##### 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, 2010
 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(State or other jurisdiction of incorporation or organization)
    
    52-2126573600 Telephone Avenue
    
    (I.R.S. Employer Identification No.)Anchorage, Alaska
    
    99503-6091(Zip Code)
    
    (Address of principal executive offices)
 (907) 297-3000
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, Par Value $.01 per Share
    
    The NASDAQ Stock Market LLC
 None
  o þ
  o þ
  þ o
  þ 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, 2010
TABLE OF CONTENTS
 Cautionary Statement Regarding Forward Looking Statements and Analysts Reports
    
    
    3PART I
    
    
    4Item 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    16Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    26Item 3. Legal Proceedings
    
    
    27Item 4. (Removed and Reserved)
    
    
    28PART II
    
    
    28Item 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    28Item 6. Selected Financial Data
    
    
    29Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A. Quantitative and qualitative disclosures about market risk
    
    
    45Item 8. Financial Statements and Supplementary Data
    
    
    46Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    46Item 9A. Controls and Procedures
    
    
    46Item 9B. Other Information
    
    
    46PART III
    
    
    47Item 10. Directors and Executive Officers of the Registrant
    
    
    47Item 11. Executive Compensation Summary Compensation Table
    
    
    47Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    47Item 13. Certain Relationships and Related Transactions
    
    
    47Item 14. Principal Accountant Fees and Services
    
    
    47PART IV
    
    
    48Item 15. Exhibits and Financial Statement Schedules
    
    
    48Subsidiary
    
    
    52Index to Consolidated Financial Statements
    
    
    F-1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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Cautionary Statement Regarding Forward Looking Statements and Analysts Reports
 ®
 
    
    our strongly competitive environment, which comprises national and local wireless
and wireline facilities-based competitors;
    
    the entry of one or more additional facilities-based carriers into the Alaska
market;
    
    our substantial debt which requires us to dedicate a substantial portion of our cash
flow from operations for payments to service our debt and to access to the capital
markets to extend maturities;
    
    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
contiguous states;
    
    the financial and business performance of TekMate, LLC (TekMate), an information
technology company, of which we acquired 49% in August 2010, and our ability to use
that investment to drive future sales growth;
    
    unanticipated damage to one or more of our high capacity cables resulting from
construction or digging mishaps, fishing boats or natural disasters;
    
    changes in general industry and market conditions, and structural declines within
the telecommunications industry;
    
    changes in 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 changes in revenue from
Universal Service Funds (USFs);
    
    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;
    
    unanticipated costs required to fund our postretirement benefit plans;
    
    the success or failure of any future acquisitions;
    
    loss of key personnel;
    
    the outcome of an on-going Internal Revenue Service (IRS) audit and the ability of
certain third parties to pay on their indemnity to us related to that audit; and
    
    the matters described under Item 1ARisk Factors.
 3




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PART I
 
 Item 1. Business
 About Alaska Communications
     Business Segments
 
 Wireline
  Enterprise
  4




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sm
  Retail
  Wholesale
  Access
  Network and Technology
    Competition
  5




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Wireless
  Products and Services
  Devices
 ® ® ®
 Technology
   Coverage
  Competition
   6




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Marketing
 sm
 Sales and Distribution Channels
   Customer Base
  Seasonality
  Employees
  7




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Regulation
  Overview
   
    
    ACS of Anchorage, Inc. (ACSA);
    
    ACS of Alaska, Inc. (ACSAK);
    
    ACS of Fairbanks, Inc. (ACSF); and
    
    ACS of the Northland, Inc. (ACSN).
     Federal regulation
  Interconnection with local telephone companies and access to other facilities
  8




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Interstate access charges
    9




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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
  13




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Interconnection
  Competitive local exchange regulations
   End user local rates
  Intrastate access rates
    14




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E-911
  Alaska Universal Service Fund
   ETC Determinations
     Other RCA Proceedings
  15




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Website Access to Reports
  Code of Ethics
  
 Item 1A. Risk Factors
  Risks Relating to Our Industry
 The telecommunications industry in Alaska is extremely competitive and will become even more
competitive if and when Verizon enters the market.
  Wireless Competition
  16




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Wireline Competition
   Device Access
 Exclusive Arrangements between wireless device manufacturers and large wireless carriers hamper our
ability to procure and sell many popular wireless handsets and other devices.
 ®
 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.
   17




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Risks Relating to Our Debt
 Substantial 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.
   Debt-Related Financial Covenants
 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.
 18




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Debt Service Requirements
 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;
    
    reduce cash available for dividends;
    
    sales of equity; and
    
    negotiations with our lenders to restructure the applicable debt.
  Convertible Debt Related Risks
 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.
  Risks related to our Business
 AKORN and Northstar Fiber Profitability
 We may not successfully operate our AKORN and Northstar fiber facilities that connect Alaska to the
contiguous states profitably.
 19




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
    
    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.
  Long-Haul Fiber Competition
 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.
  Access Lines
 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.
  Access Charges and USF Support
 Revenues from network access charges may be reduced or lost.
  20




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We may not continue to receive as much USF support as we have in the past.
  Roaming Charges
 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.
  Economic Conditions
 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 and
prices;
 21




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
    
    the strength of the Alaskan tourism industry;
    
    the level of government and military spending; and
    
    the continued growth of services industries.
  Pension and Deferred Compensation Plans
 We may incur substantial and unexpected liabilities arising out of our pension and deferred
compensation plans.
   Regulations
 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 in a
timely manner with these new regulations.
  22




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Labor
 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.
    Key Members of Senior Management
 We depend on key members of our senior management team.
  Vendors
 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.
   Network / E-911 Failure
 A failure of our network could cause significant delays or interruptions of service, which could
cause us to lose customers.
  23




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A failure of enhanced emergency calling services associated with our network may harm our business.
  Wireless Devices
 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
 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 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.
 24




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Risks related to the On-going IRS Audit
 We are subject to a significant ongoing IRS audit, which could, in the event we prove unable to
effectively enforce the indemnification obligations of third parties, require us to pay significant
amounts.
 , .
 Risks related to our Common Stock
 Dividends
 You may not receive the level of dividends provided for in our dividend policy or any dividends at
all.
  Volatility
 Continued volatility in the price of our common stock would negatively affect us and our
stockholders.
  
 Item 1B. Unresolved Staff Comments
  25




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Item 2. Properties
  2010
    
    
    2009Land, buildings and support assets
    
    $
    247,568
    
    
    $
    246,518Central office switching and transmission
    
    
    366,154
    
    
    
    361,784Outside plant cable and wire facilities
    
    
    678,178
    
    
    
    669,572Wireless switching and transmission
    
    
    100,352
    
    
    
    104,536Other
    
    
    4,026
    
    
    
    3,991Construction work in progress
    
    
    20,440
    
    
    
    27,357$
    1,416,718
    
    
    $
    1,413,758
       26




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Item 3. Legal Proceedings
     ,
Income Taxes
   27




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Item 4. (Removed and Reserved)
 
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  2010 Quarters
    
    High
    
    Low4th
    
    $
    11.65
    
    
    $
    9.763rd
    
    $
    10.62
    
    
    $
    8.402nd
    
    $
    9.22
    
    
    $
    7.581st
    
    $
    8.69
    
    
    $
    6.77
 2009 Quarters
    
    High
    
    Low4th
    
    $
    9.17
    
    
    $
    6.533rd
    
    $
    9.41
    
    
    $
    6.222nd
    
    $
    7.72
    
    
    $
    5.611st
    
    $
    9.85
    
    
    $
    4.92
  Dividends
  Dividend
    
    
    
    
    
    Dividend
    
    
    
    
    
    
    
    
    
    
    perNumber
    
    Announcement Date
    
    
    Date
    
    
    Record Date
    
    
    Payment Date
    
    
    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
    
    
    $
    0.21522
    
    
    3/22/2010
    
    
    
    3/29/2010
    
    
    
    3/31/2010
    
    
    
    4/21/2010
    
    
    $
    0.21523
    
    
    6/14/2010
    
    
    
    6/28/2010
    
    
    
    6/30/2010
    
    
    
    7/21/2010
    
    
    $
    0.21524
    
    
    9/21/2010
    
    
    
    9/28/2010
    
    
    
    9/30/2010
    
    
    
    10/20/2010
    
    
    $
    0.21525
    
    
    12/16/2010
    
    
    
    12/29/2010
    
    
    
    12/31/2010
    
    
    
    1/19/2011
    
    
    $
    0.215
 28




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
    
    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 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.
  Securities Authorized for Issuance under Equity Compensation Plans
  
 Item 6. Selected Financial Data
  (in thousands/except per share amounts)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Operating Data:Operating revenues
    
    $
    341,524
    
    
    $
    346,040
    
    
    $
    349,682
    
    
    $
    348,790
    
    
    $
    319,331Net income (loss)
    
    
    (30,688
    )
    
    
    33,777
    
    
    
    (11,674
    )
    
    
    144,050
    
    
    
    11,978Income (loss) per share  basic
    
    $
    (0.69
    )
    
    $
    0.77
    
    
    $
    (0.27
    )
    
    $
    3.37
    
    
    $
    0.28Income (loss) per share  diluted
    
    $
    (0.69
    )
    
    $
    0.77
    
    
    $
    (0.27
    )
    
    $
    3.26
    
    
    $
    0.28Cash dividends per share
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.86
    
    
    $
    0.86Balance Sheet Data (end of period):Total assets
    
    $
    620,615
    
    
    $
    675,298
    
    
    $
    751,028
    
    
    $
    664,781
    
    
    $
    556,216Long-term debt, including current portion
    
    
    553,309
    
    
    
    539,350
    
    
    
    539,641
    
    
    
    432,996
    
    
    
    438,213
 29




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Important Changes to Presentation
 Materiality. Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements,
  December 31, 2009(in thousands)
    
    As Reported
    
    
    Adj
    
    
    As RevisedNoncurrent deferred income taxes
    
    $
    111,625
    
    
    $
    2,369
    
    
    $
    113,994Total assets
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298Accounts payable, accrued and
other current liabilities
    
    
    62,887
    
    
    
    5,764
    
    
    
    68,651Total current liabilities
    
    
    73,031
    
    
    
    5,764
    
    
    
    78,795Total liabilities
    
    
    639,494
    
    
    
    5,764
    
    
    
    645,258Accumulated deficit
    
    
    (154,077
    )
    
    
    (3,395
    )
    
    
    (157,472
    )Total stockholders equity
    
    
    33,435
    
    
    
    (3,395
    )
    
    
    30,040Total liabilities and stockholders equity
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298
  Twelve Months endedDecember 31, 2009
    
    
    December 31, 2008(in thousands)
    
    As Reported
    
    
    Adj
    
    
    As Revised
    
    
    As Reported
    
    
    Adj
    
    
    As RevisedOperating revenues
    
    $
    346,508
    
    
    $
    (468
    )
    
    $
    346,040
    
    
    $
    351,138
    
    
    $
    (1,456
    )
    
    $
    349,682Operating income
    
    
    33,045
    
    
    
    (468
    )
    
    
    32,577
    
    
    
    14,830
    
    
    
    (1,456
    )
    
    
    13,374Income (loss) before
income
tax (benefit) expense
    
    
    (5,275
    )
    
    
    (468
    )
    
    
    (5,743
    )
    
    
    (17,792
    )
    
    
    (1,456
    )
    
    
    (19,248
    )Income tax benefit
(expense)
    
    
    1,982
    
    
    
    192
    
    
    
    2,174
    
    
    
    6,975
    
    
    
    599
    
    
    
    7,574Income (loss) before extraordinary
item, net of taxes
    
    
    (3,293
    )
    
    
    (276
    )
    
    
    (3,569
    )
    
    
    (10,817
    )
    
    
    (857
    )
    
    
    (11,674
    )Net income (loss)
    
    
    34,053
    
    
    
    (276
    )
    
    
    33,777
    
    
    
    (10,817
    )
    
    
    (857
    )
    
    
    (11,674
    )
 30




---



##### Table of Contents



Twelve Months endedDecember 31, 2009
    
    
    December 31, 2008(in thousands)
    
    As Reported
    
    
    Adj
    
    
    As Revised
    
    
    As Reported
    
    
    Adj
    
    
    As RevisedNet income
    
    $
    34,053
    
    
    $
    (276
    )
    
    $
    33,777
    
    
    $
    (10,817
    )
    
    $
    (857
    )
    
    $
    (11,674
    )Deferred income taxes
    
    
    (1,982
    )
    
    
    (192
    )
    
    
    (2,174
    )
    
    
    (6,918
    )
    
    
    (599
    )
    
    
    (7,517
    )Changes in operating
assets
and liabilities
    
    
    (2,279
    )
    
    
    468
    
    
    
    (1,811
    )
    
    
    (10,385
    )
    
    
    1,456
    
    
    
    (8,929
    )
 Regulated Operations
 
    
    recognize an extraordinary item as a result of the extinguishment of all our
jurisdictional assets and liabilities net of the liability representing our asset
retirement obligation in accordance with ASC Topic 410  Asset Retirement and
Environmental Obligations(ASC 410);
    
    eliminate all intercompany transactions;
    
    reclassify bad debt expense as a component of Selling, General and Administrative
(SG&A); and
    
    make certain other reclassifications in the Consolidated Statement of Operations to
separate operating expenses into cost of services and sales and SG&A.
  Overview
  
    
    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.
   31




---



##### Table of Contents



Strategy
  Emphasis on Top-Line Growth
  Investment with Discipline
  Grow our Connect / Host / Manage sm Offerings
  Continuous Enhancement of Products and Services
  Process Improvement to Achieve Operational Excellence
  Pay for Performance
  Careful Cash Flow Management
  32




---



##### Table of Contents



Revenue Sources by Segment
 Wireline
  Enterprise
  
    
    multi-site business customers and state and federal governments by providing
connectivity, hosting and collocation services; and advanced network services; and
    
    other carriers by providing capacity and transport services; and local and long
distance private line and data services.
 Retail
  
    
    basic local telephone service including features to customers within our service
areas;
    
    ISP services including DSL and dial up;
    
    long distance services; and
    
    CPE sales to business customers.
   As of December 312010
    
    
    2009
    
    
    2008Local telephone
    
    
    156,653
    
    
    
    163,914
    
    
    
    174,524Annual growth rate
    
    
    -4.4
    %
    
    
    -6.1
    %
    
    
    -6.0
    %DSL
    
    
    45,698
    
    
    
    46,612
    
    
    
    47,648Annual growth rate
    
    
    -2.0
    %
    
    
    -2.2
    %
    
    
    0.3
    %Dial up
    
    
    4,262
    
    
    
    5,565
    
    
    
    6,741Annual growth rate
    
    
    -23.4
    %
    
    
    -17.4
    %
    
    
    -26.1
    %Long distance
    
    
    59,166
    
    
    
    61,469
    
    
    
    64,252Annual growth rate
    
    
    -3.7
    %
    
    
    -4.3
    %
    
    
    -1.5
    %
 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.
  As of December 312010
    
    
    2009
    
    
    2008UNE and resale local
    
    
    15,780
    
    
    
    21,625
    
    
    
    26,844Annual growth rate
    
    
    -27.0
    %
    
    
    -19.4
    %
    
    
    -34.0
    %
 33




---



##### Table of Contents



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 contiguous states and Canadian carriers with roaming access to our
network for their subscribers; and
    
    CETC subsidies.
   As of December 312010
    
    
    2009
    
    
    2008Retail wireless
    
    
    120,178
    
    
    
    137,072
    
    
    
    147,793Annual growth rate
    
    
    -12.3
    %
    
    
    -7.3
    %
    
    
    2.3
    %Wholesale wireless
    
    
    235
    
    
    
    293
    
    
    
    346Annual growth rate
    
    
    -19.8
    %
    
    
    -15.3
    %
    
    
    -82.7
    %
 34




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##### Table of Contents



Results of Operations
  ($ in thousands)
    
    2010
    
    
    2009
    
    
    2008Operating revenues:WirelineEnterprise
    
    $
    48,571
    
    
    $
    45,360
    
    
    $
    34,187Retail
    
    
    82,658
    
    
    
    85,506
    
    
    
    89,283Wholesale
    
    
    9,441
    
    
    
    11,485
    
    
    
    14,369Access
    
    
    60,253
    
    
    
    62,669
    
    
    
    69,729Wireline
    
    
    200,923
    
    
    
    205,020
    
    
    
    207,568Wireless
    
    
    140,601
    
    
    
    141,020
    
    
    
    142,114Total operating revenues
    
    
    341,524
    
    
    
    346,040
    
    
    
    349,682Operating expenses:WirelineCost of services and sales
    
    
    75,595
    
    
    
    82,477
    
    
    
    73,194Selling, general and administrative
    
    
    65,527
    
    
    
    67,373
    
    
    
    75,409WirelessCost of services and sales
    
    
    55,267
    
    
    
    53,652
    
    
    
    58,829Selling, general and administrative
    
    
    23,037
    
    
    
    24,276
    
    
    
    24,483Depreciation and amortization
    
    
    72,078
    
    
    
    81,358
    
    
    
    74,002Loss on disposal of assets
    
    
    2,846
    
    
    
    4,327
    
    
    
    750Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    
    
    
    
    29,641Total operating expenses
    
    
    294,350
    
    
    
    313,463
    
    
    
    336,308Operating income
    
    
    47,174
    
    
    
    32,577
    
    
    
    13,374Other income and expense:Interest expense
    
    
    (34,754
    )
    
    
    (38,411
    )
    
    
    (34,072
    )Loss on extinguishment of debt
    
    
    (13,339
    )
    
    
    
    
    
    
    Interest income
    
    
    83
    
    
    
    91
    
    
    
    1,695Other
    
    
    
    
    
    
    
    
    
    
    (245
    )Total other income and expense
    
    
    (48,010
    )
    
    
    (38,320
    )
    
    
    (32,622
    )Loss before income tax benefit (expense)
    
    
    (836
    )
    
    
    (5,743
    )
    
    
    (19,248
    )Income tax benefit (expense)
    
    
    (29,852
    )
    
    
    2,174
    
    
    
    7,574Loss before extraordinary item
    
    
    (30,688
    )
    
    
    (3,569
    )
    
    
    (11,674
    )Gain on extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    Net income (loss)
    
    $
    (30,688
    )
    
    $
    33,777
    
    
    $
    (11,674
    )
 35




---



##### Table of Contents



Year ended December 31, 2010 Compared to the Year ended December 31, 2009
 Operating Revenues
 Wireline
 Enterprise: sm
 Retail:
 Wholesale:
 Access:
 Wireless
  Operating Expense
 Wireline
  Cost of Services and Sales
 Selling, General and Administrative Costs:
 Wireless:
 Cost of Services and Sales:
 36




---



##### Table of Contents



Selling, General and Administrative:
 Depreciation and Amortization:
  Loss on Disposal of Assets
  Other Income and Expense:
  Income Taxes
  Extraordinary Item
  Net Income (loss)
  Year ended December 31, 2009 Compared to the Year ended December 31, 2008
 Operating Revenues
 Wireline
 Enterprise:
 Retail:
 37




---



##### Table of Contents



Wholesale:
 Access:
 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:
  Loss on Disposal of Assets:
  38




---



##### Table of Contents



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)
  39




---



##### Table of Contents



Liquidity and Capital Resources
  (in thousands)
    
    2010
    
    
    2009Net cash provided by operating activities
    
    $
    86,367
    
    
    $
    96,680Net change in funds held in restricted accounts
    
    $
    931
    
    
    $
    14,674Investment in construction and capital expenditures
    
    $
    (38,336
    )
    
    $
    (54,209
    )Change in unsettled construction and capital expenditures
    
    $
    (2,534
    )
    
    $
    (7,155
    )Proceeds on sale of assets
    
    $
    1,085
    
    
    $
    Purchase of equity investment
    
    $
    (2,060
    )
    
    $
    Acquisitions, net of cash acquired
    
    $
    
    
    
    $
    (440
    )Net borrowings (repayments)
    
    $
    8,978
    
    
    $
    (5,882
    )Debt issuance costs
    
    $
    (7,276
    )
    
    $
    Payment of cash dividend on common stock
    
    $
    (38,394
    )
    
    $
    (38,089
    )Interest paid
    
    $
    (28,911
    )
    
    $
    (35,488
    )
 Sources
 Sources in General
      40




---



##### Table of Contents



Senior Credit Facility
  Total Leverage Ratio:
 Senior Secured Leverage Ratio:
 Fixed
Charges Coverage Ratio:
 Adjusted EBITDA
 
    
    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;
  
    
    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.
 Fixed charges
 Uses
    41




---



##### Table of Contents



Other Material Obligations and Commitments
  Contractual Obligations
   (in thousands)
    
    Total
    
    
    2011
    
    
    2012-2013
    
    
    2014-2015
    
    
    ThereafterLong-term debt
    
    $
    565,000
    
    
    $
    4,400
    
    
    $
    133,800
    
    
    $
    8,800
    
    
    $
    418,000Interest on long-term debt
    
    
    157,652
    
    
    
    32,285
    
    
    
    57,671
    
    
    
    48,026
    
    
    
    19,670Capital leases
    
    
    5,194
    
    
    
    813
    
    
    
    1,552
    
    
    
    587
    
    
    
    2,242Operating leases
    
    
    88,999
    
    
    
    8,619
    
    
    
    15,200
    
    
    
    13,729
    
    
    
    51,451Unconditional purchase obligations
    
    
    37,812
    
    
    
    10,827
    
    
    
    14,168
    
    
    
    8,476
    
    
    
    4,341Total contractual cash obligations
    
    $
    854,657
    
    
    $
    56,944
    
    
    $
    222,391
    
    
    $
    79,618
    
    
    $
    495,704
 Off-Balance Sheet Arrangements
  42




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Regulatory and Intercompany Accounting
   Revenue Recognition Policies
   Income Taxes
  Derivative Financial Instruments
  43




---



##### Table of Contents



Recently Issued Accounting Pronouncements
 Revenue
Recognition  Multiple-Deliverable Revenue Arrangements a Consensus of the FASB Emerging Issues
Task Force.
 Software  Certain Revenues Arrangements That
Include Software Elements.
 44




---



##### Table of Contents



Item 7A. Quantitative and qualitative disclosures about market risk
   Fair($ in thousands)
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    Total
    
    
    ValueInterest Bearing Liabilities2010 bank credit
facility
    
    $
    4,400
    
    
    $
    4,400
    
    
    $
    4,400
    
    
    $
    4,400
    
    
    $
    4,400
    
    
    $
    418,000
    
    
    $
    440,000
    
    
    $
    440,100Weighted average
interest rate
(var)
    

    
    5.50
    %
    
    
    5.50
    %
    
    
    6.21
    %
    
    
    7.08
    %
    
    
    7.90
    %
    
    
    8.42
    %
    
    
    6.75
    %5.75% convertible
notes due 2013
    
    $
    
    
    
    $
    125,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    125,000
    
    
    $
    117,710Average interest
rate (fixed)
    
    
    5.75
    %
    
    
    5.75
    %

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    5.75
    %Captial lease and
other long-term
    
    $
    813
    
    
    $
    905
    
    
    $
    647
    
    
    $
    266
    
    
    $
    321
    
    
    $
    2,242
    
    
    $
    5,194
    
    
    $
    5,194Average interest
rate (fixed)
    
    
    9.90
    %
    
    
    9.95
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    9.97
    %Total fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    563,004Interest Rate DerivativesVariable to fixed
interest rate swapNotional amount
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    192,500
    
    
    $
    
    
    
    $
    192,500
    
    
    $
    3,412Fixed rate payable
    
    
    
    
    
    
    2.46
    %
    
    
    2.46
    %
    
    
    2.46
    %
    
    
    2.46
    %
    

    
    
    
    
    
    2.46
    %Weighted average
varianceRate receivable
(payable)
    
    
    
    
    
    
    3.97
    %
    
    
    4.67
    %
    
    
    5.55
    %
    
    
    6.27
    %
    

    
    
    
    
    
    5.20
    %Notional amount
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    115,500
    
    
    $
    
    
    
    $
    115,500
    
    
    $
    1,918Fixed rate payable
    
    
    
    
    
    
    2.47
    %
    
    
    2.47
    %
    
    
    2.47
    %
    
    
    2.47
    %
    

    
    
    
    
    
    2.47
    %Weighted average
varianceRate receivable
(payable)
    
    
    
    
    
    
    3.98
    %
    
    
    4.68
    %
    
    
    5.55
    %
    
    
    6.28
    %
    

    
    
    
    
    
    5.21
    %Notional amount
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    77,000
    
    
    $
    
    
    
    $
    77,000
    
    
    $
    1,538Fixed rate payable
    
    
    
    
    
    
    2.48
    %
    
    
    2.48
    %
    
    
    2.48
    %
    
    
    2.48
    %
    

    
    
    
    
    
    2.48
    %Weighted average
varianceRate receivable
(payable)
    
    
    
    
    
    
    3.98
    %
    
    
    4.68
    %
    
    
    5.56
    %
    
    
    6.28
    %
    

    
    
    
    
    
    5.21
    %Notional amount
    
    $
    
    
    
    $
    385,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    385,000
    
    
    $
    138Total fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,006
 Liquidity Risk
  45




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Managements Report on Internal Control over Financial Reporting.
   Changes in internal control over financial reporting.
  
 Item 9B. Other Information
  46




---



##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation Summary Compensation Table
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    Number of
    
    
    
    
    
    
    Number of securitiessecurities to be
    
    
    
    
    
    
    remaining available forissued upon
    
    
    
    
    
    
    future issuance underexercise of
    
    
    
    
    
    
    equity compensationoutstanding
    
    
    Weighted-average exercise
    
    
    plans (excludingoptions, warrants
    
    
    price of outstanding options,
    
    
    securities reflected inand rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation plans
    
    (a)
    
    
    (b)
    
    
    (c)Approved by security holders:Stock options
    
    
    1,605,049
    
    
    $
    10.16Restricted stock
    
    
    1,680,598
    
    
    $
    
    
    
    
    3,349,269Not approved by security holders:Stock options
    
    
    200,000
    
    
    $
    4.50
 
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  47




---



##### Table of Contents



V
 
 Item 15. Exhibits and Financial Statement Schedules
     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 3.1 to Form
8-K (filed
12/29/2010)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
    
    Exhibit 10.5 to
Form 10-K (filed
3/9/2010)10.6*
    
    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)
 48




---



##### Table of Contents



Exhibit No.
    
    Exhibit
    
    Where Located10.7*
    
    Amendment to Alaska Communications Systems
Group, Inc. 1999 Non-Employee Director
Compensation Plan.
    
    Exhibit 10.7 to
Form 10-K (filed
3/9/2010)10.8*
    
    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.
    
    Exhibit 10.9 to
Form 10-K (filed
3/9/2010)10.10*
    
    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
    
    Letter of Amendment to Employment Agreement
for Liane Pelletier, dated December 1, 2010,
between Alaska Communications Systems Group,
Inc. and Liane Pelletier
    
    Exhibit 10.1 to
Form 8-K (filed
12/03/2010)10.12*
    
    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)10.13
    
    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)10.14
    
    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)10.15
    
    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)10.16
    
    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)10.17
    
    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)10.18*
    
    2006 Officer Severance Program
    
    Exhibit 99.1 to
Form 8-K (filed
7/17/2006)10.19*
    
    2008 Officer Severance Policy
    
    Exhibit 10.2 to
Form 8-K (filed
12/24/2008)10.20
    
    2010 Officer Severance Policy
    
    Exhibit 10.1 to
Form 8-K (filed
11/04/2010)10.21**
    
    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)10.22*
    
    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)10.23
    
    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)
 49




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##### Table of Contents



Exhibit No.
    
    Exhibit
    
    Where Located10.24
    
    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)10.25
    
    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)10.26*
    
    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)10.27*
    
    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 herewith32.2
    
    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. 50




---



##### Table of Contents



SIGNATURES
  Date: February 28, 2011
    Alaska Communications Systems Group, Inc.By:
    /s/ Anand VadapalliAnand VadapalliChief Executive Officer, President  Signature
    
    Title
    
    Date/s/ Anand Vadapalli

Anand Vadapalli
    
    Chief Executive Officer and President
(Principal Executive
Officer)
    
    February 28, 2011/s/  David Wilson

David Wilson
    
    Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
    
    February 28, 2011/s/  Liane Pelletier

Liane Pelletier
    
    Chairman of the Board
    
    February 28, 2011/s/ Annette M. Jacobs

Annette M. Jacobs
    
    Director
    
    February 28, 2011/s/ Brian Rogers

Brian Rogers
    
    Director
    
    February 28, 2011s/ John N. Wanamaker

John N. Wanamaker
    
    Director
    
    February 28, 2011s/ Peter Ley

Peter Ley
    
    Director
    
    February 28, 2011/s/ Gary R. Donahee

Gary R. Donahee
    
    Director
    
    February 28, 2011/s/ Edward J. Hayes, Jr.

Edward J. Hayes, Jr.
    
    Director
    
    February 28, 2011
 51




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Reports of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets  December 31, 2010 and 2009
    
    F-4Consolidated Statements of Operations  Years Ended December 31, 2010, 2009 and 2008
    
    F-5Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2009 and 2008
    
    F-6Consolidated Statements of Cash Flows  Years Ended December 31, 2010, 2009 and 2008
    
    F-7Notes to Consolidated Financial Statements  Years Ended December 31, 2010, 2009 and 2008
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    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, 2010 and 2009
(In Thousands, Except Per Share Amounts)
 2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,316
    
    
    $
    6,271Restricted cash
    
    
    4,912
    
    
    
    5,843Accounts receivable-trade, net of allowance of $6,616 and $6,066
    
    
    36,985
    
    
    
    35,414Materials and supplies
    
    
    6,533
    
    
    
    7,109Prepayments and other current assets
    
    
    3,999
    
    
    
    4,489Deferred income taxes
    
    
    10,949
    
    
    
    13,814Total current assets
    
    
    78,694
    
    
    
    72,940Property, plant and equipment
    
    
    1,416,718
    
    
    
    1,413,758Less: accumulated depreciation and amortization
    
    
    (1,005,736
    )
    
    
    (965,470
    )Property, plant and equipment, net
    
    
    410,982
    
    
    
    448,288Non-current investments
    
    
    355
    
    
    
    855Goodwill
    
    
    8,850
    
    
    
    8,850Intangible assets, net
    
    
    24,118
    
    
    
    24,118Debt issuance costs
    
    
    8,584
    
    
    
    5,960Deferred income taxes
    
    
    76,813
    
    
    
    113,994Equity method investment
    
    
    2,060
    
    
    
    Other assets
    
    
    10,159
    
    
    
    293Total assets
    
    $
    620,615
    
    
    $
    675,298Liabilities and Stockholders Equity (Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    5,213
    
    
    $
    793Accounts payable, accrued and other current liabilities
    
    
    62,539
    
    
    
    68,651Advance billings and customer deposits
    
    
    9,568
    
    
    
    9,351Total current liabilities
    
    
    77,320
    
    
    
    78,795Long-term obligations, net of current portion
    
    
    548,096
    
    
    
    538,557Other long-term liabilities
    
    
    15,688
    
    
    
    27,906Total liabilities
    
    
    641,104
    
    
    
    645,258Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 145,000 authorized, 44,704 and
44,484 issued and outstanding, respectively
    
    
    447
    
    
    
    445Additional paid in capital
    
    
    166,259
    
    
    
    198,979Accumulated deficit
    
    
    (188,160
    )
    
    
    (157,472
    )Accumulated other comprehensive income (loss)
    
    
    965
    
    
    
    (11,912
    )Total stockholders equity (deficit)
    
    
    (20,489
    )
    
    
    30,040Total liabilities and stockholders equity
    
    $
    620,615
    
    
    $
    675,298
 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, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 2010
    
    
    2009
    
    
    2008Operating revenues
    
    $
    341,524
    
    
    $
    346,040
    
    
    $
    349,682Operating expenses:Cost of services and sales
    
    
    130,862
    
    
    
    136,129
    
    
    
    132,023Selling, general and administrative
    
    
    88,564
    
    
    
    91,649
    
    
    
    99,892Depreciation and amortization
    
    
    72,078
    
    
    
    81,358
    
    
    
    74,002Loss on disposal of assets
    
    
    2,846
    
    
    
    4,327
    
    
    
    750Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    
    
    
    
    29,641Total operating expenses
    
    
    294,350
    
    
    
    313,463
    
    
    
    336,308Operating income
    
    
    47,174
    
    
    
    32,577
    
    
    
    13,374Other income and expense:Interest expense
    
    
    (34,754
    )
    
    
    (38,411
    )
    
    
    (34,072
    )Loss on extinguishment of debt
    
    
    (13,339
    )
    
    
    
    
    
    
    Interest income
    
    
    83
    
    
    
    91
    
    
    
    1,695Other
    
    
    
    
    
    
    
    
    
    
    (245
    )Total other income and expense
    
    
    (48,010
    )
    
    
    (38,320
    )
    
    
    (32,622
    )Loss before income tax benefit (expense)
    
    
    (836
    )
    
    
    (5,743
    )
    
    
    (19,248
    )Income tax benefit (expense)
    
    
    (29,852
    )
    
    
    2,174
    
    
    
    7,574Loss before extraordinary item
    
    
    (30,688
    )
    
    
    (3,569
    )
    
    
    (11,674
    )Gain on extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    Net income (loss)
    
    $
    (30,688
    )
    
    $
    33,777
    
    
    $
    (11,674
    )Net income (loss) per share:Basic and dilutedLoss on continuing operations
    
    $
    (0.69
    )
    
    $
    (0.08
    )
    
    $
    (0.27
    )Gain on extraordinary item
    
    
    
    
    
    
    0.85
    
    
    
    Net income (loss)
    
    $
    (0.69
    )
    
    $
    0.77
    
    
    $
    (0.27
    )Weighted average shares outstandingBasic and diluted
    
    
    44,589
    
    
    
    44,177
    
    
    
    43,391
 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 (Deficit)
and Comprehensive Income (Loss)
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 AccumulatedOtherCommon
    
    
    Additional Paid
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    in Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity (Deficit)Balance, January 1, 2008
    
    
    42,883
    
    
    $
    429
    
    
    $
    257,982
    
    
    $
    (179,575
    )
    
    $
    (7,087
    )
    
    $
    71,749Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,674
    )
    
    
    (10,943
    )
    
    
    (22,617
    )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
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
    
    
    
    (191,249
    )
    
    
    (18,030
    )
    
    
    22,971Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,777
    
    
    
    6,118
    
    
    
    39,895Dividends 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,
pursuant to stock plans, $.01 par
    
    
    765
    
    
    
    8
    
    
    
    1,326
    
    
    
    
    
    
    
    
    
    
    
    1,334Balance, December 31, 2009
    
    
    44,484
    
    
    
    445
    
    
    
    198,979
    
    
    
    (157,472
    )
    
    
    (11,912
    )
    
    
    30,040Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,688
    )
    
    
    12,877
    
    
    
    (17,811
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    (38,446
    )
    
    
    
    
    
    
    
    
    
    
    (38,446
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    3,989
    
    
    
    
    
    
    
    
    
    
    
    3,989Tax benefit of convertible bond call options
    
    
    
    
    
    
    
    
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,575Surrender of 45 shares to cover withholding
taxes on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (392
    )
    
    
    
    
    
    
    
    
    
    
    (392
    )Issuance of common stock,
pursuant to stock plans, $.01 par
    
    
    220
    
    
    
    2
    
    
    
    554
    
    
    
    
    
    
    
    
    
    
    
    556Balance, December 31, 2010
    
    
    44,704
    
    
    $
    447
    
    
    $
    166,259
    
    
    $
    (188,160
    )
    
    $
    965
    
    
    $
    (20,489
    )
 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, 2010, 2009 and 2008
(In Thousands)
 2010
    
    
    2009
    
    
    2008Cash Flows from Operating Activities:Net income (loss)
    
    $
    (30,688
    )
    
    $
    33,777
    
    
    $
    (11,674
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    72,078
    
    
    
    81,358
    
    
    
    74,002Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    
    
    
    
    29,641Gain on extraordinary item, net of tax
    
    
    
    
    
    
    (37,346
    )
    
    
    Amortization of debt issuance costs and debt discount
    
    
    9,674
    
    
    
    6,968
    
    
    
    5,290Stock-based compensation
    
    
    3,989
    
    
    
    4,273
    
    
    
    9,477Deferred income tax (benefit) expense
    
    
    32,634
    
    
    
    (2,174
    )
    
    
    (7,517
    )Provision for uncollectible accounts
    
    
    2,863
    
    
    
    6,258
    
    
    
    4,753Other non-cash expenses
    
    
    3,595
    
    
    
    5,377
    
    
    
    1,134Changes in operating assets and liabilities
    
    
    (7,778
    )
    
    
    (1,811
    )
    
    
    (8,929
    )Net cash provided by operating activities
    
    
    86,367
    
    
    
    96,680
    
    
    
    96,177Cash Flows from Investing Activities:Investment in construction and capital expenditures
    
    
    (38,336
    )
    
    
    (54,209
    )
    
    
    (127,311
    )Change in unsettled construction and capital expenditures
    
    
    (2,534
    )
    
    
    (7,155
    )
    
    
    6,056Investment in intangible assets
    
    
    
    
    
    
    
    
    
    
    (2,601
    )Proceeds on sale of assets
    
    
    1,085
    
    
    
    
    
    
    
    Purchase of equity investment
    
    
    (2,060
    )
    
    
    
    
    
    
    Acquisitions, net of cash acquired
    
    
    
    
    
    
    (440
    )
    
    
    (64,960
    )Change in unsettled acquisition costs
    
    
    (380
    )
    
    
    (250
    )
    
    
    4,169Net change in short-term investments
    
    
    
    
    
    
    
    
    
    
    790Net change in non-current investments
    
    
    500
    
    
    
    150
    
    
    
    (1,250
    )Net change in restricted accounts
    
    
    931
    
    
    
    14,674
    
    
    
    (17,928
    )Net cash used by investing activities
    
    
    (40,794
    )
    
    
    (47,230
    )
    
    
    (203,035
    )Cash Flows from Financing Activities:Repayments of long-term debt
    
    
    (438,622
    )
    
    
    (32,382
    )
    
    
    (7,832
    )Proceeds from the issuance of long-term debt
    
    
    447,600
    
    
    
    26,500
    
    
    
    135,000Purchase of call options
    
    
    
    
    
    
    
    
    
    
    (20,431
    )Sale of common stock warrants
    
    
    
    
    
    
    
    
    
    
    9,852Debt issuance costs
    
    
    (7,276
    )
    
    
    
    
    
    
    (4,368
    )Payment of cash dividend on common stock
    
    
    (38,394
    )
    
    
    (38,089
    )
    
    
    (37,287
    )Payment of withholding taxes on stock-based compensation
    
    
    (392
    )
    
    
    (1,868
    )
    
    
    (3,383
    )Proceeds from the issuance of common stock
    
    
    556
    
    
    
    1,334
    
    
    
    1,425Net cash provided (used) by financing activities
    
    
    (36,528
    )
    
    
    (44,505
    )
    
    
    72,976Change in cash and cash equivalents
    
    
    9,045
    
    
    
    4,945
    
    
    
    (33,882
    )Cash and cash equivalents, beginning of period
    
    
    6,271
    
    
    
    1,326
    
    
    
    35,208Cash and cash equivalents, end of period
    
    $
    15,316
    
    
    $
    6,271
    
    
    $
    1,326Supplemental Cash Flow Data:Interest paid
    
    $
    28,911
    
    
    $
    35,488
    
    
    $
    31,175Loss on extinguishment of hedging instruments
    
    $
    11,145
    
    
    $
    
    
    
    $
    Income taxes paid, net of refund
    
    
    34
    
    
    
    (884
    )
    
    
    355Supplemental Noncash Transactions:Property acquired under capital leases
    
    $
    1,295
    
    
    $
    1,850
    
    
    
    1,359Dividend declared, but not paid
    
    
    9,628
    
    
    
    9,576
    
    
    
    9,449Additions to ARO asset
    
    
    88
    
    
    
    1,242
    
    
    
    119
 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, 2010, 2009 and 2008
 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)
    
    Crest Communications Corporation (Crest)
    
    WCI Cable, Inc.
    
    WCIC Hillsboro, LLC.
    
    Alaska Northstar Communications, LLC.
    
    WCI Lightpoint, LLC.
    
    Worldnet Communications, Inc.
    
    Alaska Fiber Star, LLC.
   Basis of Presentation
  Significant Changes in Accounting Practice, Reclassifications and Adjustments
 Materiality. Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in the Current Year Financial Statements,
  F-8




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  December 31, 2009As Reported
    
    
    Adj
    
    
    As RevisedNoncurrent deferred income taxes
    
    $
    111,625
    
    
    $
    2,369
    
    
    $
    113,994Total assets
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298Accounts payable, accrued and
other current liabilities
    
    
    62,887
    
    
    
    5,764
    
    
    
    68,651Total current liabilities
    
    
    73,031
    
    
    
    5,764
    
    
    
    78,795Total liabilities
    
    
    639,494
    
    
    
    5,764
    
    
    
    645,258Accumulated deficit
    
    
    (154,077
    )
    
    
    (3,395
    )
    
    
    (157,472
    )Total stockholders equity
    
    
    33,435
    
    
    
    (3,395
    )
    
    
    30,040Total liabilities and stockholders equity
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298
  Twelve Months endedDecember 31, 2009
    
    
    December 31, 2008As Reported
    
    
    Adj
    
    
    As Revised
    
    
    As Reported
    
    
    Adj
    
    
    As RevisedOperating revenues
    
    $
    346,508
    
    
    $
    (468
    )
    
    $
    346,040
    
    
    $
    351,138
    
    
    $
    (1,456
    )
    
    $
    349,682Operating income
    
    
    33,045
    
    
    
    (468
    )
    
    
    32,577
    
    
    
    14,830
    
    
    
    (1,456
    )
    
    
    13,374Income (loss) before income
tax (benefit) expense
    
    
    (5,275
    )
    
    
    (468
    )
    
    
    (5,743
    )
    
    
    (17,792
    )
    
    
    (1,456
    )
    
    
    (19,248
    )Income tax benefit (expense)
    
    
    1,982
    
    
    
    192
    
    
    
    2,174
    
    
    
    6,975
    
    
    
    599
    
    
    
    7,574Income (loss) before extraordinary
item, net of taxes
    
    
    (3,293
    )
    
    
    (276
    )
    
    
    (3,569
    )
    
    
    (10,817
    )
    
    
    (857
    )
    
    
    (11,674
    )Net income (loss)
    
    
    34,053
    
    
    
    (276
    )
    
    
    33,777
    
    
    
    (10,817
    )
    
    
    (857
    )
    
    
    (11,674
    )
  Twelve Months endedDecember 31, 2009
    
    
    December 31, 2008As Reported
    
    
    Adj
    
    
    As Revised
    
    
    As Reported
    
    
    Adj
    
    
    As RevisedNet income
    
    $
    34,053
    
    
    $
    (276
    )
    
    $
    33,777
    
    
    $
    (10,817
    )
    
    $
    (857
    )
    
    $
    (11,674
    )Deferred income taxes
    
    
    (1,982
    )
    
    
    (192
    )
    
    
    (2,174
    )
    
    
    (6,918
    )
    
    
    (599
    )
    
    
    (7,517
    )Changes in operating assets
and liabilities
    
    
    (2,279
    )
    
    
    468
    
    
    
    (1,811
    )
    
    
    (10,385
    )
    
    
    1,456
    
    
    
    (8,929
    )
 Regulated
Operations
 F-9




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Use of Estimates
  Cash and Cash Equivalents
  Restricted Cash
   Bad Debt Reserves
  Materials and Supplies
  F-10




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Property, Plant and Equipment
    Capitalized Interest
  Asset retirement obligations
  Non-current Investments
  Equity Method of Accounting
  Goodwill and Intangible Assets
 Intangibles Goodwill and Other, Subsequent
measurement
 F-11




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Debt Issuance Costs
  Debt Discounts
  Preferred Stock
  Revenue Recognition
   Concentrations of Risk
   F-12




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 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
  F-13




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Derivative Financial Instruments
  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.
 F-14




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Accounting for Pensions
   Earnings per Share
  2. DISCONTINUANCE OF REGULATORY ACCOUNTING
     Effect of Discontinuance
 Asset Retirement and Environmental Obligations
 F-15




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 2. DISCONTINUANCE OF REGULATORY ACCOUNTING (Continued)
   
    
    eliminated $21,096 and $41,598 of intercompany revenue and expense previously
not eliminated during the six months ended June 30, 2009, and the year ended December 31,
2008, respectively;
    
    reclassified $1,143 and $3,139, of bad debt expense from contra revenue to
Selling, general & administrative (SG&A) expense in the six months ended June 30, 2009
and the year ended December 31, 2008, respectively; and
    
    classified certain other operating expenses as cost of services and sales or
SG&A expense, as appropriate.
  3. COMPREHENSIVE INCOME (LOSS)
  Year EndedDecember 31,2010
    
    
    2009
    
    
    2008Net Income (loss)
    
    $
    (30,688
    )
    
    $
    33,777
    
    
    $
    (11,674
    )Minimum pension liability adjustment
    
    
    202
    
    
    
    1,269
    
    
    
    (3,845
    )Tax effect of pension liability
    
    
    (83
    )
    
    
    (521
    )
    
    
    1,580Interest rate swap marked to fair value
    
    
    10,519
    
    
    
    9,121
    
    
    
    (14,738
    )Tax effect of interest rate swap
    
    
    (4,324
    )
    
    
    (3,751
    )
    
    
    6,060Reclassification of loss on ineffective hedge
    
    
    11,145
    
    
    
    
    
    
    
    Tax effect of loss on ineffective hedge
    
    
    (4,582
    )
    
    
    
    
    
    
    Other comprehensive income (loss)
    
    
    12,877
    
    
    
    6,118
    
    
    
    (10,943
    )Total comprehensive income (loss)
    
    $
    (17,811
    )
    
    $
    39,895
    
    
    $
    (22,617
    )
 4. EQUITY METHOD INVESTMENT
  F-16




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 4. EQUITY METHOD INVESTMENT (Continued)
  Percent owned
    
    
    InvestmentTekMate, LLC
    
    
    49
    %
    
    $
    2,060
 5. CREST COMMUNICATIONS ACQUISITION
     Preliminary Allocation
    
    
    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
  F-17




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 5. CREST COMMUNICATIONS ACQUISITION (Continued)
   Income Taxes
   6. 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.
 F-18




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 6. FAIR VALUE MEASUREMENTS (Continued)
  Fair Value Measurements on a Recurring Basis
   December 31, 2010
    
    
    December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Non-current investmentsAuction rate securities
    
    $
    355
    
    
    $
    
    
    
    $
    
    
    
    $
    355
    
    
    $
    855
    
    
    $
    
    
    
    $
    
    
    
    $
    855Interest rate swaps
    
    $
    6,868
    
    
    $
    
    
    
    $
    6,868
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Liabilities:Other long-term liabilities Interest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
  2010
    
    
    2009
    
    
    2008Balance, January 1
    
    $
    855
    
    
    $
    1,005
    
    
    $
    Total gains or losses (realized / unrealized)
included in earnings
    
    
    
    
    
    
    
    
    
    
    (245
    )Purchases
    
    
    
    
    
    
    
    
    
    
    1,725Sales
    
    
    (500
    )
    
    
    (150
    )
    
    
    (475
    )Balance, December 31
    
    $
    355
    
    
    $
    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-19




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 6. FAIR VALUE MEASUREMENTS (Continued)
   Fair Value Measurements on a Nonrecurring Basis
  7. ACCOUNTS RECEIVABLE
  2010
    
    
    2009Customers
    
    $
    27,669
    
    
    $
    25,416Connecting companies
    
    
    5,668
    
    
    
    5,018Other
    
    
    10,264
    
    
    
    11,04643,601
    
    
    
    41,480Less: allowance for doubtful accounts
    
    
    (6,616
    )
    
    
    (6,066
    )Accounts receivable  trade, net
    
    $
    36,985
    
    
    $
    35,414
 8. PROPERTY, PLANT AND EQUIPMENT
  2010
    
    
    2009
    
    
    Useful LivesLand, buildings and support assets*
    
    $
    247,568
    
    
    $
    246,518
    
    
    
    3-42Central office switching and transmission
    
    
    366,154
    
    
    
    361,784
    
    
    
    3-12Outside plant cable and wire facilities
    
    
    678,178
    
    
    
    669,572
    
    
    
    6-50Wireless switching and transmission
    
    
    100,352
    
    
    
    104,536
    
    
    
    3-38Other
    
    
    4,026
    
    
    
    3,991
    
    
    
    2-5Construction work in progress
    
    
    20,440
    
    
    
    27,3571,416,718
    
    
    
    1,413,758Less: accumulated depreciation and amortization
    
    
    (1,005,736
    )
    
    
    (965,470
    )Property, plant and equipment, net
    
    $
    410,982
    
    
    $
    448,288
 
 *
    
    No depreciation charges are recorded for land. F-20




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 8. PROPERTY PLANT AND EQUIPMENT (Continued)
  2010
    
    
    2009Land, buildings and support assets
    
    $
    18,083
    
    
    $
    17,010Outside plant cable and wire facilities
    
    
    
    
    
    
    2,11518,083
    
    
    
    19,125Less: accumulated depreciation and amortization
    
    
    (7,926
    )
    
    
    (8,539
    )Property held under capital leases, net
    
    $
    10,157
    
    
    $
    10,586
  2011
    
    $
    1,2912012
    
    
    1,2992013
    
    
    9552014
    
    
    5372015
    
    
    563Thereafter
    
    
    3,1297,774Interest
    
    
    (2,580
    )$
    5,194
   2011
    
    $
    8,6192012
    
    
    7,7682013
    
    
    7,4322014
    
    
    7,0542015
    
    
    6,675Thereafter
    
    
    51,451$
    88,999
 9. ASSET RETIREMENT OBLIGATIONS
   F-21




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 9. ASSET RETIREMENT OBLIGATIONS (Continued)
   Balance, January 1, 2009
    
    $
    1,969Asset retirement obligation
    
    
    2,249Accretion expense
    
    
    1,267Settlement of lease obligations
    
    
    (48
    )Balance, December 31, 2009
    
    $
    5,437Asset retirement obligation
    
    
    88Accretion expense
    
    
    398Settlement of lease obligations
    
    
    (85
    )Balance, December 31, 2010
    
    $
    5,838
 10. GOODWILL AND OTHER INTANGIBLE ASSETS
    F-22




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 10. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
 Wireline
    
    
    Wireless
    
    
    TotalGoodwill:Original carrying value
    
    $
    29,553
    
    
    $
    8,850
    
    
    $
    38,403Accumulated impairment
    
    
    (29,553
    )
    
    
    
    
    
    
    (29,553
    )Balance, December
31, 2008, December
31, 2009 and
December 31, 2010
    
    $
    
    
    
    $
    8,850
    
    
    $
    8,850
 11. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES
  2010
    
    
    2009Accrued payroll, benefits, and related liabilities
    
    $
    14,422
    
    
    $
    13,706Accounts payable  trade
    
    
    12,130
    
    
    
    15,555Access revenue subject to refund
    
    
    9,892
    
    
    
    9,056Dividend payable
    
    
    9,628
    
    
    
    9,576Unsettled acquisition costs
    
    
    3,646
    
    
    
    4,020Other
    
    
    12,821
    
    
    
    16,738$
    62,539
    
    
    $
    68,651
 12. LONG-TERM OBLIGATIONS
  2010
    
    
    20092010 senior credit facility term loan due 2016
    
    $
    440,000
    
    
    $
    Debt discount - 2010 senior credit facility term loan due 2016
    
    
    (4,257
    )
    
    
    2005 senior credit facility term loan due 2012
    
    
    
    
    
    
    425,8895.75% convertible notes due 2013
    
    
    125,000
    
    
    
    125,000Debt discount - 5.75% convertible notes due 2013
    
    
    (12,628
    )
    
    
    (17,508
    )Capital leases and other long-term obligations
    
    
    5,194
    
    
    
    5,969553,309
    
    
    
    539,350Less current portion
    
    
    (5,213
    )
    
    
    (793
    )Long-term obligations, net of current portion
    
    $
    548,096
    
    
    $
    538,557
  2011
    
    $
    5,2132012
    
    
    130,3052013
    
    
    5,0472014
    
    
    4,6662015
    
    
    4,721Thereafter
    
    
    420,242$
    570,194
 2010 Senior Secured Credit Facility
  F-23




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 12. LONG-TERM OBLIGATIONS (Continued)
        F-24




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 12. LONG-TERM OBLIGATIONS (Continued)
 5.75% Convertible Notes due 2013
   Derivatives and Hedging  Contracts in
Entitys Own Equity
 Derivatives and Hedging
  
    
    during any fiscal quarter after the fiscal quarter ended June 30, 2008 (and only
during any such fiscal quarter), if the last reported sale price of the Companys
common stock for at least 20 trading days in the period of 30 consecutive trading
days ending on the last trading day of the immediately preceding fiscal quarter is
equal to or more than 130.0% of the conversion price of the notes on the applicable
trading day;
    
    during the five scheduled trading day period after any five consecutive
trading-day period (the measurement period) in which the trading price per $1,000
principal amount of the notes for each day of the measurement period was less than
the 98.0% of the product of the last reported sale price of the Companys common
stock and the conversion rate of the notes on each such day; or
 F-25




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 12. LONG-TERM OBLIGATIONS (Continued)
 
    
    upon the occurrence of specified corporate transactions described in the
indenture governing
the notes.
   Earnings per Share
    2010
    
    
    2009Net carrying amount of the equity component
    
    $
    14,076
    
    
    $
    14,073Principal amount of the convertible notes
    
    $
    125,000
    
    
    $
    125,000Unamortized debt discount
    
    $
    12,628
    
    
    $
    17,508Amortization period remaining
    
    26 months
    
    38 monthsNet carrying amount of the convertible notes
    
    $
    112,372
    
    
    $
    107,492
 F-26




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 12. LONG-TERM OBLIGATIONS (Continued)
  2010
    
    
    2009Coupon interest expense
    
    $
    7,188
    
    
    $
    7,187Amortization of the debt discount
    
    
    4,880
    
    
    
    4,374Total included in interest expense
    
    $
    12,068
    
    
    $
    11,561
 Capital Leases and Other Long-term Obligations
  13. OTHER LONG-TERM LIABILITIES
  2010
    
    
    2009Asset retirement obligation
    
    $
    5,838
    
    
    $
    5,437Other liabilities
    
    
    4,928
    
    
    
    3,142Pension liability
    
    
    3,885
    
    
    
    3,342Refundable aid to construction
    
    
    1,037
    
    
    
    1,189Interest rate swaps
    
    
    
    
    
    
    14,796$
    15,688
    
    
    $
    27,906
 14. INCOME TAXES
  2010
    
    
    2009
    
    
    2008Computed federal income taxes at the statutory rate (Expense) benefit in tax resulting from:
    
    $
    293
    
    
    $
    (20,186
    )
    
    $
    6,738State income taxes (net of federal benefit)
    
    
    (4,937
    )
    
    
    (3,524
    )
    
    
    1,176Other
    
    
    (515
    )
    
    
    (90
    )
    
    
    145Rate change
    
    
    (29
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    (52
    )
    
    
    (97
    )
    
    
    (485
    )Extraordinary gain
    
    
    
    
    
    
    26,071
    
    
    
    Federal portion of uncertain tax position
    
    
    (24,612
    )
    
    
    
    
    
    
    Total income tax benefit (expense)
    
    $
    (29,852
    )
    
    $
    2,174
    
    
    $
    7,574
 F-27




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 14. INCOME TAX (Continued)
  2010
    
    
    2009
    
    
    2008Current:Federal income tax
    
    $
    2,743
    
    
    $
    
    
    
    $
    48State income tax
    
    
    38
    
    
    
    
    
    
    
    9Total current benefit
    
    
    2,781
    
    
    
    
    
    
    
    57Deferred:Federal income tax
    
    
    (27,323
    )
    
    
    (18,438
    )
    
    
    5,800State income tax
    
    
    (5,310
    )
    
    
    (5,459
    )
    
    
    1,717Extraordinary gain
    
    
    
    
    
    
    26,071
    
    
    
    Total deferred benefit (expense)
    
    
    (32,633
    )
    
    
    2,174
    
    
    
    7,517Total income tax benefit (expense)
    
    $
    (29,852
    )
    
    $
    2,174
    
    
    $
    7,574
  Deferred tax assets (liabilities):
    
    2010
    
    
    2009Current:Accrued compensation
    
    $
    2,932
    
    
    $
    2,623Allowance for doubtful accounts
    
    
    2,719
    
    
    
    2,494Net operating loss carry forwards
    
    
    401
    
    
    
    151Fair value on interest rate swaps
    
    
    
    
    
    
    6,082Pension liability
    
    
    301
    
    
    
    409Specific reserves
    
    
    1,107
    
    
    
    1,028Self insurance accruals
    
    
    812
    
    
    
    755USAC payable
    
    
    2,423
    
    
    
    Other
    
    
    254
    
    
    
    27210,949
    
    
    
    13,814Long-term:Net operating loss carry forwards
    
    
    60,252
    
    
    
    69,379Alternative minimum tax carry forward
    
    
    2,372
    
    
    
    5,215Intangibles and goodwill
    
    
    13,315
    
    
    
    20,318Deferred revenue
    
    
    1,565
    
    
    
    787Pension liability
    
    
    1,848
    
    
    
    1,824Property, plant and equipment
    
    
    19,672
    
    
    
    17,912Stock-based compensation
    
    
    3,398
    
    
    
    2,577Debt issuance costs
    
    
    (5,033
    )
    
    
    (6,968
    )USAC payable
    
    
    
    
    
    
    2,369Fair value on interest rate swaps
    
    
    (2,823
    )
    
    
    Crest outside tax basis difference
    
    
    (18,660
    )
    
    
    Other
    
    
    907
    
    
    
    58176,813
    
    
    
    113,994Total deferred tax assets, net
    
    $
    87,762
    
    
    $
    127,808
 F-28




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 14. INCOME TAX (Continued)
     Compensation  Stock Compensation
 F-29




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 14. INCOME TAX (Continued)
  Total Unused Operating LossCarry forwardsYear ofExpiration
    
    Federal
    
    
    State2020
    
    $
    2,209
    
    
    $
    2021
    
    
    34,034
    
    
    
    30,7192022
    
    
    17,983
    
    
    
    17,4992023
    
    
    623
    
    
    
    7,4022024
    
    
    48,703
    
    
    
    48,2052025
    
    
    24,344
    
    
    
    23,4142026
    
    
    1,445
    
    
    
    1,2242027
    
    
    1,201
    
    
    
    732028
    
    
    4,565
    
    
    
    3,6542029
    
    
    8,369
    
    
    
    8,1312030
    
    
    6,924
    
    
    
    6,652$
    150,400
    
    
    $
    146,973
   15. EARNINGS PER SHARE
  F-30




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 15. EARNINGS PER SHARE (Continued)
  2010
    
    
    2009
    
    
    2008Loss before extraordinary item
    
    $
    (30,688
    )
    
    $
    (3,569
    )
    
    $
    (11,674
    )Gain on extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    Net income (loss)
applicable to common
shares
    
    $
    (30,688
    )
    
    $
    33,777
    
    
    $
    (11,674
    )Weighted average
common shares
outstanding
    
    
    44,589
    
    
    
    44,177
    
    
    
    43,391Basic and diluted earnings per share:Loss before extraordinary item
    
    $
    (0.69
    )
    
    $
    (0.08
    )
    
    $
    (0.27
    )Gain on extraordinary item, net of taxes
    
    
    
    
    
    
    0.85
    
    
    
    Net income (loss)
    
    $
    (0.69
    )
    
    $
    0.77
    
    
    $
    (0.27
    )
 16. STOCK INCENTIVE PLANS
  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, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 16. STOCK INCENTIVE PLANS (Continued)
  2003 Options for Officer Inducement Grant
  2008 Restricted Stock Unit Equivalents for Officer Inducement Grant
  Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
   ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
  Stock Compensation Expense
   F-32




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 16. STOCK INCENTIVE PLANS (Continued)
  Valuation Assumptions
  2010
    
    2009
    
    2008Stock options:Risk free rate
    
    
    n/a
    
    
    
    0.25
    %
    
    
    0.25% - 2.00
    %Dividend yield
    
    
    n/a
    
    
    
    9.27
    %
    
    
    7.59
    %Expected volatility factor
    
    
    n/a
    
    
    
    36.27
    %
    
    
    33.88
    %Expected option life (years)
    
    
    n/a
    
    
    
    3.24
    
    
    
    3.22Restricted stock:Risk free rate
    
    
    0% - 0.25
    %
    
    
    0% - 0.25
    %
    
    
    0.25% - 2.25
    %Quarterly dividend
    
    $
    0.215
    
    
    $
    0.215
    
    
    $
    0.215Expected, per annum,
forfeiture rate
    
    
    0% - 6.47
    %
    
    
    0% - 5.47
    %
    
    
    0% - 4.47
    %
 Equity Instruments Outstanding
 Stock Options and Stock Settled Stock Appreciation Rights
   Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding, January 1, 2010
    
    
    2,011
    
    
    $
    9.33Granted
    
    
    
    
    
    
    Exercised
    
    
    (133
    )
    
    
    4.67Canceled or expired
    
    
    (73
    )
    
    
    12.84Outstanding at
December 31, 2010
    
    
    1,805
    
    
    
    9.53
    
    
    
    2.90
    
    
    $
    3,560Exercisable at December 31, 2010
    
    
    1,452
    
    
    $
    9.60
    
    
    
    2.89
    
    
    
    2,910
 Restricted Stock Units and Performance Share Units
  F-33




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 16. STOCK INCENTIVE PLANS (Continued)
  WeightedAverageNumber of
    
    
    FairShares
    
    
    ValueOutstanding at January 1, 2010
    
    
    1,276
    
    
    $
    7.69Granted
    
    
    801
    
    
    
    7.42Vested
    
    
    (107
    )
    
    
    11.96Canceled or expired
    
    
    (289
    )
    
    
    7.74Outstanding at December 31, 2010
    
    
    1,681
    
    
    $
    7.28
 Selected Information on Equity Instruments
  Twelve Months EndedDecember 31,2010
    
    
    2009
    
    
    2008Weighted-average grant-date fair value of equity
instruments granted
    
    $
    7.42
    
    
    $
    3.27
    
    
    $
    5.87Total fair value of shares vested during the period
    
    $
    1,356
    
    
    $
    7,300
    
    
    $
    8,403Total intrinsic value of options exercised
    
    $
    602
    
    
    $
    391
    
    
    $
    4,260
  Average PeriodUnamortized
    
    
    to ExpenseExpense
    
    
    (years)Stock options and SARs
    
    $
    32
    
    
    
    0.3Restricted stock and PSUs
    
    
    5,342
    
    
    
    3.0$
    5,374
    
    
    
    3.0
 17. RETIREMENT PLANS
  F-34




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 17. RETIREMENT PLANS (Continued)
    2010
    
    
    2009Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    14,129
    
    
    $
    13,094Interest cost
    
    
    806
    
    
    
    838Actuarial gain
    
    
    897
    
    
    
    971Benefits paid
    
    
    (856
    )
    
    
    (774
    )Benefit obligation at end of year
    
    
    14,976
    
    
    
    14,129Change in plan assets:Fair value of plan assets at beginning of year
    
    
    10,787
    
    
    
    9,538Actual return on plan assets
    
    
    1,160
    
    
    
    1,988Employer contribution
    
    
    
    
    
    
    35Benefits paid
    
    
    (856
    )
    
    
    (774
    )Fair value of plan assets at end of year
    
    
    11,091
    
    
    
    10,787Funded status
    
    $
    (3,885
    )
    
    $
    (3,342
    )
  F-35




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 17. RETIREMENT PLANS (Continued)
  2010
    
    
    2009
    
    
    2008Interest cost
    
    $
    806
    
    
    $
    838
    
    
    $
    810Expected return on plan assets
    
    
    (827
    )
    
    
    (730
    )
    
    
    (1,031
    )Amortization of loss
    
    
    637
    
    
    
    778
    
    
    
    157Amortization of prior service cost
    
    
    129
    
    
    
    203
    
    
    
    203Net periodic pension expense
    
    $
    745
    
    
    $
    1,089
    
    
    $
    139
  2010
    
    
    2009Components of other comprehensive (income) loss:Prior service cost
    
    $
    
    
    
    $
    129Net loss
    
    
    5,230
    
    
    
    5,302$
    5,230
    
    
    $
    5,431
  2010
    
    
    2009Discount rate for benefit obligation
    
    
    5.16
    %
    
    
    5.89
    %Discount rate for pension expense
    
    
    5.89
    %
    
    
    6.63
    %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
    
    2010
    
    
    2009Equity securities*
    
    
    61
    %
    
    
    60
    %Debt securities*
    
    
    39
    %
    
    
    39
    %Other/Cash
    
    
    0
    %
    
    
    1
    %
 
 *
    
    May include mutual funds comprised of both stocks and bonds.  F-36




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 17. RETIREMENT PLANS (Continued)
 Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsAsset Category
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Money market
    
    $
    105
    
    
    $
    105
    
    
    $
    
    
    
    $
    Equity Securities (Investment Funds)*International Growth
    
    
    1,522
    
    
    
    1,522
    
    
    
    
    
    
    
    U.S. Small CAP
    
    
    548
    
    
    
    548
    
    
    
    
    
    
    
    U.S. Large CAP
    
    
    4,571
    
    
    
    4,571
    
    
    
    
    
    
    
    Debt Securities (Investment Funds)*PIMCO Total Return Fund
    
    
    4,345
    
    
    
    4,345
    
    
    
    
    
    
    
    $
    11,091
    
    
    $
    11,091
    
    
    $
    
    
    
    $
    
 
 *
    
    May include mutual funds comprised of both stocks and bonds.    2011
    
    $
    9032012
    
    
    9302013
    
    
    9422014
    
    
    9382015
    
    
    9972016-2020
    
    
    5,319
   F-37




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 17. RETIREMENT PLANS (Continued)
  18. BUSINESS SEGMENTS
  
    
    Wireline  Wireline provides communication services including voice, broadband and
data, next generation IP network services, network access, long distance and other services
to consumers, carriers, business and government customers.
    
    Wireless  Wireless products and services include voice and data products and other
value added services and equipment sales.
   Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    255,973
    
    
    $
    142,161
    
    
    $
    6,562
    
    
    $
    (63,172
    )
    
    $
    341,524Intersegment revenue
    
    
    55,050
    
    
    
    1,560
    
    
    
    6,562
    
    
    
    
    
    
    
    63,172Depreciation and amortization
    
    
    58,650
    
    
    
    11,440
    
    
    
    1,988
    
    
    
    
    
    
    
    72,078Operating income
    
    
    6,202
    
    
    
    39,350
    
    
    
    1,622
    
    
    
    
    
    
    
    47,174Interest expense
    
    
    436
    
    
    
    317
    
    
    
    (35,507
    )
    
    
    
    
    
    
    (34,754
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (13,339
    )
    
    
    
    
    
    
    (13,339
    )Interest income
    
    
    42
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    83Income (loss) before income tax
    
    
    6,680
    
    
    
    39,667
    
    
    
    (47,183
    )
    
    
    
    
    
    
    (836
    )Income tax expense
    
    
    (1,059
    )
    
    
    (16,309
    )
    
    
    (12,484
    )
    
    
    
    
    
    
    (29,852
    )Net income (loss)
    
    
    5,621
    
    
    
    23,358
    
    
    
    (59,667
    )
    
    
    
    
    
    
    (30,688
    )Total assets
    
    
    442,136
    
    
    
    175,771
    
    
    
    2,708
    
    
    
    
    
    
    
    620,615Capital expenditures
    
    
    27,302
    
    
    
    8,082
    
    
    
    2,952
    
    
    
    
    
    
    
    38,336
 F-38




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 18. BUSINESS SEGMENTS (Continued)
  Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    260,061
    
    
    $
    143,500
    
    
    $
    10,926
    
    
    $
    (68,447
    )
    
    $
    346,040Intersegment revenue
    
    
    55,041
    
    
    
    2,480
    
    
    
    10,926
    
    
    
    
    
    
    
    68,447Depreciation and amortization
    
    
    66,986
    
    
    
    8,963
    
    
    
    5,409
    
    
    
    
    
    
    
    81,358Operating income (loss)
    
    
    (12,892
    )
    
    
    45,632
    
    
    
    (163
    )
    
    
    
    
    
    
    32,577Interest expense
    
    
    2,479
    
    
    
    703
    
    
    
    (41,593
    )
    
    
    
    
    
    
    (38,411
    )Interest income
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91Income (loss) before income tax
    
    
    (10,413
    )
    
    
    46,335
    
    
    
    (41,665
    )
    
    
    
    
    
    
    (5,743
    )Income tax (expense) benefit
    
    
    (23,609
    )
    
    
    (19,008
    )
    
    
    44,791
    
    
    
    
    
    
    
    2,174Extraordinary item, net of tax
    
    
    37,442
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    37,346Net income
    
    
    3,420
    
    
    
    27,231
    
    
    
    3,126
    
    
    
    
    
    
    
    33,777Total assets
    
    
    486,123
    
    
    
    183,995
    
    
    
    5,180
    
    
    
    
    
    
    
    675,298Capital expenditures
    
    
    32,953
    
    
    
    13,575
    
    
    
    7,681
    
    
    
    
    
    
    
    54,209
   Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    261,979
    
    
    $
    144,843
    
    
    $
    19,391
    
    
    $
    (76,531
    )
    
    $
    349,682Intersegment 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)
    
    
    (33,850
    )
    
    
    42,409
    
    
    
    4,815
    
    
    
    
    
    
    
    13,374Interest expense
    
    
    3,665
    
    
    
    504
    
    
    
    (38,241
    )
    
    
    
    
    
    
    (34,072
    )Interest income
    
    
    1
    
    
    
    
    
    
    
    1,694
    
    
    
    
    
    
    
    1,695Income (loss) before income tax
    
    
    (30,184
    )
    
    
    42,913
    
    
    
    (31,977
    )
    
    
    
    
    
    
    (19,248
    )Income tax (expense) benefit
    
    
    4,006
    
    
    
    (17,949
    )
    
    
    21,517
    
    
    
    
    
    
    
    7,574Net income (loss)
    
    
    (26,178
    )
    
    
    24,964
    
    
    
    (10,460
    )
    
    
    
    
    
    
    (11,674
    )Total assets
    
    
    557,720
    
    
    
    186,281
    
    
    
    10,243
    
    
    
    (3,216
    )
    
    
    751,028Capital expenditures
    
    
    109,462
    
    
    
    12,032
    
    
    
    5,817
    
    
    
    
    
    
    
    127,311
 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, 2010, 2009 and 2008
(In Thousands, Except Per Share Amounts)
 19. COMMITMENTS AND CONTINGENCIES (Continued)
   20. SELECTED QUARTERLY FINANCIAL INFORMATION (Unaudited)
 Quarterly Financial DataFirst
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2010Operating revenues
    
    $
    82,447
    
    
    $
    84,532
    
    
    $
    89,768
    
    
    $
    84,777Operating income
    
    
    11,005
    
    
    
    11,806
    
    
    
    14,796
    
    
    
    9,567Net income (loss)
    
    
    1,270
    
    
    
    (27,673
    )
    
    
    (3,018
    )
    
    
    (1,267
    )Net income (loss) per share:Basic
    
    
    0.03
    
    
    
    (0.62
    )
    
    
    (0.07
    )
    
    
    (0.03
    )Diluted
    
    
    0.03
    
    
    
    (0.62
    )
    
    
    (0.07
    )
    
    
    (0.03
    )2009Operating revenues
    
    $
    86,041
    
    
    $
    85,902
    
    
    $
    91,145
    
    
    $
    82,952Operating income (loss)
    
    
    12,158
    
    
    
    12,206
    
    
    
    10,208
    
    
    
    (1,995
    )Net income (loss)
    
    
    2,150
    
    
    
    1,089
    
    
    
    37,602
    
    
    
    (7,064
    )Net income (loss) per share:Basic
    
    
    0.05
    
    
    
    0.02
    
    
    
    0.85
    
    
    
    (0.16
    )Diluted
    
    
    0.05
    
    
    
    0.02
    
    
    
    0.83
    
    
    
    (0.16
    )
 F-40