e10vkza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
Amendment No. 2
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-28167
Alaska Communications Systems Group, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
52-2126573 |
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
|
|
|
600 Telephone Avenue |
|
|
Anchorage, Alaska
|
|
99503-6091 |
(Address of principal executive offices)
|
|
(Zip Code) |
(907) 297-3000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of each class |
|
Name of each exchange on which registered |
Common Stock, Par Value $.01 per Share
|
|
The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the shares of all classes of voting stock of the registrant held
by non-affiliates of the registrant on June 30, 2008 was approximately $516 million computed upon
the basis of the closing sales price of the Common Stock on that date. For purposes of this
computation, shares held by directors (and shares held by any entities in which they serve as
officers) and officers of the registrant have been excluded. Such exclusion is not intended; nor
shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of February 20, 2009 there were outstanding 43,726,399 shares of Common Stock, $.01 par
value, of the registrant.
Documents Incorporated by Reference
Portions of Registrants definitive proxy statement for its annual stockholders meeting to be held on June 12, 2009 are incorporated by reference in Part III of this
Form 10-K
Explanatory Note
Alaska Communications Systems Group, Inc. (the Company) is filing this Amendment No. 2 on
Form 10-K/A (Amendment No. 2) to its Amended Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, which was originally filed with the Securities and Exchange Commission (SEC)
on March 9, 2009. (the Original Filing) and amended on June 10, 2009 (Amendment No.1).
The purpose of this Amendment No. 2 is solely to include the certifications required to be
included in Amendment No. 1 pursuant to Rule 13a-14(a) and Rule 15d-14(a) and furnish the
certifications required to accompany Amendment No. 1 pursuant to Rule 13a-14(b) and Rule 15d-14(b),
each as promulgated under the Securities Exchange Act of 1934, as amended.
Other than foregoing, no attempt has been made in this Amendment No. 2 to amend or update
other disclosures presented in the Original Filing. Among other things, forward-looking statements
made in the Original Filing have not been revised to reflect events that occurred or facts that
became known to the Company after the filing date of the Original Filing, and such forward-looking
statements should be read in their historical context. Accordingly this Amendment No. 2 should be
read in conjunction with Companys filings with the SEC subsequent to the filing of the Original
Filing.
2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Amendment No. 2
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2008
3
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of Alaska Communications Systems Group, Inc. and
Subsidiaries are submitted as a separate section of this Form 10-K/A. See Index to Consolidated
Financial Statements and Schedule, which appears on page F-1 hereof.
4
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 18, 2009 Alaska Communications Systems Group, Inc.
|
|
|
|
|
|
|
|
|
By: |
/s/ Liane Pelletier
|
|
|
|
Liane Pelletier |
|
|
|
Chief Executive Officer,
Chairman of the Board and President |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Liane Pelletier
Liane Pelletier
|
|
Chief Executive Officer,
Chairman of the Board and
President (Principal
Executive Officer)
|
|
November 18 , 2009 |
|
|
|
|
|
/s/ David Wilson
David Wilson
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
November 18, 2009 |
|
|
|
|
|
/s/ Annette M. Jacobs
Annette M. Jacobs
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
/s/ Brian Rogers
Brian Rogers
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
/s/ David A. Southwell
David A. Southwell
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
/s/ John M. Egan
John M. Egan
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
/s/ Gary R. Donahee
Gary R. Donahee
|
|
Director
|
|
November 18, 2009 |
|
|
|
|
|
/s/ Edward J. Hayes, Jr.
Edward J. Hayes, Jr.
|
|
Director
|
|
November 18, 2009 |
5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-41 |
|
|
|
|
|
|
|
|
|
F-42 |
|
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Alaska Communications Systems Group, Inc.:
We have audited the accompanying consolidated balance sheets of Alaska Communications Systems
Group, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated
statements of operation, stockholders equity (deficit) and comprehensive income (loss), and cash
flows for each of the years in the three-year period ended December 31, 2008. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alaska Communications Systems Group, Inc. and
subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Alaska Communications Systems Group, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated March 9, 2009 expressed an unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
(signed) KPMG LLP
Anchorage, Alaska
March 9, 2009
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Alaska Communications Systems Group, Inc.:
We have audited Alaska Communications Systems Group, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Alaska
Communications Systems Group, Inc.s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control Over
Financial Reporting (Item 9A.(B)). Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Alaska Communications Systems Group, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Alaska Communications Systems Group,
Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders equity (deficit) and comprehensive income (loss), and cash flows for each
of the years in the three-year period ended December 31, 2008, and our report dated March 9, 2009
expressed an unqualified opinion on those consolidated financial statements.
(signed) KPMG LLP
Anchorage, Alaska
March 9, 2009
F-3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Balance Sheets
December 31, 2008 and 2007
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Assets
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,326 |
|
|
$ |
35,208 |
|
Restricted cash |
|
|
20,517 |
|
|
|
2,589 |
|
Short-term investments |
|
|
|
|
|
|
790 |
|
Accounts receivable-trade, net of allowance of $5,912 and $8,768 |
|
|
40,433 |
|
|
|
39,150 |
|
Materials and supplies |
|
|
9,404 |
|
|
|
10,467 |
|
Prepayments and other current assets |
|
|
6,515 |
|
|
|
5,155 |
|
Deferred income taxes |
|
|
21,145 |
|
|
|
21,347 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
99,340 |
|
|
|
114,706 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,391,351 |
|
|
|
1,209,257 |
|
Less: accumulated depreciation and amortization |
|
|
(891,899 |
) |
|
|
(825,663 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
499,452 |
|
|
|
383,594 |
|
|
|
|
|
|
|
|
|
|
Non-current investments |
|
|
1,005 |
|
|
|
|
|
Goodwill |
|
|
8,850 |
|
|
|
38,403 |
|
Intangible assets, net |
|
|
24,118 |
|
|
|
21,604 |
|
Debt issuance cost |
|
|
9,290 |
|
|
|
7,461 |
|
Deferred income taxes |
|
|
114,831 |
|
|
|
96,095 |
|
Deferred charges and other assets |
|
|
452 |
|
|
|
1,340 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
757,338 |
|
|
$ |
663,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity (Deficit)
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term obligations |
|
$ |
666 |
|
|
$ |
780 |
|
Accounts payable, accrued and other current liabilities |
|
|
74,028 |
|
|
|
64,070 |
|
Advance billings and customer deposits |
|
|
10,399 |
|
|
|
10,051 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
85,093 |
|
|
|
74,901 |
|
|
|
|
|
|
|
|
|
|
Non-current obligations, net of current portion |
|
|
560,857 |
|
|
|
432,216 |
|
Other deferred credits and long-term liabilities |
|
|
98,693 |
|
|
|
82,075 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
744,643 |
|
|
|
589,192 |
|
|
|
|
|
|
|
|
Commitments
and contingencies
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 145,000 authorized, 43,719 and
42,883 issued and outstanding, respectively |
|
|
437 |
|
|
|
429 |
|
Additional paid in capital |
|
|
217,740 |
|
|
|
257,982 |
|
Accumulated deficit |
|
|
(187,452 |
) |
|
|
(177,313 |
) |
Accumulated other comprehensive loss |
|
|
(18,030 |
) |
|
|
(7,087 |
) |
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
12,695 |
|
|
|
74,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
757,338 |
|
|
$ |
663,203 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Operations
Years ended December 31, 2008, 2007, and 2006
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
$ |
246,028 |
|
|
$ |
248,265 |
|
|
$ |
233,351 |
|
Wireless |
|
|
143,569 |
|
|
|
137,520 |
|
|
|
115,370 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
389,597 |
|
|
|
385,785 |
|
|
|
348,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline (exclusive of depreciation and
amortization) |
|
|
185,321 |
|
|
|
179,456 |
|
|
|
172,421 |
|
Wireless (exclusive of depreciation and
amortization) |
|
|
84,751 |
|
|
|
74,305 |
|
|
|
62,478 |
|
Depreciation and amortization |
|
|
74,002 |
|
|
|
71,337 |
|
|
|
69,096 |
|
Loss on disposal of assets, net |
|
|
750 |
|
|
|
248 |
|
|
|
1,105 |
|
Loss on impairment of goodwill and intangible assets |
|
|
29,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
374,465 |
|
|
|
325,346 |
|
|
|
305,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
15,132 |
|
|
|
60,439 |
|
|
|
43,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(32,921 |
) |
|
|
(28,386 |
) |
|
|
(30,445 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
(355 |
) |
|
|
(9,650 |
) |
Interest income |
|
|
1,695 |
|
|
|
2,020 |
|
|
|
1,835 |
|
Other |
|
|
(547 |
) |
|
|
(776 |
) |
|
|
8,360 |
|
|
|
|
|
|
|
|
|
|
|
Total other income and expense |
|
|
(31,773 |
) |
|
|
(27,497 |
) |
|
|
(29,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax |
|
|
(16,641 |
) |
|
|
32,942 |
|
|
|
13,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
6,502 |
|
|
|
111,194 |
|
|
|
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,139 |
) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.23 |
) |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.23 |
) |
|
$ |
3.26 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
43,391 |
|
|
|
42,701 |
|
|
|
42,045 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,391 |
|
|
|
44,185 |
|
|
|
43,387 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Stockholders Equity (Deficit)
and Comprehensive Income (Loss)
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Additional Paid |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Shares |
|
|
Stock |
|
|
Stock |
|
|
in Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2006 |
|
|
46,230 |
|
|
$ |
462 |
|
|
$ |
(18,443 |
) |
|
$ |
333,522 |
|
|
$ |
(334,727 |
) |
|
$ |
322 |
|
|
$ |
(18,864 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,278 |
|
|
|
1,244 |
|
|
|
14,522 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,274 |
) |
|
|
|
|
|
|
|
|
|
|
(36,274 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,667 |
|
|
|
|
|
|
|
|
|
|
|
7,667 |
|
Surrender of 74 shares to cover
withholding taxes
on stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(872 |
) |
|
|
|
|
|
|
|
|
|
|
(872 |
) |
Issuance of common stock,
pursuant to stock plans, $.01 par |
|
|
641 |
|
|
|
6 |
|
|
|
|
|
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
|
2,786 |
|
Retirement of stock held in treasury |
|
|
(4,549 |
) |
|
|
(45 |
) |
|
|
18,443 |
|
|
|
(18,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
42,322 |
|
|
|
423 |
|
|
|
|
|
|
|
288,425 |
|
|
|
(321,449 |
) |
|
|
1,566 |
|
|
|
(31,035 |
) |
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,136 |
|
|
|
(8,653 |
) |
|
|
135,483 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,840 |
) |
|
|
|
|
|
|
|
|
|
|
(36,840 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,390 |
|
|
|
|
|
|
|
|
|
|
|
6,390 |
|
Excess tax benefit from share-based
payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
755 |
|
Surrender of 153 shares to cover
withholding taxes
on stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,330 |
) |
|
|
|
|
|
|
|
|
|
|
(2,330 |
) |
Issuance of common stock,
pursuant to stock plans, $.01 par |
|
|
561 |
|
|
|
6 |
|
|
|
|
|
|
|
1,582 |
|
|
|
|
|
|
|
|
|
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
42,883 |
|
|
|
429 |
|
|
|
|
|
|
|
257,982 |
|
|
|
(177,313 |
) |
|
|
(7,087 |
) |
|
|
74,011 |
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,139 |
) |
|
|
(10,943 |
) |
|
|
(21,082 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,523 |
) |
|
|
|
|
|
|
|
|
|
|
(37,523 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,770 |
|
|
|
|
|
|
|
|
|
|
|
8,770 |
|
Purchase of covertible bond call options
net of tax benefits of $1,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,375 |
) |
|
|
|
|
|
|
|
|
|
|
(19,375 |
) |
Sale of common stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,852 |
|
|
|
|
|
|
|
|
|
|
|
9,852 |
|
Surrender of 273 shares to cover
withholding
taxes on stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,383 |
) |
|
|
|
|
|
|
|
|
|
|
(3,383 |
) |
Issuance of common stock
stock, pursuant to stock plans, $.01 par |
|
|
836 |
|
|
|
8 |
|
|
|
|
|
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
|
1,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
43,719 |
|
|
$ |
437 |
|
|
$ |
|
|
|
$ |
217,740 |
|
|
$ |
(187,452 |
) |
|
$ |
(18,030 |
) |
|
$ |
12,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,139 |
) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
74,002 |
|
|
|
71,337 |
|
|
|
69,096 |
|
Loss on disposal of assets, net |
|
|
750 |
|
|
|
248 |
|
|
|
1,105 |
|
Loss on impairment of goodwill and intangible assets |
|
|
29,641 |
|
|
|
|
|
|
|
|
|
Gain on sale of long-term investments |
|
|
|
|
|
|
(152 |
) |
|
|
(6,685 |
) |
Loss on impairment of non-current investments |
|
|
245 |
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and original
issue discount |
|
|
2,539 |
|
|
|
2,059 |
|
|
|
5,180 |
|
Stock-based compensation |
|
|
9,477 |
|
|
|
6,390 |
|
|
|
7,667 |
|
Deferred income taxes |
|
|
(6,445 |
) |
|
|
(112,495 |
) |
|
|
|
|
Excess tax benefit from share-based payments |
|
|
|
|
|
|
(755 |
) |
|
|
|
|
Other non-cash expenses |
|
|
139 |
|
|
|
742 |
|
|
|
234 |
|
Changes in components of assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other current assets |
|
|
955 |
|
|
|
(1,896 |
) |
|
|
2,136 |
|
Materials and supplies |
|
|
1,063 |
|
|
|
(2,490 |
) |
|
|
(92 |
) |
Accounts payable and other current liabilities |
|
|
(2,102 |
) |
|
|
(1,607 |
) |
|
|
8,823 |
|
Deferred charges and other assets |
|
|
470 |
|
|
|
(193 |
) |
|
|
3,856 |
|
Other deferred credits |
|
|
(6,018 |
) |
|
|
(532 |
) |
|
|
(13,013 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
94,577 |
|
|
|
104,792 |
|
|
|
91,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in construction and capital expenditures |
|
|
(125,711 |
) |
|
|
(62,645 |
) |
|
|
(59,720 |
) |
Change in unsettled construction and capital expenditures |
|
|
6,056 |
|
|
|
(509 |
) |
|
|
(915 |
) |
Investment in intangible assets |
|
|
(2,601 |
) |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(64,960 |
) |
|
|
|
|
|
|
|
|
Change in unsettled acquisition costs |
|
|
4,169 |
|
|
|
|
|
|
|
|
|
Purchase of short-term investments |
|
|
(9,400 |
) |
|
|
(64,638 |
) |
|
|
(57,500 |
) |
Proceeds from sale of short-term investments |
|
|
10,190 |
|
|
|
63,848 |
|
|
|
68,025 |
|
Purchase of non-current investments |
|
|
(3,625 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of non-current investments |
|
|
2,375 |
|
|
|
162 |
|
|
|
7,663 |
|
Placement of funds in restricted accounts |
|
|
(74,956 |
) |
|
|
(3,009 |
) |
|
|
|
|
Release of funds from restricted accounts |
|
|
57,028 |
|
|
|
2,120 |
|
|
|
2,715 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(201,435 |
) |
|
|
(64,671 |
) |
|
|
(39,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(7,832 |
) |
|
|
(5,089 |
) |
|
|
(61,860 |
) |
Proceeds from the issuance of long-term debt |
|
|
135,000 |
|
|
|
|
|
|
|
52,900 |
|
Purchase of call options |
|
|
(20,431 |
) |
|
|
|
|
|
|
|
|
Sale of common stock warrants |
|
|
9,852 |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(4,368 |
) |
|
|
|
|
|
|
(1,349 |
) |
Payment of cash dividend on common stock |
|
|
(37,287 |
) |
|
|
(36,697 |
) |
|
|
(35,475 |
) |
Payment of withholding taxes on stock-based compensation |
|
|
(3,383 |
) |
|
|
(2,330 |
) |
|
|
(872 |
) |
Excess tax benefit from share-based payments |
|
|
|
|
|
|
755 |
|
|
|
|
|
Proceeds from the issuance of common stock |
|
|
1,425 |
|
|
|
1,588 |
|
|
|
2,786 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
72,976 |
|
|
|
(41,773 |
) |
|
|
(43,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(33,882 |
) |
|
|
(1,652 |
) |
|
|
7,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
35,208 |
|
|
|
36,860 |
|
|
|
28,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1,326 |
|
|
$ |
35,208 |
|
|
$ |
36,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
31,175 |
|
|
$ |
28,795 |
|
|
$ |
31,280 |
|
Income taxes paid |
|
|
355 |
|
|
|
545 |
|
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Noncash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases |
|
$ |
1,359 |
|
|
$ |
51 |
|
|
|
60 |
|
Dividend declared, but not paid |
|
|
9,449 |
|
|
|
9,226 |
|
|
|
9,105 |
|
See Notes to Consolidated Financial Statements
F-7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alaska Communications Systems Group, Inc. and Subsidiaries (the Company or ACS Group), a
Delaware corporation, provides wireline, wireless and other telecommunications and network services
to consumer, business, and enterprise customers in the State of Alaska and beyond using its
statewide and interstate telecommunications network. The Company was formed in October of 1998 for
the purpose of acquiring and operating telecommunications properties.
The accompanying consolidated financial statements for the Company are as of December 31, 2008
and 2007 and for the years ended December 31, 2008, 2007 and 2006. They represent the consolidated
financial position, results of operations and cash flows of ACS Group and the following wholly
owned subsidiaries:
|
|
|
Alaska Communications Systems Holdings, Inc. (ACS
Holdings) |
|
|
|
|
ACS of Alaska, Inc. (ACSAK) |
|
|
|
|
ACS of the Northland, Inc. (ACSN) |
|
|
|
|
ACS of Fairbanks, Inc. (ACSF) |
|
|
|
|
ACS of Anchorage, Inc. (ACSA) |
|
|
|
|
ACS Wireless, Inc. (ACSW) |
|
|
|
|
ACS Long Distance, Inc. (ACSLD) |
|
|
|
|
ACS Internet, Inc. (ACSI) |
|
|
|
|
ACS Messaging, Inc. (ACSM) |
|
|
|
|
ACS Cable Systems, Inc. (ACSC) |
A summary of significant accounting policies followed by the Company is set forth below:
Basis of Presentation
The consolidated financial statements include all majority-owned subsidiaries. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of
Certain Types of Regulation, intercompany revenue between regulated local telephone companies and
all other group companies is not eliminated. All other significant intercompany balances have been
eliminated. Certain reclassifications have been made to the 2007 and 2006 balances to conform to
the current presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Among the significant estimates affecting the financial statements are those related to the
realizable value of accounts receivable, long-lived assets, goodwill and intangible assets, legal
contingencies, income taxes and network access revenue reserves. These estimates and assumptions
are based on managements best estimates and judgment. Management evaluates its estimates and
assumptions on an ongoing basis using historical experience and other factors, including the
current economic environment, which management believes is reasonable under the circumstances.
Assumptions are adjusted as facts and circumstances dictate. Illiquid credit markets, volatile
equity and energy markets, and declines in consumer spending have combined to increase the
uncertainty in such estimates and assumptions. As future events and their effects cannot be
determined with precision, actual results may differ significantly from those estimates. Changes in
those estimates resulting from continuing changes in the economic environment will be reflected in
the financial statements of future periods.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows, the Company
generally considers all highly liquid investments with a maturity at acquisition of three months or
less to be cash equivalents.
F-8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restricted Cash
As of December 31, 2008, the Company had placed into escrow $9,739 for the indemnification of
the Company in the event of breach by Crest Communications Corporation (Crest) of certain
obligations, representations and warranties specified in the Companys agreement to purchase Crest
and the completion of certain capital projects; and $8,578 pending completion by Tyco
Telecommunications (Tyco) of specified milestones set forth in the Companys agreement with Tyco
for the construction of its Alaska Oregon Network (AKORN) fiber optic cable system.
The remaining balance, as well as the prior year balance, consists of certificates of deposit
as required under the terms of certain contracts to which the Company is a party. When the
restrictions are lifted, the Company will transfer these funds back into its operating accounts.
Short-Term Investments
For purposes of the Consolidated Balance Sheets and Consolidated Statement of Cash Flows,
the Company considers highly liquid investments with a maturity at acquisition of more than three
months but less than one year to be short-term investments. These investments are classified as
available for sale and are stated at estimated fair market value. Income related to these
investments is reported as interest income.
Materials and Supplies
Materials and supplies are carried in inventory at the lower of weighted average cost or
market. Cash flows related to the sale of inventory, primarily wireless devices and accessories,
are included in operating activities in the Companys Consolidated Statement of Cash Flows.
Property, Plant and Equipment
Telephone plant is stated substantially at original cost of construction. Telephone plant
retired in the ordinary course of business, together with the cost of removal, less salvage, is
charged to accumulated depreciation with no gain or loss recognized. Renewals and betterments of
telephone plant are capitalized while repairs, as well as renewals of minor items, are charged to
operating expense as incurred. The Company provides for depreciation of telephone plant on the
straight-line method, using rates approved by regulatory authorities. The composite annualized rate
of depreciation for all classes of telephone property, plant, and equipment was 4.8%, 5.2% and 5.3%
for 2008, 2007 and 2006, respectively.
Non-Telephone plant is stated at purchased cost, and when sold or retired a gain or loss is
recognized. Depreciation of such property is provided on the straight-line method over its
estimated service life ranging from three to 39 years.
The Company is the lessee of equipment and buildings under capital leases expiring in various
years through 2019. The assets and liabilities under capital leases are initially recorded at the
lower of the present value of the minimum lease payments or the fair value of the assets at the
inception of the lease. The assets are amortized over the lower of their related lease terms or the
estimated productive lives. Amortization of assets under capital leases is included in depreciation
and amortization expense.
The Company is also the lessee of various land, building and personal property under operating
lease agreements for which expense is recognized on a monthly basis. Increases in rental rates are
recorded as incurred which approximates a straight-line method.
Non-current Investments
The Companys non-current investment balance is made up of auction rate securities (ARS).
Beginning February 13, 2008, the Company experienced failed auctions for ARS issues and at that
time, ceased to purchase auction rate securities. The Company believes that the current lack of
liquidity relating to ARS investments will have no impact on the ability to fund ongoing operations
and growth initiatives.
F-9
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
At December 31, 2008, the Companys ARS portfolio was comprised of 100% AAA rated investments.
Although the Company has the ability to hold these investments to maturity, an assessment was
performed and management determined that the fair value of these securities was
other-than-temporarily impaired. The Company has recorded a loss in the Consolidated Statements of
Operations for the year ended December 31, 2008 of $245 related to its ARS portfolio. The Company
will reassess this conclusion and the remaining portfolio balance in future reporting periods based
on several factors, including the success or failure of future auctions, possible failure of the
investment to be redeemed, deterioration of the credit ratings of the investments, market risk and
other factors.
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but are assessed for
impairment on at least an annual basis. In 2008, the Company took a charge for impairment to the
goodwill balance on its wireline segment of $29,553 and intangibles of $88. See Note 8 Goodwill
and Other Intangible Assets for information regarding the impairment charge recorded.
Debt Issuance Costs
Underwriting and issuance costs associated with the issuance of the Companys senior credit
facility and senior unsecured notes are being amortized using the straight-line method, which
approximates the effective interest method, over the term of the debt. During 2008, the Company
executed a new convertible debt offering that resulted in debt issuance costs of $4,368. During
2007 and 2006, the Company repurchased its 2011 senior unsecured notes which resulted in a
write-off of debt issuance costs in 2007 and 2006, of $84 and $1,731, respectively. Debt issuance
cost amortization, inclusive of the write-offs, in the Consolidated Statement of Cash Flows for
2008, 2007 and 2006, was $2,539, $1,976 and $3,645, respectively.
Original Issue Discounts
Certain debt instruments of the Company have been issued below their face value, resulting
in original issue discounts that are recorded net in long-term debt. These original issue
discounts are amortized using the effective interest method. During 2007 and 2006, the Company
repurchased its 2011 senior unsecured notes, which resulted in a write-off of original issue
discount to expense of $72 and $1,479, respectively. Original issue discount, inclusive of the
write-offs, in the Consolidated Statement of Cash Flows for 2008, 2007 and 2006, was zero, $83
and $1,535, respectively.
Capitalized Interest
The Company capitalizes interest charges to its construction in progress based on a weighted
average interest cost calculated on the Companys outstanding debt. Interest expense for the year
ended December 31, 2008, 2007 and 2006 was $32,921, $28,386 and $30,445, net of capitalized
interest of $3,384, $1,904 and $807, respectively.
Preferred Stock
The Company has 5,000, no par, shares authorized, none of which were issued or outstanding
at December 31, 2008 and 2007.
Treasury Stock
The Company, with Board of Directors authorization, occasionally repurchases shares of its
common stock. Since management originally intended to hold the treasury stock temporarily for
later re-issuance, the cost method of accounting for treasury stock was used. On December 15,
2006, the Companys Board of Directors approved the retirement of 100% of the Companys treasury
stock.
F-10
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Substantially all recurring service revenues are billed one month in advance and are
deferred until earned. Non-recurring and usage sensitive revenues are billed in arrears and are
recognized when earned. Certain of the Companys bundled products and services, primarily in
wireless, have been determined to be revenue arrangements with multiple deliverables. Total
consideration received in these arrangements is allocated and measured using units of accounting
within the arrangement based on relative fair values. Wireless offerings include wireless phones
and service contracts sold together in its Company owned stores. The handset and accessories
associated with these direct channel sales is recognized at the time the related wireless phone
is sold and is classified as equipment sales. Monthly service revenue is recognized as services
are rendered.
The Company establishes estimated bad debt reserves against uncollectible revenues incurred
during the period. These estimates are derived through a monthly analysis of account aging
profiles and a review of historical recovery experience. Receivables are charged off against the
allowance when management believes the uncollectability of the receivable is confirmed.
Subsequent recoveries, if any, are credited to the allowance. The Company accounts for bad debt
expense in accordance with SFAS No. 71 for regulated entities which prescribes that revenue be
recognized net of bad debt expense.
Access revenue is recognized when earned. The Company participates in access revenue pools
with other telephone companies. Such pools are funded by toll revenue and/or access charges
regulated by the Federal Communications Commission (FCC) within the interstate jurisdiction.
Much of the interstate access revenue is initially recorded based on estimates. These estimates
are derived from interim financial statements, available separations studies and the most recent
information available about achieved rates of return. These estimates are subject to adjustment
in future accounting periods as additional operational information becomes available for the
Company and the other telephone companies. To the extent that disputes arise over revenue
settlements, the Companys policy is to defer revenue collected until settlement methodologies
are resolved and finalized. At December 31, 2008 and 2007, the Company had deferred revenue of
$6,372 and $10,992, respectively, related to its estimate of refundable access revenue. The
decrease during the year ended December 31, 2008 of $4,620 was the result of refunds, the
settlement of prior period claims and positive settlements with National Exchange Carriers
Association (NECA) and Universal Service Administration Corporation (USAC) regarding our cost
studies.
Concentrations of Risk
Cash is maintained with several financial institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon
demand. The Company has not experienced any losses on such deposits.
The Company performs credit evaluations of its suppliers and customers. The Companys
customers do not, individually, represent a material concentration of risk. During 2008, 2007 and
2006, no customer accounted for 10% of consolidated revenues.
The Company also depends on a limited number of suppliers and vendors for equipment and
services for its network, and in the case of the Companys wireless segment, billing processes. If
these suppliers experience financial or credit difficulties, service interruptions, patent
litigation, or other problems, subscriber growth the Companys operating results could be adversely
affected.
Approximately 76% of the Companys employees are represented by the International Brotherhood
of Electrical Workers, Local 1547 (IBEW). Management considers employee relations to be
satisfactory. However, the Master Collective Bargaining Agreement with the IBEW, as amended, that
governs the terms and conditions of employment for all IBEW represented employees working for the
Company in the state of Alaska will expire on December 31, 2009. The Company expects to conduct
extensive negotiations with the IBEW during 2009.
F-11
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company utilizes the asset-liability method of accounting for income taxes in accordance
with SFAS No. 109 Accounting for Income Taxes. Under the asset-liability method, deferred taxes
reflect the temporary differences between the financial and tax basis of assets and liabilities
using the enacted tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance to the extent that management
believes it is more likely than not that such deferred tax assets will not be realized.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) 48, Accounting for Uncertainty in Income Taxes, which was effective for the Company on
January 1, 2007. This Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The impact of the Companys reassessment of its tax positions in accordance with the adoption of
FIN 48 did not have a material impact on the results of operations, financial condition or
liquidity. The Companys policy is to recognize interest and penalties related to uncertain tax
positions in income tax expense. As of December 31, 2008, the Company had no accrued income tax
interest or penalties. Tax returns prior to 2005 are no longer subject to examination by major
tax jurisdictions. The Company is not aware of any material tax contingencies.
Taxes Collected from Customers and Remitted to Government Authorities
The Company excludes taxes, collected from customers and payable to government authorities,
from revenue. Taxes payable to government authorities are presented as a liability on the
Consolidated Balance Sheets.
Regulatory Accounting and Regulation
The local telephone exchange operations of the Company account for costs in accordance with
the accounting principles for regulated enterprises prescribed by SFAS No. 71. This accounting
recognizes the economic effects of rate regulation by recording cost and a return on investment
as such amounts are recovered through rates authorized by regulatory authorities. Accordingly,
plant and equipment is depreciated over lives approved by regulators and certain costs and
obligations are deferred based upon approvals received from regulators to permit recovery of such
amounts in future years. The Companys cost studies and depreciation rates are subject to
periodic audits that could result in reductions of revenues.
The Company utilizes blended depreciation rates for financial reporting, which management
believes approximates the economical useful lives of the underlying plant. As a result, the
Company has recorded a regulatory asset, as of December 31, 2008 and 2007, related to
depreciation of the regulated telephone plant allocable to its intrastate and local
jurisdictions. The balances at December 31, 2008 and 2007 are $63,363 and $65,271, respectively.
The Company also has a regulatory liability of $64,117 and $62,443 at December 31, 2008 and 2007,
respectively, related to accumulated removal costs for its local telephone subsidiaries. If the
Company were not following SFAS No. 71, it would have followed SFAS No. 143, Accounting for Asset
Retirement Obligations for asset retirement obligations associated with its regulated telephone
plant. Non-regulated revenues and costs incurred by the local telephone exchange operations and
non-regulated operations of the Company are not accounted for under SFAS No. 71 principles. In
accordance with industry practice and regulatory requirements, revenue generated between
regulated and non-regulated group companies are not eliminated on consolidation; these revenues
totaled $41,597, $38,417 and $32,814 for the years ended December 31, 2008, 2007 and 2006,
respectively.
F-12
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The local telephone exchange activities of the Company are subject to rate regulation by the
FCC for interstate telecommunication service and the Regulatory Commission of Alaska (RCA) for
intrastate and local exchange telecommunication service. The Company, as required by the FCC,
accounts for such activity separately. Long distance services of the Company are subject to
regulation as a non-dominant interexchange carrier by the FCC for interstate telecommunication
services and the RCA for intrastate telecommunication services. Wireless, Internet and other
non-common carrier services are not subject to rate regulation.
Non-Operating Expense
The Company periodically evaluates the fair value of its investments and other non-operating
assets against their carrying value whenever market conditions indicate a change in that fair
value. Any changes relating to declines in the fair value of non-operating assets are charged to
non-operating expense under the caption Other in the Consolidated Statement of Operations.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities on the balance sheet
and measures those instruments at fair value in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its designation as a
hedge. Derivatives that are not hedges are adjusted to fair value through earnings. If a
derivative is a hedge, depending on the nature of the hedge, changes in fair value either offset
the change in fair value of the hedged assets, liabilities or firm commitments through earnings,
or are recognized in other comprehensive income until the hedged transaction is recognized in
earnings. The change in a derivatives fair value related to the ineffective portion of a hedge,
if any, is immediately recognized in earnings. The Company does not enter into any derivative
contracts for speculative purposes. On the date a derivative contract is entered into, the
Company designates the derivative as either a fair value or cash flow hedge. The Company formally
assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If the Company determines that a derivative is
not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company
would discontinue hedge accounting prospectively.
Dividend Policy
Dividends are payable when, as, and if declared by the Companys Board of Directors. In 2008,
2007 and 2006, the Companys board of directors declared quarterly cash dividends. Dividends on the
Companys common stock are not cumulative.
Share-Based Payments
The Company accounts for share-based payments under SFAS No. 123(R), Share-Based Payment,
which requires measurement of compensation cost from January 1, 2005, for all unvested stock-based
awards at fair value on date of grant and recognition of compensation over the service period for
awards expected to vest. The fair value for each stock option granted was estimated at the date of
grant using a Black-Scholes option pricing model. Expected volatilities are based on historical
volatilities of our common stock; the expected life represents the weighted average period of time
that options granted are expected to be outstanding giving consideration to vesting schedules and
our historical exercise patterns; the dividend yield is based on dividend yield of the option
strike price at grant date; and the risk free interest rate on the grant date, for which the
Company uses the lowest then effective Federal Funds interest rate stated by the Board of Governors
of the Federal Reserve System. The Company determines the fair value of restricted stock based on
the number of shares granted and the quoted market price of the Companys common stock on the date
of grant, discounted for estimated dividend payments that do not accrue to the employee during the
vesting period. Stock-based compensation is treated as a temporary difference for income tax
purposes and increases deferred tax assets until the compensation is realized for income tax
purposes. To the extent that the realized tax benefit exceeds the book based compensation, the
excess tax benefit is credited to additional paid in capital.
F-13
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In the second quarter of 2008, the Company granted performance stock units (PSUs) to certain
executive employees contingent upon satisfaction of established performance goals. Compensation
expense is recorded over the expected performance period, which is estimated by the Compensation
Committee of the Companys Board of Directors. The Company re-measures the fair value of each PSU
at each reporting period and records adjusted expense attributable to such period based on changes
to the expected performance period or fair value of the Companys common stock or if the PSUs
otherwise vest, expire, or are determined by the Compensation Committee to be unlikely to vest
prior to expiration.
In September 2008, the Company began issuing stock-settled stock appreciation rights (SSARs)
to certain of its executive officers. The Company computes the fair value of each SSAR at the date
of grant using the same Black-Scholes pricing methodology that its uses to compute the fair value
of a stock option on the Companys common stock.
Additionally, in the third quarter of 2008, the Company awarded restricted stock unit
equivalents (RSUEs) to our Chief Executive Officer. These RSUEs are required to be settled in
shares of the Companys common stock on a one-for-one basis on July 31, 2009, unless stockholder
approval is not obtained, in which case they will be settled in cash. Compensation expense was
recorded upon award and is adjusted at the close of each reporting period based upon the fair value
of the Companys common stock until the RSUEs are converted to shares of common stock or paid in
cash.
Accounting for Pensions
The Company accounts for pensions in accordance with FASB Statement No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans. This statement requires an employer to
recognize in its statement of financial position the over-funded or under-funded status of a
defined benefit post-retirement plan measured as the difference between the fair value of a plans
assets and the benefit obligation. Employers must also recognize as a component of other
comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and
credits that arise during the period. The adoption of the standard, effective December 31, 2006,
had no impact as the plan is frozen.
On December 23, 2008, President Bush signed the Worker, Retiree, and Employer Recovery Act of
2008 (WRERA), which is designed to provide funding relief for certain defined benefit plans.
Under the Pension Protection Act (PPA), and prior to enactment of WRERA, the Company was required
to maintain a 92% funding level during 2008 to continue to qualify for transitional relief provided
under the PPA. In the absence of any such transitional relief, any shortfall in funding below 100%
would have been amortized and payable over a 7-year period. For most defined benefit plans,
including the Companys single-employer plans, WRERA reduces the shortfall amount that is required
to be amortized over a 7-year period to 92%, rather than 100%, for 2008. The Company is currently
undertaking a review of WRERA to quantify its effect, if any, on the Companys obligation to make
contributions during 2009.
Earnings per Share
The Company computes earnings per share based on the weighted number of shares of common
stock and dilutive potential common share equivalents outstanding.
F-14
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
2. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Components of accumulated other comprehensive income (loss) were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Minimum pension liability adjustment (1) |
|
$ |
(6,700 |
) |
|
$ |
(2,855 |
) |
|
$ |
(4,188 |
) |
Tax effect of pension liability (2) |
|
|
2,754 |
|
|
|
1,174 |
|
|
|
|
|
Interest rate swap marked to fair value |
|
|
(23,917 |
) |
|
|
(9,179 |
) |
|
|
5,754 |
|
Tax effect of interest rate swap (2) |
|
|
9,833 |
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss) |
|
$ |
(18,030 |
) |
|
$ |
(7,087 |
) |
|
$ |
1,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Liability adjustment is recorded pursuant to the Companys December 31, 2006,
adoption of SFAS No. 158 Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans. |
|
(2) |
|
Tax effect is recorded pursuant to the 2007 release of the Tax Valuation
Allowance. See Note 13 Income Taxes. |
Components of other comprehensive income (loss) was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Minimum pension liability adjustment |
|
$ |
(3,845 |
) |
|
$ |
1,333 |
|
|
$ |
234 |
|
Tax effect of pension liability |
|
|
1,580 |
|
|
|
1,174 |
|
|
|
|
|
Interest rate swap marked to fair value |
|
|
(14,738 |
) |
|
|
(14,933 |
) |
|
|
1,010 |
|
Tax effect of interest rate swap |
|
|
6,060 |
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(10,943 |
) |
|
$ |
(8,653 |
) |
|
$ |
1,244 |
|
|
|
|
|
|
|
|
|
|
|
3. CREST COMMUNICATIONS ACQUISITION
Effective October 30, 2008, the Company closed its purchase of 100% of the outstanding stock
of Crest Communications Corporation. The results of Crests operations have been included in the
Wireline segment of the Consolidated Financial Statements since that date. Crests operations
include an undersea fiber system of approximately 1,900 miles with cable landing facilities in
Whittier, Juneau, and Valdez, Alaska and Nedonna Beach, Oregon. The system also includes
terrestrial transport components linking Nedonna Beach, Oregon to the Network Operations Control
Center in Hillsboro, Oregon and collocation facilities in Portland, Oregon and Seattle, Washington.
The Companys management believes that the acquisition will complement the AKORN fiber build, by
providing meaningful operating efficiencies and cost synergies, by offering enterprise customers
the only diverse and redundant routing of traffic between Alaska and the lower 48, by allowing
management the use of Network Operations Control Centers in Alaska and the lower 48, and by
connecting our network to Southeast Alaska. Furthermore, management believes that the acquisition
will drive incremental utilization of ACS differentiated Alaskan terrestrial assets from Crests
customer base and allow ACS to participate in the fast-growing bandwidth market ahead of AKORNs
commercial launch.
The aggregate purchase price was $64,960, net of $1,072 in cash acquired and inclusive of
$4,169 cash consideration that has been placed in an escrow account to be used for the settlement
of any potential claims of misrepresentations, breach of warranties or covenants or for other
indemnifications during the first eighteen months following the closing. The Company and Crest have
made customary representations and warranties and covenants in the Agreement. Additionally, $4,000
has been deferred and placed in escrow until claims made by the Company against the selling
stockholders for an unauthorized asset sale have been resolved.
F-15
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
3. CREST COMMUNICATIONS ACQUISITION (Continued)
A valuation of the business enterprise and acquired assets and liabilities was performed
resulting in a determination that the fair value of the business enterprise was greater than the
total acquisition price. The major asset acquired was the Northstar fiber network connecting Alaska
with the lower 48, which was valued at replacement cost. In accordance with SFAS No. 141, Business
Combinations (SFAS 141), the total cost of the acquisition has been allocated to the assets
acquired and the liabilities assumed based on a pro-rata reduction of their estimated fair value at
the date of acquisition. Certain purchase price adjustments are still under review and therefore
the purchase price allocation is still subject to refinement. The following table summarizes the
fair value of the assets acquired and liabilities assumed at the date of the acquisition after
push-down of the excess.
|
|
|
|
|
|
|
October 30, 2008 |
|
Current Assets |
|
$ |
5,434 |
|
Property and equipment |
|
|
61,685 |
|
Other assets |
|
|
10 |
|
Deferred tax asset |
|
|
3,393 |
|
|
|
|
|
Total assets acquired |
|
|
70,522 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
2,007 |
|
Long-term liabilities |
|
|
2,483 |
|
|
|
|
|
Total liabilities assumed |
|
|
4,490 |
|
|
|
|
|
Net assets acquired |
|
$ |
66,032 |
|
|
|
|
|
4. FAIR VALUE MEASUREMENTS
The Company adopted the disclosure requirements of SFAS No. 157, Fair Value Measurements
(SFAS No. 157) effective January 1, 2008. SFAS No. 157 clarifies the definition of fair value,
prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs
used to measure fair value and expands disclosures about the use of fair value measurements. The
valuation techniques required by SFAS No. 157 are based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs
reflect internal market assumptions. These two types of inputs create the following fair value
hierarchy:
|
|
|
Level 1- Quoted prices for identical instruments in active markets. |
|
|
|
|
Level 2- Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are observable;
and |
|
|
|
|
Level 3 Significant inputs to the valuation model are unobservable. The fair values of
cash and cash equivalents, accounts receivable and payable, and other short-term monetary
assets and liabilities approximate carrying values due to their short-term nature. |
Fair Value Measurements on a Recurring Basis
Financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurements. The Companys assessment of the
significance of a particular input to the fair value measurements requires judgment, and may affect
the valuation of the assets and liabilities being measured and their level within the fair value
hierarchy.
The following table presents the balances of assets and liabilities measured at fair value on
a recurring basis as of December 31, 2008 at each hierarchical level:
F-16
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
4. FAIR VALUE MEASUREMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current investments |
|
$ |
1,005 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other deferred credits and long-term liabilities |
|
$ |
(23,917 |
) |
|
$ |
|
|
|
$ |
(23,917 |
) |
|
$ |
|
|
The following table presents the recociliation discoloures about fair value measurements at December 31, 2008 using significany unobservable (Level 3).
|
|
|
|
|
|
|
Auction |
|
|
|
Rate Securities |
|
Beginning balance, January 1, 2008 |
|
$ |
|
|
Total gains or losses (realized / unrealized)
included in earnings |
|
|
(245 |
) |
Purchases, issuances and settlements |
|
|
1,250 |
|
|
|
|
|
Ending balance, December 31, 2008 |
|
$ |
1,005 |
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period
included in earnings attributable to the change in
unrealized gains or losses relating to assets
still held at December 31, 2008 |
|
$ |
245 |
|
|
|
|
|
Non-current investments consist of auction rate securities that have maturity dates greater
than one year from December 31, 2008. The investments in auction rate securities are included in
Level 3 as no active market or significant other observable inputs exist. The Company assigned a
value to its ARS portfolio by reviewing the value assigned to similar securities by brokerages,
relative yields, and assessing credit risk. An assessment was also done in which management
determined that the securities were other-than-temporarily impaired, and in 2008, a charge was
taken to the income statement of $245.
Included in liabilities, in other deferred credits and long-term liabilities, are derivative
contracts, comprised of out-of-the-money interest rate swaps, that are valued using models based on
readily observable market parameters for all substantial terms of the derivative contracts and thus
are classified within Level 2.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and payable, and other
short-term monetary assets and liabilities approximate carrying value due their short-term nature.
The fair value of the Companys 2005 senior credit facility, convertible notes, revolver draw,
capital leases and other long-term obligations, of $443,358 and $432,996, at December 31, 2008 and 2007, respectively, were estimated based on quoted market prices.
Comparatively, the carrying values of these liabilities were $561,523 and $432,996 at December 31,
2008 and 2007, respectively.
F-17
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
4. FAIR VALUE MEASUREMENTS (Continued)
Fair Value Measurements on a Nonrecurring Basis
In February 2008, the FASB issued Financial Statement of Position (FSP) SFAS 157-2,
Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 for one
year for certain non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis. In October
2008, the FASB also issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive
market and illustrates how an entity would determine fair value when the market for a financial
asset is not active. On January 1, 2008, the Company adopted, without material impact on our
consolidated financial statements, the provisions of SFAS No. 157 related to financial assets and
liabilities and to non-financial assets and liabilities measured at fair value on a recurring
basis. Beginning January 1, 2009, the Company will adopt the provisions required related to
nonfinancial assets and non-financial liabilities that are not required or permitted to be measured
at fair value on a recurring basis, which include those measured at fair value in goodwill
impairment testing, indefinite-lived intangible assets measured at fair value for impairment
assessment, non-financial long-lived assets measured at fair value for impairment assessment, asset
retirement obligations initially measured at fair value, and those initially measured at fair value
in a business combination. We do not expect the provisions of SFAS No. 157 related to these items
to have a material impact on our consolidated financial statements.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of SFAS 115 (SFAS No. 159)
SFAS No. 159 permits but does not require the measurement of financial instruments and certain
other items at fair value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. As the Company did not elect to fair value any of our
financial instruments under the provisions of SFAS No. 159, the adoption of this statement
effective January 1, 2008 did not have an impact on the Companys financial statements.
5. ACCOUNTS RECEIVABLE
Accounts receivable trade consists of the following at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Customers |
|
$ |
30,420 |
|
|
$ |
34,277 |
|
Connecting companies |
|
|
8,460 |
|
|
|
6,901 |
|
Other |
|
|
7,465 |
|
|
|
6,740 |
|
|
|
|
|
|
|
|
|
|
|
46,345 |
|
|
|
47,918 |
|
Less: allowance for doubtful accounts |
|
|
(5,912 |
) |
|
|
(8,768 |
) |
|
|
|
|
|
|
|
Accounts receivable trade, net |
|
$ |
40,433 |
|
|
$ |
39,150 |
|
|
|
|
|
|
|
|
F-18
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Land, buildings and support assets |
|
$ |
235,324 |
|
|
$ |
204,858 |
|
Central office switching and transmission |
|
|
344,532 |
|
|
|
332,528 |
|
Outside plant cable and wire facilities |
|
|
585,288 |
|
|
|
524,925 |
|
Wireless switching and transmission |
|
|
98,300 |
|
|
|
98,151 |
|
Other |
|
|
2,822 |
|
|
|
6,022 |
|
Construction work in progress |
|
|
125,085 |
|
|
|
42,773 |
|
|
|
|
|
|
|
|
|
|
|
1,391,351 |
|
|
|
1,209,257 |
|
Less: accumulated depreciation and amortization |
|
|
(891,899 |
) |
|
|
(825,663 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
499,452 |
|
|
$ |
383,594 |
|
|
|
|
|
|
|
|
The following is a summary of property held under capital leases included in the above
property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Land, buildings and support assets |
|
$ |
17,665 |
|
|
$ |
12,621 |
|
Outside plant cable and wire facilities |
|
|
2,115 |
|
|
|
2,115 |
|
|
|
|
|
|
|
|
|
|
|
19,780 |
|
|
|
14,736 |
|
Less: accumulated depreciation and amortization |
|
|
(7,266 |
) |
|
|
(7,910 |
) |
|
|
|
|
|
|
|
Property held under capital leases, net |
|
$ |
12,514 |
|
|
$ |
6,826 |
|
|
|
|
|
|
|
|
Amortization of assets under capital leases included in depreciation expense in 2008, 2007 and
2006 was $938, $1,189 and $1,205, respectively. Future minimum payments under these leases for the
next five years and thereafter are as follows:
|
|
|
|
|
2009 |
|
$ |
1,209 |
|
2010 |
|
|
1,212 |
|
2011 |
|
|
1,218 |
|
2012 |
|
|
1,217 |
|
2013 |
|
|
871 |
|
Thereafter |
|
|
2,469 |
|
|
|
|
|
|
|
$ |
8,196 |
|
|
|
|
|
The Company leases various land, buildings, right-of-ways and personal property under
operating lease agreements. Rental expense under operating leases for 2008, 2007 and 2006 was
$7,559, $6,135 and $4,725, respectively.
Future minimum payments under these leases for the next five years and thereafter are as
follows:
|
|
|
|
|
2009 |
|
$ |
7,617 |
|
2010 |
|
|
6,901 |
|
2011 |
|
|
5,808 |
|
2012 |
|
|
5,332 |
|
2013 |
|
|
5,090 |
|
Thereafter |
|
|
59,128 |
|
|
|
|
|
|
|
$ |
89,876 |
|
|
|
|
|
F-19
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
7. ASSET RETIREMENT
The Company accounts for asset retirement obligations in accordance with FIN No. 47,
Accounting for Conditional Asset Retirement Obligations. FIN No. 47 requires the Company to
recognize asset retirement obligations which are conditional on a future event. Uncertainty about
the timing or settlement of the obligation is factored into the measurement of the liability. The
Company has a regulatory asset and liability of $64,117 and $62,443 at December 31, 2008 and 2007,
respectively, related to accumulated removal costs for its local telephone subsidiaries. Consistent
with the industry, the Company follows SFAS No. 71 for asset retirement obligations associated with
its regulated telephone plant. The Companys assets are pooled and the depreciable lives set by the
regulators include a removal component which in effect accounts for the cost of removal.
Non-regulated operations of the Company are accounted for under the principles of SFAS No. 143,
Accounting for Asset Retirement Obligations and FIN No. 47 for which the Company has a retirement
obligation of $1,969 and $1,411. These balances were recorded as a result of the Companys
estimated obligation related to the removal of certain cell sites at the end of their operating
lease term, adjusted for accretion/depreciation over the life of the lease. Also included in this
balance is an acquired liability for $380, related to the removal of batteries in the Companys new
cable operations.
The following table outlines the changes in the accumulated retirement obligation
liability:
|
|
|
|
|
Balance, January 1, 2007 |
|
$ |
1,171 |
|
Asset retirement obligation |
|
|
143 |
|
Accretion expense |
|
|
99 |
|
Settlement of lease obligations |
|
|
(2 |
) |
|
|
|
|
Balance, December 31, 2007 |
|
$ |
1,411 |
|
Asset retirement obligation |
|
|
119 |
|
Accretion acquired |
|
|
380 |
|
Accretion expense |
|
|
117 |
|
Settlement of lease obligations |
|
|
(58 |
) |
|
|
|
|
Ending Balance, December 31, 2008 |
|
$ |
1,969 |
|
|
|
|
|
8. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company performs its annual impairment test for goodwill in accordance with SFAS No. 142
Goodwill and Other Intangible Assets. The Company performs its annual impairment test as of the
beginning of the fourth quarter or more frequently if events or changes in circumstance indicate
possible impairment. The Company determines the fair value of each reporting unit for purposes of
this test primarily by using a discounted cash flow valuation technique corroborated by comparative
market multiples to determine the fair value of its businesses for comparison to their
corresponding book values. 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. If the book value exceeds the estimated fair value for a
reporting unit, a potential impairment is indicated and SFAS No. 142 prescribes the approach for
determining the impairment amount, if any.
After conducting its 2008 test, the Company determined that goodwill attributable to its
wireline operating segment was impaired resulting in an aggregate goodwill impairment charge of
$29,553 that was recognized in the fourth quarter of 2008. The goodwill impairment charge is
primarily driven by adverse equity market conditions, the industry transition from wireline to
wireless products and services, decrease in current market multiples and the decline in the
Companys stock price. This impairment charge reduces goodwill but does not impact the Companys
overall business operations or cash flows. The tax benefit derived from recording the impairment
charge was recorded as a deferred income tax benefit and is included in the deferred tax assets as
part of the net operating loss carry forwards. Prior to recording the goodwill impairment charges,
the Company tested the amortizable intangible assets and other long-lived assets as required by SFAS
No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, and determined no
impairment existed.
The Company also annually reassesses previously recognized intangible assets. Cellular and
PCS licenses have terms of 10 years, but are renewable indefinitely through a routine process
involving a nominal fee. The Company has determined that no legal, regulatory, contractual,
competitive, economic or other factors currently exist that limit the useful life of its Cellular
and PCS licenses. Therefore, the Company is not amortizing its Cellular and PCS licenses based on
the determination
F-20
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
8. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
that these assets have indefinite lives. The Company evaluates its determination of indefinite
useful lives for its Cellular and PCS licenses each reporting period. Indefinite lived intangible
assets are tested for impairment at least annually by comparing the fair value of the assets to
their carrying amount. In 2008, the Company determined that the domain and trade names associated
with its wireline segment were impaired and the balance of $88 was taken as an impairment loss.
Intangible assets with estimable useful lives are amortized over their respective estimated
useful lives to their residual values and reviewed for impairment in accordance with the provisions
of SFAS 144. The following table provides the gross carrying value and accumulated amortization for
each major class of intangible asset by segment as of December 31, 2008 and 2007 based on the
Companys reassessment of previously recognized intangible assets and their remaining amortization
lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
|
Wireless |
|
|
Total |
|
Goodwill: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 |
|
$ |
29,553 |
|
|
$ |
8,850 |
|
|
$ |
38,403 |
|
Impairment loss |
|
|
(29,553 |
) |
|
|
|
|
|
|
(29,553 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
|
|
|
$ |
8,850 |
|
|
$ |
8,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Domain names and trade names |
|
$ |
88 |
|
|
$ |
|
|
|
$ |
88 |
|
Cellular licenses |
|
|
|
|
|
|
18,193 |
|
|
$ |
18,193 |
|
PCS licenses |
|
|
|
|
|
|
3,323 |
|
|
|
3,323 |
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 |
|
$ |
88 |
|
|
$ |
21,516 |
|
|
$ |
21,604 |
|
Spectrum licenses |
|
|
|
|
|
$ |
2,602 |
|
|
$ |
2,602 |
|
Impairment loss |
|
|
(88 |
) |
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
|
|
|
$ |
24,118 |
|
|
$ |
24,118 |
|
|
|
|
|
|
|
|
|
|
|
In 2007, the Company retired its only definite-lived intangible asset. This asset had a
carrying value of zero at its retirement date. Amortization expense on that asset for the years
ended December 31, 2008 and 2007 was zero and in 2006 was $91.
9. ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES
Accounts payable, accrued and other current liabilities consist of the following at December
31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Accounts payable trade |
|
$ |
23,854 |
|
|
$ |
19,160 |
|
Accrued payroll, benefits, and related liabilities |
|
|
16,822 |
|
|
|
18,715 |
|
Dividend payable |
|
|
9,449 |
|
|
|
9,226 |
|
Access revenue subject to refund |
|
|
5,226 |
|
|
|
4,097 |
|
Unsettled acquisition costs |
|
|
4,169 |
|
|
|
|
|
Other |
|
|
14,508 |
|
|
|
12,872 |
|
|
|
|
|
|
|
|
|
|
$ |
74,028 |
|
|
$ |
64,070 |
|
|
|
|
|
|
|
|
F-21
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
10. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
2005 senior credit facility term loan due 2012 |
|
$ |
425,889 |
|
|
$ |
427,900 |
|
5.75% convertible notes due 2013 |
|
|
125,000 |
|
|
|
|
|
Revolving credit facility loan |
|
|
5,000 |
|
|
|
|
|
Capital leases and other long-term obligations |
|
|
5,634 |
|
|
|
5,096 |
|
|
|
|
|
|
|
|
|
|
|
561,523 |
|
|
|
432,996 |
|
Less current portion |
|
|
(666 |
) |
|
|
(780 |
) |
|
|
|
|
|
|
|
Long-term obligations, net of current portion |
|
$ |
560,857 |
|
|
$ |
432,216 |
|
|
|
|
|
|
|
|
The aggregate maturities of long-term obligations for each of the five years and thereafter
subsequent to December 31, 2008 are as follows:
|
|
|
|
|
2009 |
|
$ |
666 |
|
2010 |
|
|
737 |
|
2011 |
|
|
5,820 |
|
2012 |
|
|
551,792 |
|
2013 |
|
|
644 |
|
Thereafter |
|
|
1,864 |
|
|
|
|
|
|
|
$ |
561,523 |
|
|
|
|
|
2005 Senior Credit Facility
During the first quarter of 2005, the Company completed refinancing transactions whereby it
entered into a new $380,000 senior secured credit facility, the (2005 senior credit facility),
which consisted of $335,000 of term loan borrowings and a $45,000 revolving loan facility.
On July 15, 2005, the Company completed a refinancing transaction whereby it amended and
entered into a new term loan under its 2005 senior credit facility with substantially the same
terms, increasing the size of the facility to $420,000. In February 2006, the Company amended its
2005 senior credit facility, increasing the $375,000 term loan under the facility by $52,900 and
re-priced the facility to London Inter-Bank Offered Rate (LIBOR) plus 1.75% from LIBOR plus
2.00%. The amendment and the re-price became effective as of February 23, 2006 and February 22,
2006, respectively. The amendment permitted ACS Holdings to purchase any and all of its currently
outstanding 9 7/8 % Senior Notes due 2011.
The $425,889 term loan balance under the 2005 senior credit facility was first drawn on
February 1, 2005, and generally bears interest at an annual rate of LIBOR plus 1.75%, with a term
of seven years from the date of closing and no scheduled principal payments before maturity.
However, in conjunction with the new convertible debt offering in 2008, the Company paid down
$2,011 of the term loan principal balance. At December 31, 2008 the Company had drawn $5,000 from
its revolving credit facility leaving a remaining $40,000 un-drawn. To the extent drawn, the
revolving credit facility bears interest at an annual rate of LIBOR plus 2.00% and has a term of
six years from the date of closing. To the extent the $45,000 revolving credit facility under the
2005 senior credit facility is un-drawn, the Company will pay an annual commitment fee of 0.375% of
the un-drawn principal amount over its term. The Company also entered into floating-to-fixed
interest rate swaps with total notional amounts of $135,000, $85,000, $40,000, $115,000 and
$52,900, which swap the floating interest rate on the entire term loan borrowings under the 2005 senior credit facility for
remaining periods at December 31, 2006 which range from one to three years, at a fixed rate of
5.88%, 6.25%, 6.18%, 6.71% and 6.75% per year, respectively, inclusive of the 1.75% premium over
LIBOR. The swaps are accounted for as cash flow hedges.
F-22
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
10. LONG-TERM OBLIGATIONS (Continued)
The 2005 senior secured credit facility contains a number of restrictive covenants and events
of default, including covenants limiting capital expenditures, incurrence of debt and payment of
dividends. The 2005 senior credit facility also requires that we achieve certain financial ratios
quarterly and we are currently operating comfortably within these restrictions.
5.75% Convertible Notes due 2013
On April 8, 2008 the Company closed the sale of $125,000 aggregate principal amount of its
5.75% Convertible Notes due March 1, 2013. The notes were sold in a private placement pursuant to
Rule 144A under the Securities Act of 1933. The Company received net proceeds from the offering of
$110,053 after underwriter fees, the convertible note hedge, proceeds from the warrant and other
associated costs.
The notes are unsecured obligations of the Company, subordinate to its obligations under its
senior credit facility, will pay interest semi-annually in arrears on March 1 and September 1 of
each year and will be convertible upon satisfaction of certain conditions. Upon conversion, holders
will receive an amount in cash, shares of ACS common stock or a combination of both. The notes are
guaranteed by substantially all of the Companys existing subsidiaries. Holders of the notes will
have the right to require the Company to repurchase all or some of their notes at 100% of their
principal, plus any accrued interest, upon the occurrence of certain events. The Company also
entered into a registration rights agreement with the initial purchasers of the notes. Under the
registration rights agreement, the Company is obligated under certain circumstances to file a shelf
registration statement under the Securities Act related to the resale of the notes and the common
stock issuable upon conversion of the notes. If such registration statement is required and is not
filed, or does not become effective within specified time periods, the Company will be required to
pay additional interest to holders of the notes.
Concurrent with the issuance of the notes, the Company entered into convertible note hedge
transactions with an affiliate of one of the initial purchasers and certain other financial
institutions for the purpose of reducing the potential dilution to common stockholders. If the
Company is required to issue shares of its common stock upon conversion of the notes, the Company
has the option of receiving up to 9,266 shares of its common stock when the price is between $12.90
and $16.42 per share upon conversion. The Company entered into warrant transactions with the same
counterparties whereby the financial institutions have the option of receiving up to the same
number of shares of the Companys common stock when the price exceeds $16.42 per share upon
conversion. The convertible note hedge had a cost of $20,431 and has been accounted for as an
equity transaction in accordance with Emerging Issues Task Force (EITF) No. 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially settled in, a Companys Own Stock. Tax
benefits of $1,056 were recorded for the twelve months ended December 31, 2008, as an offset to the
hedge. All future tax benefits from the deduction related to the purchase of the call option, as
part of the convertible note hedge transaction, will be recorded to additional paid in capital over
the term of the hedge transaction. The Company received proceeds of $9,852 related to the sale of
the warrants, which has also been classified as equity because they meet all of the equity
classification criteria within EITF No. 00-19. Further, the Company expects the adoption of FSP APB
14-1 to increase the interest expense on the 5.75% Convertible Notes due 2013 recorded in the
results of operations by an annual amount of approximately $6.5 million.
The call options purchased and warrants sold contemporaneously with the sale of the
convertible notes are equity contracts that meet the paragraph 11(a) scope exception of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, and hence do not need to be
marked-to-market through earnings. In addition, since the call option and warrant transactions are
accounted for as equity transactions, the payment associated with the purchase of the call options
and the proceeds received from the issuance of the warrants were recorded in additional paid in capital in
stockholders equity as separate equity transactions.
Each $1,000 principal of the notes are convertible unto 77.5014 shares of the Companys common
stock, which is the equivalent of $12.90 per share, subject to adjustment upon the occurrence of
specified events set forth under the terms of the note. Upon conversion, subject to certain
covenants under its existing credit facility, the Company intends to pay the holders the cash value
of the applicable number of shares of its common stock, up to the principal amount of the note.
F-23
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
10. LONG-TERM OBLIGATIONS (Continued)
Amounts in excess of the principal balance may be paid in cash or in stock at the Companys
option. Holders may convert their notes, at their option, at any time prior to the close of
business on the business day immediately preceding the maturity date for the notes under the
following circumstances:
(1) during any fiscal quarter after the fiscal quarter ended June 30, 2008 (and only during
any such fiscal quarter), if the last reported sale price of our common stock for at least 20
trading days in the period of 30 consecutive trading days ending on the last trading day of the
immediately preceding fiscal quarter is equal to or more than 130% of the conversion price of the
notes on the applicable trading day;
(2) during the five scheduled trading day period after any five consecutive trading-day
period (the measurement period) in which the trading price per $1,000 principal amount of the
notes for each day of the measurement period was less than the 98.0% of the product of the last
reported sale price of the Companys common stock and the conversion rate of the notes on each such
day; or
(3) upon the occurrence of specified corporate transactions described in the indenture
governing the notes.
In addition, holders may also convert their notes at their option at any time beginning on
November 1, 2012, and ending at the close of business on the second scheduled trading day
immediately preceding the maturity date for the notes, without regard to the foregoing
circumstances.
Holders who convert their notes, in connection with a change of control, may be entitled to a
make-whole premium in the form of an increase in the conversion rate. In addition, upon a change in
control, liquidation, dissolution or de-listing, the holders of the notes may require the Company
to repurchase for cash all or any portion of their notes for 100% of the principal amount plus
accrued and unpaid interest. As of December 31, 2008, none of the conditions allowing holders of
the notes to convert, or requiring the Company to repurchase the notes, had been met. The Company
may not redeem the notes prior to maturity.
While it is the Companys intent to settle the principal portion of this debt in cash, under
the provisions of, EITF No. 04-08, The Effect of Convertible Instruments on Diluted Earnings per
Share, the Company must use the if converted method set forth in SFAS No. 128, Earnings per
Share, in calculating the diluted earnings per share effect of the assumed conversion of our
contingently convertible debt. Under the if converted method , the after tax effect of interest
expense related to the convertible securities is added back to net income, and the convertible debt
is assumed to have been converted in to common stock at the earlier of the debt issuance date or
the beginning of the period.
Also in accordance with SFAS No. 128, the warrants sold in connection with the hedge
transaction will have no impact on earnings per share until the Companys share price exceeds
$16.42. Prior to exercise, the Company will include the effect of additional shares that may be
issued using the treasury stock method. The call options purchased as part of the hedging
transaction were anti-dilutive as of December 31, 2008 and, therefore, will have no effect on
earnings per share.
Repurchased 9 7/8% Senior Unsecured Notes due 2011
In January and February 2006, the Companys subsidiary, ACS Holdings, repurchased $8,039 principal
amount of its existing 9 7/8% senior unsecured notes due 2011 (CUSIP No. 011679AF4) at a weighted
average premium of 9.7% over the par value. The Company incurred an early extinguishment of debt
charge of $1,227 in connection with this transaction, inclusive of $778 in cash premiums. In
February 2006, ACS Holdings commenced a cash tender offer for any and all of the
$56,939 aggregate principal amount of outstanding 9 7/8% senior unsecured notes due 2011 issued by
ACS Holdings. On February 23, 2006, the Company successfully repurchased $52,899 of the remaining
$56,939 outstanding principal balance of these notes. The Company incurred an early extinguishment
of debt charge of $8,423 in connection with this transaction, inclusive of $5,640 in cash premiums.
On August 15, 2007, the Company successfully repurchased the remaining $4,040 outstanding principal
balance of these notes. The Company incurred an early extinguishment of debt charge of $355 in
connection with this transaction, inclusive of $199 in cash premiums.
F-24
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
10. LONG-TERM OBLIGATIONS (Continued)
Capital Leases and Other Long-term Obligations
The Company has entered into various capital leases and other financing agreements totaling
$5,634 and $5,096 with a weighted average interest rate of 10.16% and 9.94% at December 31, 2008
and 2007, respectively.
11. OTHER DEFERRED CREDITS AND LONG-TERM LIABILITIES
Deferred credits and other long-term liabilities consist of the following at December 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Regulatory liabilities accumulated removal costs |
|
$ |
64,117 |
|
|
$ |
62,443 |
|
Interest rate swaps |
|
|
23,917 |
|
|
|
9,179 |
|
Refundable access revenue |
|
|
1,146 |
|
|
|
6,895 |
|
Pension liability |
|
|
3,556 |
|
|
|
|
|
Other deferred credits |
|
|
5,957 |
|
|
|
3,558 |
|
|
|
|
|
|
|
|
|
|
$ |
98,693 |
|
|
$ |
82,075 |
|
|
|
|
|
|
|
|
12. NON-OPERATING CHARGES
The Company periodically evaluates the fair value of its investments and other non-operating
assets against their carrying value whenever market conditions indicate a change in that fair
value. Any changes relating to declines in the fair value of non-operating assets are charged to
non-operating expense under the caption Other in the Consolidated Statement of Operations.
13. INCOME TAXES
The following table includes a reconciliation of federal statutory tax at 35%, 35%, and 34%,
respectively, to the recorded tax (expense) benefit, for the years ended December 31, 2008, 2007
and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Computed federal income taxes at the statutory rate |
|
$ |
5,824 |
|
|
$ |
(11,530 |
) |
|
$ |
(4,665 |
) |
(Increase) reduction in tax resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes (net of federal benefit) |
|
|
966 |
|
|
|
(2,254 |
) |
|
|
(799 |
) |
Excess compensation not allowed |
|
|
|
|
|
|
(209 |
) |
|
|
(60 |
) |
Other |
|
|
197 |
|
|
|
(183 |
) |
|
|
(771 |
) |
Rate change |
|
|
|
|
|
|
3,361 |
|
|
|
|
|
Stock-based compensation |
|
|
(485 |
) |
|
|
(489 |
) |
|
|
747 |
|
Valuation allowance |
|
|
|
|
|
|
122,498 |
|
|
|
5,105 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (expense) |
|
$ |
6,502 |
|
|
$ |
111,194 |
|
|
$ |
(443 |
) |
|
|
|
|
|
|
|
|
|
|
F-25
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
13. INCOME TAXES (Continued)
The Company files a consolidated federal income tax return. The income tax provision for the
years ended December 31, 2008 and 2007 comprised of the following charges:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
Federal income tax |
|
$ |
48 |
|
|
$ |
(1,103 |
) |
State income tax |
|
|
9 |
|
|
|
(198 |
) |
|
|
|
|
|
|
|
Total current |
|
|
57 |
|
|
|
(1,301 |
) |
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal income tax |
|
|
4,966 |
|
|
|
(7,616 |
) |
State income tax |
|
|
1,479 |
|
|
|
(2,387 |
) |
Change in valuation allowance |
|
|
|
|
|
|
122,498 |
|
|
|
|
|
|
|
|
Total deferred |
|
|
6,445 |
|
|
|
112,495 |
|
|
|
|
|
|
|
|
Total income tax benefit (expense) |
|
$ |
6,502 |
|
|
$ |
111,194 |
|
|
|
|
|
|
|
|
The Company accounts for income taxes under the asset-liability method. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Companys deferred tax assets and liabilities are recorded at a
combined federal and state effective rate of 41.1% as of December 31, 2008 and 2007, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
Accrued compensation |
|
$ |
3,723 |
|
|
$ |
5,053 |
|
Allowance for doubtful accounts |
|
|
2,430 |
|
|
|
3,604 |
|
Net operating loss carry forwards |
|
|
3,238 |
|
|
|
6,757 |
|
Fair value on interest rate swaps |
|
|
9,833 |
|
|
|
3,773 |
|
Pension liability |
|
|
410 |
|
|
|
145 |
|
Specific reserves |
|
|
685 |
|
|
|
1,022 |
|
Self insurance accruals |
|
|
665 |
|
|
|
682 |
|
Other |
|
|
161 |
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
21,145 |
|
|
|
21,347 |
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
Net operating loss carry forwards |
|
|
56,076 |
|
|
|
41,141 |
|
Alternative minimum tax carry forward |
|
|
5,169 |
|
|
|
1,866 |
|
Intangibles/goodwill |
|
|
25,782 |
|
|
|
20,428 |
|
Deferred revenue |
|
|
865 |
|
|
|
|
|
Pension liability |
|
|
2,344 |
|
|
|
1,029 |
|
Property, plant and equipment |
|
|
21,319 |
|
|
|
29,807 |
|
Stock-based compensation |
|
|
3,125 |
|
|
|
1,732 |
|
Other |
|
|
151 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
114,831 |
|
|
|
96,095 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
$ |
135,976 |
|
|
$ |
117,442 |
|
|
|
|
|
|
|
|
In the year ended December 31, 2008, the Company generated a taxable loss which was primarily
caused by electing to take bonus depreciation, as allowed under the Economic Stimulus Act of
2008, on qualified fixed assets. Offsetting the loss, the Company recorded a tax benefit related
to NOLs generated in the current year. In the year ended December 31, 2007
the Company recorded a net benefit when management reversed 100% of the existing valuation
allowance. The allowance was reversed as management believed it was more likely than not that all
of the deferred tax assets would be realized based on the weight of all available evidence,
including two years of positive net income and projected future earnings. In 2008, if it
F-26
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
13. INCOME TAXES (Continued)
were not for the bonus depreciation taken for tax purposes and the goodwill write-off for book
purposes the Company would have recorded income for both book and tax purposes. Therefore,
management continues to believe that all of the deferred tax assets will be realized and the
release of our valuation allowance was appropriate.
The Company files consolidated income tax returns with all if its subsidiaries for U.S.
Federal purposes and with the States of Alaska and Oregon. The Company is no longer subject to
examination for years prior to 2005. The Company is not currently being audited, nor has it been
notified of any pending audits. The Company is not aware of any controversial or unsupported
positions taken on its tax returns that have not either been resolved in prior audits, by amending
prior returns or by adjusting its Net Operating Loss (NOL) carry forwards to rectify its filings.
The Company has a $1,041 income tax receivable at December 31, 2008 and a $137 income tax payable
at December 31, 2007.
The Company accounts for income tax uncertainties using the provision of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). The Company has reviewed all of its
tax filings and position taken on its returns and has not identified any material current or future
effect on its consolidated results of operations, cash flows or financial position.
In connection with the provisions of SFAS No. 123(R), the Company elected to calculate the
pool of excess tax benefits under the modified retrospective method, but only to prior interim
periods in the year of initial adoption. Future tax benefits increased $1,393 and decreased $1,011
in 2008 and 2007, respectively.
The Company has available at December 31, 2008, unused acquired and operating loss carry
forwards of $148,002 federal and $120,057 state that may be applied against future taxable income
as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
State |
|
|
|
Acquired Unused |
|
|
Unused |
|
|
Total Unused |
|
|
Total Unused |
|
Year of |
|
Operating Loss |
|
|
Operating Loss |
|
|
Operating Loss |
|
|
Operating Loss |
|
Expiration |
|
Carry forwards |
|
|
Carry forwards |
|
|
Carry forwards |
|
|
Carry forwards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
$ |
8,879 |
|
|
$ |
|
|
|
$ |
8,879 |
|
|
$ |
|
|
2020 |
|
|
2,209 |
|
|
|
|
|
|
|
2,209 |
|
|
|
2,193 |
|
2021 |
|
|
|
|
|
|
34,034 |
|
|
|
34,034 |
|
|
|
30,719 |
|
2022 |
|
|
7,797 |
|
|
|
17,983 |
|
|
|
25,780 |
|
|
|
17,458 |
|
2023 |
|
|
4,565 |
|
|
|
|
|
|
|
4,565 |
|
|
|
|
|
2024 |
|
|
230 |
|
|
|
43,974 |
|
|
|
44,204 |
|
|
|
43,715 |
|
2025 |
|
|
|
|
|
|
22,648 |
|
|
|
22,648 |
|
|
|
22,613 |
|
2026 |
|
|
2,299 |
|
|
|
|
|
|
|
2,299 |
|
|
|
|
|
2028 |
|
|
|
|
|
|
3,384 |
|
|
|
3,384 |
|
|
|
3,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,979 |
|
|
$ |
122,023 |
|
|
$ |
148,002 |
|
|
$ |
120,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired unused operating loss carry forwards associated with the Companys acquisition of
Internet Alaska in June 2000 and Crest in October of 2008 are limited by Section 382 of the
Internal Revenue Code of 1986. Internet Alaska is limited to $216 and Crest is limited to $3,068
per year plus the benefit of unrealized built-in gains. To the extent that these limits are not
used they can be carried forward to subsequent years thereby effectively increasing that years
limitation.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limit on the
ability of loss corporations that undergo an ownership change. This limitation restricts the
amount of operating losses that can be used
to reduce its future taxable income. On December 7, 2005 ACS underwent an ownership change
thereby subjecting it to the Section 382 loss limitation rules. The corrected overall annual
limitation at date of ownership change was $14,874 per year annually increased by unrealized
built-in gains of $10,794. The increase in limitation will be in effect through the year
F-27
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
13. INCOME TAXES (Continued)
2010. The
taxable loss generated in 2005 after the change in ownership from December 7, 2005 through the end
of the year was $1,489 and has no limitations. In addition to the utilization of Internet Alaskas
operating losses, ACS utilized additional operating losses of zero
and $23,882 for 2008 and 2007,
respectively, out of its operating loss carry forward.
14. EARNINGS PER SHARE
Earnings per share are based on weighted average number of shares of common stock and dilutive
potential common shares equivalents outstanding. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflect the potential dilution
of securities that could share in the earnings of an entity. The Company includes dilutive stock
options based on the treasury stock method. Due to the Companys reported net losses for the year
ended December, 31, 2008, 1,428 potential common share equivalents, which consisted of options,
restricted stock and stock-settled stock appreciation rights (SSARs) granted to employees and
deferred shares granted to directors, were anti-dilutive. Also excluded from the calculation were
shares related to the Companys convertible debt which were anti-dilutive for the twelve month
period ending December 31, 2008. No shares were anti-dilutive at December 31, 2007 or December 31,
2006. The following table sets forth the computation of basic and diluted earnings per share for
the years ending December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator net income (loss) |
|
$ |
(10,139 |
) |
|
$ |
144,136 |
|
|
$ |
13,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
43,391 |
|
|
|
42,701 |
|
|
|
42,045 |
|
Dilutive impact of restricted stock, options
and deferred shares |
|
|
|
|
|
|
1,484 |
|
|
|
1,342 |
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares |
|
|
43,391 |
|
|
|
44,185 |
|
|
|
43,387 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.23 |
) |
|
$ |
3.38 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.23 |
) |
|
$ |
3.26 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
15. STOCK INCENTIVE PLANS
Under various plans, ACS Group, through the Compensation Committee of its Board of Directors,
may grant stock options, restricted stock, stock appreciation rights and other awards to officers,
employees and non-employee directors. At December 31, 2008, ACS Group has reserved a total of
11,560 (11.56 million) shares of authorized common stock for issuance under the plans. In general,
options under the plans vest ratably over three, four or five years and the plans terminate in 10
years. After the plans terminate, all shares granted under the plan, prior to its termination,
continue to vest under the terms of the grant when it was awarded.
Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
ACS Group has reserved 8,660 shares under this plan, which was adopted by the Company in November
1999. At December 31, 2008, 10,769 equity instruments have been granted, 3,488 have been forfeited,
4,742 have been exercised, and 1,385 shares are available for grant under the plan.
In August 2005, the Company began granting restricted stock units in lieu of stock options as
the primary equity-based incentive compensation for executive and non-union represented employees.
The time-based restricted stock units have vesting terms that range from three to five years with
equal annual vesting amounts. The performance-based restricted stock units generally cliff vest in
five years and have accelerated vesting terms of one third per year if specified performance
criteria are met. A long term incentive program (LTIP) also exists for executive management. LTIP
awards
F-28
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
15. STOCK INCENTIVE PLANS (Continued)
are awarded annually and cliff vest in five years with accelerated vesting in three years if
cumulative three year performance criteria are met.
In June 2008, the Company began granting performance share units (PSUs) to certain
executives under the 1999 Stock Incentive Plan. These performance based awards expire on December
31, 2009 if their vesting terms have not been
met. The PSUs are awarded on the condition that the participant remains employed or in the
service of the Company from the date of the Agreement through the time of vesting. Compensation
expense associated with outstanding performance share units is recorded over the estimated
performance period which would likely result in the vesting of the awards. The amount of expense
recorded each period is dependent upon our estimate of the number of shares that will ultimately be
issued. As the ultimate payout of these awards is subject to the approval of the compensation
committee, the awards are being re-measured at each reporting period end until such time as they
are vested.
The Company also granted SSARs to Ms. Pelletier, the Companys Chief Executive Officer and
another named executive officer during 2008. The SSARs have a term of five years and include
ratable vesting through December 2011. The Company accounts for the SSARs in the same manner as
options using a Black-Scholes model for valuation.
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. As of December 31, 2008, 800 options have been
exercised/converted and 200 are currently outstanding.
2008 Restricted Stock Unit Equivalents for Officer Inducement Grant
In September 2008, the Company entered into an amended and restated employment agreement with
Liane Pelletier, the Companys Chief Executive Officer. Under the agreement, the Company granted
Ms. Pelletier 100 fully vested (RSUEs). These RSUEs are required to be settled in shares of the
Companys common stock on a one-for-one basis on July 31, 2009, unless required stockholder
approval is not obtained, in which case they will be settled in cash. When settled, the Company
will pay cash dividend equivalents on any and all dividends declared on shares of the Companys
common stock from September 1, 2008 through July 31, 2009. The Company currently accounts for these
RSUEs as a liability, re-measured at each reporting period.
Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
This plan was adopted by ACS Group in November 1999 and will terminate December 31, 2009. The
Company has reserved 1,550 shares under this plan. At December 31, 2008, 752 shares are available
for issuance and sale. All ACS Group employees and all of the employees of designated subsidiaries
generally will be eligible to participate in the purchase plan, other than employees whose
customary employment is 20 hours or less per week, is not more than five months in a calendar year,
or who are ineligible to participate due to restrictions under the Internal Revenue Code.
A participant in the purchase plan may authorize regular salary deductions up to a maximum of
15% and a minimum of 1% of base compensation. The fair market value of shares which may be
purchased by any employee during any calendar year may not exceed $25. The amounts so deducted and
contributed are applied to the purchase of shares of common stock at 85% of the lesser of the fair
market value of such shares on the date of purchase or on the offering date for such offering
period. The offering dates are January 1 and July 1 of each purchase plan year, and each offering
period will consist of one six-month purchase period. The first offering period under the plan
commenced on January 1, 2000. Shares are purchased on the open market or issued from authorized but
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. During the year ended December 31, 2008, approximately 22% of eligible employees
elected to participate in the plan.
F-29
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
15. STOCK INCENTIVE PLANS (Continued)
ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan
This plan was adopted by ACS Group in November 1999. ACS Group has reserved 350 shares under
this plan. At December 31, 2008, 233 shares have been awarded and 117 shares are available for
grant under the plan. In 2007 and 2006, the plan required directors to receive not less than 50% of
their annual retainer in the form of ACS Groups stock. Directors were permitted to elect up to
100% of their annual retainer in the form of ACS Groups stock. Beginning January 1, 2008 the plan
was revised to require that Directors receive a portion of their annual retainer in the form of
shares of ACS Groups stock. Directors are permitted to elect to receive up to 100% of their
remaining annual retainer and meeting fees in the form of ACS Groups stock. Once a year, the
Directors elect the method by which they receive their stock (issued or deferred). During the year
ended December 31, 2008, 28 shares under the plan were awarded to directors, of which 11 were
deferred until termination of service.
SFAS No. 123(R) Share-Based Payment
Total compensation cost for share-based payments was $9,477, $6,390 and $7,668 for the
twelve months ended December 31, 2008, 2007 and 2006, respectively
The Company purchases, from shares reserved under the Alaska Communications Systems Group,
Inc. 1999 Stock Incentive Plan, sufficient vested shares to cover employee payroll tax withholding
requirements upon the vesting of restricted stock. From time to time, the Company also purchases
sufficient vested shares to cover employee payroll tax withholding requirements at the aggregated
exercise price upon exercise of options. Shares repurchased by the Company for this purpose are not
reallocated to the share reserve set aside for future grants under the plan. The Company expects to
repurchase approximately 180 shares in 2009. This amount is based upon an estimation of the number
of shares of restricted stock awards expected to vest and options expected to be exercised during
2009.
Stock Options and Stock-Settled Stock Appreciation Rights
No options were granted for the twelve months ended December 31, 2008, 2007 and 2006. There
were 775 SSARs granted for the twelve months ended December 31, 2008 and no SSARs granted for the
same period in 2007 or 2006.
Restricted Stock Units and Performance Share Units
There were 846, 591 and 760 restricted stock grants for the twelve months ended December 31,
2008, 2007 and 2006, respectively. There were 263 PSUs awards for the period ended December 31,
2008 and no PSUs granted for the same period in 2007 or 2006. The following table describes the
assumptions used for valuation of equity instruments awarded during the twelve months ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
Stock Options: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk free rate |
|
|
0.25% - 2.00 |
% |
|
|
|
|
|
|
|
|
Dividend yield |
|
|
7.59 |
% |
|
|
|
|
|
|
|
|
Expected volatility factor |
|
|
33.88 |
% |
|
|
|
|
|
|
|
|
Expected option life (years) |
|
|
3.22 |
|
|
|
|
|
|
|
|
|
Expected forfeiture rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free rate |
|
|
0.25% -2.25 |
% |
|
|
4.25% - 5.25 |
% |
|
|
4.50% - 5.25 |
% |
Quarterly dividend |
|
$ |
0.215 |
|
|
$ |
0.215 |
|
|
$ |
0.215 |
|
Expected, per annum,
forfeiture rate |
|
|
0% - 4.47 |
% |
|
|
4.47 |
% |
|
|
4.47 |
% |
F-30
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
15. STOCK INCENTIVE PLANS (Continued)
Options and Restricted Stock Outstanding
Stock Options and SSARs
Proceeds from the exercise of stock options for the year ended December 31, 2008 were $848.
The Company chose to remit $3,003 of these proceeds for payroll taxes in exchange for shares
surrendered back to the Company. Information on outstanding options under the plan for the year
ended December 31, 2008 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Life |
|
|
Value |
|
Outstanding, January 1, 2008 |
|
|
1,160 |
|
|
$ |
5.27 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
775 |
|
|
|
11.33 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(573 |
) |
|
|
4.70 |
|
|
|
|
|
|
|
|
|
Canceled or expired |
|
|
(12 |
) |
|
|
11.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2008 |
|
|
1,350 |
|
|
|
8.94 |
|
|
|
4.69 |
|
|
$ |
2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
749 |
|
|
$ |
8.43 |
|
|
|
4.68 |
|
|
|
1,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select information on equity instruments under the plan for the years ended December 31, 2008,
2007 and 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
December 31, |
|
|
2008 |
|
2007 |
|
2006 |
Weighted-average grant-date fair value of equity
instruments granted |
|
$ |
5.87 |
|
|
$ |
10.48 |
|
|
$ |
9.81 |
|
Total fair value of shares vested during the period |
|
$ |
8,403 |
|
|
$ |
5,273 |
|
|
$ |
2,762 |
|
Total intrinsic value of options exercised |
|
$ |
4,260 |
|
|
$ |
2,225 |
|
|
$ |
2,927 |
|
Restricted Stock and PSUs
Restricted stock grants outstanding, all of which are non-vested at December 31, 2008, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Number of |
|
Fair |
|
|
Shares |
|
Value |
Outstanding at January 1, 2008 |
|
|
1,296 |
|
|
$ |
11.07 |
|
Granted |
|
|
846 |
|
|
|
9.91 |
|
Vested |
|
|
(593 |
) |
|
|
10.19 |
|
Canceled or expired |
|
|
(167 |
) |
|
|
11.39 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
1,382 |
|
|
$ |
10.70 |
|
|
|
|
|
|
|
|
|
|
F-31
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
15. STOCK INCENTIVE PLANS (Continued)
Unamortized stock-based payment and the weighted average expense period at December 31, 2008,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Period |
|
|
|
Unamortized |
|
|
to Expense |
|
|
|
Expense |
|
|
(years) |
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
426 |
|
|
|
0.9 |
|
Restricted stock |
|
|
5,953 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,379 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
16. 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 benefit plan, the
accumulated benefits and plan assets are not determined for or allocated separately to the
individual employer. The Companys portion of the plans pension cost for 2008, 2007 and 2006 was
$11,548, $11,772 and $11,892, respectively.
The Company also provides a 401(k) retirement savings plan covering substantially all of
its employees. The plan allows for discretionary contributions as determined by the Board of
Directors, subject to Internal Revenue Code limitations. There was no matching contribution for
2008, 2007 or 2006.
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 CenturyTels Alaska properties. Existing plan
assets and liabilities of the CenturyTel Plan were transferred to the ACS Retirement Plan on
September 3, 1999. Accrued benefits under the ACS Retirement Plan were determined in accordance
with the provisions of the CenturyTel Plan. Upon completion of the transfer to the Company, covered
employees ceased to accrue benefits under the plan. On November 1, 2000, the ACS Retirement Plan
was amended to
conform early retirement reduction factors and various other terms to those provided by the
AEPP. As a result of this amendment, prior service cost of $1,992 was recorded and is being
amortized over the expected service life of the plan participants at the date of the amendment. The
Company uses the traditional unit credit method for the determination of pension cost for financial
reporting and funding purposes and complies with the funding requirements under the Employee
Retirement Income Security Act of 1974 (ERISA). With the recent down turn in the economy, the
plan is not adequately funded under ERISA at December 31, 2008. Management is currently assessing
the timing and amount of a contribution that the Company will make during 2009, to regain required
funding levels. Management is also estimating what additional contributions the Company may be
required to make in subsequent years in the event the value of the plans assets remains volatile
or continue to decline. In September 2007, the Company funded $300 for the 2006 tax year. The
Company made no contributions in 2008. The Company uses a December 31 measurement date for the
plan.
F-32
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
16. RETIREMENT PLANS (Continued)
The following is a calculation of the funded status of the ACS Retirement Plan using beginning
and ending balances for 2008 and 2007 for the projected benefit obligation and the plan assets:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
12,883 |
|
|
$ |
13,604 |
|
Interest cost |
|
|
810 |
|
|
|
782 |
|
Actuarial gain |
|
|
166 |
|
|
|
(769 |
) |
Benefits paid |
|
|
(765 |
) |
|
|
(734 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
13,094 |
|
|
|
12,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
13,311 |
|
|
|
12,713 |
|
Actual return on plan assets |
|
|
(3,008 |
) |
|
|
1,032 |
|
Employer contribution |
|
|
|
|
|
|
300 |
|
Benefits paid |
|
|
(765 |
) |
|
|
(734 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
9,538 |
|
|
|
13,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(3,556 |
) |
|
$ |
428 |
|
|
|
|
|
|
|
|
The plans projected benefit obligation equals its accumulated benefit obligation. The 2008
liability balance of $3,556 is recorded on the balance sheet in other deferred credits and
long-term liabilities while the 2007 asset balance of $428 is recorded in deferred charges and
other assets.
The following table represents the net periodic pension expense for the ACS Retirement Plan
for 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Interest cost |
|
$ |
810 |
|
|
$ |
782 |
|
|
$ |
762 |
|
Expected return on plan assets |
|
|
(1,031 |
) |
|
|
(994 |
) |
|
|
(858 |
) |
Amortization of loss |
|
|
157 |
|
|
|
322 |
|
|
|
444 |
|
Amortization of prior service cost |
|
|
203 |
|
|
|
203 |
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense |
|
$ |
139 |
|
|
$ |
313 |
|
|
$ |
551 |
|
|
|
|
|
|
|
|
|
|
|
In 2009, the Company expects amortization of prior service costs of $203 and amortization of
net gains and losses of $793.
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Components of other comprehensive income/loss: |
|
|
|
|
|
|
|
|
Prior service cost |
|
$ |
332 |
|
|
$ |
535 |
|
Net loss |
|
|
6,368 |
|
|
|
2,320 |
|
|
|
|
|
|
|
|
|
|
$ |
6,700 |
|
|
$ |
2,855 |
|
|
|
|
|
|
|
|
F-33
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
16. RETIREMENT PLANS (Continued)
The assumptions used to account for the plan as of December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Discount rate for benefit obligation |
|
|
6.63 |
% |
|
|
6.49 |
% |
Discount rate for pension expense |
|
|
6.49 |
% |
|
|
6.49 |
% |
Expected long-term rate of return on assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
Rate of compensation increase |
|
|
0.00 |
% |
|
|
0.00 |
% |
The discount rates were calculated using a proprietary yield curve based on the top 30% of the
universe of bonds included in the bond pool. The expected long-term rate of return on assets rate
is the best estimate of future expected return for the asset pool, given the expected returns and
allocation targets for the various classes of assets.
The plans asset allocations at December 31, 2008 and 2007, by asset category are as follows:
|
|
|
|
|
|
|
|
|
Asset Category |
|
2008 |
|
2007 |
Equity securities* |
|
|
54 |
% |
|
|
63 |
% |
Debt securities* |
|
|
46 |
% |
|
|
35 |
% |
Other/Cash |
|
|
0 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Note that mutual funds that may contain both stock and bonds may be included in these
categories. |
The fundamental investment objective of the plan is to generate a consistent total investment
return sufficient to pay plan benefits to retired employees, while minimizing the long term cost to
the Company. The long-term (10 year and beyond) plan asset growth objective is to achieve a rate of
return that exceeds the actuarial interest assumption after fees and expenses.
Because of the Companys long-term investment objectives, the Plan administrator is directed
to resist being reactive to short-term capital market developments and to maintain an asset mix
that is continuously rebalanced to adhere to the plan investment mix guidelines. The Plans
investment goal is to protect the assets longer term purchasing power. The Plans assets are
managed in a manner that emphasizes a higher exposure to equity markets versus other asset classes.
It is expected that such a strategy will provide a higher probability of meeting the plans
actuarial rate of return assumption over time.
Based on risk and return history for capital markets along with asset allocation risk and
return projections, the following asset allocation guidelines were developed for the plan:
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Maximum |
Equity securities |
|
|
40 |
% |
|
|
100 |
% |
Fixed income |
|
|
20 |
% |
|
|
60 |
% |
Cash equivalents |
|
|
0 |
% |
|
|
10 |
% |
The benefits expected to be paid in each of the next five years, and in the aggregate for the
five fiscal years thereafter, are as follows:
|
|
|
|
|
2009 |
|
$ |
850 |
|
2010 |
|
|
891 |
|
2011 |
|
|
916 |
|
2012 |
|
|
926 |
|
2013 |
|
|
955 |
|
2014-2018 |
|
|
5,115 |
|
F-34
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
16. RETIREMENT PLANS (Continued)
The Company also has a separate executive post retirement health benefit plan. The Alaska
Communications Systems Executive Retiree Health Benefit Plan (The ACS Health Plan) was adopted by
the Company in November 2001 and amended in October 2002. The ACS Health Plan covers a select group
of former management employees. The ACS Health Plan provides a graded subsidy for medical, dental
and vision coverage. The Compensation Committee of the Board of Directors decided to terminate The
ACS Health Plan in January 2004. In February 2005, the Board adopted a resolution to exclude a
former employee from the plan, causing a $90 decrease in the accumulated post retirement benefit.
Three people qualified under the plan are eligible for future benefits, but the plan is closed to
future participants.
The Company uses the projected unit credit method for the determination of post retirement
health cost for financial reporting and funding purposes and complies with the funding requirements
under ERISA. No contribution was made to The ACS Health Plan for 2008, 2007 or 2006, and no
contribution is expected in 2009. The Company uses a December 31 measurement date for the plan.
The following is a calculation of the funded status and a reconciliation of the beginning and
ending balances for 2008 and 2007 for the projected benefit obligation and the plan assets for The
ACS Health Plan:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Change in accumulated post-retirement benefit obligation: |
|
|
|
|
|
|
|
|
Accumulated post-retirement benefit obligation at beginning of the year |
|
$ |
176 |
|
|
$ |
168 |
|
Interest cost |
|
|
10 |
|
|
|
10 |
|
Actuarial gain |
|
|
1 |
|
|
|
|
|
Benefits paid |
|
|
(7 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Accumulated post-retirement benefit obligation at end of the year |
|
|
180 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
236 |
|
|
|
218 |
|
Actual return on plan assets |
|
|
(26 |
) |
|
|
20 |
|
Benefits paid |
|
|
(7 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
203 |
|
|
|
236 |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
23 |
|
|
$ |
60 |
|
|
|
|
|
|
|
|
The following represents the net periodic post-retirement benefit expense for The ACS Health
Plan for 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Interest cost |
|
$ |
10 |
|
|
$ |
10 |
|
|
$ |
10 |
|
Expected return on plan assets |
|
|
(14 |
) |
|
|
(13 |
) |
|
|
(12 |
) |
Amortization of net gain |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic post-retirement benefit |
|
$ |
(8 |
) |
|
$ |
(8 |
) |
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
The Company expects to incur no net periodic costs associated with this plan in 2009. The actuarial
assumptions used to account for The ACS Health Plan as of December 31, 2008 and 2007 is an assumed
discount rate of 5.75% and 6.00% for projected benefit obligation and an assumed discount rate of
6.00% and 5.89% for plan expense, respectively, and an expected long-term rate of return on plan
assets of 6.00%. The discount rate is based on Moodys AA Corporate bonds. The expected long-term
rate of return on assets is the best estimate of future expected return for the asset pool, given
the expected returns and allocation targets for the various classes of assets.
For measurement purposes, the assumed annual rate of increase in health care costs for the
next five years and thereafter, for both Pre-65 and Post-65 premiums, is 7.00%.
F-35
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
16. RETIREMENT PLANS (Continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for The
ACS Health Plan. A one percentage point change in assumed health care cost trend rates would have
the following effects for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
+1% |
|
-1% |
|
Effect on total of service and interest cost components |
|
|
|
|
|
|
|
(1 |
) |
Effect on accumulated postretirement benefit obligation |
|
|
7 |
|
|
|
|
(9 |
) |
The ACS Health Plans asset allocations at December 31, 2008 and 2007, by asset category, are
as follows:
|
|
|
|
|
|
|
|
|
Asset Category |
|
2008 |
|
2007 |
Equity securities* |
|
|
19 |
% |
|
|
28 |
% |
Debt securities* |
|
|
73 |
% |
|
|
66 |
% |
Other/Cash |
|
|
8 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Note that mutual funds that may contain both stock and bonds may be included in these
categories. |
The fundamental investment objective of the plan is to realize an annual total investment
return consistent with the conservative risk tolerance plan dictated by the Company. The investment
profile of the plan emphasizes liquidity and income, some capital stock investment and some
fluctuation of investment return. It is anticipated that the investment manager will achieve this
objective by investing the accounts assets in mutual funds. The portfolio may hold common stock,
fixed income securities, money market instruments and U.S. Treasury obligations.
Based on risk and return history for capital markets along with asset allocation risk and
return projections, the following asset allocation guidelines were developed for the plan:
|
|
|
|
|
|
|
Target |
Equity securities |
|
|
30 |
% |
Fixed income |
|
|
60 |
% |
Other/cash |
|
|
10 |
% |
The benefits expected to be paid in each of the next five years, and in the aggregate for the
five fiscal years thereafter are as follows:
|
|
|
|
|
2009 |
|
$ |
10 |
|
2010 |
|
|
16 |
|
2011 |
|
|
16 |
|
2012 |
|
|
16 |
|
2013 |
|
|
16 |
|
2014-2018 |
|
|
59 |
|
F-36
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
17. BUSINESS SEGMENTS
Our segments and their principal activities consist of the following:
Wireline Wireline provides communication services including voice, broadband and data, next
generation IP network services, network access, long distance and other services to consumers,
carriers, business and government customers.
Wireless Wireless products and services include voice and data products and other value
added services and equipment sales.
The Company also incurs interest expense, interest income and other operating and
non-operating income and expense at the corporate level which are not allocated to the business
segments, nor are they evaluated by the chief operating decision maker in analyzing the performance
of the business segments. These non-operating income and expense items are provided in the
accompanying table under the caption All Other in order to assist the users of these financial
statements in reconciling the operating results and total assets of the business segments to the
consolidated financial statements. Common use assets are held at ACS Holdings and are allocated to
the business segments based on operating revenue. In accordance with industry practice and
regulatory requirements, affiliate revenue and expense between local telephone and all other
segments is not eliminated on consolidation. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
The following table illustrates selected financial data for each segment as of and for the
year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenues |
|
$ |
261,534 |
|
|
$ |
143,606 |
|
|
$ |
19,391 |
|
|
$ |
(34,934 |
) |
|
$ |
389,597 |
|
Intersegment revenue |
|
|
54,411 |
|
|
|
2,729 |
|
|
|
19,391 |
|
|
|
|
|
|
|
76,531 |
|
Eliminated intersegment revenue |
|
|
(15,506 |
) |
|
|
(37 |
) |
|
|
(19,391 |
) |
|
|
|
|
|
|
(34,934 |
) |
Depreciation and amortization |
|
|
52,159 |
|
|
|
8,223 |
|
|
|
13,620 |
|
|
|
|
|
|
|
74,002 |
|
(Gain) loss on disposal of assets, net |
|
|
775 |
|
|
|
(39 |
) |
|
|
14 |
|
|
|
|
|
|
|
750 |
|
Loss on impairment of goodwill and
intangible assets |
|
|
29,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,641 |
|
Operating income (loss) |
|
|
(32,394 |
) |
|
|
42,423 |
|
|
|
5,103 |
|
|
|
|
|
|
|
15,132 |
|
Interest expense |
|
|
2,065 |
|
|
|
504 |
|
|
|
(35,490 |
) |
|
|
|
|
|
|
(32,921 |
) |
Interest income |
|
|
1 |
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
1,695 |
|
Income (loss) before income tax |
|
|
(30,328 |
) |
|
|
42,913 |
|
|
|
(29,226 |
) |
|
|
|
|
|
|
(16,641 |
) |
Income tax (expense) benefit |
|
|
3,408 |
|
|
|
(17,950 |
) |
|
|
21,044 |
|
|
|
|
|
|
|
6,502 |
|
Net income (loss) |
|
|
(26,920 |
) |
|
|
24,964 |
|
|
|
(8,183 |
) |
|
|
|
|
|
|
(10,139 |
) |
Total assets |
|
|
561,305 |
|
|
|
188,604 |
|
|
|
10,645 |
|
|
|
(3,216 |
) |
|
|
757,338 |
|
Capital expenditures |
|
|
107,920 |
|
|
|
12,151 |
|
|
|
7,118 |
|
|
|
|
|
|
|
127,189 |
|
F-37
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
17. BUSINESS SEGMENTS (Continued)
The following table illustrates selected financial data for each segment as of and for the
year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenues |
|
$ |
260,975 |
|
|
$ |
137,566 |
|
|
$ |
11,207 |
|
|
$ |
(23,963 |
) |
|
$ |
385,785 |
|
Intersegment revenue |
|
|
48,569 |
|
|
|
2,604 |
|
|
|
11,207 |
|
|
|
|
|
|
|
62,380 |
|
Eliminated intersegment revenue |
|
|
(12,710 |
) |
|
|
(46 |
) |
|
|
(11,207 |
) |
|
|
|
|
|
|
(23,963 |
) |
Depreciation and amortization |
|
|
53,297 |
|
|
|
13,199 |
|
|
|
4,841 |
|
|
|
|
|
|
|
71,337 |
|
Loss on disposal of assets, net |
|
|
110 |
|
|
|
12 |
|
|
|
126 |
|
|
|
|
|
|
|
248 |
|
Operating income |
|
|
11,327 |
|
|
|
43,315 |
|
|
|
5,797 |
|
|
|
|
|
|
|
60,439 |
|
Interest expense |
|
|
38 |
|
|
|
1,208 |
|
|
|
(29,632 |
) |
|
|
|
|
|
|
(28,386 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(355 |
) |
|
|
|
|
|
|
(355 |
) |
Interest income |
|
|
2 |
|
|
|
|
|
|
|
2,018 |
|
|
|
|
|
|
|
2,020 |
|
Income (loss) before income tax |
|
|
10,729 |
|
|
|
44,522 |
|
|
|
(22,309 |
) |
|
|
|
|
|
|
32,942 |
|
Income tax (expense) benefit |
|
|
(664 |
) |
|
|
(18,191 |
) |
|
|
130,049 |
|
|
|
|
|
|
|
111,194 |
|
Net income |
|
|
10,065 |
|
|
|
26,331 |
|
|
|
107,740 |
|
|
|
|
|
|
|
144,136 |
|
Total assets |
|
|
464,824 |
|
|
|
191,194 |
|
|
|
7,185 |
|
|
|
|
|
|
|
663,203 |
|
Capital expenditures |
|
|
28,213 |
|
|
|
15,662 |
|
|
|
18,964 |
|
|
|
|
|
|
|
62,839 |
|
The following table illustrates selected financial data for each segment as of and for the
year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireline |
|
Wireless |
|
All Other |
|
Eliminations |
|
Total |
Operating revenues |
|
$ |
242,601 |
|
|
$ |
115,412 |
|
|
$ |
10,687 |
|
|
$ |
(19,979 |
) |
|
$ |
348,721 |
|
Intersegment revenue |
|
|
39,474 |
|
|
|
2,632 |
|
|
|
10,687 |
|
|
|
|
|
|
|
52,793 |
|
Eliminated intersegment revenue |
|
|
(9,250 |
) |
|
|
(42 |
) |
|
|
(10,687 |
) |
|
|
|
|
|
|
(19,979 |
) |
Depreciation and amortization |
|
|
53,181 |
|
|
|
11,515 |
|
|
|
4,400 |
|
|
|
|
|
|
|
69,096 |
|
Loss on disposal of assets, net |
|
|
469 |
|
|
|
23 |
|
|
|
613 |
|
|
|
|
|
|
|
1,105 |
|
Operating income |
|
|
1,489 |
|
|
|
37,140 |
|
|
|
4,992 |
|
|
|
|
|
|
|
43,621 |
|
Interest expense |
|
|
(373 |
) |
|
|
426 |
|
|
|
(30,498 |
) |
|
|
|
|
|
|
(30,445 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(9,650 |
) |
|
|
|
|
|
|
(9,650 |
) |
Interest income |
|
|
1 |
|
|
|
|
|
|
|
1,834 |
|
|
|
|
|
|
|
1,835 |
|
Income (loss) before income tax |
|
|
1,117 |
|
|
|
37,565 |
|
|
|
(24,961 |
) |
|
|
|
|
|
|
13,721 |
|
Income tax (expense) benefit |
|
|
(3,821 |
) |
|
|
(15,578 |
) |
|
|
18,956 |
|
|
|
|
|
|
|
(443 |
) |
Net income (loss) |
|
|
(2,704 |
) |
|
|
21,987 |
|
|
|
(6,005 |
) |
|
|
|
|
|
|
13,278 |
|
Total assets |
|
|
404,502 |
|
|
|
146,611 |
|
|
|
5,103 |
|
|
|
|
|
|
|
556,216 |
|
Capital expenditures |
|
|
39,094 |
|
|
|
14,771 |
|
|
|
6,154 |
|
|
|
|
|
|
|
60,019 |
|
18. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative financial instruments to hedge variable interest rate debt to manage
interest rate risk. To the extent that derivative financial instruments are outstanding as of a
period end, the fair value of those instruments, represented by the estimated amount the Company
would receive or pay to terminate the agreement, is reported on the balance sheet.
The Company is party to 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. The Company also entered into a six year $40,000 notional amount fixed to
floating swap arrangement, effectively fixing the rate on this portion of the term loan at 6.43% per year.
F-38
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
18. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (continued)
In February 2006, the Company and ACS Holdings executed $115,000 and $52,900 notional amount
floating-to-fixed interest rate swap agreements related to its $375,000 term loan under its 2005
senior bank credit facility. The swaps effectively fix the LIBOR rate on $115,000 and $52,900
principal amount of senior bank credit facility at 6.71% and 6.75%. On December 31, 2008, 2007 and
2006 substantially all for the Companys swaps were effective. During 2008, in connection with the
Companys issuance of its 5.75% convertible notes Due 2013, the Company prepaid $2,011 of principal
required by its senior credit facility. The Company did not adjust its swap position to compensate
for the prepayment as it was determined the overall effect on the hedge position was de minimus.
The negative carrying value of our swaps of $23,917, gross of $9,833 in tax, is the result of
our fair value estimate at December 31, 2008. This balance was recorded as other comprehensive
loss in the Companys Consolidated Statement of Stockholders Equity (Deficit) with a corresponding
liability recorded in Other deferred credits and long-term liabilities on the Consolidated Balance
Sheet.
Concurrent with the issuance of its 5.75% Convertible Notes due 2013, the Company entered into
convertible note hedge transactions with an affiliate of one of the initial purchasers and certain
other financial institutions for the purpose of reducing the potential dilution to common
stockholders. If the Company is required to issue shares of its common stock upon conversion of the
notes, the Company has the option of receiving up to 9,266 shares of its common stock when the
price is between $12.90 and $16.42 per share upon conversion. The Company entered into warrant
transactions with the same counterparties who have the option of receiving up to the same number of
shares of the Companys common stock when the price exceeds $16.42 per share. The convertible note
hedge had a cost of $20,431 and the Company received proceeds of $9,852 related to the sale of the
warrants, each of which has been accounted for as an equity transaction in accordance with EITF
No. 00-19.
19. COMMITMENTS AND CONTINGENCIES
The Company enters into purchase commitments with vendors in the ordinary course of business.
The Company also has long-term purchase contracts with vendors to support the ongoing needs of its
business. These purchase commitments and contracts have varying terms and in certain cases may
require the Company to buy goods and services in the future at predetermined volumes and at fixed
prices.
The Company is involved in various claims, legal actions and regulatory proceedings arising in
the ordinary course of business and has recorded litigation reserves of $350 as of December 31,
2008 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.
The Company pledges substantially all property, assets and revenue as collateral on its
outstanding debt instruments.
F-39
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Notes to Consolidated Financial Statements, Continued
Years Ended December 31, 2008, 2007 and 2006
(In Thousands, Except Per Share Amounts)
20. SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Financial Data |
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
96,776 |
|
|
$ |
94,356 |
|
|
$ |
101,322 |
|
|
$ |
97,143 |
|
|
$ |
389,597 |
|
Operating income |
|
|
16,908 |
|
|
|
9,699 |
|
|
|
12,121 |
|
|
|
(23,596 |
) |
|
|
15,132 |
|
Net income (loss) |
|
|
5,776 |
|
|
|
908 |
|
|
|
2,044 |
|
|
|
(18,867 |
) |
|
|
(10,139 |
) |
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.13 |
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
(0.43 |
) |
|
|
(0.23 |
) |
Diluted |
|
|
0.13 |
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
(0.43 |
) |
|
|
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
91,623 |
|
|
$ |
94,501 |
|
|
$ |
100,554 |
|
|
$ |
99,107 |
|
|
$ |
385,785 |
|
Operating income |
|
|
14,157 |
|
|
|
13,351 |
|
|
|
17,886 |
|
|
|
15,045 |
|
|
|
60,439 |
|
Net income |
|
|
7,312 |
|
|
|
6,169 |
|
|
|
10,300 |
|
|
|
120,355 |
|
|
|
144,136 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.17 |
|
|
|
0.14 |
|
|
|
0.24 |
|
|
|
2.81 |
|
|
|
3.38 |
|
Diluted |
|
|
0.17 |
|
|
|
0.14 |
|
|
|
0.23 |
|
|
|
2.71 |
|
|
|
3.26 |
|
F-40
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Schedule II Valuation and Qualifying Accounts
(In Thousands)
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Alaska Communications Systems Group, Inc.:
Under date of March 9, 2009, we reported on the consolidated balance sheets of Alaska
Communications Systems Group, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders equity (deficit) and comprehensive
income (loss), and cash flows for each of the years in the three-year period ended December 31,
2008. In connection with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement Schedule IIValuation and Qualifying
Accounts. This financial statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all material respects, the
information set forth therein.
(signed) KPMG LLP
Anchorage, Alaska
March 9, 2009
F-41
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Schedule II Valuation and Qualifying Accounts
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Charged to |
|
Charged to |
|
|
|
|
|
Balance at |
|
|
Beginning |
|
costs and |
|
other |
|
|
|
|
|
End |
Description |
|
of Period |
|
expenses |
|
accounts (2) |
|
Deductions (3) |
|
of Period |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
8,768 |
|
|
$ |
4,624 |
|
|
$ |
105 |
|
|
$ |
(7,585 |
) |
|
$ |
5,912 |
|
Valuation allowance for
deferred taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
7,434 |
|
|
$ |
5,103 |
|
|
$ |
2 |
|
|
$ |
(3,771 |
) |
|
$ |
8,768 |
|
Valuation allowance for
deferred taxes |
|
$ |
122,498 |
|
|
$ |
(122,498 |
)(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
6,206 |
|
|
$ |
5,121 |
|
|
$ |
(61 |
) |
|
$ |
(3,832 |
) |
|
$ |
7,434 |
|
Valuation allowance for
deferred taxes |
|
$ |
127,603 |
|
|
$ |
(5,105 |
)(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
122,498 |
|
|
|
|
(1) |
|
Change in the valuation allowance allocated to income tax expense. |
|
(2) |
|
Represents the reserve for accounts receivable collected on behalf of others, net of
recovery. |
|
(3) |
|
Represents credit losses, net of recovery. |
F-42