofour Senior Vice Presidents since December 1989.G. Wilson Hughes. Mr. Hughes has served as our Executive Vice President and General Manager since June 1991.William C. Behnke. Mr. Behnke has served as one of our Senior Vice Presidents since January 2001. Prior to that, he served as our Senior Vice President –Marketing and Sales from January 1994.Martin E. Cary. Mr. Cary has served as our Vice President – General Manager, Managed Broadband Services since September 2004. Prior to that, he servedas our Vice President – Broadband Services from June 1999 to September 2004.Gregory F. Chapados. Mr. Chapados has served as one of our Senior Vice Presidents since June 2006. Prior to that, he was the Managing Director ofIntegrated Strategies Initiatives LLC from August 2004 to May 2006. Integrated Strategies was at the time a boutique investment bank serving middle-marketcompanies in defense and other areas of federal contracting. Prior to that, Mr. Chapados was a Managing Director at the investment bank, Hoak BreedloveWesneski & Co. from February 1995 to July 2004.Paul E. Landes. Mr. Landes has served as one of our Senior Vice Presidents and as General Manager, Consumer Services since December 2010. Prior tothat, he served as our Vice President and General Manager Consumer Services from September 2005 to December 2010. Prior to that, Mr. Landes served asour Vice President – Marketing and Sales, and Chief Marketing Officer beginning in 2002. Prior to that, he was our Vice President – Marketing from 1999 to2002.Gregory W. Pearce. Mr. Pearce has served as our Vice President and General Manager, Business Services since June 2010. Prior to that, he served as ourVice President and General Manager, Commercial Services beginning in September 2005. Prior to that, he served as our Vice President /Director of LongDistance Products beginning in January 1998.Tina M. Pidgeon. Ms. Pidgeon has served as our Senior Vice President, General Counsel and Government Affairs, since September 2010. Prior to that, sheserved as our Vice President, Federal Regulatory Affairs from January 2003 to September 2010.Jerry A. Edgerton. Mr. Edgerton has served as a director on our board since June 2004. Since September 2011, he has been President of Global Services foriNETWORKS Group, Inc., a comprehensive telecommunications solutions provider. From July 2009 to August 2011, he was President of GovernmentMarkets for Core 180, a network integrator for large governmental and commercial customers. From November 2007 to May 2009, he was Chief ExecutiveOfficer for Command Information, Inc., a next generation Internet service company. From April 2007 to October 2007, Mr. Edgerton was an advisor onmatters affecting the telecommunications industry as well as the U.S. government. Prior to that and from January 2006 to April 2007, he was Group Presidentof Verizon Federal. Prior to that and from November 1996, he was Senior Vice President – Government Markets for MCI Communications Corporation, anaffiliate of MCI, which was later acquired by Verizon Communications, Inc. His present term as a director on our board expires at the time of our 2014annual meeting. 67 Scott M. Fisher. Mr. Fisher was appointed to our board in December 2005. From 1998 to the present, he has been a partner of Fisher Capital Partners,Ltd., a private equity and real estate investment company located in Denver, Colorado. During that time, Fisher Capital owned and operated PeakCablevision, a multiple system cable television operator with approximately 120,000 subscribers. At Peak Cablevision, Mr. Fisher was responsible fortelevision programming and corporate development. From June 1990 to April 1998, he was Vice President at The Bank of New York and BNY CapitalResources Corporation, an affiliate of The Bank of New York, where he worked in the corporate lending and commercial leasing departments. Mr. Fisherserves on the advisory boards of several private companies. His present term as director on our board expires at the time of our 2013 annual meeting.William P. Glasgow. Mr. Glasgow has served as a director on our board since 1996. From 2005 to the present, Mr. Glasgow has been Chief ExecutiveOfficer of AmericanWay Education. From 1999 to December 2004, he was President/CEO of Security Broadband Corp. From 2000 to the present Mr.Glasgow has been President of Diamond Ventures, L.L.C., a Texas limited liability company and sole general partner of Prime II Management, L.P., and PrimeII Investments, L.P., both of which are Delaware limited partnerships. Since 1996, he has been President of Prime II Management, Inc., a Delawarecorporation, which was formerly the sole general partner of Prime II Management, L.P. His present term as a director on our board expires at the time of our2013 annual meeting.Mark W. Kroloff. Mr. Kroloff has served as a director on our board since February 2009. Since January 2010, he has been a principal at First AlaskanCapital Partners, LLC, an investment firm. From May 2005 to December 2009, he was Senior Executive Vice President and Chief Operating Officer of ArcticSlope Regional Corporation ("ASRC"), an Alaska Native regional corporation formed pursuant to the Alaska Native Claims Settlement Act. From 2001 toApril 2005, Mr. Kroloff was Chief Operating Officer of Cook Inlet Region, Inc., also an Alaska Native regional corporation. Prior to that, from 1989 to 2001he was Vice President and General Counsel of Cook Inlet Region, Inc. He also serves on the board of directors for Trilogy International Partners, LLC. Mr.Kroloff's present term as a director on our board expires at the time of our 2014 annual meeting.Stephen R. Mooney. Mr. Mooney has served as a director on our board since January 1999. He has been a Managing Director with the McClean Group,LLC, a national financial advisory services firm based in Washington, D.C. since April 2010. From February 2008 to November 2009, Mr. Mooney wasVice President, Business Development for Affiliated Computer Services, Inc., a global information technology and business process outsourcingcompany. From January 2006 to September 2007, he was Executive Director, Business Development of VerizonBusiness, a unit of Verizon. Prior to that, hewas Vice President, Corporate Development and Treasury Services at MCI beginning in 2002. From 1999 to 2002, he was Vice President of WorldComVentures Fund, Inc. His present term as a director on our board expires at the time of our 2012 annual meeting.James M. Schneider. Mr. Schneider has served as a director on our board since July 1994. He has been Chairman of Frontier Bancshares, Inc. sinceFebruary 2007. Prior to that, Mr. Schneider had been Senior Vice President and Chief Financial Officer for Dell, Inc. from March 2000 to February2007. Prior to that, he was Senior Vice President – Finance for Dell Computer Corporation from September 1998 to March 2000. He served on the board ofdirectors of GAP, Inc. from September 2003 to October 2010. Mr. Schneider also served on the board of directors of Lockheed Martin Corporation fromDecember 2005 to August 2010. His present term as a director on our board expires at the time of our 2013 annual meeting.Section 16(a) Beneficial Ownership Reporting ComplianceDuring 2011, two of our directors (Messrs. Fisher and Schneider) inadvertently failed to file Forms 4 with the SEC that were due on January 18, 2011 andJuly 8, 2011, respectively. Both filings were made by Messrs. Fisher and Schneider on February 3, 2011 and July 11, 2011, respectively. Furthermore,during 2011, two of our executive officers (Messrs. Landes and Pearce) inadvertently failed to file Forms 4 with the SEC that were due on August 3, 2011,however, both filings were made by January 19, 2012. Another executive officer (Mr. Cary) inadvertently failed to file Forms 4 with the SEC that were due onJuly 1 and July 6, 2011, however, both filings were made by January 19, 2012. 68 Also during 2011, five of our executive officers (Messrs. Cary, Chapados, Landes, Pearce and Ms. Tarbath) inadvertently failed to file Forms 4 with the SECthat were due on December 2, 2011, but all of the filings were made by December 22, 2011.Code of Business Conduct and EthicsOur Code of Business Conduct and Ethics ("Ethics Code"), was adopted by our board in 2003. It applies to all of our officers, directors and employees. TheEthics Code takes as its basis a set of business principles adopted by our board several years ago. It also builds upon the basic requirements for a code ofethics as required by federal securities law and rules adopted by the SEC.Through our Ethics Code, we reaffirm our course of business conduct and ethics as based upon key values and characteristics and through adherence to aclear code of ethical conduct. Our Ethics Code promotes honest and ethical conduct, including ethical handling of actual or apparent conflicts of interestbetween personal and professional relationships of our employees. It also promotes full, fair, accurate, timely and understandable disclosure in our reportsand documents filed with, or submitted to, the SEC and other public communications made by us. Our Ethics Code further promotes compliance withapplicable governmental laws, rules and regulations, internal reporting of violations of the code to appropriate persons as identified in the code andaccountability for adherence to the code.A copy of our Ethics Code is displayed on our Internet website at www.gci.com (click on "About GCI," then click on "For Investors," and then click on"Code of Business Conduct and Ethics"). Except for the Ethics Code, and any other documents specifically incorporated herein, no information contained onthe Company’s website shall be incorporated by reference in this Form 10-K.No Change in Nominating ProcedureThere were no changes made during 2011 to the procedure by which our shareholders may recommend nominees to our board.Litigation and Regulatory MattersWe were, as of December 31, 2011, involved in several administrative and civil action matters primarily related to our telecommunications markets in Alaskaand the remaining 49 states and other regulatory matters. These actions are discussed in more detail elsewhere in this report. See "Part I – Item 3 – LegalProceedings." However, as of that date, our board was unaware of any legal proceedings in which one or more of our directors, officers, affiliates or owners ofrecord or beneficially of more than 5% of any class of our voting securities, or any associates of the previously listed persons were parties adverse to us or anyof our subsidiaries. Furthermore, as of that date, our board was unaware of any events occurring during the past 10 years materially adverse to an evaluationof the ability or integrity of any director, person nominated to become a director or executive officer of the Company.In December 2010, Mr. Schneider settled charges brought against him by the SEC for actions that allegedly took place when he was the chief financial officerat Dell, Inc. Mr. Schneider is no longer employed by Dell, Inc. He settled the charges and consented to the issuance of an SEC administrative order withoutadmitting or denying the SEC's findings, with limited exceptions. The limited exceptions are acknowledgment of the SEC's jurisdiction over Mr. Schneiderand the subject matter of the SEC proceedings brought against him, and the SEC findings with respect to litigation involving that company and certain of itssenior executive officers including Mr. Schneider. The court in that litigation entered an order permanently enjoining Mr. Schneider, by consent, from futureviolations of specified provisions of federal securities law. Mr. Schneider agreed to pay, as specified in the court's order, $3 million as a civil money penaltyand $83,096 in disgorgement of ill-gotten gains, as well as $38,640 in prejudgment interest. In the settlement with the SEC, Mr. Schneider has furtherconsented to his suspension from appearing or practicing before the SEC as an accountant for at least five years, after which time he may requestreinstatement by application to the SEC. As of December 31, 2011, Mr. Schneider was making payments in accordance with the terms of the court order. Asa result of the order, Mr. Schneider is prohibited from serving as a member of our Audit Committee. Accordingly, Mr. Schneider resigned from his position onour Audit Committee of our board effective as of August 8, 2011. 69 Audit Committee, Audit Committee Financial ExpertWe have a board audit committee ("Audit Committee") comprised of several members of our board, i.e., Messrs. Mooney (Chair), Fisher, and Glasgow.Our Audit Committee is governed by, and carries out its responsibilities under, an Audit Committee Charter, as adopted and amended from time to time byour board ("Audit Committee Charter"). The charter sets forth the purpose of the Audit Committee and its membership prerequisites and operatingprinciples. It also requires our Audit Committee to select our independent, registered, public accounting firm to provide for us accounting and audit services("External Accountant") and sets forth other primary responsibilities. A copy of our Audit Committee Charter is available to our shareholders on our Internetwebsite: www.gci.com (click on "About GCI," then click on "For Investors," and then click on "Audit Committee Charter").The Nasdaq corporate governance listing standards require that at least one member of our Audit Committee must have past employment experience in financeor accounting, requisite professional certification in accounting, or comparable experience or background which results in the individual's "financialsophistication." This financial sophistication may derive from the person being or having been a chief executive officer, chief financial officer or other seniorofficer with financial oversight responsibilities.Our board believes that Messrs. Glasgow and Mooney, are audit committee financial experts ("Audit Committee Financial Experts") and also meet the Nasdaqrequirements for financial sophistication. Our board further believes that Messrs. Fisher, Glasgow and Mooney are each an independent director as the term isdefined in the Nasdaq Stock Market corporate listing standards (to which the Company is subject), i.e., an individual other than one of our executive officersor employees or any other individual having a relationship which in the opinion of our board would interfere in carrying out the responsibilities of a director("Independent Director").Under the SEC's rules, an Audit Committee Financial Expert is defined as a person who has all of the following attributes:· Understanding of GAAP and financial statements.· Ability to assess the general application of GAAP in connection with accounting for estimates, accruals and reserves.· Experience in preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accountingissues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financialstatements, or experience actively supervising one or more persons engaged in such activities.· Understanding of internal control over financial reporting.· Understanding of audit committee functions.The Audit Committee Charter specifies how one may determine whether a person has acquired the attributes of an Audit Committee Financial Expert. They areone or more of the following:· Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experiencein one or more positions that involved the performance of similar functions.· Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or personperforming similar functions.· Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing orevaluation of financial statements.· Other relevant experience. 70 Our Audit Committee acts on behalf of our board and generally carries out specific duties including the following, all of which are described in detail in ourAudit Committee Charter:· Principal Accountant Selection, Qualification – Is directly responsible for appointment, compensation, retention, oversight,qualifications and independence of our External Accountant.· Financial Statements – Assists in our board's oversight of integrity of the Company financial statements.· Financial Reports, Internal Control – Is directly responsible for oversight of the audit by our External Accountant of our financialreports and reports on internal control.· Annual Reports – Prepares reports required to be included in our annual proxy statement.· Complaints – Receives and responds to certain complaints relating to internal accounting controls, and auditing matters, confidential,anonymous submissions by our employees regarding questionable accounting or auditing matters, and certain alleged illegal acts orbehavior-related conduct in violation of our Ethics Code. See "Part III – Item 10 – Code of Business Conduct and Ethics."· Principal Accountant Disagreements – Resolves disagreements, if any, between our External Accountant and us regarding financialreporting.· Non-Audit Services – Reviews and pre-approves any non-audit services (audit-related, tax and other non-audit related services) offered tous by our External Accountant ("Non-Audit Services").· Attorney Reports – Addresses certain attorney reports, if any, relating to violation of securities law or fiduciary duty by one of ourofficers, directors, employees or agents.· Related Party Transactions – Reviews certain related party transactions as described elsewhere in this report. See "Part III – Item 13 –Certain Transactions."· Other – Carries out other assignments as designated by our board.Item 11. Executive CompensationCompensation Discussion and AnalysisOverview –Compensation of our executive officers and directors during 2011 was subject to processes and procedures carried out through our Compensation Committee("Compensation Program"). This compensation discussion and analysis ("Compensation Discussion and Analysis") addresses the material elements of ourCompensation Program as applied to our Chief Executive Officer, our Chief Financial Officer, and to each of our three other most highly compensatedexecutive officers other than the Chief Executive Officer and Chief Financial Officer who were serving as executive officers as of December 31, 2011. All fiveof these officers are identified in the Summary Compensation Table ("Named Executive Officers"). See "Part III – Item 11 – ExecutiveCompensation: Summary Compensation Table."Both the Compensation Committee and the Company believe that the compensation paid to the Named Executive Officers under our Compensation Program isfair, reasonable, competitive and consistent with our Compensation Principles. See "Part III – Item 11 – Compensation Discussion and Analysis: Principlesof the Compensation Program." 71 Our Compensation Committee is composed of Messrs. Brett, Edgerton (Chair), Mooney, and Schneider. All of the members of the committee are consideredby our board to be Independent Directors.Our board had not as of December 31, 2011 adopted a charter for the Compensation Committee. However, consideration and determination of compensationof our executive officers and directors during 2011 was subject to our Compensation Program, the aspects of which are described elsewhere in this report. See"Part III – Item 11 – Compensation Discussion and Analysis: Process."Our Compensation Program sets forth the scope of authority of our Compensation Committee and requires the committee to carry out the following:· Review, on an annual basis, plans and targets for executive officer and board member compensation, if any –o Review is specifically to address expected performance and compensation of, and the criteria on which compensation is based for,the Chief Executive Officer and such other of our executive officers as our board may designate for this purpose.· Monitor the effect of ongoing events on, and the effectiveness of, existing compensation policies, goals, and plans –o Events specifically include but are not limited to the status of the premise that all pay systems correlate with our compensationgoals and policies.o Report from time to time, its findings to our board.· Administer our Amended and Restated 1986 Stock Option Plan ("Stock Option Plan") and approve grants of options and awardspursuant to the plan.· Monitor compensation-related publicity and public and private sector developments on executive compensation.· Familiarize itself with, and monitor the tax, accounting, corporate, and securities law ramifications of, our compensation policies,including but not limited to –o Comprehending a senior executive officer's total compensation package.o Comprehending the package's total cost to us and its total value to the recipient.o Paying close attention to salary, bonuses, individual insurance and health benefits, perquisites, special benefits to specificexecutive officers, and other retirement benefits.· Establish the overall cap on executive compensation and the measure of performance for executive officers, either by predeterminedmeasurement or by a subjective evaluation.· Strive to make our compensation plans fair and structured so as to maximize shareholder value.In carrying out its duties, our Compensation Committee may accept for review and inclusion in its annual review with our board, recommendations from ourchief executive officer as to expected performance and compensation of, and the criteria on which compensation is based for, executive officers. However, ourCompensation Committee, in being established as a committee of the board under our Bylaws, was not specifically authorized to delegate any of its duties toanother person. Our Compensation Committee has in the past retained and made use of compensation consultants in determining or recommending theamount or form of executive compensation as further discussed elsewhere in this report. See "Part III – Item 11 – Compensation Discussion andAnalysis: Process." 72 Principles of the Compensation Program –Our Compensation Program is based upon the following principles ("Compensation Principles"):· Compensation is related to performance and must cause alignment of interests of executive officers with the long term interests of ourshareholders.· Compensation targets must take into consideration competitive market conditions and provide incentives for superior performance by theCompany.· Actual compensation must take into consideration the Company's and the executive officer's performance over the prior year and the longterm, and the Company's resources.· Compensation is based upon both qualitative and quantitative factors.· Compensation must enable the Company to attract and retain management necessary to cause the Company to succeed.Process –Overview. Our Compensation Committee reviews annually and recommends to our board for approval the base salary, incentive and other compensation ofour Chief Executive Officer and senior executive officers, including the Named Executive Officers. These reviews are performed and recommendations aremade in executive session that excludes all members of management. The analyses and recommendations of the Chief Executive Officer on these matters maybe considered by our Compensation Committee in its deliberations and recommendations to our board. Board action on the recommendations is done by a voteof our Independent Directors.Other elements of executive compensation and benefits as described in this section are also reviewed by our Compensation Committee on a regular basis.Compensation Committee and Compensation Consultant Interaction. Our Compensation Committee evaluates and analyzes the CompensationProgram, its principles and objectives, and the specific compensation element recommendations presented by our Chief Executive Officer on an annualbasis. In October 2005, our Compensation Committee selected, retained and commenced a process of working with an outside compensation consultant(Towers Perrin, which subsequently merged with another entity and became Towers Watson, hereafter "Compensation Consultant") to assist theCompensation Committee with its compensation reviews. The Compensation Consultant reported directly to our Compensation Committee and assisted theCompensation Committee in evaluating and analyzing the compensation levels and targets for the senior executive officers during 2010, including the NamedExecutive Officers, to establish a four year compensation plan.Implementation. Discussions on executive compensation and benefits made by the Compensation Committee have been guided by our CompensationPrinciples. The elements of compensation as described later in this section are believed by the Compensation Committee to be integral and necessary parts ofthe Compensation Program.Our Compensation Committee has concluded that each individual segment of each element of executive compensation continues generally to be consistent withone or more of our Compensation Principles. Our Compensation Committee has further concluded the amount of compensation provided by the segment isreasonable, primarily based upon a comparison of the compensation amounts and segments we provide when compared to those offered by other similarcompanies in our industry and in our market.Our process for determining executive compensation and benefits does not involve a precise and identifiable formula or link between each element and ourCompensation Principles. However, it takes into consideration market practice and information provided by our Compensation Consultant andmanagement. Furthermore, it is based upon the relationship of compensation as shall be paid and financial performance of the Company. It is also the resultof discussion among our Compensation Committee members and management. Ultimately it is based upon the judgment of our Compensation Committee. 73 Each year our Compensation Committee reviews elements of compensation for each of our senior executive officers including, for 2011, the Named ExecutiveOfficers.In 2010, base salary and incentive stock targets were compared to survey data and amounts offered by a group of similar companies. The Company's relativefinancial performance was reviewed in order to determine what a reasonable amount of compensation might be in relation to its peer group. The compensationpeer group is principally made up of the following:· Companies in industries similar to our Company.· Companies with which our Company competes for executive talent.· Our Company's direct business competitors.· Companies that compete with our Company for investment dollars.The compensation peer group list used in determining the reasonableness of our Compensation Program consisted of 16 companies as follows: Alaska Communications Systems Group, Inc.Knology, Inc.C Beyond, Inc.Mediacom Communications Corp.Cincinnati Bell, Inc.Premiere Global Services, Inc.Consolidated Communications Holdings, Inc.RCN CorpCrown Media Holdings, Inc.SureWest CommunicationsEquinix, Inc.Time Warner Telecom, Inc.Grande CommunicationsWave BroadbandIowa Telecommunications Services, Inc.XO Holdings, Inc.Individual levels of base compensation were generally targeted to be set within a range of between the 50th and 75th percentile, based upon the executive'sindividual performance in the prior year relative to his or her peers, the executive's future potential, and the scope of the executive's responsibilities andexperience. Input from the individual executives in terms of their expectation and requirements were considered as well.We believe this method of setting compensation enables the Company to attract and retain individuals who are necessary to lead and manage the Companywhile enabling the Company to differentiate between executives and performance levels and responsibility. The comparison to other companies also allowed theCompensation Committee to determine the reasonableness of the balance between long-term incentive and annual compensation.Based upon the information received from its Compensation Consultant, the Compensation Committee determined that, in general, base compensation levelsfor the Company's senior officers were reasonable and within the 50th and 75th percentile when compared to officers of companies in our peer group havingcomparable financial performance.Based on its review in 2010, the Compensation Committee established a four year compensation plan that ends in 2013. During 2011, the CompensationCommittee analyzed such things as the economy and the business environment in which the Company operates to determine if any modifications were neededto the four year compensation plan established during 2010. Based on its review, the Compensation Committee concluded that that the salaries and incentivecompensation established in 2010 are still appropriate for the senior executive officers. 74 Elements of Compensation –Overview. For 2011, the elements of compensation in our Compensation Program were as follows:· Base Salary.· Incentive Compensation Bonus Plan ("Incentive Compensation Plan").· Stock Option Plan.· Perquisites.· Retirement and Welfare Benefits.As of December 31, 2011, there were no compensatory plans or arrangements providing for payments to any of the Named Executive Officers in conjunctionwith any termination of employment or other working relationship of such an officer with us (including without limitation, resignation, severance, retirementor constructive termination of employment of the officer). Furthermore, as of that date, there were no such plans or arrangements providing for payments toany of the Named Executive Officers in conjunction with a change of control of us or a change in such an officer's responsibilities to us. However, in theevent of a change in control, all options and restricted stock of our Named Executive Officers will vest. See "Part III – Item 11 – ExecutiveCompensation: Potential Payments upon Termination or Change-in-Control."The Company has no requirements with respect to security ownership by its officers or directors, and it has no policies regarding hedging the economic riskof ownership of Company equity. Executive officers are invited to provide their input with respect to their compensation to the Compensation Committeeprimarily through our Chief Executive Officer.A Named Executive Officer participating in the Compensation Program could, under terms of the corresponding Incentive Compensation Plan agreement withus and pursuant to our Deferred Compensation Plan, elect to defer a significant portion of that compensation. In this instance, the Named Executive Officerbecomes our unsecured creditor. See "Part III – Item 11 – Nonqualified Deferred Compensation."Base Salary. Effective January 1, 2011, based upon the process previously described in this section, the base salaries reported in the SummaryCompensation Table (see "Part III – Item 11 – Executive Compensation: Summary Compensation Table") were approved by the Compensation Committee.Mr. Duncan's base salary reflects cash compensation of $600,000 per year until adjusted by our Compensation Committee. Mr. Duncan's duties remainedunchanged during 2011.Mr. Hughes' base salary reflects cash compensation of $362,500 per year and $125,000 credited to his Deferred Compensation Arrangement account withus. His duties remained unchanged during 2011.Mr. Lowber's base salary reflects cash compensation of $260,000 and $135,000 credited to his Deferred Compensation Arrangement account with us. Hisduties remained unchanged during 2011. Mr. Lowber’s salary in 2010 included $403,709 that reflects the vesting of a multi-year retention agreement.Mr. Chapados' base salary reflects cash compensation of $300,000. His duties remained unchanged during 2011.Ms. Pidgeon’s base salary reflects cash compensation of $275,000. Her duties remained unchanged during 2011.Incentive Compensation Plan. Overview – A portion of the Company's compensation to each Named Executive Officer relates to, and is contingent upon,the officer's performance and our financial performance and resources.Messrs. Duncan, Hughes, Lowber, Chapados and Ms. Pidgeon – Overview. In October 2010, our board approved changes to our IncentiveCompensation Plan for our Named Executive Officers. The changes resulted from ongoing discussions during 2009 and 2010 and form a plan that isexpected to be in place for those Named Executive Officers through 2013. 75 In the context of the Named Executive Officers, the Compensation Committee first determined the targeted annual incentive compensation for each ofthem. After setting these targets, the Compensation Committee then split that amount between short-term and long-term incentive compensation. Both short-term and long-term incentive compensation is paid out in the form of 50% cash and 50% restricted stock grants that vest in three years, unless otherwisedetermined by the Compensation Committee based on the individual circumstances of each Named Executive Officer. Therefore, even the short-term incentivecompensation is designed to encourage the focus of these executives on long-term performance. Annual cash bonuses are intended to reward short-termperformance and to make our senior executive compensation packages competitive with comparable executive positions in other companies. The following table shows the short-term, long-term and total annual target incentive plan compensation for the Named Executive Officers under this plan foreach of the two remaining plan years:Name Short-TermIncentiveCompensation– Target($) Long-TermIncentiveCompensation– Target($) Total AnnualTarget–IncentiveCompensationPlan($) Ronald A. Duncan 1,450,000 350,000 1,800,000 G. Wilson Hughes 466,667 500,0001 966,667 John M. Lowber 350,000 200,000 550,000 Gregory F. Chapados 350,000 200,000 550,000 Tina M. Pidgeon 325,000 150,000 475,000 __________________ 1The Long-Term Incentive Compensation – Target for Mr. Hughes represents one year since he is eligible to receive the payment regardless ofwhether he is employed by the Company in year four (2013) of the incentive plan.__________________Short-Term Incentive Compensation. The components of the short-term portion of the Incentive Compensation Plan are expected to remain the same for theduration of the plan. However, the allocation between the components will likely change on an annual basis at the discretion of the CompensationCommittee. The following table provides a summary of the 2011 short-term incentive compensation targets for the Named Executive Officers:Name Free Cash FlowGoal($) CapexSpending($) Discretionary($) 2011 Short-TermIncentiveCompensationPlan Target($) Ronald A. Duncan 350,000 200,000 900,000 1,450,000 G. Wilson Hughes 200,000 100,000 166,667 466,667 John M. Lowber 125,000 50,000 175,000 350,000 Gregory F. Chapados 100,000 25,000 225,000 350,000 Tina M. Pidgeon 100,000 25,000 200,000 325,000 The following is a description of what each of these short-term incentive compensation targets are and how they are measured.Free Cash Flow Goal. The Free Cash Flow Goal is intended to focus the Named Executive Officers on increasing the Free Cash Flow of the Company byincreasing Adjusted EBITDA managing capital expenditures and reducing working capital requirements. The target is based upon achieving the sum ofplanned year over year increases in the following three metrics: 76 (1) Cash Adjusted EBITDA – Adjusted EBITDA, plus IRU sales, less non-cash items and adjusted for new businesses. The target for yearover year growth in this metric was $48.7 million in 2011.(2) Free Cash Flow – Cash Adjusted EBITDA, less capital expenditure spending ("Capex Spending"), less interest expense and less cashtaxes. The target for year over year growth in this metric was a decrease of $43.0 million in 2011.(3) Increase in Cash Balance - Targeted Free Cash Flow, plus acquisition payments, plus net principal payments, plus stock repurchases anddividends, if any. The target for this component was a decrease of $2.4 million in 2011.The Free Cash Flow Goal is the sum of the three metrics above. The combined metric was $3.3 million in 2011. Each of the Named Executive Officers wouldearn their Target Incentive Compensation for this goal if the Company has Free Cash Flow equal to the metric. The incentive compensation earned is increasedor decreased from the Target Incentive Compensation by 2% for each $1 million that the actual Free Cash Flow is above or below the Free Cash Flowmetric. This target is to be reviewed and reset annually by the Compensation Committee.Capex Spending. The Capex Spending target is based on Capex Spending not exceeding the goal set forth by our board. The goal was $150 million in2011, but that amount is to be reviewed and may be reset annually for future years. In 2011 the targeted incentive for Capex Spending will be paid out at100% if the total cash adjusted Capex Spending for the year is $152 million or less. If cash adjusted Capex Spending exceeds $152 million, the payoutwould reduce in a linear fashion to zero at $156 million. For 2011, the cash adjusted Capex Spending was $146.2 million. Discretionary. The board will take various factors into account when deciding on the payout of the discretionary portion of the plan applying to the NamedExecutive Officers. These factors include, but are not limited to, leadership, crisis management, succession planning, strategic planning, risk management,special projects, financial reporting, and compliance with our debt covenants.The short-term incentive compensation is generally paid 50% in cash and 50% issued in the form of restricted stock grants, with one exception, that is Mr.Duncan’s 2011 short-term incentive compensation will be paid 100% in cash in order to facilitate payment of the exercise price on certain imminently expiringstock options. The restricted stock grants will vest on the earlier of November 30, 2014 or such date that the Named Executive Officer has negotiated with theCompensation Committee pursuant to a plan to retire from the Company. The following table summarizes the 2011 short-term incentive compensationachieved by the Named Executive Officers, each of whom participated in this plan: 77 Goals Ronald A.Duncan G. WilsonHughes John M.Lowber Gregory F.Chapados Tina M.Pidgeon Free Cash Flow Goal – Target Incentive Compensation $350,000 $200,000 $125,000 $100,000 $100,000 Free Cash Flow Goal Achievement1 27.69% 27.69% 27.69% 27.69% 27.69%2011 Free Cash Flow Incentive Compensation Earned $96,919 $55,382 $34,614 $27,691 $27,691 Capex Spending $200,000 $100,000 $50,000 $25,000 $25,000 Capex Spending Achievement 100% 100% 100% 100% 100%2011 Capex Spending Incentive Compensation Earned $200,000 $100,000 $50,000 $25,000 $25,000 Discretionary $900,000 $166,667 $175,000 $225,000 $200,000 Discretionary Achievement2 83.9% 116.9% 95% 91.1% 78.3%2011 Discretionary Incentive Compensation Earned $755,000 $194,834 $166,250 $205,000 $156,500 2011 Short-Term Incentive Compensation Earned $1,051,919 $350,216 $250,864 $257,691 $209,191 _____________1The Free Cash Flow metric for 2011 was $3,272,000. Each of the Named Executive Officers would earn their Target Incentive Compensation for thisgoal if the Company had Free Cash Flow equal to the metric. The Target Incentive Compensation is increased or decreased by 2% for each $1 million thatthe actual Free Cash Flow is above or below the metric. For 2011, the actual free cash flow was negative $32,883,000 resulting in actual free cash flowthat was $36,155,000 below the metric, therefore, the Target Incentive Compensation was reduced by 72.31%. 2Our Compensation Committee considered the following factors regarding the Discretionary Achievement of the Named Executive Officers. With regard toMr. Duncan, the Compensation Committee took into account his leadership during 2011, performance in developing a strategic plan for key componentsof our business, diversification and succession planning. With regard to Mr. Hughes, the Compensation Committee took into account his leadership ofthe TERRA-SW project, succession planning and the development of a plan to expand strategic network assets. With regard to Mr. Lowber, theCompensation Committee considered his leadership in regards to risk management, management development and financial reporting. With regard to Mr.Chapados, the Compensation Committee considered, among other thing, his leadership in supporting strategic transactions and key lines ofbusiness. With regard to Ms. Pidgeon, the Compensation Committee considered her leadership in managing strategic legal initiatives for the Companyand as General Counsel for the Company.2012 Short-Term Incentive Compensation Targets. The following table summarizes the short-term incentive compensation targets established by ourCompensation Committee for our Named Executive Officers for 2012:Name Free Cash FlowGoal($) CapexSpending($) Discretionary($) 2012 Short-TermIncentiveCompensationPlan Target($) Ronald A. Duncan 450,000 200,000 800,000 1,450,000 G. Wilson Hughes 175,000 75,000 216,667 466,667 John M. Lowber 175,000 50,000 125,000 350,000 Gregory F. Chapados 175,000 50,000 125,000 350,000 Tina M. Pidgeon 75,000 --- 250,000 325,000 For 2012, the Compensation Committee will evaluate the metric upon which the Free Cash Flow Goal will be based. The Capex Spending goal for that yearwill be based upon $137 million in cash adjusted Capex Spending.Long-Term Incentive Compensation. $290 million Adjusted EBITDA Plan. The goal of this portion of the Incentive Compensation Plan for the NamedExecutive Officers is to drive long-term Adjusted EBITDA growth. To achieve the target level of payments under the plan, it would be necessary to have $225million in Adjusted EBITDA in 2011 and $250 million in Adjusted EBITDA in 2013. The maximum payout would require Adjusted EBITDA to be inexcess of $250 million in 2011, $250 million in 2012 and $290 million in 2013. 78 The following table outlines the minimum, target and maximum payouts remaining for 2012 through 2013 under the $290 million Adjusted EBITDAplan. The target payments are for the two years remaining under the plan. Hence, the target amount is two times the amount shown above for Messrs.Duncan, Lowber, Chapados and Ms. Pidgeon in the summary table of short-term and long-term compensation targets. For example, Mr. Duncan will receive atargeted incentive of $350,000 per year for the $290 million plan which over a two year period amounts to the $700,000 which is shown below. Mr. Hughes iseligible to receive the payment regardless of whether he is employed by the Company in year four (2013) of the incentive plan, therefore, his target payment isthe same as what is shown above in the summary table of short-term and long-term compensation targets.Name MinimumPayments($) TargetPayments($) MaximumPayments($) Ronald A. Duncan 0 700,000 1,750,000 G. Wilson Hughes 0 500,000 1,250,000 John M. Lowber 0 400,000 1,000,000 Gregory F. Chapados 0 400,000 1,000,000 Tina M. Pidgeon 0 300,000 750,000 On November 29, 2011, the FCC published a final rule to reform the methodology for distributing USF high cost support for voice and broadband services,as well as to the access charge regime for terminating traffic between carriers (“High Cost Order”). The High Cost Order program changes decreased ourrevenue $3.5 million for the year ended December 31, 2011. See Footnote 1(t) of “Part II – Item 8 – Consolidated Financial Statements and SupplementaryData” for additional information on the High Cost Order. The Compensation Committee modified the Adjusted EBITDA calculation for 2011 under the Long-Term Incentive Compensation portion of the plan to take into consideration the decrease in revenue resulting from changes in USF support. As a result, theAdjusted EBITDA target was met during 2011 resulting in the Named Executive Officers earning the target incentive compensation under the Long-TermIncentive Compensation portion of the plan. The following table shows the incentive compensation earned during 2011 pursuant to the Long-Term IncentiveCompensation portion of the plan:Name 2011 ($) Ronald A. Duncan 700,000 G. Wilson Hughes 500,000 John M. Lowber 400,000 Gregory F. Chapados 400,000 Tina M. Pidgeon 300,000 79 The following table shows the potential payments pursuant to this plan in 2012:Name If 2012 AdjustedEBITDA isbelow $250million($) If 2012AdjustedEBITDA isabove $250million($) Ronald A. Duncan 0 700,000 G. Wilson Hughes 0 500,000 John M. Lowber 0 400,000 Gregory F. Chapados 0 400,000 Tina M. Pidgeon 0 300,000 Despite establishment of these performance goals and targeted incentive compensation amounts, the Compensation Committee retains complete discretionaryauthority to adjust the amount of incentive compensation paid and the composition of the payments.Stock Option Plan. Options and awards, if granted to the Named Executive Officers, were granted pursuant to terms of our Stock Option Plan. Inparticular, the exercise price for options in each instance was the closing price for our Class A common stock on the Nasdaq Global Select Market on the dayof the grant of the option. Options or awards, if granted, were granted contemporaneously with the approval of the Compensation Committee, typically earlyin the year in question or late in the previous year as described above. See "Part III – Item 11 – Compensation Discussion and Analysis: Elements ofCompensation – Incentive Compensation Plan."We adopted our stock option plan in 1986. It has been subsequently amended from time to time and presently is our Stock Option Plan, i.e., our Amendedand Restated 1986 Stock Option Plan. Under our Stock Option Plan, we are authorized to grant awards and options to purchase shares of Class A commonstock to selected officers, directors and other employees of, and consultants or advisors to, the Company and its subsidiaries. The options are morespecifically referred to as nonstatutory stock options or incentive stock options within Section 422 of the Internal Revenue Code of 1986, as amended("Internal Revenue Code"). In addition, under the Stock Option Plan restricted stock awards may be granted as further described below. The selection ofgrantees for options and awards under the plan is made by our Compensation Committee.The number of shares of Class A common stock allocated to the Stock Option Plan is 15.7 million shares. The number of shares for which options orawards may be granted is subject to adjustment upon the occurrence of stock dividends, stock splits, mergers, consolidations and certain other changes incorporate structure or capitalization. As of December 31, 2011, there were 1.1 million shares subject to outstanding options under the Stock Option Plan, 1.6million shares granted subject to vesting, 1.7 million share grants had vested, 8.1 million shares had been issued upon the exercise of options under the plan,0.8 million share options repurchased by the plan and 4.0 million shares remained available for additional grants under the plan.Restricted stock awards granted under the Stock Option Plan may be subject to vesting conditions based upon service or performance criteria as theCompensation Committee may specify. These specifications may include attainment of one or more performance targets. Shares acquired pursuant to suchan award may not be transferred by the participant until vested. Unless otherwise provided by the Compensation Committee, a participant will forfeit anyshares of restricted stock where the restrictions have not lapsed prior to the participant's termination of service with us. Participants holding restricted stockwill have the right to vote the shares and to receive dividends paid, if any. However, those dividends or other distributions paid in shares will be subject to thesame restrictions as the original award.Our Compensation Committee selects each grantee and the time of grant of an option or award and determines the terms of each grant, including the number ofshares covered by each grant and the exercise price. In selecting a participant, as well as in determining these other terms and conditions of each grant, ourCompensation Committee takes into consideration such factors as it deems, in its sole discretion, relevant in connection with accomplishing the purpose of theplan.Under the Stock Option Plan, an option becomes vested and exercisable at such time or upon such event and subject to such terms, conditions, performancecriteria or restrictions as specified by the Compensation Committee. The maximum term of any option granted under the plan is 10 years, provided that anincentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes ofstock of the Company or any subsidiary corporation of the Company ("Ten Percent Shareholder") must have a term not exceeding five years. Unlessotherwise permitted by the Compensation Committee, an option generally remains exercisable for 30 days following the participant's termination of service,with limited exception. The exception arises if service terminates as a result of the participant's death or disability, in which case the option generally remainsexercisable for 12 months. In any event, the option must be exercised no later than its expiration date.In particular, under the present Stock Option Plan, the Compensation Committee may set an option exercise price not less than the fair market value of thestock on the effective date of grant of the option. However, in the case of an incentive stock option granted to a Ten Percent Shareholder, the exercise pricemust equal at least 110% of the fair market value of the stock on the date of grant. 80 Our Compensation Committee may, subject to certain limitations on the exercise of its discretion required by Section 162(m) of the Internal Revenue Code,amend, cancel or renew any option granted under the Stock Option Plan, waive any restrictions or conditions applicable to any option under the plan, andaccelerate, continue, extend or defer the vesting of any option under the plan. The Stock Option Plan provides, subject to certain limitations, forindemnification by the Company of any director, officer, or employee against all reasonable expenses incurred in connection with any legal action arising fromthat person's action or failure to act in administering the plan. All grants of options under the Stock Option Plan are to be evidenced by a written agreementbetween the Company and the optionee specifying the terms and conditions of the grant.Options granted that have not become exercisable terminate upon the termination of the employment or directorship of the optionholder. Exercisable optionsterminate from one month to one year after such termination, depending upon the cause of such termination. If an option expires or terminates, the sharessubject to such option become available for subsequent grants under the Stock Option Plan.Incentive stock options are nontransferable by the participant other than by will or by the laws of descent and distribution, and are exercisable during theparticipant's lifetime only by the participant. However, a nonstatutory stock option may be assigned or transferred to members of the optionholder's immediatefamily, to the extent permitted by the Compensation Committee in its sole discretion.Our Stock Option Plan provides that payment upon exercise of an option may be in the form of money or shares of our Class A common stock. If the optioneechooses the latter form of payment, the shares must have a fair market value not less than the exercise price. The plan further provides, notwithstanding otherrestrictions on transferability of options, that an optionee, with approval of our Compensation Committee, may transfer an option for no consideration to, orfor the benefit of, the optionee's immediate family. There is no restriction in the Stock Option Plan that an option granted under the plan must be held by theoptionee for a minimum period of time.Under our Stock Option Plan, our authority to modify or amend the plan is subject to prior approval of our shareholders only in cases of increasing thenumber of shares of our stock allocated to, and available and reserved for, issuance under the plan, changing the class of persons eligible to receive incentivestock options or where shareholder approval is required under applicable law, regulation or rule. One such law requiring shareholder approval before theCompany may rely on it is Section 162(m) of the Internal Revenue Code.Subject to these limitations, the Company may terminate or amend the Stock Option Plan at any time. However, no termination or amendment may affect anyoutstanding option or award unless expressly provided by the Compensation Committee. In any event, no termination or amendment of the plan mayadversely affect an outstanding option or award without the consent of the participant unless necessary to comply with applicable law, regulation or rule.With limited exception, no maximum or minimum exists with regard to the amount, either in dollars or in numbers, of options that may be exercised in anyyear, either by a single optionee or by all optionees under our Stock Option Plan. At the 2002 annual meeting, our shareholders approved an amendment to theplan placing a limitation on accumulated grants of options of not more than 500,000 shares of Class A common stock per optionee per year.With these exceptions, there are no fixed limitations on the number or amount of securities being offered, other than the practical limitations imposed by thenumber of employees eligible to participate in the plan and the total number of shares of stock authorized and available for granting under the plan. Sharescovered by options which have terminated or expired for any reason prior to their exercise are available for grant of new options pursuant to the plan.In the past, the Company has issued options under the Stock Option Plan to motivate our employees with compensation that is tied to the Company's stockperformance. However, many employees do not recognize the tangible benefits of holding stock options. The Black-Scholes Merton Model, although elegantand deterministic, is at its core very complex. A much simpler calculation that is often used by employees is to multiply the number of options by the amountthat the options are in the money to calculate the current "value" of those options. Unfortunately, this simpler calculation effectively ignores the remaining termof the option and drastically reduces its value in motivating and retaining option holders. 81 With limited exceptions (one involving Mr. Duncan, a Named Executive Officer), since mid-2009 we have used restricted stock in place of options. That is,on February 8, 2010, we granted an option for 150,000 shares of Class A common stock to Mr. Duncan. That option vests on February 8, 2012.Perquisites. The Company provides certain perquisites to its Named Executive Officers. The Compensation Committee believes these perquisites arereasonable and appropriate and consistent with our awareness of perquisites offered by similar publicly traded companies. The perquisites assist in attractingand retaining the Named Executive Officers and, in the case of certain perquisites, promote health, safety and efficiency of our Named ExecutiveOfficers. These perquisites are as follows:· Use of Company Leased Aircraft – The Company permits employees, including the Named Executive Officers, to use Company aircraftfor personal travel for themselves and their guests. Such travel generally is limited to a space available basis on flights that are otherwisebusiness-related. Where a Named Executive Officer, or a guest of that officer, flies on a space available basis, the additional variable costto the Company (such as fuel, catering, and landing fees) is de minimus. As a result, no amount is reflected in the SummaryCompensation Table for that flight. Where the additional variable cost to the Company occurs on such a flight for solely personal purposesof that Named Executive Officer or guest, that cost is included in the Summary Compensation Table entry for that officer. Because it israre for a flight to be purely personal in nature, fixed costs (such as hangar expenses, crew salaries and monthly leases) are not included inthe Summary Compensation Table. In any case, in the event such a cost is non-deductible by the Company under the Internal RevenueCode, the value of that lost deduction is included in the Summary Compensation Table entry for that Named Executive Officer. Whenemployees, including the Named Executive Officers, use Company aircraft for such travel they are attributed with taxable income inaccordance with regulations pursuant to the Internal Revenue Code. The Company does not "gross up" or reimburse an employee for taxeshe or she owes on such attributed income. Mr. Duncan has made use of the aircraft for personal travel, the variable cost, if any, of whichis included in his respective entries in the Summary Compensation Table. See "Part III – Item 11 – Executive Compensation: SummaryCompensation Table."· · Enhanced Long Term Disability Benefit – The Company provides the Named Executive Officers and other senior executive officers ofthe Company with an enhanced long term disability benefit. This benefit provides a supplemental replacement income benefit of 60% ofaverage monthly compensation capped at $10,000 per month. The normal replacement income benefit applying to other of our employees iscapped at $5,000 per month.· · Enhanced Short Term Disability Benefit – The Company provides the Named Executive Officers and other senior executive officers ofthe Company with an enhanced short term disability benefit. This benefit provides a supplemental replacement income benefit of 66 2/3%of average monthly compensation, capped at $2,300 per week. The normal replacement income benefit applying to other of our employeesis capped at $1,150 per week.· Miscellaneous – Aside from benefits offered to its employees generally, the Company provided miscellaneous other benefits to its NamedExecutive Officers including the following (see "Part III – Item 11 – Executive Compensation: Summary Compensation Table –Components of 'All Other Compensation'"):o Success Sharing – An incentive program offered to all of our employees that shares 15% of the excess earnings before interest,taxes, depreciation, amortization and share based compensation expense over the highest previous year ("Success Sharing").o Board Fees – Provided to Mr. Duncan as one of our directors. The Compensation Committee believes that it is appropriate toprovide such board fees to Mr. Duncan given the additional oversight responsibilities and the accompanying liability incumbentupon members of our board. In determining the appropriate amount of overall compensation payable to Mr. Duncan in hiscapacity as Chief Executive Officer, the Compensation Committee does take into account any such board fees that are payable toMr. Duncan. This monitoring of Mr. Duncan's overall compensation package for services rendered as Chief Executive Officerand as a director is done to ensure that Mr. Duncan is not being doubly compensated for the same services rendered to theCompany. 82 Retirement and Welfare Benefits – GCI 401(k) Plan. Named Executive Officers may, along with our employees generally, participate in our GCI 401(k)Plan in which we may provide matching contributions in accordance with the terms of the plan.We initially adopted our qualified employee stock purchase plan effective in January 1987. It has been subsequently amended from time to time and presentlyis our GCI 401(k) Plan. The plan is qualified under Section 401 of the Internal Revenue Code. All of our employees (excluding employees subject to acollective bargaining agreement) who have completed at least one year of service are eligible to participate in the plan. An eligible highly compensated employee(earning more than $115,000 within the prior year) may elect to contribute up to 12% of such compensation to the employee's account in the plan. Otherwise,an eligible employee may elect to contribute up to 50% of such compensation. In both cases, these contributions are up to a maximum per employee of$17,000 for 2012. Participants over the age of 50 may make additional elective deferral contributions to their accounts in the plan of up to $5,500 for 2012.Subject to certain limitations, we may make matching contributions to our GCI 401(k) Plan for the benefit of employees. Matching contributions will vest inaccordance with a six-year schedule if the employee completes at least 1,000 hours of service in each year. Such a contribution will vest in increments over thefirst six years of employment. Thereafter, they are fully vested when made.Except for additional elective contributions made by participants over age 50, the combination of pre-tax elective contributions, Roth 401(k) contributions andour matching contributions for any employee cannot exceed $34,000 for 2012.Under the terms of our GCI 401(k) Plan, participating eligible employees may direct their contributions to be invested in common stock of the Company andshares of various identified mutual funds.Our GCI 401(k) Plan is administered through a plan administrator (currently Mr. Lowber, our Senior Vice President and Chief Financial Officer) and our PlanCommittee. The plan administrator and members of the Plan Committee all are our employees. The Plan Committee has broad administrative discretionunder the terms of the plan.As of December 31, 2011, there remained 1,511,663 shares of Class A and 463,989 shares of Class B common stock allocated to our GCI 401(k) Plan andavailable for issuance by us or otherwise acquisition by the plan for the benefit of participants in the plan.– Deferred Compensation Plan and Arrangements. The Company provides to certain of our employees, including our executive officers and NamedExecutive Officers, opportunities to defer certain compensation under our nonqualified, unfunded, deferred compensation plan ("Deferred CompensationPlan"). In addition, we offer to our executive officers and to certain of our Named Executive Officers nonqualified, deferred compensation arrangements morespecifically fashioned to the needs of the officer and us ("Deferred Compensation Arrangements"). During 2011, none of our officers participated in theDeferred Compensation Plan. However, during 2011, two of our officers, both Named Executive Officers, participated in Deferred CompensationArrangements specifically fashioned to their respective needs. These Deferred Compensation Arrangements enable these individuals to defer compensation inexcess of limits that apply to qualified plans, like our GCI 401(k) Plan, and to pursue other income tax goals which they set for themselves.Based upon its review of the Deferred Compensation Arrangements, our Compensation Committee concluded that the benefits provided under them are in eachcase both reasonable and an important tool in retaining the executive officers involved with those arrangements.– Welfare Benefits. With the exception of the enhanced long term and short term disability benefits described previously, the Company provided to theNamed Executive Officers the same health and welfare benefits provided generally to all other employees of the Company at the same general premium rates ascharged to those employees. The cost of the health and welfare programs is subsidized by the Company for all eligible employees including the NamedExecutive Officers. 83 Performance Rewarded –Our Compensation Program is, in large part, designed to reward individual performance. What constitutes performance varies from officer to officer,depending upon the nature of the officer's responsibilities. Consistent with the Compensation Program, the Company identified key business metrics andestablished defined targets related to those metrics for each Named Executive Officer. In the case of each Named Executive Officer, the targets were regularlyreviewed by management, from time to time, and provided an immediate and clear picture of performance and enabled management to respond quickly to bothpotential problems as well as potential opportunities. The Compensation Program also was used to establish and track corresponding applicable targets forindividual management employees.In 2011, the Compensation Program was used in development of each Named Executive Officer's individual performance goals and established incentivecompensation targets. The Compensation Committee evaluated the performance of each of the executive officers and the financial performance of the Companyand awarded incentive compensation as described above. See "Part III – Item 11 – Compensation Discussion and Analysis: Elements of Compensation –Incentive Compensation Plan."In 2010, our Compensation Committee separately determined to increase the cash component of Mr. Chapados' base salary from $240,000 to $300,000. Theincrease to the cash component of Mr. Chapados' base salary was the first such increase received by Mr. Chapados since 2006. The CompensationCommittee made such increase in recognition of Mr. Chapados' excellent performance and the relatively low position of his salary in the marketplace, as wellas the growth in the responsibilities of his position within the Company that have occurred since he joined the Company in 2006. Mr. Chapados has beeninstrumental in the acquisition and integration of United Utilities, Inc. United-KUC, Inc. and Unicom, Inc. with the Company. Additionally, Mr. Chapadoswas a key member of the team that obtained the federal grant to build Terra Southwest, an $88 million project to bring broadband services to rural Alaska.Timing of Equity Awards –Overview. Timing of equity awards under our Director Compensation Plan and equity awards under our Compensation Program varies with the plan orportion of that program. However, the Company does not, and has not in the past, timed its release of material nonpublic information for purposes ofaffecting the value of equity compensation. Timing issues and our grant policy are described further below.Director Compensation Plan. As a part of the Director Compensation Plan, we grant awards of our common stock to board members, including thosepersons who may also be serving as one or more of our executive officers. Mr. Duncan, a board member and Named Executive Officer, has been granted suchawards in the past. These awards are made annually in June of each year in accordance with the terms of the Director Compensation Plan. The awards aremade through our Stock Option Plan. See "Part III – Item 11 – Compensation Discussion and Analysis: Elements of Compensation – Stock Option Plan."Incentive Compensation Plan. As a part of our Compensation Program, from time to time, we grant stock options and awards in our Class A commonstock to our executive officers, including the Named Executive Officers. In particular, stock options and awards are granted in conjunction with theagreements that we enter into with Named Executive Officers pursuant to our Incentive Compensation Plan. The grants of such options and awards aretypically made early in the year at the time our board finalizes the prior year incentive compensation plan payouts for each of the Named ExecutiveOfficers. All such options and awards are granted through the Stock Option Plan. See "Part III – Item 11 – Compensation Discussion andAnalysis: Elements of Compensation – Incentive Compensation Plan" and "– Elements of Compensation – Stock Option Plan."Stock Option Plan. As a part of our Compensation Program, from time to time, we grant stock options or awards in our Class A common stock to ourexecutive officers, including the Named Executive Officers, and to certain of our advisors. In the case of an executive officer, these options or awards may begranted regardless of whether there is in place an agreement entered into with the officer under our Incentive Compensation Plan. In the case of a new hire andwhere we choose to grant options or awards, the grant may be done at the time of hire. Under the Stock Option Plan, the Compensation Committee may set theexercise price for our Class A common stock at not less than its fair market value. That value is presently determined on Nasdaq. In all cases, regardless ofthe identity of the grantee, the timing, amount and other terms of the grant of options or awards under our Stock Option Plan are determined in the solediscretion of our Compensation Committee. See "Part III – Item 11 – Compensation Discussion and Analysis: Elements of Compensation – Stock OptionPlan." 84 In the event an executive level employee is hired or promoted during a year, that employee may be eligible to receive an award under the plans previouslydescribed in this section. Grants of awards in this context may be made at the recommendation of management and only with action of the CompensationCommittee.Grant Policy. Under our grant policy, all approved grants are granted effective the date they were approved by the committee and are priced at the marketvalue at the close of trading on that date. The terms of the award are then communicated immediately to the recipient.Tax and Accounting Treatment of Executive Compensation – In determining the amount and form of compensation granted to executive officers, including the Named Executive Officers, the Company takes intoconsideration both tax treatment and accounting treatment of the compensation. Tax and accounting treatment for various forms of compensation is subject tochanges in, and changing interpretations of, applicable laws, regulations, rulings and other factors not within the Company's control. As a result, tax andaccounting treatment is only one of several factors that the Company takes into account in designing the previously described elements of compensation.Compensation Policies and Practices in Relation to Our Risk Management –At the direction of our board, Company management has reviewed our compensation policies, plans and practices to determine whether they create incentivesor encourage behavior that is reasonably likely to have a materially adverse effect on the Company. This effort included a review of our various employeecompensation plans and practices as described elsewhere in this report. See "Part III – Item 11 – Compensation Discussion and Analysis: Process."The purpose of the review was to evaluate risks and the internal controls we have implemented to manage those risks. The controls include multipleperformance metrics, corporate-wide financial measures, statutory clawbacks on equity awards, and board and board committee oversight and approvals.In completing this review, our board and management believe risks created by our compensation policies, plans and practices that create incentives likely tohave a material adverse effect on us are remote.Shareholder Advisory Votes on Executive CompensationAt our 2011 annual meeting, our shareholders adopted a non-binding proposal pertaining to executive compensation of our Named Executive Officers andadopted a proposal to vote on the executive compensation of our Named Executive Officers every three years. Based on the proposal passed by ourshareholders at our 2011 annual meeting, our board anticipates placing before our shareholders a proposal on executive compensation at our 2014 annualshareholder meeting.Our board views decisions as to compensation of Company named executive officers, including but not limited to those for 2011, as its responsibility. Ourboard takes this responsibility seriously and has gone to considerable effort to establish and implement a process for determining executive compensation asdescribed elsewhere in this report. See "Part III – Item 11 – Compensation Discussion and Analysis."Our board carefully considers all proposals from our shareholders. However, in light of its responsibilities to the Company, our board may or may not followthe advice of those shareholder votes.Our board contemplates next placing before our shareholders a proposal dealing with the frequency of shareholder advisory votes on executive compensation ofour named executive officers during our 2017 annual shareholder meeting. 85 Executive CompensationSummary Compensation Table –As of December 31, 2011, the Company did not have employment agreements with any of the Named Executive Officers. The following table summarizestotal compensation paid or earned by each Named Executive Officer for fiscal years 2011, 2010 and 2009. The process followed by the CompensationCommittee in establishing total compensation for each Named Executive Officer as set forth in the table is described elsewhere in this report. See "Part III –Item 11 – Compensation Discussion and Analysis."Summary Compensation TableName andPrincipal PositionYearSalary1($)Bonus($)NonequityIncentive PlanCompen-sation($)StockAwards2($)OptionAwards2($)Change inPension Valueand NonqualifiedDeferredCompensationEarnings3($)All OtherCompensation($)4Total($)Ronald A. Duncan5 President and Chief Executive Officer201120102009600,000600,000600,000 --- 454,3976400,000 1,751,919725,000350,0001,220,364733,744 36,500 ---433,635------------61,50067,25984,4893,633,7832,314,0351,470,989G. Wilson Hughes Executive Vice President and General Manager201120102009487,500487,500486,459825,0006185,7176102,000 400,108233,333150,000412,0957--- 32,453 ---------4,2246,15310,89916,50019,23925,2811,345,427931,942807,092John M. Lowber Senior Vice President, Chief Financial Officer and Secretary/ Treasurer201120102009395,000728,709325,000--- 116,944625,000 325,432175,000100,000287,0977323,251 55,428 ---------3,058------18,50019,23925,2811,029,0871,363,143530,709Gregory F. Chapados Senior Vice President201120102009300,000270,000240,000--- 95,2546 53,000 328,846175,000100,000265,7707844,750 172,471 ------------------23,08718,46324,594917,7031,403,467590,065Tina M. Pidgeon9 General Counsel andSenior Vice President,Government Affairs2011275,000---254,596159,0247------161,717850,3371For 2009, salary includes deferred compensation of $225,000 and $65,000 for Messrs. Hughes and Lowber, respectively. For 2010, salary includesdeferred compensation of $125,000 for Mr. Hughes and $468,709 for Mr. Lowber of which $403,709 for Mr. Lowber reflects the vesting of a multi-yearretention agreement. For 2011, salary includes deferred compensation of $125,000 and $135,000 for Messrs. Hughes and Lowber, respectively.2This column reflects the grant date fair values of awards of Class A common stock, restricted stock awards or stock options granted in the fiscal yearindicated which were computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718,Compensation – Stock Options ("ASC Topic 718"). Assumptions used in the calculation of these amounts are set forth in Footnote 9 of "Part II – Item 8– Consolidated Financial Statements and Supplementary Data."3The amount shown represents the above-market earnings on nonqualified deferred compensation plan balances. Above market-earnings is defined asearnings in excess of 120% of the long-term monthly applicable federal rate (AFR).4See, "Components of 'All Other Compensation'" table displayed below for more detail.5In 2009, Mr. Duncan received $76,500 in compensation for service on our board in the form of director fees of $40,000 and stock awards valued at$36,500. In 2010, Mr. Duncan received $73,744 in compensation relative to his service on our board including $40,000 in board fees and stock awardsvalued at $33,744. In 2011, Mr. Duncan received $105,534 in compensation relative to his service on our board including $45,000 in board fees andstock awards valued at $60,534.6The Bonus Compensation represents compensation paid pursuant to the Incentive Compensation Plan in excess of the target payment under the plan.7The Stock Awards granted during 2011 were for the Named Executive Officer’s performance during 2010.8For 2009, includes $37,500 for Mr. Hughes representing the amount vested during 2009 pursuant to prepaid retention agreements.9Compensation for Ms. Pidgeon is only provided for 2011, as she was not a Named Executive Officer in 2010 or 2009. 86 The amounts reported under the "All Other Compensation" column are comprised of the following:Components of "All Other Compensation"Name andPrincipal PositionYearStock PurchasePlan1($)BoardFees($)SuccessSharing2($)Use of CompanyLeasedAircraft3($)Miscellan-eous($)Total($)Ronald A. Duncan20112010200916,50016,50023,33445,00040,00040,000------------10,75921,155---------61,50067,25984,489G. Wilson Hughes20112010200916,50016,50023,334------------2,7391,947------------------16,50019,23925,281John M. Lowber20112010200916,50016,50023,334------------2,7391,947---------2,0004------18,50019,23925,281Gregory F. Chapados20112010200916,50015,72422,647------------2,7391,947---------6,5875------23,08718,46324,594Tina M. Pidgeon201116,500---------145,2176161,7171Amounts are contributions by us matching each employee's contribution. Matching contributions by us under our GCI 401(k) Plan are available to eachof our full time employees with over one year of service. During 2011 and 2010, the match was based upon the lesser of $16,500 ($24,500 for 2009) or10% of the employee's salary and the total of the employee's pre-tax and post-tax contributions to the plan. See "Part III – Item 11 – CompensationDiscussion and Analysis: Elements of Compensation – Retirement and Welfare Benefits – GCI 401(k) Plan."2See "Part III – Item 11 – Compensation Discussion and Analysis: Elements of Compensation – Perquisites."3The value of use of Company leased aircraft is shown at the variable cost to the Company.4Includes $2,000 for attending certain management meetings.5Includes $4,587 for a guest to accompany Mr. Chapados on a business trip and $2,000 for attending certain management meetings.6Includes vesting of a $137,500 portion of a $275,000 signing bonus received in 2010, $3,717 for moving expenses and $4,000 for attending managementmeetings. 87 Grants of Plan-Based Awards Table –The following table displays specific information on grants of options, awards and non-equity incentive plan awards under our Compensation Program and,in addition, in the case of Mr. Duncan, our Director Compensation Plan, made to Named Executive Officers during 2011.Grants of Plan-Based Awards Estimated Future Payouts UnderNon-Equity Incentive Plan Awards Estimated Future Payouts UnderEquityIncentive Plan Awards NameGrant Date Threshold($) Target($) Maximum($) Threshold($) Target($) Maximum($) All OtherStockAwards:Numberof Sharesof Stockor Units(#) All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions (#) Exerciseor BasePrice ofOptionAwards($/Sh) Grant DateFair Valueof Stockand OptionAwards1 ($) Ronald A.Duncan2/8/2011 - - - - - - - - - - - - - - - - - - 93,1592 - - - - - - 1,159,830 6/1/2011 - - - - - - - - - - - - - - - - - - 5,4003 - - - - - - 60,534 G. WilsonHughes2/8/2011 - - - - - - - - - - - - - - - - - - 33,1002 - - - - - - 412,095 John M.Lowber2/8/2011 - - - - - - - - - - - - - - - - - - 23,0602 - - - - - - 287,097 Gregory F.Chapados2/8/2011 - - - - - - - - - - - - - - - - - - 21,3472 - - - - - - 265,770 Tina M.Pidgeon2/8/2011 - - - - - - - - - - - - - - - - - - 12,7732 - - - - - - 159,024 1Computed in accordance with FASB ASC Topic 718.2Represents the 50% portion of the 2010 incentive compensation paid in the form of restricted stock grants under our Incentive Compensation Plan thatwere not granted until 2011. Restricted stock awards are included in the "Stock Awards" column of the Summary Compensation Table above.3Mr. Duncan's stock award was granted pursuant to the terms of our Director Compensation Plan. See "Part III – Item 11 – Director Compensation."Outstanding Equity Awards at Fiscal Year-End Table –The following table displays specific information on unexercised options, stock that has not vested and equity incentive plan awards for each of the NamedExecutive Officers and outstanding as of December 31, 2011. Vesting of these options and awards varies for the Named Executive Officers as described in thefootnotes to the table. 88 Outstanding Equity Awards at Fiscal Year-EndNameOption Awards1Stock AwardsNumber ofSecuritiesUnderlyingUnexercisedOptions(#)ExercisableNumber ofSecuritiesUnderlyingUnexercisedOptions (#)UnexercisableOptionExercisePrice($)OptionExpirationDateNumber ofShares orUnits of StockThat Have NotVested (#)Market Valueof Shares orUnits of Stockthat HaveNot Vested($)Equity IncentivePlanAwards: Numberof UnearnedShares, Units orOther Rights ThatHave Not Vested(#)Equity IncentivePlanAwards: Marketor Payout Valueof UnearnedShares, Units orOther Rights ThatHave Not Vested($)Ronald A.Duncan 150,000 250,000 - - - - - - - - - - - - 150,000 - - -7.258.405.32- - -02/08/1206/24/1402/08/20- - - - - - - - - - - - 93,1592 - - - - - - - - -912,0272 - - - - - - - - - - - - - - - - - - - - - - - -G. WilsonHughes - - - - - - - - - - - -- - -- - -- - -- - - 109,1503 33,1002 1,068,5793 324,0492 - - - - - - - - - - - -John M. Lowber - - - - - - - - - - - - - - - - - - - - - - - -- - -- - -- - -- - -- - -- - -- - -- - - 113,0393 14,0984 25,0005 23,0602 1,106,6523 138,0194 244,7505 225,7572 - - - - - - - - - - - - - - - - - - - - - - - -Gregory F.Chapados 30,000 100,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -6.007.95 - - - - - - - - - - - - - - - - - - - -02/10/1301/09/18- - - -- - - -- - - -- - - -- - - - - - - - - - 18,7974 20,0006 50,0007 68,3603 21,3472 - - - - - - 184,0234 195,8006 489,5007 669,2443 208,9872 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Tina M. Pidgeon - - - - - - - - - - - - - - - - - - - - - - - -- - -- - -- - -- - -- - -- - -- - -- - - 9,0003 5,0008 20,0009 12,7732 88,1103 48,9508 195,8009 125,0482 - - - - - - - - - - - - - - - - - - - - - - - -1 Stock option awards generally vest over five years and expire ten years from grant date, except as noted in the footnotes below.2 Restricted stock vests on November 30, 2013.3 Restricted stock vests on February 28, 2012. Restricted stock vests on February 8, 2013.5 Restricted stock vests on December 31, 2013.6 Restricted stock vests 5,000 shares on October 7 of 2012, 2013, 2014 and 2015.7 Restricted stock vests on October 7, 2015.8 Restricted stock vests on June 30, 2012.9 Restricted stock vests on October 1, 2012. 89 Option Exercises and Stock Vested Table –The following table displays specific information on each exercise of stock options, stock appreciation rights, and similar instruments, and each vesting ofstock, including restricted stock, restricted stock units and similar instruments on an aggregate basis, for each of the Named Executive Officers during 2011:Option Exercises and Stock Vested Option Awards Stock AwardsNameNumber of SharesAcquired on Exercise (#)Value Realized onExercise($) Number of SharesAcquired on Vesting (#)Value Realized on Vesting($)Ronald A. Duncan------------ 5,400175,000 60,534905,250G. Wilson Hughes------ 109,149 1,152,613 John M. Lowber------ 113,039 1,193,692 Gregory F. Chapados------------ 5,00068,359 39,650721,871 Tina M. Pidgeon------ 9,00095,040 1This stock award relates to Mr. Duncan's service as one of our directors.Potential Payments upon Termination or Change-in-Control –As of December 31, 2011, there were no compensatory plans or arrangements providing for payments to any of the Named Executive Officers in conjunctionwith any termination of employment or other working relationship of such an officer with us (including without limitation, resignation, severance, retirementor constructive termination of employment of the officer). Furthermore, as of December 31, 2011, there were no such plans or arrangements providing forpayments to any of the Named Executive Officers in conjunction with a change of control of us or a change in such an officer's responsibilities tous. However, all outstanding options and awards for each of our Named Executive Officers would vest upon his or her disability, retirement or death, or achange-in-control of the Company.Nonqualified Deferred CompensationDeferred Compensation Plan –We established our Deferred Compensation Plan in 1995 to provide a means by which certain of our employees may elect to defer receipt of designatedpercentages or amounts of their compensation and to provide a means for certain other deferrals of compensation. Employees eligible to participate in ourDeferred Compensation Plan are determined by our board. We may, at our discretion, contribute matching deferrals in amounts as we select.Participants immediately vest in all elective deferrals and all income and gain attributable to that participation. Matching contributions and all income andgain attributable to them vest on a case-by-case basis as determined by us. Participants may elect to be paid in either a single lump-sum payment or annualinstallments over a period not to exceed ten years. Vested balances are payable upon termination of employment, unforeseen emergencies, death or totaldisability of the participant or change of control of us or our insolvency. Participants become our general unsecured creditors with respect to deferredcompensation benefits of our Deferred Compensation Plan. 90 None of our Named Executive Officers participated in our Deferred Compensation Plan during 2011.Deferred Compensation Arrangements –We have, from time to time, entered into Deferred Compensation Arrangements with certain of our executive officers, including two of the Named ExecutiveOfficers. These arrangements are negotiated with individual officers on a case-by-case basis. The status of our Deferred Compensation Arrangements withour Named Executive Officers during 2011 is summarized for each of our Named Executive Officers in the following table, and further descriptions of themare provided following the table.Nonqualified Deferred CompensationName ExecutiveContributionsin Last FY($) RegistrantContributionin Last FY($) AggregateEarnings(Loss)in Last FY($) AggregateWithdrawals/Distributions($) AggregateBalanceat Last FY($) Ronald A. Duncan --- --- --- --- --- G. Wilson Hughes1 125,000 --- (524,259) --- 3,470,680 John M. Lowber2 135,000 --- 84,814 200,000 1,170,521 Gregory F. Chapados --- --- --- --- --- Tina M. Pidgeon --- --- --- --- --- 1Includes earnings of $4,224 for Mr. Hughes that is reported in the Summary Compensation Table.2Includes earnings of $3,058 for Mr. Lowber that is reported in the Summary Compensation Table. Mr. Hughes' Deferred Compensation Arrangement with us consists of three components. The first component consisted of deferred compensation invested in217,300 shares of Company Class A common stock. The second component is $763,313 accrued at year end of which $125,000 in salary were deferred and$69,392 of interest were accrued during 2011. This arrangement with us earns interest at the rate of 10% per year based upon the balance at the beginning ofthe year plus new salary deferrals during the year. The third component is $580,000 accrued at year end of which $30,000 were accrued for 2011interest. This arrangement earns interest at 7.5% per year based upon the original $400,000 that was given to Mr. Hughes in consideration for his continuedemployment at the Company from January 1, 2006 through December 31, 2009.Mr. Hughes' Deferred Compensation Arrangement provides that at his discretion or at termination of employment, he is entitled to receive the full amount owedin a lump sum, in monthly installments paid over a ten-year period, or in installments negotiated with the Company in accordance with statutoryrequirements.Mr. Lowber's Deferred Compensation Arrangement with us consists of deferred salary which earns interest on the amounts deferred at 9% per year. As ofDecember 31, 2011 and under this plan, there were accrued $737,710, of which $120,545 had accrued ($65,000 in principal plus $55,545 in interest) and$129,833 had been paid out during 2011. Additionally, effective January 1, 2007, the Company agreed to enter into a retention agreement with Mr.Lowber. In exchange for his commitment to remain in the employ of the Company through the end of 2010, the Company agreed to establish a deferredcompensation account in the amount of $350,000 that vested on December 31, 2010. The account is to accrue interest at the rate of 7.25% per annum,compounding annually. The balance in that account was $432,811 as of December 31, 2011, of which $99,269 had accrued ($70,000 in principal plus$29,269 in interest) and $70,167 had been paid out during 2011.Messrs. Duncan, Chapados and Ms. Pidgeon did not participate in a Deferred Compensation Arrangement with us during 2011. 91 Other than the Deferred Compensation Arrangements described above, no Named Executive Officer was, as of December 31, 2011, entitled to defer anyadditional consideration. Any additional Deferred Compensation Arrangements would have to be separately negotiated with, and agreed to by, theCompensation Committee.Compensation Committee Interlocks and Insider ParticipationOur Compensation Committee is composed of four members of our board as identified elsewhere in this report. All of these members served on the committeeduring all of 2011. See "Part III – Item 11 – Compensation Discussion and Analysis: Overview." The relationships of them to us are described elsewhere inthis report. See "Part III – Item 10 – Identification," "Part III – Item 12 – Principal Shareholders" and "Part III – Item 13 – Certain Transactions."Compensation Committee ReportThe Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based upon that review anddiscussion, the Compensation Committee recommended to our board that the Compensation Discussion and Analysis be included in our 2011 annual report.Compensation CommitteeJerry A. Edgerton, ChairStephen M. BrettStephen R. MooneyJames M. SchneiderDirector CompensationThe following table sets forth certain information concerning the cash and non-cash compensation earned by our directors ("Director Compensation Plan"),each for services as a director during the year ended December 31, 2011:2011 Director Compensation1Name FeesEarnedorPaid inCash($) StockAwards2,3($) OptionAwards3($) Non-EquityIncentive PlanCompensation($) Change inPensionValue and NonqualifiedDeferredCompensationEarnings($) All OtherCompensation($) Total($) Stephen M. Brett 45,000 60,534 --- --- --- --- 105,534 Jerry A. Edgerton 45,000 60,534 --- --- --- --- 105,534 Scott M. Fisher 45,000 60,534 --- --- --- --- 105,534 William P. Glasgow 50,000 60,534 --- --- --- --- 110,534 Mark W. Kroloff 45,000 60,534 --- --- --- --- 105,534 Stephen R. Mooney 50,000 60,534 --- --- --- --- 110,534 James M. Schneider 50,000 77,349 --- --- --- --- 127,349 1Compensation to Mr. Duncan as a director is described elsewhere in this report. See "Part III – Item 11 – Executive Compensation" and "CompensationDiscussion and Analysis."2Each director received a grant of awards of 5,400 shares of Company Class A common stock on June 1, 2011 (the grant date), with the exception ofour Audit Committee chair, Mr. Schneider, who received 6,900 shares. The value of the shares on the date of grant was $11.21 per share, i.e., theclosing price of the stock on Nasdaq on that date and as required in accordance with GAAP.3This column reflects the grant date fair values of awards of Class A common stock, restricted stock awards or stock options granted in the fiscal yearindicated which were computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are set forth inFootnote 9 of "Part II – Item 8 – Consolidated Financial Statements and Supplementary Data." 92 Our initial Director Compensation Plan was adopted in 2004 by our board to acknowledge and compensate, from time to time, directors on the board forongoing dedicated service. During 2011, the plan provided for $40,000 per year (prorated for days served and paid quarterly) plus $10,000 per year for eachdirector serving on our Audit Committee, however, effective July 1, 2011, the plan was modified to provide for $50,000 per year (prorated for days served andpaid quarterly) for all Directors.During 2011, the stock compensation portion of our Director Compensation Plan consisted of a grant of 5,400 shares to a director for a year of service, or aportion of a year of service. Grants are made and vest annually under the plan on June 1 of each year. For 2011, grants of awards were made under ourDirector Compensation Plan as of June 1, 2011. As of December 31, 2011, our board anticipated that grants of awards of 5,000 shares of Class A commonstock to each director would be made under the plan as of June 1, 2012. Also as of that date, our board anticipated an additional award of 1,500 shares ofClass A common stock to our Audit Committee and Compensation Committee chairs. Because the shares vest upon award, they are subject to taxation basedupon the then fair market value of the vested shares.Under our Director Compensation Plan, compensation is to be paid only to those directors who are to receive the benefit individually, whether or not they areour employees.Except for our Director Compensation Plan, during 2011 the directors on our board received no other direct compensation for serving on the board and itscommittees. However, they were reimbursed for travel and out-of-pocket expenses incurred in connection with attendance at meetings of our board and itscommittees.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSecurities Authorized for Issuance under Equity Compensation PlansThe following table sets forth, as of the end of 2011, information on equity compensation plans approved by our shareholders and separately such plans notapproved by our shareholders. The information is focused on outstanding options, warrants and rights, and so the only such plan is our Stock Option Planas approved by our shareholders.Equity Compensation Plan InformationPlan categoryNumber of securitiesto be issued upon exercise ofoutstanding options, warrants andrightsWeighted-averageexercise price ofoutstanding options,warrants and rights($)Number of securitiesremaining available for future issuanceunder equity compensation plans(excluding securities reflected in thesecond column)Equity compensationplans approved bysecurity holders1,086,5507.274,021,272Total:1,086,5507.274,021,272 93 Ownership of CompanyPrincipal Shareholders –The following table sets forth, as of December 31, 2011 (unless otherwise noted), certain information regarding the beneficial ownership of our Class Acommon stock and Class B common stock by each of the following:· Each person known by us to own beneficially 5% or more of the outstanding shares of Class A common stock or Class B common stock.· Each of our directors.· Each of the Named Executive Officers.· All of our executive officers and directors as a group.All information with respect to beneficial ownership has been furnished to us by the respective shareholders. Name ofBeneficial Owner1 Title ofClass2 Amount andNature ofBeneficialOwnership(#) % of Class % of Total SharesOutstanding (Class A & B)2 % CombinedVotingPower(Class A & B)2 Stephen M. Brett Class AClass B 57,7503 --- *--- * * Ronald A. Duncan Class AClass B 1,526,9253,4 661,8094 3.920.9 5.1 11.4 Jerry A. Edgerton Class AClass B 32,7503 --- *--- * * Scott M. Fisher Class AClass B 46,3343,5 511,7165 *16.1 1.2 7.3 William P. Glasgow Class AClass B 82,6943,6 --- *--- * * Mark W. Kroloff Class AClass B 26,1003 --- *--- * * Stephen R. Mooney Class AClass B 43,4003 --- *--- * * James M. Schneider Class AClass B 31,1503 --- *--- * * G. Wilson Hughes Class AClass B 580,8857 2,6957 1.5* 1.4 * John M. Lowber Class AClass B 359,8078 6,2038 ** * * Gregory F. Chapados Class AClass B 372,6559 --- ** * * Tina M. Pidgeon Class AClass B 64,49510 --- *--- * * Black Rock, Inc.40 East 52nd StreetNew York, New York 10022 Class AClass B 3,507,064 --- 8.9 --- 8.3 5.0 Dimensional Fund Advisors LPPalisades West, Building One6300 Bee Cave RoadAustin, TX 78746 Class AClass B 2,137,73411 --- 5.4--- 5.0 3.0 GCI 401(k) Plan2550 Denali St., Ste. 1000Anchorage, AK 99503Class AClass B 4,710,378 57,08212.0 1.811.2 7.5 Gary Magnessc/o Raymond L. Sutton, Jr.303 East 17th Ave., Ste 1100Denver, CO 80203-1264 Class AClass B 1,347,961 433,924 3.413.7 4.2 8.0 Private ManagementGroup, Inc.15635 Alton Parkway,Suite 400Irvine, CA 92606 Class AClass B 2,223,345 --- 5.7 --- 5.2 3.1 John W. Stanton andTheresa E. Gillespie155 108th Avenue., N.E.,Suite 450Bellevue, WA 98004 Class AClass B 2,342,6271,436,469 6.045.3 8.9 23.6 The Vanguard Group, Inc.100 Vanguard BlvdMalvern, PA 19355 Class AClass B 2,311,88212 --- 5.9--- 5.4 3.3 All Directors and Executive Officers As a Group (16 Persons) Class AClass B 3,599,287131,182,42313 9.237.3 11.1 21.6 94 *Represents beneficial ownership of less than 1% of the corresponding class or series of stock.1Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. Shares of our stock that a person has the right to acquire within60 days of December 31, 2011 are deemed to be beneficially owned by such person and are included in the computation of the ownership and votingpercentages only of such person. Each person has sole voting and investment power with respect to the shares indicated, except as otherwise stated in thefootnotes to the table. Addresses are provided only for persons other than management who own beneficially more than 5% of the outstanding shares ofClass A or B common stock.2"Title of Class" includes our Class A common stock and Class B common stock. "Amount and Nature of Beneficial Ownership" and "% of Class" aregiven for each class of stock. "% of Total Shares Outstanding" and "% Combined Voting Power" are given for the combination of outstanding Class Acommon stock and Class B common stock, and the voting power for Class B common stock (10 votes per share) is factored into the calculation of thatcombined voting power.3Includes 5,400 shares of our Class A common stock granted to each of those persons pursuant to the Director Compensation Plan for services performedduring 2011 except for our Audit Committee Chairman, Mr. Schneider, who was granted 6,900 shares of our Class A common stock.4Includes 157,397 shares of Class A common stock and 6,165 shares of Class B common stock allocated to Mr. Duncan under the GCI 401(k) Plan asof December 31, 2011. Includes 550,000 shares of Class A common stock subject to stock options granted under the Stock Option Plan to Mr. Duncanwhich he has the right to acquire within 60 days of December 31, 2011 by exercise of the stock options. Does not include 35,560 shares of Class Acommon stock or 8,242 shares of Class B common stock held by the Amanda Miller Trust, with respect to which Mr. Duncan has no voting orinvestment power. Ms. Miller is Mr. Duncan's daughter, and Mr. Duncan disclaims beneficial ownership of the shares. Does not include 30,660 sharesof Class A common stock or 27,020 shares of Class B common stock held by Dani Bowman, Mr. Duncan's wife, of which Mr. Duncan disclaimsbeneficial ownership. Does not include 392 shares of Class A common stock held by Missy, LLC which is 25% owned by Mr. Duncan, 25% owned byDani Bowman and 50% owned by a trust of which Mr. Duncan’s daughter is the 50% beneficiary, of which securities Mr. Duncan disclaims beneficialownership (Mr. Duncan does not disclaim beneficial ownership of an additional 131 shares of Class A Common Stock held by Missy, LLC. Which areincluded within the shares for which Mr. Duncan has a pecuniary interest). Includes 702,733 shares of Class A common stock and 655,644 shares ofClass B common stock pledged as security.5Includes 13,484 shares of Class A and 511,716 shares of Class B common stock owned by Fisher Capital Partners, Ltd. of which Mr. Fisher is apartner.6Does not include 158 shares owned by a daughter of Mr. Glasgow. Mr. Glasgow disclaims any beneficial ownership of the shares held by his daughter. 95 7Includes 7,495 shares of Class A common stock allocated to Mr. Hughes under the GCI 401(k) Plan, as of December 31, 2011. Includes 325,890shares of Class A common stock pledged as security. Excludes 217,300 shares held by the Company pursuant to Mr. Hughes' Deferred CompensationAgreement.8Includes 27,834 shares of Class A common stock and 5,933 shares of Class B common stock allocated to Mr. Lowber under the GCI 401(k) Plan, as ofDecember 31, 2011.9Includes 17,686 shares of Class A common stock allocated to Mr. Chapados under the GCI 401(k) Plan, as of December 31, 2011. Includes 130,000shares of Class A common stock subject to stock options granted under the Stock Option Plan to Mr. Chapados which he has the right to acquire within60 days of December 31, 2011 by exercise of those options.10Includes 11,717 shares of Class A common stock allocated to Ms. Pidgeon under the GCI 401(k) Plan, as of December 31, 2011.11As disclosed in Schedule 13G filed with the SEC on February 14, 2012, Dimensional Fund Advisors LP has sole voting power for 2,049,805 shares ofClass A common stock and sole dispositive power for 2,137,734 shares of Class A common stock.12As disclosed in Schedule 13G filed with the SEC on February 10, 2012, The Vanguard Group, Inc. has sole voting power and shared dispositive powerfor 61,102 shares of Class A common stock and sole dispositive power for 2,250,780 shares of Class A common stock.13Includes 680,000 shares of Class A common stock which such persons have the right to acquire within 60 days of December 31, 2011 through theexercise of vested stock options. Includes 264,473 shares of Class A common stock and 12,098 shares of Class B common stock allocated to suchpersons under the GCI 401(k) Plan. Changes in Control –Pledged Assets and Securities. Our obligations under our credit facilities are secured by substantially all of our assets. Should there be a default by usunder such agreements, our lenders could gain control of our assets. We have been at all times during 2011 in compliance with all material terms of thesecredit facilities.Senior Notes. In 2009, GCI, Inc., our wholly-owned subsidiary, sold $425.0 million in aggregate principal amount of senior debt securities due in 2019.The senior notes are subject to the terms of an indenture entered into by GCI, Inc. Upon the occurrence of a change of control, as defined in the Indenture,GCI, Inc. is required to offer to purchase those senior notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest. Theindenture provides that those senior notes are redeemable at the option of GCI, Inc. at specified redemption prices commencing in 2014. The terms of the seniornotes contain limitations on the ability of GCI, Inc. and its restricted subsidiaries to incur additional indebtedness, limitations on investments, payment ofdividends and other restricted payments and limitations on liens, asset sales, mergers, transactions with affiliates and operation of unrestrictedsubsidiaries. The indenture also limits the ability of GCI, Inc. and its restricted subsidiaries to enter into, or allow to exist, specified restrictions on the abilityof GCI, Inc. to receive distributions from restricted subsidiaries.For purposes of the indenture and the senior notes, the restricted subsidiaries consist of all of our direct or indirect subsidiaries, with the exception of certainunrestricted subsidiaries. Under the terms of the indenture, an unrestricted subsidiary is a subsidiary of GCI, Inc. so designated from time to time inaccordance with procedures as set forth in the indenture. As of December 31, 2011, these unrestricted subsidiaries consisted of United Utilities, Inc. andUnicom, Inc.In May 2011, GCI, Inc. issued an additional $325 million of senior notes at 6.75% interest due in June 2021. The new senior notes have substantiallysimilar terms as the 2009 senior notes. They were used to pay off previously issued Senior Notes.We and GCI, Inc. have since the issuance of the senior notes and up through December 31, 2011, been in compliance with all material terms of the Indenturesincluding making timely payments on the obligations of GCI, Inc. 96 Item 13. Certain Relationships and Related Transactions, and Director IndependenceCertain TransactionsTransactions with Related Persons –Stanton Shareholdings, Registration Rights Agreement. As of December 31, 2011, John W. Stanton and Theresa E. Gillespie, husband and wife(collectively, "Stantons"), continued to be significant shareholders of our Class B common stock. As of that date, neither the Stantons nor the Stantons'affiliates were our directors, officers, nominees for election as directors, or members of the immediate family of such directors, officers, or nominees.We are a party to a registration rights agreement ("Stanton Registration Rights Agreement") with the Stantons regarding all unregistered shares the Stantons holdin our Class B common stock and any shares of our Class A common stock resulting from conversion of that Class B common stock to Class A commonstock. The basic terms of the Stanton Registration Rights Agreement are as follows. If we propose to register any of our securities under the Securities Act of1933, as amended ("Securities Act") for our own account or for the account of one or more of our shareholders, we must notify the Stantons of that intent. Inaddition, we must allow the Stantons an opportunity to include the holder's shares ("Stanton Registerable Shares") in that registration.Under the Stanton Registration Rights Agreement, the Stantons also have the right, under certain circumstances, to require us to register all or any portion ofthe Stanton Registerable Shares under the Securities Act. The agreement is subject to certain limitations and restrictions, including our right to limit thenumber of Stanton Registerable Shares included in the registration. Generally, we are required to pay all registration expenses in connection with eachregistration of Stanton Registerable Shares pursuant to this agreement.The Stanton Registration Rights Agreement specifically states we are not required to effect any registration on behalf of the Stantons regarding StantonRegisterable Shares if the request for registration covers an aggregate number of Stanton Registerable Shares having a market value of less than $1.5million. The agreement further states we are not required to effect such a registration for the Stantons where we have at that point previously filed tworegistration statements with the SEC, or where the registration would require us to undergo an interim audit or prepare and file with the SEC sooner thanotherwise required financial statements relating to the proposed transaction. Finally, the agreement states we are not required to effect such a registration whenin the opinion of our legal counsel a registration is not required in order to permit resale under Rule 144 as adopted by the SEC pursuant to the Exchange Act.The Stanton Registration Rights Agreement provides that the first demand for registration by the Stantons must be for no less than 15% of the total number ofStanton Registerable Shares. However, the Stantons may take the opportunity to require us to include the Stanton Registerable Shares as incidental to aregistered offering proposed by us.Duncan Leases. In 1991, we entered into a long-term capital lease agreement with a partnership in which Mr. Duncan held a 50% ownership interest. Mr.Duncan later sold that interest to an individual who later became his spouse. However, Mr. Duncan remains a guarantor on the note which was used tofinance the acquisition of the property subject to the lease. The leased asset was capitalized in 1991 at the owner's cost of $900,000 and the related obligationwas recorded in the accompanying financial statements. The lease agreement was amended in 2008, and we have increased our existing capital lease asset andliability by $1.3 million to record the extension of the capital lease. The amended lease terminates on September 30, 2026. The property consists of a buildingpresently occupied by us. As of December 31, 2011, the payments on the lease were $22,332 per month. They continue at that rate through September2012. In October 2012, the payments on the lease will increase to $23,132 per month.In January 2001, we entered into an aircraft operating lease agreement with a company owned by Mr. Duncan. The lease was amended several times, mostrecently on May 9, 2011. The amended lease agreement added the lease of a second aircraft. The lease term of the original aircraft may be terminated at anytime upon 90 days written notice. The monthly lease rate of the original aircraft is $45,000. The lease term of the second aircraft may be terminated at anytime upon 12 months’ written notice. The monthly lease rate of the second aircraft is $132,000. In 2001, we paid a deposit of $1.5 million in connection withthe lease. The deposit will be repaid to us no later than six months after the agreement terminates. 97 Review Procedure for Transactions with Related Persons –The following describes our policies and procedures for the review, approval or ratification of transactions in which we are to be a participant and where theamount involved in each instance exceeds $120,000 and in which any related person had or is to have a direct or indirect material interest ("RelatedTransactions"). Here, we use the term "related person" to mean any person who is one of our directors, a nominee for director, an immediate family memberof one of our directors or executive officers, any person who is a holder of five percent or more of a class of our common stock, or any immediate familymember of such a holder.A related person who is one of our officers, directors or employees ("Employee") is subject to our Ethics Code. The Ethics Code requires the Employee to actin the best interest of the Company and to avoid situations which may conflict with this obligation. The code specifically provides that a conflict of interestoccurs when an Employee's private interest interferes in any way with our interest. In the event an Employee suspects such a conflict, or even an appearanceof conflict, he or she is urged by the Ethics Code to report the matter to an appropriate authority. The Ethics Code, Nominating and Corporate GovernanceCommittee Charter and the Audit Committee Charter define that authority as being our Chief Financial Officer, the Nominating and Corporate GovernanceCommittee, the Audit Committee (in the context of suspected illegal or unethical behavior-related violations pertaining to accounting, or internal controls onaccounting or audit matters), or the Employee's supervisor within the Company, as the case may be.The Ethics Code further provides that an Employee is prohibited from taking a personal interest in a business opportunity discovered through use of corporateposition, information or property that properly belongs to us. The Ethics Code also provides that an Employee must not compete with, and in particular,must not use corporate position, information, or property for personal gain or to compete with, us.The Ethics Code provides that any waiver of its provisions for our executive officers and directors may be made only by our board and must be promptlydisclosed to our shareholders. This disclosure must include an identification of the person who received the waiver, the date of the grant of the waiver by ourboard, and a brief description of the circumstances and reasons under which it was given.The Ethics Code is silent as to the treatment of immediate family members of our Employees, holders of five percent or more of a class of our stock, or theimmediate family members of them. We consider such Related Transactions with such persons on a case-by-case basis, if at all, by analogy to existingprocedures as above described pertaining to our Employees.During 2011, there were no new Transactions with Related Persons. The leases described previously were entered into prior to the establishment of the EthicsCode and the amendment to the aircraft operating lease during 2011 was approved by our Board of Directors.Director IndependenceThe term Independent Director as used by us is an individual, other than one of our executive officers or employees, and other than any other individualhaving a relationship which in the opinion of our board would interfere with the exercise of independent judgment in carrying out the responsibilities of adirector. See "Part III – Item 10 – Audit Committee, Audit Committee Financial Expert."Mr. Brett, our Chairman of the Board, while in that capacity an officer under our Bylaws and responsible for the conduct of our board meetings andshareholder meetings when present, is considered by our board to have no greater influence on our affairs or authority to act on behalf of us than any of thenon-executive directors on our board.Our board believes each of its members satisfies the definition of an Independent Director, with the exception of Mr. Duncan who is an officer and employee ofthe Company. That is, in the case of all other board members, our board believes each of them is an individual having a relationship which does not interferewith the exercise of independent judgment in carrying out the member's director responsibilities to us. 98 Item 14. Principal Accountant Fees and ServicesOverviewOn February 7, 2012, our Audit Committee approved the appointment of Grant Thornton as the Company’s External Accountant for 2012. Also on that date,our board ratified that appointment by the Audit Committee.Pre-Approval Policies and ProceduresWe have established as policy, through the adoption of the Audit Committee Charter that, before our External Accountant is engaged by us to render auditservices, the engagement must be approved by the Audit Committee.Our Audit Committee Charter provides that our Audit Committee is directly responsible for appointment, compensation, retention, oversight, qualificationsand independence of our External Accountant. Also under our Audit Committee Charter, all audit services provided by our External Accountant must be pre-approved by the Audit Committee. Our pre-approval policies and procedures with respect to Non-Audit Services include as a part of the Audit Committee Charter that the Audit Committee maychoose any of the following options for approving such services:· Full Audit Committee – The full Audit Committee can consider each Non-Audit Service.· Designee – The Audit Committee can designate one of its members to approve a Non-Audit Service, with that member reporting approvalsto the full committee.· Pre-Approval of Categories – The Audit Committee can pre-approve categories of Non-Audit Services. Should this option be chosen, thecategories must be specific enough to ensure both of the following –o The Audit Committee knows exactly what it is approving and can determine the effect of such approval on auditor independence.o Management will not find it necessary to decide whether a specific service falls within a category of pre-approved Non-AuditService.The Audit Committee's pre-approval of Non-Audit Services may be waived under specific provisions of the Audit Committee Charter. The prerequisites forwaiver are as follows: (1) the aggregate amount of all Non-Audit Services constitutes not more than 5% of the total amount of revenue paid by us to ourExternal Accountant during the fiscal year in which those services are provided; (2) the service is originally thought to be a part of an audit by our ExternalAccountant; (3) the service turns out to be a Non-Audit Service; and (4) the service is promptly brought to the attention of the Audit Committee and approvedprior to completion of the audit by the committee or by one or more members of the committee who are members of our board to whom authority to grant suchapprovals has been delegated by the committee.During 2011, there were no waivers of our Audit Committee pre-approval policy.Fees and ServicesThe aggregate fees billed to us by our External Accountant in each of these categories for each of 2011 and 2010 are set forth as follows: 99 External Accountant Auditor FeesType of Fees 2011 2010 Audit Fees1 $1,766,185 $1,386,321 Audit-Related Fees2 29,842 51,480 Tax Fees3 105,873 114,793 All Other Fees4 --- --- Total $1,901,900 $1,552,594 1Consists of fees for our annual financial statement audit, quarterly financial statement reviews, reviews of other filings by us with the SEC, audit of ourinternal control over financial reporting and for services that are normally provided by an auditor in connection with statutory and regulatory filings orengagements.2Consists of fees for audit of the GCI 401(k) Plan and review of the related annual report on Form 11-K filed with the SEC.3Consists of fees for review of our state and federal income tax returns and consultation on various tax advice and tax planning matters.4Consists of fees for any services not included in the first three types of fees identified in the table. All of the services described above were approved in conformity with the Audit Committee's pre-approval policy. 100 Part IVItem 15. Exhibits, Consolidated Financial Statement Schedules (I) Consolidated Financial StatementsPage No. Included in Part II of this Report: Reports of Independent Registered Public Accounting Firms 102 Consolidated Balance Sheets, December 31, 2011 and 2010 104 Consolidated Income Statements, years ended December 31, 2011, 2010 and 2009 106 Consolidated Statements of Stockholders’ Equity, years ended December 31, 2011, 2010 and 2009 107 Consolidated Statements of Cash Flows, years ended December 31, 2011, 2010 and 2009 108 Notes to Consolidated Financial Statements 109 (2) Consolidated Financial Statement Schedules Schedules are omitted, as they are not required or are not applicable, or the required information is shown in the applicablefinancial statements or notes thereto. (3) Exhibits 147 101 Report of Independent Registered Public Accounting Firm Board of Directors and ShareholdersGeneral Communication, Inc. We have audited the accompanying consolidated balance sheets of General Communication, Inc. and subsidiaries (an Alaska corporation) (the “Company”) asof December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in theperiod ended December 31, 2011. 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of General Communication,Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years endedDecember 31, 2011, 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), General Communication, Inc.and subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 8, 2012, expressed anunqualified opinion thereon. (signed) Grant Thornton LLP Seattle, WashingtonMarch 8, 2012 102 Report of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersGeneral Communication, Inc. We have audited General Communication, Inc. and subsidiaries’ (an Alaska Corporation) (the “Company”) internal control over financial reporting as ofDecember 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. In our opinion, General Communication, Inc. maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2011, 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 consolidated balance sheetsof General Communication, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended December 31, 2011, and our report, dated March 8, 2012, expressed an unqualifiedopinion on those financial statements. (signed) Grant Thornton LLPSeattle, WashingtonMarch 8, 2012 103 GENERAL COMMUNICATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands) December 31, ASSETS 2011 2010 Current assets: Cash and cash equivalents $29,387 33,070 Receivables 141,827 132,856 Less allowance for doubtful receivables 5,796 9,189 Net receivables 136,031 123,667 Deferred income taxes 15,555 10,145 Prepaid expenses 7,899 5,950 Inventories 7,522 5,804 Other current assets 3,631 3,940 Total current assets 200,025 182,576 Property and equipment in service, net of depreciation 851,705 798,278 Construction in progress 42,918 31,144 Net property and equipment 894,623 829,422 Cable certificates 191,635 191,635 Goodwill 74,883 73,932 Wireless licenses 25,967 25,967 Restricted cash 15,910 - Other intangible assets, net of amortization 15,835 17,717 Deferred loan and senior notes costs, net of amortization of $2,880 and $6,469 at December 31, 2011 and 2010, respectively 12,812 13,661 Other assets 17,214 16,850 Total other assets 354,256 339,762 Total assets $1,448,904 1,351,760 See accompanying notes to consolidated financial statements. (Continued) 104 GENERAL COMMUNICATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Amounts in thousands) December 31, LIABILITIES AND STOCKHOLDERS’ EQUITY 2011 2010 Current liabilities: Current maturities of obligations under long-term debt and capital leases $8,797 7,652 Accounts payable 41,353 35,589 Deferred revenue 22,003 17,296 Accrued payroll and payroll related obligations 22,126 22,132 Accrued interest 6,680 13,456 Accrued liabilities 11,423 12,557 Subscriber deposits 1,250 1,271 Total current liabilities 113,632 109,953 Long-term debt, net 858,031 779,201 Obligations under capital leases, excluding current maturities 78,605 84,144 Obligation under capital lease due to related party 1,893 1,885 Deferred income taxes 115,296 102,401 Long-term deferred revenue 81,822 49,175 Other liabilities 24,456 24,495 Total liabilities 1,273,735 1,151,254 Commitments and contingencies Stockholders’ equity: Common stock (no par): Class A. Authorized 100,000 shares; issued 39,296 and 44,213 shares at December 31, 2011 and 2010,respectively; outstanding 39,043 and 43,958 shares at December 31, 2011 and 2010, respectively 26,179 69,396 Class B. Authorized 10,000 shares; issued and outstanding 3,171 and 3,178 shares at December 31, 2011 and2010, respectively; convertible on a share-per-share basis into Class A common stock 2,679 2,677 Less cost of 253 and 255 Class A common shares held in treasury at December 31, 2011 and 2010, respectively (2,225) (2,249)Paid-in capital 32,795 37,075 Retained earnings 99,433 93,607 Total General Communication, Inc. stockholders' equity 158,861 200,506 Non-controlling interest 16,308 - Total stockholders’ equity 175,169 200,506 Total liabilities and stockholders’ equity $1,448,904 1,351,760 See accompanying notes to consolidated financial statements. 105 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTSYEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Amounts in thousands, except per share amounts) 2011 2010 2009 Revenues $679,381 651,250 595,811 Cost of goods sold (exclusive of depreciation and amortization shown separately below) 227,399 207,817 193,676 Selling, general and administrative expenses 235,521 228,808 212,671 Depreciation and amortization expense 125,742 126,114 123,362 Operating income 90,719 88,511 66,102 Other income (expense): Interest expense (including amortization and write-off of deferred loan fees) (68,258) (70,329) (58,761)Loss on extinguishment of debt (9,111) - - Interest and investment income 33 261 111 Other (297) - - Other expense, net (77,633) (70,068) (58,650) Income before income tax expense 13,086 18,443 7,452 Income tax expense 7,485 9,488 3,936 Net income 5,601 8,955 3,516 Net loss attributable to non-controlling interest 238 - - Net income attributable to General Communication, Inc. $5,839 8,955 3,516 Basic net income attributable to General Communication, Inc. common stockholders per Class A common share $0.13 0.17 0.07 Basic net income attributable to General Communication, Inc. common stockholders per Class B common share $0.13 0.17 0.07 Diluted net income attributable to General Communication, Inc. common stockholders per Class A common share $0.12 0.17 0.06 Diluted net income attributable to General Communication, Inc. common stockholders per Class B common share $0.12 0.17 0.06 See accompanying notes to consolidated financial statements. 106 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYYEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Amounts in thousands) Class ACommon Stock Class BCommon Stock Class A and BShares Held inTreasury Paid-in Capital RetainedEarnings Non-controllingInterest TotalStockholders’Equity Balances at January 1,2009 $151,262 2,706 (2,462) 27,233 80,176 - 258,915 Net income - - - - 3,516 - 3,516 Common stockrepurchases and retirements (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 Net income - - - - 8,955 - 8,955 Common stockrepurchases and retirements (80,901) - 94 - - - (80,807)Shares issued understock option plan 659 - - - - - 659 Issuance of restrictedstock awards (1,280) - - 1,280 - - - Share-basedcompensation expense - - - 5,385 - - 5,385 Other 7 (7) (4) - 1 - (3)Balances at December31, 2010 69,396 2,677 (2,249) 37,075 93,607 - 200,506 Net income - - - - 5,839 (238) 5,601 Common stockrepurchases and retirements (55,685) - 24 - - - (55,661)Shares issued understock option plan 947 - - - - - 947 Issuance of restrictedstock awards 11,523 - - (11,523) - - - Share-basedcompensation expense - - - 7,243 - - 7,243 Investment by non-controlling interest - - - - - 16,546 16,546 Other (2) 2 - - (13) - (13)Balances at December31, 2011 $26,179 2,679 (2,225) 32,795 99,433 16,308 175,169 See accompanying notes to consolidated financial statements. 107 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Amounts in thousands) 2011 2010 2009 Cash flows from operating activities: Net income$ 5,601 8,955 3,516 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 125,742 126,114 123,362 Loss on extinguishment of debt 9,111 - - Deferred income tax expense 7,485 9,488 3,936 Share-based compensation expense 6,620 6,733 2,804 Other noncash income and expense items 8,555 6,725 14,919 Change in operating assets and liabilities (28,680) 13,244 (47,618) Net cash provided by operating activities 134,434 171,259 100,919 Cash flows from investing activities: Purchases of property and equipment (177,090) (96,194) (120,983) Grant proceeds 35,060 - - Restricted cash (16,621) - - Insurance proceeds 233 990 - Purchase of businesses, net of cash received (352) (5,545) (109) Purchase of marketable securities - 941 (305) Proceeds from sale of marketable securities - (202) 613 Purchases of other assets and intangible assets (5,423) (4,712) (5,093) Net cash used in investing activities (164,193) (104,722) (125,877) Cash flows from financing activities: Repayment of debt and capital lease obligations (429,626) (35,974) (402,710) Issuance of Senior Notes 325,000 - 421,473 Borrowing on Senior Credit Facility 142,000 30,000 30,000 Purchase of treasury stock to be retired (55,661) (80,807) - Borrowing of other long-term debt 35,201 6,206 3,884 Investment by non-controlling interest 16,546 - - Payment of Senior Notes call premiums (4,728) - - Payment of debt issuance costs (3,603) (2,300) (9,006) Other 947 632 189 Net cash provided by (used in) financing activities 26,076 (82,243) 43,830 Net (decrease) increase in cash and cash equivalents (3,683) (15,706) 18,872 Cash and cash equivalents at beginning of period 33,070 48,776 29,904 Cash and cash equivalents at end of period$ 29,387 33,070 48,776 See accompanying notes to consolidated financial statements. 108 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements(1) Business and Summary of Significant Accounting PrinciplesIn 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 primarily in Alaska:· Postpaid and prepaid wireless telephone services and sale of wireless telephone handsets and accessories,· Cable television services throughout Alaska,· Internet access services,· Wireless roaming for certain wireless carriers and origination and termination of wireline traffic in Alaska for certain common carriers,· Competitive and incumbent local access services throughout Alaska,· Long-distance telephone service,· Data network services,· Broadband services, including our SchoolAccess® offering to rural school districts, our ConnectMD® offering to rural hospitals andhealth clinics, and managed video conferencing,· Managed services to certain commercial customers,· Sales and service of dedicated communications systems and related equipment, and· Lease, service arrangements and maintenance of capacity on our fiber optic cable systems used in the transmission of voice and dataservices within Alaska and between Alaska and the remaining United States and foreign countries. (b)Principles of Consolidation The consolidated financial statements include the consolidated accounts of GCI and its wholly owned subsidiaries, as well as a variableinterest entity (“VIE”) in which we were the primary beneficiary, when on August 30, 2011, we provided certain loans and guarantees to Terra GCI Investment Fund, LLC (“TIF”). We account for non-controlling interestsin consolidated subsidiaries for which our ownership is less than 100 percent. All significant intercompany transactions between non-regulated affiliates of our company are eliminated. Intercompanytransactions generated between regulated and non-regulated affiliates of our company are not eliminated in consolidation. (c)Non-controlling Interest Non-controlling interests represent the equity ownership interests in consolidated subsidiaries not owned by us. Non-controlling interest isadjusted for contributions, distributions, and earnings (loss) attributable to the non-controlling interest partners of the consolidated entities. Income and loss is allocated to the non-controlling interest based on therespective partnership agreements. (d)Recently Issued Accounting PronouncementsIn September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, “Intangibles– Goodwill and Other (Topic 350).” The amendments in this update will allow an entity to first assess qualitative factors to determine whether itis necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculatethe fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair valueis less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting thequalitative assessment. This pronouncement is effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 isnot expected to have a material impact on our income statements, financial position or cash flows. 109 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsIn May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurementand Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”)” which amends current guidance toachieve common fair value measurement and disclosure requirements in GAAP and IFRS. The amendments generally represent clarification ofFASB ASC Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing informationabout fair value measurements has changed. This pronouncement is effective for fiscal years, and interim periods within those years, beginningafter December 15, 2011. The adoption of ASU 2011-04 is not expected to have a material impact on our income statements, financial positionor cash flows. (e)Recently Adopted Accounting PronouncementsASU 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” addresses the accounting for multipledeliverable arrangements to enable vendors to account for products or services (“deliverables”) separately rather than as a combined unit.Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition - Multiple-Element Arrangements”, for separatingconsideration in 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 also eliminatesthe residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverablesusing the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor's multiple-deliverable revenue arrangements. The adoption of ASU 2009-13 on January 1, 2011, did not have a material impact on our income statements,financial position or cash flows.Under ASU 2010-28 “Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for ReportingUnits with Zero or Negative Carrying Amounts,” if the carrying amount of a reporting unit is zero or negative, an entity must assess whether itis more likely than not that goodwill impairment exists. To make that determination, an entity should consider whether there are adversequalitative factors that could impact the amount of goodwill, including those listed in ASC 350-20-35-30 “When to Test Goodwill forImpairment.” As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of thegoodwill impairment test because the carrying amount of the reporting unit is zero or negative, despite the existence of qualitative factors thatindicate goodwill is more likely than not impaired. The adoption of ASU 2010-28 on January 1, 2011, did not have a material impact on ourincome statements, financial position or cash flows.ASU 2010-29 “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations”specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entityas though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annualreporting period only. The amendments in this update also expand the supplemental pro forma disclosures under ASC 805 “BusinessCombinations” to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to thebusiness combination included in the reported pro forma revenue and earnings. The adoption of ASU 2010-29 on January 1, 2011, did nothave a material impact on our income statements, financial position, cash flows or related disclosures. (f)Regulatory AccountingWe account for our regulated operations in accordance with the accounting principles for regulated enterprises. This accounting recognizes theeconomic effects of rate regulation by recording cost and a return on investment as such amounts are recovered through rates authorized byregulatory authorities. Accordingly, plant and equipment is depreciated over lives approved by regulators and certain costs and obligations aredeferred based upon approvals received from regulators to permit recovery of such amounts in future years. Our cost studies and depreciationrates for our regulated operations are subject to periodic audits that could result in a change to recorded revenues. 110 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (g)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 income per shareis computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing netincome by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the dilutive net income per share of Class A common stock assumes theconversion of Class B common stock to Class A common stock, 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 participating securities. 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 common shares as ifthe earnings for the year had been distributed. In accordance with our Articles of Incorporation which provide that, if and when dividends are declared on our common stock in accordance with Alaska corporatelaw, equivalent dividends shall be paid with respect to the shares of Class A and Class B common stock. Both classes of common stock have identical dividend rights and would therefore share equally in our netassets in the event of liquidation. As such, we have allocated undistributed earnings on a proportionate basis.Earnings per common share (“EPS”) and common shares used to calculate basic and diluted EPS consist of the following (amounts in thousands,except per share amounts): Year Ended December 31, 2011 Class A Class B Basic net income per share: Numerator: Allocation of undistributed earnings $5,430 409 Denominator: Weighted average common shares outstanding 42,175 3,175 Basic net income attributable to GCI common stockholders per common share $0.13 0.13 Diluted net income per share: Numerator: Allocation of undistributed earnings for basic computation $5,430 409 Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares 409 - Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares outstanding - (30)Effect of share based compensation that may be settled in cash or shares (367) - Net income adjusted for allocation of undistributed earnings $5,472 379 Denominator: Number of shares used in basic computation 42,175 3,175 Conversion of Class B to Class A common shares outstanding 3,175 - Effect of share based compensation that may be settled in cash or shares 217 - Unexercised stock options 322 - Number of shares used in per share computations 45,889 3,175 Diluted net income attributable to GCI common stockholders per common share $0.12 0.12 111 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Years Ended December 31, 2010 2009 Class A Class B Class A Class B Basic net income per share: Numerator: Allocation of undistributed earnings $8,420 535 $3,305 211 Denominator: Weighted average common shares outstanding 50,076 3,183 50,159 3,195 Basic net income attributable to GCI common stockholders per commonshare $0.17 0.17 $0.07 0.07 Diluted net income per share: Numerator: Allocation of undistributed earnings for basic computation $8,420 535 $3,305 211 Reallocation of undistributed earnings as a result of conversion of Class B toClass A shares 535 - 211 - Reallocation of undistributed earnings as a result of conversion of Class B toClass A shares outstanding - (2) - (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 compensation that may be settled in cash or shares $8,955 533 $3,062 182 Denominator: Number of shares used in basic computation 50,076 3,183 50,159 3,195 Conversion of Class B to Class A common shares outstanding 3,183 - 3,195 - Unexercised stock options 167 - 258 - Effect of share based compensation that may be settled in cash or shares - - 236 - Number of shares used in per share computations 53,426 3,183 53,848 3,195 Diluted net income attributable to GCI common stockholders per commonshare $0.17 0.17 $0.06 0.06 112 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsWeighted average shares associated with outstanding share awards for the years ended December 31, 2011, 2010 and 2009 which have beenexcluded from the computations of diluted EPS, because the effect of including these share awards would have been anti-dilutive, consist of thefollowing (shares, in thousands): Years Ended December 31, 2011 2010 2009 Shares associated with anti-dilutive unexercised stock options 38 460 3,753 Share-based compensation that may be settled in cash or shares, the effect of which is anti-dilutive 217 217 - 255 677 3,753 Additionally, 34,000, 50,000 and 420,000 weighted average shares associated with contingent options and awards for the years ended December31, 2011, 2010 and 2009, respectively, were excluded from the computation of diluted EPS because the contingencies of these options andawards have not been met at December 31, 2011, 2010 and 2009, respectively. (h)Common StockFollowing are the changes in issued common stock for the years ended December 31, 2011, 2010 and 2009 (shares, in thousands): Class A Class B Balances at January 1, 2009 50,062 3,203 Class B shares converted to Class A 15 (15)Shares issued upon stock option exercises 77 - Share awards issued 1,964 - Shares retired (219) (2) Balances at December 31, 2009 51,899 3,186 Class B shares converted to Class A 8 (8)Shares issued upon stock option exercises 116 - Share awards issued 336 - Shares retired (8,144) - Other (2) - Balances at December 31, 2010 44,213 3,178 Class B shares converted to Class A 7 (7)Shares issued upon stock option exercises 163 - Share awards issued 460 - Shares retired (5,244) - Shares acquired to settle minimum statutory tax withholding requirements (303) - Balances at December 31, 2011 39,296 3,171 113 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements We retired 287,000, 17,000, and 219,000 shares of our Class A common stock during the years ended December 31, 2011, 2010 and 2009,respectively, which were acquired to settle the minimum statutory tax withholding requirements pursuant to restricted stock award vesting andthe settlement of deferred compensation.GCI’s Board of Directors has authorized a common stock buyback program for the repurchase of GCI’s Class A and Class B common stock inorder to reduce the outstanding shares of Class A and Class B common stock. In October 2010, GCI’s Board of Directors approved an increaseto the common stock buyback plan. Under the amended plan, we were authorized to repurchase up to $100.0 million worth of GCI commonstock. In December 2010, GCI’s Board of Directors approved an additional $100.0 million increase to the stock buyback plan. We areauthorized to increase our repurchase limit $5.0 million per quarter indefinitely and to use stock option exercise proceeds to repurchaseadditional shares. If stock repurchases are less than the total approved quarterly amount the difference may be carried forward and used torepurchase additional shares in future quarters. The cost of the repurchased common stock reduced Common Stock on our ConsolidatedBalance Sheets.On October 21, 2010, we entered into a stock purchase agreement with Arctic Slope Regional Corporation (“ASRC”), pursuant to which GCIrepurchased 7,486,240 shares of GCI’s Class A common stock for $10.16 per share, representing a total purchase price of $76.0million. Prior to the repurchase ASRC was a related party.During the year ended December 31, 2011, we repurchased a total of 5.2 million shares of our Class A common stock under the stock buybackprogram at a cost of $52.6 million. The repurchase reduced the amount available under the stock buyback program to $92.9 million. Duringthe year ended December 31, 2010, we repurchased a total of 8.0 million shares of our Class A common stock under the stock buybackprogram, at a cost of $80.8 million. There were no repurchases during the year ended December 31, 2009. The repurchased stock wasconstructively retired as of December 31, 2011.We expect to continue the repurchases for an indefinite period dependent on leverage, liquidity, company performance, market conditions andsubject to continued oversight by GCI’s Board of Directors. The open market repurchases have complied and will continue to comply with therestrictions of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. (i)Redeemable Preferred Stock We have 1,000,000 shares of preferred stock authorized with no shares issued and outstanding at years ended December 31, 2011, 2010 and2009. (j)Treasury Stock We account for treasury stock purchased for general corporate purposes under the cost method and include treasury stock as a component ofStockholders’ Equity. Treasury stock purchased with intent to retire (whether or not the retirement is actually accomplished) is charged to Class A or Class B Common Stock. (k)Cash Equivalents Cash equivalents consist of certificates of deposit which have an original maturity of three months or less at the date acquired and are readilyconvertible into cash. (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 receivables is our bestestimate of the amount of probable credit losses in our existing accounts receivable. We base our estimates on the aging of our accounts receivable balances, financial health of specific customers, regional economicdata, changes in our collections process, regulatory requirements and our customers’ compliance with Universal Service Administrative Company ("USAC") rules. We review our allowance for doubtful receivablesmethodology at least annually. Depending upon the type of account receivable our allowance is calculated using a pooled basis with an allowance for all accounts greater than120 days past due, a specific identification method, or a combination of the two methods. When a specific identification method is used, past due balances over 90 days old and balances less than 90 days old butpotentially uncollectible due to bankruptcy or other issues are reviewed individually for collectability. Account balances are charged off against the allowance when we feel it is probable the receivable will not berecovered. We do not have any off-balance-sheet credit exposure related to our customers. 114 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (m)Inventories Wireless handset inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the average cost method.Handset costs in excess of the revenues generated from handset sales, or handset subsidies, are expensed at the time of sale. We do not recognize the expected handset subsidies prior to the time of sale because thepromotional discount decision is made at the point of sale and/or because we expect to recover the handset subsidies through service revenue. Inventories of other merchandise for resale and parts are stated at the lower of cost or market. Cost is determined using the average cost method. (n)Property and Equipment Property and equipment is stated at cost. Construction costs of facilities are capitalized. Equipment financed under capital leases is recorded atthe lower of fair market value or the present value of future minimum lease payments at inception of the lease. Construction in progress represents transmission equipment and support equipment and systems notplaced in service on December 31, 2011 that management intends to place in service during 2012. Depreciation is computed using the straight-line method based upon the shorter of the estimated useful lives of the assets or the lease term, ifapplicable, in the following ranges:Asset CategoryAsset LivesTelephony transmission equipment and distribution facilities5-20 yearsFiber optic cable systems15-25 yearsCable transmission equipment and distribution facilities5-30 yearsSupport equipment and systems3-20 yearsTransportation equipment5-13 yearsProperty and equipment under capital leases12-20 yearsBuildings25 yearsCustomer premise equipment2-20 years Amortization of property and equipment under capital leases is included in Depreciation and Amortization Expense on the ConsolidatedIncome Statement. Repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments are capitalized. Accumulateddepreciation is removed and gains or losses are recognized at the time of sales or other dispositions of property and equipment. (o)Intangible Assets and Goodwill Goodwill, cable certificates (certificates of convenience and public necessity) and wireless licenses are not amortized. Cable certificatesrepresent certain perpetual operating rights to provide cable services. Wireless licenses represent the right to utilize certain radio frequency spectrum to provide wireless communications services. Goodwill represents theexcess of cost over fair value of net assets acquired in connection with a business acquisition. Goodwill is not allocated to our reportable segments as our Chief Operating Decision Maker does not review a balancesheet by reportable segment to make decisions about resource allocation or evaluate reportable segment performance, however, goodwill is allocated to our reporting units for the sole purpose of the annual impairmenttest. All other amortizable intangible assets are being amortized over 2 to 20 year periods using the straight-line method. 115 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (p)Impairment of Intangibles, Goodwill, and Long-lived Assets Cable certificates and wireless license assets are treated as indefinite-lived intangible assets and are tested annually for impairment or morefrequently if events and circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of theassets exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the asset becomes its new accounting basis.Impairment testing of our cable certificate and wireless license assets as of October 31, 2011 and 2010 used a direct value method.Our goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the assetsmight be impaired. We are required to determine goodwill impairment using a two-step process. The first step of the goodwill impairment test isused to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of areporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit'sgoodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the samemanner as the amount of goodwill that would be recognized in a business combination. We use a discounted cash flow method to determine thefair value of our reporting units. This method requires us to make estimates and assumptions including projected cash flows and discountrate. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitudeof any such impairment charge. 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 day of thetenth month of the fiscal year for all of our indefinite-lived intangibles. As we grew, it became increasingly difficult to complete the various impairment analyses in a timely manner, therefore, we believed the change inaccounting principle related to the annual testing date was preferable as it provided us additional time to complete the impairment test and report the results of that test in our annual filing on Form 10-K. We believethat the change to the annual testing date did not delay, accelerate or avoid an impairment charge. 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. We completed our annual review and no impairment charge was recorded for the years ended December 31, 2011, 2010 or 2009. Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of an asset group to be held and used is measured by a comparison of the carryingamount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, animpairment charge is recognized by the amount by which the carrying 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 debt instrument is asubstantial modification, all or a portion of the applicable debt issuance costs are written off. If a debt instrument is repaid prior to the maturity date we will write-off a proportional amount of debt issuance costs. (r)Other Assets Other Assets primarily include long-term deposits, prepayments, and non-trade accounts receivable. 116 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (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, we capitalize a cost by increasing the carrying amount of the related long-lived asset. In periodssubsequent to initial measurement, period-to-period changes in the liability for an asset retirement obligation resulting from revisions to either the timing or the amount of the original estimate of undiscounted cashflows are recognized. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we either settlethe obligation for its recorded amount or incur a gain or loss upon settlement. The majority of our asset retirement obligations are the estimated cost to remove telephony transmission equipment and support equipmentfrom leased property. Following is a reconciliation of the beginning and ending aggregate carrying amount of our liability for asset retirement obligations (amounts in thousands): Balance at December 31, 2009 $12,514 Liability incurred 1,253 Accretion expense 289 Liability settled (21)Balance at December 31, 2010 14,035 Liability incurred 613 Accretion expense 619 Liability settled (44)Balance at December 31, 2011 $15,223 During the years ended December 31, 2011 and 2010 we recorded additional capitalized costs of $613,000 and $1.3 million, respectively, inProperty 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 us to remove ournetwork facilities in the event the permit is not renewed. We expect to continually renew our permits and therefore cannot estimate any liabilitiesassociated with such agreements. A remote possibility exists that we would not be able to successfully renew a permit, which could result in usincurring significant expense in complying with restoration or removal provisions. (t)Revenue Recognition All revenues are recognized when the earnings process is complete. Revenue recognition is as follows: 117 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements · Revenues generated from long-distance service usage and plan fees, Internet service excess usage, and managed services arerecognized when the services are provided, · We recognize unbilled revenues when the service is provided based upon minutes of use processed, and/or established rates, netof credits and adjustments, · Cable television service package fees, local access and Internet service plan fees, and data network revenues are billed inadvance, recorded as Deferred Revenue on the balance sheet, and are recognized as the associated service is provided, · Certain of our wireless services offerings have been determined to be revenue arrangements with multiple deliverables. Revenuesare recognized as each element is earned based on objective evidence regarding the relative fair value of each element and whenthere are no undelivered elements that are essential to the functionality of the delivered elements. Revenues generated from wirelessservice usage and plan fees are recognized when the services are provided. Revenues generated from the sale of wireless handsetsand accessories are recognized when title to the handset and accessories passes to the customer. As the non-refundable, up-frontactivation fee charged to the customer does not meet the criteria as a separate unit of accounting, we allocate the additionalarrangement consideration received from the activation fee to the handset (the delivered item) to the extent that the aggregate handsetand activation fee proceeds do not exceed the fair value of the handset. Any activation fees not allocated to the handset would bedeferred upon activation and recognized as service revenue on a straight-line basis over the expected customer relationship period, · The majority of our equipment sale transactions involve the sale of communications equipment with no other services involved.Such equipment is subject to standard manufacturer warranties and we do not manufacture any of the equipment we sell. In suchinstances the customer takes title to the equipment generally upon delivery. We recognize revenue for such transactions when titlepasses to the customer and the revenue is earned and realizable. On certain occasions we enter into agreements to sell andsatisfactorily install or integrate telecommunications equipment for a fixed fee. Customers may have refund rights if the installedequipment does not meet certain performance criteria. We defer revenue recognition until we have received customer acceptance perthe contract or agreement, 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 each element isearned based on objective evidence regarding the relative fair value of each element and when there are no undelivered elements thatare essential to the functionality of the delivered elements, · Technical services revenues are derived primarily from maintenance contracts on equipment and are recognized on a proratedbasis over the term of the contracts, · We account for fiber capacity Indefeasible Rights to Use ("IRU") agreements as an operating lease or service arrangement and wedefer 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. Such poolsare funded by toll revenue and/or access charges regulated by the Regulatory Commission of Alaska ("RCA") within theintrastate jurisdiction and the Federal Communications Commission (“FCC”) within the interstate jurisdiction. Much of theinterstate access revenue is initially recorded based on estimates. These estimates are derived from interim financial information,available separation studies and the most recent information available about achieved rates of return. These estimates are subjectto adjustment in future accounting periods as additional information becomes available. To the extent that a dispute arises overrevenue settlements, our policy is to defer revenue collected until the dispute is resolved, · We receive refunds from time to time from incumbent local exchange carriers (“ILECs”), with which we do business in respect oftheir earnings that exceed regulatory requirements. Telephone companies that are rate regulated by the FCC using the rate of returnmethod are required by the FCC to refund earnings from interstate access charges assessed to long-distance carriers when theirearnings exceed their authorized rate of return. Such refunds are computed based on the regulated carrier’s earnings in severalaccess categories. Uncertainties exist with respect to the amount of their earnings, the refunds (if any), their timing, and theirrealization. We account for such refundable amounts as gain contingencies, and, accordingly, do not recognize them untilrealization is a certainty upon receipt, · We receive grant revenue for the purpose of building communication infrastructure in rural areas. We defer the revenue andrecognize it over the life of the asset that was constructed using grant funds, and · Other revenues are recognized when the service is provided. As an Eligible Telecommunications Carrier ("ETC"), we receive support from the Universal Service Fund ("USF") to support the provision ofwireline local access and wireless service in high cost areas. On November 29, 2011, the FCC published a final rule to reform the methodology fordistributing USF high cost support for voice and broadband services, as well as to the access charge regime for terminating traffic between carriers(“High Cost Order”). The High Cost Order divided support to Alaska between Urban and Remote areas. The High Cost Order was a significantprogram change that required a reassessment of our high cost support revenue recognition. 118 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Prior to the High Cost Order program changes we accrued Remote and Urban estimated program revenue quarterly based on current line counts, themost current rates paid to us, our assessment of the impact of current FCC regulations, and our assessment of the potential outcome of FCCproceedings. Our estimated accrued revenue is subject to our judgment regarding the outcome of many variables and is subject to upward ordownward adjustments in subsequent periods. Our ability to collect our accrued USF support is contingent upon continuation of the USF programand upon our eligibility to participate in that program, which is subject to change by future regulatory, legislative or judicial actions. We adjustrevenue and the account receivable in the period the FCC makes a program change or we assess the likelihood that such a change has increased ordecreased revenue.Remote High Cost SupportThe High Cost Order mandates that as of January 1, 2012, Remote high cost support will be based upon the total 2011 support disbursed to allsubject Competitive Eligible Telecommunications Carrier (“CETCs”) (“Statewide Support Cap”). On January 1, 2012, the rates paid in the Remoteareas are mandated and frozen by the USF and cannot exceed $250 per line per month on a study area basis. Line count growth that causes theStatewide Support Cap to be exceeded triggers a pro rata support payment reduction to all subject Alaska CETCs until the support is reduced down tothe Statewide Support Cap amount.The High Cost Order further mandates that on January 1, 2014, a freeze of Remote support will begin and subject CETC’s support payments will befrozen at the monthly average of 2013 annual support. If a successor funding mechanism is operational on July 1, 2014, a 20% annual phase downwill commence decreasing support 20% each annual period until no support is paid starting July 1, 2018. If a successor funding mechanism is notoperational on July 1, 2014, the phase down will not begin and the subject CETCs will continue to receive the monthly average of 2013 annualsupport until a successor funding mechanism is operational. A subject CETC may not receive phase down support and support from a successorfunding mechanism, one program or the other must be selected. At this time we cannot predict the likelihood of a successor funding mechanism beingoperational on July 1, 2014 nor can we predict whether we can or will participate in a successor funding mechanism.As a result of the High Cost Order program changes for the areas designated Remote by the USF, beginning in the fourth quarter of 2011 we areaccruing estimated program revenue based on current line counts and the rates mandated and frozen by the USF, reduced as needed by our estimate ofthe impact of the Statewide Support Cap. The Statewide Support Cap is the amount of total high cost support all CETCs in the Remote areas ofAlaska may receive. When determining the estimated program revenue accrual we also consider our assessment of the impact of current FCCregulations and of the potential outcome of FCC proceedings. Our estimated accrued revenue is subject to our judgment regarding the outcome of manyvariables and is subject to upward or downward adjustment in subsequent periods.Urban High Cost SupportThe High Cost Order mandates that as of January 1, 2012, Urban high cost support payments will be frozen at the monthly average of thesubject CETC’s 2011 annual support. A 20% annual phase down will commence July 1, 2012, decreasing support 20% each annual perioduntil no support is paid starting July 1, 2016. If a successor funding mechanism is not operational on July 1, 2014, the phase down will stopat 60% and the subject CETCs will continue to receive annual support payments at the 60% level until a successor funding mechanism isoperational. Urban high cost support is no longer dependent upon line counts and line count filings are no longer required. 119 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements As a result of the High Cost Order program changes for the areas considered to be Urban by the USF we apply the proportional performancerevenue recognition method to account for the impact of the declining payments while our level of service provided and associated costs remainconstant. Included in the calculation are the scheduled Urban high cost support payments from October 2011 through June 2014 net of ourUrban accounts receivable balance at September 30, 2011. An equal amount of this result will be recognized as Urban support revenue eachperiod. At this time we cannot predict the likelihood of a successor funding mechanism being operational on July 1, 2014; therefore we have notincluded projected support payments beyond June 2014.For both Remote and Urban high cost support revenue our ability to collect our accrued USF support is contingent upon continuation of theUSF program and upon our eligibility to participate in that program, which is subject to change by future regulatory, legislative or judicialactions. We adjust revenue and the account receivable in the period the FCC makes a program change or we assess the likelihood that such achange has increased or decreased revenue. We do not recognize revenue until our ETC status has been approved by the RCA. (u)Payments Received from Suppliers Our Consumer segment occasionally receives reimbursements for video services costs to promote suppliers’ services, called cooperativeadvertising arrangements. The supplier payment is classified as a reduction of selling, general and administrative expenses if it reimburses specific, incremental and identifiable costs incurred to resell the suppliers’services. If the supplier payment is unspecific, the payment is classified as a reduction to cost of goods sold (exclusive of depreciation and amortization expense) (“Cost of Goods Sold”). Recognition occurs upon receipt ofthe payment because collection is not assured. (v)Advertising Expense We expense advertising costs in the year during which the first advertisement appears. Advertising expenses were $4.2 million, $4.3 millionand $4.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. (w)Leases Scheduled operating lease rent increases are amortized over the expected lease term on a straight-line basis. Rent holidays are recognized on astraight-line basis over the operating lease term (including any rent holiday period). Leasehold improvements are amortized over the shorter of their economic lives or the lease term. We may amortize a leasehold improvementover a term that includes assumption of a lease renewal if the renewal is reasonably assured. Leasehold improvements acquired in a business combination are amortized over the shorter of the useful life of the assets or aterm that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. Leasehold improvements that are placed in service significantly after and are not contemplatedat or near the beginning of the lease term are amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date theleasehold improvements are purchased. Leasehold improvements made by us and funded by landlord incentives or allowances under an operating lease are recorded as deferred rent and amortized as reductions to leaseexpense over the lease term. (x)Interest Expense Material interest costs incurred during the construction period of non-software capital projects are capitalized. Interest costs incurred duringthe development period of a software capital project are capitalized. Interest is capitalized in the period commencing with the first expenditure for a qualifying capital project and ending when the capital project issubstantially complete and ready for its intended use. We capitalized interest cost of $3.7 million, $1.1 million and $548,000 during the years ended December 31, 2011, 2010 and 2009, respectively. 120 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (y)Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for their future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if it is more likely than not that some portion or theentire deferred tax asset will not be realized. (z)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 to recognizestock 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 compensationexpense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. See Note 9,Stockholders’ Equity, of this Form 10-K for information on the assumptions we used to calculate the fair value of share-based compensation. We are required to report the benefits associated with tax deductions in excess of recognized compensation cost as a financing cash flow ratherthan as an operating cash flow. (aa)Stock Options Issued for Non-employee Services Stock options issued in exchange for non-employee services are accounted for based upon the fair value of the consideration or servicesreceived or the fair value of the equity instruments issued using the Black- Scholes-Merton method, whichever is more reliably measurable. The fair value determined using these principles is charged to operating expense over the shorter of the term for which non-employee servicesare provided, if stated, or the stock option vesting period. (ab)Use of Estimates The preparation of financial statements in conformity with the 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 of contingent assets and liabilities at the date of the financial statements and the reported amountsof revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include the allowance for doubtful receivables, unbilled revenues, accrual of the USF high costRemote area program support, share-based compensation, inventory at lower of cost or market, reserve for future customer credits, valuation allowances for deferred income tax assets, depreciable and amortizable livesof assets, the carrying value of long-lived assets including goodwill, cable certificatesand wireless licenses, our effective tax rate, purchase price allocations, deferred lease expense, asset retirement obligations, theaccrual of Cost of Goods Sold, depreciation and the accrual of contingencies and litigation. Actual results could differ from those estimates. The accounting estimates related to revenues from the USF high cost Remote area program are dependent on various inputs including ourestimate of the Statewide Support Cap, our assessment of the impact of new FCC regulations, and the potential outcome of FCC proceedings. These inputs are subjective and based on our judgment regarding theoutcome of certain variables and are subject to upward or downward adjustment in subsequent periods. Effective in the fourth quarter of 2011, we changed our high cost support revenue recognition methodology due to theHigh Cost Order. See Note 1(t), Revenue Recognition, of this Form 10-K for information. Effective in the second quarter of 2010, we changed our USF high cost area program support accrual methodology due to a change in ourestimate of the current amounts expected to be paid to us. The effect of this change in estimate was a revenue increase of $4.7 million, a net income increase of $3.1 million, and a basic and diluted net income per shareincrease of $0.06 for the year ended December 31, 2010. 121 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (ac)Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents and accountsreceivable. Excess cash is invested in high quality short-term liquid money instruments. At December 31, 2011 and 2010, substantially all of our cash and cash equivalents were invested in short-term liquid moneyinstruments. At December 31, 2011 and 2010, cash balances were in excess of Federal Deposit Insurance Corporation insured limits. We do not have any major customers for the year ended December 31, 2011, see Note 10, Industry Segment Data, of this Form 10-K. Ourcustomers are located primarily throughout Alaska. Because of this geographic concentration, our growth and operations depend upon economic conditions in Alaska. (ad)Software Capitalization Policy Internally used software, whether purchased or developed, is capitalized and amortized using the straight-line method over an estimated usefullife of five years. We capitalize certain costs associated with internally developed software such as payroll costs of employees devoting time to the projects and external direct costs for materials and services. Costsassociated with internally developed software to be used internally are expensed until the point the project has reached the development stage. Subsequent additions, modifications or upgrades to internal-use software arecapitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Thecapitalization of software requires judgment in determining when a project has reached the development stage. (ae)Guarantees Certain of our customers have guaranteed levels of service. If an interruption in service occurs we do not recognize revenue for any portion ofthe monthly service fee that will be refunded to the customer or not billed to the customer due to these service level agreements. Additionally, we have provided certain guarantees to U.S. Bancorp Community Development Corporation (“US Bancorp”), our tax creditinvestor in TIF. We have guaranteed the delivery of $30.7 million of New Markets Tax Credits (“NMTC”) to US Bancorp, as well as certain loan and management fee payments between our subsidiaries and the VIE, of which weare the primary beneficiary. In the event that the tax credits are not delivered or certain payments not made, we are obligated to provide prompt and complete payment of these obligations. Please refer to Note 12,Non-controlling Interest, of this Form 10-K, for more information about our NMTC transaction. (af)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-producingtransaction between us and a customer on a net basis in our Income Statements. We report a certain surcharge on a gross basis in our consolidated income statements of $5.4 million, $5.2 million and $4.4 millionfor the years ended December 31, 2011, 2010 and 2009, respectively. (2)Consolidated Statements of Cash Flows Supplemental Disclosures Changes in operating assets and liabilities consist of (amounts in thousands): 122 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Year ended December 31, 2011 2010 2009 (Increase) decrease in accounts receivable, net $(16,900) 12,283 (33,555)(Increase) decrease in prepaid expenses (1,949) (1,459) 1,923 (Increase) decrease in inventories (1,718) 3,461 (2,109)(Increase) decrease in other current assets 309 1,037 (4,272)(Increase) decrease in other assets 907 2,663 (10,742)Increase (decrease) in accounts payable (1,373) 1,683 (1,889)Increase (decrease) in deferred revenues 4,707 (4,108) (787)Increase (decrease) in accrued payroll and payroll related obligations (102) 271 (752)Increase (decrease) in accrued liabilities (1,733) 2,585 (1,608)Increase (decrease) in accrued interest (6,776) (1,365) 4,597 Increase (decrease) in subscriber deposits (21) (278) 287 Increase (decrease) in long-term deferred revenue (2,413) (3,167) 763 Increase (decrease) in components of other long-term liabilities (1,618) (362) 526 $(28,680) 13,244 (47,618) The following items are for the years ended December 31, 2011, 2010 and 2009 (amounts in thousands):Net cash paid or received: 2011 2010 2009 Interest paid, net of amounts capitalized $73,492 71,140 51,161 Income tax refund received $- 1,163 911 The following items are non-cash investing and financing activities for the years ended December 31, 2011, 2010 and 2009 (amounts in thousands): 2011 2010 2009 Non-cash additions for purchases of property and equipment $7,233 7,622 4,427 Asset retirement obligation additions to property and equipment $613 1,253 5,764 Asset retirement obligation reductions to property and equipment for revisions to previous estimates $294 - - Warranty receivable applied to capital lease obligation $- - 465 Assets acquired in acquisition $- 480 6,475 (3)Receivables and Allowance for Doubtful Receivables Receivables consist of the following at December 31, 2011 and 2010 (amounts in thousands): 123 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements 2011 2010 Trade $140,533 130,708 Employee 720 722 Other 574 1,426 Total Receivables $141,827 132,856 As described in Note 1(t), Revenue Recognition, we receive support from each of the various USF programs: high cost, low income, rural health care,and schools and libraries. This support was 19%, 18%, and 14% of our revenue for the years ended December 31, 2011, 2010 and 2009, respectively. We had USF net receivables of $69.8 million and $64.3 million atDecember 31, 2011 and 2010, respectively Changes in the allowance for doubtful receivables during the years ended December 31, 2011, 2010 and 2009 are summarized below (amounts inthousands): Additions Deductions Description Balance atbeginning ofyear Charged tocosts andexpenses Charged toother accounts Write-offs netof recoveries Balance at endof year December 31, 2011 $9,189 4,294 (29) 7,658 5,796 December 31, 2010 $7,060 3,085 1,670 2,626 9,189 December 31, 2009 $2,582 3,818 1,734 1,074 7,060 Charged to other accounts during the year ended December 31, 2011, includes a $1.6 million reserve for a customer that participates in the RuralHealth Care Division support program that is operated by the USAC. We provided service to this customer pursuant to a contract from July 2008 to June 2009. In 2010 we received a funding commitment letter from USACfor the year from July 2008 to June 2009 committing funding for all but $1.7 million of that particular year. USAC denied funding of $1.7 million based on the timing of customer-owned equipment placed in service in relationto service charges. In August 2010, we filed with the FCC a request for review of the denial and at December 31, 2011, our appeal was still being reviewed by the FCC. We recorded a reserve by reducing revenue $1.7 million inthe year ended December 31, 2010. During the second quarter of 2011, we decreased the allowance by $100,000 to true up 2008 and 2009’s funding amounts. After recording an adjustment in 2011, the allowance related tothis customer is $1.6 million at December 31, 2011. Charged to Other Accounts for the year ended December 31, 2009 consists of a $914,000 adjustment recorded upon the conversion of our AlaskaDigiTel customer accounts into a Consumer customer billing system that grossed up accounts receivable and the allowance for doubtful receivables to record termination fees for tracking purposes. Additionally, the yearended December 31, 2009 includes an adjustment of $820,000 due to the decision to temporarily stop revenue recognition for services provided to a customer whose funding from the USAC was denied.(4)Net Property and Equipment in Service Net property and equipment in service consists of the following at December 31, 2011 and 2010 (amounts in thousands): 124 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements 2011 2010 Land and buildings $47,133 36,332 Telephony transmission equipment and distribution facilities 752,083 674,246 Cable transmission equipment and distribution facilities 141,400 128,919 Support equipment and systems 202,785 190,947 Transportation equipment 8,269 9,116 Property and equipment under capital leases 102,972 102,972 Customer premise equipment 134,207 124,655 Fiber optic cable systems 283,997 244,381 1,672,846 1,511,568 Less accumulated depreciation 796,210 693,645 Less accumulated amortization 24,931 19,645 Net property and equipment in service $851,705 798,278 (5)Intangible Assets and Goodwill As of October 31, 2011 cable certificates, wireless licenses and goodwill were tested for impairment and the fair values were greater than the carryingamounts, therefore these intangible assets were determined not to be impaired at December 31, 2011. The remaining useful lives of our cable certificates,wireless licenses and goodwill were evaluated as of October 31, 2011 and events and circumstances continue to support an indefinite useful life. There are no indicators of impairment of our intangible assets subject to amortization as of December 31, 2011. Other Intangible Assets subject to amortization include the following at December 31, 2011 and 2010 (amounts in thousands): 2011 2010 Software license fees $30,392 26,403 Customer relationships 4,435 11,034 Right-of-way 783 783 Customer contracts - 3,538 Other - 543 35,610 42,301 Less accumulated amortization 19,775 24,584 Net other intangible assets $15,835 17,717 Changes in Other Intangible Assets are as follows (amounts in thousands):Balance at December 31, 2009 $19,561 Asset additions 4,533 Less amortization expense 6,360 Less asset write-off 17 Balance at December 31, 2010 17,717 Asset additions 4,157 Less amortization expense 6,039 Balance at December 31, 2011 $15,835 Goodwill increased $951,000 at December 31, 2011, as compared to December 31, 2010, and $480,000 at December 31, 2010, as compared toDecember 31, 2009, due to contingent payments to the former shareholders of UUI. 125 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Amortization expense for amortizable intangible assets for the years ended December 31, 2011, 2010 and 2009 follow (amounts in thousands): Years Ended December 31, 2011 2010 2009 Amortization expense $6,039 6,360 7,628 Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in thousands):Years Ending December 31, 2012 $4,407 2013 3,288 2014 2,428 2015 1,699 2016 269 (6)Long-Term DebtLong-term debt consists of the following at December 31, 2011 and 2010 (amounts in thousands): 2011 2010 2021 Notes (a) $325,000 - 2019 Notes (b) 425,000 425,000 2014 Notes (a) - 320,000 Senior Credit Facility (c) 60,000 20,000 Rural Utility Service ("RUS") debt (d) 52,944 19,844 CoBank Mortgage ("CoBank") note payable (d) 1,344 1,832 Debt 864,288 786,676 Less unamortized discount paid on the 2019 Notes 3,016 3,266 Less unamortized discount paid on the 2014 Notes - 1,693 Less current portion of long-term debt 3,241 2,516 Long-term debt, net $858,031 779,201 (a) On May 20, 2011, GCI, Inc., our wholly owned subsidiary, completed an offering of $325.0 million in aggregate principal amount of 6 3/4%Senior Notes due 2021 (“2021 Notes”) at an issue price of 100% to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (“Securities Act”), and topersons outside the United States in accordance with Regulation S under the Securities Act. We used the net proceeds from this offering to repay and retire all $320.0 million of our outstandingsenior unsecured notes due 2014 (“2014 Notes”). The 2021 Notes are not redeemable prior to June 1, 2016. At any time on or after June 1, 2016, the 2021 Notes are redeemable at our option,in whole or in part, on not less than thirty nor more than sixty days’ notice, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest (if any) to the date ofredemption: 126 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsIf redeemed during the twelve month period commencing June 1 of the year indicated: RedemptionPrice 2016 103.375%2017 102.250%2018 101.125%2019 and thereafter 100.000% The 2021 Notes mature on June 1, 2021. Semi-annual interest payments are payable on June 1 and December 1.The 2021 Notes are senior unsecured obligations which rank equally in right of payment with our existing and future senior unsecured debt,including our 2019 Notes, and senior in right of payment to all future subordinated indebtedness.The 2021 Notes were issued pursuant to an Indenture, dated May 20, 2011, between us and Union Bank, N.A., as trustee.We are not required to make mandatory sinking fund payments with respect to the 2021 Notes.Upon the occurrence of a change of control, each holder of the 2021 Notes will have the right to require us to purchase all or any part (equal to$1,000 or an integral multiple thereof, except that no 2021 Note will be purchased in part if the remaining portion thereof would not be at least$2,000) of such holder’s 2021 Notes at a purchase price equal to 101% of the principal amount of such 2021 Notes, plus accrued and unpaidinterest on such 2021 Notes, if any. If we or certain of our subsidiaries engage in asset sales, we must generally either invest the net cashproceeds from such sales in our business within a period of time, prepay debt under any outstanding credit facility, or make an offer topurchase a principal amount of the 2021 Notes equal to the excess net cash proceeds, with the purchase price equal to 100% of their principalamount, plus accrued and unpaid interest, if any.The covenants in the Indenture restrict GCI, Inc. and certain of its subsidiaries from incurring additional 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. If our leverage ratio does notexceed 5.5 to one, we are able to enter into sale and leaseback transactions; pay dividends or distributions on capital stock or repurchase capitalstock; issue stock of subsidiaries; make certain investments; create liens on assets to secure debt; enter into transactions with affiliates; mergeor consolidate with another company; and transfer and sell assets. These covenants are subject to a number of limitations and exceptions, asfurther described in the Indenture.On August 15, 2011, GCI, Inc. closed an exchange offer pursuant to which it offered new 2021 Notes identical to the original notes except thatthe new 2021 Notes were registered under the Securities Act.We paid closing costs totaling $3.6 million in connection with the offering, which were recorded as deferred loan costs and are being amortizedover the term of the 2021 Notes. We recorded a $9.1 million Loss on Extinguishment of Debt on our Consolidated Income Statement. Includedin the loss was $2.9 million in unamortized deferred loan costs, $1.5 million for the unamortized portion of the original issue discount and$4.7 million in call premium payments to redeem our 2014 NotesWe were in compliance with all 2021 Notes loan covenants at December 31, 2011. 127 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (b)We pay interest of 8.63% on notes that are due in 2019 (“2019 Notes”). The 2019 Notes are senior unsecured obligations which rank equally inright of payment with the existing and future senior unsecured debt, including our 2021 Notes described previously, and senior in right of paymentto all future subordinated indebtedness. The 2019 Notes are carried on our Consolidated Balance Sheet net of the unamortized portion of thediscount, which is being amortized to Interest Expense over the term of the 2019 Notes using the effective interest method and an effective interestrate of 9.09%.The 2019 Notes are redeemable at our option, in whole or in part, on not less than thirty days nor more than sixty days notice, at the followingredemption prices (expressed as percentages of principle amount), plus accrued and unpaid interest (if any) to the date of redemption:If redeemed during the twelve month period commencing November 15 of the year indicated: RedemptionPrice 2014 104.313%2015 102.875%2016 101.438%2017 and thereafter 100.000%The 2019 Notes mature on November 15, 2019. Semi-annual interest payments are payable on May 15 and November 15 of each year.The 2019 Notes were issued pursuant to an Indenture, dated as of the Closing Date, between us and Union Bank, N.A., as trustee.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 any part (equal to$1,000 or an integral multiple thereof, except that no 2019 Note will be purchased in part if the remaining portion thereof would not be at least$2,000) of such holder’s 2019 Notes at a purchase price equal to 101% of the principal amount of such 2019 Notes, plus accrued and unpaidinterest on such 2019 Notes, if any. If we or certain of our subsidiaries engage in asset sales, we must generally either invest the net cashproceeds from such sales in our business within a period of time, prepay debt under any outstanding credit facility, or make an offer topurchase a principal amount of the 2019 Notes equal to the excess net cash proceeds, with the purchase price equal to 100% of their principalamount, plus accrued and unpaid interest, if any.The covenants in the Indenture 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 5.5 to one. If our leverage ratio does not exceed 5.5 toone, we are able to enter into sale and leaseback transactions; pay dividends or distributions on capital stock or repurchase capital stock; issuestock of subsidiaries; make certain investments; create liens on assets to secure debt; enter into transactions with affiliates; merge or consolidatewith another company; and transfer and sell assets. These covenants are subject to a number of limitations and exceptions, as furtherdescribed in the Indenture.We paid closing costs totaling $9.4 million in connection with the offering, which were recorded as deferred loan costs and are being amortizedover the term of the 2019 Notes.We were in compliance with all 2019 Notes loan covenants at December 31, 2011. (c)The Senior Credit Facility includes a $50.0 million term loan, including Supplements No. 1 and No. 2 discussed below, and a $75.0 millionrevolving credit facility with a $25.0 million sublimit for letters of credit. Our term loan is fully drawn. 128 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsIn June 2011, GCI Holdings, Inc. (“Holdings”), our wholly owned subsidiary, entered into an Add-On Term Loan Supplement No. 1(“Supplement No. 1”) to our Senior Credit Facility. The Supplement No. 1 provided for an additional $25.0 million term loan with an initialinterest rate of the London Interbank Offered Rate (“LIBOR”) plus 2.5%, payable in accordance with the terms of our Senior Credit Facility. Holdings used $20.0 million of the loan proceeds to pay down outstanding revolving loans under our Senior Credit Facility, thus increasingavailability under the revolving portion of our Senior Credit Facility. The remaining $5.0 million was used for general corporate purposes. In July 2011, Holdings entered into an Add-On Term Loan Supplement No. 2 (“Supplement No. 2”) to our Senior Credit Facility. TheSupplement No. 2 provided for an additional $25.0 million term loan with an initial interest rate of LIBOR plus 2.5%, payable in accordancewith the terms of our Senior Credit Facility. Holdings used $15.0 million to pay down outstanding revolving loans under our Senior CreditFacility, thus increasing availability under the revolving portion of our Senior Credit Facility. The remaining $10.0 million was used for generalcorporate purposes. The term loan is fully drawn and a total of $60.0 million is outstanding as of December 31, 2011. Under the revolving portion of the Senior CreditFacility, we have borrowed $10.0 million and have $349,000 of letters of credit outstanding, which leaves $64.7 million available for borrowing asof December 31, 2011. The Senior Credit Facility will mature on January 29, 2015. The interest rate on our Senior Credit Facility is LIBOR plus the following Applicable Margin set forth opposite each applicable Total LeverageRatio below: 129 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsTotal Leverage Ratio (as defined) ApplicableMargin ≥3.75 4.00%≥3.25 but <3.75 3.50%≥2.75 but <3.25 3.00%<2.75 2.50%Borrowings under the Senior Credit Facility are subject to certain financial covenants and restrictions on indebtedness. Our Senior CreditFacility Total Leverage Ratio (as defined) may not exceed 5.25 to one; the Senior Leverage Ratio (as defined) may not exceed 3.00 to one; and ourInterest Coverage Ratio (as defined) must not be less than 2.50 to one at any time.The obligations under the Senior Credit Facility are secured by a security interest on substantially all of the assets of GCI Holdings, Inc. and thesubsidiary guarantors, and on the stock of GCI Holdings, Inc. (d)United Utilities, Inc. (“UUI”) and Unicom, Inc. (“Unicom”), our wholly owned subsidiaries, have entered into various loans with the RUS andCoBank. The long-term debt is due in monthly installments of principal based on a fixed rate amortization schedule. The interest rates on thevarious loans to which this debt relates range from 2.0% to 6.8%. Through UUI and Unicom, we have $13.5 million available for borrowing forspecific capital expenditures under existing borrowing arrangements. Substantially all of the assets of UUI and Unicom are collateral for theamounts due to RUS and CoBank. Maturities of long-term debt as of December 31, 2011 are as follows (amounts in thousands):Years ending December 31, 2012 $3,241 2013 3,749 2014 3,374 2015 63,260 2016 3,040 2017 and thereafter 787,624 864,288 Less unamortized discount paid on 2019 Notes 3,016 Less current portion of long-term debt 3,241 $858,031 (7)Income Taxes Total income tax expense of $7.5 million, $9.5 million and $3.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, wasallocated to income in each year. Income tax expense consists of the following (amounts in thousands): Years Ended December 31, 2011 2010 2009 Deferred tax expense: Federal taxes $6,344 8,086 3,494 State taxes 1,141 1,402 442 $7,485 9,488 3,936 130 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Total income tax expense differed from the “expected” income tax expense determined by applying the statutory federal income tax rate of 35% asfollows (amounts in thousands): Years Ended December 31, 2011 2010 2009 “Expected” statutory tax expense $4,580 6,455 2,608 State income taxes, net of federal expense 1,141 1,129 456 Income tax effect of nondeductible entertainment expenses 737 775 703 Income tax effect of nondeductible lobbying expenses 327 405 380 Income tax effect of nondeductible officer compensation 758 722 761 Other, net (58) 2 (972) $7,485 9,488 3,936 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2011 and 2010 aresummarized below (amounts in thousands): 2011 2010 Current deferred tax assets, net of current deferred tax liability: Net operating loss carryforwards $7,796 - Compensated absences, accrued for financial reporting purposes 2,664 2,115 Workers compensation and self insurance health reserves, principally due to accrual for financial reporting purposes 1,068 810 Accounts receivable, principally due to allowance for doubtful receivables 2,379 3,770 Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes 131 92 Other 1,517 3,358 Total current deferred tax assets $15,555 10,145 Long-term deferred tax assets: Net operating loss carryforwards $119,762 88,967 Deferred revenue for financial reporting purposes 18,097 19,481 Alternative minimum tax credits 1,895 1,895 Deferred compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes 2,581 2,908 Asset retirement obligations in excess of amounts recognized for tax purposes 6,248 1,885 Share-based compensation expense for financial reporting purposes in excess of amounts recognized for tax purposes 4,394 8,647 Other 469 1,168 Total long-term deferred tax assets 153,446 124,951 Long-term deferred tax liabilities: Plant and equipment, principally due to differences in depreciation 212,234 182,490 Intangible assets 56,508 44,862 Total long-term deferred tax liabilities 268,742 227,352 Net long-term deferred tax liabilities $115,296 102,401 131 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements At December 31, 2011, we have tax net operating loss carryforwards of $311.3 million that will begin expiring in 2019 if not utilized, and alternativeminimum tax credit carryforwards of $1.9 million available to offset regular income taxes payable in future years. Our utilization of remaining acquired net operating loss carryforwards is subject to annual limitationspursuant to Internal Revenue Code section 382 which could reduce or defer the utilization of these losses. Our tax net operating loss carryforwards are summarized below by year of expiration (amounts in thousands):Years ending December 31, Federal State 2019 $17,047 16,474 2020 44,744 43,797 2021 29,614 28,987 2022 14,081 13,788 2023 3,968 3,903 2024 722 - 2025 737 - 2026 150 - 2027 1,010 - 2028 39,879 39,715 2029 48,370 47,558 2031 110,933 109,376 Total tax net operating loss carryforwards $311,255 303,598 Tax benefits associated with recorded deferred tax assets are considered to be more likely than not realizable through taxable income earned incarryback years, future reversals of existing taxable temporary differences, and future taxable income exclusive of reversing temporary differencesand carryforwards. The amount of deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income duringthe carryforward period are reduced.We file federal income tax returns in the U.S. and in various state jurisdictions. We are no longer subject to U.S. or state tax examinations by taxauthorities for years 2007 and earlier except that certain U.S. federal income tax returns for years after 1997 are not closed by relevant statutes oflimitations due to unused net operating losses reported on those income tax returns. We recognize accrued interest on unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses. We didnot have any unrecognized tax benefits as of December 31, 2011, 2010 and 2009, and accordingly, we did not recognize any interest expense. Additionally, we recorded no penalties during the years ended December 31,2011, 2010 and 2009. 132 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsWe did not record any excess tax benefit generated from stock options exercised during the years ended December 31, 2011, 2010 and 2009, since weare in a net operating loss carryforward position and the income tax deduction will not yet reduce income taxes payable. The cumulative excess taxbenefits generated for stock options exercised that have not been recognized is $3.6 million at December 31, 2011.(8)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 between willing parties. AtDecember 31, 2011 and 2010, the fair values of cash and cash equivalents, net receivables, accounts payable, accrued payroll and payroll relatedobligations, accrued interest, accrued liabilities, and subscriber deposits approximate their carrying value due to the short-term nature of thesefinancial instruments. The carrying amounts and approximate fair values of our financial instruments at December 31, 2011 and 2010 follow(amounts in thousands): December 31, December 31, 2011 2010 CarryingAmount Fair Value CarryingAmount Fair Value Current and long-term debt and capital lease obligations $947,326 942,895 872,882 908,286 Other liabilities 106,002 105,173 73,309 72,065 The following methods and assumptions were used to estimate fair values: Current and long-term debt and capital lease obligations: The fair values of our 2021 Notes, 2019 Notes, 2014 Notes, RUS debt, CoBank mortgagenote payable, and capital leases are based upon quoted market prices for the same or similar issues or on the current rates offered to us for the sameremaining maturities. The fair value of our Senior Credit Facility is estimated to approximate the carrying value because this instrument is subject tovariable interest rates. Other Liabilities: Lease escalation liabilities are valued at the discounted amount of future cash flows using quoted market prices on current ratesoffered to us. Deferred compensation liabilities are carried at fair value, which is the amount payable as of the balance sheet date. Asset retirementobligations are recorded at their fair value and, over time, the liability is accreted to its present value each period. Our non-employee share-basedcompensation awards are reported at their fair value at each reporting period.Fair Value MeasurementsAssets measured at fair value on a recurring basis as of December 31, 2011 and 2010 are as follows (amounts in thousands): 133 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Fair Value Measurement at Reporting Date Using December 31, 2011 Assets Quoted Pricesin ActiveMarkets forIdenticalAssets (Level1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs (Level 3) Deferred compensation plan assets (mutual funds) 1,600 - - Total assets at fair value $1,600 - - December 31, 2010 Assets Deferred compensation plan assets (mutual funds) 1,678 - - Total assets at fair value $1,678 - - The valuation of our mutual funds is determined using quoted market prices in active markets utilizing market observable inputs.(9)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 vote per share andeach share of Class B common stock has ten votes per share. Each share of Class B common stock outstanding is convertible, at the option of theholder, into one share of Class A common stock.During the years ended December 31, 2011 and 2010, we repurchased 5.2 million shares and 8.0 million shares of our Class A common stock at acost of $52.6 million and $80.8 million, respectively, pursuant to the Class A and Class B common stock repurchase program authorized by GCI’sBoard of Directors. There were no repurchases during the year ended December 31, 2009. During the years ended December 31, 2011, 2010 and2009, we retired 5.2 million, 8.0 million, and 219,000 shares, respectively, of our Class A common stock. Shared-Based Compensation Our Amended and Restated 1986 Stock Option Plan ("Stock Option Plan"), provides for the grant of options and restricted stock awards(collectively "award") for a maximum of 15.7 million shares of GCI Class A common stock, subject to adjustment upon the occurrence of stock dividends, stock splits, mergers, consolidations or certain other changes in corporatestructure or capitalization. If an award expires or terminates, the shares subject to the award will be available for further grants of awards under the Stock Option Plan. The Compensation Committee of GCI’s Board ofDirectors administers the Stock Option Plan. Substantially all restricted stock awards granted vest over periods of up to three years. Substantially all options vest in equal installments over a period of five years and expire ten yearsfrom the date of grant. The requisite service period of our awards is generally the same as the vesting period. Options granted pursuant to the Stock Option Plan are only exercisable if at the time of exercise the option holder isour employee, non-employee director, or a consultant or advisor working on our behalf. New shares are issued when stock option agreements are exercised or restricted stock awards are granted. We have 4.0 millionshares available for grant under the Stock Option Plan at December 31, 2011. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of our common stock. We usea 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, includingexpected term and expected volatility. We have reviewed our historical pattern of option exercises and have determined that meaningful differences in option exercise activity existed among employee job categories. Therefore, wehave categorized these awards into two groups of employees for valuation purposes. We estimated the expected term of options granted by evaluating the vesting period of stock options, employee’s past exercise and post-vestingemployment 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 the most recentperiod equal to the expected stock option term and evaluated the extent to which available information indicated that future volatility may differ from historical volatility. 134 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements The risk-free interest rate assumption was determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds withmaturities similar to those of the expected term of the award being valued. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Therefore, weassumed an expected dividend yield of zero. The following table shows our assumptions used to compute the share-based compensation expense for stock options granted during the yearsended December 31, 2011, 2010 and 2009: 20111 2010 2009 Expected term (years) N/A 5.0 – 6.5 5.2 – 6.8 Volatility N/A 52.6% –55.8% 53.6% –59.1%Risk-free interest rate N/A 2.0% – 2.9% 1.7% – 3.2% (1) No options were granted during the year ended December 31, 2011. We estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual forfeituresdiffer from those estimates. We record share-based compensation expense only for those awards expected to vest using an estimated forfeiture rate based on our historical pre-vesting forfeiture data. We review our forfeitureestimates annually and adjust our share-based compensation expense in the period our estimate changes. A summary of option activity under the Stock Option Plan as of December 31, 2011 and changes during the year then ended is presented below(share amounts in thousands): Weighted Weighted Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Shares Price Term (in thousands) Outstanding at January 1, 2011 1,249 $7.08 Exercised (162) $5.83 Outstanding at December 31, 2011 1,087 $7.27 3.6 years $2,830 Exercisable at December 31, 2011 845 $7.68 2.4 years $1,871 The weighted average grant date fair value of options granted during the years ended December 31, 2010 and 2009 was $2.84 per share and $3.49per share, respectively. There were no options granted during the year ended December 31, 2011. The total fair value of options vesting during the years ended December 31, 2011, 2010 and 2009, was $379,000, $377,000and $110,000, respectively. The total intrinsic values, determined as of the date of exercise, of options exercised in the years ended December 31, 2011, 2010 and 2009, were $287,000, $511,000 and $120,000, respectively. Wereceived $947,000, $659,000 and $423,000 in cash from stock option exercises in the years ended December 31, 2011, 2010 and 2009, respectively. A summary of nonvested restricted stock award activity under the Stock Option Plan for the year ended December 31, 2011, follows (shareamounts in thousands): 135 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Weighted Average Grant Date Shares Fair Value Nonvested at January 1, 2011 2,196 $5.29 Granted 460 $12.08 Vested (1,080) $5.84 Forfeited (15) $6.91 Nonvested at December 31, 2011 1,561 $6.90 The following is a summary of our share-based compensation expense for the years ended December 31, 2011, 2010 and 2009 (amounts inthousands): 2011 2010 2009 Employee share-based compensation expense $7,243 5,385 5,709 Expense reversal for performance based options and awards not expected to vest - - (2,134)Adjustment to fair value of liability classified awards (623) 1,348 (771) Total share-based compensation expense $6,620 6,733 2,804 Share-based compensation expense is classified as Selling, General and Administrative Expense in our consolidated Income Statement. Unrecognizedshare-based compensation expense was $5.2 million relating to 1.6 million restricted stock awards and $343,000 relating to 242,000 unvested stockoptions as of December 31, 2011. We expect to recognize share-based compensation expense over a weighted average period of 0.9 years for stockoptions and 1.1 years for restricted stock awards.On August 6, 2009, we filed a Tender Offer Statement on Schedule TO (“Exchange Offer”) with the SEC. The Exchange Offer was an offer by usto eligible officers, employees and stakeholders, other than officers of GCI who also serve on GCI’s Board of Directors (“Participants”) to exchange,on a grant-by-grant basis, their outstanding eligible stock options that were granted under our Stock Option Plan, whether vested or unvested, forshares of restricted stock of GCI Class A common stock that we granted under the Stock Option Plan (“Restricted Stock”). Generally, eligibleoptions included all options issued pursuant to the Stock Option Plan between January 1, 1999, and February 15, 2009, excluding any optionsthat vest based on EBITDA performance (“Eligible Options”). We accepted for cancellation, Eligible Options to purchase 5,241,700 shares of GCIClass A common stock from 166 Participants, representing approximately 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. We issued 1,908,890 shares of Restricted Stock to Participants, with a fair value of $7.1 million as ofthe date of the exchange, in each case, 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 eligible options vested onDecember 20, 2011 with the remainder vesting on February 28, 2012. The number of shares of Restricted Stock that were offered in exchange foreach eligible option was equal to the lesser of (i) a number of shares of Restricted Stock having a fair value equal to 100% of the fair value of theeligible options exchanged for shares of Restricted Stock, or (ii) a number of shares of Restricted Stock equal to 40% of the number of shares issuablepursuant to the eligible options surrendered.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. The compensationexpense for the incremental difference between the fair value of the Restricted Stock and the fair value of the original options on the date ofmodification, reflecting the current facts and circumstances on the modification date, will be amortized over the vesting period of the RestrictedStock. The incremental share-based compensation expense related to the modification, net of estimated forfeitures, is $940,000, of which $378,000,$378,000 and $122,000 was expensed in the years ending December 31, 2011, 2010 and 2009, respectively. We used a lattice model to value theoptions exchanged for Restricted Stock for purposes of determining our incremental share-based compensation expense. 136 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsEmployee Stock Purchase PlanIn 1986, we adopted an Employee Stock Purchase Plan (“GCI 401(k) Plan”) qualified under Section 401 of the Internal Revenue Code of 1986. TheGCI 401(k) Plan provides for acquisition of GCI’s Class A common stock at market value as well as various mutual funds. The GCI 401(k) Planpermits each employee who has completed one year of service to elect to participate. Eligible employees could elect to reduce their compensation by upto 50 percent of such compensation (subject to certain limitations) up to a maximum of $16,500 during the year ended December 31,2011. Contributions may be made on either a pretax or Roth basis.Eligible employees were allowed to make catch-up contributions of no more than $5,500 during the year ended December 31, 2011 and will be ableto make such contributions limited to $5,500 during the year ended December 31, 2012. We do not match employee catch-up contributions.We may match up to 100% of employee salary reductions in any amount, decided by GCI’s Board of Directors each year, but not more than 10percent of any one employee’s compensation will be matched in any year. Matching contributions vest over the initial six years of employment. Forthe years ended December 31, 2011 and 2010, the combination of employee and matching contributions (pre-tax contributions and Roth basis) couldnot exceed the lesser of 100 percent of an employee’s compensation or $33,000 excluding catch-up contributions. For the year ended December 31,2009, the combination of pre-tax contributions, after tax contributions and matching contributions could not exceed the lesser of 100 percent of anemployee’s compensation or $49,000 excluding catch-up contributions.Employee contributions receive up to 100% matching and employees self-direct their matching investment. Our matching contributions allocated toparticipant accounts totaled $7.1 million, $6.9 million and $6.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. Weused cash to fund all of our employer-matching contributions during the years ended December 31, 2011, 2010 and 2009.(10)Industry Segments Data Our reportable segments are business units that offer different products and are each managed separately. A description of our reportable segments follows: 137 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsConsumer - 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 global businesses,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 rural Alaska. Corporate related expenses including engineering, information technology, accounting, legal and regulatory, human resources, and other generaland administrative expenses for the years ended December 31, 2011, 2010 and 2009, are allocated to our segments using segment margin for the years ended December 31, 2010, 2009 and 2008, respectively. Bad debt expensefor the years ended December 31, 2011, 2010 and 2009, is allocated to our segments using a combination of specific identification and allocations based upon segment revenue for the years ended December 31, 2011, 2010and 2009, respectively. Corporate related expenses and bad debt expense are specifically identified for our Regulated Operations segment and therefore, are not included in the allocations. We evaluate performance and allocate resources based on earnings before depreciation and amortization expense, net interest expense, income taxes,share-based compensation expense, accretion expense, loss attributed to non-controlling interest, and non-cash contribution adjustment (“Adjusted EBITDA”). Management believes that this measure is useful toinvestors and other users of our financial information in evaluating operating profitability as an analytical indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current orprojected EBITDA are used to estimate current or prospective enterprise value. The accounting policies of the reportable segments are the same as those described in Note 1, “Business and Summary of SignificantAccounting Policies” of this Form 10-K. Intersegment sales are recorded at cost plus an agreed upon intercompany profit. We earn all revenues through sales of services and products within the United States. All of our long-lived assets are located within the UnitedStates of America, except approximately 82% of our undersea fiber optic cable systems which transit international waters and all of our satellite transponders. Summarized financial information for our reportable segments for the years ended December 31, 2011 2010 and 2009 follows (amounts inthousands): 138 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Consumer NetworkAccess Commercial ManagedBroadband RegulatedOperations TotalReportableSegments 2011 Revenues: Intersegment$- - 5,710 - 607 6,317 External 352,574 105,456 136,101 63,248 22,002 679,381 Total revenues 352,574 105,456 141,811 63,248 22,609 685,698 Cost of Goods Sold: Intersegment - 600 2,283 - 561 3,444 External 110,693 28,744 65,170 17,021 5,771 227,399 Total Cost of Goods Sold 110,693 29,344 67,453 17,021 6,332 230,843 Contribution: Intersegment - (600) 3,427 - 46 2,873 External 241,881 76,712 70,931 46,227 16,231 451,982 Total contribution 241,881 76,112 74,358 46,227 16,277 454,855 Less SG&A 134,951 27,837 41,085 18,246 13,402 235,521 Plus share-based compensation 3,457 1,214 1,276 657 16 6,620 Plus loss attributable to non-controllinginterest - - - 238 - 238 Less loss attributable to equity investment - - - (297) - (297)Plus accretion 347 120 100 52 - 619 Adjusted EBITDA $110,734 50,209 31,222 28,631 2,845 223,641 2010 Revenues: Intersegment $- - 5,442 - 176 5,618 External 342,898 107,227 128,458 49,962 22,705 651,250 Total revenues 342,898 107,227 133,900 49,962 22,881 656,868 Cost of Goods Sold: Intersegment - 600 2,515 - 176 3,291 External 104,481 25,030 59,885 14,012 4,409 207,817 Total Cost of Goods Sold 104,481 25,630 62,400 14,012 4,585 211,108 Contribution: Intersegment - (600) 2,927 - - 2,327 External 238,417 82,197 68,573 35,950 18,296 443,433 Total contribution 238,417 81,597 71,500 35,950 18,296 445,760 Less SG&A 127,130 33,566 38,838 17,338 11,936 228,808 Plus share-based compensation 3,361 1,598 1,117 651 6 6,733 Plus non-cash contribution expense (81) (41) (24) (14) - (160)Plus accretion 149 71 43 26 - 289 Adjusted EBITDA $114,716 50,259 30,871 19,275 6,366 221,487 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 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  139 A reconciliation of reportable segment revenues to consolidated revenues follows (amounts in thousands):Years Ended December 31, 2011 2010 2009 Reportable segment revenues $685,698 656,868 602,151 Less intersegment revenues eliminated in consolidation 6,317 5,618 6,340 Consolidated revenues $679,381 651,250 595,811 A reconciliation of reportable segment Adjusted EBITDA to consolidated income before income taxes follows (amounts in thousands):Years Ended December 31, 2011 2010 2009 Reportable segment Adjusted EBITDA $223,641 221,487 192,908 Less depreciation and amortization expense (125,742) (126,114) (123,362)Less share-based compensation expense (6,620) (6,733) (2,804)Plus (less) non-cash contribution expense - 160 (640)Less net loss attributable to non-controlling interest (238) - - Plus net loss attributable to equity investment 297 - - Less accretion expense (619) (289) - Consolidated operating income 90,719 88,511 66,102 Less other expense, net (77,633) (70,068) (58,650)Consolidated income before income tax expense $13,086 18,443 7,452 Assets at December 31, 2011, 2010 and 2009, and capital expenditures for the years ended December 31, 2011, 2010 and 2009 are not allocated toreportable segments as our Chief Operating Decision Maker does not review a balance sheet or capital expenditures by segment to make decisionsabout resource allocations or to evaluate segment performance.We did not have any major customers for the years ended December 31, 2011 and 2010. We earned revenues included in the Network Accesssegment from a major customer for the year ended December 31, 2009, net of discounts, of $64.5 million. As a percentage of total revenues, ourmajor customer’s revenues totaled 11% for the year ended December 31, 2009. 140 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements(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. The leased assetwas capitalized in 1991 at the owner’s cost of $900,000 and the related obligation was recorded. The lease agreement was amended in April 2008and our existing capital lease asset and liability increased $1.3 million to record the extension of this capital lease. The amended lease terminates onSeptember 30, 2026.In January 2001 we entered into an aircraft operating lease agreement with a company owned by our President and CEO. The lease was amendedseveral times, most recently on May 9, 2011. The amended lease agreement added the lease of a second aircraft. The lease term of the originalaircraft may be terminated at any time upon 90 days written notice. The monthly lease rate of the original aircraft is $45,000. The lease term of thesecond aircraft may be terminated at any time upon 12 months’ written notice. The monthly lease rate of the second aircraft is $132,000. In 2001,we paid a deposit of $1.5 million in connection with the lease. The deposit will be repaid to us no later than six months after the agreementterminates.(12)Non-controlling Interest On August 30, 2011, we entered into an arrangement under the NMTC program with US Bancorp to help fund a $34.5 million project to extendterrestrial broadband service for the first time to rural Northwestern Alaska communities via a high capacity hybrid fiber optic and microwave network. When completed, the project, called TERRA-Northwest (“TERRA-NW”), will connect to the TERRA-SW network and provide a high capacity backbone connection from the served communities to the Internet. Please refer to Note 13, Commitments and Contingencies, for more informationabout TERRA-SW. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) to induce capital investment in qualified lower income communities. The Act permits taxpayers to claimcredits against their federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified tomake qualified low-income community investments. In connection with the NMTC transaction we loaned $58.3 million to TIF, a special purpose entity created to effect the financing arrangement, at1% interest due August 30, 2041. Simultaneously, US Bancorp invested $22.4 million in TIF, and as such, is entitled to substantially all of the benefits derived from the NMTCs. TIF then contributed US Bancorp’scontribution and the loan proceeds to certain CDEs. The CDEs, in turn, loaned the $76.8 million in funds less payment of placement fees, at interest rates varying from 1% to 3.96%, to Unicom, our wholly owned subsidiary, as partialfinancing for TERRA-NW. The loan proceeds to Unicom, net of syndication and arrangement fees, are restricted for use on TERRA-NW. Restricted cash of $15.9 million held by Unicom at December 31, 2011, is included inour Consolidated Balance Sheet. We plan to begin construction on TERRA-NW in 2012 and expect to complete the project in 2014 or earlier if possible. This transaction includes a put/call provision whereby we may be obligated or entitled to repurchase US Bancorp’s interest in TIF. We believe thatUS Bancorp will exercise the put option in August 2018 at the end of the compliance period. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. We are requiredto be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized by USBancorp. We have indemnified US Bancorp for any loss or recapture of NMTCs until such time as our obligation to deliver tax benefits is relieved. There have been no credit recaptures as of December 31, 2011. Thevalue attributed to the put/call is nominal. We have determined that TIF is a VIE. The consolidated financial statements of TIF include the CDEs discussed above. The ongoing activities ofthe VIE – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of theVIE. Management considered the contractual arrangements that obligate us to deliver tax benefits and provide various other guarantees to US Bancorp; US Bancorp’s lack of a material interest in the underlying economics of the project;and the fact that we are obligated to absorb losses of the VIE. We concluded that we are the primary beneficiary and consolidated the VIE in accordance with the accounting standard for consolidation. 141 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements US Bancorp’s contribution, net of syndication fees and other direct costs incurred in structuring the arrangement, is included in Non-controllingInterest on the Consolidated Balance Sheet. Incremental costs to maintain the structure during the compliance period are recognized as incurred to selling, general and administrative expense. The following table summarizes the impact of the VIE consolidated as of December 31, 2011 (amounts in thousands): Assets Equity Carrying ValueClassification Carrying ValueClassification$ 15,910 Restricted cash$ 16,308 Non-controlling interest 711 Construction in progress 313 Retained earnings attributable to General Communication,Inc. common stockholders$ 16,621 $ 16,621 (13)Commitments and ContingenciesOperating Leases as LesseeWe lease business offices, have entered into site lease agreements and use satellite transponder and fiber capacity and certain equipment pursuant tooperating lease arrangements. Many of our leases are for multiple years and contain renewal options. Rental costs under such arrangementsamounted to $36.3 million, $31.0 million and $29.5 million for the years ended December 31, 2011, 2010 and 2009, 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 as further describedin Note 11, Related Party Transactions.In 2006, through our subsidiary GCI Communication Corp., we entered into a capital lease agreement for transponder capacity on Intelsat, Ltd.’s(“Intelsat”) Galaxy 18 spacecraft that successfully launched in 2008. We are also leasing capacity on the Horizons 1 satellite, which is owned jointlyby Intelsat and JSAT International, Inc. The Intelsat Galaxy 18 C-band and Ku-Band transponders are being leased over an expected term of 14years. The present value of the lease payments, excluding telemetry, tracking and command services and back-up protection, was $98.6 million.A summary of future minimum lease payments follows (amounts in thousands): 142 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsYears ending December 31: Operating Capital 2012 $25,397 11,732 2013 22,590 11,742 2014 20,522 11,752 2015 19,413 11,761 2016 16,742 11,771 2017 and thereafter 73,276 66,729 Total minimum lease payments $177,940 125,487 Less amount representing interest 39,433 Less current maturity of obligations under capital leases 5,556 Long-term obligations under capital leases, excluding current maturity $80,498 The leases generally provide that we pay the taxes, insurance and maintenance expenses related to the leased assets. Several of our leases includerenewal options, escalation clauses and immaterial amounts of contingent rent expense. We expect that in the normal course of business leases thatexpire 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 these leases orservice arrangements, we received up-front cash payments. We have $45.8 million and $50.1 million in deferred revenue at December 31, 2011 and2010 respectively, representing cash received from customers for which we will recognize revenue in the future. The arrangements under theseoperating lease or service arrangements expire on various dates through 2029. The revenue will be recognized over the term of the agreements. A summary of minimum future lease or service arrangement cash receipts including IRUs and the provision of certain other service are as follows(amounts in thousands):Years ending December 31, 2012 $6,932 2013 6,833 2014 6,235 2015 5,008 2016 4,948 2017 and thereafter 31,995 Total minimum future service revenues $61,951 The cost of assets that are leased to customers is $258.6 million and $256.2 million as of December 31, 2011 and 2010, respectively. The carryingvalue of assets leased to customers is $153.1 million and $159.4 million as of December 31, 2011 and 2010, respectively.Equipment Purchase ObligationsWe have a non-cancelable agreement to purchase wireless equipment of $8.6 million, $7.0 million and $8.1 million during the years endingDecember 31, 2012, 2013 and 2014, respectively.Guaranteed Service LevelsCertain customers have guaranteed levels of service with varying terms. In the event we are unable to provide the minimum service levels we mayincur penalties or issue credits to customers. 143 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements Self-Insurance Through December 31, 2011, we were self-insured for losses and liabilities related primarily to health and welfare claims up to $500,000 per incidentand $2.0 million per year per beneficiary above which third party insurance applied. These limits will remain the same for 2012. A reserve of $1.6million was recorded at December 31, 2011 and 2010, 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 up to $500,000 per incident for losses and liabilitiesrelated to workers’ compensation claims in Alaska and have an insurance policy for any losses in excess of $500,000 per incident. A reserve of$1.9 million and $1.8 million was recorded at December 31, 2011 and 2010, respectively, to cover estimated reported losses and estimated expensesfor open and active claims. $1.1 million and $1.3 million was included in this reserve for the year ended December 31, 2011 and 2010,respectively, for the GCI-owned aircraft accident further discussed below. Actual losses will vary from the recorded reserves. While we use what webelieve are pertinent information and factors in determining the amount of reserves, future additions to the reserves may be necessary due to changesin the information and factors used. We are self-insured for damage or loss to certain of our transmission facilities, including our buried, undersea, and above-ground transmission lines.If we become subject to substantial uninsured liabilities due to damage or loss to such facilities, our financial position, results of operations orliquidity 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 in the normalcourse of business. While the ultimate results of these items cannot be predicted with certainty we do not expect, at this time, that the resolution ofthem will have a material adverse effect on our financial position, results of operations or liquidity. In addition we are involved in the followingmatters:· In September 2008, the FCC's Office of Inspector General ("OIG") initiated an investigation regarding Alaska DigiTel LLC’s (“AlaskaDigiTel”) compliance with program rules and requirements under the Lifeline Program. The request covered the period beginning January 1,2004 through August 31, 2008 and related to 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 interest onAugust 18, 2008 and was subsequently merged with one of our wholly owned subsidiaries in April 2009. Prior to August 18, 2008, ourcontrol over the operations of Alaska DigiTel was limited as required by the FCC upon its approval of our initial acquisition completed inJanuary 2007. We responded to this request on behalf of Alaska DigiTel and the GCI companies as affiliates. On January 18, 2011 wereached an agreement with the FCC and the Department of Justice to settle the matter, which required us to contribute $1.6 million to theUnited States Treasury and granted us a broad release of claims including those under the False Claims Act. The $1.6 million contribution,of which $154,000, $661,000 and $741,000 were recognized in selling, general and administrative expense in the income statements in theyears ending December 31, 2010, 2009 and 2008, respectively, was paid in January 2011; and· In August 2010, a GCI-owned aircraft was involved in an accident resulting in five fatalities and injuries to the remaining four passengers onboard. We had aircraft and liability insurance coverage in effect at the time of the accident. As of December 31, 2011, all claims paid outhave been covered by insurance and were recorded net of these recoveries in our Consolidated Income Statements. While some of the claimshave been resolved, we cannot predict the likelihood or nature of the total remaining claims, including environmental remediation, related tothe accident.Universal ServiceAs an ETC, we receive support from the USF to support the provision of wireline local access and wireless service in high cost areas. On November29, 2011, the FCC published the High Cost Order which divided support to Alaska between Urban and Remote areas. Support for CETCs servingUrban areas that generally include Anchorage, Fairbanks, and Juneau will follow national reforms, capping support per provider per service area asof January 1, 2012, and commencing a five-step phase-down on July 1, 2012. In addition to broader reforms, the FCC tailored revisionsspecifically for CETCs serving Remote Alaska, intended to address the unique challenges for serving these areas. Support to these locations will becapped and distributed on a per-line basis until the later of July 1, 2014, or the implementation of a successor funding mechanism. A furtherrulemaking to consider successor funding mechanisms is underway. We cannot predict at this time the outcome of this proceeding or its effect onRemote high cost support available to us, but our revenue for providing local services in these areas would be materially adversely affected by asubstantial reduction of USF support. 144 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsCable Service Rate ReregulationFederal law permits regulation of basic cable programming services rates. However, Alaska law provides that cable television service is exempt fromregulation by the RCA unless 25% of a system’s subscribers request such regulation by filing a petition with the RCA. At December 31, 2011, onlythe Juneau system is subject to RCA regulation of its basic service rates. No petition requesting regulation has been filed for any other system. TheJuneau system serves 7% of our total basic service subscribers at December 31, 2011.Code Division Multiple Access (“CDMA”) Network ExpansionDuring 2007 GCI signed an agreement with a customer to build-out our CDMA network with various milestones through 2012 to provide expandedroaming area coverage. If we fail to meet the schedule, the customer has the right to terminate the agreement and we may be required to pay up to$16.0 million as liquidated damages. We expect to meet the deadlines imposed by the build-out schedule and therefore expect our expenditures toresult in an expansion of our wireless facilities rather than payment of the liquidated damages.TERRA-SouthwestIn January 2010 the RUS approved our wholly owned subsidiary, UUI’s, application for an $88.2 million loan/grant combination to extendterrestrial broadband service for the first time to Bristol Bay and the Yukon-Kuskokwim Delta, an area in Alaska roughly the size of the state ofNorth Dakota. UUI began construction on TERRA-SW in 2010 and began offering service on this new facility on December 30, 2011. TERRA-SW is now able to serve over 9,000 households and over 700 businesses in the 65 covered communities, as well as numerous public/non-profit/private community anchor institutions and entities, such as regional health care providers, school districts, and other regional and AlaskaNative organizations.TERRA-NorthwestIn August 2011, we entered into a financing arrangement under the NMTC program that provided $16.5 million in net cash to help fund theextension of terrestrial broadband service for the first time to rural Northwestern Alaska communities via a high capacity hybrid fiber optic andmicrowave network. When completed, the project, called TERRA-NW, will connect to the TERRA-SW network and provide a high capacitybackbone connection from the served communities to the Internet.In September 2011 the RCA approved our application for a $5.3 million grant to help fund TERRA-NW. The grant was increased to $6.3 millionin January 2012. The NMTC arrangement discussed above and this grant award partially fund backbone network facilities that we would nototherwise be able to construct within our return-on-investment requirements. As a requirement of the funding contracts, we have guaranteedcompletion of the first phase of the project by December 31, 2012, and completion of the second phase by December 31, 2014. We plan to fund anadditional $12.7 million for TERRA-NW and begin construction in 2012 and expect to complete the project in 2014 or earlier if possible.(14)Selected Quarterly Financial Data (Unaudited)The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2011 and 2010 (amounts in thousands,except per share amounts): 145 GENERAL COMMUNICATION, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements First Second Third Fourth Quarter Quarter Quarter Quarter 2011 Total revenues $164,777 168,089 177,703 168,812 Operating income $20,408 22,446 31,884 15,981 Net income (loss) attributable to GCI $1,485 (1,957) 7,210 (899)Basic net income (loss) attributable to GCI per common share $0.03 (0.04) 0.16 (0.02)Diluted net income (loss) attributable to GCI per common share1 $0.03 (0.04) 0.15 (0.03) 2010 Total revenues $152,419 162,326 171,509 164,996 Operating income $19,129 25,048 30,203 14,131 Net income (loss) attributable to GCI $1,674 1,930 7,583 (2,232)Basic net income (loss) attributable to GCI per common share $0.03 0.04 0.14 (0.05)Diluted net income (loss) attributable to GCI per common share $0.03 0.04 0.14 (0.05) 1 Due to rounding, the sum of quarterly diluted net income (loss) attributable to GCI per common share amounts does not agree to total year diluted netincome attributable to GCI per common share. During the fourth quarter of 2011, the FCC published its High Cost Order (please refer to Note 1(t), Revenue Recognition, for moreinformation.) The High Cost Order program changes decreased our revenue for the fourth quarter $3.5 million. (15)Subsequent EventOn February 6, 2012, the FCC released its Report and Order and Further Notice of Proposed Rulemaking to comprehensively reform and modernizethe USF’s Lifeline program. The Lifeline program is administered by the USAC and is designed to ensure that quality telecommunications servicesare available to low-income customers at just, reasonable, and affordable rates. We participate in the Lifeline program and recognized $17.2 millionin Lifeline program support revenue during the year ended December 31, 2011. Following are the significant reforms included in the order:· The order adopted on an interim basis a flat rate of $9.25 to replace the support previously available under Tier I through Tier III supportmechanisms. The replacement support reduces the wireless subscriber per line support $0.75 which we expect will result in a $300,000reduction in our revenue for the year ended December 31, 2012. The FCC intends to further investigate whether this support amount isreasonable over the long term in the further rulemaking.· The order adopted a requirement for annual recertification of all Lifeline subscribers enrolled as of June 1, 2012 to be completed by the end of2012. We are evaluating this requirement and possible processes and cannot predict whether this new rule will have a material impact on ourincome statement, financial position or cash flows.· The order adopted a “one per household” rule with “household” defined as an “economic unit.” We do not expect this new rule to have a materialimpact on our income statement, financial position or cash flows.· The order adopted a requirement for biennial audits for all ETCs receiving more than $5.0 million annually from Lifeline. This reform appliesto us and will require us to hire an independent audit firm to assess our overall compliance with the program’s requirements.The order adopted several other reforms but they are expected to have an insignificant or no impact on our income statement, financial position orcash flows. 146 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.Description3.1 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, to the Amended and Restated 1986Stock 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 dated January 1, 1997 (13)10.6 Order approving Application for a Certificate of Public Convenience and Necessity to operate as a Telecommunications (IntrastateInterexchange Carrier) Public Utility within Alaska (2)10.13 MCI Carrier Agreement between MCI Telecommunications Corporation and General Communication, Inc. dated January 1, 1993 (5)10.14 Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation and General Communication, Inc. datedJanuary 1, 1993 (5)10.15 Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, dated August 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. and GCI Communication Corp. (7)10.25 Licenses: (3)10.25.1214 Authorization10.25.2International Resale Authorization10.25.3Digital Electronic Message Service Authorization10.25.11Certificate 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 Alaska Cablevision, Inc. (8)10.31 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and McCaw/Rock Homer Cable System, J.V. (8)10.32 Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., and McCaw/Rock Seward Cable System, J.V.(8)10.33 Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, among General Communication, Inc., and thePrime Sellers Agent (9)10.34 First Amendment to Asset Purchase Agreement, dated October 30, 1996, among General Communication, Inc., ACNFI, ACNJI andACNKSI (9)10.36 Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order U-96-89(5) dated January 14, 1997 (12) 147 Exhibit No. Description10.37 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)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. and MCI Telecommunications Corporationdated April 1, 1996 (14)10.46 Service Mark License Agreement between MCI Communications Corporation and General Communication, 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. and GCI 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 General Communication, Inc. (2)10.54 Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings dated September 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. and John M. Lowber dated July 1992 (13)10.59 Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall dated August 15, 1994 (13)10.60 Transponder Lease Agreement between General Communication Incorporated and Hughes Communications Satellite Services, Inc., executedAugust 8, 1989 (6)10.61 Addendum to Galaxy X Transponder Purchase Agreement between GCI Communication Corp. and Hughes Communications Galaxy, Inc.dated August 24, 1995 (13)10.62 Order Approving Application, Subject to Conditions; Requiring Filing; and Approving Proposed Tariff on an Inception Basis, datedFebruary 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 System Partnership Contract Variation No. 1 dated asof December 1, 1997. (15)10.71 Third Amendment to Contract for Alaska Access Services between General Communication, Inc. and MCI TelecommunicationsCorporation dated February 27, 1998 (16) #10.80 Fourth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI WorldCom dated January 1, 1999. (17) #10.89 Fifth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI WorldCom Network Services, Inc., formerly known as MCI Telecommunications Corporation datedAugust 7, 2000 # (18) 148 Exhibit No. Description10.90 Sixth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI WorldCom Network Services, Inc., formerly known as MCI Telecommunications Corporation datedFebruary 14, 2001 # (18)10.91 Seventh Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI WorldCom Network Services, Inc., formerly known as MCI Telecommunications Corporation datedMarch 8, 2001 # (18)10.100 Contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication, Inc. and its whollyowned subsidiary GCI Communication Corp. dated March 12, 2002 # (21)10.102 First Amendment to Lease Agreement dated as of September 2002 between RDB Company and GCI Communication Corp. as successor ininterest to General Communication, Inc. (22)10.103 Agreement and plan of merger of GCI American Cablesystems, Inc. a Delaware corporation and GCI Cablesystems of Alaska, Inc. anAlaska corporation each with and into GCI Cable, Inc. an Alaska corporation, adopted as of December 10, 2002 (22)10.104 Articles of merger between GCI Cablesystems of Alaska, Inc. and GCI Cable, Inc., adopted as of December 10, 2002 (22)10.105 Aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560 Company, Inc., an Alaska corporation,dated as of January 22, 2001 (22)10.106 First amendment to aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560 Company, Inc., anAlaska 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 GCICommunication Corp., and MCI WorldCom Network Services, 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 Pledge Agreement (24)10.113 Indenture dated as of February 17, 2004 between GCI, Inc. and The Bank of New York, as trustee (24)10.114 Registration Rights Agreement dated as of February 17, 2004, among GCI, Inc., and Deutsche Bank Securities Inc., Jefferies & Company,Inc., Credit Lyonnais Securities (USA), Inc., Blaylock & Partners, L.P., Ferris, Baker Watts, Incorporated, and TD Securities (USA),Inc., as Initial Purchasers (24)10.121 First amendment to contract for Alaska Access Services between Sprint Communications Company L.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 Communications Company L.P. and General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp. dated December 31, 2003 (26)10.123 Third amendment to contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp. dated February 19, 2004 # (26)10.124 Fourth amendment to contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication,Inc. and its wholly owned subsidiary GCI Communication 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 of General Communication, Inc. effectiveas of February 3, 2005) (27)10.128 Fifth amendment to contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication, Inc.and its wholly owned subsidiary GCI Communication Corp. dated January 22, 2005 # (27)10.129 Ninth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI WorldCom Network Services, Inc. # (28)10.130 Amended and Restated Credit Agreement among GCI Holdings, Inc. and Calyon New York Branch as Administrative Agent, Sole LeadArranger, and Co-Bookrunner, The Initial Lenders and Initial Issuing Bank Named Herein as Initial Lenders and Initial Issuing Bank,General Electric Capital Corporation as Syndication Agent, and Union Bank of California, N.A., CoBank, ACB, CIT Lending ServicesCorporation and Wells Fargo Bank, N.A. as Co-Documentation Agents, dated as of August 31, 2005 (28)10.131 Amended and Restated 1986 Stock Option Plan of General Communication, Inc. as of June 7, 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 GCICommunication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCI NetworkServices, Inc., which was formerly known as MCI WorldCom Network Services) # (31)10.136 Reorganization Agreement among General Communication, Inc., Alaska DigiTel, LLC, The Members of Alaska DigiTel, LLC, AKDHoldings, LLC and The Members of Denali PCS, LLC dated as of June 16, 2006 (Nonmaterial schedules and exhibits to theReorganization Agreement have been omitted pursuant 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.) # (32)10.137 Second Amended and Restated Operating Agreement of Alaska DigiTel, LLC dated as of January 1, 2007 (We agree to furnishsupplementally to the Commission upon request a copy of any omitted schedule or exhibit.) # (32)10.138 Sixth amendment to contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp. dated September 20, 2006 (33)10.139 Seventh amendment to contract for Alaska Access Services between Sprint Communications Company L.P. and General Communication,Inc. and its wholly owned subsidiary GCI Communication Corp. dated January 17, 2007 # (33)10.140 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 GCICommunication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCI NetworkServices, 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., GCI Communication Corp., GCI Cable,Inc., GCI Fiber Communication Co., Potter View Development Co., Inc., and Alaska United Fiber System Partnership, GCI, Inc., thebanks, financial institutions, and other lenders party hereto and Calyon New York Branch as Administrative Agent, dated as of September14, 2007 (36)10.143 Joinder Agreement dated as of September 28, 2007 among BNP Paribas, U.S. Bank National Association, GCI Holdings, Inc., GCICommunication Corp., GCI Cable, Inc., GCI Fiber Communication Co., Potter View Development Co., Inc., and Alaska United FiberSystem Partnership, 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. And WirelessCo L.P. # (37) 149 Exhibit No. Description10.145 CDMA Build-out Agreement dated as of October 30, 2007 between Alaska DigiTel, LLC. and WirelessCo L.P. (Nonmaterial schedules andexhibits to the Reorganization Agreement have 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.) # (37)10.146 Long-term de Facto Transfer Spectrum Leasing agreement between Alaska DigiTel, LLC. and SprintCom, Inc. # (37)10.147 Twelfth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCI NetworkServices, Inc., which was formerly known as MCI WorldCom Network Services) dated November 19, 2007 (Nonmaterial schedules andexhibits to the Reorganization Agreement have 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.) # (37)10.148 Stock Purchase Agreement dated as of October 12, 2007 among GCI Communication Corp., United Companies, Inc., Sea LionCorporation and Togiak Natives LTD. (Nonmaterial schedules and exhibits to the Reorganization Agreement have been omitted pursuant toItem 601b.2 of Regulation S-K. We agree to furnish supplementally to the Commission upon request a copy of any omitted schedule orexhibit.) (37)10.149 Fourth Amendment to the Amended and Restated Credit Agreement dated as of May 2, 2008 by and among GCI Holdings, Inc., the otherparties thereto and Calyon New York Branch, as administrative 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 GCI Communication Corp. as successor ininterest 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 of General Communication, Inc. effectiveas of April 27, 2007) (39)10.153 Thirteenth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiaryGCI Communication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCINetwork 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 subsidiaryGCI Communication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCINetwork 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, dated February 27, 1998 (41) #10.157 Fourth Amendment to Contract for Alaska Access Services between the Company and Verizon, dated January 1, 1999 (41) #10.158 Fifth Amendment to the Amended and Restated Credit Agreement dated as of October 17, 2008 by and among Holdings, Inc. the otherparties thereto and Calyon New York Branch, as administrative 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 the Company, the Employer and Mr. Duncan(43)10.161 First Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated February 15, 2008 # (44)10.162 Second Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated April 9, 2008 # (44)10.163 Third Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated June 4, 2008 # (44)10.164 Fourth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated June 4, 2008 # (44)10.165 Fifth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated September 30, 2008 # (44)10.166 Sixth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated October 31, 2008 # (44) 150 Exhibit No. Description10.167 Seventh Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated November 6, 2008 # (44)10.168 Eighth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication Corp. dated June 8, 2009 # (44)10.169 Fifteenth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiary GCICommunication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCI NetworkServices, 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 GCI Holdings, Inc., the other parties theretoand 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 GCICommunication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCI NetworkServices, Inc., which was formally known as MCI WorldCom Network Services) dated October 13, 2009 (46)10.172 Seventeenth Amendment to Contract for Alaska Access Services between General Communication, Inc. and its wholly owned subsidiaryGCI Communication Corp., and MCI Communications Services, Inc. d/b/a Verizon Business Services (successor-in-interest to MCINetwork Services, Inc., which was formally known as MCI WorldCom Network Services) dated December 8, 2009 # (46)10.173 Audit Committee Charter (as revised by the Board of Directors of General Communication, Inc. effective January 1, 2010) (47)10.174 Nominating and Corporate Governance Committee Charter (as revised by the Board of Directors of General Communication, Inc. effectiveas of January 1, 2010) (47)10.175 Ninth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication, Corp. dated June 29, 2010 # (47)10.176 Stock Purchase Agreement between General Communication, Inc. and Arctic Slope Regional Corporation, an Alaska corporation, dated asof October 21, 2010 (48)10.177 Description of Incentive Compensation Guidelines for Named Executive Officers (49)10.178 Amended and restated aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560 Company, Inc., anAlaska corporation, dated as of February 25, 2005 (55)10.179 First amendment to the amended and restated aircraft lease agreement between GCI Communication Corp., and Alaska corporation and 560Company, Inc., an Alaska corporation, dated as of December 27, 2010 (55)10.180Tenth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication, Corp. dated September 24, 2010 # (55)10.181 Eleventh Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication, Corp. dated September 23, 2010 # (55)10.182 Twelfth Amendment to the Full-Time Transponder Capacity Agreement (Pre-Launch) between Intelsat Corporation, formerly known asPanAmSat Corporation and GCI Communication, Corp. dated November 5, 2010 # (55)10.183 Reorganization Agreement among General Communication, Inc., Alaska DigiTel, LLC, The Members of Alaska DigiTel, LLC, AKDHoldings, LLC and The Members of Denali PCS, LLC dated as of June 16, 2006 (Nonmaterial schedules and exhibits to theReorganization Agreement have been omitted pursuant 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.) (55)10.184 Second Amended and Restated Operating Agreement of Alaska DigiTel, LLC dated as of January 1, 2007 (We agree to furnishsupplementally to the Commission upon request a copy of any omitted schedule or exhibit.) (55)10.185 Amendment No. 2 to the Amended and Restated 1986 Stock Option Plan of General Communication, Inc. (50)10.186 Amendment No. 3 to the Amended and Restated 1986 Stock Option Plan of General Communication, Inc. (55)10.187 Amended Memorandum of Understanding dated effective as of January 26, 2006 setting forth the principal terms and conditions oftransactions proposed to be consummated among Alaska DigiTel, LLC, an Alaska limited liability company, all of the members of DenaliPCS, LLC, an Alaska limited liability company, and General Communication, Inc., an Alaska corporation (55)10.188 Broadband Initiatives Program Loan/Grant and Security Agreement between United Utilities, Inc. and the United States of America dated asof June 1, 2010 # (55)10.189 Add-on Term Loan Supplement No. 1 (51)10.190Second Amended and Restated Aircraft Lease Agreement between GCI Communication Corp., an Alaska corporation and 560 Company,Inc., an Alaska corporation, dated May 9, 2011 (52)10.191 Add-on Term Loan Supplement No. 2 (53)10.192 Credit Agreement dated August 30, 2011 by and between Unicom, Inc. as borrower and Northern Development Fund VIII, LLC as Lenderand Travois New Markets Project CDE X, LLC as Lender and Waveland Sub CDE XVI, LLC as Lender and Alaska Growth CapitalBidco, Inc. as Disbursing Agent (54) 151 Exhibit No. Description14 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) *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 the Sarbanes-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) 101 The following materials from General Communication, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011,formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Income Statements; (iii)Consolidated Statements of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated FinancialStatements * #CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential treatment by us to, and the material has beenseparately filed with, the SEC. Each omitted Confidential Portion is marked by three asterisks.*Filed herewith. 152 Exhibit ReferenceDescription1 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 19902 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 19913 Incorporated by reference to The Company’s Registration Statement on Form 10 (File No. 0-15279), mailed to the Securities and ExchangeCommission on December 30, 19864 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1989.5 Incorporated by reference to The Company’s Current Report on Form 8-K dated June 4, 1993.6 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1993.7 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1995.8 Incorporated by reference to The Company’s Form S-4 Registration Statement dated October 4, 1996.9 Incorporated by reference to The Company’s Current Report on Form 8-K dated November 13, 1996.10 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1996.11 Incorporated by reference to The Company’s Current Report on Form 8-K dated March 14, 1996, filed March 28, 1996.12 Incorporated by reference to The Company’s Form S-3 Registration Statement (File No. 333-28001) dated May 29, 1997.13 Incorporated by reference to The Company’s Amendment No. 1 to Form S-3/A Registration Statement (File No. 333-28001) dated July 8,1997.14 Incorporated by reference to The Company’s Amendment No. 2 to Form S-3/A Registration Statement (File No. 333-28001) dated July 21,1997.15 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1997.16 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 1998.17 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 1999.18 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001.19 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001.20 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2001.21 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.22 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2002.23 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2003.24 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2003.25 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004.26 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004.27 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005.28 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.29 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed March 16, 2006.30 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.31 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006.32 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 19, 2007.33 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007.34 Incorporated by reference to The Company’s Form S-8 filed with the SEC on July 27, 2007.35 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007.36 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007.37 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed March 7, 2008.38 Incorporated by reference to the Company's Report on Form 8-K for the period May 2, 2008 filed May 8, 2008.39 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008.40 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008.41 Incorporated by reference to The Company's Report on Form 8-K for the period September 19, 2008 filed on September 22, 2008.42 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2008.43 Incorporated by reference to The Company's Report on Form 8-K for the period December 31, 2008 filed January 6, 2009.44 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.45 Incorporated by reference to The Company's Report on Form 8-K for the period January 29, 2010 filed February 3, 2010.46 Incorporated by reference to The Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed March 12, 2010.47 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010 filed August 5, 2010.48 Incorporated by reference to The Company's Report on Form 8-K for the period October 21, 2010 filed October 27, 2010.49 Incorporated by reference to The Company's Report on Form 8-K for the period October 7, 2010 filed October 15, 2010.50 Incorporated by reference to The Company’s Form SC TO-I dated August 6, 2009.51 Incorporated by reference to The Company's Report on Form 8-K for the period June 10, 2011 filed June 14, 2011.52 Incorporated by reference to The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 filed August 9, 2011.53 Incorporated by reference to The Company's Report on Form 8-K for the period July 22, 2011 filed July 26, 2011.54 Incorporated by reference to The Company's Report on Form 8-K for the period August 30, 2011 filed September 6, 2011.55Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended December 31, 2010, filed March 15, 2011. 153 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.GENERAL COMMUNICATION, INC. By: /s/Ronald A. Duncan Ronald A. Duncan, President (Chief Executive Officer) Date: March 8, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated.Signature Title Date /s/Stephen M. Brett Chairman of Board and Director March 1, 2012Stephen M. Brett /s/Ronald A. Duncan President and Director March 8, 2012Ronald A. Duncan (Principal Executive Officer) /s/Jerry A. Edgerton Director February 28, 2012Jerry A. Edgerton /s/Scott M. Fisher Director March 8, 2012Scott M. Fisher /s/William P. Glasgow Director March 8, 2012William P. Glasgow Director Mark W. Kroloff Director Stephen R. Mooney /s/James M. Schneider Director February 28, 2012James M. Schneider /s/John M. Lowber Senior Vice President, Chief Financial March 8, 2012John M. Lowber Officer, Secretary and Treasurer(Principal Financial Officer) /s/Lynda L. Tarbath Vice President, Chief Accounting March 8, 2012Lynda L. Tarbath Officer (Principal Accounting Officer) 154   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, 2011;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 to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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 financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto 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’s internal control overfinancial reporting. /s/ Ronald A. DuncanDate March 8, 2012Ronald 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, 2011;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 to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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 financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto 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’s internal control overfinancial reporting. /s/John M. LowberDate March 8, 2012John 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 THE SARBANES-OXLEYACT OF 2002In connection with the Annual Report of General Communication, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald A. Duncan, Chief Executive Officer of the Company, certify, pursuant to18 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 of the Company.Date: March 8, 2012 /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 THE SARBANES-OXLEYACT OF 2002In connection with the Annual Report of General Communication, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, John M. Lowber, Chief Financial Officer of the Company, certify, pursuant to18 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 of the Company.Date: March 8, 2012 /s/John M. Lowber John M. Lowber Chief Financial Officer General Communication, Inc.   Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We have issued our reports dated March 8, 2012, with respect to the consolidated financial statements and internal control over financial reporting included inthe Annual Report of General Communication, Inc. on Form 10-K for the year ended December 31, 2011. We hereby consent to the incorporation by referenceof said reports in the Registration Statements of General Communication, Inc. on Forms S-8 (File No.’s 33-60728, effective April 5, 1993, 333-8760, effectiveSeptember 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, 333-144916,effective July 27, 2007, and 333-165878, effective April 2, 2010). /s/GRANT THORNTON LLP Seattle, WashingtonMarch 8, 2012   Exhibit 21.1 Exhibit 21.1SUBSIDIARIES OF THE REGISTRANTEntityJurisdiction ofOrganizationName Under Which Subsidiary Does BusinessAlaska United Fiber System PartnershipAlaskaAlaska United Fiber System Partnership, Alaska United FiberSystem, 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 Cycle30, Inc. AlaskaCycle30, Inc., Cycle30Unicom, Inc. AlaskaUnicom, Inc., UnicomUnited-KUC, Inc. AlaskaUnited-KUC, Inc., United-KUC, KUCUnited Utilities, Inc. AlaskaUnited Utilities, Inc. United Utilities, UUIUnited2, LLCAlaskaUnited2, LLC, United2  

Continue reading text version or see original annual report in PDF format above