11-K: Annual report of employee stock purchase, savings and similar plans
Published on June 29, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
A. Full title of the plan and the address of the plan if different from that of
the issuer named below:
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
GENERAL COMMUNICATION, INC.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
1
INDEX
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
FORM 11-K
FOR THE YEAR ENDED DECEMBER 31, 1998
Page Number
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Independent Auditors' Report dated June 4, 1999 3
Statements of Net Assets Available for Plan Benefits
at December 31, 1998 and 1997 4
Statements of Changes in Net Assets Available for Plan
Benefits for the Years Ended December 31, 1998, 1997
and 1996 5
Notes to Financial Statements 6
Supplemental Schedule I - Schedule of Assets Held for
Investment Purposes 14
Supplemental Schedule II - Schedule of Reportable Transactions 15
Consent of Independent Auditors 16
Signature 17
2
Independent Auditors' Report
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The General Communication, Inc. Qualified
Employee Stock Purchase Plan Trustees
General Communication, Inc. Qualified
Employee Stock Purchase Plan
We have audited the accompanying statements of net assets available for plan
benefits of General Communication, Inc. Qualified Employee Stock Purchase Plan
as of December 31, 1998 and 1997, and the related statements of changes in net
assets available for plan benefits for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of General
Communication, Inc. Qualified Employee Stock Purchase Plan at December 31, 1998
and 1997, and the changes in those net assets available for plan benefits for
each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
are the responsibility of the Plan's management. The supplemental schedules have
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
KPMG LLP
Anchorage, Alaska
June 4, 1999
3
See accompanying notes to financial statements.
4
See accompanying notes to financial statements.
5
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
(1) Description of Plan
The following description of the General Communication, Inc. Qualified
Employee Stock Purchase Plan ("Plan") provides general information
only. Participants should refer to the Plan document for a more
complete description of the Plan's provisions.
General
The Plan is a defined contribution plan covering employees of
General Communication, Inc. ("GCI") and affiliated companies
(collectively, the "Company") who have completed one year of
service, as defined in the Plan document. Affiliated companies
include GCI, Inc., GCI Holdings, Inc., GCI Communication Corp., GCI
Communication Services, Inc., GCI Leasing Co., Inc., GCI Cable,
Inc., GCI Cable/Fairbanks, Inc., GCI Cable/Juneau, Inc., GCI
Transport Co., Inc., GCI Fiber Co., Inc., Fiber Hold Company, Inc.
and Alaska United Fiber System Partnership.
Contributions
The Plan provides for a qualified cash or deferred arrangement as
defined in Section 401(k) of the Internal Revenue Code of 1986
("Code"). A participant may elect the following methods to make
employee contributions:
(1) Salary Reduction Contributions ("before-tax contributions")
which will not be included in the participant's current
earnings for federal income tax purposes but rather are
taxable upon distribution; or,
(2) Non-qualified Voluntary Contributions ("after-tax
contributions") which will be included in the participant's
current earnings for federal income tax purposes and are not
taxable upon distribution.
Eligible employees of the Company may elect to reduce their
compensation in any amount up to 10% of such compensation up to a
maximum of $10,000 in 1998 and $9,500 in 1997 and 1996; they may
contribute up to 10% of their compensation with after-tax dollars;
or they may elect a combination of salary reduction and after-tax
contributions. The Company may match employee salary reduction and
after-tax contributions in any amount determined by the Company's
Board of Directors each year, but not more than 10% of any one
employee's compensation will be matched in any pay period.
Forfeitures will be allocated along with the Company matching
contributions. All matching contributions are invested in GCI Class
A or Class B common stock. The combination of salary reduction,
after-tax, forfeited and matching contributions cannot exceed the
lesser of 25% of any employee's compensation (determined after
salary reduction) for any year, or $30,000. Compensation considered
for all Plan purposes is subject to a compensation ceiling of
$160,000 for 1998 and 1997 and $150,000 for 1996.
Employee contributions invested in GCI Class A and Class B common
stock may receive up to 100% matching, as determined by the
Company's Board of Directors each year, in GCI Class A and Class B
common stock. Employee contributions invested in other than GCI
Class A and Class B common stock may receive up to 50% matching, as
determined by the Company's Board of Directors each year, in GCI
Class A and Class B common stock.
Matching amounts contributed to the Plan by the Company are not
taxed to the employee until distribution upon retirement, hardship
or termination of employment. Plan earnings are taxable to the
employee either upon distribution or, in the case of GCI common
stock distributions, upon the eventual disposition of the stock.
6 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
Participant Accounts
Each participant account is credited with the participant's
contributions, the employer matching contributions, allocations of
Plan earnings and forfeitures. Plan earnings are allocated
quarterly. Earnings of assets other than GCI Class A and Class B
common stock are allocated based on the participant's weighted
average account balance (excluding Company common stock) as a
proportion of total weighted average account balances (excluding
Company common stock) during the calendar quarter. Earnings on
Company common stock are allocated to the accounts holding such
Company common stock, based upon the number of shares held by each
participant account at the end of the calendar quarter.
Vesting
A participant's interest in his or her Salary Reduction Account and
Non-qualified Voluntary Account is always fully vested and is not
subject to forfeiture.
The participant's interest in the Company Matching Account is vested
based upon years of service with the Company (as defined in the Plan
document), in accordance with the following schedule:
Years of Service Vested Percentage
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Less than 1 0%
1 or more but less than 2 20%
2 or more but less than 3 30%
3 or more but less than 4 45%
4 or more but less than 5 60%
5 or more but less than 6 80%
6 or more 100%
Any portion of a participant's account which is forfeitable shall be
forfeited on the earlier of the date a terminated participant
receives a distribution or the date on which the participant
experiences five consecutive one-year breaks in service (as defined
in the Plan document).
A participant's interest in the Company Matching Account fully vests
without regard to the number of years of service when the
participant, while still employed: (i) attains Normal Retirement Age
(as defined in the Plan document) and retires under the terms of the
Plan; (ii) dies, or (iii) becomes totally and permanently disabled.
A participant's interest in the Company Matching Account fully vests
upon the termination or partial termination of the Plan or upon
complete discontinuance of Company contributions.
If a participant terminates participation for any reason other than
attainment of Normal Retirement Age and retirement, death or
disability while any portion of his or her account in the Plan is
forfeitable, and receives a distribution of his or her vested
account balance attributable to Company matching contributions not
later than the close of the second Plan year following the Plan year
in which participation terminated, then upon becoming an eligible
employee, the participating employee will have the right to repay
the distribution to the Plan in accordance with Plan provisions. The
shares of that participating employee's account previously forfeited
will be restored.
Forfeitures
If a participating employee terminates participation for any reason
other than attainment of Normal Retirement Age and retirement, death
or disability, that portion of his or her account attributable to
Company matching contributions which has not vested will be
forfeited. All amounts so forfeited will be allocated along with the
employer matching contribution to the remaining participating
employees during the first calendar quarter after the end of the
year in which the forfeitures occur. Forfeitures are immaterial to
the financial statements as a whole and are not accrued at year end.
7 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
Participant Notes Receivable
Participants may borrow from their accounts a minimum of $1,000 up
to a maximum equal to the lesser of $50,000 or 50% of their vested
account balance. Loan transactions are treated as a transfer to
(from) the appropriate investment fund from (to) the participants'
notes receivable. Loan terms range from 1-5 years. The loans are
secured by the vested balance in the participant's account and bear
interest at National Bank of Alaska's prime rate plus 2%, fixed at
the loan date. Principal and interest is paid ratably through
semi-monthly payroll deductions.
(2) Summary of Significant Accounting Policies
The Plan financial statements are based on the accrual method of
accounting in accordance with generally accepted accounting principles.
Plan investments are stated at current fair market value.
In preparing the financial statements, the Plan administrator is
required to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and
additions and deductions to/from net assets for the period. Actual
results could differ from those estimates and assumptions.
The current value of GCI Class A common stock, MCI WorldCom common
stock, Tele-Communications, Inc. Series A TCI Ventures Group common
stock, TCI Satellite Entertainment, Inc. Series A common stock and
Tele-Communications, Inc. Series A TCI Group common stock (collectively
"TCI") is based on the average of the closing bid and ask prices as
listed on the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Market System. GCI Class B common stock is
traded on the Over-the-Counter market. GCI Class B common stock is
convertible share-for-share into GCI Class A common stock and is valued
the same as GCI Class A common stock. Mutual fund investments are
carried at fair market value, as determined by individual fund
management, based upon quoted market prices.
Sales of securities are recorded on a trade-date basis. The cost of GCI
securities purchased is determined using the average cost method. The
cost of all other securities purchased is on a trade-date basis.
(3) Administration of Plan Assets
The Heintzberger Company ("Recordkeeper") is recordkeeper of the Plan
and National Bank of Alaska ("Trustee") is trustee of the Plan.
Administrative expenses related to the Plan are paid directly by the
Company to the Recordkeeper and the Trustee. Company employees continue
to provide administrative support to the Plan but no employee receives
compensation from the Plan.
(4) Amendment or Termination
The Company's Board of Directors has reserved the right to amend or
terminate the Plan. No amendment may reduce the accrued benefits of any
participant or give the Company any interest in the trust assets of the
Plan. In the event of termination of the Plan, a participant with
respect to the Plan becomes fully vested in his or her Company Matching
Account.
In June 1998 the Plan was amended and restated effective January 1998
requiring all hardship withdrawals be made only in a cash lump sum and
allowing hardship withdrawals of rollover contributions without the
temporary suspension of participant contributions and without the
requirement that the participant exhaust all other resources prior to
obtaining a hardship withdrawal of rollover contributions.
8 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
(5) Cash and Cash Equivalents
Included in cash and cash equivalents are interest bearing certificates
of deposit. Cash and cash equivalents at December 31, 1998 and 1997
include restricted cash of $111,269 and $107,431, respectively. This
cash has been restricted by participants from use in purchasing stock
or other investments.
(6) Investments
Investment choices offered to Plan participants follow:
GCI Stock Fund - a fund invested in shares of GCI Class A and
Class B common stock.
MCI WorldCom Stock Fund - a fund invested in shares of MCI
WorldCom common stock. Prior to September 14, 1998 the Plan
allowed participants to invest in MCI Communications Corp. (MCI)
Class A common stock. On September 14, 1998 WorldCom, Inc.
acquired MCI and subsequently converted each share of MCI Class
A common stock into MCI WorldCom common stock.
TCI Stock Fund - a fund invested in shares of TCI Group Series A
common stock, TCI Series A Ventures Group common stock and TCI
Satellite Entertainment, Inc. Series A common stock.
Mutual Funds:
Fidelity Puritan Fund ("Fidelity") - a mutual fund seeking high
income with preservation of capital by investing in a broadly
diversified portfolio of securities.
Heartland Value Fund ("Heartland") - a mutual fund seeking long
term capital appreciation through investment in small company
stocks selected on a value basis.
Meridian Fund ("Meridian") - a mutual fund seeking long-term
growth of capital through investments in small and medium sized
companies considered to be experiencing above-average growth in
revenue and earnings.
Neuberger Berman Guardian Fund ("Neuberger") - a mutual fund
seeking primarily capital appreciation and secondarily current
income through investment in a large number of common stocks of
long-established, high quality companies.
Vanguard Short-term Corporate Fund ("Vanguard") - a mutual fund
seeking to provide investors with a high level of income
consistent with maintenance of principle and liquidity with
primary investments in investment grade corporate debt
securities, federal, state and municipal agency obligations,
certificates of deposit and commercial paper.
9 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
10 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
11 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
During the second quarter of 1997, participants were allowed to make a
one-time transfer of their investment in GCI Class A and B common stock
to another investment choice(s) offered by the Plan.
Effective October 31, 1996, GCI acquired seven Alaska cable television
companies ("Cable Systems"). During 1997, the 401(k) accounts of those
employees previously employed by the Cable Systems and currently
employed by GCI were rolled into the Plan. Contributions from the Cable
Systems' rollovers totaled $1,563,137.
At December 31, 1998 and 1997 the GCI Class A and Class B common stock
price was $4.0313 and $6.6875, respectively. At June 4, 1999 the GCI
Class A and Class B common stock price was $5.0000. Stock value is
based upon fluctuating market demand.
In March 1999 TCI merged with AT&T. Subsequent to the merger each share
of TCI Group Series A common stock was converted into 0.7757 share of
AT&T common stock and each share of TCI Series A Ventures Group common
stock was converted into 0.52 share of the newly created Liberty Media
Group Class A common stock. TCI Satellite Entertainment, Inc. was not
included in the AT&T and TCI merger, therefore its stock was not
converted.
12 (Continued)
GENERAL COMMUNICATION, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
(7) Gross Unrealized Appreciation (Depreciation) of Investments
(8) Income Taxes
The Plan is qualified under Section 401(a) of the Code pursuant to a
tax determination letter obtained from the Internal Revenue Service
("IRS"). The trust established pursuant to the Plan is, therefore,
exempt from taxation under Section 501(a) of the Code.
In December 1994, an application was submitted to the IRS for a
determination as to the Plan's qualification status under Section
401(a) of the Code associated with Plan changes for TRA '86, investment
diversification and modification of the employer matching contribution
percentage. On March 13, 1996 the IRS issued a determination letter
stating that these amendments to the Plan meet the requirements of
section 401(a) of the Code.
The amendments to the Plan subsequent to March 13, 1996 are not
potentially disqualifying amendments and therefore the Plan has not
requested an updated determination letter. The IRS requires a new
determination letter for all amendments made after 1997 be obtained by
December 31, 2000, the Plan intends to obtain a new determination
letter by December 31, 2000.
13
Supplemental Schedule I
* Party-in-interest
14
Supplemental Schedule II
15
Exhibit
CONSENT OF INDEPENDENT AUDITORS
The General Communication, Inc. Qualified
Employee Stock Purchase Plan Trustees
General Communication, Inc. Qualified
Employee Stock Purchase Plan
We consent to incorporation by reference in the Form S-8 Registration Statement
(No. 33-66877) of our report dated June 4, 1999 related to the statements of net
assets available for plan benefits of General Communication, Inc. Qualified
Employee Stock Purchase Plan as of December 31, 1998 and 1997 and the related
statements of changes in net assets available for plan benefits for each of the
years in the three-year period ended December 31, 1998, which report appears in
the December 31, 1998 annual report on Form 11-K of General Communication, Inc.
Qualified Employee Stock Purchase Plan.
KPMG LLP
June 4, 1999
16