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Alaska Communications Systems Reports Third Quarter 2011 Results

- Wireless Subscriber Counts Increased by 817 Compared to Prior Quarter -

- Post Paid Data ARPU Increased 43 Percent to $16.82 Compared to Prior Year -

- Enterprise Revenue increased by 8.9 percent to $13.1 Million Compared to Prior Year -

ANCHORAGE, Alaska--(BUSINESS WIRE)-- Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2011.

"Alaska Communications' strategy to provide wireless and wireline broadband data products across all our customer segments continues to show positive results. We experienced our second sequential quarter of wireless subscriber growth and our enterprise revenues are improving year over year," said Anand Vadapalli, ACS president and chief executive officer.

"Third quarter wireless results reflect early benefits from new positioning with postpaid offerings through tiered data plans, and the refresh of our prepaid plans. Enterprise revenues benefited from a good quarter of new installations, and we look forward to continued momentum in this area," concluded Vadapalli.

Financial Highlights: Third Quarter 2011 Compared to Third Quarter 2010

• Revenues of $90.3 million increased by $0.5 million, or 0.6 percent, from $89.8 million in the prior year. Third quarter 2010 revenue benefited from $2.0 million favorable out-of-period revenue:
  • Wireless revenue increased by $2.0 million, or 5.2 percent. A $3.9 million increase in roaming revenue was partially offset by $1.9 million of lower retail service and CETC revenue.
  • Enterprise revenue increased by $1.1 million, or 8.9 percent, with higher data revenue driving growth. Data revenue as a percent of total enterprise revenue now stands at 91 percent.
  • Retail, wholesale and access wireline revenue declined by $2.6 million, or 6.5 percent. The quarter was impacted by $2.1 million of lower interstate universal service revenue largely as a result of $1.5 million of out period access revenues in 2010. The quarter benefited from higher intrastate access revenue of $1.1 million associated with recent state-wide reforms. Continued erosion in the traditional wireline business contributed to the remaining decline.
• EBITDA of $32.8 million decreased by $2.0 million, or 5.8 percent, from $34.8 million in the prior year.
  • Wireless EBITDA of $19.5 million increased $0.8 million, or 4.1 percent in the third quarter. $2.0 million of higher revenue and $1.2 million of higher expenses resulted in the change. Higher network costs associated with greater data usage accounted for the increased spending levels.
  • Wireline EBITDA of $13.3 million declined by $2.8 million, or 17.5 percent, driven by lower revenue of $1.5 million and higher expenses of $1.3 million. Expenses in the quarter were impacted by $0.4 million of project-related work and legal reserves and $0.4 million in higher intrastate access expenses.

• Net loss of $0.8 million, or $0.02 per share, compared to net loss of $3.0 million, or $0.07 per share last year. Third quarter 2010 was impacted by $11.3 million charge to interest expense for losses on the termination of certain interest rate swaps associated with the 2005 credit facility refinancing.

Metric Highlights: Third Quarter 2011 Compared to Second Quarter 2011

• Wireless subscribers increased by 817 to 117,496, representing the second sequential quarter of growth.
• Wireless average monthly retail service revenue per subscriber (ARPU) was steady at $52.81.
• Postpaid wireless data ARPU increased by 4.6 percent to $16.82.
• Wireless subscriber churn increased to 2.4 percent from 2.1 percent.
• Internet subscribers decreased by 902 to 48,374 and ARPU increased by 1.9 percent to $45.00, due primarily to upgrades to higher bandwidth plans.
• Retail access lines declined by 2,713 to 149,840 sequentially and 5.2 percent on an annual basis, ARPU increased by 0.1 percent to $18.25.

"We are pleased with our financial performance for the quarter. Alaska Communications exited the quarter with total cash deposits of $28.5 million, including restricted cash, and with full access to our $30 million revolver facility. Our leverage ratio now stands at 4.4 EBITDA," said Wayne Graham, ACS chief financial officer.

2011 Business Outlook

ACS guidance for the year is updated as follows:
 

• Revenue guidance to modesty exceed 2010 levels of $342 is unchanged;
• EBITDA is expected to be about $125 million compared to previous guidance of in line with 2010 levels of $126 million;
• Guidance for maintenance capital expenditures and cash interest remains unchanged at about $37 million and $34 million, respectively, and
• Our 4G LTE build investment is anticipated to be between $12 - $15 million compared to previous guidance of $15 - $20 million.

Comments on the FCC's Order on the National Broadband Plan

On October 27, 2011, the Federal Communication Commission (FCC) unanimously voted to overhaul its Universal Service Fund ("USF") and Inter-carrier Compensation ("ICC") systems. USF High cost support and wireless CETC revenue, represented $10.5 million, and $35.6 million for the three and nine month period ended September 30, 2011, respectively. ACS management will provide an assessment of the USF overhaul during its conference call, noted below. We do not, at this time, expect the ICC changes to have a material impact on our future financial performance.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m. Eastern Time. Parties in the United States and Canada can call 877-941-6010 to access the conference call. Parties outside the United States and Canada can access the call at 480-629-9723. The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's website (www.alsk.com). The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until Thursday, November 15, 2011 at midnight ET. To hear the replay, parties in the United States and Canada can call 800-406-7325 and enter pass code 4482998. Parties outside the United States and Canada can call 303-590-3030 and enter pass code 4482998.

About Alaska Communications

Headquartered in Anchorage, Alaska Communications Systems Group, Inc. (Nasdaq: ALSK), through its subsidiaries, is a leading provider of high-speed wireless, mobile broadband, Internet, local, long-distance and advanced data solutions for businesses and consumers in Alaska. The Alaska Communications network includes the most advanced wireline and wireless data and voice networks and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit www.alaskacommunications.com or www.alsk.com.

Forward-Looking EBITDA Guidance

This press release includes information related to management's estimate of EBITDA for the year ending December 31, 2011. EBITDA, as defined by the company, may not be similar to EBITDA measures used by other companies and is not a measurement under generally accepted accounting principles (GAAP). Management believes that EBITDA provides useful information to investors about the company's performance because it eliminates the effects of period-to-period changes in costs associated with capital investments, interest and stock-based compensation expense that are not directly attributable to the underlying performance of the company's business operations. Management believes the most directly comparable GAAP measure would be "Net cash provided by operating activities." Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in this comparable GAAP measure, the company is not providing an estimate of year-end 2011 net cash provided by operating activities at this time.

Forward-Looking Statements

This press release includes certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance or continued dividend payment and are subject to a number of uncertainties and other factors, many of which are outside ACS' control. Such factors include, without limitation, the entry of Verizon into the Alaska market, Universal Service Fund reform, adverse national economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, adverse local economic conditions, including an unexpected downturn in the Alaskan oil and gas or tourism markets, changes in capital expenditures, the effects of competition in our markets, or other factors affecting the company's ability to generate sufficient earnings and cash flows to continue to make dividend payments to its stockholders; the company's ability to complete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may derive, adverse changes in labor matters, including workforce levels, labor negotiations, and benefits costs; disruption of our suppliers' provisioning of critical products or services; the impact of natural or man-made disasters; changes in company's relationships with large carrier or enterprise customers or its roaming partners; changes in revenue from universal service funds; unforeseen changes in public policies; changes in accounting policies, including the company's application of regulatory accounting rules, which could result in an impact on earnings; or disruptive technological developments in the telecommunications industry. For further information regarding risks and uncertainties associated with ACS' business and its dividend, please refer to the company's SEC filings, including, but not limited to, the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q. Copies of the company's SEC filings may be obtained by contacting its investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com.






Schedule 1









ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, In Thousands, Except Per Share Amounts)























Three Months Ended
Nine Months Ended



September 30,
September 30,



2011
2010
2011
2010









Total operating revenues $ 90,306

$ 89,768

$ 261,842

$ 256,747










Operating expenses:







Cost of services and sales
34,505


33,157


100,880


97,623

Selling, general & administrative
24,121


23,200


68,385


66,022

Depreciation and amortization
14,392


18,606


43,510


55,974

(Gain) loss on disposal of assets, net (709 )
9
(590 )
(479 ) Total operating expenses 72,309
74,972
212,185
219,140









Operating income
17,997


14,796


49,657


37,607










Other income and expense:







Interest expense
(9,529 )

(8,465 )

(28,815 )

(25,309 )
Loss on extinguishment of debt
-


(11,258 )

(13,445 )

(11,258 )
Interest income
10


8


26


31

Other
174
-
174
- Total other income and expense (9,345 )
(19,715 )
(42,060 )
(36,536 )









Income (loss) before income tax benefit (expense)
8,652


(4,919 )

7,597


1,071











Income tax benefit (expense) (9,468 )
1,901
(9,369 )
(30,492 )









Net loss
$ (816 )
$ (3,018 )
$ (1,772 )
$ (29,421 )









Net loss per share







Basis and diluted $ (0.02 )
$ (0.07 )
$ (0.04 )
$ (0.66 ) Weighted average shares outstanding







Basis and diluted 45,202
44,628
45,061
44,564



















Schedule 2




ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)












September 30,
December 31, Assets 2011

2010




Current assets:



Cash and cash equivalents $ 23,427

$ 15,316

Restricted cash
5,041


4,912

Accounts receivable-trade, net of allowance of $5,542 and $6,616
38,027


36,985

Materials and supplies
5,996


6,533

Prepayments and other current assets
5,242


3,999

Deferred income taxes 6,716

10,949

Total current assets
84,449


78,694





Property, plant and equipment
1,424,782


1,416,718
Less: accumulated depreciation and amortization (1,023,715 )
(1,005,736 )
Property, plant and equipment, net
401,067


410,982





Non-current investments
-


355
Goodwill
8,850


8,850
Intangible assets, net
24,118


24,118
Debt issuance costs
10,012


8,584
Deferred income taxes
74,724


76,813
Equity method investment
2,060


2,060
Other assets 3,290

10,159 Total assets $ 608,570

$ 620,615




Liabilities and Stockholders' Equity (Deficit)


Current liabilities:



Current portion of long-term obligations $ 5,772

$ 5,213

Accounts payable, accrued and other current liabilities
54,274


62,539

Advance billings and customer deposits 9,425

9,568

Total current liabilities
69,471


77,320





Long-term obligations, net of current portion
564,243


548,096
Other long-term liabilities 26,150

15,688 Total liabilities 659,864

641,104






Commitments and contingencies





Stockholders' equity (deficit):



Common stock, $.01 par value; 145,000 authorized
452


447

Additional paid in capital
145,389


166,259

Accumulated deficit
(189,932 )

(188,160 )
Accumulated other comprehensive income (loss) (7,203 )
965

Total stockholders' deficit (51,294 )
(20,489 )




Total liabilities and stockholders' equity (deficit) $ 608,570

$ 620,615












Schedule 3













ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)



















Three Months Ended
Nine Months Ended






September 30,
September 30,






2011
2010
2011

2010
Cash Flows from Operating Activities:









Net loss
$ (816 )
$ (3,018 )
$ (1,772 )
$
(29,421 )





Adjustments to reconcile net loss to net cash provided by operating activities:












Depreciation and amortization

14,392


18,606


43,510



55,974




Unrealized loss on ineffective hedge adjustment

-


11,145


-



11,145




Amortization of debt issuance costs and debt discount

1,421


1,880


11,507



5,580




Stock-based compensation

1,188


1,187


2,620



2,665




Deferred income taxes

8,834


(1,788 )

8,735



33,273




Provision for uncollectible accounts

409


366


1,468



2,308




Other non-cash expenses

(726 )

309


(292 )


197




Changes in operating assets and liabilities
1,131
(3,511 )
(8,225 )


(12,267 )





Net cash provided by operating activities

25,833


25,176


57,551



69,454















Cash Flows from Investing Activities:










Investment in construction and capital expenditures

(15,191 )

(10,993 )

(33,463 )


(25,040 )






Change in unsettled construction and capital expenditures

394


1,143


(943 )


(3,505 )






Proceeds on sale of assets

2,665


-


2,665



-




Acquisitions, net of cash acquired

-


(2,060 )

-



(2,060 )






Net change in restricted accounts

(127 )

(1 )

(129 )


954




Net change in non-current investments
529
100
529


500



Net cash used by investing activities

(11,730 )

(11,811 )

(31,341 )


(29,151 )

















Cash Flows from Financing Activities:










Repayments of long-term debt

(1,490 )

(183 )

(102,738 )


(12,545 )






Proceeds from the issuance of long-term debt

-


-


120,000



12,000




Debt issuance costs

336


-


(4,448 )


-




Payment of cash dividend on common stock

(9,733 )

(9,606 )

(29,082 )


(28,777 )






Payment of withholding taxes on stock-based compensation

(8 )

(134 )

(2,030 )


(326 )






Proceeds from issuance of common stock
-
24
199


350



Net cash used by financing activities

(10,895 )

(9,899 )

(18,099 )


(29,298 )

















Change in cash and cash equivalents

3,208


3,466


8,111



11,005















Cash and cash equivalents, beginning of period
20,219
13,810
15,316


6,271















Cash and cash equivalents, end of period
$ 23,427
$ 17,276
$ 23,427
$
17,276















Supplemental Cash Flow Data:









Interest paid
$ 7,193

$ 8,761

$ 24,415

$
22,816



Income tax refunds
$ -

$ -

$ -

$
36















Supplemental Non-cash Transactions:









Property acquired under capital leases
$ 679

$ 1,294

$ 1,841

$
1,295



Dividend declared, but not paid
$ 9,736

$ 9,617

$ 9,736

$
9,617



Additions to ARO asset
$ 104

$ 21

$ 118

$
71






















Schedule 4










ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF EBITDA CALCULATION (Unaudited, In Thousands)















Three Months Ended
Nine Months Ended




September 30,
September 30,




2011
2010
2011
2010





















Net cash provided by operating activities
$ 25,833

$ 25,176

$ 57,551

$ 69,454

Adjustments to reconcile net loss to net cash provided by

operating activities:








Depreciation and amortization

(14,392 )

(18,606 )

(43,510 )

(55,974 )

Unrealized loss on ineffective hedge adjustment

-


(11,145 )

-


(11,145 )

Amortization of debt issuance costs and debt discount

(1,421 )

(1,880 )

(11,507 )

(5,580 )

Stock-based compensation

(1,188 )

(1,187 )

(2,620 )

(2,665 )

Deferred income taxes

(8,834 )

1,788


(8,735 )

(33,273 )

Provision for uncollectible accounts

(409 )

(366 )

(1,468 )

(2,308 )

Other non-cash expenses

726


(309 )

292


(197 )

Changes in operating assets and liabilities
(1,131 )
3,511
8,225
12,267 Net loss
$ (816 )
$ (3,018 )
$ (1,772 )
$ (29,421 )
Add (subtract):









Interest expense

9,529


8,465


28,815


25,309


Loss on extinguishment of debt

-


11,258


13,445


11,258


Interest income

(10 )

(8 )

(26 )

(31 )

Depreciation and amortization

14,392


18,606


43,510


55,974


(Gain) loss on disposal of assets

(709 )

9


(590 )

(479 )

Gain on sale of long-term investments

(174 )

-


(174 )

-


Gift of services

(118 )

185


(51 )

254


Income tax (benefit) expense

9,468


(1,901 )

9,369


30,492


Stock-based compensation
1,188
1,187
2,620
2,665 EBITDA
$ 32,750
$ 34,783
$ 95,146
$ 96,021





















Note: In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. The Company has disclosed its net income before interest, provisions for taxes, depreciation expense, gain or loss on asset purchases or disposals, gift of services, amortization of intangibles and stock-based compensation expense (EBITDA) because the Company believes it is an important indicator as it provides information about our ability to service debt, pay dividends and fund capital expenditures. EBITDA is not a GAAP measure and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP.







Schedule 5










ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF OPERATING REVENUE AND EBITDA MARGIN BY SEGMENT (Unaudited, In Thousands)





































Three Months Ended
Nine Months Ended




September 30,
September 30,




2011
2010
2011
2010

Wireline revenue










Enterprise
$ 13,078

$ 12,009

$ 37,967

$ 35,526



Retail

20,244


20,650


60,904


62,012



Wholesale and Access
16,210
18,356
48,796
53,054


Total
49,532
51,015
147,667
150,592

Wireless revenue










Retail service

18,521


19,402


55,793


59,007



Equipment

1,219


1,323


3,191


4,171



Wholesale, roaming and other
21,034
18,028
55,191
42,977


Total
40,774
38,753
114,175
106,155 Total operating revenue
$ 90,306
$ 89,768
$ 261,842
$ 256,747





















Wireline:









Operating revenue
$ 49,532

$ 51,015

$ 147,667

$ 150,592


Operating expenses (a)

(37,188 )

(36,164 )

(107,722 )

(106,470 )

Gift of services

(118 )

185


(51 )

254


Stock-based compensation
1,050
1,047
2,300
2,353 Wireline EBITDA
$ 13,276
$ 16,083
$ 42,194
$ 46,729












Wireline EBITDA Margin

26.8 %

31.5 %

28.6 %

31.0 %





















Wireless:









Operating revenue
$ 40,774

$ 38,753

$ 114,175

$ 106,155


Operating expenses (a)

(17,288 )

(16,050 )

(47,993 )

(45,075 )

Cost of Equipment

(4,150 )

(4,143 )

(13,550 )

(12,100 )

Stock-based compensation
138
140
320
312 Wireless EBITDA
$ 19,474
$ 18,700
$ 52,952
$ 49,292












Wireless EBITDA Margin

47.8 %

48.3 %

46.4 %

46.4 %










(a)
Exclusive of depreciation, amortization and gain/loss on disposal of assets.









Schedule 6







ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. INVESTMENT IN CONSTRUCTION AND CAPITAL (Unaudited, In Thousands)









Three Months Ended
Nine Months Ended

September 30,
September 30,

2011
2010
2011
2010







Maintenance capital
$ 11,268
$ 10,626
$ 27,615
$ 23,771







Growth capital

3,390

-

4,462

-







Capitalized Interest
533
367
1,386
1,269







Investment in construction and capital
$ 15,191
$ 10,993
$ 33,463
$ 25,040

















Schedule 7






ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CASH AVAILABLE FOR DISTRIBUTION (Unaudited, In Thousands)











Nine Months Ended




September 30,




2011
2010







EBITDA

$ 95,146

$ 96,021








Subtract:






Maintenance capital expenditures
(27,615 )

(23,771 )

Cash interest expense (24,415 )
(22,816 )







Distributable Cash
43,116


49,434









Dividends Paid (29,082 )
(28,777 )







Excess cash
$ 14,034
$ 20,657






Payout Ratio


67 %

58 %














Schedule 8









ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited)















Three Months Ended





September 30,
June 30,
September 30,





2011
2011
2010 Wireline:


















Retail









Switched access lines

149,840


152,553


157,983


Quarterly growth rate in local telephone switched access lines

-1.8 %

-1.3 %

-1.2 %

Average monthly service revenue per subscriber


$ 18.25

$ 18.24

$ 18.21












Long distance subscribers








Long distance subscribers

60,067


61,034


59,078



Average monthly service revenue per subscriber
$ 16.22

$ 16.84

$ 18.15












Internet subscribers








DSL subscribers

44,797


45,453


45,481



Dial-up subscribers

3,577


3,823


4,572



Average monthly service revenue per subscriber
$ 45.00

$ 44.16

$ 38.61











Wholesale access lines







Wholesale access lines

14,057


14,535


16,424


Quarterly growth rate in wholesale local access lines

-3.3 %

-5.2 %

-9.0 %

Average monthly revenue per line
$ 35.32

$ 30.94

$ 32.04










Wireless:



















Wireless subscribers

117,496


116,679


123,483


Average monthly churn for the quarter

2.4 %

2.1 %

2.6 %

Average monthly service revenue per subscriber
$ 52.81

$ 53.39

$ 51.78


Average monthly data revenue per postpaid subscriber
$ 16.82

$ 16.08

$ 11.73


Source: Alaska Communications Systems Group, Inc.

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