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Washington, D.C. 20549




---

FORM 10-K/A


|(Mark One)
|----------
|[X]       

For the fiscal year ended December 31, 2002


OR


|
|
|

For the transition period from         to


Commission file number 333-82363

Alaska Communications Systems Holdings, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                |  |                                                
|------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization)         |  | 91-1921377
(I.R.S. Employer Identification No.)
|                                                                                |  |                                                
|600 Telephone Avenue
Anchorage, Alaska
(Address of principal executive offices) |  | 99503-6091
(Zip Code)                          

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  |                                          

|                    |  | 
|------------------- |  | 
|Title of each class |  | 
|                    |  | 
|None                |  | 



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.      Yes [X]              No [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [  ] (Not Applicable)

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity as of a specified date within 60 days prior to the date of filing. (Not
Applicable)

Indicate by check mark if whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)

Yes [  ]              No [X]

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity as of as of the last business day of the registrants most recently
completed second fiscal quarter. (Not Applicable)

Documents Incorporated by Reference

Portions of Alaska Communications Systems Group, Inc.s proxy statement to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
for the registrants 2003 annual meeting of stockholders are incorporated by
reference into Part III of this Form 10-K.



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TABLE OF CONTENTS



|                                                |                                                                           |  |  |  |  |  |  | 
|----------------------------------------------- | ------------------------------------------------------------------------- |  |  |  |  |  |  | 
|EXPLANATORY NOTE                               
|                                                | Item 8. Financial Statements and Supplementary Data                      
|                                                | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|Exhibits                                       
|SIGNATURES                                     
|INDEPENDENT AUDITORS REPORT                   
|Consolidated Balance Sheets                    
|Consolidated Statements of Operations          
|Consolidated Statements of Stockholders Equity
|Consolidated Statements of Cash Flows          
|Notes to Consolidated Financial Statements     
|Schedule II- Valuation and Qualifying Accounts 
|EXHIBIT 3.1                                    
|EXHIBIT 3.2                                    
|EXHIBIT 31.1                                   
|EXHIBIT 31.2                                   
|EXHIBIT 32.1                                   
|EXHIBIT 32.2                                   



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EXPLANATORY NOTE

The Company is filing this amendment to our Annual Report on Form 10-K for
the year ended December 31, 2002, originally filed with the Securities and
Exchange Commission on March 6, 2003 (the Original Form 10-K), in response to
comments received from the staff at the Securities and Exchange Commission.

On May 8, 2003, the Company completed the sale of a majority interest in
the newly formed ACS Media, LLC (the Directories Business) through an initial
public offering in Canada. Prior to this transaction, the Company reported its
Directories Business as a separate segment. As a result of this sale, the
Company is no longer directly engaged in the day-to-day management of that
business and therefore the Directories Business no longer constitutes a
reportable segment. The remaining segments of the Company for financial
reporting purposes are local telephone, wireless, Internet, Interexchange, and
all other. The Company restated Note 15 Business Segments in the accompanying
Notes to the Consolidated Financial Statements to enable investors to compare
the previous years reporting of this financial data to the new segment
reporting structure.

Alaska Communications Systems Group, Inc. (ACS Group or the Parent)
and the Companys subsidiaries are guarantors under the Companys senior
subordinated notes. All of ACS Groups and the Companys subsidiaries are 100%
wholly-owned. The guarantees are full and unconditional. In addition, all
guarantees are joint and several. Accordingly, the Company is required to
disclose condensed consolidating financial statement information. The Company
added Note 20, Condensed Consolidating Financial Statements, to this 10-K/A
to reflect the required consolidating financial information.

The Company is also filing its Articles of Incorporation and its By-laws
as exhibits 3.1 and 3.2, respectively, to this 10-K/A.

Except as specifically indicated herein, no other information included in
our Annual Report on Form 10-K is amended by this
Form 10-K/A. The filing of
this Form 10-K/A shall not be deemed an admission that the Original Form 10-K,
when filed, knowingly included any untrue statement of a material fact or
omitted to state a material fact necessary to make a statement not misleading.

Other than those items mentioned above, this Form 10-K/A does not reflect
events occurring after the filing of the Original Form 10-K or modify or update
disclosures on the Original Form 10-K in any way. For a more recent description
of our business and the risk factors that may affect our business, results of
operations and financial condition we urge you to carefully review and consider
the various disclosures we have made in our recent reports filed with the
Securities and Exchange Commission, including our Current Reports on Form 8-K,
our Quarterly Reports on Form 10-Q for the first and second quarters of 2003
and our future filings with the SEC.





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##### Table of Contents






Item 8. Financial Statements and Supplementary Data

Consolidated financial statements of Alaska Communications Systems
Holdings, Inc. and Subsidiaries are submitted as a separate section of this
Form 10-K.See Index to Consolidated Financial Statements and Schedule, which
appears on page F-1 hereof.




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



| | (a) |  | 1. Financial Statements                                                                                                                                                                                                 
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The consolidated financial statements of ACS Holdings are submitted as a
separate section of this Form 10-K. See Index to Consolidated Financial
Statements and Schedule which appears on page F-1 hereof.              
|
| |     |  | 2. Financial Statement Schedule                                                                                                                                                                                         
|
| |     |  | Financial statement schedules for ACS Holdings and its subsidiaries are
submitted as a separate section of this Form 10-K. See Index to
Consolidated Financial Statements and Schedule which appears on page F-1
hereof.
|
| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                     
|
| |     |  | No reports on Form 8-K were filed during the quarter ended December 31,
2002.                                                                                                                                           





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##### Table of Contents






(c)  Exhibits

|        |  |                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                              
|No.     |  | Description                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                              
|2.1     |  | Purchase Agreement, dated as of August 14, 1998, as amended, by and
among ALEC Acquisition Sub Corp., CenturyTel of the Northwest, Inc. and
CenturyTel Wireless, Inc. (1)                                                                                                    
|        |  |                                                                                                                                                                                                                                                                              
|2.2     |  | Asset Purchase Agreement, dated as of October 20, 1998, by and
between Alaska Communications Systems, Inc. and the Municipality of
Anchorage (1)                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                              
|3.1     |  | Articles of Incorporation of the Registrant                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                              
|3.2     |  | By-Laws of the Registrant                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                              
|4.1     |  | Indenture, dated as of May 14, 1999, by and between Alaska
Communications Systems Holdings, Inc., the Guarantors (as defined
therein) and IBJ Whitehall Bank & Trust Company (1)                                                                                             
|        |  |                                                                                                                                                                                                                                                                              
|4.2     |  | Purchase Agreement, dated as of May 11, 1999, by and among Alaska
Communications Systems Holdings, Inc., the Guarantors, Chase Securities
Inc., CIBC World Markets Corp. and Credit Suisse First Boston
Corporation (1)                                                      
|        |  |                                                                                                                                                                                                                                                                              
|4.3     |  | Indenture, dated as of May 14, 1999, by and between ALEC Holdings,
Inc. and The Bank of New York (1)                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                              
|4.4     |  | Purchase Agreement, dated as of May 11, 1999, by and among ALEC
Holdings, Inc., DLJ Investment Partners, L.P., DLJ Investment Funding,
Inc. and DLJ ESC II, L.P. (1)                                                                                                         
|        |  |                                                                                                                                                                                                                                                                              
|4.5     |  | First Amendment, dated as of October 29, 1999, to Indenture listed
as Exhibit No. 4.3 (2)                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                              
|4.6     |  | Form of Second Amendment dated as of November 17, 1999 to Indenture
listed as Exhibit No. 4.3 (3)                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                              
|10.1    |  | Exchange and Registration Rights Agreement, dated as of May 14,
1999, by and among Alaska Communications Systems Holdings, Inc., the
Guarantors, Chase Securities Inc., CIBC World Markets Corp. and Credit
Suisse First Boston Corporation (1)                              
|        |  |                                                                                                                                                                                                                                                                              
|10.2    |  | Exchange and Registration Rights Agreement, dated as of May 14,
1999, by and among ALEC Holdings, Inc., DLJ Investment Partners, L.P.,
DLJ Investment Funding, Inc. and DLJ ESC II L.P. (1)                                                                                  
|        |  |                                                                                                                                                                                                                                                                              
|10.3    |  | Credit Agreement, dated as of May 14, 1999, by and among ALEC
Holdings, Inc., Alaska Communications Systems Holdings, Inc., the
financial institutions Lenders party thereto, The Chase Manhattan Bank,
Credit Suisse First Boston and Canadian Imperial Bank of Commerce (1)
|        |  |                                                                                                                                                                                                                                                                              
|10.4    |  | Amendment No. 1, dated as of October 19, 1999 to Credit Agreement
listed as Exhibit No. 10.3 (2)                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                              
|10.5    |  | Employment Agreement, dated as of May 3, 2001 by and among Alaska
Communications Systems Group, Inc., the Registrant and Charles E.
Robinson (5)                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                              
|10.6    |  | Employment Agreement, dated as of May 3, 2001 by and among Alaska
Communications Systems Group, Inc., the Registrant and Wesley E. Carson
(5)                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                              
|10.7    |  | ALEC Holdings, Inc. 1999 Stock Incentive Plan (1)                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                              
|10.8    |  | Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
(3)                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                              
|10.9    |  | Alaska Communications Systems Group, Inc. 1999 Non-Employee
Director Compensation Plan (3)                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                              
|10.10   |  | Alaska Communications Systems Group, Inc. 1999 Employee Stock
Purchase Plan (3)                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                              
|10.11   |  | Comprehensive Telecommunications Service Agreement Number 99-123-A
between the State of Alaska and Alaska Communications Systems Group,
Inc., dated as of December 10, 2001 (4)                                                                                              
|        |  |                                                                                                                                                                                                                                                                              
|10.12   |  | Amendment and waiver, dated as of June 27, 2002 to the Credit
Agreement listed as Exhibit No. 10.3 (6)                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                              
|21.1    |  | Subsidiaries of the Registrant (7)                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                              
|31.1    |  | Certification of Charles R. Robinson, Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                              
|31.2    |  | Certification of Kevin P. Hemenway, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                              
|32.1    |  | Certification of Charles R. Robinson, 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 Kevin P. Hemenway, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of The
Sarbanes-Oxley Act of 2002.                                                                                                                





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|(1) |  | Filed as an exhibit to the Registrants Registration Statement on
Form S-4 file No. 333-82363 filed on July 7, 1999 and incorporated by
reference thereto.                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Filed as an exhibit to the Registrants Form 8-K filed on November
5, 1999 and incorporated by reference thereto.                                                                                        
|   
|(3) |  | Previously filed as an exhibit to the Alaska Communications Systems
Group, Inc. Registration Statement on Form S-1/A file No. 333-88753
filed on November 17, 1999 and incorporated by reference thereto.
|   
|(4) |  | Filed as an exhibit to the Registrants Form 10-K filed on March
29, 2002 and incorporated by reference thereto.                                                                                         
|   
|(5) |  | Filed as an exhibit to the Registrants Form 10-Q filed on April
30, 2002 and incorporated by reference thereto.                                                                                         
|   
|(6) |  | Filed as an exhibit to the Registrants Form 10-Q filed on July 31,
2002 and incorporated by reference thereto.                                                                                          
|   
|(7) |  | Filed as an exhibit to the Registrants Form 10-K filed on March 6,
2003 and incorporated by reference thereto.                                                                                          





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.

|                                             |  |                                                                                             |  |                
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ---------------
|Signature                                    |  | Title                                                                                       |  | Date           
|                                             |  |                                                                                             |  |                
|/s/ Charles E. RobinsonCharles E. Robinson   |  | Chief Executive Officer and Chairman of the
Board                                           |  | October 3, 2003
|                                            
|/s/ Kevin P. HemenwayKevin P. Hemenway       |  | Senior Vice President, Chief Financial Officer
and Treasurer (Principal Accounting Officer) |  | October 3, 2003
|                                            
|/s/ Byron I. MallottByron I. Mallott         |  | Director                                                                                    |  | October 3, 2003
|                                            
|/s/ Brian RogersBrian Rogers                 |  | Director                                                                                    |  | October 3, 2003
|                                            
|/s/ W. Dexter Paine, IIIW. Dexter Paine, III |  | Director                                                                                    |  | October 3, 2003
|                                            
|/s/ Saul A. FoxSaul A. Fox                   |  | Director                                                                                    |  | October 3, 2003
|                                            
|/s/ Wray T. ThornWray T. Thorn               |  | Director                                                                                    |  | October 3, 2003
|                                            
|/s/ Charles P. SitkinCharles P. Sitkin       |  | Director                                                                                    |  | October 3, 2003





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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

|                                                                                               |  |     
|---------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors Report                                                                   |  | F-2 
|Consolidated Balance Sheets  December 31, 2002 and 2001                                       |  | F-3 
|Consolidated Statements of Operations  Years Ended December 31, 2002, 2001 and 2000           |  | F-4 
|Consolidated Statements of Stockholders Equity  Years Ended December 31, 2002, 2001 and 2000 |  | F-5 
|Consolidated Statements of Cash Flows  Years Ended December 31, 2002, 2001 and 2000           |  | F-6 
|Notes to Consolidated Financial Statements                                                     |  | F-7 
|Schedule II  Valuation and Qualifying Accounts                                                |  | F-39

F-1



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INDEPENDENT AUDITORS REPORT

Board of Directors and Shareholder
Alaska Communications Systems Holdings, Inc.
Anchorage, Alaska

We have audited the consolidated balance sheets of Alaska Communications
Systems Holdings, Inc. and Subsidiaries (the Company) as of December 31, 2002
and 2001, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits included the financial statement schedule listed in Item
15(a)2 of Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Alaska Communications Systems
Holdings, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 5 to the consolidated financial statements, effective
January 1, 2002 the Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

/s/ DELOITTE & TOUCHE LLP

Portland, Oregon
February 20, 2003
(August 5, 2003 as to Notes 15 and 20)

F-2



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Balance Sheets
December 31, 2002 and 2001
(In Thousands Except Share Amounts)

|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |         | 
|--------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- | -------------------------- | - | -------- | ------ | --------- | - | ------- | ------- | 
|                                                                |  |                                                                                       |                            |   | 2002     |        | 2001     
|                                                                |  |                                                                                       |                            |   |          |        |          
|Assets                                                          |  |                                                                                       |                            |   |          |        |           |  
|Current assets:                                                 |  |                                                                                       |                            |   |          |        |           |  
|                                                                |  | Cash and cash equivalents                                                             |                            | $ | 18,565   |        |           | $ | 41,012  |        
|                                                                |  | Restricted cash                                                                       |                            |   | 3,440    |        |           |   | 6,932   |        
|                                                                |  | Accounts receivable-trade, net of allowance of $6,075 and $4,944                      |                            |   | 48,820   |        |           |   | 46,912  |        
|                                                                |  | Accounts receivable-affiliate                                                         |                            |   | 3,761    |        |           |   | 2,475   |        
|                                                                |  | Materials and supplies                                                                |                            |   | 11,203   |        |           |   | 8,723   |        
|                                                                |  | Prepayments and other current assets                                                  |                            |   | 6,172    |        |           |   | 6,032   |        
|                                                                |  | Assets held for sale                                                                  |                            |   | 261      |        |           |   |        |        
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|                                                                |  |                                                                                       | Total current assets       |   |          | 92,222 |           |   |         | 112,086 | 
|Property, plant and equipment                                   |  |                                                                                       | 1,090,365                  |   |          |        | 1,036,829 |  
|Less: Accumulated depreciation and amortization                 |  |                                                                                       | 625,276                    |   |          |        | 557,849   |  
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|                                                                |  | Property, plant and equipment, net                                                    |                            |   | 465,089  |        |           |   | 478,980 |        
|Goodwill                                                        |  |                                                                                       | 77,225                     |   |          |        | 250,495   |  
|Intangible assets, net                                          |  |                                                                                       | 23,269                     |   |          |        | 26,785    |  
|Debt issuance costs, net of amortization of $15,883 and $11,692 |  |                                                                                       | 21,130                     |   |          |        | 25,321    |  
|Deferred charges and other assets                               |  |                                                                                       | 26,047                     |   |          |        | 9,875     |  
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|Total assets                                                    |  | $                                                                                     | 704,982                    |   |          | $      | 903,542   |  
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|Liabilities and Stockholders Equity                            |  |                                                                                       |                            |   |          |        |           |  
|Current liabilities:                                            |  |                                                                                       |                            |   |          |        |           |  
|                                                                |  | Current portion of long-term obligations                                              |                            | $ | 5,933    |        |           | $ | 5,107   |        
|                                                                |  | Accounts payable-affiliate                                                            |                            |   | 1,319    |        |           |   | 1,303   |        
|                                                                |  | Accounts payable, accrued and other current liabilities                               |                            |   | 49,480   |        |           |   | 62,765  |        
|                                                                |  | Advance billings and customer deposits                                                |                            |   | 9,804    |        |           |   | 9,190   |        
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|                                                                |  |                                                                                       | Total current liabilities  |   |          | 66,536 |           |   |         | 78,365  | 
|Long-term obligations, net of current portion                   |  |                                                                                       | 586,898                    |   |          |        | 591,496   |  
|Other deferred credits and long-term liabilities                |  |                                                                                       | 32,930                     |   |          |        | 25,003    |  
|Commitments and contingencies                                   |  |                                                                                       |                           |   |          |        |          |  
|Stockholders equity:                                           |  |                                                                                       |                            |   |          |        |           |  
|                                                                |  | Common stock, $.01 par value; 1,000 shares authorized, 1 share
issued and outstanding |                            |   |         |        |           |   |        |        
|                                                                |  | Contributed capital                                                                   |                            |   | 287,242  |        |           |   | 287,242 |        
|                                                                |  | Accumulated deficit                                                                   |                            |   | (249,738 | )      |           |   | (64,735 | )      
|                                                                |  | Accumulated other comprehensive loss                                                  |                            |   | (18,886  | )      |           |   | (13,829 | )      
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|                                                                |  |                                                                                       | Total stockholders equity |   |          | 18,618 |           |   |         | 208,678 | 
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        
|Total liabilities and stockholders equity                      |  | $                                                                                     | 704,982                    |   |          | $      | 903,542   |  
|                                                                |  |                                                                                       |                            |   |          |        |           |   |         |        

See Notes to Consolidated Financial Statements

F-3



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Operations
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)

|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |         |  
|--------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------- | -------- | ------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                                          |                                        |                              |          | 2002    |         | 2001 |        | 2000   
|                                                                                                          |                                        |                              |          |         |         |      |        |        
|Operating revenues:                                                                                       |                                        |                              |          |         |         |      |        |         |         |   |         |        
|                                                                                                          | Local telephone                        |                              | $        | 226,447 |         |      | $      | 221,411 |         |   | $       | 222,268 |        
|                                                                                                          | Wireless                               |                              |          | 43,180  |         |      |        | 41,894  |         |   |         | 41,155  |        
|                                                                                                          | Directory                              |                              |          | 33,604  |         |      |        | 33,870  |         |   |         | 29,156  |        
|                                                                                                          | Internet                               |                              |          | 20,847  |         |      |        | 13,724  |         |   |         | 9,170   |        
|                                                                                                          | Interexchange                          |                              |          | 19,424  |         |      |        | 21,316  |         |   |         | 11,778  |        
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|                                                                                                          |                                        | Total operating revenues     |          |         | 343,502 |      |        |         | 332,215 |   |         |         | 313,527 |  
|Operating expenses:                                                                                       |                                        |                              |          |         |         |      |        |         |         |   |         |        
|                                                                                                          | Local telephone                        |                              |          | 117,277 |         |      |        | 120,465 |         |   |         | 131,542 |        
|                                                                                                          | Wireless                               |                              |          | 27,912  |         |      |        | 25,649  |         |   |         | 26,306  |        
|                                                                                                          | Directory                              |                              |          | 14,170  |         |      |        | 14,684  |         |   |         | 13,334  |        
|                                                                                                          | Internet                               |                              |          | 29,502  |         |      |        | 15,677  |         |   |         | 11,785  |        
|                                                                                                          | Interexchange                          |                              |          | 27,547  |         |      |        | 29,509  |         |   |         | 19,749  |        
|                                                                                                          | Unusual charges                        |                              |          |        |         |      |        |        |         |   |         | 5,288   |        
|                                                                                                          | Depreciation and amortization          |                              |          | 82,940  |         |      |        | 79,108  |         |   |         | 71,755  |        
|                                                                                                          | Loss
on disposal of assets, net        |                              |          | 2,163   |         |      |        |        |         |   |         |        |        
|                                                                                                          | Goodwill impairment loss               |                              |          | 64,755  |         |      |        |        |         |   |         |        |        
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|                                                                                                          |                                        | Total operating expenses     |          |         | 366,266 |      |        |         | 285,092 |   |         |         | 279,759 |  
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|Operating income (loss)                                                                                   |                                        |                              | (22,764  | )       |         |      | 47,123 |         |         |   | 33,768  |        
|Other income and expense:                                                                                 |                                        |                              |          |         |         |      |        |         |         |   |         |        
|                                                                                                          | Interest expense                       |                              |          | (49,113 | )       |      |        | (57,565 | )       |   |         | (61,958 | )      
|                                                                                                          | Interest income and other              |                              |          | 2,203   |         |      |        | 3,250   |         |   |         | 3,560   |        
|                                                                                                          | Equity in income (loss) of investments |                              |          |        |         |      |        | 69      |         |   |         | (303    | )      
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|                                                                                                          |                                        | Total other income (expense) |          |         | (46,910 | )    |        |         | (54,246 | ) |         |         | (58,701 | )
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|Loss before income taxes, discontinued operations and cumulative
effect of change in accounting principle |                                        |                              | (69,674  | )       |         |      | (7,123 | )       |         |   | (24,933 | )      
|Income tax benefit                                                                                        |                                        |                              |         |         |         |      | 195    |         |         |   | 197     |        
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|Loss from continuing operations                                                                           |                                        |                              | (69,674  | )       |         |      | (6,928 | )       |         |   | (24,736 | )      
|Loss from discontinued operations                                                                         |                                        |                              | (7,632   | )       |         |      | (1,718 | )       |         |   | (917    | )      
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|Loss before cumulative effect of change in accounting principle                                           |                                        |                              | (77,306  | )       |         |      | (8,646 | )       |         |   | (25,653 | )      
|Cumulative effect of change in accounting principle                                                       |                                        |                              | (105,350 | )       |         |      |       |         |         |   |        |        
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        
|Net loss                                                                                                  |                                        | $                            | (182,656 | )       |         | $    | (8,646 | )       |         | $ | (25,653 | )      
|                                                                                                          |                                        |                              |          |         |         |      |        |         |         |   |         |         |        

See Notes to Consolidated Financial Statements

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Stockholders Equity
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)

|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   |          |          |  
|--------------------------------- | ------------------------------------ | - | ------ | - | ----------- | - | ----------- | - | ------------- | - | ------------- | -------- | - | - | ----------- | ------- | - | - | -------- | -------- | -
|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   | Accumulated |         |   |   |         
|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   | Other       |         |   |   |         
|                                  |                                      |   | Common |   | Contributed |   | Accumulated |   | Comprehensive |   | Stockholders
|                                  |                                      |   | Stock  |   | Capital     |   | Deficit     |   | Loss          |   | Equity       
|                                  |                                      |   |        |   |             |   |             |   |               |   |              
|Balance, December 31, 1999        |                                      | $ |       |   |             | $ | 287,242     |   |               | $ | (20,701       | )        |   | $ |            |         |   | $ | 266,541  |         
|Dividends                         |                                      |   |       |   |             |   |            |   |               |   | (9,735        | )        |   |   |            |         |   |   | (9,735   | )       
|Net loss                          |                                      |   |       |   |             |   |            |   |               |   | (25,653       | )        |   |   |            |         |   |   | (25,653  | )       
|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   |          |         
|Balance, December 31, 2000        |                                      |   |       |   |             |   | 287,242     |   |               |   | (56,089       | )        |   |   |            |         |   |   | 231,153  |         
|Components of Comprehensive loss: |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   |          |         
|                                  | Net loss                             |   |        |  |             |   |             |  |               |   |               | (8,646   | ) |   |             |        |   |   |          | (8,646   | )
|                                  | Minimum pension liability adjustment |   |        |  |             |   |             |  |               |   |               |         |   |   |             | (2,392  | ) |   |          | (2,392   | )
|                                  | Interest rate swap marked to market  |   |        |  |             |   |             |  |               |   |               |         |   |   |             | (11,437 | ) |   |          | (11,437  | )
|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   |          |         
|Total comprehensive loss          |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   | (22,475  | )       
|Balance, December 31, 2001        |                                      |   |       |   |             |   | 287,242     |   |               |   | (64,735       | )        |   |   | (13,829     | )       |   |   | 208,678  |         
|Dividends                         |                                      |   |       |   |             |   |            |   |               |   | (2,347        | )        |   |   |            |         |   |   | (2,347   | )       
|Components 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 | )       
|Balance, December 31, 2002        |                                      | $ |       |   |             | $ | 287,242     |   |               | $ | (249,738      | )        |   | $ | (18,886     | )       |   | $ | 18,618   |         
|                                  |                                      |   |        |   |             |   |             |   |               |   |               |          |   |   |             |         |   |   |          |         

See Notes to Consolidated Financial Statements

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)

|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |        |  
|------------------------------------------------------------------------------- | --------------------------------------------------- | - | -------- | ------- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                |                                                     |   | 2002     |         | 2001 |   | 2000   
|                                                                                |                                                     |   |          |         |      |   |        
|Cash Flows from Operating Activities:                                           |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Net loss                                                                        |                                                     | $ | (182,656 | )       |      | $ | (8,646  | )      |   | $ | (25,653 | )     
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                     |   |          |         |      |   |         |        |   |   |         |       
|                                                                                | Loss on discontinued operations                     |   |          | 7,632   |      |   |         | 1,718  |   |   |         | 917    |  
|                                                                                | Cumulative effect of change in accounting principle |   |          | 105,350 |      |   |         |       |   |   |         |       |  
|                                                                                | Depreciation and amortization                       |   |          | 82,940  |      |   |         | 79,108 |   |   |         | 71,755 |  
|                                                                                | Loss on disposal of assets, net                     |   |          | 2,163   |      |   |         |       |   |   |         |       |  
|                                                                                | Goodwill impairment loss                            |   |          | 64,755  |      |   |         |       |   |   |         |       |  
|                                                                                | Amortization of debt issuance costs                 |   |          | 4,191   |      |   |         | 4,312  |   |   |         | 4,526  |  
|                                                                                | Investment tax credits                              |   |          |        |      |   |         | (195   | ) |   |         | (197   | )
|                                                                                | Capitalized interest                                |   |          | (1,157  | )    |   |         | (1,416 | ) |   |         | (1,096 | )
|                                                                                | Other deferred credits                              |   |          | 3,073   |      |   |         | 418    |   |   |         | (1,141 | )
|                                                                                | Changes in components of working capital:           |   |          |         |      |   |         |        |   |   |         |        |  
|                                                                                | Accounts receivable and other current assets        |   |          | (4,722  | )    |   |         | 95     |   |   |         | (6,443 | )
|                                                                                | Accounts
receivable - affiliate                     |   |          | (1,286  | )    |   |         | (959   | ) |   |         | 96,160 |  
|                                                                                | Accounts payable and other current liabilities      |   |          | (12,460 | )    |   |         | 5,604  |   |   |         | 4,126  |  
|                                                                                | Other                                               |   |          | (1,375  | )    |   |         | (2,386 | ) |   |         | 1,000  |  
|                                                                                | Net cash used in discontinued operations            |   |          | (649    | )    |   |         | (1,015 | ) |   |         | (407   | )
|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Net cash provided by operating activities                                       |                                                     |   | 65,799   |         |      |   | 76,638  |        |   |   | 143,547 |       
|Cash Flows from Investing Activities:                                           |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Construction and capital expenditures, net of capitalized interest              |                                                     |   | (66,977  | )       |      |   | (87,582 | )      |   |   | (69,101 | )     
|Acquisition of PCS licenses                                                     |                                                     |   | (300     | )       |      |   |        |        |   |   |        |       
|Release of funds from escrow                                                    |                                                     |   | 3,706    |         |      |   |        |        |   |   |        |       
|Issuance of note receivable                                                     |                                                     |   | (15,000  | )       |      |   |        |        |   |   |        |       
|Proceeds from liquidation of minority interest investment                       |                                                     |   |         |         |      |   | 1,370   |        |   |   |        |       
|Issuance of note receivable from officer                                        |                                                     |   |         |         |      |   | (339    | )      |   |   |        |       
|Cost of acquisitions, net of cash received                                      |                                                     |   |         |         |      |   | (1,000  | )      |   |   | (5,598  | )     
|Placement of funds in escrow                                                    |                                                     |   |         |         |      |   | (6,932  | )      |   |   |        |       
|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Net cash used by investing activities                                           |                                                     |   | (78,571  | )       |      |   | (94,483 | )      |   |   | (74,699 | )     
|Cash
Flows from Financing Activities:                                           |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Payments on long-term debt                                                      |                                                     |   | (7,328   | )       |      |   | (3,039  | )      |   |   | (6,223  | )     
|Dividends                                                                       |                                                     |   | (2,347   | )       |      |   |        |        |   |   | (9,735  | )     
|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Net cash used by financing activities                                           |                                                     |   | (9,675   | )       |      |   | (3,039  | )      |   |   | (15,958 | )     
|Increase (decrease) in cash                                                     |                                                     |   | (22,447  | )       |      |   | (20,884 | )      |   |   | 52,890  |       
|Cash and cash equivalents at beginning of the year                              |                                                     |   | 41,012   |         |      |   | 61,896  |        |   |   | 9,006   |       
|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Cash and cash equivalents at the end of the year                                |                                                     | $ | 18,565   |         |      | $ | 41,012  |        |   | $ | 61,896  |       
|                                                                                |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Supplemental Cash Flow Data:                                                    |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Interest paid                                                                   |                                                     | $ | 45,830   |         |      | $ | 49,456  |        |   | $ | 57,418  |       
|Income taxes paid                                                               |                                                     |   |         |         |      |   |        |        |   |   |        |       
|Supplemental Noncash Transactions:                                              |                                                     |   |          |         |      |   |         |        |   |   |         |       
|Property acquired under capital leases                                          |                                                     | $ | 4,187    |         |      | $ |        |        |   | $ | 3,152   |       
|Note payable in connection with acquisition                                     |                                                     |   |         |         |      |   |        |        |   |   | 2,250   |       
|Minimum pension liability adjustment                                            |                                                     |   | 2,342    |         |      |   | 2,392   |        |   |   |        |       
|Interest rate swap marked to market                                             |                                                     |   | 2,715    |         |      |   | 11,437  |        |   |   |        |       

See Notes to Consolidated Financial Statements

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the
Company or ACS Holdings) a Delaware corporation, is engaged principally in
providing local telephone, wireless, directory, Internet and interexchange
network and other services to its customers in the State of Alaska through its
telecommunications subsidiaries. The Company was formed in October of 1998 for
the purpose of acquiring and operating telecommunications properties. On May
14, 1999, the Company was acquired and became a wholly owned subsidiary of
Alaska Communications Systems Group, Inc. (the Parent or ACS Group).

The accompanying consolidated financial statements for the Company are as
of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001
and 2000 and represent the consolidated financial position, results of
operations and cash flows principally of the following entities:



| |  |  | Alaska Communications Systems Holdings, Inc.
| | - |  | --------------------------------------------
|
| |  |  | 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 Television, L.L.C. (ACSTV)            
|
| |  |  | ACS Internet, Inc. (ACSI)                 
|
| |  |  | ACS InfoSource, Inc. (ACSIS)              

A summary of significant accounting policies followed by
the Company is set forth below:

Basis Of Presentation

The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany balances have been eliminated.
Certain reclassifications have been made to the 2001 and 2000 financial
statements to make them conform to the current presentation.

Use Of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of commitments and contingencies at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Among the significant estimates affecting
the financial statements are those related to the realizable value of accounts
receivable, materials and supplies, long-lived assets, income taxes and network
access revenue reserves. Actual results may differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated balance sheets and statements of cash
flows, the Company generally considers all highly liquid investments with a
maturity at acquisition of three months or less to be cash equivalents.

Restricted Cash

The Company placed in escrow restricted cash as a judicial requirement of
an appeal of a claim. This claim is expected to be adjudicated or settled in
2003. In the event the Company prevails, the restriction will be lifted,
otherwise, the cash will be paid to the claimants. Liabilities associated with
this claim are recorded in the Companys accounts payable, accrued and other
current liabilities.

F-7



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Materials and Supplies

Materials and supplies are carried in inventory at the lower
of weighted average cost or market.

Property, Plant and Equipment

Telephoneplant is stated substantially at original cost of construction.
Telephone plant retired in the ordinary course of business, together with the
cost of removal, less salvage, is charged to accumulated depreciation with no
gain or loss recognized. Renewals and betterments of telephone plant are
capitalized while repairs, as well as renewals of minor items, are charged to
operating expense as incurred. The Company provides for depreciation of
telephone plant on the straight-line method, using rates approved by the
regulatory authorities. The composite annualized rate of depreciation for all
classes of property, plant, and equipment was 7.4%, 7.0%, and 6.6% for 2002,
2001 and 2000, respectively.

Non-Telephoneplant is stated at purchased cost and, when sold or retired,
a gain or loss is recognized. Depreciation of such property is provided on the
straight-line method over its estimated service life ranging from two to 20
years.

The Company is the lessee of equipment and buildings under capital leases
expiring in various years through 2019. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the assets. The assets are amortized over
the lower of their related lease terms or their estimated productive lives.
Amortization of assets under capital leases is included in depreciation and
amortization expense for 2002, 2001 and 2000.

Debt Issue Costs

Legal, accounting and financing fees, printing costs, and other expenses
associated with the issuance of the Companys senior credit facility, senior
subordinated notes, and discount debentures are being amortized using the
straight-line method over the term of the debt, which approximates the
effective interest method. Amortization expense included in interest expense
for 2002, 2001 and 2000 was $4,191, $4,312, and $4,526, respectively.

Revenue Recognition

Substantially all recurring service revenues are billed one month in
advance and are deferred until earned. Nonrecurring and usage sensitive
revenues are billed in arrears and are recognized when earned. Additionally,
the Company establishes estimated bad debt reserves against uncollectible
revenues incurred during the period. During 2002 one customer accounted for 11%
of consolidated revenues and no other customer accounted for more than 10% of
consolidated revenue. During 2001 and 2000, no customer accounted for more than
10% of the consolidated revenues of the Company.

In October and November 2001, under two separate regulatory orders, ACSA
was authorized to implement interim and refundable rate increases for both loop
rental rates on unbundled network elements and for local service revenue. The
Company recognized $4,940 and $465 of revenue during 2002 and 2001,
respectively, associated with these rate increase authorizations. Management
believes that it is unlikely the Company will have a refund obligation
associated with these interim rate increases upon final adjudication of rates.

F-8



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition (Continued)

Access revenue is recognized when earned. The Company participates in toll
revenue pools with other telephone companies. Such pools are funded by toll
revenue and/or access charges regulated by the Regulatory Commission of Alaska
(RCA) within the intrastate jurisdiction and the Federal Communications
Commission (FCC) within the interstate jurisdiction. Much of the interstate
access revenue is initially recorded based on estimates. These estimates are
derived from interim financial statements, available separations studies and
the most recent information available about achieved rates of return. These
estimates are subject to adjustment in future accounting periods as additional
operational information becomes available. To the extent that disputes arise
over revenue settlements, the Companys policy is to defer revenue collected
until settlement methodologies are resolved and finalized. During the second
quarter of 2002, the Company recognized as revenue $11,066 of previously
deferred interstate access revenue and reversed $1,673 of interest expense
previously accrued thereon as a result of a favorable ruling by the District of
Columbia Court of Appeals related to a dispute on interstate access rates for
the Anchorage market. At December 31, 2002 and 2001, the Company had
liabilities of $20,548 and $31,748, respectively, related to its estimate of
refundable access revenue.

Income Taxes

The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes reflect the temporary differences
between the financial and tax bases of assets and liabilities using the enacted
tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to the extent
that it is more likely than not that such deferred tax assets will not be
realized. One of the acquired companies had a remaining unamortized regulatory
investment tax credit of $695 at May 14, 1999, of which $195 and $197 was
amortized against income in 2001 and 2000, respectively.

Regulatory Accounting and Regulation

The local telephone exchange operations of the Company account for costs
in accordance with the accounting principles for regulated enterprises
prescribed by Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation.This accounting
recognizes the economic effects of rate regulation by recording cost and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. Accordingly, under SFAS No. 71, plant and equipment is
depreciated over lives approved by regulators and certain costs and obligations
are deferred based upon approvals received from regulators to permit recovery
of such amounts in future years. Historically, lives approved for regulatory
purposes have approximated economically useful lives. On July 21, 2002, the
Company received an order from the RCA which appears to extend lives approved
for rate-making purposes beyond the economically useful lives of the underlying
assets. Management petitioned for reconsideration, and the RCA has agreed to
take additional testimony. A final order on the matter is not expected until
the second quarter of 2003. As of December 31, 2002 the Company has deferred as
a regulatory asset $894 of costs incurred in connection with regulatory rate
making proceedings, which will be amortized in future periods. If the Company
were not following SFAS No. 71, these costs would have been charged to expense
as incurred. Non-regulated revenues and costs incurred by the local telephone
exchange operations and non-regulated operations of the Company are not
accounted for under SFAS No. 71 principles.

The local telephone exchange activities of the Company are subject to rate
regulation by the FCC for interstate telecommunication service, and the RCA for
intrastate and local exchange telecommunication service. The Company, as
required by the FCC, accounts for such activity separately. Long distance
services of the Company are subject to rate regulation as a non-dominant
interexchange carrier by the FCC for interstate telecommunication services and
the RCA for intrastate telecommunication services. Wireless, directory and
Internet operations are not subject to rate regulation.

F-9



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Change in Accounting Estimate

During the third quarter of 2002, the Company changed its estimate of the
useful lives of certain classes of assets, resulting in additional depreciation
expense of $2,206 for the year ended December 31, 2002.

Comprehensive Income (Loss)

Comprehensive income (loss) represents net income (loss) plus the results
of certain Stockholders equity changes not reflected in the consolidated
statements of operations. For 2002 and 2001, the Company has provided an income
tax valuation allowance equal to the income tax benefit resulting from its
other comprehensive loss. The Companys comprehensive loss is equal to its net
loss for 2000.

Stock Incentive Plans

The Companys employees participate in various plans of ACS Group. The
Company applies Accounting Principles Board Opinion No. 25 Accounting for
Stock Issued to Employees,in accounting for its stock incentive plans.
Accordingly, no compensation cost has been recognized for options with exercise
prices equal to or greater than fair value on the date of grant. No
compensation costs were charged to operations in 2002, 2001 or 2000. If
compensation costs had been determined consistent with SFAS No. 123 Accounting
for Stock-Based Compensation,the Companys net loss on a pro forma basis for
2002, 2001 and 2000 would have been as follows:

|          |             |  |      |          |      |  |      |         |   |  |   |         |  
|--------- | ----------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|          |             |  | 2002 |          | 2001 |  | 2000
|          |             |  |      |          |      |  |     
|Net loss: |             |  |      |          |      |  |      |         |   |  |   |        
|          | As reported |  | $    | (182,656 | )    |  | $    | (8,646  | ) |  | $ | (25,653 | )
|          | Pro forma   |  |      | (184,111 | )    |  |      | (10,114 | ) |  |   | (27,315 | )

The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions for grants:

|                             |  |  |      |      |  |      |      |      |  |  |      |   |  | 
|---------------------------- |  |  | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  | 
|                             |  |  |      | 2002 |  | 2001 |      | 2000
|                             |  |  |      |      |  |      |      |     
|Risk free rate               |  |  | 2.88 | %    |  |      | 4.45 | %    |  |  | 5.50 | %
|Dividend yield               |  |  | 0.0  | %    |  |      | 0.0  | %    |  |  | 0.0  | %
|Expected volatility factor   |  |  | 60.8 | %    |  |      | 55.2 | %    |  |  | 52.5 | %
|Expected option life (years) |  |  | 6.1  |      |  |      | 5.9  |      |  |  | 6.1  |  

Recent Accounting Pronouncements

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002, and have been included in Note
20, Commitments, Contingencies and Guarantees. The recognition and measurement
provisions are effective on a prospective basis to guarantees issued or
modified after December 31, 2002. The Company does not believe the adoption of
this interpretation will have a material impact on its financial position,
results of operations, or cash flows.

On August 15, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Asset Retirement Obligations,which is
effective for the Companys fiscal year beginning January 1, 2003. This
statement requires, among other things, the accounting and reporting of legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development or normal operation of a
long-lived asset. Certain amounts included in accumulated depreciation will be
redesignated as a regulatory liability. The Company is evaluating, but has not
yet determined the impact of the adoption of this standard on its financial
position, results of operations and cash flows.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.This statement addresses
accounting and reporting of all long-lived assets, except goodwill, that are
either held and used or disposed of through sale or other means (see Note 12).

In
April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 will generally require gains and losses on extinguishments of debt
to be classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS No. 4. Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. Accordingly, gains or losses from extinguishments of debt for
fiscal years beginning after May 15, 2002 will not be reported as extraordinary
items unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30. Upon adoption, any gain or loss on
extinguishment of debt previously classified as an extraordinary item in prior
periods presented that does not meet the criteria of APB Opinion No. 30 for
such classification will be reclassified to conform with the provisions of SFAS
No. 145. Earlier application of the provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 is encouraged. SFAS No. 145 does not have any impact
on the Companys results of operations for the current periods reported.

On July 30, 2002, FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 requires companies
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company does not believe the adoption of
this statement will have a material impact on its financial position, results
of operations, or cash flows.

On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure.SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation,to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company does not currently have plans to change to the fair value
method of accounting for our stock based compensation. The disclosure
requirements are now effective.

2. ACQUISITIONS

On September 30, 1999, the Company acquired a majority interest in Alaskan
Choice Television, L.L.C., (ACTV). The cash purchase price was approximately
$1,900. On February 14, 2000, the Company purchased the remaining one-third
interest of ACTV for $3,042, including a $2,250 note payable. This acquisition
has been accounted for using the purchase method and its operating results have
been included in the consolidated statements of operations from the date of
acquisition. On March 30, 2002, the Company approved a plan to sell its
wireless cable television service segment. As a result of this decision, the
operating revenue and expense of this segment has been classified as
discontinued operations for all periods presented (See Note 12).

On June 16, 2000, the Company acquired a 100% interest in Internet Alaska,
Inc. It previously held a minority interest of 28.5%. On July 6, 2001, The
Company acquired the assets and business of Internet Plus, L.L.C., dba
MosquitoNet, a Fairbanks based Internet service provider with approximately
5,000 customers. These acquisitions have been accounted for using the purchase
method and the operating results from these acquisitions have been included in
the consolidated statements of operations from the dates of acquisition. Pro
forma information is not provided since the impact of these acquisitions does
not have a material effect on the Companys financial position, results of
operations and cash flows.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

3. ACCOUNTS RECEIVABLE

Accounts
receivable - trade consists of the following at December 31, 2002 and
2001:

|                             |                                      |  |        |        |      |  |        |        | 
|---------------------------- | ------------------------------------ |  | ------ | ------ | ---- |  | ------ | ------ | 
|                             |                                      |  | 2002   |        | 2001
|                             |                                      |  |        |        |     
|Accounts
receivable - trade: |                                      |  |        |        |      |  |        |       
|                             | Customers                            |  | $      | 37,638 |      |  | $      | 33,613 | 
|                             | Connecting companies                 |  |        | 12,032 |      |  |        | 13,822 | 
|                             | Other                                |  |        | 5,225  |      |  |        | 4,421  | 
|                             |                                      |  |        |        |      |  |        |        | 
|                             |                                      |  | 54,895 |        |      |  | 51,856 |       
|                             | Less allowance for doubtful accounts |  |        | 6,075  |      |  |        | 4,944  | 
|                             |                                      |  |        |        |      |  |        |        | 
|                             | Accounts receivable - trade, net     |  | $      | 48,820 |      |  | $      | 46,912 | 
|                             |                                      |  |        |        |      |  |        |        | 

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment consists of the following at December 31, 2002 and 2001:

|                                |                                                |  |           |         |      |  |           |         | 
|------------------------------- | ---------------------------------------------- |  | --------- | ------- | ---- |  | --------- | ------- | 
|                                |                                                |  | 2002      |         | 2001
|                                |                                                |  |           |         |     
|Property, plant, and equipment: |                                                |  |           |         |      |  |           |        
|                                | Land, buildings and support assets             |  | $         | 192,832 |      |  | $         | 178,736 | 
|                                | Central office switching and transmission      |  |           | 314,316 |      |  |           | 309,291 | 
|                                | Outside plant cable and wire facilities        |  |           | 499,720 |      |  |           | 486,352 | 
|                                | Wireless switching and transmission systems    |  |           | 51,538  |      |  |           | 40,224  | 
|                                | Other                                          |  |           | 4,393   |      |  |           | 2,359   | 
|                                | Assets held for future use                     |  |           | 3,492   |      |  |           |        | 
|                                | Construction work in progress                  |  |           | 24,074  |      |  |           | 19,867  | 
|                                |                                                |  |           |         |      |  |           |         | 
|                                |                                                |  | 1,090,365 |         |      |  | 1,036,829 |        
|                                | Less accumulated depreciation and amortization |  |           | 625,276 |      |  |           | 557,849 | 
|                                |                                                |  |           |         |      |  |           |         | 
|                                | Property, plant and equipment, net             |  | $         | 465,089 |      |  | $         | 478,980 | 
|                                |                                                |  |           |         |      |  |           |         | 

The following is a summary of property held under capital leases included
in the above property, plant and equipment:

|                                    |                                                |  |        |        |      |  |        |        | 
|----------------------------------- | ---------------------------------------------- |  | ------ | ------ | ---- |  | ------ | ------ | 
|                                    |                                                |  | 2002   |        | 2001
|                                    |                                                |  |        |        |      |  |       
|Property held under capital leases: |                                                |  |        |        |      |  |        |       
|                                    | Land, buildings and support assets             |  | $      | 16,930 |      |  | $      | 13,318 | 
|                                    | Outside plant cable and wire facilities        |  |        | 2,710  |      |  |        | 2,710  | 
|                                    |                                                |  |        |        |      |  |        |        | 
|                                    |                                                |  | 19,640 |        |      |  | 16,028 |       
|                                    | Less accumulated depreciation and amortization |  |        | 6,612  |      |  |        | 4,810  | 
|                                    |                                                |  |        |        |      |  |        |        | 
|                                    | Property held under capital leases, net        |  | $      | 13,028 |      |  | $      | 11,218 | 
|                                    |                                                |  |        |        |      |  |        |        | 

Amortization of assets under capital leases included in depreciation
expense in 2002, 2001 and 2000 is $2,333, $1,202, and $1,008, respectively.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

4. PROPERTY, PLANT AND EQUIPMENT (Continued)

The Company leases various land, buildings, right-of-ways, and personal
property under operating lease agreements. Rental expenses under operating
leases for 2002, 2001 and 2000 were $3,733, $3,971, and $4,055, respectively.
Future minimum payments under these leases for the next five years and
thereafter are as follows:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2003       |  | $ | 2,474 | 
|2004       |  |   | 1,971 | 
|2005       |  |   | 1,331 | 
|2006       |  |   | 1,014 | 
|2007       |  |   | 794   | 
|Thereafter |  |   | 1,954 | 
|           |  |   |       | 
|           |  | $ | 9,538 | 
|           |  |   |       | 

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets.In accordance with the guidelines of this accounting
principle, goodwill and indefinite-lived intangible assets are no longer
amortized but will be assessed for impairment on at least an annual basis. SFAS
No. 142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment.

Goodwill amortization, which was $7,741 and $7,510 for the years ended
December 31, 2001 and 2000, respectively, ceased effective January 1, 2002. In
the first quarter of 2002, pursuant to SFAS No. 142, the Company completed its
reassessment of previously recognized intangible assets, and ceased
amortization of indefinite-lived intangible assets.

SFAS No. 142 requires that goodwill be tested for impairment at the
reporting unit level upon adoption and at least annually thereafter, utilizing
a two-step methodology. The initial step requires the Company to determine the
fair value of each reporting unit and compare it to the carrying value,
including goodwill, of such unit. If the fair value exceeds the carrying value,
no impairment loss would be recognized. However, if the carrying value of the
reporting unit exceeds its fair value, the goodwill of the unit may be
impaired. The amount, if any, of the impairment is then measured in the second
step.

The Company has determined that its business segments constitute reporting
units, with the exception of the Internet segment, which includes two reporting
units. Those reporting units are (1) Internet service and (2) IP based private
network service. The Company completed the initial step of impairment testing
during the second quarter which indicated that goodwill recorded in the local
telephone, Internet, and interexchange segments was impaired as of January 1,
2002. Due to the potential impairment, the Company then completed the second
step of the test to measure the amount of the impairment. The Company
determined the fair value of each reporting unit for purposes of this test
primarily by using a discounted cash flow valuation technique. Significant
estimates used in the valuation include estimates of future cash flows, both
future short-term and long-term growth rates, and estimated cost of capital for
purposes of arriving at a discount factor. Based on that analysis, a
transitional impairment loss of $105,350 was recognized as the cumulative
effect of a change in accounting principle in the consolidated statement of
operations. The income tax benefit of $39,540 was offset by a valuation
allowance.

The Company performed its annual impairment test as of the beginning of
the fourth quarter of 2002. The Company determined the fair value of each
reporting unit for purposes of this test primarily by using a discounted cash
flow valuation technique. Significant estimates used in the valuation include
estimates of future cash flows, both future short-term and long-term growth
rates, and estimated cost of capital for purposes of arriving at a discount
factor. Based on comparing this discounted cash flow model to the carrying
value of the reporting units, an impairment loss of $64,755 in the local
telephone segment was recognized in the consolidated statement of operations
for the year ended December 31, 2002. The Company attributes the impairment
loss in the local telephone segment to competitively biased regulatory policy.
On an ongoing basis, the Company expects to perform its annual impairment test
during the fourth quarter absent any impairment indicators.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

5. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

In connection with the Companys adoption of a plan to discontinue its
wireless cable television service segment during the first quarter of 2002, the
goodwill of that segment was considered impaired, and an impairment charge of
$3,165 is included with the results of discontinued operations.

The changes in the carrying value of goodwill by segment for the year
ended December 31, 2002 are as follows:

|                                                      |  |           |         |          |  |           |       |          |  |               |        |           |  |       |        |   |  |   |      |   |  |   |        |   |  |   |          |  
|----------------------------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | ------------- | ------ | --------- |  | ----- | ------ | - |  | - | ---- | - |  | - | ------ | - |  | - | -------- | -
|                                                      |  | Local     |         |          |  |           |       |          |  |               |        |           |  |       |        |   |  |   |      |   |  |   |        |   |  |  
|                                                      |  | Telephone |         | Wireless |  | Directory |       | Internet |  | Interexchange |        | All Other |  | Total
|                                                      |  |           |         |          |  |           |       |          |  |               |        |           |  |      
|Balance, December 31, 2001                            |  | $         | 191,351 |          |  | $         | 8,851 |          |  | $             | 38,831 |           |  | $     | 8,146  |   |  | $ | 151  |   |  | $ | 3,165  |   |  | $ | 250,495  |  
|Impairment losses included in
discontinued operations |  |           |        |          |  |           |      |          |  |               |       |           |  |       |       |   |  |   |     |   |  |   | (3,165 | ) |  |   | (3,165   | )
|Impairment losses - transitional                      |  |           | (97,053 | )        |  |           |      |          |  |               |       |           |  |       | (8,146 | ) |  |   | (151 | ) |  |   |       |   |  |   | (105,350 | )
|Impairment losses - annual test                       |  |           | (64,755 | )        |  |           |      |          |  |               |       |           |  |       |       |   |  |   |     |   |  |   |       |   |  |   | (64,755  | )
|                                                      |  |           |         |          |  |           |       |          |  |               |        |           |  |       |        |   |  |   |      |   |  |   |        |   |  |   |          |  
|Balance, December 31, 2002                            |  | $         | 29,543  |          |  | $         | 8,851 |          |  | $             | 38,831 |           |  | $     |       |   |  | $ |     |   |  | $ |       |   |  | $ | 77,225   |  
|                                                      |  |           |         |          |  |           |       |          |  |               |        |           |  |       |        |   |  |   |      |   |  |   |        |   |  |   |          |  

Provided below is a reconciliation of previously reported financial
statement information to adjusted amounts that reflect the elimination of
goodwill and indefinite-lived intangible amortization for the comparable years
ended December 31, 2001 and 2000 prior to adoption of SFAS No. 142:

|                  |           |                                          |        |      |       |      |         |   |       | 
|----------------- | --------- | ---------------------------------------- | ------ | ---- | ----- | ---- | ------- | - | ----- | 
|                  |           |                                          |        | 2001 |       | 2000
|                  |           |                                          |        |      |       |     
|Reported net loss |           | $                                        | (8,646 | )    |       | $    | (25,653 | )
|                  | Add back: |                                          |        |      |       |      |         |   |      
|                  |           | Goodwill amortization                    |        |      | 7,741 |      |         |   | 7,510 | 
|                  |           | Indefinite-lived intangible amortization |        |      | 528   |      |         |   | 524   | 
|                  |           |                                          |        |      |       |      |         |  
|Adjusted net loss |           | $                                        | (377   | )    |       | $    | (17,619 | )
|                  |           |                                          |        |      |       |      |         |  

The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset as of December 31, 2002
based on the Companys reassessment of previously recognized intangible assets
and their remaining amortization lives in accordance with the adoption of SFAS
No. 142:

|                                    |                              |                                          |   |                |        |              |   |             |       |  |  |   |  | 
|----------------------------------- | ---------------------------- | ---------------------------------------- | - | -------------- | ------ | ------------ | - | ----------- | ----- |  |  | - |  | 
|                                    |                              |                                          |   | Gross Carrying |        | Accumulated  |   | Amortizable
|                                    |                              |                                          |   | Amount         |        | Amortization |   | Life       
|                                    |                              |                                          |   |                |        |              |   |            
|Amortizable intangible assets:      |                              |                                          |   |                |        |              |   |             |       |  |  |  
|                                    | Customer list                |                                          | $ | 915            |        |              | $ | 275         |       |  |  | 5 | 
|                                    | Other intangible assets      |                                          |   | 2,625          |        |              |   | 1,593       |       |  |  | 5 | 
|                                    |                              |                                          |   |                |        |              |   |             |       |  |  |  
|                                    |                              | Total amortizable intangible assets      |   | $              | 3,540  |              |   | $           | 1,868 |  |  |   |  | 
|                                    |                              |                                          |   |                |        |              |   |             |       |  |  |  
|Indefinite-lived intangible assets: |                              |                                          |   |                |        |              |   |             |       |  |  |  
|                                    | Cellular licenses            |                                          | $ | 18,194         |        |              |   |             |       |  |  |   | 
|                                    | PCS licenses                 |                                          |   | 3,323          |        |              |   |             |       |  |  |   | 
|                                    | Domain names and trade names |                                          |   | 80             |        |              |   |             |       |  |  |   | 
|                                    |                              |                                          |   |                |        |              |   |             |       |  |  |  
|                                    |                              | Total indefinite-lived intangible assets |   | $              | 21,597 |              |   |             |       |  |  |   |  | 
|                                    |                              |                                          |   |                |        |              |   |             |       |  |  |  

For amortizable intangible assets the total intangible amortization
expense for the years ended December 31, 2002, 2001 and 2000 was $708, $616 and
$525, respectively. The estimated amortization expense for each of the next
five years ending December 31 is as follows:

|     |  |   |    
|---- |  | - | ---
|2003 |  | $ | 951
|2004 |  | $ | 446
|2005 |  | $ | 183
|2006 |  | $ | 92 
|2007 |  | $ |   

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

6. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES

Accounts payable, accrued and other current liabilities consist of the
following at December 31, 2002 and 2001:

|                                                        |  |      |        |      |  |   |        | 
|------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                        |  | 2002 |        | 2001
|                                                        |  |      |        |     
|Accounts payable - trade                                |  | $    | 11,435 |      |  | $ | 10,138 | 
|Accrued payroll, benefits, and related liabilities      |  |      | 6,413  |      |  |   | 8,379  | 
|Accrued personal time off                               |  |      | 5,200  |      |  |   | 5,207  | 
|Accrued interest                                        |  |      | 6,106  |      |  |   | 6,983  | 
|Refundable access revenue                               |  |      | 9,147  |      |  |   | 22,688 | 
|Other                                                   |  |      | 11,179 |      |  |   | 9,370  | 
|                                                        |  |      |        |      |  |   |        | 
|Accounts payable, accrued and other current liabilities |  | $    | 49,480 |      |  | $ | 62,765 | 
|                                                        |  |      |        |      |  |   |        | 

7. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at December 31, 2002 and
2001:

|                                               |  |   |         |  |      |   |         |  | 
|---------------------------------------------- |  | - | ------- |  | ---- | - | ------- |  | 
|                                               |  |   | 2002    |  | 2001
|                                               |  |   |         |  |     
|Senior credit facility term loan - tranche A   |  | $ | 148,500 |  |      | $ | 150,000 | 
|Senior credit facility term loan - tranche B   |  |   | 148,500 |  |      |   | 150,000 | 
|Senior credit facility term loan - tranche C   |  |   | 133,650 |  |      |   | 135,000 | 
|9 3/8% senior subordinated notes due 2009      |  |   | 150,000 |  |      |   | 150,000 | 
|Capital leases and other long-term obligations |  |   | 12,181  |  |      |   | 11,603  | 
|                                               |  |   |         |  |      |   |         |  | 
|                                               |  |   | 592,831 |  |      |   | 596,603 | 
|Less current portion                           |  |   | 5,933   |  |      |   | 5,107   | 
|                                               |  |   |         |  |      |   |         |  | 
|Long-term obligations, net of current portion  |  | $ | 586,898 |  |      | $ | 591,496 | 
|                                               |  |   |         |  |      |   |         |  | 

The aggregate maturities of long-term obligations for each of the five
years and thereafter subsequent to December
31, 2002 are as follows:

|           |  |   |        
|---------- |  | - | -------
|2003       |  | $ | 5,933  
|2004       |  |   | 6,060  
|2005       |  |   | 5,260  
|2006       |  |   | 147,846
|2007       |  |   | 144,908
|Thereafter |  | $ | 282,824
|           |  |   |        
|           |  | $ | 592,831
|           |  |   |        

Senior Credit Facility

On May 14, 1999, the Company entered into a credit agreement with a
syndicate of commercial banks which provide the Companys senior credit
facility. The senior credit facility provides $435,000 of term loans and a
revolving credit facility with a $75,000 line of credit, of which $430,650 is
outstanding at December 31, 2002. The Companys obligations under the senior
credit facility are unconditionally and irrevocably guaranteed, joint and
severally, by the Company and its subsidiaries, and secured by collateral that
includes substantially all of the Company and its subsidiaries assets. The
senior credit facility contains a number of restrictive covenants and events of
default, including covenants limiting capital expenditures, incurrence of debt,
and the payment of dividends, and requires the Company to achieve certain
financial ratios. During the second quarter of 2002, the Companys lenders
approved an amendment to its senior credit facility that, among other things,
permits the Company to repurchase up to $15,000 of its outstanding common stock
over the term of the Senior Credit Facility. As of December 31, 2002 and 2001
the Company was in compliance with all of the covenants of the senior credit
facility.

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

7. LONG-TERM OBLIGATIONS (Continued)

The tranche A term loan of $148,500 is repayable in annual principal
payments of $1,500 which commenced on May 14, 2002 with the balance due on
November 14, 2006. The loan bears interest at an annual rate equal (at the
Companys option) to: (1) an adjusted London inter-bank offered rate (LIBOR)
plus 2.25% or (2) a rate equal to 1.75% plus the greater of the administrative
agents prime rate, a certificate of deposit rate plus 1.00% or the federal
funds rate plus .50%, in each case subject to reduction based on the Companys
financial performance. The rate of interest in effect at December 31, 2002 and
2001 was 4.125% and 4.69%, respectively, and is based on the LIBOR rate option.

The tranche B term loan of $148,500 is repayable in annual principal
payments of $1,500 which commenced on May 14, 2002 with the balance due on
November 14, 2007. The loan bears interest at an annual rate equal (at the
Companys option) to: (1) LIBOR plus 3.00% or (2) a rate equal to 2.00% plus
the greater of the administrative agents prime rate, a certificate of deposit
rate plus 1.00% or the federal funds rate plus .50%. The rate of interest in
effect at December 31, 2002 and 2001 was 4.88% and 5.44%, respectively, and is
based on the LIBOR rate option.

The tranche C term loan of $133,650 is repayable in annual principal
payments of $1,350 which commenced on May 14, 2002 with the balance due on May
14, 2008. The loan bears interest at an annual rate equal (at the Companys
option) to: (1) LIBOR plus 3.25% or (2) a rate equal to 2.25% plus the greater
of the administrative agents prime rate, a certificate of deposit rate plus
1.00% or the federal funds rate plus .50%. The rate of interest in effect at
December 31, 2002 and 2001 was 5.06% and 7.06%, respectively, and is based on
the LIBOR rate option.

The senior credit facility also provides a revolving credit facility in
the amount of $75,000 which is available, in part, for up to $25,000 in letters
of credit and up to $10,000 in the form of swingline loans. This revolving
facility is available through May 15, 2006 and outstanding balances thereunder
will bear interest at an annual interest rate option equivalent to that
provided under tranche A. There were no amounts outstanding under this
revolving credit facility as of December 31, 2002 and 2001.

On July 24, 1999 the Company entered into an interest rate swap agreement
to reduce the impact of changes in interest rates on its floating rate
long-term debt. This agreement fixed at 5.99% the underlying variable rate on
one-half of the borrowings under the senior credit facility, or $217,500,
expiring in June 2004. The differential to be paid or received is recorded as
interest expense in the consolidated statement of operations in the period in
which it is recognized. The Company is exposed to credit losses from
counterparty nonperformance, but does not anticipate any such nonperformance.

Senior Subordinated Notes

On May 14, 1999, the Company issued $150,000 in aggregate principal amount
of 9 3/8 % senior subordinated notes due 2009. Interest on the notes is payable
semi-annually on May 15 and November 15. The notes will mature on May 15, 2009,
and are redeemable, in whole or in part, at the option of the Company, at any
time on or after May 15, 2004 at 104.688% of the principal amount declining to
100% of the principal amount on or after May 15, 2007. The notes contain a
number of restrictive covenants, including covenants limiting incurrence of
debt and the payment of dividends. As of December 31, 2002 and 2001 the Company
was in compliance with all the covenants of the notes.

Capital leases and other long-term obligations

The Company has entered into various capital leases and other debt
agreements totaling $12,181 and $11,603 with a weighted average interest rate
of 8.05% and 8.74% at December 31, 2002 and 2001, respectively.

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

8. OTHER DEFERRED CREDITS AND LONG-TERM LIABILITIES:

Deferred credits and other long-term liabilities consist of the following
at December 31, 2002 and 2001:

|                                     |                                                        |   |        |        |      |   |        |        | 
|------------------------------------ | ------------------------------------------------------ | - | ------ | ------ | ---- | - | ------ | ------ | 
|                                     |                                                        |   | 2002   |        | 2001
|                                     |                                                        |   |        |        |     
|Refundable access revenue            |                                                        | $ | 11,401 |        |      | $ | 9,060  |       
|Interest rate swap, marked to market |                                                        |   | 14,152 |        |      |   | 11,437 |       
|Additional pension liability         |                                                        |   | 6,285  |        |      |   | 4,147  |       
|Other deferred credits               |                                                        |   | 1,092  |        |      |   | 359    |       
|                                     |                                                        |   |        |        |      |   |        |       
|                                     | Total deferred credits and other long-tern liabilities |   | $      | 32,930 |      |   | $      | 25,003 | 
|                                     |                                                        |   |        |        |      |   |        |       

9. LOCAL TELEPHONE OPERATING REVENUE

Local telephone operating revenues consisted of the following for the
years ended December 31, 2002, 2001 and 2000:

|                              |                                          |   |         |         |      |   |         |         |  |   |         |         | 
|----------------------------- | ---------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                              |                                          |   | 2002    |         | 2001 |   | 2000   
|                              |                                          |   |         |         |      |   |        
|Local network service         |                                          | $ | 99,512  |         |      | $ | 96,270  |         |  | $ | 94,098  |        
|Network access revenue        |                                          |   | 108,335 |         |      |   | 102,977 |         |  |   | 105,172 |        
|Deregulated revenue and other |                                          |   | 18,600  |         |      |   | 22,164  |         |  |   | 22,998  |        
|                              |                                          |   |         |         |      |   |         |         |  |   |         |        
|                              | Total local telephone operating revenues |   | $       | 226,447 |      |   | $       | 221,411 |  |   | $       | 222,268 | 
|                              |                                          |   |         |         |      |   |         |         |  |   |         |        

10. UNUSUAL CHARGES

During 2000, the Company recorded $5,288 of unusual charges, consisting of
the following:

|                                        |  |   |      
|--------------------------------------- |  | - | -----
|Costs incurred in attempted acquisition |  | $ | 1,451
|Severance and restructuring costs       |  |   | 3,019
|Legal settlement                        |  |   | 818  
|                                        |  |   |      
|                                        |  | $ | 5,288
|                                        |  |   |      

During 2000, the Company attempted to acquire the Matanuska Telephone
Association, a cooperative telephone association located in Alaska. The
acquisition was subject to approval by a vote of the membership of the
cooperative association requiring a super majority, which was held in September
of 2000. The membership of the association voted to approve the acquisition but
failed to achieve the required super majority. The Company had incurred $1,451
of legal, consulting and other out of pocket costs associated with the
attempted acquisition which were charged to expense during September 2000. The
Company also recorded $3,019 related to severance and restructuring charges
under several plans adopted during 2000. In December 2000, the Company settled
out of court a claim by a vendor that arose from an undisclosed contractual
obligation it incurred in the purchase of the Companys operations in May 1999,
resulting in a charge to expense of $818.

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

11. INCOME TAXES

The Companys combined federal income and state effective income tax rate
from continuing operations was a benefit of 0.0%, 1.7%, and 0.8% in 2002, 2001
and 2000, respectively. The difference between taxes calculated as if the
statutory federal rate of 34% was applied to loss from continuing operations
before income tax and the recorded tax benefit is reconciled as follows:

|                                                        |                                             |                                               |         |      |        |      |        |      |       |   |        |   |        |  
|------------------------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------- | ---- | ------ | ---- | ------ | ---- | ----- | - | ------ | - | ------ | -
|                                                        |                                             |                                               |         | 2002 |        | 2001 |        | 2000
|                                                        |                                             |                                               |         |      |        |      |        |     
|Computed federal income taxes at the 34% statutory rate |                                             | $                                             | (23,689 | )    |        | $    | (2,422 | )    |       | $ | (8,736 | )
|                                                        | Increase (reduction) in tax resulting from: |                                               |         |      |        |      |        |      |       |   |        |   |       
|                                                        |                                             | State income taxes (net federal benefit)      |         |      | (4,097 | )    |        |      | (381  | ) |        |   | (1,503 | )
|                                                        |                                             | Amortization of investment tax credits        |         |      |       |      |        |      | (195  | ) |        |   | (197   | )
|                                                        |                                             | Prior year adjustment                         |         |      | 269    |      |        |      |      |   |        |   |       |  
|                                                        |                                             | Other                                         |         |      | 453    |      |        |      | (68   | ) |        |   | 285    |  
|                                                        |                                             | Valuation allowance - book net operating loss |         |      | 27,064 |      |        |      | 2,871 |   |        |   | 9,954  |  
|                                                        |                                             |                                               |         |      |        |      |        |      |       |   |        |  
|Total income tax benefit                                |                                             | $                                             |        |      |        | $    | (195   | )    |       | $ | (197   | )
|                                                        |                                             |                                               |         |      |        |      |        |      |       |   |        |  

The benefit for income taxes is summarized as follows:

|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |   | 
|-------------------------------------- | ------------------ | -------------- | - | ---- | - | ---- | ---- | ---- | - | - | ---- | - | - | 
|                                       |                    |                |   | 2002 |   | 2001 |      | 2000
|                                       |                    |                |   |      |   |      |      |     
|Current:                               |                    |                |   |      |   |      |      |      |   |   |      |  
|                                       | Federal income tax |                | $ |     |   |      | $    |     |   |   | $    |  |  
|                                       | State income tax   |                |   |     |   |      |      |     |   |   |      |  |  
|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |  
|                                       |                    | Total current  |   |      |  |      |      |      |  |   |      |   |  | 
|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |  
|Deferred:                              |                    |                |   |      |   |      |      |      |   |   |      |  
|                                       | Federal income tax |                |   |     |   |      |      |     |   |   |      |  |  
|                                       | State income tax   |                |   |     |   |      |      |     |   |   |      |  |  
|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |  
|                                       |                    | Total deferred |   |      |  |      |      |      |  |   |      |   |  | 
|Amortization of investment tax credits |                    |                |  |      |   |      | (195 | )    |   |   | (197 | )
|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |  
|Total income tax benefit               |                    | $              |  |      |   | $    | (195 | )    |   | $ | (197 | )
|                                       |                    |                |   |      |   |      |      |      |   |   |      |   |  

The effect of significant items comprising the Companys net deferred tax
liability at 34% were as follows:

|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|---------------------------------------- | ----------------------------------- | ------------------------------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                         |                                     |                                                  |         | 2002    |         | 2001 |         | 2000   
|                                         |                                     |                                                  |         |         |         |      |         |        
|Deferred tax liabilities - long-term:    |                                     |                                                  |         |         |         |      |         |         |         |   |         |        
|                                         |                                     | Property, plant and equipment                    |         | $       | (20,786 | )    |         | $       | (20,380 | ) |         | $       | (16,338 | )
|                                         |                                     | Intangibles                                      |         |         |        |      |         |         | (13,105 | ) |         |         | (7,235  | )
|                                         |                                     | Other                                            |         |         | (88     | )    |         |         |        |   |         |         |        |  
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|Total long-term deferred tax liabilities |                                     |                                                  | (20,874 | )       |         |      | (33,485 | )       |         |   | (23,573 | )      
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|Deferred tax assets:                     |                                     |                                                  |         |         |         |      |         |         |         |   |         |        
|                                         | Current:                            |                                                  |         |         |         |      |         |         |         |   |         |         |        
|                                         |                                     | Accrued compensation                             |         |         | 4,249   |      |         |         | 4,081   |   |         |         | 5,329   |  
|                                         |                                     | Accrued bad debts                                |         |         | 2,827   |      |         |         | 2,172   |   |         |         | 4,825   |  
|                                         |                                     | Interest rate swap mark to market                |         |         | 5,661   |      |         |         | 4,575   |   |         |         |        |  
|                                         |                                     | Minimum pension liability adjustment             |         |         | 1,893   |      |         |         | 957     |   |         |         |        |  
|                                         |                                     | Other                                            |         |         | 987     |      |         |         | 516     |   |         |         | 293     |  
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|                                         | Total current deferred tax assets   |                                                  |         | 15,617  |         |      |         | 12,301  |         |   |         | 10,447  |        
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|                                         | Long-term:                          |                                                  |         |         |         |      |         |         |         |   |         |         |        
|                                         |                                     | Net operating loss carryforwards from operations |         |         | 57,136  |      |         |         | 49,324  |   |         |         | 32,324  |  
|                                         |                                     | Intangibles                                      |         |         | 46,734  |      |         |         |        |   |         |         |        |  
|                                         |                                     | Debt issuance cost                               |         |         | 1,213   |      |         |         |        |   |         |         |        |  
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|                                         | Total long-term deferred tax assets |                                                  |         | 105,083 |         |      |         | 49,324  |         |   |         | 32,324  |        
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|Total deferred tax assets                |                                     |                                                  | 120,700 |         |         |      | 61,625  |         |         |   | 42,771  |        
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|                                         | Valuation allowance                 |                                                  |         | (99,826 | )       |      |         | (28,140 | )       |   |         | (19,048 | )      
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  
|Net deferred tax asset                   |                                     | $                                                |        |         |         | $    |        |         |         | $ | 150     |        
|                                         |                                     |                                                  |         |         |         |      |         |         |         |   |         |         |         |  

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

11. INCOME TAXES (Continued)

The Company has available at December 31, 2002 unused operating loss
carryforwards of $142,839 that may be applied against future taxable income and
that expire as shown below. Per the schedule below the total Net Operating Loss
(NOL) is made up of NOLs generated by the consolidated group and NOLs
obtained with the 2000 acquisition of Internet Alaska. The Internet Alaska NOLs
are limited by special rules known as Separate Return Limitation Year (SRLY)
rules. SRLY NOLs can only be used in years that both the Consolidated Group and
the entity that created the SRLY NOLs have taxable income. The tax benefits
derived from the utilization of the SRLY NOLs will increase retained earnings.

|           |  |          |       |                    |  |                    |         |       |  |   |         | 
|---------- |  | -------- | ----- | ------------------ |  | ------------------ | ------- | ----- |  | - | ------- | 
|           |  | Internet |       |                    |  |                    |         | Total
|Year of    |  | Alaskas |       | Unused Operating   |  | Unused Operating  
|Expiration |  | SRLY     |       | Loss Carryforwards |  | Loss Carryforwards
|           |  |          |       |                    |  |                   
|2017       |  | $        | 27    |                    |  | $                  |        |       |  | $ | 27      | 
|2018       |  |          | 328   |                    |  |                    | 42      |       |  |   | 370     | 
|2019       |  |          | 852   |                    |  |                    | 16,767  |       |  |   | 17,619  | 
|2020       |  |          | 2,631 |                    |  |                    | 55,286  |       |  |   | 57,917  | 
|2021       |  |          |      |                    |  |                    | 46,615  |       |  |   | 46,615  | 
|2022       |  |          |      |                    |  |                    | 20,291  |       |  |   | 20,291  | 
|           |  |          |       |                    |  |                    |         |       |  |   |         | 
|           |  | $        | 3,838 |                    |  | $                  | 139,001 |       |  | $ | 142,839 | 
|           |  |          |       |                    |  |                    |         |       |  |   |         | 

12. DISCONTINUED OPERATIONS

On March 30, 2002, the Company approved a plan to sell its wireless cable
television service segment. As a result of this decision, the operating revenue
and expense of this segment has been classified as discontinued operations
under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets,for all periods presented and the assets and liabilities of the
disposal group have been written down to their fair value, net of expected
selling expense. The income tax benefit in all years was offset by a valuation
allowance. The following discloses the results of the discontinued operations
for years ended December 31, 2002, 2001 and 2000:

|                                             |  |      |        |      |  |      |        |   |  |   |       |  
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                             |  | 2002 |        | 2001 |  | 2000
|                                             |  |      |        |      |  |     
|Operating revenue                            |  | $    | 716    |      |  | $    | 960    |   |  | $ | 1,131 |  
|Operating expense                            |  |      | 1,255  |      |  |      | 2,555  |   |  |   | 1,968 |  
|                                             |  |      |        |      |  |      |        |   |  |   |       |  
|Operating loss                               |  |      | (539   | )    |  |      | (1,595 | ) |  |   | (837  | )
|Interest expense                             |  |      | (33    | )    |  |      | (126   | ) |  |   | (151  | )
|Other                                        |  |      |       |      |  |      | 3      |   |  |   | 71    |  
|                                             |  |      |        |      |  |      |        |   |  |   |       |  
|Loss from operations of discontinued segment |  |      | (572   | )    |  |      | (1,718 | ) |  |   | (917  | )
|Write down of net assets to fair value       |  |      | (7,060 | )    |  |      |       |   |  |   |      |  
|                                             |  |      |        |      |  |      |        |   |  |   |       |  
|Loss from discontinued operations            |  | $    | (7,632 | )    |  | $    | (1,718 | ) |  | $ | (917  | )
|                                             |  |      |        |      |  |      |        |   |  |   |       |  

Assets held for sale December 31, 2002 consist of the following:

|                                             |                      |   |     |     | 
|-------------------------------------------- | -------------------- | - | --- | --- | 
|Accounts receivable, net of allowance of $42 |                      | $ | 50  |    
|Other current assets                         |                      |   | 7   |    
|Property, plant and equipment                |                      |   | 201 |    
|Intangible assets                            |                      |   | 85  |    
|Current liabilities                          |                      |   | (82 | )  
|                                             |                      |   |     |    
|                                             | Assets held for sale |   | $   | 261 | 
|                                             |                      |   |     |    

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

13. STOCK INCENTIVE PLANS

The Companys employees participate in various plans of ACS Group. The
Company may grant stock options, stock appreciation rights and other awards to
officers, employees and non-employee directors through the Compensation
Committee of ACS Groups Board of Directors. At December 31, 2002, ACS Group
has reserved a total of 6,060 shares of authorized common stock for issuance
under the plans. In general, options under the plans vest ratably over three,
four or five years and the plans terminate in approximately 10 years. On April
3, 2002, ACS Group merged the ALEC Holdings, Inc. 1999 Stock Incentive Plan
into the Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

ACS Group has reserved 4,910 shares under this plan, which was adopted by
ACS Group in November 1999. At December 31, 2002, 5,712 options have been
granted, 1,897 have been forfeited, 441 have been exercised, and 1,095 shares
are available for grant under the plan.

Information on outstanding options for the years ended December 31, 2002,
2001 and 2000 is summarized as follows:

|                                               |  |           |       |          |  |           |      |          |  |           |       |          |  |   |      |  |  |          |       |   |  |   |       | 
|---------------------------------------------- |  | --------- | ----- | -------- |  | --------- | ---- | -------- |  | --------- | ----- | -------- |  | - | ---- |  |  | -------- | ----- | - |  | - | ----- | 
|                                               |  | 2002      |       | 2001     |  | 2000     
|                                               |  |           |       |          |  |          
|                                               |  |           |       |          |  | Weighted  |      |          |  |           |       | Weighted |  |   |      |  |  | Weighted
|                                               |  |           |       |          |  | Average   |      |          |  |           |       | Average  |  |   |      |  |  | Average 
|                                               |  | Number of |       | Exercise |  | Number of |      | Exercise |  | Number of |       | Exercise
|                                               |  | Shares    |       | Price    |  | Shares    |      | Price    |  | Shares    |       | Price   
|                                               |  |           |       |          |  |           |      |          |  |           |       |         
|Outstanding, January 1                         |  |           | 3,606 |          |  | $         | 7.47 |          |  |           | 3,998 |          |  | $ | 7.55 |  |  |          | 3,154 |   |  | $ | 6.15  | 
|Granted                                        |  |           | 278   |          |  |           | 7.82 |          |  |           | 260   |          |  |   | 6.81 |  |  |          | 1,752 |   |  |   | 10.03 | 
|Exercised                                      |  |           | (76   | )        |  |           | 6.08 |          |  |           | (128  | )        |  |   | 6.03 |  |  |          | (198  | ) |  |   | 6.96  | 
|Canceled or expired                            |  |           | (434  | )        |  |           | 8.13 |          |  |           | (524  | )        |  |   | 8.43 |  |  |          | (710  | ) |  |   | 7.92  | 
|                                               |  |           |       |          |  |           |      |          |  |           |       |          |  |   |      |  |  |          |       |   |  |   |       | 
|Outstanding, December 31                       |  |           | 3,374 |          |  |           | 7.52 |          |  |           | 3,606 |          |  |   | 7.47 |  |  |          | 3,998 |   |  |   | 7.55  | 
|                                               |  |           |       |          |  |           |      |          |  |           |       |          |  |   |      |  |  |          |       |   |  |   |       | 
|Options exercisable at December 31             |  |           | 2,632 |          |  |           | 7.33 |          |  |           | 2,208 |          |  |   | 7.11 |  |  |          | 1,728 |   |  |   | 6.72  | 
|Weighted average fair value of options granted |  |           |       |          |  |           | 4.57 |          |  |           |       |          |  |   | 3.93 |  |  |          |       |   |  |   | 5.66  | 

The outstanding options at December 31, 2002 have the following
characteristics:

|                         |  |                     |       |                     |  |          |      |             |  |          |       |  |  |          |       |  |  |   |       | 
|------------------------ |  | ------------------- | ----- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  | -------- | ----- |  |  | - | ----- | 
|                         |  | Outstanding Options |       | Exercisable Options
|                         |  |                     |       |                    
|                         |  |                     |       |                     |  | Weighted |      | Weighted    |  |          |       |  |  | Weighted
|                         |  |                     |       |                     |  | Average  |      | Average     |  |          |       |  |  | Average 
|                         |  | Number of           |       | Remaining           |  | Exercise |      | Number      |  | Exercise
|Range of Exercise Prices |  | Shares              |       | Life (Years)        |  | Price    |      | Exercisable |  | Price   
|                         |  |                     |       |                     |  |          |      |             |  |         
|$5.50 - $8.00            |  |                     | 2,812 |                     |  |          | 6.39 |             |  | $        | 6.19  |  |  |          | 2,224 |  |  | $ | 6.08  | 
|$8.58 - $12.63           |  |                     | 18    |                     |  |          | 7.47 |             |  |          | 12.63 |  |  |          | 12    |  |  |   | 12.63 | 
|$14.20                   |  |                     | 544   |                     |  |          | 7.12 |             |  |          | 14.20 |  |  |          | 396   |  |  |   | 14.20 | 

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

13. STOCK INCENTIVE PLANS (Continued)

ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan

The non-employee director stock compensation plan was adopted by ACS Group
in November 1999. ACS Group has reserved 150 shares under this plan. At
December 31, 2002, 110 shares have been awarded and 40 shares are available for
grant under the plan. For the years ended December 31, 2002, 2001, and 2000,
directors were required to receive not less than 25% of their annual retainer
and meeting fees in the form of ACS Groups stock, and may have elected to
receive up to 100% of directors compensation in the form of stock. Starting
in 2003, directors no longer have the option of receiving stock and will
receive all of their annual retainer and meeting fees in cash.

During the year ended December 31, 2002, 58 shares under the plan were
awarded to directors, of which 34 were elected to be deferred until termination
of service by the directors. During the year ended December 31, 2001, 26 shares
under the plan were awarded to directors, of which 19 were elected to be
deferred until termination of service by the directors. During the year ended
December 31, 2000, 26 shares under the plan were awarded to directors, of which
13 were elected to be deferred until termination of service by the directors.

Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan

This plan was also adopted by ACS Group in November 1999. ACS Group has
reserved 1,000 shares under this plan. At December 31, 2002, 632 shares are
available for issuance and sale. The plan will terminate on December 31, 2009.
All ACS Group employees and all of the employees of designated subsidiaries
generally will be eligible to participate in the purchase plan, other than
employees whose customary employment is 20 hours or less per week or is for not
more than five months in a calendar year, or who are ineligible to participate
due to restrictions under the Internal Revenue Code.

On December 31, 2002, 97 shares were issued under the plan. On June 30,
2002, 53 shares were issued under the plan. On December 31, 2001, 38 shares
were issued under the plan. On June 29, 2001, 48 shares were issued under the
plan. On December 29, 2000, 67 shares were issued under the plan. On June 30,
2000, 65 shares were issued under the plan.

A participant in the purchase plan may authorize regular salary deductions
of a maximum of 15% and a minimum of 1% of base compensation. The fair market
value of shares which may be purchased by any employee during any calendar year
may not exceed $25. The amounts so deducted and contributed are applied to the
purchase of full shares of common stock at 85% of the lesser of the fair market
value of such shares on the date of purchase or on the offering date for such
offering period. The offering dates are January 1 and July 1 of each purchase
plan year, and each offering period will consist of one six-month purchase
period. The first offering period under the plan commenced on January 1, 2000.
Shares are purchased on the open market or issued from authorized but unissued
shares on behalf of participating employees on the last business days of June
and December for each purchase plan year and each such participant has the
rights of a stockholder with respect to such shares. During the year ended
December 31, 2002 approximately 15% of eligible employees elected to
participate in the plan.

14. RETIREMENT PLANS

Pension benefits for substantially all of the Companys employees are
provided through the Alaska Electrical Pension Plan (AEPP). The Company pays
a contractual hourly amount based on employee classification or base
compensation. As a multi-employer defined contribution plan, the accumulated
benefits and plan assets are not determined for or allocated separately to the
individual employer. The Companys portion of the plans pension cost for 2002,
2001 and 2000 was $13,390, $11,830, and $10,978, respectively.

The Company also provides a 401(k) retirement savings plan covering
substantially all of its employees. The plan allows for discretionary matching
contributions as determined by the Board of Directors, subject to Internal
Revenue Code limitations. There was no matching contribution for 2002, 2001 or
2000.

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

14. RETIREMENT PLANS (Continued)

The Company also has a separate defined benefit plan that covers certain
employees previously employed by Century Telephone Enterprise, Inc.
(CenturyTel Plan). This plan was transferred to the Company in connection
with the acquisition of CenturyTels Alaska Properties. Existing plan assets
and liabilities of the CenturyTel Plan were transferred to the ACS Retirement
Plan on September 1, 1999. Accrued benefits under the ACS Retirement Plan were
determined in accordance with the provisions of the CenturyTel Plan. Upon
completion of the transfer to the Company, covered employees ceased to accrue
benefits under the plan. On November 1, 2000 the ACS Retirement Plan was
amended to conform early retirement reduction factors and various other terms
to those provided by the AEPP. As a result of this amendment, prior service
cost of $1,992 was recorded and will be amortized over the expected service
life of the plan participants at the date of the amendment. The Company uses
the traditional unit credit method for the determination of pension cost for
financial reporting and funding purposes and complies with the funding
requirements under the Employee Retirement Income Security Act of 1974
(ERISA). Since the plan is adequately funded under ERISA, no contribution was
made in 2002, 2001 or 2000.

The following table represents the net periodic pension expense (benefit)
for the ACS Retirement Plan for 2002, 2001 and 2000:

|                                         |  |      |      |      |  |      |      |   |  |   |      |  
|---------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                         |  | 2002 |      | 2001 |  | 2000
|                                         |  |      |      |      |  |     
|Interest cost                            |  | $    | 680  |      |  | $    | 627  |   |  | $ | 447  |  
|Expected return on plan assets           |  |      | (723 | )    |  |      | (773 | ) |  |   | (813 | )
|Amortization of gain/loss                |  |      | 260  |      |  |      | 30   |   |  |   |     |  
|Amortization of prior year service costs |  |      | 203  |      |  |      | 203  |   |  |   | 34   |  
|                                         |  |      |      |      |  |      |      |   |  |   |      |  
|Net periodic pension expense (benefit)   |  | $    | 420  |      |  | $    | 87   |   |  | $ | (332 | )
|                                         |  |      |      |      |  |      |      |   |  |   |      |  

The following is a reconciliation of the beginning and ending balances for
2002 and 2001 for the projected benefit obligation and the plan assets of the
ACS Retirement Plan:

|                                        |                                                   |  |      |        |      |  |   |       |  
|--------------------------------------- | ------------------------------------------------- |  | ---- | ------ | ---- |  | - | ----- | -
|                                        |                                                   |  | 2002 |        | 2001
|                                        |                                                   |  |      |        |     
|Change in projected benefit obligation: |                                                   |  |      |        |      |  |   |      
|                                        | Projected benefit obligation at beginning of year |  | $    | 9,108  |      |  | $ | 8,600 |  
|                                        | Amortization of prior service cost                |  |      | (203   | )    |  |   | (203  | )
|                                        | Interest cost                                     |  |      | 680    |      |  |   | 627   |  
|                                        | Actuarial loss                                    |  |      | 1,279  |      |  |   | 215   |  
|                                        | Benefits paid                                     |  |      | (249   | )    |  |   | (131  | )
|                                        |                                                   |  |      |        |      |  |   |       |  
|                                        | Projected benefit obligation at end of year       |  | $    | 10,615 |      |  | $ | 9,108 |  
|                                        |                                                   |  |      |        |      |  |   |       |  
|Change in plan assets                   |                                                   |  |      |        |      |  |   |      
|                                        | Fair value of plan assets at beginning of year    |  | $    | 8,736  |      |  | $ | 9,257 |  
|                                        | Return on plan assets                             |  |      | (803   | )    |  |   | (390  | )
|                                        | Benefits paid                                     |  |      | (249   | )    |  |   | (131  | )
|                                        |                                                   |  |      |        |      |  |   |       |  
|                                        | Fair value of plan assets at end of year          |  | $    | 7,684  |      |  | $ | 8,736 |  
|                                        |                                                   |  |      |        |      |  |   |       |  

The following table represents the funded status of the ACS Retirement Plan at
December 31, 2001 and 2000:

|                                |  |      |         |      |  |   |        |  
|------------------------------- |  | ---- | ------- | ---- |  | - | ------ | -
|                                |  | 2002 |         | 2001
|                                |  |      |         |     
|Projected benefit obligation    |  | $    | (10,615 | )    |  | $ | (9,108 | )
|Plan assets at fair value       |  |      | 7,684   |      |  |   | 8,736  |  
|                                |  |      |         |      |  |   |        |  
|Funded Status                   |  |      | (2,931  | )    |  |   | (372   | )
|                                |  |      |         |      |  |   |        |  
|Unrecognized prior service cost |  |      | 1,551   |      |  |   | 1,755  |  
|Unrecognized net loss           |  |      | 4,734   |      |  |   | 2,392  |  
|                                |  |      |         |      |  |   |        |  
|Net amount recognized           |  | $    | 3,354   |      |  | $ | 3,775  |  
|                                |  |      |         |      |  |   |        |  

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

14. RETIREMENT PLANS (Continued)

The net amounts recognized in the balance sheet were classified as follows
at December 31, 2002 and 2001:

|                                     |  |      |        |      |  |   |       |  
|------------------------------------ |  | ---- | ------ | ---- |  | - | ----- | -
|                                     |  | 2002 |        | 2001
|                                     |  |      |        |     
|Accrued benefit liability            |  | $    | (2,931 | )    |  | $ | (372  | )
|Intangible asset                     |  |      | 1,551  |      |  |   | 1,755 |  
|Accumulated other comprehensive loss |  |      | 4,734  |      |  |   | 2,392 |  
|                                     |  |      |        |      |  |   |       |  
|Net amount recognized                |  | $    | 3,354  |      |  | $ | 3,775 |  
|                                     |  |      |        |      |  |   |       |  

The actuarial assumptions used to account for the plan as of December 31, 2002
and 2001 are as follows:

|                              |  |      |      |      |  |  |      |  
|----------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                              |  | 2002 |      | 2001
|                              |  |      |      |     
|Discount rate                 |  |      | 6.75 | %    |  |  | 7.25 | %
|Expected return on assets     |  |      | 8.50 | %    |  |  | 8.50 | %
|Rate of compensation increase |  |      | 0.00 | %    |  |  | 0.00 | %

The Company also has a separate executive post retirement health benefit
plan. The Alaska Communications Systems Executive Retiree Health Benefit Plan
(The ACS Health Plan) was adopted by the Company in November 2001 and amended
in October 2002. The ACS Health Plan covers a select group of management or
highly compensated employees. The group of eligible employees is selected by a
committee appointed by the Compensation Committee of ACS Groups Board of
Directors. Each eligible employee must complete 10 years of service and be
employed by the Company in the capacity of an executive officer for a minimum
of 36 consecutive months immediately preceding retirement. The ACS Health Plan
provides a graded subsidy for medical, dental, and vision coverage. The
amendment revised the premium subsidy, added a premium subsidy cap and suspends
retirees benefits from the ACS Health Plan during any period the retiree has
access to employer health benefits. The Company uses the projected unit credit
method for the determination of post retirement health cost for financial
reporting and funding purposes and complies with the funding requirements under
the ERISA. The Company made a contribution of $128 to the ACS Health Plan
during 2001.

The following represents the net periodic postretirement benefit expense
for the ACS Health Plan for 2002 and 2001:

|                                            |  |      |     |      |  |   |    | 
|------------------------------------------- |  | ---- | --- | ---- |  | - | -- | 
|                                            |  | 2002 |     | 2001
|                                            |  |      |     |     
|Service cost                                |  | $    | 69  |      |  | $ | 11 | 
|Interest cost                               |  |      | 40  |      |  |   | 6  | 
|Expected return on plan assets              |  |      | (11 | )    |  |   |   | 
|Amortization of prior service cost          |  |      | 24  |      |  |   | 4  | 
|                                            |  |      |     |      |  |   |    | 
|Net periodic postretirement benefit expense |  | $    | 122 |      |  | $ | 21 | 
|                                            |  |      |     |      |  |   |    | 

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

14. RETIREMENT PLANS (Continued)

The following is a reconciliation of the beginning and ending balanced for
2002 and 2001 for the projected benefit obligation and the plan assets for the
ACS Health Plan:

|                                                         |                                                                         |  |      |      |      |  |   |     |  
|-------------------------------------------------------- | ----------------------------------------------------------------------- |  | ---- | ---- | ---- |  | - | --- | -
|                                                         |                                                                         |  | 2002 |      | 2001
|                                                         |                                                                         |  |      |      |     
|Change in accumulated postretirement benefit obligation: |                                                                         |  |      |      |      |  |   |    
|                                                         | Accumulated postretirement benefit obligation at beginning of the year: |  | $    | 588  |      |  | $ |    |  
|                                                         | Plan adoption                                                           |  |      |     |      |  |   | 586 |  
|                                                         | Plan amendment                                                          |  |      | (440 | )    |  |   |    |  
|                                                         | Service cost                                                            |  |      | 69   |      |  |   | 11  |  
|                                                         | Interest cost                                                           |  |      | 40   |      |  |   | 6   |  
|                                                         | Actuarial (gain)/loss                                                   |  |      | 11   |      |  |   | (15 | )
|                                                         |                                                                         |  |      |      |      |  |   |     |  
|                                                         | Accumulated postretirement benefit obligation at end of the year:       |  | $    | 268  |      |  | $ | 588 |  
|                                                         |                                                                         |  |      |      |      |  |   |     |  
|Change in plan assets:                                   |                                                                         |  |      |      |      |  |   |    
|                                                         | Fair value of plan assets at beginning of year                          |  | $    | 128  |      |  | $ |    |  
|                                                         | Employer contributions                                                  |  |      |     |      |  |   | 128 |  
|                                                         | Return on plan assets                                                   |  |      | (1   | )    |  |   |    |  
|                                                         |                                                                         |  |      |      |      |  |   |     |  
|                                                         | Fair value of plan assets at end of year                                |  | $    | 127  |      |  | $ | 128 |  
|                                                         |                                                                         |  |      |      |      |  |   |     |  

The following table represents the funded status of the ACS Health Plan at
December 31, 2002 and 2001:

|                                              |  |      |      |      |  |   |      |  
|--------------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | -
|                                              |  | 2002 |      | 2001
|                                              |  |      |      |     
|Accumulated postretirement benefit obligation |  | $    | (268 | )    |  | $ | (588 | )
|Plan assets at fair value                     |  |      | 127  |      |  |   | 128  |  
|                                              |  |      |      |      |  |   |      |  
|Funded status                                 |  |      | (141 | )    |  |   | (460 | )
|                                              |  |      |      |      |  |   |      |  
|Unrecognized prior service cost               |  |      | 118  |      |  |   | 582  |  
|Unrecognized net (gain) or loss               |  |      | 7    |      |  |   | (15  | )
|                                              |  |      |      |      |  |   |      |  
|Prepaid (accrued) benefit costs               |  | $    | (16  | )    |  | $ | 107  |  
|                                              |  |      |      |      |  |   |      |  

The actuarial assumptions used to account for the ACS Health Plan as of
December 31, 2002 and 2001 is an assumed discount rate of 6.75% and 7.25%,
respectively, and an expected long term rate of return on plan assets of 8.50%.
For measurement purposes, the assumed annual rates of increases in health care
costs is as follows:

|                 |  |                 |      |                  |  |  |       |  
|---------------- |  | --------------- | ---- | ---------------- |  |  | ----- | -
|Year             |  | Pre 65 premiums |      | Post 65 premiums
|                 |  |                 |      |                 
|1                |  |                 | 7.00 | %                |  |  | 10.00 | %
|2                |  |                 | 7.00 | %                |  |  | 9.00  | %
|3                |  |                 | 7.00 | %                |  |  | 8.00  | %
|4                |  |                 | 7.00 | %                |  |  | 7.00  | %
|5 and thereafter |  |                 | 7.00 | %                |  |  | 7.00  | %

Assumed health care cost trend rates have a significant effect on the
amounts reported for the ACS Health Plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects for 2002:

|                                                        |  |     |    |     |  |  |     |  
|------------------------------------------------------- |  | --- | -- | --- |  |  | --- | -
|                                                        |  | +1% |    | -1%
|                                                        |  |     |    |    
|Effect on total of service and interest cost components |  |     | 13 |     |  |  | (12 | )
|Effect on accumulated postretirement benefit obligation |  |     | 71 |     |  |  | (64 | )

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

15. BUSINESS SEGMENTS

The Company has four reportable segments: local telephone, wireless,
Internet and interexchange. Local telephone provides landline
telecommunications services, and consists of local telephone service, network
access and deregulated and other revenue; wireless provides wireless
telecommunications service; Internet provides Internet service and advanced IP
based private networks; and interexchange provides switched and dedicated long
distance services. Each reportable segment is a strategic business under
separate management and offering different services than those offered by the
other segments. The Company evaluates the performance of its segments based on
operating income (loss).

Previously, the Company reported its Directories Business as a separate
segment. The Company sold an 87.42% interest in its Directories Business during
the second quarter of 2003 and is no longer directly engaged in day-to-day
management of that business. Therefore, the Directories Business no longer
constitutes a reportable segment. Accordingly, the historical operating results
for the Directories Business are included in All Other in the accompanying
tables. The Company also has a wireless cable television service segment that
did not meet the criteria for a reportable segment and was previously included
in All Other that is now reported as discontinued operations.

The Company also incurs interest expense, interest income, equity in
earnings of investments, goodwill amortization in 2001 and 2000 on the original
May 14, 1999 purchases, goodwill impairment losses and other operating and non
operating income and expense at the corporate level which are not allocated to
the business segments, nor are they evaluated by the chief operating decision
maker in analyzing the performance of the business segments. These non
operating income and expense items are provided in the accompanying table under
the caption All Other in order to assist the users of these financial
statements in reconciling the operating results and total assets of the
business segments to the consolidated financial statements. Common use assets
are held at the Company and are allocated to the business segments based on
operating revenue. Included in the caption All Other are also the net assets
held for sale of $261 and other net liabilities of the discontinued operation
that would not be sold of $5,941. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.

The following table illustrates selected financial data for each segment
as of and for the year ended December 31, 2002:

|                                         |  |           |         |          |  |          |        |               |  |           |         |              |  |       |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | -------- | ------ | ------------- |  | --------- | ------- | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |          |        |               |  |           |         |              |  |       |        |   |  |   |         |   |  |   |         |   |  |  
|                                         |  | Telephone |         | Wireless |  | Internet |        | Interexchange |  | All Other |         | Eliminations |  | Total
|                                         |  |           |         |          |  |          |        |               |  |           |         |              |  |      
|Operating revenues                       |  | $         | 226,447 |          |  | $        | 43,233 |               |  | $         | 20,848  |              |  | $     | 29,708 |   |  | $ | 58,411  |   |  | $ | (35,145 | ) |  | $ | 343,502 |  
|Depreciation and amortization            |  |           | 55,498  |          |  |          | 5,541  |               |  |           | 6,744   |              |  |       | 2,256  |   |  |   | 12,901  |   |  |   |        |   |  |   | 82,940  |  
|Operating income (loss)                  |  |           | 32,005  |          |  |          | 3,647  |               |  |           | (21,468 | )            |  |       | (1,250 | ) |  |   | (35,622 | ) |  |   | (76     | ) |  |   | (22,764 | )
|Interest expense                         |  |           | 435     |          |  |          | (5     | )             |  |           | (146    | )            |  |       | (330   | ) |  |   | (49,067 | ) |  |   |        |   |  |   | (49,113 | )
|Interest income                          |  |           | 3       |          |  |          | 3      |               |  |           |        |              |  |       | 2      |   |  |   | 2,416   |   |  |   |        |   |  |   | 2,424   |  
|Income tax provision (benefit)           |  |           | 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                             |  |           | 526,333 |          |  |          | 83,985 |               |  |           | (26,971 | )            |  |       | 7,676  |   |  |   | 113,959 |   |  |   |        |   |  |   | 704,982 |  
|Capital expenditures                     |  |           | 31,186  |          |  |          | 14,007 |               |  |           | 16,604  |              |  |       | 228    |   |  |   | 9,439   |   |  |   |        |   |  |   | 71,464  |  

Operating revenues disclosed above include intersegment operating revenues
of $22,634 for local telephone, $1,786 for wireless, $13,965 for interexchange
and $1,400 for all other. In accordance with SFAS No. 71, intercompany
revenues between local telephone and non-local telephone operations are not
eliminated above.

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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

15. BUSINESS SEGMENTS (Continued)

The following table illustrates selected financial data for each segment
as of and for the year ended December 31, 2001:

|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | -------- | ------- | ------------- |  | --------- | ------ | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |  
|                                         |  | Telephone |         | Wireless |  | Internet |         | Interexchange |  | All Other |        | Eliminations |  | Total
|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |      
|Operating revenues                       |  | $         | 221,411 |          |  | $        | 41,923  |               |  | $         | 13,726 |              |  | $     | 30,795 |   |  | $ | 50,942  |   |  | $ | (26,582 | ) |  | $ | 332,215 |  
|Depreciation and amortization            |  |           | 53,242  |          |  |          | 5,626   |               |  |           | 2,606  |              |  |       | 2,284  |   |  |   | 15,350  |   |  |   |        |   |  |   | 79,108  |  
|Operating income (loss)                  |  |           | 34,794  |          |  |          | 5,084   |               |  |           | (9,504 | )            |  |       | (1,752 | ) |  |   | 18,501  |   |  |   |        |   |  |   | 47,123  |  
|Interest expense                         |  |           | (1,716  | )        |  |          | (36     | )             |  |           | (97    | )            |  |       | (302   | ) |  |   | (55,414 | ) |  |   |        |   |  |   | (57,565 | )
|Interest income                          |  |           | 13      |          |  |          | 14      |               |  |           |       |              |  |       |       |   |  |   | 1,963   |   |  |   |        |   |  |   | 1,990   |  
|Income tax provision (benefit)           |  |           | 13,534  |          |  |          | 2,164   |               |  |           |       |              |  |       |       |   |  |   | (15,893 | ) |  |   |        |   |  |   | (195    | )
|Income (loss) from
continuing operations |  |           | 19,560  |          |  |          | 2,966   |               |  |           | (9,591 | )            |  |       | (2,049 | ) |  |   | (17,814 | ) |  |   |        |   |  |   | (6,928  | )
|Total assets                             |  |           | 653,412 |          |  |          | 108,475 |               |  |           | 3,679  |              |  |       | 28,887 |   |  |   | 109,089 |   |  |   |        |   |  |   | 903,542 |  
|Capital expenditures                     |  |           | 45,635  |          |  |          | 5,786   |               |  |           | 16,319 |              |  |       | 19,787 |   |  |   | 55      |   |  |   |        |   |  |   | 87,582  |  

Operating revenues disclosed above include intersegment operating revenues
of $21,677 for local telephone, $1,603 for wireless, $2 for Internet, $13,851
for interexchange and $1,400 for all other. In accordance with SFAS No. 71,
intercompany revenues between local telephone and non-local telephone
operations are not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the year ended December 31, 2000:

|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | -------- | ------- | ------------- |  | --------- | ------ | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |  
|                                         |  | Telephone |         | Wireless |  | Internet |         | Interexchange |  | All Other |        | Eliminations |  | Total
|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |      
|Operating revenues                       |  | $         | 222,268 |          |  | $        | 41,205  |               |  | $         | 9,172  |              |  | $     | 19,773 |   |  | $ | 45,765  |   |  | $ | (24,656 | ) |  | $ | 313,527 |  
|Depreciation and amortization            |  |           | 56,912  |          |  |          | 5,029   |               |  |           | 1,495  |              |  |       | 1,345  |   |  |   | 6,974   |   |  |   |        |   |  |   | 71,755  |  
|Operating income (loss)                  |  |           | 31,751  |          |  |          | 6,414   |               |  |           | (8,760 | )            |  |       | (1,325 | ) |  |   | 5,688   |   |  |   |        |   |  |   | 33,768  |  
|Interest expense                         |  |           | (1,046  | )        |  |          | (11     | )             |  |           | (109   | )            |  |       | (312   | ) |  |   | (60,480 | ) |  |   |        |   |  |   | (61,958 | )
|Interest income                          |  |           | 105     |          |  |          | 215     |               |  |           |       |              |  |       |       |   |  |   | 3,449   |   |  |   |        |   |  |   | 3,769   |  
|Income tax provision (benefit)           |  |           | 7,913   |          |  |          | 2,703   |               |  |           |       |              |  |       |       |   |  |   | (10,813 | ) |  |   |        |   |  |   | (197    | )
|Income (loss) from
continuing operations |  |           | 22,814  |          |  |          | 3,944   |               |  |           | (8,863 | )            |  |       | (1,631 | ) |  |   | (41,000 | ) |  |   |        |   |  |   | (24,736 | )
|Total assets                             |  |           | 634,105 |          |  |          | 108,663 |               |  |           | 25,082 |              |  |       | 43,596 |   |  |   | 97,860  |   |  |   |        |   |  |   | 909,306 |  
|Capital expenditures                     |  |           | 53,974  |          |  |          | 11,505  |               |  |           | 3,252  |              |  |       | 3,030  |   |  |   | 492     |   |  |   |        |   |  |   | 72,253  |  

Operating revenues disclosed above include intersegment operating revenues
of $9,840 for local telephone, $937 for wireless, $2 for Internet and $13,208
for interexchange. In accordance with SFAS No. 71, intercompany revenues
between local telephone and non-local telephone operations are not eliminated
above.

16. RELATED PARTY TRANSACTIONS

The Company has various intercompany transactions with the Parent and at
December 31, 2002 and 2001, $3,761 and $2,475, respectively was due from the
Parent.

Fox Paine & Company, ACS Groups majority stockholder, receives an annual
management fee in the amount of 1% of the Companys net income before interest
expense, interest income, income taxes, depreciation and amortization, and
equity in loss of investments, calculated without regard to the fee. The
management fee expense for 2002, 2001 and 2000 was $1,316, $1,285, and $1,169,
respectively. The management fee payable at 2002 and 2001 was $1,319 and
$1,303, respectively.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

16. RELATED PARTY TRANSACTIONS (Continued)

On April 17, 2001, the Company issued an interest bearing note receivable
to an officer totaling $328. The note bears interest at the Mid-Term Applicable
Federal Rate, which was 3.26% as of December 31, 2002, and is due on April 15,
2005. The note is secured by a pledge of 100 shares of ACS Groups stock held
in the officers name. In accordance with an addendum to the officers
employment agreement dated May 3, 2001, the loan will be forgiven ratably over
a three year period on its anniversary date ending on April 16, 2004.
Accordingly, $114 was forgiven on April 16, 2002 and recognized as compensation
expense. The note balance, including accrued interest, was $235 and $339 as of
December 31, 2002 and 2001, respectively.

17. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Commencing January 1, 2001, The Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activitiesand its corresponding
amendments under SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities. SFAS No. 133 requires that an entity recognize
all derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative, and its
designation as a hedge. Derivatives that are not hedges must be adjusted to
fair value through earnings. If a derivative is a hedge, depending on the
nature of the hedge, changes in fair value of derivatives either offset the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings, or are recognized in other comprehensive income until the
hedged transaction is recognized in earnings. The change in a derivatives fair
value related to the ineffective portion of a hedge, if any, is immediately
recognized in earnings.

As a result of adopting SFAS No. 133, the Company recognized as an asset
at January 1, 2001, a cumulative transition adjustment of $1,243 related to
marking to fair value a designated cash flow hedge in the form of a interest
rate swap. The cumulative unrealized gain from the transition adjustment was
recorded as a credit to other comprehensive income within the Consolidated
Statements of Stockholders Equity. As of December 31, 2002 and 2001, the fair
value of the swap has declined to a liability of $14,152 and $11,437,
respectively, which is recorded in other deferred credits and long-term
liabilities on the Companys Consolidated Balance Sheets. The fair value of the
Companys interest rate swap agreement represents the estimated amount the
Company would receive or pay to terminate the agreement, calculated based on
the present value of expected payments or receipts based on implied forward
rates in the LIBOR yield curve at the end of the year. The realized gains and
losses of the swap and its associated hedged long-term debt are recorded net in
interest expense on the Companys Consolidated Statements of Operations. For
the years ended December 31, 2002 and 2001, realized changes in the fair value
of the cash flow hedge amounted to a charge of $9,046 and $3,653, of which the
ineffective portion was $59 and $247, respectively. Both the realized effective
and ineffective components of the cash flow hedge were recorded as an increase
to interest expense. Assuming a weighted average variable rate based on implied
forward rates in the LIBOR yield curve as of December 31, 2002, $10,040 would
be charged to earnings as interest expense as a result of projected realized
changes in fair value of the cash flow hedge expected to occur in 2003. The
swap agreement currently in place expires on June 24, 2004.

The Company maintains an interest rate risk management strategy as a
condition of its bank credit agreement that uses derivatives to minimize
significant, unanticipated earnings and cash flow fluctuations caused by
interest rate volatility. The Companys specific goals are (1) to manage
interest rate sensitivity by modifying the repricing characteristics of certain
of its debt and (2) to lower (where possible) the cost of borrowed funds. The
Company does not enter into derivative financial instruments for speculative or
trading purposes.

By using derivative financial instruments to hedge exposure to changes in
interest rates, the Company exposes itself to credit risk and market risk. The
Company has minimized its credit risk by entering into a transaction with a
high-quality counterparty and monitoring the financial condition of that
counterparty. Market risk is managed through the setting and monitoring of
parameters that limit the types and degree of market risks that are acceptable.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of cash and short-term investments, accounts receivable
and payable, and other short-term assets and liabilities approximate carrying
values due to their short-term nature. The Companys interest rate swap
agreement is marked to fair value, therefore its carrying value is equal to its
fair value.

The fair value for the Companys senior subordinated notes was estimated
based on quoted market prices. The fair value of the Companys senior credit
facility term debt approximates carrying values due to the variable interest
rate nature of the debt and its senior position in the capital structure.

The following table summarizes the Companys carrying values and fair
values of the debt components of its financial instruments at December 31,
2002:

|                                               |  |          |         |       |  |   |         | 
|---------------------------------------------- |  | -------- | ------- | ----- |  | - | ------- | 
|                                               |  | Carrying |         | Fair 
|                                               |  | Value    |         | Value
|                                               |  |          |         |      
|Senior credit facility term debt - tranche A   |  | $        | 148,500 |       |  | $ | 148,500 | 
|Senior credit facility term debt - tranche B   |  |          | 148,500 |       |  |   | 148,500 | 
|Senior credit facility term debt - tranche C   |  |          | 133,650 |       |  |   | 133,650 | 
|9 3/8% senior subordinated notes due 2009      |  |          | 150,000 |       |  |   | 107,250 | 
|Capital leases and other long-term obligations |  |          | 12,181  |       |  |   | 12,181  | 
|                                               |  |          |         |       |  |   |         | 
|                                               |  | $        | 592,831 |       |  | $ | 550,081 | 
|                                               |  |          |         |       |  |   |         | 

The following table summarizes the Companys carrying values and fair
values of the debt components of its financial instruments at December 31,
2001:

|                                               |  |          |         |       |  |   |         | 
|---------------------------------------------- |  | -------- | ------- | ----- |  | - | ------- | 
|                                               |  | Carrying |         | Fair 
|                                               |  | Value    |         | Value
|                                               |  |          |         |      
|Senior credit facility term debt - tranche A   |  | $        | 150,000 |       |  | $ | 150,000 | 
|Senior credit facility term debt - tranche B   |  |          | 150,000 |       |  |   | 150,000 | 
|Senior credit facility term debt - tranche C   |  |          | 135,000 |       |  |   | 135,000 | 
|9 3/8% senior subordinated notes due 2009      |  |          | 150,000 |       |  |   | 148,500 | 
|Capital leases and other long-term obligations |  |          | 11,603  |       |  |   | 11,603  | 
|                                               |  |          |         |       |  |   |         | 
|                                               |  | $        | 596,603 |       |  | $ | 595,103 | 
|                                               |  |          |         |       |  |   |         | 

19. SEVERANCE AND RESTRUCTURING CHARGES

In June 2002, the Company adopted a restructuring plan and recorded $862
of associated charges, including $523 of severance costs and $339 of lease
termination costs for office space. Employee force reductions expected as a
result of this plan total approximately 30 persons, and the plan is expected to
be completed by June 2003. As of December 31, 2002, 11 employees have been
terminated and are eligible for severance and the Company has paid out $172
accrued under this plan.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

ACS Group and ACS Holdings subsidiaries are guarantors under ACS
Holdings 9 3/8 % senior subordinated notes. All ACS Groups and Holdings
subsidiaries (the  Combined Subsidiaries) are 100% owned. The guarantees are
full and unconditional. In addition, all guarantees are joint and several.
Accordingly, the interim condensed consolidating financial statements are
presented below.

Condensed Consolidated Balance Sheet
December 31, 2002

|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |        | 
|------------------------------------------------ | ------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | -------- | ------------ | -------- | - | --------- | -------- | ------ | 
|                                                 |                                                         |                            |         | Combined     |         | ACS Holdings |         |              |        |              |          | ACS Holdings
|                                                 |                                                         |                            |         | Subsidiaries |         | Parent Only  |         | Eliminations |        | Consolidated
|                                                 |                                                         |                            |         |              |         |              |         |              |        |             
|Assets                                           |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |         
|Current assets:                                  |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |         
|                                                 | Cash and cash equivalents                               |                            | $       | (73          | )       |              | $       | 18,638       |        |              | $        |             |          |   | $         | 18,565   |       
|                                                 | Restricted cash                                         |                            |         |             |         |              |         | 3,440        |        |              |          |             |          |   |           | 3,440    |       
|                                                 | Accounts receivable-trade, net                          |                            |         | 28,713       |         |              |         | 20,107       |        |              |          |             |          |   |           | 48,820   |       
|                                                 | Accounts receivable-affiliates                          |                            |         | 34,625       |         |              |         | (30,864      | )      |              |          |             |          |   |           | 3,761    |       
|                                                 | Materials and supplies                                  |                            |         | 11,176       |         |              |         | 27           |        |              |          |             |          |   |           | 11,203   |       
|                                                 | Prepayments and other current assets                    |                            |         | 2,941        |         |              |         | 3,231        |        |              |          |             |          |   |           | 6,172    |       
|                                                 | Assets held for sale                                    |                            |         | 261          |         |              |         |             |        |              |          |             |          |   |           | 261      |       
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|                                                 |                                                         | Total current assets       |         |              | 77,643  |              |         |              | 14,579 |              |          |              |         |   |           |          | 92,222 | 
|Investments                                      |                                                         |                            |        |              |         |              | 550,964 |              |        |              | (550,964 | )            |          |   |          |         
|Property, plant and equipment                    |                                                         |                            | 987,132 |              |         |              | 103,233 |              |        |              |         |              |          |   | 1,090,365 |         
|Less: accumulated depreciation                   |                                                         |                            | 588,536 |              |         |              | 36,740  |              |        |              |         |              |          |   | 625,276   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|                                                 | Property, plant and equipment, net                      |                            |         | 398,596      |         |              |         | 66,493       |        |              |          |             |          |   |           | 465,089  |       
|Goodwill                                         |                                                         |                            | 38,821  |              |         |              |        |              |        |              | 38,404   |              |          |   | 77,225    |         
|Intangible assets                                |                                                         |                            | 22,237  |              |         |              | 1,032   |              |        |              |         |              |          |   | 23,269    |         
|Debt issuance costs, net                         |                                                         |                            |        |              |         |              | 21,130  |              |        |              |         |              |          |   | 21,130    |         
|Deferred charges and other assets                |                                                         |                            | 32,278  |              |         |              | (6,231  | )            |        |              |         |              |          |   | 26,047    |         
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|Total assets                                     |                                                         | $                          | 569,575 |              |         | $            | 647,967 |              |        | $            | (512,560 | )            |          | $ | 704,982   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|Liabilities and Stockholders Equity             |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |         
|Current liabilities:                             |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |         
|                                                 | Current portion of long-term obligations                |                            | $       | 1,312        |         |              | $       | 4,621        |        |              | $        |             |          |   | $         | 5,933    |       
|                                                 | Accounts payable-affiliates                             |                            |         |             |         |              |         | 1,319        |        |              |          |             |          |   |           | 1,319    |       
|                                                 | Accounts payable, accrued and other current liabilities |                            |         | 18,834       |         |              |         | 30,646       |        |              |          |             |          |   |           | 49,480   |       
|                                                 | Advance billings and customer deposits                  |                            |         | 9,804        |         |              |         |             |        |              |          |             |          |   |           | 9,804    |       
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|                                                 |                                                         | Total current liabilities  |         |              | 29,950  |              |         |              | 36,586 |              |          |              |         |   |           |          | 66,536 | 
|Long-term obligations, net of current portion    |                                                         |                            | 6,899   |              |         |              | 579,999 |              |        |              |         |              |          |   | 586,898   |         
|Deferred income taxes                            |                                                         |                            | 7,673   |              |         |              | (7,673  | )            |        |              |         |              |          |   |          |         
|Other deferred credits and long-term liabilities |                                                         |                            | 12,493  |              |         |              | 20,437  |              |        |              |         |              |          |   | 32,930    |         
|Stockholders equity:                            |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |         
|                                                 | Common stock                                            |                            |         | 25           |         |              |         |              |        |              |          | (25          | )        |   |           |         |       
|                                                 | Treasury stock                                          |                            |         |             |         |              |         |             |        |              |          |             |          |   |           |         |       
|                                                 | Paid in capital in excess of par value                  |                            |         | 355,574      |         |              |         | 287,242      |        |              |          | (355,574     | )        |   |           | 287,242  |       
|                                                 | Retained earnings (accumulated deficit)                 |                            |         | 156,961      |         |              |         | (249,738     | )      |              |          | (156,961     | )        |   |           | (249,738 | )     
|                                                 | Accumulated other comprehensive loss                    |                            |         |             |         |              |         | (18,886      | )      |              |          |             |          |   |           | (18,886  | )     
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|                                                 |                                                         | Total stockholders equity |         |              | 512,560 |              |         |              | 18,618 |              |          |              | (512,560 | ) |           |          | 18,618 | 
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       
|Total liabilities and stockholders equity       |                                                         | $                          | 569,575 |              |         | $            | 647,967 |              |        | $            | (512,560 | )            |          | $ | 704,982   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |        |              |          |              |          |   |           |          |       

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Balance Sheet
December 31, 2001

|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |         | 
|------------------------------------------------ | ------------------------------------------------------- | -------------------------- | ------- | ----------- | ------- | ------------ | ------- | ------------ | ------- | - | -------- | ------------ | -------- | - | --------- | ------- | ------- | 
|                                                 |                                                         |                            |         | Combined    |         | ACS Holdings |         |              |         |   |          | ACS Holdings
|                                                 |                                                         | Subsidiaries               |         | Parent Only |         | Eliminations |         | Consolidated
|                                                 |                                                         |                            |         |             |         |              |         |             
|Assets                                           |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |        
|Current assets:                                  |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |        
|                                                 | Cash and cash equivalents                               |                            | $       | 1,239       |         |              | $       | 39,773       |         |   | $        |             |          |   | $         | 41,012  |        
|                                                 | Restricted cash                                         |                            |         |            |         |              |         | 6,932        |         |   |          |             |          |   |           | 6,932   |        
|                                                 | Accounts receivable-trade, net                          |                            |         | 26,707      |         |              |         | 20,205       |         |   |          |             |          |   |           | 46,912  |        
|                                                 | Accounts receivable-affiliates                          |                            |         | 26,351      |         |              |         | (23,876      | )       |   |          |             |          |   |           | 2,475   |        
|                                                 | Materials and supplies                                  |                            |         | 8,698       |         |              |         | 25           |         |   |          |             |          |   |           | 8,723   |        
|                                                 | Prepayments and other current assets                    |                            |         | 4,115       |         |              |         | 1,917        |         |   |          |             |          |   |           | 6,032   |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|                                                 |                                                         | Total current assets       |         |             | 67,110  |              |         |              | 44,976  |   |          |              |         |   |           |         | 112,086 | 
|Investments                                      |                                                         |                            |        |             |         |              | 683,372 |              |         |   | (683,372 | )            |          |   |          |        
|Property, plant and equipment                    |                                                         |                            | 938,367 |             |         |              | 98,462  |              |         |   |         |              |          |   | 1,036,829 |        
|Less: accumulated depreciation                   |                                                         |                            | 530,728 |             |         |              | 27,121  |              |         |   |         |              |          |   | 557,849   |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|                                                 | Property, plant and equipment, net                      |                            |         | 407,639     |         |              |         | 71,341       |         |   |          |             |          |   |           | 478,980 |        
|Goodwill                                         |                                                         |                            | 11,311  |             |         |              |        |              |         |   | 239,184  |              |          |   | 250,495   |        
|Intangible assets                                |                                                         |                            | 25,228  |             |         |              | 1,557   |              |         |   |         |              |          |   | 26,785    |        
|Debt issuance costs, net                         |                                                         |                            |        |             |         |              | 25,321  |              |         |   |         |              |          |   | 25,321    |        
|Deferred charges and other assets                |                                                         |                            | 1,249   |             |         |              | 8,626   |              |         |   |         |              |          |   | 9,875     |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|Total assets                                     |                                                         | $                          | 512,537 |             |         | $            | 835,193 |              |         | $ | (444,188 | )            |          | $ | 903,542   |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|Liabilities and Stockholders Equity             |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |        
|Current liabilities:                             |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |        
|                                                 | Current portion of long-term obligations                |                            | $       | 514         |         |              | $       | 4,593        |         |   | $        |             |          |   | $         | 5,107   |        
|                                                 | Accounts payable-affiliates                             |                            |         |            |         |              |         | 1,303        |         |   |          |             |          |   |           | 1,303   |        
|                                                 | Accounts payable, accrued and other current liabilities |                            |         | 32,273      |         |              |         | 30,492       |         |   |          |             |          |   |           | 62,765  |        
|                                                 | Advance billings and customer deposits                  |                            |         | 9,190       |         |              |         |             |         |   |          |             |          |   |           | 9,190   |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|                                                 |                                                         | Total current liabilities  |         |             | 41,977  |              |         |              | 36,388  |   |          |              |         |   |           |         | 78,365  | 
|Long-term obligations, net of current portion    |                                                         |                            | 6,876   |             |         |              | 584,620 |              |         |   |         |              |          |   | 591,496   |        
|Deferred income taxes                            |                                                         |                            | 10,076  |             |         |              | (10,076 | )            |         |   |         |              |          |   |          |        
|Other deferred credits and long-term liabilities |                                                         |                            | 9,420   |             |         |              | 15,583  |              |         |   |         |              |          |   | 25,003    |        
|Stockholders equity:                            |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |        
|                                                 | Common stock                                            |                            |         | 25          |         |              |         |              |         |   |          | (25          | )        |   |           |        |        
|                                                 | Treasury stock                                          |                            |         |            |         |              |         |             |         |   |          |             |          |   |           |        |        
|                                                 | Paid in capital in excess of par value                  |                            |         | 283,185     |         |              |         | 287,242      |         |   |          | (283,185     | )        |   |           | 287,242 |        
|                                                 | Retained earnings (accumulated deficit)                 |                            |         | 160,978     |         |              |         | (64,735      | )       |   |          | (160,978     | )        |   |           | (64,735 | )      
|                                                 | Accumulated other comprehensive loss                    |                            |         |            |         |              |         | (13,829      | )       |   |          |             |          |   |           | (13,829 | )      
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|                                                 |                                                         | Total stockholders equity |         |             | 444,188 |              |         |              | 208,678 |   |          |              | (444,188 | ) |           |         | 208,678 | 
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        
|Total liabilities and stockholders equity       |                                                         | $                          | 512,537 |             |         | $            | 835,193 |              |         | $ | (444,188 | )            |          | $ | 903,542   |        
|                                                 |                                                         |                            |         |             |         |              |         |              |         |   |          |              |          |   |           |         |        

F-30



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(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 Holdings
|                                                                                                                   |                                                              |                         |        | Subsidiaries |         | Parent Only  |          | Eliminations |         | Consolidated
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |             
|Operating revenue:                                                                                                 |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |        
|                                                                                                                   | Local telephone                                              |                         | $      | 226,447      |         |              | $        |             |         |              | $       |             |         |   | $        | 226,447 |        
|                                                                                                                   | Wireless                                                     |                         |        | 43,233       |         |              |          |             |         |              |         | (53          | )       |   |          | 43,180  |        
|                                                                                                                   | Directory                                                    |                         |        | 33,604       |         |              |          |             |         |              |         |             |         |   |          | 33,604  |        
|                                                                                                                   | Internet                                                     |                         |        | 20,848       |         |              |          |             |         |              |         | (1           | )       |   |          | 20,847  |        
|                                                                                                                   | Interexchange                                                |                         |        | 29,708       |         |              |          |             |         |              |         | (10,284      | )       |   |          | 19,424  |        
|                                                                                                                   | Other                                                        |                         | 716    |              |         |              | 24,807   |              |         |              | (25,523 | )            |         |   |         |        
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |         |        
|                                                                                                                   |                                                              | Total operating revenue |        |              | 354,556 |              |          |              | 24,807  |              |         |              | (35,861 | ) |          |         | 343,502 |  
|Operating expense:                                                                                                 |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |        
|                                                                                                                   | Local telephone (exclusive of depreciation and amortization) |                         |        | 138,948      |         |              |          | 2,188        |         |              |         | (23,859      | )       |   |          | 117,277 |        
|                                                                                                                   | Wireless (exclusive of depreciation and amortization)        |                         |        | 33,940       |         |              |          |             |         |              |         | (6,028       | )       |   |          | 27,912  |        
|                                                                                                                   | Directory (exclusive of depreciation and amortization)       |                         |        | 14,189       |         |              |          |             |         |              |         | (19          | )       |   |          | 14,170  |        
|                                                                                                                   | Internet (exclusive of depreciation and amortization)        |                         |        | 35,547       |         |              |          |             |         |              |         | (6,045       | )       |   |          | 29,502  |        
|                                                                                                                   | Interexchange (exclusive of depreciation and amortization)   |                         |        | 28,666       |         |              |          |             |         |              |         | (1,119       | )       |   |          | 27,547  |        
|                                                                                                                   | Other (exclusive of depreciation and amortization)           |                         |        | 1,158        |         |              |          |             |         |              |         | (1,158       | )       |   |          |        |        
|                                                                                                                   | Depreciation and amortization                                |                         |        | 70,181       |         |              |          | 12,890       |         |              |         | (131         | )       |   |          | 82,940  |        
|                                                                                                                   | Goodwill impairment loss                                     |                         |        |             |         |              |          | 64,755       |         |              |         |             |         |   |          | 64,755  |        
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |         |        
|                                                                                                                   |                                                              | Total operating expense |        |              | 322,629 |              |          |              | 79,833  |              |         |              | (38,359 | ) |          |         | 364,103 |  
|Loss on disposal of assets                                                                                         |                                                              |                         | 204    |              |         |              |         |              |         |              | 1,959   |              |         |   | 2,163    |        
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |         |        
|Operating 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        |         |   |          | 2,203   |        
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |         |        
|                                                                                                                   |                                                              | Total 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 income (loss)                                                                                                  |                                                              | $                       | (6,218 | )            |         | $            | (182,656 | )            |         | $            | 6,218   |              |         | $ | (182,656 | )      
|                                                                                                                   |                                                              |                         |        |              |         |              |          |              |         |              |         |              |         |   |          |         |        

F-31



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Operations
Year Ended December 31, 2001

|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |         |  
|------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------- | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | - | ------ | ------- | ------- | -
|                                                              |                                                              |                         |        | Combined     |         | ACS Holdings |         |              |         |              |         | ACS Holdings
|                                                              |                                                              |                         |        | Subsidiaries |         | Parent Only  |         | Eliminations |         | Consolidated
|                                                              |                                                              |                         |        |              |         |              |         |              |         |             
|Operating revenue:                                            |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |        
|                                                              | Local telephone                                              |                         | $      | 221,411      |         |              | $       |             |         |              | $       |             |         |   | $      | 221,411 |        
|                                                              | Wireless                                                     |                         |        | 41,923       |         |              |         |             |         |              |         | (29          | )       |   |        | 41,894  |        
|                                                              | Directory                                                    |                         |        | 33,870       |         |              |         |             |         |              |         |             |         |   |        | 33,870  |        
|                                                              | Internet                                                     |                         |        | 13,726       |         |              |         |             |         |              |         | (2           | )       |   |        | 13,724  |        
|                                                              | Interexchange                                                |                         |        | 30,795       |         |              |         |             |         |              |         | (9,479       | )       |   |        | 21,316  |        
|                                                              | Other                                                        |                         |        | 960          |         |              |         | 17,072       |         |              |         | (18,032      | )       |   |        |        |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|                                                              |                                                              | Total operating revenue |        |              | 342,685 |              |         |              | 17,072  |              |         |              | (27,542 | ) |        |         | 332,215 |  
|Operating expense:                                            |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |        
|                                                              | Local telephone (exclusive of depreciation and amortization) |                         |        | 133,181      |         |              |         | 2,475        |         |              |         | (15,191      | )       |   |        | 120,465 |        
|                                                              | Wireless (exclusive of depreciation and amortization)        |                         |        | 31,213       |         |              |         |             |         |              |         | (5,564       | )       |   |        | 25,649  |        
|                                                              | Directory (exclusive of depreciation and amortization)       |                         |        | 14,713       |         |              |         |             |         |              |         | (29          | )       |   |        | 14,684  |        
|                                                              | Internet (exclusive of depreciation and amortization)        |                         |        | 20,624       |         |              |         |             |         |              |         | (4,947       | )       |   |        | 15,677  |        
|                                                              | Interexchange (exclusive of depreciation and amortization)   |                         |        | 30,263       |         |              |         |             |         |              |         | (754         | )       |   |        | 29,509  |        
|                                                              | Other (exclusive of depreciation and amortization)           |                         |        | 1,949        |         |              |         |             |         |              |         | (1,949       | )       |   |        |        |        
|                                                              | Depreciation and amortization                                |                         |        | 64,463       |         |              |         | 15,348       |         |              |         | (703         | )       |   |        | 79,108  |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|                                                              |                                                              | Total operating expense |        |              | 296,406 |              |         |              | 17,823  |              |         |              | (29,137 | ) |        |         | 285,092 |  
|Loss on disposal of assets                                    |                                                              |                         |       |              |         |              |        |              |         |              |        |              |         |   |       |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|Operating income (loss)                                       |                                                              |                         | 46,279 |              |         |              | (751    | )            |         |              | 1,595   |              |         |   | 47,123 |        
|Other income (expense):                                       |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |        
|                                                              | Interest expense                                             |                         |        | (2,277       | )       |              |         | (55,414      | )       |              |         | 126          |         |   |        | (57,565 | )      
|                                                              | Interest income and other                                    |                         |        | 116          |         |              |         | 23,660       |         |              |         | (20,457      | )       |   |        | 3,319   |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|                                                              |                                                              | Total other expense     |        |              | (2,161  | )            |         |              | (31,754 | )            |         |              | (20,331 | ) |        |         | (54,246 | )
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|Income (loss) before income taxes and discontinued operations |                                                              |                         | 44,118 |              |         |              | (32,505 | )            |         |              | (18,736 | )            |         |   | (7,123 | )      
|Income tax expense (benefit)                                  |                                                              |                         | 23,664 |              |         |              | (23,859 | )            |         |              |        |              |         |   | (195   | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|Income (loss) from continuing operations                      |                                                              |                         | 20,454 |              |         |              | (8,646  | )            |         |              | (18,736 | )            |         |   | (6,928 | )      
|Loss from discontinued operations                             |                                                              |                         |       |              |         |              |        |              |         |              | (1,718  | )            |         |   | (1,718 | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        
|Net income (loss)                                             |                                                              | $                       | 20,454 |              |         | $            | (8,646  | )            |         | $            | (20,454 | )            |         | $ | (8,646 | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |        |         |        

F-32



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Operations
Year Ended December 31, 2000

|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |         |  
|------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------- | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | -
|                                                              |                                                              |                         |        | Combined     |         | ACS Holdings |         |              |         |              |         | ACS Holdings
|                                                              |                                                              |                         |        | Subsidiaries |         | Parent Only  |         | Eliminations |         | Consolidated
|                                                              |                                                              |                         |        |              |         |              |         |              |         |             
|Operating revenue:                                            |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |        
|                                                              | Local telephone                                              |                         | $      | 222,268      |         |              | $       |             |         |              | $       |             |         |   | $       | 222,268 |        
|                                                              | Wireless                                                     |                         |        | 41,205       |         |              |         |             |         |              |         | (50          | )       |   |         | 41,155  |        
|                                                              | Directory                                                    |                         |        | 29,156       |         |              |         |             |         |              |         |             |         |   |         | 29,156  |        
|                                                              | Internet                                                     |                         |        | 9,172        |         |              |         |             |         |              |         | (2           | )       |   |         | 9,170   |        
|                                                              | Interexchange                                                |                         |        | 19,773       |         |              |         |             |         |              |         | (7,995       | )       |   |         | 11,778  |        
|                                                              | Other                                                        |                         |        | 1,131        |         |              |         | 16,609       |         |              |         | (17,740      | )       |   |         |        |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|                                                              |                                                              | Total operating revenue |        |              | 322,705 |              |         |              | 16,609  |              |         |              | (25,787 | ) |         |         | 313,527 |  
|Operating expense:                                            |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |        
|                                                              | Local telephone (exclusive of depreciation and amortization) |                         |        | 145,682      |         |              |         | 2,469        |         |              |         | (16,609      | )       |   |         | 131,542 |        
|                                                              | Wireless (exclusive of depreciation and amortization)        |                         |        | 29,762       |         |              |         |             |         |              |         | (3,456       | )       |   |         | 26,306  |        
|                                                              | Directory (exclusive of depreciation and amortization)       |                         |        | 13,334       |         |              |         |             |         |              |         |             |         |   |         | 13,334  |        
|                                                              | Internet (exclusive of depreciation and amortization)        |                         |        | 16,348       |         |              |         |             |         |              |         | (4,563       | )       |   |         | 11,785  |        
|                                                              | Interexchange (exclusive of depreciation and amortization)   |                         |        | 19,753       |         |              |         |             |         |              |         | (4           | )       |   |         | 19,749  |        
|                                                              | Other (exclusive of depreciation and amortization)           |                         |        | 1,482        |         |              |         |             |         |              |         | (1,482       | )       |   |         |        |        
|                                                              | Unusual charges                                              |                         |        | 5,288        |         |              |         |             |         |              |         |             |         |   |         | 5,288   |        
|                                                              | Depreciation and amortization                                |                         |        | 57,429       |         |              |         | 14,836       |         |              |         | (510         | )       |   |         | 71,755  |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|                                                              |                                                              | Total operating expense |        |              | 289,078 |              |         |              | 17,305  |              |         |              | (26,624 | ) |         |         | 279,759 |  
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|Loss on disposal of assets                                    |                                                              |                         |       |              |         |              |        |              |         |              |        |              |         |   |        |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|Operating income (loss)                                       |                                                              |                         | 33,627 |              |         |              | (696    | )            |         |              | 837     |              |         |   | 33,768  |        
|Other income (expense):                                       |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |        
|                                                              | Interest expense                                             |                         |        | (1,629       | )       |              |         | (60,480      | )       |              |         | 151          |         |   |         | (61,958 | )      
|                                                              | Interest income and other                                    |                         |        | 349          |         |              |         | 18,496       |         |              |         | (15,588      | )       |   |         | 3,257   |        
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|                                                              |                                                              | Total other expense     |        |              | (1,280  | )            |         |              | (41,984 | )            |         |              | (15,437 | ) |         |         | (58,701 | )
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|Income (loss) before income taxes
and discontinued operations |                                                              |                         | 32,347 |              |         |              | (42,680 | )            |         |              | (14,600 | )            |         |   | (24,933 | )      
|Income tax expense (benefit)                                  |                                                              |                         | 16,830 |              |         |              | (17,027 | )            |         |              |        |              |         |   | (197    | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|Income (loss) from continuing operations                      |                                                              |                         | 15,517 |              |         |              | (25,653 | )            |         |              | (14,600 | )            |         |   | (24,736 | )      
|Loss from discontinued operations                             |                                                              |                         |       |              |         |              |        |              |         |              | (917    | )            |         |   | (917    | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        
|Net income (loss)                                             |                                                              | $                       | 15,517 |              |         | $            | (25,653 | )            |         | $            | (15,517 | )            |         | $ | (25,653 | )      
|                                                              |                                                              |                         |        |              |         |              |         |              |         |              |         |              |         |   |         |         |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(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 Holdings
|                                                     |  | Subsidiaries |         | Parent Only  |  | Eliminations |         | Consolidated
|                                                     |  |              |         |              |  |              |         |             
|Net cash provided (used) by operating activities     |  | $            | 59,261  |              |  | $            | 6,538   |              |  | $            |  |  |  | $ | 65,799  |  
|Cash Flows from Investing Activities:                |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Construction and capital expenditures                |  |              | (57,538 | )            |  |              | (9,439  | )            |  |              |  |  |  |   | (66,977 | )
|Acquisition of PCS license                           |  |              | (300    | )            |  |              |        |              |  |              |  |  |  |   | (300    | )
|Issuance of note receivable                          |  |              |        |              |  |              | (15,000 | )            |  |              |  |  |  |   | (15,000 | )
|Other investing activities                           |  |              |        |              |  |              | 3,706   |              |  |              |  |  |  |   | 3,706   |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash used by investing activities                |  |              | (57,838 | )            |  |              | (20,733 | )            |  |              |  |  |  |   | (78,571 | )
|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  | )            |  |              | (21,135 | )            |  |              |  |  |  |   | (22,447 | )
|Cash and cash equivalents, beginning of the period   |  |              | 1,239   |              |  |              | 39,773  |              |  |              |  |  |  |   | 41,012  |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Cash and cash equivalents, end of the period         |  | $            | (73     | )            |  | $            | 18,638  |              |  | $            |  |  |  | $ | 18,565  |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Supplemental Cash Flow Data:                         |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Interest paid                                        |  | $            | 86      |              |  | $            | 45,744  |              |  | $            |  |  |  | $ | 45,830  |  
|Income taxes paid                                    |  | $            |        |              |  | $            |        |              |  | $            |  |  |  | $ |        |  
|Supplemental Noncash Transactions:                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Property acquired under capital leases and mortgages |  | $            | 4,187   |              |  | $            |        |              |  | $            |  |  |  | $ | 4,187   |  
|Minimum pension liability adjustment                 |  | $            |        |              |  | $            | 2,342   |              |  | $            |  |  |  | $ | 2,342   |  
|Interest rate swap marked to market                  |  | $            |        |              |  | $            | 2,715   |              |  | $            |  |  |  | $ | 2,715   |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2001

|                                                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|-------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | - |  |  | - | ------- | -
|                                                   |  | Combined     |         | ACS Holdings |  |              |         |              |  | ACS Holdings
|                                                   |  | Subsidiaries |         | Parent Only  |  | Eliminations |         | Consolidated
|                                                   |  |              |         |              |  |              |         |             
|Net cash provided (used) by operating activities   |  | $            | 88,111  |              |  | $            | (11,473 | )            |  | $            |  |  |  | $ | 76,638  |  
|Cash Flows from Investing Activities:              |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Construction and capital expenditures              |  |              | (87,548 | )            |  |              | (34     | )            |  |              |  |  |  |   | (87,582 | )
|Other investing activities                         |  |              |        |              |  |              | (6,901  | )            |  |              |  |  |  |   | (6,901  | )
|                                                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash used by investing activities              |  |              | (87,548 | )            |  |              | (6,935  | )            |  |              |  |  |  |   | (94,483 | )
|Cash Flows from Financing Activities:              |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Payments on long-term debt                         |  |              | (1,337  | )            |  |              | (1,702  | )            |  |              |  |  |  |   | (3,039  | )
|                                                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash provided (used) by financing activities   |  |              | (1,337  | )            |  |              | (1,702  | )            |  |              |  |  |  |   | (3,039  | )
|Decrease in cash and cash equivalents              |  |              | (774    | )            |  |              | (20,110 | )            |  |              |  |  |  |   | (20,884 | )
|Cash and cash equivalents, beginning of the period |  |              | 2,013   |              |  |              | 59,883  |              |  |              |  |  |  |   | 61,896  |  
|                                                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Cash and cash equivalents, end of the period       |  | $            | 1,239   |              |  | $            | 39,773  |              |  | $            |  |  |  | $ | 41,012  |  
|                                                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Supplemental Cash Flow Data:                       |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Interest paid                                      |  | $            | 2,285   |              |  | $            | 47,171  |              |  | $            |  |  |  | $ | 49,456  |  
|Income taxes paid                                  |  | $            |        |              |  | $            |        |              |  | $            |  |  |  | $ |        |  
|Supplemental Noncash Transactions:                 |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Minimum pension liability adjustment               |  | $            |        |              |  | $            | 2,392   |              |  | $            |  |  |  | $ | 2,392   |  
|Interest rate swap marked to market                |  | $            |        |              |  | $            | 11,437  |              |  | $            |  |  |  | $ | 11,437  |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

20. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2000

|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|---------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | - |  |  | - | ------- | -
|                                                     |  | Combined     |         | ACS Holdings |  |              |         |              |  | ACS Holdings
|                                                     |  | Subsidiaries |         | Parent Only  |  | Eliminations |         | Consolidated
|                                                     |  |              |         |              |  |              |         |             
|Net cash provided (used) by operating activities     |  | $            | 69,421  |              |  | $            | 74,126  |              |  | $            |  |  |  | $ | 143,547 |  
|Cash Flows from Investing Activities:                |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Construction and capital expenditures                |  |              | (68,609 | )            |  |              | (492    | )            |  |              |  |  |  |   | (69,101 | )
|Other investing activities                           |  |              |        |              |  |              | (5,598  | )            |  |              |  |  |  |   | (5,598  | )
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash used by investing activities                |  |              | (68,609 | )            |  |              | (6,090  | )            |  |              |  |  |  |   | (74,699 | )
|Cash Flows from Financing Activities:                |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Payments on long-term debt                           |  |              | (3,058  | )            |  |              | (3,165  | )            |  |              |  |  |  |   | (6,223  | )
|Dividends                                            |  |              |        |              |  |              | (9,735  | )            |  |              |  |  |  |   | (9,735  | )
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash provided (used) by financing activities     |  |              | (3,058  | )            |  |              | (12,900 | )            |  |              |  |  |  |   | (15,958 | )
|Increase (decrease) in cash and cash equivalents     |  |              | (2,246  | )            |  |              | 55,136  |              |  |              |  |  |  |   | 52,890  |  
|Cash and cash equivalents, beginning of the period   |  |              | 4,259   |              |  |              | 4,747   |              |  |              |  |  |  |   | 9,006   |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Cash and cash equivalents, end of the period         |  | $            | 2,013   |              |  | $            | 59,883  |              |  | $            |  |  |  | $ | 61,896  |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Supplemental Cash Flow Data:                         |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Interest paid                                        |  | $            | 1,635   |              |  | $            | 55,783  |              |  | $            |  |  |  | $ | 57,418  |  
|Income taxes paid                                    |  | $            |        |              |  | $            |        |              |  | $            |  |  |  | $ |        |  
|Supplemental Noncash Transactions:                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Property acquired under capital leases and mortgages |  | $            | 3,152   |              |  | $            |        |              |  | $            |  |  |  | $ | 3,152   |  
|Note payable in connection with acquisition          |  | $            |        |              |  | $            | 2,250   |              |  | $            |  |  |  | $ | 2,250   |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

21. COMMITMENTS, CONTINGENCIES AND GUARANTEES

The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course
of business. The Company believes that the disposition of these matters will
not have a material adverse effect on the
Companys consolidated financial position, results of operations or cash flows.

A class action lawsuit was filed against the Company on March 14, 2001.
The litigation alleges various contract and
tort claims concerning the Companys decision to terminate its Infinite Minutes
long distance plan. Although the Company
believes this suit is without merit and intends to vigorously defend its
position, it is impossible to determine at this time the
actual number of plaintiffs or the claims that will actually continue to be in
dispute.

In December 2001, the Company entered into a material contract with the
State of Alaska to provide it with
comprehensive telecommunications services for a period of five years. This
contract obligates the Company to, among other
things, provide on the states behalf customer premise equipment and other
capital assets which the Company believes will
range between $25,000 and $30,000 over the term of the agreement, of which
approximately $12,400 has been expended
through December 31, 2002. The Company intends to fund this commitment with
cash on hand and cash flows from
operations.

On July 15, 2002 the Company fulfilled a commitment to Neptune
Communications, L.L.C. (Neptune) to provide
a loan in the form of an unsecured note receivable totaling $15,000 in return
for certain consideration. The note, which is
included in deferred charges and other assets on the Companys Consolidated
Balance Sheets, bears interest at the applicable
federal rate, which was 5.61% at the date of issuance, and matures on July 15,
2022. Interest is payable semiannually, but
Neptune may elect to add the interest to the principal in lieu of cash
payments. The commitment was funded with cash on
hand. In connection with this note, Neptune has granted the Company an option
to purchase certain network assets of
Neptune, no later than January 2, 2006 at a price equal to the then outstanding
loan balance. The Company has also entered
into a strategic agreement with Neptune for the life of the fiber optic cable
system owned by Neptune. The significant
provisions of this agreement are: i) purchase commitments by the Company for
capacity in 2005 and 2007, the final price and
quantity of which are subject to future events, ii) Neptunes restoration of
the Companys traffic carried on another cable
system, iii) and specific interconnection arrangements between the Company and
Neptune, should the Company exercise its
option to purchase certain network assets from Neptune. The Company is
currently renegotiating the terms and conditions of
this agreement and it is not possible to determine the ultimate outcome of
these negotiations at this time.

The Company has been authorized by its Board of Directors to evaluate the
possible disposition of its directory
business, ACSIS. This transaction, if completed, would result in a
de-leveraging of the Companys balance sheet and
generate cash for other corporate objectives. The Company expects to file on or
about March 6, 2003, a preliminary
prospectus with Canadian securities regulators relating to a proposed public
offering in Canada of ACSIS through a Canadian
income fund. Any prospective sale of ACSIS is subject to the approval of the
Companys Board of Directors, which is
dependent upon terms and pricing. Any such sale is also contingent upon a
number of conditions including approval by
securities regulators, the approval of an amendment of certain terms and
conditions of the Companys senior credit facility
and market conditions. There can be no assurance that the Company will
consummate any transaction to sell ACSIS.

On May 14, 1999 ACS Group issued senior discount debentures due May 15,
2011 of which $17,313 is outstanding
at December 31, 2002. Interest accrues at 13.00% and is payable at ACS Groups
option semiannually on May 15 and
November 15, commencing May 15, 2000 until May 15, 2004 when ACS Group will be
required to semiannually pay
interest. The senior discount debentures which are recorded at ACS Group are
collateralized by substantially all assets of the
Company. The guarantee was entered into primarily to support or enhance the
creditworthiness otherwise attributed to ACS
Group on a stand-alone basis.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2002, 2001 and 2000
(In Thousands Except Per Share Amounts)

22. CONSOLIDATED QUARTERLY OPERATING INFORMATION (UNAUDITED)

|                                                                         |  |                          |          |         |  |         |        |         |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | ------------------------ | -------- | ------- |  | ------- | ------ | ------- |  | - | ------- | - |  | - | ------- | -
|                                                                         |  | Quarterly Financial Data
|                                                                         |  |                         
|                                                                         |  | First                    |          | Second  |  | Third   |        | Fourth 
|                                                                         |  | Quarter                  |          | Quarter |  | Quarter |        | Quarter
|                                                                         |  |                          |          |         |  |         |        |        
|2002                                                                     |  |                          |          |         |  |         |        |         |  |   |         |   |  |   |         |  
|Operating revenues                                                       |  | $                        | 82,010   |         |  | $       | 92,905 |         |  | $ | 84,330  |   |  | $ | 84,257  |  
|Operating income (loss)                                                  |  |                          | 12,542   |         |  |         | 15,173 |         |  |   | 5,909   |   |  |   | (56,388 | )
|Income (loss) from continuing operations                                 |  |                          | 299      |         |  |         | 4,746  |         |  |   | (6,257  | ) |  |   | (68,462 | )
|Loss on discontinued operations                                          |  |                          | (6,872   | )       |  |         | (515   | )       |  |   | (136    | ) |  |   | (109    | )
|Income (loss) before cumulative effect of change in
accounting principle |  |                          | (6,573   | )       |  |         | 4,231  |         |  |   | (6,393  | ) |  |   | (68,571 | )
|Cumulative effect of change in accounting principle                      |  |                          | (105,350 | )       |  |         |       |         |  |   |        |   |  |   |        |  
|Net income (loss)                                                        |  |                          | (111,923 | )       |  |         | 4,231  |         |  |   | (6,393  | ) |  |   | (68,571 | )
|2001                                                                     |  |                          |          |         |  |         |        |         |  |   |         |   |  |   |         |  
|Operating revenues                                                       |  | $                        | 81,301   |         |  | $       | 81,850 |         |  | $ | 82,981  |   |  | $ | 86,083  |  
|Operating income                                                         |  |                          | 10,310   |         |  |         | 12,096 |         |  |   | 12,708  |   |  |   | 12,009  |  
|Loss from continuing operations                                          |  |                          | (3,912   | )       |  |         | (1,668 | )       |  |   | (225    | ) |  |   | (1,123  | )
|Loss on discontinued operations                                          |  |                          | (310     | )       |  |         | (491   | )       |  |   | (526    | ) |  |   | (391    | )
|Net loss                                                                 |  |                          | (4,222   | )       |  |         | (2,159 | )       |  |   | (751    | ) |  |   | (1,514  | )
|2000                                                                     |  |                          |          |         |  |         |        |         |  |   |         |   |  |   |         |  
|Operating revenues                                                       |  | $                        | 78,235   |         |  | $       | 80,788 |         |  | $ | 75,008  |   |  | $ | 79,496  |  
|Operating income                                                         |  |                          | 11,453   |         |  |         | 12,084 |         |  |   | 3,524   |   |  |   | 6,707   |  
|Loss from continuing operations                                          |  |                          | (3,709   | )       |  |         | (3,143 | )       |  |   | (10,493 | ) |  |   | (7,391  | )
|Loss on discontinued operations                                          |  |                          | (139     | )       |  |         | (251   | )       |  |   | (223    | ) |  |   | (304    | )
|Net loss                                                                 |  |                          | (3,848   | )       |  |         | (3,394 | )       |  |   | (10,716 | ) |  |   | (7,695  | )

On March 30, 2002, the Company approved a plan to sell its wireless cable television service segment. As a result of
this decision, the operating revenue and expense of this segment has been classified as discontinued operations for all periods
presented. Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assetsand a
transitional impairment loss of $105,350 was recognized as the cumulative effect of a change in accounting principle in the
consolidated statement of operations. The Company performed its annual goodwill impairment test during the fourth quarter
of 2002 and recorded a goodwill impairment loss of $64,755 in operating expenses of the consolidated statement of
operations.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Schedule II- Valuation and Qualifying Accounts
(In Thousands)

|                                     |  |            |       |            |  |              |       |                |  |           |       |            |  |   |        |  |  |   |       | 
|------------------------------------ |  | ---------- | ----- | ---------- |  | ------------ | ----- | -------------- |  | --------- | ----- | ---------- |  | - | ------ |  |  | - | ----- | 
|                                     |  | Balance at |       | Charged to |  | Charged to   |       |                |  |           |       | Balance at
|                                     |  | Beginning  |       | costs and  |  | other        |       |                |  |           |       | End       
|Description                          |  | of Period  |       | expenses   |  | accounts (1) |       | Deductions (2) |  | of Period
|                                     |  |            |       |            |  |              |       |                |  |          
|2002 Allowance for doubtful accounts |  | $          | 4,944 |            |  | $            | 4,884 |                |  | $         | 214   |            |  | $ | 3,967  |  |  | $ | 6,075 | 
|                                     |  |            |       |            |  |              |       |                |  |           |       |            |  |   |        |  |  |   |       | 
|2001 Allowance for doubtful accounts |  | $          | 9,831 |            |  | $            | 4,932 |                |  | $         | 1,576 |            |  | $ | 11,395 |  |  | $ | 4,944 | 
|                                     |  |            |       |            |  |              |       |                |  |           |       |            |  |   |        |  |  |   |       | 
|2000 Allowance for doubtful accounts |  | $          | 5,203 |            |  | $            | 7,839 |                |  | $         | 751   |            |  | $ | 3,962  |  |  | $ | 9,831 | 
|                                     |  |            |       |            |  |              |       |                |  |           |       |            |  |   |        |  |  |   |       | 



|(1) |  | Represents the reserve for accounts receivable collected on the behalf of
others.                         
|--- |  | ----------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents credit losses written off during the period, less collection
of amounts previously written off.

F-39