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x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
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|
SECURITIES
EXCHANGE ACT OF 1934
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oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
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SECURITIES
EXCHANGE ACT OF 1934
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GENERAL
COMMUNICATION, INC.
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||
(Exact name
of registrant as specified in its charter)
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State
of Alaska
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92-0072737
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|||
(State or
other Jurisdiction of
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(I.R.S
Employer
|
|||
Incorporation
or organization)
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Identification
No.)
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2550
Denali Street
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||||
Suite
1000
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||||
Anchorage,
Alaska
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99503
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|||
(Address of
Principal Executive offices)
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(Zip
Code)
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Registrant’s telephone number, including area
code: (907)
868-5600
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated
filer o (Do not
check if a smaller reporting company)
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Smaller reporting company o
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Page
No.
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||||||
Cautionary
Statement Regarding Forward-Looking Statements
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3
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|||||
Part
I. FINANCIAL INFORMATION
|
||||||
Item
I.
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Financial
Statements
|
|||||
Consolidated
Balance Sheets as of September 30, 2008 (unaudited)
|
||||||
and
December 31, 2007
|
4
|
|||||
Consolidated
Income Statement for the three and nine months ended
|
||||||
September
30, 2008 (unaudited) and 2007 (as restated, unaudited)
|
6
|
|||||
Consolidated
Statements of Cash Flows for the nine months
|
||||||
ended
September 30, 2008 (unaudited) and 2007 (as restated,
unaudited)
|
7
|
|||||
Notes to
Interim Consolidated Financial Statements (unaudited)
|
8
|
|||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
|||||
and
Results of Operations
|
30
|
|||||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
57
|
||||
Item
4.
|
Controls and
Procedures
|
58
|
||||
Part
II. OTHER INFORMATION
|
||||||
Item
1A.
|
Risk
Factors
|
60
|
||||
Item
6.
|
Exhibits
|
61
|
||||
Other items
are omitted, as they are not applicable.
|
||||||
SIGNATURES
|
62
|
(Amounts in
thousands)
|
(Unaudited)
|
|||||||
September
30,
|
December
31,
|
|||||||
ASSETS
|
2008
|
2007
|
||||||
Current
assets:
|
||||||||
Cash and cash equivalents
|
$ | 32,408 | 13,074 | |||||
Receivables
|
111,166 | 97,913 | ||||||
Less
allowance for doubtful receivables
|
1,946 | 1,657 | ||||||
Net
receivables
|
109,220 | 96,256 | ||||||
Deferred income taxes
|
6,773 | 5,734 | ||||||
Investment securities
|
5,276 | --- | ||||||
Inventories
|
5,266 | 2,541 | ||||||
Prepaid expenses
|
5,255 | 5,356 | ||||||
Other current assets
|
713 | 717 | ||||||
Total current
assets
|
164,911 | 123,678 | ||||||
Property and
equipment in service, net of depreciation
|
738,274 | 504,273 | ||||||
Construction
in progress
|
100,657 | 69,409 | ||||||
Net property
and equipment
|
838,931 | 573,682 | ||||||
Cable
certificates
|
191,565 | 191,565 | ||||||
Goodwill
|
63,502 | 42,181 | ||||||
Wireless
licenses
|
26,007 | 25,757 | ||||||
Other
intangible assets, net of amortization
|
20,419 | 11,769 | ||||||
Deferred loan and senior notes costs, net of amortization
|
6,388 | 6,202 | ||||||
Other
assets
|
11,594 | 9,399 | ||||||
Total other
assets
|
319,475 | 286,873 | ||||||
Total
assets
|
$ | 1,323,317 | 984,233 |
(Amounts in
thousands)
|
(Unaudited)
|
|||||||
September
30,
|
December
31,
|
|||||||
LIABILITIES,
MINORITY INTEREST, AND STOCKHOLDERS’ EQUITY
|
2008
|
2007
|
||||||
Current
liabilities:
|
||||||||
Current
maturities of obligations under long-term debt and capital
leases
|
$ | 13,792 | 2,375 | |||||
Accounts
payable
|
51,831 | 35,747 | ||||||
Deferred
revenue
|
21,181 | 16,600 | ||||||
Accrued
payroll and payroll related obligations
|
18,542 | 16,329 | ||||||
Accrued
liabilities
|
11,174 | 7,536 | ||||||
Accrued
interest
|
2,977 | 8,927 | ||||||
Subscriber
deposits
|
1,143 | 877 | ||||||
Total current
liabilities
|
120,640 | 88,391 | ||||||
Long-term
debt
|
703,390 | 536,115 | ||||||
Obligations
under capital leases, excluding current maturities
|
95,151 | 2,290 | ||||||
Obligation
under capital lease due to related party, excluding current
maturity
|
1,866 | 469 | ||||||
Deferred
income taxes
|
88,472 | 84,294 | ||||||
Long-term
deferred revenue
|
37,117 | 845 | ||||||
Other
liabilities
|
15,579 | 12,396 | ||||||
Total
liabilities
|
1,062,215 | 724,800 | ||||||
Minority
interest
|
--- | 6,478 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Common stock
(no par):
|
||||||||
Class A.
Authorized 100,000 shares; issued 49,974 and 50,437 shares at September
30, 2008 and December 31, 2007, respectively; outstanding 49,505 and
49,425 shares at September 30, 2008 and December 31, 2007,
respectively
|
150,935 | 155,980 | ||||||
Class B.
Authorized 10,000 shares; issued 3,247 and 3,257 shares at September 30,
2008 and December 31, 2007, respectively; outstanding 3,245 and 3,255
shares at September 30, 2008 and December 31, 2007, respectively;
convertible on a share-per-share basis into Class A common
stock
|
2,742 | 2,751 | ||||||
Less cost of
471 and 473 Class A and Class B common shares held in treasury at
September 30, 2008 and December 31, 2007, respectively
|
(3,423 | ) | (3,448 | ) | ||||
Paid-in
capital
|
25,310 | 20,132 | ||||||
Retained
earnings
|
85,538 | 77,540 | ||||||
Total
stockholders’ equity
|
261,102 | 252,955 | ||||||
Total
liabilities, minority interest, and stockholders’ equity
|
$ | 1,323,317 | 984,233 |
|
See
accompanying notes to interim consolidated financial
statements.
|
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
(Amounts in
thousands, except per share amounts)
|
2008
|
(as restated)
2007
|
2008
|
(as restated)
2007
|
||||||||||||
Revenues
|
$ | 151,660 | 134,090 | 428,795 | 389,011 | |||||||||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
50,401 | 52,213 | 154,160 | 145,782 | ||||||||||||
Selling,
general and administrative expenses
|
56,410 | 44,735 | 151,076 | 131,770 | ||||||||||||
Depreciation
and amortization expense
|
28,869 | 21,970 | 83,820 | 64,273 | ||||||||||||
Operating
income
|
15,980 | 15,172 | 39,739 | 47,186 | ||||||||||||
Other income
(expense):
|
||||||||||||||||
Interest
expense
|
(13,693 | ) | (8,620 | ) | (33,277 | ) | (25,495 | ) | ||||||||
Loan and
senior note fees
|
(441 | ) | (751 | ) | (1,543 | ) | (1,147 | ) | ||||||||
Interest
income
|
386 | 82 | 869 | 427 | ||||||||||||
Minority
interest
|
(419 | ) | 37 | 1,503 | 26 | |||||||||||
Other
expense, net
|
(14,167 | ) | (9,252 | ) | (32,448 | ) | (26,189 | ) | ||||||||
Income before
income tax expense
|
1,813 | 5,920 | 7,291 | 20,997 | ||||||||||||
Income tax
expense
|
1,548 | 2,964 | 4,758 | 9,817 | ||||||||||||
Net
income
|
$ | 265 | 2,956 | 2,533 | 11,180 | |||||||||||
Basic net
income per common share
|
$ | 0.01 | 0.06 | 0.05 | 0.21 | |||||||||||
Diluted net
income per common share
|
$ | 0.00 | 0.05 | 0.05 | 0.19 |
(Amounts in
thousands)
|
2008
|
(as
restated)
2007
|
||||||
Cash flows
from operating activities:
|
||||||||
Net
income
|
$ | 2,533 | 11,180 | |||||
Adjustments
to reconcile net income to net cash provided by operating
activities (net of effects of acquisitions):
|
||||||||
Depreciation
and amortization expense
|
83,820 | 64,273 | ||||||
Deferred
income tax expense
|
3,426 | 9,599 | ||||||
Share-based
compensation expense
|
5,547 | 3,490 | ||||||
Other noncash
income and expense items
|
4,764 | 6,724 | ||||||
Change in
operating assets and liabilities, net of effect of
acquisition
|
32,993 | (19,741 | ) | |||||
Net cash
provided by operating activities
|
133,083 | 75,525 | ||||||
Cash flows
from investing activities:
|
||||||||
Purchases of
property and equipment
|
(172,572 | ) | (106,424 | ) | ||||
Purchase of
business, net of cash received
|
(64,945 | ) | (19,530 | ) | ||||
Purchases of
other assets and intangible assets
|
(5,115 | ) | (4,996 | ) | ||||
Restricted
cash
|
--- | 4,612 | ||||||
Other
|
--- | 25 | ||||||
Net cash used
in investing activities
|
(242,632 | ) | (126,313 | ) | ||||
Cash flows
from financing activities:
|
||||||||
Borrowing on
Senior Credit Facility
|
132,100 | 50,000 | ||||||
Repayment of
debt and capital lease obligations
|
(3,996 | ) | (26,655 | ) | ||||
Issuance of
long-term debt
|
2,161 | --- | ||||||
Payment of
debt issuance costs
|
(1,662 | ) | (402 | ) | ||||
Proceeds from
common stock issuance
|
327 | 3,123 | ||||||
Other
|
(47 | ) | (1 | ) | ||||
Purchase of
stock to be retired
|
--- | (7,979 | ) | |||||
Net cash
provided by financing activities
|
128,883 | 18,086 | ||||||
Net increase
(decrease) in cash and cash equivalents
|
19,334 | (32,702 | ) | |||||
Cash and cash
equivalents at beginning of period
|
13,074 | 57,647 | ||||||
Cash and cash
equivalents at end of period
|
$ | 32,408 | 24,945 |
|
(a)
|
Business
|
|
·
|
Origination
and termination of traffic in Alaska for certain common
carriers,
|
|
·
|
Cable
television services throughout
Alaska,
|
|
·
|
Competitive
local access services in Anchorage, Fairbanks, Juneau, Wasilla, Eagle
River, Kodiak, Palmer, Kenai, Soldotna, Seward, Chugiak, Sitka, Valdez,
Ketchikan, Nome and Homer, Alaska with on-going expansion into additional
Alaska communities,
|
|
·
|
Incumbent
local access services in rural
Alaska,
|
|
·
|
Long-distance
telephone service between Alaska and the remaining United States and
foreign countries,
|
|
·
|
Resale and
sale of postpaid and sale of prepaid wireless telephone services and sale
of wireless telephone handsets and
accessories,
|
|
·
|
Data network
services,
|
|
·
|
Internet
access services,
|
|
·
|
Broadband
services, including our SchoolAccess®
offering to rural school districts, our ConnectMD®
offering to rural hospitals and health clinics, and managed video
conferencing,
|
|
·
|
Managed
services to certain commercial
customers,
|
|
·
|
Sales and
service of dedicated communications systems and related
equipment,
|
|
·
|
Lease, sales
and maintenance of capacity on our fiber optic cable systems used in the
transmission of interstate and intrastate data, switched message
long-distance and Internet services within Alaska and between Alaska and
the remaining United States and foreign countries,
and
|
|
·
|
Distribution
of white and yellow pages directories to residential and business
customers in certain markets we serve and on-line directory
products.
|
|
(b)
|
Principles
of Consolidation
|
|
(c)
|
Acquisitions
|
UUI
|
$ | 40,161 | ||
Alaska
Wireless
|
$ | 14,311 | ||
Alaska
DigiTel
|
$ | 10,473 |
UUI
|
Alaska
DigiTel
|
|||||||
Current
assets
|
$ | 15,290 | --- |
Property and
equipment, including construction in progress
|
63,167 | 328 | ||||||
Intangible
assets
|
6,472 | 542 | ||||||
Goodwill
|
5,928 | 4,622 | ||||||
Other
assets
|
2,411 | --- | ||||||
Minority
interest acquired
|
--- | 4,981 | ||||||
Total assets
acquired
|
93,268 | 10,473 | ||||||
Current
liabilities
|
4,746 | --- | ||||||
Long-term
debt, including current portion
|
43,614 | --- | ||||||
Other
long-term liabilities
|
2,653 | --- | ||||||
Total
liabilities assumed
|
51,013 | --- | ||||||
Net assets
acquired
|
$ | 42,255 | 10,473 |
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Pro forma
consolidated revenue
|
$ | 151,660 | 140,638 | 447,961 | 407,516 | |||||||||||
Pro forma net
income
|
$ | 537 | 3,483 | 3,608 | 13,397 | |||||||||||
EPS:
|
||||||||||||||||
Basic – pro
forma
|
$ | 0.01 | 0.07 | 0.07 | 0.25 | |||||||||||
Diluted – pro
forma
|
$ | 0.01 | 0.06 | 0.07 | 0.25 |
|
(d)
|
Regulatory
Accounting and Regulation
|
|
We account
for our regulated operations in accordance with the accounting principles
for regulated enterprises prescribed by SFAS No. 71. This
accounting recognizes the economic effects of rate regulation by recording
cost and a return on investment as such amounts are recovered through
rates authorized by regulatory authorities. Accordingly, under
SFAS No. 71, plant and equipment is depreciated over lives approved by
regulators and certain costs and obligations are deferred based upon
approvals received from regulators to permit recovery of such amounts in
future years. Our cost studies and depreciation rates for our
regulated operations are subject to periodic audits that could result in
reductions of revenues. Based upon the preliminary purchase
price allocation described in note 1(c), the effects of regulation for the
three and nine months ended September 30, 2008 are not material to the
consolidated financial statements.
|
(e)
|
Revenue
Recognition
|
(f)
|
Earnings
per Share
|
Three Months
Ended September 30,
|
||||||||||||||||||||||||
2008
|
2007 (as
restated)
|
|||||||||||||||||||||||
Income
(Num-
erator)
|
Shares
(Denom-
inator)
|
Per-share
Amounts
|
Income
(Num-
erator)
|
Shares
(Denom-
inator)
|
Per-share
Amounts
|
|||||||||||||||||||
Basic
EPS:
|
||||||||||||||||||||||||
Net
income
|
$ | 265 | 52,371 | $ | 0.01 | $ | 2,956 | 52,852 | $ | 0.06 |
Effect
of Dilutive Securities:
|
||||||||||||||||||||||||
Unexercised
stock options
|
--- | 934 | --- | --- | 1,267 | --- | ||||||||||||||||||
Unvested
restricted stock awards
|
--- | 13 | --- | --- | --- | --- | ||||||||||||||||||
Diluted
EPS:
|
||||||||||||||||||||||||
Effect of
share based compensation that may be settled in cash or
shares
|
--- | --- | --- | (147 | ) | 84 | --- | |||||||||||||||||
Net income
adjusted for effect of share based compensation that may be settled in
cash or shares
|
$ | 265 | 53,318 | $ | 0.00 | $ | 2,809 | 54,203 | $ | 0.05 |
Nine Months
Ended September 30,
|
||||||||||||||||||||||||
2008
|
2007 (as
restated)
|
|||||||||||||||||||||||
Income
(Num-
erator)
|
Shares
(Denom-
inator)
|
Per-share
Amounts
|
Income
(Num-
erator)
|
Shares
(Denom-
inator)
|
Per-share
Amounts
|
|||||||||||||||||||
Basic
EPS:
|
||||||||||||||||||||||||
Net
income
|
$ | 2,533 | 52,317 | $ | 0.05 | $ | 11,180 | 53,103 | $ | 0.21 | ||||||||||||||
Effect
of Dilutive Securities:
|
||||||||||||||||||||||||
Unexercised
stock options
|
--- | 647 | --- | --- | 1,415 | --- | ||||||||||||||||||
Unvested
restricted stock awards
|
--- | 22 | --- | --- | --- | --- | ||||||||||||||||||
Diluted
EPS:
|
||||||||||||||||||||||||
Effect of
share based compensation that may be settled in cash or
shares
|
--- | --- | --- | (688 | ) | 93 | --- | |||||||||||||||||
Net income
adjusted for effect of share based compensation that may be settled in
cash or shares
|
$ | 2,533 | 52,986 | $ | 0.05 | $ | 10,492 | 54,611 | $ | 0.19 |
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Weighted
average shares associated with unexercised stock options
|
3,191 | 2,573 | 3,731 | 1,622 | ||||||||||||
Weighted
average shares associated with unvested restricted share
awards
|
248 | --- | 10 | --- | ||||||||||||
Effect of
share-based compensation that may be settled in cash or
shares
|
291 | --- | 133 | --- |
|
(g)
|
Common
Stock
|
|
Following are
the changes in issued common stock for the nine months ended September 30,
2008 and 2007 (shares, in
thousands):
|
Class
A
|
Class
B
|
|||||||
Balances at
December 31, 2006
|
50,191 | 3,370 | ||||||
Class B
shares converted to Class A
|
113 | (113 | ) | |||||
Shares issued
under stock option plan
|
449 | --- | ||||||
Shares issued
under the Director Compensation Plan
|
23 | --- | ||||||
Shares
retired
|
(823 | ) | --- | |||||
Balances at
September 30, 2007
|
49,953 | 3,257 | ||||||
Balances at
December 31, 2007
|
50,437 | 3,257 | ||||||
Class B
shares converted to Class A
|
10 | (10 | ) | |||||
Shares issued
under stock option plan
|
52 | --- | ||||||
Shares issued
under the Director Compensation Plan
|
20 | --- | ||||||
Shares
retired
|
(540 | ) | --- | |||||
Other
|
(5 | ) | --- | |||||
Balances at
September 30, 2008
|
49,974 | 3,247 |
|
GCI's Board
of Directors has authorized a common stock buyback program for the
repurchase of our Class A and Class B common stock in order to reduce our
outstanding shares of Class A and Class B common stock. The Term Loan
agreement entered into on May 2, 2008 and described in note 4 allows for
the repurchase of our common stock under our buyback program when our
total debt leverage is below 4.0 times earnings before depreciation and
amortization expense, net interest expense, income taxes and share-based
compensation expense ("EBITDAS").
|
|
Under the
buyback program we had made repurchases of $68.9 million through December
31, 2007. During the nine months ended September 30, 2008 we
repurchased no shares of our Class A and B common stock. During the nine
months ended September 30, 2007 we received in lieu of a cash payment
on a note receivable 113,000 shares of our Class A common stock at a cost
of $1.7 million. If stock repurchases are less than the total
approved quarterly amount the difference may be carried forward and used
to repurchase additional shares in future quarters. The cost of the
repurchased common stock is recorded in Retained Earnings on our
Consolidated Balance Sheets. All shares of our Class A common
stock repurchased for retirement have been retired as of September 30,
2008.
|
(h)
|
Investment
Securities
|
Balance at
December 31, 2006
|
$ | 3,408 | ||
Liability
incurred
|
85 | |||
Accretion
expense for the nine months ended
September 30,
2007
|
106 | |||
Liability
settled
|
(3 | ) | ||
Balance at
September 30, 2007
|
$ | 3,596 | ||
Balance at
December 31, 2007
|
$ | 4,173 | ||
Liability
incurred
|
644 | |||
Accretion
expense for the nine months ended
September 30,
2008
|
123 | |||
Additions
upon acquisition of UUI, Unicom and Alaska Wireless
|
803 | |||
Liability
settled
|
(165 | ) | ||
Balance at
September 30, 2008
|
$ | 5,578 |
Number of
Contracts
|
Notional
Value
|
Balance Sheet
Location
|
Fair
Value
|
|||||||
Interest rate
caps
|
2
|
$ |
180,000
|
Other
Assets
|
$ |
409
|
Three Months
Ended
|
Nine Months
Ended
|
||||||||||
September
30,
|
September
30,
|
||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||
Surcharges
reported gross
|
$
|
1,070
|
1,068
|
3,081
|
3,133
|
Three Months
Ended September 30, 2008
|
Nine Months
Ended September 30, 2008
|
|||||||
Depreciation
and amortization expense
|
$ | 402 | 667 | |||||
Operating
income
|
(402 | ) | (667 | ) | ||||
Net income
|
(196 | ) | (325 | ) | ||||
Basic
EPS
|
(0.01 | ) | --- | |||||
Diluted
EPS
|
(0.01 | ) | (0.01 | ) |
(n)
|
Recently Issued Accounting
Pronouncements
|
(o)
|
Restatement,
Immaterial Error Correction and
Reclassification
|
|
·
|
We decreased
depreciation expense by approximately $1.2 million and $2.6 million for
the three and nine months ended September 30, 2007, respectively, to
correct an error in calculating depreciation in the initial year an asset
is placed in service. We originally recorded our estimated
depreciation expense evenly throughout the year with periodic adjustments
based upon improved estimates or actual results. In accordance
with GAAP we now initially record depreciation expense in the month an
asset is placed in service. Depreciation was improperly
allocated among quarters, but the year-end total was
correct. Therefore the restatement impacts the quarterly
results but not the December 31, 2007 year-end
results.
|
|
·
|
We decreased
interest expense by approximately $422,000 and $1.2 million for the three
and nine months ended September 30, 2007, respectively, to correct an
interest capitalization error on certain assets. Our
capitalized interest policy was too restrictive and resulted in no
interest capitalization on certain qualifying capital
expenditures. Our capitalized interest policy now conforms to
GAAP;
|
|
·
|
We increased
depreciation expense $322,000 and $966,000 for the three and nine months
ended September 30, 2007, respectively, due to the recognition of
depreciation on additional capitalized
interest;
|
|
·
|
We increased
revenue $141,000 and $633,000 for the three and nine months ended
September 30, 2007, respectively, to correct understated revenue resulting
from a configuration error in the automated interface between our unified
billing system and our general
ledger;
|
|
·
|
We increased
revenue $85,000 and $343,000 for the three and nine months ended September
30, 2007, respectively, to correct revenue recognition for a majority
noncontrolling interest in a subsidiary that was recognizing a certain
type of revenue on a cash basis rather than an accrual
basis;
|
|
·
|
We increased
share-based compensation expense $114,000 for the three months ended
September 30, 2007 and decreased share-based compensation expense $643,000
for the nine months ended September 30, 2007 to correct expense
recognition timing for options that did not vest in equal increments over
the vesting period;
|
|
·
|
We decreased
depreciation expense $38,000 and $113,000 for the three and nine months
ended September 30, 2007, respectively, due to a revision of the purchase
price allocation of our purchase of Alaska DigiTel on January 1, 2007;
and
|
|
·
|
We increased
income tax expense $658,000 and $2.1 million for the three and nine months
ended September 30, 2007, respectively, to record the income tax effect of
the corrections described above.
|
Three Months
Ended September 30, 2007
|
||||||||||||||||
As previously reported1
|
Adjustments
|
Reclassification
|
As
restated
|
|||||||||||||
Revenues
|
$ | 133,864 | 226 | --- | 134,090 | |||||||||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
47,878 | --- | 4,335 | 52,213 | ||||||||||||
Selling,
general and administrative expenses
|
48,956 | 114 | (4,335 | ) | 44,735 | |||||||||||
Depreciation
and amortization expense
|
22,837 | (867 | ) | --- | 21,970 | |||||||||||
Operating
income
|
14,193 | 979 | --- | 15,172 | ||||||||||||
Other income
(expense):
|
||||||||||||||||
Interest
expense
|
(9,042 | ) | 422 | --- | (8,620 | ) | ||||||||||
Loan and
senior note fees
|
(751 | ) | --- | --- | (751 | ) | ||||||||||
Interest
income
|
82 | --- | --- | 82 | ||||||||||||
Minority
interest
|
37 | --- | --- | 37 | ||||||||||||
Other
expense, net
|
(9,674 | ) | 422 | --- | (9,252 | ) | ||||||||||
Income before
income tax expense
|
4,519 | 1,401 | --- | 5,920 | ||||||||||||
Income tax
expense
|
2,306 | 658 | --- | 2,964 | ||||||||||||
Net
income
|
$ | 2,213 | 743 | --- | 2,956 | |||||||||||
Basic net
income per common share
|
$ | 0.04 | 0.02 | --- | 0.06 | |||||||||||
Diluted net
income per common share
|
$ | 0.04 | 0.01 | --- | 0.05 | |||||||||||
1
As reported on Form 10-Q for the quarter ended September 30,
2007
|
Nine Months
Ended September 30, 2007
|
||||||||||||||||
As previously reported1
|
Adjustments
|
Reclassification
|
As
restated
|
|||||||||||||
Revenues
|
$ | 388,035 | 976 | --- | 389,011 | |||||||||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
133,229 | --- | 12,553 | 145,782 | ||||||||||||
Selling,
general and administrative expenses
|
144,966 | (643 | ) | (12,553 | ) | 131,770 | ||||||||||
Depreciation
and amortization expense
|
66,033 | (1,760 | ) | --- | 64,273 | |||||||||||
Operating
income
|
43,807 | 3,379 | --- | 47,186 | ||||||||||||
Other income
(expense):
|
||||||||||||||||
Interest
expense
|
(26,683 | ) | 1,188 | --- | (25,495 | ) | ||||||||||
Loan and
senior note fees
|
(1,147 | ) | --- | --- | (1,147 | ) | ||||||||||
Interest
income
|
427 | --- | --- | 427 | ||||||||||||
Minority
interest
|
26 | --- | --- | 26 |
Other
expense, net
|
(27,377 | ) | 1,188 | --- | (26,189 | ) | ||||||||||
Income before
income tax expense
|
16,430 | 4,567 | --- | 20,997 | ||||||||||||
Income tax
expense
|
7,672 | 2,145 | --- | 9,817 | ||||||||||||
Net
income
|
$ | 8,758 | 2,422 | --- | 11,180 | |||||||||||
Basic net
income per common share
|
$ | 0.16 | 0.05 | --- | 0.21 | |||||||||||
Diluted net
income per common share
|
$ | 0.15 | 0.04 | --- | 0.19 | |||||||||||
Cash provided
by operating activities
|
$ | 74,337 | 1,188 | --- | 75,525 | |||||||||||
Cash used in
investing activities
|
(125,125 | ) | (1,188 | ) | --- | (126,313 | ) | |||||||||
Cash provided
by financing activities
|
18,086 | --- | --- | 18,086 | ||||||||||||
1
As reported on Form 10-Q for the nine months ended September 30,
2007
|
(2)
|
Consolidated
Statements of Cash Flows Supplemental
Disclosures
|
|
Change in
operating assets and liabilities, net of effect of acquisition, consists
of (amounts in thousands):
|
Nine month
period ended September 30,
|
2008
|
2007
(as
restated)
|
||||||
Increase in
accounts receivable
|
$ | (3,014 | ) | (13,454 | ) | |||
Decrease in
prepaid expenses
|
1,026 | 1,393 | ||||||
Increase in
inventories
|
(1,759 | ) | (314 | ) | ||||
Net sale of
investment securities
|
800 | --- | ||||||
(Increase)
decrease in other current assets
|
(118 | ) | 960 | |||||
Increase
(decrease) in accounts payable
|
(1,484 | ) | 1,041 | |||||
Increase
(decrease) in deferred revenues
|
3,668 | (2,705 | ) | |||||
Increase
(decrease) in accrued payroll and payroll related
obligations
|
1,191 | (1,388 | ) | |||||
Increase
(decrease) in accrued liabilities
|
3,209 | (548 | ) | |||||
Decrease in
accrued interest
|
(6,021 | ) | (5,700 | ) | ||||
Increase
(decrease) in subscriber deposits
|
(35 | ) | 83 | |||||
Increase in
long-term deferred revenue
|
36,272 | --- | ||||||
Increase
(decrease) in components of other long-term liabilities
|
(742 | ) | 891 | |||||
$ | 32,993 | (19,741 | ) |
(3)
|
Intangible
Assets
|
Three Months
Ended
|
Nine Months
Ended
|
||||||||||
September
30,
|
September
30,
|
||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||
Amortization
expense
|
$
|
1,749
|
908
|
3,829
|
2,666
|
Years Ending
December 31,
|
||||
2008
|
$ | 5,459 | ||
2009
|
6,264 | |||
2010
|
5,344 | |||
2011
|
2,329 | |||
2012
|
1,590 |
(4)
|
Long-term
Debt
|
Total
Leverage Ratio (as defined)
|
Applicable
Margin
|
|||
>3.75
|
4.25 | % | ||
>3.25 but
<3.75
|
3.75 | % | ||
>2.75 but
<3.25
|
3.25 | % | ||
<2.75
|
2.75 | % |
Year
Ended:
|
Maximum
Capital Expenditure Amount
|
|||
2008
|
$ | 240,000 | ||
2009
|
$ | 125,000 | ||
2010
|
$ | 125,000 | ||
2011 and
thereafter
|
$ | 100,000 |
Years ending
December 31,
|
||||
2008
(remainder of the year)
|
$ | 3,100 | ||
2009
|
8,581 | |||
2010
|
8,839 | |||
2011
|
178,377 | |||
2012
|
176,599 | |||
2013 and
thereafter
|
341,786 | |||
717,282 | ||||
Less
unamortized discount paid on the Senior Notes
|
2,631 | |||
Less
unamortized discount paid on the Senior Credit Facility
|
2,692 | |||
Less current
portion of long-term debt
|
9,438 | |||
Adjustment to
record debt acquired from UUI at fair value
|
869 | |||
$ | 703,390 |
Observable
Inputs Level
1
|
Other
Observable Inputs Level 2
|
Unobservable
Inputs Level 3
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Derivative
financial instruments
|
$ | --- | 409 | --- | 409 | |||||||||||
Total assets
at fair value
|
$ | --- | 409 | --- | 409 |
Shares
(in
thousands)
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2007
|
6,751 | $ | 9.37 | |||||
Options
granted
|
720 | $ | 8.11 | |||||
Restricted
stock awards granted
|
43 | $ | 6.94 | |||||
Exercised
|
(53 | ) | $ | 6.22 | ||||
Restricted
stock awards vested
|
(131 | ) | $ | 12.05 | ||||
Forfeited
|
(125 | ) | $ | 10.86 | ||||
Outstanding
at September 30, 2008
|
7,205 | $ | 9.08 | |||||
Available for
grant at September 30, 2008
|
946 |
Shares
(in
thousands)
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2007 and September 30, 2008
|
150 | $ | 6.50 | |||||
Available for
grant at September 30, 2008
|
--- |
(7)
|
Industry
Segments Data
|
Three months
ended
September
30,
|
Consumer
|
Network
Access
|
Commercial
|
Managed
Broadband
|
Regulated
Operations
|
Total
Reportable Segments
|
||||||||||||||||||
2008
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | 33 | 336 | 1,428 | --- | --- | 1,797 | |||||||||||||||||
External
|
66,485 | 38,778 | 30,166 | 10,293 | 5,938 | 151,660 | ||||||||||||||||||
Total
revenues
|
$ | 66,518 | 39,114 | 31,594 | 10,293 | 5,938 | 153,457 | |||||||||||||||||
EBITDAS
|
$ | 18,008 | 17,635 | 5,944 | 4,217 | 1,320 | 47,124 | |||||||||||||||||
2007 (as
restated)
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | --- | 831 | 1,343 | --- | --- | 2,174 | |||||||||||||||||
External
|
56,795 | 42,657 | 27,269 | 7,369 | --- | 134,090 | ||||||||||||||||||
Total
revenues
|
$ | 56,795 | 43,488 | 28,612 | 7,369 | --- | 136,264 | |||||||||||||||||
EBITDAS
|
$ | 11,137 | 21,356 | 4,494 | 1,934 | --- | 38,921 |
Nine months
ended
September
30,
|
Consumer
|
Network
Access
|
Commercial
|
Managed
Broadband
|
Regulated
Operations
|
Total
Reportable Segments
|
||||||||||||||||||
2008
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | 50 | 804 | 4,346 | --- | 116 | 5,316 | |||||||||||||||||
External
|
189,981 | 119,843 | 84,201 | 26,953 | 7,817 | 428,795 | ||||||||||||||||||
Total
revenues
|
$ | 190,031 | 120,647 | 88,547 | 26,953 | 7,933 | 434,111 | |||||||||||||||||
EBITDAS
|
$ | 43,685 | 59,448 | 15,965 | 9,832 | 1,679 | 130,609 | |||||||||||||||||
2007 (as
restated)
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | --- | 2,194 | 3,972 | --- | --- | 6,166 | |||||||||||||||||
External
|
165,526 | 124,599 | 77,643 | 21,243 | --- | 389,011 | ||||||||||||||||||
Total
revenues
|
$ | 165,526 | 126,793 | 81,615 | 21,243 | --- | 395,177 | |||||||||||||||||
EBITDAS
|
$ | 32,060 | 64,664 | 12,569 | 5,682 | --- | 114,975 |
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007 (as
restated)
|
2008
|
2007 (as
restated)
|
|||||||||||||
Reportable
segment revenues
|
$ | 153,457 | 136,264 | 434,111 | 395,177 | |||||||||||
Less
intersegment revenues eliminated in consolidation
|
1,797 | 2,174 | 5,316 | 6,166 | ||||||||||||
Consolidated
revenues
|
$ | 151,660 | 134,090 | 428,795 | 389,011 |
Three Months
Ended
|
Nine Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007 (as
restated)
|
2008
|
2007 (as
restated)
|
|||||||||||||
Reportable
segment EBITDAS
|
$ | 47,124 | 38,921 | 130,609 | 114,975 | |||||||||||
Less
depreciation and amortization expense
|
28,869 | 21,970 | 83,820 | 64,273 | ||||||||||||
Less
share-based compensation expense
|
2,694 | 1,742 | 5,547 | 3,490 | ||||||||||||
Less (plus)
minority interest
|
(419 | ) | 37 | 1,503 | 26 | |||||||||||
Consolidated
operating income
|
15,980 | 15,172 | 39,739 | 47,186 | ||||||||||||
Less other
expense, net
|
14,167 | 9,252 | 32,448 | 26,189 | ||||||||||||
Consolidated
income before income tax expense
|
$ | 1,813 | 5,920 | 7,291 | 20,997 |
(8)
|
Indefeasible
Right to Use (“IRU”) Capacity
Sale
|
|
We entered
into various IRU sales agreements for which we received cash of $33.9
million and $37.1 million during the three and nine months ended September
30, 2008, respectively. These transactions are being accounted
for as operating leases with deferred revenue to be recognized over the
estimated life of the IRU agreement. We had long-term deferred
revenue of $36.6 million related to these IRU transactions at September
30, 2008.
|
(9)
|
Commitments
and Contingencies
|
Years ending
December 31:
|
||||
2008
|
$ | 6,510 | ||
2009
|
11,160 | |||
2010
|
11,160 | |||
2011
|
11,160 | |||
2012
|
11,160 | |||
2013 and
thereafter
|
105,090 | |||
Total minimum
lease payments
|
$ | 156,240 |
|
On April 8,
2008, we signed an amendment to a long-term capital lease agreement with
our President and CEO and his wife for property we occupy. The
amended lease terminates on September 30, 2026. We
have increased our existing capital lease asset and liability by $1.3
million to record the extension of this capital
lease.
|
|
A summary of
future minimum lease payments for this lease follows (amount in
thousands):
|
Years ending
December 31:
|
||||
2008
|
$ | 194 | ||
2009
|
258 | |||
2010
|
258 | |||
2011
|
261 | |||
2012
|
270 | |||
2013 and
thereafter
|
4,691 | |||
Total minimum
lease payments
|
$ | 5,932 |
·
|
We decreased
depreciation expense by approximately $1.2 million and $2.6 million for
the three and nine months ended September 30, 2007, respectively, to
correct an error in calculating depreciation in the initial year an asset
is placed in service. We originally recorded our estimated
depreciation expense evenly throughout the year with periodic adjustments
based upon improved estimates or actual results. In accordance
with GAAP we now initially record depreciation expense in the month an
asset is placed in service. Depreciation was improperly
allocated among quarters, but the year-end total was
correct. Therefore the restatement impacts the quarterly
results but not the December 31, 2007 year-end
results.
|
·
|
We decreased
interest expense by approximately $422,000 and $1.2 million for the three
and nine months ended September 30, 2007, respectively, to correct an
interest capitalization error on certain assets. Our
capitalized interest policy was too restrictive and resulted in no
interest capitalization on certain qualifying capital
expenditures. Our capitalized interest policy now conforms to
GAAP;
|
·
|
We increased
depreciation expense $322,000 and $966,000 for the three and nine months
ended September 30, 2007, respectively, due to the recognition of
depreciation on additional capitalized
interest;
|
·
|
We increased
revenue $141,000 and $633,000 for the three and nine months ended
September 30, 2007, respectively, to correct understated revenue resulting
from a configuration error in the automated interface between our unified
billing system and our general
ledger;
|
·
|
We increased
revenue $85,000 and $343,000 for the three and nine months ended September
30, 2007, respectively, to correct revenue recognition for a majority
noncontrolling interest in a subsidiary that was recognizing a certain
type of revenue on a cash basis rather than an accrual
basis;
|
·
|
We increased
share-based compensation expense $114,000 for the three months ended
September 30, 2007 and decreased share-based compensation expense $643,000
for the nine months ended September 30, 2007 to correct expense
recognition timing for options that did not vest in equal increments over
the vesting period;
|
·
|
We decreased
depreciation expense $38,000 and $113,000 for the three and nine months
ended September 30, 2007, respectively, due to a revision of the purchase
price allocation of our purchase of Alaska DigiTel on January 1, 2007;
and
|
·
|
We increased
income tax expense $658,000 and $2.1 million for the three and nine months
ended September 30, 2007, respectively, to record the income tax effect of
the corrections described above.
|
Three Months
Ended September 30, 2007
|
||||||||||||||||
As previously reported1
|
Adjustments
|
Reclassification
|
As
restated
|
|||||||||||||
Revenues
|
$ | 133,864 | 226 | --- | 134,090 | |||||||||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
47,878 | --- | 4,335 | 52,213 | ||||||||||||
Selling,
general and administrative expenses
|
48,956 | 114 | (4,335 | ) | 44,735 | |||||||||||
Depreciation
and amortization expense
|
22,837 | (867 | ) | --- | 21,970 | |||||||||||
Operating
income
|
14,193 | 979 | --- | 15,172 | ||||||||||||
Other income
(expense):
|
||||||||||||||||
Interest
expense
|
(9,042 | ) | 422 | --- | (8,620 | ) | ||||||||||
Loan and
senior note fees
|
(751 | ) | --- | --- | (751 | ) | ||||||||||
Interest
income
|
82 | --- | --- | 82 | ||||||||||||
Minority
interest
|
37 | --- | --- | 37 | ||||||||||||
Other
expense, net
|
(9,674 | ) | 422 | --- | (9,252 | ) | ||||||||||
Income before
income tax expense
|
4,519 | 1,401 | --- | 5,920 | ||||||||||||
Income tax
expense
|
2,306 | 658 | --- | 2,964 | ||||||||||||
Net
income
|
$ | 2,213 | 743 | --- | 2,956 | |||||||||||
Basic net
income per common share
|
$ | 0.04 | 0.02 | --- | 0.06 | |||||||||||
Diluted net
income per common share
|
$ | 0.04 | 0.01 | --- | 0.05 | |||||||||||
1
As reported on Form 10-Q for the quarter ended September 30,
2007
|
Nine Months
Ended September 30, 2007
|
||||||||||||||||
As previously reported1
|
Adjustments
|
Reclassification
|
As
restated
|
|||||||||||||
Revenues
|
$ | 388,035 | 976 | --- | 389,011 | |||||||||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
133,229 | --- | 12,553 | 145,782 | ||||||||||||
Selling,
general and administrative expenses
|
144,966 | (643 | ) | (12,553 | ) | 131,770 | ||||||||||
Depreciation
and amortization expense
|
66,033 | (1,760 | ) | --- | 64,273 | |||||||||||
Operating
income
|
43,807 | 3,379 | --- | 47,186 | ||||||||||||
Other income
(expense):
|
||||||||||||||||
Interest
expense
|
(26,683 | ) | 1,188 | --- | (25,495 | ) | ||||||||||
Loan and
senior note fees
|
(1,147 | ) | --- | --- | (1,147 | ) |
Interest
income
|
427 | --- | --- | 427 | ||||||||||||
Minority
interest
|
26 | --- | --- | 26 | ||||||||||||
Other
expense, net
|
(27,377 | ) | 1,188 | --- | (26,189 | ) | ||||||||||
Income before
income tax expense
|
16,430 | 4,567 | --- | 20,997 | ||||||||||||
Income tax
expense
|
7,672 | 2,145 | --- | 9,817 | ||||||||||||
Net
income
|
$ | 8,758 | 2,422 | --- | 11,180 | |||||||||||
Basic net
income per common share
|
$ | 0.16 | 0.05 | --- | 0.21 | |||||||||||
Diluted net
income per common share
|
$ | 0.15 | 0.04 | --- | 0.19 | |||||||||||
Cash provided
by operating activities
|
$ | 74,337 | 1,188 | --- | 75,525 | |||||||||||
Cash used in
investing activities
|
(125,125 | ) | (1,188 | ) | --- | (126,313 | ) | |||||||||
Cash provided
by financing activities
|
18,086 | --- | --- | 18,086 | ||||||||||||
1
As reported on Form 10-Q for the nine months ended September 30,
2007
|
Reportable
Segments
|
||||||||||||||||||||
Services and
Products
|
Consumer
|
Network
Access
|
Commercial
|
Managed
Broadband
|
Regulated
Operations
|
|||||||||||||||
Voice:
|
||||||||||||||||||||
Long-distance
|
X | X | X | X | ||||||||||||||||
Local
Access
|
X | X | X | X | ||||||||||||||||
Directories
|
X | |||||||||||||||||||
Video
|
X | X | ||||||||||||||||||
Data:
|
||||||||||||||||||||
Internet
|
X | X | X | X | X | |||||||||||||||
Data
Networks
|
X | X | X | |||||||||||||||||
Managed
Services
|
X | X | ||||||||||||||||||
Managed
Broadband Services
|
X | |||||||||||||||||||
Wireless
|
X | X | X | X |
Percentage
Change 1
|
Percentage
Change 1
|
|||||||||||||||||||||||
Three
Months Ended
|
2008
|
Nine
Months Ended
|
2008
|
|||||||||||||||||||||
September
30,
|
vs.
|
September
30,
|
vs.
|
|||||||||||||||||||||
2008
|
2007
|
2007
|
2008
|
2007
|
2007
|
|||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||
Statements
of Operations Data:
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Consumer
segment
|
43.8 | % | 42.4 | % | 17.1 | % | 44.3 | % | 42.6 | % | 14.8 | % | ||||||||||||
Network
Access segment
|
25.6 | % | 31.8 | % | (9.1 | % ) | 28.0 | % | 32.0 | % | (3.8 | %) | ||||||||||||
Commercial
segment
|
19.9 | % | 20.3 | % | 10.6 | % | 19.6 | % | 20.0 | % | 8.5 | % | ||||||||||||
Managed
Broadband segment
|
6.8 | % | 5.5 | % | 39.7 | % | 6.3 | % | 5.4 | % | 26.9 | % | ||||||||||||
Regulated
Operations segment
|
3.9 | % |
NA
|
NA
|
1.8 | % |
NA
|
NA
|
||||||||||||||||
Total
revenues
|
100.0 | % | 100.0 | % | 13.1 | % | 100.0 | % | 100.0 | % | 10.2 | % | ||||||||||||
Selling,
general and administrative expenses
|
37.2 | % | 33.4 | % | 26.1 | % | 35.2 | % | 33.9 | % | 14.7 | % | ||||||||||||
Depreciation
and amortization expense
|
19.0 | % | 16.4 | % | 31.4 | % | 19.6 | % | 16.5 | % | 30.4 | % | ||||||||||||
Operating
income
|
10.5 | % | 11.3 | % | 5.3 | % | 9.3 | % | 12.1 | % | (15.8 | %) | ||||||||||||
Other
expense, net
|
9.3 | % | 6.9 | % | 53.1 | % | 7.6 | % | 6.7 | % | 23.9 | % | ||||||||||||
Income before
income taxes
|
1.2 | % | 4.4 | % | (69.4 | %) | 1.7 | % | 5.4 | % | (65.3 | %) | ||||||||||||
Net
income
|
0.2
|
% | 2.2 | % | (91.0 | %) | 0.6 | % | 2.9 | % | (77.3 | %) |
1 Percentage
change in underlying data.
|
|||
NA – Not
Applicable
|
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 11,582 | 11,750 | (1.4 | %) | |||||||
Video
|
26,241 | 23,834 | 10.1 | % | ||||||||
Data
|
10,745 | 8,736 | 23.0 | % | ||||||||
Wireless
|
17,917 | 12,475 | 43.6 | % | ||||||||
Total
Consumer segment revenue
|
$ | 66,485 | 56,795 | 17.1 | % |
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 4,357 | 5,258 | (17.9 | %) | |||||||
Video
|
10,094 | 8,931 | 13.0 | % | ||||||||
Data
|
1,598 | 1,337 | 19.5 | % | ||||||||
Wireless
|
4,525 | 7,553 | (40.1 | %) | ||||||||
Total
Consumer segment Cost of Goods Sold
|
$ | 20,574 | 23,079 | (11.0 | %) |
Third Quarter
of
|
Percentage
|
||||||||
2008
|
2007
|
Change
|
|||||||
Consumer
segment EBITDAS
|
$ | 18,008 | 11,137 |
61.7%
|
September
30,
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance subscribers1
|
89,300 | 89,700 | (0.4 | %) | ||||||||
Long-distance
minutes carried (in millions)
|
31.2 | 33.2 | (6.0 | %) | ||||||||
Total local access lines in service2
|
79,200 | 69,500 | 14.0 | % | ||||||||
Local access lines in service on GCI
facilities2
|
64,300 | 45,900 | 40.1 | % | ||||||||
Video:
|
||||||||||||
Basic subscribers3
|
131,200 | 125,600 | 4.5 | % | ||||||||
Digital programming tier subscribers4
|
70,100 | 62,600 | 12.0 | % | ||||||||
HD/DVR converter boxes5
|
62,900 | 43,600 | 44.3 | % | ||||||||
Homes
passed
|
227,400 | 222,100 | 2.4 | % | ||||||||
Average monthly gross revenue per
subscriber6
|
$ | 67.00 | $ | 63.44 | 5.6 | % | ||||||
Data:
|
||||||||||||
Cable modem subscribers7
|
92,100 | 84,100 | 9.5 | % | ||||||||
Wireless:
|
||||||||||||
Wireless lines in service8
|
81,200 | 66,100 | 25.1 | % | ||||||||
Average monthly gross revenue per
subscriber9
|
$ | 55.21 | $ | 55.87 | (1.2 | %) | ||||||
1 A
long-distance subscriber is defined as a customer account that is invoiced
a monthly long-distance plan fee or has made a long-distance call during
the month.
2 A
local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone
network.
3 A
basic cable subscriber is defined as one basic tier of service delivered
to an address or separate subunits thereof regardless of the number of
outlets purchased.
4 A
digital programming tier subscriber is defined as one digital programming
tier of service delivered to an address or separate subunits thereof
regardless of the number of outlets or digital programming tiers
purchased. Digital programming tier subscribers are a subset of basic
subscribers.
5 A
high definition/digital video recorder ("HD/DVR") converter box is defined
as one box rented by a digital programming or basic tier subscriber. A
digital programming or basic tier subscriber is not required to rent an
HD/DVR converter box to receive service.
6 Quarter-to-date
average monthly consumer video revenues divided by the average of consumer
video basic subscribers at the beginning and ending of the
period.
7 A
cable modem subscriber is defined by the purchase of cable modem service
regardless of the level of service purchased. If one entity purchases
multiple cable modem service access points, each access point is counted
as a subscriber. Cable modem subscribers may also be video basic
subscribers though basic cable service is not required to receive cable
modem service.
8 A
wireless line in service is defined as a revenue generating wireless
device.
9 Quarter-to-date
average monthly consumer wireless revenues divided by the average of
consumer wireless subscribers at the beginning and ending of the
period.
|
||||||||||||
|
·
|
A 8.8%
increase in programming services revenue to $21.1 million primarily
resulting from an increase in basic and digital programming tier
subscribers, and
|
|
·
|
A 19.8%
increase in equipment rental revenue to $4.9 million primarily resulting
from our customers’ increased use of digital distribution
technology.
|
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 19,671 | 25,856 | (23.9 | %) | |||||||
Data
|
18,148 | 14,920 | 21.6 | % | ||||||||
Wireless
|
959 | 1,881 | (49.0 | %) | ||||||||
Total Network
Access segment revenue
|
$ | 38,778 | 42,657 | (9.1 | %) |
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 6,529 | 8,710 | (24.7 | %) | |||||||
Data
|
3,456 | 3,503 | (1.3 | %) | ||||||||
Wireless
|
516 | 193 | 167.4 | % | ||||||||
Total Network
Access segment Cost of Goods Sold
|
$ | 10,501 | 12,406 | (15.1 | %) |
Third Quarter
of
|
Percentage
|
||||||||||||
2008
|
2007
|
Change
|
|||||||||||
Network
Access segment EBITDAS
|
$ |
17,635
|
21,356 | (17.4 | %) |
September
30,
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
minutes carried (in millions)
|
255.8 | 321.4 | (20.4 | %) | ||||||||
Data:
|
||||||||||||
Internet service provider access lines in
service1
|
1,800 | 2,600 | (30.8 | %) | ||||||||
1 An
Internet service provider access line in service is defined as a revenue
generating circuit or channel connecting a customer to the public switched
telephone network.
|
||||||||||||
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 7,597 | 7,838 | (3.1 | %) | |||||||
Video
|
2,999 | 2,148 | 39.6 | % | ||||||||
Data
|
18,140 | 15,961 | 13.7 | % | ||||||||
Wireless
|
1,430 | 1,322 | 8.2 | % | ||||||||
Total
Commercial segment revenue
|
$ | 30,166 | 27,269 | 10.6 | % |
Third Quarter
of
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice
|
$ | 4,771 | 5,255 | (9.1 | %) | |||||||
Video
|
432 | 419 | 3.1 | % | ||||||||
Data
|
9,357 | 7,279 | 28.6 | % | ||||||||
Wireless
|
723 | 1,163 | (37.8 | %) | ||||||||
Total
Commercial segment Cost of Goods Sold
|
$ | 15,283 | 14,116 | 8.3 | % |
Third Quarter
of
|
Percentage
|
||||||||||||
2008
|
2007
|
Change
|
|||||||||||
Commercial
segment EBITDAS
|
$ |
5,944
|
4,494 | 32.3 | % |
September
30,
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance subscribers1
|
10,200 | 10,800 | (5.6 | %) | ||||||||
Long-distance
minutes carried (in millions)
|
33.3 | 33.5 | (0.6 | %) | ||||||||
Total local access lines in service2
|
46,200 | 42,700 | 8.2 | % | ||||||||
Local access lines in service on GCI
facilities
2
|
17,900 | 11,900 | 50.4 | % | ||||||||
Data:
|
||||||||||||
Cable modem subscribers3
|
9,000 | 8,300 | 8.4 | % | ||||||||
Wireless:
|
||||||||||||
Wireless lines in service4
|
6,900 | 7,200 | (4.2 | %) | ||||||||
1 A
long-distance subscriber is defined as a customer account that is invoiced
a monthly long-distance plan fee or has made a long-distance call during
the month.
2 A
local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone
network.
3 A
cable modem subscriber is defined by the purchase of cable modem service
regardless of the level of service purchased. If one entity purchases
multiple cable modem service access points, each access point is counted
as a subscriber.
4 A
wireless line in service is defined as a revenue generating wireless
device.
|
||||||||||||
September
30,
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Managed
Broadband segment:
|
||||||||||||
SchoolAccess®
customers
|
54 | 51 | 5.9 | % | ||||||||
Rural health
customers
|
52 | 21 | 147.6 | % |
September
30,
|
Percentage
|
|||||
2008
|
2007
|
Change
|
||||
Voice:
|
||||||
Long-distance subscribers1
|
900
|
NA
|
NA
|
|||
Long-distance
minutes carried (in millions)
|
0.4 |
NA
|
NA
|
|||
Total local access lines in service2
|
12,300 |
NA
|
NA
|
|||
1 A
long-distance subscriber is defined as a customer account that is invoiced
a monthly long-distance plan fee or has made a long-distance call during
the month.
2 A
local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone
network.
NA – Not
Applicable
|
·
|
A $4.8
million increase in labor costs,
|
·
|
Upon our
acquisition of the remaining 18% of Alaska DigiTel we paid $1.8 million to
terminate the management agreement entered into in January 2007, when we
acquired 82% of the outstanding shares of Alaska
DigiTel,
|
·
|
$1.6 million
in additional expense resulting from our June 1, 2008, acquisition of UUI
and Unicom, and
|
·
|
A $960,000
contribution expense recognized upon the gift of an IRU to the University
of Alaska.
|
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 35,560 | 34,711 | 2.5 | % | |||||||
Video
|
77,556 | 71,372 | 8.7 | % | ||||||||
Data
|
31,227 | 24,953 | 25.1 | % | ||||||||
Wireless
|
45,638 | 34,490 | 32.3 | % | ||||||||
Total
Consumer segment revenue
|
$ | 189,981 | 165,526 | 14.8 | % |
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 14,084 | 15,434 | (8.7 | %) | |||||||
Video
|
29,960 | 26,721 | 12.1 | % | ||||||||
Data
|
5,301 | 3,887 | 36.4 | % | ||||||||
Wireless
|
19,619 | 21,368 | (8.2 | %) | ||||||||
Total
Consumer segment Cost of Goods Sold
|
$ | 68,964 | 67,410 | 2.3 | % |
2008
|
2007
|
Percentage
Change
|
||||||||||
Consumer
segment EBITDAS
|
$ | 43,685 | 32,060 | 36.3 | % |
September
30,
|
Percentage
|
|||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
minutes carried (in millions)
|
96.8 | 101.0 | (4.2 | %) | ||||||||
Video:
|
||||||||||||
Average monthly gross revenue per
subscriber1
|
$ | 66.58 | $ | 63.54 | 4.8 | % | ||||||
Wireless:
|
||||||||||||
Average monthly gross revenue per
subscriber2
|
$ | 56.37 | $ | 55.87 | 0.9 | % | ||||||
1 Year-to-date
average monthly consumer video revenues divided by the average of consumer
video basic subscribers at the beginning and ending of the
period.
2 Year-to-date
average monthly consumer wireless revenues divided by the average of
consumer wireless subscribers at the beginning and ending of the
period.
|
|
·
|
A 6.8%
increase in programming services revenue to $62.4 million primarily
resulting from an increase in basic and digital programming tier
subscribers, and
|
|
·
|
A 19.5%
increase in equipment rental revenue to $14.2 million primarily resulting
from our customers’ increased use of digital distribution
technology.
|
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 64,826 | 74,704 | (13.2 | %) | |||||||
Data
|
52,975 | 45,317 | 16.9 | % | ||||||||
Wireless
|
2,042 | 4,578 | (55.4 | %) | ||||||||
Total Network
Access segment revenue
|
$ | 119,843 | 124,599 | (3.8 | %) |
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 22,096 | 22,664 | (2.5 | %) | |||||||
Data
|
8,979 | 9,118 | (1.5 | %) | ||||||||
Wireless
|
1,210 | 586 | 106.5 | % | ||||||||
Total Network
Access segment Cost of Goods Sold
|
$ | 32,285 | 32,368 | (0.3 | %) |
2008
|
2007
|
Percentage
Change
|
||||||||||
Network
Access segment EBITDAS
|
$ | 59,448 | 64,664 | (8.1 | %) |
Percentage
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
minutes carried (in millions)
|
896.6 | 954.9 | (6.1 | %) |
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 22,091 | 23,740 | (7.0 | %) | |||||||
Video
|
6,968 | 5,918 | 17.7 | % | ||||||||
Data
|
50,933 | 44,476 | 14.5 | % | ||||||||
Wireless
|
4,209 | 3,509 | 20.0 | % | ||||||||
Total
Commercial segment revenue
|
$ | 84,201 | 77,643 | 8.5 | % |
2008
|
2007
|
Percentage
Change
|
||||||||||
Voice
|
$ | 14,509 | 15,000 | (3.3 | %) | |||||||
Video
|
1,202 | 1,242 | (3.2 | %) | ||||||||
Data
|
24,418 | 19,291 | 26.6 | % | ||||||||
Wireless
|
3,137 | 3,107 | 1.0 | % | ||||||||
Total
Commercial segment Cost of Goods Sold
|
$ | 43,266 | 38,640 | 12.0 | % |
2008
|
2007
|
Percentage
Change
|
||||||||||
Commercial
segment EBITDAS
|
$ | 15,965 | 12,569 | 27.0 | % |
Percentage
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
minutes carried (in millions)
|
99.1 | 100.6 | (1.5 | %) |
·
|
A $7.7
million increase in labor costs,
|
·
|
$2.4 million
in additional expense resulting from our June 1, 2008, acquisition of UUI
and Unicom,
|
·
|
Upon our
acquisition of the remaining 18% of Alaska DigiTel we paid $1.8 million to
terminate the management agreement entered into in January 2007, when we
acquired 82% of the outstanding shares of Alaska
DigiTel,
|
·
|
A $1.2
million increase in our share-based compensation
expense,
|
·
|
A $1.3
million increase in our company-wide success sharing bonus
accrual,
|
·
|
A $1.0
million increase in our facilities leases primarily related to our
wireless facilities expansion, and
|
·
|
A $960,000
contribution expense recognized upon the gift of an IRU to the University
of Alaska.
|
·
|
Our total
interest expense increased $7.8 million to $33.3 million in 2008 primarily
due to a $5.4 million increase in our senior credit facility interest
expense to $14.5 million resulting from additional debt from the
Additional Incremental Term Loan agreement beginning May 2008, the
increased interest rate on our Senior Credit Facility in May 2008, $2.3
million in additional interest expense resulting from the Galaxy 18
capital lease commencing in 2008, and a loss of $519,000 relating to the
fair value change on derivative instruments reported in interest expense,
and
|
·
|
In 2008 we
modified our existing Senior Credit Facility resulting in $1.2 million of
other third party costs and bank
fees.
|
2008
|
2007
|
||||||||
Line
extensions
|
$ | 27,887 | 46,775 | ||||||
Customer
premise equipment
|
18,068 | 16,289 | |||||||
Scalable
infrastructure
|
2,318 | 3,404 | |||||||
Upgrade/rebuild
|
2,195 | 897 | |||||||
Commercial
|
1,106 | 181 | |||||||
Support
capital
|
896 | 1,092 | |||||||
Sub-total
|
52,469 | 68,638 | |||||||
Remaining
reportable segments capital expenditures
|
120,103 | 37,786 | |||||||
|
$ |
172,572
|
106,424 |
2008
|
2007
|
|||||||
Operating
activities
|
$ | 133,083 | 75,525 | |||||
Investing
activities
|
(242,632 | ) | (126,313 | ) | ||||
Financing activities
|
128,883 | 18,086 | ||||||
Net increase (decrease) in
cash and cash equivalents
|
$ | 19,334 | (32,702 | ) |
Total
Leverage Ratio (as defined)
|
Applicable
Margin
|
|||
>3.75
|
4.25 | % | ||
>3.25 but
<3.75
|
3.75 | % | ||
>2.75 but
<3.25
|
3.25 | % | ||
<2.75
|
2.75 | % |
Years ending
December 31,
|
||||
2008
(remainder of the year)
|
$ | 3,100 | ||
2009
|
8,581 | |||
2010
|
8,839 | |||
2011
|
178,377 | |||
2012
|
176,599 | |||
2013 and
thereafter
|
341,786 | |||
717,282 | ||||
Less
unamortized discount paid on the Senior Notes
|
2,631 | |||
Less
unamortized discount paid on the Senior Credit Facility
|
2,692 | |||
Less current
portion of long-term debt
|
9,438 | |||
Adjustment to
record debt acquired from UUI at fair value
|
869 | |||
$ | 703,390 |
Payments Due
by Period
|
||||||||||||||||||||
Total
|
Less than 1
Year
|
1 to
3
Years
|
4 to
5
Years
|
More Than 5
Years
|
||||||||||||||||
(Amounts in
thousands)
|
||||||||||||||||||||
Long-term
debt
|
$ | 721,127 | 6,584 | 17,427 | 355,330 | 341,786 | ||||||||||||||
Interest on
long-term debt
|
251,632 | 45,057 | 94,060 | 77,715 | 34,800 | |||||||||||||||
Capital lease
obligations, including interest
|
167,401 | 6,947 | 23,300 | 23,400 | 113,754 | |||||||||||||||
Operating
lease commitments
|
55,429 | 10,979 | 15,535 | 10,600 | 18,315 | |||||||||||||||
Purchase
obligations
|
74,828 | 60,028 | 14,800 | --- | --- | |||||||||||||||
Other
|
66,500 | 63,500 | 3,000 | --- | --- | |||||||||||||||
Total
contractual obligations
|
$ | 1,336,917 | 193,095 | 168,122 | 467,045 | 508,655 |
|
•
|
Expanding our
accounting policy documentation and implementing policies and procedures
to periodically review our accounting policies to ensure ongoing GAAP
compliance.
|
|
•
|
With regards
to our policies and procedures for the recording of depreciation expense
during interim reporting periods, we will continue to revise our
accounting policies and implement procedures to ensure depreciation is
recorded consistent with GAAP for interim and annual reporting
periods.
|
·
|
Revenues
from universal service and access charges may be reduced or
lost. We expect to recognize $18.0 million to $19.0 million
for the year ended December 31, 2008 from local exchange network access
charges. We expect to recognize $14.0 million to $15.0 million for the
year ended December 31, 2008 from subsidies from the USF to support the
provision of local access service in high-cost areas. The
USF pays subsidies to ETCs to support the provision of local access
service in high-cost areas. Under FCC regulations, we have qualified as a
competitive ETC in the Anchorage, Fairbanks, Juneau, MTA, Mukluk,
Ketchikan, Ft. Wainwright/Eielson, and Glacier State study areas. Without
ETC status, we would not qualify for USF subsidies in these areas or other
rural areas where we propose to offer local access services, and our
revenue for providing local access services in these areas would be
materially adversely
affected.
|
Exhibit
No.
|
Description
|
31.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 by our President and
Director
|
31.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 by our Senior Vice President, Chief
Financial Officer, Secretary and Treasurer
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by our President and
Director
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by our Senior Vice President, Chief
Financial Officer, Secretary and Treasurer
|
10.158
|
Fifth
Amendment to the Amended and Restated Credit Agreement dated as of October
17, 2008 by and among Holdings, Inc. the other parties thereto and Calyon
New York Branch, as administrative agent, and the other Lenders party
thereto
|
Signature
|
Title
|
Date
|
||
/s/ Ronald A. Duncan |
President and
Director
|
November 20, 2008 | ||
Ronald A.
Duncan
|
(Principal
Executive Officer)
|
|||
/s/ John M. Lowber |
Senior Vice
President, Chief Financial
|
November 20, 2008 | ||
John M.
Lowber
|
Officer,
Secretary and Treasurer
(Principal
Financial Officer)
|
|||
/s/ Lynda L. Tarbath |
Vice
President, Chief Accounting
|
November 20, 2008 | ||
Lynda L.
Tarbath
|
Officer
(Principal
Accounting Officer)
|