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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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o TRANSITION 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
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|||
incorporation
or organization)
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Identification
No.)
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2550
Denali Street
|
||||
Suite
1000
|
||||
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)
|
Smaller
reporting company o
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Page No.
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||||
4
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||||
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||||
5
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||||
7
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||||
8
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||||
9
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||||
24
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||||
39
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||||
39
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||||
41
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||||
41
|
||||
Other items
are omitted, as they are not applicable.
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||||
42
|
(Amounts in
thousands)
|
(Unaudited)
|
|||||||
March
31,
|
December
31,
|
|||||||
ASSETS
|
2009
|
2008
|
||||||
Current
assets:
|
||||||||
Cash and cash
equivalents
|
$ | 25,510 | 29,904 | |||||
Receivables
|
105,706 | 113,136 | ||||||
Less
allowance for doubtful receivables
|
2,946 | 2,582 | ||||||
Net
receivables
|
102,760 | 110,554 | ||||||
Inventories
|
8,299 | 7,085 | ||||||
Deferred
income taxes
|
7,034 | 7,843 | ||||||
Prepaid
expenses
|
6,424 | 5,960 | ||||||
Investment
securities
|
1,349 | 1,563 | ||||||
Other current
assets
|
1,228 | 647 | ||||||
Total current
assets
|
152,604 | 163,556 | ||||||
Property and
equipment in service, net of depreciation
|
796,044 | 793,051 | ||||||
Construction
in progress
|
45,204 | 54,098 | ||||||
Net property
and equipment
|
841,248 | 847,149 | ||||||
Cable
certificates
|
191,565 | 191,565 | ||||||
Goodwill
|
68,477 | 66,868 | ||||||
Wireless
licenses
|
25,967 | 25,967 | ||||||
Other
intangible assets, net of amortization
|
21,019 | 22,976 | ||||||
Deferred loan
and senior notes costs, net of amortization
|
6,142 | 6,496 | ||||||
Other
assets
|
10,772 | 10,724 | ||||||
Total other
assets
|
323,942 | 324,596 | ||||||
Total
assets
|
$ | 1,317,794 | 1,335,301 |
(Amounts in
thousands)
|
(Unaudited)
|
|||||||
March
31,
|
December
31,
|
|||||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
2009
|
2008
|
||||||
Current
liabilities:
|
||||||||
Current
maturities of obligations under long-term debt and capital
leases
|
$ | 12,951 | 12,857 | |||||
Accounts
payable
|
31,608 | 40,497 | ||||||
Deferred
revenue
|
22,100 | 22,095 | ||||||
Accrued
payroll and payroll related obligations
|
18,045 | 22,632 | ||||||
Accrued
liabilities
|
13,396 | 11,043 | ||||||
Accrued
interest
|
3,768 | 10,224 | ||||||
Subscriber
deposits
|
1,386 | 1,262 | ||||||
Total current
liabilities
|
103,254 | 120,610 | ||||||
Long-term
debt
|
706,076 | 708,406 | ||||||
Obligations
under capital leases, excluding current maturities
|
92,874 | 94,029 | ||||||
Obligation
under capital lease due to related party, excluding current
maturity
|
1,870 | 1,868 | ||||||
Deferred
income taxes
|
85,897 | 86,187 | ||||||
Long-term
deferred revenue
|
51,358 | 49,998 | ||||||
Other
liabilities
|
15,078 | 15,288 | ||||||
Total
liabilities
|
1,056,407 | 1,076,386 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Common stock
(no par):
|
||||||||
Class A.
Authorized 100,000 shares; issued 49,843 and 50,062 shares at March 31,
2009 and December 31, 2008, respectively; outstanding 49,568 and 49,593
shares at March 31, 2009 and December 31, 2008,
respectively
|
150,078 | 151,262 | ||||||
Class B.
Authorized 10,000 shares; issued 3,203 shares at March 31, 2009 and
December 31, 2008; outstanding 3,201 shares at March 31, 2009 and December
31, 2008; convertible on a share-per-share basis into Class A common
stock
|
2,706 | 2,706 | ||||||
Less cost of
277 and 283 Class A and Class B common shares held in treasury at March
31, 2009 and December 31, 2008, respectively
|
(2,377 | ) | (2,462 | ) | ||||
Paid-in
capital
|
29,491 | 27,233 | ||||||
Retained
earnings
|
81,489 | 80,176 | ||||||
Total
stockholders’ equity
|
261,387 | 258,915 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 1,317,794 | 1,335,301 |
|
See
accompanying notes to interim consolidated financial
statements.
|
Three Months
Ended
|
||||||||
March
31,
|
||||||||
(Amounts in
thousands, except per share amounts)
|
2009
|
2008
|
||||||
Revenues
|
$ | 148,689 | 134,674 | |||||
Cost of goods
sold (exclusive of depreciation and amortization shown separately
below)
|
47,857 | 51,311 | ||||||
Selling,
general and administrative expenses
|
56,586 | 46,406 | ||||||
Depreciation
and amortization expense
|
30,734 | 27,243 | ||||||
Operating
income
|
13,512 | 9,714 | ||||||
Other income
(expense):
|
||||||||
Interest
expense (including amortization of deferred loan
fees)
|
(12,647 | ) | (8,908 | ) | ||||
Interest
income
|
8 | 81 | ||||||
Other
expense, net
|
(12,639 | ) | (8,827 | ) | ||||
Income before
income tax expense
|
873 | 887 | ||||||
Income tax
expense
|
519 | 1,427 | ||||||
Net income
(loss)
|
354 | (540 | ) | |||||
Net loss
attributable to the non-controlling interest
|
--- | 976 | ||||||
Net income
attributable to General Communication, Inc.
|
$ | 354 | 436 | |||||
Basic net
income attributable to General Communication, Inc. common stockholders per
common share
|
$ | 0.01 | 0.01 | |||||
Diluted net
income attributable to General Communication, Inc. common stockholders per
common share
|
$ | 0.00 | 0.00 |
(Amounts in
thousands)
|
2009
|
2008
|
||||
Cash flows
from operating activities:
|
||||||
Net income
attributable to General Communication, Inc.
|
$
|
354
|
436
|
|||
Adjustments
to reconcile net income attributable to General Communication, Inc. to net
cash provided by operating activities:
|
||||||
Net loss
attributable to non-controlling interest
|
---
|
(976
|
)
|
|||
Depreciation
and amortization expense
|
30,734
|
27,243
|
||||
Share-based
compensation expense
|
1,802
|
1,260
|
||||
Deferred
income tax expense
|
519
|
1,427
|
||||
Other noncash
income and expense items
|
2,108
|
1,448
|
||||
Change in
operating assets and liabilities
|
(3,515
|
)
|
4,686
|
|||
Net cash
provided by operating activities
|
32,002
|
35,524
|
||||
Cash flows
from investing activities:
|
||||||
Purchases of
property and equipment
|
(32,546
|
)
|
(49,647
|
)
|
||
Purchases of
other assets and intangible assets
|
(448
|
)
|
(1,183
|
)
|
||
Net cash used
in investing activities
|
(32,994
|
)
|
(50,830
|
)
|
||
Cash flows
from financing activities:
|
||||||
Repayment of
debt and capital lease obligations
|
(3,168
|
)
|
(567
|
)
|
||
Borrowing on
Senior Credit Facility
|
---
|
20,000
|
||||
Other
|
(234
|
)
|
(36
|
)
|
||
Net cash
provided by (used in) financing activities
|
(3,402
|
)
|
19,397
|
|||
Net increase
(decrease) in cash and cash equivalents
|
(4,394
|
)
|
4,091
|
|||
Cash and cash
equivalents at beginning of period
|
29,904
|
13,074
|
||||
Cash and cash
equivalents at end of period
|
$
|
25,510
|
17,165
|
|
(a)
|
Business
|
|
·
|
Origination
and termination of traffic in Alaska for certain common
carriers,
|
|
·
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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,
|
|
·
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Incumbent
local access services in rural
Alaska,
|
|
·
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Long-distance
telephone service between Alaska and the remaining United States and
foreign countries,
|
|
·
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Sale of
postpaid and prepaid wireless telephone services and sale of wireless
telephone handsets and accessories,
|
|
·
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Data network
services,
|
|
·
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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,
service arrangements and maintenance of capacity on our fiber optic cable
systems used in the transmission of interstate and intrastate data,
switched message long-distance and Internet services within Alaska and
between Alaska and the remaining United States and foreign countries,
and
|
|
·
|
Distribution
of white and yellow pages directories to residential and business
customers in certain markets we serve and on-line directory
products.
|
|
(b)
|
Principles of
Consolidation
|
|
The
consolidated financial statements include the consolidated accounts of GCI
and its wholly-owned subsidiaries, as well as a variable interest entity
in which we were the primary beneficiary as defined by Financial
Accounting Standards Board ("FASB") Interpretation ("FIN") No. 46R,
“Consolidation of Variable Interest Entities, an interpretation of ARB No.
51” through August 17, 2008. All significant intercompany
transactions between non-regulated affiliates of our company are
eliminated. Statement of Financial Accounting Standard ("SFAS")
No. 71, "Accounting for the Effects of Certain Types of Regulation"
requires intercompany revenue and expenses generated between regulated and
non-regulated affiliates of the company not be eliminated on
consolidation. Intercompany revenue and expenses with
affiliates not subject to SFAS No. 71 have been
eliminated.
|
|
(c)
|
Recently Issued
Accounting Pronouncements
|
|
(d)
|
Recently Adopted
Accounting Pronouncements
|
|
On January 1,
2009, we fully adopted SFAS No. 157 “Fair Value Measurements,” to include
all nonfinancial assets and nonfinancial liabilities that are not
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The full adoption of SFAS No. 157 did
not have any effect on our consolidated financial
statements.
|
|
In April
2008, FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets.” FSP 142-3 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under SFAS No. 142, “Goodwill
and Other Intangible Assets.” FSP 142-3 applies prospectively
to intangible assets that are acquired individually or with a group of
other assets in business combinations and asset acquisitions. FSP 142-3
became effective on January 1, 2009. The adoption of FSP 142-3
effective January 1, 2009, did not have any effect on our consolidated
financial statements.
|
|
In October
2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not
Active.” FSP 157-3 clarifies the application of SFAS No. 157 in
a market that is not active and addresses application issues such as the
use of internal assumptions when relevant observable data does not exist,
the use of observable market information when the market is not active and
the use of market quotes when assessing the relevance of observable and
unobservable data. FSP 157-3 is effective for all periods presented in
accordance with SFAS No. 157. The adoption of FSP 157-3 did not have any
effect on our consolidated financial
statements.
|
|
(e)
|
Acquisitions
|
|
We acquired
100% of the outstanding stock of United Utilities, Inc ("UUI") and Unicom,
Inc. on June 1, 2008. We acquired 100% of the ownership
interests of Alaska Wireless, LLC ("Alaska Wireless") on July 1,
2008. On August 18, 2008, we acquired the 18.1% of the equity
interest and voting control of Alaska DigiTel, LLC ("Alaska
DigiTel").
|
|
Assuming we
had completed all of our acquisitions on January 1, 2008, our revenues,
net income and basic and diluted earnings per common share ("EPS") for the
three months ended March 31, 2008 would have been as follows (amounts in
thousands, except per share
amounts):
|
2008
|
||||
Pro forma
consolidated revenue
|
$ | 142,589 | ||
Pro forma net
income attributable to GCI
|
$ | (5 | ) | |
EPS:
|
||||
Basic – pro
forma
|
$ | 0.00 | ||
Diluted – pro
forma
|
$ | 0.00 |
|
(f)
|
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.
|
|
(g)
|
Revenue
Recognition
|
(h)
|
Earnings per Common
Share
|
|
We compute
net income per share of Class A and Class B common stock in accordance
with SFAS No. 128, “Earnings per Share” using the two class
method. Under the provisions of SFAS 128, basic net income per
share is computed by dividing net income applicable to common stockholders
by the weighted average number of common shares outstanding during the
year. Diluted net income per share is computed by dividing net
income applicable to common stockholders by the weighted average number of
common and dilutive common equivalent shares outstanding during the
period. The computation of the dilutive net income per share of
Class A common stock assumes the conversion of Class B common stock to
Class A common stock, while the dilutive net income per share of Class B
common stock does not assume the conversion of those
shares.
|
|
In accordance
with EITF 03-06, “Participating Securities and the Two Class Method under
FASB No. 128,” the undistributed earnings for each year are allocated
based on the contractual participation rights of Class A and Class B
common shares as if the earnings for the year had been
distributed. Considering the terms of our Articles of
Incorporation which provide that, if and when dividends are declared on
our common stock in accordance with Alaska corporate law, equivalent
dividends shall be paid with respect to the shares of Class A common stock
and Class B common stock and that both classes of common stock have
identical dividend rights and would share equally in our net assets in the
event of liquidation, we have allocated undistributed earnings on a
proportionate basis.
|
|
EPS and
common shares used to calculate basic and diluted EPS consist of the
following (amounts in thousands, except per share
amounts):
|
Three Months
Ended March 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Class
A
|
Class
B
|
Class
A
|
Class
B
|
|||||||||||||
Basic
net income per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of
undistributed earnings attributable to GCI
|
$ | 332 | 22 | 409 | 27 | |||||||||||
Denominator:
|
||||||||||||||||
Weighted
average common shares outstanding
|
49,233 | 3,201 | 49,004 | 3,255 | ||||||||||||
Basic net
income per share
|
$ | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||
Diluted
net income per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of
undistributed earnings for basic computation
|
$ | 332 | 22 | 409 | 27 | |||||||||||
Reallocation
of undistributed earnings as a result of conversion of Class B to Class A
shares
|
22 | --- | 27 | --- | ||||||||||||
Reallocation
of undistributed earnings as a result of conversion of Class B to Class A
shares outstanding
|
--- | 17 | --- | 20 | ||||||||||||
Effect of
share based compensation that may be settled in cash or
shares
|
(269 | ) | --- | (548 | ) | --- | ||||||||||
Net loss
adjusted for allocation of undistributed earnings (losses) and effect of
share based compensation that may be settled in cash or
shares
|
$ | 85 | 5 | (112 | ) | 7 | ||||||||||
Denominator:
|
||||||||||||||||
Number of
shares used in basic computation
|
49,233 | 3,201 | 49,004 | 3,255 | ||||||||||||
Conversion of
Class B to Class A common shares outstanding
|
3,201 | --- | 3,255 | --- | ||||||||||||
Effect of
share based compensation that may be settled in cash or
shares
|
376 | --- | --- | --- | ||||||||||||
Number of
shares used in per share computations
|
52,810 | 3,201 | 52,259 | 3,255 | ||||||||||||
Diluted net
income per share
|
$ | 0.00 | 0.00 | 0.00 | 0.00 |
Three Months
Ended
|
|||||
March
31,
|
|||||
2009
|
2008
|
||||
Weighted
average shares associated with outstanding share awards
|
5,863
|
5,651
|
|
(i)
|
Common
Stock
|
|
Following are
the changes in issued common stock for the three months ended March 31,
2009 and 2008 (shares, in
thousands):
|
Class
A
|
Class
B
|
|||||||
Balances at
December 31, 2007
|
50,437 | 3,257 | ||||||
Class B
shares converted to Class A
|
1 | (1 | ) | |||||
Shares issued
under stock option plan
|
2 | --- | ||||||
Shares issued
under the Director Compensation Plan
|
20 | --- | ||||||
Shares
retired
|
(540 | ) | --- | |||||
Other
|
(5 | ) | --- | |||||
Balances
at March 31, 2008
|
49,915 | 3,256 | ||||||
Balances at
December 31, 2008
|
50,062 | 3,203 | ||||||
Shares
retired
|
(219 | ) | --- | |||||
Balance at
March 31, 2009
|
49,843 | 3,203 |
|
We retired
219,000 shares of our Class A common stock during the three months ended
March 31, 2009, that were acquired to settle the minimum statutory
tax-withholding requirements pursuant to restricted stock award vesting
and the settlement of deferred
compensation.
|
|
(j)
|
Investment
Securities
|
|
We have
investment securities of $1.3 million at March 31, 2009, that are
classified as trading under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Our investments
consist primarily of money market funds and U.S. government
securities. Trading securities are recorded at fair value with
unrealized holding gains and losses included in net income. In
2009, the change in net unrealized holding gains/losses in the trading
portfolio included in earnings was a net loss of
$5,000.
|
Balance at
December 31, 2007
|
$ | 4,173 | ||
Accretion
expense for the three months ended
March 31,
2008
|
26 | |||
Balance at
March 31, 2008
|
$ | 4,199 | ||
Balance at
December 31, 2008
|
$ | 6,179 | ||
Accretion
expense for the three months ended
March 31,
2009
|
151 | |||
Liability
settled
|
(1 | ) | ||
Balance at
March 31, 2009
|
$ | 6,329 |
|
(l) |
Derivatives
|
Number of
Contracts
|
Notional
Value
|
Balance Sheet
Location
|
Fair
Value
|
|||||||
Interest rate
caps
|
2
|
$ |
180,000
|
Other
Assets
|
$ |
1
|
|
During the
three months ended March 31, 2009, a loss of $6,000 relating to the fair
value change on derivative instruments was reported in interest
expense.
|
|
The
preparation of financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant items subject to
estimates and assumptions include the allowance for doubtful receivables,
unbilled revenues, accrual of the USF high-cost area program subsidy,
share-based compensation, reserve for future customer credits, valuation
allowances for deferred income tax assets, depreciable and amortizable
lives of assets, the carrying value of long-lived assets including
goodwill, cable certificates and wireless licenses, our effective tax
rate, purchase price allocations, the accrual of cost of goods sold
exclusive of depreciation and amortization ("Cost of Goods Sold"), and the
accrual of contingencies and litigation. Actual results could differ from
those estimates.
|
(2)
|
Consolidated
Statements of Cash Flows Supplemental
Disclosures
|
|
Changes in
operating assets and liabilities consist of (amounts in
thousands):
|
Three month
period ended March 31,
|
2009
|
2008
|
||||||
Decrease in
accounts receivable
|
$ | 6,650 | 9,466 | |||||
Increase in
prepaid expenses
|
(309 | ) | (1,008 | ) | ||||
(Increase)
decrease in inventories
|
286 | (1,273 | ) | |||||
(Increase)
decrease in other current assets
|
(612 | ) | 23 | |||||
Increase
(decrease) in accounts payable
|
(633 | ) | 2,784 | |||||
Increase
(decrease) in deferred revenues
|
(91 | ) | 571 | |||||
Decrease in
accrued payroll and payroll related obligations
|
(4,650 | ) | (1,170 | ) | ||||
Increase in
accrued liabilities
|
2,353 | 756 | ||||||
Decrease in
accrued interest
|
(6,456 | ) | (5,851 | ) | ||||
Increase in
subscriber deposits
|
124 | 79 | ||||||
Increase
(decrease) in long-term deferred revenue
|
(221 | ) | 335 | |||||
Increase
(decrease) in components of other long-term liabilities
|
44 | (26 | ) | |||||
$ | (3,515 | ) | 4,686 |
|
We retired
Class A common stock in the amount of $1.2 million and $5.5 million during
the three months ended March 31, 2009 and 2008,
respectively. The Class A common stock retired in the three
months ended March 31, 2009, were acquired to settle the minimum statutory
tax-withholding requirements pursuant to restricted stock awards vesting
and the settlement of deferred
compensation.
|
(3)
|
Intangible
Assets
|
Three Months
Ended
|
||||||
March
31,
|
||||||
2009
|
2008
|
|||||
Amortization
expense
|
$
|
1,881
|
915
|
Years Ending
December 31,
|
||||
2009
|
$ | 5,604 | ||
2010
|
5,589 | |||
2011
|
3,519 | |||
2012
|
2,569 | |||
2013
|
1,270 |
(4)
Fair
Value Measurements
|
|
Observable
Inputs Level 1
|
Other
Observable Inputs Level 2
|
Unobservable
Inputs Level 3
|
Total
|
|||||
Assets
|
|||||||||
Money market
funds and U.S. government securities
|
$
|
1,349
|
---
|
---
|
1,349
|
||||
Deferred
compensation plan assets
|
1,224
|
---
|
---
|
1,224
|
|||||
Derivative
financial instruments
|
---
|
1
|
---
|
1
|
|||||
Total assets
at fair value
|
$
|
2,573
|
1
|
---
|
2,574
|
Shares
(in
thousands)
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
options and restricted stock awards at December 31, 2008
|
7,205 | $ | 9.08 | |||||
Options
granted
|
99 | $ | 6.35 | |||||
Restricted
stock awards granted
|
12 | $ | 7.36 | |||||
Restricted
stock awards vested
|
(88 | ) | $ | 12.99 | ||||
Options
forfeited and retired
|
(10 | ) | $ | 10.34 | ||||
Outstanding
options and restricted stock awards at March 31, 2009
|
7,218 | $ | 8.85 | |||||
Available for
grant at March 31, 2009
|
850 |
Shares
(in
thousands)
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2008 and March 31, 2009
|
150 | $ | 6.50 | |||||
Available for
grant at March 31, 2009
|
--- |
(6)
|
Industry Segments
Data
|
|
Corporate
related expenses including engineering, information technology,
accounting, legal and regulatory, human resources, and other general and
administrative expenses for the three months ended March 31, 2009 and 2008
are allocated to our segments using segment margin for the years ended
December 31, 2008 and 2007, respectively. Bad debt expense for
the three months ended March 31, 2009 and 2008 is allocated to our
segments using a combination of specific identification and allocations
based upon segment revenue for the three months ended March 31, 2009 and
2008, respectively. Corporate related expenses and bad debt
expense are specifically identified for our Regulated Operations segment
and therefore, are not included in the
allocations.
|
Three months
ended March 31,
|
Consumer
|
Network
Access
|
Commercial
|
Managed
Broadband
|
Regulated
Operations
|
Total
Reportable Segments
|
||||||||||||||||||
2009
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | --- | 227 | 1,456 | --- | 52 | 1,735 | |||||||||||||||||
External
|
70,719 | 33,199 | 27,992 | 10,610 | 6,169 | 148,689 | ||||||||||||||||||
Total
revenues
|
$ | 70,719 | 33,426 | 29,448 | 10,610 | 6,221 | 150,424 | |||||||||||||||||
Adjusted
EBITDA
|
$ | 18,778 | 16,919 | 5,301 | 3,918 | 1,532 | 46,448 | |||||||||||||||||
2008
|
||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Intersegment
|
$ | --- | 301 | 1,349 | --- | --- | 1,650 | |||||||||||||||||
External
|
61,383 | 39,174 | 26,591 | 7,526 | --- | 134,674 | ||||||||||||||||||
Total
revenues
|
$ | 61,383 | 39,475 | 27,940 | 7,526 | --- | 136,324 | |||||||||||||||||
Adjusted
EBITDA
|
$ | 12,254 | 20,137 | 4,325 | 2,477 | --- | 39,193 |
Three Months
Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
Reportable
segment revenues
|
$ | 150,424 | 136,324 | |||||
Less
intersegment revenues eliminated in consolidation
|
1,735 | 1,650 | ||||||
Consolidated
revenues
|
$ | 148,689 | 134,674 |
Three Months
Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
Reportable
segment adjusted EBITDA
|
$ | 46,448 | 39,193 | |||||
Less
depreciation and amortization expense
|
30,734 | 27,243 | ||||||
Less
share-based compensation expense
|
1,802 | 1,260 | ||||||
Less non-cash
contribution adjustment
|
400 | --- | ||||||
Less
net loss attributable to non-controlling interest
|
--- | 976 | ||||||
Consolidated
operating income
|
13,512 | 9,714 | ||||||
Less other
expense, net
|
12,639 | 8,827 | ||||||
Consolidated
income before income tax expense
|
$ | 873 | 887 |
(7)
|
Commitments and
Contingencies
|
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
|
||||||||||||
Three
Months Ended
|
2009
|
|||||||||||
March
31,
|
vs.
|
|||||||||||
(Unaudited)
|
2009
|
2008
|
2008
|
|||||||||
Statements
of Operations Data:
|
||||||||||||
Revenues:
|
||||||||||||
Consumer
segment
|
47.6 | % | 45.6 | % | 15.2 | % | ||||||
Network
Access segment
|
22.3 | % | 29.1 | % | (15.3 | %) | ||||||
Commercial
segment
|
18.8 | % | 19.7 | % | 5.3 | % | ||||||
Managed
Broadband segment
|
7.1 | % | 5.6 | % | 41.0 | % | ||||||
Regulated
Operations segment
|
4.2 | % | 0.0 | % |
NM
|
|||||||
Total
revenues
|
100.0 | % | 100.0 | % | 10.4 | % | ||||||
Selling,
general and administrative expenses
|
38.1 | % | 34.5 | % | 21.9 | % | ||||||
Depreciation
and amortization expense
|
20.7 | % | 20.2 | % | 12.8 | % | ||||||
Operating
income
|
9.1 | % | 7.2 | % | 39.1 | % | ||||||
Other
expense, net
|
8.5 | % | 6.6 | % | 43.2 | % | ||||||
Income before
income taxes
|
0.6 | % | 0.7 | % | (1.6 | %) | ||||||
Net income
(loss)
|
0.2 | % | (0.4 | %) | 165.6 | % | ||||||
Net income
attributable to GCI
|
0.2 | % | 0.3 | % | (18.8 | %) |
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice
|
$ | 13,915 | 11,844 | 17.5 | % | |||||||
Video
|
27,370 | 25,647 | 6.7 | % | ||||||||
Data
|
11,762 | 10,096 | 16.5 | % | ||||||||
Wireless
|
17,672 | 13,796 | 28.1 | % | ||||||||
Total
Consumer segment revenue
|
$ | 70,719 | 61,383 | 15.2 | % |
2009
|
2008
|
Percentage
Change
|
||||||||||
Voice
|
$ | 3,717 | 5,052 | (26.4 | %) | |||||||
Video
|
11,322 | 9,930 | 14.0 | % | ||||||||
Data
|
1,114 | 1,826 | (39.0 | %) | ||||||||
Wireless
|
7,250 | 7,893 | (8.2 | %) | ||||||||
Total
Consumer segment Cost of Goods Sold
|
$ | 23,403 | 24,701 | (5.3 | %) |
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Consumer
segment adjusted EBITDA
|
$ | 18,778 | 12,254 | 53.2 | % |
March
31,
|
Percentage
|
|||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
subscribers1
|
88,700 | 90,400 | (1.9 | %) | ||||||||
Long-distance
minutes carried (in millions)
|
29.6 | 33.7 | (12.2 | %) | ||||||||
Total local
access lines in service2
|
81,400 | 76,800 | 6.0 | % | ||||||||
Local access
lines in service on GCI facilities2
|
69,900 | 55,500 | 26.0 | % | ||||||||
Video:
|
||||||||||||
Basic
subscribers3
|
130,000 | 130,700 | (0.5 | %) | ||||||||
Digital
programming tier subscribers4
|
76,100 | 68,100 | 11.8 | % | ||||||||
HD/DVR
converter boxes5
|
72,100 | 55,400 | 30.1 | % | ||||||||
Homes
passed
|
229,700 | 225,700 | 1.8 | % | ||||||||
Average
monthly gross revenue per subscriber6
|
$ | 69.50 | $ | 66.09 | 5.2 | % | ||||||
Data:
|
||||||||||||
Cable modem
subscribers7
|
94,300 | 90,900 | 3.7 | % | ||||||||
Wireless:
|
||||||||||||
Wireless
lines in service8
|
97,100 | 73,000 | 33.0 | % |
Average
monthly gross revenue per subscriber9
|
$ | 58.63 | $ | 59.25 | (1.1 | %) | ||||||
1 A
long-distance customer is defined as a customer account that is invoiced a
monthly long-distance plan fee or has made a long-distance call during the
month.
2 A
local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone
network.
3 A
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. On January 1, 2009, our Consumer segment transferred
2,900 basic cable subscribers to our Commercial segment.
4 A
digital programming tier subscriber is defined as one digital programming
tier of service delivered to an address or separate subunits thereof
regardless of the number of outlets or digital programming tiers
purchased. Digital programming tier subscribers are a subset of basic
subscribers.
5 A
high definition/digital video recorder (“HD/DVR”) converter box is defined
as one box rented by a digital programming or basic tier subscriber. A
digital programming or basic tier subscriber is not required to rent an
HD/DVR converter box to receive service.
6 Year-to-date
average monthly consumer video revenues divided by the average of consumer
video basic subscribers at the beginning and end 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. On January 1, 2009, our Consumer segment transferred 1,400
cable modem subscribers to our Commercial segment.
8 A
wireless line in service is defined as a revenue generating wireless
device.
9 Year-to-date
average monthly consumer wireless revenues divided by the average of
consumer wireless subscribers at the beginning and end of the
period.
|
||||||||||||
|
·
|
A 5.0%
increase in programming services revenue to $21.7 million in 2009
primarily resulting from an increase in digital programming tier
subscribers in 2009, and
|
|
·
|
A 16.0%
increase in equipment rental revenue to $5.3 million in 2009 primarily
resulting from our customers’ increased use of our HD/DVR converter
boxes.
|
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice
|
$ | 14,334 | 21,942 | (34.7 | %) | |||||||
Data
|
17,954 | 16,839 | 6.6 | % | ||||||||
Wireless
|
911 | 393 | 131.8 | % | ||||||||
Total Network
Access segment revenue
|
$ | 33,199 | 39,174 | (15.3 | %) |
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice
|
$ | 4,077 | 7,308 | (44.2 | %) | |||||||
Data
|
2,486 | 2,726 | (8.8 | %) | ||||||||
Wireless
|
121 | 221 | (45.3 | %) | ||||||||
Total Network
Access segment Cost of Goods Sold
|
$ | 6,684 | 10,255 | (34.8 | %) |
Percentage
|
||||||
2009
|
2008
|
Change
|
||||
Network
Access segment adjusted EBITDA
|
$
|
16,919
|
20,137
|
(16.0%)
|
March
31,
|
Percentage
|
|||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice:
|
||||||||||||
Long-distance
minutes carried (in millions)
|
200.4 | 314.6 | (36.3 | %) | ||||||||
Data:
|
||||||||||||
Total
Internet service provider access lines in service1
|
1,700 | 2,600 | (34.6 | %) | ||||||||
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.
|
||||||||||||
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Voice
|
$ | 7,984 | 7,214 | 10.7 | % | |||||||
Video
|
2,050 | 1,820 | 12.6 | % | ||||||||
Data
|
16,515 | 16,209 | 1.9 | % | ||||||||
Wireless
|
1,443 | 1,348 | 7.1 | % | ||||||||
Total
Commercial segment revenue
|
$ | 27,992 | 26,591 | 5.3 | % |
2009
|
2008
|
Percentage
Change
|
||||||||||
Voice
|
$ | 4,569 | 4,929 | (7.3 | %) | |||||||
Video
|
497 | 388 | 28.1 | % | ||||||||
Data
|
7,565 | 7,580 | (0.2 | %) | ||||||||
Wireless
|
724 | 1,174 | (38.3 | %) | ||||||||
Total
Commercial segment Cost of Goods Sold
|
$ | 13,355 | 14,071 | (5.1 | %) |
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Commercial
segment adjusted EBITDA
|
$ | 5,301 | 4,325 | 22.6 | % |
|
Selected key
performance indicators for our Commercial segment
follow:
|
March
31,
|
Percentage
|
||||||||||||
2009
|
2008
|
Change
|
|||||||||||
Voice:
|
|||||||||||||
Long-distance
subscribers1
|
9,700
|
10,400
|
(6.7%)
|
||||||||||
Total local
access lines in service2
|
46,900
|
43,500
|
7.8%
|
||||||||||
Local access
lines in service on GCI facilities
2
|
18,000
|
13,400
|
34.3%
|
||||||||||
Long-distance
minutes carried (in millions)
|
32.2
|
32.8
|
(2.0%)
|
||||||||||
Data:
|
|||||||||||||
Cable modem
subscribers3
|
10,200
|
8,800
|
15.9%
|
||||||||||
Wireless:
|
|||||||||||||
Wireless
lines in service4
|
8,000
|
7,200
|
11.1%
|
||||||||||
1 A
long-distance customer is defined as a customer account that is invoiced a
monthly long-distance plan fee or has made a long-distance call during the
month.
2 A
local access line in service is defined as a revenue generating circuit or
channel connecting a customer to the public switched telephone
network.
3 A
cable modem subscriber is defined by the purchase of cable modem service
regardless of the level of service purchased. If one entity purchases
multiple cable modem service access points, each access point is counted
as a subscriber. On January 1, 2009, our Consumer segment transferred
1,400 cable modem subscribers to our Commercial segment.
4 A
wireless line in service is defined as a revenue generating wireless
device.
|
|||||||||||||
March
31,
|
Percentage
|
|||||
2009
|
2008
|
Change
|
||||
Voice:
|
||||||
Long-distance
subscribers1
|
844 |
NA
|
NA
|
|||
Long-distance
minutes carried (in thousands)
|
332 |
NA
|
NA
|
|||
Total local
access lines in service (all on GCI facilities)2
|
11,900 |
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 $3.6
million increase in labor costs,
|
·
|
$2.9 million
in additional expense resulting from our June 1, 2008, acquisition of UUI
and Unicom,
|
·
|
$748,000 in
additional expense incurred in 2009 for the conversion of our customers'
wireless phones to our facilities,
and
|
·
|
A $508,000
increase in our company-wide success sharing bonus accrual in
2009.
|
·
|
A $1.4
million increase in interest expense on our Senior Credit Facility to $4.0
million resulting from additional debt from the Additional Incremental
Term Loan agreement beginning in May 2008 and the increased interest rate
on our Senior Credit Facility beginning in May
2008,
|
·
|
$1.7 million
in additional interest expense resulting from the Galaxy 18 capital lease
commencing in May 2008, and
|
·
|
$366,000 of
additional interest expense as a result of our acquisition of UUI in June
2008.
|
2009
|
2008
|
|||||||
Line
extensions
|
$ | 1,166 | 10,320 | |||||
Customer
premise equipment
|
4,453 | 6,043 | ||||||
Scalable
infrastructure
|
113 | 1,209 | ||||||
Upgrade/rebuild
|
274 | 356 | ||||||
Commercial
|
1,207 | 232 | ||||||
Support
capital
|
133 | 30 | ||||||
Sub-total
|
7,346 | 18,190 | ||||||
Remaining
reportable segments capital expenditures
|
17,007 | 34,862 | ||||||
$ | 24,353 | 53,052 |
2009
|
2008
|
|||||||
Operating
activities
|
$ | 32,002 | 35,524 | |||||
Investing
activities
|
(32,994 | ) | (50,830 | ) | ||||
Financing
activities
|
(3,402 | ) | 19,397 | |||||
Net increase
(decrease) in cash and cash equivalents
|
$ | (4,394 | ) | 4,091 |
Exhibit
No.
|
Description
|
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
|
|
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
|
|
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
|
|
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
|
Signature
|
Title
|
Date
|
||
/s/ Ronald A. Duncan |
President and
Director
|
May 11, 2009 | ||
Ronald A.
Duncan
|
(Principal
Executive Officer)
|
|||
/s/ John M. Lowber |
Senior Vice
President, Chief Financial
|
May 11, 2009 | ||
John M.
Lowber
|
Officer,
Secretary and Treasurer
(Principal
Financial Officer)
|
|||
/s/ Lynda L. Tarbath |
Vice
President, Chief Accounting
|
May 11, 2009 | ||
Lynda L.
Tarbath
|
Officer
(Principal
Accounting Officer)
|