UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-15279
GENERAL COMMUNICATION, INC.
(Exact name of registrant as specified in its charter)
STATE OF ALASKA 92-0072737
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (907) 265-5600
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's classes of common
stock, as of October 31, 1995 was:
19,660,199 shares of Class A common stock; and
4,175,434 shares of Class B common stock.
<PAGE>
INDEX
GENERAL COMMUNICATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
PAGE NO
PART I. FINANCIAL INFORMATION
Item l. Consolidated Financial Statements...............1
Consolidated Balance Sheets.....................1
Consolidated Statements of Operations...........3
Consolidated Statements of Stockholders'
Equity........................................4
Consolidated Statements of Cash Flows...........5
Notes to Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................24
Item 6. Exhibits and Reports on Form 8-K...............24
SIGNATURES..............................................................25
(i)
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
(Unaudited)
September 30, December 31,
ASSETS 1995 1994
------ ---- ----
(Amounts in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 2) ............ $ 2,959 1,649
------- -------
Receivables:
Trade ................................. 18,765 17,036
Other ................................. 289 221
------- -------
19,054 17,257
Less allowance for doubtful receivables ....... 285 409
------- -------
Net receivables ....................... 18,769 16,848
------- -------
Prepaid and other current assets .............. 2,726 1,275
Deferred income taxes, net (note 6) ........... 642 884
Inventory ..................................... 597 596
Notes receivable (note 3) ..................... 284 200
------- -------
Total current assets .................. 25,977 21,452
------- -------
Property and equipment, at cost (notes 5 and 9)
Land .......................................... 73 73
Distribution systems .......................... 65,962 62,549
Support equipment ............................. 12,364 10,946
Property and equipment under capital leases ... 2,030 2,030
------- -------
80,429 75,598
Less amortization and accumulated depreciation 32,544 28,085
------- -------
Net property and equipment ............ 47,885 47,513
------- -------
Notes receivable (note 3) ....................... 808 767
Investment securities available for sale (note 4) 614 875
Other assets, at cost, net of amortization ...... 4,297 3,642
------- -------
Total assets .......................... $79,581 74,249
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1 (Continued)
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
<CAPTION>
(Unaudited)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---- ----
(Amounts in thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 5) .......... $ 1,635 1,585
Current maturities of obligations under
capital leases (note 9) ............................. 276 249
Accounts payable ....................................... 14,272 11,841
Accrued payroll and payroll related obligations ........ 1,844 4,036
Deferred revenues ...................................... 1,188 1,097
Accrued liabilities .................................... 973 711
Accrued income taxes (note 6) .......................... 206 217
Accrued interest ....................................... 114 101
-------- --------
Total current liabilities ...................... 20,508 19,837
Long-term debt, excluding current maturities (note 5) .... 8,748 10,969
Obligations under capital leases, excluding
current maturities (note 9) ........................... 86 257
Obligations under capital leases due to related parties,
excluding current maturities (note 9) ................. 753 791
Deferred income taxes, net (note 6) ...................... 7,164 6,522
Other liabilities ........................................ 972 780
-------- --------
Total liabilities .............................. 38,231 39,156
-------- --------
Stockholders' equity (notes 2, 6 and 7):
Common stock (no par):
Class A. Authorized
50,000,000 shares; issued and
outstanding 19,660,199 and 19,616,614
shares at September 30, 1995 and December 31,
1994, respectively .......................... 13,874 13,830
Class B. Authorized
10,000,000 shares; issued and
outstanding 4,175,434 and 4,179,019
shares at September 30, 1995 and December 31,
1994, respectively .......................... 3,432 3,432
Less cost of 120,111 and 105,111 Class A common
stock held in treasury at September 30, 1995 and
December 31, 1994, respectively ...................... (379) (328)
Paid-in capital .......................................... 4,209 3,641
Retained earnings ........................................ 20,214 14,518
-------- --------
Total stockholders' equity ..................... 41,350 35,093
-------- --------
Committments and contingencies (notes 9 and 10)
Total liabilities and stockholders' equity ..... $ 79,581 74,249
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Transmission services (note 8) ........ $ 31,380 27,344 87,512 77,754
Systems sales and service ............. 1,310 2,698 5,128 7,669
Other ................................. 673 643 2,276 2,410
-------- -------- -------- --------
Total revenues ................... 33,363 30,685 94,916 87,833
Cost of sales ............................ 17,815 15,945 51,681 45,762
-------- -------- -------- --------
Contribution ..................... 15,548 14,740 43,235 42,071
-------- -------- -------- --------
Operating costs and expenses:
Operating and engineering ............. 2,221 1,951 6,349 5,626
Service ............................... 602 1,273 2,248 3,459
Sales and communications .............. 2,578 1,786 6,500 5,092
General and administrative ............ 3,588 4,121 10,781 10,695
Legal and regulatory .................. 419 343 1,227 977
Bad debt .............................. 424 293 993 671
Depreciation and amortization ......... 1,608 1,623 4,733 5,188
-------- -------- -------- --------
Total operating costs and expenses 11,440 11,390 32,831 31,708
-------- -------- -------- --------
Operating income ................. 4,108 3,350 10,404 10,363
-------- -------- -------- --------
Other income (expense):
Interest expense (notes 2 and 5) ...... (336) (365) (927) (1,220)
Interest income ....................... 54 65 174 152
-------- -------- -------- --------
Total other income (expense) ..... (282) (300) (753) (1,068)
-------- -------- -------- --------
Earnings before income taxes ..... 3,826 3,050 9,651 9,295
Income tax expense (notes 2 and 6) ....... 1,574 1,056 3,955 3,483
-------- -------- -------- --------
Net earnings ..................... $ 2,252 1,994 5,696 5,812
======== ======== ======== ========
Net earnings per common share (note 1(c)) $ .09 .08 .23 .24
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<CAPTION>
(Unaudited) (Unaudited)
Shares of Class A Class B Class A
Common Stock Common Common Shares Held Paid-in Retained
Class A Class B Stock Stock in Treasury Capital Earnings
------- ------- ----- ----- ----------- ------- --------
(Amounts in thousands) (Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ............ 19,001 4,114 $13,470 3,432 (328) 3,252 7,384
Net earnings ............................. -- -- -- -- -- -- 5,812
Class B shares converted to Class A ...... 7 (7) -- -- -- -- --
Tax effect of excess stock compensation
expense for tax purposes over amounts
recognized for financial reporting
purposes ............................... -- -- -- -- -- 251 --
Shares issued under stock option plan .... 12 -- 21 -- -- -- --
Shares issued under warrant agreement, net 150 -- 101 -- -- -- --
Shares issued and issuable under
officer stock option agreements ........ 271 74 11 -- -- 17 --
------- ------- ------- ------- ------- ------- -------
Balances at September 30, 1994 ........... 19,441 4,181 $13,603 3,432 (328) 3,520 13,196
======= ======= ======= ======= ======= ======= =======
Balances at December 31, 1994 ............ 19,617 4,179 $13,830 3,432 (328) 3,641 14,518
Net earnings ............................. -- -- -- -- -- -- 5,696
Class B shares converted to Class A ...... 3 (3) -- -- -- -- --
Tax effect of excess stock compensation
expense for tax purposes over amounts
recognized for financial reporting
purposes ............................... -- -- -- -- -- 565 --
Shares purchased under deferred
compensation plan ..................... -- -- -- -- (51) -- --
Shares issued under stock option plan .... 20 -- 44 -- -- -- --
Shares issued under officer stock
option agreements ...................... 20 -- -- -- -- 3 --
------- ------- ------- ------- ------- ------- -------
Balances at September 30, 1995 ........... 19,660 4,176 $13,874 3,432 (379) 4,209 20,214
======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................................ $ 5,696 5,812
Adjustments to reconcile net earnings
to net cash provided (used) by operating activities:
Depreciation and amortization ..................... 4,733 5,188
Provision for deferred income taxes ............... 1,449 1,293
Other items not requiring cash (note 2) ........... (8) (19)
Change in operating assets and liabilities (note 2) (2,655) 4,096
------- -------
Net cash provided by operating activities ....... 9,215 16,370
------- -------
Cash flows from investing activities:
Purchase of property and equipment ...................... (4,831) (6,101)
Restricted cash investments ............................. -- 684
Notes receivable payments ............................... 109 7
Notes receivable issued ................................. (206) (279)
Refund of long-term deposits and purchases of other
assets, net ........................................... (668) 262
------- -------
Net cash used by investing activities ........... (5,596) (5,427)
------- -------
Cash flows from financing activities:
Repayments of long-term borrowings and capital lease
obligations............................................ (2,353) (6,073)
Proceeds from stock issuance ............................ 44 133
------- -------
Net cash used by financing activities ........... (2,309) (5,940)
------- -------
Increase in cash and cash equivalents ........... 1,310 5,003
Cash and cash equivalents at beginning of period .......... 1,649 2,623
------- -------
Cash and cash equivalents at end of period ................ $ 2,959 7,626
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) Summary of Significant Accounting Principles
(a) General
General Communication, Inc. ("GCI"), an Alaska corporation, was
incorporated in 1979. GCI Communication Corp. ("GCC") , an Alaska
corporation, is a wholly owned subsidiary of GCI and was incorporated
in 1990. GCI Communication Services, Inc. ("Communication Services"),
an Alaska corporation, is a wholly-owned subsidiary of GCI and was
incorporated in 1992. GCI Leasing Co., Inc. ("Leasing Company"), an
Alaska corporation, is a wholly-owned subsidiary of Communication
Services and was incorporated in 1992. GCI and GCC are engaged in the
transmission of interstate and intrastate private line and switched
message long distance telephone service between Anchorage, Fairbanks,
Juneau, and other communities in Alaska and the remaining United
States and foreign countries. GCC also provides northbound services
to certain common carriers terminating traffic in Alaska and sells
and services dedicated communications systems and related equipment.
Communication Services provides private network point-to-point data
and voice transmission services between Alaska, Hawaii and the
western contiguous United States. Leasing Company owns and leases
capacity on an undersea fiber optic cable used in the transmission of
interstate private line and switched message long distance services
between Alaska and the remaining United States and foreign countries.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended
September 30, 1995 is not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1994.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of GCI,
its wholly-owned subsidiaries GCC and Communication Services, and
Communication Services wholly owned subsidiary Leasing Company. All
significant intercompany balances and transactions have been
eliminated in consolidation.
6
<PAGE>
(c) Net Earnings Per Common Share
<TABLE>
Primary earnings per common share are determined by dividing net
earnings by the weighted number of common and common equivalent
shares outstanding (amounts in thousands):
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 23,715 23,391 23,709 23,190
Common equivalent shares outstanding 627 876 611 940
------- ------- ------- -------
Shares used in computing primary earnings
per share 24,342 24,267 24,320 24,130
======= ======= ======= =======
</TABLE>
The difference between shares for primary and fully diluted earnings
per share was not significant in any period presented.
(d) Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash.
(e) Inventory
Inventory of merchandise for resale and parts is stated at the lower
of cost or market. Cost is determined using the first-in, first-out
method for parts and the specific identification method for equipment
held for resale.
(f) Property and Equipment
Property and equipment is stated at cost. Construction costs of
transmission facilities are capitalized. Equipment financed under
capital leases is recorded at the lower of fair market value or the
present value of future minimum lease payments.
Depreciation and amortization is computed on a straight-line basis
based upon the shorter of the lease term or the estimated useful
lives of the assets ranging from 3 to 20 years for distribution
systems and 5 to 10 years for support equipment. Amortization of
equipment financed under capitalized leases is included in
depreciation expense.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. Gains or losses are recognized at the time
of ordinary retirements, sales or other dispositions of property.
7
<PAGE>
(g) Marketable Securities
Effective January 1, 1994, GCI and subsidiaries ("the Company")
adopted Statement of Financial Accounting Standards No. 115 ("SFAS
No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS No. 115, securities when purchased, are
classified in either the trading account securities portfolio, the
securities available for sale portfolio, or the securities held to
maturity portfolio. Securities are classified as trading account
securities when the intent is profit maximization through market
appreciation and resale. Securities are classified as available for
sale when management intends to hold the securities for an indefinite
period of time. Securities are classified as held to maturity when it
is management's intent to hold these securities until maturity.
Unrealized gains or losses on securities available for sale are
excluded from earnings and reported as a net amount in a separate
component of stockholders' equity. There was no cumulative effect on
the financial statements from the adoption of SFAS No. 115.
Securities available for sale are stated at fair market value which
approximates cost.
(h) Other Assets
Other assets, excluding deferred loan costs and goodwill, are
recorded at cost and are amortized on a straight-line basis over 4 to
10 years. Deferred loan costs are recorded at cost and are amortized
on a straight-line basis over the life of the associated loan.
Goodwill totaled approximately $1,311,000 and $1,387,000 at September
30, 1995 and December 31, 1994, respectively, net of amortization of
approximately $672,000 and $596,000, respectively. Goodwill
represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over twenty years.
(i) Revenue From Services and Products
Revenues generated from long distance telecommunication services are
recognized when the services are provided. System sales from the sale
of equipment are recognized at the time the equipment is delivered or
installed. Service revenues are derived primarily from maintenance
contracts on equipment and are recognized on a prorated basis over
the term of the contract. Other revenues are recognized when the
service is provided.
(j) Income Taxes
The Company adopted Statement of Financial Accounting Standards No.
109 ("SFAS No. 109"), "Accounting for Income Taxes" in January 1993.
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable earnings in the years in which
those temporary differences are expected to be recovered or settled.
(k) Reclassifications
Reclassifications have been made to the 1994 financial statements to
make them comparable with the 1995 presentation.
8
<PAGE>
(2) Consolidated Statements of Cash Flows Supplemental Disclosures
For purposes of the Consolidated Statements of Cash Flows, the
Company's cash equivalents includes cash and all invested assets with
original maturities of less than three months.
<TABLE>
Other items not (providing) or requiring cash consist of (in
thousands):
<CAPTION>
(Unaudited)
Nine-month period ended September 30, 1995 1994
----- -----
<S> <C> <C>
Bad debt expense, net of write-offs ....... $(124) (187)
Deferred compensation and compensatory
stock options .......................... 144 123
Other non-cash income and expense items ... (28) 45
----- -----
$ (8) (19)
====== =====
</TABLE>
<TABLE>
Changes in operating assets and liabilities consist of (amounts in
thousands):
<CAPTION>
(Unaudited)
Nine-month period ended September 30, 1995 1994
------- -------
<S> <C> <C>
(Increase) decrease in trade receivables ...... $(1,729) 1,696
(Increase) in other receivables ............... (68) (132)
(Increase) in inventory ....................... (1) (34)
(Increase) decrease in prepaid and other
current assets .............................. (1,451) 356
(Increase) in income taxes receivable .......... -- (252)
Decrease in deposits ........................... -- 10
Increase in accounts payable ................... 2,431 1,131
Increase (decrease) in accrued payroll
and payroll related obligations ............. (2,192) 337
Increase (decrease) in deferred revenue......... 91 (81)
Increase in accrued liabilities ................ 262 1,129
(Decrease) in accrued income taxes ............. (11) (54)
Increase (decrease) in accrued interest ........ 13 s (10)
------- -------
$(2,655) 4,096
======= =======
</TABLE>
Income taxes paid totaled approximately $2,517,500 and $2,496,000
during the nine-month periods ended September 30, 1995 and 1994,
respectively.
Interest paid totaled approximately $914,000 and $1,230,000 during
the nine-month periods ended September 30, 1995 and 1994,
respectively.
The Company recorded $565,000 and $251,000 during the nine-month
periods ended September 30, 1995 and 1994, respectively, as paid-in
capital in recognition of the income tax effect of excess stock
compensation expense for tax purposes over amounts recognized for
financial reporting purposes.
9
<PAGE>
(3) Notes Receivable
<TABLE>
A summary of notes receivable follows:
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---- ----
(Amounts in thousands)
<S> <C> <C>
Note receivable from officer bearing interest
at the rate paid by the Company on its
senior indebtedness, secured by GCI Class A
common stock, due on the 90th day after
termination of employment or July 30, 1998,
whichever is earlier. $ 500 500
Note receivable from officer bearing interest
at 10%, secured by Company stock; payable
in equal annual installments of $36,513 through
August 26, 2004. 224 224
Notes receivable from officers and others bearing
interest at 7% to 10%, unsecured and secured by
Company common stock, shares of other common
stock and equipment; due December 31, 1995
through August 26, 2004. 292 194
------ ------
Total notes receivable 1,016 918
Less current portion (284) (200)
Plus long-term accrued interest 76 49
------- -------
$ 808 767
======= =======
</TABLE>
(4) Investment Securities Available for Sale
As of January 1, 1994 the Company adopted SFAS No. 115. Accordingly,
the Company's marketable equity securities have been classified as
available for sale securities and are reported at fair market value
which approximates cost. The Company held no trading account
investment securities at September 30, 1995.
10
<PAGE>
(5) Long-term Debt
<TABLE>
Long-term debt is summarized as follows:
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---- ----
(Amounts in thousands)
<S> <C> <C>
Credit Agreement (a) $ 1,000 2,000
Undersea Fiber and Equipment
Loan Agreement (b) 8,591 9,500
Financing Obligation (c) 792 1,054
------- -------
10,383 12,554
Less current maturities 1,635 1,585
------- -------
Long-term debt, excluding
current maturities 8,748 10,969
======= =======
</TABLE>
(a) GCI completed a refinancing of its senior indebtedness on
May 14, 1993. The new senior facility is a reducing revolver
that is amortized in quarterly payments or reductions of
$650,000 beginning June 30, 1993 through December 31, 1996
and $812,500 per quarter thereafter through its expiration
on December 31, 1997. The credit agreement provides for
interest (8.13% at September 30, 1995), among other options,
at the corporate base rate plus a margin of one to one and
one-half percent depending on the Company's leverage ratio
as defined in the agreement. A fee of .50% per annum is
assessed on the unused portion of the facility.
The credit agreement contains, among others, covenants
requiring maintenance of specific levels of operating cash
flow to indebtedness, to interest expense, to fixed charges,
and to pro forma debt service. The credit agreement includes
limitations on acquisitions, additional indebtedness and
capital expenditures, and prohibits payment of dividends,
other than stock dividends. The Company was in compliance
with all credit agreement covenants during the period
commencing May 14, 1993 (date of the refinancing) through
September 30, 1995.
Security for the credit agreement includes a pledge of the
stock of the operating subsidiary, GCC, and a first lien on
substantially all of its assets. GCI and its subsidiaries,
Communication Services and Leasing Company, are liable as
guarantors.
$2.25 million of the facility has been used to provide a
letter of credit to secure payment of certain access charges
associated with the Company's provision of
telecommunications services within the state of Alaska.
In June, 1993, the Company entered into a two-year interest
rate swap agreement with a bank whereby the rate on
$18,200,000 of debt (reduced by $422,500 per quarter
beginning July 1, 1993) was fixed at 4.45 percent plus
applicable margins. The interest effect of the difference
between the fixed rate and the three-month LIBOR
11
<PAGE>
rate was either added to or served to reduce interest
expense depending on the relative interest rates. The
agreement expired June 30, 1995.
(b) On December 31, 1992, Leasing Company entered into a
$12,000,000 loan agreement, of which approximately
$9,000,000 of the proceeds were used to acquire capacity on
the undersea fiber optic cable linking Seward, Alaska and
Pacific City, Oregon. Concurrently, Leasing Company leased
the capacity under a ten year all events, take or pay,
contract to MCI, who subleased the capacity back to the
Company. The lease and sublease agreements provide for
equivalent terms of 10 years and identical monthly payments
of $200,000. The proceeds of the lease agreement with MCI
were pledged as primary security for the financing. The loan
agreement provides for monthly payments of $170,000
including principal and interest through the earlier of
January 1, 2003, or until repaid. The loan agreement
provides for interest at the prime rate plus one-quarter
percent. Additional collateral includes substantially all of
the assets of Leasing Company including the fiber capacity
and a security interest in all of its outstanding stock. MCI
has a second position security interest in the assets of
Leasing Company.
(c) As consideration for MCI's role in enabling Leasing Company
to finance and acquire the undersea fiber optic cable
capacity described at note 5(b) above, Leasing Company
agreed to pay MCI $2,040,000 in sixty monthly payments of
$34,000. For financial statement reporting purposes, the
obligation has been recorded at its remaining present value,
using a discount rate of 10% per annum. The agreement is
secured by a second position security interest in the assets
of Leasing Company.
As of September 30, 1995 maturities of long-term debt were as follows
(in thousands):
Year ending
September 30,
1996 $ 1,635
1997 2,010
1998 2,492
1999 1,728
2000 1,890
2001 and thereafter 628
--------
$ 10,383
12
<PAGE>
(6) Income Taxes
<TABLE>
Total income tax expense for the nine-month periods ended September
30, 1995 and 1994 was allocated as follows (amounts in thousands):
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Earnings from continuing operations $3,955 3,483
Stockholders' equity, for stock option compensation
expense for tax purposes in excess of amounts
recognized for financial reporting purposes (565) (251)
------ ------
$3,390 3,232
====== ======
</TABLE>
<TABLE>
Income tax expense for the nine-month periods ended September 30,
1995 and 1994 consists of the following (amounts in thousands):
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Current tax expense:
Federal taxes $1,775 1,925
State taxes 731 265
------ ------
2,506 2,190
------ ------
Deferred tax expense:
Federal taxes 1,298 678
State taxes 151 615
------ ------
1,449 1,293
------ ------
$3,955 3,483
====== ======
</TABLE>
<TABLE>
Total income tax expense (benefit) differed from the "expected"
income tax expense (benefit) determined by applying the statutory
federal income tax rate of 34% for the nine-month periods ended
September 30, 1995 and 1994 as follows (amounts in thousands):
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
"Expected" statutory tax expense $3,281 3,160
State income taxes, net of federal benefit 582 581
Income tax effect of goodwill
amortization, nondeductible
expenditures and other items, net 92 (258)
------ -----
$3,955 3,483
====== =====
</TABLE>
13
<PAGE>
<TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at September 30, 1995 and December 31, 1994 are presented
below (amounts in thousands):
<CAPTION>
September 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Net current deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 128 199
Compensated absences, accrued for financial reporting purposes 404 333
Federal and state alternative minimum tax credit carryforwards 18 330
Workers compensation and self insurance health reserves,
principally due to accrual for financial reporting purposes 193 185
Other 75 36
------ -------
Total gross current deferred tax assets 818 1,083
Less valuation allowance ( 176) ( 199)
------ -------
Net current deferred tax assets $ 642 884
====== =======
Net long-term deferred tax assets:
Deferred compensation expense for financial
reporting purposes in excess of amounts recognized
for tax purposes $ 593 511
Employee stock option compensation expense for financial
reporting purposes in excess of amounts recognized
for tax purposes 186 234
Capital loss carryforwards 168 168
Other 217 311
------ -------
Total gross long-term deferred tax assets 1,164 1,224
Less valuation allowance ( 249) ( 226)
------ -------
Net long-term deferred tax assets 915 998
------ -------
Net long-term deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation 7,918 7,507
Other 161 13
------ -------
Total gross long-term deferred tax liabilities 8,079 7,520
------ -------
Net combined long-term deferred tax liabilities $ 7,164 6,522
====== =======
</TABLE>
The valuation allowance for deferred tax assets was $425,000 as of
September 30, 1995 and December 31, 1994.
Tax benefits associated with recorded deferred tax assets, net of
valuation allowances, are considered to be more likely than not
realizable through future reversals of existing taxable temporary
differences and future taxable income exclusive of reversing
temporary differences and carryforwards.
For income tax reporting purposes, the Company has available an
alternative minimum tax credit carryforward of approximately $18,000
which is available to reduce future federal regular income taxes, if
any, over an indefinite period. In addition, the Company has capital
loss carryovers totaling approximately $415,000 which expire in 1996
and 1997.
14
<PAGE>
(7) Stockholders' Equity
Common Stock
GCI's Class A common stock and Class B common stock are identical in
all respects, except that each share of Class A common stock has one
vote per share and each share of Class B common stock has ten votes
per share. In addition, each share of Class B common stock
outstanding is convertible, at the option of the holder, into one
share of Class A common stock.
Stock Warrants
On May 18, 1994 an officer of the Company exercised warrants. In
exchange for $114, the Company issued 160,297 and 74,028 shares of
GCI Class A and Class B common stock, respectively.
Pursuant to the terms of a stock appreciation right granted in 1988,
the Company issued to its former senior lender warrants to acquire
1,021,373 shares of GCI Class A common stock for $.85669 per share.
Warrants to purchase 600,000 shares of Class A common stock were
exercised in April and May, 1991, an additional 168,085 were
exercised in September, 1991 and the remaining warrants to purchase
253,288 shares were exercised in September and October, 1994.
Stock Option Plan
In December 1986, GCI adopted a Stock Option Plan (the "Option Plan")
in order to provide a special incentive to officers, non-employee
directors, and employees by offering them an opportunity to acquire
an equity interest in GCI. The Option Plan provides for the grant of
options for a maximum of 3,200,000 shares of GCI Class A common
stock, subject to adjustment upon the occurrence of stock dividends,
stock splits, mergers, consolidations or certain other changes in
corporate structure or capitalization. If an option expires or
terminates, the shares subject to the option will be available for
further grants of options under the Option Plan. The Option Plan is
administered by GCI's Board of Directors or a committee of
disinterested persons.
Employees of GCI (including officers and directors), employees of
affiliated companies and non-employee directors of GCI are eligible
to participate in the Option Plan. Options granted under the Option
Plan must expire not later than ten years after the date of grant.
The exercise price may be less than, equal to, or greater than the
fair market value of the shares on the date of grant. Options granted
pursuant to the Option Plan are only exercisable if at the time of
exercise the option holder is an employee or non-employee director of
GCI.
15
<PAGE>
<TABLE>
Information for the periods ended September 30, 1995 and 1994 with
respect to the Plan follows:
<CAPTION>
(Unaudited)
Shares Option Price
<S> <C> <C>
Outstanding at December 31, 1993 1,823,658 $0.75-$4.00
Granted --- ---
Exercised (22,459) $0.75-$3.00
Forfeited (21,500) $4.00
---------
Outstanding at September 30, 1994 1,779,699 $0.75-$4.00
=========
Outstanding at December 31, 1994 1,729,699 $0.75-$4.00
Granted 400,000 $4.00
Exercised (20,000) $2.25
Forfeited (11,500) $4.00
---------
Outstanding at September 30, 1995 2,098,199 $.75-$4.00
=========
Available for grant at September 30, 1995 559,553
=========
Exercisable at September 30, 1995 809,499
=========
</TABLE>
The options expire at various dates through March 2005.
Stock Options Not Pursuant to a Plan
In June 1989, officer John Lowber was granted options to acquire
100,000 Class A common shares at $.75 per share. The options vested
in equal annual increments over a five-year period and expire
February, 1999.
The Company entered into an incentive agreement in June 1989 with Mr.
Behnke, an officer of the Company. The incentive agreement provides
for the acquisition of 85,190 remaining shares of Class A common
stock of the Company for $.001 per share exercisable through June 16,
1997. The shares under the incentive agreement vested in equal annual
increments over a three-year period.
Class A Common Shares Held in Treasury
The Company acquired 105,111 shares of its Class A common stock in
1989 for approximately $328,000 to fund a deferred bonus agreement
with Mr. Duncan, an officer of the Company. The agreement provides
that the balance is payable after the later of a) termination of
employment or b) six months after the effective date of the
agreement. In September 1995, the Company acquired an additional
15,000 shares of Class A common stock for approximately $50,500 to
fund additional deferred compensation agreements for two of its
officers, including Mr. Duncan.
16
<PAGE>
Employee Stock Purchase Plan
In December 1986, GCI adopted an Employee Stock Purchase Plan (the
"Plan") qualified under Section 401 of the Internal Revenue Code of
1986 (the "Code"). The Plan provides for acquisition of the Company's
Class A and Class B common stock at market value. The Plan permits
each employee of GCI and affiliated companies who has completed one
year of service to elect to participate in the Plan. Eligible
employees may elect to reduce their compensation in any even dollar
amount up to 10 percent of such compensation up to a maximum of
$9,240 in 1995; they may contribute up to 10 percent of their
compensation with after-tax dollars, or they may elect a combination
of salary reductions and after-tax contributions.
GCI may match employee salary reductions and after tax contributions
in any amount, elected by GCI each year, but not more than 10 percent
of any one employee's compensation will be matched in any year. The
combination of salary reductions, after tax contributions and GCI
matching contributions cannot exceed 25 percent of any employee's
compensation (determined after salary reduction) for any year. GCI's
contributions will vest over nine years. The Company's matching
contributions allocated to participant accounts totaled approximately
$203,000 and $208,000 for the quarters ended September 30, 1995 and
1994, respectively, and $712,000 and $626,000 for the nine-month
periods ended September 30, 1995 and 1994, respectively. The Plan
may, at its discretion, purchase shares of common stock from the
Company at market value or may purchase GCI common stock on the open
market.
Effective for Plan years beginning on or after January 1, 1995, the
Plan was amended in December, 1994 to allow diversification of
investments into selected securities or funds. Revisions to the Plan
were implemented as of July 1, 1995. Employee contributions invested
in the Company's Class A and Class B common stock will continue to
receive up to 100% matching, as determined by the Company each year,
in the Company's Class A and Class B common stock. Employee
contributions invested in other than the Company's Class A and Class
B common stock will receive up to 50% matching, as determined by the
Company each year, in the Company's Class A and Class B common stock.
(8) Sales to Major Customers
The Company provides message telephone service to MCI and U.S. Sprint
("Sprint"), major customers. Pursuant to the terms of a contract with
MCI, the Company earned revenues of approximately $6.7 million and
$5.2 million for the quarters ended September 30, 1995 and 1994,
respectively, and approximately $17.8 million and $14.7 million for
the nine-month periods ended September 30, 1995 and 1994,
respectively. The Company earned revenues pursuant to a contract with
Sprint totaling approximately $4.0 million and $3.3s million for the
quarters ended September 30, 1995 and 1994, respectively, and $11.0
million and $9.1 million for the nine-month periods ended September
30, 1995 and 1994, respectively.
(9) Leases
The Company leases business offices, has entered into site lease
agreements and uses certain equipment and satellite transponder
capacity pursuant to operating lease arrangements. Rental costs under
such arrangements amounted to approximately $1,753,000 and $1,923,000
for the quarters ended September 30, 1995 and 1994, respectively, and
$5,184,000 and $3,969,000 for the nine-month periods ended September
30, 1995 and 1994, respectively.
17
<PAGE>
The Company entered into a long-term capital lease agreement in 1991
with the wife of the Company's president for property occupied by the
Company. Such lease is guaranteed by the Company. The lease term is
15 years with monthly payments of $14,400, increasing in $800
increments at each two year anniversary of the lease. Monthly lease
costs increased to $15,200 effective October 1993 and will increase
to $16,000 effective October 1995. If the owner sells the premises
prior to the end of the tenth year of the lease, the owner will
rebate to the Company one-half of the net sales price received in
excess of $900,000. If the property is not sold prior to the tenth
year of the lease, the owner will pay the Company the greater of
one-half of the appreciated value of the property over $900,000, or
$500,000. The leased asset was capitalized in 1991 at the owner's
cost of $900,000 and the related obligation was recorded in the
accompanying financial statements.
The leases generally provide that the Company pay the taxes,
insurance and maintenance expenses related to the leased assets.
It is expected that in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties.
(10) Commitments and Contingencies
In the normal course of the Company's operations, it and GCC are
involved in various legal and regulatory matters before the Federal
Communication Commission (FCC) and the Alaska Public Utilities
Commission. While the Company does not anticipate that the ultimate
disposition of such matters will result in abrupt changes in the
competitive structure of the Alaska market or of the business of the
Company, no assurances can be given that such changes will not occur
and that such changes would not be materially adverse to GCI.
Pursuant to the terms of a contract with one of its officers, in the
event of his death or under certain other conditions the Company is
obligated to make a payment of $450,000 to the officer or his estate.
The Company acquired life insurance in 1993 to provide for this
obligation.
In June 1995 the Company was awarded one of two 30 megahertz blocks
of spectrum auctioned by the FCC. Acquisition of the license, with
Alaska statewide coverage, for a cost of $1.65 million will allow GCI
to introduce new personal communication services (PCS) in Alaska. The
Company is developing plans for PCS deployment throughout 1995 with
construction of the system expected to begin in 1996 and service to
be offered as early as 1997 or 1998.
The Company entered into a purchase and lease-purchase option
agreement in August 1995 for the acquisition of satellite
transponders to meet its long-term satellite capacity requirements.
The amount of the down payment required in 1996 and the balance
payable upon delivery of the transponders as early as the fourth
quarter of 1997 are dependent upon a number of factors. The Company
does not expect the down payment to exceed $10.1 million and the
remaining balance payable at delivery to exceed $46 million.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's liquidity (ability to generate adequate amounts of cash
to meet the Company's need for cash) was affected by a net increase
in the Company's cash and cash equivalents of $1.3 million from
December 31, 1994 to September 30, 1995. Sources of cash in 1995
included the Company's operating activities which generated positive
cash flow of $9.2 million net of changes in the components of working
capital, and repayments of notes receivable totaling $109,000. Uses
of cash during the nine-month period of 1995 included repayment of
$2.4 million of long-term borrowings and capital lease obligations,
investment of $4.8 million in distribution and support equipment, and
payment of the final installment for a PCS spectrum license totaling
approximately $521,000.
Net receivables increased $1.9 million from December 31, 1994 to
September 30, 1995 resulting from growth in receivables attributed to
increased sales and receipt of a payment from a major customer in
October 1995, beyond the cutoff date for recording in the current
quarter.
Payments of approximately $2.2 million of accrued payroll and payroll
related obligations resulted in reduced balances at September 30,
1995 as compared to December 31, 1994.
Working capital totaled $5.5 million and $1.6 million at September
30, 1995 and December 31, 1994, respectively. Working capital
generated by operations exceeded expenditures for property, equipment
and other assets, repayment of long-term borrowings and capital lease
obligations, and the additional investment in the PCS license
resulting in the increase of $3.9 million at September 30, 1995 as
compared to December 31, 1994.
Cash flow from operating activities, as depicted in the Consolidated
Statements of Cash Flows, decreased $7.2 million during the nine
months of 1995 as compared to the same period of 1994. Cash flow
generated from operating activities was reduced by payment of current
obligations.
The Company's expenditures for property and equipment totaled $4.8
million and $6.1 million during the nine-month periods of 1995 and
1994, respectively. Management's capital expenditures plan for 1995
includes approximately $8.5 million in capital necessary to pursue
strategic initiatives, to maintain the network and to enhance
transmission capacity to meet projected traffic demands.
The two wideband transponders the Company owned reached the end of
their expected useful life in August, 1994, at which time the Company
leased replacement capacity. The cost of the leased capacity
contributed to an increase in distribution costs during the nine
months of 1995 as compared to the same period of 1994. The existing
leased capacity is expected to meet the Company's requirements until
such time that capacity is available pursuant to the terms of a new
long-term agreement which was executed in August of 1995.
The Company entered into a purchase and lease-purchase option
agreement in August 1995 for the acquisition of satellite
transponders to meet its long-term satellite capacity requirements.
The amount of the down payment required in 1996 and the balance
payable upon delivery of the transponders as early as the fourth
quarter of 1997 are dependent upon a number of factors including the
number of transponders required and the timing of their delivery and
acquisition. The Company does not expect the down payment to exceed
$10.1 million and the remaining balance payable coinciding with a
staged delivery to exceed $46 million. The Company expects to amend
its existing senior credit facility and provide a letter
19
<PAGE>
of credit to accommodate the payment in 1996 and expects to further
amend or refinance its then existing credit agreement to fund its
remaining commitment.
The Company continues to evaluate the most effective means to
integrate its telecommunications network with that of MCI. Such
integration will require capital expenditures by the Company in an
amount yet to be determined. Any investment in such capital
expenditures is expected to be recovered by increased revenues from
expanded service offerings and reductions in costs resulting from
integration of the networks.
The FCC concluded an auction of spectrum to be used for the provision
of PCS in March, 1995. The Company was named by the FCC as the high
bidder for one of the two 30 megahertz blocks of spectrum, with
Alaska statewide coverage. Acquisition of the license for a cost of
$1.65 million will allow GCI to introduce new PCS services in Alaska.
The Company will be developing plans for PCS deployment throughout
1995 with construction of the system expected to begin in 1996 and
service to be offered as early as 1997 or 1998. Expenditures for PCS
deployment could total $50 to $100 million over the next 10 year
period. The estimated cost for PCS deployment is expected to be
funded through income from operations and additional debt and
perhaps, equity financing. The Company expects to pursue additional
debt or perhaps equity financing in late 1995 or 1996 depending on
its needs. The Company's ability to deploy PCS services will be
dependent on its available resources.
Expenditures of approximately $2.5 million were made in 1994
developing new DAMA satellite communication technology. A four-module
demonstration system was constructed in 1994 and will be integrated
into the Company's telecommunication network in 1995. The digital
DAMA system allows calls to be made between remote villages using
only one satellite hop thereby reducing satellite delay and capacity
requirements while improving quality. Deployment expenditures in 1995
are expected to be funded with cash generated from operations.
Management expects that cash flow generated by the Company will be
sufficient to meet no less than the minimum required for maintenance
level capital expenditures and scheduled debt repayment. The
Company's ability to invest in discretionary capital and other
projects will depend upon its future cash flows and access to
additional debt and/or equity financing.
Results of Operations
The Company's message data and transmission services industry segment
provides interstate and intrastate long distance telephone service to
all communities within the state of Alaska through use of its
facilities and interconnect agreements with other carriers. The
Company's average rate per minute for message transmission services
increased to 19.2(cent) per minute from 18.6(cent) per minute during
the nine months of 1995 as compared to the same period in 1994,
respectively. Total revenues for the nine months of 1995 were $94.9
million, an approximate 8.1 percent increase over 1994 revenues of
$87.8 million. Rate per minute and revenue growth are attributed to
three fundamental factors, as follows:
(1) Growth in interstate telecommunication services which resulted in
billable minutes of traffic carried totaling 121 million and 105
million minutes in the third quarter of 1995 and 1994, respectively,
or 84 percent and 83 percent of total third quarter 1995 and 1994
minutes, respectively, and billable minutes of traffic carried
totaling 338 million and 305 million minutes in the nine months of
1995 and 1994, respectively, or 84 percent of total year-to-date 1995
and 1994 minutes, respectively.
20
<PAGE>
(2) Provision of intrastate telecommunication services which resulted
in billable minutes of traffic carried totaling 23.3 and 21.0 million
minutes in the third quarter of 1995 and 1994, respectively, or 16
percent and 17 percent of total third quarter 1995 and 1994 minutes,
respectively, and billable minutes of traffic carried totaling 66.6
million and 60.0 million minutes in the nine months of 1995 and 1994,
respectively, or 16 percent of total year-to-date 1995 and 1994
minutes, respectively.
(3) Increases in revenues derived from other common carriers ("OCC")
including MCI and Sprint. OCC traffic accounted for $10.7 million or
32.2% and $8.5 million or 27.6% of total revenues in the third
quarter of 1995 and 1994, respectively. OCC traffic accounted for
$28.8 million or 30.4% and $23.8 million or 27.1% of total revenues
in the nine months of 1995 and 1994, respectively.
Both MCI and Sprint are major customers of the Company. Loss of one
or both of these customers would have a significant detrimental
effect on revenues and on contribution. There are no other individual
customers, the loss of which would have a material impact on the
Company's revenues or gross profit.
System sales and service revenues totaled $1.3 million and $2.7
million in the third quarters of 1995 and 1994, respectively, and
totaled $5.1 million and $7.7 million in the nine months of 1995 and
1994, respectively. The decrease in system sales and service revenues
is attributed to fewer larger dollar equipment sales orders received
during the nine months of 1995 as compared to the same period of 1994
as well as a reduction of the company's outsourcing services provided
to the oil field services industry.
Transmission access and distribution costs, which represent cost of
sales for transmission services, amounted to approximately 54.6
percent and 54.9 percent of transmission revenues during the third
quarter of 1995 and 1994, respectively, and amounted to approximately
56.2 percent and 55.2 percent of transmission revenues during the
nine months of 1995 and 1994, respectively. The increase in
distribution costs as a percentage of transmission revenues for the
nine months of 1995 as compared to the same period of 1994 results
primarily from increases in costs associated with the Company's lease
of transponder capacity as previously described. Changes in
distribution costs as a percentage of revenues will occur as the
Company's traffic mix changes. The Company is unable to predict if or
when access charge rates will change in the future and the impact of
such changes on the Company's distribution costs.
Total operating costs and expenses increased 0.4 percent during the
third quarter of 1995 as compared to 1994 and increased 3.5 percent
during the nine months of 1995 as compared to 1994. Increases in
operating and engineering, sales and communications, general and
administrative, bad debt and legal costs were made to support the
Company's expansion efforts and the increase in minutes of traffic
carried. During the nine months of 1995 the Company incurred
approximately $295,000 for what is expected to be nonrecurring costs
related to a break in the undersea fiber optic cable and promotion of
its new DAMA technology. In general, the Company has dedicated
additional resources in certain areas to pursue longer term
opportunities. It must balance the desire to pursue such
opportunities with the need to continue to improve current
performance. Continuing legal and regulatory costs are, in large
part, associated with regulatory matters involving the FCC, the APUC,
and the Alaska Legislature.
Interest expense decreased 7.9 percent during the third quarter of
1995 as compared to 1994 and decreased 24.0 percent during the nine
months of 1995 as compared to 1994. The decrease resulted primarily
from reduction of the Company's outstanding indebtedness.
21
<PAGE>
Income tax expense totaled $1,574,000 and $1,056,000 in the third
quarter of 1995 and 1994, respectively, and $3,955,000 and $3,483,000
in the nine months of 1995 and 1994, respectively, resulting from the
application of statutory income tax rates to net earnings before
income taxes. The Company has available alternative minimum tax
credits of approximately $18,000 which are available to reduce future
federal regular income taxes, if any, over an indefinite period. In
addition, the Company has capital loss carryovers totaling
approximately $415,000 which expire in 1996 and 1997. Tax benefits
associated with recorded deferred tax assets, net of valuation
allowances, are considered to be more likely than not realizable
through future reversals of existing taxable temporary differences,
and future taxable income exclusive of reversing temporary
differences and carryforwards.
The Alaska economy is supported in large part by the oil and gas
industry. ARCO announced a 715 person downsizing in July 1994.
Similar downsizing was announced in 1994 by other companies operating
in the oil and gas industry in Alaska for 1995.
The military presence in the state of Alaska provides a significant
source of revenues to the economy of the state. A reduction in
federal military spending or closure of a major facility in Alaska
would have a substantial adverse impact on the state and would both
directly and indirectly affect the Company. A reduction in the number
of military personnel served by the Company and a reduction in the
number of private lines required by the armed forces would have a
direct effect on revenues. Indirect effects would include a reduction
of services provided across the state in support of the military
community and as a result, a reduction in the number of customers
served by the Company and volume of traffic carried.
The Pentagon released its recommendations for military base closings
and realignments in March 1995 for the fourth and possibly final
round of base closings since 1988. A review again within three or
four years is possible. The recommendations propose closure and
realignment of 146 of them for lack of need and realignment of
functions for the more efficient use of that inventory.
The following military installations located in Alaska were
recommended for closure or realignment in the report: Fort Greely
(realign, estimated loss of 438 military and 286 civilian jobs), Fort
Wainwright (realign, estimated gain of 205 military and 56 civilian
jobs), NAF Adak (closure, estimated loss of 540 military and 138
civilian jobs). If the proposed closures and realignments are
approved, the loss of jobs and associated revenues is not expected to
have a material effect on the Company's operations.
No assurance can be given that funding for existing military
installations in Alaska will not be adversely affected by
reprioritization of needs for military installations or federal
budget cuts in the future.
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"). SFAS No. 107
extends existing fair value disclosure practices for some instruments
by requiring all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not
recognized, in the statement of financial position. The Company
anticipates that the adoption of SFAS No. 107 in 1996 will not have a
material effect on the consolidated financial statements.
Effective January 1, 1994, the Company adopted SFAS No. 115. Under
SFAS No. 115, securities when purchased, are classified in either the
trading account securities portfolio, the securities available for
sale portfolio, or the securities held to maturity portfolio.
Unrealized gains or losses on securities available for sale are
excluded from earnings and reported as a
22
<PAGE>
net amount in a separate component of stockholders' equity. There was
no cumulative effect on the financial statements from the adoption of
SFAS No. 115. The Company's marketable equity securities have been
classified as available for sale securities and are reported at their
fair market value which approximates cost. The Company held no
trading account investment securities at December 31, 1994.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instrument" ("SFAS No. 119"). SFAS No. 119 requires disclosures
regarding amount, nature and terms of derivative financial
instruments, for instance futures, forward, swap and option contracts
and other instruments with similar characteristics. The Company
anticipates that the adoption of SFAS No. 119 in 1996 will not have a
material effect on consolidated financial statements.
The Company generally has experienced increased costs in recent years
due to the effect of inflation on the cost of labor, material and
supplies, and plant and equipment. A portion of the increased labor
and material and supplies costs directly affects income through
increased maintenance and operating costs. The cumulative impact of
inflation over a number of years has resulted in higher depreciation
expense and increased costs for current replacement of productive
facilities. However, operating efficiencies have partially offset
this impact, as have price increases, although the latter have
generally not been adequate to cover increased costs due to
inflation. Competition and other market factors limit the Company's
ability to price services and products based upon inflation's effect
on costs.
23
<PAGE>
II. OTHER INFORMATION
(l) Legal Proceedings
Information regarding pending legal proceedings to which the Company
is a party is included in Note 10 of Notes to Consolidated Financial
Statements and is incorporated herein by reference.
(6) Exhibits and Reports on Form 8-K
(a) Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September
30, 1995 - None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL COMMUNICATION, INC.
November 8, 1995 By: /s/ Ronald A. Duncan
- ---------------------- --------------------------------
(Date) Ronald A. Duncan, President and
Director
(Principal Executive Officer)
November 8, 1995 By: /s/ John M. Lowber
- ---------------------- --------------------------------
(Date) John M. Lowber, Senior Vice
President and Chief Financial
Officer
(Principal Financial Officer)
November 8, 1995 By: /s/ Alfred J. Walker
- ---------------------- --------------------------------
(Date) Alfred J. Walker,
Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTERIM CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,959
<SECURITIES> 0
<RECEIVABLES> 18,765
<ALLOWANCES> 285
<INVENTORY> 597
<CURRENT-ASSETS> 25,977
<PP&E> 80,429
<DEPRECIATION> 32,544
<TOTAL-ASSETS> 79,581
<CURRENT-LIABILITIES> 20,508
<BONDS> 9,587
<COMMON> 16,927
0
0
<OTHER-SE> 24,423
<TOTAL-LIABILITY-AND-EQUITY> 79,581
<SALES> 0
<TOTAL-REVENUES> 94,916
<CGS> 0
<TOTAL-COSTS> 51,681
<OTHER-EXPENSES> 14,557
<LOSS-PROVISION> 993
<INTEREST-EXPENSE> 927
<INCOME-PRETAX> 9,651
<INCOME-TAX> 3,955
<INCOME-CONTINUING> 5,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,696
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
