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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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 September 30, 2002                       
|                                                                        
|OR                                                                      
|                                                                        
|                                                                         | o |  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                        
|For the transition period from ____________________ to _________________

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.(Exact name of registrant as specified in its charter)



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

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

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

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Former name, former address and former three months, if changed since last report: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 ü
No

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  No

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 OTHER INFORMATION
|                          | 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               
|CERTIFICATIONS           
|EXHIBIT 99.1             
|EXHIBIT 99.2             



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##### Table of Contents



TABLE OF CONTENTS

|               |  |                                                                                       |    |                                                                                                                   |    |        |   | 
|-------------- |  | ------------------------------------------------------------------------------------- | -- | ----------------------------------------------------------------------------------------------------------------- | -- | ------ | - | 
|               |  |                                                                                       |    |                                                                                                                   |    | Page  
|               |  |                                                                                       |    |                                                                                                                   |    | Number
|               |  |                                                                                       |    |                                                                                                                   |    |       
|PART I.        |  | Financial Information                                                                 |    |                                                                                                                   |    |       
|              
|Item 1.        |  | Financial Statements:                                                                 |    |                                                                                                                   |    |       
|              
|               |  |                                                                                       |    | Consolidated Balance Sheets (unaudited)
As of September 30, 2002 and December 31, 2001                            |    |        | 3 | 
|              
|               |  |                                                                                       |    | Consolidated Statements of Operations (unaudited)
For the Three and Nine Months Ended September 30, 2002 and 2001 |    |        | 4 | 
|              
|               |  |                                                                                       |    | Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 2002 and 2001           |    |        | 5 | 
|              
|               |  |                                                                                       |    | Notes to Consolidated Financial Statements (unaudited)                                                            |    |        | 6 | 
|              
|Item 2.        |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations |    |                                                                                                                   | 16 |       
|              
|Item 3.        |  | Quantitative and Qualitative Disclosures
About Market Risk                            |    |                                                                                                                   | 29 |       
|              
|Item 4.        |  | Controls and Procedures                                                               |    |                                                                                                                   | 29 |       
|              
|PART II.       |  | Other Information                                                                     |    |                                                                                                                   |    |       
|              
|Item 1.        |  | Legal Proceedings                                                                     |    |                                                                                                                   | 30 |       
|              
|Item 2.        |  | Changes in Securities and Use of Proceeds                                             |    |                                                                                                                   | 31 |       
|              
|Item 3.        |  | Defaults upon Senior Securities                                                       |    |                                                                                                                   | 31 |       
|              
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                                   | 31 |       
|              
|Item 5.        |  | Other Information                                                                     |    |                                                                                                                   | 31 |       
|              
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                                   | 31 |       
|              
|Signatures     |  |                                                                                       | 32 |                                                                                                                  
|              
|Certifications |  |                                                                                       | 33 |                                                                                                                  

2



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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited, In Thousands Except Per Share Amounts)

|                                                                |                                                                                       |                            |           |               |        |              |           |         |         | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------- | --------- | ------------- | ------ | ------------ | --------- | ------- | ------- | 
|                                                                |                                                                                       |                            |           | September 30, |        | December 31,
|                                                                |                                                                                       |                            |           | 2002          |        | 2001        
|                                                                |                                                                                       |                            |           |               |        |             
|Assets                                                         
|Current assets:                                                 |                                                                                       |                            |           |               |        |              |           |        
|                                                                | Cash and cash equivalents                                                             |                            | $         | 21,040        |        |              | $         | 41,012  |        
|                                                                | Restricted cash                                                                       |                            |           | 3,428         |        |              |           | 6,932   |        
|                                                                | Accounts receivable-trade, net of allowance of $5,386 and $4,944                      |                            |           | 46,812        |        |              |           | 46,912  |        
|                                                                | Accounts receivable-affiliates                                                        |                            |           | 2,906         |        |              |           | 2,475   |        
|                                                                | Materials and supplies                                                                |                            |           | 10,438        |        |              |           | 8,723   |        
|                                                                | Prepayments and other current assets                                                  |                            |           | 8,561         |        |              |           | 6,032   |        
|                                                                | Assets held for sale                                                                  |                            |           | 271           |        |              |           |        |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|                                                                |                                                                                       | Total current assets       |           |               | 93,456 |              |           |         | 112,086 | 
|Property, plant and equipment                                   |                                                                                       |                            | 1,077,843 |               |        |              | 1,036,829 |        
|Less: accumulated depreciation                                  |                                                                                       |                            | 610,311   |               |        |              | 557,849   |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|                                                                | Property, plant and equipment, net                                                    |                            |           | 467,532       |        |              |           | 478,980 |        
|Goodwill                                                        |                                                                                       |                            | 141,980   |               |        |              | 250,495   |        
|Intangible assets                                               |                                                                                       |                            | 23,146    |               |        |              | 26,785    |        
|Debt issuance costs, net of amortization of $15,296 and $12,126 |                                                                                       |                            | 22,187    |               |        |              | 25,321    |        
|Deferred charges and other assets                               |                                                                                       |                            | 25,155    |               |        |              | 9,875     |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|Total assets                                                    |                                                                                       | $                          | 773,456   |               |        | $            | 903,542   |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|Liabilities and Stockholders Equity                           
|Current liabilities:                                            |                                                                                       |                            |           |               |        |              |           |        
|                                                                | Current portion of long-term obligations                                              |                            | $         | 5,832         |        |              | $         | 5,107   |        
|                                                                | Accounts payable-affiliates                                                           |                            |           | 989           |        |              |           | 1,303   |        
|                                                                | Accounts payable, accrued and other current liabilities                               |                            |           | 53,586        |        |              |           | 62,765  |        
|                                                                | Advance billings and customer deposits                                                |                            |           | 9,531         |        |              |           | 9,190   |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|                                                                |                                                                                       | Total current liabilities  |           |               | 69,938 |              |           |         | 78,365  | 
|Long-term obligations, net of current portion                   |                                                                                       |                            | 585,666   |               |        |              | 591,496   |        
|Other deferred credits and long-term liabilities                |                                                                                       |                            | 27,875    |               |        |              | 25,003    |        
|Commitments and contingencies                                   |                                                                                       |                            |          |               |        |              |          |        
|Stockholders equity:                                           |                                                                                       |                            |           |               |        |              |           |        
|                                                                | Common stock, $.01 par value; 1,000 shares authorized,
1 share issued and outstanding |                            |           |              |        |              |           |        |        
|                                                                | Paid in capital in excess of par value                                                |                            |           | 287,242       |        |              |           | 287,242 |        
|                                                                | Accumulated deficit                                                                   |                            |           | (179,650      | )      |              |           | (64,735 | )      
|                                                                | Accumulated other comprehensive loss                                                  |                            |           | (17,615       | )      |              |           | (13,829 | )      
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|                                                                |                                                                                       | Total stockholders equity |           |               | 89,977 |              |           |         | 208,678 | 
|                                                                |                                                                                       |                            |           |               |        |              |           |        
|Total liabilities and stockholders equity                      |                                                                                       | $                          | 773,456   |               |        | $            | 903,542   |        
|                                                                |                                                                                       |                            |           |               |        |              |           |        

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Operations
(Unaudited, In Thousands Except Per Share Amounts)

|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |         |         |  
|--------------------------------------------------------------- | ------------------------------- | ----------------------- | ------ | ------------------ | ------- | ----------------- | ------ | ------- | ------- | ---- | -------- | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                |                                 |                         |        | Three
Months Ended |         | Nine
Months Ended
|                                                                |                                 |                         |        | September 30,      |         | September
30,    
|                                                                |                                 |                         |        |                    |         |                  
|                                                                |                                 |                         |        | 2002               |         | 2001              |        | 2002    |         | 2001
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |     
|Operating revenue:                                              |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                | Local telephone                 |                         | $      | 52,815             |         |                   | $      | 53,860  |         |      | $        | 172,128 |         |   | $      | 163,018 |        
|                                                                | Cellular                        |                         |        | 11,903             |         |                   |        | 11,437  |         |      |          | 32,420  |         |   |        | 31,802  |        
|                                                                | Directory                       |                         |        | 8,360              |         |                   |        | 8,705   |         |      |          | 25,382  |         |   |        | 24,857  |        
|                                                                | Internet                        |                         |        | 6,422              |         |                   |        | 3,584   |         |      |          | 14,815  |         |   |        | 9,898   |        
|                                                                | Interexchange                   |                         |        | 4,830              |         |                   |        | 5,395   |         |      |          | 14,500  |         |   |        | 16,557  |        
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                |                                 | Total operating revenue |        |                    | 84,330  |                   |        |         | 82,981  |      |          |         | 259,245 |   |        |         | 246,132 |  
|Operating expense:                                              |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                | Local telephone                 |                         |        | 28,650             |         |                   |        | 29,259  |         |      |          | 90,219  |         |   |        | 88,582  |        
|                                                                | Cellular                        |                         |        | 7,116              |         |                   |        | 6,347   |         |      |          | 20,227  |         |   |        | 18,569  |        
|                                                                | Directory                       |                         |        | 3,408              |         |                   |        | 3,616   |         |      |          | 10,366  |         |   |        | 10,478  |        
|                                                                | Internet                        |                         |        | 8,157              |         |                   |        | 4,583   |         |      |          | 20,602  |         |   |        | 11,592  |        
|                                                                | Interexchange                   |                         |        | 6,797              |         |                   |        | 6,678   |         |      |          | 20,409  |         |   |        | 23,043  |        
|                                                                | Depreciation and amortization   |                         |        | 22,458             |         |                   |        | 19,790  |         |      |          | 61,690  |         |   |        | 58,754  |        
|                                                                | Loss of disposal of assets, net |                         |        | 1,835              |         |                   |        |        |         |      |          | 2,108   |         |   |        |        |        
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                |                                 | Total operating expense |        |                    | 78,421  |                   |        |         | 70,273  |      |          |         | 225,621 |   |        |         | 211,018 |  
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|Operating income                                                |                                 |                         | 5,909  |                    |         |                   | 12,708 |         |         |      | 33,624   |         |         |   | 35,114 |        
|Other income (expense):                                         |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                | Interest expense                |                         |        | (12,744            | )       |                   |        | (14,000 | )       |      |          | (36,462 | )       |   |        | (43,910 | )      
|                                                                | Interest income and other       |                         |        | 578                |         |                   |        | 1,019   |         |      |          | 1,626   |         |   |        | 2,844   |        
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|                                                                |                                 | Total other expense     |        |                    | (12,166 | )                 |        |         | (12,981 | )    |          |         | (34,836 | ) |        |         | (41,066 | )
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|Loss before income taxes                                        |                                 |                         | (6,257 | )                  |         |                   | (273   | )       |         |      | (1,212   | )       |         |   | (5,952 | )      
|Income tax benefit                                              |                                 |                         |       |                    |         |                   | 48     |         |         |      |         |         |         |   | 147    |        
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|Loss from continuing operations                                 |                                 |                         | (6,257 | )                  |         |                   | (225   | )       |         |      | (1,212   | )       |         |   | (5,805 | )      
|Loss from discontinued operations, net of tax                   |                                 |                         | (136   | )                  |         |                   | (526   | )       |         |      | (7,523   | )       |         |   | (1,327 | )      
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|Loss before cumulative effect of change
in accounting principle |                                 |                         | (6,393 | )                  |         |                   | (751   | )       |         |      | (8,735   | )       |         |   | (7,132 | )      
|Cumulative effect of change in accounting principle             |                                 |                         |       |                    |         |                   |       |         |         |      | (105,350 | )       |         |   |       |        
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        
|Net loss                                                        |                                 | $                       | (6,393 | )                  |         | $                 | (751   | )       |         | $    | (114,085 | )       |         | $ | (7,132 | )      
|                                                                |                                 |                         |        |                    |         |                   |        |         |         |      |          |         |         |   |        |        

See Notes to Consolidated Financial Statements

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

|                                                                                |                                                     |                                                |          |                   |        |      |         |        |        |  
|------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------- | -------- | ----------------- | ------ | ---- | ------- | ------ | ------ | -
|                                                                                |                                                     |                                                |          | Nine
Months Ended
|                                                                                |                                                     |                                                |          | September 30,    
|                                                                                |                                                     |                                                |          |                  
|                                                                                |                                                     |                                                |          | 2002              |        | 2001
|                                                                                |                                                     |                                                |          |                   |        |     
|Cash Flows from Operating Activities:                                           |                                                     |                                                |          |                   |        |      |         |       
|Net loss                                                                        |                                                     | $                                              | (114,085 | )                 |        | $    | (7,132  | )     
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                     |                                                |          |                   |        |      |         |       
|                                                                                | Loss on discontinued operations                     |                                                |          | 7,523             |        |      |         | 1,327  |       
|                                                                                | Cumulative effect of change in accounting principle |                                                |          | 105,350           |        |      |         |       |       
|                                                                                | Depreciation and amortization                       |                                                |          | 61,690            |        |      |         | 58,754 |       
|                                                                                | Loss on disposal of assets, net                     |                                                |          | 2,108             |        |      |         |       |       
|                                                                                | Amortization of debt issuance costs                 |                                                |          | 3,134             |        |      |         | 3,256  |       
|                                                                                | Investment tax credits                              |                                                |          |                  |        |      |         | (147   | )     
|                                                                                | Capitalized interest                                |                                                |          | (1,078            | )      |      |         | (1,114 | )     
|                                                                                | Other deferred credits                              |                                                |          | (914              | )      |      |         | (119   | )     
|                                                                                | Changes in components of working capital:           |                                                |          |                   |        |      |         |        |       
|                                                                                |                                                     | Accounts receivable and other current assets   |          |                   | (4,774 | )    |         |        | (4,218 | )
|                                                                                |                                                     | Accounts payable and other current liabilities |          |                   | (8,899 | )    |         |        | 6,502  |  
|                                                                                |                                                     | Other                                          |          |                   | (280   | )    |         |        | 749    |  
|                                                                                | Net cash used in discontinued operations            |                                                |          | (596              | )      |      |         | (789   | )     
|                                                                                |                                                     |                                                |          |                   |        |      |         |       
|Net cash provided by operating activities                                       |                                                     |                                                | 49,179   |                   |        |      | 57,069  |       
|Cash Flows from Investing Activities:                                           |                                                     |                                                |          |                   |        |      |         |       
|Construction and capital expenditures, net of capitalized interest              |                                                     |                                                | (50,253  | )                 |        |      | (74,559 | )     
|Release of funds from escrow                                                    |                                                     |                                                | 3,706    |                   |        |      |        |       
|Issuance of note receivable                                                     |                                                     |                                                | (15,000  | )                 |        |      |        |       
|Proceeds from liquidation of minority interest investment                       |                                                     |                                                |         |                   |        |      | 1,370   |       
|Issuance of note receivable from officer                                        |                                                     |                                                |         |                   |        |      | (335    | )     
|Cost of acquisitions, net of cash received                                      |                                                     |                                                |         |                   |        |      | (1,000  | )     
|                                                                                |                                                     |                                                |          |                   |        |      |         |       
|Net cash used by investing activities                                           |                                                     |                                                | (61,547  | )                 |        |      | (74,524 | )     
|Cash Flows from Financing Activities:                                           |                                                     |                                                |          |                   |        |      |         |       
|Payments on long-term debt                                                      |                                                     |                                                | (6,774   | )                 |        |      | (2,820  | )     
|Dividends                                                                       |                                                     |                                                | (830     | )                 |        |      |        |       
|                                                                                |                                                     |                                                |          |                   |        |      |         |       
|Net cash used by financing activities                                           |                                                     |                                                | (7,604   | )                 |        |      | (2,820  | )     
|Decrease in cash                                                                |                                                     |                                                | (19,972  | )                 |        |      | (20,275 | )     
|Cash and cash equivalents at beginning of the period                            |                                                     |                                                | 41,012   |                   |        |      | 61,896  |       
|                                                                                |                                                     |                                                |          |                   |        |      |         |       
|Cash and cash equivalents at the end of the period                              |                                                     | $                                              | 21,040   |                   |        | $    | 41,621  |       
|                                                                                |                                                     |                                                |          |                   |        |      |         |       
|Supplemental Cash Flow Data:                                                    |                                                     |                                                |          |                   |        |      |         |       
|Interest paid                                                                   |                                                     | $                                              | 30,795   |                   |        | $    | 35,870  |       
|Income taxes paid                                                               |                                                     |                                                |         |                   |        |      |        |       
|Supplemental Noncash Transactions:                                              |                                                     |                                                |          |                   |        |      |         |       
|Property acquired under capital lease                                           |                                                     | $                                              | 2,306    |                   |        | $    |        |       
|Interest rate swap marked to market                                             |                                                     | $                                              | 3,786    |                   |        | $    | 13,195  |       

See Notes to Consolidated Financial Statements

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##### Table of Contents






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



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

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the
Company or ACS Holdings), a Delaware corporation, is an integrated
communications provider engaged principally in providing local telephone,
directory, cellular, 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)                 
|
| |  |  | ACS InfoSource, Inc. (ACSIS)               

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, 2001. Certain reclassifications have been made to the 2001
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
nine months ended September 30, 2002 and 2001 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.

6



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##### Table of Contents



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



|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 appears to extend lives approved
for rate-making purposes beyond the economically useful lives of the underlying
assets. Management is awaiting further clarification from the RCA necessary to
evaluate the effects of this order on the financial statements of the Company.
As of September 30, 2002 the Company has deferred as a regulatory asset $894 of
costs incurred in connection with regulatory rate making proceedings, which
will be amortized in future periods. If the Company were not following SFAS No. 71,
these costs would have been charged to expense as incurred.

Change in Accounting Estimate

During the period, the Company changed its estimate of the useful lives of
certain classes of assets resulting in additional depreciation expense of
$2,206 for the nine months ended September 30, 2002.

Comprehensive loss

Comprehensive loss for the nine months ended September 30, 2002 and 2001
was $117,871 and $20,327, respectively. The difference between net loss and
comprehensive loss resulted from the adoption of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities,as amended.The accumulated
other comprehensive loss of $17,615 at June 30, 2002 consists of $2,392 of
minimum pension liability adjustment and $15,223 of interest rate swap mark to
market. The accumulated other comprehensive loss of $13,829 at December 31,
2001 consists of $2,392 of minimum pension liability adjustment and $11,437 of
interest rate swap mark to market.



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

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

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.This statement addresses
accounting and reporting of all long-lived assets, except goodwill, that are
either held and used or disposed of through sale or other means (see Note 4).

7



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



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

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

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



|3. |  | GOODWILL AND OTHER INTANGIBLE ASSETS
|-- |  | ------------------------------------

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

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

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

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

8



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



|3. |  | GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
|-- |  | ------------------------------------------------

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

The changes in the carrying value of goodwill by segment for the nine
months ended September 30, 2002 are as follows:

|                                                      |  |           |         |          |  |           |       |          |  |               |        |       |  |       |        |   |  |   |      |     |  |   |        |   |  |   |          |  
|----------------------------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | ------------- | ------ | ----- |  | ----- | ------ | - |  | - | ---- | --- |  | - | ------ | - |  | - | -------- | -
|                                                      |  | Local     |         |          |  |           |       |          |  |               |        |       |  |       |        |   |  |   |      | All |  |   |        |  
|                                                      |  | Telephone |         | Cellular |  | Directory |       | Internet |  | Interexchange |        | Other |  | Total
|                                                      |  |           |         |          |  |           |       |          |  |               |        |       |  |      
|Balance, December 31, 2001                            |  | $         | 191,351 |          |  | $         | 8,851 |          |  | $             | 38,831 |       |  | $     | 8,146  |   |  | $ | 151  |     |  | $ | 3,165  |   |  | $ | 250,495  |  
|Impairment losses included in
discontinued operations |  |           |        |          |  |           |      |          |  |               |       |       |  |       |       |   |  |   |     |     |  |   | (3,165 | ) |  |   | (3,165   | )
|Impairment losses                                     |  |           | (97,053 | )        |  |           |      |          |  |               |       |       |  |       | (8,146 | ) |  |   | (151 | )   |  |   |       |   |  |   | (105,350 | )
|                                                      |  |           |         |          |  |           |       |          |  |               |        |       |  |       |        |   |  |   |      |     |  |   |        |   |  |   |          |  
|Balance, September 30, 2002                           |  | $         | 94,298  |          |  | $         | 8,851 |          |  | $             | 38,831 |       |  | $     |       |   |  | $ |     |     |  | $ |       |   |  | $ | 141,980  |  
|                                                      |  |           |         |          |  |           |       |          |  |               |        |       |  |       |        |   |  |   |      |     |  |   |        |   |  |   |          |  

Provided below is a reconciliation of previously reported financial
statement information to pro forma amounts that reflect the elimination of
goodwill and indefinite-lived intangible amortization for the comparable nine
months ended September 30, 2001 prior to adoption of SFAS No. 142:

|                                                    |  |                   |          |      |  |   |        |  
|--------------------------------------------------- |  | ----------------- | -------- | ---- |  | - | ------ | -
|                                                    |  | Nine Months Ended
|                                                    |  | September 30,    
|                                                    |  |                  
|                                                    |  | 2002              |          | 2001
|                                                    |  |                   |          |     
|Reported net loss                                   |  | $                 | (114,085 | )    |  | $ | (7,132 | )
|Add back:                                           |  |                   |          |      |  |   |        |  
|Goodwill amortization                               |  |                   |         |      |  |   | 5,803  |  
|Indefinite-lived intangible amortization            |  |                   |         |      |  |   | 396    |  
|Cumulative effect of change in accounting principle |  |                   | 105,350  |      |  |   |       |  
|                                                    |  |                   |          |      |  |   |        |  
|Adjusted net loss                                   |  | $                 | (8,735   | )    |  | $ | (933   | )
|                                                    |  |                   |          |      |  |   |        |  

The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset as of September 30, 2002
based on the Companys reassessment of previously recognized intangible assets
and their remaining amortization lives in accordance with the adoption of SFAS
No. 142:

|                                         |  |          |        |              |  |             |        |   |  |  |   | 
|---------------------------------------- |  | -------- | ------ | ------------ |  | ----------- | ------ | - |  |  | - | 
|                                         |  | Gross    |        |              |  |             |        |   |  | 
|                                         |  | Carrying |        | Accumulated  |  | Amortizable
|                                         |  | Amount   |        | Amortization |  | Life       
|                                         |  |          |        |              |  |            
|Amortizable intangible assets:           |  |          |        |              |  |             |        |   |  |  |   | 
|Customer list                            |  | $        | 915    |              |  | $           | (229   | ) |  |  | 5 | 
|Other intangible assets                  |  |          | 2,625  |              |  |             | (1,462 | ) |  |  | 5 | 
|                                         |  |          |        |              |  |             |        |   |  |  |   | 
|Total amortizable intangible assets      |  | $        | 3,540  |              |  | $           | (1,691 | ) |  |  |   | 
|                                         |  |          |        |              |  |             |        |   |  |  |   | 
|Indefinite-lived intangible assets:      |  |          |        |              |  |             |        |   |  |  |   | 
|Cellular licenses                        |  | $        | 18,194 |              |  |             |        |   |  |  |   | 
|PCS licenses                             |  |          | 3,023  |              |  |             |        |   |  |  |   | 
|Domain names and trade names             |  |          | 80     |              |  |             |        |   |  |  |   | 
|                                         |  |          |        |              |  |             |        |   |  |  |   | 
|Total indefinite-lived intangible assets |  | $        | 21,297 |              |  |             |        |   |  |  |   | 
|                                         |  |          |        |              |  |             |        |   |  |  |   | 

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



|3. |  | GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
|-- |  | ------------------------------------------------

The total intangible amortization expense for the nine months ended
September 30, 2002 and 2001 was $516 and $904, respectively. The estimated
amortization expense for each of the next five years ending December 31 is as
follows:

|     |  |   |     | 
|---- |  | - | --- | 
|2002 |  | $ | 708 | 
|2003 |  | $ | 708 | 
|2004 |  | $ | 690 | 
|2005 |  | $ | 183 | 
|2006 |  | $ | 92  | 



|4. |  | 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 as of March 30, 2002 to their fair value,
net of expected selling expense. The following discloses the results of the
discontinued operations for the nine months ended September 30, 2002 and 2001:

|                                             |  |                   |        |      |  |   |        |  
|-------------------------------------------- |  | ----------------- | ------ | ---- |  | - | ------ | -
|                                             |  | Nine Months Ended
|                                             |  | September 30,    
|                                             |  |                  
|                                             |  | 2002              |        | 2001
|                                             |  |                   |        |     
|Operating revenue                            |  | $                 | 594    |      |  | $ | 733    |  
|Operating expense                            |  |                   | 1,025  |      |  |   | 1,967  |  
|                                             |  |                   |        |      |  |   |        |  
|Operating loss                               |  |                   | (431   | )    |  |   | (1,234 | )
|Interest expense                             |  |                   | (32    | )    |  |   | (93    | )
|                                             |  |                   |        |      |  |   |        |  
|Loss from operations of discontinued segment |  |                   | (463   | )    |  |   | (1,327 | )
|Write down of net assets to fair value       |  |                   | (7,060 | )    |  |   |       |  
|                                             |  |                   |        |      |  |   |        |  
|Loss from discontinued operations            |  | $                 | (7,523 | )    |  | $ | (1,327 | )
|                                             |  |                   |        |      |  |   |        |  

Assets held for sale at September 30, 2002 consist of the following:

|                                             |  |   |      |  
|-------------------------------------------- |  | - | ---- | -
|Accounts receivable, net of allowance of $38 |  | $ | 52   |  
|Other current assets                         |  |   | 10   |  
|Property, plant and equipment                |  |   | 211  |  
|Intangible assets                            |  |   | 100  |  
|Current liabilities                          |  |   | (102 | )
|                                             |  |   |      |  
|Assets held for sale                         |  | $ | 271  |  
|                                             |  |   |      |  

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



|5. |  | 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 September 30, 2002, ACS Group has reserved a total
of 6,060 shares of authorized common stock for issuance under the various
plans. The plans terminate in approximately 10 years from the date of adoption
and allow forfeited options to be reissued. Unless otherwise determined by the
Compensation Committee, options will vest ratably on each of the first four
anniversaries after the grant date 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. On April 3, 2002, ACS Group
merged the ALEC Holdings, Inc. 1999 Stock Incentive Plan into the Alaska
Communications Systems Group, Inc. 1999 Stock Incentive Plan.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

ACS Group has reserved 4,910 shares under this plan, which was adopted in
November 1999 in connection with its initial public offering. At September 30,
2002, 5,712 options have been granted, 1,618 have been forfeited, 441 have been
exercised, and 816 shares are available for grant under the plan.

On February 11, 2002, the Parents Board of Directors approved the grant
of options to purchase 150 shares under the plan to an employee at an exercise
price equal to the fair market value of the common stock on the date of grant,
vesting over four years ratably.

On February 20, 2002, the Parents Board of Directors approved the grant
of options to purchase 80 shares under the plan to employees at an exercise
price equal to the fair market value of the common stock on the date of grant,
vesting over three years ratably.

On March 19, 2002, the Parents Board of Directors approved the grant of
options to purchase 22 shares under the plan to employees at an exercise price
equal to the fair market value of the common stock on the date of grant,
vesting over three years ratably.

On May 8, 2002, the Parents Board of Directors approved the grant of
options to purchase 25 shares under the plan to an employee at an exercise
price equal to the fair market value of the common stock on the date of grant,
vesting over four years.

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

ACS Group adopted its non-employee director stock compensation plan in
November 1999 in connection with its initial public offering. ACS Group has
reserved 150 shares under this plan. At September 30, 2002, 68 shares have been
awarded and 82 shares are available for grant under the plan. Directors are
required to receive not less than 25% of their annual retainer and meeting fees
in the form of ACS Groups stock, and may elect to receive up to 100% of
directors compensation in the form of stock.

On March 29, 2002, seven shares under the plan were awarded to ACS Groups
directors, of which five were elected to be deferred until termination of
service by the directors.

On June 28, 2002, 10 shares under the plan were awarded to ACS Groups
directors, of which seven were elected to be deferred until termination of
service by the directors.

On September 28, 2002, 24 shares under the plan were awarded to ACS
Groups directors, of which 17 were elected to be deferred until termination of
service by the directors.

11



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



|5. |  | STOCK INCENTIVE PLANS (Continued)
|-- |  | ---------------------------------

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

This plan was also adopted in connection with ACS Groups initial public
offering in November 1999. At September 30, 2002, 270 shares have been issued
under the plan and 730 shares are available for issuance and sale. The plan
will terminate on December 31, 2009. All ACS Group employees and all of the
employees of designated subsidiaries generally will be eligible to participate
in the purchase plan, other than employees whose customary employment is 20
hours or less per week or is for not more than five months in a calendar year,
or who are ineligible to participate due to restrictions under the Internal
Revenue Code.

On June 28, 2002, 53 shares were issued under the plan.



|6. |  | BUSINESS SEGMENTS
|-- |  | -----------------

The Company has five reportable segments: local telephone, cellular,
directory, Internet and interexchange. Local telephone provides landline
telecommunications services, and consists of local telephone service, network
access and deregulated and other revenue; cellular provides wireless
telecommunications service; directory provides yellow page advertising and
other related products; 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 also has a wireless cable television service
segment that did not meet the criteria for a reportable segment and was
previously included in All Other that is now reported as discontinued
operations.

The Company also incurs interest expense, interest income, equity in
earnings of investments, goodwill amortization in 2001 on the original May 14,
1999 purchases, and other operating and non operating income and expense at the
corporate level which are not allocated to the business segments, nor are they
evaluated by the chief operating decision maker in analyzing the performance of
the business segments. These non operating income and expense items are
provided in the accompanying table under the caption All Other in order to
assist the users of these financial statements in reconciling the operating
results and total assets of the business segments to the consolidated financial
statements. Common use assets are held at the Company and are allocated to the
business segments based on operating revenue. Included in the caption All
Other are also the net assets held for sale of $271 and other net liabilities
of the discontinued operation that would not be sold of $5,865. 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 nine months ended September 30, 2002:

|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |         |       |  |   |        |     |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | ----- |  | ------------ | ------- | ----- |  | - | ------ | --- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |           |         |          |  |               |        |       |  |              |         |       |  |   |        | All |  |   |         |   |  |   |         |  
|                                         |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | Other |  | Eliminations |         | Total
|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |         |      
|Operating revenue                        |  | $         | 172,128 |          |  | $         | 32,455  |          |  | $             | 25,382 |       |  | $            | 14,815  |       |  | $ | 22,361 |     |  | $ | 18,714  |   |  | $ | (26,610 | ) |  | $ | 259,245 |  
|Depreciation and amortization            |  |           | 41,401  |          |  |           | 4,134   |          |  |               | 28     |       |  |              | 4,773   |       |  |   | 1,700  |     |  |   | 9,654   |   |  |   |        |   |  |   | 61,690  |  
|Operating income (loss)                  |  |           | 24,071  |          |  |           | 3,553   |          |  |               | 14,975 |       |  |              | (15,286 | )     |  |   | (599   | )   |  |   | 6,969   |   |  |   | (59     | ) |  |   | 33,624  |  
|Interest expense                         |  |           | 627     |          |  |           | (3      | )        |  |               |       |       |  |              | (95     | )     |  |   | (226   | )   |  |   | (36,765 | ) |  |   |        |   |  |   | (36,462 | )
|Interest income                          |  |           | 2       |          |  |           | 3       |          |  |               |       |       |  |              |        |       |  |   | 2      |     |  |   | 1,734   |   |  |   |        |   |  |   | 1,741   |  
|Income tax provision (benefit)           |  |           | 10,010  |          |  |           | 1,452   |          |  |               | 6,145  |       |  |              |        |       |  |   |       |     |  |   | (17,607 | ) |  |   |        |   |  |   |        |  
|Income (loss) from
continuing operations |  |           | 14,690  |          |  |           | 2,100   |          |  |               | 8,830  |       |  |              | (15,381 | )     |  |   | (823   | )   |  |   | (10,569 | ) |  |   | (59     | ) |  |   | (1,212  | )
|Total assets                             |  |           | 607,288 |          |  |           | 102,957 |          |  |               | 45,650 |       |  |              | (14,520 | )     |  |   | 19,354 |     |  |   | 12,727  |   |  |   |        |   |  |   | 773,456 |  
|Capital expenditures                     |  |           | 20,937  |          |  |           | 8,554   |          |  |               | 512    |       |  |              | 15,583  |       |  |   |       |     |  |   | 6,973   |   |  |   |        |   |  |   | 52,559  |  

12



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



|6. |  | BUSINESS SEGMENTS (Continued)
|-- |  | -----------------------------

Operating revenue disclosed above includes intersegment operating revenue
of $16,586 for local telephone, $1,350 for cellular, $1,092 for directory and
$10,623 for interexchange. 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 nine months ended September 30, 2001:

|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |        |       |  |   |        |     |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | ----- |  | ------------ | ------ | ----- |  | - | ------ | --- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |           |         |          |  |               |        |       |  |              |        |       |  |   |        | All |  |   |         |   |  |   |         |  
|                                         |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | Other |  | Eliminations |        | Total
|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |        |      
|Operating revenue                        |  | $         | 163,018 |          |  | $         | 31,824  |          |  | $             | 24,857 |       |  | $            | 9,900  |       |  | $ | 23,718 |     |  | $ | 12,604  |   |  | $ | (19,789 | ) |  | $ | 246,132 |  
|Depreciation and amortization            |  |           | 39,613  |          |  |           | 4,373   |          |  |               | 1      |       |  |              | 1,709  |       |  |   | 1,711  |     |  |   | 11,347  |   |  |   |        |   |  |   | 58,754  |  
|Operating income (loss)                  |  |           | 24,567  |          |  |           | 4,504   |          |  |               | 14,349 |       |  |              | (7,018 | )     |  |   | (1,586 | )   |  |   | 298     |   |  |   |        |   |  |   | 35,114  |  
|Interest expense                         |  |           | (1,291  | )        |  |           | (34     | )        |  |               |       |       |  |              | (77    | )     |  |   | (227   | )   |  |   | (42,281 | ) |  |   |        |   |  |   | (43,910 | )
|Interest income                          |  |           | 4       |          |  |           | 14      |          |  |               |       |       |  |              |       |       |  |   |       |     |  |   | 2,845   |   |  |   |        |   |  |   | 2,863   |  
|Income tax provision (benefit)           |  |           | 9,470   |          |  |           | 1,917   |          |  |               | 5,900  |       |  |              |       |       |  |   |       |     |  |   | (17,434 | ) |  |   |        |   |  |   | (147    | )
|Income (loss) from
continuing operations |  |           | 13,822  |          |  |           | 2,626   |          |  |               | 8,449  |       |  |              | (7,078 | )     |  |   | (1,810 | )   |  |   | (21,814 | ) |  |   |        |   |  |   | (5,805  | )
|Total assets                             |  |           | 673,745 |          |  |           | 115,266 |          |  |               | 47,623 |       |  |              | 8,928  |       |  |   | 36,181 |     |  |   | 23,942  |   |  |   |        |   |  |   | 905,685 |  
|Capital expenditures                     |  |           | 30,962  |          |  |           | 5,953   |          |  |               | 21     |       |  |              | 16,971 |       |  |   | 19,504 |     |  |   | 1,148   |   |  |   |        |   |  |   | 74,559  |  

Operating revenue disclosed above include intersegment operating revenue
of $15,981 for local telephone, $1,018 for cellular, $950 for directory and
$10,609 for interexchange. 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 September 30, 2002:

|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |         |       |  |   |        |     |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | ----- |  | ------------ | ------- | ----- |  | - | ------ | --- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |           |         |          |  |               |        |       |  |              |         |       |  |   |        | All |  |   |         |   |  |   |         |  
|                                         |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | Other |  | Eliminations |         | Total
|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |         |      
|Operating revenue                        |  | $         | 52,815  |          |  | $         | 11,919  |          |  | $             | 8,360  |       |  | $            | 6,422   |       |  | $ | 7,723  |     |  | $ | 8,818   |   |  | $ | (11,727 | ) |  | $ | 84,330  |  
|Depreciation and amortization            |  |           | 13,926  |          |  |           | 1,379   |          |  |               | 26     |       |  |              | 1,799   |       |  |   | 562    |     |  |   | 4,766   |   |  |   |        |   |  |   | 22,458  |  
|Operating income (loss)                  |  |           | 1,126   |          |  |           | 1,627   |          |  |               | 4,919  |       |  |              | (5,354  | )     |  |   | (33    | )   |  |   | 3,646   |   |  |   | (22     | ) |  |   | 5,909   |  
|Interest expense                         |  |           | (182    | )        |  |           | (1      | )        |  |               |       |       |  |              | (40     | )     |  |   | (75    | )   |  |   | (12,446 | ) |  |   |        |   |  |   | (12,744 | )
|Interest income                          |  |           | 1       |          |  |           | 2       |          |  |               |       |       |  |              |        |       |  |   | 2      |     |  |   | 565     |   |  |   |        |   |  |   | 570     |  
|Income tax provision (benefit)           |  |           | 439     |          |  |           | 656     |          |  |               | 2,011  |       |  |              |        |       |  |   |       |     |  |   | (3,106  | ) |  |   |        |   |  |   |        |  
|Income (loss) from
continuing operations |  |           | 506     |          |  |           | 967     |          |  |               | 2,908  |       |  |              | (5,394  | )     |  |   | (106   | )   |  |   | (5,116  | ) |  |   | (22     | ) |  |   | (6,257  | )
|Total assets                             |  |           | 592,926 |          |  |           | 105,852 |          |  |               | 45,166 |       |  |              | (10,394 | )     |  |   | 19,951 |     |  |   | 19,955  |   |  |   |        |   |  |   | 773,456 |  
|Capital expenditures                     |  |           | 7,642   |          |  |           | 3,443   |          |  |               | 76     |       |  |              | 5,484   |       |  |   |       |     |  |   | 1,360   |   |  |   |        |   |  |   | 18,005  |  

Operating revenue disclosed above includes intersegment operating revenue
of $5,263 for local telephone, $468 for cellular, $390 for directory and $3,814
for interexchange. 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 September 30, 2001:

|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |        |       |  |   |        |     |  |   |         |   |  |   |        |   |  |   |         |  
|---------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | ----- |  | ------------ | ------ | ----- |  | - | ------ | --- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                         |  | Local     |         |          |  |           |         |          |  |               |        |       |  |              |        |       |  |   |        | All |  |   |         |   |  |   |        |  
|                                         |  | Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | Other |  | Eliminations |        | Total
|                                         |  |           |         |          |  |           |         |          |  |               |        |       |  |              |        |      
|Operating revenue                        |  | $         | 53,860  |          |  | $         | 11,446  |          |  | $             | 8,705  |       |  | $            | 3,586  |       |  | $ | 8,062  |     |  | $ | 4,366   |   |  | $ | (7,044 | ) |  | $ | 82,981  |  
|Depreciation and amortization            |  |           | 13,384  |          |  |           | 1,530   |          |  |               | 1      |       |  |              | 463    |       |  |   | 567    |     |  |   | 3,845   |   |  |   |       |   |  |   | 19,790  |  
|Operating income (loss)                  |  |           | 7,508   |          |  |           | 1,826   |          |  |               | 5,087  |       |  |              | (2,654 | )     |  |   | 617    |     |  |   | 324     |   |  |   |       |   |  |   | 12,708  |  
|Interest expense                         |  |           | (406    | )        |  |           | (31     | )        |  |               |       |       |  |              | (1     | )     |  |   | (75    | )   |  |   | (13,487 | ) |  |   |       |   |  |   | (14,000 | )
|Interest income                          |  |           | 1       |          |  |           | 2       |          |  |               |       |       |  |              |       |       |  |   |       |     |  |   | 1,100   |   |  |   |       |   |  |   | 1,103   |  
|Income tax provision (benefit)           |  |           | 2,821   |          |  |           | 763     |          |  |               | 2,268  |       |  |              |       |       |  |   |       |     |  |   | (5,900  | ) |  |   |       |   |  |   | (48     | )
|Income (loss) from
continuing operations |  |           | 4,319   |          |  |           | 1,008   |          |  |               | 2,819  |       |  |              | (2,652 | )     |  |   | 546    |     |  |   | (6,265  | ) |  |   |       |   |  |   | (225    | )
|Total assets                             |  |           | 667,822 |          |  |           | 118,264 |          |  |               | 48,916 |       |  |              | 9,974  |       |  |   | 36,326 |     |  |   | 24,383  |   |  |   |       |   |  |   | 905,685 |  
|Capital expenditures                     |  |           | 9,417   |          |  |           | 5,507   |          |  |               | 21     |       |  |              | 3,447  |       |  |   |       |     |  |   |        |   |  |   |       |   |  |   | 18,392  |  

13



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##### Table of Contents



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



|6. |  | BUSINESS SEGMENTS (Continued)
|-- |  | -----------------------------

Operating revenue disclosed above include intersegment operating revenue
of $5,482 for local telephone, $413 for cellular, $450 for directory and $3,841
for interexchange. In accordance with SFAS No. 71, intercompany revenue between
local telephone and all other segments is not eliminated above.



|7. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

On April 17, 2001, the Company issued an interest bearing note receivable
to an officer totaling $328. The note bears interest at the Mid-Term Applicable
Federal Rate, which was 3.69% as of September 30, 2002, and is due on April 15,
2005. The note is secured by a pledge of 100 shares of ACS Groups stock held
in the officers name. In accordance with an addendum to the officers
employment agreement dated May 3, 2001, the loan will be forgiven ratably over
a three year period ending April 16, 2004. Accordingly, $114 was forgiven on
April 16, 2002 and recognized as compensation expense. The note balance,
including accrued interest, was $233 as of September 30, 2002.

Fox Paine & Company, the majority stockholder of the Parent, 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 nine
months ended September 30, 2002 and 2001 was $986 and $939, respectively.



|8. |  | SEVERANCE AND RESTRUCTURING CHARGES
|-- |  | -----------------------------------

In connection with the completion of the 2000 restructuring plans in the
second quarter of 2002, the Company adopted another restructuring plan in June
2002. Employee force reductions which will result in a severance payout under
this restructuring plan, are expected to total approximately 30 and are
expected to be completed by December 31, 2002. The Company recorded $523
related to severance charges under this plan. The Company also recorded $339
in lease termination costs of office space in Anchorage, Alaska. As of
September 30, 2002, 11 terminated employees have been eligible for severance
and the Company has paid out $128 accrued under this plan.



|9. |  | 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 which the Company believes will range between $25,000 and
$30,000 over the term of the agreement, including $15,000 to $20,000 during
2002, of which approximately $10,300 has been expended through September 30,
2002. The Company intends to fund this commitment with cash on hand and cash
flows from operations.

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##### Table of Contents



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



|9. |  | COMMITMENTS AND CONTINGENCIES
|-- |  | -----------------------------

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 bears interest at the applicable federal rate, which was 5.61% at the
date of issuance, and matures on July 15, 2022. Interest is payable
semiannually, but Neptune may elect to add the interest to the principal in
lieu of cash payments. The commitment was funded with cash on hand.
In connection with this note, Neptune has granted the Company an
option to purchase certain network assets of Neptune, no later than
January 2, 2006 at a price equal to the then outstanding loan
balance. The Company has also entered into a strategic agreement with
Neptune for the life of the fiber optic cable system owned by
Neptune. The significant provisions of this agreement are:
i) purchase commitments by the Company for capacity in 2005 and
2007, the final price and quantity of which are subject to future
events, ii) Neptunes restoration of the Companys
traffic carried on another cable system, iii) and specific
interconnection arrangements between the Company and Neptune, should
the Company exercise its option to purchase certain network assets
from Neptune.

15



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##### Table of Contents






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 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 the Company 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 the Company 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 the Company.

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 fourteenth 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 cellular
and Internet services providing statewide coverage. The Company has unified its
statewide branding under the ACS name.

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##### Table of Contents



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



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

|
|
|
|
|
|
|
|
|
|
|
|
|
|

| |  |  | cellular services;                           
| | - |  | ---------------------------------------------
|
| |  |  | directory advertising;                       
|
| |  |  | Internet services; and                       
|
| |  |  | interexchange network long-distance services.

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. Increasing levels of
competition, regulatory decisions to open high cost areas to new entrants,
portability of high cost support payments, and interconnection rates
established by the Regulatory Commission of Alaska (RCA) that are below the
companies cost to provide certain services have eroded the stability of revenue
and cash flow. 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 revenue is generated by providing interexchange carriers access to
the LECs local network and its customers. Universal service revenue is a
subsidy paid to rural LECs to support the high cost of providing service in
rural markets. Revenue is also generated from ancillary and enhanced services,
such as call waiting.

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



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

LECs have three basic tiers of customers:



| |  |  business and residential end user customers located
in their local service areas that pay for local phone service,                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  interexchange carriers that pay for access to long
distance calling customers located within its local service
areas and                                                                                      
|
| |  |  CLECs 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.

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##### Table of Contents



The Companys service rates for end users, CLECs and interexchange
carriers are authorized by the RCA. Authorized rates are set by the Federal
Communications Commission (FCC) and the RCA for interstate and intrastate
access charges, respectively, and may change from time to time.

Cellular- The Company is the largest and only statewide provider of
cellular services in Alaska, currently serving approximately 82,000
subscribers. Its cellular network covers over 470,000 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.

Directory- The Company is the largest provider of published directory
advertising in Alaska. The Company serves approximately 12,000 advertisers
through eight regional directories tailored to serve the needs of each of its
local exchange markets. The Company also provides an online directory product
and other specialized advertising vehicles to its customers.

Internet- The Company is the second largest provider of Internet access
services in Alaska with approximately 47,000 customers. The Company offers
dial-up and dedicated digital subscriber line, (DSL) Internet access to its
customers. The Company is also the only single source provider of advanced IP
based private networks in Alaska.

Interexchange-The Company provides switched and dedicated long distance
services to approximately 67,000 customers in Alaska. The traffic from these
customers are carried over the Companys owned or leased facilities.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001

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

Operating Revenue

Operating revenue increased $1.3 million, or 1.6%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001.
Cellular and Internet revenue increased compared to the corresponding period of
2001, while local telephone, directory advertising and interexchange revenue
decreased compared to the corresponding period of 2001.

Local Telephone

Local telephone revenue, which consist of local network service, network
access revenue and deregulated and other revenue, decreased $1.0 million, or
1.9%, for the three months ended September 30, 2002 compared to the same period
in 2001. The following table summarizes the Companys consolidated local
telephone revenue by category.

|                              |                       |   |                    |        |      |   |        |        | 
|----------------------------- | --------------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | 
|                              |                       |   | Three Months Ended
|                              |                       |   | September 30,     
|                              |                       |   |                   
|                              |                       |   | 2002               |        | 2001
|                              |                       |   |                    |        |     
|                              |                       |   | (In Thousands)    
|Local telephone revenue:      |                       |   |                    |        |      |   |        |       
|                              | Local network         |   | $                  | 24,186 |      |   | $      | 24,388 | 
|                              | Network access        |   |                    | 23,862 |      |   |        | 24,993 | 
|                              | Deregulated and other |   |                    | 4,767  |      |   |        | 4,479  | 
|                              |                       |   |                    |        |      |   |        |       
|Total local telephone revenue |                       | $ | 52,815             |        |      | $ | 53,860 |       
|                              |                       |   |                    |        |      |   |        |       

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##### Table of Contents



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

|                                   |  |                     |         |      |  |  |         | 
|---------------------------------- |  | ------------------- | ------- | ---- |  |  | ------- | 
|                                   |  | As of September 30,
|                                   |  |                    
|                                   |  | 2002                |         | 2001
|                                   |  |                     |         |     
|Retail                             |  |                     | 241,583 |      |  |  | 266,040 | 
|Wholesale                          |  |                     | 25,074  |      |  |  | 20,858  | 
|Unbundled network elements         |  |                     | 60,504  |      |  |  | 46,268  | 
|                                   |  |                     |         |      |  |  |         | 
|Total local telephone access lines |  |                     | 327,161 |      |  |  | 333,166 | 
|                                   |  |                     |         |      |  |  |         | 

The local network service component of local telephone revenue was $24.2
million for the three months ended September 30, 2002 compared with $24.4
million for the three months ended September 30, 2001. Revenue decreased $0.2
million or 0.8% from the prior year. This decrease reflects the impact of
competition exacerbated by below cost UNE rates, offset by approximately $1.0
million of rate increases for both retail and UNE local service rates
implemented during the fourth quarter of 2001 at ACSA, as discussed below, and
approximately $0.6 million in additional feature and service order revenue
compared to the prior year.

The Company believes it is earning less than its required rate of return
for local network service in several of its markets and filed local service
rate cases for all of its LEC businesses with the RCA on July 2, 2001 aimed at
making up this deficiency. Subsequently, in October 2001, the Company filed for
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 is expected to generate approximately $4.0 to $5.0 million
in annual revenue. The Company expects the RCA to hold hearings during 2002 and
2003 and to adjudicate final local service rates during 2003.

The Company continued to experience loss of retail market share for local
network service in its Anchorage, Fairbanks and Juneau service areas during the
quarter. 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 second quarter of 2001, the Company reopened
interconnection proceedings for its Anchorage market and 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 is expected
to generate approximately $0.6 million to $0.7 million in annual revenue. The
Company expects the RCA to hold hearings during 2002 and 2003 and adjudicate
final Anchorage UNE rates during 2003.

Network access revenue decreased by $1.1 million, or 4.5%, from $25.0
million in 2001 to $23.9 million in 2002. Network access revenue is based on a
regulated return on rate base and recovery of allowable expense associated with
the origination and termination of toll calls for the Companys retail and
resale customers. The decrease in network access revenue compared to the
corresponding period in 2001 is due primarily to a shift from retail and
wholesale lines to UNEs. Management expects that network access revenue will
decline as a component of local telephone revenue for the foreseeable future.

Deregulated and other revenue, which increased slightly to $4.8 million
compared to $4.5 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.

Cellular

Cellular revenue increased $0.5 million, or 4.1%, to $11.9 million for the
three months ended September 30, 2002 compared to $11.4 million for the three
months ended September 30, 2001. This increase was due to a growth in average
subscribers of 3.4% from 78,666 in 2001 to 81,334 in 2002. The average revenue
per unit, or ARPU, increased to $48.78 in 2002 compared to $48.46 during 2001.

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Directory

Directory revenue decreased slightly to $8.4 million in 2002 from $8.7
million in 2001, but the directory business continued its solid profitable
performance. Management expects the growth in directory revenue to slow due to
the recent economic uncertainty and its impacts on the advertising and
publishing marketplace and as other advertising media, such as the Internet,
compete for this business.

Internet

Internet revenue increased from $3.6 million in 2001 to $6.4 million in
2002  an increase of $2.8 million, or 79.2%. This increase is primarily due
to revenue associated with the Companys contract with the State of Alaska and
growth in DSL subscribers of 87.7% from 5,884 in 2001 to 11,045 in 2002.

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 and continued to increase in the third quarter of 2002. The Company
anticipates that revenue for this segment will increase in future periods as
additional services are added under the contract. The Company anticipates
substantial capital investments will be made over the first two years of the
contract to support the telecommunications needs of this customer, including
$15 to $20 million during 2002, of which it has expended approximately $10.3
million through September 30, 2002.

Interexchange

Interexchange revenue decreased from $5.4 million in 2001 to $4.8 million
in 2002  a decrease of $0.6 million, or 10.5%. Long distance subscribers were
essentially flat at 67,230 while total minutes of use declined from 49.4
million in 2001 to 38.7 million in 2002.

Operating Expense

Operating expense increased $8.1 million, or 11.6%, from $70.3 million for
the three months ended September 30, 2001 to $78.4 million for the three months
ended September 30, 2002.

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. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expense decreased to $28.7
million for the three months ended September 30, 2002 from $29.3 million for
the three months ended September 30, 2001. The decrease in local telephone
expense was substantially attributable to actions the Company took under a
restructuring program adopted during the second quarter of 2002.

Cellular

Cellular expense increased $0.8 million, or 12.1%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001.
This increase is due substantially to an increase in minutes of use from 45.3
million minutes in 2001 to 55.5 million minutes in 2002.

Directory

Directory expense decreased $0.2 million from $3.6 million in 2001 to $3.4
million in 2002 as cost of sales declined proportionate to the decline in
directory revenue.

Internet

Internet expense increased by $3.6 million, or 78.0%, from $4.6 million in
2001 to $8.2 million in 2002. The increase in Internet expense was due
principally to start-up expenses associated with

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commencing services under the State of Alaska telecommunications contract. 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 or supported by a service center
owned and operated by ACSI. The Company anticipates expense for this segment
will increase as it provides additional services to the State of Alaska.

Interexchange

Interexchange expense increased by $0.1 million, or 1.8%.

Depreciation and Amortization

Depreciation and amortization expense increased $2.7 million, or 13.5%,
due principally to increases in plant in service for the three months ended
September 30, 2002 and the adoption of shorter depreciable lives for certain
classes of assets compared to the corresponding period of 2001, offset by
ceasing goodwill amortization with the adoption of SFAS No. 142, Goodwill and
Intangible Assetson January 1, 2002. Depreciation and amortization expense in
2001 included $1.9 million of goodwill amortization. Under SFAS No. 142,
goodwill is no longer amortized but is instead subjected to an annual
impairment test.

Loss on disposal of assets

The Company recorded a non-cash loss on disposal of assets of $1.8 million
during the quarter ended September 30, 2002 as a result of retiring certain
assets no longer in use.

Interest Expense and Interest Income and Other

Interest expense decreased $1.3 million, or 9.0%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001
as a result of market interest rate effects on the Companys variable interest
rate debt. Interest income and other also declined by $0.4 million, or 43.3%,
as a result of a lower average invested cash balance and lower market interest
rates during 2002 compared to 2001.

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 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 as of March 30, 2002
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
$0.1 million and $0.5 million for the three months ended September 30, 2002 and
2001, respectively. The Company has fully reserved in the form of a valuation
allowance the income tax benefit resulting from this discontinuance incurred
during 2002.

Net loss

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

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Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001

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

Operating Revenue

Operating revenue increased $13.1 million, or 5.3%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.
Local telephone, cellular, directory advertising and Internet all increased
compared to the corresponding period of 2001, while interexchange revenue
decreased compared to the corresponding period of 2001.

Local Telephone

Local telephone revenue, which consists of local network service, network
access revenue and deregulated and other revenue, increased $9.1 million, or
5.6%, for the nine months ended September 30, 2002 compared to the same period
in 2001. The following table summarizes the Companys consolidated local
telephone revenue by category.

|                              |                       |   |                   |        |      |   |         |        | 
|----------------------------- | --------------------- | - | ----------------- | ------ | ---- | - | ------- | ------ | 
|                              |                       |   | Nine Months Ended
|                              |                       |   | September 30,    
|                              |                       |   |                  
|                              |                       |   | 2002              |        | 2001
|                              |                       |   |                   |        |     
|                              |                       |   | (In Thousands)   
|Local telephone revenue:      |                       |   |                   |        |      |   |         |       
|                              | Local network         |   | $                 | 74,870 |      |   | $       | 70,530 | 
|                              | Network access        |   |                   | 83,827 |      |   |         | 76,258 | 
|                              | Deregulated and other |   |                   | 13,431 |      |   |         | 16,230 | 
|                              |                       |   |                   |        |      |   |         |       
|Total local telephone revenue |                       | $ | 172,128           |        |      | $ | 163,018 |       
|                              |                       |   |                   |        |      |   |         |       

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

|                                   |  |                     |         |      |  |  |         | 
|---------------------------------- |  | ------------------- | ------- | ---- |  |  | ------- | 
|                                   |  | As of September 30,
|                                   |  |                    
|                                   |  | 2002                |         | 2001
|                                   |  |                     |         |     
|Retail                             |  |                     | 241,583 |      |  |  | 266,040 | 
|Wholesale                          |  |                     | 25,074  |      |  |  | 20,858  | 
|Unbundled network elements         |  |                     | 60,504  |      |  |  | 46,268  | 
|                                   |  |                     |         |      |  |  |         | 
|Total local telephone access lines |  |                     | 327,161 |      |  |  | 333,166 | 
|                                   |  |                     |         |      |  |  |         | 

The local network service component of local telephone revenue was $74.9
million for the nine months ended September 30, 2002 compared with $70.5
million for the nine months ended September 30, 2001. Revenue increased $4.3
million or 6.2% from the prior year. This increase was due in part to rate
increases for both retail and UNE local service rates implemented during the
fourth quarter of 2001 at ACSA, as discussed below. The Company also
experienced increased cellular local access revenue, directory assistance and
service order revenue compared to the prior year, which together accounted for
approximately $1.5 million of the increase. Additionally, the Company has
improved its collection practices over those in place during the first quarter
of 2001, thereby reducing its recorded bad debt expense by $1.3 million. These
increases were offset by a decrease in retail lines due to the impact of
competition compounded by below cost UNE rates.

The Company believes it is earning less than its required rate of return
for local network service in several of its markets and filed local service
rate cases for all of its LEC businesses with the RCA on July 2, 2001 aimed at
making up this deficiency. Subsequently, in October 2001, the Company filed for
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

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November 2001 and is expected to generate approximately $4.0 to $5.0
million in annual revenue. The Company expects the RCA to hold hearings during
2002 and 2003 and to adjudicate final local service rates during 2003.

The Company continued to experience loss of retail market share for local
network service in its Anchorage, Fairbanks and Juneau service areas during the
period. 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 second quarter of 2001, the Company reopened
interconnection proceedings for its Anchorage market and 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 is expected
to generate approximately $0.6 million to $0.7 million in annual revenue. The
Company expects the RCA to hold hearings during 2002 and 2003 and adjudicate
final Anchorage UNE rates during 2003.

Network access revenue increased by $7.6 million, or 9.9%, from $76.3
million in 2001 to $83.8 million in 2002. Network access revenue is based on a
regulated return on rate base and recovery of allowable expense associated with
the origination and termination of toll calls for the Companys retail and
resale customers. During the second quarter of 2002, the Company recognized as
revenue $11.1 million of previously deferred interstate access revenue 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. After
consideration of the revenue recognized as a result of the favorable ruling by
the court, the decrease in network access revenue compared to the corresponding
period in 2001 is due primarily to a shift from retail and wholesale lines to
UNEs. Management expects that network access revenue will decline as a
component of local telephone revenue for the foreseeable future.

Deregulated and other revenue, which declined $2.8 million, or 17.2% from
2001, consists principally of B&C services, space and power rents, deregulated
equipment sales, paystation revenue, regulated directory listing revenue, and
other miscellaneous telephone revenue. The decline in deregulated and other
revenue was due primarily to a decrease in deregulated equipment sales of
approximately $2.5 million. Customer premise equipment (CPE) sales tend to
fluctuate significantly from quarter to quarter and management believes they
have also been impacted by recent economic concerns in the marketplace.

Cellular

Cellular revenue increased $0.6 million, or 1.9%, to $32.4 million for the
nine months ended September 30, 2002 compared to $31.8 million for the nine
months ended September 30, 2001. This increase is due to growth in average
subscribers of 4.5% from 77,346 in 2001 to 80,840 in 2002. Average revenue per
unit, or ARPU, decreased slightly from $45.69 in 2001 to $44.56 in 2002.

Directory

Directory revenue increased by $0.5 million, or 2.1%, from $24.9 million
in 2001 to $25.4 million in 2002. This growth reflects improved penetration and
revenue per advertiser for the current directory phone book cycles compared
with 2001. Management expects the growth in directory revenue to slow due to
the recent economic uncertainty and its impacts on the advertising and
publishing marketplace and as other advertising media, such as the Internet,
compete for this business.

Internet

Internet revenue increased from $9.9 million in 2001 to $14.8 million in
2002  an increase of $4.9 million, or 49.7%. This increase is primarily due
to revenue associated with the Companys contract with the State of Alaska and
growth in DSL subscribers of 87.7% from 5,884 in 2001 to 11,045 in 2002.

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

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and supported by a service center owned and operated by ACSI. Services
under this contract began to be implemented during the second quarter of 2002.
The Company anticipates revenue for this segment will increase in future
periods as additional services are provisioned under the terms of the contract.
The Company anticipates substantial capital investments will be made over the
first two years of the contract to support the telecommunications needs of this
customer, including $15 to $20 million during 2002, of which it has expended
approximately $10.3 million through September 30, 2002.

Interexchange

Interexchange revenue decreased from $16.6 million in 2001 to $14.5
million in 2002  a decrease of $2.1 million, or 12.4%. The decrease was due
to a decline in long distance minutes of use from 179.0 million in 2001 to
115.5 million in 2002. Long distance subscribers were flat at 67,230. The
decline in minutes of use was due to the Companys decision to terminate an
unlimited $20 per month interstate calling plan, which was marketed as Infinite
Minutes, in May of 2001 and increased competition in the marketplace.

Operating Expense

Operating expense increased $14.6 million, or 6.9%, from $211.0 million
for the nine months ended September 30, 2001 to $225.6 million for the nine
months ended September 30, 2002.

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. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expense increased from
$88.6 million for the nine months ended September 30, 2001 to $90.2 million for
the nine months ended September 30, 2002. The increase is due substantially to
$2.2 million in additional costs incurred during the year related primarily to
severance and restructuring charges and rate case expense.

Cellular

Cellular expense increased $1.7 million, or 8.9%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.
This increase is due substantially to an increase in minutes of use from 120.3
million minutes in 2001 to 147.1 million minutes in 2002.

Directory

Directory expense decreased $0.1 million from $10.5 million in 2001 to
$10.4 million in 2002. As a percent of directory revenue, expense was 42.2% for
2001 compared to 40.8% for 2002. This margin improvement is due to stable fixed
costs combined with increasing directory revenue.

Internet

Internet expense increased by $9.0 million, or 77.7% from $11.6 million in
2001 to $20.6 million in 2002. The increase in Internet expense was due
principally to start-up expenses associated with commencing services under the
State of Alaska telecommunications contract. 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 for this segment will increase as it provides
additional services to the State of Alaska.

Interexchange

Interexchange expense decreased by $2.6 million, or 11.4%. The majority of
this decrease was the result of the decline in long distance minutes of use as
discussed under interexchange service revenue.

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Depreciation and Amortization

Depreciation and amortization expense increased $2.9 million, or 5.0%, due
principally to increases in plant in service for the nine months ended
September 30, 2002 over the corresponding period of 2001 and the adoption of
shorter depreciable lives for certain classes of assets offset by ceasing
goodwill amortization with the adoption of SFAS No. 142, Goodwill and
Intangible Assetson January 1, 2002. Depreciation and amortization expense in
2001 included $5.8 million of goodwill amortization. Under SFAS No. 142,
goodwill is no longer amortized but is instead subjected to an annual
impairment test.

Loss on disposal of assets

The Company recorded a non-cash loss on disposal of assets of $2.1 million
during the nine months ended September 30, 2002 as a result of retiring certain
assets no longer in use.

Interest Expense and Interest Income and Other

Interest expense decreased $7.5 million, or 17.0%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001,
principally as a result of market effects on the Companys variable interest
rate debt. In addition, during the second quarter of 2002, the Company reversed
previously accrued interest expense of $1.7 million 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. Interest income and other
also declined by $1.2 million, or 42.8%, as a result of a lower average
invested cash balance and lower market interest rates during 2002 compared to
2001.

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 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 as of March 30, 2002
to their fair value, net of expected selling expense. The write down and
results of operations of this discontinued segment resulted in a charge to
discontinued operations of $7.5 million and $1.3 million for the periods ended
September 30, 2002 and 2001, respectively. The Company has fully reserved in
the form of a valuation allowance the income tax benefit of this
discontinuance.

Cumulative Effect of Change in Accounting Principle

During the second quarter of fiscal 2002, the Company also completed the
transitional review for goodwill impairment required under SFAS No. 142. This
review 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 a transitional impairment loss of $105.4
million as a cumulative effect of a change in accounting principle. See Note 3
of the Notes to Consolidated Financial Statements of this quarterly report
for additional discussion of the impact of this statement on the Companys
consolidated financial statements.

Net Loss

The increase in net loss is primarily a result of the factors discussed
above.

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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 nine months ended September 30, 2002 the Companys cash
flows from operating activities were $49.2 million. At September 30, 2002, the
Company had approximately $23.5 million in net working capital. As of September
30, 2002 the Company had $75.0 million of remaining capacity under its
revolving credit facility, representing 100% of available capacity.

The Company has outstanding a $430.7 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 $591.5 million as of September 30, 2002. 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, 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, 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 second quarter, the Companys lenders approved an amendment to its Senior
Credit Facility that, among other things, permits the Company to repurchase up
to $15 million of its outstanding common stock over the term of the Senior
Credit Facility.

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.

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 million in return for certain
consideration. The note bears interest at the applicable federal rate, which
was 5.61% at the date of issuance, and matures on July 15, 2022. Interest is
payable semiannually, but Neptune may elect to add the interest to the
principal in lieu of cash payments. The commitment was funded with cash on
hand. In connection with this note, Neptune has granted the Company
an option to purchase certain network assets of Neptune, no later
than January 2, 2006 at a price equal to the then outstanding loan
balance. The Company has also entered into a strategic agreement with
Neptune for the life of the fiber optic cable system owned by
Neptune. The significant provisions of this agreement are: i)
purchase commitments by the Company for capacity in 2005 and 2007,
the final price and quantity of which are subject to future events,
ii) Neptunes restoration of the Companys traffic carried on another
cable system, iii) and specific interconnection arrangements between
the Company and Neptune, should the Company exercise its option to
purchase certain network assets from Neptune.

The 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
cellular 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 2000 were $72.3 million, including $3.2 million in capital
leases. Capital expenditures for 2001 were $87.6 million, including $19.5
million for additional fiber capacity and $15 million for an IP based network
and service center. The Company anticipates capital spending for 2002 of
approximately $75 million, including approximately $15 to $20 million necessary
to meet its obligations under a contract with the State of Alaska and
approximately $7 million for the first phase of its buildout of PCS licenses.
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.

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

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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 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, 2001. The
following discussion identifies those accounting policies that management
believes are critical in the preparation of the Companys financial statements,
the judgements 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 service 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 refined 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 $11.1
million of previously deferred interstate access revenue and reversed $1.7
million 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 September 30,
2002, the Company had recorded liabilities of $20.7 million related to
potentially refundable access revenue.

The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes reflect the temporary differences
between the financial and tax bases of assets and liabilities using the enacted
tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to the extent
that it is more likely than not that such deferred tax assets will not be
realized. The cumulative valuation allowance against deferred tax assets was
$66.2 million as of September 30, 2002.

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.

27



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Historically, lives approved for regulatory purposes have approximated
economically useful lives. On July 21, 2002, the Company received an order from
the Regulatory Commission of Alaska which appears to extend lives approved for
rate-making purposes beyond the economically useful lives of the underlying
assets. Management is awaiting further clarification from the RCA necessary to
evaluate the effects of this order on the financial statements of the Company.
As of September 30, 2002 the Company has deferred as a regulatory asset $0.9
million of costs incurred in connection with regulatory rate making
proceedings, which will be amortized in future periods. If the Company were not
following SFAS 71, these costs would have been charged to expense as incurred.

OUTLOOK

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



| |  |  | 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 for Internet and data
services.

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 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 cellular telephone
services have historically complemented traditional LEC services, the Company
anticipates that existing and emerging wireless technologies may increasingly
compete with LEC services. In cellular services, the Company currently competes
with at least one other cellular provider in each of its cellular service
areas. In the interexchange market, the Company currently has less than 10% of
total revenue in Alaska and faces competition from the two major interexchange
providers in Alaska. 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.

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.

On December 10, 2001, the Company entered into a material contract with
the State of Alaska to provide it with comprehensive telecommunications
services. The Company expects that this contract will generate approximately
$92 million in revenue over its term, including an estimated $10 million in
2002. The contract also obligates the Company to provide customer premise and
other capital assets to the state estimated to require an investment of $25 to
$30 million over the term of the agreement, including $15 to $20 million during
2002, of which it has expended approximately $10.3 million through September 30, 2002.

28



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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. There have been no
material changes to the Companys outstanding debt instruments since December 31, 2001.




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 is currently pending before the Alaska Supreme
Court.

General Communication, Inc. (GCI), requested a new interconnection
agreement for the rural communities in ACSNs Glacier State study area on
November 29, 2001. On April 5, 2002, ACSN filed a complaint seeking a
declaratory ruling from the federal district court in Alaska that it had
satisfied its statutory obligation to arbitrate an interconnection agreement
for this area for the remainder of the term of the existing agreement. On
August 21, 2002, the federal district court dismissed the complaint on the
grounds the dispute was not yet ripe. Shortly thereafter, the RCA ordered ACSN
to proceed with arbitration. ACSN intends to comply with RCA orders.
Nevertheless, on October 21, 2002, ACSN filed a new complaint in federal
district court seeking an injunction against further RCA action during the term
of its existing agreement with GCI.

The Company completed the hearing for Phase I (revenue requirements) of
its rate cases for all its local exchange companies in March 2002. The RCA
issued a decision regarding depreciation on June 6, 2002 that arguably extended
the Companys asset lives beyond the time period for which they will be
economically useful. The Company sought clarification and reconsideration of
the June 6, 2002 order. On July 21, 2002, the RCA clarified that it intended
to choose service lives without any regard for the resulting low depreciation
rates and confirmed its decisions. The Company is seeking further relief from
this Order and is awaiting RCA action. Once the LEC revenue requirements are
adjudicated, Phase II (cost of service and rate design) proceedings will
commence. The Company intends to vigorously pursue these matters in the coming
months but does not expect final rates to be decided or implemented this year.

The Company also previously reported that on February 7, 2001, it filed an
appeal in the United States Court of Appeals for the District of Columbia
Circuit of a January 24, 2001 FCC Order to pay $2.7 million plus interest to
GCI for excess interstate access charges. On April 4, 2001, the FCC released
an order granting the Companys request for a stay of the payment and allowed
the Company to place the funds in question, already fully reserved, in escrow
pending the outcome of the appeal. On March 4, 2002, the District of Columbia
Circuit Court of Appeals heard oral argument in the matter. On May 21, 2002,
the court issued its decision finding that the FCC could rule that ISP traffic
is intrastate in nature, but that the FCC could not order refunds for those
periods during which the Companys tariffs were deemed lawful. The matter was
remanded back to the FCC for recalculation of any refunds that may be
appropriate given the tariffs that have been deemed lawful and for
reconsideration of the interest rate imposed in the FCCs original order on any
refunds that may eventually be ordered.

On May 14, 2001, the Company was served with a class action lawsuit
concerning its interstate Infinite Minutes long distance plan. The court
certified the class on March 19, 2002 and denied reconsideration of that
decision on April 22, 2002. 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.

The Company is involved in various other 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.

30



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##### Table of Contents






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:

| |      |  |  |                                                                                                                                                               
| | ---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 99.1 |  |  | 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
|
| | 99.2 |  |  | 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:

No reports on Form 8-K were filed during the quarter ended September 30,
2002.

31



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##### Table of Contents






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: October 31, 2002               ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.



| | /s/   Charles E. Robinson
Charles E. Robinson
Chief Executive Officer and Chairman of the Board
| | -----------------------------------------------------------------------------------------------



| | /s/   Wesley E. Carson
Wesley E. Carson
President and Chief Administrative Officer
| | ----------------------------------------------------------------------------------



| | /s/   Kevin P. Hemenway
Kevin P. Hemenway
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
| | --------------------------------------------------------------------------------------------------------------------------

32



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CERTIFICATIONS

Form of Sarbanes-Oxley Section 302(a) Certification

I, Charles E. Robinson, Chief Executive Officer of Alaska Communications
Systems Holdings, Inc., certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Alaska Communications
Systems Holdings, Inc.;                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |                                                                                                                                              
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Date: October 31, 2002 |  | /s/   Charles E. Robinson

Charles E. Robinson
Chief Executive Officer and Chairman of the Board
Alaska Communications Systems Holdings, Inc.

33



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##### Table of Contents



Form of Sarbanes-Oxley Section 302(a) Certification

I, Kevin P. Hemenway, Chief Financial Officer of Alaska Communications Systems
Holdings, Inc, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Alaska Communications
Systems Holdings, Inc.;                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       |  |                                                                                                                                          
|---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Date: October 31, 2002 |  | /s/   Kevin P. Hemenway

Kevin P. Hemenway
Senior Vice President and Chief Financial Officer
Alaska Communications Systems Holdings, Inc.

34