FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Or
( ) 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)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock Class B common stock
(Title of class) (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average bid and asked prices of such
stock as of the close of trading on February 28, 2000 was approximately
$215,690,967.
The number of shares outstanding of the registrant's common stock
as of February 29, 2000, was:
Class A common stock - 47,395,894 shares; and
Class B common stock - 3,909,014 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
in connection with the Annual Meeting of Stockholders of the registrant to be
held on June 8, 2000 are incorporated by reference into Part III of this report.
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GENERAL COMMUNICATION, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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Page
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Glossary................................................................................................................3
Cautionary statement regarding forward-looking statements...............................................................9
Part I.................................................................................................................11
Item 1. Business...................................................................................................11
General...........................................................................................................11
Financial information about industry segments.....................................................................11
Historical development of our business during the past fiscal year................................................11
Narrative description of our business.............................................................................15
Environmental regulations.........................................................................................32
Patents, trademarks, licenses, certificates of public convenience and necessity, and military franchises..........32
Regulation, franchise authorizations and tariffs..................................................................33
Financial information about our foreign and domestic operations and export sales..................................44
Seasonality.......................................................................................................44
Customer-sponsored research.......................................................................................44
Backlog of orders and inventory...................................................................................44
Geographic concentration and alaska economy.......................................................................44
Employees.........................................................................................................46
Other.............................................................................................................47
Item 2. Properties................................................................................................47
Item 3. Legal proceedings.........................................................................................49
Item 4. Submission of matters to a vote of security holders.......................................................49
Part II................................................................................................................50
Item 5. Market for the registrant's common equity and related stockholder matters..................................50
Item 6. Selected financial data....................................................................................51
Item 7. Management's discussion and analysis of financial condition and results of operations......................52
Item 7a. Quantitative and qualitative disclosures about market risk.................................................67
Item 8. Consolidated financial statements and supplementary data...................................................68
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure.......................68
Part III...............................................................................................................68
Part IV...............................................................................................................101
Item 14. Exhibits, consolidated financial statement schedules, and reports on form 8-k............................101
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This Annual Report on Form 10-K is for the year ending December 31, 1999. This
Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report.
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GLOSSARY
ACCESS CHARGES -- Expenses incurred by an IXC and paid to LECs for accessing the
local networks of the LECs in order to originate and terminate long-distance
calls and provide the customer connection for private line services.
ALASKA UNITED -- Alaska United Fiber System Partnership -- a Alaska partnership
wholly owned by The Company. Alaska United was organized to construct and
operate a new fiber optic cable connecting various locations in Alaska and the
lower 49 states and foreign countries through Seattle, Washington.
ATM -- Asynchronous Transfer Mode -- An international ISDN high-speed,
high-volume, packet switching transmission protocol standard. ATM uses short,
uniform, 53-byte cells to divide data into efficient, manageable packets for
very fast switching through a high-performance communications network. The
53-byte cells contain 5-byte destination address headers and 48 data bytes. ATM
is the first packet-switched technology designed from the ground up to support
integrated voice, video, and data communication applications. It is well suited
to high-speed WAN transmission bursts. ATM currently accommodates transmission
speeds from 64 kbps to 622 mbps. ATM may support gigabit speeds in the future.
BASIC SERVICE -- The basic service tier includes, at a minimum, all signals of
domestic television broadcast stations provided to any subscriber, any public,
educational, and governmental programming required by the franchise to be
carried on the basic tier, and any additional video programming service added to
the basic tier by the cable operator.
BOC -- BELL SYSTEM OPERATING COMPANY -- A LEC owned by any of the remaining five
Regional Bell Operating Companies, which are holding companies established
following the AT&T Divestiture Decree to serve as parent companies for the BOCs.
BACKBONE -- A centralized high-speed network that interconnects smaller,
independent networks.
BANDWIDTH -- The number of bits of information that can move through a
communications medium in a given amount of time.
BRI -- Basic Rate Interface -- An ISDN offering that allows two 64 kbps "B"
channels and one 16 kbps "D" channel to be carried over one typical single pair
of copper wires. This is the type of service that would be used to connect a
small branch or home office to a remote network. Through the use of Bonding
(bandwidth on Demand) the two 64 kbps channels can be combined to create more
bandwidth as it becomes necessary. For data services such as Internet access,
these channels can be bonded together to provide 2B+D transmission at a rate of
128 kbps. New technology increases the bandwidth of ISDN BRI connections to 230
kbps.
BROADBAND -- A high-capacity communications circuit/path, usually implying a
speed greater than 1.544 mbps.
CAP -- Competitive Access Provider -- A company that provides its customers with
an alternative to the LEC for local transport of private line and special access
telecommunications services.
CENTRAL OFFICES -- The switching centers or central switching facilities of the
LECs.
CLEC -- Competitive Local Exchange Carrier. -- A company that provides its
customers with an alternative to the ILEC for local transport of
telecommunications services, as allowed under the 1996 Telecom Act.
CO-CARRIER STATUS -- A regulatory scheme under which the incumbent LEC is
required to integrate new, competing providers of local exchange service, into
the systems of traffic exchange, inter-carrier compensation, and other
inter-carrier relationships that already exist among LECs in most jurisdictions.
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COLLOCATION -- The ability of a CAP to connect its network to the LEC's central
offices. Physical collocation occurs when a CAP places its network connection
equipment inside the LEC's central offices. Virtual collocation is an
alternative to physical collocation pursuant to which the LEC permits a CAP to
connect its network to the LEC's central offices on comparable terms, even
though the CAP's network connection equipment is not physically located inside
the central offices.
THE COMPANY -- GCI and its direct and indirect subsidiaries, also referred to as
"we," "us" and "our."
COMPRESSION / DECOMPRESSION -- A method of encoding/decoding signals that allows
transmission (or storage) of more information than the media would otherwise be
able to support. Both compression and decompression require processing capacity,
but with many products, the time is not noticeable.
CPS -- a Cable Programming Service -- (also known as CPST, Cable Programming
Service Tier). CPS includes any video programming provided over a cable system,
regardless of service tier, including installation or rental of equipment used
for the receipt of such video programming, other than (1) video programming
carried on the basic service tier, (2) video programming offered on a
pay-per-channel or pay-per-programming basis, or (3) a combination of multiple
channels of pay-per-channel or pay-per-programming basis so long as the combined
service consists of commonly-identified video programming and is not bundled
with any regulated tier of service.
DAMA -- Demand Assigned Multiple Access -- The Company's digital satellite earth
station technology that allow calls to be made between remote villages using
only one satellite hop thereby reducing satellite delay and capacity
requirements while improving quality.
DARK FIBER -- An inactive fiber-optic strand without electronics or optronics.
Dark fiber is not connected to transmitters, receivers and regenerators.
DBS -- Direct Broadcast Satellite -- Subscription television service obtained
from satellite transmissions using frequency bands that are internationally
allocated to the broadcast satellite services. Direct-to-home service such as
DBS has its origins in the large direct-to-home satellite antennas that were
first introduced in the 1970's for the reception of video programming
transmitted via satellite. Because these first-generation direct-to-home
satellites operated in the C-band frequencies at low power, direct-to-home
satellite antennas, or dishes, as they are also known, generally needed to be
seven to ten feet in diameter in order to receive the signals being transmitted.
More recently, licensees have been using the Ku and extended Ku-bands to provide
direct-to-home services enabling subscribers to use a receiving home satellite
dish less than one meter in diameter.
DS-3 -- A data communications circuit that is equivalent to 28 multiplexed T-1
channels capable of transmitting data at 44.736 mbps (sometimes called a T-3).
DEDICATED -- Telecommunications lines dedicated or reserved for use by
particular customers.
DIGITAL -- A method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the continuously
variable analog signal. The precise digital numbers minimize distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).
DLC -- Digital Loop Carrier -- A digital transmission system designed for
subscriber loop plant. Multiplexes a plurality of circuits onto very few wires
or onto a single fiber pair.
EQUAL ACCESS -- Connection provided by a LEC permitting a customer to be
automatically connected to the IXC of the customer's choice when the customer
dials "1". Also refers to a generic concept under which the BOCs must provide
access services to AT&T's competitors that are equivalent to those provided to
AT&T.
FCC -- Federal Communications Commission -- A federal regulatory body empowered
to establish and enforce rules and regulations governing public utility
companies and others, such as the Company.
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FRAME RELAY -- A wideband (64 kilobits per second to 1.544 mbps) packet-based
data interface standard that transmits bursts of data over WANs. Frame-relay
packets vary in length from 7 to 1024 bytes. Data oriented, it is generally not
used for voice or video.
FTC -- Federal Trade Commission -- A federal regulatory body empowered to
establish and enforce rules and regulations governing companies involved in
trade and commerce.
GCC -- GCI Communication Corp., an Alaska corporation and a wholly owned
subsidiary of Holdings.
GCI -- General Communication, Inc., an Alaska corporation and the Registrant.
GCI, Inc. -- a wholly owned subsidiary of GCI, an Alaska corporation and issuer
of $180 million of publicly traded bonds.
HOLDINGS -- a wholly owned subsidiary of GCI, Inc., an Alaska corporation and
party to The Company's Senior Holdings Loan.
HSD -- Home Satellite Dish - see DBS.
INBOUND "800" or "888" Service -- A service that assesses long-distance
telephone charges to the called party.
ILEC -- Incumbent Local Exchange Carrier -- with respect to an area, the LEC
that -- (A) on the date of enactment of the Telecommunications Act of 1996,
provided telephone exchange service in such area; and (B)(i) on such date of
enactment, was deemed to be a member of the exchange carrier association
pursuant to section 69.601(b) of the FCC's regulations (47 C.F.R. 69.601(b)); or
(ii) is a person or entity that, on or after such date of enactment, became a
successor or assign of a member described in clause (i).
INTEREXCHANGE -- Communication between two different LATAs.
ISDN -- Integrated Services Digital Network -- A set of standards for
transmission of simultaneous voice, data and video information over fewer
channels than would otherwise be needed, through the use of out-of-band
signalling. The most common ISDN system provides one data and two voice circuits
over a traditional copper wire pair, but can represent as many as 30 channels.
Broadband ISDN extends the ISDN capabilities to services in the Gigabit range.
(See BRI and PRI)
ISP -- Internet Service Provider -- a company providing retail and/or wholesale
Internet services.
INTERNET -- A global collection of interconnected computer networks which use
TCP/IP, a common communications protocol.
IXC -- Interexchange Carrier -- A long-distance carrier providing services
between local exchanges.
LAN -- Local Area Network -- The interconnection of computers for the purpose of
sharing files, programs and various devices such as printers and high-speed
modems. LANs may include dedicated computers or file servers that provide a
centralized source of shared files and programs.
LATA -- Local Access And Transport Area -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree. The BOCs are generally
prohibited from providing long-distance service between the LATA in which they
provide local exchange services, and any other LATA.
LEC -- Local Exchange Carrier -- A company providing local telephone services.
Each BOC is a LEC.
LINE COSTS -- Primarily includes the sum of access charges and transport
charges.
LMDS -- Local Multipoint Distribution System -- LMDS uses microwave signals
(millimeterwave signals) in the 28 GHz spectrum to transmit voice, video, and
data signals within small cells 3-10 miles in diame-
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ter. LMDS allows license holders to control up to 1.3 GHz of wireless spectrum
in the 28 GHz Ka-band. The 1.3 GHz can be used to carry digital data at speeds
in excess of one gigabit per second. LMDS uses a specific band in the microwave
spectrum, known as millimeter waves or the 28 GHz "Ka-band." More tangibly, if
LMDS were used on a point-to-point basis the beam would be about as wide as a
pencil lead (about a millimeter) and would have a frequency of approximately 28
billion cycles per second. The extremely high frequency used and the need for
point to multipoint transmissions limits the distance that a receiver can be
from a transmitter. This means that LMDS will be a "cellular" technology, based
on multiple, contiguous, or overlapping cells. LMDS is expected to provide
customers with multichannel video programming, telephony, video communications,
and two-way data services. Incumbent LECs and cable companies may not obtain the
in-region 1150 MHz license for three years. Within 10 years, licenses will be
required to provide 'substantial service' in their service regions.
LOCAL EXCHANGE -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.
LOCAL NUMBER PORTABILITY -- The ability of an end user to change Local Exchange
Carriers while retaining the same telephone number.
LOWER 48 STATES or LOWER 48 -- refers to the 48 contiguous states south of or
below Alaska.
LOWER 49 STATES OR LOWER 49 -- refers to Hawaii and the 48 contiguous states
south of or below Alaska.
MAN -- Metropolitan Area Network -- LANs interconnected within roughly a 50-mile
radius. MANs typically use fiber optic cable to connect various wire LANs.
Transmission speeds may vary from 2 to 100 Mbps.
MDU -- Multiple Dwelling Unit -- MDUs include multiple-family buildings, such as
apartment and condominium complexes.
MMDS -- Multichannel Multipoint Distribution Service - also known as wireless
cable. The FCC established the Multipoint Distribution Service (MDS) in 1972.
Originally the Commission thought MDS would be used primarily to transmit
business data. However, the service became increasingly popular in transmitting
entertainment programming. Unlike conventional broadcast stations whose
transmissions are received universally, MDS programming is designed to reach
only a subscriber based audience. In 1983 the Commission reassigned eight
channels from the Instructional Television Fixed Service (ITFS) to MDS. These
eight channels make up the MMDS. Frequently, MDS and MMDS channels are used in
combination with ITFS channels to provide video entertainment programming to
subscribers.
NARROWBAND -- A voice grade low-capacity communications circuit/path. It usually
implies a speed of 56 kilobits per second or less.
NETWORK SWITCHING CENTER -- A location where installed switching equipment
routes long-distance calls and records information with respect to calls such as
the length of the call and the telephone numbers of the calling and called
parties.
NETWORK SYSTEMS INTEGRATION -- Involves the creation of turnkey
telecommunications networks and systems including: (i) route and site selection;
(ii) rights of way and legal authorizations and/or acquisition; (iii) design and
engineering of the system, including technology and vendor assessment and
selection, determining fiber optic circuit capacity, and establishing
reliability/flexibility standards; and (iv) project and construction management,
including contract negotiations, purchasing and logistics, installation as well
as testing.
NPT -- a New Product Tier -- a cable programming service tier offered to
subscribers at prices set by the cable operator.
OCC -- Other Common Carrier -- A long-distance carrier other than the Company.
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PCS -- Personal Communication Services -- PCS encompasses a range of advanced
wireless mobile technologies and services. It promises to permit communications
to anyone, anyplace and anytime while on the move. The Cellular
Telecommunications Industry Association (CTIA) defines PCS as a "wide range of
wireless mobile technologies, chiefly cellular, paging, cordless, voice,
personal communications networks, mobile data, wireless PBX, specialized mobile
radio, and satellite-based systems." The FCC defines PCS as a "family of mobile
or portable radio communications services that encompasses mobile and ancillary
fixed communications services to individuals and businesses and can be
integrated with a variety of competing networks."
PBX -- Private Branch Exchange -- A customer premise communication switch used
to connect customer telephones (and related equipment) to LEC central office
lines (trunks), and to switch internal calls within the customer's telephone
system. Modern PBXs offer numerous software-controlled features such as call
forwarding and call pickup. A PBX uses technology similar to that used by a
central office switch (on a smaller scale). (The acronym PBX originally stood
for "Plug Board Exchange.")
POP -- Point of Presence -- The physical access location interface between a LEC
and a IXC network. The point to which the telephone company terminates a
subscriber's circuit for long-distance service or leased line communications.
PRI -- Primary Rate Interface -- An ISDN circuit transmitting at T1 (DS-1) speed
(equivalent to 24 voice-grade channels). One of the channels ("D") is used for
signaling, leaving 23 ("B") channels for data and voice communication.
PRIVATE LINE -- Uses dedicated circuits to connect customer's equipment at both
ends of the line. Does not provide any switching capability (unless supported by
customer premise equipment). Usually includes two local loops and an IXC
circuit.
PRIVATE NETWORK -- A communications network with restricted (controlled) access
usually made up of private lines (with some PBX switching).
PUBLIC SWITCHED NETWORK -- That portion of a LEC's network available to all
users generally on a shared basis (i.e., not dedicated to a particular user).
Traffic along the public switched network is generally switched at the LEC's
central offices.
RBOC -- Regional Bell Operating Company -- Any of the remaining five regional
Bell holding companies which the AT&T Divestiture Decree established to serve as
parent companies for the BOCs.
RCA -- REGULATORY COMMISSION OF ALASKA -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as The Company, within the state of Alaska (sometimes referred
to as Public Service Commissions, or PSCs, or Public Utility Commissions, or
PUCs). Previously known as the Alaska Public Utilities Commission (APUC).
RECIPROCAL COMPENSATION -- The same compensation of a new CLEC for termination
of a local call by the BOC on its network, as the new competitor pays the BOC
for termination of local calls on the BOC network.
SCHOOLACCESS(TM) -- The Company's Internet and related services offering to
schools in Alaska. The federal mandate through the 1996 Telecom Act to provide
universal service resulted in schools across Alaska qualifying for varying
levels of discounts to support the provision of Internet services. The Universal
Service Administrative Company through its Schools and Libraries Division
administers this federal program.
SDN -- Software Defined Network -- A switched long-distance service for very
large users with multiple locations. Instead of putting together their own
network, large users can get special usage rates for calls carried on regular
switched long-distance lines.
SECURITIES REFORM ACT - The Private Securities Litigation Reform Act of 1995.
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SENIOR HOLDINGS LOAN -- Holding's $150,000,000 and $50,000,000 credit
facilities. You should see note 5(b) to the accompanying Notes to Consolidated
Financial Statements included in Part II of this Report for more information.
SETTLEMENT RATES -- The rates paid to foreign carriers by United States
international carriers to terminate outbound (from the United States) switched
traffic and by foreign carriers to United States international carriers to
terminate inbound (to the United States) switched traffic.
SLC -- Subscriber Line Charge -- A charge for the telephone line that connects a
local telephone company to the subscriber's telephone system or medium.
SMATV -- Satellite Master Antenna Television -- (also known as "private cable
systems") are multichannel video programming distribution systems that serve
residential, multiple-dwelling units ("MDUs"), and various other buildings and
complexes. A SMATV system typically offers the same type of programming as a
cable system, and the operation of a SMATV system largely resembles that of a
cable system -- a satellite dish receives the programming signals, equipment
processes the signals, and wires distribute the programming to individual
dwelling units. The primary difference between the two is that a SMATV system
typically is an unfranchised, stand-alone system that serves a single building
or complex, or a small number of buildings or complexes in relatively close
proximity to each other.
SONET -- Synchronous Optical Network -- A 1984 standard for optical fiber
transmission on the public network. 52 mbps to 13.22 Gigabits per second,
effective for ISDN services including ATM.
TCP/IP -- Transmission Control Protocol/Internet Protocol -- A suite of network
protocols that allows computers with different architectures and operating
system software to communicate with other computers on the Internet.
T-1 -- A data communications circuit capable of transmitting data at 1.5 mbps.
TARIFF -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing provision
of a specific communications service or facility, which functions in lieu of a
contract between the subscriber or user and the supplier or carrier.
TOKEN RING -- A local area network technology used to interconnect personal
computers, file servers, printers, and other devices. Token Ring LANs typically
operate at either 4 mbps or 16 mbps.
TRANSPORT CHARGES -- Expenses paid to facilities-based carriers for transmission
between or within LATAs.
TRS SERVICES -- Telecommunications Relay Services -- Enables telephone
conversations between people with and without hearing or speech disabilities.
TRS relies on communications assistants ("CA") to relay the content of calls
between users of text telephones ("TTYs") and users of traditional handsets
(voice users). For example, a TTY user may telephone a voice user by calling a
TRS provider where a CA will place the call to the voice user and relay the
conversation by transcribing spoken content for the TTY user and reading text
aloud for the voice user.
WAN -- Wide Area Network - A remote computer communications system. WANs allow
file sharing among geographically distributed workgroups (typically at higher
cost and slower speed than LANs or MANs). WANs typically use common carriers'
circuits and networks. WANs may serve as a customized communication backbone
that interconnects all of an organization's local networks with communications
trunks that are designed to be appropriate for anticipated communication rates
and volumes between nodes.
WORLD WIDE WEB or WEB -- A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.
1984 CABLE ACT -- The Cable Communications Policy Act of 1984.
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1992 CABLE ACT -- The Cable Television Consumer Protection and Competition Act
of 1992.
1996 TELECOM ACT -- The Telecommunications Act of 1996 - The 1996 Telecom Act
was signed into law February 8, 1996. Under its provisions, BOCs were allowed to
immediately begin manufacturing, research and development; GTE Corp. could begin
providing interexchange services through its telephone companies nationwide;
laws in 27 states that foreclosed competition were knocked down; co-carrier
status for CLECs was ratified; and the physical collocation of competitors'
facilities in LECs central offices was allowed.
The legislation breaks down the old barriers that prevented three groups of
companies, the LECs, including the BOCs, the long-distance carriers, and the
cable TV operators, from competing head-to-head with each other. The Act
requires LECs to let new competitors into their business. It also requires the
LECs to open up their networks to ensure that new market entrants have a fair
chance of competing. The bulk of the legislation is devoted to establishing the
terms under which the LECs, and more specifically the BOCs, must open up their
networks.
The 1996 Telecom Act substantially changed the competitive and regulatory
environment for telecommunications providers by significantly amending the
Communications Act including certain of the rate regulation provisions
previously imposed by the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"). The 1996 Telecom Act eliminated rate
regulation of the cable programming service tier in 1999. Further, the
regulatory environment will continue to change pending, among other things, the
outcome of legal challenges and FCC rulemaking and enforcement activity in
respect of the 1992 Cable Act and the completion of a significant number of FCC
rulemakings under the 1996 Telecom Act.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
You should carefully review the information contained in this Annual Report, but
should particularly consider any risk factors that we set forth in this Annual
Report and in other reports or documents that we file from time to time with the
SEC. In this Annual Report, in addition to historical information, we state our
beliefs of future events and of our future operating results, financial position
and cash flows. In some cases, you can identify those so-called "forward-looking
statements" by words such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of those words and other comparable words. You should be aware
that those statements are only our predictions and are subject to risks and
uncertainties. Actual events or results may differ materially. In evaluating
those statements, you should specifically consider various factors, including
those outlined below. Those factors may cause our actual results to differ
materially from any of our forward-looking statements. For these statements, we
claim the protection of the safe harbor for forward-looking statements provided
by the Securities Reform Act.
- Material adverse changes in the economic conditions in the markets we
serve;
- The efficacy of the rules and regulations to be adopted by the FCC and
state public regulatory agencies to implement the provisions of the 1996
Telecom Act; the outcome of litigation relative thereto; and the impact of
regulatory changes relating to access reform;
- Our responses to competitive products, services and pricing, including
pricing pressures, technological developments, alternative routing
developments, and the ability to offer combined service packages that
include local, cable and Internet services; the extent and pace at which
different competitive environments develop for each segment of our
business; the extent and duration for which competitors from each segment
of the telecommunications industry are able to offer combined or full
service packages prior to our being able to do so; the degree to which we
experience material competitive impacts to our traditional service
offerings prior to achieving adequate local service entry; and competitor
responses to our products and services and overall market acceptance of
such products and services;
- The outcome of our negotiations with ILECs and state regulatory
arbitrations and approvals with respect to interconnection agreements; and
our ability to purchase unbundled network
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elements or wholesale services from ILECs at a price sufficient to permit
the profitable offering of local exchange service at competitive rates;
- Success and market acceptance for new initiatives, many of which are
untested; the level and timing of the growth and profitability of new
initiatives, particularly local access services, Internet (consumer and
business) services and wireless services; start-up costs associated with
entering new markets, including advertising and promotional efforts;
successful deployment of new systems and applications to support new
initiatives; and local conditions and obstacles;
- Uncertainties inherent in new business strategies, new product launches
and development plans, including local access services, Internet services,
wireless services, digital video services, cable modem services, and
transmission services;
- Rapid technological changes;
- Development and financing of telecommunication, local access, wireless,
Internet and cable networks and services;
- Future financial performance, including the availability, terms and
deployment of capital; the impact of regulatory and competitive
developments on capital outlays, and the ability to achieve cost savings
and realize productivity improvements;
- Availability of qualified personnel;
- Changes in, or failure, or inability, to comply with, government
regulations, including, without limitation, regulations of the FCC, the
RCA, and adverse outcomes from regulatory proceedings;
- The remaining cost of our year 2000 compliance efforts;
- Uncertainties in federal military spending levels and military base
closures in markets in which we operate;
- Other risks detailed from time to time in our periodic reports filed with
the Securities and Exchange Commission.
These forward-looking statements (and such risks, uncertainties and other
factors) are made only as of the date of this report and we expressly disclaim
any obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained in this document to reflect any change in
our expectations with regard to those statements or any other change in events,
conditions or circumstances on which any such statement is based. Readers are
cautioned not to put undue reliance on such forward-looking statements.
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PART I
Item 1. BUSINESS.
General
In this Annual Report, "we," "us" and "our" refer to General Communication, Inc.
and its direct and indirect subsidiaries.
GCI was incorporated in 1979 under the laws of the State of Alaska and has its
principal executive offices at 2550 Denali Street, Suite 1000, Anchorage, AK
99503 (telephone number 907-265-5600). Internet users can access information
about GCI and its services at http://www.GCI.com/ and
http://www.alaskaunited.com/. The Company hosts Internet services at
http://www.GCI.net/.
GCI is primarily a holding company and together with its direct and indirect
subsidiaries, is a diversified telecommunications provider with a leading
position in facilities-based long-distance service in the State of Alaska and is
Alaska's leading cable television and Internet services provider.
We are the first significant provider in Alaska of an integrated package of
long-distance, local and wireless telecommunications services, cable television
services and Internet services and are well positioned to take advantage of
growth opportunities in the communications, data and entertainment markets.
Financial information about industry segments
We have four reportable segments: long-distance services, cable services, local
access services and Internet services.
We offer a full range of common carrier long-distance and other
telecommunication services to business, government, other telecommunications
companies and consumer customers, through our networks of fiber optic cables,
digital microwave, and fixed and transportable satellite earth stations.
Individually insignificant business units including network solutions, cellular
resale and product sales are included in the "other" industry segment. None of
these business units have ever met the quantitative thresholds for determining
reportable segments.
We provide cable television services to residential, commercial and government
users in the State of Alaska. Our cable systems serve 26 communities and areas
in Alaska, including the state's three largest urban areas, Anchorage, Fairbanks
and Juneau. Cable plant upgrades have enabled us to complement existing services
by offering digital cable television services in Anchorage and Fairbanks,
enhanced analog services in Juneau, and retail cable modem service (through our
Internet segment) in Anchorage, Fairbanks and Juneau. We plan to expand our
product offerings as plant upgrades in other communities in Alaska are
completed.
We have provided facilities based competitive local exchange services in
Anchorage since 1997, and plan to provide similar competitive local exchange
services in Alaska's other major population centers. Access to other major
population centers depends on RCA approvals and negotiation and implementation
of interconnection agreements with ILECs.
We have offered wholesale and retail Internet services since 1998. Deployment of
the new undersea fiber optic cable described below has allowed us to offer
enhanced services with high-bandwidth requirements.
You should see Note 10 to our Notes to Consolidated Financial Statements
included in Part II of this Report for information about our operations by
industry segment.
Historical development of our business during the past fiscal year
Alaska United Project. We undertook a major construction project (referred to as
Alaska United) with the goal of significantly increasing our communications
bandwidth to and from locations in Alaska and
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the lower 49 states and through interconnection agreements with other carriers,
to foreign locations. After a preliminary route survey was completed and initial
cost components determined, we commissioned a detailed sea floor survey that was
completed in 1996. The results of this survey pinpointed the exact route that
the Alaska United fiber would take. We entered into a contract with Tyco
Submarine Systems, Ltd. ("TSS"), one of the world's leading submarine cable
vendors that has installed more than 150,000 miles of undersea cable. TSS was
engaged to design, engineer, manufacture, and install the undersea cable. The
cable was laid during the period from August to December 1998. Testing occurred
after that and services commenced in late January 1999 for our Anchorage to
Fairbanks segment and early February 1999 for the complete system. With
construction of Alaska United complete, we transitioned traffic from leased
satellite, terrestrial and microwave facilities to Alaska United facilities
during the first quarter of 1999.
The Alaska United project provides a high capacity fiber optic link between
points in Alaska and the lower 48 states through Seattle, Washington. Alaska
United lands at our cable terminal stations in Whittier, Valdez and Juneau,
Alaska. From Whittier, the fiber follows the Alaska railroad, highway, and
over-land rights-of-ways to Anchorage. Between Whittier and Valdez, we
constructed a second undersea fiber optic cable. The cable connects in Valdez
with a fiber constructed by Kanas Telecom, Inc. ("Kanas"). We exchanged Dark
Fiber with Kanas to obtain fiber facilities from Valdez to Fairbanks.
Kanas' largest customer filed notice of termination of its contract with Kanas.
Since that time, the ownership structure of Kanas has been reorganized, with MCI
WorldCom, Inc. becoming the principal owner and we now provide operational
support. We continue to use the Kanas fiber facilities to carry our traffic to
and from Fairbanks. We are unable to determine the ultimate resolution of these
issues at this time. However we have alternative network facilities available to
reroute any affected traffic.
In Juneau and Seattle, Alaska United connects through terminal stations to our
existing network. The cable terminal stations house the power feed equipment
necessary to power the undersea fiber optic cable system and the SONET equipment
that transports data across the terrestrial network and the undersea fiber
network.
Our Alaska United system is 2,331 miles long (1,995 miles undersea and 336 over
land) and has a total design capacity of 10 billion bits per second (22 times
what was previously available). It can route traffic in different directions in
the event of equipment failures, and users have route diversity to achieve
multiple fiber paths for back-up purposes when paired with our existing capacity
on the North Pacific Cable. It currently delivers a minimum of 32,256
simultaneous clear channel voice or data circuits at transmission speeds of 2.5
billion bits per second. As demand increases, capacity can be quadrupled to
support a minimum of 129,024 simultaneous clear channel voice or data circuits
at speeds of 10 billion bits per second.
Financing for the Alaska United undersea fiber project included $75 million
through a separate bank credit agreement dated January 27, 1998 and $50 million
from funds obtained through the 1997 issuance of senior notes. You should see
note 5 to the accompanying Notes to Consolidated Financial Statements included
in Part II of this Report for more information.
Satellite Transponders. We entered into a purchase and lease-purchase option
agreement in August 1995 for the acquisition of satellite transponders to meet
our long-term satellite capacity requirements. The launch of the satellite in
August 1998 failed. We did not assume launch risk and the launch was rescheduled
for the first quarter of 2000.
The replacement Galaxy XR satellite was successfully launched January 24, 2000
from Arianespace Space Center in Kourou, French Guiana, and was made available
to us March 5, 2000. We continue to transition our satellite communications
traffic to Galaxy XR, and upon final acceptance, intend to finalize a long-term
lease purchase transaction. We will continue to lease transponder capacity until
all telecommunications traffic is successfully transitioned to the new
satellite. The satellite increases our satellite capacity and provides
long-distance voice, fax, Internet and data traffic capabilities primarily for
our customers in rural Alaska. We will use six C- and one Ku-band transponders
on Galaxy XR once it achieves in-orbit check-
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out. The seven transponders represent a capital lease investment of
approximately $48 million. Each transponder is capable of carrying a minimum of
1,800 simultaneous voice or data calls.
The Ku-band transponder will be used to carry high-speed Internet traffic to
more than half of Alaska schools, as well as voice and data services to remote
fishing, mining and logging operations. Voice/fax, Internet, telemedicine and
distance education applications will be delivered over both C-band and Ku-band.
Local Access Services. We began offering local exchange services in Anchorage in
September 1997 and provided service to approximately 45,100, 28,300 and 3,300
lines at December 31, 1999, 1998 and 1997, respectively.
Our local access services segment face significant competition from Alaska
Communications Systems, Inc.'s subsidiaries ("ACS") and AT&T Alascom, Inc.
The sale of Anchorage Telephone Utility ("ATU") to ACS, our primary ILEC
competitor, was completed in May 1999. Subsequent to the sale and as a result of
a settlement agreement between us and ACS, our relations have normalized
somewhat with greater cooperation at operational levels resulting in some
improvement in order processing and repair activity interfaces and procedures.
Electronic access to certain of the ILEC's systems, while a scheduled term of
the settlement agreement, has yet to be realized as software development
allowing such access is still under development by ACS. Efforts to complete the
development of software interfaces continued throughout the first quarter of
2000. In the interim ACS has agreed to process our residential and small
business orders in a timelier manner, significantly reducing order delivery
intervals for:
- new and additional lines,
- move orders,
- orders for feature additions or changes, and
- switch orders that move ACS subscribers to our service.
On March 4, 1999, an Alaska Superior Court Judge determined that the APUC (now
RCA) erred in reaching its prior decision to deny our request to provide full
local telephone service in Fairbanks and Juneau, Alaska. This service would be
provided in competition against PTI (now a subsidiary of ACS), the existing
monopoly provider. Among other things, the Court instructed the APUC to
correctly assign the burden of proof to PTI rather than us, and to decide on our
specific requests to provide service in Fairbanks and Juneau based on criteria
established in the 1996 Telecom Act. The Court remanded the case back to the
APUC for proceedings leading to their ruling. On July 1, 1999, the APUC ruled
that the rural exemptions from local competition in Juneau, Fairbanks and North
Pole would not be continued, which allowed us to negotiate for unbundled
elements for the provision of competitive local service in these markets. The
ILEC moved for reconsideration of this decision, and on October 11, 1999 the new
RCA issued an order also allowing the rural exemptions in the Fairbanks and
Juneau markets to expire. The ILEC has appealed these decisions. See Part I,
Item 1. Business, Regulation, franchise authorizations and tariffs for more
information. We believe this decision is important to bring about the benefits
of competition to other communities in Alaska. We are currently in arbitration
with the ILEC for interconnection and unbundled network elements for the
provisioning of competitive local assess services in these markets. We expect
the RCA to approve an interconnection agreement for unbundled elements by
September 2000.
In early 2001 we anticipate we will be competing with ACS subsidiaries in
Fairbanks, Juneau, Fort Wainwright and Eielson Air Force Base (military bases
near Fairbanks), and in North Pole. You should see Part I, Item 1. Business,
Historical development of the Company's business during the past fiscal year -
Local Access Services for more information. We also compete against AT&T in the
Anchorage service area. AT&T offers local exchange service only to residential
customers through total service resale. We expect further competitors in the
Anchorage, Fairbanks and Juneau marketplaces, as Alaska Fiber Star and DSLnet
have filed bonafide requests for interconnection with ACS. The Company expects
competition from these latter entrants in the business customer telephony
access, Internet access, DSL and private line markets. We believe our
long-standing presence in Alaska and the strength of our brand (as well as
ACS's) will make competitive entry difficult for these new entrants.
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Cable Services Expansion. We completed $7.2 and $11.5 million upgrades to our
cable infrastructure in 1999 and 1998, respectively. These expenditures
significantly increased the capacity and reliability of our systems, making
possible two-way applications such as cable modems (as further described below)
and digital cable television programming, and provided capacity for additional
program offerings.
Digital cable television services were offered in Anchorage in 1998, offering
enhanced picture and audio quality, over 100 channels of programs, 40 channels
of digital music, and many channels of premium and pay-per-view products.
Digital cable service allows us to use digital compression to substantially
increase the capacity of our cable communications systems, improve picture
quality and provide CD quality audio. Digital cable subscriber counts increased
from 1,200 at December 31, 1998 to 5,800 at December 31, 1999.
We introduced cable modem services in 1998, providing high-speed, dedicated
access to the Internet through our coaxial cable network. Cable modem
subscribers increased from 200 at December 31, 1998 to 5,700 at December 31,
1999. We believe our cable modem penetration rate is among the highest in the
nation. Approximately 80 percent of our cable customers are able to receive
cable modem service.
Internet Services. Our statewide SchoolAccess(TM) services (Internet access and
related products and services for Alaska schools) commenced January 1998, with
recent upgrades of 47 sites doubling access speeds to 128 kbps. Schools
utilizing the SchoolAccess(TM) product are increasingly integrating the Internet
into their educational programs. We provided SchoolAccess(TM) and other Internet
services to approximately 257 schools in Alaska at the end of the fourth quarter
of 1999. Our Internet access service is now used by more than half of the
students in the state of Alaska.
We began a limited rollout of our dial-up Internet service in April 1998, which
allowed us to test our new state-of-the-art Internet platform. We began our
broad based offering in October 1998 and initiated major promotions in February
1999. Services were initially offered to residents of Anchorage, Fairbanks,
Kodiak, Juneau, Kenai, Soldotna, Palmer and Wasilla, Alaska. Other Alaska
communities were added over the next several months and continue to be added.
Our GCI.net service supports 56 kbps dial-up connections with support for both
V.90 and Kflex technologies, and supports cable modem services currently
available at speeds up to 512 kbps. We believe our service has one of the best
first-try connect rates and the fastest speeds available of any provider in
Alaska. We plan to introduce additional service upgrades and promotional
offerings in the future. Our dial-up Internet subscribers increased from less
than 7,000 at December 31, 1998 to 44,900 at December 31, 1999.
Rural Equal Access. In 1996 we constructed 56 new earth stations in Western and
Northern Alaska. As construction of those DAMA stations were completed, we
requested Equal Access from the LECs serving those communities. Under Federal
Communications Commission rules, substantially all LECs have three years to
comply with an equal access request. The three-year time period expired for many
of those locations. LECs started implementing the equal access conversion
process in late 1998 and continued to convert locations though March 1999. As a
result, approximately 34 rural DAMA-served communities were converted during
this period to equal access enabling our customers to access our network without
dialing extra digits.
PCS and LMDS licenses. We began developing plans for PCS wireless communications
service deployment in 1995 and subsequently conducted a technical trial of our
candidate technology. We have invested approximately $2.2 million in our PCS
license at December 31, 1999. PCS licensees are required to offer service to at
least one-third of their market population within five years or risk losing
their licenses. Service must be extended to two-thirds of the population within
10 years. We invested approximately $275,000 in our LMDS license in 1998. LMDS
licensees are required to provide 'substantial service' in their service regions
within 10 years. We are in the design/build phase of our wireless implementation
plan that we believe will allow retention of our PCS and LMDS licenses pursuant
to their terms.
At the end of the license period, a renewal application must be filed. We
believe renewal will generally be granted on a routine basis upon showing of
compliance with FCC regulations and continuing service to the public. Licenses
may be revoked and license renewal applications may be denied for cause.
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Narrative description of our business
General
We operate a broadband communications network that permits the delivery of a
seamless integrated bundle of communications, entertainment and information
services. We offer a wide array of consumer communications and entertainment
services--including local telephone, long-distance and wireless communications,
cable television, consulting services, network and desktop computing outsourced
services, and dial-up and cable modem Internet access services at a wide range
of speeds--all under the GCI brand name.
Our management believes that the size and growth potential of the voice, video
and data market, the increasing deregulation of telecommunication services, and
the increased convergence of telephony, wireless, and cable services offer us
considerable opportunities to integrate our telecommunication, Internet and
cable services and expand into communications markets both within and,
longer-term, outside of Alaska. We expect the rate of growth in industry-wide
telecommunication revenues to continue to increase as the historical dominance
of monopoly providers is challenged as a result of deregulation. Considerable
deregulation has already taken place in the United States as a result of the
1996 Telecom Act with the barriers to competition between long-distance, local
exchange and cable providers being lowered. We believe our acquisition of cable
television systems and our development of local exchange service, Internet
services, and wireless services leave us well positioned to take advantage of
deregulated markets.
We are one of Alaska's leading providers of telecommunication, Internet and
cable television services and maintain a strong competitive position. There is
active competition in the sale of substantially all products and services we
offer.
Alaska Voice, Video and Data Markets
For calendar year 1999, we estimate that the aggregate telecommunications, cable
television, and Internet markets in Alaska generated revenues of approximately
$1 billion. Of this amount, approximately $485 million was attributable to
interstate and intrastate long-distance service, $365 million was attributable
to local exchange services, $75 million was attributed to cable television, and
$75 million was attributable to all other services, including wireless and
Internet services.
The Alaskan voice, video and data markets are unique within the United States.
Alaska is physically distant from the rest of the United States and is
characterized by large geographical size and relatively small, dense population
clusters (with the exception of population centers such as Anchorage, Fairbanks
and Juneau). It lacks a well-developed terrestrial transportation
infrastructure, and the majority of Alaska's communities are accessible only by
air or water. As a result, Alaska's telecommunication networks are different
from those found in the lower 49 states.
Alaska today relies extensively on satellite-based long-distance transmission
for intrastate calling between remote communities where investment in a
terrestrial network would be uneconomic or impractical. Also, given the
remoteness of Alaska's communities and lack, in many cases, of major civic
institutions such as hospitals, libraries and universities, Alaskans are
dependent on telecommunications to access the resources and information of large
metropolitan areas in the rest of the U.S. and elsewhere. In addition to
satellite-based communications, the telecommunications infrastructure in Alaska
includes fiber optic cables between Anchorage, Fairbanks, and Juneau,
traditional copper wire, and digital microwave radio on the Kenai Peninsula and
other locations. For interstate and international communication, Alaska is
connected to the Lower 48 states by three fiber optic cables.
Fiber optics is the preferred method of carrying Internet, voice, video and data
communications, eliminating the delay commonly found in satellite connections.
Widespread use of high capacity fiber optic facilities will allow continued
expansion of business, government and educational infrastructure in Alaska.
Long-Distance Services
Industry. With the Communications Act of 1934, telecommunications was
established as a regulated industry. The main objective of this act was to
create an affordable and universal telephone service for the American people. As
a result, AT&T was granted exclusive rights to serve the telecommunications
industry. The next several decades brought significant improvements in
technology. New advances
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created opportunities for providers of lower-cost services to enter the market,
and in order to facilitate the entry of these new competitors, regulatory
policies were changed. The government stepped into the market on January 1,
1984, and broke-up AT&T's near monopoly. The government's objective was to
provide for greater competition in the telecommunications industry, as well as
make room for the creation of more diversified products.
The FCC set price caps in 1989 to regulate the prices AT&T could charge for
their services. Yet, by 1991 the market had become so much more competitive with
regards to both long-distance and local calls that the FCC decided to deregulate
most of AT&T's services.
The United States Congress passed the 1996 Telecom Act that permitted the local
phone companies, the long-distance companies, and the cable service firms to
penetrate each other's market. This has provided the telecommunications industry
with new capabilities resulting in an industry that is more competitive than
ever before. To reduce the burden and facilitate competitive advantages,
companies are merging and acquiring other telecommunication and cable television
firms.
The communications market is currently reported to be a $270 billion market in
the U.S. and is expected to grow at over 10% annually for the next five years.
Backbone infrastructure services, inter-city and local wholesale transport
services, and local access services reportedly are among the most rapidly
growing components of the current telecommunications sector with forecast growth
at approximately 18% annually for the next five years. Analysts estimate that
the addressable market for these products and services in the United States to
be $30 billion in 1999, expanding to $80 billion by 2005.
Advancements within the next few years are expected to combine services directed
toward voice communication with other activities such as data sharing, on-screen
collaboration, faxing, Internet access, and game playing, among many other
things.
We believe that federal and state regulators will continue to impact the
telecommunications industry in 2000. Consummation of mergers between
long-distance companies, local access services companies, and cable television
companies is expected continue to blur the distinction between product lines and
competitors. Synergies developed through mergers and acquisitions and obtaining
end-to-end connectivity with customers is expected to drive profitability and
success in penetrating new markets. Industry analysts believe that successful
competitors will be the companies that can minimize regulatory battles and begin
to offer a full suite of integrated services to their customers, using a network
that is largely under their control.
Growth in data is expected to be a key component of continuing industry revenue
growth. We believe that the data telecommunications business will eventually
rival and perhaps become larger than the traditional voice telephony market.
ISPs have become major customers and many long-distance companies have acquired
ISPs and web-hosting companies.
General. We supply a full range of common carrier long-distance and other
telecommunication products and services. We operate a state-of-the-art,
competitive telecommunications network employing the latest digital transmission
technology based upon fiber optic and digital microwave facilities within and
between Anchorage, Fairbanks and Juneau, including a self-constructed and
financed digital fiber optic cable and additional owned capacity on another
undersea fiber optic cable, both linking Alaska to the networks of other
carriers in the lower 49 states, and the use of satellite transmission to remote
areas of Alaska (and for certain inter-state traffic as well). Virtually all
switched services are computer controlled, digitally switched, and
interconnected by a packet switched signaling network.
We provide interstate and intrastate long-distance services throughout Alaska
using our own facilities or facilities leased from other carriers. We also
provide (or join in providing with other carriers) telecommunication services to
and from Alaska, Hawaii, the lower 48 states, and many foreign nations and
territories.
We offer cellular services by reselling other cellular providers' services. We
expect to offer wireless services over our own facilities, and have purchased in
FCC auctions PCS and LMDS wireless broadband licenses covering markets in
Alaska. We are required by the FCC to provide adequate broadband PCS
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service to at least one-third of the population in our licensed areas within
five years of being licensed and two-thirds of the population in our licensed
areas within ten years of being licensed. We are required by the FCC to provide
`substantial service' in our service region within 10 years to retain our LMDS
license. The licenses are granted for ten-year terms from the original date of
issuance and may be renewed by meeting the FCC's renewal criteria and upon
compliance with the FCC's renewal procedures.
Products. Our long-distance services industry segment is engaged in the
transmission of interstate and intrastate-switched MTS and private line and
private network communication service between the major communities in Alaska,
and the remaining United States and foreign countries. Our message toll services
include intrastate, interstate and international direct dial, toll-free 800, 888
and 877 services, 900 services, GCI calling card, debit card, operator and
enhanced conference calling, frame relay, SDN, ISDN technology based services,
as well as termination of northbound toll service for MCI WorldCom, Sprint and
several large resellers who do not have facilities of their own in Alaska. We
also provide origination of southbound calling card and toll-free 800, 888 and
877 toll services for MCI WorldCom and Sprint. Regulated telephone relay
services for the deaf, hard-of-hearing and speech impaired are provided through
our operator service center in Wasilla, Alaska. We offer our message services to
commercial, residential, and government subscribers. Subscribers may generally
cancel service at any time. Toll related services account for approximately
57.2%, 64.0%, and 69.4% of our 1999, 1998, and 1997 revenues, respectively.
Private line and private network services utilize voice and data transmission
circuits, dedicated to particular subscribers, which link a device in one
location to another in a different location.
We have positioned ourselves as a price and customer service leader in the
Alaska telecommunication market. Rates charged for our long-distance services
are designed to be equal to or below those for comparable services provided by
our competitors.
In addition to providing communication services, we also design, sell, service
and operate, on behalf of certain customers, dedicated communication and
computer networking equipment and provide field/depot, third party, technical
support, telecommunications consulting and outsourcing services through our
Network Solutions business. We also supply integrated voice and data
communication systems incorporating interstate and intrastate digital private
lines, point-to-point and multipoint private network and small earth station
services. Our Network Solutions sales and services revenue totaled $11.3, $12.1
and $10.3 million in the years ended December 31, 1999, 1998 and 1997,
respectively, or approximately 4.0%, 4.9% and 4.6% of total revenues,
respectively. Presently, there are 18 competing companies in Alaska that
actively sell and maintain data and voice communication systems. Twelve are
located in Anchorage, four in Fairbanks and two in Juneau.
Our ability to integrate telecommunications networks and data communication
equipment has allowed us to maintain our market position on the basis of "value
added" support services rather than price competition. These services are
blended with other transport products into unique customer solutions, including
managed services and outsourcing.
Facilities. Our telecommunication facilities include a fiber optic cable
connecting Anchorage, Whittier, Valdez, Fairbanks and Juneau, Alaska and
Seattle, Washington, which was placed into service in February 1999. We also own
a portion of an additional undersea fiber optic cable. The fiber optic cables
allow us to carry our Anchorage, Eagle River, Wasilla, Palmer, Kenai Peninsula,
Valdez, Whittier, Glenallen, Fairbanks, and Juneau, Alaska traffic to and from
the contiguous lower 48 states over terrestrial circuits, eliminating the
one-quarter second delay associated with satellite circuits. The Company's
preferred routing for this traffic is via undersea fiber optic cable, which
makes available satellite capacity to carry the Company's rural interstate and
intrastate traffic.
Other facilities include major earth stations at Eagle River, Fairbanks, Juneau,
Prudhoe Bay, Kodiak, Sitka, Ketchikan, Unalaska, Barrow, Bethel, Nome,
Dillingham, Kotzebue, King Salmon, Adak, and Cordova, all in Alaska, and at
Issaquah, Washington, serving the communities in their vicinity. The Eagle River
and Fairbanks earth stations are linked by digital microwave facilities to
distribution centers in Anchorage and Fairbanks, respectively. We expect to
complete construction of a fiber optic cable system from the Anchorage
distribution center to the Eagle River central office in second quarter of 2000.
The Issaquah earth station is connected with the Seattle distribution center by
means of diversely routed fiber optic cable transmission systems, each having
the capability to restore the other in the event of failure.
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The Juneau earth station and distribution centers are colocated. We also have
digital microwave facilities serving the Kenai Peninsula communities.
We use our DAMA facilities to serve 56 additional locations throughout Alaska.
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. We obtained the necessary RCA and FCC
approvals waiving current prohibitions against construction of competitive
facilities in rural Alaska, allowing for deployment of DAMA technology in 56
sites in rural Alaska on a demonstration basis. In addition, over 80 very small
aperture terminal ("VSAT") facilities provide dedicated Internet access to rural
public schools throughout Alaska.
Our Anchorage, Fairbanks, and Juneau distribution centers contain electronic
switches to route calls to and from local exchange companies and, in Seattle, to
obtain access to MCI WorldCom, Sprint and other facilities to distribute our
southbound traffic to the remaining 49 states and international destinations. In
Anchorage, a Lucent digital host switch is connected with fiber to six remote
facilities that are co-located in the ILEC's switching centers, to provide both
local and long distance service. An extensive local fiber network in Anchorage
supports both cable television service and telephony services. The Anchorage,
Fairbanks, and Juneau facilities also include digital access cross-connect
systems, frame relay data switches, Internet platforms, and in Anchorage, a
co-location facility for interconnecting and hosting equipment for other
carriers. We also maintain an operator service center in Wasilla, Alaska.
As described previously, we completed construction and placed into service in
February 1999 a fiber optic cable connecting Anchorage, Whittier, Valdez,
Fairbanks and Juneau, Alaska and Seattle Washington. We also own a portion of an
additional undersea fiber optic cable. The fiber optic cables allow us to carry
our Anchorage, Eagle River, Wasilla, Palmer, Kenai Peninsula, Valdez, Whittier,
Glenallen, Fairbanks, and Juneau area traffic to and from the contiguous lower
48 states over terrestrial circuits, eliminating the one-quarter second delay
associated with satellite circuits. Our preferred routing for this traffic is
via undersea fiber optic cable, which makes available satellite capacity to
carry our rural interstate and intrastate traffic.
We employ satellite transmission for rural intrastate traffic and certain other
major routes and use advanced digital transmission technology throughout our
systems. Pursuant to a purchase and lease-purchase option agreement entered into
in August 1995 we lease C-band transponders on Hughes Communications Galaxy,
Inc. (now PanAmSat Corporation ("PanAmSat")) Galaxy IX satellite and have agreed
to acquire satellite transponders on PanAmSat Galaxy XR satellite to meet our
long-term satellite capacity requirements. The Galaxy XR satellite was
successfully launched in January 2000, with services being transitioned from
leased transponders on the Galaxy IX (C-band) and SBS-5 (Ku-band) satellites to
the new satellite during the first quarter of 2000.
We employ advanced transmission technologies to carry as many voice circuits as
possible through a satellite transponder without sacrificing voice quality.
Other technologies such as terrestrial microwave systems, metallic cable, and
fiber optics tend to be favored more for point-to-point applications where the
volume of traffic is substantial. With a sparse population spread over a wide
geographic area, neither terrestrial microwave nor fiber optic transmission
technology is considered to be economically feasible in rural Alaska in the
foreseeable future.
Customers. We had approximately 90,800, 82,000 and 89,000 active Alaska
subscribers to our message telephone service at December 31, 1999, 1998 and
1997, respectively. Approximately 12,500, 12,100 and 11,500 of these were
business and government users at December 31, 1999, 1998 and 1997, respectively,
and the remainders were residential customers. Reductions in our residential
customer counts were primarily attributed to new competitive pressures in
Anchorage and other markets we serve. MTS revenues (excluding operator services
and private line revenues) averaged approximately $10.5 million per month during
1999.
Equal access conversions have been completed in all communities served with
owned facilities. We estimate that we carry over 45% of business and residential
traffic as a statewide average for both originating interstate and intrastate
MTS traffic.
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<TABLE>
A summary of our switched MTS traffic (in minutes) follows:
<CAPTION>
Interstate Minutes
---------------------------------------
Combined
Interstate
Inter- and Inter- Intra-
South- North- Calling national national state Total
For Quarter ended bound (1) bound Card Minutes Minutes Minutes Minutes
- ----------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1997 83,284 56,588 8,110 1,741 149,723 32,020 181,743
June 30, 1997 85,933 58,420 7,189 1,795 153,337 34,405 187,742
September 30, 1997 93,510 60,390 5,530 1,842 161,272 34,755 196,027
December 31, 1997 87,657 61,992 5,157 1,703 156,509 31,962 188,471
-----------------------------------------------------------------------------------------
Total 1997 350,384 237,390 25,986 7,081 620,841 133,142 753,983
=========================================================================================
March 31, 1998 86,899 64,116 4,810 1,889 157,714 33,082 190,796
June 30, 1998 93,817 67,296 4,353 1,910 167,376 34,890 202,266
September 30, 1998 103,423 61,690 4,227 1,940 171,280 35,748 207,028
December 31, 1998 90,792 61,514 4,197 1,706 158,209 33,598 191,807
-----------------------------------------------------------------------------------------
Total 1998 374,931 254,616 17,587 7,445 654,579 137,318 791,897
=========================================================================================
March 31, 1999 94,623 57,039 3,694 1,578 156,934 34,950 191,884
June 30, 1999 128,623 52,954 3,383 1,649 186,609 37,241 223,850
September 30, 1999 146,473 56,577 3,273 1,680 208,003 38,078 246,081
December 31, 1999 137,077 64,823 3,204 1,609 206,713 36,055 242,768
-----------------------------------------------------------------------------------------
Total 1999 506,796 231,393 13,554 6,516 758,259 146,324 904,583
=========================================================================================
<FN>
- -------------------
1 The 1999 Interstate Southbound minutes include traffic carried from Washington
to Oregon by us on behalf of an OCC.
</FN>
</TABLE>
All minutes data were taken from our internal billing statistics reports.
In 1993, we entered into a significant business relationship with MCI (now MCI
WorldCom) that includes the following agreements.
- We agreed to terminate all Alaska-bound MCI long-distance traffic and MCI
agreed to terminate all of our long-distance traffic terminating in the
lower 49 states excluding Washington, Oregon and Hawaii;
- MCI allowed us to license certain service marks for use in Alaska;
- MCI, in connection with providing to us credit enhancement to permit us to
purchase a portion of an undersea cable linking Seward, Alaska, with
Pacific City, Oregon, leased from us all of the capacity we owned on the
undersea fiber optic cable and we leased such capacity back from MCI;
- MCI purchased certain of our service marks; and
- The parties agreed to share some communications network resources and
various marketing, engineering and operating resources. We also carry
MCI's 800, 888 and 877 traffic originating in Alaska and terminating in
the lower 49 states and handle traffic for MCI's calling card customers
when they are in Alaska. Concurrently with these agreements, MCI purchased
approximately 31% (18.7% as of December 31, 1999) of GCI's Common Stock
and presently controls nominations to two seats on the Board. In
conjunction with the Cable Acquisition Transactions, MCI purchased an
additional two million shares at a premium to the then current market
price for $13 million or $6.50 per share.
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<PAGE>
Revenues attributed to MCI WorldCom in 1999, and MCI in 1998 and 1997 totaled
$40.4 million, $36.0 million and $33.5 million, or 14.5%, 14.6% and 15.0% of
total revenues, respectively. The contract was amended in March 1996 extending
its term three years to March 31, 2001. The amendment also reduced the rate to
be charged by us for certain MCI WorldCom traffic for the period April 1, 1996
through July 1, 1999 and thereafter. The amendment expanded the scope of the
contract to include all of the affiliates of the MCI Worldcom merged companies.
In 1993 we entered into a long-term agreement with Sprint, pursuant to which we
agreed to terminate all Alaska-bound Sprint long-distance traffic and Sprint
agreed to handle substantially all of our international traffic. Services
provided pursuant to the contract with Sprint resulted in revenues in 1999, 1998
and 1997 of approximately $19.8 million, $25.2 million and $23.0 million, or
approximately 7.1%, 10.2% and 10.3% of total revenues, respectively.
The contract was amended in April 1999 extending its term three years to April
2002. The amendment also reduced the rate in dollars we charge for certain
Sprint traffic for the period March 1999 through January 2001 and thereafter.
With the contracts and amendment described above, we are assured that MCI
WorldCom and Sprint, our two largest customers, will continue to make use of our
services during the extended term. Both MCI WorldCom and Sprint are major
customers of our long-distance services industry segment. Loss of one or both of
these customers would have a significant detrimental effect on our revenues and
contribution. There are no other individual customers, the loss of which would
have a material impact on our revenues or gross profit.
Other common carriers traffic routed to us for termination in Alaska is largely
dependent on traffic routed to MCI WorldCom and Sprint by their customers.
Pricing pressures, new program offerings and market consolidation continue to
evolve in the markets served by MCI WorldCom and Sprint. If, as a result, their
traffic is reduced, or if their competitors' costs to terminate or originate
traffic in Alaska are reduced, our traffic will also likely be reduced, and we
may have to reduce our pricing to respond to competitive pressures. We are
unable to predict the effect of such changes on our business, however given the
materiality of other common carriers revenues to us; a significant reduction in
traffic or pricing could have a material adverse effect on our financial
position, results of operations and liquidity.
We provided private line and private network communication products and
services, including SchoolAccess(TM) private line facilities, to approximately
1,673 commercial and government accounts in 1999. These products and services
generated approximately 7.9%, 7.9% and 7.1% of total revenues during the years
ended December 31, 1999, 1998 and 1997, respectively.
Although we have several agreements to facilitate the origination and
termination of international toll traffic, we have neither foreign operations
nor export sales (see Part I, Item 1. Business, Foreign and Domestic Operations
and Export Sales).
Competition. The long-distance industry is intensely competitive, rapidly
evolving and subject to constant technological change. Competition is based upon
price and pricing plans, the types of services offered, customer service,
billing services, performance, perceived quality, reliability and availability.
Certain of our competitors are substantially larger than us and have greater
financial, technical and marketing resources than we have. Although we believe
we have the human and technical resources to pursue our strategy and compete
effectively in this competitive environment, our success will depend upon our
ability to profitably provide high quality, high value services at prices
generally competitive with, or lower than, those charged by our competitors.
In the long-distance market, we compete against AT&T Alascom, ACS, the Matanuska
Telephone Cooperative, certain smaller rural LEC affiliates, and may in the
future compete against new market entrants. AT&T Alascom, our principal
competitor in long-distance services, has substantially greater resources and
access to capital than we have. This competitor's interstate rates are
integrated with those of AT&T Corp. and are regulated in part by the FCC. While
we initially competed based upon offering substantial discounts, those discounts
have been eroded in recent years due to lowering of prices by AT&T Alascom and
entry of other competitors into the long-distance markets we serve. Under the
terms of AT&T's
20
<PAGE>
acquisition of Alascom, AT&T Alascom rates and services must mirror those
offered by AT&T, so changes in AT&T prices indirectly affect our rates and
services. AT&T's and AT&T Alascom's interstate prices are regulated under a
price cap plan whereby their rate of return is not regulated or restricted.
Price increases by AT&T and AT&T Alascom generally improve our ability to raise
prices while price decreases pressure us to follow. We believe we have, so far,
successfully adjusted our pricing and marketing strategies to respond to AT&T
and other competitors' pricing practices. However, if competitors significantly
lower their rates, we may be forced to reduce our rates, which could have a
material adverse effect on us.
As allowed under the 1996 Telecom Act, ATU (now ACS) and other LECs entered the
interstate and international long-distance market, and pursuant to RCA
authorization, entered the intrastate long-distance market in 1997. ACS and
other LECs generally resell other carriers' services in the provision of their
interstate and intrastate long-distance services.
Another carrier completed construction of fiber optic facilities connecting
points in Alaska to the lower 48 states in 1999. The additional fiber system
provides direct competition to services we provide on our owned fiber optic
facilities. We believe we can successfully compete with products and services
offered by the competing carrier.
In the wireless communications services market, we expect our PCS business to
compete against the cellular subsidiaries of AT&T and ACS and resellers of those
services in Anchorage and other markets. The wireless communications industry
continues to experience significant consolidation. AT&T has acquired wireless
companies and negotiated roaming arrangements that give it a national presence.
The mergers or joint ventures of Bell Atlantic/GTE/Vodafone AirTouch, MCI
WorldCom/Sprint and SBC/Ameritech will create large, well-capitalized
competitors with substantial financial, technical, marketing and other
resources. These competitors may be able to offer nationwide services and plans
more quickly and more economically than we can, and obtain roaming rates that
are more favorable than those that we obtain.
Our long-distance services sales efforts are primarily directed toward
increasing the number of subscribers we serve, selling bundled services, and
generating incremental revenues through product and feature upsale
opportunities. We sell our long-distance communications services through
telemarketing, direct mail advertising, door-to-door selling, and local media
advertising.
Cable Services
Industry. The programmed video services industry includes traditional broadcast
television, cable television, wireless cable, and DBS systems. Technology
convergence may also soon allow programmed video via the internet but reluctance
to change the current delivery structure will likely limit the availability of
programming in the near term. In the mean time, cable television providers have
added non-broadcast programming, utilized improved technology to increase
channel capacity and expanded service markets to include more densely populated
areas and those communities in which off-air reception is not problematic.
Broadcast television stations including network affiliates and independent
stations generally serve the urban centers. One or more local television
stations may serve smaller communities. Rural communities may not receive local
broadcasting or have cable systems but may receive direct broadcast programming
via a satellite dish.
In Alaska, cable television was introduced in the 1970s to provide television
signals to communities with few or no available off-air television signals and
to communities with poor reception or other reception difficulties caused by
terrain interference. Since that time, as on the national level, the cable
television providers in Alaska have added non-broadcast programming.
Advancements in technology, facility upgrades and network expansions to enable
migration to digital programming are expected to have a significant impact on
cable services in the future. We expect that changing federal, state and local
regulations, intense competition, and uncertain technologies and standards will
challenge the industry.
Acquisitions and mergers are shaping the cable industry in a technological
convergence similar to what is happening in the telecommunications industry.
AT&T completed its $48 billion takeover of cable television provider
Tele-Communications Inc. in February 1999, gaining the last mile connection to
21
<PAGE>
homeowners with fiber and coaxial cable over which it is expected to sell online
access and Internet phone service. AT&T is also negotiating with other cable
companies for access to their lines.
Convergence of TV and the Internet isn't expected to become a widespread
phenomenon until after 2000. Analysts expect that as many as 5 million cable
subscribers may sign up in 1999 for high-speed cable modems that will give them
access to the Internet. We are currently offering such high-speed cable modem
access in Anchorage, Fairbanks, and Juneau.
We expect basic cable to be impacted by two forces: possible reimposition of
rate regulations, and additional competition from wireless cable providers.
After averaging 3.4% growth for the last five years, industry analysts project
that cable subscriber growth in 1999 may slow to 1.8%, or 66.6 million homes.
Industry analysts predict that cable providers may see a 12% hike in ad
revenues, to $6.9 billion.
Direct-broadcast satellite operators increased their subscriptions by
approximately 39% in 1998, to 8.9 million, according to industry analysts. The
industry is expected to add 2.6 million subscribers in 1999. With digital
transmissions and compression, cable operators are better able to offer a
variety and quality of channels to rival DBS, with pay-per-view choices that can
approximate video-on-demand.
Digital video is projected to grow significantly over the next three to four
years as cable network upgrade efforts are completed and the cost of digital
set-top technology decreases. Margins related to digital programming are
expected to climb due to the ability to reuse programming at low or no
incremental cost.
Analysts believe data services will be an additional opportunity for cable
providers in the next three to five years and that cable will be the most widely
available, most cost efficient way to access the Internet at very high speeds
and with high video quality. The incremental opportunity for cable from data may
rival that of digital video according to industry analysts. Additional
opportunities are expected in voice-over cable applications that will allow
cable providers to offer local telephone service to cable subscribers.
The market for programmed video services in Alaska includes traditional
broadcast television, cable television, wireless cable, and DBS systems.
Broadcast television stations including network affiliates and independent
stations serve the urban centers in Alaska. Seven, four and two broadcast
stations serve Anchorage, Fairbanks and Juneau, respectively. In addition,
several smaller communities such as Bethel are served by one local television
station that is typically a PBS affiliate. Other rural communities without cable
systems receive a single state sponsored channel of television by a satellite
dish and a low power transmitter.
General. As a result of acquisitions completed effective October 31, 1996, we
have become Alaska's leading cable television service provider to residential,
commercial and government users in the State of Alaska. Our cable television
systems serve 26 communities and areas in Alaska, including the state's three
largest urban areas, Anchorage, Fairbanks, and Juneau. Our statewide cable
systems consist of approximately 1,806 miles of installed cable plant having 330
to 550 MHz of channel capacity.
We completed a $12.5 million upgrade in 1998 that significantly increased the
capacity and reliability of our Anchorage and Juneau cable systems. We deployed
more than 200 miles of fiber optic cable in Anchorage and increased the carrying
capacity of 900 miles of cable television line from 450 MHz to 550 MHz.
The result of these upgrades is an increase in channel capacity and system
reliability, facilitating the delivery of additional video programming and new
services such as enhanced video, high-speed Internet access and telephony, and
the capability to support two-way applications such as cable modems and digital
cable. We completed field-testing and deployed our digital converter cable
service in Anchorage in 1998. Digital compression has enabled us to increase the
channel capacity of our Anchorage cable communications systems to more than 100
channels, provide digital audio channels, as well as improve picture and sound
quality.
Products. Programming services offered to our cable television systems
subscribers differ by system (all information as of December 31, 1999).
22
<PAGE>
Anchorage, Bethel, Kenai and Soldotna systems. Each system offers a basic
service. In addition, Anchorage and Bethel offer a CPS. A NPT is only offered in
the Anchorage cable system. The Anchorage system, which is located in the urban
center for Alaska, is fully addressable, with all optional services scrambled,
aside from the broadcast basic. Kenai, Soldotna, and Bethel had fewer channels,
less service options and less an urban orientation, and use traps for program
control. As a result, these smaller systems do not have access to pay-per-view
services.
The composition and rates of the levels of service vary between the systems. The
Anchorage cable system offers a basic service that includes 19 channels. The
Anchorage cable system offers a CPS that includes 32 channels at an additional
cost. Subscribers, for an additional cost, receive the six-channel NPT service,
which includes TNT, CNN, Discovery, MSNBC, Outdoor Life and the Sci-/Fi Channel.
The Bethel cable system offers a basic service of 24 channels and a CPS tier of
11 channels for an additional cost per month. Basic service for the
Kenai/Soldotna cable system consisted of 37 channels. Pay TV services are
available either individually or as part of a value package. Commercial
subscribers such as hospitals, hotels and motels are charged negotiated monthly
service fees. Apartment and other multi-unit dwelling complexes receive basic
services at a negotiated bulk rate.
Fairbanks, Juneau, Ketchikan and Sitka systems. The programming services we
currently offer to subscribers are structured so that each cable system offers a
basic service and a CPS. Each of the cable systems has different basic service
packages at different rates. Fairbanks, the second largest city in Alaska, has a
fully addressable system and offers a 12 channel basic and 35 channel CPS tier.
Three channels of pay-per-view are available to basic and CPS subscribers.
Fairbanks, North Pole, Fort Wainwright, and Eielson Air Force Base are all
served by the Fairbanks headend and have the same lineup. Fort Greely, a remote
military post, is a stand-alone system, which is fully addressable. Fort Greely
has 8 basic channels, a 21 channel CPS tier, and 1 pay-per-view channel
available to all subscribers. The reverse path in the Fairbanks market was
activated during the third quarter of 1999 and we now offer cable modem Internet
access. We expect to offer digital service in Fairbanks during the second
quarter of 2000.
The Juneau cable system offers a 13-channel basic service package and a Tier 1
that includes basic service plus an additional 4 channels. The system also
offers a CPS Tier 2 that consists of basic service plus Tier 1 service and
additional 43 channels. The Ketchikan system offers a 12 channel basic service
and a preferred level of service that offers an additional 38 channels. The
Sitka system offers a 12 channel basic service. Preferred service includes basic
service plus 38 additional channels. The Ketchikan, Sitka, Petersburg and Sitka
systems all launched a digital music service called "DMX." This service offers
30 channels of commercial free music and is offered for $7.95 per month.
The Juneau system was upgraded in 1998. We expect to upgrade the Ketchikan
system in 2000. The Juneau upgrade consisted of extending the bandwidth to
550MHz, activating the reverse and introducing advanced analog set top boxes.
The new set tops allowed Juneau subscribers access to impulse pay per view
including highly secured 24 hour adult products, 30 channels of CD quality music
and a new on screen navigator.
During May of 1999, the Juneau system launched high-speed Internet access
through cable modems. The system ended 1999 with 1,100 high-speed cable modems
installed.
Kodiak, Valdez, Cordova, Petersburg, Wrangell, Kotzebue and Nome systems. These
systems offer up to 30 channels of the most popular basic cable channels, as
well as the major broadcast networks, packaged into three levels of service. In
Nome, Kotzebue and Cordova, basic service consists of three channels, one of
which is a PBS channel. PBS service is also included with the 11 channels of
basic service in Kodiak, 7 in Valdez and 11 each in Wrangell and Petersburg. In
addition, Wrangell and Petersburg have matching line-ups with 39 additional
channels in the preferred level of service, and an additional 5 channels of
premium service. Nome offers a 33 channel CPS Tier 1 and 5 channels of premium
service. Kotzebue closely matches Nome with the exception of one more channel in
the CPS Tier 1 and one less channel in the premium offering. In addition to
basic service, Cordova offers a 20 channel CPS Tier 1, 10 Channel CPS Tier 2
with 3 premium channels available.
We completed system upgrades in Kodiak and Valdez in 1998. In Kodiak, 6 channels
were added to basic service. The CPS tier added 8 new channels including Disney,
which was formally a premium service. The
23
<PAGE>
NPT tier was reduced to 11 channels with 2 new networks. Premium services were
repackaged for better value. The total available channels are now 47. Valdez
added 5 channels to basic service and expanded the CPS tier with 6 channels
including Disney. Although remaining at 9 channels, 5 new services were added to
the NPT tier as traditional services were migrated into the other tiers. Nome
and Kotzebue systems upgrades were completed in March 1999. The upgrade will
allow the launch of additional programming and the shift of Disney from premium
to tier service.
Seward system. We upgraded the Seward cable system in 1997. Total channels were
increased to 49, packaged in two levels of service. Basic service was expanded
from 3 to 8 channels. CPS had 30 channels (including basic service) and was
expanded to 44. All of the channels, with the exception of local origination
programming and a single translator channel licensed to the City of Seward, were
received via satellite. In addition there were five channels of premium pay
services. The system is fully addressable. The system provides 12 channels to
300 outlets in a State of Alaska correction facility through a separate headend.
Homer system. We upgraded the Homer cable system in 1997. Total channels were
increased to 50, packaged into two levels of service. Basic service was expanded
from 8 channels to 12. CPS had 36 channels (including basic service channels)
and was expanded to 45 channels. All of the channels, with the exception of four
local translator channels and local origination programming, are received via
satellite. In addition, five channels of premium pay services are offered. The
system is fully addressable.
Facilities. Our cable television businesses are located in Anchorage, Eagle
River, Chugiak, Peters Creek, Kenai, Ridgeway, Soldotna, Bethel, Fort
Richardson, Elmendorf Air Force Base, Fairbanks, Fort Wainwright, North Pole,
Fort Greely, Eielson Air Force Base, Juneau, Sitka, Ketchikan, Petersburg,
Wrangell, Cordova, Homer, Valdez, Kodiak, Kodiak Coast Guard Air Station,
Kotzebue, and Nome, Alaska. Our facilities include cable plant and head-end
distribution equipment. Certain of our head-end distribution centers are
colocated with customer service and administrative offices.
Customers. Our cable systems passed approximately 174,000, 171,000, and 167,500
homes at December 31, 1999, 1998 and 1997, respectively, and served
approximately 116,700, 111,900 and 108,000 subscribers at December 31, 1999,
1998 and 1997, respectively. Revenues derived from cable television services
totaled $61.1 million, 57.6 million, and 55.2 million in 1999, 1998 and 1997,
respectively.
Competition. A number of other cable operators provide cable service in Alaska.
All of these companies are relatively small, with the largest having fewer than
6,500 subscribers. Cable television systems face competition from alternative
methods of receiving and distributing television signals and from other sources
of news, information and entertainment such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
computer services, Internet services and home video products, including
videotape cassette and video disks. The extent to which a cable television
system is competitive depends, in part, upon the cable system's ability to
provide quality programming and other services at competitive prices.
Our Fairbanks system faces significant competition from alternative cable
television providers. Upgrades to our Fairbanks facilities, expanded product
offerings and increased marketing efforts are expected to increase market
penetration from 45.6% at December 31, 1999. Our average market penetration rate
for all systems was 61.4% at December 31, 1999.
The 1996 Telecom Act authorizes LECs and others to provide a wide variety of
video services competitive with services provided by cable systems and to
provide cable services directly to subscribers. Certain LECs in Alaska may seek
to provide video services within their telephone service areas through a variety
of distribution methods. Cable systems could be placed at a competitive
disadvantage if the delivery of video services by LECs becomes widespread since
LECs may not be required, under certain circumstances, to obtain local
franchises to deliver such video services or to comply with the variety of
obligations imposed upon cable systems under such franchises. Issues of
cross-subsidization by LECs of video and telephony services also pose strategic
disadvantages for cable operators seeking to compete with LECs who provide video
services.
24
<PAGE>
Our Cable Systems face limited additional competition from private SMATV systems
that serve condominiums, apartment and office complexes and private residential
developments. The operators of these SMATV systems often enter into exclusive
agreements with building owners or homeowners' associations. Due to the
widespread availability of reasonably priced earth stations, SMATV systems now
can offer both improved reception of local television stations and many of the
same satellite-delivered program services offered by franchised cable systems.
The ability of the Cable Systems to compete for subscribers in residential and
commercial developments served by SMATV operators is uncertain. We continue to
develop and deploy competitive packages of services (video, data and telephony)
to these residential and commercial developments. The 1996 Telecom Act gives
cable operators greater flexibility with respect to pricing of cable television
services provided to subscribers in multi-dwelling unit residential and
commercial developments. It also broadens the definition of SMATV systems not
subject to regulation as a franchised cable television service.
The availability of reasonably-priced HSD earth stations enables individual
households to receive many of the satellite-delivered program services formerly
available only to cable subscribers. Furthermore, the 1992 Cable Act contains
provisions, which the FCC has implemented with regulations, to enhance the
ability of cable competitors to purchase and make available to HSD owners
certain satellite-delivered cable programs at competitive costs.
In recent years, the FCC and the Congress have adopted policies providing a more
favorable operating environment for new and existing technologies that provide,
or have the potential to provide, substantial competition to cable systems.
These technologies include, among others, DBS services that transmit signals by
satellite to receiving facilities located on the premises of subscribers.
Programming is currently available to the owners of DBS facilities through
conventional, medium and high-powered satellites.
DBS systems are expected to use video compression technology to increase the
channel capacity of their systems to provide movies, broadcast stations and
other program services competitive with those of cable systems. The extent to
which DBS systems are competitive with the service provided by cable systems
depends, among other things, on the availability of reception equipment at
reasonable prices and on the ability of DBS operators to provide competitive
programming. DBS services are slowly adding broadcast stations to their product
offerings beginning with the largest broadcast markets that eliminates the
problem of having to add a second external off-air antenna. DBS signals are
subject to degradation from atmospheric conditions such as rain and snow. The
receipt of DBS signals in Alaska currently has the disadvantage of requiring
subscribers to install larger satellite dishes (generally three to six feet in
diameter) because of the weaker satellite signals currently available in
northern latitudes, particularly in communities surrounding, and north of,
Fairbanks. In addition, existing satellites have a relatively low altitude above
the horizon when viewed from Alaska, making their signals subject to
interference from mountains, buildings and other structures.
Two major companies, DirecTV and Echostar, are currently offering nationwide
high-power DBS services. Recent launches by Echostar into more favorable western
arc satellite positions have allowed them to offer service in the lower half of
Alaska with antennas less than one meter in diameter. Recently enacted federal
legislation establishes, among other things, a permanent compulsory copyright
license that permits satellite carriers to retransmit local broadcast television
signals to subscribers who reside inside the local television station's market.
These companies have already begun transmitting local broadcast signals in
certain major televison markets and have announced their intention to expand
this local television broadcast retransmission service to other domestic
markets. With this legislation, satellite carriers become more competitive to
cable communications system operators like us because they are now able to offer
programming which more closely resembles what we offer. We are unable to predict
the effects this legislation and these competitive developments might have on
our business and operations.
Our cable television systems also compete with wireless program distribution
services such as MMDS providers that use low-power microwave frequencies to
transmit video programming over-the-air to subscribers. There are MMDS and
multi-channel UHF operators who are authorized to provide or are providing
broadcast and satellite programming to subscribers in areas served by several of
our cable systems, including Anchorage, Fairbanks and Juneau. Additionally, the
FCC has allocated frequencies in the 28 GHz band for a new multi-channel
wireless video service similar to MMDS. Wireless operations have the
disadvantage of requiring line-of-sight access, making their signals subject to
interference from
25
<PAGE>
mountains, buildings and other structures, and are subject to interference from
rain, snow and wind. Recently ACS purchased a controlling interest in a
multi-channel UHF service that currently provides service in some portions of
Anchorage and Fairbanks. Although they have currently stopped installing new
customers, we believe they are preparing to offer digital service in both
markets. MMDS is also offered by Alaska Wireless in Fairbanks and includes a
wireless modem service. WanTV recently sold the Anchorage MMDS license to
Sprint. This service is no longer accepting new customers. We are unable to
predict whether wireless video services will have a material impact on our
operations.
Recently, a number of companies in the lower-49 states, including telephone
companies and ISP's, have asked local, state and federal governments to mandate
that cable communications systems operators provide capacity on their cable
infrastructure so that these companies and others may deliver Internet services
directly to customers over cable facilities. In response, several local
jurisdictions attempted to impose these capacity obligations on several cable
communications operators. Various cable communications companies have initiated
litigation challenging these municipal requirements. In addition, two antitrust
lawsuits have been filed in federal courts alleging that certain cable
communications companies have improperly refused to allow their cable facilities
to be used by certain ISPs to serve their customers. In a 1999 report to
Congress, the FCC declined to institute an administrative proceeding to examine
this issue. We expect that the FCC, Congress, and state and local regulatory
authorities will continue to consider actions in this area.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
companies are seeking to provide high-speed broadband services, including
interactive online services, without regard to present service boundaries and
other regulatory restrictions. We are unable to predict the likelihood of
success of competing online services offered by our competitors or what impact
these competitive ventures may have on our business and operations.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and non-commercial FM
stations to use their subcarrier frequencies to provide non-broadcast services
including data transmissions. The FCC established an over-the-air interactive
video and data service that will permit two-way interaction with commercial and
educational programming along with informational and data services. LECs and
other common carriers also provide facilities for the transmission and
distribution to homes and businesses of interactive computer-based services,
including the Internet, as well as data and other non-video services. The FCC
has conducted spectrum auctions for licenses to provide PCS. PCS will enable
license holders, including cable operators, to provide voice and data services.
We have acquired a license to provide PCS services in Alaska.
Advances in communications technology as well as changes in the marketplace are
constantly occurring. We cannot predict the effect that ongoing or future
developments might have on the telecommunications and cable television
industries or on us specifically.
Cable television systems generally operate pursuant to franchises granted on a
non-exclusive basis. The 1992 Cable Act gives local franchising authorities
jurisdiction over basic cable service rates and equipment in the absence of
"effective competition," prohibits franchising authorities from unreasonably
denying requests for additional franchises and permits franchising authorities
to operate cable systems. Well-financed businesses from outside the cable
industry (such as the public utilities that own certain of the poles on which
cable is attached) may become competitors for franchises or providers of
competing services.
Our cable services sales efforts are primarily directed toward increasing the
number of subscribers we serve, selling bundled services, and generating
incremental revenues through product and feature upsale opportunities. We sell
our cable services through telemarketing, direct mail advertising, door-to-door
selling, and local media advertising.
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Local Access Services
Industry. Use of the Internet and expansion in the use of LANs and WANs have
generated an increased demand for access lines. In the home, the growing use of
computers, faxes, and the Internet led to increases in access lines and usage.
The emergence of new services, including digital cellular, personal
communications services, interactive TV, and video dial tone, has created
opportunities for growth in local loop services. These opportunities are also
laying the foundation for a restructuring of the newly competitive local loop
services market.
Emerging from the new competitive landscape are "data CLECs" who offer Internet
access and data services to medium and large size businesses. They obtain
interconnection agreements with ILECs for DSL-qualified unbundled network
element loops. One loop, so qualified and equipped with appropriate access
devices, enables the delivery of high speed (generally less than 768 kbs but
sometimes faster rates), always-connected Internet access, LAN/WAN
interconnectivity, and private line and private network circuits.
Cable telephony is still not prevalent, as the industry struggles with the
quality of service and the increased delay (latency) surrounding deployment of
first generation Voice over Internet Protocol technologies. The cable industry
late in 1999 released its first Packet Cable standards that promise to support
toll quality Internet protocol telephony.
Wireless local loop access technologies (other than fixed rate cellular
telephone service), while developing for international applications, have not
yet developed a significant market presence in the United States.
General. Our local access services division entered the local services market in
Anchorage in 1997, providing services to residential, commercial, and government
users. We can access approximately 93% of Anchorage area local loops from our
collocated remote facilities and DLC installations.
Products. We initially began offering local exchange services in Anchorage
during late September 1997. Our ILEC-collocated remote facilities that access
the ILEC's unbundled network element loops and its DLC systems allows us to
offer full featured, switched-based local service products to both residential
and commercial customers. In areas where we do not have access to loop
facilities, we offer total service resale of the ILEC's local service.
Our package offerings are competitively priced and include popular features,
such as:
- enhanced call waiting, - caller ID,
- caller ID on call waiting, - free caller ID box,
- anonymous call rejection, - call forwarding,
- call forward busy, - call forward no answer,
- enhanced call waiting, - fixed call forwarding,
- follow me call, - intercom service forwarding,
- multi-distinctive ring, - per line blocking,
- selective call forwarding, - selective call acceptance,
- selective call rejection, - selective distinctive alert,
- speed calling, - three way calling,
- voice mail, - inside wire repair plan,
- non-listed number, - non-published number
Facilities. During 1997 we installed a Lucent host switching system (5ESS). We
also collocated six remote facilities beside or within the ILEC's local
switching offices to access unbundled loop network elements and installed a DLC
system beside a smaller, seventh ILEC wire center. These remote and DLC
facilities are interconnected to the host switch via our diversely routed fiber
optic links. During 1998, we expanded our capacity at each of the remote
facilities to allow access to approximately 79,000 Anchorage loops.
Additionally, we provided our own facilities-based services to over 100 of
Anchorage's larger business customers through further expansion and deployment
of SONET fiber transmission facilities, leased and HDSL T-1 facilities, and DLC
facilities.
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Customers. We had approximately 45,100, 28,300 and 3,300 active lines in service
from Anchorage subscribers to our local access services at December 31, 1999,
1998 and 1997, respectively. The 1999 line count consists of approximately
21,300 residential access lines and 23,800 business access lines, including
5,600 Internet service provider access lines. We ended 1999 with significant
market share gains in all market segments, in particular in the business segment
in which access lines increased by 67% and ISP lines increased by 294% as
compared to December 31, 1998. Without an active media presence, we were able to
gain residential market share, growing that market segment by 32% as compared to
1998. We estimate that our overall local access services market share exceeds
25%.
1999, 1998 and 1997 revenues derived from local access services totaled $15.5
million, $9.9 million and $610,000, respectively, representing approximately
5.6%, 4.0% and 0.3% of our total revenues in 1999, 1998 and 1997, respectively.
Approximately 750 additional lines were sold and awaiting connection at December
31, 1999.
Competition. In the local exchange services market, we believe that the 1996
Telecom Act, judicial decisions, and state legislative and regulatory
developments will increase the likelihood that barriers to local exchange
competition will be substantially reduced or removed. These initiatives include
requirements that LECs negotiate with entities such as us to provide
interconnection to the existing local telephone network, to allow the purchase,
at cost-based rates, of access to unbundled network elements, to establish
dialing parity, to obtain access to rights-of-way and to resell services offered
by the ILECs.
LECs in Alaska outside of Anchorage have a "rural exemption" from some of their
obligations until and unless the exemption is examined and not continued by the
RCA. Certain pricing provisions of the FCC's Interconnection Decision
implementing the interconnection portions of the 1996 Telecom Act have been
challenged and were stayed by the U.S. Court of Appeals for the Eighth Circuit,
on a jurisdictional basis. The United States Supreme Court, in February 1999,
upheld the jurisdictional basis of the FCC's decisions, and has remanded the
proceeding back to the Eighth Circuit for further proceedings. In addition the
1996 Telecom Act expressly prohibits any legal barriers to competition in
intrastate or interstate communications service under state and local laws. The
1996 Telecom Act further empowers the FCC, after notice and an opportunity for
comment, to preempt the enforcement of any statute, regulation or legal
requirement that prohibits, or has the effect of prohibiting, the ability of any
entity to provide any intrastate or interstate telecommunications service. You
should see Part I, Item 1. Business, Regulation, franchise authorizations and
tariffs for more information.
In the local exchange market we currently compete with an ACS subsidiary in
Anchorage. In early 2001 we anticipate we will be competing with ACS
subsidiaries in Fairbanks, Juneau, Fort Wainwright and Eielson Air Force Base
(military bases near Fairbanks), and in North Pole. You should see Part I, Item
1. Business, Historical development of the Company's business during the past
fiscal year - Local Access Services for more information. We also compete
against AT&T in the Anchorage service area. AT&T offers local exchange service
only to residential customers through total service resale. We expect further
competitors in the Anchorage, Fairbanks and Juneau marketplaces, as Alaska Fiber
Star and DSLnet have filed bonafide requests for interconnection with ACS. The
Company expects competition from these latter entrants in the business customer
telephony access, Internet access, DSL and private line markets. We believe our
long-standing presence in Alaska and the strength of our brand (as well as
ACS's) will make competitive entry difficult for these new entrants.
We received approval from the RCA in July 1999 to provide local exchange
services in ACS's existing service areas in Fairbanks, Juneau, Ft Wainwright,
Eielson AFB, and North Pole. We are currently involved in arbitration to define
the terms of interconnection with ACS for entry to these markets and are
expecting to conclude those proceedings in the third quarter of 2000. We
continue to offer local exchange services to substantially all consumers in the
Anchorage service area, primarily through our own facilities and unbundled local
loops leased from ACS.
On June 30, 1999, the APUC was repealed by an act passed earlier in the year by
the Alaska State Legislature and was immediately reconstituted as the RCA,
combining the functions of the APUC and certain other oversight functions. The
Governor of the state of Alaska appointed new commissioners as a result of this
restructuring. Established within the commission is a communications carriers
section that is tasked with developing, recommending, and administering policies
and programs with respect to the regulation
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of rates, services, accounting, and facilities of communications common carriers
within the state involving the use of wire, cable, radio, and space satellites.
We believe the new commission is generally more responsive to telecommunications
issues brought to its attention and more supportive of competitive
telecommunication regulatory policy.
The 1996 Telecom Act also provides ILECs with new competitive opportunities. We
believe that we have certain advantages over these companies in providing
telecommunications services, including awareness by Alaskan customers of the GCI
brand-name, our facilities-based telecommunications network, and our prior
experience in, and knowledge of, the Alaskan market. The 1996 Telecom Act
provides that rates charged by ILECs for interconnection to the incumbent
carrier's network are to be nondiscriminatory and based upon the cost of
providing such interconnection, and may include a "reasonable profit," which
terms are subject to interpretation by regulatory authorities. If ILECs charge
us unreasonably high fees for interconnection to their networks, or
significantly lower their retail rates for local exchange services, our local
service business could be placed at a significant competitive disadvantage.
Our local services sales efforts are primarily directed toward increasing the
number of commercial and small business subscribers we serve, selling bundled
services, and generating incremental revenues through product and feature upsale
opportunities. We sell our local services through telemarketing, direct mail
advertising, and door-to-door selling.
Internet Services
Industry. The Internet continues to expand at a significant rate, with the
number of sites almost doubling over the last several years. Industry analysts
estimated that 90 million sites were connected to the Internet worldwide at the
end of 1999. Current trends indicate that in a few years the Internet may become
as commonplace as TV. Analysts predict that the amount of Internet traffic will
likely continue to rise as fast as capacity allows for the foreseeable future.
Voice over the Internet may have a major impact on business and the entire
telecommunications industry in the future.
The use of Intranets has significantly increased, with an estimated 60 to 70
percent of US corporations using an Intranet. Current growth rates suggest that
138 million people worldwide will be connected from their desks to an in-house
Intranet by 2001.
An Intranet allows information to be decentralized in an organization. It uses
Internet-compatible standards, available on virtually any computer. An Intranet
is also, by mainframe computer standards, fast and inexpensive to set up. This
adds to its appeal, particularly for larger companies with complex legacy data
systems.
Industry analysts believe that one of the key tools for business advantage over
the next two years will be the Extranet. This is an Intranet (internal, secure,
full of sensitive data) connected to trusted customers and suppliers.
Implementing an Extranet creates the concept of the virtual enterprise, in which
all the organizations in a supply chain integrate their systems and operations.
This concept is not new, but has been achieved in the past using EDI on private
networks. Extranets promise to remove many of the obstacles that have prevented
firms from sharing their data (stock levels, production schedules, demand
forecasts) with customers and suppliers. However, there are issues of standards,
lack of consumer confidence and security.
Music is ideally suited for the digital world, with leading record companies and
music retailers now selling direct over the Internet. New compression algorithms
and technology (such as MP3) allow consumers to purchase and download music of
their choice to play on their personal computer, handheld device, or CD players.
Technology is beginning to turn products into a service, delivered over the
Internet. We expect this segment of the retail market to expand significantly.
Copyright and related legal concerns are becoming more prevalent due to the ease
in which electronic media can be distributed and copied.
Concerns about Internet-based commerce remain. One serious preoccupation is that
an overloaded Internet might crash. However, capacity on the Internet continues
to increase. Technology enables fiber to carry more data, and more cables and
satellite channels are being introduced. In 1995, the world's entire telecom
traffic amounted to a data rate of a terabit a second. Currently, a single
optical fiber strand
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can carry three times that amount of data with lab research indicating that many
times more capacity will be possible in the future.
Industry analysts expected 43.9 million American households to be able to access
the Internet in 1999, equaling approximately 43% of the country. Online-shopping
revenues were projected to increase in 1999 by 69%, to $11.9 billion, while
advertising revenues were expected to increase by 62%, to $3.3 billion.
We believe major court decisions and legislative action will shape the worldwide
Internet in 2000 and beyond, including:
- The impact of the U.S. vs. Microsoft antitrust trial,
- Possible recognition that traditional encryption regulation is obsolete,
- Minimum-regulation approaches to information privacy as a new consumer
movement tries to use international privacy law to rein in the behavior of
large corporations in the U.S. economy,
- The potential for continuing increases in inexperienced investors
investing through online brokers and increased instances of investor
losses that lead to arbitration claims against the brokers,
- The impact of more Internet patents preventing others from doing certain
things, such as designing and maintaining certain types of Web sites,
- The legality of hyperlinking without permission,
- Pending re-introduction of database legislation in Congress that would
create a new form of intellectual property in databases,
- Decisions regarding whether cryptographic source code is First Amendment
speech, and hence exportable, or that no program is covered by the First
Amendment,
- Renewed calls by the FBI and others for domestic controls of
obscenity-related cryptography, and
- The development of rating and filtering systems outside the United States.
General. Our Internet services division entered the Internet services market in
1998, providing retail services to residential, commercial, and government users
and providing wholesale carrier services to other ISPs. Cable network upgrades
in the Anchorage area have allowed us to offer high-speed cable modem Internet
access, the first of its kind in Alaska.
Products. We currently offer two types of Internet access for residential use:
dial up Internet access and high-speed cable modem Internet access. Our initial
residential high-speed cable modem Internet service offers up to 1024 kbps
access speed as compared with up to 56 kbps access through standard copper wire
modem access. We provide free 24-hour customer service and technical support via
telephone or online. The entry level cable modem service also offers free data
transfer up to five gigabytes per month and can be left connected
24-hours-a-day, 365-days-a-year, allowing for real-time information and e-mail
access. Additional cable modem service packages tailored to both heavy
residential and commercial Internet users are also available.
We believe cable modem services are the next generation of Internet access. This
service is appealing to families, professionals who work-at-home, educators, and
those involved in electronic commerce and people who enjoy interactive computer
games. Cable modem access overcomes the limitations of slower dial-up service
and the higher cost of dedicated Internet services and provides
always-available, high-speed access to the Internet. Cable modems use our
coaxial cable that provides cable television service, instead of the traditional
ILEC copper wire. Coaxial cable has a much greater carrying capacity than
telephone wire and can be used to simultaneously deliver both cable television
and Internet access services.
We currently offer several Internet service packages for commercial use: Dial up
access, T1 and fractional T1 leased line, frame relay and high-speed cable modem
Internet access. Our business high-speed cable modem Internet service offers
access speeds ranging from 256 kbps to 1024 kbps, free monthly data transfers of
up to 25 gigabytes and free 24-hour customer service and technical support.
Business services also include dedicated Internet access, a personalized web
page, domain name services, and e-mail addressing.
We introduced significant new marketing campaigns in February and March 1999
featuring bundled residential and commercial Internet products. Additional
bandwidth was made available to our Internet segment through the Alaska United
Project as previously described. The new Internet offerings are
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coupled with our long-distance and local services offerings and provide free
basic Internet services if certain long-distance or local service plans are
selected. Value-added Internet features are available for additional charges.
We provide Internet access for Alaska schools and health organizations using a
platform including many of the latest advancements in technology. Services are
delivered through a locally available circuit, our existing lines, and/or
satellite earth stations.
Facilities. The Internet is an interconnected global public computer network of
tens of thousands of packet-switched networks using the Internet protocol. The
Internet is effectively a network of networks routing data throughout the world.
We provide access to the Internet using a platform that includes many of the
latest advancements in technology. The physical platform is concentrated in
Anchorage and is extended into many remote areas of the state. Our Internet
platform includes:
- Circuits connecting our Anchorage facilities to an Internet access point
in Seattle through multiple, diversely routed networks.
- Routers on each end of the circuits to control the flow of data.
- Our Anchorage facility consists of a main router, a bank of servers that
perform proxy and cache functions, database servers providing
authentication and user demographic data, and access servers for dial-in
users.
- SchoolAccess(TM) Internet service delivery to over 257 schools in rural
Alaska is accomplished by three variations on primary delivery systems:
- In communities where we have terrestrial interconnects or provide
existing service over regional earth stations, we have configured
intermediate distribution facilities. Schools that are within these
service boundaries are connected locally to one of those facilities.
- In communities where we have extended telecommunications services via
our DAMA earth station program, SchoolAccess(TM) is provided via a
satellite circuit to an intermediate distribution facility at the Eagle
River Earth Station.
- In communities or remote locations where we have not extended
telecommunications services, SchoolAccess(TM) is provided via a
dedicated (usually on premise) DAMA VSAT satellite station. The DAMA
connects to an intermediate distribution facility located in Anchorage.
In all cases, Internet access is delivered to a router located at the service
point. Our Internet management platform constantly monitors this router;
continual communication is maintained with all of the routers in the network.
The availability and quality of service, as well as statistical information on
traffic loading, are continuously monitored for quality assurance. The
management platform has the capability to remotely access the routers,
permitting changes in router configuration without the need to physically be at
the service point.
GCI.net offers a unique combination of innovative network design and aggressive
performance management. The new Internet platform has received a certification
that places it in the top one percent of all service providers worldwide and the
only ISP in Alaska with such designation.
We operate and maintain what we believe is the largest, most reliable, and
highest performance Internet network in the State of Alaska.
Competition. The Internet industry is intensely competitive, rapidly evolving
and subject to constant technological change. Competition is based upon price
and pricing plans, the types of services offered, customer service, billing
services, perceived quality, reliability and availability. Although we believe
we have the human and technical resources to pursue our strategy and compete
effectively in this competitive environment, our success will depend upon our
ability to profitably provide high quality, high value bundled services at
prices generally competitive with, or lower than, those charged by our
competitors.
As of December 31, 1999, we competed with more than 25 Alaska based Internet
providers, and competed with other domestic, non-Alaska based providers that
provide national service coverage. Several of the providers have substantially
greater financial, technical and marketing resources than we have. We have, so
far, successfully adjusted our pricing and marketing strategies to respond to
competitors' pricing practices.
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Customers. We had approximately 48,300 and 7,200 active residential and
commercial Internet subscribers at December 31, 1999 and 1998, respectively.
1999 and 1998 revenues derived from Internet services (including
SchoolAccess(TM)) totaled $9.1 million and $6.1 million, respectively,
representing approximately 3.3% and 2.5% of our total 1999 and 1998 revenues,
respectively.
Our Internet services sales efforts are primarily directed toward increasing the
number of subscribers we serve, selling bundled services, and generating
incremental revenues through product and feature upsale opportunities. We sell
our Internet services through telemarketing, direct mail advertising,
door-to-door selling, and local media advertising.
Environmental Regulations
We may undertake activities that, under certain circumstances may affect the
environment. Accordingly, they are subject to federal, state, and local
regulations designed to preserve or protect the environment. The FCC, the Bureau
of Land Management, the U.S. Forest Service, and the National Park Service are
required by the National Environmental Policy Act of 1969 to consider the
environmental impact prior to the commencement of facility construction. We
believe that compliance with such regulations has no material effect on our
consolidated operations. The principal effect of our facilities on the
environment would be in the form of construction of facilities and networks at
various locations in Alaska and between Alaska and Seattle Washington. Our
facilities have been constructed in accordance with federal, state and local
building codes and zoning regulations whenever and wherever applicable. Some
facilities may be on lands that may be subject to state and federal wetland
regulation.
Uncertainty as to the applicability of environmental regulations is caused in
major part by the federal government's decision to consider a change in the
definition of wetlands. Most of our facilities are on leased property, and, with
respect to all of these facilities, we are unaware of any violations of lease
terms or federal, state or local regulations pertaining to preservation or
protection of the environment.
Our Alaska United project consists, in part, of deploying land-based and
undersea fiber optic cable facilities between Anchorage, Whittier, Valdez, and
Juneau, Alaska, and Seattle, Washington. The engineered route passes over
wetlands and other environmentally sensitive areas. We believe our construction
methods used for buried cable have a very minimal impact on the environment. The
agencies, among others, that are involved in permitting and oversight of our
cable deployment efforts are the US Army Corps of Engineers, The National Marine
Fisheries Service, US Fish & Wildlife, US Coast Guard, National Oceanic and
Atmospheric Administration, Alaska Department of Natural Resources, and the
Alaska Office of the Governor - Governmental Coordination. We are unaware of any
violations of federal, state or local regulations or permits pertaining to
preservation or protection of the environment.
In the course of operating the cable television systems, we have used various
materials defined as hazardous by applicable governmental regulations. These
materials have been used for insect repellent, locate paint and pole treatment,
and as heating fuel, transformer oil, cable cleaner, batteries, and in various
other ways in the operation of those systems. We do not believe that these
materials, when used in accordance with manufacturer instructions, pose an
unreasonable hazard to those who use them or to the environment.
Patents, Trademarks, Licenses, Certificates of Public Convenience and Necessity,
and Military Franchises
We do not hold patents, franchises or concessions for telecommunications
services or local access services. We do hold registered service marks for the
terms SchoolAccess(TM), Free Fridays for Business(TM) and Unlimited
Weekends(TM). The Communications Act of 1934 gives the FCC the authority to
license and regulate the use of the electromagnetic spectrum for radio
communication. We hold licenses through our long-distance services industry
segment for our satellite and microwave transmission facilities for provision of
long-distance services. We acquired a license for use of a 30-MHz block of
spectrum for providing PCS services in Alaska. The PCS license has an initial
duration of 10 years. We expect to renew the PCS license for an additional
10-year term under FCC rules. We acquired a LMDS license in 1998 for use of a
150-MHz block of spectrum in the 28 GHz Ka-band for providing wireless services.
The LMDS license has
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an initial duration of 10 years. Within 10 years, licensees will be required to
provide 'substantial service' in their service regions. Our operations may
require additional licenses in the future.
Applications for transfer of control of 15 certificates of public convenience
and necessity held by the acquired cable companies were approved in an RCA order
dated September 23, 1996, with transfers to be effective on October 31, 1996.
Such transfer of control allowed us to take control and operate the cable
systems of the acquired cable companies located in Alaska. The approval of the
transfer of these 15 certificates of public convenience and necessity is not
required under federal law, with one area of limited exception. The cable
companies operate in part through the use of several radio-band frequencies
licensed through the FCC. These licenses were transferred to us prior to October
31, 1996.
We obtained consent of the military commanders at the military bases serviced by
the acquired cable systems to the assignment of the respective franchises for
those bases.
Regulation, Franchise Authorizations and Tariffs
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state, and local
regulation and legislation affecting our businesses. Other existing federal and
state regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which these industries operate. We cannot predict at this time the
outcome of these proceedings, their impact on the industries in which we
operate, or their impact on us.
Telecommunications Operations. The following is a summary of federal laws,
regulations and tariffs, and a description of certain state and local laws
pertaining to our telecommunications operations (long-distance, local access and
wireless services).
General. We are subject to regulation by the FCC and by the RCA as a
non-dominant provider of long-distance services. We file tariffs with the FCC
for interstate and international long-distance services, and with the RCA for
intrastate service. Such tariffs routinely become effective without intervention
by the FCC, RCA or other third parties since we are a non-dominant carrier. We
received approval from the RCA in February 1997 permitting us to provide local
access services throughout ATU's (now ACS) existing service area. Military
franchise requirements also affect our ability to provide telecommunications and
cable television services to military bases.
The 1996 Telecom Act preempts state statutes and regulations that restrict the
provision of competitive local telecommunications services. State commissions
can, however, impose reasonable terms and conditions upon the provision of
telecommunications service within their respective states. Because we are
authorized to offer local access services in Anchorage, we are regulated as a
CLEC by the RCA. In addition, we will be subject to other regulatory
requirements, including certain requirements imposed by the 1996 Telecom Act on
all LECs, which requirements include permitting resale of LEC services, number
portability, dialing parity, and reciprocal compensation.
As a PCS and LMDS licensee, we are subject to regulation by the FCC, and must
comply with certain buildout and other conditions of the license, as well as
with the FCC's regulations governing the PCS and LMDS services. On a more
limited basis, we may be subject to certain regulatory oversight by the RCA
(e.g., in the areas of consumer protection), although states are not permitted
to regulate the rates of PCS, LMDS and other commercial wireless service
providers. PCS and LMDS licensees may also be subject to regulatory requirements
of local jurisdictions pertaining to, among other things, the location of tower
facilities.
1996 Telecom Act and Related Rulings. A key industry development was passage of
the 1996 Telecom Act. The Act is intended by Congress to open up the marketplace
to competition and has had a dramatic impact on the telecommunications industry.
The intent of the legislation is to break down the barriers that have prevented
three groups of companies, LECs, including RBOCs, long-distance carriers, and
cable TV operators, from competing head-to-head with each other. The Act
requires incumbent LECs to let new competitors into their business. It also
requires incumbent LECs to open up their networks to ensure that
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new market entrants have a fair chance of competing. The bulk of the legislation
is devoted to establishing the terms under which incumbent LECs must open up
their networks.
Enactment of the bill immediately affected local exchange service markets by
requiring states to authorize local exchange service competition. Competitors,
including resellers, are able to market new bundled service packages to attract
customers. Over the long term, the requirement that incumbent LECs unbundle
access to their networks may lead to increased price competition. Local exchange
service competition has not yet occurred in all markets on a national basis
because interconnection arrangements are not yet in place in many areas. We have
executed an interconnection agreement with ACS for the Anchorage market, and are
arbitrating with ACS to develop agreements for the Juneau and Fairbanks markets.
If we are unable to enter into, or experience a delay in obtaining,
interconnection agreements, this inability or delay may materially and adversely
affect our business and financial prospects.
The 1996 Telecom Act requires the FCC to establish rules and regulations to
implement its local competition provisions. In August 1996, the FCC issued rules
governing interconnection, resale, unbundled network elements, the pricing of
those facilities and services, and the negotiation and arbitration procedures
that would be utilized by states to implement those requirements. These rules
rely on state public utilities commissions to develop the specific rates and
procedures applicable to particular states within the framework prescribed by
the FCC. These rules were vacated in part by a July 1997 ruling of the United
States Court of Appeals for the Eighth Circuit. On January 25, 1999, the United
States Supreme Court issued an opinion upholding the authority of the FCC to
establish rules, including pricing rules, to implement statutory provisions
governing both interstate and intrastate services under the 1996 Telecom Act.
The Court also upheld rules allowing carriers to select provisions from among
different interconnection agreements approved by state commissions for the
carriers' own agreements and a rule allowing carriers to obtain combinations of
unbundled network elements.
The FCC affirmed in a report adopted on April 10, 1998, that Internet service
providers would not be subject to regulation as telecommunications carriers
under the 1996 Telecom Act. They thus will not be subject to universal service
subsidies and other regulations. Further, in August 1998, the FCC proposed new
rules that would allow ILECs to provide their own DSL services through separate
affiliates that are not subject to ILEC regulation. On November 18, 1999, the
FCC decided to require ILECs to share telephone lines with DSL providers, an
action that may foster competition by allowing competitors to offer DSL services
without their customers having to lease a second telephone line. Whether this
development will be implemented in an effective way remains to be seen.
Moreover, it is impossible to predict whether the FCC or Congress may change the
rules under which these services are offered and, if such changes are made, the
extent of the impact of such changes on our business.
The FCC regulates the fees that local telephone companies charge long distance
companies for access to their local networks. These fees are commonly called
access charges.
The FCC is currently considering various proposals, each supported by parts of
both the local and long distance telephone industries that would restructure and
likely reduce access charges. Changes in the access charge structure could
fundamentally change the economics of some aspects of our business.
The Supreme Court vacated an FCC rule setting forth the specific unbundled
network elements that ILECs must make available, finding that the FCC had failed
to apply the appropriate statutory standard. On November 5, 1999, the FCC
responded to the Court's decision by issuing a decision that maintains
competitors' access to a wide variety of unbundled network elements. Six of the
seven unbundled elements the FCC had originally required carriers to provide in
its 1996 order implementing the 1996 Telecom Act remain available to
competitors. These elements are loops, including loops used to provide
high-capacity and advanced telecommunications services; network interface
devices; local circuit switching, subject to restrictions in major urban
markets; dedicated and shared transport; signaling and call-related databases;
and operations support systems. The FCC removed access to operator and directory
assistance service from the list of available unbundled network elements. In
addition, the FCC added to its list certain unbundled network elements that were
not at issue in 1996. These elements include subloops, or portions of loops, and
dark fiber loops and transport. The FCC did not, however, require ILECs to
unbundle facilities used to provide DSL service. The FCC did not decide, but
sought additional information on, the question of whether carriers may combine
certain unbundled network elements to provide special access
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services to compete with those provided by the ILECs. The ability to obtain
unbundled network elements is an important element of our local access services
business, and we believe that the FCC's actions in this area have generally been
positive. However, we cannot predict the extent to which the existing rules will
be sustained in the face of additional legal action and the scope of the rules
that are yet to be crafted by the FCC.
Recurring and non-recurring charges for telephone lines and other unbundled
network elements may increase based on the rates proposed by the ILECs and
approved by the RCA from time to time, which could have a material adverse
effect on the results of our operations. Moreover, because the cost-based
methodology for determining these rates is still subject to judicial review,
there is great uncertainty about how these rates will be determined in the
future.
ACS, through subsidiary companies, provides local telephone services in
Fairbanks and Juneau, Alaska. The ACS subsidiaries are classified as Rural
Telephone Companies under the 1996 Telecom Act, which entitles them to an
exemption of certain material interconnection terms of the 1996 Telecom Act,
until such "rural exemption" is lifted by the State of Alaska. We requested that
continuation of the "rural exemption" of the ACS subsidiaries relating to the
Fairbanks and Juneau markets be examined. In January 1998, the RCA denied our
request to terminate the rural exemption. The basis of the RCA's decision was
primarily that various rulemaking proceedings (including Universal Service and
access charge reform) must be completed before the exemption would be revoked.
Those rulemaking proceedings have been largely completed.
On March 4, 1999, an Alaska Superior Court Judge determined that the APUC (now
RCA) erred in reaching its decision to deny our request to provide full local
telephone service in Fairbanks and Juneau, Alaska. This service would be
provided in competition against PTI (now ACS), the existing monopoly provider.
Among other things, the Court instructed the APUC to correctly assign the burden
of proof to PTI rather than us, and to decide on our specific requests to
provide service in Fairbanks and Juneau based on criteria established in the
1996 Telecom Act. The Court stated "this must be accomplished cognizant of the
intent of the 1996 Telecom Act to promote competition in the local market." The
Court remanded the case back to the APUC for proceedings leading to their
ruling. On July 1, 1999, the APUC ruled that the rural exemptions from local
competition in Juneau, Fairbanks and North Pole have been terminated, which
allows us to negotiate for unbundled elements for the provision of competitive
local service in these markets. The ILEC appealed this decision, and on October
11, 1999 the RCA issued an order terminating rural exemptions in the Fairbanks
and Juneau markets. We believe this decision is important to bring about the
benefits of competition to other communities in Alaska. We will continue to
negotiate with the ILEC for unbundled network elements for the provisioning of
competitive local assess services in these markets. We expect the RCA to approve
an interconnection agreement for unbundled elements by September 2000.
A number of LECs, long-distance companies and others have appealed some or all
of the FCC's orders. The effective date of the orders has not been delayed, but
the appeals are expected to take a year or more to conclude. The impact of these
FCC decisions on us is difficult to determine. Some BOCs have also challenged
the 1996 Telecom Act restrictions on their entry into long-distance markets as
unconstitutional. We are unable to predict the outcome of such rulemakings or
litigation or the effect (financial or otherwise) of the 1996 Telecom Act and
the rulemakings on us. The BOCs continue to challenge the substance of the FCC
rules, arguing that the rules do not allow them to fully recover the money they
spent building their networks.
Universal Service. In 1997, the FCC issued important decisions on universal
service establishing new funding mechanisms for high-cost, low-income service
areas to ensure that certain subscribers living in rural and high-cost areas, as
well as certain low-income subscribers, continue to have access to
telecommunications and information services at prices reasonably comparable to
those charged for similar services in urban areas.
These mechanisms also are meant to foster the provision of advanced
communications services to schools, libraries and rural health-care facilities.
Under the rules adopted by the FCC to implement these requirements, we and all
other telecommunications providers are required to contribute to a fund to
support
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universal service. The amount that we contribute to the federal universal
service subsidy will be based on our share of specified defined
telecommunications end-user revenues.
The order established significant discounts to be provided to eligible schools
and libraries for all telecommunications services, internal connections and
Internet access. It also established support for rural health care providers so
that they may pay rates comparable to those that urban health care providers pay
for similar services. Industry-wide annual costs of the program, estimated at
approximately $2.3 billion, are to be funded out of the Universal Service Fund.
The fund administrator on the basis of their interstate end-user revenues would
assess local and long distance carriers' contributions to the education and
health care funds. We began contributing to the new funds in 1998 and are
allowed to recover our contributions through increased interstate charges.
Local Regulation. We may be required to obtain local permits for street opening
and construction permits to install and expand fiber optic networks. Local
zoning authorities often regulate our use of towers for microwave and other
telecommunications sites. We also are subject to general regulations concerning
building codes and local licensing. The 1996 Telecom Act requires that fees
charged to telecommunications carriers be applied in a competitively neutral
manner, but there can be no assurance that ILECs and others with whom we will be
competing will bear costs similar to those we will bear in this regard.
Other Laws and Regulations. Although the foregoing discussion provides an
overview of the major regulatory issues that confront our business, this
discussion does not attempt to describe all current and proposed federal, state
and local rules and initiatives affecting the telecommunications industry. Other
federal and state laws and regulations are currently the subject of judicial
proceedings and proposed additional legislation. In addition, some of the FCC's
rules implementing the 1996 Telecom Act will be subject to further judicial
review and could be altered or vacated by courts in the future. We cannot
predict the ultimate outcome of any such further proceedings or legislation.
Cable Services. The following is a summary of federal laws and regulations
materially affecting the growth and operation of the cable services industry and
a description of certain state and local laws affecting our cable services
business.
General. We are subject to federal and state regulation as a cable television
operator pursuant to the 1934 Cable Act, the 1984 Cable Act and the 1992 Cable
Act, as amended by the 1996 Telecom Act. The 1992 Cable Act significantly
expanded the scope of cable television regulation on an industry-wide basis by
imposing rate regulation, carriage requirements for local broadcast stations,
customer service obligations and other requirements. The 1992 Cable Act and the
FCC's rules implementing that Act generally have increased the administrative
and operational expenses and in certain instances required rate reductions for
cable television systems and have resulted in additional regulatory oversight by
the FCC and state or local authorities.
Principal responsibility for implementing the policies of the 1934, 1984 and
1992 Cable Acts and the 1996 Telecom Act is allocated between the FCC and state
or local franchising authorities. The FCC and state regulatory agencies are
required to conduct numerous rulemaking and regulatory proceedings to implement
the 1996 Telecom Act, and such proceedings may materially affect the cable
industry.
Subscriber Rates. The 1992 Cable Act authorized rate regulation for cable
communications services and equipment in communities that are not subject to
"effective competition," as defined by federal law. Most cable communications
systems are now subject to rate regulation for basic cable service and equipment
by local officials under the oversight of the FCC, which has prescribed detailed
criteria for such rate regulation. The 1992 Cable Act also requires the FCC to
resolve complaints about rates for CPS Tiers (other than programming offered on
a per channel or per program basis, which programming is not subject to rate
regulation) and to reduce any such rates found to be unreasonable. The 1996
Telecom Act eliminates the right of individuals to file CPS Tier rate complaints
with the FCC and requires the FCC to issue a final order within 90 days after
receipt of CPS Tier rate complaints filed by any franchising authority. The 1992
Cable Act limits the ability of cable television systems to raise rates for
basic and certain cable programming services (collectively, the "Regulated
Services").
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FCC regulations govern rates that may be charged to subscribers for Regulated
Services. The FCC uses a benchmark methodology as the principal method of
regulating rates for Regulated Services. Cable operators are also permitted to
justify rates using a cost-of-service methodology, which contains a rebuttable
presumption of an industry-wide 11.25% after tax rate of return on an operator's
allowable rate base. Franchising authorities are empowered to regulate the rates
charged for monthly basic service, for additional outlets and for the
installation, lease and sale of equipment used by subscribers to receive the
basic cable service tier, such as converter boxes and remote control units. The
FCC's rules require franchising authorities to regulate these rates on the basis
of actual cost plus a reasonable profit, as defined by the FCC. Cable operators
required to reduce rates may also be required to refund overcharges with
interest. The FCC has also adopted comprehensive and restrictive regulations
allowing operators to modify their regulated rates on a quarterly or annual
basis using various methodologies that account for changes in the number of
regulated channels, inflation and increases in certain external costs, such as
franchise and other governmental fees, copyright and retransmission consent
fees, taxes, programming fees and franchise-related obligations. We cannot
predict whether the FCC will modify these "going forward" regulations in the
future.
Rate regulation of non-basic cable programming service tiers ended after March
31, 1999. The 1996 Telecom Act also modifies the uniform rate provision of the
1992 Cable Act by prohibiting regulation of nonpredatory bulk discount rates
offered to subscribers in commercial and residential developments and permits
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level.
Anti-Buy Through Provisions. The 1992 Cable Act requires cable systems to permit
subscribers to purchase video programming offered by the operator on a per
channel or a per program basis without the necessity of subscribing to any tier
of service, other than the basic cable service tier, unless the system's lack of
addressable converter boxes or other technological limitations does not permit
it to do so. The statutory exemption for cable systems that do not have the
technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Many of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
the requirement.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. A cable system generally is required to devote up to
one-third of its activated channel capacity for the carriage of local commercial
television stations whether pursuant to the mandatory carriage or retransmission
consent requirements of the 1992 Cable Act. Local non-commercial television
stations are also given mandatory carriage rights; however, such stations are
not given the option to negotiate retransmission consent for the carriage of
their signals by cable systems. Additionally, cable systems are required to
obtain retransmission consent for all distant commercial television stations
(except for commercial satellite-delivered independent "superstations" such as
WGN), commercial radio stations and certain low-power television stations
carried by such systems.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for the mandatory carriage of digital television signals
offered by local broadcasters. We are unable to predict the outcome of this
proceeding or the impact any new carriage requirements might have on the
operations of our cable systems.
Designated Channels. The Communications Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act also requires a cable
system with 36 or more channels to designate a portion of its channel capacity
for commercial leased access by third parties to provide programming that may
compete with services offered by the cable operator. The FCC has adopted rules
regulating: (i) the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity; (ii) the terms and conditions
for commercial use of such channels; and (iii) the procedures for the expedited
resolution of disputes concerning rates or commercial use of the designated
channel capacity.
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Franchise Procedures. The 1984 Cable Act affirms the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by (i) allowing municipalities to operate their own cable systems
without franchises; (ii) preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and (iii)
prohibiting (with limited exceptions) the common ownership of cable systems and
collocated MMDS or SMATV systems. The FCC has relaxed its restrictions on
ownership of SMATV systems to permit a cable operator to acquire SMATV systems
in the operator's existing franchise area so long as the programming services
provided through the SMATV system are offered according to the terms and
conditions of the cable operator's local franchise agreement. The 1996 Telecom
Act provides that the cable/SMATV and cable/MMDS cross-ownership rules do not
apply in any franchise area where the operator faces "effective competition" as
defined by federal law.
The Cable Acts also provide that in granting or renewing franchises, local
authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. The Cable Acts limit the payment of franchise fees to 5% of
revenues derived from cable operations and permit the cable operator to obtain
modification of franchise requirements by the franchise authority or judicial
action if warranted by changed circumstances. A federal appellate court held
that a cable operator's gross revenue includes all revenue received from
subscribers, without deduction, and overturned an FCC order which had held that
a cable operator's gross revenue does not include money collected from
subscribers that is allocated to pay local franchise fees. We cannot predict the
ultimate resolution of these matters. The 1996 Telecom Act generally prohibits
franchising authorities from (i) imposing requirements in the cable franchising
process that require, prohibit or restrict the provision of telecommunications
services by an operator, (ii) imposing franchise fees on revenues derived by the
operator from providing telecommunications services over its cable system, or
(iii) restricting an operator's use of any type of subscriber equipment or
transmission technology.
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act made
several changes to the renewal process that could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. We believe that we have generally met the terms of our franchises
and have provided quality levels of service. We anticipate that our future
franchise renewal prospects generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit the number of franchises awarded within a community and to impose
certain substantive franchise requirements (e. g. access channels, universal
service and other technical requirements). These decisions have been
inconsistent and, until the US Supreme Court rules definitively on the scope of
cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.
Ownership Limitations. Pursuant to the 1992 Cable Act, the FCC adopted rules
prescribing national subscriber limits. While a federal district court has
declared these limitations to be unconstitutional and delayed its enforcement,
the FCC has reconsidered its cable ownership regulations and (i) reaffirmed its
30% nationwide subscriber ownership limit, but maintained its voluntary stay on
enforcement of that regulation pending further court action, (ii) reaffirmed its
subscriber ownership information reporting requirements, and (iii) modified its
attribution rules that identify when the ownership or management by us or third
parties of other communications businesses, including cable systems, television
broadcast stations and local telephone companies, may be imputed to us for
purposes of determining our compliance with the FCC's ownership restrictions.
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Also pending on appeal is a challenge to the statutory and FCC regulatory
limitations on the number of channels that can be occupied on a cable system by
a video programmer in which a cable operator has an attributable ownership
interest. We do not expect the outcome of these judicial and regulatory
proceedings or the impact of any ownership restrictions to have a material
impact on our business and operations.
The 1996 Telecom Act generally prohibits us from owning or operating a SMATV or
wireless cable system in any area where we provide franchised cable service. We
may, however, acquire and operate SMATV systems in our franchised service areas
if the programming and other services provided to SMATV subscribers are offered
according to the terms and conditions of our franchise agreement.
The 1996 Telecom Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations that
precluded the cross-ownership of a national broadcasting network and a cable
system, it has not yet completed its review of other regulations that prohibit
the common ownership of other broadcasting interests and cable systems in the
same geographical areas.
LEC Ownership of Cable Systems. The 1996 Telecom Act made far-reaching changes
in the regulation of LECs that provide cable services. The 1996 Telecom Act
eliminated federal legal barriers to competition in the local telephone and
cable communications businesses, preempted legal barriers to competition that
previously existed in state and local laws and regulations, and set basic
standards for relationships between telecommunications providers. The 1996
Telecom Act eliminated the statutory telephone company/cable television
cross-ownership prohibition, thereby allowing LECs to offer video services in
their telephone service areas. LECs may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. The
1996 Telecom Act generally limits acquisitions and prohibits certain joint
ventures between LECs and cable operators in the same market.
A federal appellate court overturned various parts of the FCC's open video
rules, including the FCC's preemption of local franchising requirements for open
video operators. The FCC has modified its open video rules to comply with the
federal court's decision, but we are unable to predict the impact these rule
modifications may have on our business and operations.
Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis. In
some cases, utility companies have increased pole attachment fees for cable
systems that have installed fiber optic cables and that are using such cables
for the distribution of non-video services.
The FCC has concluded that, in the absence of state regulation, it has
jurisdiction to determine whether utility companies have justified their demand
for additional rental fees and that the Communications Act does not permit
disparate rates based on the type of service provided over the equipment
attached to the utility's pole. The FCC's existing pole attachment rate formula,
which may be modified by a pending rulemaking, governs charges for utilities for
attachments by cable operators providing only cable services. The 1996 Telecom
Act and the FCC's implementing regulations modify the current pole attachment
provisions of the Communications Act by immediately permitting certain providers
of telecommunications services to rely upon the protections of the current law
and by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility.
The FCC's current rate formula, which is being reevaluated by the FCC, governs
the maximum rate certain utilities may charge for attachments to their poles and
conduit by cable operators providing only cable services and, until 2001, by
certain companies providing telecommunications services. The FCC also adopted a
second rate formula that will be effective in 2001 and will govern the maximum
rate certain utilities may charge for attachments to their poles and conduit by
companies providing telecommunications services, including cable operators.
Several parties have requested the FCC to reconsider its new regulations and
several parties have challenged the new rules in court. A federal appellate
court recently
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upheld the constitutionality of the new statutory provision that requires
utilities provide cable systems and telecommunications carriers with
nondiscriminatory access to any pole, conduit or right-of-way controlled by the
utility. We are unable to predict the outcome of the legal challenge to the
FCC's new regulations or the ultimate impact any revised FCC rate formula or any
new pole attachment rate regulations might have on our business and operations.
Other Statutory Provisions. The 1992 Cable Act, the 1996 Telecom Act and FCC
regulations preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly to its
subscribers, from favoring an affiliated company over competitors and requires
such programmers to sell their programming to other multichannel video
distributors. These provisions limit the ability of program suppliers affiliated
with cable companies or with common carriers providing satellite-delivered video
programming directly to their subscribers to offer exclusive programming
arrangements to their affiliates. In December 1997, the FCC initiated a
rulemaking to address a number of possible changes to its program access rules.
Among the issues on which the FCC has sought comment is whether the FCC has
jurisdiction to extend its program access rules to terrestrially delivered
programming, and if it does have such jurisdiction, whether it should expand the
rules in this fashion. This rulemaking is pending at the FCC.
The 1992 Cable Act requires cable operators to block fully both the video and
audio portion of sexually explicit or indecent programming on channels that are
primarily dedicated to sexually oriented programming or alternatively to carry
such programming only at "safe harbor" time periods currently defined by the FCC
as the hours between 10 p. m. to 6 a. m. A three-judge federal district court
determined that this provision was unconstitutional. The United States Supreme
Court is currently reviewing the lower court's ruling. The Communications Act
also includes provisions, among others, concerning horizontal and vertical
ownership of cable systems, customer service, subscriber privacy, marketing
practices, equal employment opportunity, regulation of technical standards and
equipment compatibility.
Other FCC Regulations. The FCC revised its cable inside wiring rules to provide
a more specific procedure for the disposition of internal cable wiring that
belongs to an incumbent cable operator that is forced to terminate its cable
services in a MDU building by the building owner. The FCC is also considering
additional rules relating to MDU inside wiring that, if adopted, may
disadvantage incumbent cable operators. The FCC has various rulemaking
proceedings pending that will implement the 1996 Telecom Act; it also has
adopted regulations implementing various provisions of the 1992 Cable Act and
the 1996 Telecom Act that are the subject of petitions requesting
reconsideration of various aspects of its rulemaking proceedings. Other FCC
regulations covering such areas as equal employment opportunity, syndicated
program exclusivity, network program non-duplication, closed captioning of video
programming, registration of cable systems, maintenance of various records and
public inspection files, microwave frequency usage, origination cablecasting and
sponsorship identification, antenna structure notification, marking and
lighting, carriage of local sports broadcast programming, application of rules
governing political broadcasts, limitations on advertising contained in
non-broadcast children's programming, consumer protection and customer service,
indecent programming, programmer access to cable systems, programming
agreements, technical standards, consumer electronics equipment compatibility
and DBS implementation. The FCC has the authority to enforce its regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations.
The FCC has ongoing rulemaking proceedings that may change its existing rules or
lead to new regulations. We are unable to predict the impact that any further
FCC rule changes may have on our business and operations. Other bills and
administrative proposals pertaining to cable communications have previously been
introduced in Congress or have been considered by other governmental bodies over
the past several years. It is probable that Congress and other governmental
bodies will make further attempts to regulate cable communications services.
Copyright. Cable communications systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals. The nature
and amount of future payments for
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broadcast signal carriage cannot be predicted at this time. In a report to
Congress, the Copyright Office recommended that Congress make major revisions of
both the cable television and satellite compulsory licenses to make them as
simple as possible to administer, to provide copyright owners with full
compensation for the use of their works, and to treat every multichannel video
delivery system the same, except to the extent that technological differences or
differences in the regulatory burdens placed upon the delivery system justify
different copyright treatment. The possible simplification, modification or
elimination of the compulsory copyright license is the subject of continuing
legislative review. The elimination or substantial modification of the cable
compulsory license could adversely affect our ability to obtain suitable
programming and could substantially increase the cost of programming that
remains available for distribution to our subscribers. We cannot predict the
outcome of this legislative activity.
Our cable communications systems often utilize music in the programs we provide
to subscribers including local advertising, local origination programming and
pay-per-view events. The right to use this music is controlled by music
performance rights societies who negotiate on behalf of their copyright owners
for license fees covering each performance. The cable industry and one of these
societies have agreed upon a standard licensing agreement covering the
performance of music contained in programs originated by cable operators and in
pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performance rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
are unable to predict the outcome of these proceedings or the amount of any
license fees we may be required to pay for the use of music. We do not believe
that the amount of such fees will be significant to our financial position,
results of operations or liquidity.
State and Local Regulation. Because our cable communications systems use local
streets and rights-of-way, our systems are subject to state and local
regulation. Cable communications systems generally are operated pursuant to
non-exclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchisee fails to comply with
material provisions. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. The 1992 Cable Act immunizes franchising authorities from
monetary damage awards arising from regulation of cable communications systems
or decisions made on franchise grants, renewals, transfers and amendments.
Internet Operations. The following is a summary of federal laws, regulations and
tariffs, and a description of certain state and local laws pertaining to our
Internet operations.
With significant growth in Internet activity and commerce over the past several
years the FCC and other regulatory bodies have been challenged to develop new
models that allow them to achieve the public policy goals of competition and
universal service. Many aspects of regulation and coordination of Internet
activities and traffic are evolving and are facing unclear regulatory futures.
Changes in regulations in the future will have a significant impact on ISPs,
Internet commerce and Internet services.
The Internet has been able to grow and develop outside the existing regulatory
structure because the FCC has made conscious decisions to limit the application
of its rules. The federal government's efforts have been directed away from
burdening the Internet with regulation. ISPs and other companies in the Internet
industry have not been required to gain regulatory approval for their actions.
The 1996 Telecom Act adopts such a position. The 1996 Act states that it is the
policy of the United States "to preserve the vibrant and competitive free market
that presently exists for the Internet and other interactive computer services,
unfettered by Federal or State regulation."
Regulatory policy approaches toward the Internet have focused on several areas:
avoiding unnecessary regulation, questioning the applicability of traditional
rules, Internet governance (such as the allocation of domain names),
intellectual property, network reliability, privacy, spectrum policy, standards,
security, and international regulation.
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Government may influence the evolution of the Internet in many ways, including
directly regulating, participating in technical standards development, providing
funding, restricting anti-competitive behavior by dominant firms, facilitating
industry cooperation otherwise prohibited by antitrust laws, promoting new
technologies, encouraging cooperation between private parties, representing the
United States in international intergovernmental bodies, and large-scale
purchasing of services.
There are many ways Internet growth could be negatively impacted which may
require future regulation and oversight. Moving toward proprietary standards or
closed networks would reduce the degree to which new services could leverage the
existing infrastructure. The absence of competition in the ISP market, or the
telecommunications infrastructure market, could reduce incentives for
innovation. Excessive or misguided government intervention could distort the
operation of the marketplace, and lead companies to expend valuable resources
working through the regulatory process. Insufficient government involvement may
also, however, have negative consequences. Some issues may require a degree of
central coordination, even if only to establish the initial terms of a
distributed, locally-controlled system. The end result, in the absence of
collective action, may be an outcome that no one favors. In addition, the
failure of the federal government to identify Internet-related areas that should
not be subject to regulation leaves open opportunities for state, local, or
international bodies to regulate excessively and/or inconsistently.
There is no one entity or organization that governs the Internet. Each
facilities-based network provider that is interconnected with the global
Internet controls operational aspects of their own network. Certain functions,
such as domain name routing and the definition of the TCP/IP protocol, are
coordinated by an array of quasi-governmental, intergovernmental, and
non-governmental bodies. The United States government, in many cases, has handed
over responsibilities to these bodies through contractual or other arrangements.
In other cases, entities have emerged to address areas of need such as the
Internet Society ("ISOC"), a non-profit professional society founded in 1992.
ISOC organizes working groups and conferences, and coordinates some of the
efforts of other Internet administrative bodies. The Internet Engineering Task
Force ("IETF"), an open international body mostly comprised of volunteers, is
primarily responsible for developing Internet standards and protocols. The work
of the IETF is coordinated by the Internet Engineering Steering Group, and the
Internet Architecture Board, which are affiliated with ISOC. The Internet
Assigned Numbers Authority handles Internet addressing matters under a contract
between the Department of Defense and the Information Sciences Institute at the
University of Southern California.
The legal authority of any of these bodies is unclear. Most of the underlying
architecture of the Internet was developed under the auspices, directly or
indirectly, of the United States government. The government has not, however,
defined whether it retains authority over Internet management functions, or
whether these responsibilities have been delegated to the private sector. The
degree to which any existing body can lay claim to representing "the Internet
community" is also unclear. Membership in the existing Internet governance
entities is drawn primarily from the research and technical communities.
The 1996 Telecom Act provides little direct guidance as to whether the FCC has
authority to regulate Internet-based services. Section 223 concerns access by
minors to obscene, harassing, and indecent material over the Internet and other
interactive computer networks, and sections 254, 706, and 714 address mechanisms
to promote the availability of advanced telecommunications services, possibly
including Internet access. Section 230 states a policy goal "to preserve the
vibrant and competitive free market that presently exists for the Internet and
other interactive computer services, unfettered by Federal or State regulation."
None of these sections, however, specifically addresses the FCC's jurisdiction.
Nothing in the 1996 Telecom Act expressly limits the FCC's authority to regulate
services and facilities connected with the Internet, to the extent that they are
covered by more general language in any section of the Act. Moreover, it is not
clear what such a limitation would mean even if it were adopted. The
Communications Act directs the FCC to regulate "interstate and foreign commerce
in communication by wire and radio," and the FCC and state public utility
commissions indisputably regulate the rates and conditions under which ISPs
purchase services and facilities from telephone companies. Given the absence of
clear statutory guidance, the FCC must determine whether or not it has the
authority or the obligation to exercise regulatory jurisdiction over specific
Internet-based activities. The FCC may also decide whether
42
<PAGE>
to forebear from regulating certain Internet-based services. Forbearance allows
the FCC to decline to adopt rules that would otherwise be required by statute.
Under section 401 of the 1996 Telecom Act, the FCC must forbear if regulation
would not be necessary to prevent anticompetitive practices and to protect
consumers, and forbearance would be consistent with the public interest.
Finally, the FCC could consider whether to preempt state regulation of Internet
services that would be inconsistent with achievement of federal goals.
The FCC has not attempted to regulate the companies that provide the software
and hardware for Internet telephony, or the access providers that transmit their
data, as common carriers or telecommunications service providers. In March 1996,
America's Carriers Telecommunication Association ("ACTA"), a trade association
primarily comprised of small and medium-size interexchange carriers, filed a
petition with the FCC asking the FCC to regulate Internet telephony. ACTA argues
that providers of software that enables real-time voice communications over the
Internet should be treated as common carriers and subject to the regulatory
requirements of Title II. The FCC has sought comment on ACTA's request. Other
countries are considering similar issues.
The FCC has not considered whether any of the rules that relate to radio and
television broadcasters should also apply to analogous Internet-based services.
The vast majority of Internet traffic today travels over wire facilities, rather
than the radio spectrum. As a policy matter, however, a continuous, live,
generally-available music broadcast over the Internet may appear similar to a
traditional radio broadcast, and the same arguments may be made about streaming
video applications. The FCC will need to consider the underlying policy
principles that, in the language of the Act and in FCC decisions, have formed
the basis for regulation of the television and radio broadcast industries.
The FCC does not regulate the prices charged by ISPs or Internet backbone
providers. However, the vast majority of users connect to the Internet over
facilities of existing telecommunications carriers. Those telecommunications
carriers are subject to varying levels of regulation at both the federal and the
state level. Thus, regulatory decisions exercise a significant influence over
the economics of the Internet market. Economics is expected to drive the
development of both the Internet and of other communications technologies.
Internet access is understood to be an enhanced service under FCC rules;
therefore ISPs are treated as end users, rather than carriers, for purposes of
the FCC's interstate access charge rules. This distinction was created when the
FCC established the access charge system in 1983. Thus, when ISPs purchase lines
from LECs, the ISPs buy those lines under the same tariffs that any business
customer would use -- typically voice grade measured business lines or
23-channel ISDN primary rate interface (PRI). Although these services generally
involve a per-minute usage charge in addition to a monthly fee, the usage charge
is assessed only for outbound calls. ISPs, however, exclusively use these lines
to receive calls from their customers, and thus effectively pay flat monthly
rates. By contrast, IXCs that interconnect with LECs are considered carriers,
and thus are required to pay interstate access charges for the services they
purchase. Most of the access charges that carriers pay are usage-sensitive in
both directions. Thus, IXCs are assessed per-minute charges for both originating
and terminating calls. The FCC concluded in the Local Competition Order that the
rate levels of access charges appear to significantly exceed the incremental
cost of providing these services. The FCC in December 1996 launched a
comprehensive proceeding to reform access charges in a manner consistent with
economic efficiency and the development of local competition.
The revenue effects of Internet usage today depend to a significant extent on
the structure of state tariffs. Internet usage generates less revenue for LECs
in states where flat local service rates have been set low, with compensating
revenues in the form of per-minute intrastate toll charges. Because ISPs only
receive local calls, they do not incur these usage charges. By contrast, in
states where flat charges make up a higher percentage of LEC revenues, ISPs will
have a less significant revenue effect. ISP usage is also affected by the
relative pricing of services such as ISDN Primary Rate Interface (PRI), frame
relay, and fractional T-1 connections, which are alternatives to analog business
lines. Prices for these services, and the price difference on a
per-voice-channel basis between the options available to ISPs, vary widely
across different states. In many cases, tariffs for these and other data
services are based on assumptions that do not reflect the realities of the
Internet access market today. The scope of local calling areas also affects the
architecture of Internet access services. In states with larger unmeasured local
calling areas, ISPs need fewer POPs in order to serve the same customers through
a local call.
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<PAGE>
We are presently unable to determine what the impact of potential Internet
regulatory actions and decisions will be on our liquidity, results of operations
and cash flows.
Financial information about our foreign and domestic operations and export sales
Although we have several agreements to help originate and terminate
international toll traffic, we do not have foreign operations or export sales.
We conduct our operations throughout the western contiguous United States,
Alaska and Hawaii and believe that any subdivision of our operations into
distinct geographic areas would not be meaningful. Revenues associated with
international toll traffic were $4.2 million, $7.0 million and $7.6 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
Seasonality
Our long-distance revenues have historically been highest in the summer months
as a result of temporary population increases attributable to tourism and
increased seasonal economic activity such as construction, commercial fishing,
and oil and gas activities. Our cable television revenues, on the other hand,
are higher in the winter months because consumers tend to watch more television,
and spend more time at home, during these months. Our local service and Internet
operations are not expected to exhibit significant seasonality, with the
exception of SchoolAccess(TM) Internet services that are reduced during the
summer months. Our ability to implement construction projects is also reduced
during the winter months because of cold temperatures, snow and short daylight
hours.
Customer-sponsored research
We have not expended material amounts during the last three fiscal years on
customer-sponsored research activities.
Backlog of Orders and Inventory
As of December 31, 1999 and 1998, our long-distance services segment had a
backlog of equipment sales orders of approximately $101,000 and $202,000,
respectively. The decrease in backlog as of December 31, 1999 can be attributed
primarily to reduced equipment sales activity at the end of the fourth quarter
in 1999 as compared to 1998. Many of our customers delayed equipment orders so
that their systems would be stable at the turn of the century, resulting in
reduced sales activity and order backlog. We expect that all of the orders in
backlog at the end of 1999 will be delivered during 2000.
Geographic Concentration and Alaska Economy
We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. As a result of this geographic concentration,
growth of our business and our operations depend upon economic conditions in
Alaska. The economy of Alaska is dependent upon the natural resource industries,
and in particular oil production, as well as investment earnings, tourism,
government, and United States military spending. Any deterioration in these
markets could have an adverse impact on us. Oil revenues are now the third
largest source of state revenues, following investment income and federal funds.
Alaska's investment earnings will supply 33% of the state's projected revenues
in fiscal 2001, with federal funding comprising 27% of the total and oil
revenues 24% of the total. Much of the investment income and all of the federal
funding is restricted or dedicated for specific purposes, however, leaving oil
revenues as the primary funding source (75%) of general operating expenditures.
The volume of oil transported by the TransAlaska Oil Pipeline System over the
past 20 years has been as high as 2.0 million barrels per day in fiscal 1988.
Production has begun to decline in recent years and is presently down 40% from
the fiscal 1988 level, and down 25% from the fiscal 1997 level. The two largest
producers of oil in Alaska (the primary users of the TransAlaska Oil Pipeline
System) continue to explore, develop and produce new oil fields and to enhance
recovery from existing fields to offset the decline in production from the
Prudhoe Bay field. Both companies have invested large sums of money in
developing and implementing oil recovery techniques at the Prudhoe Bay field and
other nearby fields. The state now forecasts a temporary reversal of the
production rate decline and a slight increase in the production rate during the
period from fiscal 2003 to 2005. This forecasted increase is attributed to new
developments at the Alpine, Liberty and Northstar fields, as well as new
production from Prudhoe Bay and other fields.
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<PAGE>
Market prices for North Slope oil declined to below $10 per barrel in 1998, and
averaged $12.70 in fiscal 1999, well below the average price used by the state
to budget its oil related revenues. The prices have since increased to over $30
per barrel in March 2000, with a year-to-date fiscal 2000 average price per
barrel of $22.78. Over the past decade, the rolling 60-month average price for
North Slope crude oil has been between $16.39 and $17.74 per barrel 95 percent
of the time.
The state's forecast for fiscal 2001 shows the price for North Slope crude
averaging $18.28 and then declining to the low-$18 and high-$17 range for the
next five years. Recent higher prices are largely due to the Organization of
Petroleum Exporting Countries ("OPEC") March 1999 agreement to cut production to
force prices higher. The OPEC agreement called for production cuts from January
1999 levels of a little more than 2 million barrels per day. Although OPEC
trimmed output by about 1.75 million barrels, or nearly 85 percent of targeted
reductions, October 1999 OPEC production has increased by 400,000 barrels per
day. This reduces current compliance to 65 percent of targeted cuts. History
suggests that market forces lead to lower prices when oil sells for more than
$20 per barrel. What is uncertain is when and how fast the correction will
occur. The response of non-OPEC production to higher prices is uncertain. The
production policy of OPEC and its ability to continue to act in concert
represents a key uncertainty in the state's revenue forecast.
The state of Alaska maintains the Constitutional Budget Reserve Fund that is
intended to fund budgetary shortfalls. Based on the state's oil price and
production forecasts, and considering the state's other revenues, the Alaska
Department of Revenue expects the state will need to draw less than $500 million
from the Constitutional Budget Reserve Fund in Fiscal 2000 and about $700
million in Fiscal 2001 to balance the state's budget, down substantially from
the $1 billion fiscal 2000 draw expected in their spring 1999 forecast. If the
state's current projections are realized, the Constitutional Budget Reserve Fund
will be depleted in 2004. If the fund is depleted, aggressive state action will
be necessary to increase revenues and reduce spending in order to balance its
budget. The Governor of the State of Alaska and the Alaska Legislature are
pursuing cost cutting and revenue enhancing measures.
Oil companies and service providers announced cost cutting measures to offset a
portion of the declining oil revenues in 1999, resulting in a reduction of oil
industry jobs of over 1,400. Projects that are underway are reportedly not
affected by the cutbacks, however BP Amoco p.l.c. ("BP" or "BP Amoco") did
notify state officials that it would delay its exploration of the Genesee test
site east of Prudhoe.
Although oil prices have a substantial effect on Alaska's economy, analysts
believe that tourism, air cargo, and service sectors are strong enough to offset
a portion of the expected downturn. These industries have helped offset the
prevailing pattern of oil industry downsizing that has occurred during much of
the last several years. Three other factors that support Alaska's economy are
the healthy national economy, lower interest rates, and low inflation. We expect
construction to remain strong over the next few years. $1.77 billion of federal
money is expected to be distributed to the state of Alaska for highways and
other federally supported projects in fiscal 2000.
Effective March 1997, the State of Alaska passed new legislation relaxing state
oil royalties with respect to marginal oil fields that the oil companies claim
would not be economic to develop otherwise. No assurance can be given that oil
companies doing business in Alaska will be successful in discovering new fields
or further developing existing fields which are economic to develop and produce
oil with access to the pipeline or other means of transport to market, even with
the reduced level of royalties.
BP Amoco announced in April 1999 its intention to purchase ARCO for $26.8
billion. BP Amoco and ARCO together reportedly own approximately 70 percent of
the Alaska North Slope oil fields and the company that operates the Trans-Alaska
Pipeline System.
On February 2, 2000 the FTC voted to fight in federal court to block BP Amoco's
purchase of ARCO citing their concern over:
- the reduction in competition in the sale of Alaska oil to West Coast
independent refineries;
- the reduction in competition in Alaska lease sales, thus reducing state
and federal government revenue from such sales; and
- possible manipulation of futures market prices by the resulting company.
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<PAGE>
On March 15, 2000 BP Amoco and ARCO announced that they have agreed to sell
ARCO's Alaskan businesses to Phillips Petroleum Co. ("Phillips") for $7 billion.
The sale, which is subject to completion of the ARCO combination, is intended to
address FTC anti-trust concerns. BP Amoco reported March 16, 2000 that the
company was at an advanced stage in discussions with the FTC on its proposed
combination with ARCO and was hopeful of a successful outcome "within a matter
of weeks."
BP Amoco and ARCO have reportedly agreed jointly with the FTC, the US West Coast
states and Alaska to suspend litigation - originally scheduled to begin in
California on March 20 - pending the outcome of those negotiations.
The sale to Phillips of all ARCO's Alaskan businesses includes a 21.9 per cent
interest in the Prudhoe Bay oil field and 42.6 per cent of the gas cap, as well
as a range of interests in related fields, a 55 per cent interest in the greater
Kuparuk area and a 78 per cent stake in the Alpine field. The package also
includes 1.1 million net exploration acres, a 22.3 per cent interest in the
Trans-Alaska pipeline, and ARCO's crude oil shipping fleet that includes six
tankers in service and three under construction. The booked reserves being sold
total 1.9 billion barrels of oil equivalent. The $7 billion price for the
Alaskan businesses reportedly is made up of approximately $6.5 billion cash for
the field, pipeline and shipping operations and assets, plus a supplemental
payment of $500 million based on a formula tied to the price of crude oil. There
will also be a payment of some $150 million for crude oil inventories. The
transaction, which is expected to close early in the second quarter and will be
effective retroactive to January 1, 2000, is subject to approval of the Federal
Trade Commission (FTC). The parties are reportedly working with the FTC and the
states of Alaska, California, Oregon and Washington to obtain such approval.
Phillips' current Alaskan operations include a 70 percent interest in the Kenai
LNG plant that has exported LNG to Japan for 30 years; a 100 percent interest in
the North Cook Inlet field; a less than 2 percent interest in the Prudhoe Bay
Unit; a 10 percent interest in the Point Thomson field; interests in several of
the Prudhoe Bay satellites; a small interest in TAPS; and exploration acreage in
NPRA and elsewhere.
Exxon Mobil Corp. ("Exxon") filed a lawsuit March 24, 2000 to stop Phillip's
acquisition of ARCO's Alaska assets. Exxon contends that it has the right of
first refusal to purchase certain of ARCO's Alaska assets. This lawsuit could
delay or block the pending sale of ARCO Alaska, Inc. to Phillips. The FCC is
expected to wait for the outcome of the Exxon lawsuit before rendering its
decision.
We are not able to predict the effect on the State of Alaska's economy or on us
should these acquisitions and sales transactions not be consummated, or should
the expected efficiencies and cost savings not be realized.
Should new discoveries or developments not materialize or the price of oil
return to its prior depressed levels, the long term trend of continued decline
in oil production from the Prudhoe Bay field area is inevitable with a
corresponding adverse impact on the economy of the state, in general, and on
demand for telecommunications and cable television services, and, therefore, on
us, in particular.
We have, since our entry into the telecommunication marketplace, aggressively
marketed our services to seek a larger share of the available market. The
customer base in Alaska is limited, however, with a small population of
approximately 620,000 people. 42% of are located in the Anchorage area, 14% are
located in the Fairbanks area, 5% are located in the Juneau area, and the rest
are spread out over the vast reaches of Alaska. No assurance can be given that
the driving forces in the Alaska economy, and in particular, oil production,
will continue at levels to provide an environment for expanded economic
activity.
Employees
We employed 949 persons as of March 03, 2000, and are not parties to union
contracts with our employees. We believe our future success will depend upon our
continued ability to attract and retain highly skilled and qualified employees.
We believe that relations with our employees are satisfactory.
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Other
No material portion of our businesses is subject to renegotiation of profits or
termination of contracts at the election of the federal government.
Item 2. PROPERTIES
General.
Our properties do not lend themselves to description by character or location of
principal units. Our investment in property, plant and equipment in our
consolidated operations consisted of the following at December 31:
1999 1998
-------- --------
Telephone distribution systems 64.5% 35.9%
Cable television distribution services 23.1% 22.3%
Support equipment 10.2% 10.5%
Property and equipment under capital leases 0.7% 0.7%
Construction in progress 0.7% 29.8%
Transportation equipment 0.5% 0.5%
Land and buildings 0.3% 0.3%
-------- --------
Total 100.0% 100.0%
======== ========
These properties are divided among our operating segments at December 31, 1999
as follows: long-distance services, 56.7%; cable services, 24.6%; local access
services, 7.5%; Internet services, 4.0%; and other, 7.2%.
These properties consist primarily of switching equipment, satellite earth
stations, fiber-optic networks, microwave radio and cable and wire facilities,
cable head-end equipment, coaxial distribution networks, routers, servers,
transportation equipment, computer equipment and general office equipment.
Substantially all of our properties secure our Senior Holdings Loan and Fiber
Facility. You should see note 5 to the Notes to Consolidated Financial
Statements included in Part II of this Report for further discussion.
Our construction in progress totaled $2.9 million at December 31, 1999,
consisting of telecommunications, cable and Internet projects that were not
complete at December 31, 1999. Construction in progress totaled $119.6 million
at December 31, 1998, of which $114.9 related to Alaska United fiber-optic
facilities connecting Anchorage, Juneau, Fairbanks, Valdez and Whittier, Alaska
to Seattle Washington, and $4.7 related to telecommunications and Internet
projects that were not complete at December 31, 1998.
Central office equipment, buildings, furniture and fixtures and certain
operating and other equipment are insured under a blanket property insurance
program. This program provides substantial limits of coverage against "all
risks" of loss including fire, windstorm, flood, earthquake and other perils not
specifically excluded by the terms of the policies. We currently self-insure all
of our cable and fiber optic outside plant against casualty losses.
Long-Distance Services. We operate a state-of-the-art, competitive
telecommunications network employing the latest digital transmission technology
based upon fiber optic and digital microwave facilities within and between
Anchorage, Fairbanks and Juneau. Our network includes digital fiber optic cables
linking Alaska to the contiguous 48 states and providing access to other
carriers' networks for communications around the world. We use satellite
transmission to remote areas of Alaska and for certain interstate traffic.
Our long-distance services segment owns properties and facilities including
satellite earth stations, and distribution, transportation and office equipment.
Additionally, in December 1992 we acquired access to capacity on an undersea
fiber optic cable from Seward, Alaska to Pacific City, Oregon. We completed
construction of an additional fiber optic cable facility linking Alaska to
Seattle, Washington in February 1999, which is owned subject to an outstanding
mortgage.
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We entered into a purchase and lease-purchase option agreement in August 1995
for the acquisition of satellite transponders on the PanAmSat Galaxy XR
satellite to meet our long-term satellite capacity requirements. We intend to
operate the satellite pursuant to a long-term capital lease arrangement with a
leasing company. The purchase and lease-purchase option agreement provides for
the interim lease of transponder capacity on the PanAmSat Galaxy IX satellite
through the delivery of the purchased transponders.
We lease our long-distance services industry segment's executive, corporate and
administrative facilities in Anchorage, Fairbanks and Juneau, Alaska. Our
operating, executive, corporate and administrative properties are in good
condition. We consider our properties suitable and adequate for our present
needs and they are being fully utilized.
Cable Services. The Cable Systems serve 26 communities and areas in Alaska
including Anchorage, Fairbanks and Juneau, the state's three largest urban
areas. As of December 31, 1999 the Cable Systems consisted of approximately
1,825 miles of installed cable plant having between 300 to 550 MHz of channel
capacity. Principal physical assets used in our Cable Systems include central
receiving apparatus, distribution cables, converters, customer service centers
and local business offices.
We lease our Cable Systems customer service and operating facilities in
substantially all locations. We own the receiving and distribution equipment of
each system. In order to keep pace with technological advances, we are
maintaining, periodically upgrading and rebuilding the physical components of
our cable communications systems. Such properties are in good condition. We
consider our properties suitable and adequate for our present and anticipated
future needs.
Local Access Services. We operate a state-of-the-art, competitive local access
telecommunications network employing the latest digital transmission technology
based upon fiber optic facilities within Anchorage. Our outside plant consists
of connecting lines (aerial, underground and buried cable) not on customers'
premises, the majority of which is on or under public roads, highways or
streets, while the remainder is on or under private property. Central office
equipment primarily consists of digital electronic switching equipment and
circuit equipment. Operating equipment consists of motor vehicles and other
equipment.
Substantially all of our local access services' central office equipment,
administrative and business offices, and customer service centers are in leased
facilities. Such properties are in good condition. We consider our properties
suitable and adequate for our present and anticipated future needs.
Internet Services. We operate a state-of-the-art, competitive Internet network
employing the latest available technology. We provide access to the Internet
using a platform that includes many of the latest advancements in technology.
The physical platform is concentrated in Anchorage and is extended into many
remote areas of the state. Our Internet platform includes a trunk connecting the
Anchorage POP to an Internet access point in Seattle through multiple, diversely
routed upstream Internet networks, routers on each end of the frame relay trunk
to control the flow of data over the trunk, and various other routers, servers
and support equipment.
We lease our Internet services industry segment's operating facilities, located
primarily in Anchorage. Such properties are in good condition. We consider our
properties suitable and adequate for our present and anticipated future needs.
Capital Expenditures. Capital expenditures consist primarily of (a) gross
additions to property, plant and equipment having an estimated service life of
one year or more, plus the incidental costs of preparing the asset for its
intended use, and (b) gross additions to capitalized software.
The total investment in property, plant and equipment has increased from $44.2
million at January 1, 1995 to $61.0 million at December 31, 1999, including
construction in progress and not including deductions of accumulated
depreciation. Significant additions to property, plant and equipment will be
required
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in the future to meet the growing demand for communications, Internet and
entertainment services and to continually modernize and improve such services to
meet competitive demands.
Our capital expenditures for 1995 through 1999 were as follows (in millions):
1995 $ 8.9
1996 $ 38.6
1997 $ 64.6
1998 $ 149.0
1999 $ 36.6
We project capital expenditures of approximately $80 to $85 million for 2000,
consisting of $48 million for satellite transponders, $15 to $17 million for
long-distance services, $7 to $8 million for cable services, $5 to $6 million
for local access services, $4 to $5 million for Internet services, and $1
million for wireless services. A majority of the expenditures will expand,
enhance and modernize our current networks, facilities and operating systems,
and will develop wireless and other businesses.
During 1999, we funded our normal business capital requirements substantially
through internal sources and, to the extent necessary, from external financing
sources. We expect expenditures for 2000 to be financed in the same manner,
except for the new satellite transponders that will be acquired subject to
long-term lease/purchase financing.
Item 3. LEGAL PROCEEDINGS
Except as set forth in this item, neither The Company, its property nor any of
its subsidiaries or their property is a party to or subject to any material
pending legal proceedings. We are parties to various claims and pending
litigation as part of the normal course of business. We are also involved in
several administrative proceedings and filings with the FCC, Department of Labor
and state regulatory authorities. In the opinion of management, the nature and
disposition of these matters are considered routine and arising in the ordinary
course of business which management believes, even if resolved unfavorably to
us, would not have a materially adverse affect on our business or financial
position, results of operations or liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information for Common Stock. Shares of GCI's Class A common stock are
traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol GNCMA. Shares of GCI's Class B common stock are traded on the
Over-the-Counter market. Each share of Class B common stock is convertible, at
the option of the holder, into one share of Class A common stock. The following
table sets forth the high and low sales price for the above-mentioned common
stock for the periods indicated. Market price data were obtained from the Nasdaq
Stock Market quotation system. The prices, rounded up to the nearest eighth,
represent prices between dealers, do not include retail markups, markdowns, or
commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1998:
First Quarter 8 3/8 6 1/8 8 3/8 6 1/8
Second Quarter 8 5 1/2 8 5 1/2
Third Quarter 6 1/8 2 5/8 6 1/8 2 5/8
Fourth Quarter 5 2 1/2 5 2 1/2
1999:
First Quarter 5 1/4 4 5 1/4 4
Second Quarter 8 4 8 4
Third Quarter 7 4 3/4 7 4 3/4
Fourth Quarter 6 1/4 3 3/4 6 1/4 3 3/4
</TABLE>
Holders. As of December 31, 1999 there were 1,868 holders of record of GCI's
Class A common stock and 562 holders of record of GCI's Class B common stock
(amounts do not include the number of shareholders whose shares are held of
record by brokers, but do include the brokerage house as one shareholder).
Dividends. GCI and GCI, Inc. have never paid cash dividends on their common
stock and have no present intention of doing so. Payment of cash dividends in
the future, if any, will be determined by GCI's Board of Directors in light of
our earnings, financial condition and other relevant considerations. Our
existing bank loan agreements contain provisions that prohibit payment of
dividends, other than stock dividends (you should see note 5 to the Consolidated
Financial Statements included in Part II of this Report for more information).
Stock Transfer Agent And Registrar. ChaseMellon Shareholder Services, L.L.C. is
our stock transfer agent and registrar.
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Item 6. SELECTED FINANCIAL DATA
<TABLE>
The following table presents selected historical information relating to
financial condition and results of operations over the past five years.
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 279,179 246,795 223,809 164,894 129,279
Net earnings (loss) before income taxes,
extraordinary item and cumulative effect of
a change in accounting principle (2) $ (14,866) (10,920) (2,235) 12,690 12,601
Loss on early extinguishment of debt, net of
income tax benefit of $180 $ 0 0 521 0 0
Cumulative effect of a change in accounting
principal, net of income tax benefit of $245 $ 344 0 0 0 0
Net earnings (loss) $ (9,527) (6,797) (2,183) 7,462 7,502
Basic net earnings (loss) per common share $ (0.21) (0.14) (0.05) 0.28 0.32
Diluted net earnings (loss) per common share $ (0.21) (0.14) (0.05) 0.27 0.31
Total assets (3) $ 643,151 649,445 545,302 447,335 84,765
Long-term debt, including current portion (3) $ 339,400 351,657 250,084 223,242 9,980
Obligations under capital leases, including
current portion $ 1,674 2,186 1,188 746 1,047
Total stockholders' equity (3, 4) $ 192,548 200,007 204,439 149,554 43,016
Dividends declared per Common share (5) $ 0.00 0.00 0.00 0.00 0.00
<FN>
--------------------
1 The 1997 revenue increase is primarily attributed to reporting 12
months of cable television service revenues as compared to two months
reported in 1996.
2 Our net losses in 1999, 1998 and 1997 are primarily attributed to
additional depreciation, amortization and interest expense resulting
from the cable company acquisitions in October 1996 and startup losses
from our entry into local access services and Internet services
markets.
3 Increases in our total assets, long-term debt and stockholders' equity
in 1996 as compared to 1995 result in part from the cable company
acquisitions and MCI (now MCI WorldCom) stock issuance described in
note 8 to the Notes to Consolidated Financial Statements included in
Part II of this Report. Increases in assets and long-term debt in 1998
as compared to 1997 result primarily from our construction of a
fiber-optic system connecting points in Alaska with Seattle Washington
as further described in note 9 to the accompanying Notes to
Consolidated Financial Statements included in Part II of this Report.
4 The 1997 increase in stockholders' equity is primarily attributed to
our equity offering in August 1997, described in note 7 to the
accompanying Notes to Consolidated Financial Statements included in
Part II of this Report.
5 We have never paid a cash dividend on our common stock and do not
anticipate paying dividends in the foreseeable future. We intend to
retain our earnings, if any, for the development of our business.
Payment of cash dividends in the future, if any, will be determined by
the board of directors in light of our earnings, financial condition,
credit agreements and other relevant considerations. Our existing bank
loan agreements contain provisions that prohibit payment of dividends,
other than stock dividends, as further described in note 5 to the Notes
to Consolidated Financial Statements included in Part II of this
Report.
</FN>
</TABLE>
51
<PAGE>
Item 7. Management's discussion and analysis of financial condition and results
of operations
In the following discussion, General Communication, Inc. and its direct and
indirect subsidiaries are referred to as "we," "us" and "our."
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto. See -
Cautionary Statement Regarding Forward-Looking Statements.
OVERVIEW
We have experienced significant growth in recent years through strategic
acquisitions, deploying new business lines, and expansion of our existing
businesses. We have historically met our cash needs for operations through our
cash flows from operating activities. Cash requirements for acquisitions and
capital expenditures have been provided largely through our financing
activities.
Long-distance services. Our provision of interstate and intrastate long-distance
services to residential, commercial and governmental customers and to other
common carriers (principally MCI WorldCom, Inc. ("MCI WorldCom") and Sprint
Corporation ("Sprint")), and provision of private line and leased dedicated
capacity services accounted for 97.0% of our total long-distance services
revenues during 1999. Factors that have the greatest impact on year-to-year
changes in long-distance services revenues include the rate per minute charged
to customers and usage volumes, usually expressed as minutes of use.
Revenues from private line and other data services sales increased 13.4% to
$22.0 million during 1999 as compared to 1998 due primarily to increased system
capacity and increasing demand for data services by Internet service providers
("ISP"), commercial and governmental customers, and others. Demand for data
services to and from the lower 48 states previously exceeded the available
supply capacity, however such demand is beginning to be filled with uncompressed
fiber optic capacity on the Alaska United fiber optic cable system.
Our long-distance cost of sales and services has consisted principally of direct
costs of providing services, including local access charges paid to LECs for
originating and terminating long-distance calls in Alaska, and fees paid to
other long-distance carriers to carry calls terminating in areas not served by
our network (principally the lower 49 states, most of which calls are carried
over MCI WorldCom's network, and international locations, which calls are
carried principally over Sprint's network). During 1999, local access charges
accounted for 52.7% of long-distance cost of sales and services, fees paid to
other long-distance carriers represented 30.9%, satellite transponder lease and
undersea fiber maintenance costs represented 12.8%, and other costs represented
3.6% of long-distance cost of sales and services.
Our long-distance selling, general, and administrative expenses have consisted
of operating and engineering, customer service, sales and communications,
management information systems, general and administrative, and legal and
regulatory expenses. Most of these expenses consist of salaries, wages and
benefits of personnel and certain other indirect costs (such as rent, travel,
utilities, insurance and property taxes). A significant portion of long-distance
selling, general, and administrative expenses, 28.5% during 1999, represents the
cost of our advertising, promotion and market analysis programs.
Long-distance services face significant competition from AT&T Alascom, Inc.,
long-distance resellers, and from local telephone companies that have entered
the long-distance market. The number of active long-distance residential,
commercial and small business customers increased 10.7% at December 31, 1999 as
compared to December 31, 1998. We believe our approach to developing, pricing,
and providing long-distance services and bundling different business segment
services will continue to allow us to be competitive in providing those
services.
Revenues derived from other common carriers increased 0.2% in 1999 as compared
to 1998. The low rate of growth is due primarily to reduced rates charged to
such carriers and a change in the mix of wholesale minutes carried for such
customers. We secured contract amendments during the second quarter of 1999 with
MCI WorldCom and Sprint. The amendments provided, among other things, for a
three-year
52
<PAGE>
contract term extension for Sprint. The MCI WorldCom contract expires in 2001.
Other common carrier traffic routed to us for termination in Alaska is largely
dependent on traffic routed to MCI WorldCom and Sprint by their customers.
Pricing pressures, new program offerings and market consolidation continue to
evolve in the markets served by MCI WorldCom and Sprint. If, as a result, their
traffic is reduced, or if their competitors' costs to terminate or originate
traffic in Alaska are reduced, our traffic will also likely be reduced, and our
pricing may be reduced to respond to competitive pressures. We are unable to
predict the effect on us of such changes, however given the materiality of other
common carrier revenues to us, a significant reduction in traffic or pricing
could have a material adverse effect on our financial position, results of
operations and liquidity. In October 1999 MCI WorldCom and Sprint announced
their intention to merge, subject to certain approvals. Both companies
anticipate the merger will close in the second half of 2000. We are unable to
predict the outcome or the merger's impact on our operations, liquidity or
financial condition.
Cable services. During 1999, cable television revenues represented 21.9% of
consolidated revenues. The cable systems serve 26 communities and areas in
Alaska, including the state's three largest population centers, Anchorage,
Fairbanks and Juneau.
We generate cable services revenues from three primary sources: (1) programming
services, including monthly basic or premium subscriptions and pay-per-view
movies or other one-time events, such as sporting events; (2) equipment rentals
or installation; and (3) advertising sales. During 1999 programming services
generated 85.5% of total cable services revenues, equipment rental and
installation fees accounted for 8.8% of such revenues, advertising sales
accounted for 4.6% of such revenues, and other services accounted for the
remaining 1.1% of total cable services revenues. The primary factors that
contribute to year-to-year changes in cable services revenues are average
monthly subscription and pay-per-view rates, the mix among basic, premium and
pay-per-view services, and the average number of subscribers during a given
reporting period.
The cable systems' cost of sales and selling, general and administrative
expenses has consisted principally of programming and copyright expenses, labor,
maintenance and repairs, marketing and advertising and rental expense. During
1999 programming and copyright expenses represented 32.6% of total cable cost of
sales and selling, general and administrative expenses, and general and
administrative costs represented 47.3% of such total. Marketing and advertising
costs represented approximately 7.9% of such total expenses.
Cable services face competition from alternative methods of receiving and
distributing television signals and from other sources of news, information and
entertainment. We believe our cable television services will continue to be
competitive based on providing, at reasonable prices, a greater variety of
programming and other communication services than are available off-air or
through other alternative delivery sources and upon superior technical
performance and customer service.
Local access services. We generate local access services revenues from three
primary sources: (1) business and residential basic dial tone services; (2)
business private line and special access services; and (3) business and
residential features and other charges, including voice mail, caller ID,
distinctive ring, inside wiring and subscriber line charges. Effective March
1999 we transitioned to the "bill and keep" cost settlement method for
termination of traffic on our facilities and on other's facilities. Local
exchange services revenues totaled $15.5 million representing 5.6% of
consolidated revenues in 1999. The primary factors that contribute to
year-to-year changes in local access services revenues are the average number of
business and residential subscribers to our services during a given reporting
period and the average monthly rates charged for non-traffic sensitive services.
Operating and engineering expenses represented approximately 5.9% of total local
access services cost of sales and selling, general and administrative expenses
during 1999. Marketing and advertising costs represented approximately 5.3% of
such total expenses, customer service and general and administrative costs
represented approximately 48.7% of such total expenses, and local access cost of
sales represented approximately 40.1% of such total expenses.
53
<PAGE>
Our local access services face significant competition in Anchorage from ACS and
AT&T Alascom, Inc. We believe our approach to developing, pricing, and providing
local access services will allow us to be competitive in providing those
services.
Internet services. We began offering Internet services in several markets in
Alaska during 1998. We generate Internet services revenues from three primary
sources: (1) access product services, including commercial dedicated access
("DIAS"), ISP DIAS, and retail dial-up service revenues; (2) SchoolAccess(TM)
DIAS and server revenues; and (3) network management services. Internet services
revenues totaled $9.1 million representing 3.3% of total revenues in 1999. The
primary factors that contribute to year-to-year changes in Internet services
revenues are the average number of subscribers to our services during a given
reporting period, the average monthly subscription rates, and the number of
additional premium features selected.
Operating and general and administrative expenses represented approximately
56.7% of total Internet services cost of sales and selling, general and
administrative expenses during 1999. Internet cost of sales represented
approximately 37.4% of such total expenses and marketing and advertising
represented approximately 5.9% of such total expenses.
Significant new marketing campaigns have been introduced in 1999 featuring
bundled residential and commercial Internet products. Additional bandwidth was
made available to our Internet segment resulting from completion of the Alaska
United undersea fiber optic cable project. The new Internet offerings are
coupled with our long-distance and local access services offerings and provide
free basic Internet services or discounted premium Internet services if certain
long-distance or local access services plans are selected. Value-added premium
Internet features are available for additional charges.
We compete with a number of Internet service providers in our markets. We
believe our approach to developing, pricing, and providing Internet services
will allow us to be competitive in providing those services.
Other services, other expenses and net loss. Telecommunications services
revenues reported in the Other segment as described in note 10 to the
accompanying consolidated financial statements include sales of fiber optic
system capacity (see below), corporate network management contracts,
telecommunications equipment sales and service, other miscellaneous revenues
(including revenues from cellular resale services, from prepaid and debit
calling cards sales, and installation and leasing of customer's VSAT equipment).
During the second quarter of 1999 we completed a $19.5 million sale of long-haul
capacity in the Alaska United undersea fiber optic cable system ("fiber capacity
sale") to ACS in a cash transaction. The sale includes both capacity within
Alaska, and between Alaska and the lower 49 states. We announced in July 1999
that an agreement pertaining to a second $19.5 million sale of fiber capacity to
ACS had been executed. The agreement requires ACS to acquire additional capacity
during the 18-month period following the effective date of the contract.
In addition to the fiber capacity sale of $19.5 million, Other services segment
revenues during 1999 include network solutions and outsourcing revenues totaling
$5.7 million, telecommunications equipment sales totaling $5.5 million and
cellular resale and other revenues totaling $2.9 million.
We began developing plans for deploying PCS services in 1995 and subsequently
conducted a technical trial of our candidate technology. We have invested
approximately $2.2 million in our PCS license at December 31, 1999. PCS
licensees are required to offer service to at least one-third of their market
population within five years or risk losing their licenses. Service must be
extended to two-thirds of the population within 10 years. We are in the
design/build phase of our wireless implementation plan that will allow retention
of the PCS license pursuant to its terms.
Depreciation, amortization and interest expense on a consolidated basis
increased $21.5 million in 1999 as compared to 1998 resulting primarily from
additional depreciation on 1998 and 1999 capital expenditures, additional
average outstanding long-term debt and a reduction in the amount of capitalized
construction period interest following placement of the Alaska United undersea
fiber optic cable system into service in early February 1999.
54
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth selected Statement of Operations data as a
percentage of total revenues for the periods indicated (underlying data rounded
to the nearest thousands):
<CAPTION>
Year Ended December 31, Percentage Change
----------------------- -----------------
1999 1998
vs. vs.
1999 1998 1997 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Long-distance services 57.2% 64.0% 69.4% 1.2% 1.7%
Cable services 21.9% 23.3% 24.6% 6.1% 4.5%
Local access services 5.6% 4.0% 0.3% 56.9% 1,524.3%
Internet services 3.3% 1.9% 0.1% 98.6% 2,422.5%
Other services 12.0% 6.8% 5.6% 100.6% 33.3%
------------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 13.1% 10.3%
Cost of sales and services 43.9% 47.0% 49.6% 5.5% 4.5%
Selling, general and administrative expenses 35.2% 36.4% 32.9% 9.4% 22.1%
Depreciation and amortization 15.3% 13.0% 10.6% 33.2% 34.8%
------------------------------------------------------------------
Operating income 5.6% 3.6% 6.9% 78.1% (42.5%)
Net loss before income taxes,
extraordinary item and cumulative
change in an accounting principle (5.3%) (4.4%) (1.0%) 36.1% 388.6%
Net loss before extraordinary item and
cumulative change in an accounting
principle (3.3%) (2.8%) (0.7%) 35.1% 309.0%
Net loss (3.4%) (2.8%) (1.0%) 40.2% 211.4%
Other Operating Data:
Cable services operating income (1) 14.7% 12.4% 18.9% 26.2% (31.7%)
Local access services operating loss (2) (47.8%) (112.2%) (581.8%) (33.2%) 213.3%
Internet services operating (loss)
income (3) (4.7%) 0.1% (45.1%) (8,700.0%) (106.1%)
<FN>
- -----------------------------------------------
1 Computed as a percentage of total cable services revenues.
2 Computed as a percentage of total local access services revenues.
3 Computed as a percentage of total Internet services revenues.
</FN>
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998.
Revenues. Total revenues increased 13.1% from $246.8 million in 1998 to $279.2
million in 1999. Long-distance revenues from commercial, residential,
governmental, and other common carrier customers increased 1.1% from $157.9
million in 1998 to $159.7 million in 1999. The increase in long-distance
revenues was due to the following:
- An increase of 10.7% in the number of active residential, small business and
commercial customers billed from 82,000 at December 31, 1998 to 90,800 at
December 31, 1999,
- An increase of 14.4% in total minutes of use to 905.0 million minutes,
- An increase of 13.4% in private line and private network transmission
services revenues from $19.4 million in 1998 to $22.0 million in 1999 due to
an increased number of customers and
- New revenues in 1999 totaling $4.8 million from the lease of three DS3
circuits on Alaska United facilities within Alaska, and between Alaska and
the lower 49 states and maintenance charges related to the portion of fiber
capacity purchased by ACS.
55
<PAGE>
The increase in long-distance revenue was offset by an 18.8% reduction in our
average rate per minute on long-distance traffic from $0.168 per minute in 1998
to $0.136 per minute in 1999. The decrease in rates resulted from our promotion
of and customers' enrollment in calling plans offering discounted rates and
length of service rebates, such plans being prompted in part by our primary
long-distance competitor, AT&T Alascom, reducing its rates, and the entry of
LECs into long-distance markets served by us. Changes in wholesale product mix
and reduced rates on other common carrier traffic (principally MCI WorldCom and
Sprint) offset other common carrier minutes growth of 24.9% resulting in a 0.3%
increase in revenues, from $61.3 million in 1998 to $61.5 million in 1999.
Common carrier minute growth is attributable, in part, to a new category of
wholesale minutes carried on the Company's network.
Cable revenues increased 6.1% from $57.6 million in 1998 to $61.1 million in
1999. Programming services revenues increased 5.8% to $52.3 million in 1999
resulting from an increase of approximately 4,800 basic subscribers served by
us, an increase of $1.31 in average gross revenue per average basic subscriber
per month and increased pay-per-view and premium service revenues. New facility
construction efforts in the summer of 1999 resulted in approximately 2,800
additional homes passed which contributed to additional subscribers and revenues
in 1999. Other factors include the launch of digital cable services in late 1998
with an associated marketing and sales effort starting in July 1999 and the
introduction of a customer offering requiring a year commitment in exchange for
a discounted price that reduced customer churn. Equipment rental and
installation revenues increased 18.9% to $5.4 million in 1999 due to an increase
in subscribers to our digital service and associated converters that are billed
at premium rates.
Local access services revenues increased 56.6% from $9.9 million in 1998 to
$15.5 million in 1999. Approximately 45,000 lines were in service and 750
additional lines were awaiting connection at December 31, 1999.
Internet services revenues (including SchoolAccess(TM) services) increased 98.6%
from $4.6 million in 1998 to $9.1 million in 1999. We had approximately 48,000
and 5,700 active residential, commercial and small business retail and wholesale
dial-up and cable modem subscribers to our Internet service at December 31, 1999
and 1998, respectively.
Other services revenues increased 100.6% from $15.8 million in 1998 to $33.6
million in 1999. The 1999 increase was largely due to the fiber capacity sale as
previously described.
Cost of sales and services. Cost of sales and services totaled $116.1 million in
1998 and $122.5 million in 1999. As a percentage of total revenues, cost of
sales and services decreased from 47.0% in 1998 to 43.9% in 1999. The decrease
in cost of sales and services as a percentage of revenues is primarily
attributed to the impact of the fiber capacity sale and changes in our product
mix due to continuing development of new product lines and growth of existing
product lines (local access services, data services and Internet). The overall
margin improvement was partially offset by increased cable services cost of
sales as a percentage of cable services revenues. Cable cost of sales increased
more than cable revenues increased in 1999.
Long-distance cost of sales and services increased from $79.3 million in 1998 to
$81.0 million in 1999. Long-distance cost of sales as a percentage of
long-distance revenues increased from 50.2% in 1998 to 50.7% in 1999 primarily
due to a decrease in the average rate per minute billed to customers without a
comparable decrease in access charges paid by us, and a non-recurring refund
received in the second quarter of 1998 totaling approximately $1.1 million from
a local exchange carrier in respect of its earnings that exceeded regulatory
requirements. Offsetting the 1999 increase as compared to 1998 are reductions in
access costs due to our distribution and termination of our traffic on our own
local services network instead of paying other carriers to distribute and
terminate our traffic. We expect increased cost savings as traffic carried on
our own facilities continues to grow. Additional capacity between Alaska and the
lower 48 states now available on the Alaska United fiber optic cable system has
allowed us to carry significant additional amounts of data services traffic on
our own facilities rather than paying other carriers for leased capacity.
Cable cost of sales and services as a percentage of revenues, which is less as a
percentage of revenues than are long-distance, local access and Internet
services cost of sales and services, increased from 23.3% in 1998 to 25.3% in
1999. Cable services rate increases did not keep pace with increases in
programming and
56
<PAGE>
copyright costs in 1999. Programming costs increased on most of
our cable services offerings, and we incurred additional costs on new
programming introduced in 1998 and 1999.
Local access services cost of sales and services totaled 50.8% and 61.7% as a
percentage of 1999 and 1998 local access services revenues, respectively.
Internet services cost of sales and services totaled 34.6% and 74.1% as a
percentage of the 1999 and 1998 Internet services revenues, respectively. Our
local access operations commenced in 1997 and Internet services operations
commenced in 1998. Fluctuations in cost of sales and services as a percentage of
revenues are expected to continue to occur as these product lines develop and
mature.
The decrease in 1998 and 1999 other services cost of sales and services as a
percentage of other services revenue from 82.5% to 44.5%, respectively, is
primarily due to the fiber capacity sale as previously described.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 9.4% from $89.8 million in 1998 to $98.3
million in 1999. The 1999 increase resulted from:
- Increased costs associated with operations and maintenance of the Alaska
United fiber optic cable system that was placed into service in early
February 1999. 1999 costs totaled $3.6 million as compared to $1.1 million
in 1998.
- Internet services operating, engineering, sales, customer service and
administrative cost increases, from $715,000 in 1998 as compared to $5.3
million in 1999. We gradually introduced our Internet services through the
third quarter of 1998 and began aggressive advertising efforts in the fourth
quarter of 1998. Increased costs were necessary to provide the operations,
engineering, customer service and support infrastructure necessary to
accommodate expected growth in our Internet services customer base.
- Increased allowance for doubtful accounts receivable.
- Accrual of a Company-wide success sharing bonus totaling $1.6 million in
1999. Success sharing is a bonus paid to all employees when our earnings
before interest, depreciation, amortization and taxes reach new highs.
- A reduction in long-distance services capitalized labor due to completion of
the fiber optic cable system construction effort.
Partially offsetting these increases were a $1.1 million reduction in cable
general and administrative costs and a $1.0 million reduction in long-distance
marketing and sales costs in 1999 as compared to 1998.
Selling, general and administrative expenses, as a percentage of total revenues,
decreased from 36.4% in 1998 to 35.2% in 1999 primarily as a result of
significant revenues derived from the fiber capacity sale without a
proportionate increase in selling, general and administrative expenses.
Depreciation and amortization. Depreciation and amortization expense increased
33.2% from $32.0 million in 1998 to $42.7 million in 1999. The increase is
attributable to our $58.4 million investment in equipment and facilities placed
into service during 1998 for which a full year of depreciation was recorded
during 1999, the Alaska United undersea fiber optic cable system placed into
service in the first quarter of 1999 for which 11 months of depreciation was
recorded during 1999, and the $36.6 million investment in equipment and
facilities during 1999 for which a partial year of depreciation was recorded in
1999.
Interest expense, net. Interest expense, net of interest income, increased 54.6%
from $19.8 million in 1998 to $30.6 million in 1999. This increase resulted
primarily from increases in our average outstanding indebtedness resulting
primarily from construction of new long-distance and Internet facilities,
expansion and upgrades of cable television facilities, investment in local
access services equipment and facilities, and slightly higher interest rates on
outstanding indebtedness. During 1998 interest expense was offset in part by
capitalized construction period interest. The amount of interest capitalized in
1999 decreased significantly due to the completion of the Alaska United undersea
fiber optic cable system in early February 1999. We charged to interest expense
$470,000 of deferred financing costs in the second quarter of 1999 resulting
from the amendment to the Holdings Loan Facilities amendment that reduced our
borrowing capacity (see Liquidity and Capital Resources).
57
<PAGE>
Income tax benefit. Income tax benefit increased from $4.1 million in 1998 to
$5.7 million in 1999 due to an increased net loss before income taxes and
cumulative effect of a change in accounting principle in 1999 as compared to
1998. Our effective income tax rate increased from 37.8% in 1998 to 38.2% in
1999 due to the proportional amount of items that are nondeductible for income
tax purposes.
At December 31, 1999, we have (1) tax net operating loss carryforwards of
approximately $88.0 million that will begin expiring in 2008 if not utilized,
and (2) alternative minimum tax credit carryforwards of approximately $2.5
million available to offset regular income taxes payable in future years. Our
utilization of remaining net operating loss carryforwards is subject to certain
limitations pursuant to Internal Revenue Code section 382.
Tax benefits associated with recorded deferred tax assets are considered to be
more likely than not realizable through taxable income earned in carryback
years, future reversals of existing taxable temporary differences, and future
taxable income exclusive of reversing temporary differences and carryforwards.
The amount of deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. We estimate that our effective income tax rate
for financial statement purposes will be approximately 38% in 2000. We expect
that our operations will generate net income before income taxes during the
carryforward periods to allow utilization of loss carryforwards for which no
allowance has been established.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
Revenues. Total revenues increased 10.3% from $223.8 million in 1997 to $246.8
million in 1998. Long-distance transmission revenues from commercial,
residential, governmental, and other common carrier customers increased 1.7%
from $155.3 million in 1997 to $157.9 million in 1998. This increase reflected a
5.5% increase in total minutes of use to 791.3 million minutes. Long-distance
revenue growth in 1998 was largely due to a 8.5% increase in revenues from other
common carriers (principally MCI WorldCom and Sprint), from $56.5 million in
1997 to $61.3 million in 1998. Private line and private network transmission
services revenues increased 22.0%, from $15.9 million in 1997 to $19.4 million
in 1998.
The long-distance transmission revenue increases described above were offset in
part by a 5.1% reduction in our average rate per minute on long-distance traffic
from $0.177 per minute in 1997 to $0.168 per minute in 1998. The decrease in
rates resulted from our promotion of and customers' enrollment in new calling
plans offering discounted rates and length of service rebates, such new plans
being prompted in part by our primary long-distance competitor, AT&T Alascom,
reducing its rates and entry of LECs into long-distance markets served by us.
Operator services revenues decreased 14.3% from $7.0 million in 1997 to $6.0
million in 1998. Traffic carried by our operator service center decreased in
part from increased usage of prepaid calling cards and cellular telephones by
tourists visiting the state of Alaska.
Cable revenues increased 4.3% from $55.2 million in 1997 to $57.6 million in
1998. Programming services revenues increased 3.1% to $49.4 million in 1998
resulting from an increase of 3,900 basic subscribers served and an increase of
$0.47 in revenue per average basic subscriber, per month. New facility
construction efforts in 1998 resulted in additional homes passed which
contributed to additional subscribers and revenues. Other factors included
facility upgrades, which allowed the introduction of digital cable services in
Anchorage, increased promotional, and advertising efforts and increases in basic
and premium service rates in certain areas. Advertising sales revenues increased
31.9% to $2.9 million in 1998 due to increased promotion of our advertising and
ad insertion capabilities. Equipment rental and installation revenues increased
6.2% to $4.5 million in 1998 due to increased equipment rentals and installation
services provided by us. Offsetting these increases were reductions in
pay-per-view and premium service revenues.
Local access services revenues increased from $610,000 in 1997 to $9.9 million
in 1998. 1998 revenues reflect a full 12 months of local services operations and
growth as compared to start-up operations in 1997. At December 31, 1998
approximately 28,000 lines were in service and approximately 1,000 additional
lines were awaiting connection.
58
<PAGE>
Internet services revenues increased from $182,000 in 1997 to $4.6 million in
1998. 1998 revenues reflect a full 12 months of Internet services operations and
growth as compared to start-up operations in 1997. We had approximately 7,200
active residential subscribers to our Internet service at February 9, 1999.
Other services revenues increased 33.3% from $12.6 million in 1997 to $16.8
million in 1998. The 1998 increase was due to increased product and cellular
service sales.
Cost of sales and services. Cost of sales and services totaled $111.1 million in
1997 and $116.1 million in 1998. As a percentage of total revenues, cost of
sales and services decreased from 49.6% in 1997 to 47.0% in 1998. The decrease
in cost of sales and services as a percentage of revenues is primarily
attributed to changes in our product mix due to the addition of new product
lines for a full year of operations (local access services and Internet
services), and reduced long-distance cost of sales as a percentage of
long-distance revenues. The margin improvement was partially offset by increased
cable services cost of sales as a percentage of cable services revenues.
The decrease in long-distance cost of sales and services as a percentage of
revenues is primarily attributed to: 1) a refund received in the first quarter
of 1998 totaling approximately $1.1 million from a LEC in respect of its
earnings that exceeded regulatory requirements, 2) reductions in access charges
paid by us to other carriers for distribution of our traffic, and 3) avoidance
of access charges resulting from our distribution and termination of our traffic
on our own network instead of paying other carriers to distribute and terminate
our traffic.
Cable cost of sales and services as a percentage of revenues is less as a
percentage of revenues than are long-distance, local access and Internet
services cost of sales and services. Cable services rate increases did not keep
pace with increases in programming and copyright costs in 1998. Programming
costs increased on most of our offerings and we incurred additional costs on new
programming introduced in 1998.
Local access services cost of sales and services totaled 61.7% and 43.8% as a
percentage of 1998 and 1997 local access services revenues, respectively.
Internet services cost of sales and services totaled 74.1% and 132.4% as a
percentage of 1998 and 1997 Internet services revenues, respectively. Our local
access and Internet services operations commenced in 1997. Fluctuations in cost
of sales and services as a percentage of revenues are expected to occur as
start-up products develop into mature product lines.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 22.1% from $73.6 million in 1997 to $89.8
million in 1998, and, as a percentage of revenues, increased from 32.9% in 1997
to 36.4% in 1998. This increase resulted from:
- Local access services operating, engineering, sales, customer service and
administrative cost increases, from $3.4 million in 1997 as compared to
$12.3 million in 1998. We initiated local access services in September 1997.
The increase was necessary to provide the operations, engineering, customer
service and support infrastructure necessary to accommodate expected growth
in our local access services customer base.
- Increased long-distance general and administrative expenses of $2.1 million
in 1998 due to increased personnel and other costs in customer service,
engineering, operations, accounting, human resources, legal and regulatory,
and management information services. Increased customer service expenses
were associated with support of increased sales volumes and expenditures
necessary to integrate customer service operations across product lines.
- Increased long-distance sales, advertising, telemarketing, carrier
relations, business development and rural services costs totaling $15.3
million in 1997 compared to $17.6 million in 1998. Increased selling costs
were associated with the introduction of various marketing plans and other
proprietary rate plans and cross promotion of products and services.
- Cable services operating, engineering, sales, customer service and
administrative cost increases, from $18.4 million in 1997 as compared to
$19.8 million in 1998. The increase was primarily incurred to promote and
market our cable services.
- Internet services operating, engineering, sales, customer service and
administrative cost increases, from $23,000 in 1997 as compared to $715,000
in 1998. We initiated our Internet services in 1998. The increase was
necessary to provide the operations, engineering, customer service and
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support infrastructure necessary to accommodate expected growth in our
Internet services customer base.
- Operating, engineering, marketing and administrative costs associated with
the construction of the fiber optic cable by Alaska United totaled $1.1
million in 1998. No costs directly associated with the fiber optic cable
operations were incurred in 1997.
Depreciation and amortization. Depreciation and amortization expense increased
34.8% from $23.8 million in 1997 to $32.0 million in 1998. The increase is
attributable to our $64.6 million of facilities placed into service during 1997
for which a full year of depreciation was recorded during the year ending
December 31, 1998 and the $58.4 million of facilities placed into service in
1998 for which a partial year of depreciation was recorded during 1998 on
equipment and facilities placed into service in 1998.
Interest expense, net. Interest expense, net of interest income, increased 12.5%
from $17.6 million in 1997 to $19.8 million in 1998. This increase resulted
primarily from increases in our average outstanding indebtedness resulting
primarily from construction of new long-distance and Internet facilities,
expansion and upgrades of cable television facilities, and investment in local
access services equipment and facilities. Such increases were offset in part by
increases in the amount of interest capitalized during 1998.
Income tax benefit. Income tax benefit increased from $600,000 in 1997 to $4.1
million in 1998 due to us incurring a larger net loss before income taxes and
extraordinary item in 1998 as compared to 1997. Our effective income tax rate
increased from 25.6% in 1997 to 37.8% in 1998 due to the net loss and the
proportional amount of items that are nondeductible for income tax purposes.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
<TABLE>
The following chart provides selected unaudited statement of operations data
from our quarterly results of operations during 1999 and 1998.
<CAPTION>
(Amounts in thousands, except per share amounts)
-------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
----
Revenues:
Long-distance services $ 37,542 39,272 42,409 40,499 159,722
Cable services $ 15,062 14,909 15,218 15,957 61,146
Local access services $ 3,714 3,764 3,845 4,220 15,543
Internet services $ 1,969 2,534 2,018 2,599 9,120
Other services $ 3,051 23,180 3,850 3,567 33,648
-------------------------------------------------------------
Total revenues $ 61,338 83,659 67,340 66,842 279,179
Operating income (loss) $ (368) 12,655 1,908 1,555 15,750
Net income (loss) before income taxes and
cumulative effect of a change in
accounting principle $ (7,328) 4,495 (5,702) (6,331) (14,866)
Net income (loss) before cumulative effect
of a change in accounting principle $ (4,521) 2,491 (3,537) (3,616) (9,183)
Net income (loss) $ (4,865) 2,491 (3,537) (3,616) (9,527)
Basic income (loss) per common share:
Net income (loss) before cumulative
effect of a change in accounting
principle $ (0.09) 0.04 (0.08) (0.08) (0.20)
Cumulative effect of a change in
accounting principle $ (0.01) --- --- --- (0.01)
-------------------------------------------------------------
Net income (loss) $ (0.10) 0.04 (0.08) (0.08) (0.21)
=============================================================
</TABLE>
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<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
-------------------------------------------------------------
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diluted income (loss) per common share:
Net income (loss) before cumulative
effect of a change in accounting
principle (1) $ (0.09) 0.04 (0.08) (0.08) (0.20)
Cumulative effect of a change in
accounting principle $ (0.01) --- --- --- (0.01)
-------------------------------------------------------------
Net income (loss) (1) $ (0.10) 0.04 (0.08) (0.08) (0.21)
=============================================================
1998
----
Revenues:
Long-distance services $ 38,651 41,366 40,847 36,486 157,350
Cable services $ 14,201 14,041 14,484 14,914 57,640
Local access services $ 1,013 2,049 2,744 4,102 9,908
Internet services $ 903 1,014 1,060 1,614 4,591
Other services $ 3,384 4,471 3,631 5,820 17,306
-------------------------------------------------------------
Total revenues $ 58,152 62,941 62,766 62,936 246,795
Operating income $ 2,437 1,447 1,730 3,230 8,844
Net loss $ (1,616) (2,066) (2,076) (1,039) (6,797)
Basic loss per common share (1) $ (0.03) (0.04) (0.04) (0.02) (0.14)
Diluted loss per common share (1) $ (0.03) (0.04) (0.04) (0.02) (0.14)
<FN>
--------------
1 Due to rounding, the sum of quarterly loss per common share amounts may
not agree to year-to-date loss per common share amounts.
</FN>
</TABLE>
Revenues. Total revenues for the quarter ended December 31, 1999 ("fourth
quarter") were $66.8 million, representing a 0.7% decrease from total revenues
in the quarter ended September 30, 1999 ("third quarter") of $67.3 million. The
decrease in total revenues resulted from decreased revenues from sales to other
common carriers (principally MCI WorldCom and Sprint) due to a 1.5% decrease in
minutes carried, a 4.4% reduction in the long-distance average rate per minute
and a 1.8% reduction in non-OCC minutes of traffic carried. Revenues from other
common carriers (principally MCI WorldCom and Sprint) totaled $15.4 million in
the fourth quarter and $16.3 million in the third quarter. Partially offsetting
this decrease was an increase in cable services revenues to $16.0 million in the
fourth quarter from $15.2 million in the third quarter and an increase in
Internet services revenues to $2.6 million in the fourth quarter from $2.0
million in the third quarter.
Long-distance revenues have historically been highest in the summer months as a
result of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. Cable television revenues, on the other hand, are higher in the
winter months because consumers spend more time at home and tend to watch more
television during these months. Local service operations are not expected to
exhibit significant seasonality. Internet access services are expected to
reflect seasonality trends similar to the cable television segment. Our ability
to implement construction projects is also hampered during the winter months
because of cold temperatures, snow and short daylight hours.
Cost of sales and services. Cost of sales and services decreased 0.7% from $30.2
million in the third quarter to $30.0 million in the fourth quarter. As a
percentage of revenues, third and fourth quarter cost of sales and services
totaled 44.9%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $600,000 in the fourth quarter as compared to
the third quarter. As a percentage of revenues, fourth quarter selling, general
and administrative expenses were 37.5% as compared to 36.3% for the third
quarter. The fourth quarter increase as a percentage of sales is primarily a
result of a $700,000 increase
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in expenses associated with a Company-wide success sharing program. Success
sharing is a bonus paid to all employees when our earnings before interest,
depreciation, amortization and taxes reach new highs.
Net loss. We reported a net loss of $3.6 million for the fourth quarter as
compared to a net loss of $3.5 million for the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities totaled $33.3 million in 1999, net of
changes in the components of working capital. Additional sources of cash
included preferred stock issuance proceeds totaling $20.0 million in 1999, and
long-term borrowings of $13.8 million and $103.2 million in 1999 and 1998,
respectively. Our expenditures for property and equipment, including
construction in progress, totaled $36.6 million and $149.0 million in 1999 and
1998, respectively. Our uses of cash during 1999 also included repayment of
$26.6 million of long-term borrowings and capital lease obligations.
Net receivables increased $1.9 million from December 31, 1998 to December 31,
1999 due to a $5.9 million increase in trade receivables primarily from the
long-distance, cable and local access services product lines and our Internet
SchoolAccess(TM) service offering. Partially offsetting the above described
increase were income tax refunds received totaling $2.0 million and an increase
in the allowance for doubtful accounts of $1.9 million.
Working capital totaled $22.7 million at December 31, 1999, a $13.5 million
increase from working capital of $9.2 million as of December 31, 1998. The
increase in working capital is primarily attributed to:
- Recording the $9.1 million Transponder Deposit as a Refundable Deposit upon
signing a commitment letter for a long-term capital lease of transponder
capacity on the new satellite. We had previously expected to draw down our
senior credit facility to purchase the transponder capacity. The Transponder
Deposit will be refunded when the lease is consummated in 2000.
- Increased net receivables as discussed above.
- Decreased current maturities of long-term debt of $1.8 million due to the
payoff of the undersea fiber and equipment loan.
- Reduced levels of capital expenditures and accruals in 1999 as compared to
1998.
The above increases are off-set by a decrease in the current deferred income
taxes of $1.3 million from December 31, 1998 to December 31, 1999 and an
increase of $2.0 million in accrued payroll and payroll related obligations due
to the accrual of a Company-wide success sharing bonus.
The Holdings $200,000,000 ($150,000,000 as amended) and $50,000,000 credit
facilities mature June 30, 2005. The Holdings Loan facilities were amended in
April 1999 (see below) and bear interest, as amended, at either Libor plus 1.00%
to 2.50%, depending on the leverage ratio of Holdings and certain of its
subsidiaries, or at the greater of the prime rate or the federal funds effective
rate (as defined) plus 0.05%, in each case plus an additional 0.00% to 1.375%,
depending on the leverage ratio of Holdings and certain of its subsidiaries.
$87.7 million and $106.7 million were drawn on the credit facilities as of
December 31, 1999 and 1998, respectively.
On April 13, 1999, we amended the Holdings credit facilities. These amendments
contained, among other things, provisions for payment of a one-time amendment
fee of 0.25% of the aggregate commitment, an increase in the commitment fee by
0.125% per annum on the unused portion of the commitment, and an increase in the
interest rate of 0.25%. The amended facilities reduce the aggregate commitment
by $50 million to $200 million, and limit capital expenditures to $35 million in
1999 and $35 million in 2000 with no limits thereafter (excluding amounts paid
for the Alaska United fiber optic cable system). Pursuant to the Financial
Accounting Standards Board Emerging Issues Task Force Issue 98-14, "Debtor's
Accounting for Changes in Line-of-Credit or Revolving Debt Arrangements," we
recorded as additional interest expense $470,000 of deferred financing costs in
the second quarter of 1999 resulting from the reduced borrowing capacity. In
connection with the April 1999 amendment, we agreed to pay all fees and expenses
of our lenders, including an amendment fee of 0.25% of the aggregate commitment,
totaling $530,000.
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Holding's credit facilities and GCI, Inc.'s senior notes contain restrictions on
our operations and activities, including requirements that we comply with
certain financial covenants and financial ratios. Under the amended Holding's
credit facility, Holdings may not permit the ratio of senior debt to annualized
operating cash flow (as defined) of Holdings and certain of its subsidiaries to
exceed 3.0 to 1.0 through December 31, 1999, total debt to annualized operating
cash flow to exceed 6.25 to 1.00 through March 31, 2000, and annualized
operating cash flow to interest expense to be less than 1.5 to 1.0 through
September 30, 1999 and 1.75 to 1.0 from October 1, 1999 through December 31,
1999. Each of the foregoing ratios decreases in specified increments during the
life of the credit facility. The credit facility requires Holdings to maintain a
ratio of annualized operating cash flow to debt service of Holdings and certain
of its subsidiaries of at least 1.25 to 1.0, and annualized operating cash flow
to fixed charges of at least 1.0 to 1.0 (which adjusts to 1.05 to 1.0 in April,
2003 and thereafter). The senior notes impose a requirement that the leverage
ratio of GCI, Inc. and certain of its subsidiaries not exceed 7.5 to 1.0 prior
to December 31, 1999 and 6.0 to 1.0 thereafter, subject to the ability of GCI,
Inc. and certain of its subsidiaries to incur specified permitted indebtedness
without regard to such ratios.
On January 27, 1998 Alaska United closed a $75 million project finance facility
("Fiber Facility") to construct a fiber optic cable system connecting Anchorage,
Fairbanks, Valdez, Whittier, Juneau and Seattle. At December 31, 1999 $71.7
million was borrowed under the facility. The Fiber Facility is a 10-year term
loan that is interest only for the first 5 years. The facility can be extended
an additional two years at any time between the second and fifth anniversary of
closing the facility if we can demonstrate projected revenues from certain
capacity commitments will be sufficient to pay all operating costs, interest,
and principal installments based on the extended maturity. The Fiber Facility
bears interest at either Libor plus 3.0%, or at the lender's prime rate plus
1.75%. The interest rate will decline to Libor plus 2.5%-2.75%, or, at our
option, the lender's prime rate plus 1.25%-1.5% after the project completion
date and when the loan balance is $60 million or less.
The Fiber Facility contains, among others, covenants requiring certain
intercompany loans and advances in order to maintain specific levels of cash
flow necessary to pay operating costs, interest and principal installments. All
of Alaska United's assets, as well as a pledge of the partnership interests'
owning Alaska United, collateralize the Fiber Facility. Construction of the
fiber facility was completed and the facility was placed into service on
February 4, 1999. The project was completed on budget.
We will use approximately one-half of the Alaska United system capacity in
addition to our existing owned and leased facilities to carry our own traffic.
One of our large commercial customers signed agreements in the first quarter of
1999 for the immediate lease of three DS3 circuits on Alaska United facilities
within Alaska, and between Alaska and the lower 48 states. The lease agreements
provide for three-year terms, with renewal options for additional terms. In the
second quarter of 1999 we completed a sale of capacity in the Alaska United
system to ACS in a $19.5 million cash transaction. The sale includes both
capacity within Alaska, and between Alaska and the lower 48 states. An agreement
was executed in July 1999 for a second $19.5 million sale of fiber capacity to
ACS. We continue to pursue opportunities for sale or lease of additional
capacity on our system.
Our expenditures for property and equipment, including construction in progress,
totaled $36.6 million and $149.0 million during 1999 and 1998, respectively.
Planned capital expenditures over the next five years include those necessary
for continued expansion of our long-distance, local exchange and Internet
facilities, the development and construction of a PCS network and continued
upgrades to our cable television plant. Sources of funds for these planned
capital expenditures are expected to include internally generated cash flows and
borrowings under our credit facilities.
Our ability to invest in discretionary capital and other projects will depend
upon our future cash flows and access to borrowings under our credit facilities.
Management anticipates that cash flow generated by us and our borrowings under
our credit facilities will be sufficient to fund capital expenditures and our
working capital requirements. Should cash flows be insufficient to support
additional borrowings, such investment in capital expenditures will likely be
reduced.
We entered into a purchase and lease-purchase option agreement in August 1995
for the acquisition of satellite transponders to meet our long-term satellite
capacity requirements. The satellite was successfully launched in January 2000
and delivered to us on March 5, 2000. In March 2000 we agreed to finance the
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satellite transponders pursuant to a long-term capital lease arrangement with a
leasing company. We will continue to lease transponder capacity on the PanAmSat
Galaxy IX satellite until our communications traffic is successfully
transitioned to the new satellite transponders.
We issued 20,000 shares of convertible redeemable accreting preferred stock
("Preferred Stock") on April 30, 1999. Proceeds totaling $20 million (before
payment of expenses) were used for general corporate purposes, to repay
outstanding indebtedness, and to provide additional liquidity. Prior to the
four-year anniversary following closing, dividends are payable semi-annually at
the rate of 8.5%, plus accrued but unpaid dividends, at the Company's option, in
cash or in additional fully-paid shares of Preferred Stock. Dividends earned
after the four-year anniversary of closing are payable semi-annually at the rate
of 17%, plus accrued but unpaid dividends, in cash only. Dividends totaling
$1,158,000 were accrued for the year ended December 31, 1999. Mandatory
redemption is required 12 years from the date of closing.
The long-distance, local access, cable, Internet and wireless services
industries are experiencing increasing competition and rapid technological
changes. Our future results of operations will be affected by our ability to
react to changes in the competitive environment and by our ability to fund and
implement new technologies. We are unable to determine how competition,
technological changes and our net operating losses will affect our ability to
obtain financing.
We believe that we will be able to meet our current and long-term liquidity and
capital requirements, including fixed charges and Preferred Stock dividends,
through our cash flows from operating activities, existing cash, cash
equivalents, short-term investments, credit facilities, and other external
financing and equity sources.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". Among other
provisions, it requires that entities recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Gains and losses resulting from changes in the fair
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The effective date of
this standard was delayed via the issuance of SFAS No. 137. The effective date
for SFAS No. 133 is now for fiscal years beginning after June 15, 2000, though
earlier adoption is encouraged and retroactive application is prohibited. This
means that we must adopt the standard no later than January 1, 2001. We do not
expect the adoption of this standard to have a material impact on results of
operations, financial position or cash flows.
ALASKA ECONOMY
We offer voice and data telecommunication and video services to customers
primarily throughout Alaska. As a result of this geographic concentration,
growth of our business and our operations depend upon economic conditions in
Alaska. The economy of Alaska is dependent upon the natural resource industries,
and in particular oil production, as well as investment earnings, tourism,
government, and United States military spending. Any deterioration in these
markets could have an adverse impact on us. Oil revenues are now the third
largest source of state revenues, following investment income and federal funds.
Alaska's investment earnings will supply 33% of the state's projected revenues
in fiscal 2001, with federal funding comprising 27% of the total and oil
revenues 24% of the total. Much of the investment income and all of the federal
funding is restricted or dedicated for specific purposes, however, leaving oil
revenues as the primary funding source (75%) of general operating expenditures.
The volume of oil transported by the TransAlaska Oil Pipeline System ("TAPS")
over the past 20 years has been as high as 2.0 million barrels per day in fiscal
1988. Production has begun to decline in recent years and is presently down 40%
from the fiscal 1988 level, and down 25% from the fiscal 1997 level. The two
largest producers of oil in Alaska (the primary users of the TAPS) continue to
explore, develop and produce new oil fields and to enhance recovery from
existing fields to offset the decline in production from the Prudhoe Bay field.
Both companies have invested large sums of money in developing and implementing
oil recovery techniques at the Prudhoe Bay field and other nearby fields. The
state now forecasts a temporary reversal of the production rate decline and a
slight increase in the production rate during the
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period from fiscal 2003 to 2005. This forecasted increase is attributed to new
developments at the Alpine, Liberty and Northstar fields, as well as new
production from Prudhoe Bay and other fields.
Market prices for North Slope oil declined to below $10 per barrel in 1998, and
averaged $12.70 in fiscal 1999, well below the average price used by the state
to budget its oil related revenues. The prices have since increased to over $30
per barrel in March 2000, with a year-to-date fiscal 2000 average price per
barrel of $22.78. Over the past decade, the rolling 60-month average price for
North Slope crude oil has been between $16.39 and $17.74 per barrel 95 percent
of the time.
The state's forecast for fiscal 2001 shows the price for North Slope crude
averaging $18.28 and then declining to the low-$18 and high-$17 range for the
next five years. Recent higher prices are largely due to the OPEC March 1999
agreement to cut production to force prices higher. The OPEC agreement called
for production cuts from January 1999 levels of a little more than 2 million
barrels per day. Although OPEC trimmed output by about 1.75 million barrels, or
nearly 85 percent of targeted reductions, October 1999 OPEC production has
increased by 400,000 barrels per day. This reduces current compliance to 65
percent of targeted cuts. History suggests that market forces lead to lower
prices when oil sells for more than $20 per barrel. What is uncertain is when
and how fast the correction will occur. The response of non-OPEC production to
higher prices is uncertain. The production policy of OPEC and its ability to
continue to act in concert represents a key uncertainty in the state's revenue
forecast.
The state of Alaska maintains the Constitutional Budget Reserve Fund that is
intended to fund budgetary shortfalls. Based on the state's oil price and
production forecasts, and considering the state's other revenues, the Alaska
Department of Revenue expects the state will need to draw less than $500 million
from the Constitutional Budget Reserve Fund in Fiscal 2000 and about $700
million in Fiscal 2001 to balance the state's budget, down substantially from
the $1 billion fiscal 2000 draw expected in their spring 1999 forecast. If the
state's current projections are realized, the Constitutional Budget Reserve Fund
will be depleted in 2004. If the fund is depleted, aggressive state action will
be necessary to increase revenues and reduce spending in order to balance its
budget. The Governor of the state of Alaska and the Alaska Legislature are
pursuing cost cutting and revenue enhancing measures.
Oil companies and service providers announced cost cutting measures to offset a
portion of the declining oil revenues in 1999, resulting in a reduction of oil
industry jobs of over 1,400. Projects that are underway are reportedly not
affected by the cutbacks, however BP Amoco did notify state officials that it
would delay its exploration of the Genesee test site east of Prudhoe.
Although oil prices have a substantial effect on Alaska's economy, analysts
believe that tourism, air cargo, and service sectors are strong enough to offset
a portion of the expected downturn. These industries have helped offset the
prevailing pattern of oil industry downsizing that has occurred during much of
the last several years. Three other factors that support Alaska's economy are
the healthy national economy, lower interest rates, and low inflation. We expect
construction to remain strong over the next few years. $1.77 billion of federal
money is expected to be distributed to the State of Alaska for highways and
other federally supported projects in fiscal 2000.
Effective March 1997, the State of Alaska passed new legislation relaxing state
oil royalties with respect to marginal oil fields that the oil companies claim
would not be economic to develop otherwise. No assurance can be given that oil
companies doing business in Alaska will be successful in discovering new fields
or further developing existing fields which are economic to develop and produce
oil with access to the pipeline or other means of transport to market, even with
the reduced level of royalties.
BP Amoco announced in April 1999 its intention to purchase ARCO for $26.8
billion. BP Amoco and ARCO together reportedly own approximately 70 percent of
the Alaska North Slope oil fields and the company that operates the TAPS.
On February 2, 2000 the FTC voted to fight in federal court to block BP Amoco's
purchase of ARCO citing their concern over:
- the reduction in competition in the sale of Alaska oil to West Coast
independent refineries;
- the reduction in competition in Alaska lease sales, thus reducing state and
federal government revenue from such sales; and
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- possible manipulation of futures market prices by the resulting company.
On March 15, 2000 BP Amoco and ARCO announced that they have agreed to sell
ARCO's Alaskan businesses to Phillips Petroleum Co. ("Phillips") for
approximately $7 billion. The sale, which is subject to completion of the ARCO
combination, is intended to address FTC anti-trust concerns. BP Amoco reported
March 16, 2000 that the company was at an advanced stage in discussions with the
FTC on its proposed combination with ARCO and was hopeful of a successful
outcome "within a matter of weeks."
BP Amoco and ARCO have reportedly agreed jointly with the FTC, the US West Coast
states and Alaska to suspend litigation - originally scheduled to begin in
California on March 20 - pending the outcome of those negotiations.
The sale to Phillips of all ARCO's Alaskan businesses includes a 21.9 per cent
interest in the Prudhoe Bay oil field and 42.6 per cent of the gas cap, as well
as a range of interests in related fields, a 55 per cent interest in the greater
Kuparuk area and a 78 per cent stake in the Alpine field. The package also
includes 1.1 million net exploration acres, a 22.3 per cent interest in the
Trans-Alaska pipeline, and ARCO's crude oil shipping fleet that includes six
tankers in service and three under construction. The booked reserves being sold
total 1.9 billion barrels of oil equivalent. The approximately $7 billion price
for the Alaskan businesses reportedly is made up of approximately $6.5 billion
cash for the field, pipeline and shipping operations and assets, plus a
supplemental payment of $500 million based on a formula tied to the price of
crude oil. There will also be a payment of some $150 million for crude oil
inventories. The transaction, which is expected to close early in the second
quarter and will be effective retroactive to Jan. 1, 2000, is subject to
approval of the FTC. The parties are reportedly working with the FTC and the
states of Alaska, California, Oregon and Washington to obtain such approval.
Phillips' current Alaskan operations include a 70 percent interest in the Kenai
liquefied natural gas plant that has exported its products to Japan for 30
years; a 100 percent interest in the North Cook Inlet field; a less than 2
percent interest in the Prudhoe Bay Unit; a 10 percent interest in the Point
Thomson field; interests in several of the Prudhoe Bay satellites; a small
interest in TAPS; and exploration acreage in the National Petroleum Reserve
Alaska and elsewhere.
Exxon Mobil Corp. ("Exxon") filed a lawsuit Friday March 24, 2000 to stop
Phillip's acquisition of ARCO's Alaska assets. Exxon contends that it has the
right of first refusal to purchase certain of ARCO's Alaska assets. This lawsuit
could delay the pending sale of ARCO Alaska, Inc. to Phillips. The FCC is
expected to wait for the outcome of the Exxon lawsuit before rendering its
decision.
Should new discoveries or developments not materialize or the price of oil
return to its prior depressed levels, the long term trend of continued decline
in oil production from the Prudhoe Bay field area is inevitable with a
corresponding adverse impact on the economy of the state, in general, and on
demand for telecommunications and cable television services, and, therefore, on
us, in particular.
We have, since our entry into the telecommunication marketplace, aggressively
marketed our services to seek a larger share of the available market. The
customer base in Alaska is limited, however, with a small population of
approximately 620,000 people. 42% of are located in the Anchorage area, 14% are
located in the Fairbanks area, 5% are located in the Juneau area, and the rest
are spread out over the vast reaches of Alaska. No assurance can be given that
the driving forces in the Alaska economy, and in particular, oil production,
will continue at levels to provide an environment for expanded economic
activity.
No assurance can be given that oil companies doing business in Alaska will be
successful in discovering new fields or further developing existing fields which
are economic to develop and produce oil with access to the pipeline or other
means of transport to market, even with the reduced level of royalties. The
Company is not able to predict the effect of changes in the price and production
volumes of North Slope oil or the acquisition of ARCO by BP Amoco and Phillips
on Alaska's economy or on the Company. You should see Part I, Item 1. Business,
Geographic Concentration and Alaska Economy for more information.
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<PAGE>
SEASONALITY
Long-distance revenues have historically been highest in the summer months as a
result of temporary population increases attributable to tourism and increased
seasonal economic activity such as construction, commercial fishing, and oil and
gas activities. Cable television revenues, on the other hand, are higher in the
winter months because consumers tend to watch more television, and spend more
time at home, during these months. Our local access services revenues are not
expected to exhibit significant seasonality. Our Internet access services are
expected to reflect seasonality trends similar to the cable television segment.
Our ability to implement construction projects is reduced during the winter
months because of cold temperatures, snow and short daylight hours.
YEAR 2000 COSTS
We initiated a company-wide program in 1998 to ensure that our date-sensitive
information, telephony, cable, Internet and business systems, and certain other
equipment would properly recognize the Year 2000 as a result of the century
change on January 1, 2000. The program focused on the hardware, software,
embedded chips, third-party vendors and suppliers as well as third-party
networks that were associated with the identified systems. We substantially
completed the program during third quarter 1999, and our systems did not
experience any significant disruptions as a result of the century change. In
total, we have expensed incremental remediation costs totaling $2.3 million
through December 31, 1999, with remaining incremental remediation costs in 2000
estimated at approximately $400,000.
We did not defer any critical information technology projects because of our
Year 2000 program efforts, which were addressed primarily through a dedicated
team within our information technology group.
REGULATORY DEVELOPMENTS
You should see Part I, Item 1 Business, Regulation, Franchise Authorizations and
Tariffs for more information about regulatory developments affecting us.
INFLATION
We do not believe that inflation has a significant effect on our operations.
Item 7A. Quantitative and qualitative disclosures about market risk
We are exposed to various types of market risk in the normal course of business,
including the impact of interest rate changes. We do not hold derivatives for
trading purposes.
Our Senior Holdings Loan carries interest rate risk. Amounts borrowed under this
Agreement bear interest at Libor plus 1.0% to 2.5%, depending on the leverage
ratio of Holdings and certain of its subsidiaries, or at the greater of the
prime rate or the federal funds effective rate (as defined) plus 0.05%, in each
case plus an additional 0.0% to 1.375%, depending on the leverage ratio of
Holdings and certain of its subsidiaries. Should the Libor rate, the lenders'
base rate or the leverage ratios change, our interest expense will increase or
decrease accordingly. As of December 31, 1999, we have borrowed $87.7 million
subject to interest rate risk. On this amount, a 1% increase in the interest
rate would cost us $877,000 in additional gross interest cost on an annualized
basis.
Our Fiber Facility carries interest rate risk. Amounts borrowed under this
Agreement bear interest at Libor plus 3.0%, or at our choice, the lender's prime
rate plus 1.75%. The interest rate will decline to Libor plus 2.5%-2.75%, or at
our choice, the lender's prime rate plus 1.25%-1.5% when the loan balance is $60
million or less. Should the Libor rate, the lenders' base rate or the leverage
ratios change, our interest expense will increase or decrease accordingly. As of
December 31, 1999, we have borrowed $71.7 million subject to interest rate risk.
On this amount, a 1% increase in the interest rate would cost us $717,000 in
additional gross interest cost on an annualized basis.
67
<PAGE>
Item 8. Consolidated financial statements and supplementary data
Our consolidated financial statements are filed under this Item, beginning on
Page 69. The financial statement schedules required under Regulation S-X are
filed pursuant to Item 14 of this Report.
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure.
None.
PART III
Incorporated herein by reference from our Proxy Statement for our 2000 Annual
Shareholders' meeting.
68
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
General Communication, Inc.:
We have audited the accompanying consolidated balance sheets of General
Communication, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General
Communication, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/
KPMG LLP
Anchorage, Alaska
March 10, 2000
69
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
ASSETS 1999 1998
- --------------------------------------------------------------------------------- ----------- -----------
(Amounts in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,734 12,008
----------- -----------
Receivables:
Trade 48,145 42,219
Income taxes --- 1,965
Other 269 412
----------- -----------
48,414 44,596
Less allowance for doubtful receivables 2,833 887
----------- -----------
Net receivables 45,581 43,709
----------- -----------
Prepaid and other current assets 2,224 2,023
Deferred income taxes, net 2,972 4,244
Inventories 3,754 2,838
Notes receivable 449 650
Refundable deposit 9,100 ---
----------- -----------
Total current assets 77,814 65,472
----------- -----------
Property and equipment in service, at cost:
Land and buildings 1,199 1,109
Telephony distribution systems 269,117 144,045
Cable television distribution systems 96,620 89,736
Support equipment 42,576 42,056
Transportation equipment 2,259 2,183
Property and equipment under capital leases 2,819 2,819
----------- -----------
414,590 281,948
Less accumulated depreciation 111,828 82,972
----------- -----------
Net property and equipment in service 302,762 198,976
Construction in progress 2,898 119,645
----------- -----------
Net property and equipment 305,660 318,621
----------- -----------
Cable franchise agreements, net of amortization of $16,347 and $11,184 at
December 31, 1999 and 1998, respectively 190,145 195,308
Goodwill, net of amortization of $4,563 and $3,362 at December 31,
1999 and 1998, respectively 41,391 42,592
Other intangible assets, net of amortization of $269 and $95 at
December 31, 1999 and 1998, respectively 4,402 3,282
Deferred loan and Senior Notes costs, net of amortization 8,863 9,877
Transponder deposit --- 9,100
Notes receivable 2,067 1,432
Other assets, at cost, net of amortization 12,809 3,761
----------- -----------
Total other assets 259,677 265,352
----------- -----------
Total assets $ 643,151 649,445
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
70
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
<CAPTION>
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- -------------------------------------------------------------------------------- ------------ -----------
(Amounts in thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ --- 1,799
Current maturities of obligations under capital leases 574 511
Accounts payable 25,321 27,550
Accrued interest 7,985 8,072
Accrued payroll and payroll related obligations 8,601 6,555
Deferred revenue 8,173 6,371
Accrued liabilities 3,152 3,197
Subscriber deposits and other current liabilities 1,314 2,258
----------- -----------
Total current liabilities 55,120 56,313
Long-term debt, excluding current maturities 339,400 349,858
Obligations under capital leases, excluding
current maturities 747 1,189
Obligations under capital leases due to related party, excluding current
maturities 353 486
Deferred income taxes, net of deferred income tax benefit 30,861 38,275
Other liabilities 4,210 3,317
----------- -----------
Total liabilities 430,691 449,438
----------- -----------
Preferred stock. $1,000 par value, authorized 1,000,000 shares; issued
and outstanding 20,000 and 0 shares at December 31, 1999 and 1998,
respectively; convertible into Class A common stock at $5.55 per share
of Class A common stock, redemption price at December 31, 1999 of $1,058 19,912 ---
----------- -----------
Stockholders' equity:
Common stock (no par):
Class A. Authorized 100,000,000 shares; issued and outstanding
46,869,671 and 45,895,415 shares at December 31, 1999 and 1998,
respectively 176,740 172,708
Class B. Authorized 10,000,000 shares; issued and outstanding
4,048,480 and 4,060,620 shares at December 31, 1999 and
1998, respectively; convertible on a share-per-share basis
into Class A common stock 3,422 3,432
Less cost of 347,958 Class A common shares held in treasury at
December 31, 1999 and 1998 (1,607) (1,607)
Paid-in capital 6,343 5,609
Notes receivable issued upon stock option exercise (2,167) (637)
Retained earnings 9,817 20,502
----------- -----------
Total stockholders' equity 192,548 200,007
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity $ 643,151 649,445
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
71
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
------------- ------------ -------------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C>
Revenues $ 279,179 246,795 223,809
Cost of sales and services 122,467 116,073 111,077
Selling, general and administrative expenses 98,282 89,833 73,583
Depreciation and amortization expense 42,680 32,045 23,767
------------- ------------ -------------
Operating income 15,750 8,844 15,382
Interest expense, net 30,616 19,764 17,617
------------- ------------ -------------
Net loss before income taxes, extraordinary item and
cumulative effect of a change in accounting principle (14,866) (10,920) (2,235)
Income tax benefit (5,683) (4,123) (573)
------------- ------------ -------------
Net loss before extraordinary item and cumulative effect
of a change in accounting principle (9,183) (6,797) (1,662)
Loss on early extinguishment of debt, net of income tax
benefit of $180 --- --- 521
Cumulative effect of a change in accounting principle,
net of income tax benefit of $245 344 --- ---
------------- ------------ -------------
Net loss $ (9,527) (6,797) (2,183)
============= ============ =============
Basic loss per common share:
Net loss before extraordinary item and cumulative effect of
a change in accounting principle $ (0.20) (0.14) (0.04)
Extraordinary item 0.00 0.00 (0.01)
Cumulative effect of a change in accounting principle (0.01) 0.00 0.00
------------- ------------ -------------
Net loss $ (0.21) (0.14) (0.05)
============= ============ =============
Diluted loss per common share:
Net loss before extraordinary item and cumulative effect of
a change in accounting principle $ (0.20) (0.14) (0.04)
Extraordinary item 0.00 0.00 (0.01)
Cumulative effect of a change in accounting principle (0.01) 0.00 0.00
------------- ------------ -------------
Net loss $ (0.21) (0.14) (0.05)
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
72
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
Class A
Class A Class B Shares Notes
Common Common Held in Paid-in Receivable Retained
(Amounts in thousands) Stock Stock Treasury Capital Issued Earnings
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996
$113,421 3,432 (1,010) 4,229 --- 29,482
Net loss --- --- --- --- --- (2,183)
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial
reporting purposes --- --- --- 65 --- ---
Shares issued upon public offering, net of issuance costs
of $4,024 46,726 --- --- --- --- ---
Shares issued upon conversion of convertible note net of
fees of $16 9,983 --- --- --- --- ---
Shares acquired pursuant to officer deferred compensation
agreement --- --- (29) --- --- ---
Shares issued under stock option plan 192 --- --- 63 --- ---
Shares issued and issuable under officer stock option
agreements --- --- --- 68 --- ---
--------------------------------------------------------------------
Balances at December 31, 1997 170,322 3,432 (1,039) 4,425 --- 27,299
Net loss --- --- --- --- --- (6,797)
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial
reporting purposes --- --- --- 157 --- ---
Shares purchased and held in Treasury --- --- (568) --- --- ---
Shares issued under stock option plan and notes issued
upon stock option exercise 827 --- --- 319 (637) ---
Shares issued to Employee Stock Purchase Plan 1,574 --- --- --- --- ---
Warrants issued --- --- --- 708 --- ---
Stock offering issuance costs (15) --- --- --- --- ---
--------------------------------------------------------------------
Balances at December 31, 1998 172,708 3,432 (1,607) 5,609 (637) 20,502
Net loss --- --- --- --- --- (9,527)
Tax effect of excess stock compensation expense for tax
purposes over amounts recognized for financial
reporting purposes --- --- --- 211 --- ---
Conversion of Class B to Class A 10 (10) --- --- --- ---
Shares issued and issuable under stock option plan and
notes issued upon stock option exercise 1,595 --- --- 431 (1,389) ---
Shares issued under officer stock option agreement and
note issued upon stock option exercise 38 --- --- --- (141) ---
Shares issued to Employee Stock Purchase Plan 1,770 --- --- --- --- ---
Warrants issued --- --- --- 92 --- ---
Shares issued upon acquisition of customer base 619 --- --- --- --- ---
Preferred stock dividends --- --- --- --- --- (1,158)
--------------------------------------------------------------------
Balances at December 31, 1999 $176,740 3,422 (1,607) 6,343 (2,167) 9,817
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
73
<PAGE>
<TABLE>
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
------------- ----------- ------------
(Amounts in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,527) (6,797) (2,183)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 42,680 32,045 23,767
Amortization charged to costs of sales and service and selling,
general and administrative 1,770 1,147 47
Deferred income tax (benefit) expense (5,928) (744) 4,410
Deferred compensation and compensatory stock options 675 376 477
Non-cash cost of sales 3,703 --- ---
Bad debt expense (recovery), net of write-offs 1,946 (183) 473
Employee Stock Purchase Plan expense funded with Class A common
stock issued and issuable by General Communication, Inc. 2,448 2,278 ---
Write-off of unamortized start-up costs 589 --- ---
Write-off of deferred debt issuance costs upon modification of
Senior Holdings Loan 472 --- ---
Loss on early extinguishment of debt --- --- 701
Warrants issued 42 --- ---
Other noncash income and expense items (114) 154 (54)
Change in operating assets and liabilities (5,413) (5,347) 3,202
------------- ------------- ------------
Net cash provided by operating activities 33,343 22,929 30,840
------------- ------------- ------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired --- --- (547)
Purchases of property and equipment, including construction period
interest (36,573) (148,973) (64,644)
Restricted cash investment --- 39,406 (39,406)
Purchases of other assets and intangible assets (1,236) (4,287) (1,339)
Payment of undersea fiber optic cable deposit --- --- (9,094)
Notes receivable issued (952) (1,715) (698)
Payments received on notes receivable 653 1,769 32
------------- ------------- ------------
Net cash used in investing activities (38,108) (113,800) (115,696)
------------- ------------- ------------
Cash flows from financing activities:
Long-term borrowings - senior notes --- --- 180,000
Long-term borrowings - bank debt 13,776 103,224 88,305
Repayments of long-term borrowings and capital lease obligations (26,620) (2,017) (231,021)
Proceeds from equity offering 20,000 --- 50,750
Proceeds from common stock issuance 103 190 192
Payment of debt and stock issuance costs (768) (1,706) (13,642)
Proceeds from warrant issuance --- 708 ---
Purchase of treasury stock --- (568) (29)
------------- ------------- ------------
Net cash provided by financing activities 6,491 99,831 74,555
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 1,726 8,960 (10,301)
Cash and cash equivalents at beginning of year 12,008 3,048 13,349
------------- ------------- ------------
Cash and cash equivalents at end of year $ 13,734 12,008 3,048
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
74
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(l) Business and Summary of Significant Accounting Principles
(a) Business
General Communication, Inc. ("GCI"), an Alaska corporation, was
incorporated in 1979. GCI and its direct and indirect
subsidiaries (collectively, the "Company") offer the following
services:
- Long-distance telephone service between Anchorage, Fairbanks,
Juneau, and other communities in Alaska and the remaining
United States and foreign countries,
- Cable television services throughout Alaska,
- Facilities-based competitive local access services in
Anchorage, Alaska,
- Internet services,
- Termination of traffic in Alaska for certain common carriers,
- Interstate and intrastate private line services,
- Managed services to certain commercial customers,
- Sales and services of dedicated communications systems and
related equipment,
- Private network point-to-point data and voice transmission
services between Alaska, Hawaii and the western contiguous
United States are offered and
- Owns and leases capacity on two undersea fiber optic cables
used in the transmission of interstate private line, switched
message long-distance and Internet services between Alaska
and the remaining United States and foreign countries.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of
GCI, its wholly-owned subsidiary GCI, Inc., GCI, Inc.'s
wholly-owned subsidiary GCI Holdings, Inc., GCI Holding Inc.'s
wholly-owned subsidiaries GCI Communication Corp., GCI
Communication Services, Inc. and GCI Cable, Inc., GCI
Communication Services, Inc.'s wholly-owned subsidiary GCI
Leasing Co., Inc., GCI Transport Company, Inc., GCI Transport
Co., Inc.'s wholly-owned subsidiaries GCI Fiber Co., Inc. and
Fiber Hold Company, Inc. and GCI Fiber Co., Inc.'s and Fiber Hold
Company, Inc.'s wholly-owned partnership Alaska United Fiber
System Partnership ("Alaska United"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Net Loss Per Common Share
<TABLE>
Net loss used to calculate basic and diluted net loss per common
share is increased by preferred stock dividends of $1,158,000 for
the year ended December 31, 1999. Shares used to calculate net
loss per common share consist of the following (amounts in
thousands):
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding 50,326 49,186 44,924
=========== ========== ===========
</TABLE>
<TABLE>
Common equivalent shares outstanding which are anti-dilutive for
purposes of calculating the net loss per common share for the
years ended December 31, 1999, 1998 and 1997 and are not included
in the diluted net loss per share calculation consist of the
following (amounts in thousands):
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Common equivalent shares outstanding 587 521 816
=========== ========== ===========
</TABLE>
75
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<TABLE>
Weighted average shares associated with outstanding stock options
for the years ended December 31, 1999, 1998 and 1997 which have
been excluded from the diluted loss per share calculations
because the options' exercise price was greater than the average
market price of the common shares consist of the following
(amounts in thousands):
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Weighted average shares associated with outstanding stock
options 2,182 2,071 1,073
=========== ========== ===========
</TABLE>
(d) Preferred and Common Stock
<TABLE>
Following is the statement of preferred and common stock at
December 31, 1999, 1998 and 1997:
<CAPTION>
Preferred Common Stock
(Shares, in thousands) Stock Class A Class B
------------- ----------------------------
<S> <C> <C> <C>
Balances at December 31, 1996 --- 36,587 4,074
Class B shares converted to Class A --- 11 (11)
Shares issued upon public offering --- 7,000 ---
Shares issued upon conversion of convertible
note --- 1,538 ---
Shares issued under stock option plan --- 57 ---
Shares issued and issuable under officer
stock option agreements --- 86 ---
------------- -------------- -------------
Balances at December 31, 1997 --- 45,279 4,063
Class B shares converted to Class A --- 2 (2)
Shares issued under stock option plan --- 315 ---
Shares issued to Employee Stock Purchase Plan --- 299 ---
------------- -------------- -------------
Balances at December 31, 1998 --- 45,895 4,061
Class B shares converted to Class A --- 13 (13)
Shares issued under stock option plan --- 417 ---
Shares issued under officer stock option
agreements --- 50 ---
Shares issued to Employee Stock Purchase Plan --- 395 ---
Shares issued upon acquisition of customer
base --- 100 ---
Shares issued under Preferred Stock Agreement 20 --- ---
------------- -------------- -------------
Balances at December 31, 1999 20 46,870 4,048
============= ============== =============
</TABLE>
(e) Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
that are readily convertible into cash.
(f) Inventories
Inventory of merchandise for resale and parts is stated at the
lower of cost or market. Cost is determined using the average
cost method.
76
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(g) Property and Equipment
Property and equipment is stated at cost. Construction costs of
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. Construction in
progress represents distribution systems and support equipment
not placed in service on December 31, 1999; management intends to
place this equipment in service during 2000.
Depreciation is computed on a straight-line basis based upon the
shorter of the estimated useful lives of the assets or the lease
term, if applicable, in the following ranges:
Asset Category Asset Lives
--------------------------------------------- --------------
Telephony distribution systems 12-20 years
Cable television distribution systems 10 years
Support equipment 5-10 years
Transportation equipment 5 years
Property and equipment under capital leases 5-15 years
Repairs and maintenance are charged to expense as incurred.
Expenditures for major renewals and betterments are capitalized.
Gains or losses are recognized at the time of ordinary
retirements, sales or other dispositions of property.
(h) Intangible Assets
Intangible assets are valued at unamortized cost. Management
reviews the valuation and amortization of intangible assets on a
periodic basis, taking into consideration any events or
circumstances that might indicate diminished value. The
assessment of the recoverability is based on whether the asset
can be recovered through undiscounted future cash flows.
Cable franchise agreements represent certain perpetual operating
rights to provide cable services and are being amortized on a
straight-line basis over 40 years.
Goodwill represents the excess of cost over fair value of net
assets acquired and is being amortized on a straight-line basis
over periods of 20 to 40 years.
The cost of the Company's PCS license and related financing costs
have been capitalized as an intangible asset. Once the associated
assets are placed into service, the recorded cost of the license
and related financing costs will begin being amortized over a
40-year period using the straight-line method.
(i) Deferred Loan and Senior Notes Costs
Debt and Senior Notes issuance costs are deferred and amortized
using the straight-line method, which approximates the interest
method, over the term of the related debt and notes. Through
January 1999 (the end of the construction period of the undersea
fiber optic cable) issuance costs were amortized to Construction
in Progress (see note 9). Commencing February 1999 (the month the
fiber optic cable was placed in service) the issuance costs are
being amortized to amortization expense.
(j) Other Assets
Other assets are recorded at cost and are amortized on a
straight-line basis over periods of 2-20 years.
77
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(k) Revenue from Services and Products
Revenues generated from long-distance and managed services are
recognized when the services are provided. Revenues from the sale
of equipment are recognized at the time the equipment is
delivered or installed. Technical services revenues are derived
primarily from maintenance contracts on equipment and are
recognized on a prorated basis over the term of the contract.
Cable television, local service, Internet service and private
line telecommunication revenues are billed in advance and are
recognized as the associated service is provided. Other revenues
are recognized when the service is provided.
(l) Research and Development and Advertising Expense
The Company expenses advertising and research and development
costs as incurred. Advertising expenses were approximately
$4,574,000, $5,028,000 and $2,897,000 for the years ended 1999,
1998 and 1997, respectively. The Company had no research and
development costs for the years ended December 31, 1999, 1998 and
1997.
(m) Interest Expense
Interest costs incurred during the construction period of
significant capital projects are capitalized. Interest costs
capitalized by the Company totaled $1,260,000, $7,764,000, and
$1,886,000 during the years ended December 31, 1999, 1998 and
1997.
(n) Cumulative Effect of a Change in Accounting Principle
The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities", which provides guidance on the financial
reporting of start-up costs and organization costs and requires
costs of start-up activities and organization costs to be
expensed as incurred. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998.
Management of the Company adopted SOP 98-5 in the first quarter
of 1999 resulting in the recognition of a one-time expense of
$344,000 (net of income tax benefit of $245,000) associated with
the write-off of unamortized start-up costs. Pro forma net loss
and net loss per common share for the years ended December 31,
1998 and 1997 approximate amounts reflected in the accompanying
consolidated financial statements.
(o) Income Taxes
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for
their 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. Deferred tax
assets are recognized to the extent that the benefits are more
likely to be realized than not.
(p) Stock Option Plan
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense is recorded on the
date of grant only if the current market price of the underlying
stock exceeds the exercise price. The Company has adopted SFAS
123, "Accounting for Stock-Based Compensation," ("SFAS 123")
which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS 123.
78
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(q) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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. Actual results could differ from those estimates.
(r) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash
equivalents and accounts receivable. Excess cash is invested in
high quality short-term liquid money instruments issued by highly
rated financial institutions. At December 31, 1999 and 1998,
substantially all of the Company's cash and cash equivalents were
invested in short-term liquid money instruments. The Company's
customers are located primarily throughout Alaska. As a result of
this geographic concentration, the Company's growth and
operations depend upon economic conditions in Alaska. The economy
of Alaska is dependent upon the natural resources industries, and
in particular oil production, as well as tourism, government, and
United States military spending. Though limited to one
geographical area, the concentration of credit risk with respect
to the Company's receivables is minimized due to the large number
of customers, individually small balances, short payment terms
and deposit requirements for certain product lines.
(s) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of the fair value of financial
instruments for which it is practicable to estimate that value.
SFAS No. 107 specifically excludes certain items from its
disclosure requirements. The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a
forced sale or liquidation.
(t) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(u) Year 2000 Costs
The Company charged incremental Year 2000 assessment and
remediation costs to expense as incurred.
(v) Reclassifications
Reclassifications have been made to the 1997 and 1998 financial
statements to make them comparable with the 1999 presentation.
(2) Acquisition
Effective December 2, 1997, the Company purchased all of the outstanding
shares of Astrolabe Group, Inc. The $1,324,000 purchase was accounted
for using the purchase method. The purchase price consisted of a payment
of $600,000 and the issuance of options to purchase 100,000 shares of
GCI's Class A common stock for $.01 per share, expiring December 2,
2007. Options were exercised for 10,000 shares in 1999.
79
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(3) Consolidated Statements of Cash Flows Supplemental Disclosures
<TABLE>
Changes in operating assets and liabilities consist of (amounts in
thousands):
<CAPTION>
Year ended December 31, 1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Increase in accounts receivable $ (5,783) (9,054) (1,540)
(Increase) decrease in income tax receivable 1,965 490 (3,726)
(Increase) decrease in prepaid and other current assets (235) 388 (274)
(Increase) decrease in inventories (767) 286 (575)
Increase (decrease) in accounts payable (2,229) 2,585 1,050
Increase (decrease) in accrued liabilities (95) (1,914) 938
Increase in accrued payroll and payroll related
obligations 1,368 171 1,850
Increase (decrease) in accrued income taxes --- (111) 111
Increase in deferred revenue 1,802 1,128 528
Increase (decrease) in accrued interest (87) 423 4,941
Increase in subscriber deposits and other current
liabilities (944) 274 (79)
Decrease in components of other long-term liabilities (408) (13) (22)
------------ ------------ -------------
$ (5,413) (5,347) 3,202
============ ============ =============
</TABLE>
The acquisition of a business in the year ended December 31, 1997 (see
note 2), net of cash acquired consists of (amounts in thousands):
Fair value of assets acquired, net of
liabilities assumed $ 1,259
Deferred credit (712)
------------
Net cash used to acquire businesses $ 547
============
The holders of $10 million of convertible subordinated notes exercised
their conversion rights in January 1997 resulting in the exchange of
such notes for 1,538,457 shares of the Company's Class A common stock.
Net income tax refunds received totaled $1,965,000, $4,243,000 and
$1,546,000 during the years ended 1999, 1998 and 1997, respectively.
Interest paid totaled approximately $32,900,000, $29,630,000 and
$17,709,000 during the years ended 1999, 1998 and 1997, respectively.
The Company recorded $211,000, $157,000 and $65,000 during the years
ended 1999, 1998 and 1997, respectively, in 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.
During the years ended December 31, 1999 and 1998 the Company funded the
employer matching portion of Employee Stock Purchase Plan contributions
by issuing GCI Class A Common Stock valued at $1,770,000 and $1,574,000,
respectively.
80
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(4) Notes Receivable
<TABLE>
Notes receivable consist of the following (amounts in thousands):
<CAPTION>
December 31,
-----------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Notes receivable from officers bearing interest up to 9% or at
the rate paid by the Company on its senior indebtedness,
unsecured and secured by personal residences
and Company common stock, due through December 1, 2004 $ 3,349 1,851
Notes receivable from others bearing interest up to 8.25% or at
the rate paid by the Company on its senior indebtedness,
unsecured and secured by property and
equipment; due through December 31, 2004 942 613
Interest receivable 392 256
--------------- -------------
Total notes receivable 4,683 2,719
Less notes receivable issued upon stock option exercise,
classified as a component of stockholders' equity 2,167 637
Less current portion, including current interest receivable 449 650
--------------- -------------
Long-term portion, including long-term interest receivable $ 2,067 1,432
=============== =============
</TABLE>
(5) Long-term Debt
<TABLE>
Long-term debt consists of the following (amounts in thousands):
<CAPTION>
December 31,
----------------------------
1999 1998
------------- --------------
<S> <C> <C>
Senior Notes (a) $ 180,000 180,000
Senior Holdings Loan (b) 87,700 106,700
Fiber Facility (c) 71,700 61,224
Undersea Fiber and Equipment Loan Agreement (d) --- 3,733
------------- --------------
339,400 351,657
Less current maturities --- 1,799
------------- --------------
Long-term debt, excluding current maturities $ 339,400 349,858
============= ==============
</TABLE>
(a) On August 1, 1997 GCI, Inc. issued $180,000,000 of 9.75% senior
notes due 2007 ("Senior Notes"). The Senior Notes were issued at
face value. Net proceeds to GCI, Inc. after deducting
underwriting discounts and commissions totaled $174,600,000.
Issuance costs of $6,496,000 are being amortized to amortization
expense over the term of the Senior Notes.
The Senior Notes are not redeemable prior to August 1, 2002.
After August 1, 2002 the Senior Notes are redeemable at the
option of GCI, Inc. under certain conditions and at stated
redemption prices. The Senior Notes include limitations on
additional indebtedness and prohibit payment of dividends,
payments for the purchase, redemption, acquisition or retirement
of GCI, Inc.'s stock, payments for early retirement of debt
subordinate to the note, liens on property, and asset sales
(excluding sales of Alaska United assets). GCI, Inc. was in
compliance with all covenants during the year ending December 31,
1999. The Senior Notes are unsecured obligations of the Company.
81
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
Net proceeds from the stock (see note 8) and Senior Note
offerings and initial draws on the new Senior Holdings Loan (see
note 5(b)) facilities were used to repay borrowings outstanding
under the Company's then existing credit facilities and to
provide initial funding for construction of the Alaska United
undersea fiber optic cable (see notes 5(c) and 9).
(b) The GCI Holdings, Inc., $200,000,000 ($150,000,000 as amended)
and $50,000,000 credit facilities ("Senior Holdings Loan") mature
on June 30, 2005. The Senior Holdings Loan facilities were
amended in April 1999 (see below) and bear interest, as amended,
at either Libor plus 1.00% to 2.50%, depending on the leverage
ratio of Holdings and certain of its subsidiaries, or at the
greater of the prime rate or the federal funds effective rate (as
defined) plus 0.05%, in each case plus an additional 0.00% to
1.375%, depending on the leverage ratio of Holdings and certain
of its subsidiaries. Borrowings under the Senior Holdings Loan
facilities totaled $87,700,000 and $106,700,000 at December 31,
1999 and 1998, respectively. The Company is required to pay a
commitment fee equal to 0.50% per annum on the unused portion of
the commitment. Commitment fee expense on the Senior Holdings
Loan totaled $533,000, $512,000 and $240,000 during the years
ended December 31, 1999, 1998 and 1997, respectively.
On April 13, 1999, the Company amended its Holdings credit
facilities. These amendments contained, among other things,
provisions for payment of a one-time amendment fee of 0.25% of
the aggregate commitment, an increase in the commitment fee by
0.125% per annum on the unused portion of the commitment, and an
increase in the interest rate of 0.25%. The amended facilities
reduce the aggregate commitment by $50 million to $200 million,
and limit capital expenditures to $35 million in 1999 and $35
million in 2000 with no limits thereafter (excluding amounts paid
for the Alaska United fiber optic cable system (see note 9) and
to be paid for purchased satellite transponder facilities, (see
note 13)). During the year ended December 31, 1999 the Company's
capital expenditures net of amounts paid for the Alaska United
fiber optic cable system were $25.4 million. Pursuant to the
Financial Accounting Standards Board Emerging Issues Task Force
Issue 98-14, "Debtor's Accounting for Changes in Line-of-Credit
or Revolving Debt Arrangements," the Company recorded as
additional interest expense $472,000 of deferred financing costs
in the second quarter of 1999 resulting from the reduced
borrowing capacity. In connection with the April 1999 amendment,
the Company agreed to pay all fees and expenses of its lenders,
including an amendment fee of 0.25% of the aggregate commitment,
totaling $530,000.
Proceeds of $19 million from the Preferred Stock issuance (see
note 7) were used to reduce the Senior Holdings Loan outstanding
indebtedness.
<TABLE>
While Holdings may elect at any time to reduce amounts due and
available under the Senior Holdings Loan facilities, a mandatory
prepayment is required each quarter if the outstanding borrowings
at the following dates of payment exceed the allowable borrowings
using the following percentages:
<CAPTION>
Percentage of
Reduction of
Outstanding
Date Range of Quarterly Payments Facilities
-------------------------------------------------------- -------------------
<S> <C>
September 30, 2000 through December 31, 2001 3.750%
March 31, 2002 through December 31, 2003 5.000%
March 31, 2004 through December 31, 2004 5.625%
March 31, 2005 7.500%
July 31, 2005 7.500% and all remaining
outstanding balances
</TABLE>
82
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
The facilities contain, among others, covenants requiring
maintenance of specific levels of operating cash flow to
indebtedness and to interest expense, and limitations on
acquisitions and additional indebtedness. The facilities prohibit
any direct or indirect distribution, dividend, redemption or
other payment to any person on account of any general or limited
partnership interest in, or shares of capital stock or other
securities of Holdings or any of its subsidiaries. Holdings was
in compliance with all Senior Holdings Loan facilities covenants
during the year ended December 31, 1999.
Essentially all of Holdings' assets as well as a pledge of
Holdings' stock by GCI, Inc. collateralize the Senior Holdings
Loan facilities.
$3.4 million of the Senior Holdings Loan facilities have 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 connection with the funding of the Senior Holdings Loan
facilities, Holdings paid bank fees and other expenses of
approximately $3,033,000 that are being amortized to amortization
expense over the life of the agreement.
(c) On January 27, 1998, the Company, through Alaska United, closed a
$75,000,000 project finance facility ("Fiber Facility") to
construct a fiber optic cable system connecting Anchorage,
Fairbanks, Valdez, Whittier, Juneau and Seattle as further
described in note 9. Borrowings under the Fiber Facility totaled
$71,700,000 and $61,224,000 at December 31, 1999 and 1998,
respectively. The Fiber Facility bears interest at either Libor
plus 3.0%, or at the Company's choice, the lender's prime rate
plus 1.75%. The interest rate will decline to Libor plus
2.5%-2.75%, or at the Company's choice, the lender's prime rate
plus 1.25%-1.5% when the loan balance is $60,000,000 or less. The
Fiber Facility is a 10-year term loan that is interest only for
the first 5 years. The facility can be extended to a 12-year term
loan at any time between the second and fifth anniversary of
closing the facility if the Company can demonstrate projected
revenues from certain capacity commitments will be sufficient to
pay all operating costs, and interest and principal installments
based on the extended maturity.
The Fiber Facility contains, among others, covenants requiring
certain intercompany loans and advances in order to maintain
specific levels of cash flow necessary to pay operating costs and
interest and principal installments. Alaska United was in
compliance with all covenants during the year ended December 31,
1999.
All of Alaska United's assets, as well as a pledge of the
partnership interests' owning Alaska United, collateralize the
Fiber Facility.
In connection with the funding of the Fiber Facility, Alaska
United paid bank fees and other expenses of $2,183,000 that are
being amortized over the life of the agreement. Through January
1999 (the end of the construction period of the undersea fiber
optic cable system) issuance costs were amortized to Construction
in Progress. Commencing February 1999 (the month the fiber optic
cable was placed in service) the issuance costs are being
amortized to amortization expense.
(d) On December 31, 1992, Leasing Company entered into a $12,000,000
loan agreement ("Undersea Fiber and Equipment Loan Agreement"),
of which approximately $9,000,000 of the proceeds were used to
acquire capacity on the undersea fiber optic cable system linking
Seward, Alaska and Pacific City, Oregon. Concurrently, Leasing
Company leased the capacity under a ten year all events, take or
pay, contract with MCI (now MCI WorldCom), 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
83
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
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 less 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. The obligation was
fully paid and the lease and sublease were cancelled at December
31, 1999.
(e) GCI Cable entered into a credit facility totaling $205,000,000
effective October 31, 1996, associated with the acquisition of
the Cable Companies described in the Company's annual report on
Form 10-K for the year ended December 31, 1998. In August 1997,
the Senior GCI Cable Loan was repaid using proceeds from the
Senior Notes (see note 5(a)) and the Senior Holdings Loan (see
note 5(b)).
In connection with the funding of the loan agreement, GCI Cable,
Inc. paid bank fees and other expenses of approximately $764,000
in 1996. The unamortized portion of these bank fees and other
expenses (net of income tax benefit of $180,000) was recognized
as an extraordinary loss on the early extinguishment of debt in
1997.
(f) The Company entered into a $62,500,000 interim telephony credit
facility with its senior lender during April 1996. In August
1997, the Credit Agreement was repaid using proceeds from the
Senior Notes (see note 5(a)) and the Senior GCI Holdings Loan
(see note 5(b)).
(g) GCI issued convertible subordinated notes totaling $10,000,000 in
connection with the acquisition of the Cable Companies described
in the Company's annual report on Form 10-K for the year ended
December 31, 1998. During January 1997, the holders of the GCI
subordinated notes exercised a conversion option that allowed
them to exchange their notes for GCI Class A common shares at a
predetermined conversion price of $6.50 per share. As a result,
the former note holders received 1,538,457 shares of GCI Class A
common stock.
(h) As consideration for MCI's (now MCI WorldCom) role in enabling
Leasing Company to finance and acquire the undersea fiber optic
cable capacity described at note 5(d) above, Leasing Company
agreed to pay MCI $2,040,000 in sixty monthly payments of
$34,000. For financial statement reporting purposes, the
obligation was recorded at its remaining present value, using a
discount rate of 10% per annum. The agreement was secured by a
second position security interest in the assets of Leasing
Company. The obligation was fully paid at December 31, 1997.
As of December 31, 1999 maturities of long-term debt were as follows
(amounts in thousands):
Year ending December 31,
2000 $ ---
2001 ---
2002 ---
2003 26,986
2004 59,286
2005 and thereafter 253,128
-----------
$ 339,400
===========
84
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
(6) Income Taxes
<TABLE>
Total income tax benefit was allocated as follows (amounts in
thousands):
<CAPTION>
Years ended December 31,
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Loss from continuing operations $ (5,928) (4,123) (573)
Cumulative effect 245 --- ---
Extraordinary item --- --- (180)
---------- ----------- ----------
(5,683) (4,123) (753)
Stockholders' equity, for stock option compensation
expense for tax purposes in excess of amounts
recognized for financial reporting purposes (211) (157) (65)
---------- ----------- ----------
$ (5,894) (4,280) (818)
========== =========== ==========
</TABLE>
<TABLE>
Income tax benefit consists of the following (amounts in thousands):
<CAPTION>
Years ended December 31,
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Current tax benefit:
Federal taxes $ --- (2,858) (4,333)
State taxes --- (521) (830)
---------- ----------- ----------
--- (3,379) (5,163)
---------- ----------- ----------
Deferred tax benefit:
Federal taxes (4,808) (629) 3,800
State taxes (876) (115) 610
---------- ----------- ----------
(5,683) (744) 4,410
---------- ----------- ----------
$ (5,683) (4,123) (753)
========== =========== ==========
</TABLE>
<TABLE>
Total income tax benefit differed from the "expected" income tax benefit
determined by applying the statutory federal income tax rate of 34% as
follows (amounts in thousands):
<CAPTION>
Years ended December 31,
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
"Expected" statutory tax benefit $ (6,496) (3,713) (997)
State income taxes, net of federal benefit (649) (594) (181)
Income tax effect of goodwill amortization,
nondeductible expenditures and other items, net 469 441 107
Other 993 (257) 318
---------- ----------- ----------
$ (5,683) (4,123) (753)
========== =========== ==========
</TABLE>
85
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below (amounts in thousands):
<CAPTION>
December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Net current deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 715 354
Compensated absences, accrued for financial reporting
purposes 1,154 804
Workers compensation and self insurance health reserves,
principally due to accrual for financial reporting
purposes 327 244
Other 776 545
-------------- -------------
Total current deferred tax assets $ 2,972 1,947
============== =============
Net long-term deferred tax assets:
Net operating loss carryforwards $ 35,486 20,871
Alternative minimum tax credits 2,502 2,081
Deferred compensation expense for financial reporting
purposes in excess of amounts recognized for tax
purposes 973 1,027
Employee stock option compensation expense for financial
reporting purposes in excess of amounts recognized for
tax purposes 47 327
Sweepstakes award in excess of amounts recognized for tax
purposes 197 201
Other 555 99
-------------- -------------
Total long-term deferred tax assets 39,760 24,606
-------------- -------------
Net long-term deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation 62,007 56,244
Amortizable assets 6,889 4,784
Costs recognized for tax purposes in excess of amounts
recognized for book purposes 1,319 1,319
Other 406 534
-------------- -------------
Total gross long-term deferred tax liabilities 70,621 62,881
-------------- -------------
Net combined long-term deferred tax liabilities $ 30,861 38,275
============== =============
</TABLE>
In conjunction with the 1996 Cable Companies acquisition, the Company
incurred a net deferred income tax liability of $24.4 million and
acquired net operating losses totaling $57.6 million. The Company
determined that approximately $20 million of the acquired net operating
losses would not be utilized for income tax purposes, and elected with
its December 31, 1996 income tax returns to forego utilization of such
acquired losses under Internal Revenue Code section 1.1502-32(b)(4).
Deferred tax assets were not recorded associated with the foregone
losses and, accordingly, no valuation allowance was provided. At
December 31, 1999, the Company has (1) tax net operating loss
carryforwards of approximately $88.0 million that will begin expiring in
2008 if not utilized, and (2) alternative minimum tax credit
carryforwards of approximately $2.5 million available to offset regular
income taxes payable in future years. The Company's utilization of
remaining acquired net operating loss carryforwards is subject to annual
limitations pursuant to Internal Revenue Code section 382 which could
reduce or defer the utilization of these losses.
86
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
Tax benefits associated with recorded deferred tax assets are considered
to be more likely than not realizable through taxable income earned in
carryback years, future reversals of existing taxable temporary
differences, and future taxable income exclusive of reversing temporary
differences and carryforwards. The amount of deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
(7) Redeemable Preferred Stock
The Company issued 20,000 shares of convertible redeemable accreting
preferred stock ("Preferred Stock") on April 30, 1999. Proceeds totaling
$20 million (before payment of expenses of $88,000) were used for
general corporate purposes, to repay outstanding indebtedness, and to
provide additional liquidity. The Company's amended Senior Holdings Loan
facilities limit use of such proceeds (see note 5(b)). The Preferred
Stock contains a $1,000 per share liquidation preference, plus accrued
but unpaid dividends and fees. Prior to the four-year anniversary
following closing, dividends are payable semi-annually at the rate of
8.5%, plus accrued but unpaid dividends, at the Company's option, in
cash or in additional fully-paid shares of Preferred Stock. Dividends
earned after the four-year anniversary of closing are payable
semi-annually at the rate of 17%, plus accrued but unpaid dividends, in
cash only. Dividends totaling $1,158,000, or $57.90 per share, were
accrued for the year ended December 31, 1999. Mandatory redemption is
required 12 years from the date of closing.
The Company may redeem the Preferred Stock after the four-year
anniversary of its issuance, and must redeem the Preferred Stock upon
the occurrence of a triggering event (as defined). The holders may
convert the Preferred Stock into Class A common stock of the Company at
any time at a price of $5.55 per share. At any time subsequent to the
third anniversary following closing, and assuming the stock is trading
at no less than two times the conversion price, the Company may require
immediate conversion. The Preferred Stock, subject to lender approval,
is exchangeable in whole or in part, at the Company's option, into
subordinated debt with terms and conditions comparable to those
governing the Preferred Stock. The Preferred Stock is senior to all
other classes of the Company's equity securities, and has voting rights
equal to that number of shares of common stock into which it can be
converted.
Holders of the Preferred Stock shares will have the right to vote on all
matters presented for vote to the holders of common stock on an
as-converted basis. Additionally, as long as the Preferred Stock shares
remain outstanding and unconverted, the Preferred Stock holders will
have the right to vote, as a class, and the Company must obtain the
written consent of holders of a majority (or higher as required by
Alaska law) of that stock to take certain actions, some of which require
shareholder approval necessitating amendment of the Company's Articles
of Incorporation.
Following issuance of the Preferred Stock shares, the Company's Board of
Directors ("Board") expanded its size from nine to ten seats. The new
Board member was elected at the June 24, 1999 Board meeting. The
agreement also provides that the rights of the holders of Preferred
Stock shares relating to the Board seat or observer (as defined in the
Preferred Stock agreement) are to remain effective so long as any of the
Preferred Stock shares remain outstanding.
(8) 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.
MCI WorldCom owns a total of 8,251,509 shares of GCI's Class A and
1,275,791 shares of GCI's Class B common stock that represent
approximately 18 and 32 percent of the issued and outstanding shares of
the respective class at December 31, 1999 and 1998, respectively.
87
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
After the transaction described in note 2, the owners of the cable
television properties acquired in 1996 owned a total of 14,723,077
shares of GCI's Class A common stock representing approximately 40
percent of the issued and outstanding Class A common shares at December
31, 1996. The holders of the GCI subordinated notes exercised a
conversion option in January 1997. As a result the noteholders received
1,538,457 shares of GCI's Class A common stock, some of which were sold
to others in 1999.
GCI issued 7,000,000 shares of its Class A common stock on August 1,
1997 for $7.25 per share, before deducting underwriting discounts and
commissions. Net proceeds to GCI totaled $47,959,000. Other costs
associated with the stock issuance totaled $1,233,000.
Stock Option Plan
In December 1986, GCI adopted a Stock Option Plan (the "Option Plan") in
order to provide a special incentive to the Company's officers,
non-employee directors, and employees by offering them an opportunity to
acquire an equity interest in GCI. The Option Plan, as amended in 1999,
provides for the grant of options for a maximum of 7,200,000 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 Committee of
GCI's Board of Directors administers the Option Plan.
The Option Plan provides that all options granted under the Option Plan
must expire not later than ten years after the date of grant. If at the
time an option is granted the exercise price is less than the market
value of the underlying common stock, the "in the money" amount at the
time of grant is expensed ratably over the vesting period of the option.
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.
<TABLE>
Information for the years 1997, 1998 and 1999 with respect to the Option
Plan follows:
<CAPTION>
Weighted
Average Range of
Shares Exercise Price Exercise Prices
------------- --------------- ------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 2,453,217 $3.54 $0.75-$6.50
Granted 1,047,000 $6.36 $0.01-$7.63
Exercised (57,285) $3.37 $0.75-$4.00
Forfeited (72,032) $4.82 $0.75-$6.50
-------------
Outstanding at December 31, 1997 3,370,900 $4.39 $0.01-$7.63
Granted 1,145,034 $6.40 $3.25-$7.25
Exercised (264,600) $2.98 $1.00-$4.00
Forfeited (181,000) $6.49 $4.00-$7.00
-------------
Outstanding at December 31, 1998 4,070,334 $4.95 $0.01-$7.63
Granted 865,796 $4.57 $3.25-$6.00
Exercised (416,365) $3.83 $0.01-$6.00
Forfeited (165,050) $6.03 $0.01-$7.63
-------------
Outstanding at December 31, 1999 4,354,715 $4.94 $0.01-$7.63
=============
Available for grant at December 31, 1999 1,462,496
=============
</TABLE>
88
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
Stock Options Not Pursuant to a Plan
In June 1989, an officer 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, expiring in February 1999. Options
to acquire 50,000 shares were exercised during 1998, and options to
acquire the remaining 50,000 shares were exercised in 1999 prior to
their expiration.
The Company entered into an incentive agreement in June 1989 with an
officer providing for the acquisition of 85,190 remaining shares of
Class A common stock of the Company for $.001 per share exercisable
through June 1997. The shares under the incentive agreement vested in
equal annual increments over a three-year period and were exercised in
June 1997.
Stock Warrants Not Pursuant to a Plan
The Company entered into a warrant agreement in December 1998 with Prime
II Management, L.P. ("PMLP"). In lieu of cash payments for services
under the amended Management Agreement, PMLP agreed to accept a stock
warrant which provides for the purchase of 425,000 shares of GCI class A
common stock, with immediate vesting at the option date and an exercise
price of $3.25 per share. The warrant expires December 2003.
The Company entered into a warrant agreement in exchange for services in
December 1998 with certain of its legal counsel which provides for the
purchase of 16,667 shares of GCI class A common stock, vesting in
December 1999, with an exercise price of $3.00 per share, and expiring
December 2003.
The Company entered into a warrant agreement in exchange for services in
June 1999 with certain of its legal counsel which provides for the
purchase of 25,000 shares of GCI class A common stock, vesting over
three years ending December 2001, with an exercise price of $3.00 per
share, and expiring December 2003.
SFAS 123 Disclosures
The Company's stock options and warrants expire at various dates through
October 2009. At December 31, 1999, 1998 and 1997, the weighted-average
remaining contractual lives of options outstanding were 6.14, 6.54 and
6.65 years, respectively.
At December 31, 1999, 1998 and 1997, the number of exercisable shares
under option was 2,509,756, 2,252,130, and 1,759,015, respectively, and
the weighted-average exercise price of those options was $3.91, $3.45
and $3.01, respectively.
The per share weighted-average fair value of stock options granted
during 1999 was $4.14 per share for compensatory and $2.85 for
non-compensatory options; for 1998 was $4.08 per share for compensatory
and non-compensatory options; and for 1997, $6.71 per share for
compensatory options and $6.50 per share for non-compensatory options.
The amounts were determined as of the options' grant dates using a
qualified Black-Scholes option-pricing model with the following
weighted-average assumptions: 1999 - risk-free interest rate of 6.66%,
volatility of 0.6455 and an expected life of 5.7 years; 1998 - risk-free
interest rate of 4.75%, volatility of 0.6951 and an expected life of 5.7
years; and 1997 - risk-free interest rate of 5.46%, volatility of 1.8558
and an expected life of 5.5 years.
89
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<TABLE>
Summary information about the Company's stock options and warrants
outstanding at December 31, 1999:
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
----------------------------------------------------------------------- --------------------------------------
Weighted
Average
Number Remaining Weighted Number
Range of Exercise outstanding as Contractual Average Exercisable as Weighted Average
Prices of 12/31/99 Life Exercise Price of 12/31/99 Exercise Price
----------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
$0.01 - $1.75 335,860 3.46 $1.31 293,335 $1.49
$3.00 - $3.00 803,667 2.56 $3.00 787,000 $3.00
$3.25 - $3.25 696,505 6.13 $3.25 467,805 $3.25
$3.75 - $3.75 4,000 6.09 $3.75 4,000 $3.75
$4.00 - $4.00 527,100 4.96 $4.00 321,100 $4.00
$4.50 - $5.00 364,950 9.11 $4.97 22,000 $4.55
$6.00 - $6.00 592,500 8.15 $6.00 177,000 $6.00
$6.50 - $6.94 470,800 7.77 $6.57 135,150 $6.54
$7.00 - $7.00 646,000 7.26 $7.00 220,366 $7.00
$7.25 - $7.63 380,000 7.77 $7.39 82,000 $7.53
------------------------------------------------- --------------------------------------
$0.01 - $7.63 4,821,382 6.14 $4.78 2,509,756 $3.91
================================================= ======================================
</TABLE>
<TABLE>
Had compensation cost for the Company's 1997, 1998 and 1999 grants for
stock-based compensation plans been determined consistent with SFAS 123,
the Company's net income (loss) and net income (loss) per common share
would approximate the pro forma amounts below (in thousands except per
share data):
<CAPTION>
As Reported Pro Forma
----------------- -----------------
<S> <C> <C>
1997:
Net loss $(2,183) (3,387)
Basic net earnings per common share $ (0.05) (0.08)
Diluted net earnings per common share $ (0.05) (0.08)
1998:
Net loss $(6,797) (8,697)
Basic net loss per common share $ (0.14) (0.18)
Diluted net loss per common share $ (0.14) (0.18)
1999:
Net loss $(9,527) (11,714)
Basic net loss per common share $ (0.21) (0.26)
Diluted net loss per common share $ (0.21) (0.26)
</TABLE>
Pro forma net income (loss) reflects options granted in 1999, 1998 and
1997. Therefore, the full impact of calculating compensation cost for
stock options under SFAS 123 is not reflected in the pro forma net
income amounts presented above since compensation cost is reflected over
the options' vesting period of generally 5 years and compensation cost
for options granted prior to January 1, 1995 is not considered.
Class A Common Shares Held in Treasury
The Company acquired 105,000 shares of its Class A common stock in 1989
for approximately $328,000 to fund a deferred bonus agreement with an
officer of the Company. The agreement provides that the balance is
payable after the later of termination of employment or six months after
90
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
the effective date of the agreement. In 1995, 1996 and 1997, the Company
acquired a total of 98,000 additional shares of Class A common stock for
approximately $711,000 to fund additional deferred compensation
agreements for two of its officers. In 1998 the Company acquired a total
of 145,000 additional shares of Class A common stock for approximately
$568,000 to fund additional deferred compensation agreements for three
of its officers.
Employee Stock Purchase Plan
In December 1986, the Company 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 GCI's Class A
and Class B common stock at market value. The Plan permits each employee
of the Company 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 $10,000 in 1999; 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.
The Company may match employee salary reductions and after tax
contributions in any amount, elected by GCI's Board 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 matching contributions cannot exceed 25 percent of any
employee's compensation (determined after salary reduction) for any
year. Matching contributions vest over six years. Employee contributions
may be invested in GCI common stock, MCI WorldCom common stock, AT&T
common stock, TCI Satellite Entertainment, Inc. common stock or various
mutual funds. Tele-Communications, Inc. ("TCI") common stock was
previously offered to employees as an investment choice but TCI's merger
with AT&T in March 1999 resulted in the conversion of TCI shares of
common stock into AT&T shares of common stock. TCI Satellite
Entertainment, Inc. was not included in the TCI and AT&T merger,
therefore its stock was not converted. Alternative investment choices
may be offered by the Plan commencing as early as the third quarter of
2000.
Employee contributions invested in GCI common stock receive up to 100%
matching, as determined by GCI's Board each year, in GCI common stock.
Employee contributions invested in other than GCI common stock receive up
to 50% matching, as determined by the GCI's Board each year, in GCI
common stock. The Company's matching contributions allocated to
participant accounts totaled approximately $2,448,000, $2,278,000 and
$1,800,000 for the years ended December 31, 1999, 1998, and 1997,
respectively. The Plan may, at its discretion, purchase shares of GCI
common stock from GCI at market value or may purchase GCI's common stock
on the open market. In 1998 and 1999 the Company funded employer-matching
contributions through the issuance of new shares of GCI common stock
rather than market purchases and expects to continue to do so in 2000.
(9) Fiber Optic Cable System
In early February 1999 the Company completed construction of its fiber
optic cable system with commercial services commencing at that time. The
cities of Anchorage, Juneau and Seattle are connected via a subsea route.
Subsea and terrestrial connections extended the fiber optic cable to
Fairbanks via Whittier and Valdez. The total system cost was
approximately $125 million, portions of which were allocated to Cost of
Sales and to Other Assets in 1999 (see note 13) in connection with the
sale of fiber capacity.
(10) Industry Segments Data
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information."
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because
they manage and offer distinct products with different production and
delivery processes.
91
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
The Company has four reportable segments as follows:
Long-distance services. A full range of common-carrier long-distance
services is offered to commercial, government, other telecommunications
companies and residential customers, through its networks of fiber
optic cables, digital microwave, and fixed and transportable satellite
earth stations.
Cable services. The Company provides cable television services to
residential, commercial and government users in the State of Alaska.
The Company's cable systems serve 26 communities and areas in Alaska,
including the state's three largest urban areas, Anchorage, Fairbanks
and Juneau. Cable plant upgrades in 1999 and 1998 enabled the Company
to offer digital cable television services in Anchorage and retail
cable modem service (through its Internet services segment) in
Anchorage, Fairbanks and Juneau, complementing its existing service
offerings. The Company plans to expand its product offerings as plant
upgrades are completed in other communities in Alaska.
Local access services. The Company introduced facilities based
competitive local exchange services in Anchorage in 1997. The Company
plans to provide similar competitive local exchange services in
Alaska's other major population centers.
Internet services. The Company began offering wholesale and retail
Internet services in 1998. Deployment of the new undersea fiber optic
cable (see note 9) allowed the Company to offer enhanced services with
high-bandwidth requirements.
Services provided by the Company that are included in the "Other" segment
in the tables that follow are managed services, product sales, cellular
telephone services, and the results of insignificant business units
described above which do not meet the quantitative thresholds for
determining reportable segments. None of these business units have ever met
the quantitative thresholds for determining reportable segments. Also
included in the Other segment is a $19.5 million sale of undersea fiber
optic cable system capacity in 1999, and corporate related expenses
including marketing, customer service, management information systems,
accounting, legal and regulatory, human resources and other general and
administrative expenses.
The Company evaluates performance and allocates resources based on (1)
earnings or loss from operations before depreciation, amortization, net
interest expense and income taxes, and (2) operating income or loss. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies included in
note 1. Intersegment sales are recorded at cost plus an agreed upon
intercompany profit.
All revenues are earned through sales of services and products within the
United States of America ("USA"). All of the Company's long-lived assets
are located within the USA.
<TABLE>
Summarized financial information concerning the Company's reportable
segments follows (amounts in thousands):
<CAPTION>
Long- Local
Distance Cable Access Internet
Services Services Services Services Other Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
----
Revenues:
Intersegment $ 8,518 1,942 3,937 207 --- 14,604
External 159,722 61,146 15,543 9,120 33,648 279,179
--------------------------------------------------------------------------
Total revenues 168,240 63,088 19,480 9,327 33,648 293,783
--------------------------------------------------------------------------
Cost of sales and services:
Intersegment 3,430 --- 1,255 9,369 --- 14,054
External 80,970 15,478 7,892 3,151 14,976 122,467
--------------------------------------------------------------------------
Total cost of sales and services 84,400 15,478 9,147 12,520 14,976 136,521
--------------------------------------------------------------------------
</TABLE>
92
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Long- Local
Distance Cable Access Internet
Services Services Services Services Other Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contribution:
Intersegment 5,088 1,942 2,682 (9,162) --- 550
External 78,752 45,668 7,651 5,969 18,672 156,712
--------------------------------------------------------------------------
Total contribution 83,840 47,610 10,333 (3,193) 18,672 157,262
Selling, general and administrative
expenses 22,789 15,092 9,269 4,531 46,601 98,282
--------------------------------------------------------------------------
Earnings (loss) from operations before
depreciation, amortization, net
interest expense, income taxes and
cumulative effect of a change in
accounting principle 61,051 32,518 1,064 (7,724) (27,929) 58,980
Depreciation and amortization 16,270 17,626 3,281 1,128 4,375 42,680
--------------------------------------------------------------------------
Operating income (loss) $ 44,781 14,892 (2,217) (8,852) (32,304) 16,300
==========================================================================
Total assets $219,806 310,421 28,364 20,311 64,249 643,151
==========================================================================
Capital expenditures $ 17,626 7,186 3,207 5,991 2,563 36,573
==========================================================================
1998
----
Revenues:
Intersegment $ 2,716 1,330 1,284 --- --- 5,330
External 157,350 57,640 9,908 6,082 15,815 246,795
--------------------------------------------------------------------------
Total revenues 160,066 58,970 11,192 6,082 15,815 252,125
--------------------------------------------------------------------------
Cost of sales and services:
Intersegment 1,284 --- 1,254 2,727 --- 5,265
External 79,323 13,407 6,113 3,402 13,828 116,073
--------------------------------------------------------------------------
Total cost of sales and services 80,607 13,407 7,367 6,129 13,828 121,338
--------------------------------------------------------------------------
Contribution:
Intersegment 1,432 1,330 30 (2,727) --- 65
External 78,027 44,233 3,795 2,680 1,987 130,722
--------------------------------------------------------------------------
Total contribution 79,459 45,563 3,825 (47) 1,987 130,787
Selling, general and administrative
expenses 21,019 15,630 8,477 782 43,925 89,833
--------------------------------------------------------------------------
Earnings (loss) from operations before
depreciation, amortization, net
interest expense and income taxes 58,440 29,933 (4,652) (829) (41,938) 40,954
Depreciation and amortization 6,976 17,281 2,597 501 4,690 32,045
--------------------------------------------------------------------------
Operating income (loss) $ 51,464 12,652 (7,249) (1,330) (46,628) 8,909
==========================================================================
Total assets $231,727 320,305 31,062 16,535 49,816 649,445
==========================================================================
Capital expenditures $110,177 20,727 8,104 3,836 6,129 148,973
==========================================================================
</TABLE>
93
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Long- Local
Distance Cable Access Internet
Services Services Services Services Other Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
----
Revenues:
Intersegment $ --- 516 --- --- 172 688
External 154,681 55,165 610 182 13,171 223,809
--------------------------------------------------------------------------
Total revenues 154,681 55,681 610 182 13,343 224,497
--------------------------------------------------------------------------
Cost of sales and services:
Intersegment --- --- 472 --- --- 472
External 86,346 12,610 739 241 11,141 111,077
--------------------------------------------------------------------------
Total cost of sales and services 86,346 12,610 1,211 241 11,141 111,549
--------------------------------------------------------------------------
Contribution:
Intersegment --- 516 (472) --- 172 216
External 68,335 42,555 (129) (59) 2,030 112,732
--------------------------------------------------------------------------
Total contribution 68,335 43,071 (601) (59) 2,202 112,948
Selling, general and administrative
expenses 18,724 18,812 2,802 26 33,219 73,583
--------------------------------------------------------------------------
Earnings (loss) from operations before
depreciation, amortization, net
interest expense, income taxes and
extraordinary item 49,611 24,259 (3,403) (85) (31,017) 39,365
Depreciation and amortization 6,676 13,320 525 3 3,243 23,767
--------------------------------------------------------------------------
Operating income (loss) $ 42,935 10,939 (3,928) (88) (34,260) 15,598
==========================================================================
Total assets $161,968 311,643 20,357 8,510 42,824 545,302
==========================================================================
Capital expenditures $ 23,107 18,199 9,379 7,496 6,463 64,644
==========================================================================
</TABLE>
---------------
Long-distance services, local access service and Internet services are
billed utilizing a unified accounts receivable system and are not
reported separately by business segment. All such accounts receivable
are included above in the long-distance services segment for all
periods presented.
<TABLE>
A reconciliation of total segment revenues to consolidated revenues
follows:
<CAPTION>
Years ended December 31, 1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Total segment revenues $ 293,783 252,125 224,497
Less intersegment revenues eliminated in consolidation (14,604) (5,330) (688)
--------------- --------------- --------------
Consolidated revenues $ 279,179 246,795 223,809
=============== =============== ==============
</TABLE>
<TABLE>
A reconciliation of total segment earnings from operations before
depreciation, amortization, net interest expense, income taxes and
cumulative effect of a change in accounting principle to consolidated
net loss before income taxes and cumulative effect of a change in
accounting principle follows:
94
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<CAPTION>
Years ended December 31, 1999 1998 1997
-------------- ---------------- --------------
<S> <C> <C> <C>
Total segment earnings from operations before depreciation,
amortization, net interest expense, income taxes,
extraordinary item and cumulative effect of a change in
accounting principle $ 58,980 40,954 39,365
Less intersegment contribution eliminated in consolidation (550) (65) (216)
-------------- ---------------- --------------
Consolidated earnings from operations before depreciation,
amortization, net interest expense, income taxes,
extraordinary item and cumulative effect of a change in
accounting principle 58,430 40,889 39,149
Depreciation and amortization 42,680 32,045 23,767
-------------- ---------------- --------------
Consolidated operating income 15,750 8,844 15,382
Interest expense, net (30,616) (19,764) (17,617)
-------------- ---------------- --------------
Consolidated net loss before income taxes, extraordinary
item and cumulative effect of a change in accounting
principle $ (14,866) (10,920) (2,235)
============== ================ ==============
</TABLE>
<TABLE>
A reconciliation of total segment operating income to consolidated net
loss before income taxes and extraordinary item follows:
<CAPTION>
Years ended December 31, 1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Total segment operating income $ 16,300 8,909 15,598
Less intersegment contribution eliminated in consolidation (550) (65) (216)
--------------- --------------- --------------
Consolidated operating income 15,750 8,844 15,382
Interest expense, net (30,616) (19,764) (17,617)
--------------- --------------- --------------
Consolidated net loss before income taxes, extraordinary
item and cumulative effect of a change in accounting
principle $ (14,866) (10,920) (2,235)
=============== =============== ==============
</TABLE>
The Company provides message telephone service to MCI WorldCom (see note
12) and Sprint, major customers. The Company earned revenues, net of
discounts, included in the long-distance segment, pursuant to a contract
with Sprint totaling approximately $19,770,000, $25,244,000 and
$22,956,000 for the years ended December 31, 1999, 1998 and 1997
respectively. As a percentage of total revenues, Sprint revenues totaled
7.1%, 10.2% and 10.3% for the years ended December 31, 1999, 1998 and
1997 respectively.
(11) Fair Value of Financial Instruments
<TABLE>
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1999 and
1998. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
95
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
<CAPTION>
(Amounts in thousands) 1999 1998
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- -------------------------
<S> <C> <C> <C> <C>
Short-term assets $ 68,864 68,864 56,367 56,367
Notes receivable $ 2,067 2,067 1,432 1,432
Short-term liabilities $ 35,194 35,194 40,190 40,190
Long-term debt and capital lease
obligations $340,500 356,214 351,533 380,153
</TABLE>
The following methods and assumptions were used to estimate fair values:
Short-term assets: The fair values of cash and cash equivalents, net
receivables, notes receivable and refundable deposit approximate
their carrying values due to the short-term nature of these financial
instruments.
Notes receivable: The carrying value of notes receivable is estimated
to approximate fair values. Although there are no quoted market
prices available for these instruments, the fair value estimates were
based on the change in interest rates and risk related interest rate
spreads since the notes origination dates.
Short-term liabilities: The fair values of current maturities of
long-term debt and capital lease obligations, accounts payable,
accrued interest, and subscriber deposits approximate their carrying
value due to the short-term nature of these financial instruments.
Long-term debt and capital lease obligations: The fair value of
long-term debt is based primarily on discounting the future cash
flows of each instrument at rates currently offered to the Company
for similar debt instruments of comparable maturities by the
Company's bankers.
(12) Related Party Transactions
Pursuant to the terms of a contract with MCI WorldCom, a major
shareholder of GCI (see note 8), the Company earned revenues, net of
discounts, of approximately $40,450,000, $35,991,000 and $33,962,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. As a
percentage of total revenues, MCI WorldCom revenues totaled 14.5%, 14.6%
and 15.2% for the years ended December 31, 1999, 1998 and 1997
respectively. Amounts receivable, net of accounts payable, from MCI
WorldCom totaled $9,111,000 and $4,836,000 at December 31, 1999 and
1998, respectively. The Company paid MCI WorldCom for distribution of
its traffic in the lower 49 states amounts totaling approximately
$10,623,000, $12,639,000 and $14,319,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
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. The Company guarantees the lease. The lease term is 15 years
with monthly payments increasing in $800 increments at each two-year
anniversary of the lease. Monthly lease costs will increase to $18,400
effective October 2001. 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.
96
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
GCI Cable, Inc. ("GCI Cable") is a party to a Management Agreement with
PMLP. Certain of the Prime sellers are affiliated with PMLP. The
Management Agreement began on November 1, 1996 and expires on October
31, 2005, however, it can be terminated earlier upon loss of a license
to operate the systems, sale of the systems, breach of contract, or upon
exercise of an option to terminate the Management Agreement by PMLP or
GCI Cable any time after October 31, 2000. The agreement was amended
December 15, 1998.
Under the terms of the amended Management Agreement, PMLP performs
certain services for GCI Cable and will be compensated as follows:
November 01, 1996 through October 31, 1997 $1,000,000
November 01, 1997 through December 31, 1997 $ 125,000
January 01, 1998 through January 31, 1999 Warrant to purchase
425,000 shares of
GCI stock
February 01, 1999 through October 31, 1999 $ 200,000
November 01, 1999 through October 31, 2000 $ 400,000
(plus reimbursement for certain expenses)
In connection with the agreement, GCI Cable received services valued at
approximately $334,000, $752,000 and $1,040,000 including reimbursable
expenses for the periods ended December 31, 1999, 1998 and 1997,
respectively.
(13) Commitments and Contingencies
Leases
The Company as Lessee. 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 $13,678,000,
$11,609,000 and $11,574,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
<TABLE>
A summary of future minimum lease payments for all leases as of December
31, 1999 follows:
<CAPTION>
Year ending December 31: Operating Capital
------------- -------------
(Amounts in thousands)
<S> <C> <C>
2000 $ 7,498 732
2001 4,051 114
2002 2,608 478
2003 2,454 373
2004 1,277 230
2005 and thereafter 6,607 413
------------- -------------
Total minimum lease payments $ 24,495 2,340
=============
Less amount representing interest (666)
Less current maturities of obligations under capital leases (574)
-------------
Subtotal - long-term obligations under capital leases 1,100
Less long-term obligations under capital leases due to
related party, excluding current maturities (353)
-------------
Long-term obligations under capital leases, excluding
related party, excluding current maturities $ 747
=============
</TABLE>
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, except for satellite transponder
capacity, leases that expire will be renewed or replaced by leases on
other properties.
97
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
The Company as Lessor. In 1999 the Company signed agreements with a
large commercial customer for the lease of three DS3 circuits on Alaska
United facilities within Alaska, and between Alaska and the lower 48
states. The lease agreements are for three years with renewal options. A
summary of minimum future operating lease rentals follows:
Year ending December 31,
2000 $ 4,733
2001 4,733
2002 919
--------
Total minimum lease rentals $ 10,385
========
Future Fiber Capacity Sale
An agreement was executed effective July 1999 for a second $19.5 million
sale of fiber capacity to Alaska Communications Systems. The agreement
requires Alaska Communications Systems to acquire $19.5 million of
additional capacity during the 18-month period following the effective
date of the contract. Costs associated with the capacity to be sold have
been classified as Other Assets in the accompanying consolidated
financial statements at December 31, 1999.
Deferred Compensation Plan
During 1995, the Company adopted a non-qualified, unfunded deferred
compensation plan to provide a means by which certain employees may
elect to defer receipt of designated percentages or amounts of their
compensation and to provide a means for certain other deferrals of
compensation. The Company may, at its discretion, contribute matching
deferrals equal to the rate of matching selected by the Company.
Participants immediately vest in all elective deferrals and all income
and gain attributable thereto. Matching contributions and all income and
gain attributable thereto vest over a six-year period. Participants may
elect to be paid in either a single lump sum payment or annual
installments over a period not to exceed 10 years. Vested balances are
payable upon termination of employment, unforeseen emergencies, death
and total disability. Participants are general creditors of the Company
with respect to deferred compensation plan benefits. Compensation
deferred pursuant to the plan totaled approximately $60,000, $117,000
and $58,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Satellite Transponders
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 satellite was
successfully launched in January 2000 and delivered to the Company on
March 5, 2000. The Company intends to finance the satellite transponders
pursuant to a long-term capital lease agreement with a leasing company.
The Company will continue to lease transponder capacity on the PanAmSat
Galaxy IX satellite until its communications traffic is successfully
transitioned to the new satellite transponders.
98
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
Self-Insurance
The Company is self-insured for losses and liabilities related primarily
to health and welfare claims up to predetermined amounts above which
third party insurance applies. A reserve of $600,000 and $545,000 was
recorded at December 31, 1999 and 1998, respectively, to cover estimated
reported losses, estimated unreported losses based on past experience
modified for current trends, and estimated expenses for investigating
and settling claims. Actual losses will vary from the recorded reserve.
While management uses what it believes is pertinent information and
factors in determining the amount of reserves, future additions to the
reserves may be necessary due to changes in the information and factors
used.
Litigation and Disputes
The Company is involved in various lawsuits, billing disputes, legal
proceedings and regulatory matters that have arisen in the normal course
of business. While the ultimate results of these items cannot be
predicted with certainty, management does not expect at this time the
resolution of them to have a material adverse effect on the Company's
financial position, results of operations or its liquidity.
Cable Service Rate Reregulation
Effective March 31, 1999, the rates for cable programming services
(service tiers above basic service) are no longer regulated. This
regulation ended pursuant to provisions of the Telecommunications Act of
1996 and the regulations adopted pursuant thereto by the FCC. Federal
law still permits regulation of basic service rates. However, Alaska law
provides that cable television service is exempt from regulation by the
RCA unless 25% of a system's subscribers request such regulation by
filing a petition with the RCA. At December 31, 1999, only the Juneau
system is subject to RCA regulation of its basic service rates. No
petition requesting regulation has been filed for any other system. (The
Juneau system serves 8.0% of the Company's total basic service
subscribers at December 31, 1999.) Juneau's current rates have been
approved by the RCA and there are no other pending filings with the RCA,
therefore, there is no refund liability for basic service at this time.
Year 2000
The Company initiated a company-wide program in 1998 to ensure that our
date-sensitive information, telephony, cable, Internet and business
systems, and certain other equipment would properly recognize the Year
2000 as a result of the century change on January 1, 2000. The program
focused on the hardware, software, embedded chips, third-party vendors
and suppliers as well as third-party networks that were associated with
the identified systems. The Company substantially completed the program
during third quarter 1999 and its systems did not experience any
significant disruptions as a result of the century change.
99
<PAGE>
GENERAL COMMUNICATION, INC.
Notes to Consolidated Financial Statements
Costs related to the Year 2000 issue have been expensed as incurred and
are funded through the Company's operating cash flows. In total, the
Company has expensed incremental remediation costs totaling $2.3 million
through December 31, 1999, with remaining incremental remediation costs
in 2000 estimated at approximately $400,000.
The Company did not defer any critical information technology projects
because of its Year 2000 program efforts, which were addressed primarily
through a dedicated team within the Company's information technology
group.
Universal Service Fund Appeal
During the year ended December 31, 1999 the Company recorded revenues
and accounts receivable totaling approximately $1 million from the
Universal Service Fund ("USF") for Internet services provided to certain
rural public school districts in Alaska. The USF refused payment of the
submitted billings, and the Company has appealed that decision.
Management believes the Company's position is sustainable, however no
assurance can be given with respect to the ultimate outcome of such
appeal. If the appeal results in disallowance of the disputed billings,
such loss could have an impact on the Company's financial position,
results of operations and cash flows in the year the decision is
rendered.
(14) Supplementary Financial Data
<TABLE>
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1999 and 1998 (amounts in thousands,
except per share amounts):
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1999
----
Total revenues $ 61,338 83,659 67,340 66,842 279,179
Net earnings (loss) $ (4,865) 2,491 (3,537) (3,616) (9,527)
Basic earnings (loss) per common share:
Net earnings (loss) before cumulative
effect of a change in accounting
principle (1) $ (0.09) 0.04 (0.08) (0.08) (0.20)
Cumulative effect of a change in
accounting principle $ (0.01) --- --- --- (0.01)
------------ ----------- ------------ ----------- ------------
Net earnings (loss) (1) $ (0.10) 0.04 (0.08) (0.08) (0.21)
============ =========== ============ =========== ============
Diluted earnings (loss) per common share:
Net earnings (loss) before cumulative
effect of a change in accounting
principle (1) $ (0.09) 0.04 (0.08) (0.08) (0.20)
Cumulative effect of a change in
accounting principle $ (0.01) --- --- --- (0.01)
------------ ----------- ------------ ----------- ------------
Net earnings (loss) (1) $ (0.10) 0.04 (0.08) (0.08) (0.21)
============ =========== ============ =========== ============
1998
----
Total revenues $ 58,152 62,941 62,766 62,936 246,795
Net loss $ (1,616) (2,066) (2,076) (1,039) (6,797)
Basic net loss per common share (1) $ (0.03) (0.04) (0.04) (0.02) (0.14)
Diluted net loss per common share (1) $ (0.03) (0.04) (0.04) (0.02) (0.14)
<FN>
------------
1 Due to rounding, the sum of quarterly loss per common share amounts
may not agree to year-to-date loss per common share amounts.
</FN>
</TABLE>
100
<PAGE>
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(a)(l) Consolidated Financial Statements
Included in Part II of this Report:
Independent Auditor's Report..............................................................69
Consolidated Balance Sheets, December 31, 1999 and 1998...................................70 -- 71
Consolidated Statements of Operations,
Years ended December 31, 1999, 1998 and 1997...........................................72
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1999, 1998 and 1997...........................................73
Consolidated Statements of Cash Flows,
Years ended December 31, 1999, 1998 and 1997...........................................74
Notes to Consolidated Financial Statements................................................75 -- 100
(a)(2) Consolidated Financial Statement Schedules
Included in Part IV of this Report:
Independent Auditors' Report..............................................................107
Schedule VIII - Valuation and Qualifying Accounts,
Years ended December 31, 1999, 1998 and 1997...........................................108
</TABLE>
Other schedules are omitted, as they are not required or are not applicable, or
the required information is shown in the applicable financial statements or
notes thereto.
101
<PAGE>
(b) Exhibits
<TABLE>
Listed below are the exhibits that are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation
S-K):
<CAPTION>
Exhibit No. Description
----------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of The Company dated August 16, 1993. (23)
3.2 Amended and Restated Bylaws of The Company dated January 28, 2000 *
4.1 1997 Amendment No. 1 to Voting Agreement dated October 31, 1996, among Prime II Management
L.P., as agent for the Voting Prime Sellers, MCI Telecommunications Corporation, Ronald
A. Duncan, Robert M. Walp and TCI GCI, Inc. (23)
10.1 Employee stock option agreements issued to individuals Spradling, Strid, Behnke, and
Lewkowski (3)
10.3 Westin Building Lease (5)
10.4 Duncan and Hughes Deferred Bonus Agreements (6)
10.5 Compensation Agreement between General Communication, Inc. and William C. Behnke dated
January 1, 1997 (19)
10.6 Order approving Application for a Certificate of Public Convenience and Necessity to
operate as a Telecommunications (Intrastate Interexchange Carrier) Public Utility
within Alaska (3)
10.7 1986 Stock Option Plan, as amended (21)
10.8 Loan agreement between National Bank of Alaska and GCI Leasing Co., Inc. dated December
31, 1992 (4)
10.13 MCI Carrier Agreement between MCI Telecommunications Corporation and General
Communication, Inc. dated January 1, 1993 (8)
10.14 Contract for Alaska Access Services Agreement between MCI Telecommunications Corporation
and General Communication, Inc. dated January 1, 1993 (8)
10.15 Promissory Note Agreement between General Communication, Inc. and Ronald A. Duncan, dated
August 13, 1993 (9)
10.16 Deferred Compensation Agreement between General Communication, Inc. and Ronald A. Duncan,
dated August 13, 1993 (9)
10.17 Pledge Agreement between General Communication, Inc. and Ronald A. Duncan, dated August
13, 1993 (9)
10.19 Summary Plan Description pertaining to the Revised Qualified Employee Stock Purchase Plan
of General Communication, Inc. (10)
10.20 The GCI Special Non-Qualified Deferred Compensation Plan (11)
10.21 Transponder Purchase Agreement for Galaxy X between Hughes Communications Galaxy, Inc. and
GCI Communication Corp. (11)
10.23 Management Agreement, between Prime II Management, L.P., and GCI Cable, Inc., dated
October 31, 1996 (12)
10.25 Licenses: (5)
10.25.1 214 Authorization
10.25.2 International Resale Authorization
10.25.3 Digital Electronic Message Service Authorization
10.25.4 Fairbanks Earth Station License
10.25.5 Fairbanks (Esro) Construction Permit for P-T-P Microwave Service
10.25.6 Fairbanks (Polaris) Construction Permit for P-T-P Microwave Service
10.25.7 Anchorage Earth Station Construction Permit
10.25.8 License for Eagle River P-T-P Microwave Service
10.25.9 License for Juneau Earth Station
10.25.10 Issaquah Earth Station Construction Permit
10.26 ATU Interconnection Agreement between GCI Communication Corp. and Municipality of
Anchorage, executed January 15, 1997 (18)
10.29 Asset Purchase Agreement, dated April 15, 1996, among General Communication, Inc., ACNFI,
ACNJI and ACNKSI (12)
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------------------------------------------------------------------------------------------------------------
<S> <C>
10.30 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and
Alaska Cablevision, Inc. (12)
10.31 Asset Purchase Agreement, dated May 10, 1996, among General Communication, Inc., and
McCaw/Rock Homer Cable System, J.V. (12)
10.32 Asset Purchase Agreement, dated May 10, 1996, between General Communication, Inc., and
McCaw/Rock Seward Cable System, J.V. (12)
10.33 Amendment No. 1 to Securities Purchase and Sale Agreement, dated October 31, 1996, among
General Communication, Inc., and the Prime Sellers Agent (13)
10.34 First Amendment to Asset Purchase Agreement, dated October 30, 1996, among General
Communication, Inc., ACNFI, ACNJI and ACNKSI (13)
10.36 Order Approving Arbitrated Interconnection Agreement as Resolved and Modified by Order
U-96-89(8) dated January 14, 1997 (18)
10.37 Amendment to the MCI Carrier Agreement executed April 20, 1994 (18)
10.38 Amendment No. 1 to MCI Carrier Agreement executed July 26, 1994 (16)
10.39 MCI Carrier Addendum--MCI 800 DAL Service effective February 1, 1994 (16)
10.40 Third Amendment to MCI Carrier Agreement dated as of October 1, 1994 (16)
10.41 Fourth Amendment to MCI Carrier Agreement dated as of September 25, 1995 (16)
10.42 Fifth Amendment to the MCI Carrier Agreement executed April 19, 1996 (18)
10.43 Sixth Amendment to MCI Carrier Agreement dated as of March 1, 1996 (16)
10.44 Seventh Amendment to MCI Carrier Agreement dated November 27, 1996 (20)
10.45 First Amendment to Contract for Alaska Access Services between General Communication, Inc.
and MCI Telecommunications Corporation dated April 1, 1996 (20)
10.46 Service Mark License Agreement between MCI Communications Corporation and General
Communication, Inc. dated April 13, 1994 (19)
10.47 Radio Station Authorization (Personal Communications Service License), Issue Date June
23, 1995 (19)
10.48 Framework Agreement between National Bank of Alaska (NBA) and General Communication,
Inc. dated October 31, 1995 (17)
10.49 1997 Call-Off Contract between National Bank of Alaska (NBA) and General Communication,
Inc. (GCI) dated November 1, 1996 (20)
10.50 Contract No. 92MR067A Telecommunications Services between BP Exploration (Alaska), Inc.
and GCI Network Systems dated April 1, 1992 (20)
10.51 Amendment No. 03 to BP Exploration (Alaska) Inc. Contract No. 92MRO67A effective August
1, 1996 (20)
10.52 Lease Agreement dated September 30, 1991 between RDB Company and General Communication,
Inc. (3)
10.53 Certificate of Public Convenience and Necessity No. 436 for Telecommunications Service
(Relay Services) (19)
10.54 Order Approving Transfer Upon Closing, Subject to Conditions, and Requiring Filings
dated September 23, 1996 (19)
10.55 Order Granting Extension of Time and Clarifying Order dated October 21, 1996 (19)
10.56 Contract for Alaska Access Services among General Communication, Inc. and GCI
Communication Corp., and Sprint Communications Company L.P. dated June 1, 1993 (20)
10.57 First Amendment to Contract for Alaska Access Services between General Communication,
Inc. and Sprint Communications Company L.P. dated as of August 7, 1996 (20)
10.58 Employment and Deferred Compensation Agreement between General Communication, Inc. and
John M. Lowber dated July 1992 (19)
10.59 Deferred Compensation Agreement between GCI Communication Corp. and Dana L. Tindall
dated August 15, 1994 (19)
10.60 Transponder Lease Agreement between General Communication Incorporated and Hughes
Communications Satellite Services, Inc., executed August 8, 1989 (9)
10.61 Addendum to Galaxy X Transponder Purchase Agreement between GCI Communi-
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------------------------------------------------------------------------------------------------------------
<S> <C>
cation Corp. and Hughes Communications Galaxy, Inc.
dated August 24, 1995 (19)
10.62 Order Approving Application, Subject to Conditions; Requiring Filing; and Approving
Proposed Tariff on an Inception Basis, dated February 4, 1997 (19)
10.63 Resale Solutions Switched Services Agreement between Sprint Communications Company L.P.
and GCI Communications, Inc. dated May 31, 1996 (20)
10.64 Commitment Letter from Credit Lyonnais New York Branch, NationsBank of Texas, N.A. and
TD Securities (USA) Inc. for Fiber Facility dated as of July 3, 1997 (19)
10.65 Commitment Letter from NationsBank for Credit Facility dated July 2, 1997 (19)
10.66 Supply Contract Between Submarine Systems International Ltd. And GCI Communication Corp.
dated as of July 11, 1997. (23)
10.67 Supply Contract Between Tyco Submarine Systems Ltd. And Alaska United Fiber System
Partnership Contract Variation No. 1 dated as of December 1, 1997. (23)
10.68 $200,000,000 Amended and Restated Credit Agreement between GCI Holdings, Inc. and
NationsBank of Texas, N.A., as administrative agent, Credit Lyonnais New York Branch,
as documentation agent, and TD Securities (USA), Inc. as syndication agent, dated as
of November 14, 1997. (23)
10.69 $50,000,000 Amended and Restated Credit Agreement between GCI Holdings, Inc. and
NationsBank of Texas, N.A., as administrative agent, Credit Lyonnais New York Branch,
as documentation agent, and TD Securities (USA), Inc. as syndication agent, dated as
of November 14, 1997. (23)
10.70 Credit and Security Agreement Dated as of January 27, 1998 among Alaska United Fiber
System Partnership as Borrower and The Lenders Referred to Herein and Credit Lyonnais
New York Branch as Administrative Agent and NationsBank of Texas, N.A. as Syndication
Agent and TD Securities (USA), Inc. as Documentation Agent. (24)
10.71 Third Amendment to Contract for Alaska Access Services between General Communication,
Inc. and MCI Telecommunications Corporation dated February 27, 1998 (25)
10.72 Consent and First Amendment to Credit Agreements dated November 14, 1997 (26)
10.73 Second Amendment to $200,000,000 Amended and Restated Credit Agreement (26)
10.74 Second Amendment to $50,000,000 Amended and Restated Credit Agreement (26)
10.75 Third Amendment to $200,000,000 Amended and Restated Credit Agreement (26)
10.76 Third Amendment to $50,000,000 Amended and Restated Credit Agreement (26)
10.77 General Communication, Inc. Preferred Stock Purchase Agreement (26)
10.78 Qualified Employee Stock Purchase Plan of General Communication, Inc., as amended and restated
January 01, 2000 *
10.79 Statement of Stock Designation (Series B) (26)
10.80 Fourth Amendment to Contract for Alaska Access Services between General Communication,
Inc. and its wholly owned subsidiary GCI Communication Corp., and MCI WorldCom. (27)
10.81 Fifth Amendment to Contract for Alaska Access Services between General Communication,
Inc. and its wholly owned subsidiary GCI Communication Corp., and Sprint
Communications Company L.P. (27)
21.1 Subsidiaries of the Registrant (23)
23.1 Consent of KPMG LLP (Accountant for Company) *
27.1 Financial Data Schedule *
99 Additional Exhibits:
99.1 The Articles of Incorporation of GCI Communication Corp. (2)
99.2 The Bylaws of GCI Communication Corp. (2)
99.3 The Articles of Incorporation of GCI Communication Services, Inc. (4)
99.4 The Bylaws of GCI Communication Services, Inc. (4)
99.5 The Articles of Incorporation of GCI Leasing Co., Inc. (4)
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------------------------------------------------------------------------------------------------------------
<S> <C>
99.6 The Bylaws of GCI Leasing Co., Inc. (4)
99.7 The Bylaws of GCI Cable, Inc. (14)
99.8 The Articles of Incorporation of GCI Cable, Inc. (14)
99.9 The Bylaws of GCI Cable / Fairbanks, Inc. (14)
99.10 The Articles of Incorporation of GCI Cable / Fairbanks, Inc. (14)
99.11 The Bylaws of GCI Cable / Juneau, Inc. (14)
99.12 The Articles of Incorporation of GCI Cable / Juneau, Inc. (14)
99.13 The Bylaws of GCI Cable Holdings, Inc. (14)
99.14 The Articles of Incorporation of GCI Cable Holdings, Inc. (14)
99.15 The Bylaws of GCI Holdings, Inc. (19)
99.16 The Articles of Incorporation of GCI Holdings, Inc. (19)
99.17 The Articles of Incorporation of GCI, Inc. (18)
99.18 The Bylaws of GCI, Inc. (18)
99.19 The Bylaws of GCI Transport, Inc. (23)
99.20 The Articles of Incorporation of GCI Transport, Inc. (23)
99.21 The Bylaws of Fiber Hold Co., Inc. (23)
99.22 The Articles of Incorporation of Fiber Hold Co., Inc. (23)
99.23 The Bylaws of GCI Fiber Co., Inc. (23)
99.24 The Articles of Incorporation of GCI Fiber Co., Inc. (23)
99.25 The Bylaws of GCI Satellite Co., Inc. (23)
99.26 The Articles of Incorporation of GCI Satellite Co., Inc. (23)
99.27 The Partnership Agreement of Alaska United Fiber System (23)
<FN>
-------------------------
* Filed herewith.
2 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1990
3 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1991
4 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1992
5 Incorporated by reference to The Company's Registration Statement on Form 10 (File No.
0-15279), mailed to the Securities and Exchange Commission on December 30, 1986
6 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
8 Incorporated by reference to The Company's Current Report on Form 8-K dated June 4, 1993.
9 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
11 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
12 Incorporated by reference to The Company's Form S-4 Registration Statement dated October
4, 1996.
13 Incorporated by reference to The Company's Current Report on Form 8-K dated November 13,
1996.
14 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
105
<PAGE>
16 Incorporated by reference to The Company's Current Report on Form 8-K dated March 14,
1996, filed March 28, 1996.
17 Incorporated by reference to The Company's Amendment to Annual Report dated December 31,
1995 on Form 10-K/A as amended on August 6, 1996.
18 Incorporated by reference to The Company's Form S-3 Registration Statement (File No.
333-28001) dated May 29, 1997.
19 Incorporated by reference to The Company's Amendment No. 1 to Form S-3/A Registration
Statement (File No. 333-28001) dated July 8, 1997.
20 Incorporated by reference to The Company's Amendment No. 2 to Form S-3/A Registration
Statement (File No. 333-28001) dated July 21, 1997.
21 Incorporated by reference to The Company's Amendment No. 3 to Form S-3/A Registration
Statement (File No. 333-28001) dated July 22, 1997.
23 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
24 Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1998.
25 Incorporated by reference to The Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
26 Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1999.
27 Incorporated by reference to The Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1999.
</FN>
</TABLE>
(c) Reports on Form 8-K
None.
106
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
General Communication, Inc.:
Under date of March 10, 2000, we reported on the consolidated balance sheets of
General Communication, Inc. and Subsidiaries ("Company") as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, which are included in the Company's 1999 Annual Report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule in the consolidated financial statements, which is listed in
the index in Item 14(a)(2) of the Company's 1999 Annual Report on Form 10-K.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion this consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.
/s/
KPMG LLP
Anchorage, Alaska
March 10, 2000
107
<PAGE>
<TABLE>
Schedule VIII
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
Additions Deductions
--------- ----------
Balance at Charged to Write-offs
beginning of profit and net of Balance at
Description year loss Other recoveries end of year
----------------------------------------------- -------------- ------------ ----------- -------------- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables, year ended:
December 31, 1999: $ 887 4,224 --- 2,278 2,833
============== ============ =========== ============== ============
December 31, 1998: $ 1,070 2,795 --- 2,978 887
============== ============ =========== ============== ============
December 31, 1997: $ 597 3,025 --- 2,552 1,070
============== ============ =========== ============== ============
</TABLE>
108
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GENERAL COMMUNICATION, INC.
By: /s/ Ronald A. Duncan
Ronald A. Duncan, President
(Chief Executive Officer)
Date: March 24, 2000
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<CAPTION>
Signature Title Date
- -------------------------------------- ------------------------------------------ -------------------
<S> <C> <C>
/s/ Carter F. Page Chairman of Board and Director March 24, 2000
- -------------------------------------- -------------------
Carter F. Page
/s/ Robert M. Walp Vice Chairman of Board and Director March 24, 2000
- -------------------------------------- -------------------
Robert M. Walp
/s/ Ronald A. Duncan President and Director March 24, 2000
- -------------------------------------- (Principal Executive Officer) -------------------
Ronald A. Duncan
/s/ Ronald R. Beaumont Director March 24, 2000
- -------------------------------------- -------------------
Ronald R. Beaumont
/s/ Donne F. Fisher Director March 24, 2000
- -------------------------------------- -------------------
Donne F. Fisher
Director
- -------------------------------------- -------------------
William P. Glasgow
/s/ Stephen R. Mooney Director March 24, 2000
- -------------------------------------- -------------------
Stephen R. Mooney
Director
- -------------------------------------- -------------------
Larry E. Romrell
Director
- -------------------------------------- -------------------
James M. Schneider
/s/ Christopher J. Shipman Director March 24, 2000
- -------------------------------------- -------------------
Christopher J. Shipman
/s/ John M. Lowber Senior Vice President, Chief Financial March 24, 2000
- -------------------------------------- Officer, Secretary and Treasurer -------------------
John M. Lowber (Principal Financial Officer)
/s/ Alfred J. Walker Vice President, Chief Accounting March 24, 2000
- -------------------------------------- Officer -------------------
Alfred J. Walker (Principal Accounting Officer)
</TABLE>
109
BYLAWS OF
GENERAL COMMUNICATION, INC.(1)
ARTICLE I
OFFICES
The Corporation shall maintain a principal office of the Corporation in
the State of Alaska as required by law. The Corporation may also have offices in
such other places, either within or without the State of Alaska, as the Board of
Directors of the Corporation ("Board") may from time to time designate or as the
business of the Corporation may require.
______________
1 As last amended and restated on January 28, 2000
Bylaws of General Communication, Inc.
Page 1
<PAGE>
ARTICLE II
SEAL
The seal of the Corporation shall be in such form as may be required by
law and as shall be approved by the Board. Until changed by the Board, the seal
of the Corporation shall be in the form impressed immediately following this
Article II. The seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or reproduced or otherwise.
[ S E A L ]
Bylaws of General Communication, Inc.
Page 2
<PAGE>
ARTICLE III
STOCKHOLDER MEETINGS
Section 1. Place of Meetings. Meetings of the stockholders of the
Corporation ("Stockholders") shall be held at such place either within or
without the State of Alaska as may from time to time be designated by the Board
and stated in the notice of the meeting.
Section 2. Annual Meeting of Stockholders. (a) The annual meeting of
the Stockholders ("Annual Meeting") shall be held on the first Thursday of June
of each year at a time to be designated by the Board or at such other time and
date as shall be designated by the Board and stated in the notice of meeting.
The purpose of the meeting shall be the election of directors and the
transaction of such other business as properly may be brought before the
meeting.
(b) If the election of directors shall not be held on the day
designated in (a) of this Section 2 for any Annual Meeting, or at any
adjournment of such meeting, the Board shall call a special meeting of the
Stockholders as soon as conveniently possible thereafter. At such meeting, the
election of directors shall take place, and such election and any other business
transacted thereat shall have the same force and effect as at an Annual Meeting
duly called and held.
Section 3. Special Stockholders' Meetings. Special meetings of the
Stockholders may be called at any time by the President, the Chairman of the
Board of Directors, the Board of Directors, or the holders of not less than
one-tenth of all the shares entitled to vote at such meeting. Such request shall
state the purpose of the proposed meeting. For such meetings, notices shall be
given in the same manner as notices of the Annual Meeting, except they shall be
signed by the persons calling the meeting. No special Stockholders' meetings
shall consider any business except that which is designated in general terms in
the notice of the meeting.
Section 4. Notices of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, will be signed and
delivered not less than 20 nor more than 60 days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary or the officer or persons calling the meeting, to each Stockholder of
record entitled to vote at such meeting. Only Stockholders of record on the
record date established by the Board of Directors pursuant to Section 6 of this
Article III will be entitled to notice of such meeting. If mailed, such notice
will be deemed to be delivered when deposited with postage prepaid in the United
States mail addressed to the Stockholder at the address of the
Bylaws of General Communication, Inc.
Page 3
<PAGE>
Stockholder as appears on the stock transfer books of the Corporation, or, if
the Stockholder has filed with the Secretary a written request that the notice
be mailed to a different address, the Corporation will mail the notice to that
other address. Except where otherwise required by law or these Bylaws, notice
need not be given of any adjourned meeting of the Stockholders.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
will constitute a quorum at all meetings of the Stockholders for the transaction
of business except as otherwise provided by applicable law or by the Articles of
Incorporation; provided that in no event may a quorum consist of less than
one-third of the shares entitled to vote at the meeting. The Stockholders
present in person or represented by proxy at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Stockholders to leave less than a quorum, if any action taken other
than adjournment is approved by at least a majority of shares required to
constitute a quorum. If, however, such quorum initially is not present or
represented at any meeting of the Stockholders, those Stockholders present in
person or represented by proxy and entitled to vote will have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such reconvened meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the original meeting.
Section 6. Voting. (a) At each meeting of the Stockholders, every
Stockholder having the right to vote shall be entitled to vote, either in person
or by proxy, the number of votes as provided for in or pursuant to the Articles
of Incorporation for each share of voting stock registered in that Stockholder's
name on the books of the Corporation on the date of the closing of the books
against transfers of stock, the record date fixed for the determination of
Stockholders entitled to vote at such meeting, or if the books are not so closed
or no such date is fixed, the date of such meeting.
(b) When a quorum is present at any meeting, the affirmative vote of a
majority of the votes represented by the issued and outstanding shares entitled
to vote, present in person or represented by proxy, shall decide any matter
brought before such meeting, unless the question is one upon which, by express
provision of the laws of the State of Alaska or of the Articles of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
(c) Except as may be determined by the Board of Directors of the
Corporation with respect to the Preferred Stock and except as otherwise
expressly required by the laws of the State of Alaska or the Articles of
Incorporation, as then in effect, the holders of the Class A Common Stock of the
Corporation and the holders of the Class B Common Stock of the Corporation shall
vote with the holders of voting shares of the
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Preferred Stock of the Corporation, if any, as one class for the election of
directors and for all other purposes.
Section 7. Record Date. In order to determine the holders of record of
the Corporation's stock who are entitled to notice of meetings, to vote at a
meeting or adjournment thereof, and to receive payment of any dividend, or to
make a determination of the Stockholders of record for any proper purpose, the
Board (i) may prescribe a record date which in no event will be more than 70
days nor less than 20 days, prior to the date of the action which requires such
determination during which no transfer of stock on the books of the Corporation
may be made or (ii) may, in lieu of closing the stock transfer books of the
Corporation, fix a record date which in no event will be more than 60 days nor
less than 20 days prior to the date of the action which requires such
determination as the record date for such determination of Stockholders.
Section 8. Presiding Officer; Order of Business; Conduct of Meeting.
(a) Meetings of the Stockholders shall be presided over by the Chairman
of the Board, or if the Chairman is not present, by the President, or if the
President is not present, by a Vice President. The Secretary of the Corporation,
or, in the Secretary's absence, an Assistant Secretary, shall act as secretary
of every meeting. In the absence of the Secretary or Assistant Secretary, the
chairman of the meeting may choose any person present to act as secretary of the
meeting.
(b) Subject to the provisions of this Section 8, meetings of
Stockholders shall generally follow accepted rules of parliamentary procedure,
including but not limited to the following:
(1) Except when overruled by a majority of the votes represented
by the votes held by Stockholders present, the chairman of the
meeting shall have absolute authority over matters of procedure
and authority to state the rules under which the voting shall be
conducted.
(2) If disorder shall arise which prevents continuation of the
legitimate business of the meeting, the chairman may quit the
chair and announce the adjournment of the meeting; and upon taking
such action, the meeting shall be automatically adjourned.
(3) The chairman may ask or require that anyone not a bona fide
Stockholder or proxy leave the meeting.
(4) Subject to the provisions of Section 14 of this Article III, a
resolution or motion may be considered for a vote if proposed by a
Stockholder or duly authorized proxy, and seconded by an
individual, who
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is a Stockholder or a duly authorized proxy, other than the
individual who proposed the resolution or motion.
(c) The following order of business shall be observed at all Annual
Meetings insofar as is practicable:
(1) Call to order;
(2) Present proof of notice of meeting or waiver of it;
(3) Appoint inspector of election, if necessary;
(4) Determine whether a quorum is present;
(5) Make reports;
(6) Read, correct and approve minutes of a previous meeting,
unless the reading is waived;
(7) Elect directors;
(8) Address special business stated in the notice of meeting;
(9) Address other business;
(10) Adjourn.
(d) At any special meeting of Stockholders, the business transacted
shall be confined to the purpose described in the notice of the meeting and
subject to the provisions of Section 14 of this Article III.
Section 9. Proxies. A Stockholder may vote the Stockholder's shares
through a proxy or attorney-in-fact appointed by a written instrument signed by
the Stockholder and delivered to the secretary of the meeting. No proxy shall be
valid after six months from the date of its execution, unless a longer period is
expressly provided in the proxy, but in no case may the proxy be valid for a
period in excess of 11 months from the date of execution. No proxy shall be
valid and voted on after the meeting of the Stockholders, or any adjournment of
such meeting, to which it applies. Every proxy shall be revocable at the
pleasure of the Stockholders executing it, except in those cases where an
irrevocable proxy is duly executed and permitted by law.
Section 10. Voting List. (a) At least 20 days before each meeting of
Stockholders, a complete list of the Stockholders entitled to vote at that
meeting, arranged in alphabetical order and showing the address of and number
and class of
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shares entitled to vote at such meeting owned by each Stockholder, shall be
prepared by the Secretary or an officer of the transfer agent, transfer clerk or
registrar of the Corporation having charge of the stock transfer books and at
the direction of the Secretary. That list of Stockholders will, for a period of
30 days prior to such meeting, be kept on file at the registered office of the
Corporation and will be subject to inspection by any Stockholder at any time
during normal business hours. Such list will also be produced and kept open at
the time and place of the meeting and will be subject to the inspection of any
Stockholder during the entire time of the meeting.
(b) The original stock transfer books shall be prima facie evidence as
to who are the Stockholders entitled to examine such list or transfer books, or
to vote at any meeting of the Stockholders.
(c) Failure to comply with the requirements of this Section 10 shall
not affect the validity of any action taken at such meeting of the Stockholders.
Section 11. Action Without a Meeting. Any action, except the election
of directors, which may be taken by the vote of Stockholders at a meeting of
Stockholders may be taken without a meeting if authorized by the written
consents of Stockholders, identical in content setting out the action to be
taken, signed by the holders of all outstanding shares entitled to vote on the
action.
Section 12. Non-Cumulative Voting. In the election of directors,
Stockholders will not cumulate their votes but must vote shares held by them for
as many persons as there are directors to be elected.
Section 13. Voting of Shares by Certain Stockholders. (a) Shares of the
Corporation standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of that corporation may prescribe or, in
the absence of such provision, as the board of directors of that corporation may
determine.
(b) Shares or the Corporation held by an administrator, executor,
guardian or conservator may be voted by that person, either in person or by
proxy, without a transfer of such shares into that person's name. Shares
standing in the name of a trustee may be voted by that person, either in person
or by proxy, but no trustee will be entitled to vote shares held by that person
without a transfer of such shares into that person's name.
(c) Shares of the Corporation standing in the name of a receiver or
bankruptcy trustee may be voted by that person, and shares held by or under the
control of a receiver or bankruptcy trustee may be voted by that person without
the transfer thereof into that person's name if authority to do so is contained
in an appropriate order of the court by which that person was appointed or
otherwise provided or permitted under applicable federal bankruptcy law.
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(d) A Stockholder whose shares are pledged will be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee will be entitled to vote the shares so transferred.
(e) Shares of its own stock held by the Corporation in a fiduciary
capacity, will not be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Section 14. Advance Notice of Nominations and Stockholder Proposals.
(a) All nominations of individuals for election to the Board at a
meeting of the Stockholders and proposals of business to be considered at a
meeting of the Stockholders shall be made as set forth in this Section 14.
(b) The procedures to be followed for an annual meeting of Stockholders
are as follows:
(1) Nomination of individuals for election to the Board and
proposal of business to be considered by the Stockholders may be
made at an annual meeting of Stockholders,
(A) pursuant to the Corporation's notice of meeting;
(B) by or at the direction of the Board; or
(C) by a Stockholder,
(i) who was a Stockholder of record both at the time of
giving of notice provided for in (b) of this Section 14
and at the time of the meeting and, in the case of
proposals, who had continuously held at least $2,000 in
market value or at least 1% of the Company's securities
entitled to be voted on the matter at the meeting for at
least one year by the date of submission of the proposal
to the Company for inclusion on the agenda of the
meeting;
(ii) who is entitled to vote at the meeting; and
(iii) who complied with the notice and other requirements
set forth in this Section 14.
(2) For nominations or other business to be brought properly
before an annual meeting by a Stockholder under (b)(1)(C) of this
Section 14, the
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Stockholder must have given timely notice of it in writing to the
Secretary as provided in this Section 14 and, in the case of a
proposal of business, that business must be a proper subject for
action by the Stockholder.
(3) As used in (b)(2) of this Section 14, to be timely, a
Stockholder's notice must be delivered to the Secretary at the
principal executive offices of the Corporation and received not
less than 120 days nor more than 150 days prior to the first
anniversary of the release of the Corporation's proxy statement to
Stockholders for the preceding year's annual meeting. However, in
the event that the date of the annual meeting is advanced by more
than 30 days or delayed by more than 60 days from such anniversary
date, notice by the Stockholder, to be timely, must be so
delivered and received not earlier than the 150th day prior to
that annual meeting and not later than the close of business on
the later of the 120th day prior to that annual meeting or the
10th day following the day on which public announcement of the
date of that meeting is first made.
(4) The Stockholder's notice shall set forth the following:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a director,
(i) the name, age, business and residential addresses,
and principal occupation or employment of each proposed
nominee;
(ii) the class and number of shares of capital stock of
the Corporation which are beneficially owned by that
nominee on the date of that notice;
(iii) a description of all arrangements or understandings
between the Stockholder and each nominee and the name of
any other person or persons pursuant to which the
nomination or nominations are to be made by the
Stockholder;
(iv) all other information relating to that nominee that
is required to be disclosed in solicitation of proxies
for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A adopted pursuant to
the Securities Exchange Act of 1934 or any successor
provision; and
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(v) the written consent of each proposed nominee to being
named as a nominee in the proxy statement and to serve as
a director of the Corporation if so elected;
(B) as to any other business that the Stockholder proposes to
bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for
conducting that business at the meeting and any material
interest in that business of the Stockholder and of the
beneficial owner, if any, on whose behalf the proposal is
made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made,
(i) the name and address of that Stockholder, as they
appear on the Corporation's books, and of that beneficial
owner, if any;
(ii) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by
the Stockholder and that beneficial owner, if any; and
(iii) a representation that the Stockholder intends to
appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice or to
propose such other business.
(5) The Corporation may require any proposed nominee to
furnish any information, in addition to that furnished
pursuant to (b)(4)(A) of this Section 14, that the
Corporation may reasonably require to determine the
eligibility of the proposed nominee to serve as a director of
the Corporation.
(6) Notwithstanding the provisions of (b)(3) of this Section
14 to the contrary, in the event that the number of directors
to be elected to the Board is increased and there is no
public announcement naming all of the nominees for director
or specifying the size of the increased Board made by the
Corporation at least 130 days prior to the first anniversary
of the preceding year's annual meeting, a Stockholder's
notice required by (b) of this Section 14 shall also be
considered timely, but only with respect to nominees for any
new positions created by that increase, if the notice shall
be delivered to and received by the Secretary at the
principal executive offices of the Corporation not later than
the close of business
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on the 10th day following the day on which that public
announcement is first made by the Corporation.
(c) The procedures to be followed for a special meeting of Stockholders
are as follows:
(1) Only such business shall be conducted and only such proposals
shall be acted upon at a special meeting of Stockholders as shall
have been brought before that meeting pursuant to the
Corporation's notice of meeting.
(2) Nominations of persons for election to the Board may be made
at a special meeting of Stockholders at which directors are to be
elected,
(A) by or at the direction of the Board; or
(B) provided that the notice of the special meeting states
that the purpose, or one of the purposes, of that meeting is
to elect directors at the meeting, by any Stockholder who is
a stockholder of record both at the time of giving of notice
provided for in this Section 14 and at the time of the
meeting, who is entitled to vote at the meeting and who
complied with the notice and other requirements set forth in
this Section 14.
(3) In the event the Corporation calls a special meeting of
Stockholders for the purpose of electing one or more directors to
the Board, any such Stockholder may nominate a person or persons,
as the case may be, for election to that position as specified in
the Corporation's notice of meeting, if the notice containing the
same information as would be required under (b)(2)-(6) of this
Section 14 for an annual meeting is delivered to and received by
the Secretary at the principal executive offices of the
Corporation not earlier than the 150th day prior to that special
meeting and not later than the close of business on the later of
the 120th day prior to that special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting or of the nominees proposed by the
Board to be elected at that meeting.
(4) Proposals of business other than the nomination of persons for
election to the Board may be considered at a special meeting
requested by Stockholders in accordance with Section 3 of this
Article III only if the Stockholders give a notice containing the
same information as would be
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required under (b)(2)-(6) of this Section 14 for an annual meeting
at the time those Stockholders requested the meeting.
(d) The following provisions apply to Stockholder meetings generally:
(1) Only persons who are nominated in accordance with the
procedure set forth in this Section 14 shall be eligible to serve
as directors, and only such business shall be conducted at a
meeting of Stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this
Section 14.
(2) The Board may reject any nomination or Stockholder proposal
submitted for consideration at any meeting of Stockholders which
is not made in accordance with the provisions of this Section 14
or which is not a proper subject for Stockholder action in
accordance with provisions of applicable law.
(3) Should the Board fail to consider the validity of a nomination
or Stockholder proposal, the presiding officer of the meeting
shall have the power and duty,
(A) to determine whether a nomination or any business
proposed to brought before the meeting was made in accordance
with the provisions of this Section 14 and is a proper
subject for Stockholder action in accordance with provisions
of applicable law; and
(B) if any proposed nomination or business is not in
compliance with this Section 14 or is not a proper subject
for Stockholder action, to declare that the defective
nomination or proposal is disregarded.
(4) The provisions of (d) of this Section 14 shall not prevent the
consideration and approval or disapproval at the meeting of
reports of officers, directors and committees of the Board.
However, in connection with such reports, no new business shall be
acted upon at the meeting unless stated, submitted and received in
accordance with the provisions of this Section 14.
(5) For purposes of this Section 14,
(A) "public announcement" means disclosure in a press release
reported by the Dow Jones News Service, Associated Press,
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Reuters or comparable news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13,14, or 15(d) of the
Securities Exchange Act of 1934 or any successor provision;
and
(B) in no event shall the public announcement of a
postponement or adjournment of a meeting commence a new time
period for giving of a Stockholder's notice pursuant to this
Section 14.
(6) A Stockholder may submit no more than one proposal to the
Corporation for a particular meeting of Stockholders. The
proposal, including any accompanying supporting statement, may not
exceed 500 words.
(7) The Corporation may exclude a Stockholder proposal for any of
the following substantive reasons:
(A) would be improper under state law;
(B) would be a violation of law;
(C) would be a violation of proxy rules;
(D) is a personal grievance or special interest;
(E) is not relevant;
(F) Corporation lacks power or authority to implement;
(G) relates to management functions;
(H) relates to election;
(I) conflicts with the Corporation's proposal;
(J) was substantially implemented;
(K) substantially duplicates another proposal to be addressed
at the meeting;
(L) is a resubmission of another proposal; or
(M) relates to a specific amount of dividend.
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(8) Notwithstanding the other provisions of this Section 14, a
Stockholder shall also comply with all applicable requirements of
state law and the Securities Exchange Act of 1934 and the rules
and regulations adopted under that act with respect to the matters
set forth in this Section 14. Nothing in this Section 14 shall be
deemed to affect any rights of Stockholders to request inclusion
of proposals in, or the Corporation's right to omit proposals
from, the Corporation's proxy statement pursuant to Rule 14a-8
under that act or any successor provision.
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ARTICLE IV
BOARD OF DIRECTORS
Section 1. General Authority. The property, business and affairs of the
Corporation shall be managed and controlled by its Board, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by applicable law or the Articles of Incorporation or these Bylaws directed or
required to be exercised or done by the Stockholders.
Section 2. Number and Term of Office. (a) The governing body of this
Corporation shall be the Board. Directors on the Board need not be Stockholders
and need not be residents of the State of Alaska. The number of directors shall
be not less than three nor more than twelve. Each director shall be of a legal
age. The number of members of the Board shall be fixed by the Board from time to
time by a vote of at least a simple majority of the whole Board at a regular or
special meeting called by written notice, which notice includes notice of the
proposal to change the number of directors; provided that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Until changed as provided in this Section 2, the number of
directors on the Board shall be five.
(b) Upon the establishment of the Board as having three or more members
("Class Date"), the Board will be divided into three classes: Class I, Class II
and Class III. Each such class will consist, as nearly as possible, of one-third
of the whole number of the Board. Directors in office on the Class Date will be
divided among such classes and in such manner, consistent with the provisions of
this Article IV, as the Board may determine by resolution. The initial Class I
directors so determined shall serve until the next Annual Meeting following such
date. The initial Class II directors so determined shall serve until the second
Annual Meeting following such date. The initial Class III directors so
determined shall serve until the third Annual Meeting following such date. In
the case of each such class, such directors shall serve, subject to their
earlier death, resignation or removal in accordance with the Articles of
Incorporation, these Bylaws and the laws of the State of Alaska, until their
respective successors shall be elected and shall qualify. At each Annual Meeting
after the date of such filing, the directors chosen to succeed those whose terms
shall have expired shall be elected to hold office for a term to expire at the
third succeeding Annual Meeting after their election and, subject to their
earlier death, resignation or removal in accordance with the Articles of
Incorporation, these Bylaws and the laws of the State of Alaska, until their
respective successors shall be elected and shall qualify. If the number of
directors is changed, any increase or decrease shall be apportioned among such
classes so as to maintain all classes as equal in number as possible, and any
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additional director elected to any class shall hold office for a term which
shall coincide with the terms of the other directors in such class.
(c) As used in these Bylaws, the terms "whole Board" or "entire Board"
shall mean the number of directors the Corporation would have under these Bylaws
at the time of determination if there were no vacancies.
Section 3. Elections. (a) Other than as provided in Section 2 of this
Article IV, the directors of the Corporation shall be elected at the Annual
Meeting or at a special meeting of Stockholders called for that purpose, by at
least a simple majority of the quorum for that meeting.
(b) Any vacancy occurring in the Board cased by death, resignation,
removal and any newly created directorship resulting from an increase in the
number of directors on the Board, may be filled by the directors then in office,
although such directors are less than a quorum, or by the sole remaining
director. Each director chosen to fill a vacancy or a newly created directorship
shall hold office until the next election of the Class for which such director
shall have been chosen or, if no class is established, then until the next
election of directors and, subject to that director's earlier death, resignation
or removal in accordance with the Articles of Incorporation, these Bylaws and
the laws of the State of Alaska, until that director's successor shall be duly
elected and shall qualify.
(c) Any director may resign at any time by giving written notice to the
Board of Directors, the President, Chairman of the Board, or the Secretary of
the Corporation. Any such resignation will take effect upon receipt of such
notice or at any later time specified in the notice. Unless otherwise specified
in the notice, the acceptance of such resignation will not be necessary to make
any postdated resignation by notice in writing to the resigning director. In the
event the resignation of a director is tendered to take effect at a future time,
a successor may be elected to take office when the resignation becomes
effective.
(d) The Stockholders may elect a director to fill any vacancy not
filled by the Board.
(e) The term of a director terminates upon the election and
qualification of a successor.
Section 4. Removal of Directors. (a) The entire Board or any individual
director may be removed from office, at an Annual Meeting or a special meeting
of Stockholders called for that purpose, by at least, a majority vote of a
quorum of Stockholders for that meeting.
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(b) If, after the filling of a vacancy by the Board, the directors who
have been elected by the Stockholders constitute less than a majority of the
directors, a holder or holders of an aggregate of 10 percent or more of the
shares outstanding at the time may call a special meeting of Stockholders to
elect the entire Board.
(c) The Board may declare vacant the office of a director who has been
declared of unsound mind by a court order.
(d) The superior court may, at the suit of the Board or of Stockholders
holding at least 10 percent of the number of outstanding shares of any class,
remove from office a director for fraudulent or dishonest acts, gross neglect of
duty, or gross abuse of authority or discretion with reference to the
Corporation and may bar from reelection a director removed in that manner for a
period prescribed by the court. In this instance, the Corporation will be made a
party to the suit.
(e) Except as set forth in (a)-(d) of this Section 4, a director may
not be removed from office before the expiration of the term of office of that
director.
Section 5. Executive Committee. (a) By the affirmative vote of at least
75 percent of the directors, the Board may designate an Executive Committee, all
of whose members shall be directors, to manage and operate the affairs of the
Corporation or particular properties or enterprises of the Corporation, except
to the extent Stockholder authorization is required by law, the Articles of
Incorporation or these Bylaws. The Executive Committee will have the power, as
set forth by resolution of the Board or these Bylaws to perform or authorize any
act that could be done or accomplished by the majority action of all the
directors of the Corporation, except as provided in (b) of this Section 5. The
Executive Committee shall keep minutes of its meetings and report to the Board
not less often than quarterly on its activities and shall be responsible to the
Board for the conduct of the enterprises and affairs entrusted to it.
(b) The following areas of responsibility are expressly reserved to the
Board and will not be delegated to any committees of the Board:
(1) Declaring dividends or distributions;
(2) Approving or recommending to Stockholders actions or proposals
required by the Alaska Corporations Code to be approved by
Stockholders;
(3) Designating candidates for the office of director, for
purposes of proxy solicitation or otherwise, or fill vacancies on
the board or any committee of the board;
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(4) Amending the Bylaws;
(5) Approving a plan or merger not requiring Stockholder approval;
(6) Capitalizing retained earnings;
(7) Authorizing or approve the reacquisition of shares unless
under a general formula or method specified by the board;
(8) Authorizing or approve the issuance or sale of, or a contract
to issue or sell, shares or designate the terms of a series of a
class of shares, unless the Board, having acted regarding general
authorization for the issuance or sale of shares, a contract to
issue or sell, or the designation of a series, authorizes a
committee, under a general formula or method specified by the
Board by resolution or by adoption of a stock option or other
plan, to fix the terms of a contract for the sale of the shares
and to fix the terms upon which the shares may be issued or sold,
including, without limitation, the price, the dividend rate,
provisions for redemption, sinking fund, conversion, voting or
preferential rights, and provisions for other features of a class
of shares, or a series of a class of shares, with full power in
the committee to adopt a final resolution setting out all the
terms of a series for filing with the commissioner of the
Department of Commerce & Economic Development under the Alaska
Corporations Code; or
(9) Authorizing, approving, or ratifying contracts or other
transactions between the Corporation and one or more of its
directors, or between the Corporation and a corporation, firm, or
association in which one or more of its directors has a material
financial interest as defined under AS 10.06.478 of the Alaska
Corporations Code.
(c) The designation of a committee, the delegation to the committee of
authority, or action by the committee under that authority does not alone
constitute compliance by a member of the Board or that committee with the
responsibility to act in good faith, in a manner the member reasonably believes
to be in the best interests of the Corporation, and with the care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances.
Section 6. Other Committees. The Board may, by resolution, establish
committees other than an Executive Committee and shall specify with
particularity the powers and duties of any such committee. All committees of the
Board including the Executive Committee shall serve at the pleasure of the
Board, keep minutes of their
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meetings; have such names as the Board, by resolution, may determine; and be
responsible to the Board for the conduct of the enterprises and affairs
entrusted to them. All such committees will each have at least two or more
members, all of whom will serve at the pleasure of the Board.
Section 7. Place of Meetings. The directors may hold their meetings in
such place or places as the Board may from time to time by resolution determine.
Section 8. Meetings. Regular or special meetings of the Board or of a
committee of the Board will be held at such place as may be designated from time
to time by the Board or any other person calling the meeting, and such meetings
may be called by the Chairman of the Board, the President, a Vice President, the
Secretary, or a director.
Section 9. Quorums. (a) The presence of a majority of the number of
directors fixed by the Articles of Incorporation at a meeting of the Board duly
assembled will constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which a quorum is
present will be the act of the Board, except as may be otherwise specifically
provided by the Articles of Incorporation or by these Bylaws. If a quorum
initially is not present at any meeting of directors, the directors present at
that meeting may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is present.
(b) The presence of a majority of the number of directors at a meeting
of a committee of the Board duly assembled will constitute a quorum for the
transaction of business, and the act of majority of the directors present at any
meeting at which a quorum is present will be the act of that committee, except
as may be otherwise specifically provided by the Articles of Incorporation or
these Bylaws. If a quorum initially is not present at any meeting of a committee
of the Board, the members present at that meeting may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present.
Section 10. Action Without a Meeting. Any action that may be taken at a
meeting of the Board or a committee of the Board may be taken without a meeting
if identical consents in writing describing the action so taken are signed by
all of the directors or members of such committee entitled to vote with respect
to the subject matter thereof. Each such consent in writing shall be filed with
the minutes of the proceedings of the Board.
Section 11. Order of Business. At meetings of the Board, business shall
be transacted in such order as the Board may by resolution determine. At all
meetings of the Board, the Chairman of the Board, or in that person's absence,
the President, or in
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that person's absence the director designated as the chairman of the meeting by
the majority of the directors present, shall preside.
Section 12. Director's compensation. Directors shall receive such
compensation and reimbursement of any expenses incidental to the performance of
their duties as the Board shall determine by resolution. Such compensation may
be in addition to any compensation received by the members of the Board in any
other capacity.
Section 13. Minutes. The Board shall keep written minutes of its
meetings. In the event the Secretary of the Corporation is not a member of the
Board, the Board shall prescribe by a resolution the officer or other person who
shall be charged with the responsibility of keeping and maintaining such
minutes.
Section 14. Notice and Waiver of Notice. (a) The first meeting of each
newly elected Board will be held, without notice, immediately following the
adjournment of the corresponding Annual Meeting, or as soon thereafter as is
practicable.
(b) Regular meetings of the Board or a committee of the Board may be
held, without notice, at such time and place, as will from time to time be fixed
by the Board or these Bylaws.
(c) Special meetings of the Board or a committee of the Board will be
held upon either notice in writing sent 10 days before the meeting or notice by
electronic means, personal messenger, or comparable person-to-person
communication given at least 72 hours before the meeting. The notice must
include disclosure of the business to be transacted and the purpose of the
meeting.
(d) Whenever under the provisions of statutes, of the Articles of
Incorporation, or of these Bylaws, notice is required to be given to any
director or Stockholder, it will be given in writing, by mail or telegram,
addressed to such director or Stockholder at such address as appears on the
records of the Corporation with postage thereon prepaid, and such notice by mail
will be deemed to be given at the time when deposited in the United States mail.
(e) Attendance of a Stockholder, either in person or by proxy, or of a
director at a meeting will constitute a waiver or notice of such meeting, except
where an appearance is made for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Whenever any notice is required to be given under the provisions of
statutes, the Articles of Incorporation or these Bylaws, a waiver of the notice
in writing, signed by the person entitled to the notice either before or after
the time stated in the notice will be deemed equivalent to the giving of that
notice.
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Section 15. Dividends. Subject always to the provisions of the laws of
the State of Alaska and the Articles of Incorporation, the Board shall have full
power to determine whether any, and if so what part, of the funds legally
available for the payment of dividends shall be declared in dividends and paid
to the Stockholders. The Board may fix a sum which may be set aside or reserved
over and above the paid-in capital of the Corporation for working capital or as
a reserve for any proper purpose, and from time to time may increase, diminish
and vary such funds in the Board's absolute judgment and discretion. Dividends
upon the shares of stock of the Corporation, subject always to the mentioned
provisions, may be declared by the Board at any regular or special meeting of
the Board, payable in cash, property or shares of the Corporation's stock.
Section 16. Meetings Held Other Than in Person. Members of the Board or
any committee thereof may participate in a meeting of the Board or such
committee, as the case may be, by means of a conference telephone network or
similar communications method by which all persons participating in the meeting
can hear each other, and such participation shall constitute presence in person
at the meeting. Each person participating in any meeting in which any director
participates by such means shall sign the minutes thereof, and such minutes may
be signed in counterpart.
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ARTICLE V
OFFICERS
Section 1. Number and Tenure. The Board shall elect from its members a
Chairman of the Board and a President. The Board shall also elect a Secretary, a
Treasurer and a Registered Agent. The Board may also elect, from time to time,
such Vice Presidents and other or additional officers as in its opinion are
desirable or required for the conduct of the business of the Corporation. Any of
the officers of the Corporation may or may not be directors, except that the
Chairman of the Board and the President shall be directors. The officers of the
Corporation shall hold office until the first meeting of the Board following the
Annual Meeting next following their respective election and, subject to their
earlier death, resignation or removal in accordance with the Articles of
Incorporation, these Bylaws and the laws of the State of Alaska, until their
successors are chosen and qualify.
Section 2. Discretion. In its discretion, the Board, by the vote of a
majority of the whole Board, may leave any office, except that of President,
Treasurer, Secretary or Registered Agent, unfilled for any such period as it may
fix by resolution. Subject to the laws of the State of Alaska, any officer or
agent of the corporation may be removed at any time by the affirmative vote of
at least 75 percent of the whole Board.
Section 3. Chairman of the Board. The Chairman of the Board shall be a
director and, when present, shall preside at all meetings of the Board. The
Chairman of the Board shall be a member of all standing committees of the Board
and Chairman of the Executive Committee. The Chairman of the Board shall perform
such other duties as may be prescribed from time to time by the Board or by
these Bylaws. The Chairman of the Board shall have the powers of the President
and power to delegate any of the Chairman's powers, on a temporary or permanent
basis, to the President.
Section 4. President. The President shall be the chief executive
officer of the Corporation. The President shall be a member of the Board. The
President shall exercise such duties as customarily pertain to the office of
President and shall have general and active supervision over the property,
business and affairs of the Corporation and over its several officers. The
President may appoint and terminate the appointment or election of officers,
agents, or employees other than those appointed or elected by the Board. The
President may sign, execute and deliver, in the name of the Corporation, powers
of attorney, contracts, bonds and other obligations which implement policies
established by the Board, and shall perform such other duties as may be
prescribed from time to time by the Board or by these Bylaws.
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Section 5. Vice Presidents. Vice Presidents shall have such
distinguishing titles, powers and perform such duties as may be assigned to them
by the Chairman of the Board, the President, the Executive Committee or the
Board. In the absence or disability of the Chairman of the Board and the
President, any Vice President designated by the Board may perform the duties and
exercise the powers of the President. A Vice President may sign and execute
contracts and other obligations pertaining to the regular course of duties of
that office which implement policies established by the Board and shall perform
such other duties as may be prescribed from time to time by the Board or these
Bylaws.
Section 6. Treasurer. The Treasurer shall be the chief financial
officer and, unless the Board otherwise declares by resolution, the chief
accounting officer of the Corporation. Unless the Board otherwise declares by
resolution, the Treasurer shall have general custody of all the funds and
securities of the Corporation and have general supervision of the collection and
disbursement of funds of the Corporation. The Treasurer shall endorse for
collection on behalf of the Corporation checks, notes and other obligations, and
shall deposit the same to the credit of the Corporation in such bank or banks or
depository as the Board may designate. The Treasurer may sign, with the Chairman
of the Board, President, or such other person or persons as may be designated
for the purpose by the Board, all bills of exchange or promissory notes of the
Corporation. The Treasurer shall enter or cause to be entered regularly in the
books of the Corporation a full and accurate account of all moneys received and
paid by the Treasurer on account of the Corporation; shall at all reasonable
times exhibit books and accounts of the Treasurer to any director of the
Corporation upon application at the office of the Corporation during business
hours; and, whenever required by the Board or the President, shall render a
statement of accounts for the Corporation. The Treasurer shall perform such
other duties as may be prescribed from time to time by the Board or by the
Bylaws. The Treasurer may be required to give bond for the faithful performance
of duties of that office in such sum and with such surety as shall be approved
by the Board. The Board may authorize one or more accounting firms to perform
any act or discharge any responsibility of the Treasurer. Any individual
appointed by the Board as Assistant Treasurer shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board may from time to time prescribe.
Section 7. Secretary. Subject to Section 8 of Article III and Section
13 of Article IV of these Bylaws, the Secretary shall keep the minutes of all
meetings of the Stockholders and of the Board, and to the extent ordered by the
Board, the Chairman of the Board or the President, will keep the minutes of
meetings of all committees. The Secretary shall cause notice to be given of
meetings of Stockholders, of the Board and of any committee appointed by the
Board. The Secretary shall have custody of the corporate seal and minutes and
records relating to the conduct and acts of the
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Stockholders and the Board, which shall, at all reasonable times, be open to the
examination of any director. The Secretary or any Assistant Secretary appointed
by the Board may certify the record of proceedings of the meetings of the
Stockholders or of the Board and of resolutions adopted at such meetings; may
sign or attest certificates, statements or reports required to be filed with
governmental bodies or officials; may sign acknowledgments of instruments; may
give notices of meetings; and shall perform such other duties and have such
other powers as the Board may from time to time prescribe.
Section 8. Registered Agent. The Registered Agent for the Corporation
may be an individual or corporation, resident or located in Alaska. The
Registered Agent shall have such duties and responsibilities as are prescribed
by the laws of the State of Alaska.
Section 9. Bank Accounts. In addition to such bank accounts as may be
authorized in the usual manner by resolution of the Board, the Treasurer, with
approval of the Chairman of the Board or the President, may authorize such banks
accounts to be opened or maintained in the name and on behalf of the Corporation
as may be deemed necessary or appropriate by the Treasurer, provided payments
from such bank accounts are to be made upon and according to the check of the
Corporation, which may be signed jointly or singularly by either manual or
facsimile signature or signatures of such officers or bonded employees of the
Corporation as shall be specified in the written instructions of the Treasurer
or Assistant Treasurer with the approval of the Chairman of the Board or the
President.
Section 10. Vacancies. In case any office shall become vacant, the
Board shall have power to fill such vacancy. In case of the absence or
disability of any officer, the Board may delegate the powers or duties of such
officer to another officer in the Corporation, or to a director.
Section 11. Proxies. Unless otherwise directed by the Board, the
Chairman of the Board or the President, or the designees of either of these two
officers shall have full power and authority on behalf of the Corporation to
attend and to vote upon all matters and resolutions at any meeting of
Stockholders of any corporation in which this Corporation may hold stock, and
may exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, whether regular or
special, and at all adjournments thereof, and shall have power and authority to
execute and deliver proxies and consents on behalf of this Corporation in
connection with the exercise by this Corporation of the rights and powers
incident to the ownership of such stock, with full power of substitution or
revocation.
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Section 12. Dual Offices. Any person may hold more than one corporate
office, except that the President shall not hold any other office except that of
Chairman of the Board.
Section 13. Salaries. The salaries of all executive officers of the
Corporation shall be fixed by the Board from time to time. No officer shall be
ineligible to receive such salary by reason of the fact that that officer is
also a director of the Corporation and receiving compensation therefor or that
that officer devotes less than full time during normal business hours to the
performance of that officer's duties as an officer of the Corporation.
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ARTICLE VI
INDEMNIFICATION
Section 1. Non-Derivative Actions. The Corporation will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of or arising from the fact that that person
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. Amounts paid in settlement actually and reasonably incurred by that
person in connection with such action, suit or proceeding may include
reimbursement of expenses, attorney fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by that person in connection with
the action or proceedings if that person acted in good faith and in a manner
that that person reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
termination of any action, suit and proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, will not of
itself create a presumption that the person did not act in good faith and in a
manner which that person reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, the person had reasonable cause to believe that the conduct was
unlawful.
Section 2. Derivative Actions. The Corporation will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason for arising from the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. This indemnification will cover
reimbursement for expenses (including attorney fees) actually and reasonably
incurred by that person in connection with the defense or settlement of such
action if that person acted in good faith and in a manner that person reasonably
believed to be in or not opposed to the best interests of the Corporation.
Section 3. Reimbursement Conditions. (a) Indemnification will not be
made in respect of any claim, issue, or matter as to which the person has been
adjudged to be liable for negligence or misconduct in the performance of the
person's duty to the Corporation, except to the extent that the court in which
the action was brought determines upon application that, despite the
adjudication of liability, in view of all the
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circumstances of the case, the person is fairly and reasonably entitled to
indemnity for expenses that the court considers proper.
(b) To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of an
action or proceeding as described in Sections 1 and 2 of this Article VI or in
defense of a claim, issue, or matter in the action or proceeding, the director,
officer, employee, or agent will be indemnified against expenses and attorney
fees actually and reasonably incurred in connection with the defense.
(c) Unless otherwise ordered by a court, indemnification under Sections
1 or 2 of this Article VI may only be made by the Corporation upon a
determination that indemnification of the director, officer, employee, or agent
is proper in the circumstances because the director, officer, employee, or agent
has met the applicable standard of conduct set out in those sections. The
determination will be made by:
(1) The Board by at least a majority vote of a quorum consisting
of directors who were not parties to the action or proceeding; or
(2) Independent legal counsel in a written opinion if a quorum
under (c)(1) of this Section 3 is
(A) not obtainable;
(B) obtainable but a majority of disinterested directors so
directs; or
(C) Approval of the outstanding shares of the Corporation.
(d) The Corporation may pay or reimburse the reasonable expenses
incurred in defending a civil or criminal action or proceeding in advance of the
final disposition in the manner provided in (c) of this Section 3 if:
(1) In the case of a director or officer, the director or officer
furnishes the Corporation with a written affirmation of a good
faith belief that the standard of conduct described in AS
10.06.450(b) or 10.06.483(e) of the Alaska Corporations Code has
been met;
(2) The director, officer, employee, or agent furnishes the
Corporation a written unlimited general undertaking, executed
personally or on behalf of the individual, to repay the advance if
it is ultimately determined that an applicable standard of conduct
was not met; and
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(3) A determination is made that the facts then known to those
making the determination would not preclude indemnification under
the Alaska Corporations Code.
(e) The indemnification provided under Sections 1 and 2 of this Article
VI is not exclusive of any other rights to which a person seeking
indemnification may be entitled under a bylaw, agreement, vote of Stockholders
or disinterested directors, or otherwise, both as to action in the official
capacity of the person and as to action in another capacity while holding the
office. The right to indemnification continues as to a person who has ceased to
be a director, officer, employee, or agent, and inures to the benefit of the
heirs, executors, and administrators of the person.
Section 4. Insurance. At the discretion of the Board, the Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against that person and incurred by that person
in any such capacity, or arising out of that status, whether or not the
Corporation would have the power to indemnify that person against such liability
under the provisions of this Article VI.
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ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Form. (a) The interest of each Stockholder shall be
evidenced by certificates for shares of stock, certifying the class and number
of shares represented thereby and in such form, not inconsistent with the
Articles of Incorporation, as the Board may from time to time prescribe.
(b) The certificates of stock shall be signed by the President or a
Vice President and by the Secretary or an Assistant Secretary and sealed with
the seal of the Corporation. Such seal may be a facsimile, engraved or printed.
Where any certificate is countersigned or otherwise authenticated by a transfer
agent or by a transfer clerk, and by a registrar, the signatures of any such
officers upon such certificate may be facsimile, engraved or printed. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificates shall have ceased to be such
before the certificate is issued, it may be issued by the Corporation with the
same effect as if such officer, transfer agent or registrar had not ceased to be
such at the time of its issue.
Section 2. Transfers. (a) Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the
registered owner thereof, or by that owner's duly authorized attorney, and on
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, and with all taxes thereon paid.
(b) The person in whose name shares of stock stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes, and the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Alaska.
Section 3. Lost or Destroyed Certificates. The Board shall have the
power to direct new stock certificates to be issued to any Stockholder in place
of any certificates theretofore issued by the Corporation when such Stockholder
proves to the satisfaction of the Board that a stock certificate is lost or
destroyed, or upon the posting of an indemnity bond by the owner of such lost or
destroyed certificates, or that Stockholder's legal representatives, in such
amount as the Board shall deem appropriate, to hold the Corporation harmless
from any loss or claim arising out of or in connection with the issuance of a
duplicate certificate, unless such requirement be dispensed with by the Board,
in its discretion, in any instance or instances.
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Section 4. Transfer Agent and Registrar. The Board may appoint one or
more transfer agents or transfer clerks and one or more registrars, and may
require all certificates for shares to bear the manual or facsimile signature or
signatures of any of them. The Corporation's transfer agent and registrar may be
the identical if the person or entity acting in such dual capacities
countersigns certificates for shares required to bear that person's signatures
in both capacities.
Section 5. Restrictions on Transfer. No securities of the Corporation
or certificates representing such securities will be transferred in violation of
any law or of any restriction on such transfer set forth in the Articles of
Incorporation or amendments to them, these Bylaws or other agreement restricting
such transfer which has been filed with the Corporation if reference to any such
restrictions is made on the certificates representing such securities. The
Corporation will not be bound by any restriction not so filed and noted. The
Corporation may rely in good faith upon the opinion of its counsel as to any
legal or contractual violation with respect to any such restrictions unless the
issue has been finally determined by a court of competent jurisdiction. The
Corporation and any party to such agreement will have the right to have a
restrictive legend imprinted upon any certificate covered by the agreement and
any certificates issued in replacement or exchange therefor or with respect to
such certificates.
Section 6. Closing Transfer Books and Filing Record Date. The Board may
prescribe a period not exceeding 70 days nor less than 20 days prior to the
record date appointed for the payment of dividends to Stockholders during which
no transfer of stock may be made on the books of the Corporation, or the Board
may fix a date not more than 60 days nor less than 20 days prior to the date for
the payment of any such dividends as the record date as of which Stockholders
entitled to receive payment of such dividends will be determined. Only
Stockholders of record on that record date will be entitled to receive payment
of such dividends.
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ARTICLE VIII
REPORTS TO SHAREHOLDERS
Section 1. Annual Report. (a) The Board will authorize the preparation
of and arrangement for the distribution of an annual report to Stockholders of
the Corporation as required by as 10.06.433(a) Alaska Corporations Code.
(b) The annual report to Stockholders will contain, at minimum, a
balance sheet as of the end of the fiscal year and an income statement and
statement of changes in financial position for the fiscal year accompanied by
(1) a report on the fiscal year by independent accountants or (2) if there is no
such report from accountants, a certificate of an authorized officer of the
Corporation that the financial statements were prepared without audit from the
books and records of the Corporation; provided that, so long as the
Corporation's stock is registered pursuant to the federal Securities Exchange
Act of 1934, the Annual Report to Stockholders required under that act will be
provided to all Stockholders.
Section 2. Other Reports. A Stockholder holding at least five percent
of the outstanding shares of a class of the Corporation may make a written
request to the Corporation in accordance with AS 10.06.433(c) of the Alaska
Corporations Code, for a quarterly income statement of the Corporation and a
balance sheet of the Corporation and, in addition, if an annual report for the
last fiscal year has not been sent to Stockholders, the statements required by
(a) of Section 1 of Article VIII of these Bylaws for the last fiscal year. These
statements will be delivered or mailed by the Corporation to the person making
the request within 30 days of the request. A copy of these statements will be
kept on file in the principal office of the Corporation for 12 months, and they
will be exhibited at all reasonable times to a Stockholder demanding an
examination of the statements, or a copy of the statements will be mailed to
that Stockholder.
Section 3. Delivery. (a) The Corporation will, in accordance with AS
10.06.433(d) of the Alaska Corporations Code, upon the written request of a
Stockholder, mail to the Stockholder a copy of the reports described in this
Article VIII.
(b) The income statements and balance sheets referred to in this
Article VIII must be accompanied by any report on those statements prepared by
independent accountants engaged by the Corporation or the certificate of an
authorized officer of the Corporation that the financial statements were
prepared without audit from the books and records of the Corporation.
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ARTICLE IX
TRANSACTIONS WITH OFFICERS,
DIRECTORS AND SHAREHOLDERS
Section 1. Director Material Interest. A contract or other transaction
between the Corporation and one or more of the directors of the Corporation, or
between the Corporation and a corporation, firm, or association in which one or
more of the directors of the Corporation has a material financial interest, is
neither void nor voidable because the director or directors or other
corporation, firm, or association is a party or because the director or
directors is present at the meeting of the Board that authorizes, approves, or
ratifies the contract or transaction, if the material facts as to the
transaction and as to the director's interest are fully disclosed or known to
the
(1) Stockholders and the contract or transaction is approved by
the Stockholders in good faith, with the shares owned by the
interested director or directors not being entitled to vote; or
(2) Board, and the Board authorizes, approves, or ratifies the
contract or transaction in good faith by a sufficient vote without
counting the vote of the interested director or directors, and the
person asserting the validity of the contract or transaction
sustains the burden of proving that the contract or transaction
was just and reasonable as to the Corporation at the time it was
authorized, approved, or ratified.
Section 2. Common Directorships, Votes on Compensation. (a) A common
directorship does not alone constitute a material financial interest within the
meaning of this Article IX. A director is not interested, within the meaning of
this Article IX, in a resolution fixing the compensation of another director as
a director, officer, or employee of the Corporation, notwithstanding the fact
that the first director is also receiving compensation from the Corporation.
(b) Interested or common directors may be counted in determining the
presence of a quorum at a meeting of the Board that authorizes, approves, or
ratifies a contract or transaction under this Article IX.
Section 3. Transactions Involving Cross Directorships. A contract or
other transaction between the Corporation and a corporation or association of
which one or more directors of the Corporation are directors is neither void nor
voidable because the director or directors are present at the meeting of the
Board that authorizes, approves, or ratifies the contract or transaction, if the
material facts of the transaction and the director's other directorship are
fully disclosed or known to the Board and the Board authorizes, approves, or
ratifies the contract or transaction in good faith by a sufficient
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vote without counting the vote of the common director or directors or the
contract or transaction is approved by the Stockholders in good faith. This
Section 3 does not apply to contracts or transactions covered by Section 1 of
this Article IX.
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ARTICLE X
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall
convene on the first day of January of each year, unless otherwise determined by
the Board.
Section 2. Books and Records. A certified copy of the Articles of
Incorporation and the Bylaws shall be deposited in the name of the Corporation
in such bank or banks, trust company or trust companies or other institutions as
the Board shall designate by resolution. All checks or demands for the payment
of money and all notes and other instruments of a negotiable nature shall be
signed by the person designated by appropriate resolution of the Board or these
Bylaws.
Section 3. Contracts. The Board may authorize any officer or officers
or agent or agents to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation, and such authority may
be general or confined to specific instances.
Section 4. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board, and such authorization may be general
or confined to specific instances.
Section 5. Saving Clause. In the event any provision of these Bylaws is
inconsistent with the Articles of Incorporation or the corporate laws of the
State of Alaska, such provision shall be invalid to the extent of such conflict;
and such conflict shall not affect the validity of all other provisions of these
Bylaws.
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ARTICLE XI
AMENDMENTS
Section 1. Amendment and Repeal. Except as otherwise provided by law,
the power to alter, amend or repeal these Bylaws and adopt new Bylaws will be
vested exclusively in the Board, provided that such action must be taken by a
vote of at least a simple majority of the whole Board.
Section 2. Recordation. Whenever an amendment or new bylaw is adopted
and thereby made a part of the Bylaws, a copy of that bylaw will be kept in the
minute book with these Bylaws. If any position of the Bylaws is repealed, the
fact of such repeal and the date on which it occurred will be recorded in the
minute book, and a copy of it will be placed next to and include in these
Bylaws.
I, the undersigned being the Secretary of GENERAL COMMUNICATION, INC.,
hereby certify the foregoing to be the amended and revised Bylaws of the
Corporation, as adopted by the Board, on the 28th day of January, 2000.
/S/
John M. Lowber, Secretary
Bylaws of General Communication, Inc.
Page 35
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
OF
GENERAL COMMUNICATION, INC.
(Amended and restated in compliance with SBJPA '96 and TRA '97 and USERRA)
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I NAME AND PURPOSE OF PLAN AND TRUST 3
ARTICLE II DEFINITIONS 4
ARTICLE III PARTICIPATION 11
ARTICLE IV CONTRIBUTIONS 13
ARTICLE V DETERMINATION AND VESTING OF
PARTICIPANT ACCOUNTS 26
ARTICLE VI RETIREMENT DATE--DESIGNATION
OF BENEFICIARY 30
ARTICLE VII DISTRIBUTION FROM TRUST FUND 31
ARTICLE VIII FIDUCIARY OBLIGATIONS 43
ARTICLE IX PLAN ADMINISTRATOR AND
PLAN COMMITTEE 46
ARTICLE X POWERS AND DUTIES OF THE TRUSTEE 51
ARTICLE XI CONTINUANCE, TERMINATION, AND
AMENDMENT OF PLAN AND TRUST 56
ARTICLE XII MISCELLANEOUS 58
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January 01, 2000
<PAGE>
ARTICLE I
NAME AND PURPOSE OF PLAN AND TRUST
Section 1.1 Name and Purpose. The Company, by execution of this
agreement, amends and restates its qualified stock purchase plan, to be known as
the General Communication, Inc. Qualified Employee Stock Purchase Plan, to
afford its employees a convenient means for regular and systematic purchases of
common stock of the Company and to instill a proprietary interest in the
Company. The Plan and Trust Fund are created for the exclusive benefit of
Employee-Participants and their beneficiaries. The Plan is intended to qualify
under Sections 401(a) and 401(k) of the Code, and the trust created under the
Plan is intended to be exempt under Section 501(a) of the Code.
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January 01, 2000
<PAGE>
ARTICLE II
DEFINITIONS
Section 2.1 Definitions. When used in this agreement, the following
words shall have the following meanings, unless the context clearly indicates
otherwise:
(i) "Account", unless otherwise indicated, means a Participant's entire
interest in Company stock and any other assets in the Trust Fund
created by his Employer's contributions and his own contributions,
and the income, expenses, gains, and losses attributable to such
stock and assets.
(ii) "Anniversary Date" means the first day of each Plan Year.
(iii) "Associated Company" means any corporation which is deemed to be a
member of the group of corporations under common control of the
Company and which adopts this Plan and Trust with the consent of the
Company. Any such Company which subsequently is no longer a member
of the controlled group shall be deemed to have terminated this Plan
and Trust immediately upon such failure to be a member of the
controlled group.
(iv) "Beneficiary" means the person who, under this Plan, becomes
entitled to receive a Participant's Account upon his death.
(v) "Board of Directors" means the board of directors of the Company.
(vi) "Break in Service" for purposes of eligibility to participate means
any 12-month period, measured from the Employee's employment or
Reemployment Commencement Date in which the Employee has completed
no more than 500 hours of service. "One-Year Break in Service" for
vesting and all other purposes means any Plan Year in which the
Employee has completed no more than 500 hours of service. For
purposes of this definition, hours of service shall include service
as an Employee in any capacity including Union Employee and
commissioned salesman.
(vii) "Code" means the Internal Revenue Code of 1986, as it presently is
constituted, as it may be amended, or any successor statute of
similar purposes.
(viii) "Company" means General Communication, Inc., a corporation with its
principal place of business at Anchorage, Alaska, or any successor
in interest to it resulting from merger, consolidation, or transfer
of substantially all of its assets, which expressly may agree in
writing to continue this Plan.
(ix) "Compensation" means the total amount actually or constructively
paid by an Employer to a Participant for services rendered to the
Employer during the Plan Year including overtime pay, commissions,
and bonuses, but excluding relinquished vacation pay, unused sick
pay, insurance premiums, pension and retirement benefits, living
expenses, other allowances, and all contributions by the Employer to
this Plan, to any other tax qualified Plan or to any health accident
or welfare fund or Plan. Compensation shall be calculated to include
amounts that are not currently paid to a Participant and not
includible in a Participant's gross income by reason of the
application of Code Section 125 and 402(g).
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January 01, 2000
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Pursuant to Code Section 401(a)(17), Compensation taken into account
for all purposes under this Plan shall not exceed $150,000, as
adjusted by the Secretary of the Treasury for cost of living
increases each year, for any Plan Year.
(x) "Determination Date" means, with respect to any Plan Year, the last
day of the preceding Plan Year (or in the case of the first Plan
Year, the last day of such Plan Year). This Section 2.1(x) shall be
interpreted to conform with Code Section 416.
(xi) "Effective Date" of this restated Plan means January 1, 1997, unless
otherwise provided in this Plan. For any Associated Company which is
not participating in this Plan on the restated effective date,
effective date means that date designated by the Associated Company.
(xii) "Employee" means any person, whether male or female, now or
hereafter in the employ of an Employer, including officers of the
Employer, but excluding directors who are not in the Employer's
employ in any other capacity, excluding independent contractors, and
excluding Union Employees. Employee shall not include any individual
who is treated as an independent contractor by the Employer, as
reflected in the records of the Company, even if such individual
becomes classified as a common-law employee of the Company by any
administrative agency or court of competent jurisdiction, or by the
IRS, or pursuant to an agreement between the Company and the IRS.
(xiii) "Employer" means the Company and any Associated Company which has
adopted the Plan and Trust.
(xiv) "Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
(xv) "Fiduciary" means a person who (A) exercises any discretionary
authority or discretionary control respecting management of the Plan
or exercises any authority or control respecting management or
disposition of its assets; (B) renders investment advice for a fee
or other Compensation, direct or indirect, with respect to any
moneys or other property of the Plan, or has any authority or
responsibility to do so; or (C) has any discretionary authority or
discretionary responsibility in the administration of the Plan. If
any money or other property of the Plan is invested in securities
issued by an investment company registered under the Investment
Company Act of 1940, such investment by itself shall not cause such
investment company or such investment company's investment adviser
or principal underwriter to be deemed to be a fiduciary or a party
in interest.
(xvi) "Highly Compensated Employee" means, for the Plan Year beginning in
1997, and subsequent Plan Years, any Employee who:
(A) was a five percent owner at any time during the Determination
Year or the Look-Back Year; or
(B) for the Look-Back Year, had Compensation in excess of $80,000
(as adjusted by the Secretary of the Treasury for cost of living
increases), and
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January 01, 2000
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(C) was in the top-paid group of Employees for the Look-Back Year.
An Employee is in the top-paid group of Employees for any Plan Year
if such Employee is in the group consisting of the top twenty
percent (20%) of the Employees when ranked on the basis of
Compensation paid during the Plan Year.
For purposes of this definition, the Determination Year shall be the
Plan Year. The Look-Back Year shall be the twelve-month period
immediately preceding the Determination Year.
In determining an individual's Compensation under this section,
Compensation from each Company required to be aggregated under Code
Sections 414(b), (c), (m), and (o) will be taken into account. For
purposes of this section, the determination of Compensation will
include deferrals made pursuant to Code Sections 125, 402(e)(3),
402(h)(1)(B) and, in the case of Company contributions made pursuant
to a elective deferral agreement, deferrals made pursuant to Code
Section 403(b).
A former Employee will be treated as a Highly Compensated Employee
if such Employee separated from service (or was deemed to have
separated) prior to the Plan Year, performs no service for the
Company during the Plan Year, and was a Highly Compensated Employee
for either the separation year or any Plan Year ending on or after
the Employee's 55th birthday.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group and the Compensation that is considered, will be made
in accordance with Code Section 414(q).
(xvii) (A) "Hour of Service" means (1) each hour for which an Employee is
paid or is entitled to payment, for the performance of duties for
his Employer during the applicable computation period; (2) each hour
for which an Employee is paid or is entitled to payment by his
Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship is
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence;
and (3) each hour for which back pay, irrespective of mitigation of
damages, either was awarded or agreed to by the Employer.
(B) For purposes of Section 2.1(xvii)(A)(2) the following rules
shall apply: (1) no more than 501 hours will be credited to any
Employee on account of a single continuous period during which the
Employee performs no duties; (2) an hour shall not be credited on
account of a period during which no duties are performed if the
payment for such hour is made or due under a Plan maintained solely
for the purpose of complying with applicable workmen's Compensation,
or unemployment Compensation or disability insurance laws; (3) hours
shall not be credited for payments which reimburse an Employee
solely for medical or medically related expenses incurred by the
Employee; and (4) a payment shall be deemed to be made by or due
from the Employer regardless of whether such payment is made by or
due from the Employer directly, or indirectly through, among others,
a Trust Fund, or insurer, to which the Employer contributes or pays
premiums. These rules also
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January 01, 2000
<PAGE>
shall apply to the extent that any back pay is agreed to or awarded
for a period of time during which an Employee did not or would not
have performed duties.
(C) For purposes of this Section 2.1(xvii), the same hours of
service shall not be credited under both Sections 2.1(xvii)(A)(1) or
(2) of this Plan and also under Section 2.1(xvii)(A)(3) of this
Plan. Each Hour of Service shall be credited under this Section
2.1(xvii) in accordance with 29 C.F.R. Section 2530.200b-2(b) and
(c). Employment with any affiliated companies (whether or not
incorporated) that are members of a controlled group as defined in
Code Section 414(b), that are under common control as defined in
Code Section 414(c), or that are members of an affiliated service
group within the meaning of Code Section 414(m) or any other entity
required to be aggregated with the Company pursuant to Code Section
414(o) and the final regulations thereunder, will be treated as
employment with the Company for purposes of participation and
vesting under this Plan; provided, however, that an employee must be
employed by the Employer to participate in this Plan. In addition,
for all purposes of the Plan, Hours of Service will be credited for
any individual considered a Leased Employee under Code Section
414(n) and for any individual considered an Employee under Code
Section 414(o) and the final regulations thereunder.
(D) For purposes of determining whether an Employee has experienced
a Break in Service, hours of service shall include each hour for
which an Employee is absent from work for any period (1) by reason
of the pregnancy of the Employee; (2) by reason of the birth of a
child of the Employee; (3) by reason of the placement of a child
with the Employee in connection with the adoption of such child by
such Employee; or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
(E) The hours described in the preceding sentence shall be treated
as hours of service in the year in which the absence from work
begins if the Participant would be prevented from incurring a
one-year Break in Service as a result of such treatment or, in any
other case, the hours shall be treated as hours of service in the
immediately following year. The hours described in the two preceding
sentences shall be the hours of service which otherwise would
normally have been credited to such Participant but for such
absence, or in any case in which the Plan is unable to determine
such hours, eight hours of service per work day of such absence. No
credit will be given pursuant to this paragraph unless the
Participant furnishes to the Plan Committee such timely information
as the Plan may require to establish that the absence from work is
for reasons described above and to establish the number of days for
which there was such an absence.
(F) An Employee will be credited with service for participation and
vesting purposes for leaves of absence qualifying under the Family
and Medical Leave Act of 1993, but only to the extent required by
the Family and Medical Leave Act and the regulations thereunder.
(xviii) (A) "Key Employee" means any Employee of an Employer who, at any
time during the Plan Year or any of the four preceding Plan Years,
is (1) an officer of an Employer having annual Compensation greater
than 50 percent of the dollar limitation under Code Section
415(b)(1)(A), as adjusted for increases in the cost of living for
any Plan Year; (2) one of the ten Employees having annual
Compensation from an Employer of more than the $30,000
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<PAGE>
annual addition limitation as adjusted for increases in the cost of
living and owning (or considered to own under Code Section 318) the
largest interests of the Employer; (3) a five percent owner of the
Employer; or (4) a one percent owner of the Employer having annual
Compensation from the Employer of more than $150,000.
(B) For purposes of Section 2.1(xviii)(A)(1) of this Plan, no more
than 50 Employees (or, if lesser, the greater of 3 Employees or 10
percent of the Employees) shall be treated as officers. For purposes
of Section 2.1(xviii)(A)(2) of this Plan, if two Employees have the
same interest in an Employer, the Employee having greater annual
Compensation from the Employer shall be treated as having a larger
interest. This Section 2.1(xviii)(B) shall be interpreted to conform
with Code Section 416. For purposes of this definition, "Employee"
shall have the same meaning as it does under Code Section 416(i)(1).
Any Beneficiary of a Key Employee shall be treated as a Key
Employee.
(xix) "Named Fiduciary" means any Fiduciary who is named in this Plan, or
who, pursuant to a procedure specified in the Plan, is identified as
a Fiduciary to the Plan by the Company. Such Named Fiduciaries
include, but are not limited to, the Trustee, the Plan Committee,
and the Plan Administrator.
(xx) "Normal Retirement Age" means the date a Participant attains age 65.
(xxi) "Participant" means any Employee who has become a Participant under
Article III of this Plan. Participation shall cease upon the later
of (A) distribution of a Participant's entire vested Account and
forfeiture of a Participant's entire nonvested Account or (B)
Termination of Employment.
(xxii) "Plan" and "Plan and Trust" means the Qualified Employee Stock
Purchase Plan of General Communication, Inc., and the Trust set
forth in and by this Agreement and all subsequent amendments to it.
(xxiii) "Plan Administrator" means the person appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
(xxiv) "Plan Committee" means the committee appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
(xxv) "Plan Year" means the Company's fiscal (taxable) year, as presently
established, which ends on December 31 of each year, and this shall
be the fiscal (taxable) year of the Trust. If there is a change in
the Company's fiscal year, then "Plan Year" shall mean the Company's
new fiscal year, and any short fiscal year resulting from such
change shall be considered a full year for all purposes of this
Plan. The "Plan Year" shall not change without approval of the
Internal Revenue Service.
(xxvi) "Qualifying Employer Security" means the Class A and Class B common
stock of the Company.
(xxvii) "Quarterly Anniversary Date" means January 1, April 1, July 1, or
October 1 of each Plan Year.
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(xxviii) "Reemployment Commencement Date" means the first date after a Break
in Service on which an Employee performs an Hour of Service for the
Employer.
(xxix) "Super Top Heavy Plan" means a plan in which the aggregate of the
Accounts of Key Employees under the plan as of the Determination
Date exceeds 90% of the aggregate of the Accounts of all
Participants under the plan (as of the Determination Date for the
Plan Year), excluding former Key Employees.
(xxx) "Termination of Employment" means the termination of a person's
status as an Employee as defined in Section 2.1(xii), as a Union
Employee as defined in Section 2.1(xxxvi), or as a commissioned
salesman.
(xxxi) "Top Heavy Plan" means a plan in which the aggregate of the Accounts
of Key Employees under the plan as of the Valuation Date exceeds 60
percent of the aggregate of the Accounts of all Participants under
the Plan (as of the Determination Date for the Plan Year), excluding
former Key Employees. The Accounts of Participants shall be
increased by the aggregate distributions made with respect to such
Participants during the five-year period ending on the Determination
Date. Section 2.1(xxxi) shall be interpreted to conform with Code
Section 416. For purposes of determining whether this and any
aggregated plans are top heavy or super top heavy, all defined
benefit and defined contribution plans (including any simplified
Employee pension plan) maintained or ever maintained by the Employer
in which a Key Employee participates or on which any plan in which a
Key Employee participates depends for qualification under Code
Sections 401(a)(4) or 410 must be aggregated. Other plans maintained
or ever maintained by the Employer may be aggregated if, when
considered as a group with the plans that must be aggregated, they
would continue to satisfy the requirements of Code Sections
401(a)(4) and 410.
(xxxii) "Total Disability" means a disability that permanently renders a
Participant unable to perform satisfactorily the usual duties of his
employment with his Employer, as determined by a physician selected
by the Plan Committee, and which results in his Termination of
Employment with the Employer.
(xxxiii) "Trust Fund" means the assets of the trust established by this Plan
and Trust from which the benefits under this Plan shall be paid and
shall include all income of any nature earned by the fund and all
changes in fair market value.
(xxxiv) "Trustee" means the person or persons appointed as trustee of the
Trust Fund and any duly appointed and qualified successor trustee.
(xxxv) "Trustee Responsibility" means any responsibility provided in the
Plan to manage or control the assets of this Plan.
(xxxvi) "Union Employee" means any Employee who is included in a unit of
Employees covered by a collective bargaining agreement between
Employee representatives and the Company or any Associated Company,
if retirement benefits were the subject of good faith bargaining
between such Employee representatives and the Company or Associated
Company.
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<PAGE>
(xxxvii) "Valuation Date" means the last day of each Plan Year.
(xxxvii) "Year of Service" for purposes of eligibility to participate means
any 12-month period, measured from the Employee's Employment
Commencement Date or Reemployment Commencement Date, in which the
Employee completes 1,000 or more Hours of Service. For purposes of
this definition, Hours of Service shall include service as an
Employee in any capacity including Union Employee and commissioned
salesman and shall include service as an Employee of an Employer
under common control with the Company as defined in Code Sections
414(b), (c), (m), and (o) and the final regulations thereunder, or
any other Company designated by the Plan Committee from time to
time. Year of Service also shall include service with any company
that is acquired directly or indirectly by any Employer
participating in this Plan whether by acquisition of stock or assets
if such company becomes part of the controlled group of corporations
as defined in Code Section 414(b) or (c) of which the Company is a
part. "Year of Service" for purposes of vesting means any Plan Year
in which the Participant completes 1,000 or more Hours of Service.
Effective for acquisitions occurring on or after January 1, 1996,
Year of Service also shall include Years of Service with any company
that is acquired directly or indirectly by any Employer
participating in this Plan whether by acquisition of stock or assets
if such company becomes part of the controlled group of corporations
as defined in Code Section 1563(a) of which the Company is a part
and provided that such individual for whom such service is credited
becomes an Employee of General Communication, Inc. as a result of
the acquisition. Effective for Employees first employed by the
Company on or after January 1, 1996, an Employee will be credited
with Years of Service under this Plan for Years of Service with any
company which has received services provided by the Company under a
management or outsourcing contract between such company and General
Communication, Inc. as a service provider (as determined by the
Company) provided that such individual for whom such service is to
be credited becomes an Employee of the Company directly from the
company for which the Company serves as service provider (as
determined by the Company).
Section 2.2 Gender. The masculine gender shall include the feminine and
neuter, and the singular shall include the plural.
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ARTICLE III
PARTICIPATION
Section 3.1 Who May Become a Participant. Any Employee of an Employer on the
Effective Date who has completed one Year of Service may become a Participant on
the Effective Date of the Plan. Any other or new Employee of an Employer may
become a Participant on any Quarterly Anniversary Date of the Plan following his
having completed one Year of Service, provided such Employee must be an Employee
of the Employer when he becomes a Participant.
Section 3.2 Participation Form. (a) Completion Requested. The participation
form shall be available from the Plan Administrator. To become a Participant,
each Employee must complete and return the form to the Plan Administrator on
which he shall evidence the following: (i) his acceptance of participation in
the Plan; and (ii) his consent to be bound by the terms and conditions of the
Plan and all its amendments.
(b) Failure To Complete, Revocation. The failure to complete and
return the form will be deemed to be an election not to become a Participant. An
Employee may revoke this election and become a Participant by requesting,
completing, and returning an application form before a subsequent Quarterly
Anniversary Date of the Plan, if he otherwise is eligible.
Section 3.3 Effect of Break in Service on Becoming a Participant. (a) Year
in Which the Employee Completes More Than 500 but Fewer Than 1,000 Hours of
Service. An Employee who completes more than 500 but fewer than 1,000 hours of
service during any 12-month period, measured from the Employee's employment or
Reemployment Commencement Date, shall not be deemed to have completed a Year of
Service nor to have suffered a Break in Service. For the purposes of Section
3.3(c) of this Plan, any breaks in service which are interrupted by a year in
which the Employee has more than 500 but fewer than 1,000 hours of service shall
be treated as inconsecutive breaks in service.
(b) Inclusion of Pre-Break Years of Service in General. All years of
service prior to any period of up to five consecutive one year breaks in
service, not excluded by reason of this section, shall be counted in determining
who may become a Participant.
(c) Exclusion of Years of Service for Employees Without Vested
Rights. Years of service completed prior to any Break in Service by an Employee
who has no vested interest in any Employer contributions at the time of his
reemployment shall not be counted in determining whether the Employee may become
a Participant if the number of consecutive one-year breaks in service equals or
exceeds the greater of five years or the aggregate number of years of service
before such break. The aggregate number of years of service before such break
shall not include any years of service which have been excluded by reason of a
prior application of this Section 3.3(c).
Section 3.4 Participation Upon Reemployment. An Employee who has satisfied
the service requirement under Section 3.1 of this Plan by reason of years of
service prior to a Break in Service of one year or longer (which service has not
been excluded under Section 3.3 of this Plan) may become a Participant
immediately upon his reemployment. However, an Employee who becomes a
Participant under this section may not commence contributions until the first
Quarterly Anniversary Date occurring after reemployment pursuant to Section 4.1
of this Plan.
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Section 3.5 Military Service. Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Code Section
414(u).
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ARTICLE IV
CONTRIBUTIONS
Section 4.1 Contributions and Salary Reductions by Participants. (a) General
Rules. Each Participant shall make contributions to the Trust Fund only by means
of regular payroll deductions, by elective deferrals, or in such other manner as
the Plan Committee shall determine, which contributions shall be paid to the
Trustee at least quarterly. Participant after-tax contributions by payroll
deduction or by any other manner as the Plan Committee shall determine shall be
referred to as voluntary contributions, and Participant pre-tax contributions
shall be known as elective deferrals. Each Participant shall designate up to 10%
of his Compensation in each payroll period, until changed by the Participant, as
a elective deferral, plus any contributions under Section 4.1(c) of this Plan. A
Participant may change his designation prospectively but not retroactively
effective for any payroll period by filing a new election with the Plan
Administrator prior to the last two weeks of the calendar quarter immediately
preceding the quarter for which it is to be effective. A Participant may suspend
his contributions to the Plan for any quarter by filing a written notice of
suspension with the Plan Administrator at any time prior to the last two weeks
of the calendar quarter immediately preceding the calendar quarter in which it
is to be effective. Such notice shall remain effective until the Participant
elects to make further Participant contributions, and no Employer contributions
shall be made on behalf of the Participant during such suspension period. A
Participant may authorize resumption of Participant contributions by filing a
new contribution designation with the Plan Administrator at any time prior to
the last two weeks of the calendar quarter immediately preceding the calendar
quarter in which it is to be effective.
(b) Salary Reductions. To become or remain a Participant in this
Plan, an eligible Employee must elect to reduce his Compensation in such manner
as the Plan Committee shall determine not to exceed 10% of his Compensation per
payroll period. Such election shall be made and may be changed at any time in
accordance with Section 4.1(a) of this Plan. Contributions under this section
shall be made in accordance with an agreement with the Company under which the
Participant elects to reduce his Compensation by the amount determined at his
discretion, and for purposes of Code Section 401(k) shall be deemed to be
Company contributions. Agreements to reduce Compensation shall be subject to
Sections 4.11 and 4.12 of this Plan.
(c) Nonqualified Voluntary Contributions. Each Plan Participant may
contribute to the Plan for each Plan Year during which he is a Participant such
amount of nonqualified voluntary contributions as he shall elect in his sole
discretion, provided that such amount shall not exceed 10% of his Compensation
for each payroll period. Nonqualified voluntary contributions shall be so
designated in writing when made or when the Participant agrees to payroll
deductions. All non-qualified voluntary contributions for the Plan Year shall be
made during the Plan Year or within 30 days after the end of the Plan Year.
Section 4.2 Determination of Contribution by the Employer. The Plan
Committee on behalf of each Employer shall pay into the Trust Fund at least
annually an amount up to 100% of each Participant's elective deferral and
voluntary contributions to the Plan which are invested in Qualifying Employer
Securities pursuant to Section 10.1(d), as the Board of Directors shall
determine by resolution; provided, however, that the Employer contribution on
behalf of Participants who have elected to direct the investment of any portion
of their elective deferrals and voluntary contributions into investments other
than Qualifying Employer Securities will receive an Employer matching
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contribution of up to 50% of the Participant's elective deferral and voluntary
contributions to the Plan. The Employer's contribution on behalf of any
Participant who elects to direct the investment of any portion of his elective
deferrals and voluntary contributions into investments other than Qualifying
Employer Securities under Section 10.1(d) shall be equal to a stated percentage
of each such Participant's contributions (both voluntary contributions and
elective deferrals) under Section 4.1 of this Plan during any payroll period,
and the Employer's contribution on behalf of any Participant who elects to
direct the investment of all of his elective deferrals and voluntary
contributions into Qualifying Employer Securities under Section 10.1(d) shall be
equal to a stated percentage of each such Participant's contributions (both
voluntary contributions and elective deferrals) under Section 4.1 of this Plan
during any payroll period. No Participant's elective deferral or voluntary
contributions shall be matched in an amount exceeding 10% of such Participant's
Compensation during any payroll period the Participant participates in the Plan.
Except as provided in Section 7.3 of this Plan, the amount of the Employer's
contribution shall not exceed either 10% of the aggregate Compensation of all
Participants under this Plan in the year for which the contribution is being
determined or the annual addition limitations of the Code as provided in
Sections 4.8 or 4.9 of this Plan.
Section 4.3 Time and Method of Payment of Contribution by the Employer. The
Plan Committee on behalf of the Employer may make payment of its contribution
for any Plan Year in installments on any date or dates it elects, provided that
the amount of its contribution for any year shall be paid in full within the
time prescribed in order to qualify such payment as an income tax deduction for
such year under the Code or any other provisions of law and provided further
that the final allocation of such Employer contribution shall not be made to an
Account until the last day of the Plan Year. Such contribution may be made in
cash, in Qualifying Employer Securities (as determined by the Company), or in
property of the character in which the Trustee is authorized to invest the Trust
Fund. Contributions of property other than cash or Qualifying Employer
Securities shall be subject to the approval of the Trustee and the Plan
Committee.
Section 4.4 To Whom Contributions Are To Be Paid. The Employer's
contributions for any Plan Year shall be paid to the Trustee and shall become a
part of the Trust Fund.
Section 4.5 Return of Employer Contributions. (a) Circumstances Under Which
Return Will Be Made. A contribution by the Employer to the Plan shall be
returned to the Company, at the Employer's discretion, under any of the
following circumstances: (i) if a contribution is made by the Employer by a
mistake of fact, including a mistaken excess contribution, within one year of
its payment to the Plan; (ii) if initial qualification of the Plan is denied,
within one year after the date of denial of initial qualification of the Plan;
or (iii) if all or any part of the deduction of the contribution is disallowed,
to the extent of the disallowance, within one year after the disallowance of the
deduction.
(b) Amount of Return. The Employer shall state by written request to
the Trustee the amount of the contribution to be returned and the reason for
such return. Such amount shall not include any earnings attributable to the
contribution and shall be reduced by any losses attributable to the
contribution. Upon sending such request to the Trustee, the Employer
simultaneously shall send to the Plan Committee a copy of the request. The
Trustee shall return such contributions to the Employer immediately upon receipt
of the written request by the Employer. All contributions by the Employer to the
Plan are declared to be conditioned upon both the qualification of the Plan
under Section 401 of the Code and the deductibility of such contributions Under
Section 404 of the Code.
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January 01, 2000
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Section 4.6 Employer's Obligations. The adoption and continuance of the Plan
shall not be deemed to constitute a contract between the Employer and any
Employee or Participant, nor to be a consideration for, or an inducement or
condition of, the employment of any person. Nothing in this Plan shall be deemed
to give any Employee or Participant the right to be retained in the employ of
the Employer, or to interfere with the right of the Employer to discharge any
Employee or Participant at any time, nor shall it be deemed to give the Employer
the right to require the Employee or Participant to remain in its employ, nor
shall it interfere with the right of any Employee or Participant to terminate
his employment at any time.
Section 4.7 Rollover Contributions and Transfers. Notwithstanding the limits
imposed upon Participant contributions, a Participant may contribute any amount
of funds or property to the Plan in any year if such contribution satisfies the
requirements under law for rollover contributions and if the Plan Committee
agrees in writing to accept such contribution on behalf of the Plan and the
Employer. Subject to the direction of the Plan Committee, the Trustee is
authorized to receive and add to the Trust Fund those assets attributable to
employees who were participants in the Western Tele-Communications, Inc.
Employee Stock Purchase Plan. A direct transfer from a qualified Plan subject to
Code Section 417 shall not be permitted. The Employer shall not be required
under Section 4.2 of this Plan to make any matching contributions for such
rollover contributions or transfers. Rollover contributions and transfers shall
be added to a separate Account for such Participant, shall be nonforfeitable,
and shall be distributable under Article VII of this Plan. Transfers from the
Western Tele-Communications, Inc. Employee Stock Purchase Plan shall be subject
to Section 10.1(d) of this Plan.
Section 4.8 Annual Addition. (a) Limitations. For the purpose of this
Section 4.8, the term "Annual Addition" includes Employer contributions and
forfeitures and any Participant's voluntary contributions. Annual Addition shall
not include any direct transfer or any contribution made by a Participant which
qualified under law as a rollover contribution. The annual limitation year shall
be the Plan Year. If the Annual Addition to the Account of any Participant,
attributable to all defined contribution plans (including money purchase pension
plans or profit-sharing plans of the Employer), would exceed either $30,000 or
25% of such Participant's Compensation, the excess amount shall be disposed of
as follows:
(i) any Participant contributions, to the extent that the return would
reduce the excess amount, shall be returned to the Participant;
(ii) The amount of such excess attributable to Employer contributions and
any forfeitures shall be allocated and reallocated to other
Participants' Accounts in accordance with Article V of this Plan to
the extent that such allocations do not cause the additions to any
such Participant's Account to exceed the lesser of the maximum
permissible amount or any other limitation provided in the Plan;
(iii) To the extent that the excess amounts described in Section
4.8(a)(ii) of this Plan cannot be allocated to other Participant
Accounts, such excess amounts shall be allocated to the suspense
Account in accordance with Article V of this Plan and allocated to
Participants under the provisions of that article.
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January 01, 2000
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(b) Compensation Defined. For purposes of limiting Annual Additions
under this section and combined benefits and contributions under Section 4.9 of
this Plan, compensation means a Participant's wages, salaries, fees for
professional services, and other amounts received for personal services actually
rendered for the Employer (including but not limited to, commissions paid
salesmen, compensations for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, and bonuses).
(i) For Plan Years beginning prior to December 31, 1997,
compensation for Annual Additions purposes shall not
include the following: (A) Employer contributions to
a deferred compensation plan that are not includable
in the Employee's gross income for the year in which
contributed, Employer contributions to a simplified
Employee pension plan described under Code Section
408(k) to the extent such contributions are
deductible by the Employee, or any distributions from
a deferred compensation plan other than amounts
received from an unfunded nonqualified plan; (B)
amounts realized from the exercise of a nonqualified
stock option or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to substantial
risk of forfeiture; (C) amounts realized from the
sale, exchange, or other disposition of stock
acquired under a qualified stock option; or (D) other
amounts which received special tax benefits, or
Employer contributions to purchase an annuity
contract described in Code Section 403(b), whether or
not under a elective deferral agreement or whether or
not the amounts actually are excludable from the
gross income of the Employee.
(ii) For Plan Years beginning after December 31, 1997,
"Compensation" shall include elective deferrals (as
defined in Code Section 402(g)) and any amounts which
are not included in the Participant's gross income by
reason of Code Sections 125 (cafeteria plans) and 457
(deferrals to governmental plans). All determinations
of Compensation will be made in accordance with Code
Section 415(c)(3), as it may be amended from time to
time.
Section 4.9 Limitation on Combined Benefits and Contributions of All Defined
Benefit and Defined Contribution Plans of the Employer. (a) Employer
Contributions. In any year if the Employer makes contributions to a defined
benefit plan on behalf of an Employee who also is a Participant in this Plan,
then the sum of the defined benefit plan fraction and the defined contribution
plan fraction (both as prescribed by law and as defined below) for such Employee
for such year shall not exceed 1.0. In any year if the sum of the defined
benefit plan fraction and the defined contribution plan fraction on behalf of an
Employee does exceed 1.0, then the Employer's contribution on behalf of such
Participant to this defined contribution plan of the Employer shall be reduced
to the extent necessary to prevent the sum of the defined contribution plan
fraction and the defined benefit plan fraction from exceeding 1.0. The
Employer's contribution on behalf of such Participant to this Plan may be
reallocated to other Participants under Article V of this Plan to the extent
necessary to prevent the sum of the defined contribution plan fraction and the
defined benefit Plan fraction from exceeding 1.0. If any amount cannot be
allocated or reallocated without exceeding the limits provided in this Article,
such amount may be allocated to the suspense Account established under Article V
of this Plan and allocated to the Participants in accordance with the provisions
of Article V of this Plan. For purposes of this section the limitation year
shall be the Plan Year.
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January 01, 2000
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(b) Defined Benefit Plan Fraction. The defined benefit plan fraction
is a fraction the numerator of which is the projected annual benefit of the
Participant under the Plan (determined as of the close of the year) and the
denominator of which is the lesser of the following amounts determined for such
year and for each prior Year of Service with the Employer: (i) the product of
1.25 times the maximum benefit dollar limitation in effect for the limitation
year; or (ii) the product of 1.4 times 100% of the Participant's average
Compensation for his high three consecutive calendar years.
(c) Defined Contribution Plan Fraction. The defined contribution
plan fraction is a fraction the numerator of which is the sum of the annual
additions to the Participant's Account under all defined contribution Plans of
the Employer as of the close of the limitation year and the denominator of which
is the sum of the lesser of the following amounts determined for such year and
for each prior Year of Service with the Employer: (i) the product is 1.25 times
the dollar limitations in effect under Code Section 415(c)(1)(A) for the
limitation year (without regard to Code Section 415(c)(6)); or (ii) the product
of 1.4 times an amount equal to 25% of the Participant's Compensation for the
limitation year.
(d) Transition Rules. The Plan Committee, in its discretion, may
elect to use the transition rules for calculating the defined contribution plan
fraction as provided in Code Sections 415(e)(4) and 415(e)(6).
(e) Limitation Years Beginning After December 31, 1999. This Section
4.9 shall not apply to any limitation year beginning after December 31, 1999.
Section 4.10 Top Heavy Plan Provisions. (a) Plan Years after December 31,
1983. The provisions of this section shall have effect for any Plan Years
beginning after December 31, 1983 in which the Plan is top heavy.
(b) Minimum Contribution. If no other qualified plan maintained by
the Employer provides the minimum benefit or contribution for Participants as
required under Code Section 416(c) for a year that the plan is top heavy, this
Plan shall provide a minimum allocation (which may include forfeitures otherwise
allocable) for such Plan Year for each Participant who is a non-Key Employee in
an amount equal to at least three percent of such Participant's Compensation for
such Plan Year. Notwithstanding the preceding sentence, the minimum allocation
required under this Section 4.10 shall in no event exceed the percentage of
contributions made under the Plan for such year for the Key Employee for whom
such percentage is the highest for such year. If Employees who are Participants
in this Plan also participate in a defined benefit plan maintained by the
Employer and both plans are top heavy in any year, the Employer may elect to
satisfy the minimum contribution requirements of Code Section 416(c) and the
regulations thereunder by providing a minimum allocation (which may include
forfeitures otherwise allocable) for such Plan Year for each Participant (for
purposes of Code Section 416(c) and the regulations thereunder) who is a non-Key
Employee in an amount equal to at least 5% of such Participant's Compensation
for such Plan Year. For purposes of this Section 4.10, Participants who must be
considered Participants to satisfy the coverage requirements of Code Section
410(b) in accordance with Code Section 401(a)(5) and who have not separated from
service at the end of the Plan Year shall be eligible to share this minimum
contribution including Participants who have failed to complete 1,000 or more
hours of service, who have declined to make mandatory contributions to the Plan
or who have been excluded because such
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Participant's Compensation is less than a stated amount. Compensation for
purposes of this Section 4.10 shall mean Compensation as defined in Section 4.8
of this Plan. Elective deferral contributions may not be used to satisfy the
minimum contribution required under this section 4.10. If, in any top-heavy
year, the highest percentage of Employer contributions and forfeitures allocated
to any Key Employee is less than three percent, amounts allocated as a result of
any Key Employee's elective deferrals must be included in determining the
Employer contribution made on behalf of such Key Employees.
(c) Modification of Plan Fractions. The 1.25 factor in the defined
benefit plan fraction and defined contribution Plan fraction (as such fractions
are defined in the preceding section) shall be reduced to 1.0 for any year that
the Plan is top heavy. If the Plan is super top heavy, the 1.25 factor also
shall be reduced to 1.0 for the Plan Year.
(d) Maximum Compensation Limitation. The annual Compensation
considered for each Participant for purposes of the Plan for any year that the
Plan is top heavy shall not exceed such Participant's Compensation (as limited
by Code Section 401(a)(17)).
Section 4.11 Salary Reduction Rules. (a) Election to Reduce Salary. As a
condition of participation, an Employee eligible to participate in this Plan
must elect to reduce his or her Compensation by an amount determined at his or
her discretion (annually not to exceed the lesser of the amount specified for a
given calendar year by the Internal Revenue Service or 10% of Compensation). A
Participant must make this election according to the procedure prescribed by and
on the form provided by the Plan Committee.
(b) Nondiscriminatory Benefits. All Participants are eligible to
defer identical percentages of their Compensation, regardless of the amount of
such Compensation; provided such percentage does not result in a deferral of
more than the limitation imposed under Code Section 402(g) in any calendar year.
A Participant may assign to this Plan any excess elective deferrals made during
a taxable year of the Participant by notifying the Plan Administrator on or
before the following March 15 of the amount of the excess elective deferrals to
be assigned to the Plan. A Participant is deemed to have notified the Plan
Administrator of any excess elective deferrals that arise taking into account
only those elective deferrals made to this Plan and any other plans of the
Employer. An excess elective deferral is any elective deferral during a calendar
year in excess of the dollar limitation in effect under Code Section 402(g) for
such year. On or before the April 15th following the end of each calendar year,
the Company will distribute excess elective deferrals (plus any allocable income
and minus any allocable loss) to any Participant to whose Account excess
elective deferrals were made or assigned for the preceding year and who claims
excess elective deferrals for such taxable year or who is deemed to have
notified the Plan Administrator of such excess. The income or loss attributable
to excess elective deferrals is the income or loss for the year allocable to the
Participant's elective deferrals multiplied by a fraction, the numerator of
which is the Participant's excess elective deferrals for such year and the
denominator of which is the total Account balance of the Participant
attributable to elective deferrals, without regard to any income or losses
allocable to such elective deferrals for the calendar year. Alternatively, in
the discretion of the Committee, income allocable to the Participant's excess
elective deferrals may be determined under any reasonable method used by the
Plan for allocating income on Plan assets.
(c) Limit on Actual Deferral Percentage. The Actual Deferral
Percentage for Participants who are Highly Compensated Employees for each Plan
Year and the Actual Deferral Percentage for
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Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(i) The Actual Deferral Percentage for the Plan Year for
Participants who are Highly Compensated Employees may
not exceed the Actual Deferral Percentage for the
preceding Plan Year for Participants who are Non-Highly
Compensated Employees multiplied by 1.25 times; or
(ii) The Actual Deferral Percentage for the Plan Year for
Participants who are Highly Compensated Employees may
not exceed the Actual Deferral Percentage for the
preceding Plan Year for Participants who are Non-Highly
Compensated Employees multiplied by 2.0, provided that
the Actual Deferral Percentage for the Plan Year for
Participants who are Highly Compensated Employees does
not exceed the Actual Deferral Percentage for the
preceding Plan Year for Participants who are Non-Highly
Compensated Employees by more than two percentage
points.
The following rules regarding the Actual Deferral
Percentage will apply:
(i) The Actual Deferral Percentage for the Plan Year for
any Highly Compensated Employee who is eligible to have
elective deferrals (and qualified non-elective
contributions or qualified matching contributions, or
both, if such contributions are treated as elective
deferrals for purposes of the Actual Deferral
Percentage test) allocated to his or her Account under
two or more arrangements described in Code Section
401(k) that are maintained by the Company will be
determined as if such elective deferrals (and, if
applicable, such qualified non-elective contributions
or qualified matching contributions, or both) were made
under a single arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year will be treated as a single arrangement;
(ii) In the event that this Plan satisfies the requirements
of Code Sections 401(k), 401(a)(4), or 410(b) only if
aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of such Code
Sections only if aggregated with this Plan, then this
section will be applied by determining the Actual
Deferral Percentage of Participants as if all such
plans were a single plan. Plans may be aggregated in
order to satisfy Code Section 401(k) only if they have
the same Plan Year;
(iii) For purposes of determining the Actual Deferral
Percentage, elective deferrals, qualified non-elective
contributions, and qualified matching contributions
must be made before the last day of the twelve-month
period immediately following the Plan Year to which
such contributions relate; and
(iv) The Company will maintain records sufficient to
demonstrate satisfaction of the Actual Deferral
Percentage test and the amount of qualified
non-elective contributions or qualified matching
contributions, or both, used in such test.
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January 01, 2000
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(d) Nonforfeitability of Elective Contributions. All elective
deferral contributions made on behalf of Participants to this Plan are vested
immediately. Such elective deferrals are nonforfeitable at all times.
(e) Distributions Restriction. Elective deferrals shall be subject
to the restrictions on withdrawals under Section 7.6 of this Plan.
(f) Definitions.
(i) The "Actual Deferral Percentage" for a specified group
of Participants for a Plan Year is the average of the
ratios (calculated separately for each Participant in
such group) of the amount of deferrals made under the
Plan on behalf of each such Participant for the Plan
Year to the Participant's Compensation for the entire
Plan Year (whether or not the Participant was a
Participant for the entire Plan Year) or for the
portion of such Plan Year during which the Employee was
a Participant, as determined by the Company for such
Plan Year so long as such determination is applied
uniformly to Participants under the Plan for such Plan
Year. Deferrals on behalf of any Participant include
[A] any elective deferrals made pursuant to the
Participant's deferral election, including excess
elective deferrals, but excluding elective deferrals
that are taken into account in the Average Contribution
Percentage test (provided the Actual Deferral
Percentage test is satisfied both with and without
exclusion of these elective deferrals); and [B] in the
discretion of the Company, all qualified non-elective
contributions or such qualified non-elective
contributions as are necessary to meet the Actual
Deferral Percentage test and all qualified matching
contributions or such qualified matching contributions
as are necessary to meet the Actual Deferral Percentage
test. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but
for the failure to make elective deferrals will be
treated as a Participant on whose behalf no elective
deferrals are made.
(ii) "Elective Deferrals" means any Company contributions
made to the Plan at the election of the Participant in
lieu of cash compensation, including contributions made
pursuant to a elective deferral agreement or other
deferral arrangement. A Participant's elective
deferrals in any calendar year are the sum of all
Company contributions made on behalf of such
Participant pursuant to an election to defer under any
arrangement described in Code Section 401(k), any
simplified employee pension cash or deferred
arrangement described in Code Section 402(h)(1)(B), any
eligible deferred compensation plan under Code Section
457, any plan as described in Code Section 501(c)(18),
and any Company contributions made on behalf of a
Participant pursuant to a elective deferral agreement
for the purchase of an annuity contract under Code
Section 403(b).
(iii) "Participant" for purposes of this Section 4.11 only
includes all Employees eligible to participate in this
Plan even if not electing to do so.
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January 01, 2000
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(iv) "Compensation" for purposes of this Section 4.11 means
only Compensation as defined in Section 2.1(ix) of this
Plan prior to any elective deferrals under Section 4.1
of this Plan.
(g) Distribution of Excess Contributions. An excess contribution is
the excess, in any Plan Year, of the aggregate amount of contributions actually
taken into account in determining the Actual Deferral Percentage for Highly
Compensated Employees over the maximum amount of such contributions permitted by
the Actual Deferral Percentage test, determined by reducing contributions made
on behalf of Highly Compensated Employees beginning with the Highly Compensated
Employee with the highest amount of elective deferrals for such Plan Year. In
the event that excess contributions are made for any Plan Year, the Committee
will distribute the excess contributions in accordance with this paragraph. On
or before the 15th day of the third month following the end of each Plan Year,
but in no event later than the close of the following Plan Year, each Highly
Compensated Employee will have his or her portion of the excess contribution,
adjusted for any income or loss allocable to such portion, distributed to him.
The income or loss attributable to excess contributions is the income or loss
for the Plan Year allocable to the Participant's elective deferral Account (and,
if applicable, the qualified non-elective contribution Account or the qualified
matching contribution Account, or both) multiplied by a fraction, the numerator
of which is the Participant's excess contributions for the Plan Year and the
denominator of which is the Participant's Account balance attributable to
elective deferrals (and qualified non-elective contributions or qualified
matching contributions, or both, if any such contributions are taken into
account in determining the actual deferral percentage), without regard to any
income or losses allocable to such contributions for the Plan Year.
Alternatively, in the discretion of the Committee, income allocable to the
Participant's excess contributions may be determined under any reasonable method
used by the Plan for allocating income on Plan assets. Excess contributions will
be distributed from the Participant's elective deferral Account and qualified
matching contributions Account, if applicable, in proportion to the
Participant's elective deferrals and qualified matching contributions (to the
extent used in the actual deferral percentage test) for the Plan Year. Excess
contributions will be distributed from the Participant's qualified non-elective
contribution Account only to the extent that such excess contributions exceed
the balance in the Participant's elective deferral Account and qualified
matching contributions account. If excess contributions are not distributed by
the 15th day of the third month following the end of the Plan Year in which such
excess contributions arose, a ten percent excise tax will be imposed on the
Company with respect to such excess contributions. Matching contributions
attributable to excess contributions that are distributed to a Participant shall
be forfeited as of the distribution date of the excess contribution.
Section 4.12 Nondiscrimination Rules for Voluntary Contributions and
Employer Contributions. (a) Limit on Average Contribution Percentage. The
Average Contribution Percentage for Participants who are Highly Compensated
Employees for each Plan Year and the Average Contribution Percentage for
Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(i) The Average Contribution Percentage for the Plan Year
for Participants who are Highly Compensated Employees
may not exceed the Average Contribution Percentage for
the preceding Plan Year [need confirmation] for
Participants who are Non-Highly Compensated Employees
multiplied by 1.25 times; or
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(ii) The Average Contribution Percentage for the Plan Year
for Participants who are Highly Compensated Employees
may not exceed the Average Contribution Percentage for
the preceding Plan Year for Participants who are
Non-Highly Compensated Employees multiplied by 2.0,
provided that the Average Contribution Percentage for
the Plan Year for Participants who are Highly
Compensated Employees does not exceed the Average
Contribution Percentage for the preceding Plan Year for
Participants who are Non-Highly Compensated Employees
by more than two percentage points.
(i) Multiple Use: If one or more Highly Compensated
Employees participate in both a cash or deferred
arrangement and a plan subject to the Average
Contribution Percentage test maintained by the Company
and the sum of the Actual Deferral Percentage and
Average Contribution Percentage of those Highly
Compensated Employees subject to either or both tests
exceeds the Aggregate Limit, then the Average
Contribution Percentage of those Highly Compensated
Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly
Compensated Employee with the highest amount of such
contributions for such Plan Years) so that the
Aggregate Limit is not exceeded. The amount by which
each Highly Compensated Employee's contribution amount
is reduced will be treated as an excess aggregate
contribution. The Actual Deferral Percentage and
Average Contribution Percentage of the Highly
Compensated Employees are determined after any
corrections required to meet the Actual Deferral
Percentage and Average Contribution Percentage tests.
Multiple use does not occur if both the Actual Deferral
Percentage and the Average Contribution Percentage of
the Highly Compensated Employees do not exceed 1.25
times the Actual Deferral Percentage and Average
Contribution Percentage of the Non-Highly Compensated
Employees;
(ii) The Average Contribution Percentage for the Plan Year
for any Highly Compensated Employee who is eligible to
have contribution percentage amounts allocated to his
or her Account under two or more arrangements described
in Code Section 401(k) that are maintained by the
Company will be determined as if such contribution
percentage amounts were made under a single
arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year will be treated as a single arrangement;
(iii) In the event that this Plan satisfies the requirements
of Code Sections 401(m), 401(a)(4), or 410(b) only if
aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of such Code
Sections only if aggregated with this Plan, then this
section will be applied by determining the contribution
percentage of Participants as if all such plans were a
single plan. Plans may be aggregated in order to
satisfy Code Section 401(m) only if they have the same
Plan Year;
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January 01, 2000
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(iv) For purposes of determining the Average Contribution
Percentage test, Participant contributions are
considered to have been made in the Plan Year in which
contributed to the Trust. Matching contributions and
qualified non-elective contributions will be considered
made for a Plan Year if made no later than the end of
the twelve-month period beginning on the day after the
close of the Plan Year. A matching contribution
(including a qualified matching contribution) that is
forfeited to correct excess contributions, or because
it is attributable to an excess contribution or excess
deferral will not be taken into account for purposes of
determining the contribution percentage test; and
(v) The Company will maintain records sufficient to
demonstrate satisfaction of the Average Contribution
Percentage test and the amount of qualified
non-elective contributions or qualified matching
contributions, or both, used in such test.
(vi) An excess aggregate contribution is the excess, in any
Plan Year, of the aggregate contribution percentage
amounts taken into account in determining the numerator
of the average contribution percentage actually made on
behalf of Highly Compensated Employees over the maximum
contribution percentage amounts permitted by the
average contribution percentage test, determined by
reducing contributions made on behalf of Highly
Compensated Employees beginning with the Highly
Compensated Employee with the highest contribution
percentage. In the event that excess aggregate
contributions are made for any Plan Year, the Committee
will distribute the excess aggregate contributions in
the same manner as excess contributions are
distributed, as provided above. Income and losses
attributable to excess aggregate contributions will be
determined and distributed along with the excess
aggregate contributions in the manner provided above.
(vii) In lieu of distributing excess contributions as
provided above or excess aggregate contributions as
provided above, the Company, in its discretion, may
make qualified non-elective contributions on behalf of
all Participants or all Participants who are non-Highly
Compensated Employees, in the Company's discretion,
that are sufficient to satisfy either the actual
deferral percentage test or the average contribution
percentage test, or both, pursuant to regulations under
the Code. "Qualified non-elective contributions" means
contributions (other than matching contributions or
qualified matching contributions) made by the Company
and allocated to Participants' Accounts that the
Participants may not elect to receive in cash until
distributed from the Plan, that are nonforfeitable when
made, and that are distributable only in accordance
with the distribution provisions that are applicable to
elective deferrals and qualified matching
contributions.
(b) Definitions.
(i) The "Average Contribution Percentage" for a specified
group of Participants for a Plan Year is the average of
the ratios (calculated separately for each Participant
in such group) of the sum of the Participant
contributions, matching contributions, and qualified
matching contributions (to the extent
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such contributions are not taken into account for
purposes of the actual deferral percentage test) made
on behalf of the Participant for the Plan Year to the
Participant's Compensation for the entire Plan Year
(whether or not the Participant was a Participant for
the entire Plan Year) or for the portion of the Plan
Year during which the Employee was a Participant in the
Plan, as determined by the Company for such Plan Year
so long as such determination is applied uniformly to
all Participants under the Plan for such Plan Year.
Matching and qualified matching contributions on behalf
of any Participant in any Plan Year include [A] in the
discretion of the Company, all qualified non-elective
contributions or such qualified non-elective
contributions, as are necessary to meet the average
contribution percentage test; and [B] in the discretion
of the Company, all elective deferrals made pursuant to
the Participant's deferral election or such elective
deferrals as are necessary to meet the average
contribution percentage test (provided that the actual
deferral percentage test is satisfied both with and
without the exclusion of these elective deferrals).
Such contribution percentage amounts shall not include
matching contributions that are forfeited either to
correct excess aggregate contributions or because the
contributions to which they relate are excess
deferrals, excess contributions or excess aggregate
contributions.
(ii) "Aggregate Limit" means the greater of:
(A) the sum of [i] 1.25 times the greater of the
Actual Deferral Percentage of Non-Highly
Compensated Employees for the Plan Year or the
Average Contribution Percentage of Non-Highly
Compensated Employees for the Plan Year beginning
with or within the Plan Year of the cash or
deferred arrangement; and [ii] the lesser of two
times or two plus the lesser of such Actual
Deferral Percentage or Average Contribution
Percentage; or
(B) the sum of [i] 1.25 times the lesser of the
Actual Deferral Percentage of Non-Highly
Compensated Employees for the Plan Year or the
Average Contribution Percentage of Non-Highly
Compensated Employees for the Plan Year beginning
with or within the Plan Year of the cash or
deferred arrangement; and [ii] the lesser of two
times or two plus the greater of such Actual
Deferral Percentage or Average Contribution
Percentage.
(iii) "Compensation" for purposes of this Section 4.12 only,
will mean compensation as defined in Code Section
2.1(ix) of this Plan prior to any elective deferrals
under Section 4.1 of this Plan.
(iv) "Participant Contribution" means any contribution made
to the Plan by or on behalf of a Participant that is
included in the Participant's gross income in the year
in which made and that is maintained under a separate
Account to which earnings and losses are allocated.
(v) "Matching Contribution" means a Company contribution
made to this or any other defined contribution plan on
behalf of a Participant on account of a
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Participant contribution made by such Participant, or
on account of a Participant's elective deferral, under
a Plan maintained by the Company.
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ARTICLE V
DETERMINATION AND VESTING OF PARTICIPANT ACCOUNTS
Section 5.1 Determination of Participants' Accounts. (a) Allocation of
Contributions. As of the last day of each calendar quarter the Plan Committee
shall allocate to the Account of each Participant (including a Participant who
terminates employment during the quarter) any amounts contributed by the
Employer to the Trust on behalf of such Participant under Section 4.2 of this
Plan for the calendar quarter then ended. Forfeitures under Section 7.3 of this
Plan shall be allocated along with Employer contributions during the first
calendar quarter after the end of the year in which the forfeitures occur. The
maximum allocation under this Section 5.1(a) to any Participant for any Plan
Year shall not exceed 10% of such Participant's Compensation. Voluntary
contributions and elective deferrals under Section 4.1 of this Plan shall be
allocated to the Account of the Participant making such contribution.
(b) Allocation of Earnings, Losses and Changes in Fair Market Value
of the Net Assets of the Trust Fund; Allocation of Qualifying Employer
Securities. Each class (whether Class A or Class B) of Qualifying Employer
Securities shall be allocated to the Accounts of Participants as of the end of
each biweekly payroll period or as of the end of each calendar quarter after
acquired by the Trust Fund in the ratio that contributions under Section 4.1 of
this Plan made to each Account in the calendar quarter bear to the total
contributions under that Section 4.1 made to all Accounts for the calendar
quarter. Any dividends, cash or stock, paid on Qualifying Employer Securities
shall be allocated along with the Qualifying Employer Securities on which they
are paid. Once Qualifying Employer Securities are allocated to a Participant's
Accounts, any dividends, cash or stock, paid on such allocated securities shall
be allocated directly to such Accounts. Earnings and losses of the Trust Fund
(other than on Qualifying Employer Securities) shall be computed and allocated
to the Participants in the ratio which the total dollar value of the Account
(whether or not vested and excluding Qualifying Employer Securities) of each
Participant in the Trust Fund bears to the aggregate dollar value of the
Accounts (excluding Qualifying Employer Securities) of all Participants as of
the annual computation date. Only Participants in the Plan on the last day of
the Plan Year shall share in the allocation of earnings, losses and changes in
fair market value of the net assets of the Trust Fund (other than Qualifying
Employer Securities) for that year. Losses and declines in value of
Participants' Accounts will not be considered to be a forfeiture.
(c) Participant Accounts. The Plan Committee shall maintain an
Account for each Participant showing the number of shares allocated to his
Account in the Trust Fund as of the last previous annual computation date
attributable to any contributions made by the Employer, including any Employer
contributions for the year ending on such date. This Account shall be known as
the Employer contributions Account. Separate Accounts also shall be kept,
showing the voluntary and elective deferral contributions of each Participant,
shares allocated, and the earnings, losses and changes in fair market value
thereof. The Plan Committee shall distribute, or cause to be distributed, to
each Participant at least annually a written statement setting forth the value
of such Participant's Accounts as of the last day of the Plan Year, and such
other information as the Plan Committee shall determine. Qualifying Employer
Securities shall be valued at the mean between dealer "bid" and "ask" closing
prices of the stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc., or in the "pink sheets" published by
the National Quotation Bureau, Inc. Valuations of Qualifying Employer Securities
that are not readily tradable on an established securities market shall be made
by an independent appraiser.
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(d) Valuation Dates. The Valuation Date of the Trust Fund shall be
the last day of each Plan Year, and such other dates as determined by the
Committee, at which time the Plan Committee shall determine the value of the net
assets of the Trust Fund (i.e., the value of all the assets of the Trust Fund at
their then current fair market value, less all liabilities) and the value of
contributions by each Employer and all Participants for such year.
(e) Computation Dates. The Plan Committee shall compute the value of
each Participant's Account annually on the last day of each Plan Year and shall
base such computations on the valuation of the assets in the Trust Fund on the
Valuation Date coincident with such date. Upon direct distribution under Section
7.2(a) of this Plan, the Plan Committee shall make a special computation by
which it shall adjust the value of such Participant's Account to reflect the
values determined as of the most recent Quarterly Anniversary Date prior to the
occurrence of such direct distribution. The value of his Account as so adjusted
shall be the amount which the Plan Committee shall use in determining the amount
which shall be distributable to such Participants. The Plan Committee shall be
under no obligation to compute the value of any Participant's Account more than
once annually, unless an event occurs which requires the direct distribution of
any part of a Participant's Account, in which case the Plan Committee shall
compute the Account of such Participant as provided above and, in its
discretion, may compute the Account of each Participant. To the extent
Qualifying Employer Securities have been allocated to the Account of any
Participant, the Plan Committee may distribute such Qualifying Employer
Securities in kind without a special computation of value.
(f) Suspense Account for Unallocated Amounts. If the amount to be
allocated to any Participant's Account would exceed the contribution limitations
of Sections 4.8 or 4.9 of this Plan, a separate suspense Account shall be
established to hold such unallocated amounts for any year or years provided
that: (i) no Employer contributions may be made at any time when their
allocations would be precluded by Section 415 of the Code; (ii) investment gains
and losses and other income are not allocated to the suspense Account; and (iii)
the amounts in the suspense Account are allocated under Section 5.1(a) of this
Plan as of each allocation date on which such amounts may be allocated until the
suspense Account is exhausted. In the event of Plan termination, the balance of
such suspense Account may revert to the Company, subject to regulations
governing such reversion.
Section 5.2 Vesting of Participants' Accounts. (a) General Rules. If any
Participant reaches his Normal Retirement Age, dies, or suffers Total Disability
while a Participant, his entire Account shall become fully vested without regard
to the number of years of service such Participant has had with the Employer.
Any Account whether vested or forfeitable shall become payable to a Participant
or his beneficiaries only to the extent provided in this Plan. A Participant or
former Participant who has designated a Beneficiary and who dies shall cease to
have any interest in this Plan or in his Account, and his Beneficiary shall
become entitled to distribution of the Participant's Account under this Plan and
not as a result of any transfer of the interest or Account. A Participant's
Account attributable to his own contributions or attributable to a rollover
contribution shall be fully vested at all times.
(b) Vesting Schedule. A Participant shall have a vested interest in
the portion of his Account attributable to Employer contributions, in accordance
with the following schedule:
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Percentage of Account
Years of Service Which is Vested
---------------------------- -----------------------
Fewer than 1 0
1 or more but fewer than 2 20
2 or more but fewer than 3 30
3 or more but fewer than 4 45
4 or more but fewer than 5 60
5 or more but fewer than 6 80
6 or more 100
Section 5.3 Full Vesting Upon Termination or Partial Termination of Plan or
Upon Complete Discontinuance of Employer Contributions. Upon the termination or
partial termination of this Plan or upon complete discontinuance of Employer
contributions, the Accounts of all Participants affected, as of the date such
termination, partial termination, or complete discontinuance of Employer
contributions occurred, shall be fully vested.
Section 5.4 Service Included in Determination of Vested Accounts. All years
of service with the Company and any Associated Company shall be included for the
purpose of determining a Participant's vested Account under Section 5.2 of this
Plan, except years of service excluded by reason of a Break in Service under
Section 5.5 of this Plan.
Section 5.5 Effect of Break in Service on Vesting. With respect to a
Participant who has five or more consecutive one-year breaks in service, years
of service after such Break in Service shall not be taken into account for
purposes of computing the Participant's vested Account balance attributable to
Employer contributions made before such five or more year period.
Section 5.6 Effect of Certain Distributions. (a) Participant Contributions.
The provisions of this Section 5.6 shall not apply to any Participant
contributions (including elective deferrals) or rollover contributions.
(b) Repayment of Distribution. A Participant who terminates
participation for any reason other than retirement, disability, or death while
any portion of his Account in the Trust Fund is forfeitable and who receives a
distribution of his vested Account attributable to Employer contributions shall
have the right to pay back such distribution to the Plan. Such repayment may be
made (i) only if the Participant has returned to the employ of the Company or
any Associated Company, and (ii) before the earlier of the date which is five
years after the date the Participant is re-employed by the Employer, or the date
on which the Participant experiences any five consecutive one-year breaks in
service commencing after the distribution. Repayment of a Participant's Account
attributable to his elective deferral contributions, if any, shall not be
permitted under this Section 5.6. A Participant who desires to make repayment of
a distribution under this Section 5.6(b) shall make repayment directly to the
Plan Committee. If a Participant repays a distribution under this section, the
value of his Account shall be the amount of his Account prior to distribution,
unadjusted for any subsequent gains or losses. The amount of the Participant's
Account that was forfeited previously shall be restored from one or more of the
following sources, at the discretion of the Plan Committee: income or gain to
the Plan, forfeitures or Employer contributions.
(c) Forfeiture of Account When Repayment of Distribution Is Not
Made. If distribution is made to a Participant and he does not repay such
distribution under the terms of Section 5.6(b) of this Plan when the time limit
for repayment expires under Section 5.6(b) above, the Participant shall
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forfeit the entire portion of his nonvested Account (as adjusted for gains and
losses) which was not distributed to him. The Account shall be unadjusted for
any increase in vesting for service completed during the repayment period.
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ARTICLE VI
RETIREMENT DATE, DESIGNATION OF BENEFICIARY
Section 6.1 Normal Retirement Date. On the last date of the quarter in which
a Participant attains his Normal Retirement Age, for purposes of this Plan he
shall be entitled to retire voluntarily. The Employer may continue to employ a
Participant after he has attained his Normal Retirement Age with the consent of
such Participant. At any time thereafter such Participant may retire. Until
retirement, a Participant shall continue to participate in the Plan unless he
elects otherwise. A Participant who has completed 10 years of service with any
Employer or combination of Employers may elect to retire for purposes of this
Plan on the last day of any quarter during the 5-1/2 years prior to his Normal
Retirement Age upon application to and approval by the Plan Committee. In no
event may a Participant receive a distribution attributable to Employer
contributions prior to termination of the Participant's employment except upon
retirement for purposes of this Plan.
Section 6.2 Designation of Beneficiary. A Participant's full vested Account
balance shall be payable upon the death of the Participant, to the Participant's
surviving spouse or to his designated Beneficiary if there is no surviving
spouse or if the spouse consents to such Beneficiary designation in writing.
This spousal consent shall acknowledge the effect of such consent and shall be
witnessed by a Plan Committee member or a notary public. If there is no
surviving spouse or in the case of a spousal election not to receive the
Account, a Participant shall designate a Beneficiary to receive his Account in
the Trust Fund upon his death on the form prescribed by and delivered to the
Plan Committee. The Participant shall have the right to change or revoke a
designation at any time by filing a new designation or notice of revocation with
the Plan Administrator. No notice to any Beneficiary other than the spouse nor
consent by any Beneficiary other than the spouse shall be required to effect any
change of designation or revocation. If a Participant fails to designate a
Beneficiary before his death, or if no designated Beneficiary survives the
Participant, the Plan Committee shall direct the Trustee to pay his Account in
the Trust Fund to his surviving spouse, or if none, to his personal
representative. If no personal representative has been appointed actual notice
of such is given to the Plan Committee within 60 days after the Participant's
death, and if his Account does not exceed $5,000, the Plan Committee may direct
the Trustee to pay his Account to such person as may be entitled to it under the
laws of the state where such Participant resided at the date of his death. In
such case, the Plan Committee may require such proof of right or identity from
such person as the Plan Committee may deem necessary.
Section 6.3 Participant or Beneficiary Whose Whereabouts Are Unknown. In the
case of any Participant or Beneficiary whose whereabouts are unknown, the Plan
Committee shall notify such Participant or Beneficiary at his last known address
by certified mail with return receipt requested advising him of his right to a
pending distribution. If the Participant or Beneficiary cannot be located in
this manner, the Plan Committee shall direct the Trustee to establish a
custodial Account for such Participant or Beneficiary for the purpose of holding
the Participant's Account until it is claimed by the Participant or Beneficiary
or until proof of death satisfactory to the Plan Committee is received by the
Plan Committee. If such proof of death is received, the Plan Committee shall
direct the Trustee to distribute the Participant's Account in accordance with
the provisions of Section 6.2 of this Plan. Any Trustee fees or other
administrative expenses attributable to a custodial Account established and
maintained under this section shall be charged against such Account.
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ARTICLE VII
DISTRIBUTION FROM TRUST FUND
Section 7.1 When Accounts Become Distributable and Effect of Distribution.
If a Participant dies, suffers Total Disability, retires, or terminates his
employment for any other reason, the portion of this vested Account attributable
to Employer contributions, to Participant contributions, and to any rollover
contributions shall be distributable under Section 7.2 of this Plan. When the
Participant's Account becomes distributable, such Participant shall cease to
have any further interest or participation in the Trust Fund or any subsequent
accruals or contributions to the Trust Fund except as provided below: (i) a
Participant shall retain the right to receive distribution of his Account as
determined at the last prior regular computation or upon the special computation
as determined under Section 5.1 of this Plan; and (ii) except as provided in
Section 5.1 of this Plan, a Participant who makes contributions during any
quarter shall retain the right to receive his share in the Employer's
contribution allocated to his Account for such quarter.
Section 7.2 Distribution of Account. (a) Notification of Trustee and Nature
of Distribution. As soon as administratively feasible after a Participant's
vested Account is distributable, the Plan Committee shall notify the Trustee in
writing of the Participant's name and address, the amount of his vested Account
which is distributable, the reason for its being distributable and the
permissible manner of distribution. A Participant's Account shall be distributed
in cash or Qualifying Employer Securities at the election of the Participant,
provided that Qualifying Employer Securities shall be distributed to a
Participant who makes a written demand for such to the Plan Committee. Cash
always may be distributed in lieu of fractional shares.
(b) Distribution Upon Retirement and Upon Total Disability. Except
as provided in Section 7.5, if a Participant's Account becomes distributable
upon his Termination of Employment with the Employer because such Participant
has attained retirement age or because of his Total Disability, the Trustee
shall pay such Participant's Account as soon as administratively feasible
following the Participant's Termination of Employment in (i) one lump sum
distribution, or (ii) substantially equal annual installments over a period not
to exceed five years. If he dies before receiving all of his vested Account, the
remaining installments shall be paid to his Beneficiary under this Section 7.2.
Any payments received as disability benefits under this Plan are intended to
qualify as distribution from an accident and health Plan as described in the
Code.
(c) Distribution Upon Death. Except as provided in Section 7.5, if a
Participant's Account becomes distributable because of his death, his
Beneficiary may elect to receive such Participant's Account, commencing as soon
as administratively feasible following the Participant's death in (i) one lump
sum distribution, or (ii) substantially equal annual installments over a period
not to exceed five years. If the Beneficiary dies before receiving all of the
Participant's vested Account, the remaining payments shall be made to the
contingent Beneficiary, if any. If the Participant has not designated a
Beneficiary, or if he has designated a Beneficiary who dies and the Participant
has not designated a contingent Beneficiary, the Participant's vested Account,
or the undistributed portion of it, shall be paid in a lump sum under Section
6.2 of this Plan.
(d) Distribution Upon Other Termination of Employment. Except as
provided in Section 7.5, if a Participant's Account becomes distributable upon
his Termination of Employment for any reason other than attainment of retirement
age, disability, or death, the Trustee shall pay
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such Participant's Account to the Participant, in one lump sum distribution as
soon as administratively feasible following Participant's Termination of
Employment and election to receive a distribution in accordance with Section
7.2(f). The vested Account of a Participant who has satisfied the years of
service requirement for early retirement under Section 6.1 of this Plan, but who
terminates employment prior to the early retirement age may be distributed, at
the option of the Participant, as soon as administratively feasible following
the date on which the Participant attains early retirement age, if such date is
earlier than the date on which this Account otherwise would be distributable. If
the Participant dies prior to receiving all of his vested Account, the remainder
shall be distributed to his Beneficiary under this Section 7.2.
(e) Distribution for Rollover Transactions and Eligible Rollover
Distributions.
(i) Notwithstanding any other provision of this Section
7.2, a Participant whose Account becomes distributable
may request that the Plan Committee direct the Trustee
to distribute the entirety of the Participant's vested
Account in a single payment to the Participant for the
purpose of transferring such Account upon Termination
of Employment to another plan in a rollover
transaction. A Participant may not rollover the portion
of his Account considered contributed by the
Participant, which includes all Participant
contributions other than elective deferrals. A rollover
contribution may include all or any portion of any
prior rollover contributions, any earnings, losses, and
changes in the fair market value of the portion of a
Participant's Account attributable to his own
contributions and the portion of a Participant's vested
Account attributable to elective deferrals and Employer
contributions. The Participant shall make such rollover
request in writing and shall provide such information
to the Plan Committee as the Plan Committee requests,
including the name of the plan to which his interest is
to be transferred and the name and address of the
sponsor and the Trustee of the new plan, when
applicable.
(ii) Notwithstanding any provision of the Plan to the
contrary that otherwise would limit a Participant's
distribution election under this Article, a Participant
may elect, at the time and in the manner prescribed by
the Plan Committee, to have any portion of an eligible
rollover distribution paid directly to an eligible
retirement plan specified by the Participant in a
direct rollover. An eligible rollover distribution is
any distribution of all or any portion of the balance
to the credit of the Participant, except that an
eligible rollover distribution does not include (A) any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of
ten years or more; (B) any distribution to the extent
such distribution is required under Code Section
401(a)(9); and (C) the portion of any distribution that
is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation
with respect to employer securities). An eligible
retirement plan is an individual retirement account
described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that
accepts the distributee's
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eligible rollover distribution. However, in the case of
an eligible rollover distribution to a surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity. A
distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code
Section 414(p), are distributees with regard to the
interest of the spouse or former spouse. A direct
rollover is a payment by the Plan to the eligible
retirement plan specified by the distributee. The
Committee may establish procedures for the distribution
of eligible rollover distributions, including any
limitations on the amount eligible for a rollover
distribution, to the extent permitted by law.
(f) Distribution of a Participant's Contributions. Notwithstanding
any other provision of Section 7.2 of this Plan, but subject to the rules of
Section 7.5 of this Plan; if a Participant terminates employment for any reason,
he shall receive distribution in one lump sum of his Account in the Trust Fund
attributable to Participant contributions and the earnings, losses, and changes
in fair market value of such contributions if he makes written demand for them
upon the Plan Committee. If a Participant so requests, distribution of his
Account attributable to Participant contributions shall be made as soon as
administratively feasible following his election. Any amount attributable to
Participant contributions not distributed under this Section 7.2(f) shall be
distributed along with Employer contributions.
(g) Optional Forms of Benefits for Transferred Assets.
Notwithstanding any provision of this Plan to the contrary, to the extent that
any optional form of benefit under this Plan permits a distribution prior to the
employee's retirement, death, disability, or severance from employment, and
prior to Plan termination, the optional form of benefit is not available with
respect to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of section
414(1) of the Internal Revenue Code, to this Plan from a money purchase pension
plan qualified under section 401(a) of the Internal Revenue Code (other than any
portion of those assets and liabilities attributable to voluntary employee
contributions).
Section 7.3 Disposition of Forfeitable Account on Termination of Employment.
If a Participant's employment is terminated for any reason other than
retirement, death, or Total Disability, while any part of his Account in the
Trust Fund is forfeitable, then that portion of his Account which is forfeitable
shall be forfeited by him on the earlier of the date the Participant receives
distribution or the date which he experiences five consecutive one-year breaks
in service. If the value of a Participant's vested Account balance is zero upon
the Participant's termination of employment, the Participant will be deemed to
have received a distribution of the vested Account balance immediately upon such
termination of employment. If a Participant who has received a distribution of
less than his or her entire Account upon termination of employment is reemployed
prior to five consecutive one-year breaks in service, the forfeited Account will
be restored from income or gains to the Plan, forfeitures, or Company
contributions, at the discretion of the Plan Committee, if the Participant
repays the distributed amount to the Plan pursuant to section 5.6(b). Any amount
forfeited will remain in the Trust Fund and will be allocated as provided in
Section 5.1 of this Plan.
Section 7.4 Assignment of Benefits. (a) General Rules. Except as provided in
this Section 7.4, all amounts payable by the Trustee shall be paid only to the
person entitled to them, and all such
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payments shall be paid directly to such person and not to any other person or
corporation. Such payments shall not be subject to the claim of any creditor of
a Participant, nor shall such payments be taken in execution by attachment or
garnishment or by any other legal or equitable proceedings. No person shall have
any right to alienate, anticipate, commute, pledge, encumber, or assign any
payments or benefits which he may expect to receive contingently or otherwise,
under this Plan, except the right to designate a Beneficiary or beneficiaries;
provided, that this Section 7.4 shall not affect, restrict, or abridge any right
of setoff or lien which the Trust may have by law.
(b) Qualified Domestic Relations Orders.
(i) Section 7.4(a) of this Plan shall not apply with
respect to payments in accordance with the requirements
of a qualified domestic relations order. A qualified
domestic relations order creates or recognizes the
existence of an alternate payee's right to, or assigns
to an alternate payee the right to, receive all or a
portion of the benefits otherwise payable to a
Participant under the Plan. A domestic relations order
means any judgment, decree, or order (including
approval of a property settlement agreement) that
relates to the provision of child support, alimony
payments, or marital property rights to a spouse,
former spouse, child, or other dependent of a
Participant, and is made pursuant to a state domestic
relations law (including a community property law). To
qualify, the domestic relations order must:
(A) Clearly state the name and last known mailing
address of the Participant and the name and
mailing address of each alternate payee covered
by the order;
(B) Clearly state the amount or percentage of the
Participant's benefits to be paid by the Plan to
each alternate payee, or the manner in which the
amount or percentage is to be determined;
(C) Clearly state the number of payments or period to
which the order applies;
(D) Identify each Plan to which the order applies;
(E) Not require the Plan to provide any type or form
of benefits, or any option, not otherwise
provided under the Plan;
(F) Not require the Plan to provide increased
benefits (determined on the basis of actuarial
value); and
(G) Not require the payment of benefits to an
alternate payee that are required to be paid to
another alternate payee under another order
previously determined to be a qualified domestic
relations order.
(ii) In the case of any distribution before a Participant
has separated from service, a qualified domestic
relations order shall not fail to meet the requirements
of Section 7.4(b)(i)(E) of this Plan solely because
such order requires that
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payment of benefits be made to an alternate payee (A)
on or after the date the Participant attains the
earliest retirement age, (B) as if the Participant had
retired on the date on which such payment is to begin
under such order, and (C) in any form in which benefits
may be paid under the Plan to the Participant (other
than in the form of a qualified joint and survivor
annuity with respect to the alternate payee and his
subsequent spouse). Payment of benefits before
Termination of Employment solely by reason of payments
to an alternate payee under a qualified domestic
relations order shall not be deemed to be a violation
of Code Section 401(a) or (k).
(c) Definitions.
(i) "Alternate payee" means any spouse, former spouse,
child, or other dependent of a Participant who is
recognized by a qualified domestic relations order as
having a right to receive all, or a portion of, the
benefits payable under a Plan with respect to such
Participant.
(ii) "Earliest retirement age" means the earlier of:
(A) The date on which the Participant is entitled to
a distribution under the Plan; or
(B) The later of the date the Participant attains age
50, or the earliest date on which the Participant
could begin receiving benefits under the Plan if
the Participant had separated from service.
Section 7.5 Other Rules for Distribution of Fund. (a) Vested Accounts and
Consent to Distribution. No life annuity may be purchased or distributed under
this Plan and no amount (taking into consideration both Employer and Employee
contributions) may be distributed to a Participant prior to age 65 unless the
amount is distributed in a lump sum of $5,000 or less or the Participant
consents in writing to the distribution. Unless the Participant elects
otherwise, distribution must commence not later than 60 days after the end of
the Plan Year in which a Participant attains Normal Retirement Age or actually
retires, whichever is later. Unless otherwise elected by the Participant,
distributions must commence no later than one year after the close of the Plan
Year in which occurs the later of the Participant's Termination of Employment
because of death, disability or Normal Retirement Age, or the fifth Plan Year
following the Participants' separation from service; provided, however, that if
securities held in a Participant's Account were purchased with the proceeds of a
loan that has not been repaid in full, distributions may be delayed until the
end of the Plan Year during which the loan is repaid in full. The Participant's
Account must be distributed over a period not longer than five years or, five
years plus one additional year (but not more than five additional years) for
each $100,000 of Account balance in excess of $500,000.
(b) Distribution Rules. Notwithstanding any other provisions of this
section, the following distribution rules shall apply (unless a different method
of distribution applies under Section 242(b) of the Tax Equity and Fiscal
Responsibility Act of 1982):
(i) Before Death. The entire Account of each Participant
(A) will be distributed to him not later than the
required beginning date; or (B) shall be distributed
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commencing not later than the required beginning date
over (1) the life of the Participant (or the lives of
the Participant and his designated Beneficiary), or (2)
a period not extending beyond the life expectancy of
the Participant (or the life expectancy of the
Participant and his designated Beneficiary).
(ii) After Death. If a Participant dies and distribution of
his Account has begun in accordance with Section
7.5(i)(B) of this Plan, the remaining portion of his
Account will be distributed at least as rapidly as
under the method of distribution being used under that
Section 7.5(i)(B) as of the date of the Participant's
death. If a Participant dies before distribution of the
Participant's Account has commenced, the entire
interest of the Participant will be distributed within
five years after the death of the Participant. The
preceding sentence shall not apply if any portion of
the Participant's Account is payable to or for the
benefit of a designated Beneficiary, if such portion
will be distributed over the life of the designated
Beneficiary, and if such distributions will begin not
later than one year after the date of the Participant's
death or such later date as the Secretary of the
Treasury may prescribe by regulations. If the
designated Beneficiary is the surviving spouse of the
Participant, the date on which the distributions are
required to begin shall not be earlier than the date on
which the Participant would have attained age 70-1/2,
and if the surviving spouse dies before the
distribution to such spouse begins, distributions shall
be made as if the surviving spouse were the
Participant.
(iii) Life Expectancy. For purposes of this Section 7.5, the
life expectancy of an Employee and the Employee's
spouse (other than in the case of a life annuity) may
be redetermined but not more frequently than annually
as determined by the Plan Committee.
(iv) Required Beginning Date. Required Beginning Date means
April 1 of the calendar year following the calendar
year in which occurs the later of [1] the date the
Participant attains age 70 1/2, or [2] the date the
Participant retires from employment with the Company.
Notwithstanding the above, in the case of a 5% owner of
the Company, Required Beginning Date means April 1 of
the calendar year following the calendar year in which
the Participant attains age 70 1/2.
Any Participant (who is not a 5% owner of the Company)
attaining age 70 1/2 in years after 1995 may elect by
April 1 of the calendar year following the year in
which the Participant attained age 70 1/2, (or by
December 31, 1997 in the case of a Participant
attaining age 70 1/2 in 1996) to defer distributions
until the calendar year following the calendar year in
which the Participant retires. If no such election is
made the Participant will begin receiving distributions
by the April 1 of the calendar year following the year
in which the Participant attained age 70 1/2 (or by
December 31, 1997 in the case of a Participant
attaining age 70 1/2 in 1996).
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Any Participant attaining age 70 1/2 in years prior to
1997 may elect to stop distributions and recommence by
the April 1 of the calendar year following the year in
which the Participant retires.
(v) Designated Beneficiary. Designated Beneficiary means
any individual designated as a Beneficiary by the
Participant.
(vi) Treatment of Payments to Children. Under regulations
prescribed by the Secretary of the Treasury, any amount
paid to a child shall be treated as if it had been paid
to the surviving spouse if such amount will become
payable to the surviving spouse upon such child
reaching majority (or such other designated event
permitted under regulations).
(vii) Spouse, Trust for Benefit of Spouse, or Estate As
Beneficiary. If distribution prior to a Participant's
death has not commenced or has commenced as installment
payments from the Trust Fund and if the Participant
designates his spouse, a trust for the benefit of his
spouse, or his estate as his Beneficiary, the
provisions of this subsection shall apply, subject to
the limitations in this Section 7.5:
(A) Spouse As Beneficiary. If a Participant
designates his spouse as his Beneficiary, upon
the death of the Participant the spouse shall
elect (1) to receive the entire Account of the
Participant in a lump sum distribution, or (2) to
receive payment of the Account in installments as
provided in Section 7.5(vii)(E) of this Plan. In
the absence of an election by the spouse, the
Participant's Account shall be distributed to the
spouse in a lump sum within a period of time that
satisfies the requirements of this section.
Notwithstanding any other provisions of this
Plan, the spouse at any time may direct the
Trustee to distribute all or any part of the
Account to the spouse, or may request that the
Trustee segregate the Account from the remainder
of the Trust Fund and invest it in the manner
that the spouse specifies. The Trustee, in its
sole discretion, shall determine on a
nondiscriminatory basis whether to permit such
segregation.
(B) QTIP Trust As Beneficiary. If a Participant
designates as his Beneficiary a qualified
terminable interest property "QTIP" trust for the
benefit of his spouse, upon the death of the
Participant the Trustee of the QTIP trust shall
elect for the QTIP trust (1) to receive the
entire Account of the Participant in a lump sum
distribution, or (2) to receive payment of the
Account in installments as provided in Section
7.5(vii)(E) of this Plan. In the absence of an
election by the QTIP Trustee, the Participant's
Account shall be distributed to the QTIP trust in
a lump sum within a period of time that satisfies
the requirements of this Section 7.5.
Notwithstanding any other provisions of this
Plan, the spouse at any time may direct the
Trustee to distribute all or any part of the
Account to the QTIP trust, or may request that
the Trustee segregate the Account from the
remainder of the Trust Fund and invest it in the
manner that the QTIP Trustee
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specifies. The Trustee, in its sole discretion,
shall determine on a nondiscriminatory basis
whether to permit such segregation.
(C) General Power of Appointment Trust As
Beneficiary. If the Participant designates as his
Beneficiary a trust over which his spouse has a
general power of appointment, upon the death of
the Participant the spouse shall elect (1) for
such trust to receive the entire Account of the
Participant in a lump sum distribution, or (2)
for such trust to receive payment of the Account
in installments as provided in Section
7.5(vii)(E) of this Plan. In the absence of an
election by the spouse, the Participant's Account
shall be distributed to such trust in a lump sum
within a period of time that satisfies the
requirements of this section. Notwithstanding any
other provisions of this Plan, the spouse at any
time may direct the Trustee to distribute all or
any part of the Account to the general power of
appointment trust, or may request that the
Trustee segregate the Account from the remainder
of the Trust Fund and invest it in the manner
that the spouse specifies. The Trustee, in its
sole discretion, shall determine on a
nondiscriminatory basis whether to permit such
segregation.
(D) Estate As Beneficiary. If the Participant
designates his estate as his Beneficiary with a
specific bequest of his income in respect of
decedent to his spouse, upon the death of the
Participant the personal representative of the
Participant (or the successor of the personal
representative) shall elect (1) to receive the
entire Account of the Participant in a lump sum
distribution, or (2) for the spouse to receive
payment of the Account in installments as
provided in Section 7.5(vii)(E) of this Plan. In
the absence of an election by the personal
representative (or his successor), the
Participant's Account shall be distributed to the
personal representative (or his successor) in a
lump sum within a time period that satisfies the
requirements of this section. Notwithstanding any
other provisions of this Plan, the personal
representative (or his successor) at any time may
direct the Trustee to distribute all or any part
of the Account, or may request that the Trustee
segregate the Account from the remainder of the
Trust Fund and invest it in the manner that the
personal representative (or his successor)
specifies. The Trustee, in its sole discretion,
shall determine on a nondiscriminatory basis
whether to permit such segregation.
(E) Installment Distributions. If installment
payments of the Participant's Account are elected
under this section, the person making the
election shall specify the amount of the payments
and when they shall be made, provided that
payment must be made no less frequently than
annually. The total installment payments each
year shall equal the greater of (1) all income
from the Account, or (2) the minimum permissible
annual payment under this Section 7.5, and shall
be limited as provided under Section 7.2(c) of
this Plan. If a spouse elects installment
payments, such spouse shall determine who shall
receive the amounts, if any, payable under such
installment election after such spouse's death.
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Section 7.6 Withdrawals. (a) Employer Contributions. Upon completing the
requirements for early retirement provided in Section 6.1 of this Plan, a
Participant may elect to retire for purposes of this Plan and may request
withdrawal from the Trust Fund of all or any portion of his Account attributable
to Employer contributions valued as of the most recent preceding Valuation Date.
If a Participant does make such a withdrawal, he shall not be eligible to
participate in the Plan again and he shall forfeit all income which otherwise
would have been credited to his Account on the last day of the year in which he
makes a withdrawal of Employer contributions. His Account shall be credited or
charged with any realized or unrealized gains or losses on such date as though
no such withdrawal had occurred.
(b) Voluntary Contributions. At any time a Participant may request
withdrawal of all or any part of his Account attributable to voluntary
contributions. A Participant desiring such a withdrawal shall file a written
request with the Plan Committee at least two weeks before the date on which
withdrawal is to be made. The Participant shall specify the date of withdrawal
in his request which date shall be the end of a calendar quarter and that date
shall be the withdrawal date for all purposes of this Plan whether or not he
actually receives his distribution on that date. The Plan Committee then shall
direct the Trustee to distribute the amount requested to the Participant. The
Trustee shall distribute the withdrawn contributions as soon as reasonably
possible after the withdrawal date. A Participant who makes withdrawal of any
portion of his Account under this Section 7.6(b) may not contribute to the Trust
Fund under Section 4.1 of this Plan until the first calendar quarter commencing
six months after withdrawal is made. Any expenses attributable to any withdrawal
under this Section 7.6(b) shall be charged to the Account of the Participant
requesting the withdrawal. Vested benefits under the Plan may not be forfeited
because a Participant withdraws his voluntary contributions.
(c) Salary Reductions and Rollover Contributions. A Participant may
withdraw his elective deferral contributions to this Plan (but excluding any
earnings, losses, and changes in fair market value of such contributions in the
case of a hardship withdrawal), as reflected in his Account attributable to
elective deferrals, upon either completing the requirements for early retirement
under Section 6.1 of this Plan or upon serious financial hardship, as defined
below. A Participant may withdraw any Rollover contributions made under Section
4.7 (including any earnings, losses, and changes in fair market value of such
rollover contributions) upon serious financial hardship, as defined below. A
Participant desiring such a withdrawal shall make his request in such form and
manner as the Plan Committee shall prescribe from time to time. If a Participant
makes a withdrawal upon eligibility for early retirement, he shall not be
eligible to participate in the Plan again and shall forfeit all income which
otherwise would have been credited to his Account on the last day of the year in
which he makes withdrawal. A hardship distribution cannot exceed the amount
required to meet the immediate financial need and cannot be reasonably available
to the Participant from other resources. If the Plan Committee determines in
accordance with a uniform and nondiscriminatory policy that serious financial
hardship exists, it may direct the Trustee to distribute the amount requested to
the Participant. Any expenses attributable to the hardship withdrawal shall be
charged to the Account of the Participant requesting the withdrawal. For the
purposes of this Section, a serious financial hardship is defined as an
immediate and heavy financial need of the Participant when such Participant
lacks other available resources. The following are the only financial needs
considered immediate and heavy:
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(i) Deductible medical expenses (within the meaning of Code Section
213(d)) of the Participant, the Participant's spouse, children, or
dependents;
(ii) The purchase (excluding mortgage payments) of a principal residence
for the Participant;
(iii) Payment of tuition, and related expenses, for the next twelve months
of post-secondary education for the Participant, the Participant's
spouse, children, or dependents;
(iv) The need to prevent the eviction of the Participant from, or a
foreclosure on the mortgage of, the Participant's principal
residence;
(v) Funeral expenses of a family member of the Participant; or
(vi) Any other reason deemed to be an immediate and heavy financial need
by the Secretary of Treasury.
In the case of hardship withdrawal of elective deferrals, a distribution will be
considered as necessary to satisfy an immediate and heavy financial need of the
Participant only if (A) the Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans available under all Plans
maintained by the Company; (B) in the case of hardship withdrawal of elective
deferrals, all Plans maintained by the Company provide that the Participant's
elective deferrals and Participant contributions will be suspended for twelve
months after the receipt of the hardship distribution; (C) the distribution is
not in excess of the amount necessary to satisfy the immediate and heavy
financial need; and (D) all plans maintained by the Company provide that the
Participant may not make elective deferrals for the Participant's taxable year
immediately following the taxable year of the hardship distribution in excess of
the applicable limit under Code Section 402(g) for such taxable year less the
amount of such Participant's elective deferrals for the taxable year of the
hardship distribution.
Any hardship withdrawal under this section may be made only in a cash lump sum.
Section 7.7 Put Option. If Qualifying Employer Securities distributed, as
part of the balance to the credit of the Participant distributed within one
taxable year, are not readily tradable on an established market, the Participant
receiving such Qualifying Employer Securities has a right to require the
Employer to repurchase such Qualifying Employer Securities at fair market value.
The put option period shall extend for 60 days after the date of distribution
and, if not exercised during that time period shall extend for an additional 60
day period in the following Plan Year (to the extent provided in Treasury
regulations). Payments for the Qualifying Employer Securities must be made in
substantially equal period payments over a period not exceeding five years and
must commence within 30 days after the exercise of the "put option". Adequate
security shall be provided and reasonable interest shall be paid on unpaid
amounts. Qualifying Employer Securities shall be readily tradable on an
established market if they are (i) listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, (ii) quoted
on a system sponsored by a national securities association registered under
Section 15A(b) of the Securities Exchange Act, including the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
or (iii) traded on any over the counter market by brokers or dealers who make
the market using "pink sheets" published by the National Quotation Bureau, Inc.
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Section 7.8 Loans to Participants. (a) Uniform Non-Discriminatory Policy.
The Committee may establish a uniform and nondiscriminatory policy under which
it may direct the Trustee to make a loan to a Participant who makes a written
request for such a loan. In no event may all loans from all qualified plans of
the Company to an individual Participant exceed the lesser of (i) the greater of
$10,000 or one-half the present value of the Participant's nonforfeitable
accrued benefit under all such plans; or (ii) $50,000 reduced by the excess (if
any) of the highest outstanding balance of loans from all such plans during the
one year period ending on the day before the date on which such loan was made
over the outstanding balance of loans from all such plans on the date on which
such loan was made.
(b) Collateral Terms. All loans shall be secured adequately by
collateral which collateral may (in the Plan Committee's discretion) include up
to 50% of the Participant's vested Account, shall be considered investments of
the Plan and Trust, and shall bear a rate of interest considered reasonable on
the date on which the loan was made. Except to the extent it is used to acquire
any dwelling unit that within a reasonable time is to be used (determined at the
time the loan is made) as a principal residence of the Participant, any such
loan shall be repaid within or upon the earlier of the date prescribed by the
Plan Committee, or five years after the loan is made. To the extent that any
loan is used to acquire the principal residence of the Participant, such loan
shall be repaid within a reasonable period of time as determined by the
Committee. Substantially level amortization of the loan (with payments at least
quarterly) shall be made over the term of the loan. If a Participant does not
repay such loan within the time prescribed, then in addition to enforcing
payment through any legal remedy, the Plan Committee may instruct the Trustee to
deduct the total amount of the loan and any unpaid interest due on it from such
Participant's Account, but no foreclosure of the Participant's Account may occur
prior to the Account being distributable under this Article. In its discretion
the Plan Committee may require the Participant to repay the loan by payroll
deduction. Loans may not be made to shareholder-Employees or to owner-Employees.
For purposes of this requirement, a shareholder-Employee means an Employee or
officer of an electing small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Code Section 319(a)(1)) on any day
during the taxable year of such corporation, more than five percent of the
outstanding stock of the corporation. An owner-Employee means an Employee who
owns the entire interest of an unincorporated trade or business or is a partner
owning more than 10 percent of the capital interest or profits in such
partnership.
Section 7.9 Other Restrictions on Withdrawals. Notwithstanding other
provisions of this Plan and in particular Article VII of this Plan, the
following will apply to all transactions involving Qualifying Employer
Securities or Accounts which are the subject of this Plan:
(i) Six Month Limitation on Further Purchases. An officer or director
Participant making a withdrawal under this Plan must cease further
purchases of Qualifying Employer Securities in the Plan for six
months, or the Qualifying Employer Securities so distributed must be
held by that Participant six months prior to disposition; provided
that extraordinary distributions of all of the Qualifying Employer
Securities held by the Plan and distributions in connection with
death, retirement, disability, Termination of Employment, or a
qualified domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act, or the rules under
those acts, are not subject to this requirement; and
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(ii) Six Month Limitation on Further Participation. An officer or
director Participant who ceases participation in the Plan may not
participate in the Plan again for at least six months.
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ARTICLE VIII
FIDUCIARY OBLIGATIONS
Section 8.1 General Fiduciary Duties. A Fiduciary shall discharge his duties
under the Plan solely in the interest of the Participants and the beneficiaries
and for the exclusive purpose of providing benefits to Participants and to their
beneficiaries and defraying reasonable expenses of administering the Plan. All
fiduciaries shall act with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. Except as authorized by regulations of the
Secretary of Labor, no Fiduciary may maintain the indicia of ownership of any
assets of the Plan outside the jurisdiction of the district courts of the United
States. A Fiduciary shall act in accordance with the documents and instruments
governing the Plan to the extent such documents and instruments are consistent
with the requirements of law.
Section 8.2 Allocation of Fiduciary Responsibility. A Named Fiduciary may
designate persons other than named fiduciaries to carry out Fiduciary
responsibilities (other than Trustee responsibilities) under the Plan.
Section 8.3 Liability of Fiduciaries. (a) Extent of Liability. A Fiduciary
who breaches any of the responsibilities, obligations, or duties imposed upon
him by this Plan or by the requirements of law shall be personally liable only
(i) to make good to the Plan any losses resulting from his breach, (ii) to
restore to the Plan any profits the Fiduciary has made through the use of Plan
assets for his personal Account, and (iii) to pay those penalties prescribed by
law arising from his breach. A Fiduciary shall be subject to such other
equitable or remedial relief as a court of law may deem appropriate, including
removal of the Fiduciary. A Fiduciary also may be removed for a violation of
Section 8.8 of this Plan (prohibition against certain persons holding certain
positions). No Fiduciary shall be liable with respect to the breach of a
Fiduciary duty if such breach was committed before he became a Fiduciary or
after he ceased to be a Fiduciary.
(b) Liability of Fiduciary for Breach by Co-Fiduciary. A Fiduciary
shall be liable for a breach of Fiduciary responsibility of another Fiduciary of
this Plan, only if he (i) participates knowingly in, or knowingly undertakes to
conceal, an act or omission of the other Fiduciary, and knows such act or
omission by the other Fiduciary is a breach of the other Fiduciary's duties,
(ii) enables another Fiduciary to commit a breach, by his failure to comply with
Section 8.1 of this Plan in the administration of the specific responsibilities
which give rise to his status as a Fiduciary, or (iii) has knowledge of a breach
of another Fiduciary and does not make reasonable efforts under the
circumstances to remedy the breach.
(c) Liability for Improper Delegation of Fiduciary Responsibility. A
Named Fiduciary who allocates any of his Fiduciary responsibilities to any
person or designates any person to carry out any of his Fiduciary
responsibilities shall be liable for the act or omission of such person in
carrying out the responsibility only to the extent that the Named Fiduciary
fails to satisfy his general Fiduciary duties of Section 8.1 of this Plan with
respect to the allocation or designation, with respect to the establishment or
implementation of the procedure by which he allocates the responsibilities, or
in continuing the allocation or designation. Nothing in this Section 8.3(c)
shall prevent a Named Fiduciary from being liable if he otherwise would be
liable for an act or omission under Section 8.3 of this Plan.
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(d) Fiduciary to whom Responsibilities are Allocated. Any person who
has been designated to carry out Fiduciary responsibilities under Section 8.2 of
this Plan shall be liable for such responsibilities under this section to the
same extent as any Named Fiduciary.
(e) Liability Insurance and Indemnification. Nothing in this Plan
shall preclude a Fiduciary from purchasing insurance to cover liability from and
for his own account. The Company may purchase insurance to cover potential
liability of those persons who serve in a Fiduciary capacity with regard to the
Plan or may indemnify a Fiduciary against liability and expenses reasonably
incurred by him in connection with any action to which such Fiduciary may be
made a party by reason of his being or having been a Fiduciary.
Section 8.4 Prohibited Transactions. No Fiduciary shall cause the Plan to
engage in a transaction if the Fiduciary knows or should know that the
transaction constitutes a prohibited transaction under law. No disqualified
person under law (other than a Fiduciary acting only as such) shall engage in a
prohibited transaction as prescribed by law.
Section 8.5 Receipts of Benefits by Fiduciaries. Nothing shall prohibit any
Fiduciary from receiving any benefit to which he may be entitled as a
Participant or Beneficiary in the Plan, if such benefit is computed and paid on
a basis which is consistent with the terms of the Plan applied to all other
Participants and beneficiaries. The determination of any matters affecting the
payment of benefits to any Fiduciary other than the Plan Committee shall be
determined by the Plan Committee. If the Plan Committee is an individual, the
determination of any matters affecting the payment of benefits to the Plan
Committee shall be made by a temporary Plan Committee who shall be appointed by
the Board of Directors for such purpose. If the Plan Committee is a group of
individuals, the determination of any matters affecting the payment of benefits
to any individual Plan Committee member shall be made by the remaining Plan
Committee members without the vote of such individual Plan Committee member. If
the remaining Plan Committee members are unable to agree on any matter affecting
the payment of such benefits, the Board of Directors shall appoint a temporary
Plan Committee to decide the matter.
Section 8.6 Compensation and Expenses of Fiduciaries. (a) General Rules. A
Fiduciary shall be entitled to receive any reasonable Compensation for services
rendered or for the reimbursement of expenses properly and actually incurred in
the performance of his duties under the Plan. However, no Fiduciary who already
receives full-time pay from an Employer shall receive Compensation from the
Plan, except for reimbursement of expenses properly and actually incurred. All
Compensation and expenses shall be paid by the Plan, unless the Company, in its
discretion, elects to pay all or any part of such Compensation and expenses.
(b) Compensation of Plan Committee and Plan Administration. A Plan
Administrator who is not a full-time Employee of an Employer shall be entitled
to such reasonable Compensation as the Plan Committee and Plan Administrator
mutually shall determine. A Plan Committee member who is not a full-time
Employee of an Employer shall be entitled to such reasonable Compensation as the
Company and the Plan Committee mutually shall determine. Any expenses properly
and actually incurred by the Plan Committee or the Plan Administrator due to a
request by a Participant shall be charged to the Account of the Participant on
whose behalf such expenses are incurred.
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(c) Compensation of Trustee. A Trustee who is not a full-time
Employee of an Employer shall be entitled to such reasonable Compensation for
its services as the Plan Committee and the Trustee mutually shall determine.
(d) Compensation of Persons Retained or Employed by Named Fiduciary.
The Compensation of all agents, counsel, or other persons retained or employed
by a Named Fiduciary shall be determined by the Named Fiduciary employing such
person, with the Plan Committee's approval, provided that a person who is a
full-time Employee of an Employer shall receive no Compensation from the Plan.
Section 8.7 Service by Fiduciaries and Disqualified Persons. Nothing in this
Plan shall prohibit anyone from serving as a Fiduciary in addition to being an
officer, Employee, agent, or other representative of a disqualified person as
defined in the Code.
Section 8.8 Prohibition Against Certain Persons Holding Certain Positions.
No person who has been convicted of a felony shall be permitted to serve as an
administrator, Fiduciary, officer, Trustee, custodian, counsel, agent, or
Employee of this Plan, or as a consultant to this Plan, unless permitted under
law. The Plan Committee shall ascertain to the extent practical that no
violation of this section occurs. In any event, no person knowingly shall permit
any other person to serve in any capacity which would violate this section.
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ARTICLE IX
PLAN ADMINISTRATOR AND PLAN COMMITTEE
Section 9.1 Appointment of Plan Administrator and Plan Committee. The Board
of Directors by resolution shall appoint a Plan Administrator and Plan
Committee, both of whom shall hold office until resignation, death, or removal
by the Board of Directors. If the Board of Directors fails to appoint the Plan
Committee or Plan Administrator, or both, the Board of Directors shall be the
Plan Committee, the Plan Administrator, or both. Any person may serve in more
than one Fiduciary capacity, including service as Plan Administrator and Plan
Committee member. Any group of persons appointed by the Board of Directors may
serve in the capacity of Plan Committee, Plan Administrator, or both.
Section 9.2 Organization and Operation of Offices of Plan Administrator and
Plan Committee. The Plan Administrator and Plan Committee may adopt such
procedures as each deems desirable for the conduct of their respective affairs
and may appoint or employ a secretary or other agents, any of whom may be, but
need not be, an officer or Employee of the Company or an Associated Company. Any
agent may be removed at any time by the person appointing or employing him.
Section 9.3 Information To Be Made Available to Plan Committee and Plan
Administrator. To enable the Plan Committee and the Plan Administrator to
perform all of their respective duties under the Plan, each Employer shall
provide the Plan Committee and the Plan Administrator with access to the
following information for each Employee: (i) name and address; (ii) social
security number; (iii) birthdate; (iv) dates of commencement and Termination of
Employment; (v) reason for termination of employment; (vi) hours worked during
each year; (vii) annual Compensation; (viii) Employer contributions; and (ix)
such other information as the Plan Committee or the Plan Administrator may
require. To the extent the information is available in Employer records, an
Employer shall provide the Plan Committee and Plan Administrator with access to
information relating to each Employee's contributions, benefits received under
the Plan, and marital status. If such information is not available from the
Employer records, the Plan Committee shall obtain such information from the
Participants. The Plan Committee, the Plan Administrator and the Employer may
rely on and shall not be liable because of any information which an Employee
provides, either directly or indirectly. As soon as possible following any
Participant's death, Total Disability, retirement, or other Termination of
Employment, his Employer shall certify in writing to the Plan Committee and Plan
Administrator such Participant's name and the date and reason for his
Termination of Employment.
Section 9.4 Resignation and Removal of Plan Administrator or Plan Committee
Member; Appointment of Successors. Any Plan Administrator or Plan Committee
member may resign at any time by giving written notice to the Board of
Directors, effective as stated in such notice, otherwise upon receipt of such
notice. At any time the Plan Administrator or any Plan Committee member may be
removed by the Board of Directors without cause. As soon as practical, following
the death, resignation, or removal of any Plan Administrator or Plan Committee
member, the Board of Directors shall appoint a successor by resolution. Written
notice of the appointment of a successor Plan Administrator or successor Plan
Committee member shall be given by the Company to the Trustee. Until receipt by
the Trustee of such written notice, the Trustee shall not be charged with
knowledge or notice of such change.
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Section 9.5 Duties and Powers of Plan Administrator, Reporting and
Disclosure. (a) General Requirements. The Plan Administrator shall be
responsible for all applicable reporting and disclosure requirements of law. The
Plan Administrator shall prepare, file with the Secretary of Labor, the
Secretary of the Treasury, or the Pension Benefit Guaranty Corporation, when
applicable, and furnish to Participants and beneficiaries, when applicable, the
following: (i) summary plan description; (ii) description of modifications and
changes; (iii) annual report; (iv) terminal and supplementary reports; (v)
registration statement; and (vi) any other return, report, or document required
by law.
(b) Statement of Benefits Accrued and Vested. The Plan Administrator
is to furnish any Plan Participant or Beneficiary who so requests in writing, a
statement indicating, on the basis of the latest available information, the
total benefits accrued and the vested benefits, if any, which have accrued, or
the earliest date on which benefits will become vested. The Plan Administrator
shall furnish a written statement to any Participant who terminates employment
during the Plan Year and is entitled to a deferred vested benefit under the Plan
as of the end of the Plan Year, if no retirement benefits have been paid with
respect to such Participant during the Plan Year. The statement shall be an
individual statement and shall contain the information required in the annual
registration statement which the Plan Administrator is required to file with the
Secretary of the Treasury. The Plan Administrator shall furnish the individual
statement to the Participant before the expiration of the time prescribed for
filing the annual registration statement with the Secretary of the Treasury.
(c) Inspection of Documents. The Plan Administrator is to make
available for inspection copies of the Plan description and the latest annual
report and the agreements under which the Plan was established or is operated.
Such documents shall be available for examination by any Participant or
Beneficiary in the principal office of the Plan Administrator and in such other
places as may be necessary to make available all pertinent information to all
Participants. Upon written request by any Participant or Beneficiary, the Plan
Administrator is to furnish a copy of the last updated summary Plan description,
Plan description, and the latest annual report, any terminal report, and any
agreements under which the Plan is established or operated. In addition, the
Plan Administrator is to comply with every other requirement imposed on him by
law.
(d) Employment of Advisers and Persons To Carry Out
Responsibilities. The Plan Administrator may appoint one or more persons to
render advice with regard to any responsibility the Plan Administrator has under
the Plan and may employ one or more persons (other than a Named Fiduciary) to
carry out any of his responsibilities under the Plan.
(e) Notice of Eligibility for Direct Rollover Distribution. The Plan
Administrator shall provide a written explanation to the recipient of any
eligible rollover distribution that income taxes will not be withheld on the
distribution to the extent such distribution is transferred in an eligible
rollover distribution to an eligible retirement plan.
Section 9.6 Duties and Powers of Plan Committee - In General. The Plan
Committee shall decide, in its sole and absolute discretion, all questions
arising in the administration, interpretation, and application of the Plan and
Trust, including all questions relating to eligibility, vesting, and
distribution, except as may be reserved under this Plan to the Company, its
Board of Directors or any Associated Company. The Plan Committee may designate
any person (other than the Plan Administrator or Trustee) to carry out any of
the Plan Committee's Fiduciary responsibilities under the Plan (other than a
Trustee Responsibility) and may appoint one or more persons to render advice
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with regard to any responsibility the Plan Committee has under the Plan. The
Plan Committee from time to time shall direct the Trustee concerning the
payments to be made out of the Trust Fund pursuant to this Plan. All notices,
directions, information, and other communications from the Plan Committee shall
be in writing.
Section 9.7 Duties and Powers of Plan Committee - Keeping of Records. The
Plan Committee shall keep a record of all the Plan Committee's proceedings and
shall keep all such books of Account, records, and other data as may be
necessary or advisable in its judgment for the administration of this Plan and
Trust, including records to reflect the affairs of this Plan, to determine the
amount of vested and/or forfeitable interests of the respective Participants in
the Trust Fund, and to determine the amount of all benefits payable under this
Plan. The Plan Committee shall maintain separate Accounts for each Participant
as provided under Section 5.1 of this Plan. Subject to the requirements of law,
any person dealing with the Plan Committee may rely on, and shall incur no
liability in relying on, a certificate or memorandum in writing signed by the
Plan Committee as evidence of any action taken or resolution adopted by the Plan
Committee.
Section 9.8 Duties and Powers of Plan Committee - Claims Procedure. (a)
Filing and Initial Determination of Claim. Any Participant, Beneficiary or his
duly authorized representative may file a claim for a Plan benefit to which the
claimant believes that he is entitled. Such a claim must be in writing and
delivered to the Plan Committee in person or by certified mail, postage prepaid.
Within 90 days after receipt of such claim, the Plan Committee shall send to the
claimant by certified mail, postage prepaid, notice of the granting or denying,
in whole or in part, of such claim unless special circumstances require an
extension of time for processing the claim. In no event may the extension exceed
90 days from the end of the initial period. If such extension is necessary the
claimant will receive a written notice to this effect prior to the expiration of
the initial 90-day period. The Plan Committee shall have full discretion
pursuant to the Plan to deny or grant a claim in whole or in part. If notice of
the denial of a claim is not furnished in accordance with this Section 9.8(a),
the claim shall be deemed denied and the claimant shall be permitted to exercise
his right of review pursuant to Section 9.8(c) and (d) of this Plan.
(b) Duty of Plan Committee Upon Denial of Claim. The Plan Committee
shall provide to every claimant who is denied a claim for benefits written
notice setting forth in a manner calculated to be understood by the claimant:
(i) the specific reason or reasons for the denial; (ii) specific reference to
pertinent Plan provisions on which the denial is based; (iii) a description of
any additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material is necessary; and (iv) an
explanation of the Plan's claim review procedure.
(c) Request for Review of Claim Denial. Within 60 days after receipt
by the claimant of written notification of the denial in whole or in part of his
claim, the claimant or his duly authorized representative, upon written
application to the Plan Committee in person or by certified mail, postage
prepaid, may request a review of such denial, may review pertinent documents and
may submit issues and comments in writing. Upon its receipt of the request for
review, the Plan Committee shall notify the Board of Directors of the request.
(d) Claims Reviewer. Upon its receipt of notice of a request for
review, the Board of Directors shall appoint a person other than a Plan
Committee member to be the claims reviewer. The Plan Committee shall deliver to
the claims reviewer all documents submitted by the claimant and all other
documents pertinent to the review. The claims reviewer shall make a prompt
decision
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on the review. The decision on review shall be written in a manner calculated to
be understood by the claimant, and shall include specific reasons for the
decision and specific references to the pertinent Plan provisions on which the
decision is based. The decision on review shall be made not later than 60 days
after the Plan Committee's receipt of a request for a review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered not later than 120 days after receipt of a request
for review. If such extension is necessary the claimant shall be given written
notice of the extension prior to the expiration of the initial 60-day period. If
notice of the decision on review is not furnished in accordance with this
Section 9.8(d), the claim shall be deemed denied and the claimant shall be
permitted to exercise his right to legal remedy pursuant to Section 9.8(e) of
this Plan.
(e) Legal Remedy. After exhaustion of the claims procedure as
provided under this Plan, nothing shall prevent any person from pursuing any
other legal remedy.
Section 9.9 Duties and Powers of Plan Committee - Funding Policy. The policy
of each Employer is that this Plan shall be funded with Employer contributions
and Participant contributions. The Plan Committee shall determine the Plan's
short-run and long-run financial needs and regularly communicate these
requirements to the appropriate persons. The Plan Committee will determine
whether the Plan has a short-run need for liquidity, (e.g., to pay benefits) or
whether the liquidity is a long-run goal and investment growth is a more current
need. The Plan Committee shall communicate such information to the Trustee so
that investment policy can be coordinated appropriately with Plan needs.
Section 9.10 Duties and Powers of Plan Committee - Bonding of Fiduciaries
and Plan Officials. The Plan Committee shall procure bonds for every Fiduciary
of the Plan and every Plan official, if he handles funds of the Plan, in an
amount not less than 10% of the amount of funds handled and in no event less
than $1,000, except the Plan Committee shall not be required to procure such
bonds if: (i) the person is excepted from the bonding requirement by law; or
(ii) the Secretary of Labor exempts the Plan from the bonding requirements. The
bonds shall conform to the requirements of law.
Section 9.11 Duties and Powers of Plan Committee - Qualified Domestic
Relations Orders. (a) Establish Procedures. Effective as of January 1, 1985, the
Plan Committee shall establish reasonable procedures for determining the
qualification status of a domestic relations order. Such procedures: (i) shall
be in writing; (ii) shall provide to each person specified in a domestic
relations order as entitled to payment of Plan benefits notification of such
procedures promptly upon receipt by the Plan of the order; and (iii) shall
permit an alternate payee to designate a representative for receipt of copies of
notices that are sent to the alternate payee.
(b) Determination of Plan Committee. Within a reasonable period of
time after receipt of such order, the Plan Committee shall determine whether
such order is a qualified domestic relations order and notify the Participant
and each alternate payee of such determination. During any period in which the
issue of whether a qualified domestic relations order is a qualified domestic
relations order is being determined, the Plan Committee shall segregate in a
separate Account the amounts which would have been payable to the alternate
payee during such period if the order had been determined to be a qualified
domestic relations order. If, within 18 months the order is determined not to be
a qualified domestic relations order or the issue as to whether such order is a
qualified domestic relations order is not resolved, then the Plan Committee
shall pay under the terms of the Plan the segregated amounts to the person or
persons who would have been entitled to such amounts
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if there had been no order. If a Fiduciary acts in accordance with the fiduciary
responsibility provisions of ERISA, then the Plan's obligation to the
Participant and each alternate payee shall be discharge to the extent of any
payment made.
Section 9.12 Advice to Designated Fiduciaries. Any Fiduciary designated by
the Plan Committee or Plan Administrator may appoint with the consent of the
Plan Committee or Plan Administrator, respectively, one or more persons to
render advice with regard to any responsibility such designated Fiduciary has
under the Plan.
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ARTICLE X
POWERS AND DUTIES OF THE TRUSTEE
Section 10.1 Investment of Trust Fund. (a) Duties of Trustee. The duty of
the Trustee is to hold in trust the funds it receives. Subject to the direction
of the Plan Committee, the Trustee shall have exclusively authority and
discretion to manage and control the assets of the Plan and to manage, invest,
and reinvest the Trust Fund and the income from it under this article, without
distinction between principal and income, and shall be responsible only for such
sums that it actually receives as Trustee. The Trustee shall have no duty to
collect any sums from the Plan Committee. The Plan Committee will have the duty
to direct the Trustee with respect to the investment of the Trust Fund, subject
to the Participants' direction of investment under Section 10.1(d).
Notwithstanding any other provision of the Plan, the Trustee shall have no
responsibility to select the investment options offered to Participants under
Section 10.1(d) nor shall the Trustee have any discretion with respect to the
investment of Trust Fund assets.
(b) Powers of Trustee. The Trustee shall have the power to apply the
funds it receives to purchase shares of Qualifying Employer Securities, and the
Trustee may invest in Qualifying Employer Securities, up to 100% of the value of
Plan assets, without regard to the diversification requirement or the prudence
requirement to the extent it requires diversification. Purchases of stock may be
made by the Trustee in the open market or by private purchase, or, if available,
from the Company, or as the Trustee may determine in its sole discretion,
provided only that no private purchase or purchase from the Company may be made
at a price greater than the current market price for Qualifying Employer
Securities on the day of such purchase. The Trustee also may purchase stock from
Participants who receive distributions from this Trust, provided that all such
purchases shall be made at the current market price on the day of such purchase.
The Trustee also shall have the power to invest and/or reinvest any and all
money or property of any description at any time held by it and constituting a
part of the Trust Fund, without previous application to, or subsequent
ratification of, any court, tribunal, or commission, or any federal or state
governmental agency and may invest in real property and all interest in real
property, in bonds, notes, debentures, mortgages, commercial paper, preferred
stocks, common stocks, or other securities, rights, obligations, or property,
real or personal, including shares or certificates of participation issued by
regulated investment companies or regulated investment trusts, shares or units
of participation in qualified common trust funds, in qualified pooled funds, or
in pooled investment funds of an insurance Company qualified to do business in
the state. If the Trustee is a bank or similar financial institution supervised
by the United States or a state, it may invest Plan assets in its own deposits
(savings Accounts and certificates of deposit) if such deposits bear a
reasonable rate of interest.
(c) Diversification and Prudence Requirements. Except to the extent
the Trustee invests in the Qualifying Employer Securities, the Trustee shall
diversify the investments of the Plan to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not to do so. The Trustee
shall act with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims.
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(d) Participant's Right to Designate Investments.
(i) General Rules. Each Participant shall have the right to
designate the investment of his Account attributable to elective deferral
contributions, voluntary contributions, and rollover contributions and transfers
made to the Plan, as provided below.
(ii) Investments as of December 31, 1994, to be Invested by Trustee,
at the direction of the Plan Committee. All Accounts as of December 31, 1994, or
such later date as determined by the Plan Committee, will remain subject to
investment by the Trustee as directed by the Plan Committee, including
investment of up to 100% of such Accounts in Qualifying Employer Securities.
(iii) Procedure for Designation. Any designation or changes in
designation of the investment of a Participant's Account attributable to
elective deferrals or voluntary contributions shall be made in writing on forms
provided by the Plan Committee and submitted to the Plan Committee or the
Trustee, as determined by the Plan Committee, at such times as the Plan
Committee shall provide.
(iv) Investment Categories. The Plan Committee shall offer a broad
range of investment categories, as selected by the Plan Committee from time to
time, which categories shall include fixed income obligations of a secure
nature, such as savings accounts, certificates of deposit, and fixed income
government and corporate obligations. The investment categories also may include
Qualifying Employer Securities, other common stocks, real property, notes,
mortgages, commercial paper, preferred stocks, mutual funds, or other
securities, rights, obligations, or property, real or personal, including shares
or certificates of participation issued by regulated investment trusts and
shares or units of participation in qualified common Trust Funds or pooled
funds.
(v) Absence of Investment Designation. In the absence of any written
designation of investment for the Participant's elective deferrals or voluntary
contributions, the Trustee shall invest all funds received on Account of any
Participant in such category or categories as the Plan Committee may designate
from time to time.
(vi) Irrevocability of Investment Designation. Once a Participant
has designated the investment of his Account attributable to elective deferrals
or voluntary contributions into Qualifying Employer Securities, such Accounts
will thereafter remain invested in Qualifying Employer Securities. A
Participant's rollover contributions and transfer contributions, if any, may be
invested in Qualifying Employer Securities and such investments may be changed
quarterly in the same manner as investments other than Qualifying Employer
Securities are changed under the Plan.
(vii) Sole and Exclusive Power of Participants. The right to
designate investment categories under this Section 10.1 shall be the sole and
exclusive investment power granted to Participants. Neither the Trustee nor the
Plan Committee shall be liable for any loss which results from the Participant
exercising such control under this Section 10.1.
(viii) Expenses. Any expense incurred by the Trustee or the Plan
Committee will be charged directly against the value of the Account of the
Participant on whose behalf such expense is incurred. The Trustee or the Plan
Committee may allocate expenses to individual Accounts or commingled Accounts on
a nondiscriminatory basis.
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(ix) Special 1997 Participant Election Regarding Qualifying Employer
Securities: Effective from January 27, 1997, until August 31, 1997, and only in
connection with the public offering of common stock of General Communication,
Inc. that occurs during 1997 (the "1997 Public Offering"), each Participant will
be permitted to make a one-time election to sell up to 50% of the Qualifying
Employer Securities held in such Participant's Account (including but not
limited to the Participant's elective deferral account and Company contributions
account). The election to sell such Qualifying Employer Securities shall be made
pursuant to procedures promulgated by the Committee, which will be applied in a
uniform and nondiscriminatory manner. The sale price for such Qualifying
Employer Securities will be that price at which such common stock is offered to
the general public during the 1997 Public Offering. The proceeds from the sale
of such Qualifying Employer Securities thereafter may be invested as directed by
the Participant pursuant to the provisions of this Section 10.1, disregarding
Section 10.1(ii) to the extent applicable to the Participant's special one-time
election. Participant Accounts (including proceeds from the 1997 Public
Offering) invested in Qualifying Employer Securities after the 1997 Public
Offering will remain subject to the prohibition against later sales provided in
Section 10.1(vi).
Section 10.2 Administrative Powers of the Trustee. Subject to the
requirements imposed by law, the Trustee shall have all powers necessary or
advisable to carry out the provisions of this Plan and Trust and all inherent,
implied, and statutory powers not or subsequently provided by law, including
specifically the power to do any of the following:
(i) To cause any securities or other property to be registered and held
in its name as Trustee, or in the name of one or more of its
nominees, without disclosing the Fiduciary capacity, or to keep the
same in unregistered form payable to bearer;
(ii) To sell, grant options to sell, exchange, pledge, encumber,
mortgage, deed in trust, or use any other form of hypothecation, or
otherwise dispose of the whole or any part of the Trust Fund on such
terms and for such property or cash, in part cash and credit, as it
may deem best; to retain, hold, maintain, or continue any securities
or investments which it may hold as part of the Trust Fund for such
length of time as it may deem advisable; and generally, in all
respects, to do all things and exercise each and every right, power,
and privilege in connection with and in relation to the Trust Fund
as could be done, exercised, or executed by an individual holding
and owning such property in absolute and unconditional ownership;
(iii) To abandon, compromise, contest, and arbitrate claims and demands;
to institute, compromise, and defend actions at law (but without
obligation to do so); in connection with such powers, to employ
counsel as the Trustee shall deem advisable and as approved by the
Plan Committee; and to exercise such powers all at the risk and
expense of the Trust Fund;
(iv) To borrow money for this trust upon such terms and conditions as the
Trustee shall deem advisable, and to secure the repayment of such by
the mortgage or pledge of any assets of the Trust Fund, provided
that the Trustee may not borrow money to purchase Qualifying
Employer Securities;
(v) To vote in person or by proxy any shares of stock or rights held in
the Trust Fund as directed by the Plan Committee; to participate in
and to exchange securities or other
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property in reorganization, liquidation, or dissolutions of any
corporation, the securities of which are held in the Trust Fund; and
(vi) To any amount due on any loan or advance made to the Trust Fund, to
charge against and pay from the Trust Fund all taxes of any nature
levied, assessed, or imposed upon the Trust Fund, and to pay all
reasonable expenses and attorney fees necessarily incurred by the
Trustee and approved by the Plan Committee with respect to any of
the foregoing matters.
Section 10.3 Advice of Counsel. The Trustee may consult with legal counsel,
who may be counsel for the Company or any Associated Company, or Trustee's own
counsel, with respect to the meaning or construction of the Plan and Trust or
Trustee's obligations or duties. The Trustee shall be protected from any
responsibility with respect to any action taken or omitted by it in good faith
pursuant to the advice of such counsel, to the extent permitted by law.
Section 10.4 Records and Accounts of the Trustee. The Trustee shall keep all
such records and Accounts which may be necessary in the administration and
conduct of this trust. The Trustee's records and Accounts shall be open to
inspection by the Company, any Associated Company, the Plan Committee, and the
Plan Administrator, at all reasonable times during business hours. All income,
profits, recoveries, contributions, forfeitures, and any and all moneys,
securities, and properties of any kind at any time received or held by the
Trustee shall be held for investment purposes as a commingled Trust Fund.
Separate Accounts or records may be maintained for operational and accounting
purposes, but no such Account or record shall be considered as segregating any
funds or property from any other funds or property contained in the commingled
fund, except as otherwise provided. After the close of each year of the trust,
the Trustee shall render to the Company and the Plan Committee a statement of
assets and liabilities of the Trust Fund for such year.
Section 10.5 Appointment, Resignation, Removal, and Substitution of Trustee.
The Board of Directors by resolution shall appoint a Trustee or Trustees, each
of which shall hold office until resignation or removal by the Board of
Directors. The Trustee may resign at any time upon 30 days' written notice to
the Company. The Trustee may be removed at any time by the Company upon written
notice to the Trustee with or without cause. Upon resignation or removal of the
Trustee, the Company, by action of its Board of Directors, shall appoint a
successor Trustee which shall have the same powers and duties as are conferred
upon the Trustee appointed under this Plan. The resigning or removed Trustee
shall deliver to its successor Trustee all property of the Trust Fund, less a
reasonable amount necessary to provide for its Compensation, expenses, and any
taxes or advances chargeable or payable out of the Trust Fund. If the Trustee is
an individual, death shall be treated as a resignation, effective immediately.
If any corporate Trustee at any time shall be merged, or consolidated with, or
shall sell or transfer substantially all of its assets and business to another
corporation, whether state or federal, or shall be reorganized or reincorporated
in any manner, then the resulting or acquiring corporation shall be substituted
for such corporate Trustee without the execution of any instrument and without
any action upon the part of the Company, any Participant or Beneficiary, or any
other person having or claiming to have an interest in the Trust Fund or under
the Plan.
Section 10.6 Appointment of Trustee, Acceptance in Writing. The Trustee
shall accept its appointment as soon as practical by executing this Plan or by
delivering a signed document to the
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Company, a copy of which shall be sent to the Plan Committee by the Trustee. The
Board of Directors shall appoint a new Trustee if the Trustee fails to accept
its appointment in writing.
Section 10.7 Vote of Qualifying Employer Securities Held in Trust. If the
Employer securities of the Company are not publicly traded and if more than 10%
of the total Plan assets are securities of the Company, then for voting
purposes, each Participant shall be credited with his pro rata portion
(including fractional shares) of the Qualifying Employer Securities allocated to
his Account which are not encumbered. Each Participant shall be entitled to vote
the pro rata portion of Qualifying Employer Securities allocable to him under
this Section 10.7. Unreleased Qualifying Employer Securities shall be voted by
the Trustee. The Plan Committee shall certify to the Employer the number of
shares to be voted by each Participant if an event occurs which requires a vote
of such shares. To the extent the Participants do not vote Qualifying Employer
Securities under this Section 10.7, the Plan Committee shall vote such
Qualifying Employer Securities. If the Employer securities of the Company are
publicly traded or if the Employer securities of the Company are not publicly
traded but not more than 10% of the total Plan assets are securities of the
Company, then the participants shall not be entitled to vote the pro rata
portion of Qualifying Employer Securities allocable to them under this Section
10.7 and the Plan Committee shall vote all Qualifying Employer Securities held
in the Trust.
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ARTICLE XI
CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST
Section 11.1 Termination of Plan. The expectation of each Employer is to
continue this Plan indefinitely, but the continuance of the Plan is not assumed
as a contractual obligation by the Employer and the right is reserved to each
Employer, by action of its Board of Directors, to terminate this Plan in whole
or in part at any time. The termination of the Plan by an Employer in no event
shall have the effect of revesting any part of the Trust Fund in the Employer.
The Plan created by execution of this Plan with respect to any Employer shall be
terminated automatically in the event of the dissolution, consolidation or
merger of such Employer or the sale by such Employer of substantially all of its
assets, if the resulting successor corporation or business entity shall fail to
adopt the Plan and Trust under Section 11.3 of this Plan. If this Plan is
disqualified, the Board of Directors of the Company, in its discretion, may
terminate this Plan.
Section 11.2 Termination of Trust. The Trust created by execution of this
Plan shall continue in full force and effect for such time as may be necessary
to accomplish the purposes for which it is created, unless sooner terminated and
discontinued by the Board of Directors. Notice of such termination shall be
given to the Trustee by the Plan Committee in the form of an instrument in
writing executed by the Company pursuant to the action of its Board of
Directors, together with a certified copy of the resolution of the Board of
Directors to that effect. In its discretion the Plan Committee may receive a
favorable determination letter from the Internal Revenue Service stating that
the prior qualified status of the Plan has not been affected by such
termination. Such termination shall take effect as of the date of the delivery
of the notice of termination and favorable determination letter, if obtained, to
the Trustee. The Plan Administrator shall file such terminal reports as are
required in Article IX of this Plan.
Section 11.3 Continuance of Plan and Trust by Successor Business. With the
approval of the Company, a successor business may continue this Plan and Trust
by proper action of the proprietor or partners, if not a corporation, and, if a
corporation, by resolution of its Board of Directors, and by executing a proper
supplemental agreement to this Plan and Trust with the Trustee. Within 90 days
from the Effective Date of such dissolution, consolidation, merger, or sale of
assets of an Employer, if such successor business does not adopt and continue
this Plan and Trust, this Plan shall be terminated automatically as of the end
of such 90-day period.
Section 11.4 Merger, Consolidation, or Transfer of Assets or Liabilities of
the Plan. The Board of Directors may merge or consolidate this Plan with any
other plan or may transfer the assets or liabilities of the Plan to any other
plan if each Participant in the Plan (if the Plan then terminated) would receive
a benefit immediately after the merger, consolidation, or transfer which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan then had
terminated). If any merger, consolidation, or transfer of assets or liabilities
occurs, the Plan Administrator shall file such reports as required in Article IX
of this Plan.
Section 11.5 Distribution of Trust Fund on Termination of Trust. If the
trust is terminated under this Article XI, the Trustee shall determine the value
of the Trust Fund and of the respective interest of the Participants and
beneficiaries under Article V of this Plan as of the business day next following
the date of such termination. The value of the Account of each respective
Participant or Beneficiary
RESTATED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 56
January 01, 2000
<PAGE>
in the Trust Fund shall be vested in its entirety as of the date of the
termination of the Plan. The Trustee then shall transfer to each Participant or
Beneficiary the net balance of the Participant's Account unless the Plan
Committee directs the Trustee to retain the assets and pay them under the terms
of this Plan as if no termination had occurred.
Section 11.6 Amendments to Plan and Trust. At any time the Company may amend
this Plan and Trust by action of its Board of Directors, provided that no
amendment shall cause the Trust Fund to be diverted to purposes other than for
the exclusive benefit of the Participants and their beneficiaries. No amendment
shall decrease the vested interest of any Participant nor shall any amendment
increase the contribution of any Employer or Participant in the Plan. If an
amended vesting schedule is adopted, any Participant who has five or more years
of service at the later of the date the amendment is adopted or becomes
effective and who is disadvantaged by the amendment, may elect to remain under
the Plan's prior vesting schedule. Such election must be made within a period
established by the Plan Committee, in accordance with applicable regulations,
and on a form provided by and delivered to the Plan Committee. No amendment to
the Plan (including a change in the actuarial basis for determining optional
benefits) shall be effective to the extent that it has the effect of decreasing
a Participant's accrued benefit. For purposes of this Section 11.6, a Plan
amendment that has the effect of (i) eliminating or reducing an early retirement
benefit or a retirement-type subsidy, or (ii) eliminating an optional form of
benefit, with respect to benefits attributable to service before the amendment,
will be treated as reducing accrued benefits. No amendment shall discriminate in
favor of Employees who are officer, shareholders, or Highly Compensated
Employees. Notwithstanding anything in this Plan and Trust to the contrary, the
Plan and Trust may be amended at any time to conform to the provisions and
requirements of federal and state law with respect to employees' trusts or any
amendments to such laws or regulations or rulings issued pursuant to them. No
such amendment shall be considered prejudicial to the interest of any
Participant or Beneficiary under this Plan.
RESTATED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 57
January 01, 2000
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1 Benefits To Be Provided Solely from the Trust Fund. All
benefits payable under this Plan shall be paid or provided solely from the Trust
Fund, and no Employer assumes liability or responsibility for payment of
benefits.
Section 12.2 Notices from Participants To Be Filed with Plan Committee.
Whenever provision is made in the Plan that a Participant may exercise any
option or election or designate any Beneficiary, the action of each Participant
shall be evidenced by a written notice signed by the Participant and delivered
to the Plan Committee in person or by certified mail. If a form is furnished by
the Plan Committee for such purpose, a Participant shall give written notice of
his exercise of any option or election or of his designation of any Beneficiary
on the form provided for such purpose. Written notice shall not be effective
until received by the Plan Committee.
Section 12.3 Text To Control. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Plan and Trust exists, the text shall control.
Section 12.4 Severability. If any provision of this Plan and Trust is
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions. On the contrary, such remaining provisions
shall be fully severable, and this Plan and Trust shall be construed and
enforced as if such illegal or invalid provisions never had been inserted in
this Plan.
Section 12.5 Jurisdiction. This Plan shall be construed and administered
under the laws of the State of Alaska when the laws of that jurisdiction are not
in conflict with federal substantive law.
Section 12.6 Plan for Exclusive Benefit of Participants; Reversion
Prohibited. This Plan and Trust has been established for the exclusive benefit
of the Participants and their beneficiaries. Under no circumstances shall any
funds contributed to or held by the Trustee at any time revert to or be used by
or enjoyed by an Employer except to the extent permitted by Article IV of this
Plan.
Section 12.7 Transferability Restriction. A derivative security issued under
the Plan, including but not limited to Class B common stock of the Company, is
not transferable by the Participant other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act or the
rules under those acts. The designation of a beneficiary by an officer,
director, or other Participant in the Plan does not constitute a transfer under
the Plan.
RESTATED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 58
January 01, 2000
EXHIBIT 23.1.1
The Board of Directors
General Communication, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-60728 and No. 33-60222) on Forms S-8 of General Communication, Inc. of our
report dated March 10, 2000, relating to the consolidated balance sheets of
General Communication, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999, and the related schedule, which report appears in the December 31, 1999,
annual report on Form 10-K of General Communication, Inc.
/s/
KPMG LLP
Anchorage, Alaska
March 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000808461
<NAME> GENERAL COMMUNICATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
<RECEIVABLES> 48,414
<ALLOWANCES> 2,833
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<CURRENT-ASSETS> 77,814
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<DEPRECIATION> 111,828
<TOTAL-ASSETS> 643,151
<CURRENT-LIABILITIES> 55,120
<BONDS> 340,500
19,912
0
<COMMON> 182,731
<OTHER-SE> 9,817
<TOTAL-LIABILITY-AND-EQUITY> 643,151
<SALES> 0
<TOTAL-REVENUES> 279,179
<CGS> 0
<TOTAL-COSTS> 122,467
<OTHER-EXPENSES> 136,738
<LOSS-PROVISION> 4,224
<INTEREST-EXPENSE> 31,237
<INCOME-PRETAX> (14,866)
<INCOME-TAX> (5,683)
<INCOME-CONTINUING> (9,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 344
<NET-INCOME> (9,527)
<EPS-BASIC> (0.21)
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