Alaska Communications Systems Reports Strong Second Quarter 2014 Results

  Alaska Communications Systems Reports Strong Second Quarter 2014 Results    -Total Service and Other Revenue increased $5.7 million or 11.5% year over                                     year-        -Broadband Revenue increased $1.8 million or 11.3% year over year-    -Adjusted EBITDA increased $0.9 million sequentially to $23.8 million, an                               increase of 3.9%-  Business Wire  ANCHORAGE, Alaska -- August 6, 2014  Alaska Communications Systems Group, Inc. (“ACS,” “the Company”) (NASDAQ: ALSK) today reported financial results for its second quarter ended June 30, 2014.  “We posted strong results for the quarter, with operating and financial metrics tracking ahead of our full year guidance.  “Our top line performance is at levels that exceed our industry. This is a combination of our superior network, focus on customer service, and strong sales momentum. Additionally, performance in managed services through TekMate continues to track ahead of our expectations. Our focus on expense management and margin improvement is reflected in the bottom line, with sequential EBITDA growth and strong free cash flow performance.  “We have a sound operating plan for the year and are performing very well to that plan,” said Anand Vadapalli, president and CEO of Alaska Communications.  Financial Highlights: Second Quarter 2014    *Results from the quarter demonstrate we are performing ahead of plan in     our key areas of focus:         *Business and wholesale service revenue of $27.7 million grew $2.3          million or 9.2% year over year, with broadband revenues growing          11.3%.        *Consumer service revenue of $10.4 million grew $0.1 million, or 1.0%          year over year, with broadband revenues growing 11.4%.        *Other revenue of $17.3 million grew $3.3 million, or 23.5% year over          year, benefiting from $2.1 million of revenue reserve releases.        *Wireless revenue of $19.7 million, declined $0.7 million, or 3.3%,          year over year. Performance in wireless is stabilizing sequentially,          with higher connections compared to the first quarter, and wireless          revenue increasing $0.3 million.    *Adjusted EBITDA was $23.8 million for the quarter, and stands at $46.8     million year to date, well ahead of our guidance for the year.   *Free Cash Flow is within expectations at $2.8 million for the quarter, and     stands at $11.2 million year to date, well ahead of guidance for the year.   *Deleveraging continues, with debt balances of $438.9 million at the end of     the quarter, compared to $456.3 million at December 31, 2013. Debt     balances have declined $17.3 million since the beginning of the year. Cash     balances are strong at $27.7 million.  Metric Highlights: Second Quarter 2014 Compared to First Quarter 2014    *Business broadband connections increased to 19,618 from 19,304 and     business broadband ARPU increased to $189.54 from $182.96.   *Consumer broadband connections decreased to 39,022 from 39,468 though     consumer broadband ARPU increased to $52.51 from $49.46.   *Wireless subscribers increased to 109,578 from 107,975 and Wireless ARPU     increased to $52.55 from $52.51.  “Our financial performance for the year has been strong. This is our first full year following the AWN transaction, and our commitment to shareholders was to deliver on our financial guidance for the year using free cash flow to reduce debt. We are tracking well with these objectives.  “Strong Adjusted EBITDA and Free Cash Flow accelerate our deleveraging strategy because the combination of Adjusted EBITDA performance and lower net debt improves our leverage ratios over time," said Wayne Graham, ACS chief financial officer.  2014 Guidance:  Guidance for the following categories is reaffirmed as follows:    *Revenue of approximately $310 million.   *Adjusted EBITDA of approximately $90 million.   *Free cash flow of approximately $20 million.  Guidance for capital expenditures is revised as follows:    *Capital expenditures of approximately $40 million, revised to between     $40-$45 million.  Our guidance for capital spending has increased to reflect a two year project, which commenced in the second half of 2014, to build fiber facilities on behalf of a customer. The customer is funding the project during the period of the build and in 2014 cash payments will offset this higher capital spending. Accordingly, our capital spending guidance has increased but our free cash flow guidance is unchanged. We anticipate that this multi-year project will be accretive to free cash flow in 2015.  On July 25, 2014, our undersea cable serving Juneau, Alaska was damaged by debris generated by an earthquake. The cost to repair this facility, while leasing alternative capacity, is expected to be approximately $2 million. The costs from this unusual event will be excluded from the above guidance considerations.  Conference Call  The Company will host a conference call and live webcast on Thursday, August 7, 2014 at 5:00 p.m. Eastern Time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-888-471-3830 and enter pass code 269043. All other parties can access the call at 1-719-325-2219.  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 September 8, 2014 at 4:00 p.m. Eastern Time. To hear the replay, parties in the United States and Canada can call 1-888-203-1112 and enter pass code 3635655. All other parties can call 1-719-457-0820 and enter pass code 3635655.  About Alaska Communications  Alaska Communications (NASDAQ: ALSK) is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The Company operates a highly reliable, advanced statewide data and voice network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit http://www.alaskacommunications.com or http://www.alsk.com.  Non-GAAP Measures  In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, which management utilizes to assess performance and believes provides useful information to investors. The definition of these non-GAAP measures are on Schedule 4 to this press release. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are non-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. Other companies may not calculate non-GAAP measures in the same manner as ACS.  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 retail entry into the Alaska market, Universal Service Fund changes, AWN’s financial and operational performance and the competitiveness of the wholesale plans it offers, 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 supplier’s 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, 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           Six Months Ended                     June 30,                       June 30,                     2014         2013            2014          2013                                                                     Operating revenues: Operating revenues,           $ 78,803       $ 97,699        $ 155,348       $ 188,695 non-affiliates Operating revenues,            1,755        58            3,541         121      affiliates* Total operating      80,558       97,757        158,889       188,816  revenues                                                                     Operating expenses: Cost of services and          29,800         37,015          59,858          72,334 sales, non-affiliates Cost of services and          15,001         189             29,761          317 sales, affiliates* Selling, general &             25,314         27,646          49,909          54,443 administrative Depreciation and                   8,475          11,450          17,265          24,082 amortization Loss on disposal of           410            585             811             626 assets, net (Earnings) loss from equity          (9,168 )      21            (17,691 )      21       method investments Total operating      69,832       76,906        139,913       151,823  expenses                                                                     Operating             10,726         20,851          18,976          36,993 income                                                                     Other income and (expense): Interest              (8,672 )       (10,156 )       (17,529 )       (20,185 ) expense Loss on extinguishment        -              (276    )       -               (276    ) of debt Interest income       6              8               14              18 Other                -            (13     )      -             (13     ) Total other income and           (8,666 )      (10,437 )     (17,515 )      (20,456 ) (expense)                                                                     Income before income tax            2,060          10,414          1,461           16,537 benefit (expense)                                                                     Income tax benefit              (975   )      27,280        (761    )      24,625   (expense)                                                                     Net income          $ 1,085       $ 37,694       $ 700          $ 41,162                                                                       Net income per share: Net income applicable to       $ 1,085        $ 37,694        $ 700           $ 41,162 common shares Tax-effected expense attributable to      -            1,465         -             2,924    convertible notes Net income assuming            $ 1,085       $ 39,159       $ 700          $ 44,086   dilution                                                                     Basic               $ 0.02        $ 0.81         $ 0.01         $ 0.89     Diluted             $ 0.02        $ 0.67         $ 0.01         $ 0.76                                                                         Weighted average shares outstanding: Basic                49,377       46,550        49,146        46,304   Diluted              49,910       58,547        49,649        58,371    * Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.   Schedule 2  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts)                                            June 30,         December 31, Assets                                        2014               2013                                                                   Current assets: Cash and cash equivalents                     $ 27,659           $ 43,039 Restricted cash                                 467                467 Accounts receivable-trade,                      38,513             34,066 non-affiliates, net Materials and supplies                          12,449             10,131 Prepayments and other current assets            7,972              7,300 Deferred income taxes                          7,198            7,144      Total current assets                            94,258             102,147                                                                   Property, plant and equipment                   1,358,974          1,344,949 Less: accumulated depreciation and             (1,004,245 )      (992,936  ) amortization Property, plant and equipment, net              354,729            352,013                                                                   Goodwill                                        5,892              4,650 Debt issuance costs                             5,619              6,929 Deferred income taxes                           12,460             14,107 Equity method investments                       258,798            266,972 Other assets                                   394              502        Total assets                                  $ 732,150         $ 747,320                                                                      Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term                  $ 8,265            $ 14,256 obligations Accounts payable, accrued and other             50,031             55,475 current liabilities, non-affiliates Accounts payable, accrued and other             21,628             14,309 current liabilities, affiliates, net* Advance billings and customer                  8,970            9,104      deposits Total current liabilities                       88,894             93,144                                                                   Long-term obligations, net of current           430,653            442,001 portion Other long-term liabilities                     16,324             16,947 Deferred AWN capacity revenue, net of          58,362           59,965     current portion Total liabilities                              594,233          612,057                                                                      Commitments and contingencies                                                                   Stockholders' equity (deficit): Common stock, $.01 par value; 145,000           495                487 authorized Additional paid in capital                      152,927            152,193 Accumulated deficit                             (11,108    )       (11,808   ) Accumulated other comprehensive loss           (4,397     )      (5,609    ) Total stockholders' equity (deficit)            137,917            135,263                                                                   Total liabilities and stockholders'           $ 732,150         $ 747,320    equity (deficit)  * Affiliate balances are related to activity with our equity method investees TekMate and AWN. The remaining interest in TekMate was purchased on January 31, 2014 at which time it became a wholly owned subsidiary.   Schedule 3  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, In Thousands)                   Three Months Ended            Six Months Ended                    June 30,                        June 30,                    2014          2013            2014          2013 Cash Flows from Operating Activities: Net income         $ 1,085         $ 37,694        $ 700           $ 41,162 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and                  8,475           11,450          17,265          24,082 amortization Loss on the disposal of          410             585             811             626 assets Gain on ineffective          -               (596    )       -               (1,016  ) hedge adjustment Amortization of debt issuance costs       1,268           1,614           2,666           3,040 and debt discount Amortization of ineffective       307             436             914             866 hedge Amortization of deferred          (849    )       -               (1,690  )       - AWN capacity revenue Stock-based          540             499             1,193           1,718 compensation Deferred income tax           974             (27,280 )       747             (24,625 ) expense (benefit) Provision for uncollectible        910             171             1,475           439 accounts Cash distribution from equity          9,168           -               17,691          - method investments (Earnings) loss from            (9,168  )       21              (17,691 )       21 equity method investments Other non-cash (income)             (155    )       196             (158    )       236 expense, net Changes in operating           (6,738  )      (4,874  )      (3,870  )      (1,065  ) assets and liabilities Net cash provided by         6,227         19,916        20,053        45,484   operating activities                                                                     Cash Flows from Investing Activities: Capital              (10,710 )       (7,629  )       (17,874 )       (13,597 ) expenditures Capitalized          (624    )       (387    )       (1,362  )       (870    ) interest Change in unsettled            2,772           (678    )       (4,414  )       (3,829  ) capital expenditures Proceeds on          -               -               -               1,935 sale of assets AWN excess           -               1,512           -               1,512 distribution Return of capital from         3,332           -               7,342           - equity investment Non-cash acquisition,         -               -               68              - cash received Net change in short-term           -               1,512           -               1,512 investments Net change in restricted          -             49            -             48       accounts Net cash used by investing        (5,230  )      (5,621  )      (16,240 )      (13,289 ) activities                                                                     Cash Flows from Financing Activities: Repayments of        (5,388  )       (15,366 )       (18,742 )       (30,381 ) long-term debt Debt issuance        -               (181    )       -               (181    ) costs Payment of withholding taxes on             (2      )       -               (583    )       (630    ) stock-based compensation Proceeds from issuance of         132           115           132           115      common stock Net cash used by financing        (5,258  )      (15,432 )      (19,193 )      (31,077 ) activities                                                                     Change in cash and cash             (4,261  )       (1,137  )       (15,380 )       1,118 equivalents                                                                     Cash and cash equivalents,        31,920        19,094        43,039        16,839   beginning of period                                                                     Cash and cash equivalents,       $ 27,659       $ 17,957       $ 27,659       $ 17,957   end of period                                                                     Supplemental Cash Flow Data: Interest paid      $ 9,466         $ 11,219        $ 16,028        $ 18,383 Income tax         $ 1             $ -             $ 14            $ - paid                                                                     Supplemental Non-cash Transactions: Property acquired under     $ -             $ -             $ 44            $ 2 capital leases Additions to       $ 75            $ 107           $ 289           $ 137 ARO asset Non-cash acquisition purchase           $ -             $ -             $ 1,850         $ - price, net of cash received                                                                                                                                                              Schedule 4  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. ADJUSTED EBITDA AND FREE CASH FLOW (Unaudited, In Thousands)                        Three Months Ended            Six Months Ended                         June 30,                        June 30,                         2014          2013            2014          2013                                                                          Net income              $ 1,085         $ 37,694        $ 700           $ 41,162 Add (subtract): Interest expense          8,672           10,156          17,529          20,185 Loss on extinguishment of         -               276             -               276 debt Interest income           (6      )       (8      )       (14     )       (18     ) Depreciation and          8,475           11,450          17,265          24,082 amortization Loss on sale of short-term                -               13              -               13 investments Loss on disposal of       410             585             811             626 assets Loss (earnings) from equity method        -               21              (12     )       21 investment in TekMate Earnings from equity method             (9,168  )       -               (17,679 )       - investment in AWN AWN distributions         12,500          -               25,000          - received AWN distributions received for the          (4,167  )       -               (4,167  )       - prior period AWN distributions receivable within         4,167           -               4,167           - 12 days Income tax expense        975             (27,280 )       761             (24,625 ) (benefit) Stock-based               540             499             1,193           1,718 compensation Long-term cash            301             161             985             330 incentives AWN transaction-related      40            427           212           1,272    costs                                                                          Adjusted EBITDA         $ 23,824       $ 33,994       $ 46,751       $ 65,042                                                                            Less: Incurred capital          (10,710 )       (7,629  )       (17,874 )       (13,597 ) expenditures Amortization of deferred AWN              (849    )       -               (1,690  )       - capacity revenue AWN transaction-related       -               14              -               (41     ) capital costs, net change Cash interest            (9,466  )      (11,219 )      (16,028 )      (18,383 ) expense Free cash flow          $ 2,799        $ 15,160       $ 11,159       $ 33,021                                                                            Revenue                 $ 80,558       $ 97,757       $ 158,889      $ 188,816                                                                           Adjusted EBITDA           29.6    %       34.8    %       29.4    %       34.4    % Margin                                                                                     NonGAAP Measures:  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, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, provisions for taxes, AWN transaction-related costs, stock-based compensation, and expenses under the company’s long term cash incentive plan (“LTCI”).LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation.Distributions from AWN are included in Adjusted EBITDA.  Adjusted EBITDA Margin, is defined as Adjusted EBITDA divided by Operating Revenues.  Free cash flow is defined as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), less amortization of deferred AWN capacity revenue (a non cash revenue item), less AWN transaction-related capital costs, less cash interest expense.  Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-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. Other companies may not calculate Non-GAAP measures in the same manner as ACS.   Schedule 5  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. REVENUE GROWTH (Unaudited, In Thousands)                         Three Months Ended        Six Months Ended                          June 30,                    June 30, Service revenue:         2014         2013         2014          2013 Business and wholesale customers Voice                    $ 5,671        $ 5,790      $ 11,282        $ 11,513 Broadband                  11,085         9,962        21,696          19,429 IT Services                945            -            1,533           - Other                      1,775          2,187        3,456           4,043 Wholesale                 8,266        7,461       16,179        15,052 Business and wholesale service         27,742       25,400      54,146        50,037 revenue                                                                       Consumer customers Voice                      3,837          4,353        7,713           8,672 Broadband                  6,244          5,605        12,105          10,847 Other                     359          383         782           797 Consumer service           10,440         10,341       20,600          20,316 revenue                                                                       Total service             38,182       35,741      74,746        70,353 revenue Growth in service          6.8    %                    6.2     % revenue Growth in broadband        11.3   %                    11.6    % service revenue                                                                       Other revenue: Equipment sales            1,274          343          2,111           935 Access                     8,968          9,268        17,961          18,783 High cost support         7,075        4,412       13,349        8,574 Total service and         55,499       49,764      108,167       98,645 other revenue Growth in service          11.5   %                    9.7     % and other revenue Growth excluding           9.7    %                    8.5     % equipment sales                                                                       Wireless revenue: Business and consumer service           17,129         18,030       34,185          35,934 revenue Equipment sales            1,115          1,282        2,119           2,530 Other                      1,450          1,049        2,797           2,150                                                                       AWN related: Foreign roaming            -              19,409       -               34,435 Wireless backhaul          -              2,193        70              4,168 CETC                       4,516          6,030        9,861           10,954 Amortization of deferred AWN              849          -           1,690         - capacity revenue Total AWN related         5,365        27,632      11,621        49,557 Total wireless & AWN      25,059       47,993      50,722        90,171 related revenue                                                                       Total revenue            $ 80,558      $ 97,757     $ 158,889      $ 188,816                                                                                                                                                  Schedule 6  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited)                         Three Months Ended                          June 30,           March 31,          June 30,                          2014                 2014                 2013                                                                     Voice: Consumer access            46,740               48,165               52,438 lines Business access            80,172               79,841               80,517 lines                                                                     Voice ARPU consumer      $ 26.95              $ 26.51              $ 27.25 Voice ARPU business      $ 23.63              $ 23.43              $ 23.93                                                                     Broadband: (1) Consumer connections       39,022               39,468               37,611 Business connections       19,618               19,304               19,104                                                                     ARPU consumer            $ 52.51              $ 49.46              $ 49.21 ARPU business (2)        $ 189.54             $ 182.96             $ 174.87                                                                     Wireless: Postpaid connections       83,468               86,238               88,876 Lifeline connections       7,447                6,510                9,859 Prepaid connections       18,663            15,227            15,684   Total                     109,578           107,975           114,419                                                                      Retail wireless ARPU     $ 52.55              $ 52.51              $ 52.68                                                                     Churn:                                                                     Voice connections          1.9     %            1.0     %            1.3     % (3) Broadband                  2.4     %            1.9     %            2.0     % connections (1) (3) Wireless connections       2.4     %            3.0     %            2.4     %                                                                                                                                         Wireless equipment         (263    ) ^(4)       (463    ) ^(4)       (3,463  ) subsidy                                                                                ^(1)  Consumer and business broadband connections, ARPU, and churn have been        restated to exclude dial up lines. ^(2)   Business broadband ARPU was restated to reflect the movement of IT        Services revenue into a separate category. ^(3)   Voice and broadband churn have been restated to exclude wholesale        lines. ^(4)   For the quarters ending June 30, 2014 and March 31, 2014, respectively,        these amounts are net of AWN subsidy reimbursement.                  Schedule 7  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Long Term Debt (Unaudited, In Thousands)                                  June 30,      December 31,   June 30,                                   2014            2013             2013 2010 senior credit facility       $ 327,700       $  345,900       $ 414,550 term loan due 2016 Debt discount - 2010 senior credit facility term loan due       (1,315  )        (1,687  )       (2,358  ) 2016 6.25% convertible notes due         114,000          114,000         120,000 2018 Debt discount - 6.25%               (8,229  )        (9,213  )       (10,650 ) convertible notes due 2018 Capital leases and other           6,762          7,257         4,810    long-term obligations                                     438,918          456,257         526,352 Less current portion               (8,265  )       (14,256 )      (11,302 ) Long-term obligations, net of     $ 430,653      $  442,001      $ 515,050  current portion                                                                                                                                          Maturities  2014 (July 1 - December 31)      $ 565 2015 (January 1 - December 31)       15,417 2016 (January 1 - December 31)       313,788 2017 (January 1 - December 31)       506 2018 (January 1 - December 31)       114,287 2019 (January 1 - December 31)       278 Thereafter                          3,621                                    $ 448,462                                                                              Schedule 8  ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Summary AWN information (Unaudited, In Thousands)  Alaska Wireless Network, LLC Stand Alone Selected Operating Results                            Q1 - 2014    Q2 - 2014    YTD - 2014    Operating revenues          $ 63,037       $ 64,665       $ 127,702                                                                            Operating expenses:         Cost of         services and          19,119         18,880         37,999         sales         Selling,         general &             5,954          5,898          11,852         administrative         Depreciation         and                  10,995       10,644       21,639           amortization  Total operating               36,068         35,422         71,490 expenses                              Operating income              26,969         29,243         56,212                                                                            Other income and             (92    )      (88    )      (180    ) (expense)  Net income                    26,877         29,155         56,032        A                              Plus:   Depreciation          10,995         10,644         21,639         Expense         Other, net            1,706          1,631          3,337 Minus:  Capital               3,639          7,110          10,749         Spending         Management Fee       1,438        1,372        2,810            to GCI Adjusted Free Cash Flow     $ 34,501      $ 32,948      $ 67,449    Distributions paid to         12,500         12,500         25,000 ACS:                              Distributions to ACS as       36.2   %       37.9   %       37.1    % a proportion of FCF:  The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.   Wholesale Margin Contribution from AWN:                             Q1 - 2014      Q2 - 2014      YTD - 2014 Wireless business and consumer service            $ 17,056       $ 17,129       $ 34,185 revenue                                                                            AWN wholesale charges*      $ 11,905       $ 12,750       $ 24,655 Handset subsidy               (2,664 )       (3,095 )       (5,759  ) support* Equipment subsidy             3,127          3,358          6,485 Other*                       235          830          1,065    Total                       $ 12,603       $ 13,843       $ 26,446  Wholesale Margin            $ 4,453        $ 3,286        $ 7,739         23 %                              * Balances are included under the caption Cost of services and sales, affiliates on the consolidated statement of operations. Excluded from the balances above is CETC, for which we pay an equivalent amount to AWN.   Key AWN Results included in the ACS Consolidated Income Statement:                             Q1 - 2014      Q2 - 2014      YTD - 2014 AWN net income              $ 26,877       $ 29,155       $ 56,032        A Adjusted for step-up in      (1,345 )      (1,650 )      (2,995  )     B GCI assets AWN stepped-up earnings     $ 25,532       $ 27,505       $ 53,037        C  ACS ownership                 33.33  %       33.33  %       33.33   %     D percentage of AWN  "Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.  Earnings on equity                                                        C * method investment in        $ 8,511       $ 9,168       $ 17,679       D AWN  AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage.   Key AWN Results Included in the ACS Non GAAP financial measures:                             Q1 - 2014      Q2 - 2014      YTD - 2014 Cash distributions received during the         $ 12,500       $ 12,500       $ 25,000 quarter         Distributions         received during Less:   the quarter           (4,167 )       (4,167 )       (4,167  )         related to the         previous period         Distributions         received within Plus:   14 business           4,167          4,167          4,167         days of         quarter-end         Amortization of         deferred AWN         841          849          1,690            capacity         revenue Equals  AWN impact to       $ 13,341      $ 13,349      $ 26,690           Adjusted EBITDA          Amortization of Less:   deferred AWN         841          849          1,690            capacity         revenue Equals  AWN impact to       $ 12,500      $ 12,500      $ 25,000           Free Cash Flow  In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.  Contact:  Alaska Communications Investors: Tiffany Dunn, 907-564-3314 Manager Investor Relations investors@acsalaska.com  
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