##### Table of Contents



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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 June 30, 2001
 
OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | 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.)

510 L Street, Suite 500, Anchorage, Alaska 99501
(Address of Principal Executive Offices) (Zip Code)

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

---

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[X]         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                           
|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.                                                    
|SIGNATURE                



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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 June 30, 2001 and December 31, 2000                           |  | 3     
|         
|         
|         
|         
|          |  | Consolidated Statements of Operations (unaudited)
For the Three and Six Months Ended June 30, 2001 and 2000 |  | 4     
|         
|         
|         
|         
|          |  | Consolidated Statements of Cash Flows (unaudited)
For the Six Months Ended June 30, 2001 and 2000           |  | 5     
|         
|         
|         
|         
|          |  | Notes to Consolidated Financial Statements (unaudited)                                                      |  | 6     
|         
|         
|         
|         
|Item 2.   |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                       |  | 12    
|         
|         
|         
|         
|Item 3.   |  | Quantitative and Qualitative Disclosures
About Market Risk                                                  |  | 23    
|         
|         
|         
|         
|PART II   |  | Other Information                                                                                           |  |       
|         
|         
|         
|         
|Item 1.   |  | Legal Proceedings                                                                                           |  | 24    
|         
|         
|         
|         
|Item 2.   |  | Changes in Securities and Use of Proceeds                                                                   |  | 25    
|         
|         
|         
|         
|Item 3.   |  | Defaults upon Senior Securities                                                                             |  | 25    
|         
|         
|         
|         
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                         |  | 25    
|         
|         
|         
|         
|Item 5.   |  | Other Information                                                                                           |  | 25    
|         
|         
|         
|         
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                            |  | 25    
|         
|         
|         
|         
|Signature |  |                                                                                                             |  | 26    

2



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.







Consolidated Balance Sheets


(Unaudited, In Thousands Except Per Share Amounts)


|                                                                 |                                                                                           |                            |           |         |          |   |              |         |         |  | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------- | --------- | ------- | -------- | - | ------------ | ------- | ------- |  | 
|                                                                 |                                                                                           |                            |           |         | June 30, |   | December 31,
|Assets                                                           |                                                                                           | 2001                       |           | 2000   
|                                                                 |                                                                                           |                            |           |        
|Current assets:                                                  |                                                                                           |                            |           |         |          |   |              |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Cash and cash equivalents                                                                 |                            | $         | 31,118  |          |   | $            | 61,896  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Restricted cash                                                                           |                            |           | 6,828   |          |   |              |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accounts
receivabletrade, net of allowance of $5,171 and $9,831                          |                            |           | 44,810  |          |   |              | 46,337  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accounts
receivableaffiliates                                                            |                            |           | 2,240   |          |   |              | 1,516   |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Materials and supplies                                                                    |                            |           | 9,834   |          |   |              | 11,103  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Prepayments and other current assets                                                      |                            |           | 5,539   |          |   |              | 4,304   |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|                                                                 |                                                                                           | Total current assets       |           |         | 100,369  |   |              |         | 125,156 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Property, plant and equipment                                    |                                                                                           |                            | 1,006,044 |         |          |   | 953,557      |        
|                                                                
|                                                                
|                                                                
|                                                                
|Less: accumulated depreciation                                   |                                                                                           |                            | 523,194   |         |          |   | 492,822      |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|                                                                 | Property, plant and equipment, net                                                        |                            |           | 482,850 |          |   |              | 460,735 |        
|                                                                
|                                                                
|                                                                
|                                                                
|Goodwill, net of accumulated amortization of $15,620 and $11,753 |                                                                                           |                            | 254,368   |         |          |   | 258,236      |        
|                                                                
|                                                                
|                                                                
|                                                                
|Investments                                                      |                                                                                           |                            |          |         |          |   | 1,370        |        
|                                                                
|                                                                
|                                                                
|                                                                
|Note receivable from officer                                     |                                                                                           |                            | 331       |         |          |   |             |        
|                                                                
|                                                                
|                                                                
|                                                                
|Other assets                                                     |                                                                                           |                            | 61,106    |         |          |   | 63,809       |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|Total assets                                                     |                                                                                           | $                          | 899,024   |         |          | $ | 909,306      |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|Liabilities and Stockholders Equity                             |                                                                                           |                            |           |         |          |   |              |        
|                                                                
|                                                                
|                                                                
|                                                                
|Current liabilities:                                             |                                                                                           |                            |           |         |          |   |              |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Current portion of long-term obligations                                                  |                            |           | 5,327   |          |   |              | 2,870   |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accounts
payabletrade                                                                    |                            |           | 21,448  |          |   |              | 31,865  |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accounts
payableaffiliates                                                               |                            |           | 621     |          |   |              | 1,145   |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Advance billings and customer deposits                                                    |                            |           | 8,605   |          |   |              | 8,689   |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accrued and other current liabilities                                                     |                            |           | 27,272  |          |   |              | 25,860  |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|                                                                 |                                                                                           | Total current liabilities  |           |         | 63,273   |   |              |         | 70,429  | 
|                                                                
|                                                                
|                                                                
|                                                                
|Long-term obligations, net of current portion                    |                                                                                           |                            | 591,884   |         |          |   | 596,772      |        
|                                                                
|                                                                
|                                                                
|                                                                
|Unamortized investment tax credits                               |                                                                                           |                            | 98        |         |          |   | 197          |        
|                                                                
|                                                                
|                                                                
|                                                                
|Other deferred credits and long-term liabilities                 |                                                                                           |                            | 23,613    |         |          |   | 10,755       |        
|                                                                
|                                                                
|                                                                
|                                                                
|Commitments and contingencies                                    |                                                                                           |                            |          |         |          |   |             |        
|                                                                
|                                                                
|                                                                
|                                                                
|Stockholders equity:                                            |                                                                                           |                            |           |         |          |   |              |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Common stock, $.01 par value; 1,000 shares authorized, and
1 share issued and outstanding |                            |           |        |          |   |              |        |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Contributed capital                                                                       |                            |           | 287,242 |          |   |              | 287,242 |        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accumulated deficit                                                                       |                            |           | (62,470 | )        |   |              | (56,089 | )      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accumulated other comprehensive loss                                                      |                            |           | (4,616  | )        |   |              |        |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|                                                                 |                                                                                           | Total stockholders equity |           |         | 220,156  |   |              |         | 231,153 | 
|                                                                 |                                                                                           |                            |           |         |          |   |              |        
|Total liabilities and stockholders equity                       |                                                                                           | $                          | 899,024   |         |          | $ | 909,306      |        
|                                                                 |                                                                                           |                            |           |         |          |   |              |        

See Notes to Consolidated Financial Statements

3



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.







Consolidated Statements of Operations


(Unaudited, In Thousands Except Per Share Amounts)


|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |         |         |  
|------------------------ | ---------------------------------------- | ------------------------ | ------ | ------------------ | ------- | ---------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                         |                                          |                          |        | Three Months Ended |         | Six Months Ended
|                         |                                          |                          |        | June 30,           |         | June 30,        
|                         |                                          |                          |        |                    |         |                 
|                         |                                          |                          |        | 2001               |         | 2000             |        | 2001    |         | 2000
|                         |                                          |                          |        |                    |         |                  |        |         |         |     
|Operating revenues:      |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Local telephone                          |                          | $      | 54,461             |         |                  | $      | 59,010  |         |      | $      | 109,158 |         |   | $      | 117,147 |        
|                        
|                        
|                        
|                        
|                         | Cellular                                 |                          |        | 10,411             |         |                  |        | 10,079  |         |      |        | 19,693  |         |   |        | 18,710  |        
|                        
|                        
|                        
|                        
|                         | Directory                                |                          |        | 8,213              |         |                  |        | 6,866   |         |      |        | 16,152  |         |   |        | 14,329  |        
|                        
|                        
|                        
|                        
|                         | Internet                                 |                          |        | 3,203              |         |                  |        | 1,522   |         |      |        | 6,314   |         |   |        | 2,657   |        
|                        
|                        
|                        
|                        
|                         | Interexchange                            |                          |        | 5,212              |         |                  |        | 2,967   |         |      |        | 11,162  |         |   |        | 5,537   |        
|                        
|                        
|                        
|                        
|                         | Other                                    |                          |        | 243                |         |                  |        | 284     |         |      |        | 498     |         |   |        | 574     |        
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total operating revenues |        |                    | 81,743  |                  |        |         | 80,728  |      |        |         | 162,977 |   |        |         | 158,954 |  
|                        
|                        
|                        
|                        
|Operating expenses:      |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Local telephone                          |                          |        | 30,331             |         |                  |        | 33,809  |         |      |        | 59,143  |         |   |        | 69,122  |        
|                        
|                        
|                        
|                        
|                         | Cellular                                 |                          |        | 5,972              |         |                  |        | 6,289   |         |      |        | 11,550  |         |   |        | 11,771  |        
|                        
|                        
|                        
|                        
|                         | Directory                                |                          |        | 3,363              |         |                  |        | 3,506   |         |      |        | 6,862   |         |   |        | 6,795   |        
|                        
|                        
|                        
|                        
|                         | Internet                                 |                          |        | 3,266              |         |                  |        | 2,686   |         |      |        | 7,009   |         |   |        | 4,116   |        
|                        
|                        
|                        
|                        
|                         | Interexchange                            |                          |        | 6,821              |         |                  |        | 4,626   |         |      |        | 16,365  |         |   |        | 8,587   |        
|                        
|                        
|                        
|                        
|                         | Other                                    |                          |        | 661                |         |                  |        | 298     |         |      |        | 1,139   |         |   |        | 689     |        
|                        
|                        
|                        
|                        
|                         | Depreciation and amortization            |                          |        | 19,691             |         |                  |        | 17,565  |         |      |        | 39,238  |         |   |        | 34,691  |        
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total operating expenses |        |                    | 70,105  |                  |        |         | 68,779  |      |        |         | 141,306 |   |        |         | 135,771 |  
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|Operating income         |                                          |                          | 11,638 |                    |         |                  | 11,949 |         |         |      | 21,671 |         |         |   | 23,183 |        
|                        
|                        
|                        
|                        
|Other income (expense):  |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Interest expense                         |                          |        | (14,585            | )       |                  |        | (15,334 | )       |      |        | (29,976 | )       |   |        | (30,637 | )      
|                        
|                        
|                        
|                        
|                         | Interest income and other                |                          |        | 739                |         |                  |        | (17     | )       |      |        | 1,756   |         |   |        | 231     |        
|                        
|                        
|                        
|                        
|                         | Equity in earnings (loss) of investments |                          |        |                   |         |                  |        | (11     | )       |      |        | 69      |         |   |        | (153    | )      
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total other expense      |        |                    | (13,846 | )                |        |         | (15,362 | )    |        |         | (28,151 | ) |        |         | (30,559 | )
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|Loss before income taxes |                                          |                          | (2,208 | )                  |         |                  | (3,413 | )       |         |      | (6,480 | )       |         |   | (7,376 | )      
|                        
|                        
|                        
|                        
|Income tax benefit       |                                          |                          | 49     |                    |         |                  | 19     |         |         |      | 99     |         |         |   | 134    |        
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        
|Net loss                 |                                          | $                        | (2,159 | )                  |         | $                | (3,394 | )       |         | $    | (6,381 | )       |         | $ | (7,242 | )      
|                         |                                          |                          |        |                    |         |                  |        |         |         |      |        |         |         |   |        |        

See Notes to Consolidated Financial Statements

4



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.







Consolidated Statements of Cash Flows


(Unaudited, In Thousands)


|                                                                                |                                           |                                                |         |                  |        |      |         |        |        |  
|------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------- | ------- | ---------------- | ------ | ---- | ------- | ------ | ------ | -
|                                                                                |                                           |                                                |         | Six Months Ended
|                                                                                |                                           |                                                |         | June 30,        
|                                                                                |                                           |                                                |         |                 
|                                                                                |                                           |                                                |         | 2001             |        | 2000
|                                                                                |                                           |                                                |         |                  |        |     
|Cash Flows from Operating Activities:                                           |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net loss                                                                        |                                           | $                                              | (6,381  | )                |        | $    | (7,242  | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Depreciation and amortization             |                                                |         | 39,238           |        |      |         | 34,691 |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Amortization of debt issuance costs       |                                                |         | 2,199            |        |      |         | 2,252  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Investment tax credits                    |                                                |         | (98              | )      |      |         | (132   | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Other deferred credits                    |                                                |         | 8,241            |        |      |         | 835    |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Capitalized interest                      |                                                |         | (752             | )      |      |         | (12    | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Changes in components of working capital: |                                                |         |                  |        |      |         |        |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                           | Accounts receivable and other current assets   |         |                  | 837    |      |         |        | 12,970 |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                           | Accounts payable and other current liabilities |         |                  | (9,613 | )    |         |        | (8,403 | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                                           | Other                                          |         |                  | (62    | )    |         |        | (404   | )
|                                                                                |                                           |                                                |         |                  |        |      |         |       
|Net cash provided by operating activities                                       |                                           |                                                | 33,609  |                  |        |      | 34,555  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash Flows from Investing Activities:                                           |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Construction and capital expenditures, net of capitalized interest              |                                           |                                                | (56,167 | )                |        |      | (28,574 | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Proceeds from liquidation of minority interest investment                       |                                           |                                                | 1,370   |                  |        |      |        |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Issuance of note receivable from officer                                        |                                           |                                                | (331    | )                |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cost of acquisitions, net of cash received                                      |                                           |                                                |        |                  |        |      | (5,598  | )     
|                                                                                |                                           |                                                |         |                  |        |      |         |       
|Net cash used by investing activities                                           |                                           |                                                | (55,128 | )                |        |      | (34,172 | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash Flows from Financing Activities:                                           |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Payments on long-term debt                                                      |                                           |                                                | (2,431  | )                |        |      | (3,029  | )     
|                                                                                |                                           |                                                |         |                  |        |      |         |       
|Net cash used by financing activities                                           |                                           |                                                | (2,431  | )                |        |      | (3,029  | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Decrease in cash                                                                |                                           |                                                | (23,950 | )                |        |      | (2,646  | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash and cash equivalents at beginning of the period                            |                                           |                                                | 61,896  |                  |        |      | 9,006   |       
|                                                                                |                                           |                                                |         |                  |        |      |         |       
|Cash and cash equivalents at the end of the period                              |                                           | $                                              | 37,946  |                  |        | $    | 6,360   |       
|                                                                                |                                           |                                                |         |                  |        |      |         |       
|Supplemental Cash Flow Data:                                                    |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Interest paid                                                                   |                                           | $                                              | 28,189  |                  |        | $    | 28,518  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Income taxes paid                                                               |                                           |                                                |        |                  |        |      |        |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Supplemental Noncash Transactions:                                              |                                           |                                                |         |                  |        |      |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Property acquired under capital lease                                           |                                           | $                                              |        |                  |        | $    | 2,918   |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Note payable in connection with acquisition                                     |                                           |                                                |        |                  |        |      | 2,250   |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Interest rate swap marked to market                                             |                                           |                                                | 4,616   |                  |        |      |        |       

See Notes to Consolidated Financial Statements

5



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.







Notes to Consolidated Financial Statements


Six Months Ended June 30, 2001
(Unaudited, 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 organized in July 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 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 Television, L.L.C. (ACSTV)            
|
| |  |  | ACS Internet, Inc.                          
|
| |  |  | ACS InfoSource, Inc.                        
|
| |  |  | ACS Messaging, Inc.                         

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, 2000. Certain reclassifications have been made to the 2000
financial statements to make them conform to the current presentation.

Comprehensive loss for the six months ended June 30, 2001 was $10,997.
The difference between net loss and comprehensive loss resulted from the
adoption of Statement of Financial Accounting Standards (SFAS) 133,
Accounting for Derivative Instruments and Hedging Activities,as amended.
Comprehensive loss for the six months ended June 30, 2000 equaled the net loss.

On June 29, 2001, the Financial Accounting Standards Board (FASB) approved
for issuance Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations,which supercedes APB Opinion No, 16, Business Combinationsand
FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. This statement establishes new standards for accounting and
reporting requirements for business combinations and requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. The Company does not believe that the adoption of this statement will
have a material impact on its financial position, results of operations or cash
flows.

6



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

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

On June 29, 2001, the FASB approved for issuance SFAS 142, Goodwill and
Intangible assets, which supercedes APB Opinion No. 17, Intangible Assets. This
statement establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. The provisions of
SFAS 142 will be effective for fiscal years beginning after December 15, 2001.
The Company is evaluating the impact of the adoption of this standard on its
financial position, results of operations and cash flows. For the three and six
months ended June 30, 2001, the Company amortized $1,932 and $3,863 of
goodwill, respectively.

In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the consolidated financial position, results of operations and cash
flows for all periods presented. The results of operations for the three and
six months ended June 30, 2001 and 2000 are not necessarily indicative of the
results of operations which might be expected for the entire year or any other
interim periods.

2.   ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Commencing January 1, 2001, ACS Holdings adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. ACS Holdings maintains an
interest rate risk management strategy as a condition of its bank credit
agreement that uses derivatives to minimize significant, unanticipated earnings
fluctuations caused by interest rate volatility. ACS Holdings specific goals
are (1) to manage interest rate sensitivity by modifying the repricing
characteristics of certain of its debt and (2) to lower (where possible) the
cost of borrowed funds.

By using derivative financial instruments to hedge exposure to changes in
interest rates, the Company exposes itself to credit risk and market risk. ACS
Holdings has minimized its credit risk by entering into a transaction with a
high-quality counterparty and monitoring the financial condition of that
counterparty. Market risk is managed through the setting and monitoring of
parameters that limit the types and degree of market risks that are acceptable.

On January 1, 2001 ACS Holdings recognized a net charge of $1,243 in
Stockholders Equity relating to its adoption of SFAS 133 as accumulated other
comprehensive loss. As of June 30, 2001, the Company had recorded $4,616 as
accumulated other comprehensive loss. This increase in accumulated
comprehensive loss was due to the change in the fair market value of the
Companys interest rate swap as a result of declining interest rates
experienced during the last six months.

3.   STOCK INCENTIVE PLANS

The Companys employees participate in various plans of ACS Group, which
through its Compensation Committee of the board of directors, may grant stock
options, stock appreciation rights and other awards to officers, employees and
non-employee directors. At June 30, 2001, ACS Group has reserved a total of
6,060 shares of authorized common stock for issuance under the various plans.
In general, options under the plans vest ratably over three, four or five years
and the plans terminate in approximately 10 years from the date of adoption.
The plans allow forfeited options to be reissued.

ALEC Holdings, Inc. 1999 Stock Incentive Plan

The Parent has reserved 3,410 shares under this plan, which was adopted in
connection with the completion of the acquisition of the acquired companies on
May 14, 1999. At June 30, 2001, 4,003 options have been granted, 1,082 have
been forfeited, 257 have been exercised and 489 shares are available for grant
under the plan.

7



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

3.   STOCK INCENTIVE PLANS (Continued)

On January 4, 2001, the Parents Board of Directors approved the grant of
options to purchase 75 shares under the plan to certain members of management
at an exercise price equal to the fair market value of the common stock on the
date of grant, generally vesting over four years ratably.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

The Parent has reserved 1,500 shares under this plan, which was adopted in
November 1999 in connection with its initial public offering. At June 30,
2001, 1,247 options have been granted, 304 have been forfeited, nine have been
exercised, and 557 shares are available for grant under the plan. The term of
options granted under the plan may not exceed 10 years. Unless otherwise
determined by the Parents 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.

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

The Parent adopted its non-employee director stock compensation plan in
November 1999 in connection with its initial public offering. The Parent has
reserved 150 shares under this plan. At June 30, 2001, 41 shares have been
awarded and 109 shares are available for grant under the plan. ACS Groups
directors are required to receive not less than 25% of their annual retainer
and meeting fees in the form of the Parents stock, and may elect to receive up
to 100% of directors compensation in the form of stock.

On March 30, 2001, 10 shares under the plan were awarded to directors, of
which seven were elected to be deferred until termination of service by the
directors. On June 29, 2001, five shares were awarded to directors, of which
four were elected to be deferred until termination of service by the directors.

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

This plan was also adopted in connection with the Parents initial public
offering in November 1999. At June 30, 2001, 180 shares have been issued
under the plan and 820 shares are available for issuance and sale. The plan
will terminate on December 31, 2009. All ACS Holdings 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 29, 2001, 48 shares were issued under the plan.

4.   BUSINESS SEGMENTS

The Company now has five reportable segments: local telephone, cellular,
directory, Internet and interexchange. Beginning with the first quarter of
2001, the Company began reporting directory and interexchange as separate
segments. Prior year amounts have been reclassified to conform with the
current presentation. Local telephone provides landline telecommunications
services, and consists of local telephone service, network access and
deregulated and other revenues; cellular provides wireless telecommunications
service; directory provides yellow page advertising and other related products;
Internet provides Internet service; and interexchange provides long distance
and private network 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 and a messaging service segment that do not currently meet the criteria
for a reportable segment and are therefore included in All Other below.

8



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

4.   BUSINESS SEGMENTS (Continued)

The Company also incurs interest expense, interest income, equity in
earnings of investments, goodwill amortization 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 revenues. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.

The following table illustrates selected financial data for each segment
as of and for the six months ended June 30, 2001:

|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------ |  | --------------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                               |  | Local Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $               | 109,158 |          |  | $         | 19,706  |          |  | $             | 16,152 |           |  | $            | 6,314  |       |  | $ | 15,656 |   |  | $ | 8,736   |   |  | $ | (12,745 | ) |  | $ | 162,977 |  
|                              
|                              
|                              
|                              
|Depreciation and amortization  |  |                 | 26,229  |          |  |           | 2,843   |          |  |               |       |           |  |              | 1,246  |       |  |   | 1,144  |   |  |   | 7,776   |   |  |   |        |   |  |   | 39,238  |  
|                              
|                              
|                              
|                              
|Operating income (loss)        |  |                 | 17,246  |          |  |           | 2,678   |          |  |               | 9,262  |           |  |              | (4,364 | )     |  |   | (2,203 | ) |  |   | (948    | ) |  |   |        |   |  |   | 21,671  |  
|                              
|                              
|                              
|                              
|Interest expense               |  |                 | (885    | )        |  |           | (3      | )        |  |               |       |           |  |              | (76    | )     |  |   | (152   | ) |  |   | (28,860 | ) |  |   |        |   |  |   | (29,976 | )
|                              
|                              
|                              
|                              
|Interest income                |  |                 | 3       |          |  |           | 12      |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 1,745   |   |  |   |        |   |  |   | 1,760   |  
|                              
|                              
|                              
|                              
|Income tax provision (benefit) |  |                 | 6,649   |          |  |           | 1,154   |          |  |               | 3,632  |           |  |              |       |       |  |   |       |   |  |   | (11,534 | ) |  |   |        |   |  |   | (99     | )
|                              
|                              
|                              
|                              
|Net income (loss)              |  |                 | 9,693   |          |  |           | 1,618   |          |  |               | 5,630  |           |  |              | (4,426 | )     |  |   | (2,356 | ) |  |   | (16,540 | ) |  |   |        |   |  |   | (6,381  | )
|                              
|                              
|                              
|                              
|Total assets                   |  |                 | 625,163 |          |  |           | 102,824 |          |  |               | 37,631 |           |  |              | 37,930 |       |  |   | 70,638 |   |  |   | 24,838  |   |  |   |        |   |  |   | 899,024 |  
|                              
|                              
|                              
|                              
|Capital expenditures           |  |                 | 21,545  |          |  |           | 446     |          |  |               |       |           |  |              | 13,524 |       |  |   | 19,504 |   |  |   | 1,148   |   |  |   |        |   |  |   | 56,167  |  

Operating revenues disclosed above include intersegment operating revenues
of $5,578 for local telephone, $375 for cellular, $250 for directory and $6,617
for interexchange. In accordance with SFAS 71, intercompany revenues between
local telephone and all other segments are not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the six months ended June 30, 2000:

|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------ |  | --------------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                               |  | Local Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $               | 117,147 |          |  | $         | 18,724  |          |  | $             | 14,329 |           |  | $            | 2,659  |       |  | $ | 9,420  |   |  | $ | 8,673   |   |  | $ | (11,998 | ) |  | $ | 158,954 |  
|                              
|                              
|                              
|                              
|Depreciation and amortization  |  |                 | 25,793  |          |  |           | 2,363   |          |  |               |       |           |  |              | 294    |       |  |   | 670    |   |  |   | 5,571   |   |  |   |        |   |  |   | 34,691  |  
|                              
|                              
|                              
|                              
|Operating income (loss)        |  |                 | 19,297  |          |  |           | 3,979   |          |  |               | 7,534  |           |  |              | (4,113 | )     |  |   | 159    |   |  |   | (3,673  | ) |  |   |        |   |  |   | 23,183  |  
|                              
|                              
|                              
|                              
|Interest expense               |  |                 | (567    | )        |  |           | (5      | )        |  |               |       |           |  |              | (9     | )     |  |   | (155   | ) |  |   | (29,901 | ) |  |   |        |   |  |   | (30,637 | )
|                              
|                              
|                              
|                              
|Interest income                |  |                 | 87      |          |  |           | 77      |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 111     |   |  |   |        |   |  |   | 275     |  
|                              
|                              
|                              
|                              
|Income tax provision (benefit) |  |                 | 9,775   |          |  |           | 1,306   |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | (11,215 | ) |  |   |        |   |  |   | (134    | )
|                              
|                              
|                              
|                              
|Net income (loss)              |  |                 | 12,402  |          |  |           | 2,758   |          |  |               | 4,174  |           |  |              | (4,115 | )     |  |   | 10     |   |  |   | (22,471 | ) |  |   |        |   |  |   | (7,242  | )
|                              
|                              
|                              
|                              
|Total assets                   |  |                 | 672,597 |          |  |           | 121,281 |          |  |               | 29,981 |           |  |              | 23,974 |       |  |   | 53,965 |   |  |   | 28,127  |   |  |   |        |   |  |   | 929,925 |  
|                              
|                              
|                              
|                              
|Capital expenditures           |  |                 | 20,061  |          |  |           | 6,592   |          |  |               |       |           |  |              | 1,617  |       |  |   | 3,032  |   |  |   | 190     |   |  |   |        |   |  |   | 31,492  |  

Operating revenues disclosed above include intersegment operating revenues
of $3,692 for local telephone, $345 for cellular, $2 for Internet and $4,990
for interexchange. In accordance with SFAS 71, intercompany revenues between
local telephone and all other segments are not eliminated above.

9



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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 2001
(Unaudited, in Thousands Except Per Share Amounts)

4.   BUSINESS SEGMENTS (Continued)

The following table illustrates selected financial data for each segment
as of and for the three months ended June 30, 2001:

|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------ |  | --------------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                               |  | Local Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $               | 54,461  |          |  | $         | 10,417  |          |  | $             | 8,213  |           |  | $            | 3,203  |       |  | $ | 7,584  |   |  | $ | 4,353   |   |  | $ | (6,488 | ) |  | $ | 81,743  |  
|                              
|                              
|                              
|                              
|Depreciation and amortization  |  |                 | 13,182  |          |  |           | 1,444   |          |  |               |       |           |  |              | 626    |       |  |   | 560    |   |  |   | 3,879   |   |  |   |       |   |  |   | 19,691  |  
|                              
|                              
|                              
|                              
|Operating income (loss)        |  |                 | 7,737   |          |  |           | 1,633   |          |  |               | 4,839  |           |  |              | (1,998 | )     |  |   | 16     |   |  |   | (589    | ) |  |   |       |   |  |   | 11,638  |  
|                              
|                              
|                              
|                              
|Interest expense               |  |                 | (402    | )        |  |           |        |          |  |               |       |           |  |              | (42    | )     |  |   | (77    | ) |  |   | (14,064 | ) |  |   |       |   |  |   | (14,585 | )
|                              
|                              
|                              
|                              
|Interest income                |  |                 |        |          |  |           |        |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 708     |   |  |   |       |   |  |   | 708     |  
|                              
|                              
|                              
|                              
|Income tax provision (benefit) |  |                 | 2,974   |          |  |           | 715     |          |  |               | 1,814  |           |  |              |       |       |  |   |       |   |  |   | (5,552  | ) |  |   |       |   |  |   | (49     | )
|                              
|                              
|                              
|                              
|Net income (loss)              |  |                 | 4,370   |          |  |           | 999     |          |  |               | 3,025  |           |  |              | (2,030 | )     |  |   | (61    | ) |  |   | (8,462  | ) |  |   |       |   |  |   | (2,159  | )
|                              
|                              
|                              
|                              
|Total assets                   |  |                 | 624,063 |          |  |           | 104,751 |          |  |               | 38,011 |           |  |              | 38,061 |       |  |   | 69,617 |   |  |   | 24,531  |   |  |   |       |   |  |   | 899,024 |  
|                              
|                              
|                              
|                              
|Capital expenditures           |  |                 | 9,796   |          |  |           | 59      |          |  |               |       |           |  |              | 2,397  |       |  |   |       |   |  |   |        |   |  |   |       |   |  |   | 12,252  |  

Operating revenues disclosed above include intersegment operating revenues
of $9,949 for local telephone, $603 for cellular, $500 for directory and
$13,097 for interexchange. In accordance with SFAS 71, intercompany revenues
between local telephone and all other segments are not eliminated above.

The following table illustrates selected financial data for each segment
as of and for the three months ended June 30, 2000:

|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |       |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------ |  | --------------- | ------- | -------- |  | --------- | ------- | -------- |  | ------------- | ------ | --------- |  | ------------ | ------ | ----- |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                               |  | Local Telephone |         | Cellular |  | Directory |         | Internet |  | Interexchange |        | All Other |  | Eliminations |        | Total
|                               |  |                 |         |          |  |           |         |          |  |               |        |           |  |              |        |      
|Operating revenues             |  | $               | 59,010  |          |  | $         | 10,088  |          |  | $             | 6,866  |           |  | $            | 1,522  |       |  | $ | 5,619  |   |  | $ | 4,330   |   |  | $ | (6,707 | ) |  | $ | 80,728  |  
|                              
|                              
|                              
|                              
|Depreciation and amortization  |  |                 | 13,784  |          |  |           | 1,234   |          |  |               |       |           |  |              | 193    |       |  |   | 345    |   |  |   | 2,009   |   |  |   |       |   |  |   | 17,565  |  
|                              
|                              
|                              
|                              
|Operating income (loss)        |  |                 | 11,693  |          |  |           | 2,556   |          |  |               | 3,360  |           |  |              | (3,089 | )     |  |   | 646    |   |  |   | (3,217  | ) |  |   |       |   |  |   | 11,949  |  
|                              
|                              
|                              
|                              
|Interest expense               |  |                 | (280    | )        |  |           | (3      | )        |  |               |       |           |  |              | (9     | )     |  |   | (71    | ) |  |   | (14,971 | ) |  |   |       |   |  |   | (15,334 | )
|                              
|                              
|                              
|                              
|Interest income                |  |                 | 13      |          |  |           | 36      |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | 43      |   |  |   |       |   |  |   | 92      |  
|                              
|                              
|                              
|                              
|Income tax provision (benefit) |  |                 | 5,159   |          |  |           | 741     |          |  |               |       |           |  |              |       |       |  |   |       |   |  |   | (5,919  | ) |  |   |       |   |  |   | (19     | )
|                              
|                              
|                              
|                              
|Net income (loss)              |  |                 | 9,627   |          |  |           | 1,852   |          |  |               |       |           |  |              | (3,094 | )     |  |   | 578    |   |  |   | (12,357 | ) |  |   |       |   |  |   | (3,394  | )
|                              
|                              
|                              
|                              
|Total assets                   |  |                 | 672,597 |          |  |           | 121,281 |          |  |               | 29,981 |           |  |              | 23,974 |       |  |   | 53,965 |   |  |   | 28,127  |   |  |   |       |   |  |   | 929,925 |  
|                              
|                              
|                              
|                              
|Capital expenditures           |  |                 | 12,501  |          |  |           | 2,621   |          |  |               |       |           |  |              | 250    |       |  |   |       |   |  |   | 190     |   |  |   |       |   |  |   | 15,562  |  

Operating revenues disclosed above include intersegment operating revenues
of $2,203 for local telephone, $139 for cellular, and $3,697 for interexchange.
In accordance with SFAS 71, intercompany revenues between local telephone and
all other segments are not eliminated above.

5.   RELATED PARTY TRANSACTIONS

On April 17, 2001, the Company issued an interest bearing note receivable
to an officer totaling $328, which is included in Other assets. The note bears
interest at the Mid-Term Applicable Federal Rate, which was 4.91% as of June
30, 2001, and is due on April 15, 2005. The note is secured by a pledge of 100
shares of the Companys stock held in the officers name. The note balance,
including accrued interest, was $331 as of June 30, 2001.

Fox Paine & Company, the majority stockholder, receives an annual
management fee in the amount of one percent of the Companys net income before
interest expense, interest income, income taxes, depreciation and amortization
and equity in earnings (losses) of minority investments, calculated without
regard to the fee. The management fee expense for the six months ended June
30, 2001 and 2000 is $603 and $574, respectively. The management fee payable at
June 30, 2001 and 2000 is $621 and $550, respectively.

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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2001
(Unaudited, In Thousands Except Per Share Amounts)

6.   SEVERANCE AND RESTRUCTURING CHARGES

The Company recorded $3,019 related to severance and restructuring charges
under several plans adopted during 2000. Employee force reductions resulting
from these restructuring plans are expected to total approximately 300 by their
completion, which is expected to be during the fourth quarter of 2001. Employee
groups located in Alaska within the local telephone, cellular and Internet
operations are all included within the scope of the severance and restructuring
plans. The plans also call for the closure of a branch operation in Vancouver,
Washington, which was completed during the second quarter of 2001. As of June
30, 2001, $2,227 has been paid under the plans and approximately 125 employees
have been terminated.

7.   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.

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

Forward Looking Statements and Analysts Reports

This report contains forward looking statements within the meaning of the
federal securities laws, including statements concerning future rates,
revenues, costs, capital expenditures, and financing needs and availability and
statements of managements expectations and beliefs. Actual results could
differ materially from these statements as a result of many factors, including
future economic, regulatory and political conditions in Alaska and the United
States.

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

Introduction

On May 14, 1999, the Company acquired the incumbent providers of local
telephone services in Anchorage, Juneau, Fairbanks and approximately 70 rural
communities in Alaska, making it the largest provider of local telephone
service in the state and the 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.

ACS Holdings generates revenue through:



| |  | the provision of local telephone services, including:    
| | - | ---------------------------------------------------------
|
| |   |                                                         
|
| |   |                                                         
|
| |   |                                                         
|
| |   |                                                         
|
| |   |                                                         
|
| |   |                                                         
|
| |  | the provision of cellular services;                      
|
| |  | the provision of directory advertising;                  
|
| |  | the provision of Internet services;                      
|
| |  | the provision of interexchange services;                 
|
| |  | the provision of wireless cable television services; and;
|
| |  | the provision of messaging services.                     

ACS Holdings also recognizes its proportionate share of the net income or
loss of its minority-owned investments.

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

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



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

LECs have three basic tiers of customers:



| |  |  | business and residential customers located in their local service areas that pay for local phone service,                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 Telecommunications Act of 1996
(the 1996 Act).

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

ACS Holdings local service rates for end users are authorized by the
Regulatory Commission of Alaska (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.

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##### Table of Contents



RESULTS OF OPERATIONS

The following unaudited table summarizes ACS Holdings consolidated
operations for the three and six months ended June 30, 2001 and 2000. Certain
reclassifications have been made to the 2000 operations to conform to the
current presentation of ACS Holdings consolidated operations.

|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |         |         |  
|------------------------ | ---------------------------------------- | ------------------------ | ------ | --------------------------------------------------- | ------- | ---------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                         |                                          |                          |        | Three Months Ended                                  |         | Six Months Ended
|                         |                                          |                          |        | June 30,                                            |         | June 30,        
|                         |                                          |                          |        |                                                     |         |                 
|                         |                                          |                          |        | 2001                                                |         | 2000             |        | 2001    |         | 2000
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |     
|                         |                                          |                          |        | (Unaudited, in Thousands, Except Per Share Amounts)
|Operating revenues:      |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Local telephone                          |                          | $      | 54,461                                              |         |                  | $      | 59,010  |         |      | $      | 109,158 |         |   | $      | 117,147 |        
|                        
|                        
|                        
|                        
|                         | Cellular                                 |                          |        | 10,411                                              |         |                  |        | 10,079  |         |      |        | 19,693  |         |   |        | 18,710  |        
|                        
|                        
|                        
|                        
|                         | Directory                                |                          |        | 8,213                                               |         |                  |        | 6,866   |         |      |        | 16,152  |         |   |        | 14,329  |        
|                        
|                        
|                        
|                        
|                         | Internet                                 |                          |        | 3,203                                               |         |                  |        | 1,522   |         |      |        | 6,314   |         |   |        | 2,657   |        
|                        
|                        
|                        
|                        
|                         | Interexchange                            |                          |        | 5,212                                               |         |                  |        | 2,967   |         |      |        | 11,162  |         |   |        | 5,537   |        
|                        
|                        
|                        
|                        
|                         | Other                                    |                          |        | 243                                                 |         |                  |        | 284     |         |      |        | 498     |         |   |        | 574     |        
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total operating revenues |        |                                                     | 81,743  |                  |        |         | 80,728  |      |        |         | 162,977 |   |        |         | 158,954 |  
|                        
|                        
|                        
|                        
|Operating expenses:      |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Local telephone                          |                          |        | 30,331                                              |         |                  |        | 33,809  |         |      |        | 59,143  |         |   |        | 69,122  |        
|                        
|                        
|                        
|                        
|                         | Cellular                                 |                          |        | 5,972                                               |         |                  |        | 6,289   |         |      |        | 11,550  |         |   |        | 11,771  |        
|                        
|                        
|                        
|                        
|                         | Directory                                |                          |        | 3,363                                               |         |                  |        | 3,506   |         |      |        | 6,862   |         |   |        | 6,795   |        
|                        
|                        
|                        
|                        
|                         | Internet                                 |                          |        | 3,266                                               |         |                  |        | 2,686   |         |      |        | 7,009   |         |   |        | 4,116   |        
|                        
|                        
|                        
|                        
|                         | Interexchange                            |                          |        | 6,821                                               |         |                  |        | 4,626   |         |      |        | 16,365  |         |   |        | 8,587   |        
|                        
|                        
|                        
|                        
|                         | Other                                    |                          |        | 661                                                 |         |                  |        | 298     |         |      |        | 1,139   |         |   |        | 689     |        
|                        
|                        
|                        
|                        
|                         | Depreciation and amortization            |                          |        | 19,691                                              |         |                  |        | 17,565  |         |      |        | 39,238  |         |   |        | 34,691  |        
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total operating expenses |        |                                                     | 70,105  |                  |        |         | 68,779  |      |        |         | 141,306 |   |        |         | 135,771 |  
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|Operating income         |                                          |                          | 11,638 |                                                     |         |                  | 11,949 |         |         |      | 21,671 |         |         |   | 23,183 |        
|                        
|                        
|                        
|                        
|Other income (expense):  |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                        
|                        
|                        
|                        
|                         | Interest expense                         |                          |        | (14,585                                             | )       |                  |        | (15,334 | )       |      |        | (29,976 | )       |   |        | (30,637 | )      
|                        
|                        
|                        
|                        
|                         | Interest income and other                |                          |        | 739                                                 |         |                  |        | (17     | )       |      |        | 1,756   |         |   |        | 231     |        
|                        
|                        
|                        
|                        
|                         | Equity in earnings (loss) of investments |                          |        |                                                    |         |                  |        | (11     | )       |      |        | 69      |         |   |        | (153    | )      
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|                         |                                          | Total other expense      |        |                                                     | (13,846 | )                |        |         | (15,362 | )    |        |         | (28,151 | ) |        |         | (30,559 | )
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|Loss before income taxes |                                          |                          | (2,208 | )                                                   |         |                  | (3,413 | )       |         |      | (6,480 | )       |         |   | (7,376 | )      
|                        
|                        
|                        
|                        
|Income tax benefit       |                                          |                          | 49     |                                                     |         |                  | 19     |         |         |      | 99     |         |         |   | 134    |        
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        
|Net loss                 |                                          | $                        | (2,159 | )                                                   |         | $                | (3,394 | )       |         | $    | (6,381 | )       |         | $ | (7,242 | )      
|                         |                                          |                          |        |                                                     |         |                  |        |         |         |      |        |         |         |   |        |        

14



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Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Beginning with the first quarter of 2001, the Company began reporting
directory and interexchange as separate segments. Prior year amounts have been
reclassified to conform with the current presentation. All amounts are
discussed at the consolidated level after the elimination of intercompany
revenue and expense.

Operating Revenues

Operating revenues increased $1.0 million, or 1.3%, for the three months
ended June 30, 2001 compared to the three months ended June 30, 2000. Local
telephone revenues decreased compared to the corresponding period of 2000,
while cellular, Internet, directory advertising, and interexchange service
revenues all increased.

Local Telephone

Local telephone revenues, which consist of local network service, network
access revenue and deregulated and other revenues, decreased $4.5 million, or
7.7%, for the three months ended June 30, 2001 compared to the same period in
2000. The following unaudited table summarizes ACS Holdings consolidated local
telephone revenues by category.

|                              |                               |   |                           |        |      |   |        |        | 
|----------------------------- | ----------------------------- | - | ------------------------- | ------ | ---- | - | ------ | ------ | 
|                              |                               |   | Three Months Ended       
|                              |                               |   | June 30,                 
|                              |                               |   |                          
|                              |                               |   | 2001                      |        | 2000
|                              |                               |   |                           |        |     
|                              |                               |   | (Unaudited, in Thousands)
|Local telephone revenue:      |                               |   |                           |        |      |   |        |       
|                             
|                             
|                             
|                             
|                              | Local network service         |   | $                         | 22,879 |      |   | $      | 23,774 | 
|                             
|                             
|                             
|                             
|                              | Network access revenue        |   |                           | 25,029 |      |   |        | 29,093 | 
|                             
|                             
|                             
|                             
|                              | Deregulated and other revenue |   |                           | 6,553  |      |   |        | 6,143  | 
|                              |                               |   |                           |        |      |   |        |        | 
|Total local telephone revenue |                               | $ | 54,461                    |        |      | $ | 59,010 |       
|                              |                               |   |                           |        |      |   |        |        | 

The local network service component of local telephone revenues was $23.8
million during 2000 compared with $22.9 million during 2001. Revenue decreased
$0.9 million, or 3.8%, from the prior year, despite growth in average total
access lines in service of 0.7%. The net decrease was due primarily to
increased market penetration of lower margin wholesale lines in the Anchorage
market. Management believes that the continued loss of market share experienced
in the Anchorage market is attributable to below cost interconnection rates for
UNEs currently in place. The RCA has approved arbitrated interconnection rates
for UNEs for the Companys Fairbanks and Juneau markets which are also below
cost. Competition commenced in Fairbanks during the second quarter, but
competitive penetration thus far has been nominal at less than 500 lines on a
wholesale basis. The Company has not yet experienced any market share loss in
its Juneau market. During the quarter, the Company filed for an interim and
refundable UNE rate increase of approximately $10 per month per loop and
reopened interconnection proceedings for its Anchorage market. The Company is
also not earning its required rate of return for local network service and
filed a local service rate case with the RCA on July 2, 2001. See Outlook
under Item 2 of this Part and Legal Proceedings under Item 1 of Part II of
this report for further discussion.

Network access revenues decreased by $4.1 million, or 14.0%, from $29.1
million in 2000 to $25.0 million in 2001. Network access revenues are based on
a regulated return on rate base and recovery of allowable expenses associated
with the origination and termination of interstate and intrastate toll calls.
Universal service support revenue is also included in network access revenue.
The decrease in telephone access revenues from the corresponding period in 2000
is due primarily to interstate access revenue recorded in 2000 that resulted
from the allocation of Internet Service Provider (ISP) traffic minutes to the
interstate jurisdiction for which there is no corresponding revenue in 2001.
Reductions in regulated operating expense and its effect on the interstate
access revenue requirement also contributed to the decrease. Management
expects that network access revenues will decline as a component of local
telephone revenues for the foreseeable future.

15



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##### Table of Contents



Deregulated and other revenues, which increased $0.4 million, or 6.7% over
2000, consists principally of B&C services, space and power rents, deregulated
equipment sales, paystation revenues, white pages directory listing revenue,
and other miscellaneous telephone revenues.

Cellular

Cellular revenues increased $0.3 million, or 3.3%, to $10.4 million for
the three months ended June 30, 2001 compared to $10.1 million for the three
months ended June 30, 2000. This growth in revenue is primarily due to a 6.5%
increase in average cellular subscribers from 72,932 in 2000 to 77,689 in 2001.
Although average minutes of use increased from approximately 143 minutes per
month in 2000 to 183 minutes per month in 2001, average revenue per unit
decreased from $46.07 in 2000 to $44.67 in 2001.
The decrease is the result of new competitive digital statewide and national
pricing programs that offer more minutes and free features than the previous
plans for the same price, coupled with other sales promotions. These
competitive plans have resulted in increased total revenues and market share.

Directory advertising

Directory advertising revenues increased by $1.3 million, or 19.6%, to
$8.2 million in 2001 from $6.9 million in 2000. This increase is attributable
to growth in sales for the current directory phone book cycles combined with
the growth in average access lines.

Internet

Internet revenues increased $1.7 million, or 110.4%, to $3.2 million in
2001 from $1.5 million in 2000. This increase is primarily due to revenues
resulting from the acquisition of Internet Alaska, Inc. (IAI) in June of
2000. Growth in Digital Subscriber Line (DSL) customers also contributed to
the increase in Internet revenues. On July 6, 2001, the company acquired the
assets and business of Internet Plus, L.L.C., dba MosquitoNet; a Fairbanks
based ISP. The acquisition is expected to add approximately 5,000 dial-up and
high speed customers to the Companys Internet operations.

Interexchange

Interexchange service revenues increased $2.2 million to $5.2 million in
2001 from $3.0 million in 2000, or an increase of 75.7%. The increase was
primarily due to growth in long distance subscribers from 36,054 in 2000 to
66,341 in 2001. The Company also experienced growth in long distance minutes of
use from 19.0 million in 2000 to 60.8 million in 2001. The growth in both
subscribers and minutes of use was due to high customer acceptance of and
satisfaction with the Companys flat rate long distance product offerings which
began rolling out in the fourth quarter of 2000.

Other

Other revenues, which consist principally of wireless cable television
revenues, decreased $0.1 million from $0.3 million to $0.2 million in 2001.

Operating Expenses

Operating expenses increased $1.3 million, or 1.9%, to $70.1 million for
the quarter ended June 30, 2001 from $68.8 million for the quarter ended June
30, 2000.

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 expenses decreased $3.5
million, or 10.3%, to $30.3 million for the quarter ended June 30, 2001 from
$33.8 million for the quarter ended June 30, 2000. As a percentage of local
telephone revenues, local telephone operating expenses dropped to 55.7% in 2001
from 57.3% in 2000. These results reflect continued

16



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##### Table of Contents



improvements in the Companys
cost structure, including workforce reductions, benefits derived from the
deployment of information systems, and other synergies, realized through the
continued consolidation of the operations the Company acquired in 1999.

Cellular

Cellular expense decreased $0.3 million, or 5.0%, for the three months
ended June 30, 2001 compared to the three months ended June 30, 2000. Cellular
expense was 57.4% of cellular revenue for 2001 compared to 62.4% of cellular
revenue for 2000, reflecting continued improvement in operating margin.

Directory advertising

Directory advertising expense decreased $0.1 million, or 4.1%, for the
three months ended June 30, 2001 compared to the three months ended June 30,
2000.

Internet

Internet expense increased by $0.6 million, or 21.6%, and decreased as a
percentage of revenue from 176.5% in 2000 to 102.0% in 2001. The increase in
Internet expenses was due to the acquisition of IAI in June of 2000, costs
associated with developing the Companys statewide Internet infrastructure and
the continued rollout of the Companys DSL product.

Interexchange services

Interexchange services increased $2.2 million, or 47.4%, from $4.6 million
for the three months ended June 30, 2000 to $6.8 million for the three months
ended June 30, 2001. The majority of this increase was the result of additional
traffic sensitive, marketing, order processing, and other costs incurred as a
result of the dramatic increase in customers with the rollout of the Companys
flat rate calling plans as discussed under interexchange service revenues. As a
percentage of revenue, interexchange service expense decreased to 130.9% in
2001 from 155.9% in 2000.

Depreciation and Amortization

Depreciation and amortization expense increased $2.1 million, or 12.1%,
due principally to increases in plant in service for the three months ended
June 30, 2001 over the corresponding period of 2000.

Income Taxes

Income tax benefit represents the amortization of investment tax credits
of the Companys regulated operations. ACS Holdings has fully reserved the
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  since it has no historical income and limited operating history on
which to determine the realizable value of the tax benefit of net operating
loss carryforwards with reasonable certainty. The Company reserved
approximately $0.5 million of income tax benefit resulting from its net loss
before income taxes during the quarter ended June 30, 2001. The Companys
cumulative book basis income tax valuation allowance is approximately
$21.4
million at June 30, 2001.

Net Loss

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

17



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Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Operating revenues increased $4.0 million, or 2.5%, for the six months
ended June 30, 2001 compared to the six months ended June 30, 2000. Local
telephone revenues decreased compared to the prior period, while cellular,
Internet, directory advertising, and interexchange service revenues all
increased compared to the prior period.

Local Telephone

Local telephone revenues, which consist of local network service, network
access revenue and deregulated and other revenues, decreased $8.0 million, or
6.8%, for the six months ended June 30, 2001 compared to the same period in
2000. The following unaudited table summarizes ACS Holdings consolidated local
telephone revenues by category.

|                              |                               |   |                           |        |      |   |         |        | 
|----------------------------- | ----------------------------- | - | ------------------------- | ------ | ---- | - | ------- | ------ | 
|                              |                               |   | Six Months Ended         
|                              |                               |   | June 30,                 
|                              |                               |   |                          
|                              |                               |   | 2001                      |        | 2000
|                              |                               |   |                           |        |     
|                              |                               |   | (Unaudited, in Thousands)
|Local telephone revenue:      |                               |   |                           |        |      |   |         |       
|                             
|                             
|                             
|                             
|                              | Local network service         |   | $                         | 46,142 |      |   | $       | 47,619 | 
|                             
|                             
|                             
|                             
|                              | Network access revenue        |   |                           | 51,265 |      |   |         | 58,056 | 
|                             
|                             
|                             
|                             
|                              | Deregulated and other revenue |   |                           | 11,751 |      |   |         | 11,472 | 
|                              |                               |   |                           |        |      |   |         |        | 
|Total local telephone revenue |                               | $ | 109,158                   |        |      | $ | 117,147 |       
|                              |                               |   |                           |        |      |   |         |        | 

The local network service component of local telephone revenues was $47.6
million during 2000 compared with $46.1 million during 2001. Revenue decreased
$1.5 million, or 3.1%, from the prior year, despite growth in average total
access lines in service of 0.6%. The net decrease was due primarily to
increased market penetration of lower margin wholesale lines in the Anchorage
market. Management believes that the continued loss of market share experienced
in the Anchorage market is attributable to below cost interconnection rates for
UNEs currently in place. The RCA has approved arbitrated interconnection rates
for UNEs for the Companys Fairbanks and Juneau markets which are also below
cost. Competition commenced in Fairbanks during the second quarter, but
competitive penetration thus far has been nominal at less than 500 lines on a
wholesale basis. The Company has not yet experienced any market share loss in
its Juneau market. During the quarter, the Company filed for an interim and
refundable UNE rate increase of approximately $10 per month per loop and
reopened interconnection proceedings for its Anchorage market. The Company is
also not earning its required rate of return for local network service and
filed a local service rate case with the RCA on July 2, 2001. See Outlook
under Item 2 of this Part and Legal Proceedings under Item 1 of Part II of
this report for further discussion.

Network access revenues decreased by $6.8 million, or 11.7%, from $58.1
million in 2000 to $51.3 million in 2001. Network access revenues are based on
a regulated return on rate base and recovery of allowable expenses associated
with the origination and termination of interstate and intrastate toll calls.
Universal service support revenue is also included in network access revenue.
The decrease in telephone access revenues from the corresponding period in 2000
is due primarily to interstate access revenue recorded in 2000 that resulted
from the allocation of ISP traffic minutes to the interstate jurisdiction for
which there is no corresponding revenue in 2001. Reductions in regulated
operating expense and its effect on the interstate access revenue requirement
also contributed to the decrease. Management expects that network access
revenues will decline as a component of local telephone revenues for the
foreseeable future.

Deregulated and other revenues, which increased $0.3 million, or 2.4% over
2000, consists principally of B&C services, space and power rents, deregulated
equipment sales, paystation revenues, white pages directory listing revenue,
and other miscellaneous telephone revenues.

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Cellular

Cellular revenues increased $1.0 million, or 5.3%, to $19.7 million for
the six months ended June 30, 2001 compared to $18.7 million for the six months
ended June 30, 2000. This growth in revenue is primarily due to a 5.3% increase
in average cellular subscribers from 73,331 in 2000 to 77,254 in 2001. Although
average minutes of use increased from approximately 128 minutes per month in
2000 to 162 minutes per month in 2001, average revenue per unit decreased from
$42.52 in 2000 to $42.49 in 2001.
The decrease was the result of new competitive digital statewide and national
pricing programs that offer more minutes and free features than the previous
plans for the same price, coupled with other sales promotions. These
competitive plans have resulted in increased total revenues and market share.

Directory advertising

Directory advertising revenues increased by $1.8 million, or 12.7%, to
$16.2 million in 2001 from $14.3 million in 2000. This increase is attributable
to growth in sales for the current directory phone book cycles combined with
the growth in average access lines.

Internet

Internet revenues increased $3.6 million, or 137.6%, to $6.3 million in
2001 from $2.7 million in 2000. This increase is primarily due to revenues
resulting from the acquisition of IAI in June of 2000. Growth in DSL customers
also contributed to the increase in Internet revenues. On July 6, 2001, the
Company acquired the assets and business of Internet Plus, L.L.C., dba
MosquitoNet, a Fairbanks based ISP. The acquisition is expected to add
approximately 5,000 dial-up and high speed customers to the Companys Internet
operations.

Interexchange

Interexchange service revenues increased $5.7 million to $11.2 million in
2001 from $5.5 million in 2000, or an increase of 101.6%. The increase was
primarily due to growth in long distance subscribers from 36,054 in 2000 to
66,341 in 2001. The Company also experienced growth in long distance minutes of
use from 38.0 million in 2000 to 129.6 million in 2001. The growth in both
subscribers and minutes of use was due to high customer acceptance of and
satisfaction with the Companys flat rate long distance product offerings which
began rolling out in the fourth quarter of 2000.

Other

Other revenues, which consist principally of wireless cable television
revenues, decreased $0.1 million from $0.6 million to $0.5 million in 2001.

Operating Expenses

Operating expenses increased $5.5 million, or 4.1%, to $141.3 million for
the six months ended June 30, 2001 from $135.8 million for the six months ended
June 30, 2000.

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 expenses decreased $10.0
million, or 14.4%, to $59.1 million for the six months ended June 30, 2001 from
$69.1 million for the six months ended June 30, 2000. As a percentage of local
telephone revenues, local telephone operating expenses dropped to 54.2% in 2001
from 59.0% in 2000. These results reflect continued improvements in the
Companys cost structure, including workforce reductions, benefits derived from
the deployment of information systems, and other synergies, realized through
the continued consolidation of the operations the Company acquired in 1999.

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Cellular

Cellular expense decreased $0.2 million, or 1.9%, for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000. Cellular expense
was 58.7% of cellular revenue for 2001 compared to 62.9% of cellular revenue
for 2000, reflecting continued improvement in operating margin.

Directory advertising

Directory advertising expense increased $0.1 million, or 1.0%, for the six
months ended June 30, 2001 compared to the six months ended June 30, 2000.

Internet

Internet expense increased by $2.9 million, or 70.3%, and decreased as a
percentage of revenue from 154.9% in 2000 to 111.0% in 2001. The increase in
Internet expenses was due to the acquisition of IAI in June of 2000, costs
associated with developing the Companys statewide Internet infrastructure and
the continued rollout of the Companys DSL product.

Interexchange services

Interexchange services increased $7.8 million, or 90.6%, from $8.6 million
for the six months ended June 30, 2000 to $16.4 million for the six months
ended June 30, 2001. The majority of this increase was the result of additional
traffic sensitive, marketing, order processing, and other costs incurred as a
result of the dramatic increase in customers with the rollout of the Companys
flat rate calling plans as discussed under interexchange service revenues. As a
percentage of revenue, interexchange service expense decreased to 146.6% in
2001 from 155.1% in 2000.

Depreciation and Amortization

Depreciation and amortization expense increased $4.5 million, or 13.1%,
due principally to increases in plant in service for the six months ended June
30, 2001 over the corresponding period of 2000.

Income Taxes

Income tax benefit represents the amortization of investment tax credits
of the Companys regulated operations. ACS Holdings has fully reserved the
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  since it has no historical income and limited operating history on
which to determine the realizable value of the tax benefit of net operating
loss carryforwards with reasonable certainty. The Company reserved
approximately $2.4 million of income tax benefit resulting from its net loss
before income taxes during the six months ended June 30, 2001. The Companys
cumulative book basis income tax valuation allowance is approximately
$21.4
million at June 30, 2001.

Net Loss

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

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LIQUIDITY AND CAPITAL RESOURCES

ACS Holdings has satisfied its operational and capital cash requirements
primarily through internally generated funds, the sale of stock and debt
financing. For the six months ended June 30, 2001 the Companys cash flows from
operating activities were $33.6 million. At June 30, 2001, the Company had
approximately $37.9 million in cash and cash equivalents. As of June 30, 2001
the Company had $75.0 million of remaining capacity under its revolving credit
facility, representing 100% of available capacity.

The Company has a $435.0 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 $597.2
million as of June 30, 2001. 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 is payable semiannually. Interest
on borrowings under the senior credit facility is payable monthly, quarterly or
semi-annually at the Companys option, and the senior credit facility requires
annual principal payments commencing on May 14, 2002.

The Company employs an interest rate hedge transaction, which fixes at
5.99% the underlying variable rate on one-half of the borrowings under the
Senior Credit Facility, or $217.5 million, expiring in June 2002. 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.

As of June 30, 2001 the Company has $6.8 million in two separate escrow
accounts pending the outcome of the Companys appeal of a January 24, 2001 FCC
Order awarding damages to an interexchange carrier. These amounts were fully
reserved as of June 30, 2001. See Legal Proceedings under Item 1 of Part II
of this report for further discussion.

The local telephone network requires the timely maintenance of plant and
infrastructure. ACS Holdings local network is of high quality, is technically
advanced and will have relatively predictable annual capital needs. The
Companys historical capital expenditures have been significant. The
construction and geographic expansion of ACS Holdings cellular network has
required significant capital. The implementation of the Companys interexchange
and data services strategy is also capital intensive. ACS Holdings anticipates
total capital spending in 2001 to be between $75.0 to $80.0 million, including
the Companys purchase of additional fiber capacity for $19.5 million in
January 2001. The Company intends to fund its future capital expenditures with
cash on hand, through internally generated cash flows, and if necessary,
through additional borrowings under the revolving credit facility.

ACS Holdings capital requirements may change, however, due to, among
other things: the Companys decision to pursue specific acquisition
opportunities, changes in technology, the effects of competition or changes in
the Companys business strategy. ACS Holdings believes that it will have
sufficient working capital provided by operations and available borrowing
capacity under the existing revolving credit facility to fund its operations
and capital expenditures over the next 12 months. ACS Holdings ability to
satisfy its capital requirements will be dependent upon its future financial
performance, which is, in turn, subject to future economic and regulatory
conditions and to financial, business and other factors, many of which are
beyond the Companys control.

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OUTLOOK

ACS Holdings expects demand for telecommunications services in Alaska to
remain strong during 2001. Certain Alaskan economic indicators suggest a
number of factors within the state may help mitigate effects of a general
slowdown in the U.S. economy, including:



| |  |  | A growth in employment during 2000, with jobs up 2.2%;                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Approval of projects to expand Ted Stevens International Airport in
Anchorage, at which 90% of all freighter jets carrying cargo between
the lower 48 state and the Pacific Rim now stop;
|
| |  |  | Low office vacancy rates in Anchorage (2.4%) and projections by the
home builders association of a robust home construction season;                                                      
|
| |  |  | A $100 million redevelopment of the Anchorage Ship Creek commercial area; and                                                                                                            
|
| |  |  | A $215 million military hospital in Fairbanks                                                                                                                                            

In addition, there is the potential that one or more of the following
proposed undertakings may be approved, any one of which could offer significant
stimulation to the Alaskan economy:



| |  |  | Construction of a pipeline to transport natural gas from the North
Slope area to commercial markets in Canada and the lower 48 states;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Development of a new national missile defense system with deployments at Alaskan sites; and                                           
|
| |  |  | Opening of the Arctic National Wildlife Refuge (ANWR) to new oil exploration.                                                         

ACS Holdings believes it is well-positioned to compete in the Alaska
telecommunications market as an integrated, diversified, facilities-based
provider of local telephone, long distance, cellular and Internet services.
Certain of the markets served by ACS Holdings experience vigorous competition.
Specifically, ACS Holdings faces competition in the Anchorage, Fairbanks, and
Juneau local telephone markets; in the Anchorage, Fairbanks, Southeast, and
Kenai Peninsula areas for cellular telephone and Internet services; and
throughout the state for interstate and intrastate long distance services.

As a result of the June 30, 1999 termination of the rural exemption
applicable to ACS Holdings operations in Fairbanks and Juneau and the
subsequent adoption of interconnection agreements by the RCA, those markets are
expected to experience competition for local telephone services during 2001.
As of June 30, 2001, competitive penetration in Fairbanks is nominal at less
than 500 lines on a wholesale basis. The Company expects to provision circuits
to support interconnection competition in Fairbanks and Juneau during the last
two quarters of the year.

ACS Holdings is actively pursuing legal and regulatory objectives,
particularly with regard to local telephone services, to improve its
competitive and economic situation. Legal proceedings have been initiated in
federal and state courts challenging termination of the rural exemption and the
interconnection agreements applicable to Fairbanks and Juneau. ACS Holdings has
been seeking an increase in the rates charged to CLECs for UNE loops in
Anchorage. The current rate was adopted as temporary by the regulatory
commission in 1997 and, as it was not based on a forward looking cost
methodology, the Company believes it is not in compliance with the 1996 Act.
ACS Holdings is filing a request for an interim and refundable rate increase
with the RCA pending adjudication of a compliant rate. See Legal Proceedings
under Item 1 of Part II of this report for further discussion. ACS Holdings
commenced rate proceedings before the RCA in July for all four of its local
exchange companies. These proceedings, which are not expected to be concluded
during 2001, will offer ACS Holdings the opportunity to rebalance rates and
increase its revenues.

As previously reported, the Company has several restructuring plans in
place to reduce costs and continue to realize operating synergies resulting
from a consolidated organization. On April 1, 2001, the branch operation in
Vancouver, Washington was closed and severance benefits were paid to the
impacted employees. The Company anticipates achieving additional operational
efficiencies during 2001 and beyond, most notably through the implementation of
a new automated customer care system. This system, the first phase of which is
scheduled to go on-line during the fourth quarter, will offer the capacity to
provide better customer service with reduced staff.

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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 off-balance sheet 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 non-trading 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, 2000.

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PART II

OTHER INFORMATION







ITEM 1.   LEGAL PROCEEDINGS.

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.

As previously reported, the Company filed a formal appeal of the RCAs
order terminating the rural exemption for Fairbanks and Juneau on November 10,
1999. This matter remains pending in state court.

The Company also previously reported a dispute concerning the Fairbanks
and Juneau interconnection agreements ordered by the RCA. Certain procedural
aspects of this dispute are currently before the U. S. Ninth Circuit Court of
Appeals.

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
General Communication, Inc. (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. In
addition, AT&T Alascom, made a demand for payment of approximately $3.5 million
dollars based on the FCCs January 24, 2001 Order in favor of GCI. These
funds, also fully reserved, have been placed in a similar escrow account
pending resolution of the Companys appeal of the FCC Order.

On July 2, 2001, the Company filed revenue requirements studies with the
RCA for each of its four local exchange carriers initiating new rate cases for
each of its LECs. Similarly, at the end of May the Company requested an
immediate interim and refundable increase in its Anchorage UNE rate. The
Company intends to vigorously pursue both of these actions in the coming
months. In addition, the Company is involved in a number of other on-going
regulatory proceedings.

On May 14, 2001, the Company was served with a class action lawsuit
concerning its interstate Infinite Minutes long distance plan. 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.

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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:
|--- |  | ---------

None.



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

No reports on Form 8-K were filed during the quarter ended June 30, 2001.

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SIGNATURE

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

|                    |  |                                                                                                                                                                                                        
|------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: July 30, 2001 |  | ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC                                                                                                                                                            
|                   
|                   
|                   
|                   
|                   
|
|                    |  | /s/ Kevin P. Hemenway                                                                                                                                                                                  
|                    |  |                                                                                                                                                                                                        
|                    |  | Kevin P. Hemenway
Senior Vice President and
Chief Financial Officer
(Signing both in his capacity as Senior Vice
Presidenton behalf of the Registrant and as Chief
Financial Officer of the Registrant)

26