##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to  .
 Commission file number 000-28167
 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
  Delaware
    
    52-2126573(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 600 Telephone Avenue, Anchorage, Alaska 99503
 (907) 297-3000
 Not Applicable
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
 Yes o No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated and large accelerated filer in Rule
12b-2 of the Exchange Act.
 Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 Yes o No þ
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
 Yes o No o
 APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrants Common Stock, as of April 15, 2011, was 45,168,592.




---



##### 



TABLE OF CONTENTS
 PageNumberPART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets Unaudited
As of March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations Unaudited
For the Three Months Ended March 31, 2011 and 2010
    
    
    4Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive
Income Unaudited, For the Three Months Ended March 31, 2011
    
    
    5Consolidated Statements of Cash Flows Unaudited
For the Three Months Ended March 31, 2011 and 2010
    
    
    6Notes to Consolidated Financial Statements Unaudited
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II. Other InformationItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    21Item 4. (Removed and reserved)
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Balance Sheets
 (Unaudited, In Thousands except Per Share Amounts)
 March 31,
    
    
    December 31,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,046
    
    
    $
    15,316Restricted cash
    
    
    4,912
    
    
    
    4,912Accounts receivable-trade, net of allowance of $5,179 and $6,616
    
    
    34,400
    
    
    
    36,985Materials and supplies
    
    
    7,515
    
    
    
    6,533Prepayments and other current assets
    
    
    4,714
    
    
    
    3,999Deferred income taxes
    
    
    13,793
    
    
    
    10,949Total current assets
    
    
    80,380
    
    
    
    78,694Property, plant and equipment
    
    
    1,403,515
    
    
    
    1,416,718Less: accumulated depreciation and amortization
    
    
    (999,224
    )
    
    
    (1,005,736
    )Property, plant and equipment, net
    
    
    404,291
    
    
    
    410,982Non-current investments
    
    
    355
    
    
    
    355Goodwill
    
    
    8,850
    
    
    
    8,850Intangible assets, net
    
    
    24,118
    
    
    
    24,118Debt issuance costs
    
    
    8,181
    
    
    
    8,584Deferred income taxes
    
    
    71,158
    
    
    
    76,813Equity method investment
    
    
    2,060
    
    
    
    2,060Other assets
    
    
    10,384
    
    
    
    10,159Total assets
    
    $
    609,777
    
    
    $
    620,615Liabilities and Stockholders Equity (Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    5,235
    
    
    $
    5,213Accounts payable, accrued and other current liabilities
    
    
    59,512
    
    
    
    62,539Advance billings and customer deposits
    
    
    9,332
    
    
    
    9,568Total current liabilities
    
    
    74,079
    
    
    
    77,320Long-term obligations, net of current portion
    
    
    548,287
    
    
    
    548,096Other long-term liabilities
    
    
    14,800
    
    
    
    15,688Total liabilities
    
    
    637,166
    
    
    
    641,104Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 145,000 authorized, 45,151 and
44,704 issued and outstanding, respectively
    
    
    452
    
    
    
    447Additional paid in capital
    
    
    156,383
    
    
    
    166,259Accumulated deficit
    
    
    (185,461
    )
    
    
    (188,160
    )Accumulated other comprehensive income
    
    
    1,237
    
    
    
    965Total stockholders equity (deficit)
    
    
    (27,389
    )
    
    
    (20,489
    )Total liabilities and stockholders equity (deficit)
    
    $
    609,777
    
    
    $
    620,615
 See Notes to Consolidated Financial Statements
 3




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Operations
 (Unaudited, In Thousands except Per Share Amounts)
 Three Months EndedMarch 31,2011
    
    
    2010Operating revenues
    
    $
    86,593
    
    
    $
    82,447Operating expenses:Cost of services and sales
    
    
    32,885
    
    
    
    32,399Selling, general and administrative
    
    
    23,278
    
    
    
    20,770Depreciation and amortization
    
    
    14,935
    
    
    
    18,761(Gain) loss on disposal of assets, net
    
    
    43
    
    
    
    (488
    )Total operating expenses
    
    
    71,141
    
    
    
    71,442Operating income
    
    
    15,452
    
    
    
    11,005Other income and expense:Interest expense
    
    
    (9,692
    )
    
    
    (8,748
    )Interest income
    
    
    8
    
    
    
    14Total other income and expense
    
    
    (9,684
    )
    
    
    (8,734
    )Income before income tax expense
    
    
    5,768
    
    
    
    2,271Income tax expense
    
    
    (3,069
    )
    
    
    (1,001
    )Net income
    
    $
    2,699
    
    
    $
    1,270Net income per share:Basic and Diluted
    
    $
    0.06
    
    
    $
    0.03Weighted average shares outstanding:Basic
    
    
    44,808
    
    
    
    44,493Diluted
    
    
    46,106
    
    
    
    45,227
 See Notes to Consolidated Financial Statements
 4




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Stockholders Equity (Deficit)
 and Comprehensive Income
 Three Months Ended March 31, 2011
 (Unaudited, In Thousands except Per Share Amounts)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Equity (Deficit)Balance, December 31, 2010
    
    
    44,704
    
    
    
    447
    
    
    
    166,259
    
    
    
    (188,160
    )
    
    
    965
    
    
    $
    (20,489
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,699
    
    
    
    272
    
    
    
    2,971Dividends declared
    
    
    
    
    
    
    
    
    
    
    (9,721
    )
    
    
    
    
    
    
    
    
    
    
    (9,721
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,344
    
    
    
    
    
    
    
    
    
    
    
    1,344Tax benefit of convertible bond call options
    
    
    
    
    
    
    
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    417Surrender of 189 shares to cover withholding
taxes on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (1,912
    )
    
    
    
    
    
    
    
    
    
    
    (1,912
    )Issuance of shares of common stock
pursuant to stock plans, $.01 par
    
    
    447
    
    
    
    5
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    1Balance, March 31, 2011
    
    
    45,151
    
    
    $
    452
    
    
    $
    156,383
    
    
    $
    (185,461
    )
    
    $
    1,237
    
    
    $
    (27,389
    )
 See Notes to Consolidated Financial Statements
 5




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Cash Flows
 (Unaudited, In Thousands)
 Three Months EndedMarch 31,2011
    
    
    2010Cash Flows from Operating Activities:Net income
    
    $
    2,699
    
    
    $
    1,270Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    14,935
    
    
    
    18,761Amortization of debt issuance costs and debt discount
    
    
    2,014
    
    
    
    1,830Stock-based compensation
    
    
    1,344
    
    
    
    448Deferred income tax (benefit) expense
    
    
    3,038
    
    
    
    939Provision for uncollectible accounts
    
    
    495
    
    
    
    772Other non-cash expenses
    
    
    228
    
    
    
    (216
    )Changes in operating assets and liabilities
    
    
    (3,059
    )
    
    
    (6,827
    )Net cash provided by operating activities
    
    
    21,694
    
    
    
    16,977Cash Flows from Investing Activities:Investment in construction and capital expenditures
    
    
    (8,188
    )
    
    
    (5,190
    )Change in unsettled construction and capital expenditures
    
    
    (859
    )
    
    
    (5,229
    )Net change in restricted accounts
    
    
    
    
    
    
    255Net cash used by investing activities
    
    
    (9,047
    )
    
    
    (10,164
    )Cash Flows from Financing Activities:Repayments of long-term debt
    
    
    (1,294
    )
    
    
    (7,184
    )Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    12,000Debt issuance costs
    
    
    (84
    )
    
    
    Payment of cash dividend on common stock
    
    
    (9,628
    )
    
    
    (9,576
    )Payment of withholding taxes on stock-based compensation
    
    
    (1,912
    )
    
    
    (185
    )Proceeds from the issuance of common stock
    
    
    1
    
    
    
    67Net cash used by financing activities
    
    
    (12,917
    )
    
    
    (4,878
    )Change in cash and cash equivalents
    
    
    (270
    )
    
    
    1,935Cash and cash equivalents, beginning of period
    
    
    15,316
    
    
    
    6,271Cash and cash equivalents, end of period
    
    $
    15,046
    
    
    $
    8,206Supplemental Cash Flow Data:Interest paid
    
    $
    (9,838
    )
    
    $
    (9,272
    )Income tax refunds
    
    
    
    
    
    
    66Supplemental Noncash Transactions:Property acquired under capital leases
    
    $
    
    
    
    $
    1Dividend declared, but not paid
    
    
    9,721
    
    
    
    9,595Additions to ARO asset
    
    
    7
    
    
    
    19
 See Notes to Consolidated Financial Statements
 6




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ®
  
    
    Alaska Communications Systems Holdings, Inc. (ACS Holdings)
    
    ACS of Alaska, Inc. (ACSAK)
    
    ACS of the Northland, Inc. (ACSN)
    
    ACS of Fairbanks, Inc. (ACSF)
    
    ACS of Anchorage, Inc. (ACSA)
    
    ACS Wireless, Inc. (ACSW)
    
    ACS Long Distance, Inc. (ACSLD)
    
    ACS Internet, Inc. (ACSI)
    
    ACS Messaging, Inc. (ACSM)
    
    ACS Cable Systems, Inc. (ACSC)
    
    Crest Communications Corporation (Crest)
    
    WCI Cable, Inc.
    
    WCIC Hillsboro, LLC.
    
    Alaska Northstar Communications, LLC.
    
    WCI Lightpoint, LLC.
    
    Worldnet Communications, Inc.
    
    Alaska Fiber Star, LLC.
  Basis of Presentation
   Use of Estimates
  7




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 2. COMPREHENSIVE INCOME
  Three Months EndedMarch 31,2011
    
    
    2010Net income
    
    $
    2,699
    
    
    $
    1,270Minimum pension liability adjustment
    
    
    192
    
    
    
    243Tax effect of pension liability
    
    
    (79
    )
    
    
    (99
    )Interest rate swap marked to fair value
    
    
    270
    
    
    
    1,164Tax effect of interest rate swap
    
    
    (111
    )
    
    
    (479
    )Other comprehensive income
    
    
    272
    
    
    
    829Total comprehensive income
    
    $
    2,971
    
    
    $
    2,099
 3. FAIR VALUE MEASUREMENTS
  
    
    Level 1- Quoted prices for identical instruments in active
markets;
    
    Level 2- Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are
observable; and
    
    Level 3- Significant inputs to the valuation model are unobservable.
  Fair Value Measurements on a Recurring Basis
   March 31, 2011
    
    
    December 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Non-current investmentsAuction rate securities
    
    $
    355
    
    
    $
    
    
    
    $
    
    
    
    $
    355
    
    
    $
    355
    
    
    $
    
    
    
    $
    
    
    
    $
    355Other assetsInterest rate swaps
    
    $
    7,138
    
    
    $
    
    
    
    $
    7,138
    
    
    $
    
    
    
    $
    6,868
    
    
    $
    
    
    
    $
    6,868
    
    
    $
    
  8




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 3. FAIR VALUE MEASURES (Continued)
   4. STOCK INCENTIVE PLANS
   5. EARNINGS PER SHARE
   Three Months EndedMarch 31,2011
    
    
    2010Earnings per share:Net income
    
    $
    2,699
    
    
    $
    1,270Weighted average common shares outstanding:Basic shares
    
    
    44,808
    
    
    
    44,493Restricted stock, options and deferred shares
    
    
    1,298
    
    
    
    734Dilutive shares
    
    
    46,106
    
    
    
    45,227Earnings per share:Basic and Diluted
    
    
    0.06
    
    
    
    0.03
 6. RETIREMENT PLANS
  9




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 6. RETIREMENT PLANS (Continued)
    7. BUSINESS SEGMENTS
  Wireline
 Wireless
  Three Months Ended March 31, 2011Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    63,258
    
    
    $
    37,066
    
    
    $
    1,875
    
    
    $
    (15,606
    )
    
    $
    86,593Intersegment revenue
    
    
    13,451
    
    
    
    280
    
    
    
    1,875
    
    
    
    
    
    
    
    15,606Income (loss) before income tax benefit (expense)
    
    
    2,492
    
    
    
    12,114
    
    
    
    (8,838
    )
    
    
    
    
    
    
    5,768Income tax benefit (expense)
    
    
    (3,478
    )
    
    
    (4,983
    )
    
    
    5,392
    
    
    
    
    
    
    
    (3,069
    )Net income (loss)
    
    
    (986
    )
    
    
    7,131
    
    
    
    (3,446
    )
    
    
    
    
    
    
    2,699Total assets
    
    
    425,500
    
    
    
    181,601
    
    
    
    2,676
    
    
    
    
    
    
    
    609,777
 10




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 7. BUSINESS SEGMENTS (Continued)
 Three Months Ended March 31, 2010Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    62,859
    
    
    $
    32,938
    
    
    $
    1,413
    
    
    $
    (14,763
    )
    
    $
    82,447Intersegment revenue
    
    
    12,896
    
    
    
    454
    
    
    
    1,413
    
    
    
    
    
    
    
    14,763Income (loss) before income tax benefit (expense)
    
    
    460
    
    
    
    10,030
    
    
    
    (8,219
    )
    
    
    
    
    
    
    2,271Income tax benefit (expense)
    
    
    (100
    )
    
    
    (4,127
    )
    
    
    3,226
    
    
    
    
    
    
    
    (1,001
    )Net income (loss)
    
    
    360
    
    
    
    5,903
    
    
    
    (4,993
    )
    
    
    
    
    
    
    1,270Total assets
    
    
    489,626
    
    
    
    173,755
    
    
    
    2,265
    
    
    
    
    
    
    
    665,646
 8. COMMITMENTS AND CONTINGENCIES
    Income Taxes
  11




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts
 8. COMMITMENTS AND CONTINGENCIES (Continued)
  12




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Forward-Looking Statements and Analysts Reports
  
    
    our strongly competitive environment, which comprises national and local wireless
and wireline facilities-based competitors;
    
    the entry of one or more additional facilities-based carriers into the Alaska
market;
    
    our substantial debt which (i) requires us to dedicate a substantial portion of our
cash flow from operations to make payments on our debt and (ii) places pressure on our
ability to access the capital markets to extend maturities and/or refinance or
repurchase our 5.75% Convertible Notes due 2013 (the Convertible Notes) as
contemplated by our senior secured credit agreement, dated October 21, 2010 (the
Senior Credit Facility);
    
    the availability of future financing in the amounts, at the terms, and subject to
the conditions necessary, to support our business and pursue growth opportunities;
    
    our ability to repurchase or refinance $100.0 million of our Convertible Notes, as
contemplated by our Senior Credit facility;
    
    our ability to generate sufficient earnings and cash flows to continue to make
dividend payments to our stockholders;
    
    our ability to keep pace with rapid technological developments and changing
standards in the telecommunications industry, including our ability to obtain new
devices, spectrum, bandwidth, and other network elements;
    
    our ability to develop attractive integrated products and services making use of our
substantial investments in fiber optic cable facilities, including our Alaska Oregon
Network (AKORN®) and Northstar fiber optic cables that connect Alaska to
the contiguous states;
    
    the financial and business performance of TekMate LLC an information technology
company, of which we acquired 49% in August 2010, and our ability to use that
investment to drive future sales growth;
    
    unanticipated damage to one or more of our fiber-optic cables resulting from
construction or digging mishaps, fishing boats or natural disasters;
    
    changes in general industry and market conditions, and structural declines within
the telecommunications industry;
    
    changes in overall national, regional or local economic conditions;
    
    governmental and public policy changes, including changes in our revenues resulting
from regulatory actions affecting inter-carrier compensation or changes in revenue from
Universal Service Funds (USFs);
    
    unanticipated costs required to fund our postretirement benefit plans;
 13




---



##### Table of Contents




    
    the success or failure of any future acquisitions;
    
    loss of key personnel;
    
    the outcome of an ongoing Internal Revenue Service (IRS) audit and the ability of
certain third parties to fulfill their indemnity obligations to us in the event that
there is an assessment as a result of that audit; and
    
    the matters described under Item 1A  Risk Factors in our Annual Report on Form
10-K for the fiscal year ended December 31, 2010, and this Quarterly Report on Form
10-Q.
   Overview
    
    
    activity in the oil and gas markets;
    
    tourism levels;
    
    military activity;
    
    the cost of long-haul telecommunications bandwidth;
    
    local customer preferences;
    
    average usage of Internet technology;
    
    unemployment levels; and
    
    housing activity.
  14




---



##### Table of Contents



2011 Focus
  
    
    Grow Enterprise Revenue.We seek to serve business, government and carrier customers by
providing or partnering to provide redundant, scalable and managed high bandwidth data
connections, data hosting, information technology and cloud-based services throughout
Alaska and to the contiguous states and beyond. We believe that by providing these
customers connectivity with value-added services will enable us to successfully
differentiate ourselves from our competitors.
    
    Protect Our Wireless Subscribers and Grow.While our wireless business faces strong
competition, we believe that recently acquired smartphone devices on the Android and other
platforms combined with our high quality network and future positioning initiatives will
allow us to protect the significant cash flow generated by this piece of our business.
    
    Enhance Our Customers Experience.Our reputation for customer service is critical to
our success. Our renewed focus on our customers is a key to protecting, and growing our
business.
    
    Enhance Our People Relations.Our business relies on our highly skilled workforce of
approximately 850 employees. With a motivated, engaged, and stable workforce we can more
successfully face the challenges and risks to our business.
    
    Reduce Our Costs of Doing Business.While focusing resources on revenue growth and
market share gains, we continually challenge our management team and employees at all
levels of the organization to lower expenses.
    
    Enhance Our Systems/Process Capabilities.We expect to continue to invest in
technology-assisted process improvement. We expect efforts such as deploying enhanced
self-service tools to customers on our web site to improve our cost structure and maintain
or improve operating income margins.
  15




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 Three Months ended March 31,(in thousands)
    
    2011
    
    
    2010
    
    
    Change
    
    
    % ChangeOperating revenues:Retail
    
    $
    20,233
    
    
    $
    20,642
    
    
    $
    (409
    )
    
    
    -2.0
    %Wholesale
    
    
    2,105
    
    
    
    2,604
    
    
    
    (499
    )
    
    
    -19.2
    %Access
    
    
    15,195
    
    
    
    15,000
    
    
    
    195
    
    
    
    1.3
    %Enterprise
    
    
    12,274
    
    
    
    11,717
    
    
    
    557
    
    
    
    4.8
    %Wireline
    
    
    49,807
    
    
    
    49,963
    
    
    
    (156
    )
    
    
    -0.3
    %Wireless
    
    
    36,786
    
    
    
    32,484
    
    
    
    4,302
    
    
    
    13.2
    %Total operating revenues
    
    
    86,593
    
    
    
    82,447
    
    
    
    4,146
    
    
    
    5.0
    %Operating expenses:WirelineCost of services and sales
    
    
    18,862
    
    
    
    19,349
    
    
    
    (487
    )
    
    
    -2.5
    %Selling, general and administrative
    
    
    17,652
    
    
    
    15,679
    
    
    
    1,973
    
    
    
    12.6
    %WirelessCost of services and sales
    
    
    14,023
    
    
    
    13,050
    
    
    
    973
    
    
    
    7.5
    %Selling, general and administrative
    
    
    5,626
    
    
    
    5,091
    
    
    
    535
    
    
    
    10.5
    %Depreciation and amortization
    
    
    14,935
    
    
    
    18,761
    
    
    
    (3,826
    )
    
    
    -20.4
    %(Gain) loss on disposal of assets
    
    
    43
    
    
    
    (488
    )
    
    
    531
    
    
    
    -108.8
    %Total operating expenses
    
    
    71,141
    
    
    
    71,442
    
    
    
    (301
    )
    
    
    -0.4
    %Operating income
    
    
    15,452
    
    
    
    11,005
    
    
    
    4,447
    
    
    
    40.4
    %Operating margin
    
    
    17.8
    %
    
    
    13.3
    %Other income and expense:Interest expense
    
    
    (9,692
    )
    
    
    (8,748
    )
    
    
    (944
    )
    
    
    10.8
    %Interest income
    
    
    8
    
    
    
    14
    
    
    
    (6
    )
    
    
    -42.9
    %Total other income and expense
    
    
    (9,684
    )
    
    
    (8,734
    )
    
    
    (950
    )
    
    
    10.9
    %Income before income tax expense
    
    
    5,768
    
    
    
    2,271
    
    
    
    3,497
    
    
    
    154.0
    %Income tax expense
    
    
    (3,069
    )
    
    
    (1,001
    )
    
    
    (2,068
    )
    
    
    206.6
    %Net income
    
    $
    2,699
    
    
    $
    1,270
    
    
    $
    1,429
    
    
    
    112.5
    %
 Revenue Sources by Segment
  
    
    Wireline:We provide communications services including voice, data, broadband, MPLS,
Metro Ethernet, network access, long distance, data hosting, and IT management and cloud
based services with TekMate, to consumer, carrier, business and government customers.
    
    Wireless:We provide wireless facilities-based voice and data services, products,
other value-added services and equipment sales statewide across Alaska with roaming
coverage available in the contiguous states, Hawaii, and Canada.
 16




---



##### Table of Contents



Operating Revenue
 Wireline
 Enterprise:Enterprise revenue increased $0.6 million from March 31, 2011 over March 31, 2010
with higher data revenue of $0.8 million, offset in part, by a $0.3 million reduction in carrier
voice revenues.Retail:Declines in retail switched access lines in service during 2011 were concentrated in
the residential market which we believe continues to be impacted by wireless substitution.
Retail revenue decreased $0.4 million in the three months ended March 31, 2011 over March 31,
2010, primarily due to a $0.4 million decline in local exchange revenue associated with
residential and business line losses, a $0.4 million decrease in voice mail revenue due to plan
changes offering free voice mail services and a $0.3 million decline in long distance sales.
These losses were offset, in part, by a $0.7 million increase in revenue from our Internet
Service Provider (ISP) subscriber base.Wholesale:Wholesale revenues decreased $0.5 million from the same quarter in the prior year
due to continued decline in leases of our unbundled network elements (UNEs). We believe this
decline is primarily attributable to the ongoing migration of lines by our key competitor to its
propriety cable telephony plant and the decision of another competitor, and wholesale customer,
to exit the market. We expect wholesale revenue will continue to decline.Access:Access revenue increased by $0.2 million from March 31, 2011 over March 31, 2010. The
increase is primarily due to $1.8 million in out-of-period settlements in 2011, offset by lower
customer billed interstate revenue and lower high cost loop support.
 Wireless
  Operating Expense
 Wireline:
 Cost of Services and Sales Wireline cost of services and sales decrease $0.5 million due to
declines of $0.7 million in labor, $0.4 million in LD COGS, and $0.3 million in paystation
expenses. These decreases are partially offset by increases of $0.4 million in maintenance
expense, $0.2 million in ISP access and leased circuits and $0.1 million in land and building
related charges.Selling, General and Administrative Wireline SG&A expenses increased $2.0 million driven by
$1.6 million in higher stock-based compensation and cash incentive expense and $0.7 million in
legal reserves, offset by a $0.2 million decrease in bad debt expense.
 Wireless
 Cost of Services and Sales Wireless cost of services and sales increased $1.0 million
primarily due to an increase in network costs associated with the growth in data usage from ACS
customers roaming in the lower 48.Selling, General and Administrative SG&A expenses increased $0.5 million primarily due to an
increase of $0.2 million in labor expense associated with stock-based compensation and cash
based incentives and $0.1 million in higher legal reserves.Depreciation and Amortization:Depreciation and amortization expense decreased $3.8 million in
the three months ended March 31, 2011, from the same period in the prior year, due primarily to
a number of pooled asset classes reaching their maximum depreciable lives. These declines were
offset by additions to our asset base from the build out of our network.
 17




---



##### Table of Contents



Other Income and Expense:
 Income Taxes:
 Liquidity and Capital Resources
  Three Months EndedMarch 31,(in thousands)
    
    2011
    
    2010Net cash provided by operating activities
    
    $
    21,694
    
    
    $
    16,977Investment in construction and capital expenditures
    
    $
    (8,188
    )
    
    $
    (5,190
    )Change in unsettled construction and capital expenditures
    
    $
    (859
    )
    
    $
    (5,229
    )Net borrowings (repayments)
    
    $
    (1,294
    )
    
    $
    4,816Interest paid
    
    $
    (9,838
    )
    
    $
    (9,272
    )Payment of cash dividend on common stock
    
    $
    (9,628
    )
    
    $
    (9,576
    )Payment of withholding taxes on stock-based compensation
    
    $
    (1,912
    )
    
    $
    (185
    )
 Sources
    18




---



##### Table of Contents



Uses
    Legal
  Employees
  Recent Developments
  Critical Accounting Policies and Accounting Estimates
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  19




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
     
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 The telecommunications industry is extremely competitive and will become even more competitive if
and when Verizon enters the market.
  20




---



##### Table of Contents



We are subject to a significant on-going IRS audit,
which could require us to pay significant
amounts in cash in the event the appeals process fails to overturn the proposed tax adjustments and we
prove unable to effectively enforce the indemnification obligations of third parties or any amounts owed exceed the
indemnity obligations, or the ability to pay, of such third parties.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Working capital restrictions and other limitations on the payment of dividends
   
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
  
 ITEM 5. OTHER INFORMATION
  21




---



##### Table of Contents



ITEM 6. EXHIBITS
 (a) Exhibits :
 10.1
    
    Credit Agreement, dated as of October 21, 2010, by and among Alaska Communications
Systems Holdings, Inc., as Borrower, Alaska Communications Systems Group, Inc., as Parent,
several banks and other financial institutions or entities, as lenders named therein, and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to the filing
of such exhibit with the registrants Current Report on Form 8-K filed with the SEC on
October 26, 2010).31.1
    
    Certification of Anand Vadapalli, Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Wayne Graham, Chief Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Anand Vadapalli, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Wayne Graham, Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.
 22




---



##### Table of Contents



SIGNATURES
  Date: April 29, 2011

    ALASKA COMMUNICATIONS SYSTEMS GROUP, INC./s/ Anand Vadapalli
 Anand
VadapalliChief Executive Officer,President/s/ Wayne Graham
 Wayne
GrahamChief Financial Officer,(Principal Accounting Officer)
 23