e10vqza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 000-28167
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
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52-2126573
(I.R.S. Employer
Identification No.) |
600 Telephone Avenue, Anchorage, Alaska 99503
(Address of Principal Executive Offices) (Zip Code)
(907) 297-3000
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former three months, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days .
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes o No o
APPLICABLE ONLY TO CORPORATE ISSUERS :
The number of shares outstanding of the registrants Common Stock, as of October 31, 2005, was 41,531,147.
EXPLANATORY NOTE:
This amendment to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005
is being filed solely to reflect a change in the balance sheet classification of auction-rate
securities, from cash and cash equivalents to a separate line item within current assets of $31,350
and $35,200 at March 31, 2005 and December 31, 2004, respectively, and to reflect purchases and
sales of these securities as investing cash flows in the statements of cash flows and to add
disclosure of short-term investments.
Except for the aforementioned changes, this Form 10-Q/A does not modify or update other disclosures
in the Form 10-Q, including the nature and character of such disclosure to reflect events occurring
after the filing date of the Form 10-Q.
2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Balance Sheets
(Unaudited, In Thousands Except Per Share Amounts)
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March 31, |
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December 31, |
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2005 |
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2004 |
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Assets |
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Current assets: |
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|
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Cash and cash equivalents |
|
$ |
32,116 |
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|
$ |
50,660 |
|
Restricted cash |
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|
4,690 |
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|
4,690 |
|
Short term investments |
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31,350 |
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|
35,200 |
|
Accounts receivable trade, net of allowance of $4,895 and $4,869 |
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38,440 |
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|
39,413 |
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Materials and supplies |
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7,056 |
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6,623 |
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Prepayments and other current assets |
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4,419 |
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3,724 |
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Total current assets |
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118,071 |
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140,310 |
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Property, plant and equipment |
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1,068,740 |
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1,061,767 |
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Less: accumulated depreciation and amortization |
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668,596 |
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649,455 |
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Property, plant and equipment, net |
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400,144 |
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412,312 |
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Goodwill |
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38,403 |
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38,403 |
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Intangible assets |
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21,826 |
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21,871 |
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Debt issuance costs |
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14,294 |
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15,482 |
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Deferred charges and other assets |
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9,337 |
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8,749 |
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Total assets |
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$ |
602,075 |
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$ |
637,127 |
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Liabilities and Stockholders Equity (Deficit) |
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Current liabilities: |
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Current portion of long-term obligations |
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$ |
393 |
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$ |
2,298 |
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Accounts payable-affiliate |
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2,686 |
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3,973 |
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Accounts payable, accrued and other current liabilities |
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48,862 |
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53,843 |
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Advance billings and customer deposits |
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8,893 |
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8,948 |
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Total current liabilities |
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60,834 |
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69,062 |
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Long-term obligations, net of current portion |
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457,321 |
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523,591 |
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Other deferred credits and long-term liabilities |
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74,784 |
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77,916 |
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Commitments and contingencies |
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Stockholders equity (deficit): |
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Preferred stock, no par, 5,000 authorized, no shares issued and outstanding |
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Common stock, $.01 par value; 145,000 authorized, 45,167 and 35,245 issued and
40,617 and 30,695 outstanding, respectively |
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452 |
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|
352 |
|
Treasury stock, 4,550 shares at cost |
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(18,443 |
) |
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(18,443 |
) |
Paid in capital in excess of par value |
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350,493 |
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|
282,272 |
|
Accumulated deficit |
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(321,292 |
) |
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|
(293,092 |
) |
Accumulated other comprehensive loss |
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|
(2,074 |
) |
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(4,531 |
) |
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Total stockholders equity (deficit) |
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|
9,136 |
|
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(33,442 |
) |
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Total liabilities and stockholders equity |
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$ |
602,075 |
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$ |
637,127 |
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See Notes to Consolidated Financial Statements
4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Operations
(Unaudited, In Thousands Except Per Share Amounts)
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Three Months Ended |
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March 31, |
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2005 |
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2004 |
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Operating revenues: |
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Local telephone |
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$ |
51,565 |
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$ |
55,832 |
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Wireless |
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17,056 |
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11,601 |
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Internet |
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5,061 |
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4,613 |
|
Interexchange |
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3,726 |
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3,409 |
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Total operating revenues |
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77,408 |
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75,455 |
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Operating expenses: |
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Local telephone (exclusive of depreciation and amortization) |
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30,523 |
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32,574 |
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Wireless (exclusive of depreciation and amortization) |
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9,582 |
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|
7,928 |
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Internet (exclusive of depreciation and amortization) |
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5,237 |
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7,506 |
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Interexchange (exclusive of depreciation and amortization) |
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4,400 |
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5,016 |
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Depreciation and amortization |
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20,413 |
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|
19,106 |
|
Loss (gain) on disposal of assets, net |
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|
(68 |
) |
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|
227 |
|
|
|
|
|
|
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Total operating expenses |
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70,087 |
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|
72,357 |
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|
|
|
|
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|
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|
|
|
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Operating income |
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7,321 |
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|
3,098 |
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|
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Other income and expense: |
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Interest expense |
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(9,766 |
) |
|
|
(12,052 |
) |
Loss on extinguishment of debt |
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(26,204 |
) |
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Interest income |
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|
494 |
|
|
|
242 |
|
Other |
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(45 |
) |
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|
(57 |
) |
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Total other income (expense) |
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|
(35,521 |
) |
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|
(11,867 |
) |
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|
|
|
|
|
|
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Loss before income taxes |
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|
(28,200 |
) |
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|
(8,769 |
) |
|
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|
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Income tax expense (benefit) |
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Net loss |
|
$ |
(28,200 |
) |
|
$ |
(8,769 |
) |
|
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|
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Loss per share basic and diluted: |
|
|
|
|
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Net loss |
|
$ |
(0.77 |
) |
|
$ |
(0.30 |
) |
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Weighted average shares outstanding: |
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Basic |
|
|
36,730 |
|
|
|
29,333 |
|
|
|
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|
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|
Diluted |
|
|
36,730 |
|
|
|
29,333 |
|
|
|
|
|
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|
|
See Notes to Consolidated Financial Statements
5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated
Statements of Stockholders Equity (Deficit)
Three Months Ended March 31, 2005 and 2004
(Unaudited, In Thousands)
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Shares |
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Paid in |
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Accumulated |
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Subject to |
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Capital in |
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Other |
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Common |
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|
Mandatory |
|
|
Treasury |
|
|
Excess of |
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Accumulated |
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Comprehensive |
|
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Stockholders |
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Stock |
|
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Redemption |
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Stock |
|
|
Par |
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|
Deficit |
|
|
Loss |
|
|
Equity |
|
Balance, December 31, 2003 |
|
$ |
336 |
|
|
$ |
(1,198 |
) |
|
$ |
(17,118 |
) |
|
$ |
278,181 |
|
|
$ |
(253,798 |
) |
|
$ |
(4,543 |
) |
|
$ |
1,860 |
|
Components of comprehensive loss: |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,769 |
) |
|
|
|
|
|
|
(8,769 |
) |
Issuance of 2 shares
of common stock, $.01 par |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Purchase of 14 shares
of treasury stock |
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Balance, March 31, 2004 |
|
$ |
336 |
|
|
$ |
(1,198 |
) |
|
$ |
(17,181 |
) |
|
$ |
278,190 |
|
|
$ |
(262,567 |
) |
|
$ |
(4,543 |
) |
|
$ |
(6,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
$ |
352 |
|
|
$ |
|
|
|
$ |
(18,443 |
) |
|
$ |
282,272 |
|
|
$ |
(293,092 |
) |
|
$ |
(4,531 |
) |
|
$ |
(33,442 |
) |
Components of comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,200 |
) |
|
|
|
|
|
|
(28,200 |
) |
Interest rate swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,457 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,743 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,140 |
) |
|
|
|
|
|
|
|
|
|
|
(8,140 |
) |
Issuance of 25 shares
of common stock, $.01 par |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
154 |
|
Issuance of 9,897 shares
of common stock, $.01 par |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
76,207 |
|
|
|
|
|
|
|
|
|
|
|
76,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2005 |
|
$ |
452 |
|
|
|
|
|
|
$ |
(18,443 |
) |
|
$ |
350,493 |
|
|
$ |
(321,292 |
) |
|
$ |
(2,074 |
) |
|
$ |
9,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,200 |
) |
|
$ |
(8,769 |
) |
Adjustments to reconcile net loss to net cash (used) provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
20,413 |
|
|
|
19,106 |
|
Loss (gain) on disposal of assets, net |
|
|
(68 |
) |
|
|
227 |
|
Amortization of debt issuance costs and original issue discount |
|
|
13,807 |
|
|
|
928 |
|
Other deferred credits |
|
|
(4,082 |
) |
|
|
(2,285 |
) |
Changes in components of working capital: |
|
|
|
|
|
|
|
|
Accounts receivable and other current assets |
|
|
(155 |
) |
|
|
4,964 |
|
Accounts payable and other current liabilities |
|
|
(8,784 |
) |
|
|
(8,658 |
) |
Deferred charges and other assets |
|
|
1,869 |
|
|
|
206 |
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities |
|
|
(5,200 |
) |
|
|
5,719 |
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Construction and capital expenditures |
|
|
(7,182 |
) |
|
|
(10,356 |
) |
Purchase of short term investments |
|
|
(50,950 |
) |
|
|
(37,950 |
) |
Proceeds from sales of short term investments |
|
|
54,800 |
|
|
|
38,522 |
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(3,332 |
) |
|
|
(9,784 |
) |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(405,157 |
) |
|
|
(828 |
) |
Proceeds from issuance of long-term debt |
|
|
335,000 |
|
|
|
|
|
Debt issuance costs |
|
|
(10,637 |
) |
|
|
|
|
Payment of dividend on common stock |
|
|
(5,679 |
) |
|
|
|
|
Issuance of common stock |
|
|
84,278 |
|
|
|
9 |
|
Stock issuance costs |
|
|
(7,817 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(10,012 |
) |
|
|
(882 |
) |
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(18,544 |
) |
|
|
(4,947 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period |
|
|
50,660 |
|
|
|
54,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
32,116 |
|
|
$ |
49,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
10,142 |
|
|
$ |
11,876 |
|
Income taxes paid, net of refund |
|
|
|
|
|
|
1,120 |
|
|
|
|
|
|
|
|
|
|
Supplemental Noncash Transactions: |
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
2,457 |
|
|
$ |
|
|
Dividend declared, but not paid |
|
|
(8,140 |
) |
|
|
|
|
See Notes to Consolidated Financial Statements
7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alaska Communications Systems Group, Inc., a Delaware corporation, and its Subsidiaries (the
Company or ACS Group), 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 represent the consolidated
financial position, results of operations and cash flows principally of the following entities:
|
|
|
ACS Group |
|
|
|
|
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) |
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission. However, the Company believes the disclosures which are made are adequate to
make the information presented not misleading. The consolidated financial statements and footnotes
included in this Form 10-Q should be read in conjunction with the consolidated financial statements
and notes thereto included in the Companys Annual Report on Form 10-K/A for the year ended
December 31, 2004. Certain reclassifications have been made to the 2004 financial statements to
make them conform to the current presentation.
In the opinion of management, the financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows for all periods presented. The results of operations for the
three months ended March 31, 2005, are not necessarily indicative of the results of operations
which might be expected for the entire year or any other interim periods.
Short-term Investments
Short-term investments include investments in auction rate securities. Prior to June 30, 2005,
the Company had previously categorized its short-term investments in auction rate securities as a
component of Cash and cash equivalents in the Companys consolidated balance sheets, but has
determined that categorization as Short-term investments is more appropriate. Accordingly, the
short-term investments in auction rate securities have been reclassified for all periods presented.
Revenue Recognition
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 Regulatory Commission of Alaska (RCA) within the intrastate jurisdiction and 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. To the extent that
disputes arise over revenue settlements, the Companys policy is to defer revenue collected until
settlement methodologies are resolved and finalized. At March 31, 2005 and 2004, the Company had
liabilities of $16,920 and $13,053, respectively, related to its estimate of refundable access
revenue.
8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 Statement of Financial Accounting
Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. 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, under SFAS No. 71, 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 implemented, effective January 1, 2003, higher depreciation rates for its
regulated telephone plant for the interstate jurisdiction, which management believes approximate
the economically useful lives of the underlying plant. As a result, the Company has recorded a
regulatory asset under SFAS No. 71 of $39,296 and $21,850 as of March 31, 2005 and 2004,
respectively, related to depreciation of the regulated telephone plant allocable to its intrastate
and local jurisdictions. The Company has also deferred as a regulatory asset $894 of costs incurred
in connection with regulatory rate making proceedings, which is being amortized over three years
starting in 2003. The balance of this regulatory asset was $223 at March 31, 2005. If the Company
were not following SFAS No. 71, it would have recorded additional cumulative depreciation expense
in the three months ended March 31, 2005, of $4,323 for the intrastate and local jurisdictions and
the deferred costs incurred in connection with regulatory rate making proceedings would have been
charged to expense as incurred. The Company also has a regulatory liability of $55,299 at March 31,
2005 related to accumulated removal costs. If the Company were not following SFAS No. 71, it would
have followed SFAS No. 143, Accounting for Asset Retirement Obligations. 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.
Stock Incentive Plans
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock incentive plans. Accordingly, no compensation cost has been
recognized for options with exercise prices equal to or greater than fair value on the date of
grant. No compensation costs were charged to operations for the three months ended March 31, 2005
or 2004. If compensation costs had been determined consistent with SFAS No. 123, Accounting for
Stock-Based Compensation, the Companys net loss and net loss per share on a pro forma basis for
the three months ended March 31, 2005 and 2004 would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2005 |
|
|
2004 |
|
Net loss: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
(28,200 |
) |
|
$ |
(8,769 |
) |
Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards |
|
$ |
(749 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
(28,949 |
) |
|
$ |
(8,736 |
) |
|
|
|
|
|
|
|
9
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for grants made in 2004:
|
|
|
|
|
|
|
2004 |
Risk free rate |
|
|
2.94 |
% |
Dividend yield |
|
|
0.0 |
% |
Expected volatility factor |
|
|
55.2 |
% |
Expected option life (years) |
|
|
6.8 |
|
No options were granted in 2005. The Company uses the treasury stock method to calculate earnings per share.
As the Company incurred a loss for the period ended March 31, 2005, it excluded the dilutive impact of
options equivalent to 1,319 shares from its earnings per share calculation.
2. NEW ACCOUNTING STANDARDS
In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement
Obligations. FIN 47 will be effective for the Company on December 31, 2005 and requires it to
recognize asset retirement obligations which are conditional on a future event, such as the
obligation to safely dispose of asbestos when a building is remodeled.
Uncertainty about the timing or settlement of the obligation is factored into the measurement of
the liability. The Company is in the process of quantifying the impact FIN 47 will have on its
financial position and results of operations.
In April 2005, the Securities and Exchange Commission (SEC) delayed the effective date of
SFAS No. 123R, Share-Based Payments. SFAS No. 123R will now be effective for the Company as of the
interim reporting period beginning January 1, 2006. SFAS 123R requires that compensation cost
relating to share-based payment transactions be recognized in financial statements based on the
fair value of the equity or liability instruments issued. SFAS No. 123R covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. The Company
does not anticipate that the adoption of SFAS No. 123R will have a material impact on its financial
position or results of operations.
In December 2004, the FASB is sued SFAS No. 153, Exchanges of Non-Monetary Assets, which is
effective for the Company starting July 1, 2005. In the past, the Company was frequently required
to measure the value of assets exchanged in non-monetary transactions by using the net book value
of the asset relinquished. Under SFAS No. 153, the Company will measure assets exchanged at fair
value, as long as the transaction has commercial substance and the fair value of the assets
exchanged is determinable within reasonable limits. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. The adoption of SFAS No. 153 is not anticipated to have a material effect on the
Companys financial position or results of operations.
10
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
3. LONG TERM OBLIGATIONS
Long term obligations consist of the following at March 31, 2005 and December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
2003 senior credit facility term loan |
|
$ |
|
|
|
$ |
198,000 |
|
2005 senior credit facility term loan |
|
|
335,000 |
|
|
|
|
|
9 3/8% senior subordinated notes due 2009 |
|
|
|
|
|
|
147,500 |
|
9 7/8% senior unsecured notes due 2011 |
|
|
118,304 |
|
|
|
177,650 |
|
Original issue discount - 9 7/8% senior subordinated notes due 2011 |
|
|
(3,339 |
) |
|
|
(5,321 |
) |
Capital leases and other long-term obligations |
|
|
7,749 |
|
|
|
8,060 |
|
|
|
|
|
|
|
|
|
|
|
457,714 |
|
|
|
525,889 |
|
Less current portion |
|
|
393 |
|
|
|
2,298 |
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
$ |
457,321 |
|
|
$ |
523,591 |
|
|
|
|
|
|
|
|
The aggregate maturities of long -term obligations for each of the five years and thereafter subsequent to March 31,
2005 are as follows:
|
|
|
|
|
2005 (April 1 - December 31) |
|
$ |
530 |
|
2006 (January 1 - December 31) |
|
|
971 |
|
2007 (January 1 - December 31) |
|
|
1,028 |
|
2008 (January 1 - December 31) |
|
|
926 |
|
2009 (January 1 - December 31) |
|
|
677 |
|
2010 (January 1 - December 31) |
|
|
643 |
|
Thereafter |
|
|
456,278 |
|
|
|
|
|
|
|
$ |
461,053 |
|
|
|
|
|
In 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 the $335,000 of term loan borrowings under that facility, together with the $76,307 in net
proceeds of a simultaneous offering of our common stock and cash on hand to repay in full and
redeem the $198,000 of outstanding principal under our 2003 senior credit facility, together with
interest accrued thereon; repurchase $59,346 of outstanding principal of our senior unsecured
notes, together with tender premiums and interest accrued thereon; repurchase $147,500 of
outstanding principal of our senior subordinated notes, together with tender premiums and interest
accrued thereon; and pay underwriters discounts and transaction fees and expenses associated with
the equity offering and refinancing transactions.
The $335,000 term loan under the 2005 senior credit facility was drawn on February 1, 2005 and
generally bears interest at an annual rate of LIBOR plus 2.00%, with a term of seven years from the
date of closing and no scheduled principal payments before maturity. The $45,000 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 $45,000
revolving credit facility under the 2005 senior credit facility remains undrawn, The Company will
pay an annual commitment fee of 0.375% of the undrawn principal amount over its term. The Company
also 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 the 2.00% premium over LIBOR. The swaps are accounted
for as cash flow hedges.
4. STOCK INCENTIVE PLANS
Under various plans, ACS Group, through the Compensation Committee of the Board of Directors,
may grant stock options, stock appreciation rights and other awards to officers, employees and
non-employee directors. At March 31, 2005, ACS Group has reserved a total of 10,060 shares of
authorized common stock for issuance under the plans. In general, options under the plans vest
ratably over three, four or five years.
11
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
4. STOCK INCENTIVE PLANS (Continued)
Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
ACS Group has reserved 7,160 shares under this plan, which was adopted by the Company in
November 1999. At March 31, 2005, 7,089 options have been granted, 2,892 have been forfeited, 2,035
have been exercised, and 2,963 shares are available for grant under the plan.
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 March 31, 2005, 151 shares have been awarded
and 199 shares are available for grant under the plan. In 2005 and 2004, the plan requires
directors to receive not less than 50% and 25% respectively, of their annual retainer in the form
of ACS Groups stock and directors are permitted to elect up to 100% of their annual retainer in
the form of ACS Groups stock. On March 31, 2005, eight shares under the plan were awarded to
directors, of which six were elected to be deferred until termination of service by the directors.
Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
This plan was also adopted by ACS Group in November 1999. ACS Group has reserved 1,550 shares
under this plan. At March 31, 2005, 980 shares are available for issuance and sale. The plan will
terminate on December 31, 2009. 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 or is for not more than five months in a
calendar year, or who are ineligible to participate due to restrictions under the Internal Revenue
Code.
A participant in the purchase plan may authorize regular salary deductions 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 full 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 unissued
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.
2003 Options for Officer Inducement Grant
During 2003, the Companys Board of Directors awarded 1,000 options as an inducement grant in
hiring the Companys Chief Executive Officer, all of which are currently outstanding. The options
were registered with the Securities Exchange Commission on Form S-8 during October 2004.
5. RETIREMENT PLANS
Pension benefits for substantially all of the Companys 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 contribution plan, the
accumulated benefits and plan assets are not determined for or allocated separately to the
individual employer. The Company has no responsibility for the benefit obligation other than the
contractual contribution rate. The Company als o provides a 401(k) retirement savings plan covering
substantially all of its employees.
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, Inc.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
12
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
5. RETIREMENT PLANS (Continued)
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 will be
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). The Company uses a December 31 measurement date
for the plan.
The following table represents the net periodic pension expense for the ACS
Retirement Plan for the three months ended March 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2005 |
|
|
2004 |
|
Interest cost |
|
$ |
188 |
|
|
$ |
184 |
|
Expected return on plan assets |
|
|
(201 |
) |
|
|
(190 |
) |
Amortization of loss |
|
|
114 |
|
|
|
138 |
|
Amortization of prior service cost |
|
|
51 |
|
|
|
51 |
|
|
|
|
|
|
|
|
Net periodic pension expense |
|
$ |
152 |
|
|
$ |
183 |
|
|
|
|
|
|
|
|
6. BUSINESS SEGMENTS
The Company has four reportable segments: local telephone, wireless, Internet and
interexchange. Local telephone provides landline telecommunications services and consists of local
telephone service, network access and deregulated and other revenue; wireless provides wireless
telecommunications service; Internet provides Internet service and advanced IP based private
networks; and interexchange provides switched and dedicated long distance services. Each reportable
segment is a strategic business offering different services than those offered by the other
segments. The Company evaluates the performance of its segments based on operating income (loss).
The Company also incurs interest expense, interest income, equity in earnings of investments
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. 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 three
months ended March 31, 2005 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone |
|
|
Wireless |
|
|
Internet |
|
|
Interexchange |
|
|
All Other |
|
|
Eliminations |
|
|
Total |
|
Operating revenues |
|
$ |
51,566 |
|
|
$ |
17,066 |
|
|
$ |
5,125 |
|
|
$ |
4,430 |
|
|
$ |
5,636 |
|
|
$ |
(6,415 |
) |
|
$ |
77,408 |
|
Depreciation and
amortization |
|
|
13,218 |
|
|
|
2,598 |
|
|
|
820 |
|
|
|
91 |
|
|
|
3,686 |
|
|
|
|
|
|
|
20,413 |
|
Operating income
(loss) |
|
|
3,312 |
|
|
|
4,094 |
|
|
|
(1,500 |
) |
|
|
(125 |
) |
|
|
1,540 |
|
|
|
|
|
|
|
7,321 |
|
Interest expense |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
(9,649 |
) |
|
|
|
|
|
|
(9,766 |
) |
Loss on
extinguishment of
debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,204 |
) |
|
|
|
|
|
|
(26,204 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494 |
|
|
|
|
|
|
|
494 |
|
Income tax
provision (benefit) |
|
|
1,145 |
|
|
|
1,686 |
|
|
|
|
|
|
|
|
|
|
|
(2,831 |
) |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
2,096 |
|
|
|
2,408 |
|
|
|
(1,500 |
) |
|
|
(171 |
) |
|
|
(56,397 |
) |
|
|
25,364 |
|
|
|
(28,200 |
) |
Total assets |
|
|
454,465 |
|
|
|
116,071 |
|
|
|
(1,478 |
) |
|
|
19,834 |
|
|
|
13,183 |
|
|
|
|
|
|
|
602,075 |
|
Capital expenditures |
|
|
4,127 |
|
|
|
299 |
|
|
|
708 |
|
|
|
|
|
|
|
2,048 |
|
|
|
|
|
|
|
7,182 |
|
13
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
6. BUSINESS SEGMENTS (Continued)
Operating revenue disclosed above includes intersegment operating revenue of $6,512 for local
telephone, $557 for wireless, $924 for interexchange and $5,633 for all other. In accordance with
SFAS No. 71, intercompany revenue between local telephone and all other segments is not eliminated
above.
The following table illustrates selected financial data for each segment as of and for the three
months ended March 31, 2004 :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telephone |
|
|
Wireless |
|
|
Internet |
|
|
Interexchange |
|
|
All Other |
|
|
Eliminations |
|
|
Total |
|
Operating revenues |
|
$ |
55,822 |
|
|
$ |
11,613 |
|
|
$ |
4,613 |
|
|
$ |
3,858 |
|
|
$ |
5,799 |
|
|
$ |
(6,250 |
) |
|
$ |
75,455 |
|
Depreciation and
amortization |
|
|
12,849 |
|
|
|
1,645 |
|
|
|
1,002 |
|
|
|
157 |
|
|
|
3,453 |
|
|
|
|
|
|
|
19,106 |
|
Operating income
(loss) |
|
|
6,313 |
|
|
|
1,143 |
|
|
|
(4,162 |
) |
|
|
(1,378 |
) |
|
|
1,182 |
|
|
|
|
|
|
|
3,098 |
|
Interest expense |
|
|
(81 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
(11,912 |
) |
|
|
|
|
|
|
(12,052 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
242 |
|
Income tax
provision (benefit) |
|
|
2,499 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
(2,965 |
) |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
3,733 |
|
|
|
665 |
|
|
|
(4,162 |
) |
|
|
(1,425 |
) |
|
|
(7,580 |
) |
|
|
|
|
|
|
(8,769 |
) |
Total assets |
|
|
517,739 |
|
|
|
102,924 |
|
|
|
7,649 |
|
|
|
23,259 |
|
|
|
14,609 |
|
|
|
|
|
|
|
666,180 |
|
Capital expenditures |
|
|
5,235 |
|
|
|
3,609 |
|
|
|
453 |
|
|
|
38 |
|
|
|
1,021 |
|
|
|
|
|
|
|
10,356 |
|
Operating revenue disclosed above includes intersegment operating revenue of $6,324 for
local telephone, $434 for wireless, $522 for interexchange and $5,789 for all other. In accordance
with SFAS No. 71, intercompany revenue between local telephone and all other segments is not
eliminated above.
7. RELATED PARTY TRANSACTIONS
Fox Paine & Company, LLC (Fox Paine), ACS Groups largest stockholder, was entitled to
receive an annual management fee in the amount of 1% of the Companys net income before interest
expense, interest income, income taxes, depreciation and amortization, and equity in earnings
(loss) of investments, calculated without regard to the fee pursuant to an agreement dated May 14,
1999. The management fee expense for the three months ended March 31, 2005 was $38, related to a
final contract true up, and $220 for the three months ended March 31, 2004. The management fee
payable at March 31, 2005 and 2004 was $0 and $1,206, respectively. The annual management fee
obligation to Fox Paine was terminated, effective for periods beginning after December 31, 2004, as
partial consideration for a $2,700 transaction fee paid to Fox Paine in February 2005, in
connection with assistance rendered in structuring a stock offering and refinancing transaction
that the Company completed during the first quarter of 2005. The transaction fee agreement was
approved by the Companys board of directors.
Two of the Companys directors, Messrs. Saul A. Fox and W. Dext er Paine, III are co-founders
of Fox Paine and currently serve as Fox Paines Chief Executive Officer and President. A third
director, Mr. Wray T. Thorn, is a former director of Fox Paine.
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. At March 31, 2005, the Company had
recorded in accounts payable affiliates, $2,686 due to ACS Media LLC under these contracts,
primarily under the billing and collection agreement. The Company has a right to minority
representation of one manager of the permitted nine managers of ACS Media LLC so long as its
contracts with ACS Media LLC are in effect. Currently, Leonard A. Steinberg, an officer of the
Company, is a manager of ACS Media LLC.
On September 14, 2003, the Company entered into an agreement with a retiring officer to
reacquire 267 shares of the Companys stock owned by the officer in January 2004, at a purchase
price per share equal to the highest average closing price of a share of the Companys stock during
any 5-consecutive day trading period in January 2004. The officer delivered the shares to the
Company in 2004, and the Company made repurchase payments totaling $1,262 to the officer in four
equal quarterly installments commencing on March 31, 2004. Under SFAS No. 150, Accounting for
Certain Financial
14
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
7. RELATED PARTY TRANSACTIONS (Continued)
Instruments with Characteristics of both Liabilities and Equity, the obligation was initially
measured at fair value. If the obligation had been settled on December 31, 2003, the Company would
have paid $1,265 for those shares and, accordingly, $1,265 was included in Accounts payable -
affiliates on the Consolidated Balance Sheets of the Company at that date. As of March 31, 2004,
the Company classified the 267 shares as shares subject to mandatory redemption within
stockholders equity on the Consolidated Balance Sheets.
On May 14, 1999, the Company entered into a stockholders agreement with Fox Paine Capital
Fund, investors affiliated with Fox Paine Capital Fund and several non-fund investors, including
co-investors and some of the Companys former officers. Under the stockholders agreement, subject
to limited exceptions, Fox Paine Capital Fund and its affiliates, as a group, may make up to six
demands for registration under the Securities Act of their shares of common stock, and the Company
is obligated to bear the fees and expenses of such registration and offering other than
underwriting discounts.
15
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. |
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS |
ACS Holdings and its subsidiaries were guarantors of the ACS Groups senior discount
debentures. Additionally, ACS Group and ACS Holdings subsidiaries were guarantors under ACS
Holdings 9 3/8 % senior subordinated notes and 9 7/8% senior unsecured notes. All ACS Group and
Holdings subsidiaries (the Combined Subsidiaries) are 100% owned. The guarantees are full and
unconditional. In addition, all guarantees are joint and several. Accordingly, the interim
condensed consolidating financial statements are presented below:
Condensed Consolidating Balance Sheet
March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
82 |
|
|
$ |
32,034 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,116 |
|
Restricted cash |
|
|
|
|
|
|
4,690 |
|
|
|
|
|
|
|
|
|
|
|
4,690 |
|
Short term investments |
|
|
|
|
|
|
31,350 |
|
|
|
|
|
|
|
|
|
|
|
31,350 |
|
Accounts receivable-trade, net |
|
|
14,479 |
|
|
|
23,959 |
|
|
|
|
|
|
|
|
|
|
|
38,438 |
|
Accounts receivable-affiliates |
|
|
26,828 |
|
|
|
(28,917 |
) |
|
|
2,091 |
|
|
|
|
|
|
|
2 |
|
Materials and supplies |
|
|
7,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,056 |
|
Prepayments and other current assets |
|
|
1,916 |
|
|
|
2,503 |
|
|
|
|
|
|
|
|
|
|
|
4,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
50,361 |
|
|
|
65,619 |
|
|
|
2,091 |
|
|
|
|
|
|
|
118,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
10 |
|
|
|
363,255 |
|
|
|
7,088 |
|
|
|
(370,343 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
962,514 |
|
|
|
106,226 |
|
|
|
|
|
|
|
|
|
|
|
1,068,740 |
|
Less: accumulated depreciation and amortization |
|
|
605,926 |
|
|
|
62,670 |
|
|
|
|
|
|
|
|
|
|
|
668,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
356,588 |
|
|
|
43,556 |
|
|
|
|
|
|
|
|
|
|
|
400,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,403 |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,826 |
|
Debt issuance costs |
|
|
|
|
|
|
14,294 |
|
|
|
|
|
|
|
|
|
|
|
14,294 |
|
Deferred charges and other assets |
|
|
1,584 |
|
|
|
7,743 |
|
|
|
|
|
|
|
|
|
|
|
9,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
430,369 |
|
|
$ |
494,467 |
|
|
$ |
9,179 |
|
|
$ |
(331,940 |
) |
|
|
602,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
571 |
|
|
$ |
(178 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
393 |
|
Accounts payable-affiliates |
|
|
2,618 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
2,686 |
|
Accounts payable, accrued and other current liabilities |
|
|
15,182 |
|
|
|
28,596 |
|
|
|
43 |
|
|
|
5,041 |
|
|
|
48,862 |
|
Advance billings and customer deposits |
|
|
8,887 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
8,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
27,258 |
|
|
|
28,492 |
|
|
|
43 |
|
|
|
5,041 |
|
|
|
60,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
3,861 |
|
|
|
453,460 |
|
|
|
|
|
|
|
|
|
|
|
457,321 |
|
Deferred income taxes |
|
|
310 |
|
|
|
(310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other deferred credits and long-term liabilities |
|
|
74,089 |
|
|
|
5,737 |
|
|
|
|
|
|
|
(5,042 |
) |
|
|
74,784 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2 |
|
|
|
|
|
|
|
452 |
|
|
|
(2 |
) |
|
|
452 |
|
Treasury stock |
|
|
|
|
|
|
|
|
|
|
(18,443 |
) |
|
|
|
|
|
|
(18,443 |
) |
Paid in capital in excess of par value |
|
|
491,240 |
|
|
|
313,751 |
|
|
|
350,493 |
|
|
|
(804,991 |
) |
|
|
350,493 |
|
Retained earnings (accumulated deficit) |
|
|
(166,391 |
) |
|
|
(304,589 |
) |
|
|
(321,292 |
) |
|
|
470,980 |
|
|
|
(321,292 |
) |
Accumulated other comprehensive loss |
|
|
|
|
|
|
(2,074 |
) |
|
|
(2,074 |
) |
|
|
2,074 |
|
|
|
(2,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
324,851 |
|
|
|
7,088 |
|
|
|
9,136 |
|
|
|
(331,939 |
) |
|
|
9,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
430,369 |
|
|
$ |
494,467 |
|
|
$ |
9,179 |
|
|
$ |
(331,40 |
) |
|
|
602,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
99 |
|
|
$ |
50,561 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,660 |
|
Restricted cash |
|
|
|
|
|
|
4,690 |
|
|
|
|
|
|
|
|
|
|
|
4,690 |
|
Short term investments |
|
|
|
|
|
|
35,200 |
|
|
|
|
|
|
|
|
|
|
|
35,200 |
|
Accounts receivable-trade, net |
|
|
15,397 |
|
|
|
24,857 |
|
|
|
|
|
|
|
(841 |
) |
|
|
39,413 |
|
Accounts receivable-affiliates |
|
|
12,490 |
|
|
|
(13,578 |
) |
|
|
1,088 |
|
|
|
|
|
|
|
|
|
Materials and supplies |
|
|
6,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,623 |
|
Prepayments and other current assets |
|
|
1,493 |
|
|
|
2,231 |
|
|
|
|
|
|
|
|
|
|
|
3,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
36,102 |
|
|
|
103,961 |
|
|
|
1,088 |
|
|
|
(841 |
) |
|
|
140,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
10 |
|
|
|
360,418 |
|
|
|
(35,335 |
) |
|
|
(325,083 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
957,589 |
|
|
|
104,178 |
|
|
|
|
|
|
|
|
|
|
|
1,061,767 |
|
Less: accumulated depreciation and amortization |
|
|
590,471 |
|
|
|
58,984 |
|
|
|
|
|
|
|
|
|
|
|
649,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
367,118 |
|
|
|
45,194 |
|
|
|
|
|
|
|
|
|
|
|
412,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,403 |
|
|
|
38,403 |
|
Intangible assets |
|
|
21,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,871 |
|
Debt issuance costs |
|
|
|
|
|
|
15,482 |
|
|
|
|
|
|
|
|
|
|
|
15,482 |
|
Deferred charges and other assets |
|
|
1,772 |
|
|
|
6,967 |
|
|
|
|
|
|
|
|
|
|
|
8,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
426,873 |
|
|
$ |
532,022 |
|
|
$ |
(34,247 |
) |
|
$ |
(287,521 |
) |
|
$ |
637,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
548 |
|
|
$ |
1,750 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,298 |
|
Accounts payable-affiliates |
|
|
2,964 |
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
3,973 |
|
Accounts payable, accrued and other current liabilities |
|
|
14,705 |
|
|
|
40,784 |
|
|
|
(805 |
) |
|
|
(841 |
) |
|
|
53,843 |
|
Advance billings and customer deposits |
|
|
8,942 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
8,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
27,159 |
|
|
|
43,549 |
|
|
|
(805 |
) |
|
|
(841 |
) |
|
|
69,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
|
4,114 |
|
|
|
519,477 |
|
|
|
|
|
|
|
|
|
|
|
523,591 |
|
Deferred income taxes |
|
|
1,345 |
|
|
|
(1,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other deferred credits and long-term liabilities |
|
|
72,240 |
|
|
|
5,676 |
|
|
|
|
|
|
|
|
|
|
|
77,916 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
2 |
|
|
|
|
|
|
|
352 |
|
|
|
(2 |
) |
|
|
352 |
|
Treasury stock |
|
|
|
|
|
|
|
|
|
|
(18,443 |
) |
|
|
|
|
|
|
(18,443 |
) |
Paid in capital in excess of par value |
|
|
491,240 |
|
|
|
245,585 |
|
|
|
282,272 |
|
|
|
(736,825 |
) |
|
|
282,272 |
|
Retained earnings (accumulated deficit) |
|
|
(169,227 |
) |
|
|
(276,389 |
) |
|
|
(293,092 |
) |
|
|
445,616 |
|
|
|
(293,092 |
) |
Accumulated other comprehensive loss |
|
|
|
|
|
|
(4,531 |
) |
|
|
(4,531 |
) |
|
|
4,531 |
|
|
|
(4,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
322,015 |
|
|
|
(35,335 |
) |
|
|
(33,442 |
) |
|
|
(286,680 |
) |
|
|
(33,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
426,873 |
|
|
$ |
532,022 |
|
|
$ |
(34,247 |
) |
|
$ |
(287,521 |
) |
|
$ |
637,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. |
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued) |
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local telephone |
|
$ |
51,566 |
|
|
$ |
5,636 |
|
|
$ |
|
|
|
$ |
(5,637 |
) |
|
$ |
51,565 |
|
Wireless |
|
|
17,066 |
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
17,056 |
|
Internet |
|
|
5,125 |
|
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
5,061 |
|
Interexchange |
|
|
4,430 |
|
|
|
|
|
|
|
|
|
|
|
(704 |
) |
|
|
3,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
|
78,187 |
|
|
|
5,636 |
|
|
|
|
|
|
|
(6,415 |
) |
|
|
77,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local telephone (exclusive of depreciation and amortization) |
|
|
35,035 |
|
|
|
410 |
|
|
|
|
|
|
|
(4,922 |
) |
|
|
30,523 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
10,774 |
|
|
|
|
|
|
|
|
|
|
|
(1,192 |
) |
|
|
9,582 |
|
Internet (exclusive of depreciation and amortization) |
|
|
5,474 |
|
|
|
|
|
|
|
|
|
|
|
(237 |
) |
|
|
5,237 |
|
Interexchange (exclusive of depreciation and amortization) |
|
|
4,464 |
|
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
4,400 |
|
Depreciation and amortization |
|
|
16,727 |
|
|
|
3,686 |
|
|
|
|
|
|
|
|
|
|
|
20,413 |
|
Gain on disposal of assets, net |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
72,406 |
|
|
|
4,096 |
|
|
|
|
|
|
|
(6,415 |
) |
|
|
70,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
5,781 |
|
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
7,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(117 |
) |
|
|
(9,649 |
) |
|
|
|
|
|
|
|
|
|
|
(9,766 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
(26,204 |
) |
|
|
|
|
|
|
|
|
|
|
(26,204 |
) |
Interest income |
|
|
|
|
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
494 |
|
Other |
|
|
4 |
|
|
|
2,787 |
|
|
|
(28,200 |
) |
|
|
25,364 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(113 |
) |
|
|
(32,572 |
) |
|
|
(28,200 |
) |
|
|
25,364 |
|
|
|
(35,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
5,668 |
|
|
|
(31,032 |
) |
|
|
(28,200 |
) |
|
|
25,364 |
|
|
|
(28,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(2,832 |
) |
|
|
2,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,836 |
|
|
$ |
(28,200 |
) |
|
$ |
(28,200 |
) |
|
$ |
25,364 |
|
|
$ |
(28,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. |
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued) |
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local telephone |
|
$ |
55,822 |
|
|
$ |
5,799 |
|
|
$ |
|
|
|
$ |
(5,789 |
) |
|
$ |
55,832 |
|
Wireless |
|
|
11,613 |
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
11,601 |
|
Internet |
|
|
4,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613 |
|
Interexchange |
|
|
3,858 |
|
|
|
|
|
|
|
|
|
|
|
(449 |
) |
|
|
3,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
|
75,906 |
|
|
|
5,799 |
|
|
|
|
|
|
|
(6,250 |
) |
|
|
75,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local telephone (exclusive of depreciation and amortization) |
|
|
36,484 |
|
|
|
1,134 |
|
|
|
|
|
|
|
(5,044 |
) |
|
|
32,574 |
|
Wireless (exclusive of depreciation and amortization) |
|
|
8,825 |
|
|
|
|
|
|
|
|
|
|
|
(897 |
) |
|
|
7,928 |
|
Internet (exclusive of depreciation and amortization) |
|
|
7,752 |
|
|
|
|
|
|
|
|
|
|
|
(246 |
) |
|
|
7,506 |
|
Interexchange (exclusive of depreciation and amortization) |
|
|
5,079 |
|
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
5,016 |
|
Depreciation and amortization |
|
|
15,653 |
|
|
|
3,453 |
|
|
|
|
|
|
|
|
|
|
|
19,106 |
|
Loss on disposal of assets, net |
|
|
197 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
73,990 |
|
|
|
4,617 |
|
|
|
|
|
|
|
(6,250 |
) |
|
|
72,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,916 |
|
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
3,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(140 |
) |
|
|
(11,263 |
) |
|
|
(649 |
) |
|
|
|
|
|
|
(12,052 |
) |
Interest income |
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
242 |
|
Other |
|
|
4 |
|
|
|
(1,248 |
) |
|
|
(8,120 |
) |
|
|
9,307 |
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(136 |
) |
|
|
(12,269 |
) |
|
|
(8,769 |
) |
|
|
9,307 |
|
|
|
(11,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
1,780 |
|
|
|
(11,087 |
) |
|
|
(8,769 |
) |
|
|
9,307 |
|
|
|
(8,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(2,967 |
) |
|
|
2,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,187 |
) |
|
$ |
(8,120 |
) |
|
$ |
(8,769 |
) |
|
$ |
9,307 |
|
|
$ |
(8,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. |
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued) |
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided (used) by operating activities |
|
$ |
5,347 |
|
|
$ |
(10,547 |
) |
|
$ |
(70,782 |
) |
|
$ |
70,782 |
|
|
|
(5,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and capital expenditures |
|
|
(5,134 |
) |
|
|
(2,048 |
) |
|
|
|
|
|
|
|
|
|
|
(7,182 |
) |
Purchase of short term investments |
|
|
|
|
|
|
(50,950 |
) |
|
|
|
|
|
|
|
|
|
|
(50,950 |
) |
Proceeds from sales of short term investments |
|
|
|
|
|
|
54,800 |
|
|
|
|
|
|
|
|
|
|
|
54,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(5,134 |
) |
|
|
1,802 |
|
|
|
|
|
|
|
|
|
|
|
(3,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(230 |
) |
|
|
(404,927 |
) |
|
|
|
|
|
|
|
|
|
|
(405,157 |
) |
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
335,000 |
|
|
|
|
|
|
|
|
|
|
|
335,000 |
|
Debt issuance costs |
|
|
|
|
|
|
(10,637 |
) |
|
|
|
|
|
|
|
|
|
|
(10,637 |
) |
Payment of stock dividend, net |
|
|
|
|
|
|
|
|
|
|
(5,679 |
) |
|
|
|
|
|
|
(5,679 |
) |
Dividends |
|
|
|
|
|
|
70,782 |
|
|
|
|
|
|
|
(70,782 |
) |
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
84,278 |
|
|
|
|
|
|
|
84,278 |
|
Stock issuance costs |
|
|
|
|
|
|
|
|
|
|
(7,817 |
) |
|
|
|
|
|
|
(7,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
(230 |
) |
|
|
(9,782 |
) |
|
|
70,782 |
|
|
|
(70,782 |
) |
|
|
(10,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(17 |
) |
|
|
(18,527 |
) |
|
|
|
|
|
|
|
|
|
|
(18,544 |
) |
Cash and cash equivalents, beginning of the period |
|
|
99 |
|
|
|
50,561 |
|
|
|
|
|
|
|
|
|
|
|
50,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
$ |
82 |
|
|
$ |
32,034 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
152 |
|
|
$ |
9,990 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Noncash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
|
|
|
$ |
2,457 |
|
|
$ |
2,457 |
|
|
$ |
(2,457 |
) |
|
$ |
2,457 |
|
Dividend declared, but not paid |
|
|
|
|
|
|
|
|
|
|
(8,140 |
) |
|
|
|
|
|
|
(8,140 |
) |
20
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
8. |
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued) |
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
ACS Holdings |
|
|
ACS Group |
|
|
|
|
|
|
ACS Group |
|
|
|
Subsidiaries |
|
|
Parent Only |
|
|
Parent Only |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided (used) by operating activities |
|
$ |
9,605 |
|
|
$ |
(3,877 |
) |
|
$ |
54 |
|
|
$ |
(63 |
) |
|
$ |
5,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and capital expenditures |
|
|
(9,335 |
) |
|
|
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
(10,356 |
) |
Purchase of short term investments |
|
|
|
|
|
|
(37,950 |
) |
|
|
|
|
|
|
|
|
|
|
(37,950 |
) |
Proceeds from sales of short term investments |
|
|
|
|
|
|
38,522 |
|
|
|
|
|
|
|
|
|
|
|
38,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(9,335 |
) |
|
|
(449 |
) |
|
|
|
|
|
|
|
|
|
|
(9,784 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(257 |
) |
|
|
(571 |
) |
|
|
|
|
|
|
|
|
|
|
(828 |
) |
Dividends |
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
63 |
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(257 |
) |
|
|
(634 |
) |
|
|
(54 |
) |
|
|
63 |
|
|
|
(882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
13 |
|
|
|
(4,960 |
) |
|
|
|
|
|
|
|
|
|
|
(4,947 |
) |
Cash and cash equivalents, beginning of the period |
|
|
139 |
|
|
|
54,370 |
|
|
|
|
|
|
|
|
|
|
|
54,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
$ |
152 |
|
|
$ |
49,410 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
49,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
180 |
|
|
$ |
11,690 |
|
|
$ |
6 |
|
|
$ |
|
|
|
$ |
11,876 |
|
Income taxes paid, net of refund |
|
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,120 |
|
21
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited, In Thousands Except Per Share Amounts)
9. COMMITMENTS AND CONTINGENCIES
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 $2,824 at March 31, 2005
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 Companys consolidated financial
position, results of operations or cash flows.
On July 15, 2002, the Company fulfilled a commitment to Crest Communications, LLC (Crest) to
provide a loan for the aggregate principal amount of $15,000 in return for certain consideration.
The significant provisions of this agreement are: (i) purchase commitments by the Company for
capacity in 2005 and 2007, the final price and quantity of which are subject to future events, but
may exceed $20,000, (ii) Crests restoration of the Companys traffic carried on another cable
system, and (iii) specific interconnection arrangements between the Company and Crest, should the
Company exercise its option to purchase certain network assets from Crest. Under its 2002
agreement with Crest, the Company was granted an option to exchange its $15,000 note for the Alaska
assets owned by Crest. The value of this note was reassessed and written down to $0 with a charge
taken in 2003.
On April 19, 2005, the Company provided Crest with notice that it is exercising its option to
acquire certain of Crests Alaska assets. The assets consist of significant fiber optic transport
facilities in Alaska between Whittier and Anchorage, and between Anchorage and Fairbanks. No
additional financial consideration is due to Crest in connection with this exercise and the Company
is reviewing the accounting treatment of this transaction.
22
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward Looking Statements and Analysts Reports
This Form 10-Q 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-Q and the documents
incorporated by reference. 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. Such important factors may be included, without limitation, in our Form 10-K under
Business and Managements discussion and analysis of financial condition and results of
operations and Risk Factors in Exhibit 99.2 to our Form 8-K filed on March 7, 2005. Examples of
these factors include (without limitation):
|
|
|
rapid technological developments and changes in the telecommunications industries; |
|
|
|
|
our competitive environment; |
|
|
|
|
ongoing deregulation (and the resulting likelihood of significantly increased
price and product/service competition) in the telecommunications industry as a
result of the Telecommunications Act of 1996, or the Telecommunications Act, and
other similar federal and state legislation and the federal and state rules and
regulations enacted pursuant to that legislation; |
|
|
|
|
changes in revenue from Universal Service Funds; |
|
|
|
|
regulatory limitations on our ability to change our pricing for communications services; |
|
|
|
|
the possible future unavailability of Statement of Financial Accounting
Standards, or SFAS, No. 71, Accounting for the Effects of Certain Types of
Regulation, to our wireline subsidiaries; |
|
|
|
|
our ability to bundle our products and services; |
|
|
|
|
changes in the demand for our products and services; |
|
|
|
|
changes in general industry and market conditions and growth rates; |
|
|
|
|
changes in interest rates or other general national, regional or local economic conditions; |
|
|
|
|
governmental and public policy changes; |
|
|
|
|
our ability to generate sufficient earnings and cash flows to continue to make
dividend payments to our stockholders; |
|
|
|
|
the continued availability of financing in the amounts, at the terms, and subject
to the conditions necessary to support our future business; |
|
|
|
|
the success of any future acquisitions; and |
|
|
|
|
changes in accounting policies or practices adopted voluntarily or as required by
accounting principles generally accepted in the United States. |
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 presently known to us could also cause the forward-looking events discussed in this Form 10-Q
not to occur. 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-Q.
23
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.
Introduction
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-Q.
Alaska Communications Systems Group
We generate revenue primarily through:
|
|
|
the provision of local telephone services, including: |
|
§ |
|
basic local service to retail customers within our service areas; |
|
|
§ |
|
wholesale service to Competitive Local Exchange Carriers (CLECs); |
|
|
§ |
|
network access services to interexchange carriers for origination and
termination of interstate and intrastate long distance phone calls; |
|
|
§ |
|
enhanced services; |
|
|
§ |
|
ancillary services, such as billing and collection; and |
|
|
§ |
|
universal service payments; |
|
|
|
the provision of wireless services; |
|
|
|
|
the provision of Internet services; and |
|
|
|
|
the provision of interexchange network long-distance and data services. |
In addition, we provide video entertainment services through our partnership with the
satellite operator, DISH Network.
Local Telephone We are the largest Local Exchange Carrier (LEC) in Alaska and the 13th
largest in the United States. Basic local service is generally provided at a flat monthly rate and
allows the user to place unlimited calls within a defined local calling area. Access revenues are
generated, in part, by billing interexchange carriers for access to the LECs local network and its
customers and, in part, by billing the local customers themselves. Universal service revenues are a
subsidy paid to rural LECs to support the high cost of providing service in rural markets.
Changes in revenue are largely attributable to changes in the number of access lines, local
service rates and minutes of use. Other factors can also impact revenue, including:
|
|
|
intrastate and interstate revenue settlement methodologies; |
|
|
|
|
authorized rates of return for regulated services; |
|
|
|
|
whether an access line is used by a business or consumer subscriber; |
|
|
|
|
intrastate and interstate calling patterns; |
|
|
|
|
customers selection of various local rate plan options; |
|
|
|
|
selection of enhanced calling services, such as voice mail; and |
|
|
|
|
other subscriber usage characteristics. |
LECs have three basic tiers of customers:
|
|
|
consumer and business customers located in our local service areas that pay for
local phone service and a portion of network access; |
|
|
|
|
interexchange carriers that pay for access to long distance calling customers
located within our local service areas; and |
24
|
|
|
CLECs that pay for wholesale access to our network in order to provide
competitive local service on either a wholesale or Unbundled Network Element (UNE)
basis as prescribed under the Telecommunications Act. |
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.
Our local service rates for end users are authorized by the Regulatory Commission of Alaska.
Authorized rates are set by the Federal Communications Commission, or FCC, and the RCA for
interstate and intrastate access charges, respectively, and may change from time to time.
Wireless - We are the second largest statewide provider of wireless services in Alaska,
currently serving over 102,000 subscribers. Our wireless network footprint covers over 482,000
residents, including all major population centers and highway and ferry corridors. We currently
operate a TDMA digital network in substantially all of our service areas, and are rolling out a new
generation of digital network known as CDMA 1xRTT, which provides customers with improved voice
call quality, average mobile data speeds of 70-80kbps and provides a platform for the launch of
enhanced services. We began offering CDMA 1xRTT services in several of our service areas in May
2004. In June 2004 we began offering wireless broadband service based on EV-DO which enables high
speed data connectivity with speeds that burst up to 2mbps to our wireless markets in Anchorage,
Fairbanks, and Juneau. We estimate that the new CDMA service currently covers 73% of the wireless
footprint of 482,000 residents.
Internet - We are the second largest provider of Internet access services in Alaska with over
49,000 customers. We offer dial-up and dedicated DSL Internet access to our customers. We are a
single source provider of advanced IP based private networks in Alaska.
Interexchange - We provide switched and dedicated long distance services to over 48,000
customers in Alaska. The traffic from these customers is carried over our owned or leased
facilities.
Video Entertainment We provide video entertainment services on a resale basis through our
partnership with the satellite provider, DISH Network. The current agreement with the provider
became effective in August 2003 and will either be renegotiated or will terminate in December 2005.
Critical Accounting Policies and Accounting Estimates
Management is responsible for the financial statements herein and has evaluated the accounting
policies used in their preparation. Management believes these policies to be reasonable and
appropriate. Our significant accounting policies are described in Note 1, Description of Company
and Summary of Significant Accounting Policies, to the Alaska Communications Systems Group, Inc.
Consolidated Financial Statements. The following discussion identifies those accounting policies
that management believes are critical in the preparation of our financial statements, the judgments
and uncertainties affecting the application of those policies, and the possibility that materially
different amounts would be reported under different conditions or using different assumptions.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of commitments and
contingencies 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, long-lived assets (in
particular, those assets accounted for under SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation), income taxes, network access revenue reserves and litigation reserves. Actual
results may differ from those estimates.
We use an allowance method to estimate the net realizable value of accounts receivable. As of
March 31, 2005, the allowance for doubtful accounts receivable was $4.9 million. Actual collection
results could vary from this estimate.
Access revenue is recognized when 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
RCA within the intrastate jurisdiction and the
25
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. To the extent that disputes arise over revenue settlements, our
policy is to defer revenue collected until settlement methodologies are resolved and finalized. At
March 31, 2005, we had recorded liabilities of $16.9 million related to our estimate of refundable
access revenue. Actual results could vary from this estimate.
We utilize the liability method of accounting for income taxes. Under the 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 it
is more likely than not that such deferred tax assets will not be realized. The cumulative
valuation allowance against deferred tax assets was $123.6 million as of March 31, 2005, which
represents 100% of all deferred tax assets.
Our local telephone exchange operations 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, under SFAS No. 71,
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.
Effective January 1, 2003, we implemented higher depreciation rates for our regulated
telephone plant for the interstate jurisdiction which management believes approximate the
economically useful lives of the underlying plant. As a result, we have recorded a regulatory asset
under SFAS No. 71 of $39.3 million as of March 31, 2005 related to depreciation of the regulated
telephone plant allocable to its intrastate and local jurisdictions. We have also deferred as a
regulatory asset $0.9 million of costs incurred in connection with regulatory rate making
proceedings, which is being amortized over three years starting in 2003. The balance of this
regulatory asset was $0.2 million at March 31, 2005. If we were not following SFAS No. 71, we would
have recorded additional cumulative depreciation expense in the three months ended March 31, 2005
of $4.3 million for the intrastate and local jurisdictions and the deferred costs incurred in
connection with regulatory rate making proceedings would have been charged to expense as incurred.
We also have a regulatory liability of $55.3 million at March 31, 2005 related to accumulated
removal costs. If we were not following SFAS No. 71, we would have followed SFAS No. 143 for asset
retirement obligations. Non-regulated revenues and costs incurred by the local telephone exchange
operations and our non-regulated operations are not accounted for under SFAS No. 71 principles.
Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. In
accordance with the guidelines of this accounting principle, goodwill and indefinite-lived
intangible assets are no longer amortized but will be assessed for impairment on at least an annual
basis. SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level
upon adoption and at least annually thereafter, utilizing a two-step methodology. The initial step
requires us 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. We determined 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. At March
31, 2005, we had recorded goodwill of $38.4 million applicable to our local telephone and wireless
segments and intangible assets of $21.8 million related primarily to our wireless segment.
We are involved in various claims, legal actions and regulatory proceedings arising in the
ordinary course of business, and have recorded litigation reserves of $2.8 million against certain
claims and legal actions as of March 31, 2005. 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 beyond the amounts already recorded. Estimates involved in developing
these litigation reserves could change as these claims, legal actions and regulatory proceedings
are resolved.
26
RESULTS OF OPERATIONS
All amounts are discussed at the consolidated level after the elimination of intercompany
revenue and expense.
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
Operating Revenue
Operating revenue increased $2.0 million, or 2.6%, for the three months ended March 31, 2005
compared to the three months ended March 31, 2004. Wireless, Internet and interexchange revenue
increased compared to the corresponding period of 2004, while local telephone revenue decreased
compared to the corresponding period of 2004.
Local Telephone. Local telephone revenue, which consists of local network service, network
access and deregulated and other revenue, decreased $4.3 million, or 7.6%, for the three months
ended March 31, 2005 compared to the same period in 2004. The following table summarizes the
Companys consolidated local telephone revenue by category:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands) |
|
Local telephone revenue: |
|
|
|
|
|
|
|
|
Local network service |
|
$ |
22,218 |
|
|
$ |
22,753 |
|
Network access |
|
|
23,350 |
|
|
|
27,695 |
|
Deregulated and other |
|
|
5,997 |
|
|
|
5,384 |
|
|
|
|
|
|
|
|
Total local telephone revenue |
|
$ |
51,565 |
|
|
$ |
55,832 |
|
|
|
|
|
|
|
|
The following table summarizes our local telephone access lines:
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2005 |
|
|
2004 |
|
Local telephone access lines: |
|
|
|
|
|
|
|
|
Retail |
|
|
204,458 |
|
|
|
213,784 |
|
Wholesale |
|
|
15,897 |
|
|
|
20,068 |
|
Unbundled network elements loop (UNE L) |
|
|
62,263 |
|
|
|
69,624 |
|
Unbundled network elements platform (UNE P) |
|
|
6,551 |
|
|
|
5,178 |
|
|
|
|
|
|
|
|
Total local telephone access lines |
|
|
289,169 |
|
|
|
308,654 |
|
|
|
|
|
|
|
|
Local network service revenue decreased $0.5 million or 2.4% for the three months ended March
31, 2005, compared to the three months ended March 31, 2004, while access lines in service
decreased 6.3% to 289,169. The decrease in revenue primarily reflects the net effect of access line
losses representing a revenue reduction of approximately $1.2 million offset by increases in UNE
rates representing a revenue increase of approximately $0.7 million. In November 2004 we received
a final order from the RCA with respect to UNE-L rates for Anchorage, retroactive to June 2004,
increasing the UNE-L rate from $14.92 to $18.64, and on January 1, 2005, rates increased for UNE-P
and UNE-L in Fairbanks and Juneau from $19.19 to $23.00 and from $16.71 to $18.00, respectively.
Network access revenue decreased $4.3 million, or 15.7%, for the three months ended March 31,
2005, compared to the same period in 2004. Network access revenue is based on a regulated return
on rate base and recovery of allowable expenses associated with the origination and termination of
toll calls for our retail and resale customers. The decrease was primarily attributable to higher
than typical settlement adjustments to the prior year interstate access and universal service fund
studies. Management expects that network access revenue will decline as a component of local
telephone revenue for the foreseeable future.
Deregulated and other revenue consists principally of billing and collection services, space
and power rents, deregulated equipment sales (CPE), paystation revenue, regulated directory
listing revenue, and other miscellaneous
27
telephone revenue. Deregulated revenue increased $0.6
million, or 11.4%, for the three months ended March 31, 2005, compared to the three months ended
March 31, 2004 as the result of higher CPE sales.
Consistent with the U.S. telecommunications industry trend, we experienced a loss of local
telephone access lines as customers migrated to broadband Internet services reducing demand for
second lines, migrated to cable telephony, or replaced landline service with wireless service. Our
primary competitor has begun to deploy cable telephony and began switching its UNE-L provisioned
subscribers over to its own network in the Anchorage market during 2004.
Wireless. Wireless revenue increased $5.5 million, or 47.2%, to $17.1 million for the three
months ended March 31, 2005 compared to $11.6 million for the three months ended March 31, 2004.
This increase is due primarily to the following:
|
|
|
growth in average subscribers of 16% for the three months ended March 31, 2005 over
the prior year period; |
|
|
|
|
an increase in quarterly average revenue per unit, or ARPU, of 20.7% to $48.65 for
the three months ended March 31, 2005, from $40.30 for the three months ended March 31,
2004, primarily as a result of improved subscriber mix with a higher proportion of post
paid retail subscribers, increased plan revenue, feature revenue, roaming revenue,
regulatory surcharges and receipt of competitive eligible telecommunications carrier
status (CETC) funding on January 1, 2005 which added $3.37 to cellular ARPU; |
|
|
|
|
higher gross customer adds in the three months ended March 31, 2005 resulting in
$1.4 million of handset revenue compared to $0.7 million for the three months ended
March 31, 2004; and |
|
|
|
|
higher revenue from non-ACS customers roaming on our network resulting in
third-party roaming revenue increasing to $0.7 million from $0.2 million for the three
months ended March 31, 2005 and 2004, respectively. |
Internet. Internet revenue increased $0.4 million, or 9.7%, for the three months ended March
31, 2005 compared to the three months ended March 31, 2004, primarily as a result of growth in DSL
subscribers of 39.5% to 27,115 at March 31, 2005 from 19,433 at March 31, 2004.
Interexchange. Interexchange revenue increased $0.3 million, or 9.3%, for the three months
ended March 31, 2005, compared to the three months ended March 31, 2004. Long distance subscribers
increased 15.4% to 48,542 at March 31, 2005, from 42,053 at March 31, 2004 and quarterly minutes of
use increased to 36.6 million for the three months ended March 31, 2005, from 32.1 million for the
three months ended March 31, 2004.
Operating Expense
Operating expense decreased $2.3 million, or 3.1%, to $70.1 million for the three months ended
March 31, 2005, from $72.4 million for the three months ended March 31, 2004. Depreciation and
amortization associated with the operation of each of our segments has been included in total
depreciation and amortization.
Local Telephone. The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and property and other
operating tax expense. Local telephone expense decreased $2.1 million to $30.5 million for the
three months ended March 31, 2005 from $32.6 million for the three months ended March 31, 2004.
The decrease in local telephone expense was substantially attributable to a $2.6 million decline in
consulting expense related to marketing, process improvement and strategic sourcing initiatives
incurred in the first quarter of 2004, offset in part, by a $0.5 million increase in cost of goods
sold in 2005.
Wireless. Wireless expense increased $1.7 million, or 20.9%, for the three months ended March
31, 2005 compared to the three months ended March 31, 2004. The increase in subscribers and the
continued rollout of our new CDMA network resulted in an increase of $0.6 million in handset,
accessory and data content expense, and $0.2 million in incremental roaming expense. We also
increased our advertising $0.2 million to promote our new network build out and premier product
line and outsourced our billing and provisioning function resulting in $0.5 million of additional
expense.
Internet. Internet expense decreased by $2.3 million, or 30.2%, to $5.2 million in 2005, from
$7.5 million in 2004. The decrease was due to a $0.7 million decline in internal labor which was
primarily the result of severance expense
in the first three month of 2004, $0.8 million in ISP access and circuit expense reductions
resulting from a decrease in DSL access loop costs and network grooming, and $0.3 million in IT
outside service cost reductions.
28
Interexchange. Interexchange expenses decreased by $0.6 million, or 12.3% to $4.4 million for
the three months ended March 31, 2005 compared to $5.0 million for the three months ended March 31,
2004. The decline is attributable to network grooming efforts and favorable renegotiated carrier
contracts.
Depreciation and amortization. Depreciation and amortization expense increased $1.3 million,
or 6.8%, for the three months ended March 31, 2005 compared to the three months ended March 31,
2004. Approximately $1.0 million of the increase is due to additional depreciation associated with
the build out of our new CDMA network and additional depreciation due to lowering the expected
remaining life of our TDMA network assets.
Other income and expense. Interest expense increased by $23.9 million to $36.0 million for
the three months ended March 31, 2005 compared to $12.1 million for the three months ended March
31, 2004. The increase included $26.2 million of charges associated with our accretive debt
restructuring, comprised of $12.8 million of tender premiums and $13.4 million for the write off of
unamortized debt issuance costs and settlement of original issue discounts. Interest income and
other increased $0.3 million in the three months ended March 31, 2005 from the same period last
year.
Income Taxes
We have fully reserved the 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.
Net loss
The change increase in net loss is primarily a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Sources
We have satisfied our cash requirements in the first quarter of 2005 for operations, capital
expenditures and debt service primarily through internally generated funds, the sale of stock and
debt financing. For the three months ended March 31, 2005, our net cash flows used by operating
activities were $5.2 million. At March 31, 2005, we had approximately $57.2 million in net working
capital, with approximately $32.1million represented by cash and cash equivalents, $31.4 million in
short term investments and $4.7 million by restricted cash. As of March 31, 2005, we had $45.0
million of remaining capacity under our revolving credit facility, representing 100% of available
capacity.
In February and March 2005, we completed refinancing transactions whereby we entered into a
new $380.0 million senior secured credit facility, the 2005 senior credit facility, and used the
$335.0 million of term loan borrowings under that facility, together with the $76.3 million in net
proceeds of a simultaneous offering of our common stock and cash on hand to:
|
|
|
repay in full and redeem the $198.0 of outstanding principal under our 2003 senior
credit facility, together with interest accrued thereon; |
|
|
|
|
repurchase $59.3 million of outstanding principal of our senior unsecured notes,
together with tender premiums and interest accrued thereon; |
|
|
|
|
repurchase $147.5 million of outstanding principal of our senior subordinated notes,
together with tender premiums and interest accrued thereon; and |
|
|
|
|
pay underwriters discounts and transaction fees and expenses associated with the
equity offering and refinancing transactions. |
These transactions resulted in total long-term obligations outstanding, gross of original
issue discount, of $461.1 million as of March 31, 2005, consisting primarily of the $380.0 million
2005 senior credit facility with a drawn term loan of $335.0 million and an undrawn revolving
credit facility of $45.0 million, and $118.3 million remaining aggregate principal amount
outstanding of senior unsecured notes. The $335.0 million term loan under the 2005 senior credit
facility was drawn on February 1, 2005 and generally bears interest at an annual rate of LIBOR plus
2.00%, with a term of seven years from the date of closing 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 and
29
$85.0 million, respectively,
which swap the floating interest rate on a portion of the term loan borrowings under the 2005
senior credit facility for five years at a fixed rate of 6.13% and 6.50% per year, respectively,
inclusive of the 2.00% premium over LIBOR. The swaps are accounted for as cash flow hedges.
From time to time we consider making purchases of our outstanding debt securities on the open
market or in negotiated transactions. The timing and amount of such purchases, if any, will depend
upon cash needs and market conditions, among other things. Interest on the senior unsecured notes
is payable semiannually. The 2005 senior secured credit facility and the senior unsecured notes
contain 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.
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. Capital expenditures for the three months
ended March 31, 2005 were $7.2 million, of which $0.6 million was expended on CDMA 1xRTT build out
and $1.4 million was used to upgrade our IT infrastructure including customer service applications.
We intend to fund future capital expenditures with cash on hand, through internally generated cash
flows, and if necessary, through borrowings under our revolving credit facility. At March 31, 2005,
we had allocated $49.5 million of our current unrestricted cash and short term investment balance
of $63.5 million to fund the completion over the next two years of our CDMA 1xRTT and EV-DO build
out and to secure fiber capacity within Alaska and to the lower 48 states in the United States
under the terms of our agreement with Crest.
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 opportunities, among other
things.
On July 15, 2002, we fulfilled a commitment to Crest to provide a loan for the aggregate
principal amount of $15 million in return for certain consideration. We have an agreement that
enables us to purchase additional fiber optic capacity in future years from Crest, the expenditures
for which are expected to be significant and may exceed $20 million over the next two years. We
purchased additional capacity under this agreement for $5.6 million during 2004. While we have an
agreement with Crest, certain material terms of the agreement remain subject to continued
renegotiation. The significant provisions of this agreement are: (i) purchase commitments by us for
capacity in 2005 and 2006, the final price and quantity of which are subject to future events, (ii)
Crests restoration of our traffic carried on another cable system and (iii) specific
interconnection arrangements between us and Crest, should we exercise our option to purchase
certain network assets from Crest. We are currently renegotiating open elements of our agreement
with Crest. It is impossible to determine the ultimate outcome of these negotiations at this time.
The loan was written down to zero, its estimated fair value, during September 2003. See Note 9,
Commitments and Contingencies for further information.
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, paid on January 19, 2005 to holders
of record on December 31, 2004. On March 21, 2005, our board of directors declared a quarterly cash
dividend of $0.20 per share, an increase over the prior quarterly cash dividend of approximately
8%. The dividend was paid on April 19, 2005 to holders of record on March 31, 2005. While we
intend to continue to pay quarterly dividends, such payment is subject to our future operating and
financial performance, capital expenditures, working capital requirements and other factors.
Accordingly, our board of directors may modify or revoke this policy at any time.
30
In January 2005, we issued 8.8 million shares of our common stock in an equity offering that
closed on February 1, 2005 and, through the partial exercise by the underwriters of their
over-allotment option, an additional 1.1 million shares that closed on March 2, 2005. As a result
of these issuances, we have outstanding 40.6 million shares as of March 31, 2005. The issuance of
these additional shares of our common stock will increase our aggregate annual dividend payments by
approximately $7.9 million to approximately $32.5 million annually based on our current annual
dividend policy of $0.80 per share.
We believe that we will have sufficient working capital provided by operations and available
borrowing capacity under our revolving credit facility to service our debt, pay our quarterly
dividends, 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.
Outlook
We expect that, overall, the demand for telecommunications services in Alaska will grow,
particularly as a result of:
|
|
|
increasing demand for wireless voice and data services following the launch of
our CDMA 1xRTT network; |
|
|
|
|
growth in demand for DSL and Internet access services due to higher business and
consumer bandwidth needs; and |
|
|
|
|
increasing demand for private network services by government and business on a
statewide basis on either a circuit switched or IP basis. |
We believe that we will be able to capitalize on this demand through our diverse service
offerings on our owned circuit switched and IP facilities, new sales and marketing initiatives
directed toward basic voice, enhanced and data services, and offering customers an integrated
bundle of telecommunication services including local telephone, wireless, Internet, long distance,
messaging and video entertainment.
Consistent with the U.S. telecommunications industry, we continue to experience losses in
local telephone access lines as customers cancel second lines, replace wireline services with
wireless, and lines migrate to cable telephony. Our primary UNE customer has announced plans to
migrate most of its Anchorage area customers to its own cable telephony plant during the next three
years. Consequently, we anticipate that these trends will continue.
There are currently a number of regulatory proceedings underway at the state and federal
levels that could have a significant impact on our operations. Regarding the wireless business,
the FCC granted ACSW certain waivers in an order adopted March 22, 2005 and released on April 1,
2005. Under this order, ACSW was granted additional time to meet two significant FCC requirements:
(1) that all new handset activations be location capable; and (2) that 95% of all subscribers have
location capable handsets. Under the FCCs order, ACSW will need to ensure that 100% of all new
handset activations are location capable in its Anchorage and Fairbanks markets, and remaining
markets, by May 30, 2005 and December 31, 2005, respectively, and it must further have
location-capable handsets deployed to 95% of all subscribers in its Anchorage and Fairbanks
markets, and remaining markets, by June 30, 2006 and January 31, 2007, respectively. We cannot
predict with certainty the impact of current or future regulatory developments on any of our
businesses.
The telecommunications industry is extremely competitive, and we expect competition to
intensify in the future. As an ILEC, we face competition mainly from resellers, local providers who
lease our UNEs and from providers of local telephone services over separate facilities. Moreover,
while wireless telephone services have historically complemented traditional LEC services, we
anticipate that existing and emerging wireless technologies may increasingly compete with LEC
services. Similarly, local and interexchange service competition may come from cable television
providers and voice over IP providers. In wireless services, we currently compete with at least one
other wireless provider in each of our wireless service areas. In the highly competitive business
for Internet access services, we currently compete with a number of established online service
companies, interexchange carriers and cable companies. In the interexchange market, we believe we
currently have less than 5% of total revenue in Alaska and face competition from two major
interexchange providers.
31
The telecommunications industry is subject to continuous technological change. We expect that
new technological developments in the future will generally serve to enhance our ability to provide
service to our customers. However, these developments may also increase competition or require us
to make significant capital investments to maintain our leadership position in Alaska.
ITEM 6. EXHIBITS
(a) Exhibits:
|
31.1 |
|
Certification of Liane Pelletier, Chief Executive Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of David Wilson, Chief Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Liane Pelletier, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification of David Wilson, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report on Form 10-Q/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
Date: November 2, 2005
|
|
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. |
|
|
|
|
|
|
|
|
|
/s/ Liane Pelletier
|
|
|
Liane Pelletier |
|
|
Chief Executive Officer,
Chairman of the Board and President |
|
|
|
|
|
|
|
|
|
|
|
/s/ David Wilson
|
|
|
David Wilson |
|
|
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer) |
|
|
33