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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K/A
(Amendment No. 1)
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
 
 Commission file number 333-82363
 Alaska Communications Systems Holdings, Inc.
  Delaware
    
    91-1921377(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)600 Telephone AvenueAnchorage, Alaska
    
    99503-6091(Address of principal executive offices)
    
    (Zip Code)
 (907) 297-3000
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredNone
 Securities registered pursuant to Section 12(g) of the Act:
 Title of each class
None
 
 þ o
 o
 o þ
 o þ
   Documents Incorporated by Reference




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.
  Share-Based Payment, .
  2




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC .
 AMENDMENT NO. 1
 ANNUAL
REPORT ON FORM 10-K/A
 FOR THE YEAR ENDED DECEMBER 31, 2004
   PagePart IIItem 6. Selected Financial Data
    
    
    4Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    5PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    20Signatures
    
    
    21Index to Consolidated Financial Statements
    
    
    F-1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 3




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##### Table of Contents



PART II
 
 Item 6. Selected Financial Data
 SELECTED HISTORICAL FINANCIAL DATA
   ($ in thousands)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Operating Data:Operating revenues
    
    $
    302,707
    
    
    $
    323,847
    
    
    $
    340,394
    
    
    $
    328,525
    
    
    $
    311,366Operating expenses before loss (gain) on disposal of assets
    
    
    289,735
    
    
    
    361,074
    
    
    
    360,995
    
    
    
    281,402
    
    
    
    277,598Loss (gain) on disposal of assets
    
    
    2,854
    
    
    
    (112,622
    )
    
    
    2,163
    
    
    
    
    
    
    
    Operating income
    
    
    10,118
    
    
    
    75,395
    
    
    
    (22,764
    )
    
    
    47,123
    
    
    
    33,768Other expense
    
    
    (45,104
    )
    
    
    (79,013
    )
    
    
    (46,910
    )
    
    
    (54,315
    )
    
    
    (58,398
    )Loss before income taxes, discontinued operations,
extraordinary item and cumulative effect of
change in accounting principle
    
    
    (34,986
    )
    
    
    (3,618
    )
    
    
    (69,674
    )
    
    
    (7,192
    )
    
    
    (24,630
    )Income tax benefit (expense)
    
    
    219
    
    
    
    (1,095
    )
    
    
    
    
    
    
    195
    
    
    
    197Equity in income of investments
    
    
    16
    
    
    
    783
    
    
    
    
    
    
    
    69
    
    
    
    (303
    )Loss from continuing operations
    
    
    (34,751
    )
    
    
    (3,930
    )
    
    
    (69,674
    )
    
    
    (6,928
    )
    
    
    (24,736
    )Loss from discontinued operations
    
    
    
    
    
    
    (52
    )
    
    
    (7,632
    )
    
    
    (1,718
    )
    
    
    (917
    )Loss before cumulative effect of
change in accounting principle
    
    
    (34,751
    )
    
    
    (3,982
    )
    
    
    (77,306
    )
    
    
    (8,646
    )
    
    
    (25,653
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (105,350
    )
    
    
    
    
    
    
    Net loss
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )
    
    $
    (8,646
    )
    
    $
    (25,653
    )Balance Sheet Data (end of period)Total assets
    
    $
    636,039
    
    
    $
    685,187
    
    
    $
    755,871
    
    
    $
    951,123
    
    
    $
    954,681Long-term debt including current portion
    
    
    525,889
    
    
    
    535,004
    
    
    
    592,831
    
    
    
    596,603
    
    
    
    599,642Stockholders equity (deficit)
    
    
    (35,335
    )
    
    
    18,449
    
    
    
    18,618
    
    
    
    208,678
    
    
    
    231,153Other Financial Data:Cash provided by operating activities
    
    $
    69,233
    
    
    $
    55,378
    
    
    $
    66,956
    
    
    $
    78,054
    
    
    $
    144,643Cash provided (used) by investing activities
    
    
    (44,455
    )
    
    
    64,295
    
    
    
    (70,028
    )
    
    
    (95,899
    )(1)
    
    
    (75,795
    )(1)Cash used by financing activities
    
    
    (28,694
    )
    
    
    (82,662
    )
    
    
    (9,675
    )
    
    
    (3,039
    )
    
    
    (15,958
    )Capital expenditures
    
    
    51,422
    
    
    
    50,906
    
    
    
    72,621
    
    
    
    88,998
    
    
    
    73,349
 
 (1)
    
    Cash provided (used) by investing activities for the years ended December 31, 2001 and
2000 has not been restated for the effects of the Companys treatment of auction-rate securities
and other short-term investments discussed in Note 24 to the Companys consolidated financial
statements as it was not practicable for the Company to obtain such information. 4




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Alaska Communications Systems Holdings
  
    
    The provision of local telephone services, including:
 
    
    Basic local service to retail customers within our service areas,
    
    Wholesale service to Competitive Local Exchange Carriers, or CLECs,
    
    Network access services to interexchange carriers for origination
and termination of interstate and intrastate long distance phone calls,
    
    Enhanced services,
    
    Ancillary services, such as billing and collection, and
    
    Universal service payments;
 
    
    The provision of wireless services;
    
    The provision of Internet services; and
    
    The provision of interexchange network long-distance and data services.
  Local Telephone 
  
    
    intrastate and interstate revenue settlement methodologies,
    
    authorized rates of return for regulated services,
    
    whether an access line is used by a business or consumer subscriber,
    
    intrastate and interstate calling patterns,
    
    customers selection of various local rate plan options,
    
    selection of enhanced calling services, such as voice mail, and
    
    other subscriber usage characteristics.
  
    
    consumer and business customers located in our local service areas that pay for
local phone service and a portion of network access,
    
    interexchange carriers that pay for access to long distance calling customers
located within our local service areas, and
    
    CLECs that pay for wholesale access to our network in order to provide
competitive local service on either a wholesale or Unbundled Network Element (UNE)
basis as prescribed under the Telecommunications Act.
  5




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Wireless
 Internet
 Interexchange 
 Video Entertainment 
 Critical accounting policies and accounting estimates
     6




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7




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Results of Operations
  ($ in thousands)
    
    2004
    
    
    2003
    
    
    2002Operating revenues:Local telephone
    
    $
    211,187
    
    
    $
    215,686
    
    
    $
    226,697Wireless
    
    
    56,694
    
    
    
    46,548
    
    
    
    43,180Directory
    
    
    
    
    
    
    11,631
    
    
    
    33,604Internet
    
    
    20,173
    
    
    
    33,026
    
    
    
    20,847Interexchange
    
    
    14,653
    
    
    
    16,956
    
    
    
    16,066Total operating revenues
    
    
    302,707
    
    
    
    323,847
    
    
    
    340,394Operating expenses:Local telephone (exclusive of depreciation and amortization)
    
    
    127,918
    
    
    
    116,653
    
    
    
    114,832Wireless (exclusive of depreciation and amortization)
    
    
    37,918
    
    
    
    31,064
    
    
    
    29,352Directory (exclusive of depreciation and amortization)
    
    
    
    
    
    
    5,249
    
    
    
    14,170Internet (exclusive of depreciation and amortization)
    
    
    25,739
    
    
    
    45,523
    
    
    
    31,299Interexchange (exclusive of depreciation and amortization)
    
    
    19,773
    
    
    
    25,542
    
    
    
    23,647Contract termination and asset impairment charges
    
    
    
    
    
    
    54,858
    
    
    
    Depreciation and amortization
    
    
    78,387
    
    
    
    82,185
    
    
    
    82,940Loss (gain) on disposal of assets, net
    
    
    2,854
    
    
    
    (112,622
    )
    
    
    2,163Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    64,755Total operating expenses
    
    
    292,589
    
    
    
    248,452
    
    
    
    363,158Operating income (loss)
    
    
    10,118
    
    
    
    75,395
    
    
    
    (22,764
    )Other income and expense:Interest expense
    
    
    (46,745
    )
    
    
    (68,822
    )
    
    
    (49,113
    )Interest income and other
    
    
    1,641
    
    
    
    (10,191
    )
    
    
    2,203Total other income (expense)
    
    
    (45,104
    )
    
    
    (79,013
    )
    
    
    (46,910
    )Loss before income taxes, discontinued operations and cumulative
effect of change in accounting principle
    
    
    (34,986
    )
    
    
    (3,618
    )
    
    
    (69,674
    )Income tax benefit (expense)
    
    
    219
    
    
    
    (1,095
    )
    
    
    Equity in income of investments
    
    
    16
    
    
    
    783
    
    
    
    Loss from continuing operations
    
    
    (34,751
    )
    
    
    (3,930
    )
    
    
    (69,674
    )Loss from discontinued operations
    
    
    
    
    
    
    (52
    )
    
    
    (7,632
    )Loss before cumulative effect of change in accounting principle
    
    
    (34,751
    )
    
    
    (3,982
    )
    
    
    (77,306
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (105,350
    )Net loss
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )
 8




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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Operating revenues
   Local Telephone.
 Year Ended December 31,2004
    
    
    2003(in thousands)Local telephone revenue:Local network service
    
    $
    91,669
    
    
    $
    96,357Network access revenue
    
    
    97,536
    
    
    
    97,759Deregulated revenue and other
    
    
    21,982
    
    
    
    21,570Total local telephone
            revenue
    
        $
    211,187
    
    
    $
    215,686
  As of December 31,2004
    
    
    2003Retail access lines
    
    
    207,905
    
    
    
    218,058Wholesale access lines
    
    
    16,590
    
    
    
    19,159Unbundled network elements  loop (UNE-L)
    
    
    64,589
    
    
    
    68,916Unbundled network elements  platform (UNE-P)
    
    
    6,365
    
    
    
    5,333Total local telephone access lines
    
    
    295,449
    
    
    
    311,466
   9




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Wireless.
 
    
    growth in average subscribers of 10.4% for the year ended December 31, 2004 over the
prior year period;
    
    an increase in monthly average revenue per unit, or ARPU, of 8.6% to $44.64 for the
year ended December 31, 2004, from $41.09 for the year ended December 31, 2003,
primarily as a result of increased plan revenue, roaming, and regulatory surcharges;
and
    
    higher gross customer adds in the year ended December 31, 2004 resulting in $4.3
million of handset revenue compared to $2.3 million for the year ended December 31,
2003.
 Internet.
 Interexchange.
 Operating expenses
    Local Telephone. . .
 10




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Wireless.
 Internet.
 Interexchange.
 Contract termination and asset impairment charges.
  Contract termination charges:Contract termination payment
    
    $
    3,448Loss on disposal of assets
    
    
    5,648Accounts receivable and working capital write-downs
    
    
    3,575Total contract termination charges
    
    $
    12,671Asset impairment charges
    
    $
    42,187Total contract termination and asset impairment charges
    
    $
    54,858
  Depreciation and amortization.
 Loss (Gain) on disposal of assets.
  11




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Interest expense and interest income and other
   Income taxes
  Loss from discontinued operations
  Net loss
 .
 Year ended December 31, 2003 compared to year ended December 31, 2002
 Operating revenues
  Local telephone.
 12




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Year Ended December 31,2003
    
    
    2002(in thousands)Local telephone revenue:Local network service
    
    $
    96,357
    
    
    $
    99,512Network access revenue
    
    
    97,759
    
    
    
    108,335Deregulated revenue and other
    
    
    21,570
    
    
    
    18,850Total local telephone revenue
    
    $
    215,686
    
    
    $
    226,697
  As of December 31,2003
    
    
    2002Retail access lines
    
    
    218,058
    
    
    
    236,148W holesale access lines
    
    
    19,159
    
    
    
    22,148Unbundled network elements  loop (UNE-L)
    
    
    68,916
    
    
    
    62,091Unbundled network elements  platform (UNE-P)
    
    
    5,333
    
    
    
    2,620Total local telephone access lines
    
    
    311,466
    
    
    
    323,007
     13




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Wireless.
 Internet.
  Interexchange.
 Operating expenses
    Local telephone.
 Wireless.
 14




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Internet.
 Interexchange.
 Contract termination and asset impairment charges.
  Contract termination charges:Contract termination payment
    
    $
    3,448Loss on disposal of assets
    
    
    5,648Accounts receivable and working capital write-downs
    
    
    3,575Total contract termination charges
    
    $
    12,671Asset impairment charges
    
    $
    42,187Total contract termination and asset impairment charges
    
    $
    54,858
  Depreciation and amortization.
 Loss (gain) on disposal of assets.
   Goodwill impairment loss.
 15




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Interest expense and interest income and other
 7 ¤ 8
  Income taxes
  Discontinued operations
  Cumulative effect of change in accounting principle
  Net loss
  Liquidity and capital resources
  16




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
    
    repay in full and redeem the $198.0 of outstanding principal under our 2003 senior
credit facility, together with interest accrued thereon;
    
    repurchase $59.3 million of outstanding principal of our senior unsecured notes,
together with tender premiums and interest accrued thereon;
    
    repurchase $140.1 million of outstanding principal of our senior subordinated notes,
together with tender premiums and interest accrued thereon;
    
    call for redemption the $7.4 million of remaining principal of senior subordinated
notes; and
    
    pay underwriters discounts and transaction fees and expenses associated with the
equity offering and refinancing transactions.
   17




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($ in thousands)
    
    Total
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    ThereafterLong-term debt
    
    $
    517,829
    
    
    $
    1,413
    
    
    $
    2,620
    
    
    $
    149,805
    
    
    $
    363,991Capital leases
    
    
    8,060
    
    
    
    885
    
    
    
    1,984
    
    
    
    1,603
    
    
    
    3,588Operating leases
    
    
    6,779
    
    
    
    2,194
    
    
    
    2,389
    
    
    
    1,470
    
    
    
    726Unconditional purchase obligations
    
    
    10,942
    
    
    
    6,357
    
    
    
    3,565
    
    
    
    1,020
    
    
    
    Total contractual cash obligations
    
    $
    543,610
    
    
    $
    10,849
    
    
    $
    10,558
    
    
    $
    153,898
    
    
    $
    368,305
       18




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Effect of new accounting standards
   Outlook
  
    
    increasing demand for wireless voice and data services following the launch of
our CDMA 1xRTT network;
    
    growth in demand for DSL and Internet access services due to higher business and
consumer bandwidth needs; and
    
    increasing demand for private network services by government and business on a
statewide basis on either a circuit switched or IP basis.
     19




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Impact of inflation
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    1. Financial StatementsOur consolidated financial statements are submitted as a separate section of this Form
10-K/A. See Index to Consolidated Financial Statements and Schedule which appears on page
F-1 hereof.2. Financial Statement ScheduleOur financial statement schedules for the Company and its subsidiaries are submitted as a
separate section of this Form 10-K/A. See Index to Consolidated Financial Statements and
Schedule which appears on page F-1 hereof.
 Exhibit
    
    DescriptionNo.31.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of David Wilson, Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted to Section 906 of The Sarbanes-Oxley Act of 2002.
 20




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SIGNATURES
  Date: November 2, 2005
    
    Alaska Communications Systems Holdings, Inc.By:
    
    /s/ Liane PelletierLiane Pelletier
Chief Executive Officer,
Chairman of the Board and President
  Signature
    
    Title
    
    Date/s/ Liane Pelletier
    
    Chief Executive Officer, Chairman of the Board
    
    November 2, 2005Liane Pelletier
    
    and President/s/ David Wilson
    
    Senior Vice President and Chief Financial Officer
    
    November 2, 2005David Wilson
    
    (Principal Accounting Officer)/s/ Kenneth L. Sprain
    
    Senior Vice President, Network and IT
    
    November 2, 2005Kenneth L. Sprain
    
    Operations/s/ David C. Eisenberg
    
    Senior Vice President, Corporate Strategy and
    
    November 2, 2005David C. Eisenberg
    
    Development/s/ Sheldon Fisher
    
    Senior Vice President, Sales and Product
    
    November 2, 2005Sheldon Fisher
    
    Marketing/s/ Leonard A. Steinberg
    
    Vice President, General Counsel and Corporate
    
    November 2, 2005Leonard A. Steinberg
    
    Secretary/s/ Elizabeth E. Pierce
    
    Vice President, Human Resources and Facilities
    
    November 2, 2005Elizabeth E. Pierce
    
    Services/s/ Byron I. Mallott
    
    Director
    
    November 2, 2005Byron I. Mallott/s/ Brian Rogers
    
    Director
    
    November 2, 2005Brian Rogers/s/ W. Dexter Paine, III
    
    Director
    
    November 2, 2005W. Dexter Paine, III/s/ John M. Egan
    
    Director
    
    November 2, 2005John M. Egan/s/ Patrick Pichette
    
    Director
    
    November 2, 2005Patrick Pichette/s/ Gary R. Donahee
    
    Director
    
    November 2, 2005Gary R. Donahee/s/ John W. Gibson
    
    Director
    
    November 2, 2005John W. Gibson
 21




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets  December 31, 2004 (as restated) and 2003 (as restated)
    
    F-3Consolidated Statements of Operations  Years Ended December 31, 2004, 2003 and 2002
    
    F-4Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss) Years Ended December 31, 2004, 2003 and 2002
    
    F-5Consolidated Statements of Cash Flows  Years Ended December 31, 2004 (as restated),2003 (as restated) and 2002 (as restated)
    
    F-6Notes to Consolidated Financial Statements Years Ended December 31, 2004, 2003 and 2002
    
    F-7Schedule II  Valuation and Qualifying Accounts
    
    F-46
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
    Goodwill and Other Intangible
Assets.
   
 F-2




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Balance Sheets
December 31, 2004 and 2003
(In Thousands, Except Per Share Amounts)
 As
Restated - See Note 24Assets
    
    2004
    
    
    2003Current assets:Cash and cash equivalents
    
    $
    50,660
    
    
    $
    54,576Restricted cash
    
    
    4,690
    
    
    
    3,635Short term investments
    
    
    35,200
    
    
    
    43,222Accounts receivable-trade, net of allowance of $4,869 and $4,865
    
    
    38,325
    
    
    
    41,866Materials and supplies
    
    
    6,623
    
    
    
    10,099Prepayments and other current assets
    
    
    3,724
    
    
    
    5,850Total current assets
    
    
    139,222
    
    
    
    159,248Property, plant and equipment
    
    
    1,061,767
    
    
    
    1,041,904Less: Accumulated depreciation and amortization
    
    
    649,455
    
    
    
    603,760Property, plant and equipment, net
    
    
    412,312
    
    
    
    438,144Goodwill
    
    
    38,403
    
    
    
    38,403Intangible assets
    
    
    21,871
    
    
    
    22,055Debt issuance costs
    
    
    15,482
    
    
    
    18,587Deferred charges and other assets
    
    
    8,749
    
    
    
    8,750Total assets
    
    $
    636,039
    
    
    $
    685,187
 Liabilities and Stockholders Equity (Deficit)
 Current liabilities:Current portion of long-term obligations
    
    $
    2,298
    
    
    $
    2,267Accounts payable-affiliates
    
    
    3,973
    
    
    
    3,817Accounts payable, accrued and other current liabilities
    
    
    54,648
    
    
    
    46,991Income taxes payable
    
    
    
    
    
    
    1,095Advance billings and customer deposits
    
    
    8,948
    
    
    
    8,766Total current liabilities
    
    
    69,867
    
    
    
    62,936Long-term obligations, net of current portion
    
    
    523,591
    
    
    
    532,737Other deferred credits and long-term liabilities
    
    
    77,916
    
    
    
    71,065Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 1,000 shares authorized
1 share issued and outstanding
    
    
    
    
    
    
    Contributed capital
    
    
    245,585
    
    
    
    264,630Accumulated deficit
    
    
    (276,389
    )
    
    
    (241,638
    )Accumulated other comprehensive loss
    
    
    (4,531
    )
    
    
    (4,543
    )Total stockholders equity (deficit)
    
    
    (35,335
    )
    
    
    18,449Total liabilities and stockholders equity (deficit)
    
    $
    636,039
    
    
    $
    685,187
 See Notes to Consolidated Financial Statements
 F-3




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Operations
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 2004
    
    
    2003
    
    
    2002Operating revenues:Local telephone
    
    $
    211,187
    
    
    $
    215,686
    
    
    $
    226,697Wireless
    
    
    56,694
    
    
    
    46,548
    
    
    
    43,180Directory
    
    
    
    
    
    
    11,631
    
    
    
    33,604Internet
    
    
    20,173
    
    
    
    33,026
    
    
    
    20,847Interexchange
    
    
    14,653
    
    
    
    16,956
    
    
    
    16,066Total operating revenues
    
    
    302,707
    
    
    
    323,847
    
    
    
    340,394Operating expenses:Local telephone (exclusive of depreciation and amortization)
    
    
    127,918
    
    
    
    116,653
    
    
    
    114,832Wireless (exclusive of depreciation and amortization)
    
    
    37,918
    
    
    
    31,064
    
    
    
    29,352Directory (exclusive of depreciation and amortization)
    
    
    
    
    
    
    5,249
    
    
    
    14,170Internet (exclusive of depreciation and amortization)
    
    
    25,739
    
    
    
    45,523
    
    
    
    31,299Interexchange (exclusive of depreciation and amortization)
    
    
    19,773
    
    
    
    25,542
    
    
    
    23,647Contract termination and asset impairment charges
    
    
    
    
    
    
    54,858
    
    
    
    Depreciation and amortization
    
    
    78,387
    
    
    
    82,185
    
    
    
    82,940Loss (gain) on disposal of assets, net
    
    
    2,854
    
    
    
    (112,622
    )
    
    
    2,163Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    64,755Total operating expenses
    
    
    292,589
    
    
    
    248,452
    
    
    
    363,158Operating income (loss)
    
    
    10,118
    
    
    
    75,395
    
    
    
    (22,764
    )Other income and expense:Interest expense
    
    
    (46,745
    )
    
    
    (68,822
    )
    
    
    (49,113
    )Interest income and other
    
    
    1,641
    
    
    
    (10,191
    )
    
    
    2,203Total other income (expense)
    
    
    (45,104
    )
    
    
    (79,013
    )
    
    
    (46,910
    )Loss before income taxes, discontinued operations and cumulative
effect of change in accounting principle
    
    
    (34,986
    )
    
    
    (3,618
    )
    
    
    (69,674
    )Income tax benefit (expense)
    
    
    219
    
    
    
    (1,095
    )
    
    
    Equity in income of investments
    
    
    16
    
    
    
    783
    
    
    
    Loss from continuing operations
    
    
    (34,751
    )
    
    
    (3,930
    )
    
    
    (69,674
    )Loss from discontinued operations
    
    
    
    
    
    
    (52
    )
    
    
    (7,632
    )Loss before cumulative effect of change in accounting principle
    
    
    (34,751
    )
    
    
    (3,982
    )
    
    
    (77,306
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (105,350
    )Net loss
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )
 See Notes to Consolidated Financial Statements
 F-4




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Stockholders Equity (Deficit)
and Comprehensive Income (Loss)
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 AccumulatedOtherCommon
    
    
    Contributed
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholder'sStock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity (Deficit)Balance, January 1, 2002
    
    $
    
    
    
    $
    277,507
    
    
    $
    (55,000
    )
    
    $
    (13,829
    )
    
    $
    208,678Components of comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (182,656
    )
    
    
    
    
    
    
    (182,656
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,342
    )
    
    
    (2,342
    )Interest rate swap marked to market
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,715
    )
    
    
    (2,715
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187,713
    )Dividends
    
    
    
    
    
    
    (2,347
    )
    
    
    
    
    
    
    
    
    
    
    (2,347
    )Balance, December 31, 2002
    
    
    
    
    
    
    275,160
    
    
    
    (237,656
    )
    
    
    (18,886
    )
    
    
    18,618Components of comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (3,982
    )
    
    
    
    
    
    
    (3,982
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    191Interest rate swap marked to market
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,152
    
    
    
    14,152Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,361Dividends
    
    
    
    
    
    
    (10,530
    )
    
    
    
    
    
    
    
    
    
    
    (10,530
    )Balance, December 31, 2003
    
    
    
    
    
    
    264,630
    
    
    
    (241,638
    )
    
    
    (4,543
    )
    
    
    18,449Components of comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (34,751
    )
    
    
    
    
    
    
    (34,751
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,739
    )Dividends
    
    
    
    
    
    
    (19,045
    )
    
    
    
    
    
    
    
    
    
    
    (19,045
    )Balance, December 31, 2004
    
    $
    
    
    
    $
    245,585
    
    
    $
    (276,389
    )
    
    $
    (4,531
    )
    
    $
    (35,335
    )
 See Notes to Consolidated Financial Statements
 F-5




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002
(In Thousands)
 As
Restated - See Note 242004
    
    
    2003
    
    
    2002Cash Flows from Operating Activities:Net loss
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )Adjustments to reconcile net loss to net cash provided by operating activities:Loss on discontinued operations
    
    
    
    
    
    
    52
    
    
    
    7,632Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    105,350Depreciation and amortization
    
    
    78,387
    
    
    
    82,185
    
    
    
    82,940Loss (gain) on disposal of assets and asset impairment charges, net
    
    
    2,854
    
    
    
    (48,863
    )
    
    
    2,163Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    64,755Amortization of debt issuance costs, original issue discount and warrants
    
    
    3,639
    
    
    
    16,717
    
    
    
    4,191Non-cash stock based compensation expense
    
    
    
    
    
    
    900
    
    
    
    Other non-cash expenses
    
    
    12
    
    
    
    4,118
    
    
    
    Other deferred credits
    
    
    3,048
    
    
    
    1,643
    
    
    
    3,073Changes in components of working capital:Accounts receivable and other current assets
    
    
    9,143
    
    
    
    11,064
    
    
    
    (6,008
    )Accounts payable and other current liabilities
    
    
    6,900
    
    
    
    (6,443
    )
    
    
    (12,460
    )Other
    
    
    1
    
    
    
    (1,972
    )
    
    
    (1,375
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (41
    )
    
    
    (649
    )Net cash provided by operating activities
    
    
    69,233
    
    
    
    55,378
    
    
    
    66,956Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (51,422
    )
    
    
    (48,566
    )
    
    
    (68,434
    )Purchase of short term investments
    
    
    (154,650
    )
    
    
    (100,053
    )
    
    
    (32,400
    )Proceeds from sales of short term investments
    
    
    162,672
    
    
    
    57,831
    
    
    
    42,100Net proceeds from sale of business unit
    
    
    
    
    
    
    155,269
    
    
    
    Release of funds from escrow
    
    
    
    
    
    
    3,539
    
    
    
    3,706Placement of funds in escrow
    
    
    (1,055
    )
    
    
    (3,725
    )
    
    
    Issuance of note receivable
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Net cash provided (used) by investing activities
    
    
    (44,455
    )
    
    
    64,295
    
    
    
    (70,028
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (9,649
    )
    
    
    (434,102
    )
    
    
    (7,328
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    375,970
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    (14,000
    )
    
    
    Dividends
    
    
    (19,045
    )
    
    
    (10,530
    )
    
    
    (2,347
    )Net cash used by financing activities
    
    
    (28,694
    )
    
    
    (82,662
    )
    
    
    (9,675
    )Increase (decrease) in cash
    
    
    (3,916
    )
    
    
    37,011
    
    
    
    (12,747
    )Cash and cash equivalents at beginning of the year
    
    
    54,576
    
    
    
    17,565
    
    
    
    30,312Cash and cash equivalents at the end of the year
    
    $
    50,660
    
    
    $
    54,576
    
    
    $
    17,565Supplemental Cash Flow Data:Interest paid, net of capitalized interest
    
    $
    43,026
    
    
    $
    49,121
    
    
    $
    44,673Income taxes paid, net of refund
    
    
    876
    
    
    
    
    
    
    
    Supplemental Noncash Transactions:Property acquired under capital leases and mortgages
    
    $
    
    
    
    $
    2,340
    
    
    $
    4,187Minimum pension liability adjustment
    
    
    (12
    )
    
    
    (191
    )
    
    
    (2,342
    )Interest rate swap marked to market
    
    
    
    
    
    
    14,152
    
    
    
    (2,715
    )
 See Notes to Consolidated Financial Statements
 F-6




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ACS of Alaska, Inc. (ACSAK)      ACS of the Northland, Inc. (ACSN)      ACS of Fairbanks, Inc. (ACSF)      ACS of Anchorage, Inc. (ACSA)      ACS Wireless, Inc. (ACSW)      ACS Long Distance, Inc. (ACSLD)      ACS Internet, Inc. (ACSI)
   Basis of Presentation
  Use of Estimates
  Cash and Cash Equivalents
  F-7




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Restricted Cash
  Short-term Investments
  Materials and Supplies
  Property, Plant and Equipment
 Telephone
 Non-Telephone
  Debt Issuance Costs
  Original Issue Discounts
  F-8




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Revenue Recognition
    Income Taxes
  Regulatory Accounting and Regulation
 Accounting for the Effects of Certain Types of Regulation.
 F-9




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Regulatory Accounting and Regulation (Continued)
   Comprehensive Income (Loss)
  Parent Dividend Policy
  Stock Incentive Plans
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation-Transition and Disclosure,
 F-10




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Stock Incentive Plans (Continued)
 As Restated2004
    
    
    2003
    
    
    2002Net loss:As reported
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )Add: Stock-based employee compensation reported in
net loss
    
    
    
    
    
    
    900
    
    
    
    Deduct: Stock based compensation under fair value
method
    
    
    (1,938
    )
    
    
    (888
    )
    
    
    (1,713
    )Pro forma
    
    $
    (36,689
    )
    
    $
    (3,970
    )
    
    $
    (184,369
    )
  As Restated2004
    
    
    2003
    
    
    2002Risk free rate
    
    
    3.69
    %
    
    
    3.39
    %
    
    
    2.88
    %Dividend yield
    
    
    3.09
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility factor
    
    
    40.8
    %
    
    
    55.5
    %
    
    
    60.8
    %Expected option life (years)
    
    
    6.4
    
    
    
    6.5
    
    
    
    6.1
 Share-Based Payment, .
 Recent Accounting Pronouncements
   F-11




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##### Table of Contents



ALASKA
COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 2. ACCOUNTS RECEIVABLE
  2004
    
    
    2003Accounts receivable  trade:Customers
    
    $
    30,892
    
    
    $
    31,916Connecting companies
    
    
    8,579
    
    
    
    9,842Other
    
    
    3,723
    
    
    
    4,97343,194
    
    
    
    46,731Less: allowance for doubtful accounts
    
    
    4,869
    
    
    
    4,865Accounts receivable  trade, net
    
    $
    38,325
    
    
    $
    41,866
 3. PROPERTY, PLANT AND EQUIPMENT
  2004
    
    
    2003Property, plant and equipment:Land, buildings and support assets
    
    $
    193,073
    
    
    $
    191,314Central office switching and transmission
    
    
    300,624
    
    
    
    296,253Outside plant cable and wire facilities
    
    
    479,491
    
    
    
    466,019Wireless switching and transmission systems
    
    
    69,083
    
    
    
    54,524Other
    
    
    2,403
    
    
    
    3,490Assets held for future use
    
    
    
    
    
    
    3,599Construction work in progress
    
    
    17,093
    
    
    
    26,7051,061,767
    
    
    
    1,041,904Less: Accumulated depreciation and amortization
    
    
    649,455
    
    
    
    603,760Property, plant and equipment, net
    
    $
    412,312
    
    
    $
    438,144
  2004
    
    
    2003Property held under capital leases:Land, buildings and support assets
    
    $
    14,627
    
    
    $
    14,624Outside plant cable and wire facilities
    
    
    2,115
    
    
    
    2,11516,742
    
    
    
    16,739Less: Accumulated depreciation and amortization
    
    
    7,136
    
    
    
    6,090Property held under capital leases, net
    
    $
    9,606
    
    
    $
    10,649
   F-12




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 3. PROPERTY, PLANT AND EQUIPMENT
  2005
    
    $
    2,1942006
    
    
    1,3942007
    
    
    9952008
    
    
    7842009
    
    
    686Thereafter
    
    
    726$
    6,779
 4. GOODWILL AND OTHER INTANGIBLE ASSETS
 Goodwill and Other Intangible
Assets
    F-13




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 4. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
    Gross Carrying
    
    
    Accumulated
    
    
    AmortizableAmount
    
    
    Amortization
    
    
    LifeAmortizable intangible assets:Customer lists
    
    $
    915
    
    
    $
    (641
    )
    
    
    5Indefinite-lived intangible assets:Cellular licenses
    
    $
    18,194PCS licenses
    
    
    3,323Domain names and trade names
    
    
    80Total indefinite-lived intangible assets
    
    $
    21,597
  5. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES
  2004
    
    
    2003Accounts payable  trade
    
    $
    9,353
    
    
    $
    9,699Accrued interest
    
    
    8,717
    
    
    
    8,942Accrued payroll, benefits, and related liabilities
    
    
    6,094
    
    
    
    6,077Dividend payable
    
    
    5,694
    
    
    
    Accrued personal time off
    
    
    4,746
    
    
    
    5,031Litigation reserves
    
    
    4,188
    
    
    
    3,880Refundable access revenue
    
    
    2,605
    
    
    
    2,470Loss on lease terminations
    
    
    2,476
    
    
    
    Other
    
    
    10,775
    
    
    
    10,892Accounts payable, accrued and other current liabilities
    
    $
    54,648
    
    
    $
    46,991
 F-14




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 6. LONG-TERM OBLIGATIONS
  
   2004
    
    
    20032003 senior credit facility
    
    $
    198,000
    
    
    $
    200,0009 3/8% senior subordinated notes due 2009
    
    
    147,500
    
    
    
    150,0009 7/8% senior unsecured notes due 2011
    
    
    177,650
    
    
    
    182,000Original issue discount - 9 7/8% senior subordinated notes due 2011
    
    
    (5,321
    )
    
    
    (5,856
    )Capital leases and other long-term obligations
    
    
    8,060
    
    
    
    8,860525,889
    
    
    
    535,004Less current portion
    
    
    2,298
    
    
    
    2,267Long-term obligations, net of current portion
    
    $
    523,591
    
    
    $
    532,737
  2005
    
    $
    2,2982006
    
    
    2,3092007
    
    
    2,2952008
    
    
    2,1262009
    
    
    149,282Thereafter
    
    
    367,579$
    525,889
  F-15




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 6. LONG-TERM OBLIGATIONS (Continued)
 2003 Senior Credit Facility
     Senior Subordinated Notes
  Senior Unsecured Notes
  Capital leases and other long-term obligations
  F-16




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 7. OTHER DEFERRED CREDITS AND LONG-TERM LIABILITIES
  2004
    
    
    2003Refundable access revenue
    
    $
    15,952
    
    
    $
    12,741Additional pension liability
    
    
    5,676
    
    
    
    5,891Other deferred credits
    
    
    1,939
    
    
    
    1,887Regulatory liabilities  accumulated removal costs
    
    
    54,349
    
    
    
    50,546Deferred credits and other long-term liabilities
    
    $
    77,916
    
    
    $
    71,065
 8. LOCAL TELEPHONE OPERATING REVENUE
  2004
    
    
    2003
    
    
    2002Local network service
    
    $
    91,669
    
    
    $
    96,357
    
    
    $
    99,512Network access revenue
    
    
    97,536
    
    
    
    97,759
    
    
    
    108,335Deregulated revenue and other
    
    
    21,982
    
    
    
    21,570
    
    
    
    18,850Local telephone operating revenues
    
    $
    211,187
    
    
    $
    215,686
    
    
    $
    226,697
 9. CONTRACT TERMINATION AND ASSET IMPAIRMENT CHARGES
  Contract termination charges:Contract termination cash settlement
    
    $
    3,448Loss on disposal of assets
    
    
    5,648Accounts receivable and working capital write-downs
    
    
    3,575Total contract termination charges
    
    $
    12,671Asset impairment charges
    
    $
    42,187Total contract termination and asset impairment charges
    
    $
    54,858
 Contract Termination Charges
  F-17




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 9. CONTRACT TERMINATION AND ASSET IMPAIRMENT CHARGES (continued)
 Asset Impairment Charges
 Accounting for the Impairment or Disposal of Long-Lived Assets
 10. GAIN ON DISPOSAL OF ASSETS
    F-18




---



##### Table of Contents



ALASKA
COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 10. GAIN ON DISPOSAL OF ASSETS (Continued)
  Net proceeds of the Transaction
    
    $
    105,059Basis in Directories Business sold:Current assets
    
    
    4,213Property, plant and equipment, net
    
    
    90Goodwill
    
    
    38,822Debt issue costs
    
    
    1,468Current liabilities
    
    
    (1,035
    )Long-term debt
    
    
    (35,000
    )Basis of Directories Business
    
    
    8,558Equity in minority interest retained
    
    
    (1,077
    )Basis in net assets sold to the Fund
    
    
    7,481Gain on sale of Directories Business
    
    $
    97,578
    11. NON-OPERATING CHARGES
  F-19




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 12. INCOME TAXES
   2004
    
    
    2003
    
    
    2002Computed federal income tax benefit at 34% statutory rate
    
    $
    13,434
    
    
    $
    1,864
    
    
    $
    24,570(Increase) reduction in tax benefit resulting from:State income taxes (net federal benefit)
    
    
    3,439
    
    
    
    280
    
    
    
    4,144Original issue discount interest
    
    
    (185
    )
    
    
    (194
    )
    
    
    (194
    )Recovery of previously paid income tax
    
    
    219
    
    
    
    
    
    
    
    (313
    )Write-off of orginal issue discount
    
    
    (713
    )
    
    
    
    
    
    
    Excess compensation not allowed
    
    
    
    
    
    
    (343
    )
    
    
    Other
    
    
    (98
    )
    
    
    (315
    )
    
    
    (495
    )Valuation allowance
    
    
    (15,877
    )
    
    
    (2,387
    )
    
    
    (27,712
    )Total income tax benefit (expense)
    
    $
    219
    
    
    $
    (1,095
    )
    
    $
    
  2004
    
    
    2003
    
    
    2002Current:Federal income tax
    
    $
    185
    
    
    $
    (928
    )
    
    $
    State income tax
    
    
    34
    
    
    
    (167
    )
    
    
    Total current
    
    
    219
    
    
    
    (1,095
    )
    
    
    Deferred:Federal income tax
    
    
    
    
    
    
    
    
    
    
    State income tax
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    
    
    
    
    
    
    
    
    Total income tax benefit (expense)
    
    $
    219
    
    
    $
    (1,095
    )
    
    $
    
 F-20




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 12. INCOME TAXES (Continued)
  2004
    
    
    2003
    
    
    2002Deferred tax liabilities  long-term:Property, plant and equipment
    
    $
    
    
    
    $
    
    
    
    $
    (20,786
    )Other
    
    
    (105
    )
    
    
    (100
    )
    
    
    (88
    )Total long-term deferred tax liabilities
    
    
    (105
    )
    
    
    (100
    )
    
    
    (20,874
    )Deferred tax assets:Current:Accrued compensation
    
    
    2,537
    
    
    
    4,030
    
    
    
    4,249Accrued bad debts
    
    
    8,404
    
    
    
    8,383
    
    
    
    2,827Interest rate swap mark to market
    
    
    
    
    
    
    
    
    
    
    5,661Minimum pension liability adjustment
    
    
    1,812
    
    
    
    1,817
    
    
    
    1,893Contingent liabilities
    
    
    1,660
    
    
    
    
    
    
    
    Other
    
    
    478
    
    
    
    368
    
    
    
    987Total current deferred tax assets
    
    
    14,891
    
    
    
    14,598
    
    
    
    15,617Long-term:Net operating loss carryforwards from operations
    
    
    51,456
    
    
    
    33,047
    
    
    
    57,136Alternative minimum tax carryforward
    
    
    876
    
    
    
    1,095
    
    
    
    Intangibles
    
    
    39,937
    
    
    
    46,667
    
    
    
    46,734Debt issuance cost
    
    
    
    
    
    
    
    
    
    
    1,213Property, plant and equipment
    
    
    1,669
    
    
    
    1,244
    
    
    
    Other
    
    
    437
    
    
    
    81
    
    
    
    Total long-term deferred tax assets
    
    
    94,375
    
    
    
    82,134
    
    
    
    105,083Total deferred tax assets
    
    
    109,266
    
    
    
    96,732
    
    
    
    120,700Valuation allowance (
    
    
    109,161
    )
    
    
    (96,632
    )
    
    
    (99,826
    )Net deferred tax asset
    
    $
    
    
    
    $
    
    
    
    $
    
  Internet
    
    
    
    
    
    TotalYear of
    
    Alaska's
    
    Unused Operating
    
    Unused OperatingExpiration
    
    SRLY
    
    Loss Carryforwards
    
    Loss Carryforwards2017
    
    $
    27
    
    
    $
    
    
    
    $
    272018
    
    
    328
    
    
    
    
    
    
    
    3282019
    
    
    852
    
    
    
    
    
    
    
    8522020
    
    
    2,631
    
    
    
    23,943
    
    
    
    26,5742021
    
    
    
    
    
    
    47,724
    
    
    
    47,7242022
    
    
    
    
    
    
    17,112
    
    
    
    17,1122024
    
    
    
    
    
    
    36,024
    
    
    
    36,024$
    3,838
    
    
    $
    124,803
    
    
    $
    128,641
 F-21




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 13. DISCONTINUED OPERATIONS
  2004
    
    
    2003
    
    
    2002Operating revenue
    
    $
    
    
    
    $
    110
    
    
    $
    716Operating expense
    
    
    
    
    
    
    162
    
    
    
    1,255Operating loss
    
    
    
    
    
    
    (52
    )
    
    
    (539
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (33
    )Loss from operations of discontinued segment
    
    
    
    
    
    
    (52
    )
    
    
    (572
    )Write down of net assets to fair value
    
    
    
    
    
    
    
    
    
    
    (7,060
    )Loss from discontinued operations
    
    $
    
    
    
    $
    (52
    )
    
    $
    (7,632
    )
 14. STOCK INCENTIVE PLANS
  Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
   2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, January 1
    
    
    2,839
    
    
    $
    7.20
    
    
    
    3,374
    
    
    $
    7.52
    
    
    
    3,606
    
    
    $
    Granted
    
    
    1,177
    
    
    
    4.69
    
    
    
    200
    
    
    
    4.88
    
    
    
    278
    
    
    
    7.82Exercised
    
    
    (1,569
    )
    
    
    6.07
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    6.08Canceled or expired
    
    
    (263
    )
    
    
    11.52
    
    
    
    (735
    )
    
    
    8.04
    
    
    
    (434
    )
    
    
    7.59Outstanding, December 31
    
    
    2,184
    
    
    
    6.09
    
    
    
    2,839
    
    
    
    7.20
    
    
    
    3,374
    
    
    
    7.52Options exercisable at December 31
    
    
    1,028
    
    
    $
    8.29
    
    
    
    2,226
    
    
    $
    7.16
    
    
    
    2,329
    
    
    $
    7.15Weighted average fair value of options granted
    
    
    
    
    
    
    6.09
    
    
    
    
    
    
    
    2.84
    
    
    
    
    
    
    
    4.57
 F-22




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 14. STOCK INCENTIVE PLANS (Continued)
  Outstanding Options
    
    
    Exercisable OptionsWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$4.35 - $7.00
    
    
    1,888
    
    
    
    8.09
    
    
    $
    5.77
    
    
    
    538
    
    
    $
    5.77$8.00
    
    
    60
    
    
    
    7.15
    
    
    
    8.00
    
    
    
    53
    
    
    
    8.00$12.63 - $14.20
    
    
    236
    
    
    
    5.14
    
    
    
    14.09
    
    
    
    2.36
    
    
    
    14.09
 ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
  Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
    2003 Options for Officer Inducement Grant
  F-23




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 15. RETIREMENT PLANS
     2004
    
    
    2003Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    12,446
    
    
    $
    10,615Amortization of prior service cost
    
    
    (203
    )
    
    
    (203
    )Interest cost
    
    
    748
    
    
    
    731Actuarial loss
    
    
    853
    
    
    
    1,631Benefits paid
    
    
    (517
    )
    
    
    (328
    )Projected benefit obligation at end of year
    
    $
    13,327
    
    
    $
    12,446Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    9,671
    
    
    $
    7,684Return on plan assets
    
    
    915
    
    
    
    1,715Contribution by employer
    
    
    
    
    
    
    600Benefits paid
    
    
    (517
    )
    
    
    (328
    )Fair value of plan assets at end of year
    
    $
    10,069
    
    
    $
    9,671
 F-24




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 15. RETIREMENT PLANS (Continued)
  2004
    
    
    2003Projected benefit obligation
    
    $
    (13,327
    )
    
    $
    (12,446
    )Plan assets at fair value
    
    
    10,069
    
    
    
    9,671Funded Status
    
    
    (3,258
    )
    
    
    (2,775
    )Unrecognized prior service cost
    
    
    1,145
    
    
    
    1,348Unrecognized net loss
    
    
    4,531
    
    
    
    4,543Net amount recognized
    
    $
    2,418
    
    
    $
    3,116
  2004
    
    
    2003Accrued benefit liability
    
    $
    (3,258
    )
    
    $
    (2,775
    )Intangible asset
    
    
    1,145
    
    
    
    1,348Accumulated other comprehensive loss
    
    
    4,531
    
    
    
    4,543Net amount recognized
    
    $
    2,418
    
    
    $
    3,116
   2004
    
    
    2003
    
    
    2002Interest cost
    
    $
    748
    
    
    $
    731
    
    
    $
    680Expected return on plan assets
    
    
    (754
    )
    
    
    (664
    )
    
    
    (723
    )Amortization of loss
    
    
    502
    
    
    
    568
    
    
    
    260Amortization of prior service cost
    
    
    203
    
    
    
    203
    
    
    
    203Net periodic pension expense
    
    $
    699
    
    
    $
    838
    
    
    $
    420
  2004
    
    2003Discount rate for projected benefit obligation
    
    5.75%
    
    6.00%Discount rate for pension expense
    
    6.00%
    
    6.75%Expected long-term rate of return on assets
    
    8.00%
    
    8.00%Rate of compensation increase
    
    0.00%
    
    0.00%
  F-25




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 15. RETIREMENT PLANS (Continued)
  Asset Category
    
    2004
    
    
    2003Equity securities*
    
    
    72
    %
    
    
    73
    %Debt securities*
    
    
    28
    %
    
    
    26
    %Other/Cash
    
    
    0
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 *
    
    Note that mutual funds that may contain both stocks and bonds may be included in these categories.
   Minimum
    
    
    MaximumLarge US equity
    
    
    30
    %
    
    
    70
    %Small US equity
    
    
    5
    %
    
    
    15
    %Non-US equity
    
    
    5
    %
    
    
    15
    %Fixed income
    
    
    20
    %
    
    
    60
    %Cash equivalents
    
    
    0
    %
    
    
    10
    %
  2005
2006
2007
2008
2009
2010-2014
    
    
    $
    570
608
666
735
791
4,502
   F-26




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 15. RETIREMENT PLANS (Continued)
  2004
    
    
    2003Change in accumulated postretirement benefit obligation:Accumulated postretirement benefit obligation at beginning of the year
    
    $
    265
    
    
    $
    268Plan amendment
    
    
    (90
    )
    
    
    Service cost
    
    
    6
    
    
    
    14Interest cost
    
    
    16
    
    
    
    18Actuarial (gain)/loss
    
    
    2
    
    
    
    (35
    )Accumulated postretirement benefit obligation at end of the year
    
    $
    199
    
    
    $
    265Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    138
    
    
    $
    127Return on plan assets
    
    
    10
    
    
    
    11Contributions
    
    
    51
    
    
    
    Fair value of plan assets at end of year
    
    $
    199
    
    
    $
    138
  2004
    
    
    2003
    
    
    2002Service cost
    
    $
    6
    
    
    $
    14
    
    
    $
    69Interest cost
    
    
    16
    
    
    
    18
    
    
    
    40Expected return on plan assets
    
    
    (11
    )
    
    
    (10
    )
    
    
    (11
    )Amortization of prior service cost
    
    
    7
    
    
    
    7
    
    
    
    24Curtailment loss
    
    
    14
    
    
    
    
    
    
    
    Net periodic postretirement benefit expense
    
    $
    32
    
    
    $
    29
    
    
    $
    122
  2004
    
    
    2003Accumulated postretirement benefit obligation
    
    $
    (199
    )
    
    $
    (265
    )Plan assets at fair value
    
    
    199
    
    
    
    138Funded status
    
    
    
    
    
    
    (127
    )Unrecognized prior service cost
    
    
    
    
    
    
    111Unrecognized net gain
    
    
    (25
    )
    
    
    (28
    )Accrued benefit costs
    
    $
    (25
    )
    
    $
    (44
    )
  F-27




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 15. RETIREMENT PLANS (Continued)
  Year
    
    Pre 65 premiums
    
    Post 65 premiums1

        
    10.00%
    
    7.00%2
    
    9.00%
    
    7.00%3
    
    8.00%
    
    7.00%4
    
    7.00%
    
    7.00%5 and thereafter
    
    7.00%
    
        7.00%
  +1%
    
    -1%Effect on total of service and interest cost components
    
        
    
    Effect on accumulated postretirement benefit obligation
    
    (3)
    
    (4)
  Asset
          Category
        
        2004
        
        2003Equity securities*
        
        
        31
        %
        
        
        33
        %Debt securities*
        
        
        58
        %
        
        
        56
        %Other/Cash
        
        
        11
        %
        
        
        11
        %Total
        
        
        100
        %
        
        
        100
        %
    Asset Category
    
    TargetEquity securities
            Fixed income          
            Other/cash
    
    30%
60%
10%
  2005
    
    
        $    62006
    
    
    
    102007
    
    
    
    102008
    
    
    
    102009
    
    
    
    172010  2014
    
    
    
    86
 F-28




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 16. BUSINESS SEGMENTS
     LocalTelephone
    
    
    Wireless
    
    
    Internet
    
    
    Interexchange
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    211,169
    
    
    $
    56,743
    
    
    $
    20,280
    
    
    $
    17,067
    
    
    $
    23,097
    
    
    $
    (25,649
    )
    
    $
    302,707Depreciation and amortization
    
    
    52,368
    
    
    
    7,480
    
    
    
    3,925
    
    
    
    430
    
    
    
    14,184
    
    
    
    
    
    
    
    78,387Operating income (loss)
    
    
    13,298
    
    
    
    4,257
    
    
    
    (10,304
    )
    
    
    (3,402
    )
    
    
    6,269
    
    
    
    
    
    
    
    10,118Interest expense
    
    
    (311
    )
    
    
    (13
    )
    
    
    
    
    
    
    (187
    )
    
    
    (46,234
    )
    
    
    
    
    
    
    (46,745
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,857
    
    
    
    
    
    
    
    1,857Income tax benefit (provision)
    
    
    (5,254
    )
    
    
    (1,854
    )
    
    
    
    
    
    
    
    
    
    
    7,327
    
    
    
    
    
    
    
    219Income (loss) from
continuing operations
    
    
    7,733
    
    
    
    2,390
    
    
    
    (10,304
    )
    
    
    (3,589
    )
    
    
    (30,981
    )
    
    
    
    
    
    
    (34,751
    )Total assets
    
    
    481,363
    
    
    
    112,836
    
    
    
    2,856
    
    
    
    22,639
    
    
    
    16,345
    
    
    
    
    
    
    
    636,039Capital expenditures
    
    
    26,426
    
    
    
    13,935
    
    
    
    4,654
    
    
    
    5
    
    
    
    6,402
    
    
    
    
    
    
    
    51,422
  F-29




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 16. BUSINESS SEGMENTS (Continued)
  LocalTelephone
    
    
    Wireless
    
    
    Internet
    
    
    Interexchange
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    215,675
    
    
    $
    46,628
    
    
    $
    33,026
    
    
    $
    20,562
    
    
    $
    37,205
    
    
    $
    (29,249
    )
    
    $
    323,847Depreciation and amortization
    
    
    51,235
    
    
    
    6,527
    
    
    
    8,759
    
    
    
    1,068
    
    
    
    14,596
    
    
    
    
    
    
    
    82,185Operating income (loss)
    
    
    24,365
    
    
    
    3,043
    
    
    
    (60,442
    )
    
    
    (21,012
    )
    
    
    129,450
    
    
    
    (9
    )
    
    
    75,395Interest expense
    
    
    (441
    )
    
    
    (5
    )
    
    
    (67
    )
    
    
    (164
    )
    
    
    (68,145
    )
    
    
    
    
    
    
    (68,822
    )Interest income
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,719
    
    
    
    
    
    
    
    1,749Income tax benefit (provision)
    
    
    (9,950
    )
    
    
    (1,412
    )
    
    
    
    
    
    
    
    
    
    
    10,267
    
    
    
    
    
    
    
    (1,095
    )Income (loss) from
continuing operations
    
    
    14,004
    
    
    
    1,626
    
    
    
    (60,513
    )
    
    
    (21,176
    )
    
    
    62,138
    
    
    
    (9
    )
    
    
    (3,930
    )Total assets
    
    
    508,029
    
    
    
    102,404
    
    
    
    23,296
    
    
    
    27,947
    
    
    
    23,511
    
    
    
    
    
    
    
    685,187Capital expenditures
    
    
    24,113
    
    
    
    13,018
    
    
    
    5,255
    
    
    
    98
    
    
    
    8,422
    
    
    
    
    
    
    
    50,906
   LocalTelephone
    
    
    Wireless
    
    
    Internet
    
    
    Interexchange
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    226,697
    
    
    $
    43,233
    
    
    $
    20,848
    
    
    $
    26,350
    
    
    $
    58,411
    
    
    $
    (35,145
    )
    
    $
    340,394Depreciation and amortization
    
    
    55,498
    
    
    
    5,541
    
    
    
    6,744
    
    
    
    2,256
    
    
    
    12,901
    
    
    
    
    
    
    
    82,940Operating income (loss)
    
    
    34,700
    
    
    
    2,207
    
    
    
    (23,265
    )
    
    
    (708
    )
    
    
    (35,622
    )
    
    
    (76
    )
    
    
    (22,764
    )Interest expense
    
    
    435
    
    
    
    (5
    )
    
    
    (146
    )
    
    
    (330
    )
    
    
    (49,067
    )
    
    
    
    
    
    
    (49,113
    )Interest income
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    2,416
    
    
    
    
    
    
    
    2,424Income tax benefit (provision)
    
    
    (13,214
    )
    
    
    (1,527
    )
    
    
    
    
    
    
    
    
    
    
    14,741
    
    
    
    
    
    
    
    Income (loss) from
continuing operations
    
    
    19,199
    
    
    
    2,113
    
    
    
    (21,619
    )
    
    
    (1,583
    )
    
    
    (67,708
    )
    
    
    (76
    )
    
    
    (69,674
    )Total assets
    
    
    577,944
    
    
    
    84,123
    
    
    
    (26,905
    )
    
    
    6,564
    
    
    
    114,145
    
    
    
    
    
    
    
    755,871Capital expenditures
    
    
    31,186
    
    
    
    14,007
    
    
    
    16,604
    
    
    
    228
    
    
    
    10,596
    
    
    
    
    
    
    
    72,621
  17. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
  F-30




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 17. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS (Continued)
         F-31




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 18. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 Accounting for Derivative
Instruments and Hedging Activities, Accounting
for Certain Derivative Instruments and Certain Hedging Activities
   19. FAIR VALUE OF FINANCIAL INSTRUMENTS
   Carrying
    
    
    FairValue
    
    
    Value2003 senior secured credit facility
    
    $
    198,000
    
    
    $
    200,7239 3/8% senior subordinated notes due 2009
    
    
    147,500
    
    
    
    152,2949 7/8% senior unsecured notes due 2011
    
    
    172,329
    
    
    
    190,974Capital leases and other long-term obligations
    
    
    8,060
    
    
    
    8,060$
    525,889
    
    
    $
    552,051
 F-32




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 19. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
  Carrying
    
    
    FairValue
    
    
    Value2003 senior secured credit facility
    
    $
    200,000
    
    
    $
    201,5009 3/8% senior subordinated notes due 2009
    
    
    150,000
    
    
    
    150,0009 7/8% senior unsecured notes due 2011
    
    
    176,144
    
    
    
    191,100Capital leases and other long-term obligations
    
    
    8,860
    
    
    
    8,860$
    535,004
    
    
    $
    551,460
  20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
  F-33




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Balance
Sheet December 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsAssets
    
    Subsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    99
    
    
    $
    50,561
    
    
    $
    
    
    
    $
    50,660Restricted cash
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    4,690Short term investments
    
    
    
    
    
    
    35,200
    
    
    
    
    
    
    
    35,200Accounts receivable-trade, net
    
    
    15,397
    
    
    
    24,857
    
    
    
    (841
    )
    
    
    39,413Accounts receivable-affiliates
    
    
    12,490
    
    
    
    (13,578
    )
    
    
    
    
    
    
    (1,088
    )Materials and supplies
    
    
    6,623
    
    
    
    
    
    
    
    
    
    
    
    6,623Prepayments and other current assets
    
    
    1,493
    
    
    
    2,231
    
    
    
    
    
    
    
    3,724Total current assets
    
    
    36,102
    
    
    
    103,961
    
    
    
    (841
    )
    
    
    139,222Investments
    
    
    10
    
    
    
    360,418
    
    
    
    (360,418
    )
    
    
    10Property, plant and equipment
    
    
    957,589
    
    
    
    104,178
    
    
    
    
    
    
    
    1,061,767Less: accumulated depreciation and amortization
    
    
    590,471
    
    
    
    58,984
    
    
    
    
    
    
    
    649,455Property, plant and equipment, net
    
    
    367,118
    
    
    
    45,194
    
    
    
    
    
    
    
    412,312Goodwill
    
    
    
    
    
    
    
    
    
    
    38,403
    
    
    
    38,403Intangible assets, net
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    21,871Debt issuance costs, net
    
    
    
    
    
    
    15,482
    
    
    
    
    
    
    
    15,482Deferred charges and other assets
    
    
    1,772
    
    
    
    6,967
    
    
    
    
    
    
    
    8,739Total assets
    
    $
    426,873
    
    
    $
    532,022
    
    
    $
    (322,856
    )
    
    $
    636,039Liabilities and Stockholders Equity (Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    548
    
    
    $
    1,750
    
    
    $
    
    
    
    $
    2,298Accounts payable-affiliates
    
    
    2,964
    
    
    
    1,009
    
    
    
    
    
    
    
    3,973Accounts payable, accrued and other current liabilities
    
    
    14,705
    
    
    
    40,784
    
    
    
    (841
    )
    
    
    54,648Advance billings and customer deposits
    
    
    8,942
    
    
    
    6
    
    
    
    
    
    
    
    8,948Total current liabilities
    
    
    27,159
    
    
    
    43,549
    
    
    
    (841
    )
    
    
    69,867Long-term obligations, net of current portion
    
    
    4,114
    
    
    
    519,477
    
    
    
    
    
    
    
    523,591Deferred income taxes
    
    
    1,345
    
    
    
    (1,345
    )
    
    
    
    
    
    
    Other deferred credits and long-term liabilities
    
    
    72,240
    
    
    
    5,676
    
    
    
    
    
    
    
    77,916Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital in excess of par value
    
    
    491,240
    
    
    
    245,585
    
    
    
    (491,240
    )
    
    
    245,585Retained earnings (accumulated deficit)
    
    
    (169,227
    )
    
    
    (276,389
    )
    
    
    169,227
    
    
    
    (276,389
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (4,531
    )
    
    
    
    
    
    
    (4,531
    )Total stockholders equity (deficit)
    
    
    322,015
    
    
    
    (35,335
    )
    
    
    (322,015
    )
    
    
    (35,335
    )Total liabilities and stockholders equity (deficit)
    
    $
    426,873
    
    
    $
    532,022
    
    
    $
    (322,856
    )
    
    $
    636,039
 F-34




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Balance
Sheet December 31, 2003
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsAssets
    
    Subsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    139
    
    
    $
    54,437
    
    
    $
    
    
    
    $
    54,576Restricted cash
    
    
    
    
    
    
    3,635
    
    
    
    
    
    
    
    3,635Short term investments
    
    
    
    
    
    
    43,222
    
    
    
    
    
    
    
    43,222Accounts receivable-trade, net
    
    
    13,803
    
    
    
    27,915
    
    
    
    
    
    
    
    41,718Accounts receivable-affiliates
    
    
    33,777
    
    
    
    (33,629
    )
    
    
    
    
    
    
    148Materials and supplies
    
    
    10,027
    
    
    
    72
    
    
    
    
    
    
    
    10,099Prepayments and other current assets
    
    
    2,877
    
    
    
    2,973
    
    
    
    
    
    
    
    5,850Total current assets
    
    
    60,623
    
    
    
    98,625
    
    
    
    
    
    
    
    159,248Investments
    
    
    
    
    
    
    399,384
    
    
    
    (399,384
    )
    
    
    Property, plant and equipment
    
    
    931,840
    
    
    
    110,064
    
    
    
    
    
    
    
    1,041,904Less: accumulated depreciation and amortization
    
    
    553,816
    
    
    
    49,944
    
    
    
    
    
    
    
    603,760Property, plant and equipment, net
    
    
    378,024
    
    
    
    60,120
    
    
    
    
    
    
    
    438,144Goodwill
    
    
    
    
    
    
    
    
    
    
    38,403
    
    
    
    38,403Intangible assets, net
    
    
    22,055
    
    
    
    
    
    
    
    
    
    
    
    22,055Debt issuance costs, net
    
    
    
    
    
    
    18,587
    
    
    
    
    
    
    
    18,587Deferred charges and other assets
    
    
    2,501
    
    
    
    6,249
    
    
    
    
    
    
    
    8,750Total assets
    
    $
    463,203
    
    
    $
    582,965
    
    
    $
    (360,981
    )
    
    $
    685,187Liabilities and Stockholders Equity (Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    500
    
    
    $
    1,767
    
    
    $
    
    
    
    $
    2,267Accounts payable-affiliates
    
    
    2,867
    
    
    
    950
    
    
    
    
    
    
    
    3,817Accounts payable, accrued and other current liabilities
    
    
    15,038
    
    
    
    31,953
    
    
    
    
    
    
    
    46,991Income taxes payable
    
    
    
    
    
    
    1,095
    
    
    
    
    
    
    
    1,095Advance billings and customer deposits
    
    
    8,766
    
    
    
    
    
    
    
    
    
    
    
    8,766Total current liabilities
    
    
    27,171
    
    
    
    35,765
    
    
    
    
    
    
    
    62,936Long-term obligations, net of current portion
    
    
    4,661
    
    
    
    528,076
    
    
    
    
    
    
    
    532,737Deferred income taxes
    
    
    5,220
    
    
    
    (5,220
    )
    
    
    
    
    
    
    Other deferred credits and long-term liabilities
    
    
    65,170
    
    
    
    5,895
    
    
    
    
    
    
    
    71,065Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    25
    
    
    
    
    
    
    
    (25
    )
    
    
    Shares subject to mandatory redemption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital in excess of par value
    
    
    501,374
    
    
    
    264,630
    
    
    
    (501,374
    )
    
    
    264,630Retained earnings (accumulated deficit)
    
    
    (140,418
    )
    
    
    (241,638
    )
    
    
    140,418
    
    
    
    (241,638
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (4,543
    )
    
    
    
    
    
    
    (4,543
    )Total stockholders equity (deficit)
    
    
    360,981
    
    
    
    18,449
    
    
    
    (360,981
    )
    
    
    18,449Total liabilities and stockholders equity (deficit)
    
    $
    463,203
    
    
    $
    582,965
    
    
    $
    (360,981
    )
    
    $
    685,187
 F-35




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of
Operations Year Ended December 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Local telephone
    
    $
    211,169
    
    
    $
    23,097
    
    
    $
    (23,079
    )
    
    $
    211,187Wireless
    
    
    56,743
    
    
    
    
    
    
    
    (49
    )
    
    
    56,694Internet
    
    
    20,280
    
    
    
    
    
    
    
    (107
    )
    
    
    20,173Interexchange
    
    
    17,067
    
    
    
    
    
    
    
    (2,414
    )
    
    
    14,653Total operating revenue
    
    
    305,259
    
    
    
    23,097
    
    
    
    (25,649
    )
    
    
    302,707Operating expense:Local telephone (exclusive of depreciation and amortization)
    
    
    145,507
    
    
    
    2,585
    
    
    
    (20,174
    )
    
    
    127,918Wireless (exclusive of depreciation and amortization)
    
    
    42,179
    
    
    
    
    
    
    
    (4,261
    )
    
    
    37,918Internet (exclusive of depreciation and amortization)
    
    
    26,689
    
    
    
    
    
    
    
    (950
    )
    
    
    25,739Interexchange (exclusive of depreciation and amortization)
    
    
    20,037
    
    
    
    
    
    
    
    (264
    )
    
    
    19,773Depreciation and amortization
    
    
    64,203
    
    
    
    14,184
    
    
    
    
    
    
    
    78,387Loss (gain) on disposal of assets, net
    
    
    2,795
    
    
    
    59
    
    
    
    
    
    
    
    2,854Total operating expense
    
    
    301,410
    
    
    
    16,828
    
    
    
    (25,649
    )
    
    
    292,589Operating income
    
    
    3,849
    
    
    
    6,269
    
    
    
    
    
    
    
    10,118Other income (expense):Interest expense
    
    
    (511
    )
    
    
    (46,234
    )
    
    
    
    
    
    
    (46,745
    )Interest income and other
    
    
    
    
    
    
    1,641
    
    
    
    
    
    
    
    1,641Total other expense
    
    
    (511
    )
    
    
    (44,593
    )
    
    
    
    
    
    
    (45,104
    )Income (loss) before income taxes
    
    
    3,338
    
    
    
    (38,324
    )
    
    
    
    
    
    
    (34,986
    )Income tax benefit (expense)
    
    
    (5,620
    )
    
    
    5,839
    
    
    
    
    
    
    
    219Equity in income (loss) of investments
    
    
    16
    
    
    
    (2,266
    )
    
    
    2,266
    
    
    
    16Net loss
    
    $
    (2,266
    )
    
    $
    (34,751
    )
    
    $
    2,266
    
    
    $
    (34,751
    )
 F-36




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of
Operations Year Ended December 31, 2003
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Local telephone
    
    $
    215,675
    
    
    $
    25,574
    
    
    $
    (25,563
    )
    
    $
    215,686Wireless
    
    
    46,628
    
    
    
    
    
    
    
    (80
    )
    
    
    46,548Directory
    
    
    11,631
    
    
    
    
    
    
    
    
    
    
    
    11,631Internet
    
    
    33,026
    
    
    
    
    
    
    
    
    
    
    
    33,026Interexchange
    
    
    20,562
    
    
    
    
    
    
    
    (3,606
    )
    
    
    16,956Total operating revenue
    
    
    327,522
    
    
    
    25,574
    
    
    
    (29,249
    )
    
    
    323,847Operating expense:Local telephone (exclusive of depreciation and amortization)
    
    
    136,860
    
    
    
    1,298
    
    
    
    (21,505
    )
    
    
    116,653Wireless (exclusive of depreciation and amortization)
    
    
    34,922
    
    
    
    
    
    
    
    (3,858
    )
    
    
    31,064Directory (exclusive of depreciation and amortization)
    
    
    5,359
    
    
    
    
    
    
    
    (110
    )
    
    
    5,249Internet (exclusive of depreciation and amortization)
    
    
    47,066
    
    
    
    
    
    
    
    (1,543
    )
    
    
    45,523Interexchange (exclusive of depreciation and amortization)
    
    
    27,766
    
    
    
    
    
    
    
    (2,224
    )
    
    
    25,542Other (exclusive of depreciation and amortization)
    
    
    9
    
    
    
    
    
    
    
    (9
    )
    
    
    Contract termination and asset impairment charges
    
    
    54,858
    
    
    
    
    
    
    
    
    
    
    
    54,858Depreciation and amortization
    
    
    67,591
    
    
    
    14,594
    
    
    
    
    
    
    
    82,185Loss (gain) on disposal of assets, net
    
    
    (112,642
    )
    
    
    20
    
    
    
    
    
    
    
    (112,622
    )Total operating expense
    
    
    261,789
    
    
    
    15,912
    
    
    
    (29,249
    )
    
    
    248,452Operating income
    
    
    65,733
    
    
    
    9,662
    
    
    
    
    
    
    
    75,395Other income (expense):Interest expense
    
    
    (677
    )
    
    
    (68,145
    )
    
    
    
    
    
    
    (68,822
    )Interest income and other
    
    
    4,287
    
    
    
    (14,478
    )
    
    
    
    
    
    
    (10,191
    )Total other income (expense)
    
    
    3,610
    
    
    
    (82,623
    )
    
    
    
    
    
    
    (79,013
    )Income (loss) before income taxes and discontinued
    operations
    
    
    69,343
    
    
    
    (72,961
    )
    
    
    
    
    
    
    (3,618
    )Income tax benefit (expense)
    
    
    (62,680
    )
    
    
    61,585
    
    
    
    
    
    
    
    (1,095
    )Equity in income (loss) of investments
    
    
    783
    
    
    
    7,394
    
    
    
    (7,394
    )
    
    
    783Income (loss) from continuing operations
    
    
    7,446
    
    
    
    (3,982
    )
    
    
    (7,394
    )
    
    
    (3,930
    )Loss from discontinued operations
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Net income (loss)
    
    $
    7,394
    
    
    $
    (3,982
    )
    
    $
    (7,394
    )
    
    $
    (3,982
    )
 F-37




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of
Operations Year Ended December 31, 2002
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Local telephone
    
    $
    226,697
    
    
    $
    
    
    
    $
    
    
    
    $
    226,697Wireless
    
    
    43,233
    
    
    
    
    
    
    
    (53
    )
    
    
    43,180Directory
    
    
    33,604
    
    
    
    
    
    
    
    
    
    
    
    33,604Internet
    
    
    20,848
    
    
    
    
    
    
    
    (1
    )
    
    
    20,847Interexchange
    
    
    26,350
    
    
    
    
    
    
    
    (10,284
    )
    
    
    16,066Other
    
    
    716
    
    
    
    24,807
    
    
    
    (25,523
    )
    
    
    Total operating revenue
    
    
    351,448
    
    
    
    24,807
    
    
    
    (35,861
    )
    
    
    340,394Operating expense:Local telephone (exclusive of depreciation and amortization)
    
    
    136,503
    
    
    
    2,188
    
    
    
    (23,859
    )
    
    
    114,832Wireless (exclusive of depreciation and amortization)
    
    
    35,380
    
    
    
    
    
    
    
    (6,028
    )
    
    
    29,352Directory (exclusive of depreciation and amortization)
    
    
    14,189
    
    
    
    
    
    
    
    (19
    )
    
    
    14,170Internet (exclusive of depreciation and amortization)
    
    
    37,344
    
    
    
    
    
    
    
    (6,045
    )
    
    
    31,299Interexchange (exclusive of depreciation and amortization)
    
    
    24,766
    
    
    
    
    
    
    
    (1,119
    )
    
    
    23,647Other (exclusive of depreciation and amortization)
    
    
    1,158
    
    
    
    
    
    
    
    (1,158
    )
    
    
    Depreciation and amortization
    
    
    70,181
    
    
    
    12,890
    
    
    
    (131
    )
    
    
    82,940Loss on disposal of assets
    
    
    204
    
    
    
    
    
    
    
    1,959
    
    
    
    2,163Goodwill impairment loss
    
    
    
    
    
    
    64,755
    
    
    
    
    
    
    
    64,755Total operating expense
    
    
    319,725
    
    
    
    79,833
    
    
    
    (36,400
    )
    
    
    363,158Operating income (loss)
    
    
    31,723
    
    
    
    (55,026
    )
    
    
    539
    
    
    
    (22,764
    )Other income (expense):Interest expense
    
    
    (79
    )
    
    
    (49,067
    )
    
    
    33
    
    
    
    (49,113
    )Interest income and other
    
    
    (37
    )
    
    
    (3,978
    )
    
    
    6,218
    
    
    
    2,203Total other expense
    
    
    (116
    )
    
    
    (53,045
    )
    
    
    6,251
    
    
    
    (46,910
    )Income (loss) before income taxes, discontinued
operations and cumulative effect of
change in accounting principle
    
    
    31,607
    
    
    
    (108,071
    )
    
    
    6,790
    
    
    
    (69,674
    )Income tax expense (benefit)
    
    
    22,718
    
    
    
    (22,718
    )
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    8,889
    
    
    
    (85,353
    )
    
    
    6,790
    
    
    
    (69,674
    )Loss from discontinued operations
    
    
    (6,810
    )
    
    
    (250
    )
    
    
    (572
    )
    
    
    (7,632
    )Income (loss) before cumulative effect
of change in accounting principle
    
    
    2,079
    
    
    
    (85,603
    )
    
    
    6,218
    
    
    
    (77,306
    )Cumulative effect of change
in accounting principle
    
    
    (8,297
    )
    
    
    (97,053
    )
    
    
    
    
    
    
    (105,350
    )Net loss
    
    $
    (6,218
    )
    
    $
    (182,656
    )
    
    $
    6,218
    
    
    $
    (182,656
    )
 F-38




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of Cash
Flows Year Ended December 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    89,264
    
    
    $
    16,669
    
    
    $
    (36,700
    )
    
    $
    69,233Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (52,105
    )
    
    
    683
    
    
    
    
    
    
    
    (51,422
    )Purchase of short term investments
    
    
    
    
    
    
    (154,650
    )
    
    
    
    
    
    
    (154,650
    )Proceeds from sales of short term investments
    
    
    
    
    
    
    162,672
    
    
    
    
    
    
    
    162,672Placement of funds in escrow
    
    
    
    
    
    
    (1,055
    )
    
    
    
    
    
    
    (1,055
    )Net cash used by investing activities
    
    
    (52,105
    )
    
    
    7,650
    
    
    
    
    
    
    
    (44,455
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (499
    )
    
    
    (9,150
    )
    
    
    
    
    
    
    (9,649
    )Dividends
    
    
    (36,700
    )
    
    
    (19,045
    )
    
    
    36,700
    
    
    
    (19,045
    )Net cash used by financing activities
    
    
    (37,199
    )
    
    
    (28,195
    )
    
    
    36,700
    
    
    
    (28,694
    )Decrease in cash and cash equivalents
    
    
    (40
    )
    
    
    (3,876
    )
    
    
    
    
    
    
    (3,916
    )Cash and cash equivalents, beginning of the period
    
    
    139
    
    
    
    54,437
    
    
    
    
    
    
    
    54,576Cash and cash equivalents, end of the period
    
    $
    99
    
    
    $
    50,561
    
    
    $
    
    
    
    $
    50,660Supplemental Cash Flow Data:Interest paid, net of capitalized interest
    
    $
    520
    
    
    $
    42,506
    
    
    $
    
    
    
    $
    43,026Income taxes paid
    
    
    
    
    
    
    876
    
    
    
    
    
    
    
    876Supplemental Noncash Transactions:Minimum pension liability adjustment
    
    $
    
    
    
    $
    (12
    )
    
    $
    
    
    
    $
    (12
    )
 F-39




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of Cash
Flows Year Ended December 31, 2003
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    47,296
    
    
    $
    167,055
    
    
    $
    (158,973
    )
    
    $
    55,378Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (40,199
    )
    
    
    (8,367
    )
    
    
    
    
    
    
    (48,566
    )Purchase of short term investments
    
    
    
    
    
    
    (100,053
    )
    
    
    
    
    
    
    (100,053
    )Proceeds from sales of short term investments
    
    
    
    
    
    
    57,831
    
    
    
    
    
    
    
    57,831Net proceeds from sale of business
    
    
    155,269
    
    
    
    
    
    
    
    
    
    
    
    155,269Release of funds from escrow
    
    
    
    
    
    
    3,539
    
    
    
    
    
    
    
    3,539Placement of funds in escrow
    
    
    
    
    
    
    (3,725
    )
    
    
    
    
    
    
    (3,725
    )Net cash provided (used) by investing activities
    
    
    115,070
    
    
    
    (50,775
    )
    
    
    
    
    
    
    64,295Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (3,181
    )
    
    
    (430,921
    )
    
    
    
    
    
    
    (434,102
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    375,970
    
    
    
    
    
    
    
    375,970Debt issuance costs
    
    
    
    
    
    
    (14,000
    )
    
    
    
    
    
    
    (14,000
    )Dividends
    
    
    (158,973
    )
    
    
    (10,530
    )
    
    
    158,973
    
    
    
    (10,530
    )Net cash used by financing activities
    
    
    (162,154
    )
    
    
    (79,481
    )
    
    
    158,973
    
    
    
    (82,662
    )Increase in cash and cash equivalents
    
    
    212
    
    
    
    36,799
    
    
    
    
    
    
    
    37,011Cash and cash equivalents, beginning of the period
    
    
    (73
    )
    
    
    17,638
    
    
    
    
    
    
    
    17,565Cash and cash equivalents, end of the period
    
    $
    139
    
    
    $
    54,437
    
    
    $
    
    
    
    $
    54,576Supplemental Cash Flow Data:Interest paid, net of capitalized interest
    
    $
    685
    
    
    $
    48,436
    
    
    $
    
    
    
    $
    49,121Income taxes paid, net of refund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Supplemental Noncash Transactions:Property acquired under a mortgage
    
    $
    2,340
    
    
    $
    
    
    
    $
    
    
    
    $
    2,340Minimum pension liability adjustment
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    (191
    )Interest rate swap marked to market
    
    
    
    
    
    
    14,152
    
    
    
    
    
    
    
    14,152
 F-40




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidated Statement of
Cash Flows Year Ended December 31, 2002
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    59,261
    
    
    $
    7,695
    
    
    $
    
    
    
    $
    66,956Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (57,838
    )
    
    
    (10,596
    )
    
    
    
    
    
    
    (68,434
    )Purchase of short term investments
    
    
    
    
    
    
    (32,400
    )
    
    
    
    
    
    
    (32,400
    )Proceeds from sales of short term investments
    
    
    
    
    
    
    42,100
    
    
    
    
    
    
    
    42,100Release of funds from escrow
    
    
    
    
    
    
    3,706
    
    
    
    
    
    
    
    3,706Issuance of note receivable
    
    
    
    
    
    
    (15,000
    )
    
    
    
    
    
    
    (15,000
    )Net cash used by investing activities
    
    
    (57,838
    )
    
    
    (12,190
    )
    
    
    
    
    
    
    (70,028
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (2,735
    )
    
    
    (4,593
    )
    
    
    
    
    
    
    (7,328
    )Dividends
    
    
    
    
    
    
    (2,347
    )
    
    
    
    
    
    
    (2,347
    )Net cash provided (used) by financing activities
    
    
    (2,735
    )
    
    
    (6,940
    )
    
    
    
    
    
    
    (9,675
    )Decrease in cash and cash equivalents
    
    
    (1,312
    )
    
    
    (11,435
    )
    
    
    
    
    
    
    (12,747
    )Cash and cash equivalents, beginning of the period
    
    
    1,239
    
    
    
    29,073
    
    
    
    
    
    
    
    30,312Cash and cash equivalents, end of the period
    
    $
    (73
    )
    
    $
    17,638
    
    
    $
    
    
    
    $
    17,565Supplemental Cash Flow Data:Interest paid, net of capitalized interest
    
    $
    86
    
    
    $
    44,587
    
    
    $
    
    
    
    $
    44,673Income taxes paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Supplemental Noncash Transactions:Property acquired under capital leases and mortgages
    
    $
    4,187
    
    
    $
    
    
    
    $
    
    
    
    $
    4,187Minimum pension liability adjustment
    
    
    
    
    
    
    (2,342
    )
    
    
    
    
    
    
    (2,342
    )Interest rate swap marked to market
    
    
    
    
    
    
    (2,715
    )
    
    
    
    
    
    
    (2,715
    )
 F-41




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 21. COMMITMENTS AND CONTINGENCIES
    22. SUBSEQUENT EVENTS
    F-42




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 22. SUBSEQUENT EVENTS (Continued)
   23. CONSOLIDATED QUARTERLY OPERATING INFORMATION (UNAUDITED)
 Quarterly Financial DataFirst
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Total2004Operating revenues
    
    $
    75,455
    
    
    $
    75,354
    
    
    $
    76,773
    
    
    $
    75,125
    
    
    $
    302,707Operating income
    
    
    3,098
    
    
    
    7,788
    
    
    
    (4,815
    )
    
    
    4,047
    
    
    
    10,118Net loss
    
    
    (8,120
    )
    
    
    (3,326
    )
    
    
    (16,240
    )
    
    
    (7,065
    )
    
    
    (34,751
    )2003Operating revenues
    
    $
    83,792
    
    
    $
    84,296
    
    
    $
    78,522
    
    
    $
    77,237
    
    
    $
    323,847Operating income (loss)
    
    
    6,600
    
    
    
    103,500
    
    
    
    (37,884
    )
    
    
    3,179
    
    
    
    75,395Income (loss) from continuing operations
    
    
    (5,895
    )
    
    
    93,367
    
    
    
    (74,923
    )
    
    
    (16,479
    )
    
    
    (3,930
    )Loss on discontinued operations
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )Net income (loss)
    
    
    (5,947
    )
    
    
    93,367
    
    
    
    (74,923
    )
    
    
    (16,479
    )
    
    
    (3,982
    )
  F-43




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 24. RESTATEMENT OF FINANCIAL STATEMENTS
 Short term investments
    As of December 31, 2004
    
    
    As of December 31, 2003As Previously
    
    
    
    
    
    
    
    
    
    
    As PreviouslyReported
    
    
    Adjustment
    
    
    As Restated
    
    
    Reported
    
    
    Adjustment
    
    
    As RestatedCash and cash
equivalents
    
    $
    85,860
    
    
    $
    (35,200
    )
    
    $
    50,660
    
    
    $
    97,798
    
    
    $
    (43,222
    )
    
    $
    54,576Short term
Investments
    
    $
    
    
    
    $
    35,200
    
    
    $
    35,200
    
    
    $
    
    
    
    $
    43,222
    
    
    $
    43,222
  Year ended
    
    
    Year endedDecember 31, 2004
    
    
    December 31, 2003As Previously
    
    
    
    
    
    
    As PreviouslyReported
    
    
    As Restated
    
    
    Reported
    
    
    As RestatedPurchases of short term investments
    
    $
    
    
    
    $
    (154,650
    )
    
    $
    
    
    
    $
    (100,053
    )Proceeds from sales of short term investments
    
    $
    
    
    
    $
    162,672
    
    
    $
    
    
    
    $
    57,831Cash flows from investing activities
    
    $
    (52,477
    )
    
    $
    (44,455
    )
    
    $
    106,517
    
    
    $
    64,295Net increase (decrease) in cash and cash equivalents
    
    $
    (11,938
    )
    
    $
    (3,916
    )
    
    $
    79,233
    
    
    $
    37,011Cash and cash equivalents, beginning of the year
    
    $
    97,798
    
    
    $
    54,576
    
    
    $
    18,565
    
    
    $
    17,565Cash and cash equivalents, end of the year
    
    $
    85,860
    
    
    $
    50,660
    
    
    $
    97,798
    
    
    $
    54,576
 Year endedDecember 31, 2002As PreviouslyReported
    
    
    As RestatedPurchases of short term investments
    
    $
    
    
    
    $
    (32,400
    )Proceeds from sales of short term investments
    
    $
    
    
    
    $
    42,100Cash flows from investing activities
    
    $
    (79,728
    )
    
    $
    (70,028
    )Net increase (decrease) in cash and cash equivalents
    
    $
    (22,447
    )
    
    $
    (12,747
    )Cash and cash equivalents, beginning of the year
    
    $
    41,012
    
    
    $
    30,312Cash and cash equivalents, end of the year
    
    $
    18,565
    
    
    $
    17,565
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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC. Notes to
Consolidated Financial Statements Years Ended December 31,
2004, 2003 and 2002 (In Thousands, Except Per Share Amounts)
 24. RESTATEMENT OF FINANCIAL STATEMENTS (Continued)
 Stock Incentive Plans
 Share-Based Payment, .
 As Reported
    
    
    As Restated2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Net loss:As reported
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )
    
    $
    (34,751
    )
    
    $
    (3,982
    )
    
    $
    (182,656
    )Pro forma
    
    
    (35,838
    )
    
    
    (4,139
    )
    
    
    (184,111
    )
    
    
    (36,689
    )
    
    
    (3,970
    )
    
    
    (184,369
    )
 As Reported
    
    
    As Restated2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Risk free rate
    
    
    4.13
    %
    
    
    3.39
    %
    
    
    2.88
    %
    
    
    3.69
    %
    
    
    3.39
    %
    
    
    2.88
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    3.09
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility factor
    
    
    40.8
    %
    
    
    55.5
    %
    
    
    60.8
    %
    
    
    40.8
    %
    
    
    55.5
    %
    
    
    60.8
    %Expected option life (years)
    
    
    6.1
    
    
    
    6.8
    
    
    
    6.1
    
    
    
    6.4
    
    
    
    6.5
    
    
    
    6.1
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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Schedule II  Valuation and Qualifying Accounts
(In Thousands)
 Balance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning
    
    
    costs and
    
    
    other
    
    
    
    
    
    
    EndDescription
    
    of Period
    
    
    expenses
    
    
    accounts (1)
    
    
    Deductions (2)
    
    
    of Period2004 Allowance for doubtful accounts
    
    $
    4,865
    
    
    $
    2,922
    
    
    $
    948
    
    
    $
    (3,866
    )
    
    $
    4,8692003 Allowance for doubtful accounts
    
    $
    6,075
    
    
    $
    839
    
    
    $
    2,582
    
    
    $
    (4,631
    )
    
    $
    4,8652002 Allowance for doubtful accounts
    
    $
    4,944
    
    
    $
    4,884
    
    
    $
    214
    
    
    $
    (3,967
    )
    
    $
    6,075
 (1)
    
    Represents the reserve for accounts receivable collected on the
behalf of others.(2)
    
    Represents credit losses.
 F-46