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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-28167
Alaska Communications Systems Group, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware
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52-2126573 |
| (State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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| 600 Telephone Avenue
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99503-6091 |
Anchorage, Alaska
(Address of principal executive offices)
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(Zip Code) |
(907) 297-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class |
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Name of each exchange on which registered |
| Common Stock, Par Value $.01 per Share
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The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Non-accelerated filer o
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the shares of all classes of voting stock of the registrant held
by non-affiliates of the registrant on June 30, 2007 was
approximately $675 million computed upon
the basis of the closing sales price of the Common Stock on that date. For purposes of this
computation, shares held by directors (and shares held by any entities in which they serve as
officers) and officers of the registrant have been excluded. Such exclusion is not intended; nor
shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of March 6, 2008, there were outstanding 42,901,836 shares of Common Stock, $.01 par value,
of the registrant.
Documents Incorporated by Reference
Portions of Registrant’s definitive proxy statement for its annual stockholders’ meeting to be held
on June 9, 2008 are incorporated by reference in Part III of this Form 10-K
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
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ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2007
EXPLANATORY NOTE
In this Form 10-K, we are restating our consolidated balance sheet as of December 31, 2006,
and the related consolidated statement of operations, stockholders’ equity and comprehensive income
and cash flows for the year ended December 31, 2006, including the applicable notes. We have also
included in this report restated unaudited consolidated financial information for each of the first
three quarters of 2007 and the four quarters of 2006.
We do not plan to file an amendment to our Annual Report on Form 10-K for the year ended
December 31, 2006. Nor do we plan to file amendments to our Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, June 30, and September 30, 2006 and 2007, respectively. Thus, you
should not rely on any of the previously filed annual or quarterly reports relating to the
foregoing periods. They are superseded by this report.
For more detailed information about the restatement, please see Note 2, “Restatement of
Consolidated Financial Statements” in the accompanying consolidated financial statements and
“Restatement of Previously Issued Financial Results” in the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” section of this Annual Report on Form 10-K.
In addition, management has determined that we had material weaknesses in our internal control
over financial reporting relating to quantifying and reporting depreciation of our regulatory
assets and the creation of a reserve for study risk associated with our network access revenue
requirements. As described in more detail in Item 9A of this Annual Report, we have identified the
causes of these material weaknesses and are implementing measures designed to remedy them.
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PART I
Item 1. Business
Forward Looking Statements and Analysts’ Reports
This Form 10-K and future filings by Alaska Communications Systems Group, Inc. and its
consolidated subsidiaries (“we”, “our”, “us”, the “Company” and “ACS Group”) on Forms 10-K, 10-Q
and 8-K and the documents incorporated therein by reference include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements in these provisions. All
statements other than statements of historical fact are “forward-looking statements” for purposes
of federal and state securities laws, including statements about anticipated future operating and
financial performance, financial position and liquidity, growth opportunities and growth rates,
pricing plans, acquisition and divestiture opportunities, business prospects, strategic
alternatives, business strategies, regulatory and competitive outlook, investment and expenditure
plans, financing needs and availability and other similar forecasts and statements of expectation
and statements of assumptions underlying any of the foregoing. Words such as “aims”, “anticipates”,
“believes”, “could”, “estimates”, “expects”, “hopes”, “intends”, “may”, “plans”, “projects”,
“seeks”, “should” and variations of these words and similar expressions are intended to identify
these forward-looking statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from our historical experience
and our present expectations or projections. Forward-looking statements by us are based on
estimates, projections, beliefs and assumptions of management and are not guarantees of future
performance. Such forward-looking statements may be contained in this Form 10-K under “Item 1A—Risk
Factors” and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere. Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by us as a result of a number of important
factors. Examples of these factors include (without limitation):
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our strongly competitive environment, which comprises national and local wireless
and wireline facilities-based competitors; |
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our ability to complete, manage, integrate, market, maintain and attract sufficient
customers to our recently announced long-haul fiber facility and our ability to develop
attractive integrated products and services making use of the facility; |
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our ability to generate sufficient earnings and cash flows to continue to make
dividend payments to our stockholders; |
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changes in revenue from Universal Service Funds (“USFs”); |
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rapid technological developments and changes in the telecommunications industries; |
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changes in revenue resulting from regulatory actions affecting intercarrier
compensation; |
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regulatory limitations on our ability to change our pricing for communications
services; |
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possible widespread or lengthy failures of our system or network cables,
particularly our non-redundant systems, including our primary fiber-link connecting
Alaska and the Lower 48 states, which would cause significant delays or interruptions
of service and/or loss of customers; |
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other unanticipated damage to one or more of our high capacity cables resulting from
construction or digging mishaps or natural disasters; |
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the possible future unavailability of Statement of Financial Accounting Standard
(SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, to our
wireline subsidiaries; |
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our ability to bundle our products and services; |
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changes in the demand for our products and services; |
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changes in general industry and market conditions and growth rates; |
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changes in interest rates or other general national, regional or local economic
conditions; |
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governmental and public policy changes; |
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the continued availability of financing in the amounts, at the terms, and subject to
the conditions necessary, to support our future business; |
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the success of any future acquisitions; |
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continuing uncertainty arising out of our most recent assessment of the
effectiveness of our internal controls over financial reporting; |
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changes in accounting policies or practices adopted voluntarily or as required by
accounting principles generally accepted in the United States; and |
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the matters described under “Item 1A—Risk Factors”. |
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In light of these risks, uncertainties and assumptions, you should not place undue reliance on
any forward-looking statements. Additional risks that we may currently deem immaterial or that are
not currently known to us could also cause the forward-looking events discussed in this Form 10-K
not to occur as described. Except as otherwise required by applicable securities laws, we undertake
no obligation to publicly update or revise any forward-looking statements, whether as a result of
new information, future events, changed circumstances or any other reason after the date of this
Form 10-K.
Investors should also be aware that while we do, at various times, communicate with securities
analysts, it is against our policy to disclose to them any material non-public information or other
confidential information. Accordingly, investors should not assume that we agree 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 our responsibility.
Unless the context indicates otherwise, all references in this Form 10-K to “we”, “our”,
“ours”, “us”, “the company”, or “ACS” refer to Alaska Communications Systems Group, Inc. and its
consolidated subsidiaries.
About ACS
We are Alaska’s leading provider of integrated communications services. We provide both
wireline and wireless communications services throughout Alaska. Our wireline business comprises
one of the most expansive networks in Alaska. Our wireless business includes the only
“third-generation” statewide wireless network operating in Alaska today. Both segments rely on our
highly skilled workforce of approximately 1,000 employees.
ACS was incorporated in 1998 under the laws of the State of Delaware. We began doing business
as ACS in May 1999 following our acquisition of the Anchorage Telephone Utility and CenturyTel’s
Alaska assets.
Our principal executive offices are located at 600 Telephone Avenue, Anchorage, Alaska. Our
telephone number is (907) 297-3000.
Business Segments
We have two reportable business segments, wireline and wireless, which conduct the
following principal activities:
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Wireline: We provide communications services including voice, data, broadband,
multi-protocol label switching (“MPLS”) services, network access, long distance and
other services to consumers, carriers, businesses and government customers throughout
Alaska and to and from Alaska. |
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Wireless: We provide wireless voice and data service and products and other value
added services and equipment sales across Alaska. |
For a detailed review of our financial performance and results of operations by business
segment, see Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and
Results of Operations”—Results of Operations and Note 16—“Business Segments of our Consolidated
Financial Statements”, each of which are incorporated herein by reference.
Wireline
We provide voice, data, broadband, network access, long distance, and other advanced IP
network services to consumers, carriers, businesses and government customers throughout Alaska
and to and from Alaska. We provide telephone and high speed Internet services to consumers in
our wireline footprint. Our high-speed data network relies on advanced packet-based MPLS
technology. Our MPLS network provides the framework for our “Metro Ethernet” service, which we
market to medium and large businesses and government customers. Metro Ethernet offers our
customers scalable, high-speed data and customized information technology products and
services, as well as Internet connectivity. To complete our robust wireline fiber network, we
expect to commercially deploy in early 2009 a new state-of-the-art undersea fiber optic cable
connecting Alaska with the lower 48 states. Our wireline revenues in 2007 were $248.3 million,
representing approximately 64.4% of our aggregate revenues.
Products and Services
We provide a broad array of wireline communications services to our residential and small
business customers, including voice, broadband data, network access, long distance and other
communications products and services.
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Voice services we offer include our local exchange, local private line, wire
maintenance, voice messaging and value-added services. Value-added services include
caller ID, call waiting, return call, and other enhanced telephony features. |
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Broadband, data and Internet services we offer include high-speed and scalable DSL and
Metro Ethernet connections to the Internet or within our customers’ intranets. |
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Network access services are provided primarily to long distance and other competing
carriers who use our local exchange facilities to provide usage services to their
customers. |
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Long distance services we offer include intrastate toll and interstate long distance
voice and data services. |
Operations
Our wireline segment comprises four lines of business which operate across our subsidiaries
and focus on specific customer markets. We are not dependent on any single customer. Our retail
line of business provides communications and information services to residential customers and
businesses. These services include local and long distance telephone services, including voicemail,
caller ID and call forwarding. We also offer retail broadband and Internet services. Our wholesale
line of business serves competitive local exchange carriers (“CLECs”) by offering for resale our
local exchange network, including unbundled network elements (“UNEs”). We also offer traditional
data services in specific markets, such as private line, frame relay and ATM services, as well as
MPLS services. Our network access line of business provides voice termination services through our
local telephone facilities.
Our enterprise line of business integrates the very best of our voice, data and Internet
communications services and targets these combined services to medium and large business customers,
multi-national corporations, municipal, state and federal governments, and other telecommunications
carriers. Our enterprise line of business seeks to provide comprehensive, value-added services that
make communications more secure, reliable and efficient.
Competition
The telecommunications industry is highly competitive. Factors contributing to the industry’s
increasingly competitive market include regulatory changes, product substitution, technological
advances, excess network capacity and the entrance of new competitors. In this environment,
competition is based on price and pricing plans, the types of services offered, the combination of
services into bundled offerings, customer service, the quality and reliability of services provided
and the development of new products and services. Current and potential competitors in
telecommunication services include cable companies, wireless service providers, long distance
companies, other local telephone companies, foreign telecommunications providers, electric
utilities, Internet service providers (“ISPs”), Internet information providers, and other companies
that offer network services. Many of these companies have a strong market presence, including
national and international presences, brand recognition and existing customer relationships, all of
which contribute to intensifying competition and may affect our future revenue growth. For more
information associated with the risks of our competitive environment, see “Item 1A—Risk Factors.”
Local Exchange Services
The ability to offer local exchange services has historically been subject to regulation by
state regulatory commissions. Applications from competitors to provide and resell local exchange
services have been approved in most of our service territory.
We are required to permit competitors to purchase our services for resale, or access
components of our network on an unbundled basis at a prescribed cost, and we expect intense
competition in our local exchange markets to continue indefinitely. Our telephone operations
generally have been required to sell their services to CLECs at significant discounts from the
prices we charge our retail customers. The scope of these obligations and the rates we receive are
subject to ongoing review and revision by the Federal Communications Commission (“FCC”) and the
Regulatory Commission of Alaska (“RCA”). For further information, see the section “Regulation”
below.
Long Distance Services
We offer intrastate toll and interstate long distance services throughout Alaska. The RCA has
jurisdiction over intrastate long distance services and the FCC has jurisdiction over interstate
long distance services. For further information, see the section “Regulation” below. A number of
our major competitors in the long distance business have strong brand recognition and existing
customer relationships, making for a very competitive environment. For further information on our
competitive environment, see “Item 1A—Risk Factors.”
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Network
We serve approximately 226,000 access lines in Alaska. We continue to upgrade our network in
order to provide more customers with broadband capabilities. Our fiber network, which is extensive
within Alaska’s urban areas and connects the primary areas of Anchorage, Fairbanks and Juneau with
each other and the Lower 48 states, offers us the opportunity to provide our customers with
improved network reliability and speed for voice and data applications. We own and operate one of
the most expansive IP networks in Alaska using MPLS technology. We provide voice, data, and
Internet service to all of the major population centers in Alaska.
In early 2009, we expect to deploy a state-of-the-art fiber facility connecting Alaska to the
Lower 48 states. We believe, this investment will provide new opportunities to serve Alaskan and
national customers with physically diverse routing of services. Further, we expect to invest in the
technology and services needed to provide the full range of managed services that enterprise
customers expect.
Wireless
Our wireless segment provides facilities-based voice and data services statewide. We operate
the only “third-generation” wireless network in Alaska.
Operations
We provide wireless voice and data services across an extensive statewide 1xRTT CDMA and EVDO
wireless network. In addition, through roaming agreements with major U.S. and Canadian carriers we
provide our customers a range of services and coverage throughout the Lower 48 states, Hawaii and
Canada.
Competition
We face strong competition in our wireless market. Other wireless providers, including other
cellular and PCS operators and resellers, serve each of the markets in which we operate. We compete
primarily against two other facilities-based wireless service providers: at&t (formerly Dobson) and
Alaska Digitel. GCI, our primary wireline competitor and owner of Alaska Digitel, also resells at&t
services under its own brand name providing yet another type of competitor in the marketplace. GCI
has also announced its intention to build a statewide wireless network using EVDO Rev A
technology. We do not currently offer wireless data access at Rev A speeds.
We expect competition for both customers and network usage to intensify as a result of the
higher penetration levels, the development and deployment of new technologies, the introduction of
new wireless and fixed line products and services, new market entrants, the availability of
additional spectrum, both licensed and unlicensed, and regulatory changes. For example, we face
increased competition as a result of the use of other high-speed wireless technologies, such as
Wi-Fi and WiMAX, which are being deployed or proposed, to meet the growing customer appetite for
wireless communications in fixed, nomadic and fully mobile environments. Additionally, as wireless
data proliferates, content is becoming an increasingly significant factor in the appeal of these
services. This may give content providers and other participants in the wireless value chain
opportunities for increased leverage and/or opportunities to compete for wireless data revenues.
We believe that the following are the most important competitive factors in our industry:
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Network reliability, capacity and coverage: Lower prices, improved service quality and
new service offerings have led to increased network usage. As a result, the ability to keep
pace with network capacity needs and offer highly reliable coverage through one’s own
network is important. We have an extensive network, but we continue to look for
opportunities to enhance our network and improve coverage and network quality. Our
competitors are doing the same. |
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Pricing: Service and equipment pricing is an important area in which wireless carriers
compete. Strong competition has resulted in the marketing of minutes-sharing plans, free
mobile-to-mobile calling, and offerings of larger bundles of included minutes or unlimited
minutes at fixed price points, with no roaming or long distance charges. We seek to compete
in this area by offering our customers services based on the specific needs of Alaskans and
equipment that they will regard as the best available value for their money. |
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Customer service: Quality customer service is essential to ensure that we can obtain
new customers and retain existing customers. We believe that the quality of our customer
service is a key factor in retaining our customers and in attracting both
new-to-wireless customers and those customers of other carriers who want to switch their
wireless service. Our competitors also recognize the importance of customer service and
are focusing on improving the customer experience. |
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Product Differentiation: As wireless technologies develop and wireless broadband
networks proliferate, continued customer and revenue growth will be increasingly
dependent on the development of new and differentiated products and services. We are
committed to providing customer solutions through the development and rapid deployment of
new and innovative products and services. |
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Sales and Distribution: Key to achieving sales success in the wireless industry is the
reach and quality of sales channels and distribution points. We believe that the optimal
mix of direct and indirect distribution channels is an important ingredient in achieving
industry-leading profitability. A goal of our distribution strategy is to increase sales
through our company-operated stores and our business sales team, as well as through
telemarketing and web-based sales and fulfillment capabilities. Supplementing this is a
growing indirect distribution network of retail outlets and prepaid replenishment
locations. |
Our success will depend on our ability to anticipate and respond to various factors affecting
the industry, including the factors described above, as well as new technologies, new business
models, changes in customer preferences, regulatory changes, demographic trends, economic
conditions, and pricing strategies of competitors. For additional information on these factors, see
“Item 1A—Risk Factors”.
Network
A key part of our business strategy is to provide the highest network reliability. We believe
that network reliability is a key differentiator in our market and a driver of customer
satisfaction. Consistent with this strategy, we continue to strategically expand and upgrade our
network in an effort to provide sufficient capacity and seamless and superior coverage and
reliability throughout our licensed area. We conduct systematic “drive-tests” of our network to
assess the number of blocked and dropped calls as compared to our competitors, and we market those
results. Our network is among the most extensive in Alaska with our network covering approximately
84% of Alaska’s population and supporting approximately 146,000 subscribers, as of December 31,
2007. We aim to provide our customers consistent features and high-quality service, regardless of
location.
Network Technology
Our primary network technology platform, 1xRTT CDMA, a wireless technology developed by
Qualcomm as part of its family of technologies known as CDMA2000, is presently deployed in
virtually all of our cell sites. 1xRTT increases the voice traffic capacity available to us and
provides increased data speeds. Further, 1xRTT is a modular infrastructure upgrade that has proven
to be cost-efficient and practical for rapid deployment. In addition to 1xRTT, in 2004 we began
deploying EVDO, a third-generation packet-based technology that follows the CDMA2000 technology
path. EVDO is intended primarily for high-speed data transmission. As with 1xRTT, we have been able
to implement EVDO by changing and/or adding modular components and software in our network. EVDO
service, which we brand and market as Mobile Broadband, is available in our major markets and in
Alaska’s North Slope, which is home to Alaska’s largest oil fields. We plan further coverage
expansions and enhancements in 2008.
Spectrum
We have licenses to provide mobile wireless services on the 800-900 MHz and 1800-1900 MHz
portions of the radio spectrum. Collectively, these licenses cover virtually all of Alaska. The
800-900 MHz portion is used to provide digital cellular voice and data services, while our
1800-1900 MHz portion provides all-digital PCS voice and data services.
Services
We believe that increasing the value, features and functionality of our wireless service will
help us to retain our existing customers, attract new customers and increase customer usage.
Through this approach, we seek to drive further revenue growth in our wireless segment.
We design and market service packages around key customer groups, from the young adult market
to enterprise business accounts. We tailor our wireless services, which include both voice and data
offerings, and postpaid and prepaid pricing options, to the needs of these customers.
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Voice services: We offer a variety of packages for voice services predominantly
offered on a postpaid basis with a contract term. Specifically, we offer plans which
provide a choice in amounts of bundled minutes or unlimited minutes together with no
roaming or long distance charges for calls on our network and the networks of our
roaming partners in the rest of the U.S. and Canada; family/small group and shared
minute plans for multiple-user households and small businesses; and plans targeted to
larger business accounts. We also offer bundled minutes or unlimited minutes plans that
target customers needing Alaskan coverage only. In addition, we offer a prepaid
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product that enables individuals to obtain wireless voice services without a long-term
contract by paying in advance. |
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Data services: As the only “third-generation” wireless provider in Alaska, we
believe that we are in a strong position to take advantage of the growing demand for
wireless data services. Our strategy is to continue to expand our wireless data,
messaging and multi-media offerings for both consumer and business customers. |
Devices
We offer wireless devices by a number of manufacturers that complement our focus on
high-quality service and an optimal user experience. Most of the wireless devices that we offer are
EVDO-enabled, and all of them are compatible with our 1xRTT network. In addition, the handsets that
we offer are headphone/earphone compatible and, all of them, through GPS functionality, are
compliant with the FCC’s E-911 requirements.
Marketing
Our marketing strategy targets customers’ needs, promotes our brand, and cross markets, and in
some cases bundles, our wireline products. Our marketing efforts are focused on a coordinated
program of television, print, radio, signage, Internet and point-of-sale media promotions.
Sales and Distribution Channels
Our sales strategy combines direct and indirect distribution channels in order to increase
customer growth while reducing customer acquisition costs.
Our company-operated stores are a core component of our distribution strategy. Our experience
has been that customers entering through this direct channel are generally higher-value customers
who generate higher revenue per month on average and are less likely to cancel their service than
those who come through other mass-market channels. We had 19 company-operated stores and kiosks as
of December 31, 2007. In addition, our direct channel also includes our business-sales
organization, which is focused on supporting the needs of larger business customers.
We also have a number of indirect retail locations throughout Alaska selling our wireless
services. As of December 31, 2007, we had 28 such agent locations.
Customer Service, Retention and Satisfaction
We believe that quality customer service increases customer satisfaction, which reduces churn,
and is a key differentiator in the wireless industry. We are committed to providing high-quality
customer service, investing in loyalty and retention efforts and continually monitoring customer
satisfaction in all facets of our service.
Seasonality
We believe our wireless revenue is materially impacted by seasonal factors. Wireless revenue,
particularly roaming revenue, declines in the winter months and increases in the summer months. We
believe this is due to Alaska’s northern latitude and the resulting wide swing in available
daylight and weather conditions between summer and winter months. These uniquely Alaskan conditions
affect business, tourism and calling patterns in the state. Our wireline service offerings
experience similar seasonal effects, but we do not believe these effects are material.
Employees
As of January 31, 2008, we employed 986 regular full-time employees, 14 regular part time
employees and 3 temporary employees. Approximately 78% of our employees are represented by the
International Brotherhood of Electrical Workers, Local 1547 (“IBEW”). Management considers employee
relations to be good with both the represented and non-represented workforce. Our Master Collective
Bargaining Agreement with the IBEW, as amended, governs the terms and conditions of employment for
all IBEW represented employees working for us in the State of Alaska. This agreement expires at the
end of 2009.
Non-represented employees qualify for wage increases based on individual and company
performance, and key employees are also eligible for performance-based incentives. We provide a
total benefits package, including health, welfare, and retirement components that we believe is
competitive in our market.
Website Access to Reports
Our investor relations website Internet address is www.alsk.com. The information on our
website is not incorporated by reference in this annual report on Form 10-K. We make available,
free of charge, on our investor relations website, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
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filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are
available as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission.
Regulation
The following summary of the regulatory environment in which our business operates does not
describe all present and proposed federal, state and local legislation and regulations affecting
the telecommunications industry in Alaska. Some legislation and regulations are currently the
subject of judicial review, legislative hearings and administrative proposals, which could change
the manner in which this industry operates. We cannot predict the outcome of any of these matters
or their potential impact on our business. Regulation in the telecommunications industry is subject
to rapid change, and any such change may have an adverse effect on us.
Overview
The telecommunications services we provide and from which we derive a significant share of our
revenue are subject to extensive federal, state and local regulation. Our local exchange carrier
(“LEC”) subsidiaries are regulated common carriers and have the right to set maximum rates at a
level that allows us to recover the reasonable costs incurred in the provision of regulated
telecommunications services and to earn a reasonable rate of return on the investment required to
provide these services. Because they face competition, however, most of our LEC subsidiaries may
not be able to realize their allowed rates of return.
In this section, “Regulation”, we refer to our LEC subsidiaries individually as follows:
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ACS of Anchorage, Inc. (“ACSA”) |
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ACS of Alaska, Inc. (“ACSAK”) |
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ACS of Fairbanks, Inc. (“ACSF”); and |
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ACS of the Northland, Inc. (“ACSN”). |
In establishing rates for regulated services, our LEC subsidiaries first determine their
aggregate costs and then allocate those costs between regulated and non-regulated services, then
separate the regulated costs between the state and federal jurisdictions, and finally among their
various interstate and intrastate services. This process is governed primarily by the FCC’s rules
and regulations. The FCC is considering whether to modify or eliminate the current jurisdictional
separations process. This decision could indirectly increase or reduce earnings of carriers subject
to jurisdictional separations rules by affecting the way regulated costs are divided between the
federal and state jurisdictions, if rates in both jurisdictions are not adjusted accordingly.
Maximum rates for regulated services are regulated by the FCC for interstate services and by the
RCA for intrastate services.
At the federal level, the FCC generally exercises jurisdiction over services of
telecommunications common carriers, that provide, originate or terminate interstate or
international communications and related facilities. The FCC does not directly regulate information
services and has preempted inconsistent state regulation of information services. Our wireless
services use FCC radio-frequency licenses and are subject to various FCC regulations, including
enhanced 911(“E-911”) and number portability requirements. The RCA generally exercises jurisdiction
over services and facilities used to provide, originate or terminate communications between points
in Alaska. In addition, pursuant to the federal Telecommunications Act of 1996 (“Telecommunications
Act”) federal and state regulators share responsibility for implementing and enforcing policies
intended to foster competition in local telecommunications services. In particular, state
regulatory agencies have substantial oversight over the provision by incumbent local exchange
carriers (“ILECs”) of interconnection and non-discriminatory network access to CLECs. Local
governments often regulate the public rights-of-way necessary to install and operate networks.
These local governments may require communications services providers to obtain licenses or
franchises regulating their use of public rights-of-way, and may require carriers to obtain
construction permits and abide by building and land use codes.
Federal regulation
We must comply with the Communications Act of 1934, as amended (“Communications Act”) and
regulations promulgated thereunder which require, among other things, that communications carriers
offer interstate services at just, reasonable and nondiscriminatory rates and terms. The amendments
to the Communications Act contained in the Telecommunications Act added provisions intended to
promote competition in local telecommunications services by removing barriers to entry, imposing
interconnection and network access requirements, and making universal service support explicit and
portable, and to lead to deregulation as markets become more competitive.
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Interconnection with local telephone companies and access to other facilities
In order to ensure access to local facilities and services at reasonable rates the
Communications Act imposes a number of access and interconnection requirements on LECs. Generally,
a LEC must: not prohibit or unreasonably restrict the resale of its services; provide for telephone
number portability, so customers may keep the same telephone number if they switch service
providers; ensure that customers are able to route their calls to telecommunications service
providers without having to dial additional digits; provide access to their poles, ducts, conduits
and rights-of-way on a reasonable, non-discriminatory basis; and, when a call originates on its
network, compensate other telephone companies for terminating or transporting the call.
Most ILECs have the following additional obligations under the Communications Act: negotiate
in good faith with any carrier requesting interconnection; provide interconnection for the
transmission and routing of telecommunications at any technically feasible point in its network on
just, reasonable and non-discriminatory rates, terms and conditions; provide access to UNEs, such
as local loops, switches and trunks, or combinations of UNEs at nondiscriminatory, cost-based
rates; offer retail local telephone services to resellers at discounted wholesale rates; provide
notice of changes in information needed for another carrier to transmit and route services using
its facilities; and provide physical collocation, which allows a CLEC to install and maintain its
network termination equipment in an ILEC’s central office, or to obtain functionally equivalent
forms of interconnection.
Our ACSN ILEC subsidiary enjoys a statutory exemption as a rural carrier from the requirements
imposed on most ILECs to provide UNEs to a CLEC. The RCA may terminate the exemption if it
determines that interconnection is technically feasible, not unduly economically burdensome and
consistent with universal service. Although the RCA has not terminated ACSN’s UNE exemption, the
RCA granted GCI, subject to certain conditions, approval to provide local exchange telephone
service in the Glacier State and Sitka study areas of ACSN on its own facilities. New
facilities-based local exchange service competition may reduce our revenues and returns.
To implement the interconnection requirements of the Telecommunications Act, the FCC adopted
rules requiring, among other provisions, that ILECs price UNEs based on forward-looking economic
costs using the total element long-run incremental cost methodology. In February 2005 the FCC
released an order eliminating the obligation of ILECs to provide access to switching as a UNE, as
well as the obligation to provide the combination of UNEs known as the UNE platform (“UNE-P”).
Currently, the FCC is reexamining its pricing standard for UNEs and may reconsider other aspects of
its rules.
On December 28, 2006, the FCC conditionally and partially granted ACSA forbearance from the
obligation to lease UNEs to our competitors at regulated rates. This forbearance was limited to
five wire centers within the Anchorage service area of ACSA. Even where relief was granted,
however, the FCC has required ACS to lease loops and sub-loops at commercially negotiated rates, or
if there is no commercial agreement, at the rates for these UNEs in Fairbanks. As a result of this
decision, on March 15, 2007, ACSA, ACSAK, ACSF and ACSN entered into a five-year global
interconnection and resale agreement with GCI governing the provision of UNEs and other services.
Congress may consider legislation that may further modify the interconnection requirements
under the Communications Act and the FCC and the RCA frequently consider modifications of their
rules. We cannot predict the outcome of any such of any action taken by the Congress, the FCC or
the RCA.
Interstate access charges
The FCC regulates the prices that ILECs charge for the use of their local telephone facilities
in originating or terminating interstate transmissions. Our ILECs’ interstate “access charges” are
usually developed using a cost-of-service methodology, based on our authorized maximum rate of
return. The National Exchange Carrier Association (“NECA”) develops averaged access rates for
participating ILECs, including our ILECs, based on the costs of these carriers. All of our ILECs
participate in NECA’s tariff for non-traffic sensitive costs, which are primarily loop costs. While
ACSA files its own traffic sensitive access tariff, which covers primarily switching costs, our
other ILECs participate in NECA’s traffic sensitive access tariff. Participants in a NECA tariff
charge averaged access rates, pool their revenues, and distribute the revenues on the basis of each
individual carrier’s costs. The NECA tariffs reduce the cost burden on individual ILECs of filing
tariffs and also spread some of the risks of providing interstate access services. None of our
ILECs have chosen the FCC’s price cap method for its interstate access charges.
On August 20, 2007, the FCC granted ACSA partial forbearance from certain dominant carrier
regulations to ACSA’s provision of interstate switched access services, subject to a number of
conditions. Among other things, ACSA received relief from requirements to base interstate switched
access service charges on ACSA’s costs plus an authorized rate of return, as well as certain
tariffing requirements. The switched access relief was conditioned upon a cap on interstate
switched access rates and a cap on USF support received on a per line basis. The FCC denied ACSA’s
requested similar forbearance
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relief with respect to interstate special access services. ACSA and other parties have sought
reconsideration of the FCC’s forbearance order. These reconsideration petitions remain pending.
In 2001, the FCC adopted an order implementing certain proposals of the Multi-Association
Group (“MAG”) to reform the access charge system for rural ILECs. Among other things, the MAG plan
reduces usage sensitive access charges on long distance carriers and shifts a portion of cost
recovery to subscriber line charges, which are paid by end users, and new explicit universal
service support. The FCC also implemented a freeze on jurisdictional cost separations factors that
expired in June of 2006, but the separations factor freeze was extended indefinitely in May of
2006. The FCC is currently considering various proposals for further reform. These proposals may
result in the elimination of interstate and intrastate access charges paid by long distance
carriers, and the requirement that carriers such as ACSA, ACSF, ACSAK and ACSN recover those
interstate and intrastate costs from a combination of end-user charges and universal service
support. Various groups of carriers and regulators are developing new proposals for replacements to
the MAG plan to submit to the FCC. We cannot predict what changes the FCC may adopt or when they
may adopt them.
Federal Universal Service Support
The Communications Act requires the FCC to establish a universal service program to ensure
that affordable, quality telecommunications services are available to all Americans. The program at
the federal level has several components, including one that pays support to LECs serving areas for
which the costs of providing basic telephone service are higher than the national average. The
Telecommunications Act requires the FCC to make universal service support explicit, expand the
types of communications carriers that are required to pay universal support, and allow competitive
providers including CLECs and wireless carriers to be eligible for universal service support,
including where they serve customers formerly served by ILECs.
In May 2001, the FCC adopted a proposal from the Rural Task Force to reform universal service
support for rural areas. As adopted, for an interim period, eligible rural carriers will continue
to receive support based on a modified embedded cost mechanism. While the modified embedded cost
mechanism remains in place, the FCC has indicated that, it will develop a comprehensive plan for
high-cost support mechanisms for rural and non-rural carriers which may rely on forward-looking
costs. In June, 2004, the Federal-State Joint Board sought comment on certain reforms, such as the
proper definition to use in determining whether a carrier should be supported under the “rural”
mechanism (as opposed to the “non-rural” mechanism based on forward-looking costs), the basis on
which support levels for rural carriers (both ILECs and CLECs) should be calculated. The joint
board adopted and sent on to the FCC recommendations for long term universal service reforms on
November 19, 2007.
Recently, the FCC began considering a number of revisions to the distribution mechanisms for
universal service support. The proposals under consideration include eliminating the “identical
support” rule that permits competitive carriers (such as our subsidiary ACS Wireless, Inc. (“ACSW”)
and our wireless competitors) to apply for funding based on the support received by the ILEC. The
FCC has proposed requiring competitive carriers to justify support based on some measure of their
own costs, or based on a model. The FCC also has proposed reforms that could affect the amount of
funding for ILECs, including limiting all forms of high-cost support to a single line per customer,
using “reverse auctions” to determine one or more recipients of high-cost support in any geographic
area based on the lowest bidder for that support, and creating three separate funds (each subject
to a cap) for providers of mobile telephone service, broadband providers, and “carriers of last
resort” (such as ILECs). These and other proposed rule changes could reduce our support in the
future, reduce the support available to our competitors, or provide for new support, such as for
broadband services. In addition, members of Congress have indicated that they may seek enactment of
legislation addressing universal service reform, including legislation to limit growth of explicit
universal service support funds. We are unable to predict whether and to what extent we would be
eligible to receive any federal high-cost support under a revised support mechanism.
USF support is only available to carriers that are designated as eligible telecommunications
carrier (“ETCs”), by a state regulatory commission for carriers subject to state jurisdiction, or
by the FCC, for other carriers not subject to state jurisdiction. On March 17, 2005, the FCC
adopted new and more stringent guidelines concerning the designation of competitive carriers as
ETCs (“CETCs”) for designations that it makes under its jurisdiction. Although the new guidelines
are not binding on state commissions, several parties have asked the FCC to require states to
follow them on reconsideration. The RCA has commenced a state rulemaking proceeding to consider
possible changes prompted by the FCC guidelines.
Under current FCC regulations, the total amount of federal USF available to all ILEC ETCs is
subject to a yearly cap. In any year where the cap is reached, the per access line rate at which
ILECs can recover USF payments may decrease. In each of the last few years, the cap has effectively
decreased USF payments.
The FCC is currently considering revisions to the current mechanism for funding universal
service. Today, our operating subsidiary companies are required to contribute to the federal USF a
percentage of their revenue earned from
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interstate and international services. The FCC is currently considering whether to replace
this funding mechanism with one based on flat-rated, per-line contributions, capacity-based
contributions, or some combination of these or other proposals. We cannot predict how the outcome
of this proceeding may affect our contribution obligations.
Interstate long distance services
FCC regulation of the rates, terms or facilities of our interstate long distance services is
relatively light. However, we must comply with the general requirement that our charges and terms
be just, reasonable and non-discriminatory. Also, we must comply with FCC rules regarding
unauthorized switching of a customer’s long distance service provider, or slamming; the FCC has
levied substantial fines on some carriers for slamming. In addition, we must post the rates, terms
and conditions of its service on our Internet web site and engage in other public disclosure
activities.
The FCC requires that ILECs that provide interstate long distance services originating from
their local exchange service territories must have long distance affiliates which maintain separate
books of account and acquire any services from their affiliated ILECs at tariff rates, terms and
conditions.
On December 8, 2004, Congress enacted a new law requiring, through 2009, the purchase and sale
of interstate wholesale switched service elements at rates equivalent to the rates set forth in
AT&T Alascom’s Tariff 11, subject to annual downward adjustments specified in the statute. Rural
telephone companies, or companies that are affiliated with and under the control of rural telephone
companies, are exempt from the requirement to purchase services at such rates.
Internet services
We provide Internet access services as an ISP. The FCC has classified such services as
information services, so they are not subject to many of the regulatory obligations that are
imposed on common carriers. Additionally, the FCC generally has preempted state and local
regulation of information services.
However, the FCC has imposed particular regulatory obligations on broadband services. The FCC
has determined that interconnected VoIP providers and broadband Internet access providers must
comply with the Communications Assistance for Law Enforcement Act (“CALEA”) and contribute to USF
for certain broadband and VoIP services. The FCC has also required interconnected VoIP providers to
comply with: (i) requirements to provide enhanced 911 emergency calling capabilities; (ii) certain
disability access requirements; (iii) the FCC’s rules protecting customer information; and (iv)
local number portability requirements. These regulations apply to our goVocal™ Internet phone
service. Additional rules and regulations may be extended to the Internet in the future. A variety
of proposals are under consideration in federal and state legislative and regulatory bodies. We
cannot predict the outcome or the impact of pending or future proceedings.
Recently, the FCC and lawmakers have considered several proposals to adopt requirements for
non-discriminatory treatment of traffic over broadband networks, often referred to as “net
neutrality”. The FCC has sought comment on industry practices in connection with this issue. There
may be new legislation or further FCC action to address access to the Internet or create disclosure
requirements of ISPs as to treatment of Internet traffic. We cannot predict the impact of any such
actions on our results or operations.
In October 2005, the FCC determined that ILECs are no longer required to lease high-speed
Internet access service transmission capability to their competitors and re-affirmed its finding
that provision of high-speed transmission service bundled with Internet access services is an
information service not subject to common carrier regulation, whether that access is provided via
cable modem, DSL services or otherwise. This decision gives us more flexibility in how we offer and
price our DSL services. However, for carriers subject to rate-of-return regulation, like the ACS
ILECs, the FCC left uncertain whether loop cost allocations would change if they decide to offer
the underlying transmission capability on a non-common carrier basis. We currently provide
high-speed Internet access transmission capability on a common carrier basis under a stand-alone
FCC tariff for ACSA and the NECA tariff for our non-Anchorage LECs. We are considering whether to
offer it as non-common carrier service.
On August 20, 2007, the FCC granted ACSA forbearance from applying common carrier regulation
to certain broadband services sold to larger business customers, subject to a condition to develop
a plan for allocating costs between rate-of-return regulated services and the non-regulated
broadband services.
Wireless services
The FCC regulates the licensing, construction, operation, acquisition and sale of personal
communications services and cellular systems in the United States. All cellular and personal
communications services licenses have a 10-year term, at the end of which they must be renewed.
Licenses may be revoked for cause and license renewal applications may be denied if the FCC
determines that renewal would not serve the public interest. In addition, all personal
communications services
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licensees must satisfy certain coverage requirements. Licensees that fail to meet the coverage
requirements may be subject to forfeiture of the license.
Federal law preempts state and local regulation of the entry of, or the rates charged by, any
provider of commercial mobile radio services (“CMRS”) which includes personal communications
services and cellular services. The FCC does not regulate such rates; however, the FCC imposes a
variety of other regulatory requirements on CMRS operators. For example, CMRS operators must be
able to transmit 911 calls from any qualified handset without credit check or validation and are
required to provide the location of the 911 caller within an increasingly narrow geographic range.
CMRS operators are also required to provide 911 service for individuals with speech and hearing
disabilities, or TTY service. Consistent with FCC orders, all new ACS Wireless, Inc, (“ACSW”)
handset activations have been location-capable since January 1, 2006. Further, ACSW met the FCC’s
deadline of having 95% of all subscribers using location-capable handsets prior to January 31,
2007.
The FCC also requires that if a LEC customer wants to retain a telephone number while changing
to a CMRS service provider (such as ACSW), the LEC must have the capability to allow this
wireline-to-wireless number portability within six months of a bona fide request, where the
requesting CMRS carrier’s coverage area overlaps the geographic location of the LEC rate center to
which the number is assigned (unless the LEC can provide specific evidence demonstrating that doing
so is not technically feasible). These number portability rules are expected to increase the level
of competition among CMRS service providers, but also to increase the ability of CMRS providers to
win customers from LECs. This rule has had little impact on our LECs, but we cannot predict the net
impact of these rules on us over the long-term.
Other federal regulations
We are subject to various other federal regulations and statutes, including those concerning
the use of customer proprietary network information (“CPNI”) in marketing services. CPNI generally
includes information a carrier has regarding the telecommunications services to which its customer
subscribes and the customer’s use of those services. The FCC limits the ways in which carriers may
use or disclose CPNI and specifies what carriers must do to safeguard CPNI. The FCC has recently
adopted amendments to strengthen its rules governing carrier use and disclosure of CPNI.
Other FCC initiatives that may impact our regulated subsidiaries include implementing
capabilities pursuant to CALEA to be used by law enforcement officials in executing court
authorized electronic surveillance, access to poles, ducts, conduits and rights-of-way,
Truth-in-Billing requirements, EEO reporting, hearing aid compatibility requirements and
anti-slamming rules. We must obtain FCC approval before we transfer control of any of our common
carrier subsidiaries or our radio frequency licenses or authorizations, make such an acquisition or
discontinue an interstate service. These requirements may impose costs on us and limit our business
opportunities.
State regulation
Telecommunication companies are required to obtain certificates of public convenience and
necessity from the RCA prior to operating as a public utility in Alaska. The RCA must approve
amendments to and transfers of such certificates. In addition, RCA approval is required if an
entity acquires a controlling interest in any of our certificated subsidiaries, if we acquire a
controlling interest in another intrastate utility or if we discontinue an intrastate service. The
RCA also regulates rates, terms and conditions for local, intrastate access and intrastate long
distance services, supervises the administration of the Alaska Universal Service Fund (“AUSF”) and
decides on ETC status for purposes of the federal USF. Furthermore, pursuant to the
Telecommunications Act and the FCC’s rules, the RCA decides various aspects of local network
interconnection offerings and agreements.
Interconnection
The Telecommunications Act specifies that resale and UNE rates are to be negotiated among the
parties subject to approval by the state regulatory commission or, if the parties fail to reach an
agreement, arbitrated by the state regulatory commission. The ACS LECs have entered into
interconnection agreements with a number of entities including TelAlaska Long Distance, Inc., GCI,
at&t, Alaska DigiTel and Alaska Wireless Communications. In addition, ACS Wireless has entered
agreements with entities including KPU Telecommunications, Alaska Telephone Company, Arctic Slope
Telephone Association Cooperative, Inc., Matanuska Telephone Association and the ACS LECs, to
provide service in their study areas.
Competitive local exchange regulations
In August 2005, the RCA adopted regulations addressing a variety of telecommunications related
matters including tariff policies, depreciation practices, local competitive market rules and
interexchange competitive market rules. The regulations provide for, among other things: initial
classification of all ILECs, including our rural properties and ACSA, as dominant carriers;
requirements that all carriers, both dominant and non-dominant, offer all retail services for
resale at wholesale rates consistent with 47 U.S.C. § 251 and 252; and limited dominant carrier
pricing flexibility in competitive areas,
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under which carriers may reduce retail rates, offer new or repackaged services and implement
special contracts for retail service upon 30 days’ notice. Rate increases affecting existing
services are subject to full cost support showings by the dominant carrier in areas with local
competition; but the RCA may demand, and has demanded, cost support even for rate reductions and
new or repackaged services in competitive areas.
The RCA has defined all the ACS LEC markets as “competitive local exchange markets” and
designated the ACS LECs as nondominant carriers in all areas except the rural communities in the
Sitka study area (“Sitka Bush”). Consequently, the ACS LECs have access to relaxed tariff filing
rules that allow retail offers to be introduced to the market without advance public notice or RCA
approval in all areas except Sitka Bush.
End user local rates
The rates charged by our ILECs to end-users for basic local service are generally subject to
the RCA’s regulation based on a cost-of-service method using an authorized rate of return.
Competition may prevent local rates from being sufficient to recover embedded costs for local
service. Rate cases are typically infrequent, carrier-initiated and require the carrier to meet
substantial burdens of proof. The RCA may, however, investigate, upon complaint or upon its own
motion, the rates of a LEC and hold hearings on those rates.
Intrastate access rates
ILECs not yet subject to local competition participate in a pool administered by the Alaska
Exchange Carriers Association (“AECA”) for intrastate access charges to long distance carriers.
AECA pools their access costs and sets a statewide average price which participating ILECs charge
to long distance carriers for originating or terminating calls. Access revenues are collected in a
pool and then redistributed to the ILECs based on their actual costs.
The RCA requires an ILEC to file separate, individual company access charge tariffs when a
competitor enters its service area. These tariffs are based on the ILEC’s cost of service and are
revised biennially. ACSN is our only ILEC associated with AECA. AECA administers ACSN’s intrastate
access tariff, but ACSN has a stand-alone rate. In its 2007 access rate case, ACSN has entered a
stipulation to resolve all issues in the case, and a decision is expected from the RCA in April
2008.
On general issues, in 2006, the RCA commenced a state rulemaking proceeding to consider the
impact of competition on the access pooling process and whether to continue to require ILECs in
competitive markets to exit the AECA pool. These issues are still pending consideration. Also, the
RCA has adopted regulations limiting the access fees local carriers can charge interexchange
carriers and imposing a Network Access Fee on end-users to make up for the reduction in fees paid
by interexchange carriers.
Alaska Universal Service Fund
The RCA has established a state universal service fund, the AUSF. The AUSF serves as a
complement to the federal USF, but must meet federal statutory criteria concerning consistency with
federal rules and regulations. Currently, the AUSF supports a portion of certain higher cost
carriers’ switching costs, the costs of lifeline service (which supports rates of low income
customers), and a portion of the cost of Public Interest Pay Telephones. The RCA has adopted
regulations that limit high-cost switching support to local companies with access lines of 20,000
or less. This change has eliminated the switching support that our rural ILECs received.
ETC Determinations
The RCA granted GCI’s request that it be designated an ETC in Anchorage, Fairbanks, Juneau,
Fort Wainwright and Glacier State areas, all of which are currently served by our subsidiaries.
Further, ACSW has been granted ETC status in the MTA, ACSF, ACSA, ACSAK-Juneau, ACSN-Glacier State,
Copper Valley and KPU Telecommunications study areas. On September 11, 2007, the RCA denied ACSW’s
request for ETC status in the areas served by Alaska Telephone Company and Cordova Telephone
Cooperative, Inc., without prejudice to re-filing.
GCI has also applied for ETC status in the area served by Mukluk Telephone Company (Nome and
surrounding areas), using a combination of cable and wireless technologies to provide service to
the study area. GCI has said it plans to use this hybrid approach to build-out its wireless network
in other rural areas if the Commission approves its approach, including Sitka Bush. A number of
rural LECs have objected to GCI’s proposal. We cannot predict the outcome of this proceeding.
In January 2008, the RCA issued proposed regulations governing the state process for obtaining
and maintaining designation as an ETC that were based in part on the FCC’s minimum ETC
requirements. The proposed rules would add new requirements for ETCs, including that they would
have to strengthen emergency back-up capability, provide plans showing how they would serve the
entire service area within five years, and file detailed reports showing progress on meeting
network
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development plans for each community. The rules would apply to carriers already designated as
ETCs, as well as for new ETCs. An ETC could lose its ETC status or USF support if it failed to
follow its network build-out and service commitments. If approved, the rules could impact ACSW and
other CETCs, particularly in areas where they have only partially constructed their networks. We
cannot predict what USF rules the RCA will adopt, or when it will adopt them.
Other state regulations
In 2007, the Commission adopted standards related to E-911 service for multi-line telephones.
The rules do not impose any new obligations on local exchange carriers. The owners of the
multi-line telephones, such as hotels or motels, will be responsible for changes in their systems,
so that 911 callers can be identified more accurately.
Local Service
ACSN serves approximately 200 customers in very remote parts of Alaska through fixed wireless
service. Recently, ACSN has been upgrading its fixed wireless service from TDMA to a more advanced
CDMA platform. Over the last few months, several consumers in two remote southeast locations,
Thorne Bay and Klawock, had complained to the RCA about the quality of service provided by the TDMA
facilities. On February 15, 2008, the RCA opened a docket to investigate related service quality
issues. ACSN expects that the CDMA upgrade will resolve a number of service issues. In the course
of the proceeding, the RCA may investigate a variety of issues, including whether ACSN should
extend its wireline network to these customers, and whether this fixed wireless service complies
with the State Telecommunications Modernization Plan, which requires local companies to meet
certain technology standards (data speeds). It is not possible to predict the outcome of this
proceeding at this early stage.
Item 1A. Risk Factors
We face a variety of risks that may affect our business, financial condition, and results of
operations, some of which are beyond our control. The risks described below are not the only ones
we face and should be considered in addition to the other cautionary statements and risks described
elsewhere, and the other information contained, in this report and in our other filings with the
SEC, including our subsequent reports on Forms 10-Q and 8-K. Additional risks and uncertainties not
known to us or that we currently deem immaterial may also affect our business. If any of these
known or unknown risks or uncertainties actually occurs, our business, financial condition and
results of operations could be seriously harmed.
Risks Related to our Business
The telecommunications industry is extremely competitive, particularly in Alaska, and we may have
difficulty competing effectively for share in generally small markets.
The telecommunications industry in Alaska is extremely competitive, and providers compete over
a small number of customers in small markets. We face competition in each of our wireless and
wireline markets. Competitors in our markets:
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reduce our customer base; |
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require us to lower rates and other prices in order to compete; |
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require us to invest in new facilities and capabilities; |
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increase our marketing expenses and require us to use discounting and promotional
campaigns that adversely affect our margins; or |
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otherwise lead to reduced revenues, margins and returns. |
Our principal wireless competitor, at&t, is one of the largest wireless service providers in
the U.S. In addition, at&t has more Alaskan customers than we do. at&t has greater access to
greater financial, technical and other resources than we do. Further, at&t may have greater access
to consumer devices, and greater market power to obtain these devices on more favorable terms, than
we do. at&t, thus, might be able to offer lower prices, additional products, services, features, or
other incentives that we cannot match or offer. Further, at&t may be in a position to respond more
quickly to new technologies and be able to undertake more extensive marketing campaigns. Moreover,
at&t operates its own nationwide network, whereas we rely on roaming agreements with other carriers
to provide coverage outside Alaska. Our reliance on these agreements could adversely affect our
ability to maintain competitive pricing, which would have a material adverse effect on our
financial results. GCI, our principal wireline competitor, owns Alaska DigiTel, another Alaskan
CDMA wireless carrier, and announced its intention to invest $100 million to construct a statewide
wireless network using EVDO
Rev A technology. We do not currently offer wireless data access at Rev A speeds.
Our principal wireline competitor is the dominant cable television provider in Alaska. In
consumer markets, GCI attempts to use its dominant cable television position by bundling its cable
services with competitive telephony services,
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which are primarily based on leases of our
facilities. We do not offer television service, and, thus, are unable to offer competing bundles.
In addition, GCI has aggressively deployed cable telephony in order to move its telephone customers
off of our network and onto its own cable system. Significant migration of customers would result
in a significant reduction of revenue for us. In addition, GCI holds a dominant position in the
current long-haul voice and data markets, where it owns and operates two of the three existing
undersea fiber-optic cables connecting Alaska to the Lower 48 and has a number of significant
contracts with large carrier customers. In the carrier and enterprise markets, we expect GCI to
aggressively compete with the services we expect to provide in early 2009, which we expect will
combine our announced long-haul undersea cable with our statewide wireline network.
These strong competitive pressures in both our wireless and wireline business segments could
have a material adverse effect on our business, operating results, margins and financial condition.
Our substantial debt could adversely affect our financial health, financing options and liquidity
position.
We have a substantial amount of debt. As of December 31, 2007 we had total long-term
obligations, including current portion, of $433.0 million and income before income tax benefit of
$32.9 million. Our debt could have important consequences for you as a holder of our common stock.
For example, our substantial debt could:
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require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, future business opportunities and other
general corporate purposes; |
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limit our flexibility to plan, adjust or react to changing economic, market or
industry conditions, reduce our ability to withstand competitive pressures, and
increase our vulnerability to general adverse economic and industry conditions; |
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place us at a competitive disadvantage to many of our competitors who are less
leveraged than we are; |
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limit our ability to borrow additional amounts for working capital, capital
expenditures, future business opportunities, including strategic acquisitions, and
other general corporate requirements or hinder us from obtaining such financing on
terms favorable to us or at all; and |
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limit our ability to refinance our debt. |
The terms of our senior credit facility and the terms of our other debt allows us and our
subsidiaries to incur additional debt upon the satisfaction of certain conditions. If new debt is
added, the related risks described above would intensify.
Financial covenants in our debt instruments limit our operating flexibility.
Our senior credit facility requires us to maintain certain financial ratios and adhere to
other covenants that, among other things, restrict our ability to take specific actions, even if we
believe such actions are in our best interest. These include restrictions on our ability to:
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pay dividends or distributions on, redeem or repurchase our capital stock; |
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issue certain preferred or redeemable capital stock; |
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incur additional debt; |
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create liens; |
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make certain types of investments, loans, advances or other forms of payments; |
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issue, sell or allow distributions on capital stock of specified subsidiaries; |
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prepay or defease specified debt; |
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enter into transactions with affiliates; or |
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merge, consolidate or sell our assets. |
A breach of any of these covenants, ratios or tests could result in a default under our senior
credit facility. Upon the occurrence of an event of default under our senior credit facility, the
lenders could elect to declare all amounts outstanding under our senior credit facility to be
immediately due and payable. Such a default or acceleration may allow our other creditors to
accelerate our other debt. If the lenders accelerate the payment of the debt under our senior
credit facility, our assets may not be sufficient to repay our debts.
We require a significant amount of cash to service our debt, pay dividends, fund our growth
projects, and meet other
liquidity needs.
Our ability to make payments on and to refinance our debt, including amounts borrowed under
our senior credit facility, to pay dividends, and to fund planned capital expenditures, including
our announced long-haul fiber facility, and
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any strategic acquisitions we may make, if any, will
depend on our ability to generate cash in the future. We cannot assure you that our business will
generate sufficient cash flow from operations such that our currently anticipated growth in
revenues and cash flow will be realized on schedule or that future borrowings will be available to
us in an amount sufficient to enable the repayment of our debt, pay dividends or to fund our other
liquidity needs. We may need to refinance all or a portion of our debt, including the senior credit
facility, on or before maturity. We may not be able to refinance any of our debt on commercially
reasonable terms or at all. If we are unable to refinance our debt or obtain new financing under
these circumstances, we would have to consider other options, including:
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sales of certain assets to meet our debt service requirements; |
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sales of equity; and |
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negotiations with our lenders to restructure the applicable debt. |
If we are forced to pursue any of the above options our business and/or the value of our
common stock could be adversely affected.
We have identified two material weaknesses in our internal controls over financial reporting that
could cause investors to lose confidence in the reliability of our financial statements and result
in a decrease in the value of our securities.
Our management has identified two material weaknesses in our internal control over financial
reporting as of December 31, 2007. The first, arose from a deficiency in the programmatic model
used to compute the value and depreciation of our regulatory asset and recording contingent
liabilities, the second, arose from the creation of a reserve for study risk associated with our
network access revenue requirements that was not supportable under the requirements of SFAS No. 5,
Accounting for Contingencies. As discussed in “Management’s Report on Internal Control over
Financial Reporting” in Item 9A, due to the identification of the material weaknesses, our chief
executive officer and chief financial officer concluded that, as of December 31, 2007, our
disclosure controls and procedures were not effective.
We will continue to evaluate, upgrade and enhance our internal controls. Because of inherent
limitations, our internal controls over financial reporting may not prevent or detect
misstatements, errors or omissions. In addition, we may incorrectly assess the effectiveness of our
internal controls in future periods. Our controls may in the future become inadequate because of
business or financial changes or compliance problems. We cannot be certain that we will always
identify deficiencies constituting significant deficiencies or material weaknesses. If we fail to
maintain the adequacy of our internal controls, our business could be harmed, the results of
operations we report could be subject to adjustments, or we could become unable to provide
reasonable assurance as to our financial results. Any of the foregoing could be have a material
adverse effect on the price of our securities.
We invest in auction rate securities that are subject to market risk and recent liquidity problems
in the financial markets could adversely affect the value of these securities.
Subsequent to December 31, 2007 we invested excess cash in auction rate securities. Recent
uncertainties in the credit markets have resulted in failed auctions for our entire existing
portfolio of auction rate securities of $4.5 million. These investments are no longer currently
liquid. In the event we need to access these funds, we will not be able to do so without a loss of
principal, unless a future auction on these short-term investments is successful. We may need to
access these funds to fund our expected capital expenditures before they become liquid. We will
continue to monitor and evaluate these investments as there is no assurance as to when the market
for these investments will allow us to liquidate. If a liquid market does not develop for these
investments, we could be required to hold them to maturity, in which case they could not be used to
fund our expected capital expenditures.
We may not successfully or timely construct and integrate our announced long-haul fiber facility
connecting Alaska to the Lower 48 into our existing network, and we may be unable to operate it
profitably.
Realization of the anticipated benefits of our fiber facility will depend on our ability to
successfully integrate it into our businesses and operations and attract significant customers to
our fiber network. We will be required to devote significant management attention and resources to
sustaining and promoting its operations and maintaining its support. If we fail to properly execute
the construction of the fiber facility or if we miss critical deadlines in its implementation or
fail to identify critical markets, we could experience serious disruption and harm to our business.
We will face challenges to our abilities to do the following:
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completing construction of the facility by the first quarter of 2009 at an expected
total cost of approximately $105 million; |
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develop attractive products and services that operate seamlessly with our existing
technology and infrastructure; |
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maintain and upgrade timely the complex underlying hardware and software technology
that drives optimal use of the facility; |
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attract a sufficient volume of traffic on the fiber facility to make it profitable; |
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offer products and services that use the fiber facility that are attractive to our
target customers; |
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secure customers ahead of completion of the construction of the fiber facility; |
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preserve key customer, supplier and other important relationships and resolve
potential conflicts that may arise; and |
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obtain financing for the investment on acceptable terms and generate sufficient
revenues to maintain increased indebtedness. |
If we do not maintain or improve our current relationship with existing customers and develop
new large volume and enterprise customers, we may not be able to realize our targets for sales and
revenue growth. If we are unable to achieve our projected revenue growth and margins anticipated
from the investment, we may be unable to profitably operate the fiber facility.
We will incur significantly more debt to support construction of the fiber facility, or we may be
unable to secure the financing required, which could require us to curtail or suspend the project.
We estimate that upfront capital expenditures required to construct the fiber facility will be
approximately $105 million, which we would seek to finance, in part, through additional debt. We
cannot assure you that any additional financing will be available on acceptable terms, or at all.
If we fail to obtain financing, we could be required to curtail our current plans. Conversely, if
we successfully obtain sufficient financing, current risks described above related to our
substantial debt, including our ability to service the debt and adhere to financial covenants
attached to our debt, would intensify.
We may not be able to generate sufficient cash flow from operation of the fiber facility to meet
our increased debt service obligations and costs of operations and maintenance.
Our principal sources of liquidity are cash flow generated from operations and borrowings
under our revolving credit facility. We estimate that the annual cash costs following construction,
inclusive of financing costs, would amount to $12 million annually. Our ability to generate cash
flows from operation of the new fiber facility and make payments on our additional debt and
operational and maintenance expense associated with the facility, will depend on our future
financial performance.
A failure to generate sufficient cash flows from operation of our fiber facility, or changes
in economic conditions, increased competition, rapid development of new technologies, or difficulty
in maintaining the current complex technology comprising the fiber facility, or other events, could
increase our need for additional or alternative sources of liquidity. If we are unable to obtain
the liquidity we require, we will be forced to adopt an alternative strategy that may include
actions such as reducing or eliminating dividend payments, acquisitions and capital expenditures.
We may also need to sell significant assets, restructure or refinance our debt, or seek equity
capital. We cannot assure you that any of these alternative strategies could be consummated on
satisfactory terms, if at all, or that they would yield sufficient funds to pay additional ongoing
expense as a result of our investment and its financing.
Increased supply of interstate and international long-haul fiber in Alaska could adversely impact
prices for bandwidth, which could in turn, adversely affect our projected and actual sales, margins
and profitability of our fiber facility.
Significant increases in fiber transport capacity in the United States have at times exerted
downward pressure on prices, margins and profitability. The market for long-haul fiber in Alaska is
characterized by high capital investment and relatively high fixed costs, coupled with a limited
number of large customers. Some of our existing and potential competitors have greater name
recognition and more established relationships with our target customers. Further, these
competitors may have more experience with the repair and maintenance of the underlying data
transport technology, and its associated costs, than we do. These competitors may adopt more
aggressive pricing policies than we anticipate or offer customers more attractive terms than we
can. We expect price competition to greatly increase as we deploy our fiber facility. We cannot,
however, predict with any certainty our competitors’ response to our entry into this market nor the
prevailing market prices that will result.
If the market opportunity for our fiber facility is smaller than we believe it is, our returns may
be adversely affected and our overall business may suffer.
We estimate the current addressable market to be approximately $200 million for our proposed
fiber facility. We cannot assure you, however, that this number is correct. We have generally
estimated the volume of traffic carried by our
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competitors currently and have further estimated
market growth, which may occur upon deployment of our fiber facility and over time, as the demand
for bandwidth generally increases. Our estimations are based on many assumptions that may
ultimately be incorrect. If our estimates of the size of the potential market or the number of
enterprise and carrier customers that may use our fiber facility prove to be incorrect, the market
opportunity for our fiber facility may be smaller than we believe it is. In that event, our
prospects for generating revenue may be adversely affected, and our business may suffer.
Deploying a new submarine fiber facility may subject us to claims by another supplier that we have
a contractual obligation to acquire a substantial amount of additional capacity from that supplier.
In the past, we have committed to and completed large, scheduled purchases of a substantial
amount of fiber capacity from another supplier under a master purchase agreement. From time to
time, we have interpreted terms of this agreement differently from this supplier, including which
provisions and version of the contract, if any, is controlling. This has led to a history of
disagreements. We believe this supplier may claim that the operation of our new fiber facility
triggers certain purchase obligations in our agreement, and it may pursue a claim against us.
We cannot, however, predict whether this supplier will make any claim against us. If it does,
we would vigorously defend ourselves, and we would assert any and all counterclaims available to
us. In doing so, however, we would incur substantial legal expenses, and we may not ultimately
prevail. If we are found to be in breach of an obligation, we could be forced to make purchases
beyond our needs or be ordered to pay monetary damages, which may have a material adverse effect on
our financial condition, results of operations and cash flows.
We provide services to our customers over access lines and if we continue to lose access lines our
revenues, earnings and cash flow from operations may decrease.
Our business generates revenue by delivering voice and data services over access lines. We
have experienced net access line loss consistently over the past few years, and during the year
ended December 31, 2007, the number of access lines we serve declined by 10.4%. We may continue to
experience net access line loss in our markets for an unforeseen period of time. Our inability to
retain access lines would adversely affect our revenues, earnings and cash flow from operations.
Revenues from access charges may be reduced or lost.
We received approximately 26.2% of our operating revenues for the year ended December 31, 2007
from local exchange network access charges. The amount of revenue that we receive from these access
charges is calculated in accordance with requirements set by the FCC and the RCA. Any change in
these requirements may reduce our revenues and earnings. Access charges have consistently decreased
in past years. We do not receive access revenue related to our competitors’ retail customers that
are served by UNEs or by the competitors’ own facilities. To the extent that competitors move
customers on to UNEs or off our network entirely, our access revenues will decrease. We do not
receive access revenue from VoIP calls, and growth of this service will reduce our access revenues.
The FCC has actively reviewed new mechanisms for intercarrier compensation that, in some
cases, could eliminate access charges entirely. Elimination of access charges would likely have a
material adverse effect on our revenue and earnings. In any event, we believe that new mechanisms
for intercarrier compensation would more likely than not will reduce this source of revenue.
Similarly, the RCA has adopted regulations modifying intrastate access charges that may reduce our
revenue.
In addition, we have from time to time been involved in disputes about interstate access
revenues. We cannot assure you that claims alleging excess charges will not be made in the future,
nor whether we would prevail against such claims.
We may not continue to receive as much Universal Service Fund support as we have in the past.
We receive USF (and equivalent state universal service support) revenues, to support our
wireline operations in high cost areas. These federal revenues include universal service support
payments for local switching support, interstate common line support or interstate access support.
High cost support for our rural and non-rural operations is determined pursuant to different
methodologies, aspects of which are now under review. Any changes to the existing rules could
reduce the Universal Service Fund revenues we receive. Corresponding changes in state universal
service support could likewise have a negative effect on the revenues we receive. We expect total
payments from the USF to our rural operations will
fluctuate based upon our rural companies average cost per loop compared to the national
average cost per loop and are likely to decline based on historical trends.
We also receive USF support for our wireless services in areas where we have been designated
an ETC. As an ETC, we receive high cost universal service support for each wireless line provided
in high cost service areas. Under the
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current “identical support” FCC rule, competitive ETCs, or
CETCs, that provide new wireless service in a high cost service areas, receive the same support as
an incumbent ETC. We are a CETC in a number of high cost areas where we provide wireless services.
In a notice of proposed rulemaking adopted on January 29, 2008, the FCC tentatively concluded that
the goal of universal service will be better served if the “identical support” rule for CETCs were
eliminated. The FCC also tentatively concluded that CETCs should no longer receive interstate
access support (IAS), interstate common line support (ICLS), and local switching support (LSS). The
FCC has stated that permitting CETCs to receive IAS or ICLS is inconsistent with how CETCs recover
their costs or set rates and that LSS includes a number of assumptions regarding switching costs
that are not likely to be accurate for CETCs. The FCC proposed rulemaking would base CETC support
instead on a CETCs’ own costs. In addition, as proposed, new seekers of high-cost support would be
required to file cost data demonstrating their costs of providing service in high-cost service
areas. If the “identical support” FCC rule is amended so as to reduce support to CETCs, it could
result in a material decrease in support we receive in the future.
We derive a significant portion of our wireless revenue from roaming charges. This revenue may
fluctuate or decline in the future as a result of general economic, contractual, and competitive
factors.
Approximately 5% of our revenue for the year ended December 31, 2007 was derived from roaming
charges incurred by other wireless providers whose customers traveled within our coverage areas.
The revenue we recognize from these roaming charges may in the future be volatile or decline as a
result of a number of factors, many of which are outside our control. These factors include, the
strength of the Alaskan economy and its primary industries, including tourism, general economic
factors affecting commerce between Alaska and other States and countries, unresolved political
matters which may affect public and private spending in Alaska, and others. For example, our
service areas include a number of summer tourist destinations in Alaska; as a result, our roaming
revenue generally increases during summer months and declines during other periods and depends
heavily in these areas on the number of tourists who visit Alaskan tourist destinations. In
addition, we cannot assure you our roaming agreements with other providers will continue to
generate similar roaming revenues. Our agreements with other carriers have varying terms of varying
length, including some which are terminable on short notice. In the event these roaming agreements
expire or are terminated, we may be unable to renegotiate or replace these agreements on similar or
acceptable terms. Failure to obtain acceptable roaming agreements could lead to a significant
decline in our revenue and operating income. Lastly, changes in the network footprints of our
roaming partners, or those of our competitors who are able to provide roaming coverage in our
service areas, could have a material adverse effect on us.
If we do not adapt to technological changes in the telecommunications industry, we could lose
customers or market share.
Our success will likely depend on our ability to adapt to rapid technological changes in the
telecommunications industry. Our failure to adopt a new technology or our choice of one technology
over another may have an adverse effect on our ability to compete or meet the demands of our
customers. Technological change could, among other things, reduce the barriers to entry facing our
competitors providing local service in our service areas. The pace of technology change and our
ability to deploy new technologies may be constrained by insufficient capital and/or the need to
generate sufficient cash to make interest payments on our debt and to maintain our dividend policy.
New products and services may arise out of technological developments and our inability to
keep pace with these developments may reduce the attractiveness of our services. Some of our
competitors may have greater resources to respond to changing technology than we do. If we fail to
adapt successfully to technological changes or fail to obtain access to new technologies, we could
lose customers and be unable to attract new customers and/or sell new services to our existing
customers. We may be unable to successfully deliver new products and services, and we may not
generate anticipated revenues from such products or services.
New governmental regulations may impose obligations on us to upgrade our existing technology or
adopt new technology that may require additional capital and we may not be able to comply timely
with these new regulations.
Our markets are heavily regulated. We cannot predict the extent the government will impose new
unfunded mandates on us. Such mandates have included those related to emergency location, providing
access to hearing-impaired customers, law enforcement assistance, and local number portability.
Each of these government mandates has imposed new requirements for capital that we could not have
predicted with any precision. Along with these obligations, the FCC has
imposed deadlines for compliance with these mandates. We may not be able to provide services
that comply with these mandates in time to meet the imposed deadlines. Further, we cannot predict
whether other mandates, from the FCC or other regulatory authorities, will occur in the future or
the demands they may place on our capital expenditures. For more information on our regulatory
environment and the risks it presents to us, see “Item 1 – Business – Regulation”.
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Our network capacity and customer service system may not be adequate and may not expand quickly
enough to support our anticipated customer growth.
Our financial and operational success depends on ensuring that we have adequate network
capacity, sufficient infrastructure equipment and a sufficient customer support system to
accommodate anticipated new customers and the commensurate increase in usage of our network. Our
failure to expand and upgrade our networks, including obtaining and constructing additional cell
sites, obtaining wireless telephones of the appropriate model and type to meet the demands and
preferences of our customers, and obtaining additional spectrum to meet the increased usage, could
have a material adverse effect on our business. Further, as a result of our dividend policy, our
available cash to expand and upgrade our network may be limited.
We depend on satisfactory labor relations.
Labor costs are a significant component of our expenses, and approximately 78% of our
workforce is represented by the IBEW. As a result of our collective bargaining agreement with the
IBEW, we may experience pressure to increase wages and benefits for our employees. We may make
strategic and operational decisions that require the consent of the IBEW. The IBEW may not provide
consent when we need it, or it may require additional wages, benefits or other consideration be
paid in return for its consent. In addition, our collective bargaining agreement with the IBEW
expires at the end of 2009. We cannot assure you that future collective bargaining agreements will
be on terms in line with our expectations or comparable to agreements entered into by our
competitors. Any future agreements may increase our labor costs or strain our relationship with our
represented employees.
We depend on key members of our senior management team.
Our success depends largely on the skills, experience and performance of key members of our
senior management team, as well as our ability to attract and retain other highly qualified
management and technical personnel. There is intense competition for qualified personnel in our
industry, and we may not be able to attract and retain the personnel necessary for the development
of our business. Our remote location also presents a challenge to us in attracting new senior
management talent. If we lose one or more of our key employees, our ability to successfully
implement our business plan could be materially adversely affected. We do not maintain any “key
person” insurance on any of our personnel.
We rely on a limited number of key suppliers and vendors for timely supply of equipment and
services for our network infrastructure. If these suppliers or vendors experience problems or favor
our competitors, we could fail to obtain sufficient quantities of the equipment and services we
require to operate our business successfully.
We depend on a limited number of suppliers and vendors for equipment and services for our
network. If these suppliers experience interruptions, patent litigation, or other problems,
subscriber growth and our operating results could suffer. If our supplier uses its proprietary
technology, including CDMA technology, as an integral component of our network, we may be
effectively locked into one or few suppliers for key network components. As a result, we have
become reliant upon a limited number of network equipment manufacturers. In the event it becomes
necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory
replacement suppliers or vendors on economically attractive terms on a timely basis, or at all,
which could increase costs and may cause disruption in service.
A failure of our network could cause significant delays or interruptions of service, which could
cause us to lose customers.
To be successful, we will need to continue to provide our customers reliable service over our
network. In certain important cases, our systems lack redundancy or diversity, which reduces the
reliability of our network. Our network and infrastructure are constantly at risk of physical
damage to access lines or other inoperability as a result of human, natural, or other factors.
These factors may include labor strikes, pandemics, acts of terrorism, sabotage, natural disasters,
power surges or outages, software defects, contractor or vendor failure, and other disruptions that
may be beyond our control. Our new long-haul fiber optic cable is not expected to be commercially
available until early 2009. Thus, should our existing fiber optic capacity connecting our Alaskan
network to the Lower 48 become damaged or otherwise inoperable, the limited redundancy currently
available to us would likely result in severely degraded or unavailable connections to the Lower 48
on our network. Should we experience a prolonged system failure or a significant service
interruption, our customers may choose a different provider, and our reputation may be damaged.
A failure of enhanced emergency calling services associated with our network may harm our business.
We provide E-911, service to our customers where such service is available. We also contract
from time to time with municipalities to upgrade their public safety answering points such that
those facilitates become capable of receiving our transmission of a 911 caller’s location
information and telephone number. If the emergency call center is unable to
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process such
information, the caller is provided only basic 911 services. In these instances, the emergency
caller may be required to verbally advise the operator of such caller’s location at the time of the
call. Any inability of the answering point to automatically recognize the caller’s location or
telephone number whether or not it occurs as a result of our network operations may cause us to
incur liability or cause our reputation or financial results to suffer.
We cannot assure you that we will be able to successfully integrate any acquisitions we may make in
the future.
We continually explore acquisitions. However, any future acquisitions we make may involve some
or all of the following risks:
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diversion of management attention from operating matters; |
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unanticipated liabilities or contingencies of acquired businesses; |
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failure to achieve projected cost savings or cash flow from acquired businesses; |
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inability to retain key personnel of the acquired business or maintain
relationships with its customers; |
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inability to successfully integrate acquired businesses with our existing
businesses, including information-technology systems, personnel, products and
financial, computer, payroll and other systems of the acquired businesses; |
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failure to obtain necessary regulatory approvals; |
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difficulties in enhancing our customer support resources to adequately service
our existing customers and the customers of the acquired businesses; and |
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difficulty in maintaining uniform standards, controls, procedures and policies. |
Further, as a result of our dividend policy and other factors which affect the availability to
us of capital resources, we may not have sufficient available cash or access to sufficient capital
resources necessary to complete a transaction even if such a transaction would otherwise be
beneficial to us and our stockholders.
Alternatively, we may issue shares of our common stock or other securities as consideration
for future acquisitions and investments. In the event any such acquisition or investment is
significant, the number of shares of our common stock, or the number or aggregate principal amount,
as the case may be, of other securities that we may issue may be significant. We may also grant
registration rights covering those shares or other securities in connection with any such
acquisitions and investments.
The successful operation and growth of our businesses depends on economic conditions in Alaska.
Substantially all of our customers and operations are located in Alaska. Due to our
geographical concentration, the successful operation and growth of our businesses depends on
economic conditions in Alaska. The Alaskan economy, in turn, depends upon many factors, including:
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the strength of the natural resources industries, particularly oil production; |
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the strength of the Alaskan tourism industry; |
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the level of government and military spending; and |
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the continued growth of services industries. |
The customer base for telecommunications services in Alaska is small and geographically
concentrated. According to U.S. Census Bureau estimates, the population of Alaska is approximately
677,000 as of July 1, 2007, approximately 61% of whom live in Anchorage, Fairbanks and Juneau. We
do not know whether Alaska’s economy will grow or even be stable.
Wireless devices may pose health and safety risks and driving while using a wireless phone may be
prohibited; as a result, demand for our services may decrease.
Media reports have suggested that, and studies have been undertaken to determine whether,
certain radio frequency emissions from wireless handsets and cell sites may be linked to various
health concerns, including cancer. Further, radio frequency emissions may interfere with various
electronic medical devices, including hearing aids and pacemakers. If consumers’ health concerns
over radio frequency emission increase, they may be discouraged from using wireless handsets. In
addition, studies have indicated that using wireless devices while driving may impair a driver’s
attention. Regulators may impose or increase restrictions on the location and operation of cell
sites or increase regulation on
the use of handsets; and wireless providers may be exposed to litigation. New government
regulations in these matters may adversely affect our results of operations.
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Risks Related to our Common Stock
You may not receive the level of dividends provided for in our dividend policy or any dividends at
all.
We are not obligated to pay dividends. Our board of directors may decide not to pay dividends
at any time and for any reason. We might not generate sufficient cash from operations in the future
to pay dividends on our common stock in the intended amounts, or at all. If our cash flows from
operations for future periods were to fall below our minimum expectations, we would need either to
reduce or eliminate dividends or, to the extent permitted under the terms of our senior credit
facility or any future agreement governing our debt, fund a portion of our dividends with
borrowings or from other sources. Future dividends, if any, will depend on, among other things, our
results of operations, cash requirements, financial condition, contractual restrictions, business
opportunities, any competitive or technological developments, our increased need to make capital
expenditures, provisions of applicable law, and other factors that our board of directors may deem
relevant. Should we reduce or eliminate dividends, the market price of our common stock may
decline.
Possible volatility in the price of our common stock could negatively affect us and our
stockholders.
The trading price of our common stock may be volatile in response to a number of factors, many
of which are beyond our control, including actual or anticipated variations in quarterly financial
results, actual or anticipated variations in our dividend policy, changes in financial estimates by
securities analysts, and announcements by our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments. In addition, our financial results or dividend
payments may be below the expectations of securities analysts and investors. In addition, the U.S.
securities markets have recently experienced significant price and volume fluctuations. These
fluctuations often have been unrelated to the operating performance of companies in these markets.
Broad market and industry factors may negatively affect the price of our common stock, regardless
of our operating performance. Volatility in our stock price regardless of cause could materially
adversely affect the trading market and prices for our common stock, as well as our ability to
issue additional securities or to secure additional financing.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
We own and lease office facilities and related equipment for executive headquarters,
administrative personnel, central office buildings, and operations in locations throughout Alaska.
Our principal executive and administrative offices are located in Anchorage, Alaska. We believe we
have appropriate easements, rights of way and other arrangements for the accommodation of our pole
lines, underground conduits, aerial, underground and undersea cables and wires, and wireless towers
and antennas, although we believe these properties do not lend themselves to simple description by
character and location.
In addition to land and structures, our property consists of equipment necessary for the
provision of communication services. This includes central office equipment, customer premises
equipment (CPE) and connections, radio and wireless antennas, towers, pole lines, video head-end,
remote terminals, aerial, underground and undersea cable and wire facilities, vehicles, furniture
and fixtures, computers and other equipment. We also own certain other communications equipment
held as inventory for sale or lease.
Substantially all of our assets (including those of our subsidiaries) have been pledged as
collateral for our 2005 senior credit facility.
Item 3. Legal Proceedings
We are involved in various claims, legal actions and regulatory proceedings arising in the
ordinary course of business, including various legal proceedings involving regulatory matters
described under “Item 1–Business–Regulation”. We have recorded litigation reserves of $0.1 million
as of December 31, 2007 against certain current claims and legal actions. We believe that the
disposition of these matters will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
The information set forth under “Note 20—Commitments and Contingencies” in the Notes to
Consolidated Financial Statements, included in Part IV, Item 15 of this Report, and is incorporated
herein by reference. For an additional discussion of certain risks associated with legal
proceedings, see the section entitled “Risk Factors” in Item 1A of this Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended December 31,
2007.
24
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Our common stock is traded on the NASDAQ Global Select Market under the symbol ‘ALSK’. The
following table presents, for the periods indicated, the high and low sales prices of our common
stock as reported by NASDAQ.
| |
|
|
|
|
| 2007 Quarters |
|
High |
|
Low |
4th |
|
$ 16.48 |
|
$ 14.12 |
3rd |
|
$ 15.92 |
|
$ 12.60 |
2nd |
|
$ 17.15 |
|
$ 14.75 |
1st |
|
$ 16.85 |
|
$ 13.40 |
| |
|
|
|
|
| 2006 Quarters |
|
High |
|
Low |
4th |
|
$ 15.86 |
|
$ 13.10 |
3rd |
|
$ 14.47 |
|
$ 11.51 |
2nd |
|
$ 13.08 |
|
$ 11.00 |
1st |
|
$ 12.63 |
|
$ 9.40 |
As of March 6, 2008, there were 42.9 million shares of our common stock issued and outstanding
and approximately 357 record holders of our common stock. Because many of our shares of existing
common stock are held by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these record holders.
Dividends
On October 28, 2004, we announced the adoption of a dividend policy by our board of directors
and declared our first quarterly dividend of $0.185 per share, which was paid on January 19, 2005
to holders of record on December 31, 2004. The following table summarizes all of the dividends paid
from that date forward:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Announcement |
|
Ex-Dividend |
|
|
|
|
|
|
|
|
|
Amount |
| Date |
|
Date |
|
Record Date |
|
Payment Date |
|
Paid |
10/28/2004 |
|
|
|
12/29/2004 |
|
|
|
12/31/2004 |
|
|
|
1/19/2005 |
|
|
$ |
0.185 |
|
3/21/2005 |
|
|
|
3/29/2005 |
|
|
|
3/31/2005 |
|
|
|
4/19/2005 |
|
|
$ |
0.200 |
|
6/14/2005 |
|
|
|
6/28/2005 |
|
|
|
6/30/2005 |
|
|
|
7/20/2005 |
|
|
$ |
0.200 |
|
9/16/2005 |
|
|
|
9/28/2005 |
|
|
|
9/30/2005 |
|
|
|
10/19/2005 |
|
|
$ |
0.200 |
|
11/29/2005 |
|
|
|
12/28/2005 |
|
|
|
12/30/2005 |
|
|
|
1/18/2006 |
|
|
$ |
0.200 |
|
2/23/2006 |
|
|
|
3/29/2006 |
|
|
|
3/31/2006 |
|
|
|
4/19/2006 |
|
|
$ |
0.215 |
|
6/21/2006 |
|
|
|
6/28/2006 |
|
|
|
6/30/2006 |
|
|
|
7/19/2006 |
|
|
$ |
0.215 |
|
9/15/2006 |
|
|
|
9/27/2006 |
|
|
|
9/29/2006 |
|
|
|
10/18/2006 |
|
|
$ |
0.215 |
|
12/19/2006 |
|
|
|
12/27/2006 |
|
|
|
12/29/2006 |
|
|
|
1/17/2007 |
|
|
$ |
0.215 |
|
3/21/2007 |
|
|
|
3/28/2007 |
|
|
|
3/30/2007 |
|
|
|
4/18/2007 |
|
|
$ |
0.215 |
|
6/20/2007 |
|
|
|
6/27/2007 |
|
|
|
6/29/2007 |
|
|
|
7/18/2007 |
|
|
$ |
0.215 |
|
9/18/2007 |
|
|
|
9/26/2007 |
|
|
|
9/28/2007 |
|
|
|
10/17/2007 |
|
|
$ |
0.215 |
|
12/17/2007 |
|
|
|
12/29/2007 |
|
|
|
12/31/2007 |
|
|
|
1/17/2008 |
|
|
$ |
0.215 |
|
Based on approximately 42.9 million shares outstanding on March 6, 2008, we estimate dividends
payable during 2008 to be approximately $36.9 million.
Our ability to make dividend payments in the future will depend on future economic conditions
and on financial, business, regulatory and other factors, many of which are beyond our control.
Accordingly, our board of directors may
modify or revoke this policy at any time. Thus, you may not receive any dividends.
Factors that may affect our dividend policy are:
| |
• |
|
we are a holding company and rely on dividends, interest and other payments,
advances and transfer of funds from our subsidiaries to meet our debt service and
pay dividends; |
25
| |
• |
|
we may not have enough cash to pay dividends due to changes in our operating
earnings, working capital requirements and anticipated cash needs; |
| |
| |
• |
|
nothing requires us to declare or pay dividends; |
| |
| |
• |
|
while the dividend policy adopted by our board of directors reflects an intention
to distribute a substantial portion of our cash generated by our business in excess
of operating needs, interest and principal payments on debt and capital
expenditures, to pay dividends, our board could modify or revoke this policy at any
time; |
| |
| |
• |
|
even if our dividend policy is not modified or revoked, the actual amount of
dividends distributed under the policy and the decision to make any distribution
will remain, at all times, entirely at the discretion of our board of directors; |
| |
| |
• |
|
the amount of dividends that we may distribute will be limited by restricted
payment and leverage covenants in our 2005 senior credit facility, and potentially,
the terms of any future debt that we may incur; |
| |
| |
• |
|
the amount of dividends that we may distribute is subject to restrictions under
Delaware law; and |
| |
| |
• |
|
our stockholders have no contractual or other legal right to dividends. |
See “Item 1A—Risk Factors—Risks related to our Common Stock”. You may not receive the level of
dividends provided for in our dividend policy or any dividends at all.
Securities Authorized for Issuance under Equity Compensation Plans
The information set forth in this Report under “Item 12—Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized for Issuance
under Equity Compensation Plans” is incorporated herein by reference. For additional information on
our stock incentive plans and activity, see “Note 14 — Stock Incentive Plans” in the Notes to
Consolidated Financial Statements, included in Part IV, Item 15 of this Report.
Item 6. Selected Financial Data
Selected Historical Financial Data
The following selected consolidated financial data should be read in conjunction with our
Consolidated Financial Statements and the Notes thereto in Part II, Item 8 and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of
this report. The information presented in following tables has been adjusted to reflect the
restatement of our consolidated financial results which is more fully described in the “Explanatory
Note Regarding Restatement of our Consolidated Financial Statements” immediately preceding Part I
of this Form 10-K and in Note 2 “Restatement of Consolidated Financial Statements” in the notes to
the consolidated financial statements. We derived the selected consolidated financial data as of
December 31, 2007, 2006, 2005, 2004 and 2003 and for the years ended December 31, 2007, 2006, 2005
and 2004 from our audited consolidated financial statements, and accompanying notes, included in
Part II, Item 8 of this report. The consolidated statements of operations data for the year ended
December 31, 2006 and the consolidated balance sheet data as of December 31, 2006 have been
restated in connection with the restatements discussed in Note 2 of the notes to the consolidated
financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Restated (A) |
|
|
|
|
|
|
| ($ in thousands) |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
385,785 |
|
|
$ |
348,721 |
|
|
$ |
326,809 |
|
|
$ |
302,707 |
|
|
$ |
323,847 |
|
Income/(loss) from continuing operations |
|
|
144,136 |
|
|
|
13,278 |
|
|
|
(41,635 |
) |
|
|
(39,294 |
) |
|
|
(6,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
per share — basic |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
$ |
(1.04 |
) |
|
$ |
(1.33 |
) |
|
$ |
(0.22 |
) |
Cash dividends per share |
|
|
0.86 |
|
|
|
0.86 |
|
|
|
0.80 |
|
|
|
0.19 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
663,203 |
|
|
$ |
556,216 |
|
|
$ |
576,413 |
|
|
$ |
637,127 |
|
|
$ |
685,391 |
|
Long-term debt, including current portion |
|
|
432,996 |
|
|
|
438,213 |
|
|
|
445,578 |
|
|
|
525,889 |
|
|
|
550,220 |
|
(A) See “Explanatory Note” on the front of this Form 10-K, “Restatement of Consolidated
Financial Statements” in Part II, Item 7 and Note 2 to the Consolidated Financial Statements in
Part II, Item 8 of this report.
A comparison of the restated amounts above to the amounts originally reported for the
consolidated statements of operations and the consolidated balance sheet are detailed in the tables
below.
26
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
| ($ in thousands) |
|
As reported |
|
Adjustments |
|
As restated |
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
349,817 |
|
|
$ |
(1,096 |
) |
|
$ |
348,721 |
|
Net Income |
|
|
19,994 |
|
|
|
(6,716 |
) |
|
|
13,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from continuing operations
per share — basic |
|
$ |
0.48 |
|
|
$ |
(0.16 |
) |
|
$ |
0.32 |
|
Cash dividends per share |
|
|
0.86 |
|
|
|
— |
|
|
|
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
562,321 |
|
|
$ |
(6,105 |
) |
|
$ |
556,216 |
|
Long-term debt, including current portion |
|
|
438,213 |
|
|
|
— |
|
|
|
438,213 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated
financial statements and related notes and the other financial information included elsewhere in
this Form 10-K.
Restatement of Previously Issued Financial Results
In this Form 10-K, we are restating our consolidated balance sheet as of December 31, 2006,
and the related consolidated statements of income, stockholders’ equity and cash flows for such
year. We are also restating the unaudited quarterly financial information and financial statements
for all interim periods in 2006 and 2007. Our previously filed annual report on Form 10-K and
quarterly reports on Form 10-Q affected by the restatements have not been amended and should not be
relied upon.
Adjustments Made as a Result of Restatement
Adjustment to Depreciation Expenses
We identified errors in our previously reported depreciation expense for fiscal year 2006 and
the first three fiscal quarters of 2007. Certain groups of assets employed in the Company’s
intrastate operations are depreciated over extended lives as required by state regulations, giving
rise to “regulatory assets”. As the result of a programmatic error, we incorrectly ceased to
depreciate those regulatory assets prior to their becoming fully depreciated. We recorded
additional depreciation charges and a corresponding reduction of our regulatory asset of $5,818 for
the year ended December 31, 2006 and $5,180 for the nine months ended September 30, 2007.
Other Adjustments Made in Connection with Restatement
As part of the restatement, we also made adjustments to the four quarterly interim periods in
2006 and the first three interim periods in 2007 to correct errors identified which were not
material to our financial statements for the respective periods, either individually or in the
aggregate. Adjustments included (i) the recording of additional wireline access revenue of $3,115
in the first nine months of 2007. The adjustment was made pursuant to a true up of cost studies
performed at year end using actual results rather than preliminary budget information used during
the year; (ii) the capitalization of interest expense on funds used during construction of $625 in
first three quarters of 2007 and $658 for the four quarterly periods in 2006; and (iii) a reduction
of wireline revenue related to the non-elimination of accrued intercompany revenue that had the
effect of overstating quarterly revenues by $446 in the first three quarters of 2007 and $615 for
the four quarterly periods in 2006.
27
The tables below present the decrease in 2006 net income resulting from the individual
restatement adjustments for each respective period presented:
2006
Reconciliation of the Consolidated Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
234,233 |
|
|
$ |
(882 |
) |
|
$ |
233,351 |
|
Wireless |
|
|
115,584 |
|
|
|
(214 |
) |
|
|
115,370 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
349,817 |
|
|
|
(1,096 |
) |
|
|
348,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
172,436 |
|
|
|
(15 |
) |
|
|
172,421 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
62,022 |
|
|
|
456 |
|
|
|
62,478 |
|
Depreciation and amortization |
|
|
63,259 |
|
|
|
5,837 |
|
|
|
69,096 |
|
Loss (gain) on disposal of assets, net |
|
|
1,105 |
|
|
|
— |
|
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
298,822 |
|
|
|
6,278 |
|
|
|
305,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
50,995 |
|
|
|
(7,374 |
) |
|
|
43,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(31,103 |
) |
|
|
658 |
|
|
|
(30,445 |
) |
Loss on extinguishment of debt |
|
|
(9,650 |
) |
|
|
— |
|
|
|
(9,650 |
) |
Interest income |
|
|
1,835 |
|
|
|
— |
|
|
|
1,835 |
|
Other |
|
|
8,360 |
|
|
|
— |
|
|
|
8,360 |
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(30,558 |
) |
|
|
658 |
|
|
|
(29,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
20,437 |
|
|
|
(6,716 |
) |
|
|
13,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(443 |
) |
|
|
— |
|
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,994 |
|
|
$ |
(6,716 |
) |
|
$ |
13,278 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.48 |
|
|
$ |
(0.16 |
) |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.46 |
|
|
$ |
(0.15 |
) |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,045 |
|
|
|
|
|
|
|
42,045 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,387 |
|
|
|
|
|
|
|
43,387 |
|
|
|
|
|
|
|
|
|
|
|
|
Where to Find Restated Financial Statements
We set forth in Note 2 of the Consolidated Financial Statements in Part II, Item 8 of this
report, the restated financial statements for the fiscal year ended December 31, 2006, together
with reconciling information to the consolidated financial statements previously filed in the
Company’s Annual Report on 10-K for such fiscal year.
We set forth restated quarterly financial information for the three months ended March 31,
June 30 and September 30 in each of 2006 and 2007 and December 31, 2006, together with reconciling
information to previously issued financial statements in Note 2, “Restatement of Consolidated
Financial Statements” in Part II, Item 8 of this report.
28
Overview
We believe we are the leading provider of integrated communications services in Alaska. Our
wireline business comprises one of the most expansive end-to-end Internet Protocol (IP) networks in
Alaska and the largest local exchange carrier network in Alaska. We believe our wireless business
comprises the most extensive, reliable wireless network in Alaska and the only Alaska wireless
network with “third-generation” data transmission capabilities. For more information on our
business, services, and products, see “Item 1—Business” in Part I this Form 10-K.
The sections that follow provide information about important aspects of our operations and
investments and include discussions of our results of operations, financial condition and sources
and uses of cash. In addition, we have highlighted key trends and uncertainties to the extent
practicable. The content and organization of the financial and non-financial data presented in
these sections are consistent with information we use in evaluating performance and allocating
resources. We also monitor the state of the economy in general. In doing so, we compare Alaskan
economic activity with broader economic conditions. In general, we believe that the Alaskan
telecommunications market as well as general economic activity in Alaska, differs in important ways
from the broader U.S. economy. These differences include, among others, the cost of long-haul
telecommunications bandwidth, military activity, local customer preferences, median personal
income, average usage of Internet technology, unemployment levels, housing activity, activity in
the oil and gas markets, tourism, and local political activity.
Our results of operations, financial position and sources and uses of cash in the current and
future periods reflect our focus on the following strategic imperatives:
| • |
|
Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash
provided by operating activities. We devote more resources to higher growth markets such as
wireless, including wireless data, wireline broadband connections, including our long-haul
fiber investment connecting our network to the lower 48, as well as expanded strategic
services to business markets, rather than to the traditional wireline voice market. |
| |
| • |
|
Investment with Discipline: We focus on gaining market share in those markets that contain
high revenue producing customers. In our wireline business, we focus on deploying and selling
broadband connections in each market covered by our network. We have targeted investment in
deploying high-speed fiber conductivity in and between Alaska’s urban centers. We have
increasingly targeted carrier and enterprise customers. Revenues from these customers grew
44.7% compared with last year, primarily driven by sales of advanced IP services and increases
in revenues from agreements with carriers to terminate their Alaskan long-distance traffic. We
have directed resources towards offering wireless plans that encourage customer adoption of
large monthly-minute postpaid plans and unlimited postpaid plans. We also promote an unlimited
data and text message package. These investments have been made, in part, to maintain a
competitive position against a new national wireless provider market entrant. By directing
resources to provide unlimited wireless plans and Alaska plans, we seek to distinguish
ourselves from our competitors. |
| |
| • |
|
Profitability Improvement: We seek to increase operating income and margins. In 2007, cash
provided by operations increased by 14.3% compared to 2006. Our operating income margin rose
to 15.7% in 2007, compared with 12.5% in 2006. Supporting these improvements, our capital
spending continues to be directed toward growth markets. High-speed, EVDO, data services,
deployment of a long-haul fiber facility connecting Alaska and the Lower 48, as well as
expanded services to enterprise customers, including Metro Ethernet, are examples of these
growth markets. During 2007, capital expenditures were $62.8 million compared with capital
expenditures of $60.0 million in 2006. As a result of our investment in the long-haul fiber
facility, we expect 2008 capital expenditures to be higher than 2007 levels. In addition, we
expect additional capital expenditures to support the growth of our wireless network and
enhance its reliability. We expect to target these capital expenditures based on feedback from
large customers seeking high speed wireless data coverage, particularly in Alaska’s North
Slope oil fields. |
| |
| • |
|
Process Improvement: While focusing resources on revenue growth and market share gains, we
continually challenge our management team and employees at all levels to lower expenses
through process improvements. We expect to invest in technology-assisted process improvement,
including self-service initiatives. We expect these efforts, such as call center routing
improvements, deploying self-pay kiosks, and customer service tools, to improve our cost
structure and maintain or improve operating income margins. As a result of past successes, we
have been able to serve more customers while maintaining our workforce at or below prior
levels. |
| |
| • |
|
Pay for Performance: We embrace a culture of urgency and accountability. We establish
goals for all of our employees that are tied to the imperatives described above. We seek to
provide our non-represented employees cash incentives and equity compensation that are tied to
these goals. In addition, we seek to, whenever possible, include our represented work force as
participants in our pay-for-performance equity compensation program. Inclusion of our
represented work force requires, however, a commitment of managerial resources to negotiate
with union |
29
| |
|
representatives to gain acceptance, and we may not be successful in gaining such acceptance. We
design executive compensation programs carefully to align executives’ and shareholders’
long-term interests. |
We aim to create value for our shareholders by carefully investing cash flows generated by the
business in specific opportunities and transactions that support these imperatives. In addition, we
use our cash flows to maintain and grow our dividend payout to shareholders. In light of our
expected heavy capital expenditures in 2008, however, our board of directors has maintained our
current $0.86 per share annual dividend policy throughout 2007. Under this policy, the company
returned approximately $36.7 million in cash dividends to our stockholders during 2007.
Revenue Sources by Segment
Wireline
Revenue from our wireline business services is generated from retail, wholesale and enterprise
customer segments as well as from the provision of network access services to interexchange and
wireless carriers.
Our Retail Business:
We generate revenue from retail residential and business customers primarily from:
| |
• |
|
Basic local telephone service including features to customers within our service
areas; |
| |
| |
• |
|
ISP services including DSL and dial up; |
| |
| |
• |
|
Long distance services; |
| |
| |
• |
|
Space and power services to business customers; and |
| |
| |
• |
|
CPE sales to business customers. |
The number of local telephone customers we serve continues to steadily decline. We expect this
trend to continue. Conversely, we have seen a steady increase in DSL and long-distance subscribers.
The table below sets forth subscriber numbers as of December 31, 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31 |
| |
|
2007 |
|
2006 |
|
2005 |
Local telephone |
|
|
185,658 |
|
|
|
194,815 |
|
|
|
199,341 |
|
Annual growth rate |
|
|
-4.7 |
% |
|
|
-2.3 |
% |
|
|
-3.3 |
% |
DSL |
|
|
47,501 |
|
|
|
44,066 |
|
|
|
35,844 |
|
Annual growth rate |
|
|
7.8 |
% |
|
|
22.9 |
% |
|
|
45.1 |
% |
Dial up |
|
|
9,125 |
|
|
|
12,591 |
|
|
|
17,401 |
|
Annual growth rate |
|
|
-27.5 |
% |
|
|
-27.6 |
% |
|
|
-23.8 |
% |
Long distance |
|
|
65,256 |
|
|
|
63,995 |
|
|
|
56,317 |
|
Annual growth rate |
|
|
2.0 |
% |
|
|
13.6 |
% |
|
|
19.7 |
% |
Our Wholesale Business:
We generate revenue from wholesale customers primarily from:
| |
• |
|
Providing competitive local service to CLECs on either a wholesale or UNE basis as
prescribed under the Telecommunications Act; |
| |
| |
• |
|
Carrier billing and collection services; and |
| |
| |
• |
|
Providing carriers with access to space and power at our central office locations. |
The number of telephone lines we serve on a wholesale basis has continued to decline. The rate
of wholesale line loss has outpaced the rate of retail line loss generally and has accelerated
since 2005. This accelerated decline is primarily a result of a specific CLEC customer migrating
its customers onto its own cable telephony plant. The table below sets forth subscriber numbers as
of December 31, 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31 |
| |
|
2007 |
|
2006 |
|
2005 |
UNE and resale local |
|
|
40,696 |
|
|
|
57,852 |
|
|
|
71,544 |
|
Annual growth rate |
|
|
-29.7 |
% |
|
|
-19.1 |
% |
|
|
-18.3 |
% |
30
Our Enterprise Business:
We generate enterprise revenue from large business customers; state and federal governments;
and other carriers primarily from local and long distance private line services;
| |
• |
|
The provision of virtual network facilities to nationwide carriers for long distance
voice termination; |
| |
| |
• |
|
Advanced network services; and |
| |
| |
• |
|
Capacity sales on our in-state terrestrial fiber facility. |
Our Network Access Business:
Our 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 on long distance calling patterns and the relative market share of each long
distance carrier. The major sources of network access revenue are:
| |
• |
|
Interstate access charges; |
| |
| |
• |
|
Intrastate access charges; |
| |
| |
• |
|
Federal Universal Service support; and |
| |
| |
• |
|
Wireless carrier access charges. |
Wireless
Our business provides wireless voice and data services, other value-added services across our
owned and operated network in Alaska and across the Lower 49 states and Canada with our roaming
partners. We generate wireless revenue primarily from:
| |
• |
|
The sale of pre- and post-paid wireless voice plans to our Alaskan subscribers; |
| |
| |
• |
|
The sale of value added feature services, including data, to our Alaskan subscriber; |
| |
| |
• |
|
Equipment sales; |
| |
| |
• |
|
Providing Lower 48 and Canadian carriers with roaming access to our network for
their subscribers; and |
| |
| |
• |
|
Competitive Eligible Telecommunication Carrier subsidies. |
Our wireless business has been a principal driver of revenue growth since 2005. However, as
competition increases, and markets become increasingly penetrated, we expect that the pace of
growth in the future will not reflect our past experience. The table below sets forth subscriber
numbers as of December 31, 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31 |
| |
|
2007 |
|
2006 |
|
2005 |
Retail wireless |
|
|
144,451 |
|
|
|
130,971 |
|
|
|
112,854 |
|
Annual growth rate |
|
|
10.3 |
% |
|
|
16.1 |
% |
|
|
19.8 |
% |
Wholesale wireless |
|
|
1,999 |
|
|
|
3,017 |
|
|
|
4,683 |
|
Annual growth rate |
|
|
-33.7 |
% |
|
|
-35.6 |
% |
|
|
-27.1 |
% |
31
Results of Operations
The following table summarizes our company’s operations for the years ended December 31, 2007,
2006, (as restated), and 2005. Net income for the year ended December 31, 2007 was affected
substantially by a one-time, non-cash income tax benefit resulting in a net benefit of $111.2
million arising out of the full release of a reserve previously held against our deferred tax asset
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Restated |
|
| ($ in thousands, except per share data) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
248,265 |
|
|
$ |
233,351 |
|
|
$ |
240,574 |
|
Wireless |
|
|
137,520 |
|
|
|
115,370 |
|
|
|
86,235 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
385,785 |
|
|
|
348,721 |
|
|
|
326,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
179,456 |
|
|
|
172,421 |
|
|
|
167,594 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
74,305 |
|
|
|
62,478 |
|
|
|
49,407 |
|
Depreciation and amortization |
|
|
71,337 |
|
|
|
69,096 |
|
|
|
82,819 |
|
Loss (gain) on disposal of assets, net |
|
|
248 |
|
|
|
1,105 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
325,346 |
|
|
|
305,100 |
|
|
|
299,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
60,439 |
|
|
|
43,621 |
|
|
|
27,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(28,741 |
) |
|
|
(40,095 |
) |
|
|
(70,776 |
) |
Interest income and other |
|
|
1,244 |
|
|
|
10,195 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(27,497 |
) |
|
|
(29,900 |
) |
|
|
(68,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes |
|
|
32,942 |
|
|
|
13,721 |
|
|
|
(41,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
111,194 |
|
|
|
(443 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
$ |
(41,635 |
) |
|
|
|
|
|
|
|
|
|
|
| |
Net Income/(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
3.26 |
|
|
$ |
0.31 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,701 |
|
|
|
42,045 |
|
|
|
40,185 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
44,185 |
|
|
|
43,387 |
|
|
|
40,185 |
|
|
|
|
|
|
|
|
|
|
|
32
Year ended December 31, 2007 Compared to the Year ended December 31, 2006
Wireline
The following table summarizes wireline revenue by source for the years ended December 31,
2007, 2006, (as restated), and 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
| |
|
Amount |
|
|
Change |
|
|
Amount |
|
|
Change |
|
|
Amount |
|
Wireline Revenue by Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
97.9 |
|
|
|
2.4 |
% |
|
$ |
95.6 |
|
|
|
-2.6 |
% |
|
$ |
98.2 |
|
Wholesale |
|
|
23.6 |
|
|
|
-7.1 |
% |
|
|
25.4 |
|
|
|
-19.4 |
% |
|
|
31.5 |
|
Access |
|
|
100.9 |
|
|
|
6.8 |
% |
|
|
94.5 |
|
|
|
-0.9 |
% |
|
|
95.4 |
|
Enterprise |
|
|
25.9 |
|
|
|
44.7 |
% |
|
|
17.9 |
|
|
|
15.5 |
% |
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
248.3 |
|
|
|
6.4 |
% |
|
$ |
233.4 |
|
|
|
-3.0 |
% |
|
$ |
240.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
Retail: Retail revenue increased by $2.3 million, or 2.4% in 2007. The increase was primarily
driven by growth in revenue from our DSL subscriber base of $1.6 million and a $1.2 million
increase in long distance sales. These gains were offset in part by a $0.6 million decline in local
exchange revenue primarily associated with residential line losses; and a $0.7 million decline in
dial up ISP revenue.
Declines in retail switched access lines in service of 4.7% in 2007 were concentrated in the
residential market and were driven by wireless substitution and competition. During 2007 we added
3,400 DSL connections and exited the year with 47,500 DSL subscribers.
Wholesale: Wholesale revenues decreased by $1.8 million, or 7.1%, in 2007 due to declines in
UNE and wholesale local revenue of $2.9 million which is primarily attributable to the ongoing
migration of lines leased to our key competitor to cable telephony, offset in part by a negotiated
increase in rates. These losses were partially offset by higher revenues from billing and
collection, and space and power services.
Total UNE and wholesale lines declined by 29.7% in 2007, to 40,700, as a result of the ongoing
migration of lines over to cable telephony. As a result of ongoing declines in UNE and wholesale
local lines, we expect that wholesale revenue will decline as a component of wireline revenue for
the foreseeable future.
Network Access: Network access revenues increased by $6.4 million, or 6.8% in 2007. This
revenue increase is counter to longer term trends where we foresee network access revenue declining
as a component of wireline revenue, and was primarily attributable to positive settlements of $4.5
million with NECA and $2.0 million with USAC regarding our cost studies.
Enterprise: Enterprise revenue increased by $8.0 million, or 44.7%, in 2007 due to $3.0
million in revenue from the provision of virtual network facilities to Lower 48 carriers for long
distance voice termination; $2.4 million from a capacity exchange agreement with another carrier;
$1.5 million from higher sales of advanced network services to large business and government
customers; and an incremental $1.0 million of capacity sales on our terrestrial fiber.
Wireless
Wireless revenue increased $22.2 million, or 19.2%, to $137.5 million for the year ended
December 31, 2007 compared to $115.4 million for the year ended December 31, 2006. This increase is
due primarily to the following:
| |
• |
|
growth in average subscribers of 13.1% to 140,863 from 124,591 for the year ended
December 31, 2007 and 2006, respectively; |
| |
| |
• |
|
an increase in average ARPU of 6.6% to $62.58 from $58.71 for the year ended
December 31, 2007 and 2006, respectively, primarily as a result of increased plan
revenue, feature revenue, wireless data revenue, roaming revenue, regulatory surcharges
and receipt of CETC funding which added $10.69 and $9.49 to wireless ARPU for the year
ended December 31, 2007 and 2006, respectively; |
| |
| |
• |
|
higher phone and accessory sales in the year ended December 31, 2007 resulting in
$9.3 million of handset revenue compared to $8.2 million for the year ended December
31, 2006; and |
33
| |
• |
|
higher revenue from non-ACS customers roaming on our network resulting in
third-party roaming revenue increasing to $18.1 million from $14.2 million for the year
ended December 31, 2007 and 2006, respectively. |
Operating Expense
Operating expense increased $20.2 million, or 6.6%, to $325.3 million for the year ended
December 31, 2007, from $305.1 million for the year ended December 31, 2006. Depreciation and
amortization associated with the operation of each of our segments has been included in total
depreciation and amortization.
Wireline: Wireline expenses, which include local telephone, Internet and interexchange
operating costs increased $7.0 million, or 4.1%, for the year ended December 31, 2007. The increase
is primarily attributable to activity supporting our Internet service offerings including $3.1
million in ISP access and circuit expense and $1.2 million in DSL COGS. Additionally, we saw a $1.5
million increase in advertising expenses, and a $1.7 million increase in expenses associated with
large CPE contracts. These expenses were partially offset by $1.0 million in net non-recurring
expense benefits comprising $1.8 million from a favorable settlement of a long term property tax
dispute and $0.8 million in contingent liability charges for an anticipated loss on a vendor
agreement.
Wireless: Wireless expense increased $11.8 million, or 18.9%, for the year ended December 31,
2007 compared to the year ended December 31, 2006. The increase is primarily attributable to $7.2
million in costs associated with expanding our wireless footprint, an increase of $2.0 million in
handset and accessory and data content expense and a $2.3 million increase in employee sales and
service costs to support our growing customer base.
Depreciation and Amortization: Depreciation and amortization expense increased $2.2 million,
or 3.2%, for the year ended December 31, 2007 compared to the year ended December 31, 2006. The
change is due to an increase in depreciable asset base partially offset by a number of asset
classes reaching their maximum depreciable lives. In addition, as more fully set forth in the
restatement information contained earlier in this Item 7, we recorded additional depreciation
expense and a corresponding reduction of our regulatory asset of $5.2 million for the nine months
ended September 30, 2007.
Loss on Disposal of Assets: The loss on disposal of assets decreased year over year $0.9
million from December 31, 2006, due to higher retirements in the prior year arising from our
process improvement initiatives.
Other Income and Expense: Other income and expense was a net expense of $27.5 million in the
year ended December 31, 2007, a decrease of 8.0% from the $29.9 million in the year ended December
31, 2006. The decline is primarily attributable to a number of large prior year non-recurring
transactions. These transactions included a $9.6 million loss on the extinguishment of debt, offset
by a $6.7 million gain on the liquidation of the Rural Telephone Bank (“RTB”), and a $2.0 million
gain on the purchase of the Alaska terrestrial assets from Crest Communications, LLC. In the
current year we incurred $0.4 million in loss on the extinguishment of debt and recorded $0.6
million for gains from the RTB liquidation that are payable to our regulated intrastate wireline
customers.
Income Taxes: In the year ended December 31, 2007, we generated taxable income which was
offset by net operating loss carry forwards. We did, however, incur an alternative minimum tax
charge of $0.5 million for the same period. Prior to December 31, 2007 we had fully reserved the
unused income tax benefit resulting from the consolidated losses we have incurred since May 14,
1999, the date of the acquisition of substantially all of our operations. In 2007, the Company
reversed all of its valuation allowance as management now believes it is more likely than not, that
all of the deferred tax asset well be realized based on the weight of all available evidence,
including the last two years of earnings as well as projected earnings.
Net Income: The increase in net income is primarily a result of the factors discussed above.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Operating Revenue
Operating revenue increased $21.9 million, or 6.7%, for the year ended December 31, 2006
compared to the year ended December 31, 2005.
Wireline
Retail: Retail revenue decreased by $2.6 million, or 2.6%, in 2006. The decrease was primarily
driven by a $2.7 million decline in local exchange revenue associated with residential line losses
and the repricing of business lines, a $1.1 million decline in dial up ISP revenue, and a $0.8
million reduction in CPE sales. These losses were offset in part by growth
in revenue from our DSL subscriber base of $2.6 million.
34
Declines in retail switched access lines in service of 2.3% in 2006 were concentrated in the
residential market and were driven by wireless substitution and competition. During 2006 we added
8,200 DSL connections and exited the year with 44,100 DSL subscribers.
Wholesale: Wholesale revenues decreased by $6.1 million, or 19.4%, in 2007 due to declines in
UNE and wholesale local revenue of $2.9 million which is primarily attributable to the ongoing
migration of lines leased to our key competitor to cable telephony and a $2.9 million decline in
billing and collection revenues primarily associated with a reduction in affiliate billing and
collection expense.
Total UNE and wholesale lines declined by 19.1% in 2006 to 57,900 as a result of the ongoing
migration of lines over to cable telephony. As a result of ongoing declines in UNE and wholesale
local lines, we expect that Wholesale revenue will decline as a component of Wireline revenue for
the foreseeable future.
Network Access: Network access revenues decreased by $0.9 million, or 0.9% in 2007. The
decease was driven by a $1.8 million decline in wireline network access revenue offset in part by a
$0.8 million increase in access revenue earned from wireless carriers. We expect that Network
Access revenue will decline as a component of Wireline revenue for the foreseeable future.
Enterprise: Enterprise revenue increased by $2.4 million, or 15.5%, in 2006 due to $1.7
million in higher sales of advanced network services to large business and government customers;
and $1.0 million in revenue earned from our terrestrial fiber asset which we acquired in April
2006.
Wireless
Wireless revenue increased $29.1 million, or 33.8%, to $115.4 million for the year ended
December 31, 2006 from $86.2 million for the year ended December 31, 2005. This increase is due
primarily to the following:
| |
• |
|
growth in subscribers year over year of 14.0% at December 31, 2006; |
| |
| |
• |
|
an increase in average revenue per unit (“ARPU”) of 7.8% to $58.71 for the year
ended December 31, 2006, from $54.45 for the year ended December 31, 2005, 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 CETC funding which added $9.49 and $7.33 to cellular ARPU in
2006 and 2005, respectively; |
| |
| |
• |
|
higher revenue from non-ACS customers roaming on our network resulting in
third-party roaming revenue increasing to $14.2 million from $6.7 million for the year
ended December 31, 2006 and 2005, respectively. |
| |
| |
• |
|
$2.4 million in out of period CETC funds received in the fourth quarter of 2006; and |
| |
| |
• |
|
higher gross customer adds, handset upgrades and accessory sales in the year ended
December 31, 2006 resulting in $8.2 million of revenue compared to $7.1 million for the
year ended December 31, 2005. |
Operating Expense
Operating expense increased $5.4 million, or 1.8%, to $305.1 million for the year ended
December 31, 2006, from $299.7 million for the year ended December 31, 2005. Depreciation and
amortization associated with the operation of each of our segments has been included in total
depreciation and amortization.
Wireline: Wireline expenses, which include local telephone, Internet and interexchange
operating costs increased $4.8 million, or 2.9%, for the year ended December 31, 2006. The increase
is primarily attributable to higher cash and stock based compensation costs of $4.4 million and
$3.6 million, respectively, attributable to higher success based incentive compensation and
increases in labor expense driven by customer service related functions for supporting our DSL
product. Increases in the size of our DSL subscriber base also drove a $3.8 million increase in DSL
COGS. These expense increases were partially offset by a $4.7 million reduction in affiliate
billing and collection expense for our interexchange services; a $1.1 million reduction in CPE
COGS; and a $1.4 million reduction in IT and accounting, consulting and outside service fees for
SOx compliance and audit work.
Wireless: Wireless expense increased $13.1 million, or 26.5%, for the year ended December 31,
2006 compared to the year ended December 31, 2005. The increase in total subscribers and the
continued TDMA to CDMA conversion resulted in an increase of $3.7 million in handset, accessory and
data content expense. As of December 31, 2006, 94% of our retail customer base resided on our CDMA
network. The network build-out resulted in $6.1 million of additional expense. Advertising
increased $1.3 million and we experienced an increase in regulatory charges and outsourced billing
and provisioning costs of $1.6 million, directly associated with an increase in subscribers and end
user revenue.
35
Depreciation and amortization: Depreciation and amortization expense decreased $13.7 million,
or 16.6%, for the year ended December 31, 2006 compared to the year ended December 31, 2005. The
decrease is primarily attributable to certain asset classes reaching their maximum depreciable
lives. Offsetting these decreases, as stated more fully in the restatement comments earlier in this
Item 7, we restated our 2006 Consolidated Financial Statements to record additional depreciation
expense and a corresponding reduction of our regulatory asset of $5.8 million for the year ended
December 31, 2006.
Interest expense: As a result of our debt restructuring activities, interest expense
decreased by $5.4 million to $30.5 million for the year ended December 31, 2006 compared to $35.9
million for the year ended December 31, 2005.
Loss on extinguishment of debt: Loss on extinguishment of debt charges arose from various
accretive debt restructuring transactions. Tender premiums were $6.4 million in 2006 compared to
$18.3 million in 2005 and the write off of unamortized debt issuance costs and settlement of
original issue discounts were $3.3 million in 2006 compared to $16.6 million in the same period
last year.
Other: In 2006, we recognized a gain of $6.7 million following the liquidation of our stock
holding in the RTB, and a gain of $2.0 million arising from the settlement of our transaction to
acquire the Crest Communications, LLC’s Alaska terrestrial fiber network,
Income Taxes: In 2006, we generated taxable income which was offset by net operating loss
carry forwards. We did, however, incur an alternative minimum tax charge of $0.4 million.
Net income: The increase in net income is primarily a result of the factors discussed
above.
Liquidity and Capital Resources
Sources
We have satisfied our cash requirements for the year ended December 31, 2007 for operations,
capital expenditures and debt service primarily through internally generated funds. For the year
ended December 31, 2007, our net cash flows provided by operating activities were $104.9 million.
At December 31, 2007, we had approximately $39.8 million in net working capital, approximately
$35.2 million in cash and cash equivalents; $0.8 million in short-term investments; and $2.6
million in restricted cash. As of December 31, 2007, we had $45.0 million of remaining capacity
under our revolving credit facility, representing 100% of available capacity. Subsequent to
December 31, 2007 we invested excess cash in auction rate securities. Recent uncertainties in the
credit markets have resulted in failed auctions for our entire existing portfolio of auction rate
securities of $4.5 million. These investments are no longer currently liquid. For further
information on our investment in auction rate securities, see “Item 7A—Quantitative and Qualitative
Disclosures about Market Risk—Liquidity Risk” and “Item 1A—Risk Factors.”
As of December 31 2007, total long-term obligations outstanding were $433.0 million consisting
of a $427.9 million draw from our $472.9 million 2005 senior credit facility which has an un-drawn
revolving credit facility of $45.0 million; and $5.1 million in finance lease obligations. The
$427.9 million term loan under the 2005 senior credit facility was drawn on February 1, 2005, July
15, 2005, and February 22, 2006 and generally bears interest at an annual rate of London Inter-Bank
Offered Rate (“LIBOR”) plus 1.75%, with a term of seven years from the first closing date and no
scheduled principal payments before maturity. The $45.0 million undrawn revolving credit facility,
to the extent drawn in the future, will bear interest at an annual rate of LIBOR plus 2.00% and
have a term of six years from the date of closing. To the extent the $45.0 million revolving credit
facility under the 2005 senior credit facility remains undrawn, we will pay an annual commitment
fee of 0.375% of the undrawn principal amount over its term. We also entered into floating-to-fixed
interest rate swaps with total notional amounts of approximately $135.0 million, $85.0 million,
$40.0 million, $115.0 million and $52.9 million which swap the floating interest rate on the entire
term loan borrowings under the 2005 senior credit facility for a further two to four years at a
fixed rate of 5.88%, 6.25%, 6.18%, 6.71% and 6.75%, per year, respectively, inclusive of the 1.75%
premium over LIBOR. The swaps are accounted for as cash flow hedges.
Our 2005 senior secured credit facility contains a number of restrictive covenants and events
of default, including covenants limiting capital expenditures, incurrence of debt and payment of
dividends. The 2005 senior credit facility also requires that we achieve certain financial ratios
quarterly and we are currently operating comfortably within these restrictions.
Uses
Our networks require the timely maintenance of plant and infrastructure. Our historical
capital expenditures have been significant. The construction and geographic expansion of our
wireless network has required significant capital. The implementation of our interexchange network
and data services strategy is also capital intensive. New capital acquisition
36
for 2007 totaled $62.8 million, inclusive of $1.9 million in interest capitalized during the
course of construction, of which $39.9 million was expended on recurring maintenance capex
requirements; $9.3 million was expended primarily on wireless footprint expansion and capacity
augmentation in the major tourist corridors where we receive a seasonal influx of visitors during
the summer months; and $12.9 million was expended on the construction of a long-haul fiber facility
which once complete will provide telecommunication connectivity between the Lower 48 states and
Alaska. We intend to fund future capital expenditures, including our long-haul fiber build to the
Lower 48 states which we estimate will cost approximately $105 million to complete, exclusive of
capitalized interest expense and internal overhead allocations with cash on hand, through
internally generated cash flows, borrowings under our revolving credit facility, and incremental
debt.
Our capital requirements may change due to impacts of regulatory decisions that affect our
ability to recover our investments, changes in technology, the effects of competition, changes in
our business strategy, and our decision to pursue specific acquisition and investment
opportunities, among other things.
From time to time we make purchases of our outstanding debt securities on the open market, in
negotiated transactions or on available call dates. The timing and amount of such purchases, if
any, depend upon cash needs and market conditions, among other things. In August 2007, we paid $4.2
million, exclusive of accrued interest, to redeem the final $4.0 million outstanding of our 9 7/8%
senior unsecured notes at their first call date.
On October 28, 2004, we announced the adoption of a dividend policy by our board of directors
and declared our first quarterly dividend of $0.185 per share. On March 21, June 14, September 16,
and November 29, 2005, our board of directors declared quarterly cash dividends of $0.20 per share.
In February 2006, we announced our board of directors increased our dividend policy to an annual
rate of $0.86 per share, an increase of 7.5% over the previous annual rate of $0.80 per share.
Based on current shares outstanding at March 6, 2008 of approximately 42.9 million shares, and our
current dividend of $0.86 per share, our current annual dividend commitment is $36.9 million.
Dividends on our common stock are not cumulative.
We believe that we will have sufficient cash provided by operations, and available borrowing
capacity under our revolving credit facility and our 2005 senior credit facility, to service our
debt, pay our quarterly dividends and fund our operations, capital expenditures and other
obligations over the next 12 months. Our ability to meet such obligations will be dependent upon
our future financial performance, which is, in turn, subject to future economic conditions and to
financial, business, regulatory, and other factors, many of which are beyond our control.
Contractual Obligations
Current accounting standards require us to disclose our material obligations and commitments
to making future payments under contracts, such as debt and lease agreements, and under contingent
commitments, such as debt guarantees. We disclose our contractual long-term debt repayment
obligations in Note 9 and our operating lease payments in Note 5.
Our contractual obligations as of December 31, 2007, are in the following table. Generally,
long-term liabilities are included in the table based on the year of required payment or an
estimate of the year of payment. Such estimates of payment is based on a review of past trends for
these items, as well as a forecast of future activities. Certain items were excluded from the
following table where the year of payment is unknown and could not be reliably estimated.
Many of our other non-current liabilities have been excluded from the following table due to the
uncertainty of the timing of payments, combined with the absence of historical trending to be used
as a predictor of such payments. Of particular note, costs associated with construction of our
long-haul fiber facility payable directly to Tyco Telecommunications
under our Supply Agreement,
which are expected to be approximately $86 million, are not included in the table below. We
estimate that our committed obligation under this agreement for services rendered was approximately
$14.8 million as of December 31, 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total |
|
|
2008 |
|
|
2009-2010 |
|
|
2011-2012 |
|
|
Thereafter |
|
Long-term debt |
|
$ |
427,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
427,900 |
|
|
$ |
— |
|
Interest on long-term debt |
|
|
125,312 |
|
|
|
31,767 |
|
|
|
61,445 |
|
|
|
32,100 |
|
|
|
— |
|
Capital leases |
|
|
5,096 |
|
|
|
780 |
|
|
|
1,281 |
|
|
|
1,539 |
|
|
|
1,496 |
|
Operating leases |
|
|
56,431 |
|
|
|
6,061 |
|
|
|
10,370 |
|
|
|
7,020 |
|
|
|
32,980 |
|
Unconditional purchase
obligations |
|
|
44,795 |
|
|
|
10,937 |
|
|
|
13,552 |
|
|
|
6,863 |
|
|
|
13,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
obligations |
|
$ |
659,534 |
|
|
$ |
49,545 |
|
|
$ |
86,648 |
|
|
$ |
475,422 |
|
|
$ |
47,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Off-Balance Sheet Arrangements
We have no special purpose or limited purpose entities that provide off-balance sheet
financing, liquidity, or market or credit risk support, and we do not engage in leasing, hedging,
research and development services, or other relationships that expose us to any significant
liabilities that are not reflected on the face of the financial statements or in “Contractual
Obligations” above.
Critical Accounting Policies and Estimates
We have identified certain policies and estimates as critical to our business operations and
the understanding of our past or present results of operations. For additional discussion on the
application of these and other significant accounting policies, see “Note1—Summary of Significant
Accounting Policies” to our consolidated financial statements provided in this report. These
policies and estimates are considered critical because they had a material impact, or they have the
potential to have a material impact on our financial statements and because they require
significant judgments, assumptions or estimates.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Among the significant estimates affecting the financial statements are those
related to the realizable value of accounts receivable, materials and supplies, long-lived assets,
goodwill and intangible assets, income taxes and network access revenue reserves. Actual results
may differ from those estimates.
Regulatory and Intercompany Accounting
Our consolidated financial statements include all majority-owned subsidiaries. We and our
subsidiaries follow, where applicable, SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation. Our local telephone company subsidiaries charge other subsidiaries based on regulated
rates for telecommunications services. Intercompany revenue between regulated local telephone
companies and all other subsidiaries is not eliminated upon consolidation. Other intercompany
balances are eliminated upon consolidation.
Our local telephone company subsidiaries account for costs in accordance with the accounting
principles prescribed by SFAS No. 71. This accounting recognizes the economic effects of rate
regulation by recording cost and a return on investment as such amounts are recovered through rates
authorized by regulatory authorities. Accordingly, plant and equipment is depreciated over lives
approved by regulators and certain costs and obligations are deferred based upon approvals received
from regulators to permit recovery of such amounts in future years.
We implemented, effective January 1, 2003, higher depreciation rates for our interstate
telephone plant, which management believes approximate the economically useful lives of the
underlying plant. As a result, we recorded a regulatory asset under SFAS No. 71, as of December 31,
2007 and 2006, related to depreciation of the regulated telephone plant allocable to its intrastate
and local jurisdictions. If we were not following SFAS No. 71, these costs would have been charged
to expense as incurred. In 2007, an error was discovered in the calculation that resulted in the
restatement of the balances for the twelve months ended December 31, 2006 and the nine months ended
September 30, 2007. See Note 2 of our consolidated financial statements for details regarding the
restatement. The balances at December 31, 2007 and December 31, 2006, are $65.3 million and $59.9
million, respectively. We also have a regulatory liability of $62.4 million and $61.5 million at
December 31, 2007 and 2006, respectively, related to accumulated removal costs for our local
telephone subsidiaries. If we were not following SFAS No. 71, we would have followed SFAS No. 143
for asset retirement obligations associated with our regulated telephone plant. Non-regulated
revenues and costs incurred by the local telephone exchange operations and non-regulated operations
are not accounted for under SFAS No. 71. In accordance with industry practice and regulatory
requirements, revenues generated between regulated and non-regulated group companies are not
eliminated on consolidation; these revenues totaled $38.4 million, $32.8 million, and $32.2 million
for the years ended December 31, 2007, 2006 and 2005, respectively.
The methodologies discussed above for determining regulated rates and the resulting revenue
and charges are based on rules adopted by the Regulatory Commission of Alaska (“RCA”). We believe
the accounting estimates related to affiliate revenue and charges are “critical accounting
estimates” because determining the cost allocation methodology and the supporting allocation
factors: (i) requires judgment and is subject to refinement as facts and circumstances change or as
new cost drivers are identified; (ii) are based on regulatory rules which are subject to change;
and (iii) the various subsidiaries may change provided services which can impact overall costs and
related charges, all of which require significant judgment and assumptions and can affect
consolidated results.
38
Revenue Recognition Policies
We recognize revenue for recurring services when earned, which is usually on a month-to-month
basis. We also recognize non-recurring revenues, including activation fees and usage sensitive
charges, when earned. Where we have determined that certain bundled products, including coupled
wireline and wireless services, constitute arrangements with multiple deliverables, we allocate and
measure using units of accounting and our judgment within the arrangement based on relative fair
values.
Additionally, we establish a bad debt reserve against uncollectible revenues incurred during
the period. These estimates are derived through a quarterly analysis of account aging profiles and
a review of historical recovery experience. The reserve is adjusted when receivables are deemed to
be uncollectible or otherwise paid. We account for bad debt expense in accordance with SFAS No. 71
which prescribes that revenue be recognized net of bad debt expense.
We recognize access revenue when it is earned. We participate in access revenue pools with
other telephone companies. Such pools are funded by toll revenue and/or access charges regulated by
the Federal Communications Commission (“FCC”) within the interstate jurisdiction. Much of the
interstate access revenue is initially recorded based on estimates. These estimates are derived
from interim financial statements, available separations studies and the most recent information
available about achieved rates of return. These estimates are subject to adjustment in future
accounting periods as additional operational information becomes available for the Company and the
other telephone companies. To the extent that disputes arise over revenue settlements, we defer
revenue collected until settlement methodologies are resolved and finalized. At December 31, 2007
and 2006, the Company had recorded liabilities of $11.0 million and $21.4 million, respectively,
related to its estimate of refundable access revenue. The decrease in the reserve during the year
ended December 31, 2007 of $10.4 million was the result of refunds, the settlement of prior period
claims and positive settlements with NECA and USAC regarding our cost studies.
Debt Issuance Costs and Original Issue Discounts
We amortize using the straight-line method underwriting and issuance costs associated with the
issuance of our senior credit facility, senior subordinated notes, senior unsecured notes and
senior discount debentures over the term of the debt, which approximates the effective interest
method. During 2007, 2006 and 2005, the Company executed a number of transactions, including the
early extinguishment of its 2003 senior credit facility, and the repurchase of it 2011 senior
unsecured notes and 2009 senior subordinated notes. These transactions resulted in a write off of
debt issuance costs in 2007, 2006 and 2005 of $.08 million, $1.7 million and $14.8 million,
respectively. Debt issuance cost amortization, inclusive of the write offs, in the “Consolidated
Statement of Cash Flows” for 2007, 2006 and 2005, was $2.0 million, $3.6 million and $16.8 million,
respectively.
We have issued certain debt instruments below their face value, resulting in original issue
discounts that we record net in long-term debt. These original issue discounts are amortized using
the effective interest method. During 2007, 2006 and 2005, the Company repurchased its 2011 senior
unsecured notes, which resulted in a write off of original issue discount to expense of $.07
million, $1.5 million and $1.6 million, respectively. Original issue discount, inclusive of the
write offs, in the Consolidated Statement of Cash Flows for 2007, 2006 and 2005, was $.08 million,
$1.5 million, and $2.0 million, respectively.
Income Taxes
We use the asset-liability method of accounting for income taxes. Under the asset-liability
method, deferred taxes reflect the temporary differences between the financial and tax bases of
assets and liabilities using the enacted tax rates in effect in the years in which the differences
are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent
that management believes it is more likely than not that such deferred tax assets will not be
realized. We released during the fourth quarter in full the existing valuation allowance against
our deferred tax asset.
Non-Operating Expense
We periodically evaluate the fair value of our investments and other non-operating assets
against their carrying value whenever market conditions indicate a change in that fair value. Any
changes relating to declines in the fair value of non-operating assets are charged to non-operating
expense under the caption “Other” in the Consolidated Statement of Operations. These items require
significant judgment and assumptions. We believe our estimates are reasonable, based on information
available at the time they were made. However, if our estimates are not correct or if circumstances
underlying our estimates change, we may incur unexpected impairment charges in future periods.
39
Recently Adopted Accounting Pronouncements
Effective January 1, 2007, we adopted FIN 48. See “Note 12—Income Taxes” to our consolidated
financial statements for additional information.
Recently Issued Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and
Financial Liabilities”, or SFAS No. 159. Under SFAS No. 159, entities may choose to measure at fair
value many financial instruments and certain other items that are not currently required to be
measured at fair value. SFAS No. 159 also establishes recognition, presentation, and disclosure
requirements designed to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing
accounting literature that requires certain assets and liabilities to be carried at fair value.
SFAS No. 159 is effective for us beginning January 1, 2008. At this time, we do not expect the
adoption of this standard to have any significant impact on our financial position or results of
operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which is effective
for us beginning January 1, 2008 and provides a definition of fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements for future
transactions. We do not expect the adoption of this pronouncement to have a material impact on our
financial position or results of operations.
40
Item 7A. Quantitative and qualitative disclosures about market risk
As of December 31, 2007, we had outstanding senior unsecured notes and our 2005 senior credit
facility. These on-balance sheet financial instruments, to the extent they provide for variable
rates of interest, expose us 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 our 2005 senior credit facility.
The table below provides information about our sensitivity to market risk associated with
fluctuations in interest rates as of December 31, 2007. To the extent that our financial
instruments expose us to interest rate risk, they are presented within each market risk category in
the table below. The table presents principal cash flows and related expected interest rates by
year of maturity for our 2005 senior credit facility, senior unsecured notes, and capital leases
and other long-term obligations outstanding at December 31, 2007. Weighted average variable rates
for the 2005 senior credit facility are based on implied forward rates in the LIBOR yield curve as
of December 31, 2007. Fair values as of December 31, 2007 included herein have been determined
based on (i) quoted market prices for the 2005 senior secured credit facility; and (ii) quoted
market prices for the senior unsecured notes. Our consolidated financial statements contain
descriptions of the 2005 senior credit facility, senior unsecured notes and capital leases and
other long-term obligations and should be read in conjunction with the table below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
| ($ in thousands) |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
|
Value |
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 bank credit facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
427,900 |
|
|
$ |
— |
|
|
$ |
427,900 |
|
|
$ |
410,784 |
|
Weighted average interest rate (var) |
|
|
6.17 |
% |
|
|
5.75 |
% |
|
|
5.87 |
% |
|
|
6.22 |
% |
|
|
6.80 |
% |
|
|
|
|
|
|
6.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease and other long-term |
|
$ |
780 |
|
|
$ |
609 |
|
|
$ |
672 |
|
|
$ |
739 |
|
|
$ |
800 |
|
|
$ |
1,496 |
|
|
$ |
5,096 |
|
|
$ |
5,096 |
|
Average interest rate (fixed) |
|
|
10.20 |
% |
|
|
10.27 |
% |
|
|
10.38 |
% |
|
|
10.56 |
% |
|
|
10.95 |
% |
|
|
11.50 |
% |
|
|
10.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed Interest Rate Swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
(482 |
) |
Fixed Rate Payable |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.27 |
% |
|
|
-0.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
(485 |
) |
Fixed Rate Payable |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.27 |
% |
|
|
-0.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,000 |
|
|
$ |
(1,352 |
) |
Fixed Rate Payable |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.50 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
-0.10 |
% |
|
|
-0.50 |
% |
|
|
-0.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
40,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
40,000 |
|
|
$ |
(669 |
) |
Fixed Rate Payable |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
|
|
|
|
|
|
|
|
4.43 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
-0.02 |
% |
|
|
-0.42 |
% |
|
|
-0.30 |
% |
|
|
-0.04 |
% |
|
|
|
|
|
|
|
|
|
|
-0.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
115,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
115,000 |
|
|
$ |
(4,195 |
) |
Fixed Rate Payable |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
|
|
|
|
|
|
|
|
4.96 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable (Payable) |
|
|
-0.56 |
% |
|
|
-0.96 |
% |
|
|
-0.84 |
% |
|
|
-0.47 |
% |
|
|
|
|
|
|
|
|
|
|
-0.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
52,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
52,900 |
|
|
$ |
(1,996 |
) |
Fixed Rate Payable |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
5.00 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable (Payable) |
|
|
-0.59 |
% |
|
|
-0.99 |
% |
|
|
-0.87 |
% |
|
|
-0.50 |
% |
|
|
|
|
|
|
|
|
|
|
-0.77 |
% |
|
|
|
|
Total derivative fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,179 |
) |
41
The table below provides information about our sensitivity to market risk associated with
fluctuations in interest rates as of December 31, 2006. To the extent that our financial
instruments expose us to interest rate risk, they are presented within each market risk category in
the table below. The table presents principal cash flows and related expected interest rates by
year of maturity for our 2006 senior credit facility, senior unsecured notes, and capital leases
and other long-term obligations outstanding at December 31, 2006. Weighted average variable rates
for the 2005 senior credit facility are based on implied forward rates in the LIBOR yield curve as
of December 31, 2006. Fair values as of December 31, 2006 included herein have been determined
based on (i) quoted market prices for the 2005 senior secured credit facility; and (ii) quoted
market prices for the senior unsecured notes. Our consolidated financial statements contain
descriptions of the 2005 senior credit facility, senior unsecured notes and capital leases and
other long-term obligations and should be read in conjunction with the table below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
| ($ in thousands) |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
|
Value |
Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 senior credit facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
427,900 |
|
|
$ |
427,900 |
|
|
$ |
430,040 |
|
Weighted average interest
rate (variable) |
|
|
7.03 |
% |
|
|
6.61 |
% |
|
|
6.62 |
% |
|
|
6.71 |
% |
|
|
6.78 |
% |
|
|
6.79 |
% |
|
|
6.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,040 |
|
|
$ |
— |
|
|
$ |
4,040 |
|
|
$ |
4,254 |
|
Average interest rate (fixed) |
|
|
9.88 |
% |
|
|
9.88 |
% |
|
|
9.88 |
% |
|
|
9.88 |
% |
|
|
9.88 |
% |
|
|
|
|
|
|
9.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases and other long-term |
|
$ |
1,043 |
|
|
$ |
943 |
|
|
$ |
695 |
|
|
$ |
664 |
|
|
$ |
730 |
|
|
$ |
2,281 |
|
|
$ |
6,356 |
|
|
$ |
6,356 |
|
Average interest rate (fixed) |
|
|
10.00 |
% |
|
|
10.22 |
% |
|
|
10.26 |
% |
|
|
10.37 |
% |
|
|
10.55 |
% |
|
|
11.34 |
% |
|
|
10.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed Interest Rate Swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
1,646 |
|
Fixed Rate Payable |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
1.12 |
% |
|
|
0.75 |
% |
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67,500 |
|
|
$ |
1,655 |
|
Fixed Rate Payable |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
4.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.13 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
1.12 |
% |
|
|
0.75 |
% |
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
85,000 |
|
|
$ |
1,267 |
|
Fixed Rate Payable |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
|
|
|
|
|
|
|
|
4.50 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.74 |
% |
|
|
0.38 |
% |
|
|
0.37 |
% |
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
0.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
40,000 |
|
|
$ |
— |
|
|
$ |
40,000 |
|
|
$ |
976 |
|
Fixed Rate Payable |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
4.43 |
% |
|
|
|
|
|
|
4.43 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.82 |
% |
|
|
0.45 |
% |
|
|
0.44 |
% |
|
|
0.53 |
% |
|
|
0.61 |
% |
|
|
|
|
|
|
0.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
115,000 |
|
|
$ |
— |
|
|
$ |
115,000 |
|
|
$ |
198 |
|
Fixed Rate Payable |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
4.96 |
% |
|
|
|
|
|
|
4.96 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.28 |
% |
|
|
-0.08 |
% |
|
|
-0.09 |
% |
|
|
0.00 |
% |
|
|
0.07 |
% |
|
|
|
|
|
|
0.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
52,900 |
|
|
$ |
— |
|
|
$ |
52,900 |
|
|
$ |
12 |
|
Fixed Rate Payable |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
5.00 |
% |
|
|
|
|
Weighted average Variance
Rate Receivable |
|
|
0.25 |
% |
|
|
-0.12 |
% |
|
|
-0.13 |
% |
|
|
-0.04 |
% |
|
|
0.04 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
Total derivative fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,754 |
|
In February 2006, we amended our 2005 senior credit facility, increasing the $375.0 million
term loan under the facility by $52.9 million and re-priced the facility to LIBOR plus 1.75% from
LIBOR plus 2.00%. The amendment and the re-price became effective as of February 23, 2006 and
February 22, 2006 respectively; the amendment permits ACS Holdings to purchase the notes subject to
its above noted tender offer for any and all of its currently outstanding 9 7/8% Senior Notes due
2011.
42
In February 2006, we executed $115.0 million and $52.9 million notional amount
floating-to-fixed interest rate swap agreements related to its $375.0 million term loan under its
2005 senior secured bank credit facility. The swaps effectively fix the LIBOR rate on $115.0
million and $52.9 million principal amount of senior secured bank debt at 6.71% and 6.75%,
inclusive of a 1.75% premium over LIBOR, through December 2011. We had previously entered into
interest rate swaps for a notional amount of $260.0 million, and this transaction fixes the rates
on its entire term loan.
Liquidity Risk
Subsequent to December 31, 2007 we invested excess cash in auction rate securities. Recent
uncertainties in the credit markets have resulted in failed auctions for our entire existing
portfolio of auction rate securities of $4.5 million. These investments are no longer currently
liquid and in the event we need to access these funds, we will not be able to do so without a loss
of principal, unless a future auction on these short-term investments is successful. We have not
obtained sufficient evidence to conclude that these investments are other-than-temporarily impaired
or that they will not be settled in the short term, though the market for these investments is
presently uncertain. With the cash demands of our fiber build, we may need to access these funds
for operational purposes during the time that these investments are expected to remain illiquid.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of Alaska Communications Systems Group, Inc. and
Subsidiaries are submitted as a separate section of this Form 10-K. See Index to Consolidated
Financial Statements and Schedule, which appears on page F-1 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
(A) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed by us in reports that we file or submit under the Securities Exchange Act
of 1934 (“Exchange Act”) is recorded, processed, summarized and reported as specified in the SEC’s
rules and forms. As of the end of the period covered by this Annual Report on Form 10-K, we carried
out an evaluation of the effectiveness of the design and operation of our “disclosure controls and
procedures” (as defined in Exchange Act Rule 13a — 15(e)) under the supervision and with the
participation of our management, including our Chief Executive Officer and our Chief Financial
Officer.
Based on that evaluation and as described below under “Management’s Report on Internal Control
Over Financial Reporting” (Item 9A.(B)), we have identified material weaknesses in our internal
control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Because of these
material weaknesses, our management, including our Chief Executive Officer and our Chief Financial
Officer, concluded that our disclosure controls and procedures were not effective as of December
31, 2007.
The certifications attached as Exhibits 31 and 32 to this report should be read in
conjunction with the disclosures set forth herein.
(B) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation of the effectiveness of our internal control over financial reporting,
our management concluded that as of December 31, 2007, we did not maintain effective internal
control over financial reporting due of the existence of material weaknesses. A material weakness
is a control deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or detected on a timely
basis. The material weaknesses in internal control over financial reporting that existed as of
December 31, 2007 were as follows:
Depreciation of our Regulatory Asset - Spreadsheet controls over validating the integrity of
the model used to calculate the net book value of our regulatory asset balance were not
designed effectively. As a result, errors in the
43
logic of the model went undetected resulting
in an error in calculating depreciation of our regulatory assets. In addition, our
management review control over our regulatory asset general ledger accounts, which are
included in property, plant and equipment, was not designed at the level of precision to
detect and correct errors that could be material to annual or interim financial statements.
As a result of these deficiencies, material errors existed in the Company’s depreciation
expense and property plant and equipment accounts that were corrected prior to the issuance
of the 2007 consolidated financial statements but required a restatement to our 2006
consolidated financial statements and our interim condensed consolidated financial statements
for the periods ended March 31, June 30, and September 30, of 2006 and 2007.
Network Access Revenue Reserves - Policies and procedures relative to training personnel in
network access revenue reserves estimation in accordance with generally accepted accounting
principles was insufficient. In addition, our management review controls over our network
access revenue reserve general ledger accounts were not designed at the level of precision to
detect and correct errors that could be material to annual or interim financial statements.
As a result of these deficiencies, material errors existed in the Company’s network access
reserve accounts that were corrected prior to the issuance of the 2007 consolidated financial
statements.
KPMG LLP, the Company’s independent registered public accounting firm, has issued an audit
report on the Company’s internal control over financial reporting as of December 31, 2007, which
is included in Item 8 of this Form 10-K.
(C) Managements Plan for Remediation of Material Weaknesses
We plan to remediate the material weakness associated with the depreciation of the regulatory
asset by taking the following actions:
| |
• |
|
Enhance the precision of our monitoring control over of the calculation of our
regulatory asset account. |
| |
| |
• |
|
Implement policies and procedures regarding testing the integrity of spreadsheet
models to ensure all significant calculations are functioning as intended and approved
prior to use. |
We plan to remediate the material weakness associated with network access revenue reserve by
taking the following actions:
| |
• |
|
Enhance the precision of our monitoring control over network access revenue
reserves. |
| |
| |
• |
|
Implement policies and procedures over training of revenue requirements personnel in
generally accepted accounting principles. |
We cannot assure you that these remediation efforts will be successful or that our internal
control over financial reporting will be effective in accomplishing all control objectives all of
the time. See “Part I — Item 1A — Risk Factors.”
(D) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter
ended December 31, 2007, that have materially affected or are reasonably likely to materially
affect, our internal control over financial reporting. We are taking remedial actions to address
the material weaknesses described above under “Evaluation of Disclosure Controls and Procedures.”
Item 9B. Other Information
Not applicable.
44
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is contained in our Proxy Statement for our 2008 Annual
Meeting of Shareholders and are incorporated herein by reference.
Information on our audit committee financial experts is contained in our Proxy Statement for
our 2008 Annual Meeting of Shareholders under the caption “Audit Committee Financial Experts”, and
is incorporated herein by reference.
We have appointed a separately designated standing audit committee. The names of each of our
audit committee members are contained in our Proxy Statement for our 2008 Annual Meeting of
Shareholders under the caption “Identification of the Audit Committee”, and this information is
incorporated herein by reference.
Information on the beneficial ownership reporting for our directors and executive officers is
contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy
Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by reference.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer, or controller, and persons performing similar
functions. We will provide to any person, free of charge, a copy of such code of ethics. The
request must be submitted in writing to the Corporate Secretary, Alaska Communications Systems
Group, Inc., 600 Telephone Avenue, Anchorage, Alaska 99503.
Item 11. Executive Compensation Summary Compensation Table
Information on compensation of our directors and executive officers is contained in our Proxy
Statement for our 2008 Annual Meeting of Shareholders under the captions “Compensation Discussion
and Analysis”, “Summary Compensation Table”, “Grants of Plan-Based Awards”, other sections therein
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information with respect to security ownership of certain beneficial owners and management is
incorporated herein by reference to information included in the Proxy Statement for our 2008 Annual
Meeting of Shareholders.
Securities Authorized for Issuance under Equity Compensation Plans
As of December 31, 2007, the number of securities remaining available for future issuance
under equity compensation plans includes 2,827,287 shares under the Alaska Communications Systems
Group, Inc. 1999 Stock Incentive Plan, 144,700 shares under the ACS Group, Inc. 1999 Non-Employee
Director Stock Compensation Plan, and 816,322 shares under the Alaska Communications Systems Group,
Inc. 1999 Employee Stock Purchase Plan. All shares reserved under the non-qualified stock option
agreement between Liane Pelletier and Alaska Communications Systems Group, Inc. have been awarded
through stock options. See “Note 14 — Stock Incentive Plans”, to the Alaska Communications Systems
Group, Inc. Consolidated Financial Statements for further information on our equity compensation
plans.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of securities |
|
Weighted-average |
|
Number of securities remaining |
| |
|
to be issued upon |
|
exercise price of |
|
available for future issuance |
| |
|
exercise of |
|
outstanding |
|
under equity compensation |
| |
|
outstanding options, |
|
options, warrants |
|
plans (excluding securities |
| |
|
warrants and rights |
|
and rights |
|
reflected in column (a)) |
| Equity compensation plans |
|
(a) |
|
(b) |
|
(c) |
Approved by security
holders: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
560,315 |
|
|
$ |
6.09 |
|
|
|
|
|
Restricted stock |
|
|
1,295,936 |
|
|
$ |
— |
|
|
|
3,788,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not approved by security holders: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
600,000 |
|
|
$ |
4.50 |
|
|
|
— |
|
45
Item 13. Certain Relationships and Related Transactions
Information with respect to such contractual relationships is incorporated herein by reference
to the information in the Proxy Statement for our 2008 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
Information on our audit committee’s pre-approval policy for audit services, and information
on our principal accountant fees and services is contained in our Proxy Statement for our 2008
Annual Meeting of Shareholders under the caption “Audit Fees”, and is incorporated herein by
reference.
46
PART IV
Item 15. Exhibits and Financial Statement Schedules
| |
(a) |
|
1. Financial Statements |
| |
| |
|
|
Our consolidated financial statements are submitted as a separate section of this Form
10-K. See Index to Consolidated Financial Statements and Schedule which appears on page F-1
hereof. |
2. Financial Statement Schedule
Our financial statement schedules for the Company and its subsidiaries are submitted as a
separate section of this Form 10-K. See Index to Consolidated Financial Statements and
Schedule which appears on page F-1 hereof.
| |
|
|
| Exhibit |
|
|
| No. |
|
Description |
2.1
|
|
Purchase Agreement, dated as of August 14, 1998, as amended, by and among ALEC
Acquisition Sub Corp., CenturyTel of the Northwest, Inc. and CenturyTel Wireless, Inc. (1) |
|
|
|
2.2
|
|
Asset Purchase Agreement, dated as of October 20, 1998, by and between Alaska
Communications Systems, Inc. and the Municipality of Anchorage (1) |
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Registrant (3) |
|
|
|
3.2
|
|
Amended and Restated By-Laws of the Registrant (3) |
|
|
|
4.1
|
|
Specimen of Common Stock Certificate (3) |
|
|
|
4.2
|
|
Stockholders’ Agreement, dated as of May 14, 1999, by and among the Registrant and
the Investors listed on the signature pages thereto (1) |
|
|
|
4.3
|
|
First Amendment to Stockholders’ Agreement, dated as of July 6, 1999, by and among
the Registrant and the Stockholders listed on the signature pages thereto (1) |
|
|
|
4.4
|
|
Second Amendment to Stockholders’ Agreement, dated as of November 16, 1999 by and
among the Registrant and the Stockholders listed on the signature pages thereto (3) |
|
|
|
4.5
|
|
Indenture, dated as of May 14, 1999, by and between Alaska Communications Systems
Holdings, Inc., the Guarantors (as defined therein) and IBJ Whitehall Bank & Trust Company
(1) |
|
|
|
4.6
|
|
Purchase Agreement, dated as of May 11, 1999, by and among Alaska Communications
Systems Holdings, Inc., the Guarantors, Chase Securities Inc., CIBC World Markets Corp. and
Credit Suisse First Boston Corporation (1) |
|
|
|
4.7
|
|
Indenture, dated as of May 14, 1999, by and between the Registrant and The Bank of New York (1) |
|
|
|
4.8
|
|
First Amendment, dated as of October 29, 1999, to Indenture listed as Exhibit No. 4.7 (2) |
|
|
|
4.9
|
|
Form of Second Amendment dated as of November 17, 1999 to Indenture listed as Exhibit No. 4.7 (3) |
|
|
|
4.10
|
|
Purchase Agreement, dated as of May 11, 1999, by and among the Registrant, DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc. and DLJ ESC II, L.P. (1) |
|
|
|
4.11
|
|
Indenture, dated as of August 26, 2003, among Alaska Communications Systems Holdings,
Inc., as Issuer, the Guarantors (as defined therein) and The Bank of New York, as trustee.
(4) |
|
|
|
4.12
|
|
Supplemental Indenture to Indenture listed as Exhibit No. 4.11, dated January 25, 2005,
among the Company, Alaska Communications Systems Holdings, Inc., the guarantor’s party
thereto and The Bank of New York, as trustee. (7) |
|
|
|
4.13
|
|
Supplemental Indenture to Indenture listed as Exhibit No. 4.5, dated January 25, 2005,
among the Company, Alaska Communications Systems Holdings, Inc., the guarantors party
thereto and The Bank of New York, as trustee. (7) |
|
|
|
4.14
|
|
Supplemental indenture to Indenture listed as Exhibit No. 4.11, dated July 15, 2005,
among the Registrant, Alaska Communications Systems Holdings, Inc., the guarantors party
thereto and the Bank of New York, as trustee. (13) |
|
|
|
4.15
|
|
Supplemental Indenture to Indenture listed as Exhibit No. 4.11, dated February 22,
2006, among the Company, Alaska Communications Systems Holdings, Inc., the guarantors party
thereto and The Bank of New York, as trustee. (14) |
|
|
|
10.1
|
|
Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among
Alaska Communications Systems Holdings, Inc., the Guarantors, Chase Securities Inc., CIBC
World Markets Corp. and Credit Suisse First Boston Corporation (1) |
47
| |
|
|
| Exhibit No. |
|
Description |
10.2
|
|
Exchange and Registration Rights Agreement, dated as of May 14, 1999, by and among the
Registrant, DLJ Investment Partners, L.P., DLJ Investment Funding, Inc. and DLJ ESC II L.P.
(1) |
|
|
|
10.3
|
|
ALEC Holdings, Inc. 1999 Stock Incentive Plan (1) |
|
|
|
10.4
|
|
Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan (3) |
|
|
|
10.5
|
|
Alaska Communications Systems Group, Inc. 1999 Non-Employee Director Compensation Plan (3) |
|
|
|
10.6
|
|
Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan (3) |
|
|
|
10.7
|
|
Exchange and Registration Rights Agreement, dated August 26, 2003, by and among Alaska
Communications Systems Holdings, Inc., the Guarantors and J.P. Morgan Securities Inc. for
itself and on behalf of CIBC World Markets Corp., Citigroup Global Markets Inc., Jefferies
& Company, Inc. and Raymond James & Associates, Inc. (4) |
|
|
|
10.8
|
|
Credit Agreement, dated August 26, 2003, among Alaska Communications Systems Group,
Inc., Alaska Communications Systems Holdings, Inc., as the Borrower, the Lenders Party
thereto and JPMorgan Chase Bank, as Administrative Agent and Collateral Agent, CIBC World
Markets Corp., as Syndication Agent, and Citicorp North America, Inc., as Documentation
Agent, and J.P. Morgan Securities Inc., as Arranger. (4) |
|
|
|
10.9
|
|
Retirement Agreement, dated as of September 14, 2003, between Alaska Communications
Systems Group, Inc. and Charles E. Robinson. (4) |
|
|
|
10.10
|
|
Executive Employment Agreement, dated as of September 14, 2003, between Alaska
Communications Systems Group, Inc. and Liane Pelletier. (4) |
|
|
|
10.11
|
|
Settlement Agreement and Mutual Release, dated October 14, 2003, by and between the
State of Alaska and Alaska Communications Systems Group, Inc. (4) |
|
|
|
10.12
|
|
Executive Employment Agreement, dated as of October 17, 2003, between Alaska
Communications Systems Group, Inc. and David C. Eisenberg. (5) |
|
|
|
10.13
|
|
Executive Employment Agreement, dated as of January 23, 2004 between Alaska
Communications Systems Group, Inc. and Sheldon Fisher. (6) |
|
|
|
10.14
|
|
Executive Employment Agreement, dated as of February 18, 2004 between Alaska
Communications Systems Group, Inc. and David Wilson. (6) |
|
|
|
10.15
|
|
Letter Agreement, dated January 26, 2005, between Alaska Communications Systems
Holdings, Inc. and Fox Paine & Company, LLC. (8) |
|
|
|
10.16
|
|
Credit Agreement, dated February 1, 2005, among the Company, ACSH, the lenders named
therein and Canadian Imperial Bank of Commerce, as Administrative Agent. (9) |
|
|
|
10.17
|
|
Master Agreement, dated November 7, 1999, by and between Alaska Communications Systems
Holdings, Inc. and the International Brotherhood of Electrical Workers, Local Union 1547.
(10) |
|
|
|
10.18
|
|
Letter Agreement, dated March 1, 2005, by and between Alaska Communications Systems
Holdings, Inc. and the International Brotherhood of Electrical Workers, Local Union 1547.
(10) |
|
|
|
10.19
|
|
Consent and Agreement No. 1, dated July 15, 2005, among Alaska Communications Systems
Group, Inc. , Alaska Communications Systems Holdings, Inc., the lenders party thereto and
Canadian Imperial Bank of Commerce as Administrative Agent. (12) |
|
|
|
10.20
|
|
Form of Restricted Stock Agreement between the Registrant and certain participants in
the Registrant’s 1999 Stock Incentive Plan. (13) |
|
|
|
10.21
|
|
Consent and Agreement No. 2, dated February 22, 2006, among Alaska Communications
Systems Group, Inc. , Alaska Communications Systems Holdings, Inc., the lenders party
thereto and Canadian Imperial Bank of Commerce as Administrative Agent. (14) |
|
|
|
10.22
|
|
2006 Officer Severance Program (15) |
|
|
|
10.23
|
|
Supply and Construction Contract between ACS Cable Systems, Inc. and Tyco
Telecommunications (US), Inc. dated October 23, 2007*** |
|
|
|
10.24
|
|
Executive Employment Agreement, dated as of November 7, 2007 between Alaska
Communications Systems Group, Inc. and Leonard Steinberg. |
|
|
|
21.1
|
|
Subsidiaries of the Registrant |
|
|
|
23.1
|
|
Consent of KPMG LLP relating to the audited financial statements of Alaska
Communications Systems Group, Inc. |
|
|
|
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 Executive 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. |
48
| |
|
|
| Exhibit No. |
|
Description |
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. |
|
|
|
| (1) |
|
Filed as an exhibit to the Registrant’s Registration Statement on Form S-4 file No.
333-82361 and incorporated by reference thereto. |
| |
| (2) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on November 5, 1999 and
incorporated by reference thereto. |
| |
| (3) |
|
Filed as an exhibit to the Registrant’s Registration Statement on Form S-1/A file No.
333-888753 filed on November 17, 1999 and incorporated by reference thereto. |
| |
| (4) |
|
Filed as an exhibit to Alaska Communications Systems Holdings, Inc. Registration
Statement on Form S-4 file No. 333-109927 filed on October 23, 2003 and incorporated by
reference thereto. |
| |
| (5) |
|
Filed as an exhibit to Alaska Communications Systems Holdings, Inc. Registration
Statement on Form S-4/A file No. 333-109927 filed on January 21, 2004 and incorporated by
reference thereto. |
| |
| (6) |
|
Filed as an exhibit to the Registrant’s Form 10-K filed on March 30, 2004 and
incorporated by reference thereto. |
| |
| (7) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on January 26, 2005 and
incorporated by reference thereto. |
| |
| (8) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on January 27, 2005 and
incorporated by reference thereto. |
| |
| (9) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on February 2, 2005 and
incorporated by reference thereto. |
| |
| (10) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on March 7, 2005 and
incorporated by reference thereto. |
| |
| (11) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on March 18, 2005 and
incorporated by reference thereto. |
| |
| (12) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on July 21, 2005 and
incorporated by reference thereto. |
| |
| (13) |
|
Filed as an exhibit to the Registrant’s Form 10-Q filed on August 3, 2007 and
incorporated herein by reference thereto. |
| |
| (14) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on February 27, 2006 and
incorporated herein by reference thereto. |
| |
| (15) |
|
Filed as an exhibit to the Registrant’s Form 8-K filed on July 17, 2006 and is
incorporated by reference thereto. |
*** Confidential treatment of certain portions of this exhibit has been requested pursuant to a
request for confidential treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
49
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
|
|
| Date: March 20, 2008 |
Alaska Communications Systems Group, Inc.
|
|
| |
By: |
/s/Liane Pelletier
|
|
| |
|
Liane Pelletier |
|
| |
|
Chief Executive Officer,
Chairman of the Board and President |
|
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
/s/Liane Pelletier
Liane Pelletier
|
|
Chief Executive Officer,
Chairman of the Board and
President (Principal Executive
Officer)
|
|
March 20, 2008 |
|
|
|
|
|
/s/ David Wilson
David Wilson
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
March 20, 2008 |
|
|
|
|
|
/s/Annette M. Jacobs
Annette M. Jacobs
|
|
Director
|
|
March 16, 2008 |
|
|
|
|
|
/s/Brian Rogers
Brian Rogers
|
|
Director
|
|
March 15, 2008 |
|
|
|
|
|
/s/David A. Southwell
David A. Southwell
|
|
Director
|
|
March 15, 2008 |
|
|
|
|
|
/s/John M. Egan
John M. Egan
|
|
Director
|
|
March 15, 2008 |
|
|
|
|
|
/s/Patrick Pichette
Patrick Pichette
|
|
Director
|
|
March 15, 2008 |
|
|
|
|
|
/s/Gary R. Donahee
Gary R. Donahee
|
|
Director
|
|
March 15, 2008 |
|
|
|
|
|
/s/Edward J. Hayes, Jr.
Edward J. Hayes, Jr.
|
|
Director
|
|
March 15, 2008 |
50
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| |
|
|
|
|
F-2 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
|
|
|
F-7 |
|
|
|
|
|
F-8 |
|
|
|
|
|
F-46 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Alaska Communications Systems Group, Inc.:
We have audited the accompanying consolidated balance sheets of Alaska Communications Systems
Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders’ equity (deficit) and comprehensive income (loss), and cash
flows for each of the years in the three-year period ended December 31, 2007. In connection with
our audits of the consolidated financial statements, we also have audited the financial statement
schedule II. These consolidated financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alaska Communications Systems Group, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the related financial
statement schedule when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2006
consolidated financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Alaska Communications Systems Group, Inc’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 20, 2008 expressed an adverse opinion on the effectiveness of the
Company’s internal control over financial reporting.
(signed) KPMG LLP
Anchorage, Alaska
March 20, 2008
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Alaska Communications Systems Group, Inc.:
We have audited Alaska Communications Systems Group, Inc.’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Alaska Communications Systems Group, Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting (Item 9A.(B)). Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. Material weaknesses related to the following have been identified and included in
management’s assessment:
| • |
|
Depreciation of Regulatory Asset |
| |
| • |
|
Network Access Revenue Reserves |
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Alaska Communications Systems Group, Inc.
as of December 31, 2007 and 2006, and the related consolidated statements of operations,
stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2007. These material weaknesses were considered
in determining the nature, timing, and extent of audit tests applied in our audit of the 2007
consolidated financial statements, and this report does not affect
our report dated March 20, 2008,
which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weaknesses on the achievement
of the objectives of the control criteria, Alaska Communications Systems Group, Inc. has not
maintained effective internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
(signed) KPMG LLP
Anchorage, Alaska
March 20, 2008
F-3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Balance Sheets
December 31, 2007 and 2006
(In Thousands, Except Per Share Amounts)
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
| |
|
2007 |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35,208 |
|
|
$ |
36,860 |
|
Restricted cash |
|
|
2,589 |
|
|
|
1,700 |
|
Short-term investments |
|
|
790 |
|
|
|
— |
|
Accounts receivable-trade, net of allowance of $8,768 and $7,434 |
|
|
39,150 |
|
|
|
38,875 |
|
Materials and supplies |
|
|
10,467 |
|
|
|
7,977 |
|
Prepayments and other current assets |
|
|
5,155 |
|
|
|
3,514 |
|
Deferred income taxes |
|
|
21,347 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total current assets |
|
|
114,706 |
|
|
|
88,926 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,209,257 |
|
|
|
1,165,108 |
|
Less: accumulated depreciation and amortization |
|
|
(825,663 |
) |
|
|
(773,744 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
383,594 |
|
|
|
391,364 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
38,403 |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,604 |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
7,461 |
|
|
|
9,437 |
|
Deferred income taxes |
|
|
96,095 |
|
|
|
— |
|
Deferred charges and other assets |
|
|
1,340 |
|
|
|
6,482 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
663,203 |
|
|
$ |
556,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
780 |
|
|
$ |
1,025 |
|
Accounts payable, accrued and other current liabilities |
|
|
64,070 |
|
|
|
65,516 |
|
Advance billings and customer deposits |
|
|
10,051 |
|
|
|
10,641 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
74,901 |
|
|
|
77,182 |
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
432,216 |
|
|
|
437,188 |
|
Other deferred credits and long-term liabilities |
|
|
82,075 |
|
|
|
72,881 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
589,192 |
|
|
|
587,251 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized, 42,883 and
42,322 issued and outstanding, respectively |
|
|
429 |
|
|
|
423 |
|
Additional paid in capital |
|
|
257,982 |
|
|
|
288,425 |
|
Accumulated deficit |
|
|
(177,313 |
) |
|
|
(321,449 |
) |
Accumulated other comprehensive (loss) income |
|
|
(7,087 |
) |
|
|
1,566 |
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
74,011 |
|
|
|
(31,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
663,203 |
|
|
$ |
556,216 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statement of Operations
Years ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
248,265 |
|
|
$ |
233,351 |
|
|
$ |
240,574 |
|
Wireless |
|
|
137,520 |
|
|
|
115,370 |
|
|
|
86,235 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
385,785 |
|
|
|
348,721 |
|
|
|
326,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
179,456 |
|
|
|
172,421 |
|
|
|
167,594 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
74,305 |
|
|
|
62,478 |
|
|
|
49,407 |
|
Depreciation and amortization |
|
|
71,337 |
|
|
|
69,096 |
|
|
|
82,819 |
|
Loss (gain) on disposal of assets, net |
|
|
248 |
|
|
|
1,105 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
325,346 |
|
|
|
305,100 |
|
|
|
299,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
60,439 |
|
|
|
43,621 |
|
|
|
27,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(28,386 |
) |
|
|
(30,445 |
) |
|
|
(35,894 |
) |
Loss on extinguishment of debt |
|
|
(355 |
) |
|
|
(9,650 |
) |
|
|
(34,882 |
) |
Interest income |
|
|
2,020 |
|
|
|
1,835 |
|
|
|
2,253 |
|
Other |
|
|
(776 |
) |
|
|
8,360 |
|
|
|
(253 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(27,497 |
) |
|
|
(29,900 |
) |
|
|
(68,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax |
|
|
32,942 |
|
|
|
13,721 |
|
|
|
(41,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
111,194 |
|
|
|
(443 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
$ |
(41,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
3.26 |
|
|
$ |
0.31 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,701 |
|
|
|
42,045 |
|
|
|
40,185 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
44,185 |
|
|
|
43,387 |
|
|
|
40,185 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
and Comprehensive Income (Loss)
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Additional Paid |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Stock |
|
|
Stock |
|
|
in Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity (Deficit) |
|
Balance, January 1, 2005 |
|
|
35,245 |
|
|
$ |
352 |
|
|
$ |
(18,443 |
) |
|
$ |
282,272 |
|
|
$ |
(293,092 |
) |
|
$ |
(4,531 |
) |
|
$ |
(33,442 |
) |
| |
Total comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,635 |
) |
|
|
4,853 |
|
|
|
(36,782 |
) |
| |
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33,107 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33,107 |
) |
| |
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,166 |
|
|
|
— |
|
|
|
— |
|
|
|
3,166 |
|
| |
Surrender 128 of shares to cover withholding taxes
on stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(757 |
) |
|
|
— |
|
|
|
— |
|
|
|
(757 |
) |
| |
Issuance of common stock,
pursuant to stock plans, $.01 par |
|
|
1,088 |
|
|
|
10 |
|
|
|
— |
|
|
|
5,741 |
|
|
|
— |
|
|
|
— |
|
|
|
5,751 |
|
| |
Issuance of common stock
net of offering costs, $.01 par |
|
|
9,897 |
|
|
|
100 |
|
|
|
— |
|
|
|
76,207 |
|
|
|
— |
|
|
|
— |
|
|
|
76,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2005 |
|
|
46,230 |
|
|
|
462 |
|
|
|
(18,443 |
) |
|
|
333,522 |
|
|
|
(334,727 |
) |
|
|
322 |
|
|
|
(18,864 |
) |
| |
Total comprehensive income (restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,278 |
|
|
|
1,244 |
|
|
|
14,522 |
|
| |
Dividends declared (restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(36,274 |
) |
|
|
— |
|
|
|
— |
|
|
|
(36,274 |
) |
| |
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,667 |
|
|
|
— |
|
|
|
— |
|
|
|
7,667 |
|
| |
Surrender of 74 shares to cover withholding taxes
on stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(872 |
) |
|
|
— |
|
|
|
— |
|
|
|
(872 |
) |
| |
Issuance of common stock,
pursuant to stock plans, $.01 par |
|
|
641 |
|
|
|
6 |
|
|
|
— |
|
|
|
2,780 |
|
|
|
— |
|
|
|
— |
|
|
|
2,786 |
|
| |
Retirement of stock held in treasury |
|
|
(4,549 |
) |
|
|
(45 |
) |
|
|
18,443 |
|
|
|
(18,398 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2006 (restated) |
|
|
42,322 |
|
|
|
423 |
|
|
|
— |
|
|
|
288,425 |
|
|
|
(321,449 |
) |
|
|
1,566 |
|
|
|
(31,035 |
) |
| |
Total comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
144,136 |
|
|
|
(8,653 |
) |
|
|
135,483 |
|
| |
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(36,840 |
) |
|
|
— |
|
|
|
— |
|
|
|
(36,840 |
) |
| |
Stock compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,390 |
|
|
|
— |
|
|
|
— |
|
|
|
6,390 |
|
| |
Excess tax benefit from share-based payments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
755 |
|
|
|
— |
|
|
|
— |
|
|
|
755 |
|
| |
Surrender of 153 shares to cover withholding taxes
on stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,330 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,330 |
) |
| |
Issuance of common stock
stock, pursuant to stock plans, $.01 par |
|
|
561 |
|
|
|
6 |
|
|
|
— |
|
|
|
1,582 |
|
|
|
— |
|
|
|
— |
|
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2007 |
|
|
42,883 |
|
|
$ |
429 |
|
|
$ |
— |
|
|
$ |
257,982 |
|
|
$ |
(177,313 |
) |
|
$ |
(7,087 |
) |
|
$ |
74,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
(In Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
$ |
(41,635 |
) |
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
71,337 |
|
|
|
69,096 |
|
|
|
82,819 |
|
Loss (gain) on disposal of assets, net |
|
|
248 |
|
|
|
1,105 |
|
|
|
(152 |
) |
Gain on sale of long-term investments |
|
|
(152 |
) |
|
|
(6,685 |
) |
|
|
— |
|
Amortization of debt issuance costs and
original issue discount |
|
|
2,059 |
|
|
|
5,180 |
|
|
|
18,760 |
|
Stock-based compensation |
|
|
6,390 |
|
|
|
7,667 |
|
|
|
3,166 |
|
Deferred taxes |
|
|
(112,495 |
) |
|
|
— |
|
|
|
— |
|
Excess tax benefit from share-based payments |
|
|
(755 |
) |
|
|
— |
|
|
|
— |
|
Other non-cash expenses |
|
|
742 |
|
|
|
234 |
|
|
|
109 |
|
Changes in components of assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other current assets |
|
|
(1,896 |
) |
|
|
2,136 |
|
|
|
(1,388 |
) |
Materials and supplies |
|
|
(2,490 |
) |
|
|
(92 |
) |
|
|
(1,262 |
) |
Accounts payable and other current liabilities |
|
|
(1,607 |
) |
|
|
8,823 |
|
|
|
(7,977 |
) |
Deferred charges and other assets |
|
|
(193 |
) |
|
|
3,856 |
|
|
|
3,760 |
|
Other deferred credits |
|
|
(389 |
) |
|
|
(12,774 |
) |
|
|
502 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
104,935 |
|
|
|
91,824 |
|
|
|
56,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in construction and capital expenditures |
|
|
(62,788 |
) |
|
|
(59,959 |
) |
|
|
(64,397 |
) |
Change in unsettled construction and capital expenditures |
|
|
(509 |
) |
|
|
(915 |
) |
|
|
5,975 |
|
Purchase of short-term investments |
|
|
(64,638 |
) |
|
|
(57,500 |
) |
|
|
(95,095 |
) |
Proceeds from sale of short-term investments |
|
|
63,848 |
|
|
|
68,025 |
|
|
|
119,770 |
|
Proceeds from sale of long-term investments |
|
|
162 |
|
|
|
7,663 |
|
|
|
— |
|
Placement of funds in restricted account |
|
|
(3,009 |
) |
|
|
— |
|
|
|
(700 |
) |
Release of funds from escrow account |
|
|
2,120 |
|
|
|
2,715 |
|
|
|
975 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(64,814 |
) |
|
|
(39,971 |
) |
|
|
(33,472 |
) |
| |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(5,089 |
) |
|
|
(61,860 |
) |
|
|
(459,015 |
) |
Proceeds from the issuance of long-term debt |
|
|
— |
|
|
|
52,900 |
|
|
|
375,000 |
|
Debt issuance costs |
|
|
— |
|
|
|
(1,349 |
) |
|
|
(11,307 |
) |
Payment of cash dividend on common stock |
|
|
(36,697 |
) |
|
|
(35,475 |
) |
|
|
(30,393 |
) |
Payment of withholding taxes on stock-based compensation |
|
|
(2,330 |
) |
|
|
(872 |
) |
|
|
(757 |
) |
Excess tax benefit from share-based payments |
|
|
755 |
|
|
|
— |
|
|
|
— |
|
Proceeds from the issuance of common stock |
|
|
1,588 |
|
|
|
2,786 |
|
|
|
89,276 |
|
Stock issuance costs |
|
|
— |
|
|
|
— |
|
|
|
(7,817 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(41,773 |
) |
|
|
(43,870 |
) |
|
|
(45,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(1,652 |
) |
|
|
7,983 |
|
|
|
(21,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
36,860 |
|
|
|
28,877 |
|
|
|
50,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
35,208 |
|
|
$ |
36,860 |
|
|
$ |
28,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
28,795 |
|
|
$ |
31,280 |
|
|
$ |
39,474 |
|
Income taxes paid |
|
|
545 |
|
|
|
264 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Noncash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases |
|
$ |
51 |
|
|
$ |
60 |
|
|
|
— |
|
Dividend declared, but not paid |
|
|
9,226 |
|
|
|
9,105 |
|
|
|
8,347 |
|
See Notes to Consolidated Financial Statements
F-7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alaska Communications Systems Group, Inc. and Subsidiaries (the “Company” or “ACS Group”), a
Delaware corporation, is engaged principally in providing local telephone, wireless, Internet,
interexchange network and other services to its retail consumer and business customers and
wholesale customers in the State of Alaska through its telecommunications subsidiaries. The Company
was formed in October of 1998 for the purpose of acquiring and operating telecommunications
properties.
The accompanying consolidated financial statements for the Company are as of December 31, 2007
and 2006 and for the years ended December 31, 2007, 2006 and 2005. They represent the consolidated
financial position, results of operations and cash flows of ACS Group and the following wholly
owned subsidiaries:
| |
• |
|
Alaska Communications Systems Holdings, Inc. (“ACS
Holdings”) |
| |
| |
• |
|
ACS of Alaska, Inc. (“ACSAK”) |
| |
| |
• |
|
ACS of the Northland, Inc. (“ACSN”) |
| |
| |
• |
|
ACS of Fairbanks, Inc. (“ACSF”) |
| |
| |
• |
|
ACS of Anchorage, Inc. (“ACSA”) |
| |
| |
• |
|
ACS Wireless, Inc. (“ACSW”) |
| |
| |
• |
|
ACS Long Distance, Inc. (“ACSLD”) |
| |
| |
• |
|
ACS Internet, Inc. (“ACSI”) |
| |
| |
• |
|
ACS Messaging, Inc. (ACSM) |
| |
| |
• |
|
ACS Cable Systems, Inc. (ACSC) |
A summary of significant accounting policies followed by the Company is set forth below:
Restatement
The Consolidated Financial Statements as of and for the year ended December 31, 2006 and the
related Notes to the Consolidated Financial Statements reflect restated amounts as a result of the
adjustments described in Note 2.
Basis of Presentation
The consolidated financial statements include all majority-owned subsidiaries. In accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 71, Accounting for the Effects of
Certain Types of Regulation, intercompany revenue between regulated local telephone companies and
all other group companies is not eliminated. All other significant intercompany balances have been
eliminated. Certain reclassifications have been made to the 2006 and 2005 balances to conform to
the current presentation.
Use of Estimates
The
preparation of financial statements in conformity with U.S. generally
accepted accounting principles generally
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Among the significant estimates affecting the financial
statements are those related to the realizable value of accounts receivable, materials and
supplies, long-lived assets, goodwill and intangible assets, income taxes and network access
revenue reserves. Actual results may differ from those estimates.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows, the Company
generally considers all highly liquid investments with a maturity at acquisition of three months or
less to be cash equivalents.
F-8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restricted Cash
The Company has placed restricted cash in certificates of deposits as required under the terms
of certain contracts to which it is a party. When the restrictions are lifted, the Company will
transfer the funds back into its operating accounts.
Short-Term Investments
For purposes of the consolidated balance sheets and statements of cash flows, the Company
considers highly liquid investments with a maturity at acquisition of more than three months but
less than one year to be short-term investments. These investments are classified as available for
sale and are stated at amortized cost, which approximates fair market value. Income related to
these investments is reported as interest income.
Materials and Supplies
Materials and supplies are carried in inventory at the lower of weighted average cost or
market. Cash flows related to the sale of inventory, primarily wireless devices and accessories,
are included in operating activities in the Company’s consolidated statement of cash flows.
Property, Plant and Equipment
Telephone plant is stated substantially at original cost of construction. Telephone plant
retired in the ordinary course of business, together with the cost of removal, less salvage, is
charged to accumulated depreciation with no gain or loss recognized. Renewals and betterments of
telephone plant are capitalized while repairs, as well as renewals of minor items, are charged to
operating expense as incurred. The Company provides for depreciation of telephone plant on the
straight-line method, using rates approved by regulatory authorities. The composite annualized rate
of depreciation for all classes of telephone property, plant, and equipment was 5.2%, 5.3% and 5.8%
for 2007, 2006 and 2005, respectively.
Non-Telephone plant is stated at purchased cost, and when sold or retired a gain or loss is
recognized. Depreciation of such property is provided on the straight-line method over its
estimated service life ranging from three to 20 years.
The Company is the lessee of equipment and buildings under capital leases expiring in various
years through 2019. The assets and liabilities under capital leases are initially recorded at the
lower of the present value of the minimum lease payments or the fair value of the assets at the
inception of the lease. The assets are amortized over the lower of their related lease terms or the
estimated productive lives. Amortization of assets under capital leases is included in depreciation
and amortization expense.
The Company is also the lessee of various land, building and personal property under operating
lease agreements for which expense is recognized on a monthly basis.
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but are assessed for
impairment on at least an annual basis. Intangible assets with estimable useful lives are amortized
over their respective estimated useful lives to their estimated residual values and are
periodically reviewed for impairment.
Debt Issuance Costs
Underwriting and issuance costs associated with the issuance of the Company’s senior credit
facility, senior subordinated notes, senior unsecured notes and senior discount debentures are
being amortized using the straight-line method which approximates the effective interest method,
over the term of the debt. During 2007, 2006 and 2005, the Company executed a number of
transactions, including the early extinguishment of its 2003 senior credit facility and the
repurchase of it 2011 senior unsecured notes and 2009 senior subordinated notes. These
transactions resulted in a write off of debt issuance costs in 2007, 2006 and 2005 of $84, $1,731
and $14,784, respectively. Debt issuance cost amortization, inclusive of the
F-9
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
write offs, in the Consolidated Statement of Cash Flows for 2007, 2006 and 2005, was $1,976,
$3,645 and $16,760, respectively.
Original Issue Discounts
Certain debt instruments of the Company have been issued below their face value, resulting
in original issue discounts that are recorded net in long-term debt. These original issue
discounts are amortized using the effective interest method. During 2007, 2006 and 2005, the
Company repurchased its 2011 senior unsecured notes, which resulted in a write off of original
issue discount to expense of $72, $1,479 and $1,557, respectively. Original issue discount,
inclusive of the write offs, in the Consolidated Statement of Cash Flows for 2007, 2006 and 2005,
was $83, $1,535, and $2,000, respectively.
Preferred stock
The Company has 5,000, no par, shares authorized, none of which were issued or outstanding
at December 31, 2007, and 2006.
Treasury Stock
The Company, with Board of Directors’ authorization, occasionally repurchases shares of its
common stock. Since management originally intended to hold the treasury stock temporarily for
later re-issuance, the cost method of accounting for treasury stock was used. On December 15,
2006, the Company’s Board of Directors approved the retirement of 100% of the Company’s treasury
stock.
Revenue Recognition
Substantially all recurring service revenues are billed one month in advance and are
deferred until earned. Non-recurring and usage sensitive revenues are billed in arrears and are
recognized when earned. Certain of the Company’s bundled products and services, primarily in
wireless, have been determined to be revenue arrangements with multiple deliverables. Total
consideration received in these arrangements is allocated and measured using units of accounting
within the arrangement based on relative fair values. Wireless offerings include wireless phones
and service contracts sold together in its Company-owned stores. The handset and accessories
associated with these direct channel sales is recognized at the time the related wireless phone
is sold and is classified as equipment sales. Activation fees are recognized at the time of
activation. Monthly service revenue is recognized as services are rendered.
Additionally, the Company establishes estimated bad debt reserves against uncollectible
revenues incurred during the period. These estimates are derived through a quarterly analysis of
account aging profiles and a review of historical recovery experience. Receivables are charged
off against the allowance when management believes the uncollectability of the receivable is
confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company accounts for
bad debt expense in accordance with SFAS No. 71 which prescribes that revenue be recognized net
of bad debt expense.
Access revenue is recognized when earned. The Company participates in access revenue pools
with other telephone companies. Such pools are funded by toll revenue and/or access charges
regulated by the Federal Communications Commission (“FCC”) within the interstate jurisdiction.
Much of the interstate access revenue is initially recorded based on estimates. These estimates
are derived from interim financial statements, available separations studies and the most recent
information available about achieved rates of return. These estimates are subject to adjustment
in future accounting periods as additional operational information becomes available for the
Company and the other telephone companies. To the extent that disputes arise over revenue
settlements, the Company’s policy is to defer revenue collected until settlement methodologies
are resolved and finalized. At December 31, 2007 and 2006, the Company had deferred revenue of
$10,993 and $21,448, respectively, related to its estimate of refundable access revenue. The
decrease during the year ended December 31, 2007 of $10,455 was the result of refunds, the
settlement of prior period claims and positive settlements with NECA and USAC regarding our cost
studies.
F-10
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During 2007 and 2006 no customer accounted for 10% of consolidated revenues. In 2005, one
customer accounted for 10% of consolidated revenues.
Income Taxes
The Company utilizes the asset-liability method of accounting for income taxes in accordance
with SFAS No. 109 Accounting for Income Taxes. Under the asset-liability method, deferred taxes
reflect the temporary differences between the financial and tax bases of assets and liabilities
using the enacted tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to the extent that management
believes it is more likely than not that such deferred tax assets will not be realized.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation
(“FIN”) 48, Accounting for Uncertainty in Income Taxes, which was effective for the Company on
January 1, 2007. This Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The impact of the Company’s reassessment of its tax positions in accordance with the adoption of
FIN 48 did not have a material impact on the results of operations, financial condition or
liquidity. The Company’s policy is to recognize interest and penalties related to uncertain tax
positions in income tax expense. As of December 31, 2007, the Company had no accrued income tax
interest or penalties. Tax returns prior to 2004 are no longer subject to examination by major
tax jurisdictions. The Company is not aware of any material tax contingencies.
Taxes Collected from Customers and Remitted to Government Authorities
The Company excludes taxes, collected from customers and payable to government authorities,
from revenue. Taxes payable to government authorities are presented as a liability on the
Consolidated Balance Sheets.
Regulatory Accounting and Regulation
The local telephone exchange operations of the Company account for costs in accordance with
the accounting principles for regulated enterprises prescribed by SFAS No. 71. This accounting
recognizes the economic effects of rate regulation by recording cost and a return on investment
as such amounts are recovered through rates authorized by regulatory authorities. Accordingly,
plant and equipment is depreciated over lives approved by regulators and certain costs and
obligations are deferred based upon approvals received from regulators to permit recovery of such
amounts in future years. The Company’s cost studies and depreciation rates are subject to
periodic audits that could ultimately result in reductions of revenues.
The Company implemented, effective January 1, 2003, higher depreciation rates for its
financial reporting, which management believes approximates the economically useful lives of the
underlying plant. As a result, the Company has recorded a regulatory asset, as of December 31,
2007 and 2006, related to depreciation of the regulated telephone plant allocable to its
intrastate and local jurisdictions. In 2007, an error was discovered in the calculation that
resulted in the restatement of the balances for the twelve months ended December 31, 2006 and the
nine months ended September 30, 2007. See Note 2 for details regarding the restatement. The
balances at December 31, 2007 and December 31, 2006, are $65,271 and $59,905, respectively. The
Company also has a regulatory liability of $62,443 and $61,486 at December 31, 2007 and 2006,
respectively, related to accumulated removal costs for its local telephone subsidiaries. If the
Company were not following SFAS No. 71, it would have followed SFAS No. 143 for asset retirement
obligations associated with its regulated telephone plant. Non-regulated revenues and costs
incurred by the local telephone exchange operations and non-regulated operations of the Company
are not accounted for under SFAS No. 71 principles. In accordance with industry practice and
regulatory requirements, revenue generated between regulated and non-regulated group companies
are not eliminated on consolidation; these revenues totaled $38,417, $32,814, and $32,219 for the
years ended December 31, 2007, 2006 and 2005, respectively.
F-11
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The local telephone exchange activities of the Company are subject to rate regulation by the
FCC for interstate telecommunication service and the RCA for intrastate and local exchange
telecommunication service. The Company, as required by the FCC, accounts for such activity
separately. Long distance services of the Company are subject to regulation as a non-dominant
interexchange carrier by the FCC for interstate telecommunication services and the RCA for
intrastate telecommunication services. Wireless and Internet operations are not subject to rate
regulation.
Non-Operating Expense
The Company periodically evaluates the fair value of its investments and other non-operating
assets against their carrying value whenever market conditions indicate a change in that fair
value. Any changes relating to declines in the fair value of non-operating assets are charged to
non-operating expense under the caption “Other” in the Consolidated Statement of Operations.
Derivative Financial Instrument
The Company recognizes all derivatives as either assets or liabilities on the balance sheet
and measures those instruments at fair value in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its designation as a
hedge. Derivatives that are not hedges are adjusted to fair value through earnings. If a
derivative is a hedge, depending on the nature of the hedge, changes in fair value either offset
the change in fair value of the hedged assets, liabilities or firm commitments through earnings,
or are recognized in other comprehensive income until the hedged transaction is recognized in
earnings. The change in a derivative’s fair value related to the ineffective portion of a hedge,
if any, is immediately recognized in earnings. The Company does not enter into any derivative
contracts for speculative purposes. On the date a derivative contract is entered into, the
Company designates the derivative as either a fair value or cash flow hedge. The Company formally
assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items. If the Company determines that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the Company would discontinue hedge
accounting prospectively.
Dividend Policy
It
is the Company’s policy to pay dividends out of additional paid
in capital.
On March 21, June 14, September 16, and November 29, 2005, the Company’s board of directors
declared quarterly cash dividends of $0.20 per share. On February 23, 2006 the board of directors
approved an increase to the dividend of 7.5%. Dividends of $0.215 per share were declared
February 23, June 21, September 15, and December 19, 2006 and March 21, June 20, September 18,
and December 17, 2007. Dividends on the Company’s common stock are not cumulative.
Share-Based
Payments
As of July 1, 2005, the Company adopted SFAS No. 123(R), using the modified retrospective
method applied to prior interim periods in the year of initial adoption, which requires
measurement of compensation cost from January 1, 2005, for all unvested stock-based awards at
fair value on date of grant and recognition of compensation over the service period for awards
expected to vest. The fair value for
each stock option granted was estimated at the date of grant using a Black-Scholes option-pricing
model. Expected volatilities are based on historical volatilities of our common stock; the
expected life represents the weighted average period of time that options granted are expected to
be outstanding giving consideration to vesting schedules and our historical exercise patterns;
the dividend yield is based on dividend yield of the option strike price at grant date and the
risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for
periods corresponding with the expected life. The fair value of restricted stock is determined
based on the number of shares granted and the quoted price of our common stock on the date of
grant, discounted for estimated dividend payments that do not accrue to the employee during the
vesting period; and the fair value of stock options is determined using the Black-Scholes
valuation model, which is consistent with our valuation techniques previously utilized for
options in footnote disclosures. Such value is recognized as expense over the
F-12
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
service period, net of estimated forfeitures, using the straight line attribution method for
stock-based payment grants from July 1, 2005 onward and the graded vesting attribution method
for legacy stock-based payment grants.
Stock based compensation is treated as a temporary difference for income tax purposes and
increases deferred tax assets until the compensation is realized for income tax purposes. To the
extent that the realized tax benefit exceeds the book based compensation, the excess tax benefit
is credited to Additional Paid in Capital.
Accounting for Pensions
The Company accounts for pensions in accordance with FASB Statement No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans. This statement requires an
employer to recognize in its statement of financial position the over-funded or under-funded status
of a defined benefit postretirement plan measured as the difference between the fair value of a
plan’s assets and the benefit obligation. Employers must also recognize as a component of other
comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and
credits that arise during the period. The adoption of the standard,
effective December 31, 2006, had no impact as the plan is frozen.
Earnings per Share
The Company uses the treasury stock method to calculate earnings per share.
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
Restatement
The Company’s management, during the course of the Company’s 2007 annual review of financial
results and application of financial controls, identified errors in the Company’s previously
reported depreciation expense for fiscal year 2006 and the first three fiscal quarters of 2007.
Certain groups of assets employed in the Company’s intrastate operations are depreciated over
extended lives as required by state regulations, giving rise to “regulatory assets”. As the result
of an error in program logic, the Company incorrectly ceased to depreciate those regulatory assets
prior to their becoming fully depreciated. The Company’s regulatory assets and related depreciation
of the assets is governed by Statement of Financial Accounting Standards (SFAS) No. 71, Accounting
for the Effects of Certain Types of Regulation.
The Company recorded additional depreciation charges and a corresponding reduction of its
regulatory asset of $5,818 and $5,180 for the year ended December 31, 2006 and for the nine months
ended September 30, 2007, respectively. The effects of years
prior to 2006 were immaterial, hence they were included in the 2006 restatement. As part of the restatement, the Company also made the
following adjustments to its consolidated financial statements for the year ended December 31, 2006
to correct other errors identified which were not material to the financial statements individually
or in the aggregate or for any prior fiscal year: (i) the capitalization of interest expense on
funds used during construction of $658; (ii) a reduction of wireline revenue related to
non-eliminated intercompany revenue from revenue accruals included in accounts receivable that had
the effect of overstating revenues by $615, overstating wireline expense by $343, understating
wireless expense by $414 and overstating advanced billings by $26;
(iii) a $267 correction to a
wireline customer account that reduced revenue and created a refund
liability; and (iv) a $214
correction of a billing error on a wireless customer account that reduced wireless revenue and
accounts receivable.
The Company has set forth in the following tables the consolidated restated financial
statements for the fiscal year ended December 31, 2006, together with reconciling information to
the consolidated financial statements previously filed in the Company’s Annual Report on 10-K for
2006. See notes 4, 5, 8, 10, 12, 13, 16 and 22 for balances impacted by the restatement.
Effect on Taxes of Restated Financial Results
There is no difference between the gross adjustments arising out of the restatement described
herein and the net effect of such adjustments after taxes. The Company, during all restated
reporting periods, maintained a full valuation allowance against its net deferred tax assets. Thus,
any incremental change in taxable income arising out of the restatement
F-13
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
would be offset by a commensurate change in the Company’s valuation allowance against its
deferred tax assets.
Consolidated Balance Sheet Adjustments
The following is a summary of the adjustments to our previously issued consolidated balance
sheet as of December 31, 2006:
Consolidated Statements of Operations Adjustments
The following is a summary of the adjustments to our previously issued consolidated statements
of operations for the fiscal year ended December 31, 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
36,860 |
|
|
$ |
— |
|
|
$ |
36,860 |
|
Restricted cash |
|
|
1,700 |
|
|
|
— |
|
|
|
1,700 |
|
Accounts receivable-trade, net of allowance of $7,434 |
|
|
39,801 |
|
|
|
(926 |
) |
|
|
38,875 |
|
Materials and supplies |
|
|
7,977 |
|
|
|
— |
|
|
|
7,977 |
|
Prepayments and other current assets |
|
|
3,514 |
|
|
|
— |
|
|
|
3,514 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
89,852 |
|
|
|
(926 |
) |
|
|
88,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,164,450 |
|
|
|
658 |
|
|
|
1,165,108 |
|
Less: accumulated depreciation and amortization |
|
|
767,907 |
|
|
|
5,837 |
|
|
|
773,744 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
396,543 |
|
|
|
(5,179 |
) |
|
|
391,364 |
|
Goodwill |
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
9,437 |
|
|
|
— |
|
|
|
9,437 |
|
Deferred charges and other assets |
|
|
6,482 |
|
|
|
— |
|
|
|
6,482 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
562,321 |
|
|
$ |
(6,105 |
) |
|
$ |
556,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
1,025 |
|
|
$ |
— |
|
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other current liabilities |
|
|
65,249 |
|
|
|
267 |
|
|
|
65,516 |
|
Advance billings and customer deposits |
|
|
10,667 |
|
|
|
(26 |
) |
|
|
10,641 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
76,941 |
|
|
|
241 |
|
|
|
77,182 |
|
Long-term obligations, net of current portion |
|
|
437,188 |
|
|
|
— |
|
|
|
437,188 |
|
Other deferred credits and long-term liabilities |
|
|
72,881 |
|
|
|
— |
|
|
|
72,881 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
587,010 |
|
|
|
241 |
|
|
|
587,251 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized |
|
|
423 |
|
|
|
— |
|
|
|
423 |
|
Additional paid in capital |
|
|
288,055 |
|
|
|
370 |
|
|
|
288,425 |
|
Accumulated deficit |
|
|
(314,733 |
) |
|
|
(6,716 |
) |
|
|
(321,449 |
) |
Accumulated other comprehensive income |
|
|
1,566 |
|
|
|
— |
|
|
|
1,566 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
(24,689 |
) |
|
|
(6,346 |
) |
|
|
(31,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
562,321 |
|
|
$ |
(6,105 |
) |
|
$ |
556,216 |
|
|
|
|
|
|
|
|
|
|
|
F-14
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consolidated Statements of Operations Adjustments
The following is a summary of the adjustments to our previously issued consolidated statements
of operations for the fiscal year ended December 31, 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
234,233 |
|
|
$ |
(882 |
) |
|
$ |
233,351 |
|
Wireless |
|
|
115,584 |
|
|
|
(214 |
) |
|
|
115,370 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
349,817 |
|
|
|
(1,096 |
) |
|
|
348,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
172,436 |
|
|
|
(15 |
) |
|
|
172,421 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
62,022 |
|
|
|
456 |
|
|
|
62,478 |
|
Depreciation and amortization |
|
|
63,259 |
|
|
|
5,837 |
|
|
|
69,096 |
|
Loss (gain) on disposal of assets, net |
|
|
1,105 |
|
|
|
— |
|
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
298,822 |
|
|
|
6,278 |
|
|
|
305,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
50,995 |
|
|
|
(7,374 |
) |
|
|
43,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(31,103 |
) |
|
|
658 |
|
|
|
(30,445 |
) |
Loss on extinguishment of debt |
|
|
(9,650 |
) |
|
|
— |
|
|
|
(9,650 |
) |
Interest income |
|
|
1,835 |
|
|
|
— |
|
|
|
1,835 |
|
Other |
|
|
8,360 |
|
|
|
— |
|
|
|
8,360 |
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(30,558 |
) |
|
|
658 |
|
|
|
(29,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
20,437 |
|
|
|
(6,716 |
) |
|
|
13,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(443 |
) |
|
|
— |
|
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,994 |
|
|
$ |
(6,716 |
) |
|
$ |
13,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.48 |
|
|
$ |
(0.16 |
) |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.46 |
|
|
$ |
(0.15 |
) |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,045 |
|
|
|
|
|
|
|
42,045 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,387 |
|
|
|
|
|
|
|
43,387 |
|
|
|
|
|
|
|
|
|
|
|
|
F-15
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consolidated Statements of Cash Flows Adjustments
The following is a summary of the adjustments to our previously issued consolidated statements
of cash flows for the fiscal year ended December 31, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,994 |
|
|
$ |
(6,716 |
) |
|
$ |
13,278 |
|
Adjustments to reconcile net income to net cash
provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
63,259 |
|
|
|
5,837 |
|
|
|
69,096 |
|
Loss on disposal of assets, net |
|
|
1,105 |
|
|
|
— |
|
|
|
1,105 |
|
Gain on sale of long-term investments |
|
|
(6,685 |
) |
|
|
— |
|
|
|
(6,685 |
) |
Amortization of debt issuance costs and original issue discount |
|
|
5,180 |
|
|
|
— |
|
|
|
5,180 |
|
Stock-based compensation |
|
|
7,297 |
|
|
|
370 |
|
|
|
7,667 |
|
Other non-cash expenses |
|
|
234 |
|
|
|
— |
|
|
|
234 |
|
Changes in components of assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other current assets |
|
|
1,210 |
|
|
|
926 |
|
|
|
2,136 |
|
Materials and supplies |
|
|
(92 |
) |
|
|
— |
|
|
|
(92 |
) |
Accounts payable and other current liabilities |
|
|
8,556 |
|
|
|
267 |
|
|
|
8,823 |
|
Deferred charges and other assets |
|
|
3,882 |
|
|
|
(26 |
) |
|
|
3,856 |
|
Other deferred credits |
|
|
(12,774 |
) |
|
|
— |
|
|
|
(12,774 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
91,166 |
|
|
|
658 |
|
|
|
91,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in construction and capital expenditures |
|
|
(59,301 |
) |
|
|
(658 |
) |
|
|
(59,959 |
) |
Change in unsettled construction and capital expenditures |
|
|
(915 |
) |
|
|
— |
|
|
|
(915 |
) |
Purchase of short-term investments |
|
|
(57,500 |
) |
|
|
— |
|
|
|
(57,500 |
) |
Proceeds from sale of short-term investments |
|
|
68,025 |
|
|
|
— |
|
|
|
68,025 |
|
Proceeds from sale of long-term investments |
|
|
7,663 |
|
|
|
— |
|
|
|
7,663 |
|
Release of funds from escrow account |
|
|
2,715 |
|
|
|
— |
|
|
|
2,715 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(39,313 |
) |
|
|
(658 |
) |
|
|
(39,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(61,860 |
) |
|
|
— |
|
|
|
(61,860 |
) |
Proceeds from the issuance of long-term debt |
|
|
52,900 |
|
|
|
— |
|
|
|
52,900 |
|
Debt issuance costs |
|
|
(1,349 |
) |
|
|
— |
|
|
|
(1,349 |
) |
Payment of cash dividend on common stock |
|
|
(35,475 |
) |
|
|
— |
|
|
|
(35,475 |
) |
Payment of withholding taxes on stock-based compensation |
|
|
(872 |
) |
|
|
— |
|
|
|
(872 |
) |
Proceeds from the issuance of common stock |
|
|
2,786 |
|
|
|
— |
|
|
|
2,786 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(43,870 |
) |
|
|
— |
|
|
|
(43,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
7,983 |
|
|
|
— |
|
|
|
7,983 |
|
| |
Cash and cash equivalents, beginning of period |
|
|
28,877 |
|
|
|
— |
|
|
|
28,877 |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents, end of period |
|
$ |
36,860 |
|
|
$ |
— |
|
|
$ |
36,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
31,280 |
|
|
$ |
— |
|
|
$ |
31,280 |
|
Income taxes paid |
|
$ |
264 |
|
|
$ |
— |
|
|
$ |
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Noncash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases |
|
$ |
60 |
|
|
$ |
— |
|
|
$ |
60 |
|
Dividend declared, but not paid |
|
$ |
9,105 |
|
|
$ |
— |
|
|
$ |
9,105 |
|
F-16
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present unaudited financial information for each quarter within the two
most recent years. Included herein is restated financial information for interim periods of 2007
and 2006 consistent with Article 10 of Regulation S-X. As a result, the quarterly data presented
herein does not agree to previously issued quarterly statements covering periods beginning on or
after January 1, 2006.
The Company believes that all necessary adjustments have been included in the amounts stated
below to present fairly the following quarterly results when read in conjunction with the financial
statements included elsewhere in this report. Results of operations for any particular quarter are
not necessarily indicative of results of operations for a full fiscal year.
The adjusted balances are primarily the result of the Company restatement of depreciation
expense of $1,148, $2,227 and $1,805 in the quarters ended March 31, June 30 and September 30, 2007
and $863, $1,394, $1,774 and $1,787 for the four quarterly periods ended March 31, June 30,
September 30 and December 31, 2006, respectively. In addition, as part of the restatement, the
Company also made adjustments to the four interim periods in 2006 and the first three interim
periods in 2007 to correct errors identified which were not material to the financial statements
for the respective periods, either individually or in the aggregate. Adjustments increasing net
income included: (i) the recording of additional wireline access revenue of $1,220, $961 and $934
in the quarters ended March 31, June 30 and September 30, 2007, respectively. The adjustment was
made pursuant to a true up of cost studies performed at year end using actual results rather than
preliminary budget information used during the year; (ii) The capitalization of interest expense on
funds used during construction of $163, $197 and $265 in the quarters ended March 31, June 30
and September 30, 2007 and $173, $146, $159 and $180 for the four quarterly periods ended March 31,
June 30, September 30 and December 31, 2006, respectively. The Company also recorded a reduction of
wireline revenue related to non-eliminated intercompany revenue from revenue accruals included in
Accounts receivable that had the effect of overstating quarterly revenues by $65, $174 and $207 in
the quarters ended March 31, June 30, September 30, 2007 and $407, $200, $229 and ($221) for the
four quarterly periods ended March 31, June 30, September 30 and December 31, 2006, respectively.
F-17
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a reconciliation of the effects of adjustments made to the
Company’s previously reported interim balance sheets for 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Reconciliation of Unaudited Consolidated Balance Sheets for Interim Periods |
|
| |
|
(in thousands) |
|
| |
|
March 31, 2007 |
|
|
June 30, 2007 |
|
|
September 30, 2007 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35,686 |
|
|
$ |
— |
|
|
$ |
35,686 |
|
|
$ |
38,275 |
|
|
$ |
(1,323 |
) |
|
$ |
36,952 |
|
|
$ |
41,765 |
|
|
$ |
— |
|
|
$ |
41,765 |
|
Restricted cash |
|
|
2,081 |
|
|
|
— |
|
|
|
2,081 |
|
|
|
2,559 |
|
|
|
— |
|
|
|
2,559 |
|
|
|
2,559 |
|
|
|
— |
|
|
|
2,559 |
|
Short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,323 |
|
|
|
1,323 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Accounts receivable-trade, net of allowance |
|
|
36,071 |
|
|
|
(1,149 |
) |
|
|
34,922 |
|
|
|
40,188 |
|
|
|
(912 |
) |
|
|
39,276 |
|
|
|
39,750 |
|
|
|
(1,121 |
) |
|
|
38,629 |
|
Materials and supplies |
|
|
9,325 |
|
|
|
— |
|
|
|
9,325 |
|
|
|
10,073 |
|
|
|
— |
|
|
|
10,073 |
|
|
|
9,835 |
|
|
|
— |
|
|
|
9,835 |
|
Prepayments and other current assets |
|
|
3,456 |
|
|
|
— |
|
|
|
3,456 |
|
|
|
4,176 |
|
|
|
— |
|
|
|
4,176 |
|
|
|
4,270 |
|
|
|
— |
|
|
|
4,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
86,619 |
|
|
|
(1,149 |
) |
|
|
85,470 |
|
|
|
95,271 |
|
|
|
(912 |
) |
|
|
94,359 |
|
|
|
98,179 |
|
|
|
(1,121 |
) |
|
|
97,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,172,904 |
|
|
|
821 |
|
|
|
1,173,725 |
|
|
|
1,184,583 |
|
|
|
1,018 |
|
|
|
1,185,601 |
|
|
|
1,196,228 |
|
|
|
1,283 |
|
|
|
1,197,511 |
|
Less: accumulated depreciation and amortization |
|
|
(782,163 |
) |
|
|
(6,994 |
) |
|
|
(789,157 |
) |
|
|
(796,559 |
) |
|
|
(9,232 |
) |
|
|
(805,791 |
) |
|
|
(807,920 |
) |
|
|
(11,053 |
) |
|
|
(818,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
390,741 |
|
|
|
(6,173 |
) |
|
|
384,568 |
|
|
|
388,024 |
|
|
|
(8,214 |
) |
|
|
379,810 |
|
|
|
388,308 |
|
|
|
(9,770 |
) |
|
|
378,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
8,968 |
|
|
|
— |
|
|
|
8,968 |
|
|
|
8,408 |
|
|
|
— |
|
|
|
8,408 |
|
|
|
7,934 |
|
|
|
— |
|
|
|
7,934 |
|
Deferred charges and other assets |
|
|
4,698 |
|
|
|
— |
|
|
|
4,698 |
|
|
|
9,885 |
|
|
|
— |
|
|
|
9,885 |
|
|
|
2,705 |
|
|
|
— |
|
|
|
2,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
551,033 |
|
|
$ |
(7,322 |
) |
|
$ |
543,711 |
|
|
$ |
561,595 |
|
|
$ |
(9,126 |
) |
|
$ |
552,469 |
|
|
$ |
557,133 |
|
|
$ |
(10,891 |
) |
|
$ |
546,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
1,013 |
|
|
$ |
— |
|
|
$ |
1,013 |
|
|
$ |
4,961 |
|
|
$ |
— |
|
|
$ |
4,961 |
|
|
$ |
957 |
|
|
$ |
— |
|
|
$ |
957 |
|
Accounts payable, accrued and other current liabilities |
|
|
56,656 |
|
|
|
(819 |
) |
|
|
55,837 |
|
|
|
61,782 |
|
|
|
(1,646 |
) |
|
|
60,136 |
|
|
|
63,575 |
|
|
|
(2,796 |
) |
|
|
60,779 |
|
Advance billings and customer deposits |
|
|
9,703 |
|
|
|
(77 |
) |
|
|
9,626 |
|
|
|
9,966 |
|
|
|
(78 |
) |
|
|
9,888 |
|
|
|
9,905 |
|
|
|
(82 |
) |
|
|
9,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
67,372 |
|
|
|
(896 |
) |
|
|
66,476 |
|
|
|
76,709 |
|
|
|
(1,724 |
) |
|
|
74,985 |
|
|
|
74,437 |
|
|
|
(2,878 |
) |
|
|
71,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
436,837 |
|
|
|
— |
|
|
|
436,837 |
|
|
|
432,680 |
|
|
|
— |
|
|
|
432,680 |
|
|
|
432,497 |
|
|
|
(212 |
) |
|
|
432,285 |
|
Other deferred credits and long-term liabilities |
|
|
75,770 |
|
|
|
(52 |
) |
|
|
75,718 |
|
|
|
74,730 |
|
|
|
— |
|
|
|
74,730 |
|
|
|
78,463 |
|
|
|
— |
|
|
|
78,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
579,979 |
|
|
|
(948 |
) |
|
|
579,031 |
|
|
|
584,119 |
|
|
|
(1,724 |
) |
|
|
582,395 |
|
|
|
585,397 |
|
|
|
(3,090 |
) |
|
|
582,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized |
|
|
427 |
|
|
|
— |
|
|
|
427 |
|
|
|
428 |
|
|
|
— |
|
|
|
428 |
|
|
|
428 |
|
|
|
— |
|
|
|
428 |
|
Additional paid in capital |
|
|
278,884 |
|
|
|
97 |
|
|
|
278,981 |
|
|
|
279,279 |
|
|
|
(7,069 |
) |
|
|
272,210 |
|
|
|
274,147 |
|
|
|
(9,215 |
) |
|
|
264,932 |
|
Accumulated deficit |
|
|
(307,538 |
) |
|
|
(6,599 |
) |
|
|
(314,137 |
) |
|
|
(307,635 |
) |
|
|
(333 |
) |
|
|
(307,968 |
) |
|
|
(299,082 |
) |
|
|
1,414 |
|
|
|
(297,668 |
) |
Accumulated other comprehensive (loss) income |
|
|
(719 |
) |
|
|
128 |
|
|
|
(591 |
) |
|
|
5,404 |
|
|
|
— |
|
|
|
5,404 |
|
|
|
(3,757 |
) |
|
|
— |
|
|
|
(3,757 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
(28,946 |
) |
|
|
(6,374 |
) |
|
|
(35,320 |
) |
|
|
(22,524 |
) |
|
|
(7,402 |
) |
|
|
(29,926 |
) |
|
|
(28,264 |
) |
|
|
(7,801 |
) |
|
|
(36,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
551,033 |
|
|
$ |
(7,322 |
) |
|
$ |
543,711 |
|
|
$ |
561,595 |
|
|
$ |
(9,126 |
) |
|
$ |
552,469 |
|
|
$ |
557,133 |
|
|
$ |
(10,891 |
) |
|
$ |
546,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a reconciliation of the effects of adjustments made to the
Company’s previously reported interim balance sheets for 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Reconciliation of Unaudited Consolidated Balance Sheets for Interim Periods |
|
| |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
| |
|
March 31, 2006 |
|
|
June 30, 2006 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
18,679 |
|
|
$ |
— |
|
|
$ |
18,679 |
|
|
$ |
32,123 |
|
|
$ |
— |
|
|
$ |
32,123 |
|
Restricted cash |
|
|
4,415 |
|
|
|
— |
|
|
|
4,415 |
|
|
|
3,450 |
|
|
|
— |
|
|
|
3,450 |
|
Short-term investments |
|
|
2,000 |
|
|
|
— |
|
|
|
2,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Accounts receivable-trade, net of allowance |
|
|
36,135 |
|
|
|
(340 |
) |
|
|
35,795 |
|
|
|
38,289 |
|
|
|
(715 |
) |
|
|
37,574 |
|
Materials and supplies |
|
|
8,263 |
|
|
|
— |
|
|
|
8,263 |
|
|
|
10,318 |
|
|
|
— |
|
|
|
10,318 |
|
Prepayments and other current assets |
|
|
3,597 |
|
|
|
— |
|
|
|
3,597 |
|
|
|
4,347 |
|
|
|
— |
|
|
|
4,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
73,089 |
|
|
|
(340 |
) |
|
|
72,749 |
|
|
|
88,527 |
|
|
|
(715 |
) |
|
|
87,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,118,905 |
|
|
|
172 |
|
|
|
1,119,077 |
|
|
|
1,128,700 |
|
|
|
318 |
|
|
|
1,129,018 |
|
Less: accumulated depreciation and amortization |
|
|
(729,366 |
) |
|
|
(865 |
) |
|
|
(730,231 |
) |
|
|
(742,442 |
) |
|
|
(2,262 |
) |
|
|
(744,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
389,539 |
|
|
|
(693 |
) |
|
|
388,846 |
|
|
|
386,258 |
|
|
|
(1,944 |
) |
|
|
384,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,650 |
|
|
|
— |
|
|
|
21,650 |
|
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
10,869 |
|
|
|
— |
|
|
|
10,869 |
|
|
|
10,395 |
|
|
|
— |
|
|
|
10,395 |
|
Deferred charges and other assets |
|
|
16,507 |
|
|
|
— |
|
|
|
16,507 |
|
|
|
20,059 |
|
|
|
— |
|
|
|
20,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
550,057 |
|
|
$ |
(1,033 |
) |
|
$ |
549,024 |
|
|
$ |
565,246 |
|
|
$ |
(2,659 |
) |
|
$ |
562,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
985 |
|
|
$ |
— |
|
|
$ |
985 |
|
|
$ |
1,003 |
|
|
$ |
— |
|
|
$ |
1,003 |
|
Accounts payable, accrued and other current liabilities |
|
|
50,717 |
|
|
|
232 |
|
|
|
50,949 |
|
|
|
53,970 |
|
|
|
244 |
|
|
|
54,214 |
|
Advance billings and customer deposits |
|
|
9,598 |
|
|
|
(112 |
) |
|
|
9,486 |
|
|
|
9,735 |
|
|
|
(125 |
) |
|
|
9,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
61,300 |
|
|
|
120 |
|
|
|
61,420 |
|
|
|
64,708 |
|
|
|
119 |
|
|
|
64,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
437,744 |
|
|
|
— |
|
|
|
437,744 |
|
|
|
437,538 |
|
|
|
— |
|
|
|
437,538 |
|
Other deferred credits and long-term liabilities |
|
|
80,181 |
|
|
|
— |
|
|
|
80,181 |
|
|
|
80,411 |
|
|
|
— |
|
|
|
80,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
579,225 |
|
|
|
120 |
|
|
|
579,345 |
|
|
|
582,657 |
|
|
|
119 |
|
|
|
582,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
(deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized |
|
|
465 |
|
|
|
— |
|
|
|
465 |
|
|
|
466 |
|
|
|
— |
|
|
|
466 |
|
Treasury stock, 4,549 shares at cost |
|
|
(18,443 |
) |
|
|
— |
|
|
|
(18,443 |
) |
|
|
(18,443 |
) |
|
|
— |
|
|
|
(18,443 |
) |
Additional paid in capital |
|
|
325,938 |
|
|
|
— |
|
|
|
325,938 |
|
|
|
319,088 |
|
|
|
— |
|
|
|
319,088 |
|
Accumulated deficit |
|
|
(343,099 |
) |
|
|
(1,153 |
) |
|
|
(344,252 |
) |
|
|
(329,593 |
) |
|
|
(2,778 |
) |
|
|
(332,371 |
) |
Accumulated other comprehensive income |
|
|
5,971 |
|
|
|
— |
|
|
|
5,971 |
|
|
|
11,071 |
|
|
|
— |
|
|
|
11,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
(29,168 |
) |
|
|
(1,153 |
) |
|
|
(30,321 |
) |
|
|
(17,411 |
) |
|
|
(2,778 |
) |
|
|
(20,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
550,057 |
|
|
$ |
(1,033 |
) |
|
$ |
549,024 |
|
|
$ |
565,246 |
|
|
$ |
(2,659 |
) |
|
$ |
562,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Reconciliation of Consolidated Balance Sheets for Interim Periods |
|
| |
|
(in thousands) |
|
| |
|
Unaudited |
|
|
Audited |
|
| |
|
September 30, 2006 |
|
|
December 31, 2006 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
38,242 |
|
|
$ |
— |
|
|
$ |
38,242 |
|
|
$ |
36,860 |
|
|
$ |
— |
|
|
$ |
36,860 |
|
Restricted cash |
|
|
1,700 |
|
|
|
— |
|
|
|
1,700 |
|
|
|
1,700 |
|
|
|
— |
|
|
|
1,700 |
|
Accounts receivable-trade, net of allowance |
|
|
40,679 |
|
|
|
(1,093 |
) |
|
|
39,586 |
|
|
|
39,801 |
|
|
|
(926 |
) |
|
|
38,875 |
|
Materials and supplies |
|
|
9,534 |
|
|
|
— |
|
|
|
9,534 |
|
|
|
7,977 |
|
|
|
— |
|
|
|
7,977 |
|
Prepayments and other current assets |
|
|
3,941 |
|
|
|
— |
|
|
|
3,941 |
|
|
|
3,514 |
|
|
|
— |
|
|
|
3,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
94,096 |
|
|
|
(1,093 |
) |
|
|
93,003 |
|
|
|
89,852 |
|
|
|
(926 |
) |
|
|
88,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,145,850 |
|
|
|
477 |
|
|
|
1,146,327 |
|
|
|
1,164,450 |
|
|
|
658 |
|
|
|
1,165,108 |
|
Less: accumulated depreciation and amortization |
|
|
(755,027 |
) |
|
|
(4,042 |
) |
|
|
(759,069 |
) |
|
|
(767,907 |
) |
|
|
(5,837 |
) |
|
|
(773,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
390,823 |
|
|
|
(3,565 |
) |
|
|
387,258 |
|
|
|
396,543 |
|
|
|
(5,179 |
) |
|
|
391,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
|
|
38,403 |
|
|
|
— |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
|
|
21,604 |
|
|
|
— |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
9,916 |
|
|
|
— |
|
|
|
9,916 |
|
|
|
9,437 |
|
|
|
— |
|
|
|
9,437 |
|
Deferred charges and other assets |
|
|
10,765 |
|
|
|
— |
|
|
|
10,765 |
|
|
|
6,482 |
|
|
|
— |
|
|
|
6,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
565,607 |
|
|
$ |
(4,658 |
) |
|
$ |
560,949 |
|
|
$ |
562,321 |
|
|
$ |
(6,105 |
) |
|
$ |
556,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
1,024 |
|
|
$ |
— |
|
|
$ |
1,024 |
|
|
$ |
1,025 |
|
|
$ |
— |
|
|
$ |
1,025 |
|
Accounts payable, accrued and other current liabilities |
|
|
56,603 |
|
|
|
256 |
|
|
|
56,859 |
|
|
|
65,249 |
|
|
|
267 |
|
|
|
65,516 |
|
Advance billings and customer deposits |
|
|
10,331 |
|
|
|
(127 |
) |
|
|
10,204 |
|
|
|
10,667 |
|
|
|
(26 |
) |
|
|
10,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
67,958 |
|
|
|
129 |
|
|
|
68,087 |
|
|
|
76,941 |
|
|
|
241 |
|
|
|
77,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
437,326 |
|
|
|
— |
|
|
|
437,326 |
|
|
|
437,188 |
|
|
|
— |
|
|
|
437,188 |
|
Other deferred credits and long-term liabilities |
|
|
85,550 |
|
|
|
— |
|
|
|
85,550 |
|
|
|
72,881 |
|
|
|
— |
|
|
|
72,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
590,834 |
|
|
|
129 |
|
|
|
590,963 |
|
|
|
587,010 |
|
|
|
241 |
|
|
|
587,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized |
|
|
467 |
|
|
|
— |
|
|
|
467 |
|
|
|
423 |
|
|
|
— |
|
|
|
423 |
|
Treasury stock, 4,549 shares at cost |
|
|
(18,443 |
) |
|
|
— |
|
|
|
(18,443 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Additional paid in capital |
|
|
312,395 |
|
|
|
— |
|
|
|
312,395 |
|
|
|
288,055 |
|
|
|
370 |
|
|
|
288,425 |
|
Accumulated deficit |
|
|
(320,873 |
) |
|
|
(4,787 |
) |
|
|
(325,660 |
) |
|
|
(314,733 |
) |
|
|
(6,716 |
) |
|
|
(321,449 |
) |
Accumulated other comprehensive income |
|
|
1,227 |
|
|
|
— |
|
|
|
1,227 |
|
|
|
1,566 |
|
|
|
— |
|
|
|
1,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit) |
|
|
(25,227 |
) |
|
|
(4,787 |
) |
|
|
(30,014 |
) |
|
|
(24,689 |
) |
|
|
(6,346 |
) |
|
|
(31,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit) |
|
$ |
565,607 |
|
|
$ |
(4,658 |
) |
|
$ |
560,949 |
|
|
$ |
562,321 |
|
|
$ |
(6,105 |
) |
|
$ |
556,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a reconciliation of the effects of adjustments made to the
Company’s previously reported quarterly consolidated statements of operations for interim periods
in 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months ended |
|
| |
|
March 31, 2007 |
|
|
June 30, 2007 |
|
|
September 30, 2007 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
58,831 |
|
|
$ |
1,137 |
|
|
$ |
59,968 |
|
|
$ |
59,906 |
|
|
$ |
968 |
|
|
$ |
60,874 |
|
|
$ |
62,672 |
|
|
$ |
723 |
|
|
$ |
63,395 |
|
Wireless |
|
|
31,742 |
|
|
|
(87 |
) |
|
|
31,655 |
|
|
|
33,326 |
|
|
|
301 |
|
|
|
33,627 |
|
|
|
37,159 |
|
|
|
— |
|
|
|
37,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
90,573 |
|
|
|
1,050 |
|
|
|
91,623 |
|
|
|
93,232 |
|
|
|
1,269 |
|
|
|
94,501 |
|
|
|
99,831 |
|
|
|
723 |
|
|
|
100,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
43,849 |
|
|
|
294 |
|
|
|
44,143 |
|
|
|
44,516 |
|
|
|
27 |
|
|
|
44,543 |
|
|
|
45,801 |
|
|
|
(501 |
) |
|
|
45,300 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
15,860 |
|
|
|
15 |
|
|
|
15,875 |
|
|
|
17,839 |
|
|
|
101 |
|
|
|
17,940 |
|
|
|
19,695 |
|
|
|
68 |
|
|
|
19,763 |
|
Depreciation and amortization |
|
|
16,288 |
|
|
|
1,157 |
|
|
|
17,445 |
|
|
|
16,408 |
|
|
|
2,238 |
|
|
|
18,646 |
|
|
|
15,672 |
|
|
|
1,820 |
|
|
|
17,492 |
|
Loss (gain) on disposal of assets, net |
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
|
|
113 |
|
|
|
— |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
76,000 |
|
|
|
1,466 |
|
|
|
77,466 |
|
|
|
78,784 |
|
|
|
2,366 |
|
|
|
81,150 |
|
|
|
81,281 |
|
|
|
1,387 |
|
|
|
82,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,573 |
|
|
|
(416 |
) |
|
|
14,157 |
|
|
|
14,448 |
|
|
|
(1,097 |
) |
|
|
13,351 |
|
|
|
18,550 |
|
|
|
(664 |
) |
|
|
17,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(7,610 |
) |
|
|
163 |
|
|
|
(7,447 |
) |
|
|
(7,715 |
) |
|
|
197 |
|
|
|
(7,518 |
) |
|
|
(7,739 |
) |
|
|
265 |
|
|
|
(7,474 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(355 |
) |
|
|
— |
|
|
|
(355 |
) |
Interest income |
|
|
529 |
|
|
|
— |
|
|
|
529 |
|
|
|
506 |
|
|
|
— |
|
|
|
506 |
|
|
|
485 |
|
|
|
— |
|
|
|
485 |
|
Other |
|
|
80 |
|
|
|
— |
|
|
|
80 |
|
|
|
(72 |
) |
|
|
— |
|
|
|
(72 |
) |
|
|
(72 |
) |
|
|
— |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(7,001 |
) |
|
|
163 |
|
|
|
(6,838 |
) |
|
|
(7,281 |
) |
|
|
197 |
|
|
|
(7,084 |
) |
|
|
(7,681 |
) |
|
|
265 |
|
|
|
(7,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
7,572 |
|
|
|
(253 |
) |
|
|
7,319 |
|
|
|
7,167 |
|
|
|
(900 |
) |
|
|
6,267 |
|
|
|
10,869 |
|
|
|
(399 |
) |
|
|
10,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(7 |
) |
|
|
— |
|
|
|
(7 |
) |
|
|
(98 |
) |
|
|
— |
|
|
|
(98 |
) |
|
|
(170 |
) |
|
|
— |
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,565 |
|
|
$ |
(253 |
) |
|
$ |
7,312 |
|
|
$ |
7,069 |
|
|
$ |
(900 |
) |
|
$ |
6,169 |
|
|
$ |
10,699 |
|
|
$ |
(399 |
) |
|
$ |
10,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.18 |
|
|
$ |
(0.01 |
) |
|
$ |
0.17 |
|
|
$ |
0.17 |
|
|
$ |
(0.02 |
) |
|
$ |
0.14 |
|
|
$ |
0.25 |
|
|
$ |
(0.01 |
) |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.17 |
|
|
$ |
(0.01 |
) |
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
$ |
(0.02 |
) |
|
$ |
0.14 |
|
|
$ |
0.24 |
|
|
$ |
(0.01 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,384 |
|
|
|
|
|
|
|
42,384 |
|
|
|
42,747 |
|
|
|
|
|
|
|
42,747 |
|
|
|
42,812 |
|
|
|
|
|
|
|
42,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,876 |
|
|
|
|
|
|
|
43,876 |
|
|
|
44,145 |
|
|
|
|
|
|
|
44,145 |
|
|
|
44,159 |
|
|
|
|
|
|
|
44,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a reconciliation of the effects of adjustments made to the
Company’s previously reported quarterly consolidated statements of operations for interim periods
in 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months ended |
|
| |
|
March 31, 2006 |
|
|
June 30, 2006 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
58,134 |
|
|
$ |
(890 |
) |
|
$ |
57,244 |
|
|
$ |
58,125 |
|
|
$ |
39 |
|
|
$ |
58,164 |
|
Wireless |
|
|
24,508 |
|
|
|
— |
|
|
|
24,508 |
|
|
|
26,946 |
|
|
|
(47 |
) |
|
|
26,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
82,642 |
|
|
|
(890 |
) |
|
|
81,752 |
|
|
|
85,071 |
|
|
|
(8 |
) |
|
|
85,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
42,105 |
|
|
|
(668 |
) |
|
|
41,437 |
|
|
|
41,537 |
|
|
|
232 |
|
|
|
41,769 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
13,814 |
|
|
|
239 |
|
|
|
14,053 |
|
|
|
14,931 |
|
|
|
134 |
|
|
|
15,065 |
|
Depreciation and amortization |
|
|
17,097 |
|
|
|
865 |
|
|
|
17,962 |
|
|
|
16,034 |
|
|
|
1,397 |
|
|
|
17,431 |
|
Loss (gain) on disposal of assets, net |
|
|
722 |
|
|
|
— |
|
|
|
722 |
|
|
|
383 |
|
|
|
— |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
73,738 |
|
|
|
436 |
|
|
|
74,174 |
|
|
|
72,885 |
|
|
|
1,763 |
|
|
|
74,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
8,904 |
|
|
|
(1,326 |
) |
|
|
7,578 |
|
|
|
12,186 |
|
|
|
(1,771 |
) |
|
|
10,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(7,974 |
) |
|
|
173 |
|
|
|
(7,801 |
) |
|
|
(7,643 |
) |
|
|
146 |
|
|
|
(7,497 |
) |
Loss on extinguishment of debt |
|
|
(9,650 |
) |
|
|
— |
|
|
|
(9,650 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest income |
|
|
392 |
|
|
|
— |
|
|
|
392 |
|
|
|
402 |
|
|
|
— |
|
|
|
402 |
|
Other |
|
|
(44 |
) |
|
|
— |
|
|
|
(44 |
) |
|
|
8,561 |
|
|
|
— |
|
|
|
8,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(17,276 |
) |
|
|
173 |
|
|
|
(17,103 |
) |
|
|
1,320 |
|
|
|
146 |
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
(8,372 |
) |
|
|
(1,153 |
) |
|
|
(9,525 |
) |
|
|
13,506 |
|
|
|
(1,625 |
) |
|
|
11,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,372 |
) |
|
$ |
(1,153 |
) |
|
$ |
(9,525 |
) |
|
$ |
13,506 |
|
|
$ |
(1,625 |
) |
|
$ |
11,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.20 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.23 |
) |
|
$ |
0.32 |
|
|
$ |
(0.04 |
) |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.23 |
) |
|
$ |
0.31 |
|
|
$ |
(0.04 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
41,790 |
|
|
|
|
|
|
|
41,790 |
|
|
|
41,989 |
|
|
|
|
|
|
|
41,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
41,790 |
|
|
|
|
|
|
|
41,790 |
|
|
|
43,342 |
|
|
|
|
|
|
|
43,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months ended |
|
| |
|
September 30, 2006 |
|
|
December 31, 2006 |
|
| |
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
58,935 |
|
|
$ |
(241 |
) |
|
$ |
58,694 |
|
|
$ |
59,039 |
|
|
$ |
210 |
|
|
$ |
59,249 |
|
Wireless |
|
|
31,441 |
|
|
|
(83 |
) |
|
|
31,358 |
|
|
|
32,689 |
|
|
|
(84 |
) |
|
|
32,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
90,376 |
|
|
|
(324 |
) |
|
|
90,052 |
|
|
|
91,728 |
|
|
|
126 |
|
|
|
91,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and amortization) |
|
|
43,147 |
|
|
|
(98 |
) |
|
|
43,049 |
|
|
|
45,647 |
|
|
|
519 |
|
|
|
46,166 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
16,667 |
|
|
|
162 |
|
|
|
16,829 |
|
|
|
16,610 |
|
|
|
(79 |
) |
|
|
16,531 |
|
Depreciation and amortization |
|
|
14,538 |
|
|
|
1,780 |
|
|
|
16,318 |
|
|
|
15,590 |
|
|
|
1,795 |
|
|
|
17,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
74,352 |
|
|
|
1,844 |
|
|
|
76,196 |
|
|
|
77,847 |
|
|
|
2,235 |
|
|
|
80,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
16,024 |
|
|
|
(2,168 |
) |
|
|
13,856 |
|
|
|
13,881 |
|
|
|
(2,109 |
) |
|
|
11,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(7,722 |
) |
|
|
159 |
|
|
|
(7,563 |
) |
|
|
(7,764 |
) |
|
|
180 |
|
|
|
(7,584 |
) |
Interest income |
|
|
492 |
|
|
|
— |
|
|
|
492 |
|
|
|
549 |
|
|
|
— |
|
|
|
549 |
|
Other |
|
|
(74 |
) |
|
|
— |
|
|
|
(74 |
) |
|
|
(83 |
) |
|
|
— |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(7,304 |
) |
|
|
159 |
|
|
|
(7,145 |
) |
|
|
(7,298 |
) |
|
|
180 |
|
|
|
(7,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
8,720 |
|
|
|
(2,009 |
) |
|
|
6,711 |
|
|
|
6,583 |
|
|
|
(1,929 |
) |
|
|
4,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(443 |
) |
|
|
— |
|
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,720 |
|
|
$ |
(2,009 |
) |
|
$ |
6,711 |
|
|
$ |
6,140 |
|
|
$ |
(1,929 |
) |
|
$ |
4,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.21 |
|
|
$ |
(0.05 |
) |
|
$ |
0.16 |
|
|
$ |
0.15 |
|
|
$ |
(0.05 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.20 |
|
|
$ |
(0.05 |
) |
|
$ |
0.15 |
|
|
$ |
0.14 |
|
|
$ |
(0.04 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,143 |
|
|
|
|
|
|
|
42,143 |
|
|
|
42,249 |
|
|
|
|
|
|
|
42,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,541 |
|
|
|
|
|
|
|
43,541 |
|
|
|
43,820 |
|
|
|
|
|
|
|
43,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Components of accumulated other comprehensive income (loss) was comprised of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Minimum pension liability adjustment (1) |
|
|
(2,855 |
) |
|
|
(4,188 |
) |
|
|
(4,422 |
) |
Tax effect of pension liability (2) |
|
|
1,174 |
|
|
|
— |
|
|
|
— |
|
Interest rate swap marked to market |
|
|
(9,179 |
) |
|
|
5,754 |
|
|
|
4,744 |
|
Tax effect of interest rate swap (2) |
|
|
3,773 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total
accumulated other comprehensive income (loss) |
|
$ |
(7,087 |
) |
|
$ |
1,566 |
|
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Balance is pursuant to the Company’s December 31, 2006, adoption of SFAS No.
158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. |
| |
| (2) |
|
Tax effect is recorded pursuant to the 2007 release of the Tax Valuation
Allowance. See Note 12 — Income Taxes. |
F-23
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
3. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)
Components of other comprehensive income (loss) were comprised of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Minimum pension liability adjustment |
|
|
1,333 |
|
|
|
234 |
|
|
|
109 |
|
Tax effect of pension liability |
|
|
1,174 |
|
|
|
— |
|
|
|
— |
|
Interest rate swap marked to market |
|
|
(14,933 |
) |
|
|
1,010 |
|
|
|
4,744 |
|
Tax effect of interest rate swap |
|
|
3,773 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(8,653 |
) |
|
$ |
1,244 |
|
|
$ |
4,853 |
|
|
|
|
|
|
|
|
|
|
|
4. ACCOUNTS RECEIVABLE
Accounts receivable — trade consists of the following at December 31, 2007 and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
| |
|
2007 |
|
|
2006 |
|
Customers |
|
$ |
34,277 |
|
|
$ |
33,337 |
|
Connecting companies |
|
|
6,901 |
|
|
|
8,691 |
|
Other |
|
|
6,740 |
|
|
|
4,281 |
|
|
|
|
|
|
|
|
|
|
|
47,918 |
|
|
|
46,309 |
|
Less: allowance for doubtful accounts |
|
|
(8,768 |
) |
|
|
(7,434 |
) |
|
|
|
|
|
|
|
Accounts receivable — trade, net |
|
$ |
39,150 |
|
|
$ |
38,875 |
|
|
|
|
|
|
|
|
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 2007 and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
| |
|
2007 |
|
|
2006 |
|
Land, buildings and support assets |
|
$ |
204,858 |
|
|
$ |
206,511 |
|
Central office switching and transmission |
|
|
332,528 |
|
|
|
316,204 |
|
Outside plant cable and wire facilities |
|
|
524,925 |
|
|
|
515,345 |
|
Wireless switching and transmission |
|
|
98,151 |
|
|
|
88,828 |
|
Other |
|
|
6,022 |
|
|
|
4,298 |
|
Construction work in progress |
|
|
42,773 |
|
|
|
33,922 |
|
|
|
|
|
|
|
|
|
|
|
1,209,257 |
|
|
|
1,165,108 |
|
Less: accumulated depreciation and amortization |
|
|
(825,663 |
) |
|
|
(773,744 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
383,594 |
|
|
$ |
391,364 |
|
|
|
|
|
|
|
|
F-24
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
5. PROPERTY, PLANT AND EQUIPMENT (Continued)
The following is a summary of property held under capital leases included in the above
property, plant and equipment:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Land, buildings and support assets |
|
$ |
9,297 |
|
|
$ |
14,568 |
|
Outside plant cable and wire facilities |
|
|
2,115 |
|
|
|
2,115 |
|
|
|
|
|
|
|
|
|
|
|
11,412 |
|
|
|
16,683 |
|
Less: accumulated depreciation and amortization |
|
|
(6,546 |
) |
|
|
(9,023 |
) |
|
|
|
|
|
|
|
Property held under capital leases, net |
|
$ |
4,866 |
|
|
$ |
7,660 |
|
|
|
|
|
|
|
|
Amortization of assets under capital leases included in depreciation expense in 2007, 2006 and
2005 was $1,189, $1,053, and $1,052, respectively. Future minimum payments under these leases for
the next five years and thereafter are as follows:
| |
|
|
|
|
2008 |
|
$ |
1,276 |
|
2009 |
|
|
1,048 |
|
2010 |
|
|
1,048 |
|
2011 |
|
|
1,046 |
|
2012 |
|
|
1,033 |
|
Thereafter |
|
|
2,014 |
|
|
|
|
|
|
|
$ |
7,465 |
|
|
|
|
|
The Company leases various land, buildings, right-of-ways and personal property under
operating lease agreements. Rental expense under operating leases for 2007, 2006 and 2005 was
$6,135, $4,725, and $3,248, respectively.
Future minimum payments under these leases for the next five years and thereafter are as
follows:
| |
|
|
|
|
2008 |
|
$ |
6,061 |
|
2009 |
|
|
5,486 |
|
2010 |
|
|
4,884 |
|
2011 |
|
|
3,756 |
|
2012 |
|
|
3,264 |
|
Thereafter |
|
|
32,980 |
|
|
|
|
|
|
|
$ |
56,431 |
|
|
|
|
|
6. ASSET RETIREMENT
In March 2005, the FASB issued FASB Interpretation FIN No. 47, Accounting for Conditional
Asset Retirement Obligations. FIN No. 47 became effective for the Company on December 31, 2005, and
requires it to recognize asset retirement obligations which are
conditional on a future event. Uncertainty about the timing or settlement of the obligation is
factored into the measurement of the liability. The Company has a regulatory asset and liability of
$62,443 and $61,486 at December 31, 2007 and 2006, respectively, related to accumulated removal
costs for its local telephone subsidiaries. Consistent with the industry, the Company follows SFAS
No. 71, for asset retirement obligations associated with its regulated telephone plant. The
Company’s assets are pooled and the depreciable lives set by the regulators include a removal
component which in effect accounts for the cost of removal. Non-regulated operations of the Company
are accounted for under the principles of SFAS No. 143 Accounting for Asset Retirement Obligations
and FIN No. 47 for which the Company has a retirement obligation of $1,411 and $1,171 and an
associated asset of $873 and $731, at December 31, 2007 and 2006, respectively. These balances were
recorded as a result of the Company’s estimated obligation related to the removal of certain cell
sites at the end of their operating lease term, adjusted for accretion/depreciation over the life
of the lease.
F-25
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
6. ASSET RETIREMENT (Continued)
The following table outlines the changes in the accumulated retirement obligation liability:
| |
|
|
|
|
Balance, January 1, 2006 |
|
$ |
836 |
|
Asset retirement obligation |
|
|
239 |
|
Accretion expense |
|
|
100 |
|
Settlement of lease obligations |
|
|
(4 |
) |
|
|
|
|
Balance, December 31, 2006 |
|
$ |
1,171 |
|
Asset retirement obligation |
|
|
143 |
|
Accretion expense |
|
|
99 |
|
Settlement of lease obligations |
|
|
(2 |
) |
|
|
|
|
Ending Balance, December 31, 2007 |
|
$ |
1,411 |
|
|
|
|
|
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is tested for impairment at the reporting unit level at least annually utilizing a
two-step methodology. The initial step requires the Company to determine the fair value of each
reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair
value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying
value of the reporting unit exceeds its fair value, the goodwill of the unit may be impaired. The
amount, if any, of the impairment is then measured in the second step. The second step of the
goodwill impairment test compares the implied fair value of goodwill of the reporting unit with the
carrying amount of that goodwill. The implied fair value of a reporting unit’s goodwill is the
excess of the fair value of a reporting unit over the amounts assigned to assets and liabilities.
If the carrying value amount of reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss shall be recognized in an amount equal to that excess.
The Company annually reassesses previously recognized intangible assets. Cellular and PCS
licenses have terms of 10 years, but are renewable indefinitely through a routine process involving
a nominal fee. The Company has determined that no legal, regulatory, contractual, competitive,
economic or other factors currently exist that limit the useful life of its Cellular and PCS
licenses. Therefore, the Company is not amortizing its Cellular and PCS licenses based on the
determination that these assets have indefinite lives. The Company evaluates its determination of
indefinite useful lives for its Cellular and PCS licenses each reporting period. Indefinite lived
intangible assets are tested for impairment at least annually by comparing the fair value of the
assets to their carrying amount.
The Company performs its annual impairment test as of the beginning of the fourth quarter or
more frequently if events or changes in circumstance indicate possible impairment. The Company
determines the fair value of each reporting unit for purposes of this test primarily by using a
discounted cash flow valuation technique. Significant estimates used in the valuation include
estimates of future cash flows, both future short-term and long-term growth rates, and estimated
cost of capital for purposes of arriving at a discount factor. The annual impairment test has not
resulted in any impairment charges. Intangible assets with estimable useful lives are amortized
over their respective estimated useful lives to their residual values and reviewed for impairment.
The following table provides the gross carrying value and accumulated amortization for each major
class of intangible asset by segment as of December 31, 2007 and 2006 based on the Company’s
reassessment of previously recognized intangible assets and their remaining amortization lives:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Wireline |
|
|
Wireless |
|
|
Total |
|
Goodwill |
|
$ |
29,553 |
|
|
$ |
8,850 |
|
|
$ |
38,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Domain names and trade names |
|
$ |
88 |
|
|
$ |
— |
|
|
$ |
88 |
|
Cellular licenses |
|
|
— |
|
|
|
18,193 |
|
|
|
18,193 |
|
PCS licenses |
|
|
— |
|
|
|
3,323 |
|
|
|
3,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
88 |
|
|
$ |
21,516 |
|
|
$ |
21,604 |
|
|
|
|
|
|
|
|
|
|
|
F-26
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
7. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
In 2007, the Company retired its only intangible asset with an estimated useful life. This
asset had a carrying value of zero at its retirement date. Amortization expense on that asset for
the years ended December 31, 2007, 2006 and 2005 was zero, $91, and $183, respectively.
8. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES
Accounts payable, accrued and other current liabilities consist of the following at December
31, 2007 and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
| |
|
2007 |
|
|
2006 |
|
Accounts
payable - trade |
|
$ |
19,160 |
|
|
$ |
14,445 |
|
Accrued payroll, benefits, and related liabilities |
|
|
18,715 |
|
|
|
16,761 |
|
Dividend payable |
|
|
9,226 |
|
|
|
9,105 |
|
Access revenue subject to refund |
|
|
4,097 |
|
|
|
13,536 |
|
Other |
|
|
12,872 |
|
|
|
11,669 |
|
|
|
|
|
|
|
|
|
|
$ |
64,070 |
|
|
$ |
65,516 |
|
|
|
|
|
|
|
|
9. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 2007 and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
2005 senior credit facility term loan |
|
$ |
427,900 |
|
|
$ |
427,900 |
|
9 7/8% senior unsecured notes due 2011 |
|
|
— |
|
|
|
4,040 |
|
Original issue discount - 9 7/8% senior unsecured notes due 2011 |
|
|
— |
|
|
|
(83 |
) |
Capital leases and other long-term obligations |
|
|
5,096 |
|
|
|
6,356 |
|
|
|
|
|
|
|
|
|
|
|
432,996 |
|
|
|
438,213 |
|
Less: current portion |
|
|
(780 |
) |
|
|
(1,025 |
) |
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
$ |
432,216 |
|
|
$ |
437,188 |
|
|
|
|
|
|
|
|
The aggregate maturities of long-term obligations for each of the five years and thereafter
subsequent to December 31, 2007 are as follows:
| |
|
|
|
|
2008 |
|
$ |
780 |
|
2009 |
|
|
609 |
|
2010 |
|
|
672 |
|
2011 |
|
|
739 |
|
2012 |
|
|
428,700 |
|
Thereafter |
|
|
1,496 |
|
|
|
|
|
|
|
$ |
432,996 |
|
|
|
|
|
2005 Senior Credit Facility
During the first quarter of 2005, the Company completed refinancing transactions whereby it entered
into a new $380,000 senior secured credit facility, the 2005 senior credit facility, and used
$335,000 of term loan borrowings under that facility, together with $76,307 in net proceeds of a
simultaneous offering of the Company’s common stock and cash on hand to repay in full and redeem
the $198,000 of outstanding principal under the Company’s 2003 senior credit facility, together
with interest accrued thereon; repurchase $59,346 of outstanding principal of the Company’s senior
unsecured notes, together with tender premiums and interest accrued thereon; repurchase $147,500 of
outstanding principal of the Company’s senior
F-27
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
9. LONG-TERM OBLIGATIONS (Continued)
subordinated notes, together with tender premiums and interest accrued thereon; and pay
underwriters’ discounts and transaction fees and expenses associated with the equity offering and
refinancing transactions. Accordingly, the Company recorded a loss on debt extinguishment of
$26,204 and capitalized deferred financing costs of $10,637 related to the 2005 senior credit
facility.
On July 15, 2005, the Company completed a refinancing transaction whereby it amended and
entered into a new term loan under its 2005 senior credit facility with substantially the same
terms, increasing the size of the facility to $420,000 and used the $40,000 of term loan and cash
on hand to repurchase $41,326 of outstanding principal of its senior unsecured notes, together with
redemption premiums, accrued interest and transaction fees and expenses associated with the
refinancing transaction of $9,258. The Company recorded a loss on the early extinguishment of debt
of $6,888 and capitalized deferred financing costs of $670 associated with this refinancing
transaction.
In February 2006, the Company amended its 2005 senior credit facility, increasing the $375,000
term loan under the facility by $52,900 and re-priced the facility to LIBOR plus 1.75% from LIBOR
plus 2.00%. The amendment and the re-price became effective as of February 23, 2006 and February
22, 2006, respectively. The amendment permitted ACS Holdings to purchase any and all of its
currently outstanding 9 7/8 % Senior Notes due 2011.
The $427,900 term loan under the 2005 senior credit facility was first drawn on February 1,
2005, and generally bears interest at an annual rate of LIBOR plus 1.75%, with a term of seven
years from the date of closing and no scheduled principal payments before maturity. The $45,000
un-drawn revolving credit facility, to the extent drawn in the future, will bear interest at an
annual rate of LIBOR plus 2.00% and has a term of six years from the date of closing. To the extent
the $45,000 revolving credit facility under the 2005 senior credit facility remains un-drawn, the
Company will pay an annual commitment fee of 0.375% of the un-drawn principal amount over its term.
The Company also entered into floating-to-fixed interest rate swaps with total notional amounts of
$135,000, $85,000, $40,000, $115,000 and $52,900, which swap the floating interest rate on the
entire term loan borrowings under the 2005 senior credit facility for remaining periods at December
31, 2006 which range from two to four years, at a fixed rate of 5.88%, 6.25%, 6.18%, 6.71% and
6.75% per year, respectively, inclusive of the 1.75% premium over LIBOR. The swaps are accounted
for as cash flow hedges.
Senior Unsecured Notes
On August 26, 2003, the Company issued $182,000 in aggregate principal amount of 9 7/8% senior
unsecured notes due 2011. The notes had an original maturity date of August 15, 2011, and were
redeemable, in whole or in part, at the option of the Company, at any time on or after August 15,
2007, at 104.938% of the principal amount declining to 100% of the principal amount on or after
August 15, 2010. In the first and third quarters of 2005 the Company repurchased $100,672 of the
outstanding principal together with tender premiums and interest accrued. In the fourth quarter of
2005, the Company repurchased $12,000 of outstanding principal together with tender premiums and
interest accrued. In January and February 2006, the Company’s subsidiary, ACS Holdings, repurchased
$8,039 principal amount of its existing 9 7/8% senior unsecured notes due 2011 (CUSIP No.
011679AF4) at a weighted average premium of 9.7% over the par value. The Company incurred an early
extinguishment of debt charge of $1,206 in connection with this transaction, inclusive of $778 in
cash premiums. In February 2006, ACS Holdings commenced a cash tender offer for any and all of the
$56,939 aggregate principal amount of outstanding 9 7/8% senior unsecured notes due 2011 issued by
ACS Holdings. On February 23, 2006, the Company successfully repurchased $52,899 of the remaining
$56,939 outstanding principal balance of these notes. The Company incurred an early extinguishment
of debt charge of $8,423 in connection with this transaction, inclusive of $5,640 in cash premiums.
On August 15, 2007, the Company successfully repurchased the remaining $4,040 outstanding principal
balance of these notes. The Company incurred an early extinguishment of debt charge of $355 in
connection with this transaction, inclusive of $199 in cash premiums.
Capital leases and other long-term obligations
The Company has entered into various capital leases and other financing agreements totaling
$5,096 and $6,356 with a weighted average interest rate of 9.94% and 9.90% at December 31, 2007 and
2006, respectively.
F-28
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
10. OTHER DEFERRED CREDITS AND LONG-TERM LIABILITIES
Deferred credits and other long-term liabilities consist of the following at December 31, 2007
and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
| |
|
2007 |
|
|
2006 |
|
Regulatory
liabilities - accumulated removal costs |
|
$ |
62,443 |
|
|
$ |
61,486 |
|
Refundable access revenue |
|
|
6,896 |
|
|
|
7,912 |
|
Interest rate swaps |
|
|
9,179 |
|
|
|
— |
|
Other deferred credits |
|
|
3,557 |
|
|
|
3,483 |
|
|
|
|
|
|
|
|
|
|
$ |
82,075 |
|
|
$ |
72,881 |
|
|
|
|
|
|
|
|
11. NON-OPERATING CHARGES
The Company periodically evaluates the fair value of its investments and other non-operating
assets against their carrying value whenever market conditions indicate a change in that fair
value. Any changes relating to declines in the fair value of non-operating assets are charged to
non-operating expense under the caption “Other” in the Consolidated Statement of Operations. During
2003, the Company undertook an assessment of the net realizable value of its note receivable from
Crest Communications LLC (“Crest”) and the option, as part of the note receivable, to purchase
certain network assets from Crest as a result of changes in market and economic conditions (and a
notice the Company received from the State of Alaska of termination of the TPA). As a result of the
analysis, the Company recorded a charge of $15,924 representing the estimated decline in fair value
of the note receivable from Crest. During 2005, the full balance of the note and accrued interest
of $2,692 was fully reserved. In January 2006, the Company executed definitive agreements to assume
ownership of strategic fiber optic cable network assets from Crest, pursuant to the Company’s 2002
agreement with Crest, where the Company was granted an option to exchange its $15,000 note for the
strategic assets.
In January 2006, the Company executed definitive agreements to assume ownership of strategic
fiber optic cable network assets from Crest Communications, LLC (“Crest”). The Company exercised
its option in April 2005 to assume ownership of such assets. On April 17, 2006, the closing
occurred whereby ACS assumed ownership of significant fiber optic transport facilities then owned
by Crest in Alaska between Whittier and Anchorage, and between Anchorage and Fairbanks. The Company
determined that there was no observable market price for the Crest assets. Accordingly, the Company
used a discounted cash flow method based on existing revenue contracts; potential future business
and internal savings the Company could generate by using the asset, together with the stand alone
costs of operating the asset, and determined the fair value of the Crest assets was nominal.
Consistent with the provisions of SFAS No. 114, Accounting by Creditors for Impairment of Loans,
and the determination that the fair value was nominal, the amount recognized as income was the cash
settlement of $1,979 upon taking possession of the asset.
F-29
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006 and 2005
(In Thousands, Except Per Share Amounts)
12. INCOME TAXES
The following table includes a reconciliation of federal statutory tax at 35%, 34% and 34%,
respectively, to the recorded tax (expense)/benefit, for the years ended December 31, 2007, 2006
and 2005, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Computed federal income taxes at the statutory rate |
|
$ |
(11,530 |
) |
|
$ |
(4,665 |
) |
|
$ |
14,156 |
|
(Increase) reduction in tax resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes (net federal benefit) |
|
|
(2,254 |
) |
|
|
(799 |
) |
|
|
2,684 |
|
Excess compensation not allowed |
|
|
(789 |
) |
|
|
(182 |
) |
|
|
(596 |
) |
Other |
|
|
(183 |
) |
|
|
(771 |
) |
|
|
(239 |
) |
Rate change |
|
|
3,361 |
|
|
|
— |
|
|
|
— |
|
Stock based compensation |
|
|
91 |
|
|
|
869 |
|
|
|
1,522 |
|
Valuation allowance |
|
|
122,498 |
|
|
|
5,105 |
|
|
|
(17,527 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (expense) |
|
$ |
111,194 |
|
|
$ |
(443 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
The Company files a consolidated federal income tax return. The income tax provision for the
years ended December 31, 2007 and 2006 comprised of the following charges:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Current: |
|
|
|
|
|
|
|
|
Federal income tax |
|
$ |
(1,103 |
) |
|
$ |
(375 |
) |
State income tax |
|
|
(198 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
Total current |
|
|
(1,301 |
) |
|
|
(443 |
) |
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal income tax |
|
|
(7,616 |
) |
|
|
(3,925 |
) |
State income tax |
|
|
(2,387 |
) |
|
|
(1,180 |
) |
Change in valuation allowance |
|
|
122,498 |
|
|
|
5,105 |
|
|
|
|
|
|
|
|
Total deferred |
|
|
112,495 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total income tax benefit (expense) |
|
$ |
111,194 |
|
|
$ |
(443 |
) |
|
|
|
|
|
|
|
F-30
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
12. INCOME TAXES (Continued)
In 2005 the Company incurred no tax benefit or expense.
The Company accounts for income taxes under the asset and liability method in accordance with
SAFS No. 109, as amended. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the Company’s deferred tax
assets and liabilities are recorded at a combined federal and state effective rate of 41.1% and
40.0%, as of December 31, 2007 and 2006, are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Deferred tax liabilities — long-term: |
|
|
|
|
|
|
|
|
Mark to market on interest rate swap |
|
|
— |
|
|
|
(2,301 |
) |
Deferred tax assets: |
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
Accrued compensation |
|
|
5,053 |
|
|
|
4,085 |
|
Allowance for bad debt |
|
|
3,604 |
|
|
|
2,934 |
|
Net operating loss carry forwards |
|
|
6,757 |
|
|
|
3,505 |
|
Mark to market on interest rate swap |
|
|
3,773 |
|
|
|
— |
|
Pension liability |
|
|
145 |
|
|
|
1,675 |
|
Contingent liabilities |
|
|
1,022 |
|
|
|
270 |
|
Self insurance accruals |
|
|
682 |
|
|
|
597 |
|
Other |
|
|
311 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
21,347 |
|
|
|
13,303 |
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
Net operating loss carry forwards |
|
|
41,141 |
|
|
|
53,945 |
|
Alternative
minimum tax carry forward |
|
|
1,866 |
|
|
|
1,320 |
|
Intangibles/Goodwill |
|
|
20,428 |
|
|
|
26,534 |
|
Debt expense |
|
|
— |
|
|
|
1,708 |
|
Pension liability |
|
|
1,029 |
|
|
|
— |
|
Property, plant and equipment |
|
|
29,807 |
|
|
|
25,155 |
|
Excess tax
benefit from stock based compensation |
|
|
1,732 |
|
|
|
2,743 |
|
Other |
|
|
92 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
96,095 |
|
|
|
111,496 |
|
Total deferred tax assets |
|
|
117,442 |
|
|
|
124,799 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
— |
|
|
|
(122,498 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
117,442 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
In
2007, the Company reversed the valuation allowance of $123,124 inclusive of a deferred tax
liability attributable to charges to other comprehensive income of $626. In 2006, the Company
recorded a decrease in its valuation allowance of $4,607 exclusive of
$498 related to the effect of
changes in comprehensive income. As of December 31, 2007, based on the weight of all available
evidence, including the last two years of positive pre-tax book income as well as projected
positive pre-tax book income, and taxable income before usage of net operating losses, management
now believes it is more likely than not, that all of the deferred tax asset will be realized.
The Company files consolidated income tax returns with all if it subsidiaries for U.S. federal
and with the State of Alaska. The Company is no longer subject to examination for years prior to
2004. The Company is not currently being audited, nor has it been notified of any pending audits.
The Company is not aware of any controversial or unsupported positions taken on its tax returns
that have not either been resolved in prior audits, by amending prior returns or by adjusting its
Net Operating Loss (“NOL”) carry forwards to rectify its filings. Income tax payable was $137 at
December 31, 2007.
F-31
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
12. INCOME TAXES (Continued)
The Company adopted the provision of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48) in 2007. With the adoption of FIN 48 as of January 1, 2007 the Company has
reviewed all of its tax filings and position taken on its returns and has not identified any
material current or future effect on its consolidated results of operations, cash flows or
financial position.
In connection with the adoption of SFAS No. 123(R) in 2005, the Company elected to calculate
the pool of excess tax benefits under the modified retrospective method, but only to prior interim
periods in the year of initial adoption. Future tax benefits decreased $1,011 and increased $1,881
in 2007 and 2006, respectively. Additional actual stock based tax benefit in excess of book expense
of $530 was generated in 2005, a loss year, but will not be realized until the 2005 tax losses are
used against future tax earnings. When the 2005 losses are realized, this tax benefit will be
credited to additional paid in capital rather than income tax expense.
The Company has available at December 31, 2007, unused acquired and operating loss carry
forwards of $117,809 federal and $115,023 state that may be applied against future taxable income
as shown below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Federal |
|
|
State |
|
| |
|
Acquired Unused |
|
|
Unused |
|
|
Total Unused |
|
|
Total Unused |
|
| Year of |
|
Operating Loss |
|
|
Operating Loss |
|
|
Operating Loss |
|
|
Operating Loss |
|
Expiration |
|
Carry forwards |
|
|
Carry forwards |
|
|
Carry forwards |
|
|
Carry forwards |
|
2020 |
|
|
2,209 |
|
|
|
— |
|
|
|
2,209 |
|
|
|
2,193 |
|
2021 |
|
|
— |
|
|
|
30,994 |
|
|
|
30,994 |
|
|
|
29,044 |
|
2022 |
|
|
— |
|
|
|
17,983 |
|
|
|
17,983 |
|
|
|
17,458 |
|
2024 |
|
|
— |
|
|
|
43,974 |
|
|
|
43,974 |
|
|
|
43,715 |
|
2025 |
|
|
— |
|
|
|
22,649 |
|
|
|
22,649 |
|
|
|
22,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,209 |
|
|
$ |
115,600 |
|
|
$ |
117,809 |
|
|
$ |
115,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2007 and 2006, Internet Alaska losses of $216 and $1,314 were utilized, respectively.
Acquired unused operating loss carry forwards associated with ACS’s acquisition of Internet Alaska
in June 2000 are limited by Section 382 of the Internal Revenue Code of 1986 to $216 per year. To
the extent that these limits are not used they can be carried forward to subsequent years thereby
effectively increasing that year’s limitation.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limit on the
ability of loss corporations that undergo an “ownership change”. This limitation restricts the
amount of operating losses that can be used to reduce its future taxable income. On December 7,
2005 ACS underwent an ownership change thereby subjecting it to the Section 382 loss limitation
rules. The corrected overall annual limitation at date of ownership change was $14,874 per year
annually increased by built-in gains of $10,794. The increase in limitation will be in effect
through the year 2010. The taxable loss generated in 2005 after the change in ownership from
December 7, 2005 through the end of the year was $1,489 and has no limitations. In addition to the
utilization of Internet Alaska’s operating losses, ACS utilized additional operating losses of
$26,705 and $14,516 for 2007 and 2006, respectively, out of its operating loss carry forward.
F-32
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
13. EARNINGS PER SHARE
Earnings per share are based on weighted average number of shares of common stock and dilutive
potential common shares equivalents outstanding. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflect the potential dilution
of securities that could share in the earnings of an entity. The Company includes dilutive stock
options based on the treasury stock method. Due to the Company’s reported net losses, potential
common share equivalents of 1,091, which consisted of options and restricted stock granted to
employees and deferred shares granted to directors, were anti-dilutive for the year ended December
31, 2005. The following table sets forth the computation of basic and diluted earnings per share
for the years ending December 31, 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As Restated |
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Numerator — net income (loss) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
$ |
(41,635 |
) |
Denominator — weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
42,701 |
|
|
|
42,045 |
|
|
|
40,185 |
|
Dilutive impact of restricted
stock, options
and deferred shares |
|
|
1,484 |
|
|
|
1,342 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares |
|
|
44,185 |
|
|
|
43,387 |
|
|
|
40,185 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
3.26 |
|
|
$ |
0.31 |
|
|
$ |
(1.04 |
) |
|
|
|
|
|
|
|
|
|
|
14. STOCK INCENTIVE PLANS
Under various plans, ACS Group, through the Compensation Committee of the Board of Directors,
may grant stock options, restricted stock, stock appreciation rights and other awards to officers,
employees and non-employee directors. At December 31, 2007, ACS Group has reserved a total of
11,560 (11.56 million) shares of authorized common stock for issuance under the plans. In general,
options under the plans vest ratably over three, four or five years and the plans terminate in 10
years. After the plans terminate, all shares granted under the plan, prior to its termination,
continue to vest under the terms of the grant when it was awarded.
Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
ACS Group has reserved 8,660 shares under this plan, which was adopted by the Company in
November 1999. At December 31, 2007, 9,142 equity instruments have been granted, 3,309 have been
forfeited, 3,976 have been exercised, and 2,827 shares are available for grant under the plan.
In August 2005, the Company began granting restricted stock in lieu of stock options as the
primary equity based incentive for executive and non-union represented employees. The time based
restricted stock awards have vesting terms that can range from three to five years with equal
annual vesting amounts. The performance based restricted stock awards cliff vest in five years and
have accelerated vesting terms of one third per year if certain profitability and capital
expenditure criteria are met. A long term incentive program (“LTIP”) also exists for executive
management. LTIP awards are awarded annually and cliff vest in five years with accelerated vesting
in three years if cumulative three year profitability and capital expenditure criteria are met. In
2006, the Company implemented a program to grant performance based shares to union represented
employees. Expense related to the union represented employee shares were accrued in 2006 and shares
were granted in the first quarter of 2007. During 2007, the Company recognized compensation expense
of $5,522 for all restricted stock awards, net of estimated forfeitures, over the applicable vesting period
based on the market value at the date of grant, discounted for estimated dividend payments that do
not accrue to the employee during the vesting period. Additionally, $416 was recognized as
compensation expense for legacy stock options issued through January 2005.
F-33
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
14. STOCK INCENTIVE PLANS (Continued)
Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
This plan was also adopted by ACS Group in November 1999 and will terminate December 31, 2009.
The Company has reserved 1,550 shares under this plan. At
December 31, 2007, 816 shares are
available for issuance and sale. All ACS Group 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, is not more than five months in a calendar
year, or who are ineligible to participate due to restrictions under the Internal Revenue Code.
A participant in the purchase plan may authorize regular salary deductions up to of a maximum
of 15% and a minimum of 1% of base compensation. The fair market value of shares which may be
purchased by any employee during any calendar year may not exceed $25. The amounts so deducted and
contributed are applied to the purchase of shares of common stock at 85% of the lesser of the fair
market value of such shares on the date of purchase or on the offering date for such offering
period. The offering dates are January 1 and July 1 of each purchase plan year, and each offering
period will consist of one six-month purchase period. The first offering period under the plan
commenced on January 1, 2000. Shares are purchased on the open market or issued from authorized but
un-issued shares on behalf of participating employees on the last business days of June and
December for each purchase plan year and each such participant has the rights of a stockholder with
respect to such shares. During the year ended December 31, 2007, approximately 23% of eligible
employees elected to participate in the plan. During 2007, 2006 and 2005, 48, 59 and 56 shares were
issued and the Company recognized compensation expense of $287, $202 and $133 for those same
periods, respectively.
2003 Options for Officer Inducement Grant
During 2003, the Company’s Board of Directors awarded 1,000 options as an inducement grant in
hiring the Company’s Chief Executive Officer. As of December 31, 2007, 400 options have been
exercised/converted and 600 are currently outstanding.
ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
The non-employee director stock compensation plan was adopted by ACS Group in November 1999.
ACS Group has reserved 350 shares under this plan. At December 31, 2007, 205 shares have been
awarded and 145 shares are available for grant under the plan. In 2007, 2006 and 2005, the plan
required directors to receive not less than 50%, 50% and 25%, respectively, of their annual
retainer in the form of ACS Group’s stock. Directors were permitted to elect up to 100% of their
annual retainer in the form of ACS Group’s stock. Once a year, the Directors elect the method by
which they receive their stock (issued or deferred). During the year ended December 31, 2007, 14
shares under the plan were awarded to directors, of which 3 were deferred until termination of
service.
Share-Based Payment
Total
compensation cost for share-based payments was $6,390 and $7,667, as restated, for the
twelve months ended December 31, 2007 and 2006, respectively. Prior to 2007, the Company did not
recognize a tax benefit from the stock compensation expense because the Company considered it
more likely than not that the related deferred tax assets, which had been reduced by a full
valuation allowance, would not be realized. However, due to the continued earnings in 2007 and
2006 coupled with projected future earning, ACS’s management now has determined that is more
likely than it is not that all deferred tax assets will be realized. To the extent that realized
tax benefits in 2007 and 2006 exceeded book expense on options exercised and restricted stock
awarded in these years the tax savings realized were reclassified from Income Tax Expense to
Additional Paid in Capital in the amount of $755.
The Company purchases, from shares reserved under the Alaska Communications Systems Group,
Inc. 1999 Stock Incentive Plan, sufficient vested shares to cover employee payroll tax withholding
requirements upon the vesting of restricted stock. From time to time the Company also purchases
sufficient vested shares to cover employee payroll tax withholding requirements at the aggregated exercise price upon exercise of options. Shares
repurchased by the Company for this purpose are not reallocated to the share reserve set aside for
future grants under the plan. The Company expects to repurchase approximately 192 shares in 2008.
This amount is based upon an estimation of the number of shares of restricted stock awards expected
to vest and options expected to be exercised during 2008.
F-34
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
14. STOCK INCENTIVE PLANS (Continued)
There were no options granted for the twelve months ended December 31, 2007, or 2006 and seven
granted for the same period in 2005. There were 591, 760 and 724 restricted stock grants for the
twelve months ended December 31, 2007, 2006 and 2005, respectively. The following table describes
the assumptions used for valuation of equity instruments awarded during the twelve months ended
December 31, 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
2006 |
|
2005 |
Stock Options: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk free rate |
|
|
— |
|
|
|
— |
|
|
|
4.21 |
% |
Dividend yield |
|
|
— |
|
|
|
— |
|
|
|
8.65 |
% |
Expected volatility factor |
|
|
— |
|
|
|
— |
|
|
|
40.17 |
% |
Expected option life (years) |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
Expected forfeiture rate |
|
|
— |
|
|
|
— |
|
|
|
2.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free rate |
|
|
4.25% - 5.25 |
% |
|
|
4.50% - 5.25 |
% |
|
|
3.50 |
% |
Quarterly dividend |
|
$ |
0.215 |
|
|
$ |
0.215 |
|
|
$ |
0.200 |
|
Expected, per annum, forfeiture rate |
|
|
4.47 |
% |
|
|
4.47 |
% |
|
|
2.00 |
% |
Options and Restricted Stock Outstanding
Stock Options
Proceeds from the exercise of stock options for the year ended December 31, 2007 were $975.
The Company chose to remit $251 of these proceeds for payroll taxes in exchange for shares
surrendered back to the Company. Information on outstanding options under the plan for the year
ended December 31, 2007 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
| |
|
Number of |
|
|
Exercise |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
Shares |
|
|
Price |
|
|
Life |
|
|
Value |
|
Outstanding, January 1, 2007 |
|
|
1,494 |
|
|
$ |
5.35 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(238 |
) |
|
|
5.77 |
|
|
|
|
|
|
|
|
|
Canceled or expired |
|
|
(96 |
) |
|
|
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007 |
|
|
1,160 |
|
|
|
5.27 |
|
|
|
5.55 |
|
|
$ |
11,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
599 |
|
|
$ |
5.52 |
|
|
|
5.55 |
|
|
|
5,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select information on equity instruments under the plan for the years ended December 31, 2007,
2006 and 2005 follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended |
| |
|
December 31, |
| |
|
2007 |
|
2006 |
|
2005 |
Weighted-average grant-date fair value of equity instruments granted |
|
$ |
10.48 |
|
|
$ |
9.81 |
|
|
$ |
8.63 |
|
Total fair value of shares vested during the period |
|
$ |
5,273 |
|
|
$ |
2,762 |
|
|
$ |
1,089 |
|
Total intrinsic value of options exercised |
|
$ |
2,225 |
|
|
$ |
2,927 |
|
|
$ |
5,076 |
|
F-35
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
14. STOCK INCENTIVE PLANS (Continued)
Restricted Stock
Restricted stock grants outstanding, all of which are non-vested at December 31, 2007, are as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
| |
|
Number of |
|
Fair |
| |
|
Shares |
|
Value |
Outstanding at January 1, 2007 |
|
|
1,192 |
|
|
$ |
9.53 |
|
Granted |
|
|
591 |
|
|
|
13.05 |
|
Vested |
|
|
(446 |
) |
|
|
9.52 |
|
Canceled or expired |
|
|
(41 |
) |
|
|
11.49 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
1,296 |
|
|
$ |
11.07 |
|
|
|
|
|
|
|
|
|
|
Unamortized stock-based payment and the weighted average expense period at December 31, 2007,
are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Average Period |
|
| |
|
Unamortized |
|
|
to Expense |
|
| |
|
Expense |
|
|
(years) |
|
Stock options |
|
$ |
223 |
|
|
|
1.3 |
|
Restricted stock |
|
|
6,350 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,573 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
15. RETIREMENT PLANS
Pension benefits for substantially all of the Company’s employees are provided through the
Alaska Electrical Pension Plan (“AEPP”). The Company pays a contractual hourly amount based on
employee classification or base compensation. As a multi-employer defined benefit plan, the
accumulated benefits and plan assets are not determined for or allocated separately to the
individual employer. The Company’s portion of the plan’s pension cost for 2007, 2006 and 2005 was
$11,772, $11,892, and $12,203, respectively.
The Company also provides a 401(k) retirement savings plan covering substantially all of its
employees. The plan allows for discretionary contributions as determined by the Board of Directors,
subject to Internal Revenue Code limitations. There was no matching contribution for 2007, 2006 or
2005.
The Company also has a separate defined benefit plan that covers certain employees previously
employed by Century Telephone Enterprise, Inc. (“CenturyTel Plan”). This plan was transferred to
the Company in connection with the acquisition of CenturyTel’s Alaska Properties. Existing plan
assets and liabilities of the CenturyTel Plan were transferred to the ACS Retirement Plan on
September 1, 1999. Accrued benefits under the ACS Retirement Plan were determined in accordance
with the provisions of the CenturyTel Plan. Upon completion of the transfer to the Company, covered
employees ceased to accrue benefits under the plan. On November 1, 2000, the ACS Retirement Plan
was amended to conform early retirement reduction factors and various other terms to those provided
by the AEPP. As a result of this amendment, prior service cost of $1,992 was recorded and is being
amortized over the expected service life of the plan participants at the date of the amendment. The
Company uses the traditional unit credit method for the determination of pension cost for financial
reporting and funding purposes and complies with the funding requirements under the Employee
Retirement Income Security Act of 1974 (“ERISA”). Although the plan is over-funded on an accounting
basis at a 6.49% discount rate, the plan is not fully funded under ERISA (with liabilities measured
at a lower discount rate) at December 31, 2007, and management is considering a contribution of
$300 in 2008 for the 2007 plan year.
In April 2005, ACS Group registered 250 shares of the Company’s common stock under the “Alaska
Communications Systems Retirement Plan” for the purpose of funding its retirement plans. On April
14, 2005, ACS Group
F-36
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
15. RETIREMENT PLANS (Continued)
funded the ACS Retirement Plan for the 2004 plan year with approximately $600 by transferring
62 shares in lieu of cash. During May and June 2005, the plan administrators sold the stock
resulting in net proceeds after commissions of $581. In March and September 2006, the Company
funded the ACS Retirement Plan for the 2005 plan year with additional contributions of $600 and
$850, respectively. In September 2007, the Company funded $300 for the 2006 tax year.
The following is a calculation of the funded status of the ACS Retirement Plan using beginning
and ending balances for 2007 and 2006 for the projected benefit obligation and the plan assets:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
13,604 |
|
|
$ |
13,574 |
|
Interest cost |
|
|
782 |
|
|
|
762 |
|
Actuarial gain |
|
|
(769 |
) |
|
|
(41 |
) |
Benefits paid |
|
|
(734 |
) |
|
|
(691 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
12,883 |
|
|
|
13,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
12,713 |
|
|
|
10,607 |
|
Actual return on plan assets |
|
|
1,032 |
|
|
|
1,347 |
|
Employer contribution |
|
|
300 |
|
|
|
1,450 |
|
Benefits paid |
|
|
(734 |
) |
|
|
(691 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
13,311 |
|
|
|
12,713 |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
428 |
|
|
$ |
(891 |
) |
|
|
|
|
|
|
|
The
plans projected benefit obligation equals its accumulated benefit
obligation. The funded asset balance for 2007 of $428 is recorded on
the balance sheet in deferred charges and other assets while the 2006
liability balance of $891 is recorded in other deferred credits and
long-term liabilities.
The following table represents the net periodic pension expense for the ACS Retirement Plan
for 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest cost |
|
$ |
782 |
|
|
$ |
762 |
|
|
$ |
757 |
|
Expected return on plan assets |
|
|
(994 |
) |
|
|
(858 |
) |
|
|
(813 |
) |
Amortization of loss |
|
|
322 |
|
|
|
444 |
|
|
|
474 |
|
Amortization of prior service cost |
|
|
203 |
|
|
|
203 |
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense |
|
$ |
313 |
|
|
$ |
551 |
|
|
$ |
621 |
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Company expects amortization of prior service costs of $203 and amortization of
net gains and losses of $149.
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Accumulated other comprehensive income/loss: |
|
|
|
|
|
|
|
|
Prior service cost |
|
|
535 |
|
|
|
738 |
|
Net loss |
|
|
2,320 |
|
|
|
3,450 |
|
|
|
|
|
|
|
|
|
|
$ |
2,855 |
|
|
$ |
4,188 |
|
|
|
|
|
|
|
|
F-37
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
15. RETIREMENT PLANS (Continued)
The assumptions used to account for the plan as of December 31, 2007 and 2006 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
2006 |
Discount rate for benefit obligation |
|
|
6.49 |
% |
|
|
5.89 |
% |
Discount rate for pension expense |
|
|
6.49 |
% |
|
|
5.79 |
% |
Expected long-term rate of return on assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
Rate of compensation increase |
|
|
0.00 |
% |
|
|
0.00 |
% |
The discount rates were calculated using a proprietary yield curve based on the top 30% of the
universe of bonds included in the bond pool. The expected long-term rate of return on assets rate
is the best estimate of future expected return for the asset pool, given the expected returns and
allocation targets for the various classes of assets.
The plan’s asset allocations at December 31, 2007 and 2006, by asset category are as follows:
| |
|
|
|
|
|
|
|
|
| Asset Category |
|
2007 |
|
2006 |
Equity securities* |
|
|
63 |
% |
|
|
64 |
% |
Debt securities* |
|
|
35 |
% |
|
|
30 |
% |
Other/Cash |
|
|
2 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
*Note that mutual funds that may contain both stock and bonds may be included in these
categories.
The fundamental investment objective of the plan is to generate a consistent total investment
return sufficient to pay plan benefits to retired employees, while minimizing the long term cost to
the Company. The long-term (10 year and beyond) plan asset growth objective is to achieve a rate of
return that exceeds the actuarial interest assumption after fees and expenses.
Because of the Company’s long-term investment objectives, the Plan administrator is directed
to resist being reactive to short-term capital market developments and to maintain an asset mix
that is continuously rebalanced to adhere to the plan investment mix guidelines. The Plan’s
investment goal is to protect the assets’ longer term purchasing power. The Plan’s assets are
managed in a manner that emphasizes a higher exposure to equity markets versus other asset classes.
It is expected that such a strategy will provide a higher probability of meeting the plan’s
actuarial rate of return assumption over time.
Based on risk and return history for capital markets along with asset allocation risk and
return projections, the following asset allocation guidelines were developed for the plan:
| |
|
|
|
|
|
|
|
|
| |
|
Minimum |
|
Maximum |
Equity securities |
|
|
40 |
% |
|
|
100 |
% |
Fixed income |
|
|
20 |
% |
|
|
60 |
% |
Cash equivalents |
|
|
0 |
% |
|
|
10 |
% |
The benefits expected to be paid in each of the next five years, and in the aggregate for the
five fiscal years thereafter, are as follows:
| |
|
|
|
|
2008 |
|
$ |
819 |
|
2009 |
|
|
827 |
|
2010 |
|
|
868 |
|
2011 |
|
|
887 |
|
2012 |
|
|
899 |
|
2013-2017 |
|
|
4,896 |
|
F-38
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
15. RETIREMENT PLANS (Continued)
The Company also has a separate executive post retirement health benefit plan. The Alaska
Communications Systems Executive Retiree Health Benefit Plan (“The ACS Health Plan”) was adopted by
the Company in November 2001 and amended in October 2002. The ACS Health Plan covers a select group
of former management employees. The ACS Health Plan provides a graded subsidy for medical, dental
and vision coverage. The Compensation Committee of the Board of Directors decided to terminate The
ACS Health Plan in January 2004. In February 2005, the Board adopted a resolution to exclude a
former employee from the plan, causing a $90 decrease in the accumulated post retirement benefit.
Three people qualified under the plan are eligible for future benefits, but the plan is closed to
future participants.
The Company uses the projected unit credit method for the determination of post retirement
health cost for financial reporting and funding purposes and complies with the funding requirements
under ERISA. No contribution was made to The ACS Health Plan for 2007, 2006 or 2005, and no
contribution is expected in 2008. The Company uses a December 31 measurement date for the plan.
The following is a calculation of the funded status and a reconciliation of the beginning and
ending balances for 2007 and 2006 for the projected benefit obligation and the plan assets for The
ACS Health Plan:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Change in accumulated postretirement benefit obligation: |
|
|
|
|
|
|
|
|
Accumulated
postretirement benefit obligation at beginning of the year |
|
$ |
168 |
|
|
$ |
171 |
|
Interest cost |
|
|
10 |
|
|
|
10 |
|
Actuarial gain |
|
|
— |
|
|
|
(12 |
) |
Benefits paid |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation at end of the year |
|
|
176 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
218 |
|
|
|
205 |
|
Actual return on plan assets |
|
|
20 |
|
|
|
14 |
|
Benefits paid |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
236 |
|
|
|
218 |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
60 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
The following represents the net periodic postretirement benefit expense for The ACS Health
Plan for 2007, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest cost |
|
$ |
10 |
|
|
$ |
10 |
|
|
$ |
11 |
|
Expected return on plan assets |
|
|
(13 |
) |
|
|
(12 |
) |
|
|
(11 |
) |
Amortization of net (gain) or loss |
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit |
|
$ |
(8 |
) |
|
$ |
(2 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
The Company expects to incur no net periodic costs associated with this plan in 2008. The
actuarial assumptions used to account for The ACS Health Plan as of December 31, 2007 and 2006 is
an assumed discount rate of 6.00% and 5.89% for projected benefit obligation and an assumed
discount rate of 5.89% and 5.79% for plan expense, respectively, and an expected long-term rate of
return on plan assets of 6.00%. The discount rate is based on Moody’s AA Corporate bonds. The
expected long-term rate of return on assets is the best estimate of future expected return for the
asset pool, given the expected returns and allocation targets for the various classes of assets.
For measurement purposes, the assumed annual rate of increase in health care costs for the
next five years and thereafter, for both Pre- and Post-65 premiums, is 7.00%.
F-39
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
15. RETIREMENT PLANS (Continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for The
ACS Health Plan. A one-percentage-point change in assumed health care cost trend rates would have
the following effects for 2007:
| |
|
|
|
|
|
|
|
|
| |
|
+1% |
|
-1% |
Effect on total of service and interest cost components |
|
|
— |
|
|
|
(1 |
) |
Effect on accumulated postretirement benefit obligation |
|
|
7 |
|
|
|
(9 |
) |
The ACS Health Plan’s asset allocations at December 31, 2007 and 2006, by asset category, are
as follows:
| |
|
|
|
|
|
|
|
|
| Asset Category |
|
2007 |
|
2006 |
Equity securities* |
|
|
28 |
% |
|
|
34 |
% |
Debt securities* |
|
|
66 |
% |
|
|
59 |
% |
Other/Cash |
|
|
6 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
*Note that mutual funds that may contain both stock and bonds may be included in these
categories.
The fundamental investment objective of the plan is to realize an annual total investment
return consistent with the conservative risk tolerance plan dictated by the Company. The investment
profile of the plan emphasizes liquidity and income, some capital stock investment and some
fluctuation of investment return. It is anticipated that the investment manager will achieve this
objective by investing the account’s assets in mutual funds. The portfolio may hold common stock,
fixed income securities, money market instruments and U.S. Treasury obligations.
Based on risk and return history for capital markets along with asset allocation risk and
return projections, the following asset allocation guidelines were developed for the plan:
| |
|
|
|
|
| |
|
Target |
Equity securities |
|
|
30 |
% |
Fixed income |
|
|
60 |
% |
Other/cash |
|
|
10 |
% |
The benefits expected to be paid in each of the next five years, and in the aggregate for the
five fiscal years thereafter are as follows:
| |
|
|
|
|
2008 |
|
$ |
7 |
|
2009 |
|
|
14 |
|
2010 |
|
|
15 |
|
2011 |
|
|
16 |
|
2012 |
|
|
16 |
|
2013-2017 |
|
|
65 |
|
F-40
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
16. BUSINESS SEGMENTS
Our segments and their principal activities consist of the following:
Wireline — Wireline provides communication services including voice, broadband and data, next
generation IP network services, network access, long distance and other services to consumers,
carriers, business and government customers.
Wireless — Wireless products and services include voice and data products and other value
added services and equipment sales.
The Company also incurs interest expense, interest income 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 ACS Holdings and are allocated to
the business segments based on operating revenue. In accordance with industry practice and
regulatory requirements, affiliate revenue and expense between local telephone and all other
segments is not eliminated on consolidation. 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
year ended December 31, 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenues |
|
$ |
260,975 |
|
|
$ |
137,566 |
|
|
$ |
11,207 |
|
|
$ |
(23,963 |
) |
|
$ |
385,785 |
|
Intersegment revenue |
|
|
48,569 |
|
|
|
2,604 |
|
|
|
11,207 |
|
|
|
— |
|
|
|
62,380 |
|
Eliminated intersegment revenue |
|
|
(12,710 |
) |
|
|
(46 |
) |
|
|
(11,207 |
) |
|
|
— |
|
|
|
(23,963 |
) |
Depreciation and amortization |
|
|
53,297 |
|
|
|
13,199 |
|
|
|
4,841 |
|
|
|
— |
|
|
|
71,337 |
|
Loss on disposal of assets, net |
|
|
110 |
|
|
|
12 |
|
|
|
126 |
|
|
|
— |
|
|
|
248 |
|
Operating income |
|
|
11,327 |
|
|
|
43,315 |
|
|
|
5,797 |
|
|
|
— |
|
|
|
60,439 |
|
Interest expense |
|
|
38 |
|
|
|
1,208 |
|
|
|
(29,632 |
) |
|
|
— |
|
|
|
(28,386 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(355 |
) |
|
|
— |
|
|
|
(355 |
) |
Interest income |
|
|
2 |
|
|
|
— |
|
|
|
2,018 |
|
|
|
— |
|
|
|
2,020 |
|
Income (loss) before income tax |
|
|
10,729 |
|
|
|
44,522 |
|
|
|
(22,309 |
) |
|
|
— |
|
|
|
32,942 |
|
Income tax (expense) benefit |
|
|
(664 |
) |
|
|
(18,191 |
) |
|
|
130,049 |
|
|
|
— |
|
|
|
111,194 |
|
Net income |
|
|
10,065 |
|
|
|
26,331 |
|
|
|
107,740 |
|
|
|
— |
|
|
|
144,136 |
|
Total assets |
|
|
464,824 |
|
|
|
191,194 |
|
|
|
7,185 |
|
|
|
— |
|
|
|
663,203 |
|
Capital expenditures |
|
|
28,213 |
|
|
|
15,662 |
|
|
|
18,964 |
|
|
|
— |
|
|
|
62,839 |
|
F-41
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
16. BUSINESS SEGMENTS (Continued)
The following table illustrates selected financial data, which in certain cases has been
restated in accordance with Note 2, for each segment as of and for the year ended December 31,
2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenue * |
|
|
242,601 |
|
|
|
115,412 |
|
|
|
10,687 |
|
|
|
(19,979 |
) |
|
$ |
348,721 |
|
Intersegment revenue * |
|
|
39,474 |
|
|
|
2,632 |
|
|
|
10,687 |
|
|
|
— |
|
|
|
52,793 |
|
Eliminated intersegment revenue |
|
|
(9,250 |
) |
|
|
(42 |
) |
|
|
(10,687 |
) |
|
|
— |
|
|
|
(19,979 |
) |
Depreciation and amortization * |
|
|
53,181 |
|
|
|
11,515 |
|
|
|
4,400 |
|
|
|
— |
|
|
|
69,096 |
|
Loss on disposal of assets, net |
|
|
469 |
|
|
|
23 |
|
|
|
613 |
|
|
|
— |
|
|
|
1,105 |
|
Operating income * |
|
|
1,489 |
|
|
|
37,140 |
|
|
|
4,992 |
|
|
|
— |
|
|
|
43,621 |
|
Interest expense * |
|
|
(373 |
) |
|
|
426 |
|
|
|
(30,498 |
) |
|
|
— |
|
|
|
(30,445 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(9,650 |
) |
|
|
— |
|
|
|
(9,650 |
) |
Interest income |
|
|
1 |
|
|
|
— |
|
|
|
1,834 |
|
|
|
— |
|
|
|
1,835 |
|
Income (loss) before income tax * |
|
|
1,117 |
|
|
|
37,565 |
|
|
|
(24,961 |
) |
|
|
— |
|
|
|
13,721 |
|
Income tax (expense) benefit |
|
|
(3,821 |
) |
|
|
(15,578 |
) |
|
|
18,956 |
|
|
|
— |
|
|
|
(443 |
) |
Net income (loss) * |
|
|
(2,704 |
) |
|
|
21,987 |
|
|
|
(6,005 |
) |
|
|
— |
|
|
|
13,278 |
|
Total assets * |
|
|
404,502 |
|
|
|
146,611 |
|
|
|
5,103 |
|
|
|
— |
|
|
|
556,216 |
|
Capital expenditures * |
|
|
39,094 |
|
|
|
14,771 |
|
|
|
6,154 |
|
|
|
— |
|
|
|
60,019 |
|
The following table illustrates selected financial data for each segment as of and for the
year ended December 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenues |
|
|
246,217 |
|
|
|
86,279 |
|
|
|
22,610 |
|
|
|
(28,297 |
) |
|
$ |
326,809 |
|
Intersegment revenue |
|
|
35,382 |
|
|
|
2,524 |
|
|
|
22,610 |
|
|
|
— |
|
|
|
60,516 |
|
Eliminated intersegment revenue |
|
|
(5,643 |
) |
|
|
(44 |
) |
|
|
(22,610 |
) |
|
|
— |
|
|
|
(28,297 |
) |
Depreciation and amortization |
|
|
56,906 |
|
|
|
10,521 |
|
|
|
15,392 |
|
|
|
— |
|
|
|
82,819 |
|
Loss (gain) on disposal of assets,net |
|
|
332 |
|
|
|
(484 |
) |
|
|
— |
|
|
|
— |
|
|
|
(152 |
) |
Operating income (loss) |
|
|
(2,934 |
) |
|
|
23,577 |
|
|
|
6,498 |
|
|
|
— |
|
|
|
27,141 |
|
Interest expense |
|
|
(636 |
) |
|
|
(2 |
) |
|
|
(35,256 |
) |
|
|
— |
|
|
|
(35,894 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(34,882 |
) |
|
|
— |
|
|
|
(34,882 |
) |
Interest income |
|
|
— |
|
|
|
— |
|
|
|
2,253 |
|
|
|
— |
|
|
|
2,253 |
|
Income (loss) before income tax |
|
|
(3,570 |
) |
|
|
23,555 |
|
|
|
(61,620 |
) |
|
|
— |
|
|
|
(41,635 |
) |
Income tax (expense) benefit |
|
|
(1,267 |
) |
|
|
(9,694 |
) |
|
|
10,961 |
|
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
|
(4,837 |
) |
|
|
13,861 |
|
|
|
(50,659 |
) |
|
|
— |
|
|
|
(41,635 |
) |
Total assets |
|
|
438,620 |
|
|
|
127,777 |
|
|
|
11,660 |
|
|
|
(1,644 |
) |
|
|
576,413 |
|
Capital expenditures |
|
|
45,924 |
|
|
|
12,148 |
|
|
|
6,325 |
|
|
|
— |
|
|
|
64,397 |
|
17. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During 2003, the Company spun off its Directory Business to ACS Media LLC and subsequently
sold 99.9% of its interest in ACS Media LLC to the public through a Canadian income fund. As part
of that transaction, the Company entered into several long-term contracts with ACS Media LLC,
including a 50-year publishing agreement, a 50-year license agreement, a 45-year non-compete
agreement and a 10-year billing and collection agreement. The Company had a right to minority
representation of one manager of the permitted nine managers of ACS Media LLC as long as its
contracts with ACS Media LLC were in effect. At December 31, 2006, the Company had recorded in
Accounts payable, accrued and other current liabilities, $2,942 due to ACS Media LLC under these
contracts, primarily under the billing and collection agreement. In 2007, ACS Media ceased to be a
related party after the Company sold its remaining interest and relinquished its right to be a
manager of ACS Media LLC for cash of $162.
F-42
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
17. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS (Continued)
On May 14, 1999, the Company entered into a stockholders’ agreement with Fox Paine, investors
affiliated with Fox Paine, and several non-fund investors, including co-investors and some of the
Company’s former officers. Under the stockholders’ agreement, subject to limited exceptions, Fox
Paine and its affiliates, as a group, could make up to six demands for registration under the
Securities Act of their shares of common stock, and the Company was obligated to bear the fees and
expenses of such registration and offering other than underwriting discounts.
On November 29, 2005, the Company filed a preliminary prospectus supplement relating to a
proposed offering of 10,000 shares of its common stock by Fox Paine. This offering was completed on
December 7, 2005, after which Fox Paine beneficially owned 22.8% of our outstanding common stock.
The Company incurred approximately $500 in transaction fees associated with the offering.
On March 10, 2006, the Company entered into an Underwriting Agreement among the Company,
certain affiliates of Fox Paine, and RBC Capital Markets Corporation, as the underwriter, for the
sale by Fox Paine of 9,549 shares of the Company’s common stock, representing substantially all of
Fox Paine’s remaining holdings of the Company’s common stock. The transaction was priced at $11.00
per share, and on March 15, 2006, the transaction closed. The Company did not receive any proceeds
from the sale of these shares. The Company incurred $188 in transaction fees associated with the
offering.
18. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative financial instruments to hedge variable interest rate debt to
manage interest rate risk. To the extent that derivative financial instruments are outstanding as
of a period end, the fair value of those instruments, represented by the estimated amount the
Company would receive or pay to terminate the agreement, is reported on the balance sheet.
On February 1, and March 21, 2005, the Company entered into floating-to-fixed interest rate
swaps with total notional amounts of $135,000 and $85,000, respectively, which swap the floating
interest rate on a portion of the term loan borrowings under the 2005 senior credit facility for a
five year term at a fixed rate of 6.13% and 6.50%, per year, respectively, inclusive of a 2.00%
premium over LIBOR. On July 15, 2005, the Company entered into a six year $40,000 notional amount
fixed to floating swap arrangement, effectively fixing the rate on the new term loan at 6.43% per
year inclusive of a 2.00% premium over LIBOR. In February 2006, the Company renegotiated the 2005
senior secured credit facility from LIBOR plus 2.00% to LIBOR plus 1.75%, reducing the rate for the
credit facility by 0.25%.
In February 2006, the Company and ACS Holdings executed $115,000 and $52,900 notional amount
floating-to-fixed interest rate swap agreements related to its $375,000 term loan under its 2005
senior bank credit facility. The swaps effectively fix the LIBOR rate on $115,000 and $52,900
principal amount of senior bank credit facility at 6.71% and 6.75%, inclusive of a 1.75% premium
over LIBOR, through December 2011.
On December 31, 2007, 2006 and 2005 all swaps were effective. The swaps have been marked to
market with ($9,179), gross of $3,773 in tax, recorded as the carrying value at December 31, 2007
as other comprehensive loss in the Company’s Consolidated Statement of Stockholders’ Equity
(Deficit) with a corresponding liability recorded in Other deferred credits and long-term
liabilities on the Consolidated Balance Sheet.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, accounts receivable and payable, and other
short-term monetary assets and liabilities approximate carrying values due to their short-term
nature. The fair value for the Company’s 2005 senior credit facility, senior unsecured notes,
capital leases and other long-term obligations were estimated based on quoted market prices. The
Company held out-of-the-money interest rate swaps at December 31, 2007 that were marked to market.
The carrying value of ($9,179) and fair value are equal on that date
F-43
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following table summarizes the Company’s carrying values and fair values of the debt
components of its financial instruments at December 31, 2007:
| |
|
|
|
|
|
|
|
|
| |
|
Carrying |
|
|
Fair |
|
| |
|
Value |
|
|
Value |
|
2005 senior credit facility term loan |
|
$ |
427,900 |
|
|
$ |
410,784 |
|
Capital leases and other long-term obligations |
|
|
5,096 |
|
|
|
5,096 |
|
|
|
|
|
|
|
|
|
|
$ |
432,996 |
|
|
$ |
415,880 |
|
|
|
|
|
|
|
|
20. COMMITMENTS AND CONTINGENCIES
On October 23, 2007, ACS Cable Systems, Inc., a wholly owned subsidiary of the Company,
entered into a definitive Supply Agreement with Tyco Telecommunications (US) Inc. to construct a
long-haul fiber facility that connects Alaska and the Pacific Northwest. Costs associated with
construction of the long-haul fiber facility payable directly to Tyco under the Supply Agreement
are expected to be approximately $86 million.
The Company enters into purchase commitments with vendors in the ordinary course of business.
The Company also has long-term purchase contracts with vendors to support the ongoing needs of its
business. These purchase commitments and contracts have varying terms and in certain cases may
require the Company to buy goods and services in the future at predetermined volumes and at fixed
prices.
The Company is involved in various claims, legal actions and regulatory proceedings arising in
the ordinary course of business and has recorded litigation reserves of $75 as of December 31, 2007
against certain current claims and legal actions. 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.
The Company pledges substantially all property, assets and revenue as collateral on its
outstanding debt instruments.
21. SUBSEQUENT EVENTS
Subsequent to December 31, 2007 the Company invested excess cash in auction rate securities.
Recent uncertainties in the credit markets have resulted in failed auctions for its entire existing
portfolio of auction rate securities of $4,525. These investments are no longer currently liquid
and in the event the Company needs to access these funds, it will not be able to do so without a
loss of principal, unless a future auction on these short-term investments is successful. The
Company has not obtained sufficient evidence to conclude that these investments are
other-than-temporarily impaired or that they will not be settled in the short term, though the
market for these investments is presently uncertain. With the cash demands of the Company’s fiber
build, it may need to access these funds for operational purposes during the time that these
investments are expected to remain illiquid and the company may incur a loss upon liquidation.
F-44
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, Except Per Share Amounts)
22. SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarterly Financial Data |
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
| 2007 |
|
Restated |
|
Restated |
|
Restated |
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
91,623 |
|
|
$ |
94,501 |
|
|
$ |
100,554 |
|
|
$ |
99,107 |
|
|
$ |
385,785 |
|
Operating income |
|
|
14,157 |
|
|
|
13,351 |
|
|
|
17,886 |
|
|
|
15,045 |
|
|
|
60,439 |
|
Net income |
|
|
7,312 |
|
|
|
6,169 |
|
|
|
10,300 |
|
|
|
120,355 |
|
|
|
144,136 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.17 |
|
|
|
0.14 |
|
|
|
0.24 |
|
|
|
2.81 |
|
|
|
3.38 |
|
Diluted |
|
|
0.17 |
|
|
|
0.14 |
|
|
|
0.23 |
|
|
|
2.71 |
|
|
|
3.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2006 |
|
Restated |
|
Restated |
|
Restated |
|
Restated |
|
|
|
|
Operating revenues |
|
$ |
81,752 |
|
|
$ |
85,063 |
|
|
$ |
90,052 |
|
|
$ |
91,854 |
|
|
$ |
348,721 |
|
Operating income |
|
|
7,578 |
|
|
|
10,415 |
|
|
|
13,856 |
|
|
|
11,772 |
|
|
|
43,621 |
|
Net income (loss) |
|
|
(9,525 |
) |
|
|
11,881 |
|
|
|
6,711 |
|
|
|
4,211 |
|
|
|
13,278 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.23 |
) |
|
|
0.28 |
|
|
|
0.16 |
|
|
|
0.10 |
|
|
|
0.32 |
|
Diluted |
|
|
(0.23 |
) |
|
|
0.27 |
|
|
|
0.15 |
|
|
|
0.10 |
|
|
|
0.31 |
|
F-45
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Schedule II — Valuation and Qualifying Accounts
(In Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
Charged to |
|
|
|
Charged to |
|
|
|
|
|
Balance at |
| |
|
Beginning |
|
costs and |
|
|
|
other |
|
|
|
|
|
End |
| Description |
|
of Period |
|
expenses |
|
|
|
accounts (2) |
|
Deductions (3) |
|
of Period |
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
7,434 |
|
|
$ |
5,103 |
|
|
|
|
$ |
2 |
|
|
$ |
(3,771 |
) |
|
$ |
8,768 |
|
Valuation allowance for deferred taxes |
|
$ |
122,498 |
|
|
$ |
(122,498 |
) |
(1 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
6,206 |
|
|
$ |
5,121 |
|
|
|
|
$ |
(61 |
) |
|
$ |
(3,832 |
) |
|
$ |
7,434 |
|
Valuation allowance for deferred taxes |
|
$ |
127,603 |
|
|
$ |
(5,105 |
) |
(1 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
122,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
4,869 |
|
|
$ |
4,494 |
|
|
|
|
$ |
(26 |
) |
|
$ |
(3,131 |
) |
|
$ |
6,206 |
|
Valuation allowance for deferred taxes |
|
$ |
112,208 |
|
|
$ |
15,395 |
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
127,603 |
|
|
|
|
| (1) |
|
Change in the valuation allowance allocated to income tax expense. |
| |
| (2) |
|
Represents the reserve for accounts receivable collected on behalf of others, net of
recovery. |
| |
| (3) |
|
Represents credit losses, net of recovery. |
F-46