<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________________
DELAWARE 52-2126573
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
510 L STREET, SUITE 500, ANCHORAGE, ALASKA 99501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (907) 297-3000
________________________________________________________________________________
FORMER NAME, FORMER ADDRESS AND FORMER THREE MONTHS, IF CHANGED
SINCE LAST REPORT: Not Applicable
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 [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13, OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, AS OF
JULY, 28, 2000 WAS 32,927,049.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999 (unaudited) ........................3
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2000 and 1999 (unaudited).........4
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2000 and 1999 (unaudited)...................5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999 (unaudited)...................6
Notes to Consolidated Financial Statements (unaudited)........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................................................18
PART II. OTHER INFORMATION
Item 1 Legal Proceedings............................................................19
Item 2 Changes in Securities and Use of Proceeds....................................20
Item 3 Defaults upon Senior Securities..............................................20
Item 4 Submission of Matters to a Vote of Security Holders..........................20
Item 5 Other Information............................................................20
Item 6. Exhibits and Reports on Form 8-K.............................................20
SIGNATURE...............................................................................21
</TABLE>
2
<PAGE> 3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
--------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79,992 $ 101,994
Accounts receivable-trade, net of allowance of $8,101 and $5,203 51,974 49,323
Materials and supplies 8,257 5,923
Prepayments and other current assets 5,011 4,327
--------- ---------
Total current assets 145,234 161,567
Property, plant and equipment 927,818 902,131
Less: accumulated depreciation 475,721 452,304
--------- ---------
Property, plant and equipment, net 452,097 449,827
Goodwill, net of accumulated amortization of $7,920 and $4,243 262,038 250,346
Investments 1,520 1,673
Other assets 68,422 71,030
--------- ---------
Total assets $ 929,311 $ 934,443
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 4,752 4,845
Accounts payable-trade 26,483 31,212
Accounts payable-affiliates 550 610
Advance billings and customer deposits 8,162 7,521
Accrued and other current liabilities 20,382 20,756
--------- ---------
Total current liabilities 60,329 64,944
Long-term debt, net of current portion 611,964 607,911
Unamortized investment tax credits 262 394
Other deferred credits and long-term liabilities 12,732 13,226
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, no par, 5,000 authorized, no shares
issued and outstanding -- --
Common stock, $.01 par value; 145,000 shares authorized,
32,925 and 32,657 shares issued and outstanding 329 327
Paid in capital in excess of par value 275,007 273,119
Accumulated deficit (31,312) (25,478)
--------- ---------
Total stockholders' equity 244,024 247,968
--------- ---------
Total liabilities and stockholders' equity $ 929,311 $ 934,443
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three and
Three months Six months six months
ended ended ended
June 30, June 30, June 30,
2000 2000 1999
------------ ---------- ----------
<S> <C> <C> <C>
Operating revenues:
Local telephone:
Local network service $ 24,046 $ 48,557 $ 12,175
Network access revenue 28,995 57,959 13,162
Directory advertising 8,263 14,856 3,451
Deregulated and other revenue 5,705 10,097 3,013
-------- --------- --------
Total local telephone 67,009 131,469 31,801
Cellular 10,079 18,710 4,567
Interexchange network, data services and other 4,773 8,768 1,914
-------- --------- --------
Total operating revenues 81,861 158,947 38,282
Operating expenses:
Local telephone 38,450 75,917 21,984
Cellular 6,289 11,771 2,992
Interexchange network, data services and other 7,610 13,392 2,839
Depreciation and amortization 17,565 34,691 8,093
-------- --------- --------
Total operating expenses 69,914 135,771 35,908
-------- --------- --------
Operating income 11,947 23,176 2,374
Other income (expense):
Interest expense (15,933) (31,835) (7,852)
Interest income and other 1,282 2,844 (357)
Equity in earnings (loss) of investments (11) (153) 89
-------- --------- --------
Total other expense (14,662) (29,144) (8,120)
-------- --------- --------
Loss before income taxes (2,715) (5,968) (5,746)
Income tax benefit 19 134 --
-------- --------- --------
Net loss $ (2,696) $ (5,834) $ (5,746)
======== ========= ========
Net loss per share - basic and diluted $ (0.08) $ (0.18) $ (0.29)
======== ========= ========
Weighted average shares outstanding 32,793 32,745 20,083
======== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
COMMON EXCESS OF ACCUMULATED STOCKHOLDERS'
STOCK PAR DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ -- $ -- $ -- $ --
Issuance of 20,082,871 shares of
common stock, $.01 par 201 123,393 -- 123,594
Discount on warrants issued in
conjunction with long-term debt -- 5,089 -- 5,089
Net loss -- -- (5,746) (5,746)
---- -------- -------- ---------
Balance, June 30, 1999 $201 $128,482 $ (5,746) $ 122,937
==== ======== ======== =========
Balance, December 31, 1999 $327 $273,119 $(25,478) $ 247,968
Issuance of 268,206 shares of
common stock, $.01 par 2 1,888 -- 1,890
Net loss -- -- (5,834) (5,834)
---- -------- -------- ---------
Balance, June 30, 2000 $329 $275,007 $(31,312) $ 244,024
==== ======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,834) $ (5,746)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 34,691 8,093
Amortization of debt issuance costs 2,275 589
Investment tax credits (132) --
Other deferred credits 835 (113)
Capitalized interest (12) --
Changes in components of working capital:
Accounts receivable and other current assets (9,147) 8,237
Accounts payable and other current liabilities (8,812) 1,910
Other (320) (55)
--------- ---------
Net cash provided by operating activities 13,544 12,915
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and capital expenditures, net of capitalized interest (28,574) (27,231)
Cost of acquisitions, net of cash received (5,598) (690,207)
Other -- (2,634)
--------- ---------
Net cash used by investing activities (34,172) (720,072)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term notes payable -- 8,700
Proceeds from the issuance of long-term debt, net of discounts -- 612,411
Debt issuance costs -- (37,900)
Payments on long-term debt (3,264) --
Issuance of common stock and warrants 1,890 127,965
--------- ---------
Net cash provided (used) by financing activities (1,374) 711,176
Increase (decrease) in cash (22,002) 4,019
Cash and cash equivalents at beginning of the period 101,994 --
--------- ---------
Cash and cash equivalents at the end of the period $ 79,992 $ 4,019
========= =========
SUPPLEMENTAL CASH FLOW DATA:
Interest paid $ 29,647 $ --
Income taxes paid -- --
SUPPLEMENTAL NONCASH TRANSACTIONS:
Property acquired under capital lease 2,918 --
Note payable in connection with acquisition 2,250 --
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alaska Communications Systems Group, Inc. and Subsidiaries (the "Company"
or "ACS Group") a Delaware corporation, is engaged principally in providing
local telephone, wireless, and interexchange network and data services to its
customers in the State of Alaska through its telecommunications subsidiaries.
The Company was formed in October of 1998 for the purpose of acquiring and
operating telecommunications properties.
The financial statements for the Company represent the consolidated
financial position, results of operations and cash flows of the following
entities:
- Alaska Communications Systems Group, Inc.
- Alaska Communications Systems Holdings, Inc.
- ACS of Alaska, Inc. ("ACSA") (formerly Telephone Utilities of Alaska,
Inc.)
- ACS of the Northland, Inc. ("ACSN") (formerly Telephone Utilities of
the Northland, Inc.)
- ACS of Fairbanks, Inc. ("ACSF") (formerly PTI Communications of Alaska,
Inc.)
- Alaska Communications Systems, Inc. ("ACS") (formerly Anchorage
Telephone Utility)
- ACS Wireless, Inc. ("ACSW") (formerly MACtel, Inc.)
- ACS Long Distance, Inc. ("ACSLD") (formerly ATU Long Distance, Inc.)
- ACS Television, L.L.C. ("ACSTV") (formerly Alaskan Choice Television,
L.L.C.)
- ACS Internet, Inc. (formerly PTINet, Inc.)
- Internet Alaska, Inc. ("IAI")
The accompanying consolidated results of operations for the three and six
months ended June 30, 1999 include the operations of the Company for the three
and six months then ended and the operations of ACSA, ACSN, ACSF, ACS, ACSW and
ACSLD for the period from May 15, 1999 through June 30, 1999. Prior to the
acquisition of these acquired companies on May 14, 1999, the Company had no
significant operations.
On June 16, 2000, ACS Group acquired all outstanding shares of IAI, an
Internet service provider to over 25,000 customers in Alaska.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to rules and regulations of the Securities and Exchange Commission; however the
Company believes the disclosures which are made are adequate to make the
information presented not misleading. The consolidated financial statements and
footnotes included in the Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Reclassifications have been made to the 1999 financial statements to make
them conform to the current presentation.
Comprehensive income is equal to the net loss for the periods.
In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the consolidated financial position, consolidated results of operations
and cash flows for all periods presented. The results of operations for the
three and six months ended June 30, 2000 are not necessarily indicative of the
results of operations which might be expected for the entire year or any other
interim periods.
7
<PAGE> 8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. STOCK INCENTIVE PLANS
Under various plans through the Compensation Committee of the board of
directors, ACS Group may grant stock options, stock appreciation rights and
other awards to officers, employees and non-employee directors. At June 30,
2000, ACS Group has reserved a total of 6,060 shares of authorized common stock
for issuance under the various plans. In general, options under the plans vest
ratably over three, four or five years and the plans terminate in approximately
10 years.
ALEC Holdings, Inc. 1999 Stock Incentive Plan
The Company has reserved 3,410 shares under this plan, which was adopted
in connection with the completion of the acquisition of the acquired companies
on May 14, 1999. At June 30, 2000, 3,423 options have been granted under the
Plan at an exercise price of $6.1542 per share, generally vesting ratably over
five years or after nine years subject to acceleration upon the attainment of
certain performance goals. Of the options granted under the plan, 232 have been
exercised and 266 have been forfeited upon termination of the grantee. At June
30, 2000 2,925 options are outstanding. The plan allows forfeited options to be
reissued and 253 remain available for grant under the plan. The plan will
terminate on May 14, 2009.
Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan
This plan was adopted by the Company in November 1999 in connection with
its initial public offering. The Company has reserved 1,500 shares under this
plan. At June 30, 2000, 887 options have been granted, 15 have been forfeited
under the plan and 628 shares are available for grant under the plan. The term
of options granted under the plan may not exceed 10 years. Unless otherwise
determined by the Compensation Committee, options will vest ratably on each of
the first four anniversaries after the grant date and will have an exercise
price equal to the fair market value of the common stock on the date of grant.
On February 9, 2000, the Board of Directors approved the grant of options
under the plan to purchase 887 shares to certain members of management at an
exercise price of $14.1354 per share, generally vesting over four years ratably.
Alaska Communications Systems Group, Inc. 1999 Non-Employee Director Stock
Compensation Plan
The non-employee director stock compensation plan was adopted by the
Company in connection with its initial public offering. The Company has reserved
150 shares under this plan. At June 30, 2000, 15 shares have been awarded and
135 shares are available for grant under the plan. Directors are required to
receive not less than 25% of their annual retainer and meeting fees in the form
of the Company's stock, and may elect to receive up to 100% of director's
compensation in the form of stock.
During January of 2000, eight shares under the plan were awarded to a
director. On March 31, 2000, three shares under the plan were awarded to
directors, of which two were elected to be deferred until termination of service
by the directors. On June 30, 2000, four shares under the plan were awarded to
directors, of which three were elected to be deferred until termination of
service by the directors.
Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan
This plan was also adopted in connection with the Company's initial public
offering in November 1999. On June 30, 2000, 65 shares were issued under the
plan and 935 shares are available for issuance and sale. The plan will terminate
on December 31, 2009. All ACS Group employees and all of the employees of
designated subsidiaries generally will be eligible to participate in the
purchase plan, other than employees whose customary employment is 20 hours or
less per week or is for not more than five months in a calendar year, or who are
ineligible to participate due to restrictions under the Internal Revenue Code.
8
<PAGE> 9
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. BUSINESS SEGMENTS
The Company has two reportable segments: (1) local telephone, which
provides landline telecommunications services and consists of local telephone
service, network access, directory advertising, deregulated and other revenues;
and (2) cellular, which provides wireless telecommunications service. Each
reportable segment is a strategic business under separate management and
offering different services than those offered by the other segments. The
Company has aggregated its interexchange network, data services and wireless
cable television segments into "All Other" below. The Company also incurs
interest expense, interest income, equity in earnings (losses) of minority
investments and other nonoperating 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 nonoperating 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 either the Company or ACS Holdings, Inc. and are allocated
below based on operating revenues. The accounting policies of the segments are
the same as those in the summary of significant accounting policies described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Intersegment revenues and expenses are eliminated between the nonregulated
entities. Due to the regulated nature of the local telephone segment,
intersegment revenues and expenses between the local telephone and other
segments are not eliminated.
The following table illustrates selected financial data for each segment
for the six months ended June 30, 2000.
<TABLE>
<CAPTION>
LOCAL INTERCOMPANY
TELEPHONE CELLULAR ALL OTHER ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 131,469 $ 18,724 $ 12,653 $(3,899) $ 158,947
Depreciation and amortization 27,560 2,363 4,768 -- 34,691
Operating income (loss) 28,512 4,576 (9,912) -- 23,176
Interest expense (567) (5) (31,263) -- (31,835)
Interest income 87 77 2,718 -- 2,882
Income tax provision (benefit) 9,775 1,306 (11,215) -- (134)
Net income (loss) 18,264 3,355 (27,453) -- (5,834)
Total assets $ 730,207 $ 122,101 $ 77,003 $ -- $ 929,311
Capital expenditures $ 20,061 $ 6,592 $ 4,839 $ -- $ 31,492
</TABLE>
Operating revenues disclosed above include intersegment operating revenues
of $3,692 for local telephone, $345 for the cellular, and $4,992 for all other.
The following table illustrates selected financial data for each segment
for the three months ended June 30, 2000.
<TABLE>
<CAPTION>
LOCAL INTERCOMPANY
TELEPHONE CELLULAR ALL OTHER ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 67,009 $ 10,088 $ 7,425 (2,661) $ 81,861
Depreciation and amortization 13,784 1,234 2,547 - 17,565
Operating income (loss) 15,051 2,556 (5,660) - 11,947
Interest expense (280) (3) (15,650) - (15,933)
Interest income 13 36 1,341 - 1,390
Income tax provision (benefit) 5,159 741 (5,919) - (19)
Net income (loss) 9,627 1,852 (14,175) - (2,696)
Total assets $ 730,207 $ 122,101 $ 77,003 $ - $ 929,311
Capital expenditures $ 12,501 $ 2,621 $ 440 $ - $ 15,562
</TABLE>
9
<PAGE> 10
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. BUSINESS SEGMENTS, CONTINUED
Operating revenues disclosed above include intersegment operating revenues
of $2,203 for local telephone, $139 for the cellular, and $3,697 for all other.
The following table illustrates selected financial data for each segment
for the three and six months ended June 30, 1999.
<TABLE>
<CAPTION>
LOCAL INTERCOMPANY
TELEPHONE CELLULAR ALL OTHER ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 31,801 $ 4,572 $ 2,101 (192) $ 38,282
Depreciation and amortization 7,649 376 68 -- 8,093
Operating income (loss) 1,477 1,153 (256) -- 2,374
Interest expense (72) (1) (7,779) -- (7,852)
Interest income 145 16 67 -- 228
Income tax provision (benefit) 1,894 670 (2,564) -- --
Net income (loss) 934 1,169 (7,849) -- (5,746)
Total assets $ 686,901 $ 65,513 $ 43,932 $ -- $ 796,346
Capital expenditures $ 4,583 $ 326 $ 22,322 $ -- $ 27,231
</TABLE>
Operating revenues disclosed above include intersegment operating revenues
of $2,681 for local telephone, $235 for the cellular, and $305 for all other.
4. RELATED PARTY TRANSACTIONS
Fox Paine & Company, the majority stockholder, receives an annual
management fee in the amount of 1% of the Company's net income before interest
expense, interest income, income taxes, depreciation and amortization and equity
in earnings (losses) of minority investments, calculated without regard to the
fee. The management fee expense for the six months ended June 30, 2000 is $574
of which $550 remains payable.
5. COMMITMENTS AND CONTINGENCIES
The Company has a commitment to acquire additional fiber optic circuit
capacity in the first quarter of 2001 at a purchase price of $19,500.
The Company has entered into a Definitive Agreement to acquire Matanuska
Telephone Association, Inc. ("MTA") for $187.5 million in cash, which will be
financed with proceeds from the initial public offering completed by the Company
last year and by an existing supplement to bank term loans provided by a
consortium led by Chase Manhattan Bank. The acquisition of MTA is expected to
close in the first quarter of 2001, and is contingent on receiving an
affirmative vote of its membership and regulatory approval.
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS AND ANALYSTS' REPORTS
This report contains forward looking statements within the meaning of the
federal securities laws, including statements concerning future rates, revenues,
costs, capital expenditures and financing needs and availability and statements
of management's expectations and beliefs. Actual results could differ materially
from these statements as a result of many factors, including future economic,
regulatory and political conditions in Alaska and the rest of the United States.
Investors should also be aware that while ACS Group does, at various
times, communicate with securities analysts, it is against ACS Group's policy to
disclose to them any material non-public information or other confidential
information. Accordingly, shareholders should not assume that ACS Group agrees
with any statement or report issued by an analyst irrespective of the content of
the statement or report. To the extent that reports issued by securities
analysts contain any projections, forecasts or opinions, such reports are not
the responsibility of ACS Group.
INTRODUCTION
On May 14, 1999, the Company acquired the incumbent providers of local
telephone services in Anchorage, Juneau, Fairbanks and approximately 70 rural
communities in Alaska, making it the largest provider of local telephone service
in the state and the fifteenth largest provider of local exchange services in
the United States. The Company also acquired on May 14, 1999 long distance
operations primarily serving the Anchorage market and cellular and Internet
services providing statewide coverage. On October 29, 1999, the Company changed
its name from ALEC Holdings, Inc. to Alaska Communications Systems Group, Inc.,
and is in the process of unifying its statewide branding under the ACS name.
Prior to the completion of these acquisitions, ACS Group had no
operations. Accordingly, the following discussion should be read in conjunction
with the Company's consolidated financial statements and the related notes
included herein.
Today, ACS Group generates revenue through:
- the provision of local telephone services, including:
- basic local service to retail customers within ACS Group's service
areas,
- wholesale service to competitive local exchange carriers,
- network access services to interexchange carriers for origination
and termination of interstate and intrastate long distance phone
calls,
- enhanced services,
- ancillary services, such as billing and collection, and
- universal service payments;
- the provision of wireless services;
- the provision of interexchange network services, data services and
other services, and;
- the provision of wireless television services.
ACS Group also recognizes its proportionate share of the net income or
loss of its minority-owned investments.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following unaudited table summarizes ACS Group's consolidated
operations for the three and six months ended June 30, 2000 and the combined
operations for the three and six months ended June 30, 1999. For the three
months ended June 30, 1999, the summary information represents the historical
combined operating results of companies acquired on May 14, 1999 - prior to
their ownership by ACS Group, from April 1, 1999 through May 14, 1999, plus the
consolidated results of ACS Group from May 15, 1999 through June 30, 1999. For
the six months ended June 30, 1999, the summary information represents the
historical combined operating results of companies acquired on May 14, 1999 -
prior to their ownership by ACS Group, from January 1, 1999 through May 14,
1999, plus the consolidated results of ACS Group from May 15, 1999 through June
30, 1999. Certain reclassifications have been made to the 1999 combined
operations to conform to the current presentation of ACS Group's consolidated
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
2000 1999 2000 1999
CONSOLIDATED COMBINED CONSOLIDATED COMBINED
------------ -------- ------------ --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Operating revenues
Local telephone:
Local network service $ 24,046 $ 24,044 $ 48,557 $ 47,185
Network access revenue 28,995 25,364 57,959 51,354
Directory advertising 8,263 7,635 14,856 13,649
Deregulated revenue and other 5,705 4,793 10,097 9,436
-------- -------- --------- ---------
Total local telephone 67,009 61,836 131,469 121,624
Cellular 10,079 8,519 18,710 15,772
Interexchange network, data services and other 4,773 3,669 8,768 7,650
-------- -------- --------- ---------
Total operating revenues 81,861 74,024 158,947 145,046
Operating expenses
Local telephone 38,450 41,008 75,917 75,918
Cellular 6,289 6,203 11,771 11,246
Interexchange network, data services and other 7,610 5,724 13,392 10,168
Depreciation and amortization 17,565 14,473 34,691 31,274
-------- -------- --------- ---------
Total operating expenses 69,914 67,408 135,771 128,606
-------- -------- --------- ---------
Operating income 11,947 6,616 23,176 16,440
Other income (expense):
Interest expense (15,933) (9,417) (31,835) (12,378)
Interest income and other 1,282 932 2,844 2,116
Equity in earnings (loss) of investments (11) (773) (153) (1,282)
-------- -------- --------- ---------
Total other expense (14,662) (9,258) (29,144) (11,544)
-------- -------- --------- ---------
Income (loss) before income taxes (2,715) (2,642) (5,968) 4,896
Income tax benefit (expense) 19 (1,235) 134 (3,944)
-------- -------- --------- ---------
Net income (loss) $ (2,696) $ (3,877) $ (5,834) $ 952
======== ======== ========= =========
</TABLE>
12
<PAGE> 13
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
OPERATING REVENUES
Operating revenues increased $7.8 million, or 10.6% for the three months
ended June 30, 2000 compared to the three months ended June 30, 1999. Local
telephone, cellular and interexchange network, data services and other revenues
all increased compared to the prior three month period.
Local Telephone
Local telephone revenues, which consist of local network service, network
access revenue, directory advertising and deregulated and other revenues,
increased $5.2 million, or 8.4%, for the three months ended June 30, 2000
compared to the three months ended June 30, 1999.
The local service revenue component of local telephone revenues was $24.0
million during 2000 compared with $24.0 million during 1999. Revenue remained
flat, with growth in average total access lines in service of 4.5% and increased
penetration of enhanced features offset by increased market penetration of lower
margin wholesale lines in the Anchorage market. Although there can be no
assurances, management believes that retail line losses to competition will not
be significant in the future due to marketing efforts and re-negotiation of
interconnection rates currently scheduled or in progress.
Network access revenues increased by $3.6 million, or 14.3%, from $25.4
million in 1999 to $29.0 million in 2000. Network access revenues are based on a
regulated return on rate base and recovery of allowable expenses associated with
the origination and termination of toll calls. The increase in telephone access
revenues over the corresponding quarter of 1999 is due primarily to changes
relating to cost allocation factors, rate base and expenses from period to
period. Management expects that access revenues will grow at a lesser rate than
access line growth for the foreseeable future.
Directory advertising revenues increased by $0.6 million, or 8.2%, from
$7.6 million in 1999 to $8.3 million in 2000. This growth corresponds with the
growth in average access lines in service during 2000 over 1999 from 314,480
during 1999 to 328,728 during 2000, or an increase of 4.5%, combined with
additional penetration for the current directory phone book cycle.
Deregulated and other revenues, which grew $0.9 million or 19.0% over
1999, consists principally of billing and collection services, space and power
rents, deregulated equipment sales, paystation revenues and other miscellaneous
telephone revenues. The revenue increase was due principally to increased
deregulated equipment sales in 2000.
Cellular
Cellular revenues increased $1.6 million, or 18.3%, to $10.1 million for
the three months ended June 30, 2000 compared to $8.5 million for the three
months ended June 30, 1999. This growth in revenue is due to growth in average
cellular subscribers to 72,932 during the quarter ended June 30, 2000 from
68,389 during 1999, or 6.6%, and an increase in average revenue per unit from
$41.52 in 1999 to $46.07 in 2000. The increase in average revenue per unit is
due to the introduction of new statewide and national pricing programs and the
initial benefits of the digital upgrade completed in the first quarter of 2000.
Interexchange Network, Data Services and Other
Interexchange network, data services and other revenues include
principally long distance, data transmission and Internet services revenues.
These revenues increased from $3.7 million in 1999 to $4.8 million in 2000 -- an
increase of $1.1 million, or 30.1%. Long distance revenues increased from $2.6
million in 1999 to $3.0 million in 2000 due to increases in long distance
minutes of use and increases in circuit rent revenues.
13
<PAGE> 14
OPERATING EXPENSES
Operating expenses increased $2.5 million, or 3.7%, from $67.4 million for
the three months ended June 30, 1999 to $69.9 million for the three months ended
June 30, 2000. Operating expenses were 85.4% of revenues for the three months
ended June 30, 2000 compared to 91.1% of revenues for the three months ended
June 30, 1999.
Local Telephone
The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expenses decreased from
$41.0 million for the three months ended June 30, 1999 to $38.5 million for the
three months ended June 30, 2000 - a decrease of $2.5 million, or 6.2%. As a
percentage of revenue, local telephone expense decreased from 66.3% for 1999 to
57.4% for 2000.
Cellular
Cellular expenses increased $0.1 million, or 1.4%, for the three months
ended June 30, 2000 compared to the three months ended June 30, 1999. Cellular
expense was 72.8% of cellular revenues for 1999 and 62.4% of cellular revenues
for 2000. Management expects that cellular expenses as a percentage of cellular
revenue will continue to decline as cellular penetration and subscribers
increase over time.
Interexchange Network, Data Services and Other
Interexchange network, data services and other expenses increased by $1.9
million, or 32.9% and increased as a percentage of revenue from 156.0% in 1999
to 159.4% in 2000. The increase in interexchange network, data services and
other was the result of additional circuit and other costs associated with
developing the Company's statewide network and Internet infrastructure and
increases in minutes of use for long distance as discussed above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $3.1 million, or 21.4%,
due principally to increases in plant in service for the three months ended June
30, 2000 over the corresponding period of 1999.
INTEREST EXPENSE
Interest expense increased $6.5 million, or 69.2%, for the three months
ended June 30, 2000 as compared to the three months ended June 30, 1999. The
increase is due to $611.6 million of debt incurred in connection with the
acquisitions by ACS Group on May 14, 1999 of substantially all of its
operations.
INCOME TAXES
ACS Group has fully reserved the income tax benefit resulting from the
consolidated losses incurred since May 14, 1999 - the date of the acquisition of
substantially all of its operations. Income taxes reflected in the combined
financial statements are substantially those of the predecessor entities.
NET INCOME (LOSS)
The decrease in the net loss is primarily a result of the factors
discussed above.
14
<PAGE> 15
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
OPERATING REVENUES
Operating revenues increased $13.9 million, or 9.6% for the six months
ended June 30, 2000 compared to the six months ended June 30, 1999. Local
telephone, cellular and interexchange network, data services and other revenues
all increased compared to the prior six month period.
Local Telephone
Local telephone revenues, which consist of local network service, network
access revenue, directory advertising and deregulated and other revenues,
increased $9.8 million, or 8.1%, for the six months ended June 30, 2000 compared
to the same period in 1999.
The local service revenue component of local telephone revenues was $48.6
million during 2000 compared with $47.2 million during 1999 -- an increase of
$1.4 million or 2.9% over the prior year. This increase corresponds with the
growth in average total access lines in service of 5.2% and increased
penetration of enhanced features and was partially offset by increased market
penetration of lower margin wholesale lines in Anchorage. Although there can be
no assurances, management believes that retail line losses to competition will
not be significant in the future due to marketing efforts and re-negotiation of
interconnection rates currently scheduled or in progress.
Network access revenues increased by $6.6 million, or 12.9%, from $51.4
million in 1999 to $58.0 million in 2000. Network access revenues are based on a
regulated return on rate base and recovery of allowable expenses associated with
the origination and termination of toll calls. The increase in telephone access
revenues over the corresponding quarter of 1999 is due primarily to changes
relating to cost allocation factors, rate base and expenses from period to
period. Management expects that access revenues will grow at a lesser rate than
access line growth for the foreseeable future.
Directory advertising revenues increased by $1.2 million, or 8.8%, from
$13.6 million in 1999 to $14.9 million in 2000. This growth corresponds with the
growth in average access lines in service during 2000 over 1999 from 311,781
during 1999 to 327,914 during 2000, or an increase of 5.2%, combined with
additional penetration for the current directory phone book cycle.
Deregulated and other revenues, which grew $0.7 million, or 7.0% over
1999, consists principally of billing and collection services, space and power
rents, deregulated equipment sales, paystation revenues and other miscellaneous
telephone revenues. The revenue increase was due principally to increased
deregulated equipment sales in 2000.
Cellular
Cellular revenues increased $2.9 million, or 18.6%, to $18.7 million for
the six months ended June 30, 2000 compared to $15.8 million for the six months
ended June 30, 1999. This growth in revenue is due to growth in average cellular
subscribers to 73,331 during the quarter ended June 30, 2000 from 68,077 during
1999, or 7.7%, and an increase in average revenue per unit from $38.61 in 1999
to $42.52 in 2000. The increase in average revenue per unit is due to the
introduction of new statewide and national pricing programs and the initial
benefits of the digital upgrade completed in the first quarter of 2000.
Interexchange Network, Data Services and Other
Interexchange network, data services and other revenues include
principally long distance, data transmission and Internet services revenues.
These revenues increased from $7.7 million in 1999 to $8.8 million in 2000 -- an
increase of $1.1 million, or 14.6%. Long distance revenues increased from $5.1
million in 1999 to $5.5 million in 2000 due to increases in long distance
minutes of use from 34.2 million to 38.0 million and increases in circuit rent
revenues.
15
<PAGE> 16
OPERATING EXPENSES
Operating expenses increased $7.2 million, or 5.6%, from $128.6 million
for the six months ended June 30, 1999 to $135.8 million for the six months
ended June 30, 2000. Operating expenses were 85.4% of revenues for the six
months ended June 30, 2000 compared to 88.7% of revenues for the six months
ended June 30, 1999.
Local Telephone
The components of local telephone expense are plant specific operations,
plant non-specific operations, customer operations, corporate operations and
property and other operating tax expense. Depreciation and amortization
associated with the operation of the local telephone segment is included in
total depreciation and amortization. Local telephone expenses were consistent in
1999 and 2000 at $75.9 million. As a percentage of revenue, local telephone
expense decreased from 62.4% for 1999 to 57.7% for 2000.
Cellular
Cellular expenses increased $0.5 million, or 4.7%, for the six months
ended June 30, 2000 compared to the six months ended June 30, 1999. Cellular
expense was 71.3% of cellular revenues for 1999 and 62.9% of cellular revenues
for 2000. Management expects that cellular expenses as a percentage of cellular
revenue will continue to decline as cellular penetration and subscribers
increase over time.
Interexchange Network, Data Services and Other
Interexchange network, data services and other expenses increased by $3.2
million, or 31.7%, and increased as a percentage of revenue from 132.9% in 1999
to 152.7% in 2000. The increase in interexchange network, data services and
other was the result of additional circuit and other costs associated with
developing the Company's statewide network and Internet infrastructure, the
rollout of ADSL internet service and increases in minutes of use for long
distance as discussed above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $3.4 million, or 10.9%,
due principally to increases in plant in service for the six months ended June
30, 2000 over the corresponding period of 1999.
INTEREST EXPENSE
Interest expense increased $19.5 million, or 157.2%, for the six months
ended June 30, 2000 as compared to the six months ended June 30, 1999. This
increase is due to $611.6 million of debt incurred by ACS Group in connection
with the acquisitions on May 14, 1999 of substantially all of its operations.
INCOME TAXES
ACS Group has fully reserved the income tax benefit resulting from the
consolidated losses it has incurred since May 14, 1999 - the date of the
acquisition of substantially all of its operations. Income taxes reflected in
the combined financial statements are substantially those of the predecessor
entities.
NET INCOME
The decrease in net income is primarily a result of the factors discussed
above and, in particular, the increase in interest expense of $19.5 million as a
result of the financing of the acquisitions.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
ACS Group has satisfied its operational and capital cash requirements
primarily through internally generated funds, the sale of stock and debt
financing. At June 30, 2000, the Company had approximately $85.0 million in
working capital, including approximately $80.0 million in cash and cash
equivalents. As of June 30, 2000 the Company had $75.0 million of remaining
capacity under its revolving credit facility, representing 100% of available
capacity.
The Company has a $435.0 million credit agreement ("senior credit
facility"), $150.0 million in senior subordinated notes and $17.3 million in
senior discount debentures representing substantially all of the Company's
long-term debt. As of June 30, 2000 the Company had $616.7 million of long-term
debt. Interest on ACS Group's senior discount debentures and the senior
subordinated notes is payable semiannually. Interest on borrowings under the
senior credit facility is payable monthly, quarterly or semi-annually at the
Company's option, and the senior credit facility requires annual principal
payments commencing on May 14, 2002.
The Company employs an interest rate hedge transaction which fixed at
5.99% the underlying variable rate, which is based on the three-month London
Interbank Offer Rate ("LIBOR"), on one-half of the borrowings under the senior
credit facility, or $217.5 million, expiring in June 2002.
The local telephone network requires the timely maintenance of plant and
infrastructure. ACS Group's local network is of high quality and is technically
advanced and will have relatively predictable annual capital needs. The
Company's historical capital expenditures have been significant. The
construction and geographic expansion of ACS Group's cellular network required a
substantial amount of capital. The implementation of the Company's interexchange
network and data services strategy is also capital intensive. The Company
recently purchased fiber capacity for $19.5 million, which was funded with
monies borrowed to finance the acquisition of substantially all of its
operations. The Company also has agreed to purchase additional fiber capacity
for $19.5 million in the first quarter of 2001. ACS Group has revised its
anticipated total capital expenditures to approximately $65.0 million in 2000
from previous expectations of $92.0 million. The capital program reductions were
achieved primarily due to deployment of the ATM network, DSL lines and wireless
local loop solutions, all of which reduced previously anticipated capital
requirements, combined with the re-engineering of the predecessor companies'
practices. Capital expenditures for the first six months of 2000 were $31.5
million, including a $2.9 million capital lease. The Company intends to fund its
capital expenditures through internally generated cash flows, a portion of the
net proceeds from the recent public offering and if necessary, through
additional borrowings under the revolving credit facility.
ACS Group's capital requirements may change, however, due to, among other
things: the Company's decision to pursue specific acquisition opportunities,
changes in technology, the effects of competition or changes in the Company's
business strategy. ACS Group's ability to satisfy its capital requirements will
be dependent upon its future financial performance, which is, in turn, subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.
The Company has entered into a Definitive Agreement to acquire Matanuska
Telephone Association, Inc. ("MTA") for $187.5 million in cash, which will be
financed with proceeds from the initial public offering completed by the Company
last year and by an existing supplement to bank term loans provided by a
consortium led by Chase Manhattan Bank. The acquisition of MTA is expected to
close in the first quarter of 2001, contingent upon receiving an affirmative
vote of its membership and regulatory approval.
On September 30, 1999, the Company acquired an additional one-third
interest in Alaskan Choice Television (now ACSTV) for $1.9 million, increasing
its ownership to a two-thirds majority interest. On October 6, 1999, the Company
entered into an agreement to acquire the remaining one-third interest and on
February 14, 2000, the Company completed the acquisition of the remaining
one-third interest in ACSTV for $3.0 million.
17
<PAGE> 18
On June 16, 2000, ACS Group acquired all outstanding shares of IAI, an
Internet service provider with over 25,000 customers in Alaska. The acquisition
was funded entirely with cash on hand.
ACS Group believes that it will have sufficient working capital provided
by operations and available borrowing capacity under the existing revolving
credit facility to fund its operations and capital expenditures over the next 12
months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has issued senior discount debentures, senior subordinated
notes and has entered into a bank credit facility. These on-balance sheet
financial instruments, to the extent they provide for variable rates of
interest, expose the Company to interest rate risk, with the primary interest
rate risk exposure resulting from changes in LIBOR or the prime rate, which are
used to determine the interest rates that are applicable to borrowings under the
Company's bank credit facilities. The Company uses off-balance sheet derivative
financial instruments, in particular an interest rate swap agreement, to
partially hedge variable interest transactions. The Company's derivative
financial instrument transaction has been entered into for non-trading purposes.
The terms and characteristics of the derivative financial instruments are
matched with the underlying on-balance sheet instrument or anticipated
transactions and do not constitute speculative or leveraged positions
independent of these exposures. There have been no material changes to the
Company's outstanding debt instruments since December 31, 1999.
18
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or cash flows.
The Company's incumbent local exchange carriers (ILECS) in the Anchorage,
Fairbanks, and Juneau markets have received additional requests for
interconnection under section 251 of the Telecommunications Act of 1996 ("1996
Act"), as well as requests for arbitration or to "pick and choose" provisions of
existing interconnection agreements under section 252 of the 1996 Act. The
Company expects that additional such requests will be received over time in the
future as additional entities seek to enter these markets.
On July 18, 2000, the United States Court of Appeals for the Eighth
Circuit filed an opinion in the matter of Iowa Utilities Board, et al. v.
Federal Communications Commission (Case No. 96-3321 and consolidated cases)
("Iowa II"). This case, on remand from the Supreme Court of the United States,
addressed among other matters the merits of the FCC's forward-looking pricing
methodology, proxy prices, wholesale pricing provisions, rural exemption rules
and rules pertaining to pre-existing agreements, which rules were promulgated by
the FCC under the 1996 Act.
In part, the Iowa II opinion approved the use of a forward-looking cost
methodology but disapproved the use of costs based upon hypothetical least
cost/most efficient technology in lieu of the cost of providing the actual
facilities and equipment to be used by an interconnecting competitor. The
opinion also found that "cost" need not be defined in terms of historical cost,
but rather could properly be established on the basis of current and anticipated
costs. Further, the opinion determined that the FCC's rules pertaining to the
rural exemption under the 1996 Act (47 U.S.C. Section 251(f)(1)) and concerning
the burden of proof in terminating that exemption, the interpretation of undue
economic harm under that section of the statute, and concerning the tests to be
applied in reviewing a rural exemption, were each contrary to the statute.
Additionally, the opinion determined that establishment of a proper wholesale
discount for resale under section 251(d)(3) of the 1996 Act (47 U.S.C. Section
251(d)(3)) properly included only the costs actually avoided by the incumbent
local exchange carrier in providing such service, rather than costs which might
be avoided or were avoidable. The opinion addressed numerous other matters.
No mandate has yet issued from the Circuit Court. The FCC has publicly
indicated an intention to review the rules vacated and remanded by the Circuit
Court, but has established no process or timetable for doing so. Further review
of the Iowa II opinion is possible, either by the full Eighth Circuit or by the
Supreme Court of the United States. The Company, as previously reported, has
multiple on-going interconnection negotiations, arbitrations, or related
interconnection proceedings under the 1996 Act. Additionally, and also as
previously reported, the Company is currently pursuing certain state court
appeals of prior orders of the Regulatory Commission of Alaska ("RCA"), which
appeals in part address matters concerning the termination of the rural
exemption in serving areas comprehending Fairbanks and Juneau, Alaska. The
Company is reviewing the Iowa II opinion, but cannot predict at present what, if
any, effects that opinion may have on its current regulatory and judicial
proceedings.
The litigation initiated by ALLTEL Publishing Corporation, which was
disclosed in the Company's filing for the first quarter of 2000, is still
pending. The trial date has been scheduled for January 22, 2001 and the parties
are proceeding with discovery. While the outcome of this matter cannot be
predicted with certainty, management does not anticipate such outcome to result
in a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
19
<PAGE> 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During 1999 ACS Group offered to the public 10,000,000 shares of its
common stock. The effective date of the Company's registration statement (File
#333-88753) filed on Form S-1 under the Securities Act of 1933, as amended,
relating to ACS Group's initial public offering of common stock was November 17,
1999. Goldman, Sachs & Co., Donaldson, Lufkin and Jenrette, CIBC World Markets,
Deutsche Banc Alex. Brown and Hambrecht & Quist led the underwriting syndicate.
The offering commenced on November 18, 1999 and closed on November 23, 1999,
resulting in aggregate proceeds of $140.0 million. ACS Group's net proceeds from
the offering were $127.9 million. Approximately $9.1 million of offering
expenses was attributable to underwriting discounts. As of August 1, 2000, $10.6
million of the proceeds was used to retire 35% of the Company's senior discount
debentures, including a $1.3 million premium for early retirement, $25.0 million
was used to repay outstanding obligations under the Company's senior revolving
credit facility and $12.7 million was used to fund capital expenditures and
operations. Unused proceeds of the offering are invested in institutional money
market funds and investment grade corporate and U.S. Government securities. ACS
Group currently intends to use the remaining proceeds to fund capital
expenditures and the MTA acquisition (in combination with additional bank debt),
which is expected to close in the first quarter of 2001, subject to an
affirmative vote of its membership and regulatory approval.
On December 3, 1999 the Company registered 6,021,489 shares under various
employee and non-employee stock option plans and an employee stock purchase plan
(File # 333-92091) on Form S-8 under the Securities Act of 1933. As of August 1,
2000 3,733,219 option grants are outstanding under these plans and 309,103
options have been exercised and converted into shares of the Company's common
stock. The proceeds of $1.7 million from these plans was used to fund capital
expenditures and operations. See Note 2, "Stock Incentive Plans" to the Alaska
Communications Systems Group, Inc. Consolidated Financial Statements for further
discussion.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
The Company held its Annual Meeting of Shareholders on May 11, 2000. The
following matters were considered:
1. All board nominees were elected as directors with the following
vote:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Charles E. Robinson 31,724,605 145,021
W. Dexter Paine, III 31,557,405 312,221
Saul A. Fox 31,725,405 144,221
Carl H. Marrs 31,726,405 143,221
Byron I. Mallott 31,725,805 143,821
Wray T. Thorn 31,724,605 145,021
</TABLE>
2. Deloitte & Touche LLP was ratified as the Company's independent
auditors for the year ended December 31, 2000 with the following
vote:
<TABLE>
<CAPTION>
<S> <C>
For 31,827,095
Against 40,110
Abstain 2,421
Other Unvoted 1,720,998
</TABLE>
ITEM 5. OTHER INFORMATION.
NONE.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K:
The following item was reported on Form 8-K, filed May 23, 2000:
Item 5 Other Events - Company press release announcing entering into a
definitive agreement to acquire Matanuska Telephone Association, Inc.
The following item was reported on Form 8-K, filed June 15, 2000:
Item 5 Other Events - Company press release announcing execution of a
stock purchase agreement with Internet Alaska, Inc. and each of its shareholders
to purchase one hundred percent of the issued and outstanding stock of Internet
Alaska, Inc.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: August 2, 2000 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
/s/ Michael E. Holmstrom
-------------------------------------
Michael E. Holmstrom
Senior Vice President and
Chief Financial Officer
(signing both in his capacity as
Senior Vice President on behalf of
the Registrant and as Chief Financial
Officer of the Registrant)
22
