Alaska Communications Systems Reports Fourth Quarter and Full Year 2012 Results

  Alaska Communications Systems Reports Fourth Quarter and Full Year 2012
  Results

          - Full Year Revenue of $367.8 million, exceeded guidance -

          - Full Year EBITDA of $121.8 million, exceeded guidance -

    - Full year Free Cash Flow of $33.0 million, at high end of guidance -

         - Full year Business and Wholesale Revenue increased 8.0% -

- De-levering continues with $19.5 million of repayments of long term debt for
                                  the year -

Business Wire

ANCHORAGE, Alaska -- February 28, 2013

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ:ALSK) today reported
financial results for its fourth quarter and full year ended December 31,
2012.

“We are pleased with our performance this year. We generated strong growth in
business and wholesale revenues. Ending the year at the high end of guidance
for free cash flow, with our debt balances declining for the first time in
three years, is also an indication of our progress.

“Looking ahead, we expect continued top line growth in the business and
wholesale segment, solid free cash flow performance and significant
deleveraging with the successful closing of the Alaska Wireless Network
(“AWN”) transaction. Our investments in sales and service, product and
network, and process improvements provide the platform for future growth. The
AWN transaction is a defining transaction for Alaska Communications as it
de-risks our wireless business, provides a predictable path for further
deleveraging and builds shareholder value over time. These are all elements of
our business plan in action, giving us confidence in our future.

“Growing demand for our core broadband product, the trust our customers have
in the reliability of our products and network and the local service provided
by our employees will drive our continued performance to our business plan,”
said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: Fourth Quarter 2012 Compared to Fourth Quarter 2011

  *Revenues of $95.1 million increased by $7.6 million, or 8.7%, from $87.5
    million in the prior year.

       *Business and wholesale revenue increased by $3.7 million, or 14.0%.
         We benefited from a non-recurring equipment sale in the fourth
         quarter 2012 of $1.4 million.
       *Consumer revenue increased by $0.3 million, or 2.8%.
       *Wireless revenue increased by $4.9 million, or 16.2%.
       *Access and CETC revenue declined, as expected by $1.3 million, or
         5.9%.
       *Broadband revenue as a percentage of total service revenue was 47%,
         compared to 42% in the prior year.

  *Adjusted EBITDA of $33.3 million increased by $2.5 million, or 8.2%, from
    $30.8 million in the prior year.

       *Cost of services and sales increased by $1.9 million, or 5.6%, which
         was impacted by a non-recurring equipment sale and a $0.5 increase in
         wireless equipment and device costs.
       *Selling, general & administrative, excluding AWN transaction related
         costs of $1.1 million compared to $0.5 million in the prior year,
         increased by $2.8 million, or 12.1%, resulting primarily from
         increased sales and customer service costs.

Metric Highlights: Fourth Quarter 2012 Compared to Third Quarter 2012

  *Wireless subscribers decreased by 5,958 to 115,017. We conducted a
    recertification of all of our Lifeline customers to verify that they
    continue to meet the FCC’s recently revised eligibility criteria. Because
    of that effort, our wireless Lifeline enrollment decreased by 3,115
    connections or 24.5% of our lifeline customer base. We were also impacted
    by the delay in availability of the iPhone 5 relative to our competition.
  *Wireless average monthly retail service revenue per subscriber (“ARPU”)
    increased by 2.3% to $52.96.
  *Business broadband connections increased to 19,202 from 19,063 and
    business broadband ARPU increased to $153.59 from $150.58.
  *Consumer broadband connections increased to 38,760 from 38,491 and
    consumer broadband ARPU increased to $42.53 from $39.90.
  *Consumer access lines declined to 55,823 from 57,483.
  *Business access lines decreased to 80,852 from 81,330.

“Alaska Communications continues to target free cash flow for debt reduction,
with debt net of cash and short term investments at $536.5 million and our
leverage ratio for the twelve months ended December 31, 2012 at 4.4x. Because
our operating results in 2013 will be impacted by the timing of the AWN
transaction, we are delaying providing full year 2013 guidance until we have
established a firm closing date. The AWN transaction will result in
approximately $65.0 million of debt pay downs at closing, and our Adjusted
EBITDA following close will reflect the preferred distribution that we expect
to generate from AWN,” said Wayne Graham, Alaska Communications chief
financial officer.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m.
Eastern time to discuss the results. Parties in the United States and Canada
can access the call at 1-800-762-8779. Parties outside the United States and
Canada can access the call at 1-480-629-9645. The live webcast of the
conference call will be accessible from the “Events Calendar” section of the
company's website (www.alsk.com). The webcast will be archived for a period of
90 days. A telephonic replay of the conference call will also be available two
hours after the call and will run until Thursday, March 7, 2013, at midnight
Eastern time. To hear the replay, parties in the United States and Canada can
call 1-800-406-7325 and enter pass code 4593495. Parties outside the United
States and Canada can call 1-303-590-3030 and enter pass code 4593495.

About Alaska Communications

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

Non-GAAP Measures

Adjusted EBITDA, as defined by the Company, may not be similar to Adjusted
EBITDA measures used by other companies and is not a measurement under
generally accepted accounting principles (GAAP). Management believes that
Adjusted EBITDA provides useful information to investors about the Company's
performance because it eliminates the effects of period-to-period changes in
costs associated with capital investments, interest, stock-based compensation
expense and AWN transaction costs that are not directly attributable to the
underlying performance of the Company's operations. Management believes the
most directly comparable GAAP measure would be Net cash provided by operating
activities.

Forward-Looking Statements

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

                                                          
                                                                   Schedule 1
                                                                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
                                                                   
                                                                   
                        Three Months Ended           Twelve Months Ended
                        December 31,                 December 31,
                        2012          2011           2012          2011
                                                                   
Operating revenues      $ 95,075      $ 87,472       $ 367,829     $ 349,314
                                                                   
Operating expenses:
Cost of services and      36,798        34,852         148,400       135,732
sales
Selling, general &        26,942        23,577         107,316       91,962
administrative
Depreciation and          13,035        15,049         51,487        58,559
amortization
(Gain) loss on
disposal of assets,      (528    )    25           (2,668  )    (565    )
net
Total operating          76,247      73,503       304,535     285,688 
expenses
                                                                   
Operating income          18,828        13,969         63,294        63,626
                                                                   
Other income and
expense:
Interest expense          (10,367 )     (9,456 )       (39,570 )     (38,271 )
Loss on
extinguishment of         (252    )     -              (575    )     (13,445 )
debt
Interest income           12            8              43            34
Other                    -           -            -           174     
Total other income       (10,607 )    (9,448 )      (40,102 )    (51,508 )
and expense
                                                                   
Income before income      8,221         4,521          23,192        12,118
tax expense
                                                                   
Income tax benefit       602         (2,277 )      (5,783  )    (11,646 )
(expense)
                                                                   
Net income              $ 8,823      $ 2,244       $ 17,409     $ 472     
                                                                   
Net income per share:
Net income applicable   $ 8,823       $ 2,244        $ 17,409      $ 472
to common shares
Tax-effected expense
attributable to          1,767       -            -          $ -       
convertible notes
Net income assuming     $ 10,590     $ 2,244       $ 17,409     $ 472     
dilution
                                                                   
Basic                   $ 0.19       $ 0.05        $ 0.38       $ 0.01    
Diluted                 $ 0.18       $ 0.05        $ 0.38       $ 0.01    
                                                                   
Weighted average
shares outstanding:
Basic                    45,677      45,229       45,553      45,103  
Diluted                  58,920      45,485       45,878      45,417  
                                                                             

                                                           
                                                                Schedule 2
                                                                
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
                                                                
                                                                
                                               December 31,     December 31,
Assets                                         2012             2011
                                                                
Current assets:
Cash and cash equivalents                      $ 16,839         $ 20,490
Restricted cash                                  3,875            4,956
Short-term investments                           2,050            -
Accounts receivable-trade, net of allowance      39,713           36,986
of $6,231 and $5,788
Materials and supplies                           9,409            5,412
Prepayments and other current assets             5,566            4,920
Deferred income taxes                           8,301          6,596      
Total current assets                             85,753           79,360
                                                                
Property, plant and equipment                    1,463,320        1,428,597
Less: accumulated depreciation and              (1,052,459 )    (1,023,360 )
amortization
Property, plant and equipment, net               410,861          405,237
                                                                
Goodwill                                         8,850            8,850
Intangible assets, net                           24,118           24,118
Debt issuance costs                              10,558           9,515
Deferred income taxes                            69,049           72,814
Equity method investment                         2,028            2,060
Other assets                                    3,510          3,154      
Total assets                                   $ 614,727       $ 605,108    
                                                                
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Current portion of long-term obligations       $ 21,628         $ 30,930
Accounts payable, accrued and other current      56,378           48,919
liabilities
Advance billings and customer deposits          8,970          9,218      
Total current liabilities                        86,976           89,067
                                                                
Long-term obligations, net of current            533,772          538,624
portion
Other long-term liabilities                     28,662         28,340     
Total liabilities                               649,410        656,031    
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000            458              453
authorized
Additional paid in capital                       144,377          144,631
Accumulated deficit                              (170,279   )     (187,688   )
Accumulated other comprehensive loss            (9,239     )    (8,319     )
Total stockholders' equity (deficit)            (34,683    )    (50,923    )
                                                                
Total liabilities and stockholders' equity     $ 614,727       $ 605,108    
(deficit)
                                                                             

                                                        
                                                                  Schedule 3
                                                                  
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
                                                                  
                      Three Months Ended            Twelve Months Ended
                      December 31,                  December 31,
                      2012          2011            2012          2011
Cash Flows from
Operating
Activities:
Net income            $ 8,823       $ 2,244         $ 17,409      $ 472
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and        13,035        15,049          51,487        58,559
amortization
Gain on ineffective     (231    )     -               (231    )     -
hedge adjustment
Amortization of
debt issuance costs     1,593         1,400           5,975         12,907
and debt discount
Amortization of         292           -               292           -
ineffective hedge
Stock-based             888           1,268           3,550         3,888
compensation
Deferred income         (614    )     2,911           5,771         11,646
taxes
Provision for
uncollectible           752           865             2,588         2,333
accounts
Distributions in
excess of earnings      13            -               -             -
from equity method
investment
Other non-cash          (333    )     183             (2,375  )     (109     )
income, net
Changes in
operating assets       3,928       (2,390  )      (110    )    (10,615  )
and liabilities
Net cash provided
by operating            28,146        21,530          84,356        79,081
activities
                                                                  
Cash Flows from
Investing
Activities:
Capital                 (17,887 )     (18,102 )       (54,206 )     (50,179  )
expenditures
Capitalized             (565    )     (596    )       (1,961  )     (1,982   )
interest
Change in unsettled
capital                 2,922         5,368           (2,726  )     4,425
expenditures
Proceeds on sale of     693           -               3,616         2,665
assets
Return of capital
from equity             32            -               32            -
investment
Net change in
short-term              (2,050  )     -               (2,050  )     -
investments
Change in unsettled     (90     )     (224    )       (90     )     (224     )
acquisition costs
Net change in
non-current             -             -               -             529
investments
Net change in          2,152       85            1,081       (44      )
restricted accounts
Net cash used by
investing               (14,793 )     (13,469 )       (56,304 )     (44,810  )
activities
                                                                  
Cash Flows from
Financing
Activities:
Repayments of           (10,222 )     (1,408  )       (19,477 )     (104,146 )
long-term debt
Proceeds from the
issuance of             -             -               -             120,000
long-term debt
Debt issuance costs     (3,167  )     -               (3,167  )     (4,448   )
Payment of cash
dividend on common      (2,286  )     (9,736  )       (9,117  )     (38,818  )
stock
Payment of
withholding taxes       (6      )     (13     )       (249    )     (2,043   )
on stock-based
compensation
Proceeds from
issuance of common     128         159           307         358      
stock
Net cash used by
financing               (15,553 )     (10,998 )       (31,703 )     (29,097  )
activities
                                                                  
Change in cash and      (2,200  )     (2,937  )       (3,651  )     5,174
cash equivalents
                                                                  
Cash and cash
equivalents,           19,039      23,427        20,490      15,316   
beginning of period
                                                                  
Cash and cash
equivalents, end of   $ 16,839     $ 20,490       $ 16,839     $ 20,490   
period
                                                                  
Supplemental Cash
Flow Data:
Interest paid         $ 11,356      $ 9,952         $ 36,155      $ 34,367
Income tax paid       $ 12          $ (127    )     $ (12     )   $ (127     )
(refunded)
                                                                  
Supplemental
Non-cash
Transactions:
Property acquired
under capital         $ 1,459       $ 64            $ 1,435       $ 1,905
leases
Dividend declared,    $ -           $ 2,268         $ -           $ 2,268
but not paid
Additions to ARO      $ 54          $ 370           $ 132         $ 488
asset
                                                                  

                                                          
                                                                   Schedule 4
                                                                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
                                                                   
                       Three Months Ended            Twelve Months Ended
                       December 31,                  December 31,
                       2012          2011            2012          2011
                                                                   
                                                                   
Net cash provided by   $ 28,146      $ 21,530        $ 84,356      $ 79,081
operating activities
Adjustments to
reconcile net income
(loss) to net cash
provided
by operating
activities:
Depreciation and         (13,035 )     (15,049 )       (51,487 )     (58,559 )
amortization
Amortization of debt
issuance costs and       (1,593  )     (1,400  )       (5,975  )     (12,907 )
debt discount
Amortization of          (292    )     -               (292    )     -
ineffective hedge
Gain on ineffective      231           -               231           -
hedge adjustment
Stock-based              (888    )     (1,268  )       (3,550  )     (3,888  )
compensation
Deferred income          614           (2,911  )       (5,771  )     (11,646 )
taxes
Provision for
uncollectible            (752    )     (865    )       (2,588  )     (2,333  )
accounts
Distributions in
excess of earnings       (13     )     -               -             -
from equity method
investment
Other non-cash           333           (183    )       2,375         109
income, net
Changes in operating
assets and              (3,928  )    2,390         110         10,615  
liabilities
Net income             $ 8,823       $ 2,244         $ 17,409      $ 472
Add (subtract):
Interest expense         10,367        9,456           39,570        38,271
Loss on
extinguishment of        252           -               575           13,445
debt
Interest income          (12     )     (8      )       (43     )     (34     )
Depreciation and         13,035        15,049          51,487        58,559
amortization
Gain on sale of
long-term                -             -               -             (174    )
investments
(Gain) loss on           (528    )     25              (2,668  )     (565    )
disposal of assets
Income tax (benefit)     (602    )     2,277           5,783         11,646
expense
Stock-based              888           1,268           3,550         3,888
compensation
Gift of services         -             -               -             (51     )
Return of capital
from equity              32            -               32            -
investment
Distributions in
excess of earnings       13            -               -             -
from equity method
investment
AWN transaction         1,080       500           6,126       500     
related costs
                                                                   
Adjusted EBITDA        $ 33,348     $ 30,811       $ 121,821    $ 125,957 
                                                                   
Less:
Incurred capital         (17,887 )     (18,102 )       (54,206 )     (50,179 )
expenditures
AWN transaction
related capital          1,238         -               1,580         -
costs
Cash interest           (11,356 )    (9,952  )      (36,155 )    (34,367 )
expense
Free cash flow         $ 5,343      $ 2,757        $ 33,040     $ 41,411  
                                                                   
Revenue                $ 95,075     $ 87,472       $ 367,829    $ 349,314 
                                                                   
Adjusted EBITDA          35.1    %     35.2    %       33.1    %     36.1    %
Margin
                                                                   

Note: In an effort to provide investors with additional information regarding
the Company's results as determined by GAAP, the Company also discloses
certain non-GAAP information which management utilizes to assess performance
and believes provides useful information to investors. The Company has
disclosed Adjusted EBITDA as net income before interest, provisions for taxes,
depreciation expense, gain or loss on asset purchases or disposals, gift of
services, earnings of equity investments in excess of or less than cash
distributions, AWN Transaction related costs, amortization of intangibles and
stock-based compensation expense, and including return of capital from equity
investment, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by
Operating Revenues. Additionally, the Company has disclosed Free cash flow as
Adjusted EBITDA, less capital expenditures that create an obligation to pay
(“Incurred capital expenditures”) less cash interest expense, less non
recurring capital items we have incurred to preliminarily establish
infrastructure with AWN (“AWN non recurring capital expenditures”). These
measures are provided because the Company believes they are important
indicators regarding our ability to make principle payments on debt and fund
working capital. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow
are not GAAP measures and should not be considered a substitute for net cash
provided by operating activities and other measures of financial performance
recorded in accordance with GAAP.

                                                             
                                                                   Schedule 5
                                                                   
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE MIX
(Unaudited, In Thousands)
                                                                   
                         Three Months Ended          Twelve Months Ended
                         December 31,                December 31,
Operating revenues:      2012         2011           2012          2011
Business and wholesale
Retail service revenue
Voice                    $ 5,796      $ 6,038        $ 23,842      $ 25,613
Broadband                  8,815        8,042          33,972        30,658
Equipment sales            1,927        502            2,855         1,265
Wholesale and other       13,347     11,628       47,790      42,879  
Total business and        29,885     26,210       108,459     100,415 
wholesale revenue
                                                                   
Consumer
Retail service revenue
Voice                      4,508        5,023          18,968        21,001
Broadband                  4,928        4,292          18,398        17,011
Equipment sales            40           45             166           193
Other                     416        267          1,386       1,062   
Total consumer revenue    9,892      9,627        38,918      39,267  
Wireless
Retail service revenue
Voice                      12,199       13,257         49,431        53,553
Broadband                  6,522        5,552          24,414        20,928
Equipment sales            1,421        1,343          6,015         5,665
Foreign roaming            14,110       9,341          55,105        38,934
Other                     1,054      887          4,281       4,257   
Total wireless revenue    35,306     30,380       139,246     123,337 
                                                                   
Access and CETC
CETC                       5,064        5,653          20,733        26,871
High cost support          5,182        5,094          20,223        21,103
Switched, special and     9,746      10,508       40,250      38,321  
other access
Total access and CETC     19,992     21,255       81,206      86,295  
                                                                   
Total revenues           $ 95,075    $ 87,472      $ 367,829    $ 349,314 
                                                                   
Revenue Mix:
Business and wholesale     31     %     30     %       29      %     29      %
Consumer                   10     %     11     %       11      %     11      %
Wireless                   37     %     35     %       38      %     35      %
Access and CETC            21     %     24     %       22      %     25      %
                                                                   
                                                                   
Retail Service Revenue     45     %     48     %       46      %     48      %
% of Total Revenues
Broadband % of Total       47     %     42     %       45      %     41      %
Service Revenue
                                                                   
                                                                   
Note: Broadband contains the following dial-up revenue:
Three months ended December 31, 2012: $86 Consumer and $23 Business.
Three months ended December 31, 2011: $114 Consumer and $28 Business.
Twelve months ended December 31, 2012: $384 Consumer and $101 Business.
Twelve months ended December 31, 2011: $512 Consumer and $121 Business.


                                                        
                                                            Schedule 6
                                                            
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
                                                            
                             Three Months Ended
                             December 31,   September 30,   December 31,
                             2012           2012            2011
                                                            
Voice:
Consumer access lines           55,823         57,483          62,507
Business access lines           80,852         81,330          83,055
                                                            
Voice ARPU consumer          $  26.53       $  26.65        $  26.52
Voice ARPU business          $  23.82       $  24.34        $  24.07
                                                            
Broadband:
Consumer connections            38,760         38,491          38,743
Business connections            19,202         19,063          19,143
                                                            
ARPU consumer                $  42.53       $  39.90        $  36.52
ARPU business                $  153.59      $  150.58       $  140.37
                                                            
Wholesale lines                 20,007         20,782          23,063
                                                            
Wireless:
Postpaid connections            100,910        107,220         107,530
Prepaid connections            14,107      13,755       10,029  
Total                          115,017     120,975      117,559 
                                                            
Retail wireless ARPU         $  52.96       $  51.79        $  53.54
Wireless broadband ARPU      $  20.92       $  19.70        $  17.17
                                                            
Churn:
                                                            
Voice access lines              1.4     %      1.4      %      1.4     %
Broadband connections           2.1     %      2.2      %      2.6     %
Wireless connections            3.7     %      2.0      %      2.2     %
                                                            
                                                            
Wireless equipment subsidy   $  2,666       $  2,608        $  2,264
                                                            
                                                            
Note: Broadband contains the following dial-up connections:
December 31, 2012: 2,184 Consumer and 451 Business.
September 30, 2012: 2,339 Consumer and 458 Business.
December 31, 2011: 2,831 Consumer and 529 Business.


Contact:

Alaska Communications Systems Group, Inc.
Wayne Graham, Chief Financial Officer, 907-564-7756
investors@acsalaska.com
 
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