EX-99.1 2 a4753597ex99.txt EXHIBIT 99.1 EARNINGS PRESS RELEASE Exhibit 99.1 Alaska Communications Initiates Dividend Program, Withdraws IDS Filing and Reports Third Quarter Results ANCHORAGE, Alaska--(BUSINESS WIRE)--Oct. 28, 2004--Alaska Communications Systems Group, Inc. (NASDAQ:ALSK) -- Fourth Consecutive Quarter of Record Wireless Growth - -- Net Cash Provided by Operating Activities of $15.5 Million - Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ:ALSK) today reported financial results for its third quarter ended September 30, 2004. In addition, the company today separately announced the initiation of a quarterly cash dividend and the withdrawal of its registration statements previously filed with the Securities and Exchange Commission (SEC) for an initial public offering of Income Deposit Securities (IDS). "Over the past year, we have transformed ACS into a truly customer-focused company," stated Liane Pelletier, ACS president and chief executive officer. "We have been implementing growth strategies that capitalize on our outstanding position as the only state-wide integrated service provider in Alaska that owns local and long distance, Internet and wireless facilities. Our success is evident from our results, including posting our fourth consecutive quarter of record wireless subscriber growth, bringing our total to over 95,500 wireless subscribers, and increasing our total retail relationships growth rate for all of our products by 193 percent, or an increase of over 4,100 relationships, versus last quarter. We are committed to continuing to post strong market results, achieving operational improvements and driving total shareholder returns. As a result, today we announce an annual dividend program for holders of our common stock." Dividend Program Subsequent to the end of the third quarter, the company initiated its first quarterly cash dividend of $0.185 per share, which is equivalent to an annual rate of $0.74 per share. The first quarterly cash dividend of $0.185 per share is payable on January 19, 2005 to stockholders of record at the close of business on December 31, 2004. Financial Highlights For the third quarter ending September 30, 2004, revenues were $76.6 million, which represented a 4.6 percent increase over third quarter 2003 revenues of $73.2 million, adjusted to exclude revenues from the discontinued State of Alaska contract. Including the state of Alaska contract revenues, reported revenues for the third quarter of 2003 were $78.2 million. Wireless contributed significantly to revenue growth as wireless revenue rose to $16.2 million this quarter compared to $12.6 million a year ago. Notably, this total revenue growth was achieved while the overall U.S. telecom industry experienced local telephone line migration to cable telephony and ACS experienced seasonal factors common for Alaska, which combined contributed to a 1.8 percent sequential decrease in access lines. Also during the third quarter 2004 compared to third quarter 2003: -- Net loss declined to $16.2 million from $75.6 million and to a loss of $0.55 per share from $2.54 per share, respectively; -- Adjusted EBITDA was $21.6 million, which included $5.3 million of charges incurred as the result of a thorough balance sheet review and a detailed analysis of opportunities to enhance long-term cash generation, and $490,000 of increased legal expenses associated with the Turner case. This amount compares to $16.4 million for the third quarter of 2003; -- Interest expense declined to $11.7 million from $22.6 million due to the early extinguishment of debt during the third quarter of 2003; -- Generated strong cash flows from operations, providing $15.5 million of funding for maintenance capital expenditures and shareholder returns; -- Free cash flow was $5.7 million adjusted for pre-funded growth capital expenditure projects; and -- Closed the quarter with a cash balance of $79.7 million. Pelletier added, "Our goal is to capitalize on our strong market position and comprehensive product line by strengthening the relationship with our target customers. For example, we have built competitive advantages in our wireless offering by being first-to-market with exciting new products like picture phones, PDAs and personal computer air cards, in addition to being the only provider of new EV-DO wireless data services with the highest available mobile speeds. Wireless has emerged as a very compelling door opener, which provides our cross-trained sales representatives the opportunity to introduce our full product portfolio. With our one-stop telecommunications shop and integrated approach to solving customer needs, we believe we will grow our share of wallet and create a loyal customer base." Metric Highlights: Third Quarter 2004 Compared to Second Quarter 2004 -- Increased total number of retail customer relationships across all product lines by 4,100, to over 388,000 total, a net addition growth rate of 193 percent. -- Continued to significantly benefit from the introduction of wireless number portability as 3 out of 4 customers ported their numbers to ACS. -- Added over 4,400 wireless subscribers, growing 4.9 percent and bringing the total to over 95,500 wireless subscribers. Churn remained constant at 1.7 percent. -- Improved wireless average revenue per unit (ARPU) to $47.43, and minutes of use (MOU) increased by 7.7 percent to approximately 74 million minutes. During the quarter we changed the methodology of calculating ARPU to exclude equipment sales and roaming revenue from non-ACS subscribers. -- Increased digital subscriber lines (DSL) 7.8 percent to approximately 22,600. -- Increased long distance subscribers by 1,681 to 44,334 customers, a 3.9 percent increase, principally as a result of a focused selling effort and the bundling of the long distance product with other ACS services. -- Access lines, excluding the impact of a change in line counting methodology, which decreased by approximately 5,600 lines, or 1.8 percent, were offset in part by higher quality of retail line installs which carry ARPUs that are on average 11 percent higher. Financial Review "Since I joined ACS in March, my financial team and I have conducted a systematic analysis focusing on improving cash flow performance and critically assessing the carrying values on our balance sheet," said David Wilson, ACS senior vice president and chief financial officer. "We are committed to maximizing shareholder value and aggressively pursuing opportunities to improve cash generation. Our efforts are decisive when evaluating all aspects of our financial statements, and this quarter we incurred a number of charges as a result. We have also completed our comprehensive balance sheet review and have implemented improvements to effectively give the company a clean start. In short, ACS now has a focused strategy, clear customer focus and a strong balance sheet to support these initiatives." During the third quarter, ACS identified areas of financial management improvement, which resulted in (A) one-time charges of $3.6 million and (B) other charges of $5.3 million that are summarized below. (A) One-time Charges: -- Recognized one-time early termination charge of $2.8 million on an aircraft-operating lease. The termination of the lease is expected to save the company approximately $1.0 million per year. -- Recognized a one-time non-recurring charge of $750,000 for a capped commitment to cover cost overruns incurred by Neptune with the Alaska Rail Road. (B) Other Charges: -- Wrote off $2.6 million of obsolete inventory, a major component of which was acquired in 1999. -- Recorded $770,000 in cellular access charges concerning a reciprocal compensation dispute with Dobson Communication. -- Wrote down the value of various long-standing assets for reimbursable expenses and vendor credits by $710,000. -- Increased legal reserves for various open disputes by $570,000. -- Reserved for a vacated lease on a sales office of $200,000 following the consolidation of office premises. -- Reversed $420,000 of previously recognized pay station dial around revenue following receipt of notice from a clearinghouse that AT&T had previously over funded the shared revenue pool. Recent Business Highlights -- In July, the Regulatory Commission of Alaska (RCA) granted competitive eligible telecommunications carrier (CETC) status to ACS for its wireless services in the Matanuska Telephone Association and ACS of Fairbanks study areas. This will enable ACS to receive Universal Service Funds for serving these areas. -- In August, building on its "Mobile to Mobile" offering, ACS launched its innovative wireless ''Mobile to Home'' calling feature, which allows wireless customers to enjoy unlimited calling between their wireless phone and their home telephone number, and vice versa. As the first provider in Alaska with this feature, ACS is increasing customer convenience and providing a valuable solution for keeping in touch. -- In September, the RCA confirmed that its 24.7 percent increase in UNE-L monthly rates for the Anchorage market from $14.92 to $18.64 was final and effective from June 25, 2004. This change was reflected in third quarter revenue. On October 27, ACS and GCI executed and filed with the RCA a final 5 year interconnect agreement for Anchorage resolving all outstanding issues. -- In October, ACS executed a settlement agreement in the case of Turner et al. v. ACS Long Distance, Inc. and ACS Group, which proposes class members will receive coupons for any ACS wireline, wireless or data service, as well as ACS-LD interstate residential long distance minutes. These benefits are available only to ACS customers. On October 27, the court granted preliminary approval of the Turner settlement and final approval is expected in February 2005. Business Outlook ACS currently expects revenue for the fourth quarter of 2004 to be in the range of $76 to $78 million. EBITDA is expected to be in the range of $26 to $27 million, exclusive of charges incurred following the withdrawal of our IDS filing. For 2005, ACS expects revenue to be in the range of $310 to $320 million and EBITDA to be in the range of $108 to $112 million. Pelletier concluded, "Our renewed devotion to customers combined with our diligent strategy execution is bearing fruit. Revenue growth is strong, and from a services and product standpoint, the platform we are building will be meaningful in our fourth quarter and next year. Although the industry is being impacted by the introduction of cable telephony, our momentum is building as we focus on our differentiators, achieve synergies, drive out costs and improve productivity." Conference Call The company will host a conference call and live webcast today at 5:00 p.m. Eastern Time to discuss third quarter results and the initiation of the dividend program. For parties in the United States and Canada, call 800-366-3908 to access the earnings call. International parties can access the call at 303-262-2130. The live webcast of the conference call is accessible from the "Investor Relations" 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 2 hours after the call and will run until Saturday, October 30, 2004 at 12:00 midnight ET. To hear the replay, parties in the United States and Canada should call 800-405-2236 and enter pass code 11011345. International parties should call 303-590-3000 and enter pass code 11011345. About Alaska Communications Systems ACS is the leading integrated communications provider in Alaska, offering local telephone service, wireless, long distance, data, and Internet services to business and residential customers throughout Alaska. More information can be found on the company's website at www.acsalaska.com or at our investor site at www.alsk.com. Safe Harbor Statement Statements about future results and other expectations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. A number of factors in addition to those discussed herein could cause actual results to differ materially from expectations. The company's financial planning is affected by business and economic conditions and changes in customer order patterns. Any projections are inherently subject to significant economic and competitive uncertainties and contingencies, many of which are beyond the control of ACS. Important assumptions and other important factors, including risk factors, which could cause actual results to differ materially from those in the forward-looking statements, are specified in the company's Form 10-K for the year ended December 31, 2003 and other filings with the SEC. The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Schedule 1 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER FINANCIAL DATA (Unaudited, in Thousands, Except per Share Amounts) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Operating revenues: Local telephone $51,246 $53,261 $159,976 $162,472 Wireless 16,204 12,591 41,266 34,868 Directory - - - 11,631 Internet 5,295 8,223 15,013 24,416 Interexchange 3,878 4,147 11,077 12,623 --------- --------- --------- --------- Total operating revenues 76,623 78,222 227,332 246,010 Operating expenses: Local telephone 35,170 30,160 96,806 84,267 Wireless 10,970 7,545 27,229 21,796 Directory - - - 5,249 Internet 7,291 11,730 21,204 35,829 Interexchange 5,637 6,056 15,511 17,886 Unusual charges - 54,539 - 54,539 Depreciation and amortization 19,770 22,044 57,686 66,735 Loss (Gain) on disposal of assets, net 2,600 (15,968) 2,825 (112,507) --------- --------- --------- --------- Total operating expenses 81,438 116,106 221,261 173,794 --------- --------- --------- --------- Operating income (4,815) (37,884) 6,071 72,216 Other income and expense: Interest expense (11,665) (22,586) (38,914) (51,478) Interest income and other 239 (15,100) 614 (10,121) --------- --------- --------- --------- Total other income (expense) (11,426) (37,686) (38,300) (61,599) --------- --------- --------- --------- Income (Loss) before income taxes (16,241) (75,570) (32,229) 10,617 Income taxes 1 - 1 - --------- --------- --------- --------- Income (Loss) from continuing operations (16,242) (75,570) (32,230) 10,617 Loss from discontinued operations, net of tax - - - (52) --------- --------- --------- --------- Net loss $(16,242) $(75,570) $(32,230) $10,565 ========= ========= ========= ========= Net income (loss) per share - basic and diluted: Income (Loss) from continuing operations (0.55) (2.54) (1.10) 0.35 Loss from discontinued operations, net of tax - - - (0.00) --------- --------- --------- --------- Net income (loss) $(0.55) $(2.54) $(1.10) $0.35 ========= ========= ========= ========= Weighted average shares outstanding: Basic and diluted 29,384 29,786 29,418 30,165 ========= ========= ========= ========= Adjusted EBITDA $21,634 $16,371 $71,051 $68,820 ========= ========= ========= ========= Note: Certain reclassifications have been made to the 2003 data to conform with the current presentation. Schedule 2 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts) September 30, December 31, Assets 2004 2003 ---------- ---------- Current assets: Cash and cash equivalents $79,689 $97,798 Restricted cash 4,690 3,635 Accounts receivable-trade, net of allowance of 4,005 and 4,432 38,233 41,718 Materials and supplies 7,051 10,099 Prepayments and other current assets 7,287 5,850 ---------- ---------- Total current assets 136,950 159,100 Property, plant and equipment 1,058,889 1,041,904 Less: Accumulated depreciation and amortization 640,110 603,760 ---------- ---------- Property, plant and equipment, net 418,779 438,144 Goodwill 38,403 38,403 Intangible Assets 21,917 22,055 Debt issuance costs, net of amortization of 7,356 and 5,417 16,428 18,939 Deferred charges and other assets 9,195 8,750 ---------- ---------- Total assets $641,672 $685,391 ========== ========== Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $2,294 $1,982 Accounts payable-affiliates 3,611 5,082 Accounts payable, accrued and other current liabilities 49,211 47,303 Income taxes payable (26) 1,095 Advance billings and customer deposits 8,678 8,766 ---------- ---------- Total current liabilities 63,768 64,228 Long-term obligations, net of current portion 530,970 548,238 Other deferred credits and long-term liabilities 75,560 71,065 Stockholders' equity (deficit): Preferred stock, no par, 5,000 authorized, no shares issued and outstanding - - Common stock, .01 par value; 145,000 shares authorized, 33,936 and 33,611 shares issued and 29,387 and 29,343 outstanding, respectively 339 336 Common stock, .01 par value; 267 shares subject to mandatory redemption - (1,198) Treasury stock, 4,549 and 4,268 shares, respectively, at cost (18,443) (17,118) Paid in capital in excess of par value 280,049 278,181 Accumulated deficit (286,028) (253,798) Accumulated other comprehensive loss (4,543) (4,543) ---------- ---------- Total stockholders' equity (deficit) (28,626) 1,860 ---------- ---------- Total liabilities and stockholders' equity (deficit) $641,672 $685,391 ========== ========== Schedule 3 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF ADJUSTED REVENUES (Unaudited, in Thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 2004 2003 2004 2003 -------- --------- ---------- --------- Total operating revenues $76,623 $78,222 $227,332 $246,010 Adjustment for sale of the Company's directory business - Directory revenues - - - (11,631) -------- --------- ---------- --------- Total adjusted operating revenues $76,623 $78,222 $227,332 $234,379 ======== ========= ========== ========= Note: In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management utilizes to assess performance. Within this press release, the Company has disclosed its total operating revenues adjusted to exclude the impact of disposed of operations (Total adjusted operating revenues) as the Company believes that such data will facilitate more useful period-to-period comparisons of the Company's ongoing operations. Schedule 4 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF LOCAL TELEPHONE REVENUES (Unaudited, in Thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2004 2003 2004 2003 --------- -------- --------- --------- Local telephone revenues: Local network service $23,224 $24,022 $68,972 $73,370 Network access revenue 23,128 23,750 75,362 73,951 Deregulated and other 4,894 5,489 15,642 15,151 --------- -------- --------- --------- Local telephone revenues $51,246 $53,261 $159,976 $162,472 ========= ======== ========= ========= Schedule 5 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF ADJUSTED EBITDA CALCULATION (Unaudited, in Thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Net income (loss) $(16,242) $(75,570) $(32,230) $10,565 Add (subtract): Interest expense 11,718 22,586 39,054 51,478 Income tax benefit 1 - 1 - Depreciation and amortization 19,770 22,044 57,686 66,735 (Gain) Loss on disposal of assets, net 2,600 (15,968) 2,825 (112,507) Gain on Foreign Exchange - (157) - (4,261) Impairment charges related to SOA - 63,759 - 63,759 Non-cash pension expense 183 - 549 - Non-cash adjustment to litigation reserves - - (438) - --------- --------- --------- --------- EBITDA 18,030 16,694 67,447 75,769 Adjustment for discontinued operations - - - 52 Adjustment for the termination of airplane lease 2,854 - 2,854 - Adjustment for Neptune capped commitment 750 - 750 - Adjustment for sale of the Company's directory business - Directory EBITDA - (323) - (7,001) --------- --------- --------- --------- Adjusted EBITDA $21,634 $16,371 $71,051 $68,820 ========= ========= ========= ========= Note: In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. Within this press release, the Company has disclosed its net gain before interest expense, provisions for taxes, depreciation expense, amortization expense and other non-cash charges inclusive of non cash pension expense and a non cash release of litigation reserves following legal settlement (EBITDA) because the Company believes it is an important indicator because it provides information about our ability to service debt, pay dividends and fund capital expenditures. To further assist the reader in understanding operations, EBITDA has also been adjusted to exclude the impact of discontinued and disposed of operations (Adjusted EBITDA) as the Company believes that such data will facilitate more useful period-to-period comparisons of the Company's ongoing operations. EBITDA and adjusted EBITDA are not GAAP measures and should not be considered a substitute for net income and loss and other measures of financial performance recorded in accordance with GAAP. Schedule 6A ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited) September 30, June 30, September 30, ------------- -------- ------------- 2004 2004 2003 ------------- -------- ------------- Local telephone: Retail access lines (1) 209,414 212,487 221,956 Wholesale access lines 17,498 21,310 18,803 UNE loop lines 68,522 68,662 67,542 UNE platform lines 6,250 4,814 4,899 ------------- -------- ------------- Total local telephone access lines 301,684 307,273 313,200 ============= ======== ============= Average local telephone access lines for the quarter 304,479 308,202 314,320 Average local telephone revenue per line for the quarter $56.10 $57.27 $25.48 Quarterly growth rate in local telephone access lines -1.8% -0.6% -0.7% Wireless Covered population 480,422 480,422 478,413 Ending subscribers 95,529 91,083 83,993 Average subscribers for the quarter 93,306 89,537 83,444 Quarterly growth rate 4.9% 3.5% 1.3% Activations for the quarter 9,219 8,054 6,010 Deactivations for the quarter 4,773 4,962 4,911 Average monthly churn for the quarter 1.7% 1.7% 1.9% Penetration 19.9% 19.0% 17.6% Quarterly Minutes of use (000's) 73,983 68,708 64,033 Average revenue per subscriber for the quarter(2) $47.43 $44.59 $43.47 Long Distance: Long distance subscribers 44,334 42,653 43,499 Quarterly Minutes of use (000's) 36,614 33,119 38,954 Average subscribers for the quarter 43,494 42,353 43,894 Average revenue per subscriber for the quarter $29.70 $29.83 $31.49 Internet: DSL subscribers 22,592 20,963 16,294 Dial-Up and other service subscribers 23,699 24,215 29,057 ------------- -------- ------------- Total Internet subscribers 46,291 45,178 45,351 ============= ======== ============= Average subscribers for the quarter 45,735 45,432 44,978 Average DSL & dial up revenue per subscriber for the quarter(3) $28.98 $29.32 $28.74 (1) Prior period retail access lines impacted by change in line count methodology. (2) Wireless ARPU has been restated to better reflect ongoing revenue derived from ACS's wireless customers. The restated ARPU excludes equipment sales, foreign roaming (non-ACS customers roaming on ACS's network) and access termination revenue. Previously, wireless ARPU was based on all wireless revenues, including those that were not derived from ACS's customer base. (3) Internet ARPU has been restated to include only DSL and dial-up revenues. Previously, internet ARPU included all internet revenues; however, the customer base included only DSL and dial-up subscribers. The restated ARPU provides consistency between revenues and customer counts. Schedule 6B ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited) September 30, June 30, Net 2004 2004 Movement ------------- ----------- ------------ Local telephone retail access lines(1) 209,414 212,487 (3,073) Wireless subscribers 95,529 91,083 Less adjustment for resellers (6,655) (6,635) ------------- ----------- 88,874 84,448 4,426 ------------- ----------- Long distance subscribers 44,334 42,653 1,681 DSL and dial up subscribers 46,291 45,178 1,113 ------------- ----------- ------------ 388,913 384,766 4,147 ============= =========== ============ (1) Prior period retail access lines impacted by change in line count methodology Schedule 7 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF FREE CASHFLOWS (Unaudited, in Thousands) Three Three Three Nine Months Months Months Months Ended Ended Ended Ended March 31, June 30, September 30, September 30, --------- --------- ------------ ------------- 2004 2004 2004 2004 --------- --------- ------------ ------------- Net cash provided by operating activities $5,674 $17,460 $15,460 $38,594 Total construction and capital expenditures (10,311) (10,718) (16,915) (37,944) --------- --------- ------------ ------------- Free Cashflow (4,637) 6,742 (1,455) 650 CDMA Growth & Neptune optical fiber capacity 2,050 3,573 7,155 12,778 --------- --------- ------------ ------------- Adjusted free cashflow $(2,587) $10,315 $5,700 $13,428 ========= ========= ============ ============= Note: In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. Within this press release, the Company has disclosed net cashflow provided by operations net of total construction and capital expenditures (free cashflow) and free cashflow adjusted for growth capital investments in CDMA wireless technology and Neptune optical fiber capacity, which the company plans to fund from existing cash reserves (Adjusted free cashflow). The Company believes it is an important indicator because it provides information about our ability to service debt and pay dividends. Free cashflow and adjusted free cashflow are not GAAP measures and should not be considered a substitute for increase (decrease) in cash and other measures of financial performance recorded in accordance with GAAP. CONTACT: Alaska Communications Systems Mary Ann Pease, 907-297-3000 mpease@acsalaska.com or ACS Investors: Lippert/Heilshorn & Associates Kirsten Chapman / David Barnard, CFA, 415-433-3777 david@lhai-sf.com