##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 000-28167
 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
  Delaware
(State or Other Jurisdiction 
of Incorporation or Organization)
    
    52-2126573
(I.R.S. Employer
Identification No.)
 600 Telephone Avenue, Anchorage, Alaska 99503
 (907) 297-3000
 Not Applicable
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
 Yes o No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated and large accelerated filer in Rule
12b-2 of the Exchange Act.
 Large accelerated filero
    
    Accelerated filerþ
    
    Non-accelerated filero
(Do not check if smaller reporting company)
    
    Smaller Reporting Companyo
 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 October 18, 2010, was
44,660,484.




---



##### 



TABLE OF CONTENTS
 PageNumberPART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets Unaudited
As of September 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations Unaudited
For the Three and Nine Months Ended September 30, 2010 and 2009
    
    
    4Consolidated Statements of Stockholders Equity (Deficit) Unaudited
For the Nine Months Ended September 30, 2010
    
    
    5Consolidated Statements of Cash Flows Unaudited
For the Nine Months Ended September 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements Unaudited
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. Other InformationItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults upon Senior Securities
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Signatures
    
    
    28EX-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)
 September 30,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    17,276
    
    
    $
    6,271Restricted cash
    
    
    4,889
    
    
    
    5,843Accounts receivable-trade, net of
allowance of $7,283 and $6,066
    
    
    39,403
    
    
    
    35,414Materials and supplies
    
    
    7,713
    
    
    
    7,109Prepayments and other current assets
    
    
    5,336
    
    
    
    4,489Deferred income taxes
    
    
    11,036
    
    
    
    13,814Total current assets
    
    
    85,653
    
    
    
    72,940Property, plant and equipment
    
    
    1,432,739
    
    
    
    1,416,359Less: accumulated depreciation and
amortization
    
    
    (1,012,040
    )
    
    
    (965,470
    )Property, plant and
equipment, net
    
    
    420,699
    
    
    
    450,889Non-current investments
    
    
    355
    
    
    
    855Goodwill
    
    
    8,850
    
    
    
    8,850Intangible assets, net
    
    
    21,517
    
    
    
    21,517Debt issuance costs
    
    
    4,019
    
    
    
    5,960Deferred income taxes
    
    
    78,345
    
    
    
    113,994Investment in
unconsolidated affiliate
    
    
    2,060
    
    
    
    Other assets
    
    
    3,305
    
    
    
    293Total assets
    
    $
    624,803
    
    
    $
    675,298Liabilities and
Stockholders Equity
(Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    12,049
    
    
    $
    793Accounts payable, accrued and other
current liabilities
    
    
    61,860
    
    
    
    68,651Advance billings and customer deposits
    
    
    9,150
    
    
    
    9,351Total current liabilities
    
    
    83,059
    
    
    
    78,795Long-term obligations, net of current portion
    
    
    541,614
    
    
    
    538,557Other long-term liabilities
    
    
    15,423
    
    
    
    27,906Total liabilities
    
    
    640,096
    
    
    
    645,258Commitments and
contingenciesStockholders equity
(deficit):Common stock, $.01 par value; 145,000 authorized,
44,658 and
44,484 issued and outstanding,
respectively
    
    
    447
    
    
    
    445Additional paid in capital
    
    
    174,013
    
    
    
    198,979Accumulated deficit
    
    
    (186,893
    )
    
    
    (157,472
    )Accumulated other comprehensive loss
    
    
    (2,860
    )
    
    
    (11,912
    )Total stockholders equity (deficit)
    
    
    (15,293
    )
    
    
    30,040Total liabilities and
stockholders equity
    
    $
    624,803
    
    
    $
    675,298
 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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating revenues
    
    $
    89,768
    
    
    $
    91,145
    
    
    $
    256,747
    
    
    $
    263,088Operating expenses:Cost of services and sales
    
    
    33,157
    
    
    
    35,318
    
    
    
    97,623
    
    
    
    101,886Selling, general and administrative
    
    
    23,200
    
    
    
    21,910
    
    
    
    66,022
    
    
    
    66,392Depreciation and amortization
    
    
    18,606
    
    
    
    23,724
    
    
    
    55,974
    
    
    
    59,784(Gain) loss on disposal of assets, net
    
    
    9
    
    
    
    (15
    )
    
    
    (479
    )
    
    
    454Total operating expenses
    
    
    74,972
    
    
    
    80,937
    
    
    
    219,140
    
    
    
    228,516Operating income
    
    
    14,796
    
    
    
    10,208
    
    
    
    37,607
    
    
    
    34,572Other income and expense:Interest expense
    
    
    (19,723
    )
    
    
    (9,642
    )
    
    
    (36,567
    )
    
    
    (28,284
    )Interest income
    
    
    8
    
    
    
    30
    
    
    
    31
    
    
    
    81Total other income and expense
    
    
    (19,715
    )
    
    
    (9,612
    )
    
    
    (36,536
    )
    
    
    (28,203
    )Income (loss) before income tax benefit (expense)
    
    
    (4,919
    )
    
    
    596
    
    
    
    1,071
    
    
    
    6,369Income tax benefit (expense)
    
    
    1,901
    
    
    
    (340
    )
    
    
    (30,492
    )
    
    
    (2,874
    )Income (loss) before extraordinary item
    
    
    (3,018
    )
    
    
    256
    
    
    
    (29,421
    )
    
    
    3,495Extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    
    
    
    
    37,346Net income (loss)
    
    $
    (3,018
    )
    
    $
    37,602
    
    
    $
    (29,421
    )
    
    $
    40,841Net income (loss) per share:BasicIncome (loss) on continuing operations
    
    $
    (0.07
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08Extraordinary item
    
    
    
    
    
    
    0.84
    
    
    
    
    
    
    
    0.85Net income (loss)
    
    $
    (0.07
    )
    
    $
    0.85
    
    
    $
    (0.66
    )
    
    $
    0.93Weighted average shares outstanding
    
    
    44,628
    
    
    
    44,354
    
    
    
    44,564
    
    
    
    44,100DilutedIncome (loss) on continuing operations
    
    $
    (0.07
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08Extraordinary item
    
    
    
    
    
    
    0.82
    
    
    
    
    
    
    
    0.83Net income (loss)
    
    $
    (0.07
    )
    
    $
    0.83
    
    
    $
    (0.66
    )
    
    $
    0.91Weighted average shares outstanding
    
    
    44,628
    
    
    
    45,136
    
    
    
    44,564
    
    
    
    44,873
 See Notes to Consolidated Financial Statements
 4




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Stockholders Equity (Deficit)
Nine Months Ended September 30, 2010
(Unaudited, In Thousands except Per Share Amounts)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity (Deficit)Balance, December 31, 2009
    
    
    44,484
    
    
    $
    445
    
    
    $
    198,979
    
    
    $
    (157,472
    )
    
    $
    (11,912
    )
    
    $
    30,040Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,421
    )
    
    
    9,052
    
    
    
    (20,369
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    (28,818
    )
    
    
    
    
    
    
    
    
    
    
    (28,818
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,665
    
    
    
    
    
    
    
    
    
    
    
    2,665Tax benefit of convertible
bond call options
    
    
    
    
    
    
    
    
    
    
    1,165
    
    
    
    
    
    
    
    
    
    
    
    1,165Surrender of 39 shares to
cover withholding
taxes on stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (326
    )
    
    
    
    
    
    
    
    
    
    
    (326
    )Issuance of shares of
common stock
pursuant to stock
plans, $.01 par
    
    
    174
    
    
    
    2
    
    
    
    348
    
    
    
    
    
    
    
    
    
    
    
    350Balance, September 30, 2010
    
    
    44,658
    
    
    $
    447
    
    
    $
    174,013
    
    
    $
    (186,893
    )
    
    $
    (2,860
    )
    
    $
    (15,293
    )
 See Notes to Consolidated Financial Statements
 5




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
 
 Consolidated Statements of Cash Flows 
(Unaudited, In Thousands)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash Flows from Operating Activities:Net income (loss)
    
    $
    (29,421
    )
    
    $
    40,841Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    55,974
    
    
    
    59,784Gain on extraordinary item, net of taxes
    
    
    
    
    
    
    (37,346
    )Unrealized loss on ineffective hedge adjustment
    
    
    11,258
    
    
    
    Amortization of debt issuance costs and debt discount
    
    
    5,580
    
    
    
    5,205Stock-based compensation
    
    
    2,665
    
    
    
    3,416Deferred income taxes
    
    
    33,273
    
    
    
    2,874Provision for uncollectible accounts
    
    
    2,308
    
    
    
    3,632Other non-cash expenses
    
    
    84
    
    
    
    1,242Changes in operating assets and liabilities
    
    
    (12,267
    )
    
    
    (6,641
    )Net cash provided by operating activities
    
    
    69,454
    
    
    
    73,007Cash Flows from Investing Activities:Investment in construction and capital expenditures
    
    
    (25,040
    )
    
    
    (37,258
    )Change in unsettled construction and capital expenditures
    
    
    (3,505
    )
    
    
    (9,450
    )Investment in unconsolidated affiliate
    
    
    (2,060
    )
    
    
    Change in unsettled acquisition costs
    
    
    
    
    
    
    (250
    )Net change in non-current investments
    
    
    500
    
    
    
    150Net change in restricted cash
    
    
    954
    
    
    
    14,527Net cash used by investing activities
    
    
    (29,151
    )
    
    
    (32,281
    )Cash Flows from Financing Activities:Repayments of long-term debt
    
    
    (12,545
    )
    
    
    (30,185
    )Proceeds from the issuance of long-term debt
    
    
    12,000
    
    
    
    24,500Payment of cash dividend on common stock
    
    
    (28,777
    )
    
    
    (28,534
    )Payment of withholding taxes on stock-based compensation
    
    
    (326
    )
    
    
    (1,823
    )Proceeds from issuance of common stock
    
    
    350
    
    
    
    1,117Net cash used by financing activities
    
    
    (29,298
    )
    
    
    (34,925
    )Change in cash and cash equivalents
    
    
    11,005
    
    
    
    5,801Cash and cash equivalents, beginning of period
    
    
    6,271
    
    
    
    1,326Cash and cash equivalents, end of period
    
    $
    17,276
    
    
    $
    7,127Supplemental Cash Flow Data:Interest paid
    
    $
    22,816
    
    
    $
    28,371Income taxes paid, net of refunds
    
    $
    36
    
    
    $
    (669
    )Supplemental Non-cash Transactions:Property acquired under capital leases
    
    $
    1,295
    
    
    $
    890Dividend declared, but not paid
    
    $
    9,617
    
    
    $
    9,555Additions to ARO asset
    
    $
    71
    
    
    $
    291
 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
    
    
    
    Crest Communications Corporation (Crest)Holdings, Inc. (ACS Holdings)
    
    
    
    WCI Cable, Inc.
    
    ACS of Alaska, Inc. (ACSAK)
    
    
    
    WCIC Hillsboro, LLC.
    
    ACS of the Northland, Inc. (ACSN)
    
    
    
    Alaska Northstar Communications, LLC.
    
    ACS of Fairbanks, Inc. (ACSF)
    
    
    
    WCI Lightpoint, LLC.
    
    ACS of Anchorage, Inc. (ACSA)
    
    
    
    Worldnet Communications, Inc.
    
    ACS Wireless, Inc. (ACSW)
    
    
    
    Alaska Fiber Star, LLC.
    
    ACS Long Distance, Inc. (ACSLD)
    
    ACS Internet, Inc. (ACSI)
    
    ACS Messaging, Inc. (ACSM)
    
    ACS Cable Systems, Inc. (ACSC)
  Basis of Presentation
   Use of Estimates
  Significant Changes in Accounting Practice, Reclassifications and Correction of Immaterial Errors
 Materiality. Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in the Current Year Financial Statements,
 7




---



##### 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 (Cont.)
   December 31, 2009As Reported
    
    
    Adj
    
    
    As RevisedDeferred income taxes
    
    $
    111,625
    
    
    $
    2,369
    
    
    $
    113,994Total assets
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298Accounts payable, accrued and
other current liabilities
    
    
    62,887
    
    
    
    5,764
    
    
    
    68,651Total current liabilities
    
    
    73,031
    
    
    
    5,764
    
    
    
    78,795Total liabilities
    
    
    639,494
    
    
    
    5,764
    
    
    
    645,258Accumulated deficit
    
    
    (154,077
    )
    
    
    (3,395
    )
    
    
    (157,472
    )Total stockholders equity (deficit)
    
    
    33,435
    
    
    
    (3,395
    )
    
    
    30,040Total liabilities and stockholders equity
    
    
    672,929
    
    
    
    2,369
    
    
    
    675,298
  Three Months ended
    
    
    Nine Months endedSeptember 30, 2009
    
    
    September 30, 2009As Reported
    
    
    Adj
    
    
    As Revised
    
    
    As Reported
    
    
    Adj
    
    
    As RevisedOperating revenues
    
    $
    91,262
    
    
    $
    (117
    )
    
    $
    91,145
    
    
    $
    263,439
    
    
    $
    (351
    )
    
    $
    263,088Operating income
    
    
    10,325
    
    
    
    (117
    )
    
    
    10,208
    
    
    
    34,923
    
    
    
    (351
    )
    
    
    34,572Income before income tax expense
    
    
    713
    
    
    
    (117
    )
    
    
    596
    
    
    
    6,720
    
    
    
    (351
    )
    
    
    6,369Income tax expense
    
    
    (388
    )
    
    
    48
    
    
    
    (340
    )
    
    
    (3,018
    )
    
    
    144
    
    
    
    (2,874
    )Income before extraordinary
item, net of taxes
    
    
    325
    
    
    
    (69
    )
    
    
    256
    
    
    
    3,702
    
    
    
    (207
    )
    
    
    3,495Net income
    
    
    37,671
    
    
    
    (69
    )
    
    
    37,602
    
    
    
    41,048
    
    
    
    (207
    )
    
    
    40,841
  Nine Months EndedSeptember 30. 2009As Reported
    
    
    Adj
    
    
    As RevisedNet income
    
    $
    41,048
    
    
    $
    (207
    )
    
    $
    40,841Deferred income taxes
    
    
    3,018
    
    
    
    (144
    )
    
    
    2,874Changes in operating assets and liabilities
    
    
    (6,992
    )
    
    
    351
    
    
    
    (6,641
    )
 8




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 2. COMPONENTS OF COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    (3,018
    )
    
    $
    37,602
    
    
    $
    (29,421
    )
    
    $
    40,841Minimum pension liability adjustment
    
    
    113
    
    
    
    146
    
    
    
    339
    
    
    
    437Interest rate swap marked to market
    
    
    447
    
    
    
    679
    
    
    
    2,083
    
    
    
    3,079Unrealized loss on ineffective hedge adjustment
    
    
    6,630
    
    
    
    
    
    
    
    6,630
    
    
    
    Total comprehensive income (loss)
    
    $
    4,172
    
    
    $
    38,427
    
    
    $
    (20,369
    )
    
    $
    44,357
 3. INVESTMENT IN UNCONSOLIDATED AFFILIATE
   Percent owned
    
    
    InvestmentTekMate, LLC.
    
    
    49
    %
    
    $
    2,060
 4. 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
  9




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 4. FAIR VALUE MEASURES (Continued)
  September 30, 2010

        
    December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Non-current investments in
auction rate securities
    
    $
    355
    
    
    $
    
    
    
    $
    
    
    
    $
    355
    
    
    $
    855
    
    
    $
    
    
    
    $
    
    
    
    $
    855Liabilities:Interest rate swaps
    
    $
    (11,258
    )
    
    $
    
    
    
    $
    (11,258
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
    
    
    $
    (14,796
    )
    
    $
    
    5. STOCK INCENTIVE PLANS
    Nine Months EndedSeptember 30,2010
    
    
    2009Restricted stock:Risk free rate
    
    
    0.00
    %
    
    
    0.00%  0.25
    %Quarterly dividend
    
    $
    0.215
    
    
    $
    0.215Expected per annum, forfeiture rate
    
    
    0.00%  6.47
    %
    
    
    0.00%  5.47
    %Stock Options:Risk free rate
    
    
    
    
    
    
    0.25
    %Dividend yield
    
    
    
    
    
    
    9.27
    %Expected volatility factor
    
    
    
    
    
    
    36.27
    %Expected option life (years)
    
    
    
    
    
    
    3.2
 10




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 6. EARNINGS PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic earnings per share:Income (loss) before extraordinary item
    
    $
    (3,018
    )
    
    $
    256
    
    
    $
    (29,421
    )
    
    $
    3,495Extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    
    
    
    
    37,346Net income (loss) applicable to common shares
    
    $
    (3,018
    )
    
    $
    37,602
    
    
    $
    (29,421
    )
    
    $
    40,841Weighted average common shares outstanding
    
    
    44,628
    
    
    
    44,354
    
    
    
    44,564
    
    
    
    44,100Basic earnings per shareIncome (loss) on continuing operations
    
    $
    (0.07
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08Extraordinary item, net of taxes
    
    
    
    
    
    
    0.84
    
    
    
    
    
    
    
    0.85Net income (loss)
    
    $
    (0.07
    )
    
    $
    0.85
    
    
    $
    (0.66
    )
    
    $
    0.93
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Diluted earnings per share:Dilutive sharesWeighted average shares outstanding:
    
    
    44,628
    
    
    
    44,354
    
    
    
    44,564
    
    
    
    44,100Restricted stock, options and deferred shares
    
    
    
    
    
    
    782
    
    
    
    
    
    
    
    773Weighted average diluted shares outstanding
    
    
    44,628
    
    
    
    45,136
    
    
    
    44,564
    
    
    
    44,873Diluted earnings per shareIncome (loss) on continuing operations
    
    $
    (0.07
    )
    
    $
    0.01
    
    
    $
    (0.66
    )
    
    $
    0.08Extraordinary item, net of taxes
    
    
    
    
    
    
    0.82
    
    
    
    
    
    
    
    0.83Net income (loss)
    
    $
    (0.07
    )
    
    $
    0.83
    
    
    $
    (0.66
    )
    
    $
    0.91
 7. RETIREMENT PLANS
  11




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts)
 7. RETIREMENT PLANS (Continued)
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest cost
    
    $
    201
    
    
    $
    210
    
    
    $
    604
    
    
    $
    630Expected return on plan assets
    
    
    (207
    )
    
    
    (182
    )
    
    
    (620
    )
    
    
    (547
    )Amortization of loss
    
    
    159
    
    
    
    195
    
    
    
    478
    
    
    
    587Amortization of prior service cost
    
    
    33
    
    
    
    51
    
    
    
    97
    
    
    
    152Net periodic pension expense
    
    $
    186
    
    
    $
    274
    
    
    $
    559
    
    
    $
    822
 8. BUSINESS SEGMENTS
  Wireline
 Wireless
  12




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts
 8. BUSINESS SEGMENTS (Continued)
  Three Months Ended September 30, 2010Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    66,160
    
    
    $
    39,091
    
    
    $
    1,747
    
    
    $
    (17,230
    )
    
    $
    89,768Intersegment revenue
    
    
    15,145
    
    
    
    338
    
    
    
    1,747
    
    
    
    
    
    
    
    17,230Income (loss) before income tax benefit (expense)
    
    
    1,819
    
    
    
    12,043
    
    
    
    (18,781
    )
    
    
    
    
    
    
    (4,919
    )Income tax benefit (expense)
    
    
    (130
    )
    
    
    (4,949
    )
    
    
    6,980
    
    
    
    
    
    
    
    1,901Net income (loss)
    
    
    1,689
    
    
    
    7,094
    
    
    
    (11,801
    )
    
    
    
    
    
    
    (3,018
    )Total assets
    
    
    451,222
    
    
    
    172,019
    
    
    
    1,562
    
    
    
    
    
    
    
    624,803
 Three Months Ended September 30, 2009Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    69,797
    
    
    $
    37,516
    
    
    $
    2,337
    
    
    $
    (18,505
    )
    
    $
    91,145Intersegment revenue
    
    
    15,544
    
    
    
    624
    
    
    
    2,337
    
    
    
    
    
    
    
    18,505Income (loss) before income tax benefit (expense)
    
    
    (1,949
    )
    
    
    12,056
    
    
    
    (9,511
    )
    
    
    
    
    
    
    596Income tax benefit (expense)
    
    
    (26,162
    )
    
    
    (4,890
    )
    
    
    30,712
    
    
    
    
    
    
    
    (340
    )Net income (loss) from continuing operations
    
    
    (28,111
    )
    
    
    7,166
    
    
    
    21,201
    
    
    
    
    
    
    
    256Extraordinary item, net of taxes
    
    
    37,442
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    37,346Net income
    
    
    9,331
    
    
    
    7,070
    
    
    
    21,201
    
    
    
    
    
    
    
    37,602Total assets
    
    
    498,693
    
    
    
    183,326
    
    
    
    4,512
    
    
    
    
    
    
    
    686,531
  Nine Months Ended September 30, 2010Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    192,294
    
    
    $
    107,376
    
    
    $
    4,636
    
    
    $
    (47,559
    )
    
    $
    256,747Intersegment revenue
    
    
    41,702
    
    
    
    1,221
    
    
    
    4,636
    
    
    
    
    
    
    
    47,559Income (loss) before income tax benefit (expense)
    
    
    2,759
    
    
    
    32,678
    
    
    
    (34,366
    )
    
    
    
    
    
    
    1,071Income tax expense
    
    
    (159
    )
    
    
    (13,436
    )
    
    
    (16,897
    )
    
    
    
    
    
    
    (30,492
    )Net income (loss)
    
    
    2,600
    
    
    
    19,242
    
    
    
    (51,263
    )
    
    
    
    
    
    
    (29,421
    )Total assets
    
    
    451,222
    
    
    
    172,019
    
    
    
    1,562
    
    
    
    
    
    
    
    624,803
 Nine Months Ended September 30, 2009Wireline
    
    
    Wireless
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    198,557
    
    
    $
    109,212
    
    
    $
    8,938
    
    
    $
    (53,619
    )
    
    $
    263,088Intersegment revenue
    
    
    42,798
    
    
    
    1,883
    
    
    
    8,938
    
    
    
    
    
    
    
    53,619Income (loss) before income tax benefit (expense)
    
    
    (2,044
    )
    
    
    36,875
    
    
    
    (28,462
    )
    
    
    
    
    
    
    6,369Income tax benefit (expense)
    
    
    (26,536
    )
    
    
    (15,096
    )
    
    
    38,758
    
    
    
    
    
    
    
    (2,874
    )Net income (loss) from continuing operations
    
    
    (28,580
    )
    
    
    21,779
    
    
    
    10,296
    
    
    
    
    
    
    
    3,495Extraordinary item, net of taxes
    
    
    37,442
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    37,346Net income
    
    
    8,862
    
    
    
    21,683
    
    
    
    10,296
    
    
    
    
    
    
    
    40,841Total assets
    
    
    498,693
    
    
    
    183,326
    
    
    
    4,512
    
    
    
    
    
    
    
    686,531
 13




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts
 9. COMMITMENTS AND CONTINGENCIES
   Income Taxes
   10. SUBSEQUENT EVENTS
  14




---



##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands except Per Share Amounts
 10. SUBSEQUENT EVENTS (Continued)
      15




---



##### 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;
    
    our substantial debt which requires us to dedicate a substantial portion of our cash
flow from operations to payments on our debt;
    
    our ability to generate sufficient earnings and cash flows to continue to make dividend
payments to our stockholders;
    
    our ability to keep pace with rapid technological developments and changing standards in
the telecommunications industry, including our ability to obtain new devices, spectrum,
bandwidth, and other network elements;
    
    our ability to develop attractive integrated products and services making use of our
substantial investments in fiber optic cable facilities, including our AKORN® and Northstar
fiber optic cables that connect Alaska to the Lower 48 states;
    
    unanticipated damage to one or more of our high capacity cables resulting from
construction or digging mishaps, fishing boats or natural disasters;
    
    changes in general industry and market conditions, and structural declines within the
telecommunications industry;
    
    changes in overall national, regional or local economic conditions;
    
    governmental and public policy changes, including changes in our revenues resulting from
regulatory actions affecting inter-carrier compensation or changes in revenue from
Universal Service Funds (USFs);
    
    the availability of future financing in the amounts, at the terms, and subject to the
conditions necessary, to support our business and pursue growth opportunities;
    
    unanticipated costs required to fund our postretirement benefit plans;
    
    the success or failure of any future acquisitions;
    
    the outcome of on-going IRS audits; and
    
    the matters described under Item 1A  Risk Factors in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2009, and subsequent Quarterly Reports on Form 10-Q.
  16




---



##### Table of Contents



Important Changes to Presentation
 Materiality. Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in the Current Year Financial Statements,
  Overview
   
    
    activity in the oil and gas markets, including regulatory activity;
    
    tourism levels;
    
    military activity;
    
    the cost of long-haul telecommunications bandwidth;
    
    local customer preferences;
    
    average usage of Internet technology;
    
    unemployment levels; and
    
    housing activity.
  Strategy
  
    
    Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash
provided by operating activities. We devote more resources to higher growth markets such as
wireless, including wireless data and wireline broadband, including our interstate MPLS
network comprising redundant long-haul undersea fiber optic cables and other managed data services to businesses.
 17




---



##### Table of Contents




    
    Investment with Discipline: We focus on gaining market share in those markets that
contain high revenue producing customers. In our wireline business, we focus on deploying
reliable and redundant data connectivity in each market covered by our network underpinned
by high-speed fiber links within and between Alaskas urban centers. We have increasingly
targeted commercial and government customers of all sizes that demand managed or other
sophisticated data solutions. In our wireless business, we have directed resources towards
enhancing and expanding our 3G coverage and marketing wireless plans that encourage
customer adoption of smart phones and mobile plans.
    
    Process Improvement to Achieve Operational Excellence:While focusing resources on
revenue growth and market share gains, we continually challenge our management team and
employees at all levels of the organization to lower expenses and improve the customer
experience through process improvements. We expect to continue to invest in
technology-assisted process improvement. 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. As a result of past successes, we have been able to
serve more customers while maintaining our workforce at or below prior levels.
    
    Pay for Performance:We embrace a culture of urgency and accountability. We establish
goals for all of our employees that are tied to the imperatives described above. We seek to
provide our non-represented employees cash incentives and equity compensation tied to these
goals. We design executive compensation programs carefully to align executives and
stockholders long-term interests.
    
    Continuous Enhancement of Products and Services:We intend to continue to
introduce new services that draw upon our core competencies that we believe will be
attractive to our target customers. In considering new services, we look for market
opportunities that we believe present significant growth opportunities such as, our
investments in our AKORN and Northstar fiber optic cable systems and our first-to-market
deployment of 3G wireless services. In July, we launched a new suite of services that make
use of our data centers in Anchorage, Alaska and Hillsboro, Oregon. In addition we recently
acquired a 49% interest in TekMate, LLC., Alaskas largest privately-owned information
technology services company. With this investment and a partnership operating agreement, we
believe we will bring broader managed IT solutions and professional services to the market.
  18




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
 Three Months ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    % ChangeOperating revenues:Retail
    
    $
    20,650
    
    
    $
    21,967
    
    
    $
    (1,317
    )
    
    
    -6.0
    %Wholesale
    
    
    2,248
    
    
    
    2,836
    
    
    
    (588
    )
    
    
    -20.7
    %Access
    
    
    16,108
    
    
    
    18,003
    
    
    
    (1,895
    )
    
    
    -10.5
    %Enterprise
    
    
    12,009
    
    
    
    11,447
    
    
    
    562
    
    
    
    4.9
    %Wireline
    
    
    51,015
    
    
    
    54,253
    
    
    
    (3,238
    )
    
    
    -6.0
    %Wireless
    
    
    38,753
    
    
    
    36,892
    
    
    
    1,861
    
    
    
    5.0
    %Total operating revenues
    
    
    89,768
    
    
    
    91,145
    
    
    
    (1,377
    )
    
    
    -1.5
    %Operating expenses:WirelineCost of services and sales
    
    
    18,998
    
    
    
    21,031
    
    
    
    (2,033
    )
    
    
    -9.7
    %Selling, general and administrative
    
    
    17,166
    
    
    
    15,890
    
    
    
    1,276
    
    
    
    8.0
    %WirelessCost of services and sales
    
    
    14,159
    
    
    
    14,287
    
    
    
    (128
    )
    
    
    -0.9
    %Selling, general and administrative
    
    
    6,034
    
    
    
    6,020
    
    
    
    14
    
    
    
    0.2
    %Depreciation and amortization
    
    
    18,606
    
    
    
    23,724
    
    
    
    (5,118
    )
    
    
    -21.6
    %Loss on disposal of assets
    
    
    9
    
    
    
    (15
    )
    
    
    24
    
    
    
    -160.0
    %Total operating expenses
    
    
    74,972
    
    
    
    80,937
    
    
    
    (5,965
    )
    
    
    -7.4
    %Operating income
    
    
    14,796
    
    
    
    10,208
    
    
    
    4,588
    
    
    
    44.9
    %Operating margin
    
    
    16.5
    %
    
    
    11.2
    %Other income and expense:Interest expense
    
    
    (19,723
    )
    
    
    (9,642
    )
    
    
    (10,081
    )
    
    
    104.6
    %Interest income
    
    
    8
    
    
    
    30
    
    
    
    (22
    )
    
    
    -73.3
    %Total other income and expense
    
    
    (19,715
    )
    
    
    (9,612
    )
    
    
    (10,103
    )
    
    
    105.1
    %Income (loss) before income tax benefit (expense)
    
    
    (4,919
    )
    
    
    596
    
    
    
    (5,515
    )
    
    
    -925.3
    %Income tax benefit (expense)
    
    
    1,901
    
    
    
    (340
    )
    
    
    2,241
    
    
    
    -659.1
    %Income (loss) before extraordinary item
    
    
    (3,018
    )
    
    
    256
    
    
    
    (3,274
    )
    
    
    -1278.9
    %Extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    (37,346
    )
    
    
    -100.0
    %Net income (loss)
    
    $
    (3,018
    )
    
    $
    37,602
    
    
    $
    (40,620
    )
    
    
    -108.0
    %
 Revenue Sources by Segment
  
    
    Wireline:We provide communications services including voice, data, broadband,
multi-protocol label switching services, network access, long distance and other services
to consumer, carrier, business and government customers throughout Alaska and to and from
Alaska.
 19




---



##### Table of Contents




    
    Wireless:We provide wireless voice and data services, products, other value-added
services and equipment sales across Alaska.
 Operating Revenue
 Wireline
 Retail:
 Wholesale:
 Access:
 Enterprise:
 Wireless
  Operating Expense
 Wireline:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Wireless
 Cost of Services and Sales 
 Selling, General and Administrative 
 Depreciation and Amortization:
 20




---



##### Table of Contents



Other Income and Expense:
  Income Taxes:
 Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 Nine Months ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    % ChangeOperating revenues:Retail
    
    $
    62,012
    
    
    $
    64,480
    
    
    $
    (2,468
    )
    
    
    -3.8
    %Wholesale
    
    
    7,280
    
    
    
    8,795
    
    
    
    (1,515
    )
    
    
    -17.2
    %Access
    
    
    45,774
    
    
    
    48,237
    
    
    
    (2,463
    )
    
    
    -5.1
    %Enterprise
    
    
    35,526
    
    
    
    34,247
    
    
    
    1,279
    
    
    
    3.7
    %Wireline
    
    
    150,592
    
    
    
    155,759
    
    
    
    (5,167
    )
    
    
    -3.3
    %Wireless
    
    
    106,155
    
    
    
    107,329
    
    
    
    (1,174
    )
    
    
    -1.1
    %Total operating revenues
    
    
    256,747
    
    
    
    263,088
    
    
    
    (6,341
    )
    
    
    -2.4
    %Operating expenses:WirelineCost of services and sales
    
    
    57,327
    
    
    
    61,913
    
    
    
    (4,586
    )
    
    
    -7.4
    %Selling, general and administrative
    
    
    49,143
    
    
    
    48,766
    
    
    
    377
    
    
    
    0.8
    %WirelessCost of services and sales
    
    
    40,296
    
    
    
    39,973
    
    
    
    323
    
    
    
    0.8
    %Selling, general and administrative
    
    
    16,879
    
    
    
    17,626
    
    
    
    (747
    )
    
    
    -4.2
    %Depreciation and amortization
    
    
    55,974
    
    
    
    59,784
    
    
    
    (3,810
    )
    
    
    -6.4
    %(Gain) loss on disposal of assets
    
    
    (479
    )
    
    
    454
    
    
    
    (933
    )
    
    
    -205.5
    %Total operating expenses
    
    
    219,140
    
    
    
    228,516
    
    
    
    (9,376
    )
    
    
    -4.1
    %Operating income
    
    
    37,607
    
    
    
    34,572
    
    
    
    3,035
    
    
    
    8.8
    %Operating margin
    
    
    14.6
    %
    
    
    13.1
    %Other income and expense:Interest expense
    
    
    (36,567
    )
    
    
    (28,284
    )
    
    
    (8,283
    )
    
    
    29.3
    %Interest income
    
    
    31
    
    
    
    81
    
    
    
    (50
    )
    
    
    -61.7
    %Total other income and expense
    
    
    (36,536
    )
    
    
    (28,203
    )
    
    
    (8,333
    )
    
    
    29.5
    %Income before income tax expense
    
    
    1,071
    
    
    
    6,369
    
    
    
    (5,298
    )
    
    
    -83.2
    %Income tax expense
    
    
    (30,492
    )
    
    
    (2,874
    )
    
    
    (27,618
    )
    
    
    961.0
    %Income (loss) before extraordinary item
    
    
    (29,421
    )
    
    
    3,495
    
    
    
    (32,916
    )
    
    
    -941.8
    %Extraordinary item, net of taxes
    
    
    
    
    
    
    37,346
    
    
    
    (37,346
    )
    
    
    -100.0
    %Net income (loss)
    
    $
    (29,421
    )
    
    $
    40,841
    
    
    $
    (70,262
    )
    
    
    -172.0
    %
 21




---



##### Table of Contents



Operating Revenue
 Wireline
 Retail:
 Wholesale:
 Access:
 Enterprise:
 Wireless
  Operating Expense
 Wireline:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Wireless:
 Cost of Services and Sales 
 Selling, General and Administrative 
 Depreciation and Amortization:
 Gain/Loss on Disposal of Assets:
 22




---



##### Table of Contents



Other Income and Expense:
 Income Taxes:
 Liquidity and Capital Resources
  Nine Months EndedSeptember 30,2010
    
    
    2009Net cash provided by operating activities
    
    $
    69,454
    
    
    $
    73,007Net change in funds held in restricted accounts
    
    $
    954
    
    
    $
    14,527Capital expenditures
    
    $
    (25,040
    )
    
    $
    (37,258
    )Net settlement of capital expenditures payable
    
    $
    (3,505
    )
    
    $
    (9,450
    )Net borrowings (repayments)
    
    $
    (545
    )
    
    $
    (5,685
    )Dividends
    
    $
    (28,777
    )
    
    $
    (28,534
    )Interest paid
    
    $
    (22,816
    )
    
    $
    (28,371
    )
 Sources
    23




---



##### Table of Contents



Uses
    Legal
  Employees
  Recent Developments
  Critical Accounting Policies and Accounting Estimates
  24




---



##### Table of Contents



Recently Issued Accounting Pronouncements
 Revenue Recognition  Multiple-Deliverable Revenue Arrangements a
Consensus of the FASB Emerging Issues Task Force.
 Software  Certain Revenues Arrangements
That Include Software Elements
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   25




---



##### Table of Contents



PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
 The telecommunications industry in Alaska is extremely competitive. We face increasing competition
for a small number of customers from national wireless carriers that have entered or will enter our
market. New market entrants will make it more difficult for us to attract and retain customers. We
may also lose roaming revenues from carriers that enter the Alaskan market.
    26




---



##### Table of Contents



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 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a) Exhibits :
 31.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.
 27




---



##### Table of Contents



SIGNATURES
  Date: November 1, 2010
    
    ALASKA COMMUNICATIONS SYSTEMS GROUP, INC./s/ Liane PelletierLiane PelletierChief Executive Officer,
Chairman of the Board and President/s/ David WilsonDavid WilsonChief Financial Officer, Executive Vice President
(Principal Accounting Officer) 28