##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 (Amendment No. 1)
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to .
 Commission file number 333-82363
 ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
  Delaware
    
    91-1921377(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 600 Telephone Avenue, Anchorage, Alaska 99503
 (907) 297-3000
 Not Applicable
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
 Yes þ No o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
 Yes o No þ
 Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
 Yes o No o
 APPLICABLE ONLY TO CORPORATE ISSUERS:
 The number of shares outstanding of the registrants Common Stock, as of October 31, 2005, was
zero (0).




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2




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TABLE OF CONTENTS
 PageNumberPART I.
    
    Financial InformationItem 1.
    
    Financial Statements:Consolidated Balance Sheets (unaudited) As of March 31, 2005 and December 31, 2004
    
    
    4Consolidated Statements of Operations (unaudited) For the Three Months Ended March 31, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows (unaudited) For the Three Months Ended March 31, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    31EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  3




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 
 Consolidated Balance Sheets
 (Unaudited, In Thousands Except Per Share Amounts)
 March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    32,116
    
    
    $
    50,660Restricted cash
    
    
    4,690
    
    
    
    4,690Short term investments
    
    
    31,350
    
    
    
    35,200Accounts receivable  trade, net of allowance of $4,895 and $4,869
    
    
    36,349
    
    
    
    38,325Materials and supplies
    
    
    7,056
    
    
    
    6,623Prepayments and other current assets
    
    
    4,419
    
    
    
    3,724Total current assets
    
    
    115,980
    
    
    
    139,222Property, plant and equipment
    
    
    1,068,740
    
    
    
    1,061,767Less: accumulated depreciation and amortization
    
    
    668,596
    
    
    
    649,455Property, plant and equipment, net
    
    
    400,144
    
    
    
    412,312Goodwill
    
    
    38,403
    
    
    
    38,403Intangible assets
    
    
    21,826
    
    
    
    21,871Debt issuance costs
    
    
    14,294
    
    
    
    15,482Deferred charges and other assets
    
    
    9,337
    
    
    
    8,749Total assets
    
    $
    599,984
    
    
    $
    636,039Liabilities and Stockholders Equity (Deficit)Current liabilities:Current portion of long-term obligations
    
    $
    393
    
    
    $
    2,298Accounts payable-affiliate
    
    
    2,686
    
    
    
    3,973Accounts payable, accrued and other current liabilities
    
    
    48,819
    
    
    
    54,648Advance billings and customer deposits
    
    
    8,893
    
    
    
    8,948Total current liabilities
    
    
    60,791
    
    
    
    69,867Long-term obligations, net of current portion
    
    
    457,321
    
    
    
    523,591Other deferred credits and long-term liabilities
    
    
    74,784
    
    
    
    77,916Commitments and contingenciesStockholders equity (deficit):Common stock, $.01 par value; 1,000 shares authorized
2 shares issued and outstanding
    
    
    
    
    
    
    Contributed capital
    
    
    313,751
    
    
    
    245,585Accumulated deficit
    
    
    (304,589
    )
    
    
    (276,389
    )Accumulated other comprehensive loss
    
    
    (2,074
    )
    
    
    (4,531
    )Total stockholders equity (deficit)
    
    
    7,088
    
    
    
    (35,335
    )Total liabilities and stockholders equity
    
    $
    599,984
    
    
    $
    636,039
 See Notes to Consolidated Financial Statements
 4




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 
 Consolidated Statements of Operations
 (Unaudited, In Thousands Except Per Share Amounts)
 Three Months EndedMarch 31,2005
    
    
    2004Operating revenues:Local telephone
    
    $
    51,565
    
    
    $
    55,832Wireless
    
    
    17,056
    
    
    
    11,601Internet
    
    
    5,061
    
    
    
    4,613Interexchange
    
    
    3,726
    
    
    
    3,409Total operating revenues
    
    
    77,408
    
    
    
    75,455Operating expenses:Local telephone (exclusive of depreciation and amortization)
    
    
    30,523
    
    
    
    32,574Wireless (exclusive of depreciation and amortization)
    
    
    9,582
    
    
    
    7,928Internet (exclusive of depreciation and amortization)
    
    
    5,237
    
    
    
    7,506Interexchange (exclusive of depreciation and amortization)
    
    
    4,400
    
    
    
    5,016Depreciation and amortization
    
    
    20,413
    
    
    
    19,106Loss (gain) on disposal of assets, net
    
    
    (68
    )
    
    
    227Total operating expenses
    
    
    70,087
    
    
    
    72,357Operating income
    
    
    7,321
    
    
    
    3,098Other income and expense:Interest expense
    
    
    (9,766
    )
    
    
    (11,403
    )Loss on extinguishment of debt
    
    
    (26,204
    )
    
    
    Interest income
    
    
    494
    
    
    
    242Other
    
    
    (45
    )
    
    
    (57
    )Total other income (expense)
    
    
    (35,521
    )
    
    
    (11,218
    )Loss before income taxes
    
    
    (28,200
    )
    
    
    (8,120
    )Income tax expense (benefit)
    
    
    
    
    
    
    Net loss
    
    $
    (28,200
    )
    
    $
    (8,120
    )
 See Notes to Consolidated Financial Statements
 5




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 
 Consolidated Statements of Cash Flows
 (Unaudited, In Thousands)
 Three Months EndedMarch 31,2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (28,200
    )
    
    $
    (8,120
    )Adjustments to reconcile net loss to net cash (used) provided by operating activities:Depreciation and amortization
    
    
    20,413
    
    
    
    19,106Loss (gain) on disposal of assets, net
    
    
    (68
    )
    
    
    227Amortization of debt issuance costs, original issue discount
    
    
    13,807
    
    
    
    845Other deferred credits
    
    
    (4,082
    )
    
    
    (2,285
    )Changes in components of working capital:Accounts receivable and other current assets
    
    
    1,689
    
    
    
    4,664Accounts payable and other current liabilities
    
    
    (10,472
    )
    
    
    (8,915
    )Deferred charges and other assets
    
    
    1,869
    
    
    
    206Other
    
    
    (156
    )
    
    
    Net cash (used) provided by operating activities
    
    
    (5,200
    )
    
    
    5,728Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (7,182
    )
    
    
    (10,356
    )Purchase of short term investments
    
    
    (50,950
    )
    
    
    (37,950
    )Proceeds from sales of short term investments
    
    
    54,800
    
    
    
    38,522Net cash used by investing activities
    
    
    (3,332
    )
    
    
    (9,784
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (405,157
    )
    
    
    (828
    )Proceeds from issuance of long-term debt
    
    
    335,000
    
    
    
    Debt issuance costs
    
    
    (10,637
    )
    
    
    Contribution from Parent
    
    
    76,461
    
    
    
    Dividend
    
    
    (5,679
    )
    
    
    (63
    )Net cash used by financing activities
    
    
    (10,012
    )
    
    
    (891
    )Decrease in cash and cash equivalents
    
    
    (18,544
    )
    
    
    (4,947
    )Cash and cash equivalents at beginning of the period
    
    
    50,660
    
    
    
    54,509Cash and cash equivalents at the end of the period
    
    $
    32,116
    
    
    $
    49,562Supplemental Cash Flow Data:Interest paid
    
    $
    10,142
    
    
    $
    11,870Income taxes paid, net of refund
    
    
    
    
    
    
    1,120Supplemental Noncash Transactions:Interest rate swap
    
    $
    2,457
    
    
    $
    Dividend declared, but not pa id
    
    
    (8,140
    )
    
    
    
 See Notes to Consolidated Financial Statements
 6




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 
 Notes to Consolidated Financial Statements
 (Unaudited, In Thousands Except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   
    
    ACS Holdings
    
    ACS of Alaska, Inc. (ACSAK)
    
    ACS of the Northland, Inc. (ACSN)
    
    ACS of Fairbanks, Inc. (ACSF)
    
    ACS of Anchorage, Inc. (ACSA)
    
    ACS Wireless, Inc. (ACSW)
    
    ACS Long Distance, Inc. (ACSLD)
    
    ACS Internet, Inc. (ACSI)
   Short-term Investments
  Revenue Recognition
  
 7




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Regulatory Accounting and Regulation
 Accounting for the Effects of Certain Types of Regulation.
 Accounting for Asset Retirement Obligations
 Stock Incentive Plans
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation,
 Three Months EndedMarch 31,2005
    
    
    2004Net loss:As reported
    
    $
    (28,200
    )
    
    $
    (8,120
    )Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards
    
    $
    (749
    )
    
    
    33Pro forma
    
    $
    (28,949
    )
    
    $
    (8,087
    )
 
 8




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  2004Risk free rate
    
    
    2.94
    %Dividend yield
    
    
    0.0
    %Expected volatility factor
    
    
    55.2
    %Expected option life (years)
    
    
    6.8
 2. NEW ACCOUNTING STANDARDS
 Accounting for Conditional Asset Retirement
Obligations
 Share-Based Payments
 Exchanges of Non-Monetary Assets,
 3. LONG TERM OBLIGATIONS
  March 31,
    
    
    December 31,2005
    
    
    20042003 senior credit facility term loan
    
    $
    
    
    
    $
    198,0002005 senior credit facility term loan
    
    
    335,000
    
    
    
    9 3/8% senior subordinated notes due 2009
    
    
    
    
    
    
    147,5009 7/8% senior unsecured notes due 2011
    
    
    118,304
    
    
    
    177,650Original issue discount - 9 7/8% senior subordinated notes due 2011
    
    
    (3,339
    )
    
    
    (5,321
    )Capital leases and other long-term obligations
    
    
    7,749
    
    
    
    8,060457,714
    
    
    
    525,889Less current portion
    
    
    393
    
    
    
    2,298Long-term obligations, net of current portion
    
    $
    457,321
    
    
    $
    523,591
 9




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 3. LONG TERM OBLIGATIONS (Continued)
  2005 (April 1 - December 31)
    
    $
    5302006 (January 1 - December 31)
    
    
    9712007 (January 1 - December 31)
    
    
    1,0282008 (January 1 - December 31)
    
    
    9262009 (January 1 - December 31)
    
    
    6772010
(January 1 - December 31)
    
    
    643Thereafter
    
    
    456,278$
    461,053
   4. STOCK INCENTIVE PLANS
  Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
  ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
  10




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 4. STOCK INCENTIVE PLANS (Continued)
 Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
   2003 Options for Officer Inducement Grant
  5. RETIREMENT PLANS
   11




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 5. RETIREMENT PLANS (Continued)
  Three Months EndedMarch 31,2005
    
    
    2004Interest cost
    
    $
    188
    
    
    $
    184Expected return on plan assets
    
    
    (201
    )
    
    
    (190
    )Amortization of loss
    
    
    114
    
    
    
    138Amortization of prior service cost
    
    
    51
    
    
    
    51Net periodic pension expense
    
    $
    152
    
    
    $
    183
 6. BUSINESS SEGMENTS
    LocalTelephone
    
    
    Wireless
    
    
    Internet
    
    
    Interexchange
    
    
    All Other
    
    
    Eliminations
    
    
    TotalOperating revenues
    
    $
    51,566
    
    
    $
    17,066
    
    
    $
    5,125
    
    
    $
    4,430
    
    
    $
    5,636
    
    
    $
    (6,415
    )
    
    $
    77,408Depreciation and amortization
    
    
    13,218
    
    
    
    2,598
    
    
    
    820
    
    
    
    91
    
    
    
    3,686
    
    
    
    
    
    
    
    20,413Operating income (loss)
    
    
    3,312
    
    
    
    4,094
    
    
    
    (1,500
    )
    
    
    (125
    )
    
    
    1,540
    
    
    
    
    
    
    
    7,321Interest expense
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    (9,649
    )
    
    
    
    
    
    
    (9,766
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,204
    )
    
    
    
    
    
    
    (26,204
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    494Income tax provision (benefit)
    
    
    1,145
    
    
    
    1,686
    
    
    
    
    
    
    
    
    
    
    
    (2,831
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    2,096
    
    
    
    2,408
    
    
    
    (1,500
    )
    
    
    (171
    )
    
    
    (28,197
    )
    
    
    (2,836
)
       
    
    (28,200
    )Total assets
    
    
    453,179
    
    
    
    115,645
    
    
    
    (1,606
    )
    
    
    19,723
    
    
    
    13,043
    
    
    
    
    
    
    
    599,984Capital expenditures
    
    
    4,127
    
    
    
    299
    
    
    
    708
    
    
    
    
    
    
    
    2,048
    
    
    
    
    
    
    
    7,182
  12




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 6. BUSINESS SEGMENTS (Continued)
  LocalTelephone
    
    Wireless
    
    Internet
    
    Interexchange
    
    All Other
    
    Eliminations
    
    TotalOperating revenues
    
    $
    55,822
    
    
    $
    11,613
    
    
    $
    4,613
    
    
    $
    3,858
    
    
    $
    5,799
    
    
    $
    (6,250
    )
    
    $
    75,455Depreciation and amortization
    
    
    12,849
    
    
    
    1,645
    
    
    
    1,002
    
    
    
    157
    
    
    
    3,453
    
    
    
    
    
    
    
    19,106Operating income (loss)
    
    
    6,313
    
    
    
    1,143
    
    
    
    (4,162
    )
    
    
    (1,378
    )
    
    
    1,182
    
    
    
    
    
    
    
    3,098Interest expense
    
    
    (81
    )
    
    
    (12
    )
    
    
    
    
    
    
    (47
    )
    
    
    (11,263
    )
    
    
    
    
    
    
    (11,403
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    242Income tax provision (benefit)
    
    
    2,499
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (2,965
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    3,733
    
    
    
    665
    
    
    
    (4,162
    )
    
    
    (1,425
    )
    
    
    (8,118
    )
    
    
    1,187
    
    
    
    (8,120
    )Total assets
    
    
    517,813
    
    
    
    102,939
    
    
    
    7,655
    
    
    
    23,264
    
    
    
    14,617
    
    
    
    
    
    
    
    666,288Capital expenditures
    
    
    5,235
    
    
    
    3,609
    
    
    
    453
    
    
    
    38
    
    
    
    1,021
    
    
    
    
    
    
    
    10,356
  7. RELATED PARTY TRANSACTIONS
     13




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ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
  Condensed Consolidating Balance Sheet
March 31, 2005
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    82
    
    
    $
    32,034
    
    
    $
    
    
    
    $
    32,116Restricted cash
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    4,690Short term investments
    
    
    
    
    
    
    31,350
    
    
    
    
    
    
    
    31,350Accounts receivable-trade, net
    
    
    14,479
    
    
    
    23,959
    
    
    
    
    
    
    
    38,438Accounts receivable-affiliates
    
    
    26,828
    
    
    
    (28,917
    )
    
    
    
    
    
    
    (2,089
    )Materials and supplies
    
    
    7,056
    
    
    
    
    
    
    
    
    
    
    
    7,056Prepayments and other current assets
    
    
    1,916
    
    
    
    2,503
    
    
    
    
    
    
    
    4,419Total current assets
    
    
    50,361
    
    
    
    65,619
    
    
    
    
    
    
    
    115,980Investments
    
    
    10
    
    
    
    363,255
    
    
    
    (363,255
    )
    
    
    10Property, plant and equipment
    
    
    962,514
    
    
    
    106,226
    
    
    
    
    
    
    
    1,068,740Less: accumulated depreciation and amortization
    
    
    605,926
    
    
    
    62,670
    
    
    
    
    
    
    
    668,596Property, plant and equipment, net
    
    
    356,588
    
    
    
    43,556
    
    
    
    
    
    
    
    400,144Goodwill
    
    
    
    
    
    
    
    
    
    
    38,403
    
    
    
    38,403Intangible assets
    
    
    21,826
    
    
    
    
    
    
    
    
    
    
    
    21,826Debt issuance costs
    
    
    
    
    
    
    14,294
    
    
    
    
    
    
    
    14,294Deferred charges and other assets
    
    
    1,584
    
    
    
    7,743
    
    
    
    
    
    
    
    9,327Total assets
    
    $
    430,369
    
    
    $
    494,467
    
    
    $
    (324,852
    )
    
    $
    599,984Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    571
    
    
    $
    (178
    )
    
    $
    
    
    
    $
    393Accounts payable-affiliates
    
    
    2,618
    
    
    
    68
    
    
    
    
    
    
    
    2,686Accounts payable, accrued and other current liabilities
    
    
    15,182
    
    
    
    28,596
    
    
    
    5,041
    
    
    
    48,819Advance billings and customer deposits
    
    
    8,887
    
    
    
    6
    
    
    
    
    
    
    
    8,893Total current liabilities
    
    
    27,258
    
    
    
    28,492
    
    
    
    5,041
    
    
    
    60,791Long-term obligations, net of current portion
    
    
    3,861
    
    
    
    453,460
    
    
    
    
    
    
    
    457,321Deferred income taxes
    
    
    310
    
    
    
    (310
    )
    
    
    
    
    
    
    Other deferred credits and long-term liabilities
    
    
    74,089
    
    
    
    5,737
    
    
    
    (5,042
    )
    
    
    74,784Commitments and contingenciesStockholders equity:Common stock
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital in excess of par value
    
    
    491,240
    
    
    
    313,751
    
    
    
    (491,240
    )
    
    
    313,751Retained earnings (accumulated deficit)
    
    
    (166,391
    )
    
    
    (304,589
    )
    
    
    166,391
    
    
    
    (304,589
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (2,074
    )
    
    
    
    
    
    
    (2,074
    )Total stockholders equity
    
    
    324,851
    
    
    
    7,088
    
    
    
    (324,851
    )
    
    
    7,088Total liabilities and stockholders equity
    
    $
    430,369
    
    
    $
    494,467
    
    
    $
    (324,852
    )
    
    $
    599,984
 14




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidating Balance Sheet
December 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    99
    
    
    $
    50,561
    
    
    $
    
    
    
    $
    50,660Restricted cash
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    4,690Short term investments
    
    
    
    
    
    
    35,200
    
    
    
    
    
    
    
    35,200Accounts receivable-trade, net
    
    
    15,397
    
    
    
    24,857
    
    
    
    (841
    )
    
    
    39,413Accounts receivable-affiliates
    
    
    12,490
    
    
    
    (13,578
    )
    
    
    
    
    
    
    (1,088
    )Materials and supplies
    
    
    6,623
    
    
    
    
    
    
    
    
    
    
    
    6,623Prepayments and other current assets
    
    
    1,493
    
    
    
    2,231
    
    
    
    
    
    
    
    3,724Total current assets
    
    
    36,102
    
    
    
    103,961
    
    
    
    (841
    )
    
    
    139,222Investments
    
    
    10
    
    
    
    360,418
    
    
    
    (360,418
    )
    
    
    10Property, plant and equipment
    
    
    957,589
    
    
    
    104,178
    
    
    
    
    
    
    
    1,061,767Less: accumulated depreciation and amortization
    
    
    590,471
    
    
    
    58,984
    
    
    
    
    
    
    
    649,455Property, plant and equipment, net
    
    
    367,118
    
    
    
    45,194
    
    
    
    
    
    
    
    412,312Goodwill
    
    
    
    
    
    
    
    
    
    
    38,403
    
    
    
    38,403Intangible assets
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    21,871Debt issuance costs
    
    
    
    
    
    
    15,482
    
    
    
    
    
    
    
    15,482Deferred charges and other assets
    
    
    1,772
    
    
    
    6,967
    
    
    
    
    
    
    
    8,739Total assets
    
    $
    426,873
    
    
    $
    532,022
    
    
    $
    (322,856
    )
    
    $
    636,039Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term obligations
    
    $
    548
    
    
    $
    1,750
    
    
    $
    
    
    
    $
    2,298Accounts payable-affiliates
    
    
    2,964
    
    
    
    1,009
    
    
    
    
    
    
    
    3,973Accounts payable, accrued and other current liabilities
    
    
    14,705
    
    
    
    40,784
    
    
    
    (841
    )
    
    
    54,648Advance billings and customer deposits
    
    
    8,942
    
    
    
    6
    
    
    
    
    
    
    
    8,948Total current liabilities
    
    
    27,159
    
    
    
    43,549
    
    
    
    (841
    )
    
    
    69,867Long-term obligations, net of current portion
    
    
    4,114
    
    
    
    519,477
    
    
    
    
    
    
    
    523,591Deferred income taxes
    
    
    1,345
    
    
    
    (1,345
    )
    
    
    
    
    
    
    Other deferred credits and long-term liabilities
    
    
    72,240
    
    
    
    5,676
    
    
    
    
    
    
    
    77,916Commitments and contingenciesStockholders equity:Common stock
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital in excess of par value
    
    
    491,240
    
    
    
    245,585
    
    
    
    (491,240
    )
    
    
    245,585Retained earnings (accumulated deficit)
    
    
    (169,227
    )
    
    
    (276,389
    )
    
    
    169,227
    
    
    
    (276,389
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (4,531
    )
    
    
    
    
    
    
    (4,531
    )Total stockholders equity
    
    
    322,015
    
    
    
    (35,335
    )
    
    
    (322,015
    )
    
    
    (35,335
    )Total liabilities and stockholders equity
    
    $
    426,873
    
    
    $
    532,022
    
    
    $
    (322,856
    )
    
    $
    636,039
 15




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2005
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Local telephone
    
    $
    51,566
    
    
    $
    5,636
    
    
    $
    (5,637
    )
    
    $
    51,565Wireless
    
    
    17,066
    
    
    
    
    
    
    
    (10
    )
    
    
    17,056Internet
    
    
    5,125
    
    
    
    
    
    
    
    (64
    )
    
    
    5,061Interexchange
    
    
    4,430
    
    
    
    
    
    
    
    (704
    )
    
    
    3,726Total operating revenue
    
    
    78,187
    
    
    
    5,636
    
    
    
    (6,415
    )
    
    
    77,408Operating expense:Local telephone (exclusive of depreciation and amortization)
    
    
    35,035
    
    
    
    410
    
    
    
    (4,922
    )
    
    
    30,523Wireless (exclusive of depreciation and amortization)
    
    
    10,774
    
    
    
    
    
    
    
    (1,192
    )
    
    
    9,582Internet (exclusive of depreciation and amortization)
    
    
    5,474
    
    
    
    
    
    
    
    (237
    )
    
    
    5,237Interexchange (exclusive of depreciation and amortization)
    
    
    4,464
    
    
    
    
    
    
    
    (64
    )
    
    
    4,400Depreciation and amortization
    
    
    16,727
    
    
    
    3,686
    
    
    
    
    
    
    
    20,413Gain on disposal of assets, net
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    (68
    )Total operating expense
    
    
    72,406
    
    
    
    4,096
    
    
    
    (6,415
    )
    
    
    70,087Operating income
    
    
    5,781
    
    
    
    1,540
    
    
    
    
    
    
    
    7,321Other income (expense):Interest expense
    
    
    (117
    )
    
    
    (9,649
    )
    
    
    
    
    
    
    (9,766
    )Loss on extinguishment of debt
    
    
    
    
    
    
    (26,204
    )
    
    
    
    
    
    
    (26,204
    )Interest income
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    494Other
    
    
    4
    
    
    
    2,787
    
    
    
    (2,836
    )
    
    
    (45
    )Total other income (expense)
    
    
    (113
    )
    
    
    (32,572
    )
    
    
    (2,836
    )
    
    
    (35,521
    )Income (loss) before income taxes
    
    
    5,668
    
    
    
    (31,032
    )
    
    
    (2,836
    )
    
    
    (28,200
    )Income tax expense (benefit)
    
    
    (2,832
    )
    
    
    2,832
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    2,836
    
    
    $
    (28,200
    )
    
    $
    (2,836
    )
    
    $
    (28,200
    )
 16




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Local telephone
    
    $
    55,822
    
    
    $
    5,799
    
    
    $
    (5,789
    )
    
    $
    55,832Wireless
    
    
    11,613
    
    
    
    
    
    
    
    (12
    )
    
    
    11,601Internet
    
    
    4,613
    
    
    
    
    
    
    
    
    
    
    
    4,613Interexchange
    
    
    3,858
    
    
    
    
    
    
    
    (449
    )
    
    
    3,409Total operating revenue
    
    
    75,906
    
    
    
    5,799
    
    
    
    (6,250
    )
    
    
    75,455Operating expense:Local telephone (exclusive of depreciation and amortization)
    
    
    36,484
    
    
    
    1,134
    
    
    
    (5,044
    )
    
    
    32,574Wireless (exclusive of depreciation and amortization)
    
    
    8,825
    
    
    
    
    
    
    
    (897
    )
    
    
    7,928Internet (exclusive of depreciation and amortization)
    
    
    7,752
    
    
    
    
    
    
    
    (246
    )
    
    
    7,506Interexchange (exclusive of depreciation and amortization)
    
    
    5,079
    
    
    
    
    
    
    
    (63
    )
    
    
    5,016Depreciation and amortization
    
    
    15,653
    
    
    
    3,453
    
    
    
    
    
    
    
    19,106Loss on disposal of assets, net
    
    
    197
    
    
    
    30
    
    
    
    
    
    
    
    227Total operating expense
    
    
    73,990
    
    
    
    4,617
    
    
    
    (6,250
    )
    
    
    72,357Operating income
    
    
    1,916
    
    
    
    1,182
    
    
    
    
    
    
    
    3,098Other income (expense):Interest expense
    
    
    (140
    )
    
    
    (11,263
    )
    
    
    
    
    
    
    (11,403
    )Interest income
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    242Other
    
    
    4
    
    
    
    (1,248
    )
    
    
    1,187
    
    
    
    (57
    )Total other income (expense)
    
    
    (136
    )
    
    
    (12,269
    )
    
    
    1,187
    
    
    
    (11,218
    )Income (loss) before income taxes
    
    
    1,780
    
    
    
    (11,087
    )
    
    
    1,187
    
    
    
    (8,120
    )Income tax expense (benefit)
    
    
    (2,967
    )
    
    
    2,967
    
    
    
    
    
    
    
    Net loss
    
    $
    (1,187
    )
    
    $
    (8,120
    )
    
    $
    1,187
    
    
    $
    (8,120
    )
 17




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2005
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    5,347
    
    
    $
    (10,547
    )
    
    $
    
    
    
    
    (5,200
    )Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (5,134
    )
    
    
    (2,048
    )
    
    
    
    
    
    
    (7,182
    )Purchase of short term investments
    
    
    
    
    
    
    (50,950
    )
    
    
    
    
    
    
    (50,950
    )Proceeds from sales of short term investments
    
    
    
    
    
    
    54,800
    
    
    
    
    
    
    
    54,800Net cash used by investing activities
    
    
    (5,134
    )
    
    
    1,802
    
    
    
    
    
    
    
    (3,332
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (230
    )
    
    
    (404,927
    )
    
    
    
    
    
    
    (405,157
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    335,000
    
    
    
    
    
    
    
    335,000Debt issuance costs
    
    
    
    
    
    
    (10,637
    )
    
    
    
    
    
    
    (10,637
    )Contribution from Parent
    
    
    
    
    
    
    76,461
    
    
    
    
    
    
    
    76,461Dividends
    
    
    
    
    
    
    (5,679
    )
    
    
    
    
    
    
    (5,679
    )Net cash provided (used) by financing activities
    
    
    (230
    )
    
    
    (9,782
    )
    
    
    
    
    
    
    (10,012
    )Decrease in cash and cash equivalents
    
    
    (17
    )
    
    
    (18,527
    )
    
    
    
    
    
    
    (18,544
    )Cash and cash equivalents, beginning of the period
    
    
    99
    
    
    
    50,561
    
    
    
    
    
    
    
    50,660Cash and cash equivalents, end of the period
    
    $
    82
    
    
    $
    32,034
    
    
    $
    
    
    
    $
    32,116Supplemental Cash Flow Data:Interest paid
    
    $
    152
    
    
    $
    9,990
    
    
    $
    
    
    
    $
    10,142Supplemental Noncash Transactions:Interest rate swap
    
    $
    
    
    
    $
    2,457
    
    
    $
    
    
    
    $
    2,457Dividend declared, but not paid
    
    
    
    
    
    
    (8,140
    )
    
    
    
    
    
    
    (8,140
    )
 18




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
 Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2004
 Combined
    
    
    ACS Holdings
    
    
    
    
    
    
    ACS HoldingsSubsidiaries
    
    
    Parent Only
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided (used) by operating activities
    
    $
    9,605
    
    
    $
    (3,877
    )
    
    $
    
    
    
    $
    5,728Cash Flows from Investing Activities:Construction and capital expenditures
    
    
    (9,335
    )
    
    
    (1,021
    )
    
    
    
    
    
    
    (10,356
    )Purchase of short term investments
    
    
    
    
    
    
    (37,950
    )
    
    
    
    
    
    
    (37,950
    )Proceeds from sales of short term investments
    
    
    
    
    
    
    38,522
    
    
    
    
    
    
    
    38,522Net cash used by investing activities
    
    
    (9,335
    )
    
    
    (449
    )
    
    
    
    
    
    
    (9,784
    )Cash Flows from Financing Activities:Payments on long-term debt
    
    
    (257
    )
    
    
    (571
    )
    
    
    
    
    
    
    (828
    )Dividends
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )Net cash used by financing activities
    
    
    (257
    )
    
    
    (634
    )
    
    
    
    
    
    
    (891
    )Increase (decrease) in cash and cash equivalents
    
    
    13
    
    
    
    (4,960
    )
    
    
    
    
    
    
    (4,947
    )Cash and cash equivalents, beginning of the period
    
    
    139
    
    
    
    54,370
    
    
    
    
    
    
    
    54,509Cash and cash equivalents, end of the period
    
    $
    152
    
    
    $
    49,410
    
    
    $
    
    
    
    $
    49,562Supplemental Cash Flow Data:Interest paid
    
    $
    180
    
    
    $
    11,690
    
    
    $
    
    
    
    $
    11,870Income taxes paid, net of refund
    
    
    1,120
    
    
    
    
    
    
    
    
    
    
    
    1,120
 19




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##### Table of Contents



ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
 9. COMMITMENTS AND CONTINGENCIES
    20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward Looking Statements and Analysts Reports
  
    
    rapid technological developments and changes in the telecommunications industries;
    
    our competitive environment;
    
    ongoing deregulation (and the resulting likelihood of significantly increased
price and product/service competition) in the telecommunications industry as a
result of the Telecommunications Act of 1996, or the Telecommunications Act, and
other similar federal and state legislation and the federal and state rules and
regulations enacted pursuant to that legislation;
    
    changes in revenue from Universal Service Funds;
    
    regulatory limitations on our ability to change our pricing for communications services;
    
    the possible future unavailability of Statement of Financial Accounting
Standards, or SFAS, No. 71, Accounting for the Effects of Certain Types of
Regulation, to our wireline subsidiaries;
    
    our ability to bundle our products and services;
    
    changes in the demand for our products and services;
    
    changes in general industry and market conditions and growth rates;
    
    changes in interest rates or other general national, regional or local economic conditions;
    
    governmental and public policy changes;
    
    our ability to generate sufficient earnings and cash flows to continue to make
dividend payments to our stockholder;
    
    the continued availability of financing in the amounts, at the terms, and subject
to the conditions necessary to support our future business;
    
    the success of any future acquisitions; and
    
    changes in accounting policies or practices adopted voluntarily or as required by
accounting principles generally accepted in the United States.
  21




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##### Table of Contents



Introduction
  Alaska Communications Systems Holdings, Inc.
  
    
    the provision of local telephone services, including:
 
    
    basic local service to retail customers within our service areas;
    
    wholesale service to Competitive Local Exchange Carriers (CLECs);
    
    network access services to interexchange carriers for origination and
termination of interstate and intrastate long distance phone calls;
    
    enhanced services;
    
    ancillary services, such as billing and collection; and
    
    universal service payments;
 
    
    the provision of wireless services;
    
    the provision of Internet services; and
    
    the provision of interexchange network long-distance and data services.
  Local Telephone 
  
    
    intrastate and interstate revenue settlement methodologies;
    
    authorized rates of return for regulated services;
    
    whether an access line is used by a business or consumer subscriber;
    
    intrastate and interstate calling patterns;
    
    customers selection of various local rate plan options;
    
    selection of enhanced calling services, such as voice mail; and
    
    other subscriber usage characteristics.
  
    
    consumer and business customers located in our local service areas that pay for
local phone service and a portion of network access;
    
    interexchange carriers that pay for access to long distance calling customers
located within our local service areas; and
    
    CLECs that pay for wholesale access to our network in order to provide
competitive local service on either a wholesale or Unbundled Network Element (UNE)
basis as prescribed under the Telecommunications Act.
 22




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##### Table of Contents



Wireless
 Internet
 Interexchange 
 Video
Entertainment 
 Critical Accounting Policies and Accounting Estimates
  Accounting for the Effects of Certain
Types of Regulation
   23




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##### Table of Contents



Goodwill and Other Intangible Assets
  24




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
 Operating Revenue
  Local Telephone.
 Three Months EndedMarch 31,2005
    
    
    2004(in thousands)Local telephone revenue:Local network service
    
    $
    22,218
    
    
    $
    22,753Network access
    
    
    23,350
    
    
    
    27,695Deregulated and other
    
    
    5,997
    
    
    
    5,384Total local telephone revenue
    
    $
    51,565
    
    
    $
    55,832
  As of March 31,2005
    
    
    2004Local telephone access lines:Retail
    
    
    204,458
    
    
    
    213,784Wholesale
    
    
    15,897
    
    
    
    20,068Unbundled network elements  loop (UNE  L)
    
    
    62,263
    
    
    
    69,624Unbundled network elements  platform (UNE  P)
    
    
    6,551
    
    
    
    5,178Total local telephone access lines
    
    
    289,169
    
    
    
    308,654
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Wireless.
 
    
    growth in average subscribers of 16% for the three months ended March 31, 2005 over
the prior year period;
    
    an increase in quarterly average revenue per unit, or ARPU, of 20.7% to $48.65 for
the three months ended March 31, 2005, from $40.30 for the three months ended March 31,
2004, primarily as a result of improved subscriber mix with a higher proportion of post
paid retail subscribers, increased plan revenue, feature revenue, roaming revenue,
regulatory surcharges and receipt of competitive eligible telecommunications carrier
status (CETC) funding on January 1, 2005 which added $3.37 to cellular ARPU;
    
    higher gross customer adds in the three months ended March 31, 2005 resulting in
$1.4 million of handset revenue compared to $0.7 million for the three months ended
March 31, 2004; and
    
    higher revenue from non-ACS customers roaming on our network resulting in
third-party roaming revenue increasing to $0.7 million from $0.2 million for the three
months ended March 31, 2005 and 2004, respectively.
 Internet.
 Interexchange.
 Operating Expense
  Local Telephone. . .
 Wireless.
 Internet.
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Interexchange.
 Depreciation and amortization.
 Other income and expense.
 Income Taxes
  Net loss
 .
 LIQUIDITY AND CAPITAL RESOURCES
 Sources
   
    
    repay in full and redeem the $198.0 of outstanding principal under our 2003 senior
credit facility, together with interest accrued thereon;
    
    repurchase $59.3 million of outstanding principal of our senior unsecured notes,
together with tender premiums and interest accrued thereon;
    
    repurchase $147.5 million of outstanding principal of our senior subordinated notes,
together with tender premiums and interest accrued thereon; and
    
    pay underwriters discounts and transaction fees and expenses associated with the
refinancing transactions and the ACS Group equity offering.
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Uses
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Outlook
  
    
    increasing demand for wireless voice and data services following the launch of
our CDMA 1xRTT network;
    
    growth in demand for DSL and Internet access services due to higher business and
consumer bandwidth needs; and
    
    increasing demand for private network services by government and business on a
statewide basis on either a circuit switched or IP basis.
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ITEM 6.     EXHIBITS
 (a) Exhibits :
 31.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Liane Pelletier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of David Wilson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.
 
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SIGNATURES
  ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
 /s/ Liane PelletierLiane PelletierChief Executive Officer,Chairman of the Board and President/s/ David WilsonDavid WilsonSenior Vice President andChief Financial Officer
 31