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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

(Mark One)

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to

Commission file number 333-82363

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 91-1921377                          
|(State or Other Jurisdiction
of Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

600 Telephone Avenue, Anchorage, Alaska 99503
(Address of Principal Executive Offices) (Zip Code)

(907) 297-3000
(Registrants Telephone Number, Including Area Code)

Not Applicable
(Former name, former address and former three months, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|     |  |    
|---- |  | ---
|Yesþ |  | Noo

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

|      |  |    
|----- |  | ---
|Yes
o |  | Noþ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

|      |  |    
|----- |  | ---
|Yes
o |  | Noo

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date.

DOCUMENTS INCORPORATED BY REFERENCE
None



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TABLE OF CONTENTS



|              |                                                                                              |                                            |  |  |  |  |  | 
|------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|              |                                                                                              | Consolidated Balance Sheets               
|              |                                                                                              | Consolidated Statements of Operations     
|              |                                                                                              | Consolidated Statements of Cash Flows     
|              |                                                                                              | Notes to Consolidated Financial Statements
|              | Item 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|              | ITEM 4. CONTROLS AND PROCEDURES                                                             
|PART II      
|              | ITEM 1. LEGAL PROCEEDINGS.                                                                  
|              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                           
|              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                     
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|              | ITEM 5. OTHER INFORMATION                                                                   
|              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                    
|SIGNATURES   
|EXHIBIT 10.16
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



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TABLE OF CONTENTS

|           |  |                                                                                                             |  |       
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | ------
|           |  |                                                                                                             |  | Page  
|           |  |                                                                                                             |  | Number
|           |  |                                                                                                             |  |       
|PART I.    |  | Financial Information                                                                                       |  |       
|Item 1.    |  | Financial Statements:                                                                                       |  |       
|           |  | Consolidated Balance Sheets (unaudited)
As of June 30, 2003 and December 31, 2002                           |  | 3     
|           |  | Consolidated Statements of Operations (unaudited)
For the Three and Six Months Ended June 30, 2003 and 2002 |  | 4     
|           |  | Consolidated Statements of Cash Flows (unaudited)
For the Six Months Ended June 30, 2003 and 2002           |  | 5     
|           |  | Notes to Consolidated Financial Statements (unaudited)                                                      |  | 6     
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                       |  | 25    
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 40    
|Item 4.    |  | Controls and Procedures                                                                                     |  | 40    
|PART II.   |  | Other Information                                                                                           |  |       
|Item 1.    |  | Legal Proceedings                                                                                           |  | 41    
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                   |  | 42    
|Item 3.    |  | Defaults upon Senior Securities                                                                             |  | 42    
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                         |  | 42    
|Item 5.    |  | Other Information                                                                                           |  | 42    
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                            |  | 42    
|Signatures |  |                                                                                                             |  | 43    

2



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.




Consolidated Balance Sheets
(Unaudited, In Thousands Except Per Share Amounts)


|                                                                |                                                                                       |                                      |           |          |          |   |              |          |        |  |  |  |  |  | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------ | --------- | -------- | -------- | - | ------------ | -------- | ------ |  |  |  |  |  | 
|                                                                |                                                                                       |                                      |           |          | June 30, |   | December 31, |          |        |  | 
|                                                                |                                                                                       |                                      |           |          | 2003     |   | 2002         |          |        |  | 
|                                                                |                                                                                       |                                      |           |          |          |   |              |          |        |  | 
|Assets                                                          |                                                                                       |                                      |           |          |          |   |              |         
|Current assets:                                                 |                                                                                       |                                      |           |          |          |   |              |         
|                                                                | Cash and cash equivalents                                                             |                                      | $         | 64,560   |          |   | $            | 18,565   |       
|                                                                | Restricted cash                                                                       |                                      |           | 110      |          |   |              | 3,440    |       
|                                                                | Accounts receivable-trade, net of allowance of $5,407 and $6,075                      |                                      |           | 46,032   |          |   |              | 48,820   |       
|                                                                | Accounts receivable-affiliate                                                         |                                      |           | 4,766    |          |   |              | 3,761    |       
|                                                                | Materials and supplies                                                                |                                      |           | 11,603   |          |   |              | 11,203   |       
|                                                                | Prepayments and other current assets                                                  |                                      |           | 5,753    |          |   |              | 6,172    |       
|                                                                | Assets held for sale                                                                  |                                      |           |         |          |   |              | 261      |       
|                                                                |                                                                                       |                                      |           |          |          |   |              |         
|                                                                |                                                                                       | Total current assets                 |           |          | 132,824  |   |              |          | 92,222 | 
|Investment                                                      |                                                                                       |                                      | 1,097     |          |          |   |             |         
|Property, plant and equipment                                   |                                                                                       |                                      | 1,100,073 |          |          |   | 1,090,365    |         
|Less: accumulated depreciation                                  |                                                                                       |                                      | 662,128   |          |          |   | 625,276      |         
|                                                                |                                                                                       |                                      |           |          |          |   |              |         
|                                                                | Property, plant and equipment, net                                                    |                                      |           | 437,945  |          |   |              | 465,089  |       
|Goodwill                                                        |                                                                                       |                                      | 38,403    |          |          |   | 77,225       |         
|Intangible assets                                               |                                                                                       |                                      | 22,804    |          |          |   | 23,269       |         
|Debt issuance costs, net of amortization of $21,200 and $15,883 |                                                                                       |                                      | 15,813    |          |          |   | 21,130       |         
|Deferred charges and other assets                               |                                                                                       |                                      | 25,850    |          |          |   | 26,047       |         
|                                                                |                                                                                       |                                      |           |          |          |   |              |         
|Total assets                                                    |                                                                                       | $                                    | 674,736   |          |          | $ | 704,982      |         
|                                                                |                                                                                       |                                      |           |          |          |   |              |          |       
|                                                                |                                                                                       | Liabilities and Stockholders Equity |           |          |          |   |              |          |        | 
|Current liabilities:                                            |                                                                                       |                                      |           |          |          |   |              |         
|                                                                | Current portion of long-term obligations                                              |                                      | $         | 4,909    |          |   | $            | 5,933    |       
|                                                                | Accounts payable-affiliates                                                           |                                      |           | 3,524    |          |   |              | 1,319    |       
|                                                                | Accounts payable, accrued and other current liabilities                               |                                      |           | 41,477   |          |   |              | 49,480   |       
|                                                                | Advance billings and customer deposits                                                |                                      |           | 9,146    |          |   |              | 9,804    |       
|                                                                |                                                                                       |                                      |           |          |          |   |              |         
|                                                                |                                                                                       | Total current liabilities            |           |          | 59,056   |   |              |          | 66,536 | 
|Long-term obligations, net of current portion                   |                                                                                       |                                      | 477,183   |          |          |   | 586,898      |         
|Other deferred credits and long-term liabilities                |                                                                                       |                                      | 30,961    |          |          |   | 32,930       |         
|Commitments and contingencies                                   |                                                                                       |                                      |          |          |          |   |             |         
|Stockholders equity:                                           |                                                                                       |                                      |           |          |          |   |              |         
|                                                                | Common stock, $.01 par value; 1,000 shares authorized, 1 share
issued and outstanding |                                      |           |         |          |   |              |         |       
|                                                                | Contributed capital                                                                   |                                      |           | 287,242  |          |   |              | 287,242  |       
|                                                                | Accumulated deficit                                                                   |                                      |           | (164,460 | )        |   |              | (249,738 | )     
|                                                                | Accumulated other comprehensive loss                                                  |                                      |           | (15,246  | )        |   |              | (18,886  | )     
|                                                                |                                                                                       |                                      |           |          |          |   |              |          |       
|                                                                |                                                                                       | Total stockholders equity           |           |          | 107,536  |   |              |          | 18,618 | 
|                                                                |                                                                                       |                                      |           |          |          |   |              |         
|Total liabilities and stockholders equity                      |                                                                                       | $                                    | 674,736   |          |          | $ | 704,982      |         
|                                                                |                                                                                       |                                      |           |          |          |   |              |          |       

See Notes to Consolidated Financial Statements

3



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.




Consolidated Statements of Operations
(Unaudited, In Thousands)


|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |         |         |  
|----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------- | ------- | ------------------ | ------- | ---------------- | ------ | ------- | ------- | ---- | ------- | ------- | ------- | - | -------- | ------- | ------- | -
|                                                                                                            |                                                              |                         |         | Three Months Ended |         | Six Months Ended
|                                                                                                            |                                                              |                         |         | June 30,           |         | June 30,        
|                                                                                                            |                                                              |                         |         |                    |         |                 
|                                                                                                            |                                                              |                         |         | 2003               |         | 2002             |        | 2003    |         | 2002
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |     
|Operating revenue:                                                                                          |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            | Local telephone                                              |                         | $       | 55,210             |         |                  | $      | 63,991  |         |      | $       | 109,211 |         |   | $        | 119,313 |        
|                                                                                                            | Wireless                                                     |                         |         | 11,947             |         |                  |        | 11,162  |         |      |         | 22,277  |         |   |          | 20,517  |        
|                                                                                                            | Directory                                                    |                         |         | 3,353              |         |                  |        | 8,381   |         |      |         | 11,631  |         |   |          | 17,022  |        
|                                                                                                            | Internet                                                     |                         |         | 9,037              |         |                  |        | 4,551   |         |      |         | 16,193  |         |   |          | 8,393   |        
|                                                                                                            | Interexchange                                                |                         |         | 5,239              |         |                  |        | 4,820   |         |      |         | 10,005  |         |   |          | 9,670   |        
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            |                                                              | Total operating revenue |         |                    | 84,786  |                  |        |         | 92,905  |      |         |         | 169,317 |   |          |         | 174,915 |  
|Operating expense:                                                                                          |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            | Local telephone (exclusive of depreciation and amortization) |                         |         | 27,487             |         |                  |        | 32,571  |         |      |         | 55,334  |         |   |          | 61,569  |        
|                                                                                                            | Wireless (exclusive of depreciation and amortization)        |                         |         | 7,019              |         |                  |        | 7,069   |         |      |         | 13,583  |         |   |          | 13,111  |        
|                                                                                                            | Directory (exclusive of depreciation and amortization)       |                         |         | 1,800              |         |                  |        | 3,532   |         |      |         | 5,249   |         |   |          | 6,958   |        
|                                                                                                            | Internet (exclusive of depreciation and amortization)        |                         |         | 13,050             |         |                  |        | 7,317   |         |      |         | 23,186  |         |   |          | 12,445  |        
|                                                                                                            | Interexchange (exclusive of depreciation and amortization)   |                         |         | 7,124              |         |                  |        | 6,997   |         |      |         | 13,713  |         |   |          | 13,612  |        
|                                                                                                            | Depreciation and amortization                                |                         |         | 22,091             |         |                  |        | 19,973  |         |      |         | 44,691  |         |   |          | 39,232  |        
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            |                                                              | Total operating expense |         |                    | 78,571  |                  |        |         | 77,459  |      |         |         | 155,756 |   |          |         | 146,927 |  
|Gain (loss) on disposal of assets                                                                           |                                                              |                         | 97,285  |                    |         |                  | (273   | )       |         |      | 96,539  |         |         |   | (273     | )      
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|Operating income                                                                                            |                                                              |                         | 103,500 |                    |         |                  | 15,173 |         |         |      | 110,100 |         |         |   | 27,715   |        
|Other income (expense):                                                                                     |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            | Interest expense                                             |                         |         | (14,920            | )       |                  |        | (10,975 | )       |      |         | (27,607 | )       |   |          | (23,718 | )      
|                                                                                                            | Interest income and other                                    |                         |         | 4,787              |         |                  |        | 548     |         |      |         | 4,979   |         |   |          | 1,048   |        
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|                                                                                                            |                                                              | Total other expense     |         |                    | (10,133 | )                |        |         | (10,427 | )    |         |         | (22,628 | ) |          |         | (22,670 | )
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|Income before income taxes, discontinued operations and cumulative
effect of change in accounting principle |                                                              |                         | 93,367  |                    |         |                  | 4,746  |         |         |      | 87,472  |         |         |   | 5,045    |        
|Income taxes                                                                                                |                                                              |                         |        |                    |         |                  |       |         |         |      |        |         |         |   |         |        
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|Income from continuing operations                                                                           |                                                              |                         | 93,367  |                    |         |                  | 4,746  |         |         |      | 87,472  |         |         |   | 5,045    |        
|Loss from discontinued operations                                                                           |                                                              |                         |        |                    |         |                  | (515   | )       |         |      | (52     | )       |         |   | (7,387   | )      
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|Income (loss) before cumulative effect of change
in accounting principle                                    |                                                              |                         | 93,367  |                    |         |                  | 4,231  |         |         |      | 87,420  |         |         |   | (2,342   | )      
|Cumulative effect of change in accounting principle                                                         |                                                              |                         |        |                    |         |                  |       |         |         |      |        |         |         |   | (105,350 | )      
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        
|Net income (loss)                                                                                           |                                                              | $                       | 93,367  |                    |         | $                | 4,231  |         |         | $    | 87,420  |         |         | $ | (107,692 | )      
|                                                                                                            |                                                              |                         |         |                    |         |                  |        |         |         |      |         |         |         |   |          |        

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.




Consolidated Statements of Cash Flows
(Unaudited, In Thousands)


|                                                                                         |                                                                 |                                                |          |                  |        |      |          |         |        |  
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------- | -------- | ---------------- | ------ | ---- | -------- | ------- | ------ | -
|                                                                                         |                                                                 |                                                |          | Six Months Ended
|                                                                                         |                                                                 |                                                |          | June 30,        
|                                                                                         |                                                                 |                                                |          |                 
|                                                                                         |                                                                 |                                                |          | 2003             |        | 2002
|                                                                                         |                                                                 |                                                |          |                  |        |     
|Cash Flows from Operating Activities:                                                    |                                                                 |                                                |          |                  |        |      |          |        
|Net income (loss)                                                                        |                                                                 | $                                              | 87,420   |                  |        | $    | (107,692 | )      
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                 |                                                |          |                  |        |      |          |        
|                                                                                         | Loss on discontinued operations                                 |                                                |          | 52               |        |      |          | 7,387   |       
|                                                                                         | Cumulative effect of change in accounting principle             |                                                |          |                 |        |      |          | 105,350 |       
|                                                                                         | Depreciation and amortization                                   |                                                |          | 44,691           |        |      |          | 39,232  |       
|                                                                                         | Loss (gain) on disposal of assets                               |                                                |          | (96,539          | )      |      |          | 273     |       
|                                                                                         | Amortization of debt issuance costs and original issue discount |                                                |          | 5,317            |        |      |          | 2,078   |       
|                                                                                         | Capitalized interest                                            |                                                |          | (92              | )      |      |          | (767    | )     
|                                                                                         | Other deferred credits                                          |                                                |          | 1,671            |        |      |          | (1,891  | )     
|                                                                                         | Changes in components of working capital:                       |                                                |          |                  |        |      |          |         |       
|                                                                                         |                                                                 | Accounts receivable and other current assets   |          |                  | 1,725  |      |          |         | (7,664 | )
|                                                                                         |                                                                 | Accounts payable and other current liabilities |          |                  | (9,085 | )    |          |         | (9,730 | )
|                                                                                         |                                                                 | Other                                          |          |                  | (122   | )    |          |         | 98     |  
|                                                                                         | Net cash used by discontinued operations                        |                                                |          | (41              | )      |      |          | (477    | )     
|                                                                                         |                                                                 |                                                |          |                  |        |      |          |        
|Net cash provided by operating activities                                                |                                                                 |                                                | 34,997   |                  |        |      | 26,197   |        
|Cash Flows from Investing Activities:                                                    |                                                                 |                                                |          |                  |        |      |          |        
|Construction and capital expenditures, net of capitalized interest                       |                                                                 |                                                | (15,211  | )                |        |      | (31,975  | )      
|Net proceeds from sale of business                                                       |                                                                 |                                                | 138,091  |                  |        |      |         |        
|Release of funds from escrow                                                             |                                                                 |                                                | 3,539    |                  |        |      |         |        
|Placement of funds in restricted account                                                 |                                                                 |                                                | (200     | )                |        |      |         |        
|                                                                                         |                                                                 |                                                |          |                  |        |      |          |        
|Net cash provided (used) by investing activities                                         |                                                                 |                                                | 126,219  |                  |        |      | (31,975  | )      
|Cash Flows from Financing Activities:                                                    |                                                                 |                                                |          |                  |        |      |          |        
|Payments on long-term debt                                                               |                                                                 |                                                | (113,079 | )                |        |      | (6,640   | )      
|Dividends                                                                                |                                                                 |                                                | (2,142   | )                |        |      |         |        
|                                                                                         |                                                                 |                                                |          |                  |        |      |          |        
|Net cash used by financing activities                                                    |                                                                 |                                                | (115,221 | )                |        |      | (6,640   | )      
|Increase (decrease) in cash and cash equivalents                                         |                                                                 |                                                | 45,995   |                  |        |      | (12,418  | )      
|Cash and cash equivalents at beginning of the period                                     |                                                                 |                                                | 18,565   |                  |        |      | 41,012   |        
|                                                                                         |                                                                 |                                                |          |                  |        |      |          |        
|Cash and cash equivalents at the end of the period                                       |                                                                 | $                                              | 64,560   |                  |        | $    | 28,594   |        
|                                                                                         |                                                                 |                                                |          |                  |        |      |          |        
|Supplemental Cash Flow Data:                                                             |                                                                 |                                                |          |                  |        |      |          |        
|Interest paid                                                                            |                                                                 | $                                              | 23,862   |                  |        | $    | 24,914   |        
|Income taxes paid                                                                        |                                                                 |                                                |         |                  |        |      |         |        
|Supplemental Noncash Transactions:                                                       |                                                                 |                                                |          |                  |        |      |          |        
|Property acquired under capital leases and mortgages                                     |                                                                 | $                                              | 2,340    |                  |        | $    | 2,306    |        
|Interest rate swap marked to market                                                      |                                                                 | $                                              | (3,640   | )                |        | $    | 577      |        

See Notes to Consolidated Financial Statements

5



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##### Table of Contents






ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, Amounts In Thousands)



|1. |  | DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ---------------------------------------------------------------------

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the
Company or ACS Holdings), a Delaware corporation, is an integrated
communications provider engaged principally in providing local telephone,
wireless, Internet, and interexchange services to its customers in the state of
Alaska through its telecommunications subsidiaries. The Company was formed in
October of 1998 for the purpose of acquiring and operating telecommunications
properties. The principal activities in 1998 and through May 14, 1999 were the
preparation of systems and obtaining financing for pending acquisitions. On May
14, 1999, the Company was acquired and became a wholly owned subsidiary of
Alaska Communications Systems Group, Inc. (the Parent or ACS Group).

The financial statements for the Company represent the consolidated
financial position, results of operations and cash flows principally of the
following entities:



| |  |  | Alaska Communications Systems Holdings, Inc.
| | - |  | --------------------------------------------
|
| |  |  | ACS of Alaska, Inc. (ACSAK)               
|
| |  |  | ACS of the Northland, Inc. (ACSN)         
|
| |  |  | ACS of Fairbanks, Inc. (ACSF)             
|
| |  |  | ACS of Anchorage, Inc. (ACSA)             
|
| |  |  | ACS Wireless, Inc. (ACSW)                 
|
| |  |  | ACS Long Distance, Inc. (ACSLD)           
|
| |  |  | ACS Internet, Inc. (ACSI)                 

On May 8, 2003, the Company completed the sale of a majority interest in
its directory business, as described in Note 4, Gain on Disposal of Assets.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission. However, the Company believes the disclosures which are made are
adequate to make the information presented not misleading. The consolidated
financial statements and footnotes included in this Form 10-Q should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2002. Certain reclassifications have been made to the 2002
financial statements to make them conform to the current presentation.

In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the consolidated financial position, results of operations and cash
flows for all periods presented. The results of operations for the three and
six months ended June 30, 2003 and 2002 are not necessarily indicative of the
results of operations which might be expected for the entire year or any other
interim periods.

Revenue Recognition

Access revenue is recognized when earned. The Company participates in toll
revenue pools with other telephone companies. Such pools are funded by toll
revenue and/or access charges regulated by the Regulatory Commission of Alaska
(RCA) within the intrastate jurisdiction and the Federal Communications
Commission (FCC) within the interstate jurisdiction. Much of the interstate
access revenue is initially recorded based on estimates. These estimates are
derived from interim financial statements, available separations studies and
the most recent information available about achieved rates of return. These
estimates are subject to adjustment in future accounting periods as additional
operational information becomes available. To the extent that disputes arise
over revenue settlements, the Companys policy is to defer revenue collected
until settlement methodologies are resolved and finalized. During the second
quarter of 2002, the Company recognized as revenue $11,066 of previously
deferred interstate access revenue and reversed $1,673 of interest expense
previously accrued thereon as a result of a favorable ruling by the District of
Columbia Court of Appeals related to a dispute on interstate access rates for
the Anchorage market. At June 30, 2003 and 2002, the Company had liabilities of
$15,423 and $20,656, respectively, related to its estimate of refundable access
revenue.

6



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)



|1. |  | DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|-- |  | ---------------------------------------------------------------------------------

Regulatory Accounting and Regulation

The local telephone exchange operations of the Company account for costs
in accordance with the accounting principles for regulated enterprises
prescribed by Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation.This accounting
recognizes the economic effects of rate regulation by recording cost and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. Accordingly, under SFAS No. 71, plant and equipment is
depreciated over lives approved by regulators and certain costs and obligations
are deferred based upon approvals received from regulators to permit recovery
of such amounts in future years. Historically, lives approved for regulatory
purposes have approximated economically useful lives. On July 21, 2002, the
Company received an order from the RCA which extended lives approved for
ratemaking purposes beyond the economically useful lives of the underlying
assets. Management petitioned for reconsideration on the ACSA order and the RCA
has accepted additional testimony and held a hearing in June of 2003. A final
order on the matter is not expected until the second half of 2003. The Company
implemented, effective January 1, 2003, higher depreciation rates for its
regulated telephone plant for the interstate jurisdiction. As a result, the
Company has recorded a regulatory asset under SFAS No. 71 of $5,466 as of June
30, 2003 related to depreciation of the regulated telephone plant allocable to
its intrastate and local jurisdictions. The Company has also deferred as a
regulatory asset $894 of costs incurred in connection with regulatory rate
making proceedings, which is being amortized over three years starting in 2003.
The balance of this regulatory asset was $745 at June 30, 2003. If the Company
were not following SFAS No. 71, it would have recorded additional depreciation
expense of $5,466 for the intrastate and local jurisdictions and the deferred
costs incurred in connection with regulatory rate making proceedings would have
been charged to expense as incurred. Non-regulated revenues and costs incurred
by the local telephone exchange operations and non-regulated operations of the
Company are not accounted for under SFAS No. 71 principles.

Stock Incentive Plans

The Companys employees participate in various plans of ACS Group. The
Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for its stock incentive plans.
Accordingly, no compensation cost has been recognized for options with exercise
prices equal to or greater than fair value on the date of grant. No
compensation costs were charged to operations for the six months ended June 30,
2003 or 2002. If compensation costs had been determined consistent with SFAS
No. 123, Accounting for Stock-Based Compensation,the Companys net income
(loss) on a pro forma basis for the six months ended June 30, 2003 and 2002
would have been as follows:

|                   |             |  |                                   |        |      |  |   |          |  
|------------------ | ----------- |  | --------------------------------- | ------ | ---- |  | - | -------- | -
|                   |             |  | For the six months ended June 30,
|                   |             |  | 2003                              |        | 2002
|                   |             |  |                                   |        |     
|Net income (loss): |             |  |                                   |        |      |  |   |         
|                   | As reported |  | $                                 | 87,420 |      |  | $ | (107,692 | )
|                   | Pro forma   |  |                                   | 87,499 |      |  |   | (108,574 | )

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

|                             |  |      |      |      |  |  |      |  
|---------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                             |  | 2003 |      | 2002
|                             |  |      |      |     
|Risk free rate               |  |      | 2.56 | %    |  |  | 4.13 | %
|Dividend yield               |  |      | 0.0  | %    |  |  | 0.0  | %
|Expected volatility factor   |  |      | 65.7 | %    |  |  | 54.0 | %
|Expected option life (years) |  |      | 6.1  |      |  |  | 6.1  |  

7



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)



|2. |  | NEW ACCOUNTING STANDARDS
|-- |  | ------------------------

On August 15, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143,Accounting for Asset Retirement Obligations. This
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This standard generally
applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operation of a long-lived asset. Under the new accounting method, asset
retirement obligations are recognized in the period in which they are incurred
if a reasonable estimate of fair value can be made. When the liability is
initially recorded, the cost is capitalized and increases the carrying value of
the related long-lived asset. The liability is then accreted to its present
value each period and the capitalized cost is depreciated over the estimated
useful life of the related asset. At the settlement date, the obligation is
settled for its recorded amount or a gain or loss is recognized upon
settlement.

In accordance with federal and state regulations, depreciation expense for
the Companys local exchange carriers regulated operations have historically
included an additional provision for cost of removal. Under SFAS No. 143, the
additional cost of removal provision would no longer be included in
depreciation expense, because it does not meet the recognition and measurement
principles of an asset retirement obligation. On December 20, 2002, the FCC
notified local exchange carriers that they should not adopt the provisions of
SFAS No. 143 unless specifically required by the FCC in the future. As a result
of the FCC ruling, the Company will continue to record a regulatory liability
for cost of removal for its local exchange carriers subsidiaries that follow
SFAS No. 71 accounting.

The Company applied the provisions of SFAS No. 143 to its nonregulated
subsidiaries effective January 1, 2003. The Company has cell site leases which
typically have terms of 10 years that contain contractual obligations to
restore the site to its original condition. Since the Company plans to renew
these leases indefinitely, it is unable to determine when it might have to
perform the restoration of the cell sites to their original condition. The
Company is therefore unable to estimate the fair value of these asset
retirement obligations and has not recorded a liability under SFAS No. 143.

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

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

On April 30, 2003, FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. This Statement is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The Company does not believe the adoption of this statement will
have a material impact on its financial position, results of operations, or
cash flows.

8



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)



|2. |  | NEW ACCOUNTING STANDARDS (Continued)
|-- |  | ------------------------------------

On May 15, 2003, FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
new Statement requires that certain financial instruments that, under previous
guidance, issuers could account for as equity, be classified as liabilities in
statements of financial position. Most of the guidance in SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 has no effect on
the Companys financial position, results of operations or cash flows.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The recognition and measurement
provisions are effective on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of FIN 45 had no effect on the
Companys financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 addresses when a company
should include in its financial statements the assets, liabilities and
activities of a variable interest entity. FIN 46 defines variable interest
entities as those entities with a business purpose that either do not have any
equity investors with voting rights, or have equity investors that do not
provide sufficient financial resources for the entity to support its
activities. FIN 46 also requires disclosures about variable interest entities
that a company is not required to consolidate, but in which it has a
significant variable interest. FIN 46 consolidation requirements are effective
for all variable interest entities created after January 31, 2003, and to
pre-existing entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain disclosure requirements are effective for
financial statements issued after January 31, 2003. The adoption of FIN 46 has
no effect on the Companys financial position, results of operations or cash
flows.



|3. |  | LONG-TERM OBLIGATIONS
|-- |  | ---------------------

During the first quarter of 2003, the Companys lenders approved an
amendment and waiver to its Senior Credit Facility that, among other things,
permitted the Company to sell its directory business and required that in the
event the sale was completed, 75% of proceeds would be used to repay
outstanding Senior Credit Facility term loans. This amendment and waiver became
effective on May 8, 2003, and on May 13, 2003, the Company paid down $106,650
of the outstanding Senior Credit Facility term loans. Long-term obligations
consists of the following at June 30, 2003 and December 31, 2002:

|                                               |  |      |         |      |  |   |         | 
|---------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                               |  | 2003 |         | 2002
|                                               |  |      |         |     
|Senior credit facility term loan  tranche A   |  | $    | 105,727 |      |  | $ | 148,500 | 
|Senior credit facility term loan  tranche B   |  |      | 113,158 |      |  |   | 148,500 | 
|Senior credit facility term loan  tranche C   |  |      | 101,842 |      |  |   | 133,650 | 
|9 3/8% senior subordinated notes due 2009      |  |      | 150,000 |      |  |   | 150,000 | 
|Capital leases and other long-term obligations |  |      | 11,365  |      |  |   | 12,181  | 
|                                               |  |      |         |      |  |   |         | 
|                                               |  |      | 482,092 |      |  |   | 592,831 | 
|Less current portion                           |  |      | 4,909   |      |  |   | 5,933   | 
|                                               |  |      |         |      |  |   |         | 
|Long-term obligations, net of current portion  |  | $    | 477,183 |      |  | $ | 586,898 | 
|                                               |  |      |         |      |  |   |         | 

9



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)



|3. |  | LONG-TERM OBLIGATIONS (Continued)
|-- |  | ---------------------------------

The aggregate maturities of long-term obligations for each of the five
years and thereafter subsequent to June 30, 2003 are as follows:

|                               |                           |            |         |     |         | 
|------------------------------ | ------------------------- | ---------- | ------- | --- | ------- | 
|                               | 2003 (July 1-December 31) |            | $       | 729 |        
|2004 (January 1 - December 31) |                           |            | 4,979   |    
|2005 (January 1 - December 31) |                           |            | 4,178   |    
|2006 (January 1 - December 31) |                           |            | 106,755 |    
|2007 (January 1 - December 31) |                           |            | 111,786 |    
|                               |                           | Thereafter |         |     | 253,665 | 
|                               |                           |            |         |    
|                               |                           | $          | 482,092 |    
|                               |                           |            |         |    



|4. |  | GAIN ON DISPOSAL OF ASSETS
|-- |  | --------------------------

On April 28, 2003, the Company entered into an underwriting agreement with
a syndicate of Canadian investment banks to complete the sale of a majority
interest in the newly formed ACS Media, LLC (the Directories Business). The
Company subsequently filed on April 29, 2003, a final prospectus with Canadian
securities regulators to sell a majority interest in its Directories Business
in a public offering in Canada to the ACS Media Income Fund (the Fund), which
is a Canadian income fund. The offering was sponsored by the Company. The
transaction closed on May 8, 2003, with the Company selling an 87.42% interest
and retaining a 12.58% interest in the Directories Business. The Company is
accounting for its 12.58% interest in the Directories Business under the equity
method.

The Fund sold 17,500 units on May 8, 2003 for net proceeds of $110,435,
after deducting its underwriters fees and transaction expenses of $10,246. The
Funds net proceeds were used to acquire from the Company an 87.42% interest in
the Directories Business. The Company received net proceeds of $105,059 after
deducting its fees and expenses associated with the transaction of $5,376.

The Company entered into an arrangement with the Metropolitan Life
Insurance Company (MetLife) to provide a credit facility to its Directories
Business on May 8, 2003 immediately prior to the sale of its Directories
Business to the Fund. The Directories Business then drew $35,000 of term loans
against the facility, using $1,468 to pay fees and expenses related to the debt
issuance and $87 to prepay an annual agency fee to MetLife. Of the $33,445 in
net cash proceeds, $413 was deposited into the Directories Business as cash
working capital and $33,032 was distributed to the Company as a dividend. The
credit facility is non-recourse to the Company.

The Companys retained 12.58% minority interest was recorded at an initial
book value of $1,077 representing the pro-rata retained ownership at historical
book value. The Companys retained 12.58% interest in ACS Media LLC is subject
to an exchange rights agreement that permits its conversion to units of the
Fund after the expiration of a 90 day lockup period. Units of the Fund are
traded on the Toronto Stock Exchange under the symbol AYP.UN. The Company can
sell its exchanged units to a qualified investor or investors in a private
placement transaction or offer them in a secondary public offering at its
option after the expiration of a 180 day lockup agreement that expires on
November 4, 2003 with the underwriters of the Funds offering in Canada.

The Company realized a gain on foreign exchange of $4,104 as a result of
currency fluctuation from April 28, 2003, the date the underwriting and
investment agreements were executed, to May 8, 2003, the date the offering
closed and the transaction was consummated. The foreign exchange gain is
included in Interest and other income in the Consolidated Statement of
Operations. The Company recognized a gain on disposition of $97,578 on a
pre-tax basis, exclusive of the $4,104 exchange gain. The income tax expense
associated with the gain on disposition of $40,114 was offset by a reduction in
the valuation allowance that had been established for the tax benefit of prior
net operating losses.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)



|4. |  | GAIN ON DISPOSAL OF ASSETS (Continued)
|-- |  | --------------------------------------

The following table indicates the Companys basis in assets sold to and
liabilities assumed by the Fund and its retained interest in ACS Media LLC.

|                                     |                          |                                    |         |   |         |   |  |  |  | 
|------------------------------------ | ------------------------ | ---------------------------------- | ------- | - | ------- | - |  |  |  | 
|Net proceeds of the Transaction      |                          | $                                  | 105,059 |  
|                                     |                          |                                    |         |  
|Basis in directories business sold:  |                          |                                    |         |  
|                                     | Assets sold to the Fund: |                                    |         |   |        
|                                     |                          | Current assets                     |         | $ | 4,214   |  
|                                     |                          | Property, plant and equipment, net |         |   | 90      |  
|                                     |                          | Goodwill                           |         |   | 38,821  |  
|                                     |                          | Debt issue costs                   |         |   | 1,468   |  
|                                     |                          | Current liabilities                |         |   | (1,035  | )
|                                     |                          | Long-term debt                     |         |   | (35,000 | )
|                                     |                          |                                    |         |  
|Basis of Directories Business        |                          |                                    | 8,558   |  
|Equity in minority interest retained |                          |                                    | 1,077   |  
|                                     |                          |                                    |         |  
|Basis in net assets sold to the Fund |                          | $                                  | 7,481   |  
|                                     |                          |                                    |         |  
|Gain on sale of Directories Business |                          | $                                  | 97,578  |  
|                                     |                          |                                    |         |  

The Company has entered into several long-term contracts with the
Directories Business, including a 50-year publishing agreement, a 50-year
license agreement, a 45-year non-compete agreement, and a 10-year billing and
collection agreement. The Company will also maintain minority representation
through up to three Managers of the permitted nine Managers of ACS Media LLC so
long as it owns an interest of 10% or more in the Directories Business.
Currently, Charles E. Robinson, the Companys Chairman and CEO, and W. Dexter
Paine, III and Wray T. Thorn, both Directors of the Company and employees of
Fox Paine & Company, the Companys majority shareholder, are Managers of ACS
Media LLC.



|5. |  | DISCONTINUED OPERATIONS
|-- |  | -----------------------

On March 30, 2002, the Company approved a plan to sell its wireless cable
television service segment. As a result of this decision, the operating revenue
and expense of this segment has been classified as discontinued operations
under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets,for all periods presented and the assets and liabilities of the
disposal group have been written down to their fair value, net of expected
selling expenses. The income tax benefit in all periods was offset by a
valuation allowance. The Company completed its disposal of its wireless cable
television segment as of March 31, 2003.

The following discloses the results of the discontinued operations for the
six months ended June 30, 2003 and 2002:

|                                             |  |                           |     |      |  |   |        |  
|-------------------------------------------- |  | ------------------------- | --- | ---- |  | - | ------ | -
|                                             |  | Six Months Ended June 30,
|                                             |  | 2003                      |     | 2002
|                                             |  |                           |     |     
|Operating revenue                            |  | $                         | 110 |      |  | $ | 425    |  
|Operating expense                            |  |                           | 162 |      |  |   | 720    |  
|                                             |  |                           |     |      |  |   |        |  
|Operating loss                               |  |                           | (52 | )    |  |   | (295   | )
|Interest expense                             |  |                           |    |      |  |   | (32    | )
|                                             |  |                           |     |      |  |   |        |  
|Loss from operations of discontinued segment |  |                           | (52 | )    |  |   | (327   | )
|Write down of net assets to fair value       |  |                           |    |      |  |   | (7,060 | )
|                                             |  |                           |     |      |  |   |        |  
|Loss from discontinued operations            |  | $                         | (52 | )    |  | $ | (7,387 | )
|                                             |  |                           |     |      |  |   |        |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

6. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires that goodwill be tested for
impairment at the reporting unit level upon adoption and at least annually
thereafter, utilizing a two-step methodology. The initial step requires the
Company to determine the fair value of each reporting unit and compare it to
the carrying value, including goodwill, of such unit. If the fair value exceeds
the carrying value, no impairment loss would be recognized. However, if the
carrying value of the reporting unit exceeds its fair value, the goodwill of
the unit may be impaired. The amount, if any, of the impairment is then
measured in the second step. The second step of the goodwill impairment test
compares the implied fair value goodwill of the reporting unit with the
carrying amount of that goodwill. The implied fair value of a reporting units
goodwill is the excess of the fair value of a reporting unit over the amounts
assigned to assets and liabilities. If the carrying value of reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss
shall be recognized in an amount equal to that excess.

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

7. STOCK INCENTIVE PLANS

The Companys employees participate in various plans of ACS Group, which
through its Compensation Committee of the Board of Directors, may grant stock
options, stock appreciation rights and other awards to officers, employees and
non-employee directors. At June 30, 2003, ACS Group has reserved a total of
6,060 shares of authorized common stock for issuance under the plans. The plans
terminate in approximately 10 years from the date of adoption and allow
forfeited options to be reissued. In general, options under the plans vest
ratably over three, four or five years and will have an exercise price equal to
the fair market value of the common stock on the date of grant. The term of
options granted under the plan may not exceed 10 years.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

ACS Group has reserved 4,910 shares under this plan, which was adopted by
the Parent in November 1999. At June 30 2003, 5,712 options have been granted,
2,420 have been forfeited, 441 have been exercised, and 1,618 shares are
available for grant under the plan.

Alaska Communications Systems Group, Inc. 1999 Non-Employee Director Stock
Compensation Plan

The non-employee director stock compensation plan was adopted by ACS Group
in November 1999. ACS Group has reserved 150 shares under this plan. At June
30, 2003, 110 shares have been awarded and 40 shares are available for grant
under the plan. Prior to 2003, directors were required to receive not less than
25% of their annual retainer and meeting fees in the form of ACS Groups stock,
and may have elected to receive up to 100% of directors compensation in the
form of stock. Starting in 2003, directors no longer have the option of
receiving stock and receive all of their annual retainer and meeting fees in
cash.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

7. STOCK INCENTIVE PLANS (Continued)

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

This plan was also adopted by ACS Group in November 1999. ACS Group has
reserved 1,000 shares under this plan. At June 30, 2003, 547 shares are
available for issuance and sale. On June 30, 2003, 87 shares were issued under
the plan. The plan will terminate on December 31, 2009. All ACS Group employees
and all of the employees of designated subsidiaries generally will be eligible
to participate in the purchase plan, other than employees whose customary
employment is 20 hours or less per week or is for not more than five months in
a calendar year, or who are ineligible to participate due to restrictions under
the Internal Revenue Code.

8. BUSINESS SEGMENTS

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

Previously, the Company reported its Directories Business as a separate
segment. As discussed in Note 4, the Company sold an 87.42% interest in its
Directories Business during the second quarter of 2003 and is no longer
directly engaged in day-to-day management of that business. Therefore, the
Directories Business no longer constitutes a reportable segment. Accordingly,
the historical operating results for the Directories Business are included in
All Other in the accompanying tables.

The Company also incurs interest expense, interest income, equity in
earnings of investments, and other operating and non operating income and
expense at the corporate level which are not allocated to the business
segments, nor are they evaluated by the chief operating decision maker in
analyzing the performance of the business segments. These non operating income
and expense items are provided in the accompanying table under the caption All
Other in order to assist the users of these financial statements in
reconciling the operating results and total assets of the business segments to
the consolidated financial statements. Common use assets are held at the
Company and are allocated to the business segments based on operating revenue.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.

The following table illustrates selected financial data for each segment
as of and for the six months ended June 30, 2003:

|                                           |  |           |         |          |  |          |        |               |  |           |         |              |  |       |        |   |  |   |         |   |  |   |         |   |  |   |         | 
|------------------------------------------ |  | --------- | ------- | -------- |  | -------- | ------ | ------------- |  | --------- | ------- | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | 
|                                           |  | Local     |         |          |  |          |        |               |  |           |         |              |  |       |        |   |  |   |         |   |  |   |         |   |  |  
|                                           |  | Telephone |         | Wireless |  | Internet |        | Interexchange |  | All Other |         | Eliminations |  | Total
|                                           |  |           |         |          |  |          |        |               |  |           |         |              |  |      
|Operating revenue                          |  | $         | 109,211 |          |  | $        | 22,318 |               |  | $         | 16,193  |              |  | $     | 15,197 |   |  | $ | 24,239  |   |  | $ | (17,841 | ) |  | $ | 169,317 | 
|Depreciation and amortization              |  |           | 28,738  |          |  |          | 2,929  |               |  |           | 4,832   |              |  |       | 1,117  |   |  |   | 7,075   |   |  |   |        |   |  |   | 44,691  | 
|Operating income (loss)                    |  |           | 14,438  |          |  |          | 1,764  |               |  |           | (14,845 | )            |  |       | (197   | ) |  |   | 108,949 |   |  |   | (9      | ) |  |   | 110,100 | 
|Interest expense                           |  |           | 279     |          |  |          | 2      |               |  |           | 67      |              |  |       | 148    |   |  |   | 27,111  |   |  |   |        |   |  |   | 27,607  | 
|Interest income                            |  |           | 1       |          |  |          |       |               |  |           |        |              |  |       |       |   |  |   | 596     |   |  |   |        |   |  |   | 597     | 
|Equity in earnings of minority
investments |  |           |        |          |  |          |       |               |  |           |        |              |  |       |       |   |  |   | 303     |   |  |   |        |   |  |   | 303     | 
|Income tax provision (benefit)             |  |           | 5,881   |          |  |          | 724    |               |  |           |        |              |  |       |       |   |  |   | (6,605  | ) |  |   |        |   |  |   |        | 
|Income (loss) from
continuing operations   |  |           | 8,279   |          |  |          | 1,038  |               |  |           | (14,912 | )            |  |       | (345   | ) |  |   | 93,421  |   |  |   | (9      | ) |  |   | 87,472  | 
|Total assets                               |  |           | 476,228 |          |  |          | 76,261 |               |  |           | (42,816 | )            |  |       | (1,052 | ) |  |   | 166,115 |   |  |   |        |   |  |   | 674,736 | 
|Capital expenditures                       |  |           | 8,728   |          |  |          | 542    |               |  |           | 3,250   |              |  |       | 10     |   |  |   | 5,021   |   |  |   |        |   |  |   | 17,551  | 

13



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

8. BUSINESS SEGMENTS (Continued)

Operating revenue disclosed above includes intersegment operating revenue
of $12,692 for local telephone, $ 883 for wireless, $6,863 for interexchange
and $13,101 for all other. In accordance with SFAS No. 71, intercompany revenue
between local telephone and all other segments is not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the six months ended June 30, 2002:

|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | -------- | ------- | ------------- |  | --------- | ------ | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |         |   |  |  
|                                         |  | Telephone |         | Wireless |  | Internet |         | Interexchange |  | All Other |        | Eliminations |  | Total
|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |      
|Operating revenue                        |  | $         | 119,313 |          |  | $        | 20,536  |               |  | $         | 8,393  |              |  | $     | 14,638 |   |  | $ | 26,918  |   |  | $ | (14,883 | ) |  | $ | 174,915 |  
|Depreciation and amortization            |  |           | 27,475  |          |  |          | 2,755   |               |  |           | 2,974  |              |  |       | 1,138  |   |  |   | 4,890   |   |  |   |        |   |  |   | 39,232  |  
|Operating income (loss)                  |  |           | 22,945  |          |  |          | 1,926   |               |  |           | (9,932 | )            |  |       | (566   | ) |  |   | 13,379  |   |  |   | (37     | ) |  |   | 27,715  |  
|Interest expense                         |  |           | 809     |          |  |          | (2      | )             |  |           | (55    | )            |  |       | (151   | ) |  |   | (24,319 | ) |  |   |        |   |  |   | (23,718 | )
|Interest income                          |  |           | 1       |          |  |          | 1       |               |  |           |       |              |  |       |       |   |  |   | 1,169   |   |  |   |        |   |  |   | 1,171   |  
|Income tax provision (benefit)           |  |           | 9,571   |          |  |          | 796     |               |  |           |       |              |  |       |       |   |  |   | (10,367 | ) |  |   |        |   |  |   |        |  
|Income (loss) from
continuing operations |  |           | 14,184  |          |  |          | 1,133   |               |  |           | (9,987 | )            |  |       | (717   | ) |  |   | 469     |   |  |   | (37     | ) |  |   | 5,045   |  
|Total assets                             |  |           | 614,346 |          |  |          | 100,154 |               |  |           | (8,516 | )            |  |       | 19,660 |   |  |   | 53,392  |   |  |   |        |   |  |   | 779,036 |  
|Capital expenditures                     |  |           | 13,295  |          |  |          | 5,111   |               |  |           | 10,099 |              |  |       |       |   |  |   | 5,776   |   |  |   |        |   |  |   | 34,281  |  

Operating revenue disclosed above include intersegment operating revenue
of $11,323 for local telephone, $881 for wireless, $6,809 for interexchange and
$10,598 for all other. In accordance with SFAS No. 71, intercompany revenue
between local telephone and all other segments is not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the three months ended June 30, 2003:

|                                           |  |           |         |          |  |          |        |               |  |           |         |              |  |       |       |   |  |   |         |   |  |   |        |   |  |   |         | 
|------------------------------------------ |  | --------- | ------- | -------- |  | -------- | ------ | ------------- |  | --------- | ------- | ------------ |  | ----- | ----- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | 
|                                           |  | Local     |         |          |  |          |        |               |  |           |         |              |  |       |       |   |  |   |         |   |  |   |        |   |  |  
|                                           |  | Telephone |         | Wireless |  | Internet |        | Interexchange |  | All Other |         | Eliminations |  | Total
|                                           |  |           |         |          |  |          |        |               |  |           |         |              |  |      
|Operating revenue                          |  | $         | 55,210  |          |  | $        | 11,965 |               |  | $         | 9,037   |              |  | $     | 8,358 |   |  | $ | 9,640   |   |  | $ | (9,424 | ) |  | $ | 84,786  | 
|Depreciation and amortization              |  |           | 14,046  |          |  |          | 1,484  |               |  |           | 2,422   |              |  |       | 562   |   |  |   | 3,577   |   |  |   |       |   |  |   | 22,091  | 
|Operating income (loss)                    |  |           | 8,112   |          |  |          | 1,735  |               |  |           | (8,392  | )            |  |       | 378   |   |  |   | 101,667 |   |  |   |       |   |  |   | 103,500 | 
|Interest expense                           |  |           | 143     |          |  |          | 1      |               |  |           | 33      |              |  |       | 74    |   |  |   | 14,669  |   |  |   |       |   |  |   | 14,920  | 
|Interest income                            |  |           |        |          |  |          |       |               |  |           |        |              |  |       |      |   |  |   | 351     |   |  |   |       |   |  |   | 351     | 
|Equity in earnings of minority
investments |  |           |        |          |  |          |       |               |  |           |        |              |  |       |      |   |  |   | 303     |   |  |   |       |   |  |   | 303     | 
|Income tax provision (benefit)             |  |           | 3,374   |          |  |          | 720    |               |  |           |        |              |  |       |      |   |  |   | (4,094  | ) |  |   |       |   |  |   |        | 
|Income (loss) from
continuing operations   |  |           | 4,595   |          |  |          | 1,014  |               |  |           | (8,425  | )            |  |       | 304   |   |  |   | 95,879  |   |  |   |       |   |  |   | 93,367  | 
|Total assets                               |  |           | 476,324 |          |  |          | 76,557 |               |  |           | (42,456 | )            |  |       | (764  | ) |  |   | 165,075 |   |  |   |       |   |  |   | 674,736 | 
|Capital expenditures                       |  |           | 4,734   |          |  |          | 421    |               |  |           | 2,018   |              |  |       | 2     |   |  |   | 1,922   |   |  |   |       |   |  |   | 9,097   | 

Operating revenue disclosed above includes intersegment operating revenue
of $7,329 for local telephone, $470 for wireless, $3,990 for interexchange and
$6,430 for all other. In accordance with SFAS No. 71, intercompany revenue
between local telephone and all other segments is not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the three months ended June 30, 2002:

|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | -------- | ------- | ------------- |  | --------- | ------ | ------------ |  | ----- | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |          |         |               |  |           |        |              |  |       |        |   |  |   |         |   |  |   |        |   |  |  
|                                         |  | Telephone |         | Wireless |  | Internet |         | Interexchange |  | All Other |        | Eliminations |  | Total
|                                         |  |           |         |          |  |          |         |               |  |           |        |              |  |      
|Operating revenue                        |  | $         | 63,991  |          |  | $        | 11,172  |               |  | $         | 4,551  |              |  | $     | 7,504  |   |  | $ | 13,436  |   |  | $ | (7,749 | ) |  | $ | 92,905  |  
|Depreciation and amortization            |  |           | 13,794  |          |  |          | 1,390   |               |  |           | 1,721  |              |  |       | 564    |   |  |   | 2,504   |   |  |   |       |   |  |   | 19,973  |  
|Operating income (loss)                  |  |           | 14,356  |          |  |          | 1,169   |               |  |           | (6,068 | )            |  |       | (287   | ) |  |   | 6,018   |   |  |   | (15    | ) |  |   | 15,173  |  
|Interest expense                         |  |           | 1,242   |          |  |          | (1      | )             |  |           | (48    | )            |  |       | (76    | ) |  |   | (12,092 | ) |  |   |       |   |  |   | (10,975 | )
|Interest income                          |  |           |        |          |  |          | 1       |               |  |           |       |              |  |       |       |   |  |   | 606     |   |  |   |       |   |  |   | 607     |  
|Income tax provision (benefit)           |  |           | 6,882   |          |  |          | 502     |               |  |           |       |              |  |       |       |   |  |   | (7,384  | ) |  |   |       |   |  |   |        |  
|Income (loss) from
continuing operations |  |           | 8,716   |          |  |          | 668     |               |  |           | (6,116 | )            |  |       | (363   | ) |  |   | 1,856   |   |  |   | (15    | ) |  |   | 4,746   |  
|Total assets                             |  |           | 616,321 |          |  |          | 100,929 |               |  |           | (8,240 | )            |  |       | 18,947 |   |  |   | 51,080  |   |  |   |       |   |  |   | 779,037 |  
|Capital expenditures                     |  |           | 7,325   |          |  |          | 4,156   |               |  |           | 6,973  |              |  |       |       |   |  |   | 2,581   |   |  |   |       |   |  |   | 21,035  |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

8. BUSINESS SEGMENTS (Continued)

Operating revenue disclosed above include intersegment operating revenue
of $5,947 for local telephone, $477 for wireless, $351 for directory, $3,611
for interexchange and $5,055 for all other. In accordance with SFAS No. 71,
intercompany revenue between local telephone and all other segments is not
eliminated above.

9. RELATED PARTY TRANSACTIONS

On April 17, 2001, the Company issued an interest bearing note receivable
to an officer totaling $328. The note bore interest at the Mid-Term Applicable
Federal Rate and was due on April 15, 2005. The note was secured by a pledge of
100 shares of ACS Groups stock held in the officers name. In accordance with
an addendum to the officers employment agreement dated May 3, 2001, the loan
was to be forgiven ratably over a three year period ending April 16, 2004.
Accordingly, $114 was forgiven on April 16, 2002 and recognized as compensation
expense. Upon the closing of the sale of the Companys Directories Business on
May 8, 2003 for which the officer received a fee of $840, he waived certain
rights under his employment agreement, including the forgiveness terms of this
indebtedness that would have occurred during 2003 and 2004. On May 8, 2003, the
officer paid off the note balance of $238, including accrued interest.

Fox Paine & Company, the majority stockholder, receives an annual
management fee in the amount of one percent of the Companys net income before
interest expense, income taxes and depreciation and amortization, calculated
without regard to the fee. The management fee expense for the six months ended
June 30, 2003 and 2002 was $571 and $656, respectively.

The board of directors approved the payment of a fee equal to 1% of the
gross proceeds generated from the sale of the Companys Directories Business to
Fox Paine & Company upon closing such sale, plus expenses in connection with
such transaction, including the reimbursement by the Company of the $250
consulting fee and transaction bonus paid to an officer under the agreement
described below. The Company paid Fox Paine & Company $2,095 on May 8, 2003.

Fox Paine & Company entered into a consulting agreement with an officer of
the Company for services rendered for the benefit of the Company related to the
sale of the Companys Directories Business. Under this agreement, the officer
was paid a lump sum consulting fee and transaction bonus of $250 in May 2003.
As described above, Fox Paine & Company was reimbursed for this expense.

As previously described, the Company has entered into several long-term
contracts with ACS Media LLC, including a 50-year publishing agreement, a
50-year license agreement, a 45-year non-compete agreement, and a 10-year
billing and collection agreement. At June 30, 2003, the Company had recorded in
accounts payable  affiliates $2,933 due to ACS Media, LLC under these
contracts, primarily under the billing and collection agreement. The Company
will also maintain minority representation through up to three Managers of the
permitted nine Managers of ACS Media LLC as long as it owns an interest of 10%
or more. Currently, Charles E. Robinson, the Companys Chairman and CEO, and W.
Dexter Paine, III and Wray T. Thorn, both Directors of the Company and
employees of Fox Paine & Company, the Companys majority shareholder, are
Managers of ACS Media LLC.

10. SEVERANCE AND RESTRUCTURING CHARGES

In June 2002, the Company adopted a restructuring plan and recorded $862
of associated charges, including $523 of severance costs and $339 of lease
termination costs for office space. The Company completed this plan as of June
30, 2003. The Company has paid out $434 accrued under this plan for 13
employees who were terminated and eligible for severance. The Company also
reversed the remaining restructuring charges of $428 during the quarter ended
June 30, 2003. This amount substantially related to a planned early termination
of a real property operating lease, which the Company has subsequently
determined to retain through its original term.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

ACS Holdings and it subsidiaries are guarantors of the ACS Groups senior
discount debentures. Additionally, ACS Group and ACS Holdings subsidiaries are
guarantors under ACS Holdings 9 3/8 % senior subordinated notes. All ACS
Groups and Holdings subsidiaries (the Subsidiaries) are 100% owned. The
guarantees are full and unconditional. In addition, all guarantees are joint
and several. Accordingly, the interim condensed consolidating financial
statements are presented below. Additionally, see ACS Groups 10-Q (Commission
File Number 000-28167) for ACS Group only financial statements.

Condensed Consolidated Balance Sheet
June 30, 2003

|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |         | 
|------------------------------------------------ | ------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | -------- | ------------ | -------- | ------------ | -------- | - | --------- | -------- | ------- | 
|                                                 |                                                         |                            |         | Combined     |         | ACS Holdings |         |              |          |              |          | ACS Holdings
|                                                 |                                                         |                            |         | Subsidiaries |         | Parent Only  |         | Eliminations |          | Consolidated
|                                                 |                                                         |                            |         |              |         |              |         |              |          |             
|Assets                                           |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |         
|Current assets:                                  |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |         
|                                                 | Cash and cash equivalents                               |                            | $       | 214          |         |              | $       | 64,346       |          |              | $        |             |          |   | $         | 64,560   |        
|                                                 | Restricted cash                                         |                            |         |             |         |              |         | 110          |          |              |          |             |          |   |           | 110      |        
|                                                 | Accounts receivable-trade, net                          |                            |         | 18,700       |         |              |         | 27,332       |          |              |          |             |          |   |           | 46,032   |        
|                                                 | Accounts receivable-affiliates                          |                            |         | 206,523      |         |              |         | (201,757     | )        |              |          |             |          |   |           | 4,766    |        
|                                                 | Materials and supplies                                  |                            |         | 11,534       |         |              |         | 69           |          |              |          |             |          |   |           | 11,603   |        
|                                                 | Prepayments and other current assets                    |                            |         | 2,046        |         |              |         | 3,707        |          |              |          |             |          |   |           | 5,753    |        
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|                                                 |                                                         | Total current assets       |         |              | 239,017 |              |         |              | (106,193 | )            |          |              |         |   |           |          | 132,824 | 
|Investments                                      |                                                         |                            | 1,097   |              |         |              | 614,275 |              |          |              | (614,275 | )            |          |   | 1,097     |         
|Property, plant and equipment                    |                                                         |                            | 992,586 |              |         |              | 107,487 |              |          |              |         |              |          |   | 1,100,073 |         
|Less: accumulated depreciation                   |                                                         |                            | 618,996 |              |         |              | 43,132  |              |          |              |         |              |          |   | 662,128   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|                                                 | Property, plant and equipment, net                      |                            |         | 373,590      |         |              |         | 64,355       |          |              |          |             |          |   |           | 437,945  |        
|Goodwill                                         |                                                         |                            |        |              |         |              |        |              |          |              | 38,403   |              |          |   | 38,403    |         
|Intangible assets                                |                                                         |                            | 22,146  |              |         |              | 658     |              |          |              |         |              |          |   | 22,804    |         
|Debt issuance costs, net                         |                                                         |                            |        |              |         |              | 15,813  |              |          |              |         |              |          |   | 15,813    |         
|Deferred charges and other assets                |                                                         |                            | 3,229   |              |         |              | 22,621  |              |          |              |         |              |          |   | 25,850    |         
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|Total assets                                     |                                                         | $                          | 639,079 |              |         | $            | 611,529 |              |          | $            | (575,872 | )            |          | $ | 674,736   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|Liabilities and Stockholders Equity             |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |         
|Current liabilities:                             |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |         
|                                                 | Current portion of long-term obligations                |                            | $       | 1,350        |         |              | $       | 3,559        |          |              | $        |             |          |   | $         | 4,909    |        
|                                                 | Accounts payable-affiliates                             |                            |         |             |         |              |         | 3,524        |          |              |          |             |          |   |           | 3,524    |        
|                                                 | Accounts payable, accrued and other current liabilities |                            |         | 20,608       |         |              |         | 20,870       |          |              |          | (1           | )        |   |           | 41,477   |        
|                                                 | Advance billings and customer deposits                  |                            |         | 9,146        |         |              |         |             |          |              |          |             |          |   |           | 9,146    |        
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|                                                 |                                                         | Total current liabilities  |         |              | 31,104  |              |         |              | 27,953   |              |          |              | (1       | ) |           |          | 59,056  | 
|Long-term obligations, net of current portion    |                                                         |                            | 6,175   |              |         |              | 471,008 |              |          |              |         |              |          |   | 477,183   |         
|Deferred income taxes                            |                                                         |                            | 11,765  |              |         |              | (11,765 | )            |          |              |         |              |          |   |          |         
|Other deferred credits and long-term liabilities |                                                         |                            | 14,164  |              |         |              | 16,797  |              |          |              |         |              |          |   | 30,961    |         
|Commitments and contingencies                    |                                                         |                            |        |              |         |              |        |              |          |              |         |              |          |   |          |         
|Stockholders equity:                            |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |         
|                                                 | Common stock                                            |                            |         | 25           |         |              |         |              |          |              |          | (25          | )        |   |           |         |        
|                                                 | Treasury stock                                          |                            |         |             |         |              |         |             |          |              |          |             |          |   |           |         |        
|                                                 | Paid in capital in excess of par value                  |                            |         | 361,124      |         |              |         | 287,242      |          |              |          | (361,124     | )        |   |           | 287,242  |        
|                                                 | Retained earnings (accumulated deficit)                 |                            |         | 214,722      |         |              |         | (164,460     | )        |              |          | (214,722     | )        |   |           | (164,460 | )      
|                                                 | Accumulated other comprehensive loss                    |                            |         |             |         |              |         | (15,246      | )        |              |          |             |          |   |           | (15,246  | )      
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|                                                 |                                                         | Total stockholders equity |         |              | 575,871 |              |         |              | 107,536  |              |          |              | (575,871 | ) |           |          | 107,536 | 
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        
|Total liabilities and stockholders equity       |                                                         | $                          | 639,079 |              |         | $            | 611,529 |              |          | $            | (575,872 | )            |          | $ | 674,736   |         
|                                                 |                                                         |                            |         |              |         |              |         |              |          |              |          |              |          |   |           |          |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11.  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Balance Sheet
December 31, 2002

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

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11.  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Operations
Three Months Ended June 30, 2003

|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |         |         |  
|------------------------------------------------------------- | ----------------------------- | ----------------------- | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | -
|                                                              |                               |                         |         | Combined     |        | ACS Holdings |         |              |        |              |         | ACS Holdings
|                                                              |                               |                         |         | Subsidiaries |        | Parent Only  |         | Eliminations |        | Consolidated
|                                                              |                               |                         |         |              |        |              |         |              |        |             
|Operating revenue:                                            |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Local telephone               |                         | $       | 55,210       |        |              | $       |             |        |              | $       |             |         |   | $       | 55,210  |        
|                                                              | Wireless                      |                         |         | 11,965       |        |              |         |             |        |              |         | (18          | )       |   |         | 11,947  |        
|                                                              | Directory                     |                         |         | 3,353        |        |              |         |             |        |              |         |             |         |   |         | 3,353   |        
|                                                              | Internet                      |                         |         | 9,037        |        |              |         |             |        |              |         |             |         |   |         | 9,037   |        
|                                                              | Interexchange                 |                         |         | 8,358        |        |              |         |             |        |              |         | (3,119       | )       |   |         | 5,239   |        
|                                                              | Other                         |                         |         |             |        |              |         | 6,287        |        |              |         | (6,287       | )       |   |         |        |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              |                               | Total operating revenue |         |              | 87,923 |              |         |              | 6,287  |              |         |              | (9,424  | ) |         |         | 84,786  |  
|Operating expense:                                            |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Local telephone               |                         |         | 32,759       |        |              |         | 142          |        |              |         | (5,414       | )       |   |         | 27,487  |        
|                                                              | Wireless                      |                         |         | 8,746        |        |              |         |             |        |              |         | (1,727       | )       |   |         | 7,019   |        
|                                                              | Directory                     |                         |         | 1,832        |        |              |         |             |        |              |         | (32          | )       |   |         | 1,800   |        
|                                                              | Internet                      |                         |         | 15,007       |        |              |         |             |        |              |         | (1,957       | )       |   |         | 13,050  |        
|                                                              | Interexchange                 |                         |         | 7,418        |        |              |         |             |        |              |         | (294         | )       |   |         | 7,124   |        
|                                                              | Depreciation and amortization |                         |         | 18,514       |        |              |         | 3,577        |        |              |         |             |         |   |         | 22,091  |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              |                               | Total operating expense |         |              | 84,276 |              |         |              | 3,719  |              |         |              | (9,424  | ) |         |         | 78,571  |  
|Gain on disposal of assets                                    |                               |                         | 97,285  |              |        |              |        |              |        |              |        |              |         |   | 97,285  |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|Operating income                                              |                               |                         | 100,932 |              |        |              | 2,568   |              |        |              |        |              |         |   | 103,500 |        
|Other income (expense):                                       |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Interest expense              |                         |         | (251         | )      |              |         | (14,669      | )      |              |         |             |         |   |         | (14,920 | )      
|                                                              | Interest income and other     |                         |         | 4,407        |        |              |         | 58,833       |        |              |         | (58,453      | )       |   |         | 4,787   |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|                                                              |                               | Total other expense     |         |              | 4,156  |              |         |              | 44,164 |              |         |              | (58,453 | ) |         |         | (10,133 | )
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|Income (loss) before income taxes
and discontinued operations |                               |                         | 105,088 |              |        |              | 46,732  |              |        |              | (58,453 | )            |         |   | 93,367  |        
|Income tax expense (benefit)                                  |                               |                         | 46,635  |              |        |              | (46,635 | )            |        |              |        |              |         |   |        |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|Income (loss) from continuing operations                      |                               |                         | 58,453  |              |        |              | 93,367  |              |        |              | (58,453 | )            |         |   | 93,367  |        
|Loss from discontinued operations                             |                               |                         |        |              |        |              |        |              |        |              |        |              |         |   |        |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        
|Net income (loss)                                             |                               | $                       | 58,453  |              |        | $            | 93,367  |              |        | $            | (58,453 | )            |         | $ | 93,367  |        
|                                                              |                               |                         |         |              |        |              |         |              |        |              |         |              |         |   |         |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11.  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement
of Operations
Three Months Ended June 30, 2002

|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |         |         |  
|----------------------------------------------------------------- | ----------------------------- | ----------------------- | ------ | ------------ | ------ | ------------ | ------- | ------------ | ------- | ------------ | ----- | ------------ | ------ | - | ------ | ------- | ------- | -
|                                                                  |                               |                         |        | Combined     |        | ACS Holdings |         |              |         |              |       | ACS Holdings
|                                                                  |                               |                         |        | Subsidiaries |        | Parent Only  |         | Eliminations |         | Consolidated
|                                                                  |                               |                         |        |              |        |              |         |              |         |             
|Operating expense:                                                |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  | Local telephone               |                         | $      | 63,991       |        |              | $       |             |         |              | $     |             |        |   | $      | 63,991  |        
|                                                                  | Wireless                      |                         |        | 11,172       |        |              |         |             |         |              |       | (10          | )      |   |        | 11,162  |        
|                                                                  | Directory                     |                         |        | 8,381        |        |              |         |             |         |              |       |             |        |   |        | 8,381   |        
|                                                                  | Internet                      |                         |        | 4,551        |        |              |         |             |         |              |       |             |        |   |        | 4,551   |        
|                                                                  | Interexchange                 |                         |        | 7,504        |        |              |         |             |         |              |       | (2,684       | )      |   |        | 4,820   |        
|                                                                  | Other                         |                         |        | 211          |        |              |         | 5,055        |         |              |       | (5,266       | )      |   |        |        |        
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  |                               | Total operating revenue |        |              | 95,810 |              |         |              | 5,055   |              |       |              | (7,960 | ) |        |         | 92,905  |  
|Operating expense:                                                |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  | Local telephone               |                         |        | 35,841       |        |              |         | 1,234        |         |              |       | (4,504       | )      |   |        | 32,571  |        
|                                                                  | Wireless                      |                         |        | 8,509        |        |              |         |             |         |              |       | (1,440       | )      |   |        | 7,069   |        
|                                                                  | Directory                     |                         |        | 3,535        |        |              |         |             |         |              |       | (3           | )      |   |        | 3,532   |        
|                                                                  | Internet                      |                         |        | 8,874        |        |              |         |             |         |              |       | (1,557       | )      |   |        | 7,317   |        
|                                                                  | Interexchange                 |                         |        | 7,227        |        |              |         |             |         |              |       | (230         | )      |   |        | 6,997   |        
|                                                                  | Other                         |                         |        | 315          |        |              |         |             |         |              |       | (315         | )      |   |        |        |        
|                                                                  | Depreciation and amortization |                         |        | 17,492       |        |              |         | 2,503        |         |              |       | (22          | )      |   |        | 19,973  |        
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  |                               | Total operating expense |        |              | 81,793 |              |         |              | 3,737   |              |       |              | (8,071 | ) |        |         | 77,459  |  
|Gain (loss) on disposal of assets                                 |                               |                         | (128   | )            |        |              | (145    | )            |         |              |      |              |        |   | (273   | )      
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|Operating income                                                  |                               |                         | 13,889 |              |        |              | 1,173   |              |         |              | 111   |              |        |   | 15,173 |        
|Other income (expense):                                           |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  | Interest expense              |                         |        | 1,113        |        |              |         | (12,092      | )       |              |       | 4            |        |   |        | (10,975 | )      
|                                                                  | Interest income and other     |                         |        | 2            |        |              |         | (2,523       | )       |              |       | 3,069        |        |   |        | 548     |        
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|                                                                  |                               | Total other expense     |        |              | 1,115  |              |         |              | (14,615 | )            |       |              | 3,073  |   |        |         | (10,427 | )
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|Income (loss) before income taxes and
and discontinued operations |                               |                         | 15,004 |              |        |              | (13,442 | )            |         |              | 3,184 |              |        |   | 4,746  |        
|Income tax expense (benefit)                                      |                               |                         | 9,376  |              |        |              | (9,376  | )            |         |              |      |              |        |   |       |        
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|Income (loss) from continuing operations                          |                               |                         | 5,628  |              |        |              | (4,066  | )            |         |              | 3,184 |              |        |   | 4,746  |        
|Loss from discontinued operations                                 |                               |                         | (400   | )            |        |              |        |              |         |              | (115  | )            |        |   | (515   | )      
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        
|Net income (loss)                                                 |                               | $                       | 5,228  |              |        | $            | (4,066  | )            |         | $            | 3,069 |              |        | $ | 4,231  |        
|                                                                  |                               |                         |        |              |        |              |         |              |         |              |       |              |        |   |        |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11.     CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement
of Operations
Six Months Ended June 30, 2003

|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |         |  
|------------------------------------------------------------- | ----------------------------- | ----------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | -
|                                                              |                               |                         |         | Combined     |         | ACS Holdings |         |              |        |              |         | ACS Holdings
|                                                              |                               |                         |         | Subsidiaries |         | Parent Only  |         | Eliminations |        | Consolidated
|                                                              |                               |                         |         |              |         |              |         |              |        |             
|Operating revenue:                                            |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Local telephone               |                         | $       | 109,211      |         |              | $       |             |        |              | $       |             |         |   | $       | 109,211 |        
|                                                              | Wireless                      |                         |         | 22,318       |         |              |         |             |        |              |         | (41          | )       |   |         | 22,277  |        
|                                                              | Directory                     |                         |         | 11,631       |         |              |         |             |        |              |         |             |         |   |         | 11,631  |        
|                                                              | Internet                      |                         |         | 16,193       |         |              |         |             |        |              |         |             |         |   |         | 16,193  |        
|                                                              | Interexchange                 |                         |         | 15,197       |         |              |         |             |        |              |         | (5,192       | )       |   |         | 10,005  |        
|                                                              | Other                         |                         |         | 110          |         |              |         | 12,608       |        |              |         | (12,718      | )       |   |         |        |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|                                                              |                               | Total operating revenue |         |              | 174,660 |              |         |              | 12,608 |              |         |              | (17,951 | ) |         |         | 169,317 |  
|Operating expense:                                            |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Local telephone               |                         |         | 65,738       |         |              |         | 434          |        |              |         | (10,838      | )       |   |         | 55,334  |        
|                                                              | Wireless                      |                         |         | 16,883       |         |              |         |             |        |              |         | (3,300       | )       |   |         | 13,583  |        
|                                                              | Directory                     |                         |         | 5,359        |         |              |         |             |        |              |         | (110         | )       |   |         | 5,249   |        
|                                                              | Internet                      |                         |         | 26,206       |         |              |         |             |        |              |         | (3,020       | )       |   |         | 23,186  |        
|                                                              | Interexchange                 |                         |         | 14,277       |         |              |         |             |        |              |         | (564         | )       |   |         | 13,713  |        
|                                                              | Other                         |                         |         | 160          |         |              |         |             |        |              |         | (160         | )       |   |         |        |        
|                                                              | Depreciation and amortization |                         |         | 37,628       |         |              |         | 7,073        |        |              |         | (10          | )       |   |         | 44,691  |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|                                                              |                               | Total operating expense |         |              | 166,251 |              |         |              | 7,507  |              |         |              | (18,002 | ) |         |         | 155,756 |  
|Gain on disposal of assets                                    |                               |                         | 96,538  |              |         |              |        |              |        |              | 1       |              |         |   | 96,539  |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|Operating income                                              |                               |                         | 104,947 |              |         |              | 5,101   |              |        |              | 52      |              |         |   | 110,100 |        
|Other income (expense):                                       |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |        
|                                                              | Interest expense              |                         |         | (496         | )       |              |         | (27,111      | )      |              |         |             |         |   |         | (27,607 | )      
|                                                              | Interest income and other     |                         |         | 4,408        |         |              |         | 58,332       |        |              |         | (57,761      | )       |   |         | 4,979   |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|                                                              |                               | Total other expense     |         |              | 3,912   |              |         |              | 31,221 |              |         |              | (57,761 | ) |         |         | (22,628 | )
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|Income (loss) before income taxes
and discontinued operations |                               |                         | 108,859 |              |         |              | 36,322  |              |        |              | (57,709 | )            |         |   | 87,472  |        
|Income tax expense (benefit)                                  |                               |                         | 46,635  |              |         |              | (46,635 | )            |        |              |        |              |         |   |        |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|Income (loss) from continuing operations                      |                               |                         | 62,224  |              |         |              | 82,957  |              |        |              | (57,709 | )            |         |   | 87,472  |        
|Loss from discontinued operations                             |                               |                         |        |              |         |              |        |              |        |              | (52     | )            |         |   | (52     | )      
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        
|Net income (loss)                                             |                               | $                       | 62,224  |              |         | $            | 82,957  |              |        | $            | (57,761 | )            |         | $ | 87,420  |        
|                                                              |                               |                         |         |              |         |              |         |              |        |              |         |              |         |   |         |         |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11.     CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statement of Operations
Six Months Ended June 30, 2002

|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |         |  
|------------------------------------------------------------------------------------------------------------------ | --------------------------------- | ----------------------------- | ----------------------- | ----- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ----- | ------------ | ------- | -------- | ------ | ------- | ------- | -
|                                                                                                                   |                                   |                               |                         |       | Combined     |         | ACS Holdings |         |              |         |              |       | ACS Holdings
|                                                                                                                   |                                   |                               |                         |       | Subsidiaries |         | Parent Only  |         | Eliminations |         | Consolidated
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |             
|Operating revenue:                                                                                                 |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |       
|                                                                                                                   |                                   | Local telephone               |                         | $     | 119,313      |         |              | $       |             |         |              | $     |             |         |          | $      | 119,313 |        
|                                                                                                                   |                                   | Wireless                      |                         |       | 20,536       |         |              |         |             |         |              |       | (19          | )       |          |        | 20,517  |        
|                                                                                                                   |                                   | Directory                     |                         |       | 17,022       |         |              |         |             |         |              |       |             |         |          |        | 17,022  |        
|                                                                                                                   |                                   | Internet                      |                         |       | 8,393        |         |              |         |             |         |              |       |             |         |          |        | 8,393   |        
|                                                                                                                   |                                   | Interexchange                 |                         |       | 14,638       |         |              |         |             |         |              |       | (4,968       | )       |          |        | 9,670   |        
|                                                                                                                   |                                   | Other                         |                         |       | 425          |         |              |         | 9,896        |         |              |       | (10,321      | )       |          |        |        |        
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|                                                                                                                   |                                   |                               | Total operating revenue |       |              | 180,327 |              |         |              | 9,896   |              |       |              | (15,308 | )        |        |         | 174,915 |  
|Operating expense:                                                                                                 |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |       
|                                                                                                                   |                                   | Local telephone               |                         |       | 68,893       |         |              |         | 1,540        |         |              |       | (8,864       | )       |          |        | 61,569  |        
|                                                                                                                   |                                   | Wireless                      |                         |       | 15,751       |         |              |         |             |         |              |       | (2,640       | )       |          |        | 13,111  |        
|                                                                                                                   |                                   | Directory                     |                         |       | 6,964        |         |              |         |             |         |              |       | (6           | )       |          |        | 6,958   |        
|                                                                                                                   |                                   | Internet                      |                         |       | 15,327       |         |              |         |             |         |              |       | (2,882       | )       |          |        | 12,445  |        
|                                                                                                                   |                                   | Interexchange                 |                         |       | 14,066       |         |              |         |             |         |              |       | (454         | )       |          |        | 13,612  |        
|                                                                                                                   |                                   | Other                         |                         |       | 657          |         |              |         |             |         |              |       | (657         | )       |          |        |        |        
|                                                                                                                   |                                   | Depreciation and amortization |                         |       | 34,444       |         |              |         | 4,888        |         |              |       | (100         | )       |          |        | 39,232  |        
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|                                                                                                                   |                                   |                               | Total operating expense |       |              | 156,102 |              |         |              | 6,428   |              |       |              | (15,603 | )        |        |         | 146,927 |  
|Gain (loss) on disposal of assets                                                                                  |                                   |                               | (128                    | )     |              |         | (145         | )       |              |         |             |       |              |         | (273     | )     
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|Operating income                                                                                                   |                                   |                               | 24,097                  |       |              |         | 3,323        |         |              |         | 295          |       |              |         | 27,715   |       
|Other income (expense):                                                                                            |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |       
|                                                                                                                   |                                   | Interest expense              |                         |       | 569          |         |              |         | (24,319      | )       |              |       | 32           |         |          |        | (23,718 | )      
|                                                                                                                   |                                   | Interest income and other     |                         |       | 6            |         |              |         | (3,894       | )       |              |       | 4,936        |         |          |        | 1,048   |        
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|                                                                                                                   |                                   |                               | Total other expense     |       |              | 575     |              |         |              | (28,213 | )            |       |              | 4,968   |          |        |         | (22,670 | )
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|Income (loss) before income taxes, discontinued
operations and cumulative effect of
change in accounting principle |                                   |                               | 24,672                  |       |              |         | (24,890      | )       |              |         | 5,263        |       |              |         | 5,045    |       
|Income tax expense (benefit)                                                                                       |                                   |                               | 14,501                  |       |              |         | (14,501      | )       |              |         |             |       |              |         |         |       
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|Income (loss) from continuing operations                                                                           |                                   |                               | 10,171                  |       |              |         | (10,389      | )       |              |         | 5,263        |       |              |         | 5,045    |       
|Loss from discontinued operations                                                                                  |                                   |                               | (6,810                  | )     |              |         | (250         | )       |              |         | (327         | )     |              |         | (7,387   | )     
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|Income (loss) before cumulative effect                                                                             |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |       
|                                                                                                                   | of change in accounting principle |                               |                         | 3,361 |              |         |              | (10,639 | )            |         |              | 4,936 |              |         |          | (2,342 | )      
|Cumulative effect of change
in accounting principle                                                                |                                   |                               | (8,297                  | )     |              |         | (97,053      | )       |              |         |             |       |              |         | (105,350 | )     
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        
|Net income (loss)                                                                                                  |                                   | $                             | (4,936                  | )     |              | $       | (107,692     | )       |              | $       | 4,936        |       |              | $       | (107,692 | )     
|                                                                                                                   |                                   |                               |                         |       |              |         |              |         |              |         |              |       |              |         |          |        |         |        

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

|                                                     |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|---------------------------------------------------- |  | ------------ | -------- | ------------ |  | ------------ | -------- | ------------ |  | ------------ | - |  |  | - | -------- | -
|Condensed Consolidated Statement of Cash Flows      
|Six Months Ended June 30, 2003                      
|                                                    
|                                                     |  | Combined     |          | ACS Holdings |  |              |          |              |  | ACS Holdings
|                                                     |  | Subsidiaries |          | Parent Only  |  | Eliminations |          | Consolidated
|                                                     |  |              |          |              |  |              |          |             
|Net cash provided (used) by operating activities     |  | $            | (124,533 | )            |  | $            | 159,530  |              |  | $            |  |  |  | $ | 34,997   |  
|Cash Flows from Investing Activities:                |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Construction and capital expenditures                |  |              | (10,245  | )            |  |              | (4,966   | )            |  |              |  |  |  |   | (15,211  | )
|Net proceeds from sale of business                   |  |              | 138,091  |              |  |              |         |              |  |              |  |  |  |   | 138,091  |  
|Other investing activities                           |  |              |         |              |  |              | 3,339    |              |  |              |  |  |  |   | 3,339    |  
|                                                     |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Net cash provided (used) by investing activities     |  |              | 127,846  |              |  |              | (1,627   | )            |  |              |  |  |  |   | 126,219  |  
|Cash Flows from Financing Activities:                |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Payments on long-term debt                           |  |              | (3,026   | )            |  |              | (110,053 | )            |  |              |  |  |  |   | (113,079 | )
|Dividends                                            |  |              |         |              |  |              | (2,142   | )            |  |              |  |  |  |   | (2,142   | )
|                                                     |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Net cash used by financing activities                |  |              | (3,026   | )            |  |              | (112,195 | )            |  |              |  |  |  |   | (115,221 | )
|Increase in cash and cash equivalents                |  |              | 287      |              |  |              | 45,708   |              |  |              |  |  |  |   | 45,995   |  
|Cash and cash equivalents, beginning of the period   |  |              | (73      | )            |  |              | 18,638   |              |  |              |  |  |  |   | 18,565   |  
|                                                     |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Cash and cash equivalents, end of the period         |  | $            | 214      |              |  | $            | 64,346   |              |  | $            |  |  |  | $ | 64,560   |  
|                                                     |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Supplemental Cash Flow Data:                         |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Interest paid                                        |  | $            | 531      |              |  | $            | 23,331   |              |  | $            |  |  |  | $ | 23,862   |  
|Income taxes paid                                    |  | $            |         |              |  | $            |         |              |  | $            |  |  |  | $ |         |  
|Supplemental Noncash Transactions:                   |  |              |          |              |  |              |          |              |  |              |   |  |  |   |          |  
|Property acquired under capital leases and
mortgages |  | $            | 2,340    |              |  | $            |         |              |  | $            |  |  |  | $ | 2,340    |  
|Interest rate swap marked to market                  |  | $            |         |              |  | $            | (3,640   | )            |  | $            |  |  |  | $ | (3,640   | )

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)

|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|---------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | - |  |  | - | ------- | -
|Condensed Consolidated Statement of Cash Flows      
|Six Months Ended June 30, 2002                      
|                                                    
|                                                     |  | Combined     |         | ACS Holdings |  |              |         |              |  | ACS Holdings
|                                                     |  | Subsidiaries |         | Parent Only  |  | Eliminations |         | Consolidated
|                                                     |  |              |         |              |  |              |         |             
|Net cash provided (used) by operating activities     |  | $            | 29,373  |              |  | $            | (3,176  | )            |  | $            |  |  |  | $ | 26,197  |  
|Cash Flows from Investing Activities:                |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Construction and capital expenditures                |  |              | (26,635 | )            |  |              | (5,340  | )            |  |              |  |  |  |   | (31,975 | )
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash used by investing activities                |  |              | (26,635 | )            |  |              | (5,340  | )            |  |              |  |  |  |   | (31,975 | )
|Cash Flows from Financing Activities:                |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Payments on long-term debt                           |  |              | (2,172  | )            |  |              | (4,468  | )            |  |              |  |  |  |   | (6,640  | )
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Net cash used by financing activities                |  |              | (2,172  | )            |  |              | (4,468  | )            |  |              |  |  |  |   | (6,640  | )
|Increase (decrease) in cash and cash equivalents     |  |              | 566     |              |  |              | (12,984 | )            |  |              |  |  |  |   | (12,418 | )
|Cash and cash equivalents, beginning of the period   |  |              | 1,239   |              |  |              | 39,773  |              |  |              |  |  |  |   | 41,012  |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Cash and cash equivalents, end of the period         |  | $            | 1,805   |              |  | $            | 26,789  |              |  | $            |  |  |  | $ | 28,594  |  
|                                                     |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Supplemental Cash Flow Data:                         |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Interest paid                                        |  | $            | (532    | )            |  | $            | 25,446  |              |  | $            |  |  |  | $ | 24,914  |  
|Income taxes paid                                    |  | $            |        |              |  | $            |        |              |  | $            |  |  |  | $ |        |  
|Supplemental Noncash Transactions:                   |  |              |         |              |  |              |         |              |  |              |   |  |  |   |         |  
|Property acquired under capital leases and
mortgages |  | $            | 2,306   |              |  | $            |        |              |  | $            |  |  |  | $ | 2,306   |  
|Interest rate swap marked to market                  |  | $            |        |              |  | $            | 577     |              |  | $            |  |  |  | $ | 577     |  

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
(Unaudited, Amounts In Thousands)

12.  COMMITMENTS AND CONTINGENCIES

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

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

In December 2001, the Company entered into a material contract with the
State of Alaska to provide it with comprehensive telecommunications services
for a period of five years. This contract obligates the Company to, among other
things, provide on the states behalf customer premise equipment and other
capital assets that the Company believes will range between $45,000 and $55,000
over the term of the agreement, of which approximately $14,188 has been
expended through June 30, 2003. The Company intends to fund this commitment
with cash on hand and cash flows from operations. The contract with the State
of Alaska contains specific completion dates for certain implementation aspects
by as early as April 1, 2003, as well as specific ongoing service level
agreements which, if not met, may result in revenue credits and/or penalties
which in the aggregate could amount to as much as $325 per month. Both parties
to the contract have alleged failures to perform by the other party. The
parties are, however, actively engaged in dispute resolution processes and are
seeking to renegotiate certain provisions of the contract including the
aforementioned specific completion dates and service level agreements. The
Company is unable to determine the outcome of the dispute resolution processes
and contract renegotiations at this time.

On July 15, 2002 the Company fulfilled a commitment to Neptune
Communications, L.L.C. (Neptune) to provide a loan in the form of an
unsecured note receivable totaling $15,000 in return for certain consideration.
The note, which is included in deferred charges and other assets on the
Companys Consolidated Balance Sheets, bears interest at the applicable federal
rate, which was 4.84% at June 30, 2003, and matures on July 15, 2022. Interest
is payable semiannually, but Neptune may elect to add the interest to the
principal in lieu of cash payments. The commitment was funded with cash on
hand. In connection with this note, Neptune has granted the Company an option
to purchase certain network assets of Neptune, no later than January 2, 2006 at
a price equal to the then outstanding loan balance. The Company has also
entered into a strategic agreement with Neptune for the life of the fiber optic
cable system owned by Neptune. The significant provisions of this agreement
are: i) purchase commitments by the Company for capacity in 2005 and 2007, the
final price and quantity of which are subject to future events, ii) Neptunes
restoration of the Companys traffic carried on another cable system, iii) and
specific interconnection arrangements between the Company and Neptune, should
the Company exercise its option to purchase certain network assets from
Neptune. The Company is currently renegotiating the terms and conditions of
this agreement and it is not possible to determine the ultimate outcome of
these negotiations at this time.

In May 2003, the Company entered into a four-year purchase commitment with
a telecommunications equipment supplier to acquire approximately $19 million of
wireless switches, cell sites and related equipment.

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS AND ANALYSTS REPORTS

This Form 10-Q and future filings by the Company on Forms 10-K, 10-Q and
8-K and future oral and written statements by the Company and its management
may include, certain forward-looking statements as defined under the Private
Securities Litigation Reform Act of 1995, including (without limitation)
statements with respect to anticipated future operating and financial
performance, financial position and liquidity, growth opportunities and growth
rates, pricing plans, acquisition and divestitive opportunities, business
prospects, strategic alternatives, business strategies, regulatory and
competitive outlook, investment and expenditure plans, financing needs and
availability, and other similar forecasts and statements of expectation. Words
such as aims, anticipates, believes, could, estimates, expects,
hopes, intends, may, plans, projects, seeks, should, and will,
and variations of these words and similar expressions, are intended to identify
these forward-looking statements. These forward looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from our Companys historical experience and our present
expectations or projections.Forward-looking statements by the Company and its
management are based on estimates, projections, beliefs and assumptions of
management and are not guarantees of future performance. The Company disclaims
any obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information, or otherwise.

Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management as a result of a number of important factors. Examples of these
factors include (without limitation)rapid technological developments and
changes in the telecommunications industries; ongoing deregulation (and the
resulting likelihood of significantly increased price and product/service
competition) in the telecommunications industry as a result of the
Telecommunications Act of 1996 (the 1996 Act) and other similar federal and
state legislation and the federal and state rules and regulations enacted
pursuant to that legislation; regulatory limitations on the Companys ability
to change its pricing for communications services; the possible future
unavailability of SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation,to the Companys wireline subsidiaries; and possible changes in the
demand for the Companys products and services. In addition to these factors,
actual future performance, outcomes and results may differ materially because
of other, more general, factors including (without limitation) changes in
general industry and market conditions and growth rates; changes in interest
rates or other general national, regional or local economic conditions;
governmental and public policy changes; changes in accounting policies or
practices adopted voluntarily or as required by accounting principles generally
accepted in the United States of America; and the continued availability of
financing in the amounts, at the terms and on the conditions necessary to
support the Companys future business.

Investors should also be aware that while ACS Holdings does, at various
times, communicate with securities analysts, it is against the Companys policy
to disclose to them any material non-public information or other confidential
information.Accordingly, investors should not assume that ACS Holdings agrees
with any statement or report issued by an analyst irrespective of the content
of the statement or report. To the extent that reports issued by securities
analysts contain any projections, forecasts or opinions, such reports are not
the responsibility of ACS Holdings.

INTRODUCTION

On May 14, 1999, the Company acquired the incumbent providers of local
telephone services in Anchorage, Juneau, Fairbanks and approximately 70 rural
communities in Alaska, making it the largest provider of local telephone
service in the state and the 13th largest provider of local exchange services
in the United States. The Company also acquired on May 14, 1999 interexchange
operations primarily serving the Anchorage market and wireless and Internet
services providing statewide coverage. The Company has unified its statewide
branding under the ACS name.

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Today, the Company generates revenue primarily through the provision of:



| |  | local telephone services, including:
| | - | ------------------------------------



| |  |  | basic local service to retail customers within ACS Holdings service areas,                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | wholesale service to CLECs,                                                                                                              
|
| |  |  | network access services to interexchange
carriers for origination and termination of interstate and
intrastate long distance phone calls,
|
| |  |  | enhanced services,                                                                                                                       
|
| |  |  | ancillary services, such as billing and collection (B&C), and                                                                          
|
| |  |  | universal service payments;                                                                                                              

|
|
|
|
|
|
|

On May 8, 2003, the Company completed the sale of a majority interest
(87.42%) in its Directories Business, which previously represented a reportable
segment. See Note 4, Gain on Disposal of Assets, in the footnotes to the
financial statements for additional information on this transaction. For
periods starting May 8, 2003 and forward, the Company will record its 12.58%
minority interest in the earnings of the Directories Business under the equity
method of accounting so long as it retains a minority interest. The Companys
retained interest is subject to an exchange rights agreement that permits its
conversion to 2.5 million units of the ACS Media Income Fund (the Fund) after
the expiration of a 90-day lockup period. Units of the Fund are traded on the
Toronto Stock Exchange under the symbol AYP.UN. The Company can sell its
exchanged units to a qualified investor or investors in a private placement
transaction or offer them in a secondary public offering at its option after
the expiration of a 180 day lockup agreement with the underwriters of the
Funds offering in Canada. The Companys retained interest was recorded at an
initial book value of $1.1 million representing the pro-rata retained ownership
at historical book value. The retained interest in the Directories Business, if
it were not subject to the 90-day lockup agreement, would be exchangeable to
units of the Fund with a market value of $18.4 million as of June 30, 2003.

Local
Telephone -Within the telecommunications industry, local exchange
carriers (LECs) have historically enjoyed stable revenue and cash flow from
local exchange operations resulting from the need for basic telecommunications
services, the highly regulated nature of the telecommunications industry and,
in the case of rural LECs, the underlying cost recovery settlement and support
mechanisms applicable to local exchange operations. Basic local service is
generally provided at a flat monthly rate and allows the user to place
unlimited calls within a defined local calling area. Access revenues are
generated in part by billing interexchange carriers for access to the LECs
local network and its customers and in part by billing the local customers
themselves.Universal service revenues are a subsidy paid to rural LECs to
support the high cost of providing service in rural markets. Other service
revenue is generated from ancillary services and enhanced services.

Changes in revenue are largely attributable to changes in the number of
access lines, local service rates and minutes of use. Other factors can also
impact revenue, including:



| |  |  | intrastate and interstate revenue settlement methodologies,            
| | - |  | -----------------------------------------------------------------------
|
| |  |  | authorized rates of return for regulated services,                     
|
| |  |  | whether an access line is used by a business or residential subscriber,
|
| |  |  | intrastate and interstate calling patterns,                            
|
| |  |  | customers selection of various local rate plan options,               
|
| |  |  | selection of enhanced calling services, such as voice mail, and        
|
| |  |  | other subscriber usage characteristics.                                

LECs have three basic tiers of customers:



| |  |  | business and residential customers located in their
local service areas that pay for local phone service and a
portion of network access,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

26



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| |  |  | interexchange carriers that pay for access to long
distance calling customers located within its local service
areas, and                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competitive local exchange carriers (CLECs) that
pay for wholesale access to the Companys network in order to
provide competitive local service on either a wholesale or
unbundled network element (UNE) basis as prescribed under the
1996 Act.

LECs provide access service to numerous interexchange carriers and may
also bill and collect long distance charges from interexchange carrier
customers on behalf of the interexchange carriers. The amount of access charge
revenue associated with a particular interexchange carrier varies depending
upon long distance calling patterns and the relative market share of each long
distance carrier.

ACS Holdings local service rates for end users are authorized by the RCA.
Authorized rates are set by the FCC and the RCA for interstate and intrastate
access charges, respectively, and may change from time to time.

Wireless- The Company is one of the largest statewide providers of
wireless services in Alaska, currently serving approximately 83,000
subscribers. Its wireless network covers over 478,000 residents, including all
major population centers and highway corridors. The Company operates a TDMA
digital network in substantially all of its service areas, and intends to
upgrade this network to a new generation of digital network known as CDMA.

Internet- The Company is the second largest provider of Internet access
services in Alaska with approximately 45,000 customers. The Company offers
dial-up and dedicated digital subscriber line (DSL) Internet access to its
customers. The Company is a single source provider of advanced IP based private
networks in Alaska.

Interexchange-The Company provides switched and dedicated long distance
services to approximately 44,000 customers in Alaska. The traffic from these
customers is carried over the Companys owned or leased facilities.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

All amounts are discussed at the consolidated level after the elimination
of intercompany revenue and expense.

Operating Revenue

Operating revenue decreased $8.1 million, or 8.7%, for the three months
ended June 30, 2003 compared to the three months ended June 30, 2002. Wireless,
Internet and interexchange revenue increased compared to the corresponding
period of 2002, while local telephone decreased compared to the corresponding
period of 2002.

Local Telephone

Local telephone revenue, which consists of local network service, network
access revenue and
deregulated and other revenue, decreased $8.8 million, or 13.7%, for the three
months ended June 30, 2003 compared to the same period in 2002. The following
table summarizes the Companys consolidated local telephone revenue by
category.

|                              |  |                             |        |      |  |   |        | 
|----------------------------- |  | --------------------------- | ------ | ---- |  | - | ------ | 
|                              |  | Three Months Ended June 30,
|                              |  |                            
|                              |  | 2003                        |        | 2002
|                              |  |                             |        |     
|                              |  | (In Thousands)             
|Local telephone revenue:      |  |                             |        |      |  |   |        | 
|Local network                 |  | $                           | 25,219 |      |  | $ | 25,040 | 
|Network access                |  |                             | 25,140 |      |  |   | 34,929 | 
|Deregulated and other         |  |                             | 4,851  |      |  |   | 4,022  | 
|                              |  |                             |        |      |  |   |        | 
|Total local telephone revenue |  | $                           | 55,210 |      |  | $ | 63,991 | 
|                              |  |                             |        |      |  |   |        | 

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The following table summarizes the Companys local telephone access lines.

|                                                |  |                |         |      |  |  |         | 
|----------------------------------------------- |  | -------------- | ------- | ---- |  |  | ------- | 
|                                                |  | As of June 30,
|                                                |  |               
|                                                |  | 2003           |         | 2002
|                                                |  |                |         |     
|Retail                                          |  |                | 227,604 |      |  |  | 246,310 | 
|Wholesale                                       |  |                | 18,868  |      |  |  | 24,970  | 
|Unbundled
network elements - platform (UNE - P) |  |                | 4,892   |      |  |  |        | 
|Unbundled
network elements - loop (UNE - L)     |  |                | 66,864  |      |  |  | 57,633  | 
|                                                |  |                |         |      |  |  |         | 
|Total local telephone access lines              |  |                | 318,228 |      |  |  | 328,913 | 
|                                                |  |                |         |      |  |  |         | 

The local network service component of local telephone revenue was $25.2
million for the three months ended June 30, 2003 compared with $25.0 million
for the three months ended June 30, 2002.Revenue increased $0.2 million or
0.7% from the prior year. This increase reflects the net effect of retail
market share losses offset by increases in unbundled network element revenue
and local private line revenue and reduced uncollectible revenue.

The Company continued to experience loss of retail market share for local
network service in its Anchorage, Fairbanks and Juneau service areas during the
year. Generally, when the Company loses a retail local network service line to
a competitor, it continues to provide the line to the competitor on a wholesale
basis at reduced revenue per line. Management believes that the continuing loss
of market share it has experienced in certain of its markets is partially
attributable to below cost interconnection rates mandated by the RCA for UNEs.
During the first quarter of 2000, the Company reopened interconnection
proceedings for its Anchorage market and in the second quarter of 2001, filed
for an interim and refundable UNE rate increase of approximately $10 per month
per loop. On October 25, 2001, the RCA granted ACSA an interim and refundable
UNE rate increase of $1.07, increasing the UNE rates from $13.85 to $14.92. The
interim and refundable rate increase was implemented in November 2001 and
generated approximately $0.7 million in additional revenue during 2002. The
Company expects the RCA to hold hearings during 2003 and adjudicate final
Anchorage UNE rates during 2003 or 2004.

The Company believes it is earning less than its authorized rate of return
for local network service in several of its markets and in compliance with the
Alaska Public Utilities Commission (APUC) orders related to the approval of
the acquisition of the four LECs in 1999, filed local service rate cases for
all of its LEC businesses with the RCA on July 2, 2001 aimed at making up this
deficiency. The RCAs decisions on revenue requirements will have a direct
impact on the retail rates and intrastate access rates that the Company is
allowed to charge. A RCA finding of over earnings generally leads to rate
reductions while a RCA finding of under earnings generally results in rate
increases.

In October 2001, the Company filed for increased interim and refundable
local service rates in its Anchorage market in order to expedite a partial
recovery of the total revenue deficiency. On November 15, 2001, the RCA
approved an interim and refundable rate increase for ACSA of 24% for certain
services.This interim and refundable rate increase was implemented in November
2001 and generated approximately $4.2 million in additional revenue in 2002. On
December 16, 2002, the RCA reopened the revenue requirement phase of the
hearing for ACSA to take additional testimony regarding ACSAs service lives.
The ACSA hearing revisited the RCAs decision to lengthen the service lives of
specific assets and thereby reduced depreciation expense. If the RCA corrects
the service lives at issue, it will increase the amount by which ACSA is under
earning. The Company expects the RCA to continue to hold hearings during 2003
and to adjudicate final local service rates during 2004.

On March 25, 2003, the RCA issued an order approving new revenue
requirements for ACSF, ACSAK, and ACSN. The RCA found over earnings by ACSF and
ACSN and under earning by ACSAK. In compliance with RCA orders, ACSF, ACSAK,
ACSN have filed cost of service and rate design studies,
and supporting testimony, consistent with the RCA revenue requirements
orders. Final rates are expected in 2004.

Network access revenue decreased from $34.9 million for the three months
ended June 30, 2002 to $25.1 million for the same period in 2003.During the
second quarter of 2002, the Company recognized as revenue $11.1 million of
previously deferred interstate access revenues related to a dispute on
interstate

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access rates for the Anchorage market based on a favorable ruling by
the District of Columbia Court of Appeals. Network access revenues are based on
a regulated return on rate base and recovery of allowable expenses associated
with the origination and termination of toll calls for the Companys retail and
resale customers. After consideration of the revenue recognized as a result of
the favorable ruling by the court, the increase in network access revenues of
$1.3 million compared to the corresponding period in 2002 is due primarily to
updated access studies. Management expects that network access revenues will
generally be on a declining trend for the foreseeable future.

Deregulated and other revenue, which increased to $4.9 million compared to
$4.0 million in the prior year, consists principally of B&C services, space and
power rents, deregulated equipment sales, paystation revenue, regulated
directory listing revenue, and other miscellaneous telephone revenue.

Wireless

Wireless revenue increased $0.7 million, or 7.0%, to $11.9 million for the
three months ended June 30, 2003 compared to $11.2 million for the three months
ended June 30, 2002. This increase was due to a growth in average subscribers
of 2.7% from 80,354 in 2002 to 82,560 in 2003. Subscriber average minutes of
use also increased from 207 minutes in 2002 to 243 minutes in 2003. Primarily
as a result of increased minutes of use, the monthly average revenue per unit,
or ARPU, increased to $48.24 in 2003 compared to $46.30 during 2002.

Internet

Internet revenue increased from $4.6 million in 2002 to $9.0 million in
2003  an increase of $4.4 million, or 98.6%. This increase is primarily due
to revenue associated with the Companys contract with the State of Alaska and
approximately $1.5 million of this increase was earned in prior periods but
could not be estimated and therefore was not recorded until the current period.
Internet also experienced growth in DSL subscribers of 50.3% from 9,856 in 2002
to 14,817 in 2003.

On December 10, 2001, the Company entered into a five year contract with
the State of Alaska to provide a broad range of telecommunications services,
many of which will be provided over an IP network owned and operated by ACSI.
Services under this contract began to be implemented during the second quarter
of 2002. The Company anticipates that revenue for this segment will increase in
future periods as additional services are added under the contract.

Interexchange

Interexchange revenue increased from $4.8 million in 2002 to $5.2 million
in 2003. Long distance subscribers decreased from 64,958 in 2002 to 44,289 in
2003. The decrease in subscribers was substantially due to database grooming to
remove approximately 20,000 non-revenue generating inactive subscribers from
the subscriber list in connection with the conversion of long distance billing
from an outside service bureau to an in-house system during the first and
second quarters of 2003. The average revenue per unit, or ARPU, increased to
$34.25 in 2003 compared to $24.44 during 2002 and total minutes of use
decreased from 38.9 million in 2002 to 36.7 million in 2003.

Operating Expense

Operating expense increased $1.1 million, or 1.4%, from $77.5 million for
the three months ended June 30, 2002 to $78.6 million for the three months
ended June 30, 2003. The Company also recorded a gain on the sale of a majority
interest in its Directories Business during the quarter ended June 30, 2003 of
$97.6 million. Depreciation and amortization associated with the operation of
each of the Companys segments has been included in total depreciation and
amortization.

Local Telephone

The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense.Local

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telephone expense decreased to
$27.5 million for the three months ended June 30, 2003 from $32.6 million for
the three months ended June 30, 2002.The decrease in local telephone expense
was substantially attributable to cost reductions achieved as a result of the
Companys restructuring plan adopted in June of 2002. In the second quarter of
2002, there were $2.2 million in costs related primarily to severance and
restructuring charges and rate case expenses.

Wireless

Wireless expense decreased nominally from $7.1 million for the three
months ended June 30, 2002 to $7.0 million for the three months ended June 30,
2003.

Internet

Internet expense increased by $5.8 million, or 78.4%, from $7.3 million in
2002 to $13.1 million in 2003. The increase in Internet expense was due
principally to transition expenses and operating costs associated with
commencing services under the State of Alaska telecommunications contract.
State of Alaska contract related expense totaling $1.6 million was incurred in
previous periods but was recorded in the current period as it was the first
point in which the expense could be matched to the associated revenue, as
discussed above in Internet revenue. As a percentage of revenue, Internet
expense decreased from 160.8% in 2002 to 144.4% in 2003. On December 10, 2001,
the Company entered into a five year contract with the State of Alaska to
provide a broad range of telecommunications services, many of which will be
provided over an IP network and supported by a service center owned and
operated by ACSI. The Company anticipates expense as a percent of
revenue for this segment to level out
or decline as it completes the integration of the State of Alaska services.

Interexchange

Interexchange expense increased by $0.1 million to $7.1 million for the
quarter ended June 30, 2003 from $7.0 million for the quarter ended June 30,
2002. As a percentage of revenue, interexchange expense decreased from 145.2%
in 2002 to 136.0% in 2003. The Company converted its long distance billing from
an outside service bureau to an in-house system during the first quarter of
2003. This billing conversion is expected to result in annual cost savings of
approximately $0.6 million and improved customer service.

Depreciation and Amortization

Depreciation and amortization expense increased $2.1 million, or 10.6%,
due principally to increases in plant in service and to the adoption of shorter
depreciable lives for certain classes of assets compared to the corresponding
period of 2002. Management adopted the higher depreciation rates on these
classes of assets as a result of an evaluation of the expected useful lives of
its underlying assets, primarily in its regulated local telephone segment.

Gain (loss) on disposal of assets

On April 28, 2003, the Company signed an underwriting agreement to sell a
majority interest in its directory business and on April 29, 2003 filed a final
prospectus to offer this majority interest to investors through a Canadian
income fund. The transaction closed on May 8, 2003, with the Company selling an
87.42% interest and retaining a 12.58% interest in its Directories Business.
The Company recognized a
gain on disposition of this majority interest of its directory business of
$97.6 million on a pre-tax basis. The Company also recorded a non-cash loss on
the disposal of certain other fixed assets of $0.3 million during the quarter
ended June 30, 2003.

Interest Expense and Interest Income and Other

Interest expense increased to $14.9 million for the three months ended
June 30, 2003 compared to $11.0 million for the three months ended June 30,
2002. As a result of the early extinguishments of outstanding debt of $106,650
during the quarter ended June 30, 2003, $3.4 million of debt issuance cost was
charged to interest expense. During the second quarter of 2002, the Company
reversed $1.7 million of

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previously
accrued interest expense as a result of a favorable ruling by the District of
Columbia Court of Appeals related to a dispute on interstate access rates for
the Anchorage market. After consideration of these items, the decrease in
interest expense is the result of market interest rate effects on the Companys
variable interest rate debt. Interest income and other increased to $4.8
million for the three months ended June 30, 2003 compared to $0.6 million for
the three months ended June 30, 2002, substantially due to a $4.1 million gain
on foreign exchange on the directory transaction.

Income Taxes

The Company has provided a valuation allowance for the full income tax
benefit resulting from the consolidated losses it has incurred since May 14,
1999, the date of the acquisition of substantially all of its operations.

Discontinued Operations

On March 30, 2002, the Companys management approved a plan to offer for
sale its wireless cable television service segment. As a result of this
decision, the operating revenue and expense of this segment have been
classified as discontinued operations under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,for all periods presented and the
assets and liabilities of the disposal group have been written down to their
fair value, net of expected selling expense. The results of operations of this
discontinued segment resulted in a charge to discontinued operations of $0.5
million for the three months ended June 30, 2002. The Company has fully
reserved in the form of a valuation allowance the income tax benefit resulting
from this discontinuance. The Company completed its disposal of its wireless
cable television segment as of March 31, 2003.

Net Income (Loss)

The change in net income is primarily a result of the factors discussed
above.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

All amounts are discussed at the consolidated level after the elimination
of intercompany revenue and expense.

Operating Revenue

Operating revenue decreased $5.6 million, or 3.2%, for the six months
ended June 30, 2003 compared to the six months ended June 30, 2002. Wireless,
Internet and interexchange revenue increased compared to the corresponding
period of 2002, while local telephone revenue decreased compared to the
corresponding period of 2002.

Local Telephone

Local telephone revenue, which consists of local network service, network
access revenue and deregulated and other revenue, decreased $10.1 million, or
8.5%, for the six months ended June 30, 2003 compared to the same period in
2002. The following table summarizes the Companys consolidated local telephone
revenue by category.

|                              |                       |   |                  |        |      |   |         |        | 
|----------------------------- | --------------------- | - | ---------------- | ------ | ---- | - | ------- | ------ | 
|                              |                       |   | Six Months Ended
|                              |                       |   | June 30,        
|                              |                       |   |                 
|                              |                       |   | 2003             |        | 2002
|                              |                       |   |                  |        |     
|                              |                       |   | (In Thousands)  
|Local telephone revenue:      |                       |   |                  |        |      |   |         |       
|                              | Local network         |   | $                | 49,348 |      |   | $       | 50,684 | 
|                              | Network access        |   |                  | 50,201 |      |   |         | 59,965 | 
|                              | Deregulated and other |   |                  | 9,662  |      |   |         | 8,664  | 
|                              |                       |   |                  |        |      |   |         |       
|Total local telephone revenue |                       | $ | 109,211          |        |      | $ | 119,313 |       
|                              |                       |   |                  |        |      |   |         |       

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The following table summarizes the Companys local telephone access lines.

|                                                |  |                |         |      |  |  |         | 
|----------------------------------------------- |  | -------------- | ------- | ---- |  |  | ------- | 
|                                                |  | As of June 30,
|                                                |  |               
|                                                |  | 2003           |         | 2002
|                                                |  |                |         |     
|Retail                                          |  |                | 227,604 |      |  |  | 246,310 | 
|Wholesale                                       |  |                | 18,868  |      |  |  | 24,970  | 
|Unbundled
network elements - platform (UNE - P) |  |                | 4,892   |      |  |  |        | 
|Unbundled
network elements - loop (UNE - L)     |  |                | 66,864  |      |  |  | 57,633  | 
|                                                |  |                |         |      |  |  |         | 
|Total local telephone access lines              |  |                | 318,228 |      |  |  | 328,913 | 
|                                                |  |                |         |      |  |  |         | 

The local network service component of local telephone revenue was $49.3
million for the six months ended June 30, 2003 compared with $50.7 million for
the six months ended June 30, 2002.Revenue decreased $1.3 million or 2.6% from
the prior year. This decrease reflects the impact of competition exacerbated by
below cost UNE rates.

The Company continued to experience loss of retail market share for local
network service in its Anchorage, Fairbanks and Juneau service areas during the
year. Generally, when the Company loses a retail local network service line to
a competitor, it continues to provide the line to the competitor on a wholesale
basis at reduced revenue per line. Management believes that the continuing loss
of market share it has experienced in certain of its markets is partially
attributable to below cost interconnection rates mandated by the RCA for UNEs.
During the first quarter of 2000, the Company reopened interconnection
proceedings for its Anchorage market and in the second quarter of 2001, filed
for an interim and refundable UNE rate increase of approximately $10 per month
per loop. On October 25, 2001, the RCA granted ACSA an interim and refundable
UNE rate increase of $1.07, increasing the UNE rates from $13.85 to $14.92. The
interim and refundable rate increase was implemented in November 2001 and
generated approximately $0.7 million in additional revenue during 2002. The
Company expects the RCA to hold hearings during 2003 and adjudicate final
Anchorage UNE rates during 2003 or 2004.

The Company believes it is earning less than its authorized rate of return
for local network service in several of its markets and in compliance with APUC
orders related to the approval of the acquisition of the four LECs in 1999,
filed local service rate cases for all of its LEC businesses with the RCA on
July 2, 2001 aimed at making up this deficiency. The RCAs decisions on revenue
requirements will have a direct impact on the retail rates and intrastate
access rates that the Company is allowed to charge. A RCA finding of over
earnings generally leads to rate reductions while a RCA finding of under
earnings generally results in rate increases.

In October 2001, the Company filed for increased interim and refundable
local service rates in its Anchorage market in order to expedite a partial
recovery of the total revenue deficiency. On November 15, 2001, the RCA
approved an interim and refundable rate increase for ACSA of 24% for certain
services.This interim and refundable rate increase was implemented in November
2001 and generated approximately $4.2 million in additional revenue in 2002. On
December 16, 2002, the RCA reopened the revenue requirement phase of the
hearing for ACSA to take additional testimony regarding ACSAs service lives.
The ACSA hearing revisited the RCAs decision to lengthen the service lives of
specific assets and thereby reduced depreciation expense. If the RCA corrects
the service lives at issue, it will increase the amount by which ACSA is under
earning. The Company expects the RCA to continue to hold hearings during 2003
and to adjudicate final local service rates during 2004.

On March 25, 2003, the RCA issued an order approving new revenue
requirements for ACSF, ACSAK, and ACSN. The RCA found over earnings by ACSF and
ACSN and under earning by ACSAK. In compliance with RCA orders, ACSF, ACSAK,
ACSN have filed cost of service and rate design studies, and supporting
testimony, consistent with the RCA revenue requirements orders. Final rates are
expected in 2004.

Network access revenue decreased from $60.0 million in 2002 to $50.2
million for 2003.During the second quarter of 2002, the Company recognized as
revenue $11.1 million of previously deferred interstate access revenues related
to a dispute on interstate access rates for the Anchorage market based on a
favorable ruling by the District of Columbia Court of Appeals. Network access
revenues are based on a regulated return on rate base and recovery of allowable
expenses associated with the origination and

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termination of toll calls for the
Companys retail and resale customers. After consideration of the revenue
recognized as a result of the favorable ruling by the court, the increase in
network access revenues of $1.3 million compared to the corresponding period in
2002 is due primarily to updated access studies. Management expects that network access revenues will generally be on a
declining trend for the foreseeable future.

Deregulated and other revenue, which increased to $9.7 million compared to
$8.7 million in the prior year, consists principally of B&C services, space and
power rents, deregulated equipment sales, paystation revenue, regulated
directory listing revenue, and other miscellaneous telephone revenue.

Wireless

Wireless revenue increased $1.8 million, or 8.6%, to $22.3 million for the
six months ended June 30, 2003 compared to $20.5 million for the six months
ended June 30, 2002. This increase was due to a growth in average subscribers
of 1.1% from 81,665 in 2002 to 82,557 in 2003. The average revenue per unit, or
ARPU, increased to $44.97 in 2003 compared to $41.87 during 2002.

Internet

Internet revenue increased from $8.4 million in 2002 to $16.2 million in
2003  an increase of $7.8 million, or 92.9%.This increase is primarily due
to revenue associated with the Companys contract with the State of Alaska and
approximately $1.2 million of this increase was earned in prior periods but
could not be estimated and therefore was not recorded until the current period.
Internet also experienced growth in DSL subscribers of 50.3% from 9,856 in 2002
to 14,817 in 2003.

On December 10, 2001, the Company entered into a five-year contract with
the State of Alaska to provide a broad range of telecommunications services,
many of which will be provided over an IP network owned and operated by ACSI.
Services under this contract began to be implemented during the second quarter
of 2002. The Company anticipates that revenue for this segment will increase in
future periods as additional services are added under the contract.

Interexchange

Interexchange revenue increased slightly from $9.7 million in 2002 to
$10.0 million in 2003. Long distance subscribers decreased from 64,958 in 2002
to 44,289 in 2003. The decrease in subscribers was substantially due to
database grooming to remove approximately 20,000 non-revenue generating
inactive subscribers from the subscriber list in connection with the conversion
of long distance billing from an outside service bureau to an in-house system
during the first and second quarters of 2003. The average revenue per unit, or
ARPU, increased to $29.18 in 2003 compared to $23.88 during 2002 and total
minutes of use decreased from 76.8 million in 2002 to 74.6 million in 2003.

Operating Expense

Operating expense increased $8.8 million, or 6.0%, from $146.9 million for
the six months ended June 30, 2002 to $155.8 million for the six months ended
June 30, 2003. The Company also recorded a gain on the sale of a majority
interest in its Directories Business during 2003 of $97.6 million. Depreciation
and amortization associated with the operation of each of the Companys
segments has been included in total depreciation and amortization.

Local Telephone

The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense.Local telephone expense decreased to
$55.3 million for the six months ended June 30, 2003 from $61.6 million for the
six months ended June 30, 2002.The decrease in local telephone expense was
substantially attributable to cost reductions achieved as a result of the
Companys restructuring plan adopted in June of 2002. In the second quarter of
2002, there were $2.2 million in costs related primarily to severance and
restructuring charges and rate case expenses.

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Wireless

Wireless expense increased $0.5 million, or 3.6%, for the six months ended
June 30, 2003 compared to the six months ended June 30, 2002. This increase is
due substantially to an increase in minutes of use from 91.6 million minutes in
2002 to 107.6 million minutes in 2003. As a percentage of revenue, wireless
expense decreased from 63.9% in 2002 to 61.0% in 2003.

Internet

Internet expense increased by $10.8 million, or 86.3%, from $12.4 million
in 2002 to $23.2 million in 2003. The increase in Internet expense was due
principally to transition expenses and operating costs associated with
commencing services under the State of Alaska telecommunications contract.
State of Alaska contract related expense totaling $1.5 million was incurred in
previous periods but was recorded in the current period as it was the first
point in which the expense could be matched to the associated revenue, as
discussed above in Internet revenue. As a percentage of revenue, Internet
expense decreased from 148.3% in 2002 to 143.2% in 2003. On December 10, 2001,
the Company entered into a five-year contract with the State of Alaska to
provide a broad range of telecommunications services, many of which will be
provided over an IP network and supported by a service center owned and
operated by ACSI. The Company anticipates expense as a percent of
revenue for this segment to level out
or decline as it completes the integration of the State of Alaska services.

Interexchange

Interexchange expense increased slightly from $13.6 million in 2002 to
$13.7 million in 2003. As a percentage of revenue, interexchange expense
decreased from 140.8% in 2002 to 137.1% in 2003. The Company converted its long
distance billing from an outside service bureau to an in-house system during
the first quarter of 2003. This billing conversion is expected to result in
annual cost savings of approximately $0.6 million and improved customer
service.

Depreciation and Amortization

Depreciation and amortization expense increased $5.5 million, or 13.9%,
due principally to increases in plant in service and to the adoption of shorter
depreciable lives for certain classes of assets compared to the corresponding
period of 2002. Management adopted the higher depreciation rates on these
classes of assets as a result of an evaluation of the expected useful lives of
its underlying assets, primarily in its regulated local telephone segment.

Gain (loss) on disposal of assets

On April 28, 2003, the Company signed an underwriting agreement to sell a
majority interest in its directory business and on April 29, 2003 filed a final
prospectus to offer this majority interest to investors through a Canadian
income fund. The transaction closed on May 8, 2003, with the Company selling an
87.42% interest and retaining a 12.58% interest in its Directories Business.
The Company recognized a gain on disposition of this majority interest of its
directory business of $97.6 million on a pre-tax basis. The Company also
recorded a non-cash loss on the disposal of certain fixed assets of $1.1
million during 2003, the majority of which were wireless assets.

Interest Expense and Interest Income and Other

Interest expense increased to $27.6 million for the six months ended June
30, 2003 compared to $23.7 million for the six months ended June 30, 2002. As a
result of the early extinguishments of outstanding debt of $106,650 during
second quarter of 2003, $3.4 million of debt issuance cost was charged to
interest expense. During the second quarter of 2002, the Company reversed $1.7
million of previously accrued interest expense as a result of a favorable
ruling by the District of Columbia Court of Appeals related to a dispute on
interstate access rates for the Anchorage market. After consideration of these
items,

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the decrease in interest expense is the result of market interest rate
effects on the Companys variable interest rate debt. Interest income and other
increased to $5.0 million for the six months ended June 30, 2003 compared to
$1.0 million for the six months ended June 30, 2002, substantially due to a
$4.1 million gain on foreign exchange on the directory transaction.

Income Taxes

The Company has provided a valuation allowance for the full income tax
benefit resulting from the consolidated losses it has incurred since May 14,
1999, the date of the acquisition of substantially all of its operations.

Discontinued Operations

On March 30, 2002, the Companys management approved a plan to offer for
sale its wireless cable television service segment. As a result of this
decision, the operating revenue and expense of this segment have been
classified as discontinued operations under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,for all periods presented and the
assets and liabilities of the disposal group have been written down to their
fair value, net of expected selling expense. The results of operations of this
discontinued segment resulted in a charge to discontinued operations of $52
thousand and $7.4 million for the six months ended June 30, 2003 and 2002,
respectively. The Company has fully reserved in the form of a valuation
allowance the income tax benefit resulting from this discontinuance. The
Company completed its disposal of its wireless cable television segment as of
March 31, 2003.

Cumulative Effect of Change in Accounting Principle

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires that goodwill be tested for
impairment at the reporting unit level upon adoption and at least annually
thereafter, utilizing a two-step methodology. The transitional review for
goodwill impairment required under SFAS No. 142 indicated that goodwill
recorded in the local telephone, Internet and interexchange segments was
impaired as of January 1, 2002. Accordingly, the Company measured and
recognized in the first quarter of 2002 a transitional impairment loss of
$105.4 million as the cumulative effect of a change in accounting principle in
the consolidated statement of operations. The income tax benefit of $39.5
million was offset by a valuation allowance. See Note 6 Cumulative Effect of
Change in Accounting Principle in the Notes to Consolidated Financial
Statements included elsewhere in this 10-Q for additional discussion of the
this statement.

Net Income (Loss)

The change in net income (loss) is primarily a result of the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company has satisfied its operational and capital cash requirements
primarily through internally generated funds, the sale of stock and debt
financing. For the six months ended June 30, 2003, the Companys cash flows
from operating activities were $35.0 million. At June 30, 2003, the Company had
approximately $73.8 million in net working capital, including $64.6 million in
unrestricted cash. As of June 30, 2003, the Company had $75.0 million of
remaining capacity under its revolving credit facility, representing 100% of
available capacity.

The Company has outstanding a $320.7 million bank credit agreement
(Senior Credit Facility), and $150.0 million in 9.375% senior subordinated
notes due 2009, representing substantially all of the Companys long-term debt
of $482.1 million as of June 30, 2003.In addition, $17.3 million in senior
discount debentures are recorded at ACS Group and are collateralized by
substantially all assets of the Company. Interest on ACS Groups senior
discount debentures and ACS Holdings senior subordinated notes are payable
semiannually.Interest on borrowings under the Senior Credit Facility is
payable monthly, bi-monthly, quarterly or semi-annually at the Companys
option. The Senior Credit Facility requires 1% annual principal payments that
commenced on May 14, 2002, with balloon payments in each of 2006,

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2007,
and 2008. The Senior Credit Facility contains a number of restrictive covenants
and events of default, including covenants limiting capital expenditures,
incurrence of debt, and the payment of dividends, and requires the Company to
achieve certain financial ratios. The Company is in compliance with all of its
debt covenants. During the first quarter of 2003, the Companys lenders
approved an amendment and waiver to its Senior Credit Facility that, among
other things, permitted the Company to sell its directory business and that 75%
of such proceeds would be used to repay outstanding Senior Credit Facility term
loans. This amendment and waiver became effective on May 8, 2003, and on May
13, 2002, the Company paid down $106.7 million of the outstanding Senior Credit
Facility term loans.

With the companys improved credit profile, we are currently exploring
opportunities to raise additional capital to support the future growth of the
business and to refinance our senior secured credit facilities with some
combination of new senior and senior secured indebtedness that we expect would
loosen certain restrictive covenants, including with respect to the payment of
dividends. Such financing would be expected to extend the maturities
of a portion of the Companys debt facilities and may include
increasing the Companys total indebtedness by approximately
$50 million.

The Company employs an interest rate hedge transaction, which fixes at
5.99% the underlying variable rate on $217.5 million of the borrowings under
the Senior Credit Facility, expiring in June 2004. The underlying variable rate
for the Senior Credit Facility is based on the London Interbank Offer Rate
(LIBOR), which is adjusted at each monthly, quarterly or semi-annual rollover
date.

In December 2001, the Company entered into a material contract with the
State of Alaska to provide it with comprehensive telecommunications services
for a period of five years. This contract obligates the Company to, among other
things, provide on the states behalf customer premise equipment and other
capital assets which the Company believes will range between $45 million and
$55 million over the term of the agreement, of which approximately $14.2
million has been expended through June 30, 2003. The Company intends to fund
this commitment with cash on hand and cash flows from operations.

On July 15, 2002 the Company fulfilled a commitment to Neptune to provide
to that party a loan in the form of an unsecured note receivable totaling $15.0
million in return for certain consideration. The note bears interest at the
applicable federal rate, which was 4.84% at June 30, 2003 and matures on July
15, 2022. Interest is payable semiannually, but the borrower may elect to add
the interest to the principal in lieu of cash payments. The commitment was
funded with cash on hand. In connection with this note, Neptune has granted the
Company an option to purchase certain network assets of Neptune, no later than
January 2, 2006, at a price equal to the then outstanding loan balance. The
Company has also entered into a strategic agreement with Neptune for the life
of the fiber optic cable system owned by Neptune. The significant provisions of
this agreement are: i) purchase commitments by the Company for capacity in 2005
and 2007, the final price and quantity of which are subject to future events,
ii) Neptunes restoration of the Companys traffic carried on another cable
system, iii) and specific interconnection arrangements between the Company and
Neptune, should the Company exercise its option to purchase certain network
assets from Neptune. The Company is currently renegotiating the terms and
conditions of this agreement and it is not possible to determine the ultimate
outcome of these negotiations at this time.

The local telephone network requires the timely maintenance of plant and
infrastructure. The Companys historical capital expenditures have been
significant. The construction and geographic expansion of the Companys
wireless network has required significant capital. The implementation of the
Companys interexchange network and data services strategy is also capital
intensive. In 1999, the Company purchased fiber capacity for $19.5 million,
which was funded with monies borrowed to finance the 1999 acquisitions. Capital
expenditures for fiscal year 2000 were $72.3 million, including $3.2 million in
capital leases. Capital expenditures for fiscal year 2001 were $87.6 million,
including $19.5 million for additional fiber capacity and $15.0 million for an
IP based network and service center. Capital expenditures for fiscal year 2002
were $71.4 million, including $4.2 million in capital leases, approximately
$12.4 million necessary to meet its obligations under a contract with the State
of Alaska and approximately $5.0 million for the first phase of its build out
of PCS licenses. The Company anticipates capital spending of between $50
million and $60 million for 2003, and has spent $17.6 million in the six months
ended June 30, 2003, including property acquired under a mortgage of $2.3
million. The Company intends to fund its future capital expenditures with cash
on hand, through internally generated cash flows, and if necessary, through
borrowings under the revolving credit facility.

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On May 8, 2003 the Company completed the sale of a majority interest in
the newly formed ACS Media, LLC (the Directories Business) to the ACS Media
Income Fund (the Fund). The Fund sold 17,500 units on May 8, 2003 for net
proceeds of $110.4 million, after deducting its underwriters fees and
transaction expenses of $10.2 million. The Funds net proceeds were used to
acquire from the Company an
87.42% interest in the Directories Business. The Company received net
proceeds of $105.1 million after deducting its fees and expenses associated
with the transaction of $5.3 million.

The Company entered into an arrangement with the Metropolitan Life
Insurance Company (MetLife) to provide a credit facility to its Directories
Business on May 8, 2003 immediately prior to the sale of its Directories
Business to the Fund. The Directories Business then drew $35.0 million of term
loans against the facility, using $1.5 million to pay fees and expenses related
to the debt issuance and $0.1 million to prepay an annual agency fee to
MetLife. Of the $33.4 million in net cash proceeds, $0.4 million was deposited
into the Directories Business as cash working capital and $33.0 million was
distributed to the Company as a dividend. The credit facility is non-recourse
to the Company.

As discussed above, as a condition of obtaining an amendment and waiver to
the Companys senior bank credit facility obtained to permit the sale of its
Directories Business, the Company was required to use a specified amount of the
proceeds to prepay a portion of the outstanding term loans under the facility.
To fulfill this requirement, the Company prepaid $106.7 million of outstanding
bank debt on May 13, 2003.

The Companys capital requirements may change due to, among other things,
impacts of regulatory decisions that affect the Companys ability to recover
its investments, changes in technology, the effects of competition, changes in
the Companys business strategy, and the Companys decision to pursue specific
acquisition opportunities.

The Company believes that it will have sufficient working capital provided
by operations and available borrowing capacity under the existing revolving
credit facility to service its debt and fund its operations, capital
expenditures and other obligations over the next 12 months.The Companys
ability to service its debt and fund its operations, capital expenditures and
other obligations will be dependent upon its future financial performance,
which is, in turn, subject to future economic conditions and to financial,
business, regulatory and other factors, many of which are beyond the Companys
control.

CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

Management is responsible for the financial statements presented elsewhere
in this Form 10-Q and has evaluated the accounting policies used in their
preparation. Management believes these policies to be reasonable and
appropriate. The Companys significant accounting policies are described in
Note 1 in the Notes to the Consolidated Financial Statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002. The
following discussion identifies those accounting policies that management
believes are critical in the preparation of the Companys financial statements,
the judgments and uncertainties affecting the application of those policies,
and the possibility that materially different amounts would be reported under
different conditions or using different assumptions.

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

Access revenue is recognized when earned. The Company participates in toll
revenue pools with other telephone companies. Such pools are funded by toll
revenue and/or access charges regulated by the RCA within the intrastate
jurisdiction and the FCC within the interstate jurisdiction. Much of the
interstate access revenue is initially recorded based on estimates. These
estimates are derived from interim financial statements, available separations
studies and the most recent information available about achieved rates of

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return. These estimates are subject to adjustment in future accounting periods
as additional operational information becomes available. To the extent that
disputes arise over revenue settlements, the Companys policy is to defer
revenue collected until settlement methodologies are resolved and finalized. At
June 30, 2003, the Company had recorded liabilities of $15.4 million related to
its estimate of refundable access revenue. Actual results could vary from this
estimate.

The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes reflect the temporary differences
between the financial and tax basis of assets and liabilities using the enacted
tax rates in effect in the years in which the differences are expected to
reverse.Deferred tax assets are reduced by a valuation allowance to the extent
that it is more likely than not that such deferred tax assets will not be
realized. The cumulative valuation allowance against deferred tax assets is
$57.1 million as of June 30, 2003.

The local telephone exchange operations of the Company account for costs
in accordance with the accounting principles for regulated enterprises
prescribed by SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation.This accounting recognizes the economic effects of rate regulation
by recording cost and a return on investment as such amounts are recovered
through rates authorized by regulatory authorities. Accordingly, under SFAS No.
71, plant and equipment is depreciated over lives approved by regulators and
certain costs and obligations are deferred based upon approvals received from
regulators to permit recovery of such amounts in future years. Historically,
lives approved for regulatory purposes have approximated economically useful
lives. On July 21, 2002, the Company received an order from the RCA which
extended lives approved for ratemaking purposes beyond the economically useful
lives of the underlying assets. Management petitioned for reconsideration and
the RCA has accepted additional testimony and held a hearing in June of 2003. A
final order on the matter is not expected until the second half of 2003. The
Company implemented, effective January 1, 2003, higher depreciation rates for
its regulated telephone plant for the interstate jurisdiction. As a result, the
Company has recorded a regulatory asset under SFAS No. 71 of $5.5 million as of
June 30, 2003. The Company has also deferred as a regulatory asset $0.9 million
of costs incurred in connection with regulatory rate making proceedings, which
is being amortized over three years starting in 2003. The balance of this
regulatory asset was $0.8 million at June 30, 2003. If the Company were not
following SFAS No. 71, it would have recorded additional depreciation expense
of $5.5 million for the intrastate and local jurisdictions and the deferred
costs incurred in connection with regulatory rate making proceedings would have
been charged to expense as incurred.

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. In accordance with the guidelines of this accounting
principle, goodwill and indefinite-lived intangible assets are no longer
amortized but will be assessed for impairment on at least an annual basis. SFAS
No. 142 requires that goodwill be tested for impairment at the reporting unit
level upon adoption and at least annually thereafter, utilizing a two-step
methodology. The initial step requires the Company to determine the fair value
of each reporting unit and compare it to the carrying value, including
goodwill, of such unit. If the fair value exceeds the carrying value, no
impairment loss would be recognized. However, if the carrying value of the
reporting unit exceeds its fair value, the goodwill of the unit may be
impaired. The amount, if any, of the impairment is then measured in the second
step. The Company determines the fair value of each reporting unit for purposes
of this test primarily by using a discounted cash flow valuation technique.
Significant estimates used in the valuation include estimates of future cash
flows, both future short-term and long-term growth rates, and estimated cost of
capital for purposes of arriving at a discount factor. The Company recognized
in the first quarter of 2002 a transitional impairment loss of $105.4 million
under SFAS No. 142 as the cumulative effect of a change in accounting principle
in the consolidated statement of operations. At June 30, 2003, the Company had
recorded goodwill of $38.4 million.

OUTLOOK

The Company expects that, overall, the demand for telecommunications
services in Alaska to grow, particularly as a result of:

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| |  |  | increasing demand for private network services by
government and business on a statewide basis on either a circuit
switched or IP basis,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increasing demand for wireless voice and data
services, and                                                                             
|
| |  |  | growth in demand for DSL and Internet access services
due to higher business and consumer bandwidth needs.                              

The Company believes that it will be able to capitalize on this demand
through its diverse service offerings on its owned circuit switched and IP
facilities and new sales and marketing initiatives directed toward basic voice,
enhanced and data services.

There are currently a number of regulatory proceedings underway at the
state and federal levels that could have a significant impact on the Companys
operations.The Company cannot predict with certainty the impact of current or
future regulatory developments on any of its businesses.

The telecommunications industry is extremely competitive, and the Company
expects competition to intensify in the future. As an incumbent local exchange
carrier (ILEC), the Company faces competition mainly from resellers, local
providers who lease its UNEs and, to a lesser degree, from facilities-based
providers of local telephone services. In addition, as a result of the RCAs
recent affirmation of the APUCs termination of the Companys rural exemptions,
the Company may be required to provide interconnection elements and/or
wholesale discounted services to competitors in all or some of its rural
service areas. Moreover, while wireless telephone services have historically
complemented traditional LEC services, the Company anticipates that existing
and emerging wireless technologies may increasingly compete with LEC services.
In wireless services, the Company currently competes with at least one other
wireless provider in each of its wireless service areas. In the highly
competitive business for Internet access services, the Company currently
competes with a number of established online service companies, interexchange
carriers and cable companies. In the interexchange market, the Company believes
it currently has less than 10% of total revenue in Alaska and faces competition
from the two major interexchange providers.

The telecommunications industry is subject to continuous technological
change. The Company expects that new technological developments in the future
will generally serve to enhance its ability to provide service to its
customers. However, these developments may also increase competition or require
the Company to make significant capital investments to maintain its leadership
position in Alaska.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has issued senior subordinated notes and has entered into a
bank credit facility. These on-balance sheet financial instruments, to the
extent they provide for variable rates of interest, expose the Company to
interest rate risk, with the primary interest rate risk exposure resulting from
changes in LIBOR or the prime rate, which are used to determine the interest
rates that are applicable to borrowings under the Companys bank credit
facilities. The Company uses derivative financial instruments, in particular an
interest rate swap agreement, to partially hedge variable interest
transactions. The Companys derivative financial instrument transaction has
been entered into for hedging purposes. The terms and characteristics of the
derivative financial instruments are matched with the underlying on-balance
sheet instrument or anticipated transactions and do not constitute speculative
or leveraged positions independent of these exposures. During the quarter ended
June 30, 2003, the Company prepaid $106.7 million of its bank credit facility
as disclosed in Note 3 of the financial statements attached hereto.




ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Within the 90 days prior to the date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 (Exchange Act) Rules 13a-14(c) and 15d-14(c)) under the
supervision and with the participation of the Companys management, including
the Companys Chief Executive Officer and its Chief Financial Officer. Based
upon that evaluation, the Companys Chief Executive Officer and its Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.

Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the
Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure.

Changes in internal controls

There were no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the date the Company carried out this
evaluation.

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PART II

OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS.

As previously reported, the Company filed a formal appeal of the RCAs
order terminating the rural exemption for Fairbanks, Juneau and the rural
communities in the Glacier State study area on November 10, 1999. This matter
has been fully briefed and argued and is currently pending before the Alaska
Supreme Court.

The Companys LECs (ACSN, ACSF, ACSAK and ACSA) are currently negotiating
and seeking arbitration of new interconnections agreements with General
Communication, Inc. (GCI). A hearing is scheduled in the Anchorage matter for
November 2003. The Company is seeking consolidation of the arbitrations for the
other companies with the Anchorage arbitration.

On March 25, 2003, the RCA issued an order approving new revenue
requirements for ACSF, ACSAK, and ACSN. The order reduces the revenue
requirements for ACSF and ACSN while slightly increasing the revenue
requirement for ACSAK. During the second quarter, the Company filed its cost of
service and rate designs and testimony for the three rural LECs. In addition,
in May 2003, the RCA held a limited rehearing in the revenue requirement phase
of the hearing for ACSA. The ACSA hearing reviewed the RCAs decision to reduce
the revenue requirement for ACSA by lengthening the service lives of specific
assets and thereby reducing depreciation expense. The RCAs decision on revenue
requirements will have a direct impact on the retail rates and intrastate
access rates that ACSA is allowed to charge. Once a revenue requirements order
is issued by the RCA, ACSA will file cost of service and rate design studies
consistent with that order.

The Company previously reported that it had a dispute with GCI pending
before the FCC concerning interstate access charges. This matter has been
resolved.

The Company has been involved with a number of service-oriented disputes
with GCI. The RCA has ordered the Company to, amongst other things, construct
new facilities for GCI to serve GCI customers and to provide GCI with access to
the ACS ordering and provisioning systems. The Company is currently seeking
review of these decisions. In May 2003, however, GCI filed a complaint against
the Company with the FCC concerning service issues. While the Company intends
to vigorously defend its actions, the potential for some liability exists and
the Company cannot predict the final outcome of this proceeding.

On May 14, 2001, the Company was served with a class action lawsuit
concerning its interstate Infinite Minutes long distance plan. A trial is
scheduled for September 2004. It is impossible to determine at this time the
actual number of plaintiffs or the claims that will actually continue to be in
dispute. The Company believes this suit is without merit and intends to
vigorously defend its position.

ACSW has petitioned the RCA for Eligible Telecommunications Carrier
(ETC) status in two high cost areas of Alaska. The RCA has yet to take action
on this petition. Meanwhile, Dobson Communications has also petitioned the RCA
for ETC status in various parts of Alaska and has further sought to have the
RCA redefine ILEC service areas based on wire centers.

The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. See Note 12,
Commitments and Contingencies, in the footnotes to the financial statements for
additional information. The Company believes that the disposition of these
matters will not have a material adverse effect on the Companys consolidated
financial position, results of operations or cash flows.

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.



| |  | None.
| |  | -----




ITEM 3. DEFAULTS UPON SENIOR SECURITIES.



| |  | None.
| |  | -----




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



| |  | None.
| |  | -----




ITEM 5. OTHER INFORMATION.



| |  | None.
| |  | -----




ITEM 6. EXHIBITS AND REPORTS ON
FORM 8-K.

(a) Exhibits:

|      |  |  |  |  |  |                                                                                                                                                                                                                     
|----- |  |  |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  |  |  |  |  | Directory
Publication and Distribution Agreement, dated May 8, 2003
effective as of January 1, 2001 by and among ACS of Anchorage,
Inc., ACS of Fairbanks, Inc., ACS of Alaska, Inc., and ACS of the
Northland, Inc.
|      |  |  |  |  |  |                                                                                                                                                                                                                     
|31.1  |  |  |  |  |  | Certification of Charles R. Robinson, Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                           
|      |  |  |  |  |  |                                                                                                                                                                                                                     
|31.2  |  |  |  |  |  | Certification of Kevin P. Hemenway, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                             
|      |  |  |  |  |  |                                                                                                                                                                                                                     
|32.1  |  |  |  |  |  | Certification of Charles R. Robinson, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted to Section
906 of The Sarbanes-Oxley Act of 2002.                                                     
|      |  |  |  |  |  |                                                                                                                                                                                                                     
|32.2  |  |  |  |  |  | Certification of Kevin P. Hemenway, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of The
Sarbanes-Oxley Act of 2002.                                                       

(b) Reports on Form 8-K:



| |  | The following item was reported on Form 8-K, filed May 13, 2003 and
amended on July 7, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Item 2. Acquisition or Disposition of Assets  On April 28, 2003, the
Company entered into an underwriting agreement with a syndicate of
Canadian investment banks to complete the sale of a majority interest in
the newly formed ACS Media, LLC, the Companys directory business. The
Company subsequently filed on April 29, 2003, a final prospectus with
Canadian securities regulators to sell a majority interest in ACS Media,
LLC in a public offering in Canada to the ACS Media Income Fund, which is
a Canadian income fund. The offering was sponsored by the Company. The
transaction closed on May 8, 2003, with the Company selling an 87.42%
interest and retaining a 12.58% interest in ACS Media, LLC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                    |  |                                            
|------------------- |  | -------------------------------------------
|Date: July 31, 2003 |  | ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC

| |  |                               
| |  | ------------------------------
| |  | /s/ Charles E. Robinson       
| |  |                               
| |  | Charles E. Robinson           
| |  | Chief Executive Officer and   
| |  | Chairman of the Board         
| |  |                               
| |  | /s/ Kevin P. Hemenway         
| |  |                               
| |  | Kevin P. Hemenway             
| |  | Senior Vice President and     
| |  | Chief Financial Officer       
| |  | (Principal Accounting Officer)

43