##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 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 000-28167
 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
  Delaware
    
    52-2126573(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 600 Telephone Avenue, Anchorage, Alaska 99503
 (907) 297-3000
 Not Applicable
 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.
 Yes þ No o
 Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
 Yes o No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated and large accelerated filer in Rule
12b-2 of the Exchange Act.
 Large accelerated filero
    
    Accelerated filerþ
    
    Non-accelerated filero
    
    Smaller reporting companyo(Do not check if smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 Yes o No þ
 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 No o
 APPLICABLE ONLY TO CORPORATE ISSUERS:
 The number of shares outstanding of the registrants Common Stock, as of April 19, 2010, was 44,565,367.




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TABLE OF CONTENTS
 PageNumberPART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets Unaudited
As of March 31, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations Unaudited
For the Three Months Ended March 31, 2010 and 2009
    
    
    4Consolidated Statements of Stockholders Equity (Deficit) Unaudited
For the Three Months Ended March 31, 2010
    
    
    5Consolidated Statements of Cash Flows Unaudited
For the Three Months Ended March 31, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements Unaudited
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. Other InformationItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults upon Senior Securities
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Balance Sheets
 (Unaudited, In Thousands except Per Share Amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,206
    
    
    $
    6,271Restricted cash
    
    
    5,588
    
    
    
    5,843Accounts
receivable-trade,
net of allowance of
$6,615 and $6,066
    
    
    38,903
    
    
    
    35,414Materials and supplies
    
    
    7,506
    
    
    
    7,109Prepayments and other current assets
    
    
    5,412
    
    
    
    4,489Deferred income taxes
    
    
    13,438
    
    
    
    13,814Total current assets
    
    
    79,053
    
    
    
    72,940Property, plant and equipment
    
    
    1,413,970
    
    
    
    1,416,359Less: accumulated depreciation and amortization
    
    
    (977,373
    )
    
    
    (965,470
    )Property, plant and equipment, net
    
    
    436,597
    
    
    
    450,889Non-current investments
    
    
    855
    
    
    
    855Goodwill
    
    
    8,850
    
    
    
    8,850Intangible assets, net
    
    
    21,465
    
    
    
    21,517Debt issuance costs
    
    
    5,320
    
    
    
    5,960Deferred income taxes
    
    
    113,232
    
    
    
    113,994Other assets
    
    
    274
    
    
    
    293Total assets
    
    $
    665,646
    
    
    $
    675,298Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    5,740
    
    
    $
    793Accounts payable, accrued and other current liabilities
    
    
    60,557
    
    
    
    68,651Advance billings and customer deposits
    
    
    9,429
    
    
    
    9,351Total current liabilities
    
    
    75,726
    
    
    
    78,795Long-term obligations, net of current portion
    
    
    538,283
    
    
    
    538,557Other long-term liabilities
    
    
    28,383
    
    
    
    27,906Total liabilities
    
    
    642,392
    
    
    
    645,258Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 145,000 authorized, 44,564 and
44,484 issued and outstanding, respectively
    
    
    446
    
    
    
    445Additional paid in capital
    
    
    190,093
    
    
    
    198,979Accumulated deficit
    
    
    (156,202
    )
    
    
    (157,472
    )Accumulated other comprehensive loss
    
    
    (11,083
    )
    
    
    (11,912
    )Total stockholders equity
    
    
    23,254
    
    
    
    30,040Total liabilities and stockholders equity
    
    $
    665,646
    
    
    $
    675,298
 See Notes to Consolidated Financial Statements
 3




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Operations
 (Unaudited, In Thousands except Per Share Amounts)
 Three Months EndedMarch 31,2010
    
    
    2009Operating revenues
    
    
    82,447
    
    
    
    86,041Operating expenses:Cost of services and sales
    
    
    32,399
    
    
    
    32,343Selling, general and administrative
    
    
    20,770
    
    
    
    22,661Depreciation and amortization
    
    
    18,761
    
    
    
    18,429(Gain) loss on disposal of assets
    
    
    (488
    )
    
    
    450Total operating expenses
    
    
    71,442
    
    
    
    73,883Operating income
    
    
    11,005
    
    
    
    12,158Other income and expense:Interest expense
    
    
    (8,748
    )
    
    
    (8,340
    )Interest income
    
    
    14
    
    
    
    34Total other income and expense
    
    
    (8,734
    )
    
    
    (8,306
    )Income before income tax expense
    
    
    2,271
    
    
    
    3,852Income tax expense
    
    
    (1,001
    )
    
    
    (1,702
    )Net income
    
    $
    1,270
    
    
    $
    2,150Net income per share:Basic
    
    $
    0.03
    
    
    $
    0.05Diluted
    
    $
    0.03
    
    
    $
    0.05Weighted average shares outstanding:Basic
    
    
    44,493
    
    
    
    43,746Diluted
    
    
    45,227
    
    
    
    44,527
 See Notes to Consolidated Financial Statements
 4




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Stockholders Equity
 Three months Ended March 31, 2010
 (Unaudited, In Thousands except Per Share Amounts)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance, December 31, 2009  as revised
    
    
    44,484
    
    
    $
    445
    
    
    $
    198,979
    
    
    $
    (157,472
    )
    
    $
    (11,912
    )
    
    $
    30,040Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,270
    
    
    
    829
    
    
    
    2,099Dividends declared
    
    
    
    
    
    
    
    
    
    
    (9,595
    )
    
    
    
    
    
    
    
    
    
    
    (9,595
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    
    
    
    
    448Tax benefit of convertible bond call
options
    
    
    
    
    
    
    
    
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    380Surrender of 22 shares to cover
withholding
taxes on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    (185
    )Issuance of shares of common stock
pursuant to stock plans, $.01 par
    
    
    80
    
    
    
    1
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    67Balance, March 31, 2010
    
    
    44,564
    
    
    $
    446
    
    
    $
    190,093
    
    
    $
    (156,202
    )
    
    $
    (11,083
    )
    
    $
    23,254
 See Notes to Consolidated Financial Statements
 5




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Cash Flows
 (Unaudited, In Thousands)
 Three Months EndedMarch 31,2010
    
    
    2009Cash Flows from Operating Activities:Net income
    
    $
    1,270
    
    
    $
    2,150Adjustments to reconcile net income to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    18,761
    
    
    
    18,429Amortization of debt issuance costs and debt discount
    
    
    1,830
    
    
    
    1,708Stock-based compensation
    
    
    448
    
    
    
    1,401Deferred income taxes
    
    
    939
    
    
    
    1,684Provision for uncollectible accounts
    
    
    772
    
    
    
    1,050Other non-cash (income) expenses
    
    
    (216
    )
    
    
    793Changes in operating assets and liabilities
    
    
    (6,827
    )
    
    
    774Net cash provided by operating activities
    
    
    16,977
    
    
    
    27,989Cash Flows from Investing Activities:Investment in construction and capital expenditures
    
    
    (5,190
    )
    
    
    (6,808
    )Change in unsettled construction and capital expenditures
    
    
    (5,229
    )
    
    
    (12,342
    )Net change in restricted accounts
    
    
    255
    
    
    
    8,559Net cash used by investing activities
    
    
    (10,164
    )
    
    
    (10,591
    )Cash Flows from Financing Activities:Repayments of long-term debt
    
    
    (7,184
    )
    
    
    (13,163
    )Proceeds from the issuance of long-term debt
    
    
    12,000
    
    
    
    8,000Payment of cash dividend on common stock
    
    
    (9,576
    )
    
    
    (9,406
    )Payment of withholding taxes on stock-based compensation
    
    
    (185
    )
    
    
    (1,342
    )Proceeds from issuance of common stock
    
    
    67
    
    
    
    1Net cash used by financing activities
    
    
    (4,878
    )
    
    
    (15,910
    )Change in cash and cash equivalents
    
    
    1,935
    
    
    
    1,488Cash and cash equivalents, beginning of period
    
    
    6,271
    
    
    
    1,326Cash and cash equivalents, end of period
    
    $
    8,206
    
    
    $
    2,814Supplemental Cash Flow Data:Interest paid
    
    $
    9,272
    
    
    $
    10,576Income taxes refunded
    
    $
    (66
    )
    
    $
    Supplemental Non-cash Transactions:Property acquired under capital leases
    
    $
    1
    
    
    $
    59Dividend declared, but not paid
    
    $
    9,595
    
    
    $
    9,571ARO asset
    
    $
    19
    
    
    $
    3
 See Notes to Consolidated Financial Statements
 6




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Notes to Consolidated Financial Statements
 (Unaudited, In Thousands except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
    
    Alaska Communications Systems Holdings, Inc. (ACS Holdings)
    
    ACS of Alaska, Inc. (ACSAK)
    
    ACS of the Northland, Inc. (ACSN)
    
    ACS of Fairbanks, Inc. (ACSF)
    
    ACS of Anchorage, Inc. (ACSA)
    
    ACS Wireless, Inc. (ACSW)
    
    ACS Long Distance, Inc. (ACSLD)
    
    ACS Internet, Inc. (ACSI)
    
    ACS Messaging, Inc. (ACSM)
    
    ACS Cable Systems, Inc. (ACSC)
 Basis of Presentation
   Use of Estimates
  Significant Changes in Accounting Practice, Reclassifications and Correction of Immaterial Errors
 Materiality. Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in the Current Year Financial Statements,
  7




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
  December 31, 2009As Reported
    
    Adj
    
    As RevisedNoncurrent deferred income taxes
    
    $
    111,625
    
    
    $
    2,369
    
    
    $
    113,994Total assets
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298Accounts payable, accrued and
other current liabilities
    
    
    62,887
    
    
    
    5,764
    
    
    
    68,651Total current liabilities
    
    
    73,031
    
    
    
    5,764
    
    
    
    78,795Total liabilities
    
    
    639,494
    
    
    
    5,764
    
    
    
    645,258Accumulated deficit
    
    
    (154,077
    )
    
    
    (3,395
    )
    
    
    (157,472
    )Total stockholders equity
    
    
    33,435
    
    
    
    (3,395
    )
    
    
    30,040Total liabilities and
stockholders equity
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298
  Three Months endedMarch 31, 2009As Reported
    
    Adj
    
    As RevisedOperating revenues
    
    $
    86,158
    
    
    $
    (117
    )
    
    $
    86,041Operating income
    
    
    12,275
    
    
    
    (117
    )
    
    
    12,158Income before income tax expense
    
    
    3,969
    
    
    
    (117
    )
    
    
    3,852Income tax expense
    
    
    (1,750
    )
    
    
    48
    
    
    
    (1,702
    )Net income
    
    
    2,219
    
    
    
    (69
    )
    
    
    2,150
   Three Months endedMarch 31, 2009As Reported
    
    Adj
    
    As RevisedNet income
    
    $
    2,219
    
    
    $
    (69
    )
    
    $
    2,150Deferred income taxes
    
    
    1,732
    
    
    
    (48
    )
    
    
    1,684Changes in operating assets and
liabilities
    
    
    657
    
    
    
    117
    
    
    
    774
 Regulated Operations (ASC 980)
 8




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 2. COMPONENTS OF COMPREHENSIVE INCOME
  Three Months EndedMarch 31,2010
    
    
    2009Net income
    
    $
    1,270
    
    
    $
    2,150Minimum pension liability adjustment
    
    
    144
    
    
    
    251Interest rate swap marked to market
    
    
    685
    
    
    
    667Total comprehensive income
    
    $
    2,099
    
    
    $
    3,068
 3. FAIR VALUE MEASUREMENTS
  
    
    Level 1- Quoted prices for identical instruments in active
markets;
    
    Level 2- Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are
observable; and
    
    Level 3- Significant inputs to the valuation model are unobservable.
  Fair Value Measurements on a Recurring Basis
   March 31, 2010
    
    December 31, 2009Total
    
    Level 1
    
    Level 2
    
    Level 3
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3Assets:Non-current
investments in
auction rate
securities
    
    $
    855
    
    
    $
    
    
    
    $
    
    
    
    $
    855
    
    
    $
    885
    
    
    $
    
    
    
    $
    
    
    
    $
    885Liabilities:Interest rate swaps
    
    $
    (13,632
    )
    
    $
    
    
    
    $
    (13,632
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
   9




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 4. STOCK INCENTIVE PLANS
    2010
    
    2009Restricted stock:Risk free rate
    
    
    0.00
    %
    
    
    0.25
    %Quarterly dividend
    
    $
    0.215
    
    
    $
    0.215Expected per annum, forfeiture rate
    
    
    0.00
    %
    
    
    0.00%  4.47
    %Stock Options:Risk free rate
    
    
    
    
    
    
    0.25
    %Dividend yield
    
    
    
    
    
    
    9.29
    %Expected volatility factor
    
    
    
    
    
    
    36.38
    %Expected option life (years)
    
    
    
    
    
    
    3.2
 5. EARNINGS PER SHARE
   Three Months EndedMarch 31,2010
    
    
    2009Numerator  net income
    
    $
    1,270
    
    
    $
    2,150Denominator  weighted average shares outstanding:Basic shares
    
    
    44,493
    
    
    
    43,746Dilutive impact of
restricted stock,
options
and deferred shares
    
    
    734
    
    
    
    781Dilutive shares
    
    
    45,227
    
    
    
    44,527Earnings per share:Basic
    
    $
    0.03
    
    
    $
    0.05Diluted
    
    $
    0.03
    
    
    $
    0.05
 10




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 6. RETIREMENT PLANS
     Three Months EndedMarch 31,2010
    
    
    2009Interest cost
    
    $
    208
    
    
    $
    210Expected return on plan assets
    
    
    (183
    )
    
    
    (182
    )Amortization of loss
    
    
    192
    
    
    
    195Amortization of prior service cost
    
    
    51
    
    
    
    51Net periodic pension expense
    
    $
    268
    
    
    $
    274
 7. BUSINESS SEGMENTS
  Wireline
 Wireless
  11




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 7. BUSINESS SEGMENTS (Cont.)
  §
    
    eliminated $10,369 of intercompany revenue and expense previously not
eliminated during the three months ended March 31, 2009;§
    
    reclassified $520 of bad debt expense from contra revenue to Selling, General &
Administrative (SG&A) expense in the three months ended March 31, 2009; and§
    
    classified certain other operating expenses as cost of services and sales
(COGS) or SG&A expense, as appropriate.
   Three Months Ended March 31, 2010Wireline
    
    Wireless
    
    All Other
    
    Eliminations
    
    TotalOperating revenues
    
    $
    62,859
    
    
    $
    32,938
    
    
    $
    1,413
    
    
    $
    (14,763
    )
    
    $
    82,447Intersegment revenue
    
    
    12,896
    
    
    
    454
    
    
    
    1,413
    
    
    
    
    
    
    
    14,763Income (loss) before income tax
    
    
    460
    
    
    
    10,030
    
    
    
    (8,219
    )
    
    
    
    
    
    
    2,271Income tax (expense) benefit
    
    
    (100
    )
    
    
    (4,127
    )
    
    
    3,226
    
    
    
    
    
    
    
    (1,001
    )Net income (loss)
    
    
    360
    
    
    
    5,903
    
    
    
    (4,993
    )
    
    
    
    
    
    
    1,270
 Three Months Ended March 31, 2009Wireline
    
    Wireless
    
    All Other
    
    Eliminations
    
    TotalOperating revenues
    
    $
    64,033
    
    
    $
    35,826
    
    
    $
    4,170
    
    
    $
    (17,988
    )
    
    $
    86,041Intersegment revenue
    
    
    13,212
    
    
    
    606
    
    
    
    4,170
    
    
    
    
    
    
    
    17,988Income (loss) before income tax
    
    
    585
    
    
    
    12,690
    
    
    
    (9,423
    )
    
    
    
    
    
    
    3,852Income tax (expense) benefit
    
    
    1,300
    
    
    
    (5,220
    )
    
    
    2,218
    
    
    
    
    
    
    
    (1,702
    )Net income (loss)
    
    
    1,885
    
    
    
    7,470
    
    
    
    (7,205
    )
    
    
    
    
    
    
    2,150
 8. COMMITMENTS AND CONTINGENCIES
    12




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ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 8. COMMITMENTS AND CONTINGENCIES (Cont.)
 Accounting for
Uncertainty in Income Taxes,
 13




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements and Analysts Reports
  
    
    our strongly competitive environment, which comprises national and local wireless and
wireline facilities-based competitors;
    
    our substantial debt which requires us to dedicate a substantial portion of our cash
flow from operations to payments on our debt;
    
    the availability of future financing in the amounts, at the terms, and subject to the
conditions necessary, to support our business and pursue growth opportunities;
    
    our ability to generate sufficient earnings and cash flows to continue to make dividend
payments to our stockholders;
    
    our ability to keep pace with rapid technological developments and changing standards in
the telecommunications industry, including our ability to obtain new devices, spectrum,
bandwidth, and other network elements;
    
    our ability to develop attractive integrated products and services making use of our
substantial investments in fiber optic cable facilities, including our AKORN® and Northstar
fiber optic cables that connect Alaska to the Lower 48 states;
    
    unanticipated damage to one or more of our high capacity cables resulting from
construction or digging mishaps, fishing boats or natural disasters;
    
    changes in revenue from Universal Service Funds (USFs);
    
    changes in general industry and market conditions, and structural declines within the
telecommunications industry;
    
    changes in overall national, regional or local economic conditions;
    
    governmental and public policy changes, including changes in our revenues resulting from
regulatory actions affecting inter-carrier compensation or other regulatory limitations
placed on our ability to price our services or offer bundled services;
    
    unanticipated costs required to fund our postretirement benefit plans;
    
    the success or failure of any future acquisitions; and
    
    the matters described under Item 1A  Risk Factors in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2009 and this Quarterly Report on Form 10-Q.
   14




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##### Table of Contents



Important Changes to Presentation
  
    
    recognize an extraordinary item as a result of the extinguishment of all our
jurisdictional assets and liabilities net of the liability representing the
Companys asset retirement obligation in accordance with ASC 410;
    
    eliminate all intercompany transactions;
    
    reclassify bad debt expense, as a component of SG&A; and
    
    make certain other reclassifications in the Consolidated Statement of Operations
to separate operating expenses into COGS and SG&A.
   Overview
   
    
    activity in the oil and gas markets;
    
    tourism levels;
    
    military activity;
    
    the cost of long-haul telecommunications bandwidth;
    
    local customer preferences;
    
    average usage of Internet technology;
    
    unemployment levels; and
    
    housing activity.
  Strategy
  15




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##### Table of Contents




    
    Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash
provided by operating activities. We devote more resources to higher growth markets such as
wireless, including wireless data; wireline broadband connections, including our long-haul
fiber optic cables connecting our statewide MPLS network to the Lower 48, as well as expanded
strategic services to business markets, rather than to the traditional wireline voice market.
    
    Investment with Discipline: We focus on gaining market share in those markets that contain
high revenue producing customers. In our wireline business, we focus on deploying and selling
broadband connections in each market covered by our network. We have targeted investment in
deploying high-speed fiber conductivity in and between Alaskas urban centers. We invested
heavily in interstate capacity through our acquisition of Crest Communications Corporation and
construction of AKORN. We have increasingly targeted enterprise customers of all sizes that
demand sophisticated data solutions. Revenues from these customers grew 5.7% in the three
months ended March 31, 2010 compared with the same period last year, primarily driven by sales
of advanced IP services and increases in revenues from agreements with carriers to terminate
their Alaskan long distance traffic. In our wireless business, we have directed resources
towards offering wireless plans that encourage customer adoption of large monthly-minute
postpaid plans and unlimited postpaid plans. By directing resources carefully, we seek to
distinguish ourselves from our competitors in a cost effective way.
    
    Process Improvement to Achieve Operational Excellence:While focusing resources on revenue
growth and market share gains, we continually challenge our management team and employees at
all levels of the organization to lower expenses and improve the customer experience through
process improvements. We expect to continue to invest in technology-assisted process
improvement, including self-service initiatives. We expect efforts such as call center routing
improvements and deploying enhanced self-service tools to customers on our web site, to
improve our cost structure and maintain or improve operating income margins. We continue to
employ extensive analytical analyses to identify weaknesses in our business processes. As a
result of past successes, we have been able to serve more customers while maintaining our
workforce at or below prior levels.
    
    Pay for Performance:We embrace a culture of urgency and accountability. We establish goals
for all of our employees that are tied to the imperatives described above. We seek to provide
our non-represented employees cash incentives and equity compensation tied to these goals. We
design executive compensation programs carefully to align executives and stockholders
long-term interests.
    
    Continuous Enhancement of Products and Services:We intend to continue to introduce new
services that draw upon our core competencies that we believe will be attractive to our target
customers. In considering new services, we look for market opportunities that we believe
present significant growth opportunities such as, our investments in our AKORN and Northstar
fiber optic cable systems and our first-to-market deployment of 3G wireless services. We also
plan to selectively pursue acquisitions that will enable us to broaden our service offerings.
  16




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Three Months ended March 31,2010
    
    
    2009
    
    
    Change
    
    
    % ChangeOperating revenues:WirelineRetail
    
    $
    20,642
    
    
    $
    21,442
    
    
    $
    (800
    )
    
    
    -3.7
    %Wholesale
    
    
    2,604
    
    
    
    3,042
    
    
    
    (438
    )
    
    
    -14.4
    %Access
    
    
    15,000
    
    
    
    15,254
    
    
    
    (254
    )
    
    
    -1.7
    %Enterprise
    
    
    11,717
    
    
    
    11,083
    
    
    
    634
    
    
    
    5.7
    %Wireline
    
    
    49,963
    
    
    
    50,821
    
    
    
    (858
    )
    
    
    -1.7
    %Wireless
    
    
    32,484
    
    
    
    35,220
    
    
    
    (2,736
    )
    
    
    -7.8
    %Total operating revenues
    
    
    82,447
    
    
    
    86,041
    
    
    
    (3,594
    )
    
    
    -4.2
    %Operating expenses:WirelineCost of services and sales
    
    
    19,349
    
    
    
    19,639
    
    
    
    (290
    )
    
    
    -1.5
    %Selling, general and administrative
    
    
    15,679
    
    
    
    17,224
    
    
    
    (1,545
    )
    
    
    -9.0
    %WirelessCost of services and sales
    
    
    13,050
    
    
    
    12,704
    
    
    
    346
    
    
    
    2.7
    %Selling, general and administrative
    
    
    5,091
    
    
    
    5,437
    
    
    
    (346
    )
    
    
    -6.4
    %Depreciation and amortization
    
    
    18,761
    
    
    
    18,429
    
    
    
    332
    
    
    
    1.8
    %(Gain)/loss on disposal of assets
    
    
    (488
    )
    
    
    450
    
    
    
    (938
    )
    
    
    -208.4
    %Total operating expenses
    
    
    71,442
    
    
    
    73,883
    
    
    
    (2,441
    )
    
    
    -3.3
    %Operating income
    
    
    11,005
    
    
    
    12,158
    
    
    
    (1,153
    )
    
    
    -9.5
    %Operating margin
    
    
    13.3
    %
    
    
    14.1
    %Other income and expense:Interest expense
    
    
    (8,748
    )
    
    
    (8,340
    )
    
    
    (408
    )
    
    
    4.9
    %Interest income
    
    
    14
    
    
    
    34
    
    
    
    (20
    )
    
    
    -58.8
    %Total other income and expense
    
    
    (8,734
    )
    
    
    (8,306
    )
    
    
    (428
    )
    
    
    5.2
    %Income before income tax expense
    
    
    2,271
    
    
    
    3,852
    
    
    
    (1,581
    )
    
    
    -41.0
    %Income tax expense
    
    
    (1,001
    )
    
    
    (1,702
    )
    
    
    701
    
    
    
    -41.2
    %Net income
    
    $
    1,270
    
    
    $
    2,150
    
    
    $
    (880
    )
    
    
    -40.9
    %
 Revenue Sources by Segment
  
    
    Wireline:We provide communications services including voice, data, broadband,
multi-protocol label switching services, network access, long distance and other services
to consumer, carrier, business and government customers throughout Alaska and to and from
Alaska.
    
    Wireless:We provide wireless voice and data services, products, other value-added
services and equipment sales across Alaska.
 17




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##### Table of Contents



Operating Revenue
 Wireline
 Retail:
 Wholesale:
 Access:
 Enterprise:
 Wireless
  Operating Expense
 Wireline:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Wireless:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Depreciation and Amortization:
 Gain/Loss on Disposal of Assets:
 Other Income and Expense:
 Income Taxes:
 18




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##### Table of Contents



Liquidity and Capital Resources
  Three months endedMarch 31,2010
    
    2009Net cash provided by operating activities
    
    $
    16,977
    
    
    $
    27,989Net change in funds held in restricted accounts
    
    $
    255
    
    
    $
    8,559Capital expenditures
    
    $
    (5,190
    )
    
    $
    (6,808
    )Net settlement of capital expenditures payable
    
    $
    (5,229
    )
    
    $
    (12,342
    )Net borrowings/(repayments)
    
    $
    4,816
    
    
    $
    (5,163
    )Dividends
    
    $
    (9,576
    )
    
    $
    (9,406
    )Interest paid
    
    $
    9,272
    
    
    $
    10,576
 Sources
     Uses
    19




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##### Table of Contents



Legal
  Employees
  Recent Developments
  Critical Accounting Policies and Accounting Estimates
    Recently Issued Accounting Pronouncements
 Revenue Recognition  Multiple-Deliverable Revenue Arrangements a
Consensus of the FASB
Emerging Issues Task Force.
 Software  Certain Revenues Arrangements
That Include Software Elements
 20




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
     
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
   21




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
  New regulations contemplated by the FCCs National Broadband Plan may affect our business in ways
we cannot anticipate. Until definitive regulations are proposed and adopted, we will face
uncertainly that may impair our ability to make long-terms plans or set strategic goals, which
could have a material adverse effect on our business.
  
    
    establish new broadband competition policies;
    
    ensure efficient allocation and management of government-controlled spectrum resources
to promote deployment of wireless broadband networks;
    
    reform universal service and intercarrier compensation methodologies; and
    
    reform laws and regulations to address broadband use in government-influenced sectors,
such as health care and education.
   
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Working capital restrictions and other limitations on the payment of dividends
  22




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##### Table of Contents



ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 5.
    
    OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
 (a) Exhibits :
 10.1
    
    Collective Bargaining Agreement, dated, February 28, 2010, by and between Alaska
Communications Systems Holding, Inc. and the International Brotherhood of Electrical
Workers, Local Union 154731.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.
 23




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##### Table of Contents



SIGNATURES
  Date: May 10, 2010
    ALASKA COMMUNICATIONS SYSTEMS GROUP, INC./s/ Liane PelletierLiane PelletierChief Executive Officer,
Chairman of the Board and President/s/ David WilsonDavid WilsonChief Financial Officer,
Executive Vice President
(Principal Accounting Officer) 24