0000808461-95-000009.txt : 19950815
0000808461-95-000009.hdr.sgml : 19950815
ACCESSION NUMBER: 0000808461-95-000009
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950814
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GENERAL COMMUNICATION INC
CENTRAL INDEX KEY: 0000808461
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813]
IRS NUMBER: 920072737
STATE OF INCORPORATION: AK
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-15279
FILM NUMBER: 95563074
BUSINESS ADDRESS:
STREET 1: 2550 DENALI ST STE 1000
CITY: ANCHORAGE
STATE: AK
ZIP: 99503
BUSINESS PHONE: 9072655600
MAIL ADDRESS:
STREET 1: 2550 DENALI STREET
STREET 2: SUITE 1000
CITY: ANCHORAGE
STATE: AK
ZIP: 99503
10-Q
1
JUNE 30, 1995 FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-15279
GENERAL COMMUNICATION, INC.
(Exact name of registrant as specified in its charter)
STATE OF ALASKA 92-0072737
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (907) 265-5600
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
The number of shares outstanding of the registrant's classes of common
stock, as of July 31, 1995 was:
19,658,741 shares of Class A common stock; and
4,176,892 shares of Class B common stock.
INDEX
GENERAL COMMUNICATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
PAGE NO
PART I. FINANCIAL INFORMATION
Item l. Consolidated Financial Statements...............1
Consolidated Balance Sheets.....................1
Consolidated Statements of Operations...........3
Consolidated Statements of Stockholders'
Equity........................................4
Consolidated Statements of Cash Flows...........5
Notes to Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................24
Item 4. Submission of Matters to a Vote of Security
Holders......................................24
Item 6. Exhibits and Reports on Form 8-K...............24
SIGNATURES..............................................................25
(i)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
ASSETS 1995 1994
------ ---- ----
(Amounts in thousands)
Current assets:
Cash and cash equivalents (note 2) ............... $ 428 1,649
------- --------
Receivables:
Trade .......................................... 20,091 17,036
Other .......................................... 271 221
-------- --------
20,362 17,257
Less allowance for doubtful receivables .......... 363 409
-------- --------
Net receivables .......................... 19,999 16,848
-------- --------
Prepaid and other current assets ................. 1,594 1,275
Deferred income taxes, net (note 6) .............. 747 884
Inventory ........................................ 576 596
Notes receivable (note 3) ........................ 114 200
-------- --------
Total current assets ..................... 23,458 21,452
-------- --------
Property and equipment, at cost (notes 5 and 9)
Land ............................................. 73 73
Distribution systems ............................. 64,328 62,549
Support equipment ................................ 12,386 10,946
Property and equipment under capital leases ...... 2,030 2,030
-------- --------
78,817 75,598
Less amortization and accumulated depreciation ... 31,048 28,085
-------- --------
Net property and equipment ............... 47,769 47,513
-------- --------
Notes receivable (note 3) .......................... 850 767
Investment securities available for sale (note 4) .. 875 875
Other assets, at cost, net of amortization ......... 3,992 3,642
-------- --------
Total assets ............................. $ 76,944 74,249
======== ========
See accompanying notes to consolidated financial statements.
1 (Continued)
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---- ----
(Amounts in thousands)
Current liabilities:
Current maturities of long-term debt (note 5) ........ $ 1,603 1,585
Current maturities of obligations under
capital leases (note 9) ........................... 266 249
Accounts payable ..................................... 13,165 11,841
Accrued payroll and payroll related obligations ...... 1,975 4,036
Deferred revenues1 ................................... 361 1,097
Accrued liabilities .................................. 863 711
Accrued income taxes (note 6) ........................ 187 217
Accrued interest ..................................... 123 101
-------- --------
Total current liabilities .................... 19,543 19,837
Long-term debt, excluding current maturities (note 5) .. 10,169 10,969
Obligations under capital leases, excluding
current maturities (note 9) ......................... 144 257
Obligations under capital leases due to related parties,
excluding current maturities (note 9) ............... 766 791
Deferred income taxes, net (note 6) .................... 6,840 6,522
Other liabilities ...................................... 902 780
-------- --------
Total liabilities ............................ 38,364 39,156
-------- --------
Common stock (no par):
Class A. Authorized
50,000,000 shares; issued and
outstanding 19,658,741 and 19,616,614
shares at June 30, 1995 and December 31,
1994, respectively ........................ 13,874 13,830
Class B. Authorized
10,000,000 shares; issued and
outstanding 4,176,892 and 4,179,019
shares at June 30, 1995 and December 31,
1994, respectively ........................ 3,432 3,432
Less cost of 105,111 Class A common
stock held in treasury ............................. (328) (328)
Paid-in capital ........................................ 3,641 3,641
Retained earnings ...................................... 17,961 14,518
-------- --------
Total stockholders' equity ................... 38,580 35,093
-------- --------
Commitments and contingencies (note 10)
Total liabilities and stockholders' equity ... $ 76,944 74,249
======== ========
See accompanying notes to consolidated financial statements.
2
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
(Amounts in thousands except per share amounts)
Revenues:
Transmission services (note 8) .......................... $ 29,101 25,838 56,130 50,409
Systems sales and service ............................... 1,947 2,332 3,819 4,971
Other ................................................... 812 792 1,604 1,767
-------- -------- -------- --------
Total revenues ..................................... 31,860 28,962 61,553 57,147
Cost of sales .............................................. 17,834 14,575 33,827 29,816
-------- -------- -------- --------
Contribution ....................................... 14,026 14,387 27,726 27,331
-------- -------- -------- --------
Operating costs and expenses:
Operating and engineering ............................... 1,971 1,836 4,129 3,676
Service ................................................. 592 1,186 1,646 2,187
Sales and communications ................................ 2,002 1,945 3,921 3,305
General and administrative .............................. 3,874 3,327 7,194 6,573
Legal and regulatory .................................... 403 371 808 636
Bad debt ................................................ 287 66 569 376
Depreciation and amortization ........................... 1,560 1,767 3,164 3,565
-------- -------- -------- --------
Total operating costs and expenses ................. 10,689 10,498 21,431 20,318
-------- -------- -------- --------
Operating income ................................... 3,337 3,889 6,295 7,013
-------- -------- -------- --------
Other income (expense):
Interest expense (notes 2 and 5) ........................ (321) (401) (592) (856)
Interest income ......................................... 61 50 120 88
-------- -------- -------- --------
Total other income (expense) ....................... (260) (351) (472) (768)
-------- -------- -------- --------
Earnings before income taxes ....................... 3,077 3,538 5,823 6,245
Income tax expense (notes 2 and 6) ......................... 1,241 1,416 2,380 2,425
-------- -------- -------- --------
Net earnings ....................................... $ 1,836 2,122 3,443 3,820
======== ======== ======== ========
Net earnings per common share (note 1(c)) .................. $ .08 .09 .14 .16
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
3
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited) (Unaudited)
Shares of Class A Class B Class A
Common Stock Common Common Shares Held Paid-in Retained
Class A Class B Stock Stock in Treasury Capital Earnings
------- ------- ----- ----- ----------- ------ --------
(Amounts in thousands) (Amounts in thousands)
Balances at December 31, 1993 ...................... 19,001 4,114 $13,470 3,432 (328) 3,252 7,384
Net earnings ....................................... -- -- -- -- -- -- 3,820
Class B shares converted to Class A ................ 7 (7) -- -- -- -- --
Tax effect of excess stock compensation
expense for tax purposes over amounts
recognized for financial reporting
purposes ......................................... -- -- -- -- -- 245 --
Shares issued under stock option plan .............. 12 -- 21 -- -- -- --
Shares issued and issuable under
officer stock option agreements .................. 255 74 11 -- -- 16 --
------- ------- ------- ------- ------- ------- -------
Balances at June 30, 1994 .......................... 19,275 4,181 $13,502 3,432 (328) 3,513 11,204
======= ======= ======= ======= ======= ======= =======
Balances at December 31, 1994 ...................... 19,617 4,179 $13,830 3,432 (328) 3,641 14,518
Net earnings ....................................... -- -- -- -- -- -- 3,443
Class B shares converted to Class A ................ 2 (2) -- -- -- -- --
Tax effect of excess stock compensation
expense for tax purposes under amounts
recognized for financial reporting
purposes ......................................... -- -- -- -- -- (3) --
Shares issued under stock option plan .............. 20 -- 44 -- -- -- --
Shares issued under officer stock
option agreements ................................ 20 -- -- -- -- 3 --
------- ------- ------- ------- ------- ------- -------
Balances at June 30, 1995 .......................... 19,659 4,177 $13,874 3,432 (328) 3,641 17,961
======= ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
4
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
(Amounts in thousands)
Cash flows from operating activities:
Net earnings ............................................ $ 3,443 3,820
Adjustments to reconcile net earnings
to net cash provided (used) by operating activities:
Depreciation and amortization ..................... 3,164 3,565
Provision for deferred income taxes ............... 452 825
Other items not requiring cash (note 2) ........... 60 (35)
Change in operating assets and liabilities (note 2) (3,733) 536
------- -------
Net cash provided by operating activities ....... 3,386 8,711
------- -------
Cash flows from investing activities:
Purchase of property and equipment ...................... (3,270) (2,596)
Restricted cash investments ............................. -- (9)
Notes receivable payments ............................... 105 6
Notes receivable issued ................................. (86) (55)
Refund of long-term deposits and purchases of other
assets, net ........................................... (500) (51)
------- -------
Net cash used by investing activities ........... (3,751) (2,705)
------- -------
Cash flows from financing activities:
Repayments of long-term borrowings ...................... (903) (4,624)
Proceeds from stock issuance ............................ 47 32
------- -------
Net cash used by financing activities ........... (856) (4,592)
------- -------
Increase (decrease) in cash and cash equivalents (1,221) 1,414
Cash and cash equivalents at beginning of period .......... 1,649 2,623
------- -------
Cash and cash equivalents at end of period ................ $ 428 4,037
======= =======
See accompanying notes to consolidated financial statements.
5
GENERAL COMMUNICATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
(l) Summary of Significant Accounting Principles
(a) General
General Communication, Inc. ("GCI"), an Alaska corporation, was
incorporated in 1979. GCI Communication Corp. ("GCC") , an Alaska
corporation, is a wholly owned subsidiary of GCI and was incorporated
in 1990. GCI Communication Services, Inc. ("Communication Services"),
an Alaska corporation, is a wholly-owned subsidiary of GCI and was
incorporated in 1992. GCI Leasing Co., Inc. ("Leasing Company"), an
Alaska corporation, is a wholly-owned subsidiary of Communication
Services and was incorporated in 1992. GCI and GCC are engaged in the
transmission of interstate and intrastate private line and switched
message long distance telephone service between Anchorage, Fairbanks,
Juneau, and other communities in Alaska and the remaining United
States and foreign countries. GCC also provides northbound services
to certain common carriers terminating traffic in Alaska and sells
and services dedicated communications systems and related equipment.
Communication Services provides private network point-to-point data
and voice transmission services between Alaska, Hawaii and the
western contiguous United States. Leasing Company owns and leases
capacity on an undersea fiber optic cable used in the transmission of
interstate private line and switched message long distance services
between Alaska and the remaining United States and foreign countries.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June
30, 1995 is not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1994.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of GCI,
its wholly-owned subsidiaries GCC and Communication Services, and
Communication Services wholly owned subsidiary Leasing Company. All
significant intercompany balances and transactions have been
eliminated in consolidation.
6 (Continued)
(c) Net Earnings Per Common Share
Primary earnings per common share are determined by dividing net
earnings by the weighted number of common and common equivalent
shares outstanding (amounts in thousands):
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
Weighted average common shares outstanding 23,727 23,097 23,721 23,089
Common equivalent shares outstanding 692 931 655 1,054
------ ------ ------ ------
Shares used in computing primary earnings
per share 24,419 24,028 24,376 24,143
====== ====== ====== ======
The difference between shares for primary and fully diluted earnings
per share was not significant in any period presented.
(d) Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash.
(e) Inventory
Inventory of merchandise for resale and parts is stated at the lower
of cost or market. Cost is determined using the first-in, first-out
method for parts and the specific identification method for equipment
held for resale.
(f) Property and Equipment
Property and equipment is stated at cost. Construction costs of
transmission facilities are capitalized. Equipment financed under
capital leases is recorded at the lower of fair market value or the
present value of future minimum lease payments.
Depreciation and amortization is computed on a straight-line basis
based upon the shorter of the lease term or the estimated useful
lives of the assets ranging from 3 to 20 years for distribution
systems and 5 to 10 years for support equipment. Amortization of
equipment financed under capitalized leases is included in
depreciation expense.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. Gains or losses are recognized at the time
of ordinary retirements, sales or other dispositions of property.
7 (Continued)
(g) Marketable Securities
Effective January 1, 1994, GCI and subsidiaries ("the Company")
adopted Statement of Financial Accounting Standards No. 115 ("SFAS
No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS No. 115, securities when purchased, are
classified in either the trading account securities portfolio, the
securities available for sale portfolio, or the securities held to
maturity portfolio. Securities are classified as trading account
securities when the intent is profit maximization through market
appreciation and resale. Securities are classified as available for
sale when management intends to hold the securities for an indefinite
period of time. Securities are classified as held to maturity when it
is management's intent to hold these securities until maturity.
Unrealized gains or losses on securities available for sale are
excluded from earnings and reported as a net amount in a separate
component of stockholders' equity. There was no cumulative effect on
the financial statements from the adoption of SFAS No. 115.
Securities available for sale are stated at fair market value which
approximates cost.
(h) Other Assets
Other assets, excluding deferred loan costs and goodwill, are
recorded at cost and are amortized on a straight-line basis over 5 to
10 years. Deferred loan costs are recorded at cost and are amortized
on a straight-line basis over the life of the associated loan.
Goodwill totaled approximately $1,336,000 and $1,387,000 at June 30,
1995 and December 31, 1994, respectively, net of amortization of
approximately $647,000 and $596,000, respectively. Goodwill
represents the excess of cost over fair value of net assets acquired
and is being amortized on a straight-line basis over twenty years.
(i) Revenue From Services and Products
Revenues generated from long distance telecommunication services are
recognized when the services are provided. System sales from the sale
of equipment are recognized at the time the equipment is delivered or
installed. Service revenues are derived primarily from maintenance
contracts on equipment and are recognized on a prorated basis over
the term of the contract. Other revenues are recognized when the
service is provided.
(j) Income Taxes
In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes". SFAS No. 109 requires a change from
the deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method of accounting for income taxes.
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable earnings in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in earnings in the period that
includes the enactment date. The Company adopted SFAS No. 109
effective January 1, 1993.
8 (Continued)
(k) Reclassifications
Reclassifications have been made to the 1994 financial statements to
make them comparable with the 1995 presentation.
(2) Consolidated Statements of Cash Flows Supplemental Disclosures
For purposes of the Consolidated Statements of Cash Flows, the
Company's cash equivalents includes cash and all invested assets with
original maturities of less than three months.
Other items not providing or requiring cash consist of (in
thousands):
(Unaudited)
Six-month period ended June 30, 1995 1994
---- ----
Bad debt expense, net of write-offs ... $ (46) (110)
Deferred compensation and compensatory
stock options ...................... 124 75
Other non-cash income and expense items (18) --
----- -----
$ 60 (35)
===== =====
Changes in operating assets and liabilities consist of (amounts in
thousands):
(Unaudited)
Six-month period ended June 30, 1995 1994
---- ----
(Increase) in trade receivables ............. $ (3,055) (958)
(Increase) in other receivables ............. (50) (94)
(Increase) decrease in inventory ............ 20 (133)
(Increase) decrease in prepaid and other
current assets ............................ (319) 325
Increase in accounts payable ................ 1,324 1,198
(Decrease) in accrued payroll
and payroll related obligations ........... (2,061) (427)
Increase (decrease) in deferred revenue ..... 264 (26)
Increase in accrued liabilities ............. 152 597
Increase (decrease) in accrued income taxes . (30) 41
Increase in accrued interest ................ 22 13
-------- --------
$ (3,733) 536
======== ========
Income taxes paid totaled approximately $1,957,500 and $1,560,000
during the six-month periods ended June 30, 1995 and 1994,
respectively.
Interest paid totaled approximately $570,000 and $843,000 during the
six-month periods ended June 30, 1995 and 1994, respectively.
9 (Continued)
The Company recorded $245,000 during the six-month period ended June
30, 1994 as paid-in capital in recognition of the income tax effect
of excess stock compensation expense for tax purposes over amounts
recognized for financial reporting purposes.
(3) Notes Receivable
A summary of notes receivable follows:
(Unaudited)
June 30, December 31,
1995 1994
---- ----
(Amounts in thousands)
Note receivable from officer bearing interest
at the rate paid by the Company on its
senior indebtedness, secured by GCI Class A
common stock, due on the 90th day after
termination of employment or July 30, 1998,
whichever is earlier ............................... $ 500 500
Note receivable from officer bearing interest
at 10%, secured by Company stock; payable
in equal annual installments of $36,513 through
August 26, 2004 ..................................... 224 224
Notes receivable from officers and others bearing
interest at 8% to 10%, secured by Company common
stock, shares of other common stock and equipment;
due December 31, 1995 through August 26, 2004 ...... 175 194
----- -----
Total notes receivable ............................ 899 918
Less current portion .............................. (114) (200)
Plus long-term accrued interest ................... 65 49
----- -----
$ 850 767
===== =====
(4) Investment Securities Available for Sale
As of January 1, 1994 the Company adopted SFAS No. 115. Accordingly,
the Company's marketable equity securities have been classified as
available for sale securities and are reported at fair market value
which approximates cost. The Company held no trading account
investment securities at June 30, 1995.
10 (Continued)
(5) Long-term Debt
Long-term debt is summarized as follows:
(Unaudited)
June 30, December 31,
1995 1994
---- ----
(Amounts in thousands)
Credit Agreement (a) ....... $ 2,000 2,000
Undersea Fiber and Equipment
Loan Agreement (b) ....... 8,899 9,500
Financing Obligation (c) ... 873 1,054
--------- ---------
11,772 12,554
Less current maturities .... 1,603 1,585
--------- ---------
Long-term debt, excluding
current maturities ....... $ 10,169 10,969
========= =========
(a) GCI completed a refinancing of its senior indebtedness on
May 14, 1993. The new senior facility is a reducing revolver
that is amortized in quarterly payments or reductions of
$650,000 beginning June 30, 1993 through December 31, 1996
and $812,500 per quarter thereafter through its expiration
on December 31, 1997. The credit agreement provides for
interest (8.31% at June 30, 1995), among other options, at
the corporate base rate plus a margin of one to one and
one-half percent depending on the Company's leverage ratio
as defined in the agreement. A fee of .50% per annum is
assessed on the unused portion of the facility.
The credit agreement contains, among others, covenants
requiring maintenance of specific levels of operating cash
flow to indebtedness, to interest expense, to fixed charges,
and to pro forma debt service. The credit agreement includes
limitations on acquisitions, additional indebtedness and
capital expenditures, and prohibits payment of dividends,
other than stock dividends. The Company was in compliance
with all credit agreement covenants during the period
commencing May 14, 1993 (date of the refinancing) through
June 30, 1995.
Security for the credit agreement includes a pledge of the
stock of the operating subsidiary, GCC, and a first lien on
substantially all of its assets. GCI and its subsidiaries,
Communication Services and Leasing Company, are liable as
guarantors.
$2.25 million of the facility has been used to provide a
letter of credit to secure payment of certain access charges
associated with the Company's provision of
telecommunications services within the state of Alaska.
In June, 1993, the Company entered into a two-year interest
rate swap agreement with a bank whereby the rate on
$18,200,000 of debt (reduced by $422,500 per quarter
beginning July 1, 1993) was fixed at 4.45 percent plus
11 (Continued)
applicable margins. The interest effect of the difference
between the fixed rate and the three-month LIBOR rate was
either added to or served to reduce interest expense
depending on the relative interest rates. The agreement
expired June 30, 1995.
(b) On December 31, 1992, Leasing Company entered into a
$12,000,000 loan agreement, of which approximately
$9,000,000 of the proceeds were used to acquire capacity on
the undersea fiber optic cable linking Seward, Alaska and
Pacific City, Oregon. Concurrently, Leasing Company leased
the capacity under a ten year all events, take or pay,
contract to MCI, who subleased the capacity back to the
Company. The lease and sublease agreements provide for
equivalent terms of 10 years and identical monthly payments
of $200,000. The proceeds of the lease agreement with MCI
were pledged as primary security for the financing. The loan
agreement provides for monthly payments of $170,000
including principal and interest through the earlier of
January 1, 2003, or until repaid. The loan agreement
provides for interest at the prime rate plus one-quarter
percent. Additional collateral includes substantially all of
the assets of Leasing Company including the fiber capacity
and a security interest in all of its outstanding stock. MCI
has a second position security interest in the assets of
Leasing Company.
(c) As consideration for MCI's role in enabling Leasing Company
to finance and acquire the undersea fiber optic cable
capacity described at note 5(b) above, Leasing Company
agreed to pay MCI $2,040,000 in sixty monthly payments of
$34,000. For financial statement reporting purposes, the
obligation has been recorded at its remaining present value,
using a discount rate of 10% per annum. The agreement is
secured by a second position security interest in the assets
of Leasing Company.
As of June 30, 1995 maturities of long-term debt were as follows (in
thousands):
Year ending
June 30,
--------
1996 $ 1,603
1997 2,135
1998 3,324
1999 1,674
2000 1,835
2001 and thereafter 1,201
--------
$ 11,772
========
12 (Continued)
(6) Income Taxes
Total income tax expense for the six-month periods ended June 30,
1995 and 1994 was allocated as follows (amounts in thousands):
1995 1994
---- ----
(Unaudited)
Earnings from continuing operations ................... $ 2,380 2,425
Stockholders' equity, for stock option compensation
expense for tax purposes less than (in excess of)
amounts recognized for financial reporting purposes . 3 (245)
------- -------
$ 2,383 2,180
======= =======
Income tax expense for the six-month periods ended June 30, 1995 and
1994 consists of the following (amounts in thousands):
1995 1994
---- ----
(Unaudited)
Current tax expense:
Federal taxes $1,440 1,424
State taxes 488 176
------ ------
1,928 1,600
------ ------
Deferred tax expense:
Federal taxes 368 405
State taxes 84 420
------ ------
452 825
------ ------
$2,380 2,425
====== ======
Total income tax expense (benefit) differed from the "expected"
income tax expense (benefit) determined by applying the statutory
federal income tax rate of 34% for the six-month periods ended June
30, 1995 and 1994 as follows (amounts in thousands):
1995 1994
---- ----
(Unaudited)
"Expected" statutory tax expense $1,980 2,123
State income taxes, net of federal benefit 377 394
Income tax effect of goodwill
amortization, nondeductible
expenditures and other items, net 23 (92)
------ ------
$2,380 2,425
====== ======
13 (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at June 30, 1995 and December 31, 1994 are presented
below (amounts in thousands):
June 30, December 31,
1995 1994
---- ----
(Unaudited)
Net current deferred tax assets:
Accounts receivable, principally due to allowance for
for doubtful accounts ............................................ $ 179 199
Compensated absences, accrued for financial reporting purposes ..... 355 333
Federal and state alternative minimum tax credit carryforwards ..... 165 330
Workers compensation and self insurance health reserves,
principally due to accrual for financial reporting purposes ...... 190 185
Other .............................................................. 35 36
------ ------
Total gross current deferred tax assets ..................... 924 1,083
Less valuation allowance .................................... (177) (199)
------ ------
Net current deferred tax assets ............................. $ 747 884
====== ======
Net long-term deferred tax assets:
Deferred compensation expense for financial
reporting purposes in excess of amounts recognized
for tax purposes ................................................. $ 561 511
Employee stock option compensation expense for financial
reporting purposes in excess of amounts recognized
for tax purposes ................................................. 191 234
Capital loss carryforwards ......................................... 168 168
Other .............................................................. 368 311
------ ------
Total gross long-term deferred tax assets ................... 1,288 1,224
Less valuation allowance .................................... (248) (226)
------ ------
Net long-term deferred tax assets ........................... 1,040 998
------ ------
Net long-term deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation ..................................................... 7,729 7,507
Other .............................................................. 151 13
------ ------
Total gross long-term deferred tax liabilities .............. 7,880 7,520
------ ------
Net combined long-term deferred tax liabilities ............. $6,840 6,522
====== ======
The valuation allowance for deferred tax assets was $425,000 as of
June 30, 1995 and December 31, 1994.
Tax benefits associated with recorded deferred tax assets, net of
valuation allowances, are considered to be more likely than not
realizable through future reversals of existing taxable temporary
differences and future taxable income exclusive of reversing
temporary differences and carryforwards.
For income tax reporting purposes, the Company has available an
alternative minimum tax credit carryforward of approximately $165,000
which is available to reduce future federal regular income taxes, if
any, over an indefinite period. In addition, the Company has capital
loss carryovers totaling approximately $415,000 which expire in 1996
and 1997.
14 (Continued)
(7) Stockholders' Equity
Common Stock
GCI's Class A common stock and Class B common stock are identical in
all respects, except that each share of Class A common stock has one
vote per share and each share of Class B common stock has ten votes
per share. In addition, each share of Class B common stock
outstanding is convertible, at the option of the holder, into one
share of Class A common stock.
Stock Warrants
On May 18, 1994 an officer of the Company exercised warrants. In
exchange for $114, the Company issued 160,297 and 74,028 shares of
GCI Class A and Class B common stock, respectively.
Pursuant to the terms of a stock appreciation right granted in 1988,
the Company issued to its former senior lender warrants to acquire
1,021,373 shares of GCI Class A common stock for $.85669 per share.
Warrants to purchase 600,000 shares of Class A common stock were
exercised in April and May, 1991, an additional 168,085 were
exercised in September, 1991 and the remaining warrants to purchase
253,288 shares were exercised in September and October, 1994.
Stock Option Plan
In December 1986, GCI adopted a Stock Option Plan (the "Option Plan")
in order to provide a special incentive to officers, non-employee
directors, and employees by offering them an opportunity to acquire
an equity interest in GCI. The Option Plan provides for the grant of
options for a maximum of 3,200,000 shares of GCI Class A common
stock, subject to adjustment upon the occurrence of stock dividends,
stock splits, mergers, consolidations or certain other changes in
corporate structure or capitalization. If an option expires or
terminates, the shares subject to the option will be available for
further grants of options under the Option Plan. The Option Plan is
administered by GCI's Board of Directors or a committee of
disinterested persons.
Employees of GCI (including officers and directors), employees of
affiliated companies and non-employee directors of GCI are eligible
to participate in the Option Plan. Options granted under the Option
Plan must expire not later than ten years after the date of grant.
The exercise price may be less than, equal to, or greater than the
fair market value of the shares on the date of grant. Options granted
pursuant to the Option Plan are only exercisable if at the time of
exercise the option holder is an employee or non-employee director of
GCI.
15 (Continued)
Information for the periods ended June 30, 1995 and 1994 with respect
to the Plan follows:
(Unaudited)
Shares Option Price
------ ------------
Outstanding at December 31, 1993 ... 1,823,658 $0.75-$4.00
Granted ................... -- --
Exercised ................. (17,459) $0.75-$2.25
Forfeited ................. (13,500) $4.00
---------
Outstanding at June 30, 1994 ....... 1,792,699 $0.75-$4.00
=========
Outstanding at December 31, 1994 ... 1,729,699 $0.75-$4.00
Granted ................... 400,000 $4.00
Exercised ................. (20,000) $2.25
Forfeited ................. (11,500) $4.00
---------
Outstanding at June 30, 1995 ....... 2,098,199 $.75-$4.00
=========
Available for grant at June 30, 1995 559,553
=========
Exercisable at June 30, 1995 ....... 805,499
=========
The options expire at various dates through March 2005.
Stock Options Not Pursuant to a Plan
In June 1989, officer John Lowber was granted options to acquire
100,000 Class A common shares at $.75 per share. The options vested
in equal annual increments over a five-year period and expire
February, 1999.
The Company entered into an incentive agreement in June 1989 with Mr.
Behnke, an officer of the Company. The incentive agreement provides
for the acquisition of 85,190 remaining shares of Class A common
stock of the Company for $.001 per share exercisable through June 16,
1997. The shares under the incentive agreement vested in equal annual
increments over a three-year period.
Class A Common Shares Held in Treasury
The Company acquired 105,111 shares of its class A common stock in
1989 for approximately $328,000 to fund a deferred bonus agreement
with Mr. Duncan, an officer of the Company. The agreement provides
that the balance is payable after the later of a) termination of
employment or b) six months after the effective date of the
agreement.
16 (Continued)
Employee Stock Purchase Plan
In December 1986, GCI adopted an Employee Stock Purchase Plan (the
"Plan") qualified under Section 401 of the Internal Revenue Code of
1986 (the "Code"). The Plan provides for acquisition of the Company's
Class A and Class B common stock at market value. The Plan permits
each employee of GCI and affiliated companies who has completed one
year of service to elect to participate in the Plan. Eligible
employees may elect to reduce their compensation in any even dollar
amount up to 10 percent of such compensation up to a maximum of
$9,240 in 1995; they may contribute up to 10 percent of their
compensation with after-tax dollars, or they may elect a combination
of salary reductions and after-tax contributions.
GCI may match employee salary reductions and after tax contributions
in any amount, elected by GCI each year, but not more than 10 percent
of any one employee's compensation will be matched in any year. The
combination of salary reductions, after tax contributions and GCI
matching contributions cannot exceed 25 percent of any employee's
compensation (determined after salary reduction) for any year. GCI's
contributions will vest over six years. The Company's matching
contributions allocated to participant accounts totaled approximately
$208,000 and $197,000 for the quarters ended June 30, 1995 and 1994,
respectively, and $509,000 and $418,000 for the six-month periods
ended June 30, 1995 and 1994, respectively. The Plan may, at its
discretion, purchase shares of common stock from the Company at
market value or may purchase GCI common stock on the open market.
Effective for Plan years beginning on or after January 1, 1995, the
Plan was amended in December, 1994 to allow diversification of
investments into selected securities or funds. Revisions to the Plan
are in the process of being implemented as of July 1, 1995. Employee
contributions invested in the Company's Class A and Class B common
stock will continue to receive up to 100% matching, as determined by
the Company each year, in the Company's Class A and Class B common
stock. Employee contributions invested in other than the Company's
Class A and Class B common stock will receive up to 50% matching, as
determined by the Company each year, in the Company's Class A and
Class B common stock.
(8) Sales to Major Customers
The Company provides message telephone service to MCI and U.S. Sprint
("Sprint"), major customers. Pursuant to the terms of a contract with
MCI, the Company earned revenues of approximately $6.0 million and
$4.8 million for the quarters ended June 30, 1995 and 1994,
respectively, and approximately $11.1 million and $9.5 million for
the six-month periods ended June 30, 1995 and 1994, respectively. The
Company earned revenues pursuant to a contract with Sprint totaling
approximately $3.6 million and $2.9 million for the quarters ended
June 30, 1995 and 1994, respectively, and $7.0 million and $5.7
million for the six-month periods ended June 30, 1995 and 1994,
respectively.
(9) Leases
The Company leases business offices, has entered into site lease
agreements and uses certain equipment and satellite transponder
capacity pursuant to operating lease arrangements. Rental costs under
such arrangements amounted to approximately $1,761,000 and $1,047,000
for the quarters ended June 30, 1995 and 1994, respectively, and
$3,431,000 and $2,046,000 for the six-month periods ended June 30,
1995 and 1994, respectively.
17 (Continued)
The Company entered into a long-term capital lease agreement in 1991
with the wife of the Company's president for property occupied by the
Company. Such lease is guaranteed by the Company. The lease term is
15 years with monthly payments of $14,400, increasing in $800
increments at each two year anniversary of the lease. Monthly lease
costs increased to $15,200 effective October 1993 and will increase
to $16,000 effective October 1995. If the owner sells the premises
prior to the end of the tenth year of the lease, the owner will
rebate to the Company one-half of the net sales price received in
excess of $900,000. If the property is not sold prior to the tenth
year of the lease, the owner will pay the Company the greater of
one-half of the appreciated value of the property over $900,000, or
$500,000. The leased asset was capitalized in 1991 at the owner's
cost of $900,000 and the related obligation was recorded in the
accompanying financial statements.
The leases generally provide that the Company pay the taxes,
insurance and maintenance expenses related to the leased assets.
It is expected that in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties.
(10) Commitments and Contingencies
In the normal course of the Company's operations, it and GCC are
involved in various legal and regulatory matters before the Federal
Communication Commission (FCC) and the Alaska Public Utilities
Commission. While the Company does not anticipate that the ultimate
disposition of such matters will result in abrupt changes in the
competitive structure of the Alaska market or of the business of the
Company, no assurances can be given that such changes will not occur
and that such changes would not be materially adverse to GCI.
Pursuant to the terms of a contract with one of its officers, in the
event of his death or under certain other conditions the Company is
obligated to make a payment of $450,000 to the officer or his estate.
The Company acquired life insurance in 1993 to provide for this
obligation.
In June 1995 the Company was awarded one of two 30 megahertz blocks
of spectrum auctioned by the FCC. Acquisition of the license, with
Alaska statewide coverage, for a cost of $1.65 million will allow GCI
to introduce new personal communication services (PCS) in Alaska. The
Company will be developing plans for PCS deployment throughout 1995
with construction of the system expected to begin in 1996 and service
to be offered as early as 1997 or 1998.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's liquidity (ability to generate adequate amounts of cash
to meet the Company's need for cash) was affected by a net decrease
in the Company's cash and cash equivalents of $1,221,000 from
December 31, 1994 to June 30, 1995. Sources of cash in 1995 included
the Company's operating activities which generated positive cash flow
of $3.4 million net of changes in the components of working capital
and repayments of notes receivable totaling $106,000. Uses of cash
during the first six-month period of 1995 included repayment of
$903,000 of long-term borrowings and capital lease obligations,
investment of $3.3 million in distribution and support equipment, and
payment of the final installment for a PCS spectrum license totaling
approximately $521,000.
Net receivables increased $3.2 million from December 31, 1994 to June
30, 1995 resulting from growth in receivables attributed to increased
sales and receipt of a payment from a major customer in July 1995, in
arrears of the date the payment is normally received.
Payments of approximately $2 million of accrued payroll and payroll
related obligations resulted in reduced balances at June 30, 1995 as
compared to December 31, 1994.
Working capital totaled $3.9 million and $1.6 million at June 30,
1995 and December 31, 1994, respectively. Working capital generated
by operations exceeded expenditures for property, equipment and other
assets, repayment of long-term borrowings and capital lease
obligations, and additional investment in a PCS license resulting in
the increase of $2.3 million at June 30, 1995 as compared to December
31, 1994.
Cash flow from operating activities, as depicted in the Consolidated
Statements of Cash Flows, decreased $5.3 million during the first six
months of 1995 as compared to the same period of 1994. Cash flow
generated from operating activities was reduced by payment of current
obligations.
The Company's expenditures for property and equipment totaled $3.3
million and $2.6 million during the first six-month periods of 1995
and 1994, respectively. Management's capital expenditures plan for
1995 includes approximately $8.5 million in capital necessary to
pursue strategic initiatives, to maintain the network and to enhance
transmission capacity to meet projected traffic demands.
The two wideband transponders the Company owned reached the end of
their expected useful life in August, 1994, at which time the Company
leased replacement capacity. The cost of the leased capacity
contributed to an increase in distribution costs during the first six
months of 1995 as compared to the same period of 1994. The existing
leased capacity is expected to meet the Company's requirements
through 1996. The Company is currently involved in negotiations to
provide for its capacity requirements subsequent to that time.
The Company continues to evaluate the most effective means to
integrate its telecommunications network with that of MCI. Such
integration will require capital expenditures by the Company in an
amount yet to be determined. Any investment in such capital
expenditures is expected to be recovered by increased revenues from
expanded service offerings and reductions in costs resulting from
integration of the networks.
The FCC concluded an auction of spectrum to be used for the provision
of PCS in March, 1995. The Company was named by the FCC as the high
bidder for one of the two 30 megahertz blocks of spectrum, with
19
Alaska statewide coverage. Acquisition of the license for a cost of
$1.65 million will allow GCI to introduce new PCS services in Alaska.
The Company will be developing plans for PCS deployment throughout
1995 with construction of the system expected to begin in 1996 and
service to be offered as early as 1997 or 1998. Expenditures for PCS
deployment could total $50 to $100 million over the next 10 year
period. The estimated cost for PCS deployment is expected to be
funded through income from operations and additional debt and
perhaps, equity financing. The Company expects to pursue additional
debt or perhaps equity financing in late 1995 or 1996 depending on
its needs. The Company's ability to deploy PCS services will be
dependent on its available resources.
Expenditures of approximately $2.5 million were made in 1994
developing new DAMA satellite communication technology. A four-module
demonstration system was constructed in 1994 and will be integrated
into the Company's telecommunication network in 1995. The digital
DAMA system allows calls to be made between remote villages using
only one satellite hop thereby reducing satellite delay and capacity
requirements while improving quality. Deployment expenditures in 1995
are expected to be funded with cash generated from operations.
Management expects that cash flow generated by the Company will be
sufficient to meet no less than the minimum required for maintenance
level capital expenditures and scheduled debt repayment. The
Company's ability to invest in discretionary capital and other
projects will depend upon its future cash flows and access to
additional debt and/or equity financing.
Results of Operations
The Company's message data and transmission services industry segment
provides interstate and intrastate long distance telephone service to
all communities within the state of Alaska through use of its
facilities and interconnect agreements with other carriers. The
Company's average rate per minute for message transmission services
remained relatively constant during 1995 and 1994 at 18.7(cent) and
18.5(cent), respectively. Total revenues for the first six months of
1995 were $61.6 million, an approximate 7.7 percent increase over
1994 revenues of $57.1 million. Revenue growth is attributed to three
fundamental factors, as follows:
(1) Growth in interstate telecommunication services which resulted in
billable minutes of traffic carried totaling 112 million and 100
million minutes in the second quarter of 1995 and 1994, respectively,
or 83 percent of total 1995 and 1994 minutes, respectively, and
billable minutes of traffic carried totaling 218 million and 200
million minutes in the first six months of 1995 and 1994,
respectively, or 83 percent of total 1995 minutes and 84 percent of
total 1994 minutes, respectively.
(2) Provision of intrastate telecommunication services which resulted
in billable minutes of traffic carried totaling 22 and 20 million
minutes in the second quarter of 1995 and 1994, respectively, or 17
percent of total 1995 and total 1994 minutes, respectively, and
billable minutes of traffic carried totaling 43 million and 39
million minutes in the first six months of 1995 and 1994,
respectively, or 17 percent of total 1995 minutes and 16 percent of
total 1994 minutes, respectively.
(3) Increases in revenues derived from other common carriers ("OCC")
including MCI and Sprint. OCC traffic accounted for $9.6 million or
30.2% and $8.1 million or 28.0% of total revenues in the second
quarter of 1995 and 1994, respectively. OCC traffic accounted for
$18.1 million or 29.4% and $15.9 million or 27.8% of total revenues
in the first six months of 1995 and 1994, respectively.
20
Both MCI and Sprint are major customers of the Company. Loss of one
or both of these customers would have a significant detrimental
effect on revenues and on contribution. There are no other individual
customers, the loss of which would have a material impact on the
Company's revenues or gross profit.
System sales and service revenues totaled $1.9 million and $2.3
million in the second quarters of 1995 and 1994, respectively, and
totaled $3.8 million and $5.0 million in the first six months of 1995
and 1994, respectively. The decrease in system sales and service
revenues is attributed to fewer larger dollar equipment sales orders
received during the first six months of 1995 as compared to the same
period of 1994 as well as a reduction of the company's outsourcing
services provided to the oil field services industry.
Transmission access and distribution costs, which represent cost of
sales for transmission services, amounted to approximately 59.0
percent and 54.1 percent of transmission revenues during the second
quarter of 1995 and 1994, respectively, and amounted to approximately
58.5 percent and 55.9 percent of transmission revenues during the
first six months of 1995 and 1994, respectively. The increase in
distribution costs as a percentage of transmission revenues during
1995 as compared to 1994 results primarily from increases in costs
associated with the Company's lease of transponder capacity as
previously described. Changes in distribution costs as a percentage
of revenues will occur as the Company's traffic mix changes. The
Company is unable to predict if or when access charge rates will
change in the future and the impact of such changes on the Company's
distribution costs.
Total operating costs and expenses increased 1.8 percent during the
second quarter of 1995 as compared to 1994 and increased 5.5 percent
during the first six months of 1995 as compared to 1994. Increases in
operating and engineering, sales and communications, general and
administrative, bad debt and legal costs were made to support the
Company's expansion efforts and the increase in minutes of traffic
carried. During the first six months of 1995 the Company incurred
approximately $280,000 for what is expected to be nonrecurring costs
related to a break in the undersea fiber optic cable and promotion of
its new DAMA technology. In general, the Company has dedicated
additional resources in certain areas to pursue longer term
opportunities. It must balance the desire to pursue such
opportunities with the need to continue to improve current
performance. Continuing legal and regulatory costs are, in large
part, associated with regulatory matters involving the FCC, the APUC,
and the Alaska Legislature.
Interest expense decreased 20.0 percent during the second quarter of
1995 as compared to 1994 and decreased 30.8 percent during the first
six months of 1995 as compared to 1994. The decrease resulted
primarily from reduction of the Company's outstanding indebtedness.
Income tax expense totaled $1,241,000 and $1,416,000 in the second
quarter of 1995 and 1994, respectively, resulting from the
application of statutory income tax rates to net earnings before
income taxes. Income tax expense totaled $2,380,000 and $2,425,000 in
the first six months of 1995 and 1994, respectively, resulting from
the application of statutory income tax rates to net earnings before
income taxes. The Company has available alternative minimum tax
credits of approximately $165,000 which are available to reduce
future federal regular income taxes, if any, over an indefinite
period. In addition, the Company has capital loss carryovers totaling
approximately $415,000 which expire in 1996 and 1997. Tax benefits
associated with recorded deferred tax assets, net of valuation
allowances, are considered to be more likely than not realizable
through future reversals of existing taxable temporary differences,
and future taxable income exclusive of reversing temporary
differences and carryforwards.
21
The Alaska economy is supported in large part by the oil and gas
industry. ARCO announced a 715 person downsizing in July 1994.
Similar downsizing was announced by other companies operating in the
oil and gas industry in Alaska for late 1994 and 1995.
The military presence in the state of Alaska provides a significant
source of revenues to the economy of the state. A reduction in
federal military spending or closure of a major facility in Alaska
would have a substantial adverse impact on the state and would both
directly and indirectly affect the Company. A reduction in the number
of military personnel served by the Company and a reduction in the
number of private lines required by the armed forces would have a
direct effect on revenues. Indirect effects would include a reduction
of services provided across the state in support of the military
community and as a result, a reduction in the number of customers
served by the Company and volume of traffic carried.
The Pentagon released its recommendations for military base closings
and realignments in March 1995 for the fourth and possibly final
round of base closings since 1988. A review again within three or
four years is possible. The recommendations propose closure and
realignment of 146 of them for lack of need and realignment of
functions for the more efficient use of that inventory.
The following military installations located in Alaska were
recommended for closure or realignment in the report: Fort Greely
(realign, estimated loss of 438 military and 286 civilian jobs), Fort
Wainwright (realign, estimated gain of 205 military and 56 civilian
jobs), NAF Adak (closure, estimated loss of 540 military and 138
civilian jobs). If the proposed closures and realignments are
approved, the loss of jobs and associated revenues is not expected to
have a material effect on the Company's operations.
No assurance can be given that funding for existing military
installations in Alaska will not be adversely affected by
reprioritization of needs for military installations or federal
budget cuts in the future.
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"). SFAS No. 107
extends existing fair value disclosure practices for some instruments
by requiring all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not
recognized, in the statement of financial position. The Company
anticipates that the adoption of SFAS No. 107 in 1996 will not have a
material effect on the consolidated financial statements.
Effective January 1, 1994, the Company adopted SFAS No. 115. Under
SFAS No. 115, securities when purchased, are classified in either the
trading account securities portfolio, the securities available for
sale portfolio, or the securities held to maturity portfolio.
Unrealized gains or losses on securities available for sale are
excluded from earnings and reported as a net amount in a separate
component of stockholders' equity. There was no cumulative effect on
the financial statements from the adoption of SFAS No. 115. The
Company's marketable equity securities have been classified as
available for sale securities and are reported at their fair market
value which approximates cost. The Company held no trading account
investment securities at December 31, 1994.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instrument" ("SFAS No. 119"). SFAS No. 119 requires disclosures
regarding amount, nature and terms of derivative financial
instruments, for instance futures, forward, swap and option contracts
and other instruments with similar characteristics. The Company
22
anticipates that the adoption of SFAS No. 119 in 1996 will not have a
material effect on consolidated financial statements.
The Company generally has experienced increased costs in recent years
due to the effect of inflation on the cost of labor, material and
supplies, and plant and equipment. A portion of the increased labor
and material and supplies costs directly affects income through
increased maintenance and operating costs. The cumulative impact of
inflation over a number of years has resulted in higher depreciation
expense and increased costs for current replacement of productive
facilities. However, operating efficiencies have partially offset
this impact, as have price increases, although the latter have
generally not been adequate to cover increased costs due to
inflation. Competition and other market factors limit the Company's
ability to price services and products based upon inflation's effect
on costs.
23
II. OTHER INFORMATION
(l) Legal Proceedings
Information regarding pending legal proceedings to which the Company
is a party is included in Note 10 of Notes to Consolidated Financial
Statements and is incorporated herein by reference.
(4) Submission of Matters to a Vote of Security Holders
(a) Date of meeting - June 20, 1995
Nature of meeting - annual meeting
(c) Matters voted upon:
Election of two directors, each for three-year terms, as part
of Class III of a seven member classified board of Directors
and to election of one director to complete the one remaining
year of the three year term in Class I of that Board.
Votes
Nominee Votes For Withheld
------- -------- --------
John W. Gerdelman 55,265,953 127,031
Donne F. Fisher 55,265,674 127,310
James M. Schneider 55,266,541 126,443
Amendment of the Company's Stock Option Plan to increase the
number of shares authorized and allocated by 850,000 shares of
Class A common stock of the Company, and to eliminate
arbitrary termination dates and terms of effectiveness
specified in the Stock Option Plan so as to make its term
terminable by action of the Board.
Votes for: 54,363,800
Votes against: 546,041
Votes withheld: 133,346
(6) Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K filed during the quarter ended
June 30, 1995 - None
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL COMMUNICATION, INC.
August 9, 1995 By: /s/ Ronald A. Duncan
-------------- --------------------
(Date) Ronald A. Duncan, President and
Director
(Principal Executive Officer)
August 9, 1995 By: /s/ John M. Lowber
-------------- ------------------
(Date) John M. Lowber, Senior Vice
President and Chief Financial
Officer
(Principal Financial Officer)
August 9, 1995 By: /s/ Alfred J. Walker
-------------- --------------------
(Date) Alfred J. Walker, Vice
President and Chief Accounting
Officer
(Principal Accounting Officer)
25
EX-27
2
JUNE 30, 1995 FORM 10-Q FDS
5
1,000
6-MOS
DEC-31-1995
JUN-30-1995
428
0
20,362
363
576
23,458
78,817
31,048
76,944
19,543
0
17,306
0
0
21,274
76,944
61,553
61,553
33,827
33,827
0
569
592
5,823
2,380
3,443
0
0
0
3,443
.14
.14