##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 000-28167
 Alaska Communications Systems Group, Inc.
  Delaware
    
    52-2126573(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)600 Telephone AvenueAnchorage, Alaska
(Address of principal executive offices)
    
    99503-6091
(Zip Code)
 (907) 297-3000
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, Par Value $.01 per Share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act: None
  o þ
  o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated by Reference
 .




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##### 



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 ANNUAL REPORT ON FORM 10-K
 FOR THE YEAR ENDED DECEMBER 31, 2009
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    25PART IIItem 4.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    25Item 5.
    
    Selected Financial Data
    
    
    27Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 6A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 7.
    
    Financial Statements and Supplementary Data
    
    
    41Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    41Item 8A.
    
    Controls and Procedures
    
    
    41Item 8B.
    
    Other Information
    
    
    41PART IIIItem 9.
    
    Directors and Executive Officers of the Registrant
    
    
    42Item 10.
    
    Executive Compensation Summary Compensation Table
    
    
    42Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and related
Stockholder Matters
    
    
    42Item 12.
    
    Certain Relationships and Related Transactions
    
    
    42Item 13.
    
    Principal Accounting Fees and Services
    
    
    42PART IVItem 14.
    
    Exhibits and Financial Statement Schedules
    
    
    43SIGNATURES
    
    
    46Index to Consolidated Financial Statements
    
    F-1EX-10.5EX-10.7EX-10.9EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I
 
 Item 1.
    
    Business
 Forward Looking Statements and Analysts Reports
  
    
    our strongly competitive environment, which comprises national and local wireless
and wireline facilities-based competitors;
    
    our substantial debt which requires us to dedicate a substantial portion of our cash
flow from operations to payments on our debt;
    
    the availability of future financing in the amounts, at the terms, and subject to
the conditions necessary, to support our business and pursue growth opportunities;
    
    our ability to generate sufficient earnings and cash flows to continue to make
dividend payments to our stockholders;
    
    our ability to keep pace with rapid technological developments and changing
standards in the telecommunications industry, including our ability to obtain new
devices, spectrum, bandwidth, and other network elements;
    
    our ability to develop attractive integrated products and services making use of our
substantial investments in fiber optic cable facilities, including our AKORN® and
Northstar fiber optic cables that connect Alaska to the Lower 48 states;
    
    unanticipated damage to one or more of our high capacity cables resulting from
construction or digging mishaps, fishing boats or natural disasters;
    
    changes in revenue from Universal Service Funds (USFs);
    
    changes in general industry and market conditions, and structural declines within
the telecommunications industry;
    
    changes overall national, regional or local economic conditions;
    
    governmental and public policy changes, including changes in our revenues resulting
from regulatory actions affecting inter-carrier compensation or other regulatory
limitations placed on our ability to price our services or offer bundled services;
    
    unanticipated costs required to fund our postretirement benefit plans;
    
    the success or failure of any future acquisitions; and
    
    the matters described under Item 1ARisk Factors.
  3




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About ACS
     Business Segments
  
    
    Wireline:We provide communications services including voice, data, broadband,
multi-protocol label switching (MPLS) services, network access, long distance and
other services to consumers, carriers, businesses and enterprises and government
customers throughout Alaska and to and from Alaska.
 
    
    Wireless:We provide wireless voice and data service and products and other
value-added services and equipment sales across Alaska.
  Wireline
  Retail
  Wholesale
  Access
  Enterprise
  4




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Wireline Network and Technology
   ®
 Competition
  Wireless
  Products and Services
  Voice
  5




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Data
  Devices
  Wireless Network and Technology
  Coverage
  Technology
  Spectrum
  Competition
  6




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
    
    Network reliability, capacity and coverage:Lower prices, improved service quality and
new service offerings have led to increased network usage. As a result, the ability to keep
pace with network capacity needs and offer highly reliable coverage through ones own
network is important. We have an extensive network, but we continue to look for
opportunities to enhance our network and improve coverage and network quality. Our
competitors are doing the same.
 
    
    Pricing:Service and equipment pricing is an important area in which wireless carriers
compete. Strong competition has resulted in the marketing of minutes-sharing plans, free
mobile-to-mobile calling, and offerings of larger bundles of included minutes or unlimited
minutes at fixed price points, with no roaming or long distance charges. We seek to compete
in this area by offering our customers services based on the specific needs of Alaskans.
 
    
    Customer service:Quality customer service is essential to ensure that we can obtain
new customers and retain existing customers. We believe that the quality of our customer
service is a key factor in retaining our customers and in attracting both new to
wireless customers and those customers of other carriers who want to switch their
wireless service. Our competitors also recognize the importance of customer service and
are focusing on improving the customer experience.
 
    
    Product Differentiation:As wireless technologies develop and wireless broadband
networks proliferate, continued customer and revenue growth will be increasingly
dependent on the development of new and differentiated products and services. We are
committed to providing customer solutions through the development and rapid deployment of
new and innovative products and services.
 
    
    Sales and Distribution:Key to achieving sales success in the wireless industry is the
reach and quality of sales channels and distribution points. We believe that the optimal
mix of direct and indirect distribution channels is an important ingredient in achieving
industry-leading profitability. A goal of our distribution strategy is to increase sales
through our company operated stores and our business sales team, as well as through
telemarketing and web-based sales and fulfillment capabilities. Supplementing this is an
indirect distribution network of retail outlets and prepaid replenishment locations.
  Marketing
  Sales and Distribution Channels
   7




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Customer Base
  Seasonality
  Employees
  Regulation
  Overview
   
    
    ACS of Anchorage, Inc. (ACSA);
    
    ACS of Alaska, Inc. (ACSAK);
    
    ACS of Fairbanks, Inc. (ACSF); and
    
    ACS of the Northland, Inc. (ACSN).
   8




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Federal regulation
  Interconnection with local telephone companies and access to other facilities
      9




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Interstate access charges
      Federal universal service support
   10




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Federal universal service contributions
  Interstate long distance services
    11




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Broadband and Internet services
       Wireless services
   12




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Other federal regulations
   State regulation
  Interconnection
  Competitive local exchange regulations
  13




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End user local rates
  Intrastate access rates
    E-911
  Alaska Universal Service Fund
   14




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ETC Determinations
     Other RCA Proceedings
  Website Access to Reports
  15




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Code of Ethics
  
 Item 1A. Risk Factors
 We face a variety of risks that may affect our business, financial condition and results of
operations, some of which are beyond our control. The risks described below are not the only ones
we face and should be considered in addition to the other cautionary statements and risks described
elsewhere, and the other information contained, in this report and in our other filings with the
SEC, including our subsequent reports on Forms 10-Q and 8-K. Additional risks and uncertainties not
known to us or that we currently deem immaterial may also affect our business. If any of these
known or unknown risks or uncertainties actually occurs, our business, financial condition and
results of operations could be seriously harmed.
 Risks Relating to Our Industry
 The telecommunications industry is extremely competitive, particularly in Alaska, and we may have
difficulty competing effectively for share in generally small markets.
  
    
    reduce our customer base;
    
    require us to lower rates and other prices in order to compete;
    
    require us to invest in new facilities and capabilities;
    
    increase our marketing expenses and require us to use discounting and promotional
campaigns that adversely affect our margins; or
    
    otherwise lead to reduced revenues, margins and returns.
    Exclusive arrangements between wireless device manufacturers and large wireless carriers hamper our
ability to procure and sell many popular wireless handsets and other devices.
 16




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If we do not adapt to rapid technological advancements and changes in telecommunications
standards, our ability to compete would be strained, and as a result, we would lose customers.
   Risks Relating to Our Debt.
 Our substantial debt could adversely affect our financial health, financing options and liquidity
position.
  
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, future business opportunities, our dividend
and other general corporate purposes;
    
    limit our flexibility to plan, adjust or react to changing economic, market or
industry conditions, reduce our ability to withstand competitive pressures, and
increase our vulnerability to general adverse economic and industry conditions;
    
    place us at a competitive disadvantage to many of our competitors who are less
leveraged than we are;
    
    limit our ability to borrow additional amounts for working capital, capital
expenditures, future business opportunities, including strategic acquisitions, and
other general corporate requirements or hinder us from obtaining such financing on
terms favorable to us or at all; or
    
    limit our ability to refinance our debt.
  If interest rates increase, our net income could be negatively affected.
   17




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Financial covenants in our debt instruments limit our operating flexibility.
  
    
    pay dividends or distributions on, redeem or repurchase our capital stock;
    
    issue certain preferred or redeemable capital stock;
    
    incur additional debt;
    
    create liens;
    
    make certain types of investments, loans, advances or other forms of payments;
    
    issue, sell or allow distributions on capital stock of specified subsidiaries;
    
    prepay or defease specified debt;
    
    enter into transactions with affiliates; or
    
    merge, consolidate or sell our assets.
  We require a significant amount of cash to service our debt, pay dividends, fund our growth
projects, and meet other liquidity needs.
    
    
    sales of certain assets to meet our debt service requirements;
    
    sales of equity; and
    
    negotiations with our lenders to restructure the applicable debt.
  The call options we purchased and the warrants we sold contemporaneously with the sale of our
convertible notes may affect the trading price of our common stock and the value of the convertible
notes.
  18




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Risks related to our Business
 We may not successfully operate our AKORN and Northstar fiber facilities that connect Alaska to the
Lower 48 profitably.
  
    
    develop attractive products and services that operate seamlessly with our existing
technology and infrastructure;
    
    maintain and upgrade timely the complex underlying hardware and software technology
that drives optimal use of these facilities;
    
    attract a sufficient volume of traffic on these fiber facilities to make them
profitable;
    
    offer products and services that use these fiber facilities that are attractive to
our target customers;
    
    preserve key customer, supplier and other important relationships and resolve
potential conflicts that may arise; and
    
    generate sufficient revenues to maintain increased indebtedness raised to complete
these projects.
  Increased supply of interstate and international long-haul fiber in Alaska could adversely impact
prices for bandwidth, which could in turn, adversely affect our projected and actual sales, margins
and profitability of our fiber facility.
  We provide services to many customers over access lines, and if we continue to lose access lines,
our revenues, earnings and cash flow from operations may decrease.
  Revenues from network access charges may be reduced or lost.
   19




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We may not continue to receive as much Universal Service Fund support as we have in the past.
  We derive a significant portion of our wireless revenue from roaming charges. This revenue may
fluctuate or decline in the future as a result of general economic, contractual, and competitive
factors.
  The successful operation and growth of our businesses depends heavily on economic conditions in
Alaska.
  
    
    the strength of the natural resources industries, particularly oil production;
    
    the strength of the Alaskan tourism industry;
    
    the level of government and military spending; and
    
    the continued growth of services industries.
  We may incur substantial and unexpected liabilities arising out of our pension and deferred
compensation plans.
  20




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New governmental regulations may impose obligations on us to upgrade our existing technology or
adopt new technology that may require additional capital and we may not be able to comply timely
with these new regulations.
  Labor costs and the terms of our principal collective bargaining agreement may hurt our ability to
remain competitive, which could cause our financial performance to suffer.
    We depend on key members of our senior management team.
  21




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We rely on a limited number of key suppliers and vendors for timely supply of equipment and
services for our network infrastructure and customer support services. If these suppliers or
vendors experience problems or favor our competitors, we could fail to obtain the equipment and
services we require to operate our business successfully.
   A failure of our network could cause significant delays or interruptions of service,
which could cause us to lose customers.
  A failure of enhanced emergency calling services associated with our network may harm our business.
  Wireless devices may pose health and safety risks and driving while using a wireless phone may be
prohibited; as a result, demand for our services may decrease.
  Future acquisitions could result in operating and financial difficulties.
  
    
    Use of cash resources and incurrence of debt and contingent liabilities in funding
acquisitions may limit other
 22




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potential uses of our cash, including stock repurchases, dividend payments and retirement of
outstanding indebtedness;
 
    
    Amortization expenses related to acquired intangible assets and other adverse accounting
consequences;
    
    Costs incurred in identifying and performing due diligence on potential acquisition targets
that may or may not be successful;
    
    Difficulties and expenses in assimilating the operations, products, technology, privacy
protection systems, information systems or personnel of the acquired company;
    
    Impairment of relationships with employees, suppliers and affiliates of our business and
the acquired business;
    
    The assumption of known and unknown debt and liabilities of the acquired company;
    
    Failure to generate adequate returns on our acquisitions and investments;
    
    Entrance into markets in which we have no direct prior experience; and
    
    Impairment of goodwill or other intangible assets arising from our acquisitions.
 Risks related to our Common Stock
 You may not receive the level of dividends provided for in our dividend policy or any dividends at
all.
  Continued volatility in the price of our common stock would negatively affect us and our
stockholders.
  
 Item 1B. Unresolved Staff Comments
  23




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Item 2. Properties
  2009
    
    
    2008Land, buildings and support assets
    
    $
    246,518
    
    
    $
    235,324Central office switching and transmission
    
    
    361,784
    
    
    
    344,532Outside plant cable and wire facilities
    
    
    669,572
    
    
    
    585,288Wireless switching and transmission
    
    
    104,536
    
    
    
    98,300Other
    
    
    3,991
    
    
    
    2,822Construction work in progress
    
    
    29,958
    
    
    
    129,286$
    1,416,359
    
    
    $
    1,395,552
         24




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Item 3. Legal Proceedings
   
 PART II
 
 Item 4. Market for Registrants Common Equity and Related Stockholder Matters
  2009 Quarters
    
    High
    
    Low4th
    
    $
    9.17
    
    
    $
    6.533rd
    
    $
    9.41
    
    
    $
    6.222nd
    
    $
    7.72
    
    
    $
    5.611st
    
    $
    9.85
    
    
    $
    4.92
 2008 Quarters
    
    High
    
    Low4th
    
    $
    12.30
    
    
    $
    8.053rd
    
    $
    13.90
    
    
    $
    10.082nd
    
    $
    12.94
    
    
    $
    10.641st
    
    $
    15.18
    
    
    $
    11.08
  25




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Dividends
  Dividend Number
    
    Announcement Date
    
    Ex-Dividend Date
    
    Record Date
    
    Payment Date
    
    Paid per Share1
    
    
    10/28/2004
    
    
    
    12/29/2004
    
    
    
    12/31/2004
    
    
    
    1/19/2005
    
    
    $
    0.1852
    
    
    3/21/2005
    
    
    
    3/29/2005
    
    
    
    3/31/2005
    
    
    
    4/19/2005
    
    
    $
    0.2003
    
    
    6/14/2005
    
    
    
    6/28/2005
    
    
    
    6/30/2005
    
    
    
    7/20/2005
    
    
    $
    0.2004
    
    
    9/16/2005
    
    
    
    9/28/2005
    
    
    
    9/30/2005
    
    
    
    10/19/2005
    
    
    $
    0.2005
    
    
    11/29/2005
    
    
    
    12/28/2005
    
    
    
    12/30/2005
    
    
    
    1/18/2006
    
    
    $
    0.2006
    
    
    2/23/2006
    
    
    
    3/29/2006
    
    
    
    3/31/2006
    
    
    
    4/19/2006
    
    
    $
    0.2157
    
    
    6/21/2006
    
    
    
    6/28/2006
    
    
    
    6/30/2006
    
    
    
    7/19/2006
    
    
    $
    0.2158
    
    
    9/15/2006
    
    
    
    9/27/2006
    
    
    
    9/29/2006
    
    
    
    10/18/2006
    
    
    $
    0.2159
    
    
    12/19/2006
    
    
    
    12/27/2006
    
    
    
    12/29/2006
    
    
    
    1/17/2007
    
    
    $
    0.21510
    
    
    3/21/2007
    
    
    
    3/28/2007
    
    
    
    3/30/2007
    
    
    
    4/18/2007
    
    
    $
    0.21511
    
    
    6/20/2007
    
    
    
    6/27/2007
    
    
    
    6/29/2007
    
    
    
    7/18/2007
    
    
    $
    0.21512
    
    
    9/18/2007
    
    
    
    9/26/2007
    
    
    
    9/28/2007
    
    
    
    10/17/2007
    
    
    $
    0.21513
    
    
    12/17/2007
    
    
    
    12/27/2007
    
    
    
    12/31/2007
    
    
    
    1/17/2008
    
    
    $
    0.21514
    
    
    3/14/2008
    
    
    
    3/27/2008
    
    
    
    3/31/2008
    
    
    
    4/16/2008
    
    
    $
    0.21515
    
    
    6/13/2008
    
    
    
    6/26/2008
    
    
    
    6/30/2008
    
    
    
    7/16/2008
    
    
    $
    0.21516
    
    
    9/15/2008
    
    
    
    9/26/2008
    
    
    
    9/30/2008
    
    
    
    10/15/2008
    
    
    $
    0.21517
    
    
    12/16/2008
    
    
    
    12/29/2008
    
    
    
    12/31/2008
    
    
    
    1/21/2009
    
    
    $
    0.21518
    
    
    3/20/2009
    
    
    
    3/27/2009
    
    
    
    3/31/2009
    
    
    
    4/15/2009
    
    
    $
    0.21519
    
    
    6/16/2009
    
    
    
    6/26/2009
    
    
    
    6/30/2009
    
    
    
    7/15/2009
    
    
    $
    0.21520
    
    
    9/21/2009
    
    
    
    9/28/2009
    
    
    
    9/30/2009
    
    
    
    10/21/2009
    
    
    $
    0.21521
    
    
    12/15/2009
    
    
    
    12/29/2009
    
    
    
    12/31/2009
    
    
    
    1/20/2010
    
    
    $
    0.215
    
    
    we are a holding company and rely on dividends, interest and other payments,
advances and transfer of funds from our subsidiaries to meet our debt service and
pay dividends;
    
    we may not have enough cash to pay dividends due to changes in our operating
earnings, working capital requirements and anticipated cash needs;
    
    nothing requires us to declare or pay dividends;
    
    while the dividend policy adopted by our Board of Directors reflects an intention
to distribute a substantial portion of our cash generated by our business in excess
of operating needs, interest and principal payments on debt and capital
expenditures; to pay dividends, our board could modify or revoke this policy at any
time;
    
    even if our dividend policy is not modified or revoked, the actual amount of
dividends distributed under the policy and the decision to make any distribution
will remain, at all times, entirely at the discretion of our Board of Directors;
    
    the amount of dividends that we may distribute will be limited by restricted
payment and leverage covenants in our 2005 senior credit facility, and potentially,
the terms of any future debt that we may incur;
    
    the amount of dividends that we may distribute is subject to restrictions under
Delaware law; and
    
    our stockholders have no contractual or other legal right to dividends.
  26




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Securities Authorized for Issuance under Equity Compensation Plans
  
 Item 5. Selected Financial Data
 Selected Historical Financial Data
  (in thousands/except per share amounts)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Operating Data:Operating revenues
    
    $
    346,508
    
    
    $
    351,138
    
    
    $
    350,454
    
    
    $
    320,631
    
    
    $
    297,802Net income (loss)
    
    
    34,053
    
    
    
    (10,817
    )
    
    
    144,136
    
    
    
    13,278
    
    
    
    (41,635
    )Income (loss) per share  basic
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.38
    
    
    $
    0.32
    
    
    $
    (1.04
    )Income (loss) per share  diluted
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.26
    
    
    $
    0.31
    
    
    $
    (1.04
    )Cash dividends per share
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.80Balance Sheet Data (end of period):Total assets
    
    $
    672,929
    
    
    $
    748,851
    
    
    $
    663,203
    
    
    $
    556,216
    
    
    $
    576,413Long-term debt, including current portion
    
    
    539,350
    
    
    
    539,641
    
    
    
    432,996
    
    
    
    438,213
    
    
    
    445,578
 
 Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Important Changes to Presentation
  
 
 
 
  Overview
  27




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
    
    activity in the oil and gas markets;
    
    tourism levels;
    
    military activity;
    
    the cost of long-haul telecommunications bandwidth;
    
    local customer preferences;
    
    average usage of Internet technology:
    
    unemployment levels; and
    
    housing activity.
   Strategy
  
    
    Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash
provided by operating activities. We devote more resources to higher growth markets such as
wireless, including wireless data, wireline broadband connections, including our long-haul
fiber optic cables connecting our network to the Lower 48, as well as expanded strategic
services to business markets, rather than to the traditional wireline voice market.
    
    Investment with Discipline: We focus on gaining market share in those markets that contain
high revenue producing customers. In our wireline business, we focus on deploying and selling
broadband connections in each market covered by our network. We have targeted investment in
deploying high-speed fiber conductivity in and between Alaskas urban centers. We invested
heavily in interstate capacity through our acquisition of Crest Communications and
construction of AKORN. We have increasingly targeted carrier voice and customers with demand
for sophisticated data solutions. Revenues from these customers grew 32.7% compared with last
year, primarily driven by sales of advanced IP services and increases in revenues from
agreements with carriers to terminate their Alaskan long distance traffic. We have directed
resources towards offering wireless plans that encourage customer adoption of large
monthly-minute postpaid plans and unlimited postpaid plans. By directing resources carefully,
we seek to distinguish ourselves from our competitors in a cost effective way.
    
    Process Improvement to Achieve Operational Excellence:While focusing resources on revenue
growth and market
share gains, we continually challenge our management team and employees at all levels to lower
expenses and improve the customer experience through process improvements. We expect to invest
in technology-assisted process improvement, including self-service initiatives. We expect
efforts such as call center routing improvements, deploying self-pay kiosks and customer service
tools to improve our cost structure and maintain or improve operating income margins. We
continue to employ extensive analytical analyses to identify weaknesses in our business
processes. As a result of past successes, we have been able to serve more customers while
maintaining our workforce at or below prior levels.
 
    
    Pay for Performance:We embrace a culture of urgency and accountability. We establish goals
for all of our employees that are tied to the imperatives described above. We seek to provide
our non-represented employees cash
 28




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##### Table of Contents



incentives and equity compensation that are tied to these
goals. We design executive compensation programs carefully to align executives and
stockholders long-term interests.
 
    
    Continuous Enhancement of Products and Services:We intend to continue to introduce new
services that draw upon our core competencies and that we believe will be attractive to our
target customers. In considering new services, we look for market opportunities that we
believe present significant growth opportunities, such as our investments in our AKORN and
Northstar fiber optic cable systems and our first-to-market deployment of 3G wireless
services. We also plan to selectively pursue acquisitions that will enable us to broaden our
service offerings.
  Revenue Sources by Segment
 Wireline
  Our Retail Business:
  
    
    basic local telephone service including features to customers within our service
areas;
    
    ISP services including DSL and dial up;
    
    long distance services;
    
    space and power services to business customers; and
    
    CPE sales to business customers.
   As of December 312009
    
    2008
    
    2007Local telephone
    
    
    163,914
    
    
    
    174,524
    
    
    
    185,658Annual growth rate
    
    
    -6.1
    %
    
    
    -6.0
    %
    
    
    -4.7
    %DSL
    
    
    46,612
    
    
    
    47,648
    
    
    
    47,501Annual growth rate
    
    
    -2.2
    %
    
    
    0.3
    %
    
    
    7.8
    %Dial up
    
    
    5,565
    
    
    
    6,741
    
    
    
    9,125Annual growth rate
    
    
    -17.4
    %
    
    
    -26.1
    %
    
    
    -27.5
    %Long distance
    
    
    61,469
    
    
    
    64,252
    
    
    
    65,256Annual growth rate
    
    
    -4.3
    %
    
    
    -1.5
    %
    
    
    2.0
    %
 Our Wholesale Business:
  
    
    providing competitive local service to CLECs on either a wholesale or UNE basis as
prescribed under the Telecommunications Act;
    
    carrier billing and collection services; and
    
    providing carriers with access to space and power at our central office locations.
 29




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##### Table of Contents



As of December 312009
    
    2008
    
    2007UNE and resale local
    
    
    21,625
    
    
    
    26,844
    
    
    
    40,696Annual growth rate
    
    
    -19.4
    %
    
    
    -34.0
    %
    
    
    -29.7
    %
 Our Enterprise Business:
  
    
    provision of virtual network facilities to nationwide carriers for long distance
voice termination;
    
    advanced network services; and
    
    capacity sales on our in-state terrestrial fiber facility.
 Our Network Access Business:
  
    
    interstate access charges;
    
    intrastate access charges;
    
    federal USF support; and
    
    wireless carrier access charges.
 Wireless
  
    
    sale of pre-paid and post-paid wireless voice plans to our Alaskan subscribers;
    
    sale of value-added feature services, including data, to our Alaskan subscribers;
    
    equipment sales;
    
    providing the Lower 48 and Canadian carriers with roaming access to our network for
their subscribers; and
    
    CETC subsidies.
   As of December 312009
    
    2008
    
    2007Retail wireless
    
    
    137,072
    
    
    
    147,793
    
    
    
    144,449Annual growth rate
    
    
    -7.3
    %
    
    
    2.3
    %
    
    
    10.3
    %Wholesale wireless
    
    
    293
    
    
    
    346
    
    
    
    1,999Annual growth rate
    
    
    -15.3
    %
    
    
    -82.7
    %
    
    
    -33.7
    %
 30




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##### Table of Contents



Results of Operations
  ($ in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007Operating revenues:WirelineRetail
    
    $
    85,506
    
    
    $
    89,283
    
    
    $
    92,595Wholesale
    
    
    11,485
    
    
    
    14,369
    
    
    
    17,837Access
    
    
    63,137
    
    
    
    71,185
    
    
    
    80,807Enterprise
    
    
    45,360
    
    
    
    34,187
    
    
    
    23,167Wireline
    
    
    205,488
    
    
    
    209,024
    
    
    
    214,406Wireless
    
    
    141,020
    
    
    
    142,114
    
    
    
    136,048Total operating revenues
    
    
    346,508
    
    
    
    351,138
    
    
    
    350,454Operating expenses:WirelineCost of services and sales
    
    
    82,477
    
    
    
    73,194
    
    
    
    71,575Selling, general and administrative
    
    
    67,373
    
    
    
    75,409
    
    
    
    74,949WirelessCost of services and sales
    
    
    53,652
    
    
    
    58,829
    
    
    
    51,666Selling, general and administrative
    
    
    24,276
    
    
    
    24,483
    
    
    
    21,168Depreciation and amortization
    
    
    81,358
    
    
    
    74,002
    
    
    
    71,337Loss on disposal of assets
    
    
    4,327
    
    
    
    750
    
    
    
    248Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    29,641
    
    
    
    Total operating expenses
    
    
    313,463
    
    
    
    336,308
    
    
    
    290,943Operating income
    
    
    33,045
    
    
    
    14,830
    
    
    
    59,511Other income and expense:Interest expense
    
    
    (38,411
    )
    
    
    (34,072
    )
    
    
    (28,386
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (355
    )Interest income
    
    
    91
    
    
    
    1,695
    
    
    
    2,020Other
    
    
    
    
    
    
    (245
    )
    
    
    152Total other income and expense
    
    
    (38,320
    )
    
    
    (32,622
    )
    
    
    (26,569
    )Income (loss) before income tax expense
    
    
    (5,275
    )
    
    
    (17,792)
    
    
    
    32,942Income tax benefit
    
    
    1,982
    
    
    
    6,975
    
    
    
    111,194Income (loss) before extraordinary item
    
    
    (3,293
    )
    
    
    (10,817
    )
    
    
    144,136Gain on extraordinary item, net of taxes
    
    
    37,346
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    34,053
    
    
    $
    (10,817
    )
    
    $
    144,136
 31




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##### Table of Contents



Year ended December 31, 2009 Compared to the Year ended December 31, 2008
 Wireline
 Operating Revenues
 Retail:
 Wholesale:
 Access:
 Enterprise:
 Wireless
  Operating Expense
 Wireline:
 Cost of Services and Sales
 Selling, General and Administrative Costs (
 Wireless:
 Cost of Services and Sales
 Selling, General and Administrative
 Depreciation and Amortization
 32




---



##### Table of Contents



Loss on Disposal of Assets:
 Loss on Impairment of Goodwill and Intangible Assets:
 Other Income and Expense Accounting for
Convertible Debt that may be Settled in Cash Upon Conversion
 Income Taxes:
 Extraordinary Item:
 Net
Income (loss):
 Year ended December 31, 2008 Compared to the Year ended December 31, 2007
 Wireline
 Operating Revenues
 Retail:
  Wholesale:
  33




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##### Table of Contents



Access:
  Enterprise:
 Wireless
  
    
    growth in subscribers of 1.2% to 148,139 from 146,448 for the year ended December
31, 2008 and 2007, respectively;
    
    higher phone and accessory sales in the year ended December 31, 2008 resulting in
$10.9 million of handset revenue compared to $9.2 million for the year ended December
31, 2007; and
    
    higher revenue from non-ACS customers roaming on our network resulting in third
party roaming revenue increasing to $20.5 million from $18.1 million for the year ended
December 31, 2008 and 2007, respectively.
  Operating Expense
 Wireline:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Wireless:
 Cost of Services and Sales
 Selling, General and Administrative
 Depreciation and Amortization:
 Loss on Disposal of Assets:
 34




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##### Table of Contents



Loss on Impairment of Goodwill and Intangible Assets:
 Other Income and Expense:
 Income Taxes
 Net Income (loss):
 Liquidity and Capital Resources
  ($ in thousands)
    
    2009
    
    
    2008Net cash provided by operating activities
    
    $
    96,680
    
    
    $
    96,177Net change in funds held in restricted accounts
    
    $
    14,674
    
    
    $
    (17,928
    )Investment in construction and capital expenditures
    
    $
    (54,209
    )
    
    $
    (129,912
    )Change in unsettled construction and capital
expenditures
    
    $
    (7,155
    )
    
    $
    6,056Net borrowings (repayments)
    
    $
    (5,882
    )
    
    $
    127,168Payment of cash dividend on common stock
    
    $
    (38,089
    )
    
    $
    (37,287
    )Interest paid
    
    $
    (35,488
    )
    
    $
    (31,175
    )
 Sources
   35




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##### Table of Contents




    
    consolidated interest expense;
    
    provision for income taxes based on income;
    
    depreciation and amortization expense,
    
    unrealized losses on financial derivatives
    
    non-cash, stock-based compensation expense,
    
    extraordinary, non-recurring or unusual losses;
    
    the cumulative effect of a change in accounting principles; and
    
    all other non-cash charges that represent an accrual for which no cash is expected to be
paid in the next twelve months;minus (to the extent included in determining consolidated net income) the sum of:
    
    unrealized gains on financial derivatives;
    
    extraordinary, non-recurring or unusual gains;
    
    gains on sales of assets other than in the ordinary course of business; and
    
    all other non-cash income.
   Uses
  36




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##### Table of Contents



Other Material Obligations and Commitments
  Contractual Obligations
   Total
    
    
    2010
    
    
    2011-2012
    
    
    2013-2014
    
    
    ThereafterLong-term debt
    
    $
    550,889
    
    
    $
    
    
    
    $
    550,889
    
    
    $
    
    
    
    $
    Interest on long-term debt
    
    
    63,605
    
    
    
    27,267
    
    
    
    34,018
    
    
    
    1,732
    
    
    
    588Capital leases
    
    
    5,969
    
    
    
    793
    
    
    
    1,866
    
    
    
    1,074
    
    
    
    2,236Operating leases
    
    
    78,760
    
    
    
    7,818
    
    
    
    12,089
    
    
    
    10,699
    
    
    
    48,154Unconditional purchase obligations
    
    
    43,299
    
    
    
    13,819
    
    
    
    14,411
    
    
    
    10,290
    
    
    
    4,779Total contractual cash obligations
    
    $
    742,522
    
    
    $
    49,697
    
    
    $
    613,273
    
    
    $
    23,795
    
    
    $
    55,757
 Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  37




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##### Table of Contents



Regulatory and Intercompany Accounting
   Revenue Recognition Policies
    Debt Issuance Costs and Debt Discounts
   38




---



##### Table of Contents



Income Taxes
  Non-Operating Expense
  Recently Adopted Accounting Pronouncements
  Interim Disclosures about Fair Value of Financial Instruments
     Recently Issued Accounting Pronouncements
 Accounting Standards Update
 39




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##### Table of Contents



Revenue Arrangements with Multiple Deliverables
 
 Item 6A. Quantitative and qualitative disclosures about market risk
   Fair($ in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    Total
    
    
    ValueInterest Bearing Liabilities2005 bank credit facility
    
    $
    
    
    
    $
    
    
    
    $
    425,889
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    425,889
    
    
    $
    402,465Weighted average interest rate (var)
    
    
    3.42
    %
    
    
    4.04
    %
    
    
    4.26
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.75
    %5.75% convertible notes due 2013
    
    $
    
    
    
    $
    
    
    
    $
    125,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    125,000
    
    
    $
    97,280Average interest rate (fixed)
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.75
    %Captial lease and other long-term
    
    $
    793
    
    
    $
    885
    
    
    $
    981
    
    
    $
    726
    
    
    $
    348
    
    
    $
    2,236
    
    
    $
    5,969
    
    
    $
    5,969Average interest rate (fixed)
    
    
    10.24
    %
    
    
    10.31
    %
    
    
    10.43
    %
    
    
    10.56
    %
    
    
    10.57
    %
    
    
    10.66
    %
    
    
    10.44
    %Interest Rate DerivativesVariable to fixed interest rate swapNotional amount
    
    $
    85,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    85,000
    
    
    $
    (894
    )Fixed rate payable
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.50
    %Weighted average varianceRate receivable (payable)
    
    
    -4.25
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -4.25
    %Notional amount
    
    $
    
    
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,000
    
    
    $
    (2,198
    )Fixed rate payable
    
    
    4.43
    %
    
    
    4.43
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.43
    %Weighted average varianceRate receivable (payable)
    
    
    -3.79
    %
    
    
    -2.66
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -3.30
    %Notional amount
    
    $
    
    
    
    $
    115,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    115,000
    
    
    $
    (7,993
    )Fixed rate payable
    
    
    4.96
    %
    
    
    4.96
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.96
    %Weighted average varianceRate receivable (payable)
    
    
    -4.32
    %
    
    
    -2.82
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -3.57
    %Notional amount
    
    $
    
    
    
    $
    52,900
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    52,900
    
    
    $
    (3,711
    )Fixed rate payable
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.00
    %Weighted average varianceRate receivable (payable)
    
    
    -4.36
    %
    
    
    -2.85
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -3.61
    %Total derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,796
    )
 40




---



##### Table of Contents



Liquidity Risk
   
 Item 7. Financial Statements and Supplementary Data
  
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 8A. Controls and Procedures
 (A) Evaluation of Disclosure Controls and Procedures.
  (B) Managements Report on Internal Control over Financial Reporting.
   (C) Changes in internal control over financial reporting.
  
 Item 8B. Other Information
  41




---



##### Table of Contents



PART III
 
 Item 9. Directors and Executive Officers of the Registrant
  
 Item 10. Executive Compensation Summary Compensation Table
  
 Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Securities Authorized for Issuance under Equity Compensation Plans
  Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    
    
    
    
    compensation plansexercise of
    
    
    Weighted-average exercise
    
    
    (excludingoutstanding
    
    
    price of outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants and
    
    
    reflected in columnand rights
    
    
    rights
    
    
    (a))Equity compensation plans
    
    (a)
    
    
    (b)
    
    
    (c)Approved by security
holders:Stock options
    
    
    1,810,632
    
    
    $
    9.86Restricted stock
    
    
    1,276,044
    
    
    $
    
    
    
    
    3,751,106Not approved by security holders:Stock options
    
    
    200,000
    
    
    $
    4.50
 
 Item 12. Certain Relationships and Related Transactions
  
 Item 13. Principal Accountant Fees and Services
  42




---



##### Table of Contents



PART IV
 
 Item 14. Exhibits and Financial Statement Schedules
 Financial Statements
  Financial Statement Schedule
  Exhibits.
 Exhibit No.
    
    Exhibit
    
    Where Located2.1**
    
    Stock Purchase Agreement, dated April 1, 2008, by and among the
Registrant, Crest Communications Corporations Group, Inc., and the
selling stockholders specified therein
    
    Exhibit 2.1 to Form
8-K (filed
8/07/2008)3.1
    
    Amended and Restated Certificate of Incorporation of the Registrant
    
    Exhibit to Form
S-1/A File No.
333-888753 (filed
11/17/1999)3.2
    
    Amended and Restated Bylaws of the Registrant
    
    Exhibit 3.2 to Form
8-K (filed
9/18/2008)4.1
    
    Specimen of Common Stock Certificate
    
    Exhibit to Form
S-1/A File No.
333-888753 (filed
11/17/1999)4.2
    
    Indenture, dated April 8, 2008, by and among the Registrant, the
guarantors named therein, and The Bank of New York Trust Company,
N.A., as trustee, with respect to the Registrants 5.75%
Convertible Notes due 2013
    
    Exhibit 4.1 to Form
8-K (filed
4/14/2008)4.3
    
    Registration Rights Agreement dated April 8, 2008 by and among the
Registrant, the guarantors named therein, and the Initial
Purchasers named therein
    
    Exhibit 4.2 to Form
8-K (filed
4/14/2008)10.1*
    
    ALEC Holdings, Inc. 1999 Stock Incentive Plan
    
    Exhibit 10.10 to
Form S-4 File No.
333-82361 (filed
7/7/1999)10.2*
    
    Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
    
    Exhibit to Form
S-1/A File No.
333-888753 (filed
11/17/1999)10.3*
    
    Form of Restricted Stock Agreement between the Registrant and
certain participants in the Registrants 1999 Stock Incentive
Plan.
    
    Exhibit 10.1 to
Form 10-Q (filed
8/3/2007)10.4*
    
    Form of Performance Share Unit Agreement between the Registrant
and certain participants in the Registrants 1999 Stock Incentive
Plan
    
    Exhibit 99.1 to
Form 8-K/A (filed
6/12/2008)10.5*
    
    Amendment to Alaska Communications Systems Group, Inc. 1999 Stock
Incentive Plan
    
    Filed herewith10.6*
    
    Alaska Communications Systems Group, Inc. 1999 Non-Employee
Director Compensation Plan.
    
    Exhibit to Form
S-1/A File No.
333-888753 (filed
11/17/1999)10.7*
    
    Amendment to Alaska Communications Systems Group, Inc. 1999
Non-Employee Director Compensation Plan.
    
    Filed herewith10.8*
    
    Alaska Communications Systems Group, Inc. 1999 Employee Stock
Purchase Plan.
    
    Exhibit to Form
S-1/A File No.
333-888753 (filed
11/17/1999)10.9*
    
    Amendment to Alaska Communications Systems Group, Inc. 1999
Employee Stock Purchase Plan.
    
    Filed herewith
 43




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##### Table of Contents



Exhibit No.
    
    Exhibit
    
    Where Located10.10*
    
    Amended and Restated Employment Agreement, dated as of September
22, 2008, between Alaska Communications Systems Group, Inc. and
Liane Pelletier.
    
    Exhibit 10.1 to
Form 8-K (filed
9/26/2008)10.11*
    
    Amended and Restated Employment Agreement, dated as of January 5,
2009 between Alaska Communications Systems Group, Inc. and David
Wilson.
    
    Exhibit 10.1 to
Form 8-K (filed
01/09/2009)10.12
    
    Credit Agreement, dated February 1, 2005, among the Registrant,
Alaska Communications Systems Holdings, Inc., the lenders party
thereto, and Canadian Imperial Bank of Commerce, as Administrative
Agent.
    
    Exhibit 10.1 to
Form 8-K (filed
2/2/2005)10.13
    
    Consent and Amendment No. 1, dated July 15, 2005, among the
Registrant, Alaska Communications Systems Holdings, Inc., the
lenders party thereto, and Canadian Imperial Bank of Commerce as
Administrative Agent
    
    Exhibit 1.1 to Form
8-K (filed
7/21/2005)10.14
    
    Consent and Amendment No. 2, dated February 22, 2006, among the
Registrant, Alaska Communications Systems Holdings, Inc., the
lenders party thereto, and Canadian Imperial Bank of Commerce as
Administrative Agent.
    
    Exhibit 10.2 to
Form 8-K (filed
2/27/2006)10.15
    
    Master Agreement, dated November 7, 1999, by and between Alaska
Communications Systems Holdings, Inc. and the International
Brotherhood of Electrical Workers, Local Union 1547.
    
    Exhibit 99.3 to
Form 8-K (filed
3/7/2005)10.16
    
    Letter Agreement, dated March 1, 2005, by and between Alaska
Communications Systems Holdings, Inc. and the International
Brotherhood of Electrical Workers, Local Union 1547.
    
    Exhibit 99.4 to
Form 8-K (filed
3/7/2005)10.17*
    
    2006 Officer Severance Program
    
    Exhibit 99.1 to
Form 8-K (filed
7/17/2006)10.18*
    
    2008 Officer Severance Policy
    
    Exhibit 10.2 to
Form 8-K (filed
12/24/2008)10.19**
    
    Supply and Construction Contract, dated October 23, 2007, between
ACS Cable Systems, Inc. and Tyco Telecommunications (US), Inc.
    
    Exhibit 10.23 to
Form 10-K (filed
3/20/2008)10.20*
    
    Executive Employment Agreement, dated as of November 7, 2007
between Alaska Communications Systems Group, Inc. and Leonard
Steinberg
    
    Exhibit 10.24 to
Form 10-K (filed
3/20/2008)10.21
    
    Purchase Agreement, dated April 2, 2008, by and among Alaska
Communications Systems Group, Inc., the guarantors listed therein
and the Initial Purchasers, regarding the Registrants 5.75%
Convertible Notes due 2013
    
    Exhibit 10.1 to
Form 8-K (filed
4/14/2008)10.22
    
    Confirmations of Convertible Bond Hedges by and between Alaska
Communications Systems Group, Inc. and certain affiliates of the
Initial Purchasers
    
    Exhibit 10.2 to
Form 8-K (filed
4/14/2008)10.22
    
    Confirmations of Warrant Transactions by and between Alaska
Communications Systems Group, Inc. and certain affiliates of the
Initial Purchasers
    
    Exhibit 10.3 to
Form 8-K (filed
4/14/2008)10.23*
    
    Executive Employment Agreement, dated as of December 19, 2008
between the Registrant and Anand Vadapalli
    
    Exhibit 10.1 to
Form 8-K (filed
12/24/2008)10.24*
    
    Amendment to Amended and Restated Employment Agreement, dated
February 8, 2010 between the Registrant and Anand Vadapalli
    
    Exhibit 10.1 to
Form 8-K (filed
2/12/2010)21.1
    
    Subsidiaries of the Registrant
    
    Filed herewith23.1
    
    Consent of KPMG LLP relating to the audited financial statements
of Alaska Communications Systems Group, Inc.
    
    Filed herewith31.1
    
    Certification of Liane Pelletier, Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
    
    Filed herewith32.1
    
    Certification of Liane Pelletier, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of
the Sarbanes-Oxley Act of 2002
    
    Filed herewith
 44




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##### Table of Contents



Exhibit No.
    
    Exhibit
    
    Where Located32.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant
to 18 U.S.C. Section 1350, as adopted to Section 906 of The
Sarbanes-Oxley Act of 2002
    
    Filed herewith
 
 *
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit to
this form.**
    
    Confidential treatment of certain portions of this exhibit has been requested pursuant to a
request for confidential treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission. 45




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##### Table of Contents



SIGNATURES
  Date: March 9, 2010
    Alaska Communications Systems Group, Inc.By:
    /s/Liane PelletierLiane PelletierChief Executive Officer,

Chairman of the Board and President  Signature
    
    Title
    
    Date/s/Liane Pelletier
Liane Pelletier
    
    Chief Executive Officer,
Chairman of the Board and
President (Principal Executive
Officer)
    
    March 9, 2010/s/ David Wilson
David Wilson
    
    Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    March 9, 2010/s/Annette M. Jacobs
    
    Director
    
    March 9, 2010Annette M. Jacobs/s/Brian Rogers
    
    Director
    
    March 9, 2010Brian Rogers/s/David A. Southwell
    
    Director
    
    March 9, 2010David A. Southwell/s/John M. Egan
    
    Director
    
    March 9, 2010John M. Egan/s/Peter Ley
    
    Director
    
    March 9, 2010Peter Ley/s/Gary R. Donahee
    
    Director
    
    March 9, 2010Gary R. Donahee/s/Edward J. Hayes, Jr.
    
    Director
    
    March 9, 2010Edward J. Hayes, Jr.
 46




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
 Reports of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets  December 31, 2009 and 2008
    
    F-4Consolidated Statements of Operations  Years Ended December 31, 2009, 2008 and 2007
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
Years Ended December 31, 2009, 2008 and 2007
    
    F-6Consolidated Statements of Cash Flows  Years Ended December 31, 2009, 2008 and 2007
    
    F-7Notes to Consolidated Financial Statements  Years Ended December 31, 2009, 2008 and 2007
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) Debt
 Internal Control  Integrated
Framework .
 
 F-2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated
Framework
    Internal Control  Integrated Framework
  
 F-3




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Balance Sheets
 December 31, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,271
    
    
    $
    1,326Restricted cash
    
    
    5,843
    
    
    
    20,517Accounts receivable-trade, net of allowance of $6,066 and $5,912
    
    
    35,414
    
    
    
    40,433Materials and supplies
    
    
    7,109
    
    
    
    9,404Prepayments and other current assets
    
    
    4,489
    
    
    
    6,515Deferred income taxes
    
    
    13,814
    
    
    
    21,145Total current assets
    
    
    72,940
    
    
    
    99,340Property, plant and equipment
    
    
    1,416,359
    
    
    
    1,395,552Less: accumulated depreciation and amortization
    
    
    (965,470
    )
    
    
    (891,899
    )Property, plant and equipment, net
    
    
    450,889
    
    
    
    503,653Non-current investments
    
    
    855
    
    
    
    1,005Goodwill
    
    
    8,850
    
    
    
    8,850Intangible assets
    
    
    21,517
    
    
    
    21,517Debt issuance cost
    
    
    5,960
    
    
    
    8,554Deferred income taxes
    
    
    111,625
    
    
    
    105,480Other assets
    
    
    293
    
    
    
    452Total assets
    
    $
    672,929
    
    
    $
    748,851Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    793
    
    
    $
    666Accounts payable, accrued and other current liabilities
    
    
    62,887
    
    
    
    74,028Advance billings and customer deposits
    
    
    9,351
    
    
    
    10,399Total current liabilities
    
    
    73,031
    
    
    
    85,093Non-current obligations, net of current portion
    
    
    538,557
    
    
    
    538,975Other long-term liabilities
    
    
    27,906
    
    
    
    98,693Total liabilities
    
    
    639,494
    
    
    
    722,761Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 145,000 authorized, 44,484 and
43,719 issued and outstanding, respectively
    
    
    445
    
    
    
    437Additional paid in capital
    
    
    198,979
    
    
    
    231,813Accumulated deficit
    
    
    (154,077
    )
    
    
    (188,130
    )Accumulated other comprehensive loss
    
    
    (11,912
    )
    
    
    (18,030
    )Total stockholders equity
    
    
    33,435
    
    
    
    26,090Total liabilities and stockholders equity
    
    $
    672,929
    
    
    $
    748,851
 See Notes to Consolidated Financial Statements
 F-4




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Operations
 Years ended December 31, 2009, 2008, and 2007
(In Thousands, Except Per Share Amounts)
 2009
    
    
    2008
    
    
    2007Operating revenues
    
    $
    346,508
    
    
    $
    351,138
    
    
    $
    350,454Operating expenses:Cost of services and sales
    
    
    136,129
    
    
    
    132,023
    
    
    
    123,241Selling, general and administrative
    
    
    91,649
    
    
    
    99,892
    
    
    
    96,117Depreciation and amortization
    
    
    81,358
    
    
    
    74,002
    
    
    
    71,337Loss on disposal of assets
    
    
    4,327
    
    
    
    750
    
    
    
    248Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    29,641
    
    
    
    Total operating expenses
    
    
    313,463
    
    
    
    336,308
    
    
    
    290,943Operating income
    
    
    33,045
    
    
    
    14,830
    
    
    
    59,511Other income and expense:Interest expense
    
    
    (38,411
    )
    
    
    (34,072
    )
    
    
    (28,386
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (355
    )Interest income
    
    
    91
    
    
    
    1,695
    
    
    
    2,020Other
    
    
    
    
    
    
    (245
    )
    
    
    152Total other income and expense
    
    
    (38,320
    )
    
    
    (32,622
    )
    
    
    (26,569
    )Income (loss) before income tax benefit
    
    
    (5,275
    )
    
    
    (17,792
    )
    
    
    32,942Income tax benefit
    
    
    1,982
    
    
    
    6,975
    
    
    
    111,194Income (loss) before extraordinary item
    
    
    (3,293
    )
    
    
    (10,817
    )
    
    
    144,136Gain on extraordinary item, net of taxes
    
    
    37,346
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    34,053
    
    
    $
    (10,817
    )
    
    $
    144,136Net income (loss) per share:BasicIncome (loss) on continuing operations
    
    $
    (0.08
    )
    
    $
    (0.25
    )
    
    $
    3.38Gain on extraordinary item
    
    
    0.85
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.38DilutedIncome (loss) on continuing operations
    
    $
    (0.08
    )
    
    $
    (0.25
    )
    
    $
    3.26Gain on extraordinary item
    
    
    0.85
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.26Weighted average shares outstandingBasic
    
    
    44,177
    
    
    
    43,391
    
    
    
    42,701Diluted
    
    
    44,177
    
    
    
    43,391
    
    
    
    44,185
 See Notes to Consolidated Financial Statements
 F-5




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Stockholders Equity
 and Comprehensive Income (Loss)
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 AccumulatedOtherCommon
    
    
    Additional Paid
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    in Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance, January 1, 2007
    
    
    42,322
    
    
    $
    423
    
    
    $
    288,425
    
    
    $
    (321,449
    )
    
    $
    1,566
    
    
    $
    (31,035
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,136
    
    
    
    (8,653
    )
    
    
    135,483Dividends declared
    
    
    
    
    
    
    
    
    
    
    (36,840
    )
    
    
    
    
    
    
    
    
    
    
    (36,840
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    6,390
    
    
    
    
    
    
    
    
    
    
    
    6,390Excess tax benefit from share-based payments
    
    
    
    
    
    
    
    
    
    
    755
    
    
    
    
    
    
    
    
    
    
    
    755Surrender of 153 shares to cover withholding
taxes on stock based compensation
    
    
    
    
    
    
    
    
    
    
    (2,330
    )
    
    
    
    
    
    
    
    
    
    
    (2,330
    )Issuance of common stock,
pursuant to stock plans, $.01 par
    
    
    561
    
    
    
    6
    
    
    
    1,582
    
    
    
    
    
    
    
    
    
    
    
    1,588Balance, December 31, 2007
    
    
    42,883
    
    
    
    429
    
    
    
    257,982
    
    
    
    (177,313
    )
    
    
    (7,087
    )
    
    
    74,011Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,817
    )
    
    
    (10,943
    )
    
    
    (21,760
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    (37,523
    )
    
    
    
    
    
    
    
    
    
    
    (37,523
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    8,770
    
    
    
    
    
    
    
    
    
    
    
    8,770Purchase of covertible bond call options
net of tax benefits of $1,056
    
    
    
    
    
    
    
    
    
    
    (19,375
    )
    
    
    
    
    
    
    
    
    
    
    (19,375
    )Sale of common stock warrants
    
    
    
    
    
    
    
    
    
    
    9,852
    
    
    
    
    
    
    
    
    
    
    
    9,852Debt discount, net of tax
    
    
    
    
    
    
    
    
    
    
    14,583
    
    
    
    
    
    
    
    
    
    
    
    14,583Debt issuance, net of tax
    
    
    
    
    
    
    
    
    
    
    (510
    )
    
    
    
    
    
    
    
    
    
    
    (510
    )Surrender of 273 shares to cover withholding
taxes on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (3,383
    )
    
    
    
    
    
    
    
    
    
    
    (3,383
    )Issuance of common stock,
pursuant to stock plans, $.01 par
    
    
    836
    
    
    
    8
    
    
    
    1,417
    
    
    
    
    
    
    
    
    
    
    
    1,425Balance, December 31, 2008
    
    
    43,719
    
    
    
    437
    
    
    
    231,813
    
    
    
    (188,130
    )
    
    
    (18,030
    )
    
    
    26,090Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,053
    
    
    
    6,118
    
    
    
    40,171Dividends declared
    
    
    
    
    
    
    
    
    
    
    (38,216
    )
    
    
    
    
    
    
    
    
    
    
    (38,216
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    4,466
    
    
    
    
    
    
    
    
    
    
    
    4,466Tax benefit of convertible bond call options
    
    
    
    
    
    
    
    
    
    
    1,458
    
    
    
    
    
    
    
    
    
    
    
    1,458Surrender of 265 shares to cover withholding
taxes on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (1,868
    )
    
    
    
    
    
    
    
    
    
    
    (1,868
    )Issuance of common stock
stock, pursuant to stock plans, $.01 par
    
    
    765
    
    
    
    8
    
    
    
    1,326
    
    
    
    
    
    
    
    
    
    
    
    1,334Balance, December 31, 2009
    
    
    44,484
    
    
    $
    445
    
    
    $
    198,979
    
    
    $
    (154,077
    )
    
    $
    (11,912
    )
    
    $
    33,435
 See Notes to Consolidated Financial Statements
 F-6




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Cash Flows
 Years Ended December 31, 2009, 2008 and 2007
(In Thousands)
 2009
    
    
    2008
    
    
    2007Cash Flows from Operating Activities:Net income (loss)
    
    $
    34,053
    
    
    $
    (10,817
    )
    
    $
    144,136Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    81,358
    
    
    
    74,002
    
    
    
    71,337Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    29,641
    
    
    
    Gain on extraordinary item, net of tax
    
    
    (37,346
    )
    
    
    
    
    
    
    Amortization of debt issuance costs and debt discount
    
    
    6,968
    
    
    
    5,290
    
    
    
    2,059Stock-based compensation
    
    
    4,273
    
    
    
    9,477
    
    
    
    6,390Deferred income tax benefit
    
    
    (1,982
    )
    
    
    (6,918
    )
    
    
    (112,495
    )Provision for uncollectible accounts
    
    
    6,258
    
    
    
    4,753
    
    
    
    5,123Excess tax benefit from share-based payments
    
    
    
    
    
    
    
    
    
    
    (755
    )Other non-cash expenses
    
    
    5,377
    
    
    
    1,134
    
    
    
    838Changes in operating assets and liabilities
    
    
    (2,279
    )
    
    
    (10,385
    )
    
    
    (11,841
    )Net cash provided by operating activities
    
    
    96,680
    
    
    
    96,177
    
    
    
    104,792Cash Flows from Investing Activities:Investment in construction and capital expenditures
    
    
    (54,209
    )
    
    
    (129,912
    )
    
    
    (62,645
    )Change in unsettled construction and capital expenditures
    
    
    (7,155
    )
    
    
    6,056
    
    
    
    (509
    )Acquisitions, net of cash acquired
    
    
    (440
    )
    
    
    (64,960
    )
    
    
    Change in unsettled acquisition costs
    
    
    (250
    )
    
    
    4,169
    
    
    
    Net change in short-term investments
    
    
    
    
    
    
    790
    
    
    
    (790
    )Net change in non-current investments
    
    
    150
    
    
    
    (1,250
    )
    
    
    162Net change in restricted accounts
    
    
    14,674
    
    
    
    (17,928
    )
    
    
    (889
    )Net cash used by investing activities
    
    
    (47,230
    )
    
    
    (203,035
    )
    
    
    (64,671
    )Cash Flows from Financing Activities:Repayments of long-term debt
    
    
    (32,382
    )
    
    
    (7,832
    )
    
    
    (5,089
    )Proceeds from the issuance of long-term debt
    
    
    26,500
    
    
    
    135,000
    
    
    
    Purchase of call options
    
    
    
    
    
    
    (20,431
    )
    
    
    Sale of common stock warrants
    
    
    
    
    
    
    9,852
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    (4,368
    )
    
    
    Payment of cash dividend on common stock
    
    
    (38,089
    )
    
    
    (37,287
    )
    
    
    (36,697
    )Payment of withholding taxes on stock-based compensation
    
    
    (1,868
    )
    
    
    (3,383
    )
    
    
    (2,330
    )Excess tax benefit from share-based payments
    
    
    
    
    
    
    
    
    
    
    755Proceeds from the issuance of common stock
    
    
    1,334
    
    
    
    1,425
    
    
    
    1,588Net cash provided (used) by financing activities
    
    
    (44,505
    )
    
    
    72,976
    
    
    
    (41,773
    )Change in cash and cash equivalents
    
    
    4,945
    
    
    
    (33,882
    )
    
    
    (1,652
    )Cash and cash equivalents, beginning of period
    
    
    1,326
    
    
    
    35,208
    
    
    
    36,860Cash and cash equivalents, end of period
    
    $
    6,271
    
    
    $
    1,326
    
    
    $
    35,208Supplemental Cash Flow Data:Interest paid
    
    $
    35,488
    
    
    $
    31,175
    
    
    $
    28,795Income taxes paid, net of refund
    
    
    (884
    )
    
    
    355
    
    
    
    545Supplemental Noncash Transactions:Property acquired under capital leases
    
    $
    1,850
    
    
    $
    1,359
    
    
    
    51Dividend declared, but not paid
    
    
    9,576
    
    
    
    9,449
    
    
    
    9,226Additions to ARO asset
    
    
    1,242
    
    
    
    119
    
    
    
    143
 See Notes to Consolidated Financial Statements
 F-7




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Notes to Consolidated Financial Statements
 Years Ended December 31, 2009, 2008 and 2007
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
    
    Alaska Communications Systems Holdings, Inc. (ACS
Holdings)
 
    
    ACS of Alaska, Inc. (ACSAK)
 
    
    ACS of the Northland, Inc. (ACSN)
 
    
    ACS of Fairbanks, Inc. (ACSF)
 
    
    ACS of Anchorage, Inc. (ACSA)
 
    
    ACS Wireless, Inc. (ACSW)
 
    
    ACS Long Distance, Inc. (ACSLD)
 
    
    ACS Internet, Inc. (ACSI)
 
    
    ACS Messaging, Inc. (ACSM)
 
    
    ACS Cable Systems, Inc. (ACSC)
  Basis of Presentation
  Significant Changes in Accounting Practice, Reclassifications and Adjustments
 Regulated
Operations (ASC 980)
 Use of Estimates
  F-8




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Cash and Cash Equivalents
  Restricted Cash
 ®
  Short-Term Investments
  Materials and Supplies
  Property, Plant and Equipment
    F-9




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Non-current Investments
   Goodwill and Intangible Assets
  Debt Issuance Costs
  Debt Discounts
  Capitalized Interest
  Preferred Stock
  F-10




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Revenue Recognition
    Concentrations of Risk
     F-11




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Advertising Costs
  Income Taxes
  Taxes Collected from Customers and Remitted to Government Authorities
  Regulatory Accounting and Regulation
  Non-Operating Expense
  Derivative Financial Instruments
  F-12




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Dividend Policy
  Share-Based Payments
 Stock options
 Restricted stock
 Performance share units (PSUs).
 Stock-settled stock appreciation rights (SSARs).
 Restricted stock unit equivalents (RSUEs).
 Tax treatment.
 Accounting for Pensions
   F-13




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
   Earnings per Share
  Recently Adopted Accounting Pronouncements
  Interim Disclosures about Fair Value of Financial Instruments
 Recognition and Presentation of
Other-Than-Temporary Impairment of Certain Investments in Debt and Equity Securities
 Subsequent Events
 Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
 Discontinuance of Rate-Regulated Accounting
 F-14




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008, and 2007
(In Thousands, Except Per Share Amounts)
 2. DISCONTINUANCE OF REGULATORY ACCOUNTING
     Effect of Discontinuance
 Asset Retirement and Environmental Obligations
  
    
    eliminated $21,096, $41,598 and $38,417 of intercompany revenue and expense
previously not eliminated during the six months ended June 30, 2009, and the years ended
December 31, 2008 and 2007, respectively;
    
    reclassified $1,143, $3,139 and $3,086, of bad debt expense from contra revenue
to Selling, general & administrative (SG&A) expense in the six months ended June 30, 2009
and the years ended December 31, 2008 and 2007, respectively; and
    
    classified certain other operating expenses as cost of services and sales or
SG&A expense, as appropriate.
  F-15




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008, and 2007
(In Thousands, Except Per Share Amounts)
 3. OTHER COMPREHENSIVE INCOME (LOSS)
  Year EndedDecember 31,2009
    
    
    2008
    
    
    2007Minimum pension liability adjustment
    
    $
    1,269
    
    
    $
    (3,845
    )
    
    $
    1,333Tax effect of pension liability
    
    
    (521
    )
    
    
    1,580
    
    
    
    1,174Interest rate swap marked to fair value
    
    
    9,121
    
    
    
    (14,738
    )
    
    
    (14,933
    )Tax effect of interest rate swap
    
    
    (3,751
    )
    
    
    6,060
    
    
    
    3,773$
    6,118
    
    
    $
    (10,943
    )
    
    $
    (8,653
    )
 4. CREST COMMUNICATIONS ACQUISITION
     F-16




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 4. CREST COMMUNICATIONS ACQUISITION (Continued)
 PreliminaryAllocation
    
    
    Final AllocationOctober 30, 2008
    
    
    October 30, 2009Current assets
    
    $
    5,434
    
    
    $
    5,403Property and equipment
    
    
    61,685
    
    
    
    36,441Other assets
    
    
    10
    
    
    
    10Deferred tax asset
    
    
    3,393
    
    
    
    29,108Total assets acquired
    
    
    70,522
    
    
    
    70,962Current liabilities
    
    
    2,007
    
    
    
    2,007Long-term liabilities
    
    
    2,483
    
    
    
    2,483Total liabilities assumed
    
    
    4,490
    
    
    
    4,490Net assets acquired
    
    $
    66,032
    
    
    $
    66,472
  5. FAIR VALUE MEASUREMENTS
  
    
    Level 1- Quoted prices for identical instruments in active markets.
    
    Level 2- Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are observable;
and
    
    Level 3  Significant inputs to the valuation model are unobservable.
  Fair Value Measurements on a Recurring Basis
  F-17




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 5. FAIR VALUE MEASUREMENTS (Continued)
  December 31, 2009Total
    
    Level 1
    
    Level 2
    
    Level 3Assets:Non-current investmentsAuction rate securities
    
    $
    855
    
    
    $
    
    
    
    $
    
    
    
    $
    855Liabilities:Other long-term liabilitiesInterest rate swaps
    
    $
    (14,796
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
 December 31, 2008Total
    
    Level 1
    
    Level 2
    
    Level 3Assets:Non-current investmentsAuction rate securities
    
    $
    1,005
    
    
    $
    
    
    
    $
    
    
    
    $
    1,005Liabilities:Other long-term liabilitiesInterest rate swaps
    
    $
    (23,917
    )
    
    $
    
    
    
    $
    (23,917
    )
    
    $
    
  2009
    
    
    2008Balance, January 1
    
    $
    1,005
    
    
    $
    Total gains or losses (realized / unrealized)
included in earnings
    
    
    
    
    
    
    (245
    )Purchases, issuances and settlements
    
    
    (150
    )
    
    
    1,250Balance, December 31
    
    $
    855
    
    
    $
    1,005The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at December 31
    
    $
    
    
    
    $
    245
  F-18




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 5. FAIR VALUE MEASUREMENTS (Continued)
  Fair Value Measurements on a Nonrecurring Basis
  6. ACCOUNTS RECEIVABLE
  2009
    
    
    2008Customers
    
    $
    25,416
    
    
    $
    30,420Connecting companies
    
    
    5,018
    
    
    
    8,460Other
    
    
    11,046
    
    
    
    7,46541,480
    
    
    
    46,345Less: allowance for doubtful accounts
    
    
    (6,066
    )
    
    
    (5,912
    )Accounts receivable  trade, net
    
    $
    35,414
    
    
    $
    40,433
 7. PROPERTY, PLANT AND EQUIPMENT
  2009
    
    
    2008
    
    
    Useful LivesLand, buildings and support assets*
    
    $
    246,518
    
    
    $
    235,324
    
    
    
    2 - 45Central office switching and transmission
    
    
    361,784
    
    
    
    344,532
    
    
    
    3 - 12Outside plant cable and wire facilities
    
    
    669,572
    
    
    
    585,288
    
    
    
    6 - 50Wireless switching and transmission
    
    
    104,536
    
    
    
    98,300
    
    
    
    3 - 38Other
    
    
    3,991
    
    
    
    2,822
    
    
    
    2 - 5Construction work in progress
    
    
    29,958
    
    
    
    129,2861,416,359
    
    
    
    1,395,552Less: accumulated depreciation and amortization
    
    
    (965,470
    )
    
    
    (891,899
    )Property, plant and equipment, net
    
    $
    450,889
    
    
    $
    503,653
 
 *
    
    No depreciation charges are recorded for land F-19




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 7. PROPERTY, PLANT AND EQUIPMENT (Continued)
  2009
    
    
    2008Land, buildings and support assets
    
    $
    17,010
    
    
    $
    17,665Outside plant cable and wire facilities
    
    
    2,115
    
    
    
    2,11519,125
    
    
    
    19,780Less: accumulated depreciation and amortization
    
    
    (8,539
    )
    
    
    (7,266
    )Property held under capital leases, net
    
    $
    10,586
    
    
    $
    12,514
  2010
    
    $
    1,3662011
    
    
    1,3762012
    
    
    1,3792013
    
    
    1,0292014
    
    
    605Thereafter
    
    
    2,8258,580Interest
    
    
    (2,611
    )$
    5,969
   2010
    
    $
    7,8182011
    
    
    6,3052012
    
    
    5,7842013
    
    
    5,4752014
    
    
    5,224Thereafter
    
    
    48,154$
    78,760
 8. ASSET RETIREMENT OBLIGATIONS
 Asset
Retirement and Environmental Obligations
  F-20




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 8. ASSET RETIREMENT OBLIGATIONS (Continued)
   Balance, January 1, 2008
    
    $
    1,411Asset retirement obligation
    
    
    499Accretion expense
    
    
    117Settlement of lease obligations
    
    
    (58
    )Balance, December 31, 2008
    
    $
    1,969Asset retirement obligation
    
    
    2,249Accretion expense
    
    
    1,267Settlement of lease obligations
    
    
    (48
    )Balance, December 31, 2009
    
    $
    5,437
 9. GOODWILL AND OTHER INTANGIBLE ASSETS
     F-21




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 9. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
  Wireline
    
    
    Wireless
    
    
    TotalGoodwill:Balance, January 1, 2008
    
    $
    29,553
    
    
    $
    8,850
    
    
    $
    38,403Impairment expense
    
    
    (29,553
    )
    
    
    
    
    
    
    (29,553
    )Balance, December 31, 2009 and 2008
    
    $
    
    
    
    $
    8,850
    
    
    $
    8,850Indefinite-lived intangible assets:Balance, January 1, 2008Domain and trade names
    
    $
    88
    
    
    $
    
    
    
    $
    88Wireless licenses
    
    
    
    
    
    
    21,517
    
    
    
    21,517Impairment loss of domain and trade names
    
    
    (88
    )
    
    
    
    
    
    
    (88
    )Balance, December 31, 2009 and 2008
    
    $
    
    
    
    $
    21,517
    
    
    $
    21,517
 10. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES
  2009
    
    
    2008Accounts payable  trade
    
    $
    15,555
    
    
    $
    23,854Accrued payroll, benefits, and related liabilities
    
    
    13,706
    
    
    
    16,822Dividend payable
    
    
    9,576
    
    
    
    9,449Unsettled acquisition costs
    
    
    3,919
    
    
    
    4,169Access revenue subject to refund
    
    
    3,292
    
    
    
    5,226Other
    
    
    16,839
    
    
    
    14,508$
    62,887
    
    
    $
    74,028
 11. LONG-TERM OBLIGATIONS
  2009
    
    
    20082005 senior credit facility term loan due 2012
    
    $
    425,889
    
    
    $
    425,8895.75% convertible notes due 2013
    
    
    125,000
    
    
    
    125,000Debt discount - 5.75% convertible notes due 2013
    
    
    (17,508
    )
    
    
    (21,882
    )Revolving credit facility loan
    
    
    
    
    
    
    5,000Capital leases and other long-term obligations
    
    
    5,969
    
    
    
    5,634539,350
    
    
    
    539,641Less current portion
    
    
    (793
    )
    
    
    (666
    )Long-term obligations, net of current portion
    
    $
    538,557
    
    
    $
    538,975
 F-22




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 11. LONG-TERM OBLIGATIONS (Continued)
  2010
    
    $
    7932011
    
    
    8852012
    
    
    551,8702013
    
    
    7262014
    
    
    348Thereafter
    
    
    2,236$
    556,858
 2005 Senior Credit Facility
   Fixed rateinclusive ofNotional
    
    1.75% premiumAmount
    
    over LIBOR
    
    Expirations$85,000
    
    
    6.25
    %
    
    March 2010$40,000
    
    
    6.18
    %
    
    September 2011$115,000
    
    
    6.71
    %
    
    December 2011$52,900
    
    
    6.75
    %
    
    December 2011
   5.75% Convertible Notes due 2013
  F-23




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 11. LONG-TERM OBLIGATIONS (Continued)
  Derivatives and Hedging  Contracts in
Entitys Own Equity
 Derivatives and Hedging
       F-24




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 11. LONG-TERM OBLIGATIONS (Continued)
 Earnings per Share
    As originally
    
    
    Retrospective
    
    
    As retrospectivelyreported
    
    
    adjustment
    
    
    appliedProperty, plant and equipment
    
    $
    1,393,952
    
    
    $
    1,600
    
    
    $
    1,395,552Debt issuance costs
    
    $
    9,290
    
    
    $
    (736
    )
    
    $
    8,554Non-current deferred income taxes
    
    $
    114,831
    
    
    $
    (9,351
    )
    
    $
    105,480Long-term obligations, net of current portion
    
    $
    560,857
    
    
    $
    (21,882
    )
    
    $
    538,975Additional paid in capital
    
    $
    217,740
    
    
    $
    14,073
    
    
    $
    231,813Accumulated deficit
    
    $
    (187,452
    )
    
    $
    (678
    )
    
    $
    (188,130
    )
  2009
    
    
    2008Net carrying amount of the equity component
    
    $
    14,073
    
    
    $
    14,073Principal amount of the convertible notes
    
    $
    125,000
    
    
    $
    125,000Unamortized debt discount
    
    $
    17,508
    
    
    $
    21,882Amortization period remaining
    
    38 months
    
    50 monthsNet carrying amount of the convertible notes
    
    $
    107,492
    
    
    $
    103,118
  F-25




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 11. LONG-TERM OBLIGATIONS (Continued)
 2009
    
    
    2008Coupon interest expense
    
    $
    7,187
    
    
    $
    5,278Amortization of the debt discount
    
    
    4,374
    
    
    
    2,880Total included in interest expense
    
    $
    11,561
    
    
    $
    8,158
 Capital Leases and Other Long-term Obligations
  12. OTHER LONG-TERM LIABILITIES
  2009
    
    
    2008Interest rate swaps
    
    $
    14,796
    
    
    $
    23,917Asset retirement obligation
    
    
    5,437
    
    
    
    1,969Other liabilities
    
    
    4,331
    
    
    
    5,134Pension liability
    
    
    3,342
    
    
    
    3,556Regulatory liabilities *
    
    
    
    
    
    
    64,117$
    27,906
    
    
    $
    98,693
 
 *
    
    Reflects the discontinuance of regulatory accounting and the impact of
extinguishing the Companys jurisdictional liability. See Note  2 Discontinuance of
Regulatory Accounting 13. INCOME TAXES
  2009
    
    
    2008
    
    
    2007Computed federal income taxes at the statutory rate
    
    $
    (20,350
    )
    
    $
    6,227
    
    
    $
    (11,530
    )Expense benefit in tax resulting from:State income taxes (net of federal benefit)
    
    
    (3,579
    )
    
    
    1,036
    
    
    
    (2,254
    )Excess compensation not allowed
    
    
    
    
    
    
    
    
    
    
    (209
    )Other
    
    
    (63
    )
    
    
    197
    
    
    
    (183
    )Rate change
    
    
    
    
    
    
    
    
    
    
    3,361Stock-based compensation
    
    
    (97
    )
    
    
    (485
    )
    
    
    (489
    )Extraordinary gain
    
    
    26,071
    
    
    
    
    
    
    
    Valuation allowance
    
    
    
    
    
    
    
    
    
    
    122,498Total income tax benefit
    
    $
    1,982
    
    
    $
    6,975
    
    
    $
    111,194
 F-26




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 13. INCOME TAX (Continued)
  2009
    
    
    2008
    
    
    2007Current:Federal income tax
    
    $
    
    
    
    $
    48
    
    
    $
    (1,103
    )State income tax
    
    
    
    
    
    
    9
    
    
    
    (198
    )Total current
    
    
    
    
    
    
    57
    
    
    
    (1,301
    )Deferred:Federal income tax
    
    
    (18,581
    )
    
    
    5,332
    
    
    
    (7,616
    )State income tax
    
    
    (5,508
    )
    
    
    1,586
    
    
    
    (2,387
    )Extraordinary gain
    
    
    26,071Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    122,498Total deferred
    
    
    1,982
    
    
    
    6,918
    
    
    
    112,495Total income tax benefit
    
    $
    1,982
    
    
    $
    6,975
    
    
    $
    111,194
  2009
    
    
    2008Deferred tax assets (liabilities):Current:Accrued compensation
    
    $
    2,623
    
    
    $
    3,723Allowance for doubtful accounts
    
    
    2,494
    
    
    
    2,430Net operating loss carry forwards
    
    
    151
    
    
    
    3,238Fair value on interest rate swaps
    
    
    6,082
    
    
    
    9,833Pension liability
    
    
    409
    
    
    
    410Specific reserves
    
    
    1,028
    
    
    
    685Self insurance accruals
    
    
    755
    
    
    
    665Other
    
    
    272
    
    
    
    16113,814
    
    
    
    21,145Long-term:Net operating loss carry forwards
    
    
    69,379
    
    
    
    56,076Alternative minimum tax carry forward
    
    
    5,215
    
    
    
    5,167Intangibles and goodwill
    
    
    20,318
    
    
    
    25,782Deferred revenue
    
    
    787
    
    
    
    865Pension liability
    
    
    1,824
    
    
    
    2,344Property, plant and equipment
    
    
    17,912
    
    
    
    20,661Stock-based compensation
    
    
    2,577
    
    
    
    3,125Debt issuance costs
    
    
    (6,968
    )
    
    
    (8,693
    )Other
    
    
    581
    
    
    
    153111,625
    
    
    
    105,480Total deferred tax assets, net
    
    $
    125,439
    
    
    $
    126,625
  F-27




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 13. INCOME TAX (Continued)
  Income Taxes
 Compensation  Stock Compensation
  Total Unused Operating LossYear of
    
    Carry forwardsExpiration
    
    Federal
    
    
    State2018
    
    $
    9,178
    
    
    $
    2019
    
    
    
    
    
    
    2020
    
    
    2,209
    
    
    
    2021
    
    
    34,034
    
    
    
    30,7192022
    
    
    28,697
    
    
    
    25,7802023
    
    
    9,485
    
    
    
    8,4962024
    
    
    48,062
    
    
    
    47,6582025
    
    
    24,008
    
    
    
    23,6082026
    
    
    3,609
    
    
    
    1,3772027
    
    
    800
    
    
    
    2542028
    
    
    4,945
    
    
    
    4,0872029
    
    
    9,127
    
    
    
    8,832$
    174,154
    
    
    $
    150,811
   F-28




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 13. INCOME TAX (Continued)
  14. EARNINGS PER SHARE
  2009
    
    
    2008
    
    
    2007Basic earnings per share:Income (loss) before extraordinary item
    
    $
    (3,293
    )
    
    $
    (10,817
    )
    
    $
    144,136Extraordinary item, net of taxes
    
    
    37,346
    
    
    
    
    
    
    
    Net income (loss) applicable to common shares
    
    $
    34,053
    
    
    $
    (10,817
    )
    
    $
    144,136Weighted average common shares outstanding
    
    
    44,177
    
    
    
    43,391
    
    
    
    42,701Basic earnings per shareIncome (loss) before extraordinary item
    
    
    (0.08
    )
    
    $
    (0.25
    )
    
    $
    3.38Extraordinary item, net of taxes
    
    
    0.85
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.38Diluted earnings per share:Dilutive sharesWeighted average shares outstanding:
    
    
    44,177
    
    
    
    43,391
    
    
    
    42,701Restricted stock, options and deferred shares
    
    
    
    
    
    
    
    
    
    
    1,484Weighted average diluted shares outstanding
    
    
    44,177
    
    
    
    43,391
    
    
    
    44,185Diluted earnings per shareIncome (loss) before extraordinary item
    
    $
    (0.08
    )
    
    $
    (0.25
    )
    
    $
    3.26Extraordinary item, net of taxes
    
    
    0.85
    
    
    
    
    
    
    
    Net Income (loss) per share
    
    $
    0.77
    
    
    $
    (0.25
    )
    
    $
    3.26
 F- 29




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 15. STOCK INCENTIVE PLANS
  Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
     2003 Options for Officer Inducement Grant
  2008 Restricted Stock Unit Equivalents for Officer Inducement Grant
  F- 30




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 15.STOCK INCENTIVE PLANS (Continued)
 Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
   ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
  Stock Compensation Expense
  Alaska Communications Systems Group,
Inc. 1999 Stock Incentive Plan,
 F- 31




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 15.STOCK INCENTIVE PLANS (Continued)
 Valuation Assumptions
  2009
    
    
    2008
    
    
    2007Stock options:Risk free rate
    
    
    0.25
    %
    
    
    0.25% - 2.00
    %
    
    
    Dividend yield
    
    
    9.27
    %
    
    
    7.59
    %
    
    
    Expected volatility factor
    
    
    36.27
    %
    
    
    33.88
    %
    
    
    Expected option life (years)
    
    
    3.24
    
    
    
    3.22
    
    
    
    Restricted stock:Risk free rate
    
    
    0% - 0.25
    %
    
    
    0.25% - 2.25
    %
    
    
    4.25% - 5.25
    %Quarterly dividend
    
    $
    0.215
    
    
    $
    0.215
    
    
    $
    0.215Expected, per annum,
forfeiture rate
    
    
    0% - 5.47
    %
    
    
    0% - 4.47
    %
    
    
    4.47
    %
 Options and Restricted Stock Outstanding
 Stock Options and Stock-Settled Stock Appreciation Rights
   Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding, January 1, 2009
    
    
    1,350
    
    
    $
    8.94Granted
    
    
    775
    
    
    
    9.30Exercised
    
    
    (112
    )
    
    
    4.44Canceled or expired
    
    
    (2
    )
    
    
    9.23Outstanding at
December 31, 2009
    
    
    2,011
    
    
    
    9.33
    
    
    
    3.79
    
    
    $
    1,283Exercisable at December 31, 2009
    
    
    1,197
    
    
    $
    9.36
    
    
    
    3.75
    
    
    
    1,244
  Twelve Months EndedDecember 31,2009
    
    
    2008
    
    
    2007Weighted-average grant-date fair value of equity
instruments granted
    
    $
    3.27
    
    
    $
    5.87
    
    
    $
    10.48Total fair value of shares vested during the period
    
    $
    7,300
    
    
    $
    8,403
    
    
    $
    5,273Total intrinsic value of options exercised
    
    $
    391
    
    
    $
    4,260
    
    
    $
    2,225
 F- 32




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 15.STOCK INCENTIVE PLANS (Continued)
 Restricted Stock Units and Performance Share Units
   WeightedAverageNumber of
    
    
    FairShares
    
    
    ValueOutstanding at January 1, 2009
    
    
    1,382
    
    
    $
    10.26Granted
    
    
    845
    
    
    
    5.28Vested
    
    
    (762
    )
    
    
    9.57Canceled or expired
    
    
    (189
    )
    
    
    8.18Outstanding at December 31, 2009
    
    
    1,276
    
    
    $
    7.69
  Average PeriodUnamortized
    
    
    to ExpenseExpense
    
    
    (years)Stock options and SARs
    
    $
    308
    
    
    
    1.0Restricted stock
    
    
    5,008
    
    
    
    3.4$
    5,316
    
    
    
    3.3
 16. RETIREMENT PLANS
    F- 33




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 16. RETIREMENT PLANS
   2009
    
    
    2008Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    13,094
    
    
    $
    12,883Interest cost
    
    
    838
    
    
    
    810Actuarial gain
    
    
    971
    
    
    
    166Benefits paid
    
    
    (774
    )
    
    
    (765
    )Benefit obligation at end of year
    
    
    14,129
    
    
    
    13,094Change in plan aassets:Fair value of plan assets at beginning of year
    
    
    9,538
    
    
    
    13,311Actual return on plan assets
    
    
    1,988
    
    
    
    (3,008
    )Employer contribution
    
    
    35
    
    
    
    Benefits paid
    
    
    (774
    )
    
    
    (765
    )Fair value of plan assets at end of year
    
    
    10,787
    
    
    
    9,538Funded status
    
    $
    (3,342
    )
    
    $
    (3,556
    )
   2009
    
    
    2008
    
    
    2007Interest cost
    
    $
    838
    
    
    $
    810
    
    
    $
    782Expected return on plan assets
    
    
    (730
    )
    
    
    (1,031
    )
    
    
    (994
    )Amortization of loss
    
    
    778
    
    
    
    157
    
    
    
    322Amortization of prior service cost
    
    
    203
    
    
    
    203
    
    
    
    203Net periodic pension expense
    
    $
    1,089
    
    
    $
    139
    
    
    $
    313
 F- 34




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 16.RETIREMENT PLANS (Continued)
  2009
    
    
    2008Components of other comprehensive (income) loss:Prior service cost
    
    $
    129
    
    
    $
    332Net loss
    
    
    5,302
    
    
    
    6,368$
    5,431
    
    
    $
    6,700
  2009
    
    
    2008Discount rate for benefit obligation
    
    
    5.89
    %
    
    
    6.63
    %Discount rate for pension expense
    
    
    6.63
    %
    
    
    6.49
    %Expected long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation increase
    
    
    0.00
    %
    
    
    0.00
    %
   Minimum
    
    
    MaximumEquity securities
    
    
    40
    %
    
    
    100
    %Fixed income
    
    
    20
    %
    
    
    60
    %Cash equivalents
    
    
    0
    %
    
    
    10
    %
  Asset Category
    
    2009
    
    
    2008Equity securities*
    
    
    60
    %
    
    
    54
    %Debt securities*
    
    
    39
    %
    
    
    46
    %Other/Cash
    
    
    1
    %
    
    
    0
    %
 
 *
    
    May include mutual funds comprised of both stocks and bonds. F- 35




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 16.RETIREMENT PLANS (Continued)
  Asset Category
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Money market
    
    $
    66
    
    
    $
    66
    
    
    $
    
    
    
    $
    Equity Securities (Investment Funds)*International Growth
    
    
    1,629
    
    
    
    1,629
    
    
    
    
    
    
    
    U.S. Small CAP
    
    
    520
    
    
    
    520
    
    
    
    
    
    
    
    U.S. Large CAP
    
    
    4,350
    
    
    
    4,350
    
    
    
    
    
    
    
    Debt Securities (Investment Funds)*PIMCO Total Return
Fund
    
    
    4,222
    
    
    
    4,222
    
    
    
    
    
    
    
    $
    10,787
    
    
    $
    10,787
    
    
    $
    
    
    
    $
    
 
 *
    
    May include mutual
funds comprised of
both stocks and
bonds.    2010
    
    $
    8942011
    
    
    9202012
    
    
    9402013
    
    
    9732014
    
    
    9772015-2019
    
    
    5,248
    F- 36




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 16.RETIREMENT PLANS (Continued)
  17. BUSINESS SEGMENTS
        Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    260,529
    
    
    $
    143,500
    
    
    $
    10,926
    
    
    $
    (68,447
    )
    
    $
    346,508Intersegment revenue
    
    
    55,041
    
    
    
    2,480
    
    
    
    10,926
    
    
    
    
    
    
    
    68,447Depreciation and amortization
    
    
    66,986
    
    
    
    8,963
    
    
    
    5,409
    
    
    
    
    
    
    
    81,358Operating income (loss)
    
    
    (12,424
    )
    
    
    45,632
    
    
    
    (163
    )
    
    
    
    
    
    
    33,045Interest expense
    
    
    2,479
    
    
    
    703
    
    
    
    (41,593
    )
    
    
    
    
    
    
    (38,411
    )Interest income
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91Income (loss) before income tax
    
    
    (9,945
    )
    
    
    46,335
    
    
    
    (41,665
    )
    
    
    
    
    
    
    (5,275
    )Income tax (expense) benefit
    
    
    (23,801
    )
    
    
    (19,008
    )
    
    
    44,791
    
    
    
    
    
    
    
    1,982Extraordinary item, net of tax
    
    
    37,442
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    37,346Net income
    
    
    3,696
    
    
    
    27,231
    
    
    
    3,126
    
    
    
    
    
    
    
    34,053Total assets
    
    
    484,718
    
    
    
    183,099
    
    
    
    5,112
    
    
    
    
    
    
    
    672,929Capital expenditures
    
    
    32,953
    
    
    
    13,575
    
    
    
    7,681
    
    
    
    
    
    
    
    54,209
 F- 37




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008, and 2007
(In Thousands, Except Per Share Amounts)
 17. BUSINESS SEGMENTS (Continued)
  Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    263,435
    
    
    $
    144,843
    
    
    $
    19,391
    
    
    $
    (76,531
    )
    
    $
    351,138Intersegment revenue
    
    
    54,411
    
    
    
    2,729
    
    
    
    19,391
    
    
    
    
    
    
    
    76,531Depreciation and amortization
    
    
    52,159
    
    
    
    8,223
    
    
    
    13,620
    
    
    
    
    
    
    
    74,002Loss on impairment of goodwill
and
intangible assets
    
    
    29,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,641Operating income (loss)
    
    
    (32,394
    )
    
    
    42,409
    
    
    
    4,815
    
    
    
    
    
    
    
    14,830Interest expense
    
    
    3,665
    
    
    
    504
    
    
    
    (38,241
    )
    
    
    
    
    
    
    (34,072
    )Interest income
    
    
    1
    
    
    
    
    
    
    
    1,694
    
    
    
    
    
    
    
    1,695Income (loss) before income tax
    
    
    (28,728
    )
    
    
    42,913
    
    
    
    (31,977
    )
    
    
    
    
    
    
    (17,792
    )Income tax (expense) benefit
    
    
    3,407
    
    
    
    (17,949
    )
    
    
    21,517
    
    
    
    
    
    
    
    6,975Net income (loss)
    
    
    (25,321
    )
    
    
    24,964
    
    
    
    (10,460
    )
    
    
    
    
    
    
    (10,817
    )Total assets
    
    
    556,675
    
    
    
    185,283
    
    
    
    10,109
    
    
    
    (3,216
    )
    
    
    748,851Capital expenditures
    
    
    109,462
    
    
    
    14,633
    
    
    
    5,817
    
    
    
    
    
    
    
    129,912
  Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    262,973
    
    
    $
    138,654
    
    
    $
    11,207
    
    
    $
    (62,380
    )
    
    $
    350,454Intersegment revenue
    
    
    48,569
    
    
    
    2,604
    
    
    
    11,207
    
    
    
    
    
    
    
    62,380Depreciation and amortization
    
    
    53,297
    
    
    
    13,199
    
    
    
    4,841
    
    
    
    
    
    
    
    71,337Operating income
    
    
    10,430
    
    
    
    43,284
    
    
    
    5,797
    
    
    
    
    
    
    
    59,511Interest expense
    
    
    38
    
    
    
    1,208
    
    
    
    (29,632
    )
    
    
    
    
    
    
    (28,386
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (355
    )
    
    
    
    
    
    
    (355
    )Interest income
    
    
    2
    
    
    
    
    
    
    
    2,018
    
    
    
    
    
    
    
    2,020Income (loss) before income tax
    
    
    10,729
    
    
    
    44,522
    
    
    
    (22,309
    )
    
    
    
    
    
    
    32,942Income tax (expense) benefit
    
    
    (664
    )
    
    
    (18,191
    )
    
    
    130,049
    
    
    
    
    
    
    
    111,194Net income
    
    
    10,065
    
    
    
    26,331
    
    
    
    107,740
    
    
    
    
    
    
    
    144,136Total assets
    
    
    464,845
    
    
    
    191,227
    
    
    
    7,131
    
    
    
    
    
    
    
    663,203Capital expenditures
    
    
    28,162
    
    
    
    15,519
    
    
    
    18,964
    
    
    
    
    
    
    
    62,645
 18. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
   F- 38




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 18.ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
    19. COMMITMENTS AND CONTINGENCIES
    F- 39




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Per Share Amounts)
 20. SELECTED QUARTERLY FINANCIAL INFORMATION (Unaudited)
 Quarterly Financial DataFirst
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Total2009Operating revenues
    
    $
    86,158
    
    
    $
    86,019
    
    
    $
    91,262
    
    
    $
    83,069
    
    
    $
    346,508Operating income (loss)
    
    
    12,275
    
    
    
    12,323
    
    
    
    10,325
    
    
    
    (1,878
    )
    
    
    33,045Net income (loss)
    
    
    2,219
    
    
    
    1,158
    
    
    
    37,671
    
    
    
    (6,995
    )
    
    
    34,053Net income (loss) per share:Basic
    
    
    0.05
    
    
    
    0.03
    
    
    
    0.85
    
    
    
    (0.16
    )
    
    
    0.77Diluted
    
    
    0.05
    
    
    
    0.03
    
    
    
    0.83
    
    
    
    (0.16
    )
    
    
    0.772008Operating revenues
    
    $
    87,830
    
    
    $
    85,152
    
    
    $
    91,285
    
    
    $
    86,871
    
    
    $
    351,138Operating income (loss)
    
    
    16,832
    
    
    
    9,624
    
    
    
    12,045
    
    
    
    (23,671
    )
    
    
    14,830Net income (loss)
    
    
    5,776
    
    
    
    633
    
    
    
    1,845
    
    
    
    (19,071
    )
    
    
    (10,817
    )Net income (loss) per share:Basic
    
    
    0.13
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    (0.44
    )
    
    
    (0.25
    )Diluted
    
    
    0.13
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    (0.44
    )
    
    
    (0.25
    )
    F- 40