EX-99.1 2 a5087431ex991.txt ALASKA COMMUNICATIONS SYSTEMS, EX. 99.1 Exhibit 99.1 Alaska Communications Systems Reports Fourth Quarter and Year-End 2005 Results ANCHORAGE, Alaska--(BUSINESS WIRE)--Feb. 23, 2006--Alaska Communications Systems Group, Inc. (NASDAQ:ALSK): -- Revenues Increase 9.8% to $82.5 Million from $75.1 Million in Fourth Quarter 2004 -- Net Cash Provided by Operating Activities Increases 27.3% to $24.3 Million -- EBITDA Increases to $26.7 Million, Up 8.0% Compared to Fourth Quarter 2004 -- Announces 7.5% Increase in Dividend Alaska Communications Systems Group, Inc. ("ACS") (NASDAQ:ALSK) today reported financial results for its fourth quarter and year ended December 31, 2005. In a separate release, today ACS announced a 7.5 percent increase in its dividend policy, increasing the planned annual dividend rate to $0.86 per share, up from the current annual rate of $0.80 per share. The dividend increase will be reflected in the first quarter 2006 dividend. "2005 was a terrific year both operationally and financially; as a result of solid execution, ACS is able to grow distributable cash flow and increase its dividend," stated Liane Pelletier, ACS president and chief executive officer. "In 2005, we exceeded our growth objectives for revenues and EBITDA: compared to 2004, revenues grew 8.0 percent and EBITDA rose 23.3 percent." Pelletier continued, "Strong operational execution centered on integration strategies which leverage the appeal of our wireless and Internet product lines as well as operating efficiencies associated with Process Improvement initiatives. Total retail relationships topped 421,000 at the end of 2005, up from 395,000 at the end of 2004. ON ACS, our innovative customer retention and acquisition program, contributed to these results, gaining 6,000 subscribers during the quarter, bringing the total to over 16,000 since its launch in the third quarter. Post-paid wireless subscribers rose 27.8 percent annually and now exceed 107,000. Digital subscriber lines (DSL) grew a record 45.1 percent annually, bringing total DSL subscribers to more than 35,800. Process Improvement teams have reduced costs and streamlined the customer experience. Some of the savings were redirected to fund the healthy growth in the business." "On the capital markets front, ACS took a number of accretive actions over the course of the year, the net of which reduces total leverage, lowers the cost of debt and decreases cash interest costs." "The combined effects of operational execution and capital market transactions enable ACS to pass the results of increased cash flow to shareholders in the form of a 7.5 percent dividend increase beginning with first quarter declaration." "To support the growth rates, we are also significantly investing in the business, which will drive 2006 initiatives. The wireless CDMA network covered 75 percent of the Alaska population at year-end 2005, with superior voice and data performance. We expanded our DSL footprint to reach 75 percent of access lines at year end, and we purchased $12.1 million of capacity to the Lower 48 to support the phenomenal growth in Internet. In 2006, we expect to conclude the transition of TDMA customers to CDMA, complete our CDMA footprint in providing coverage to more than 80 percent of the population, further broaden our DSL footprint, and leverage our enhanced fiber capacity. We will continue to increase efficiencies via Process Improvement projects, as well as drive growth with innovative product integration. We are also optimistic about the prospects for new economic activity in Alaska," concluded Pelletier. Financial Highlights: Fourth Quarter 2005 Compared to Fourth Quarter 2004 -- Revenues were $82.5 million, representing a 9.8 percent increase. -- Net cash provided by operations increased 27.3 percent to $24.3 million. -- EBITDA increased to $26.7 million, up 8.0 percent. EBITDA included $500,000 of costs incurred to execute the December 2005 secondary stock offering and $700,000 of third party SOX compliance costs. -- Operating income increased 17.1 percent to $4.7 million. Net loss decreased to $4.9 million, or $0.12 per share, of which $1.8 million is attributable to the extinguishment of debt, $1.4 million to stock based compensation arising in part from the early adoption of SFAS 123R, "Share-Based Payment" and $500,000 to secondary stock offering costs. The net loss for the fourth quarter 2004 was $7.1 million, or $0.23 per share. The year-over-year decrease in net loss is attributable to higher revenues and lower interest expense. David Wilson, ACS senior vice president and chief financial officer, said, "Strong fourth quarter 2005 results were driven by wireless, where revenue rose 52.7 percent to $23.6 million compared to $15.4 million a year ago. Our wireless subscribers grew 16.8 percent annually to approximately 117,500; ARPU grew by 27.2 percent annually to $57.46; and our strategically important post-paid CDMA subscribers represent a large percent of our base. Foreign roaming revenue of $1.7 million also contributed to results." "Cash generated from operating activities in the quarter was $24.3 million, net of $1.1 million of early redemption premium charges for our November 2005 debt repurchase. We invested $8.6 million in our CDMA wireless network, paid-down $12.0 million of our 9 7/8 senior notes, and exited the year with cash, restricted cash and investments of $43.8 million," added Wilson. Metric Highlights: Fourth Quarter 2005 Compared to Third Quarter 2005 -- Increased the total number of retail customer relationships across all product lines by approximately 8,100 to approximately 421,750. -- Increased post-paid wireless subscribers by 6.8 percent, or approximately 6,800. Net of prepaid and wholesale wireless shifts, we added 5,900 wireless subscribers, bringing the total wireless subscribers to approximately 117,500. -- Recorded post-paid churn of 1.8 percent and overall average wireless monthly churn of 2.0 percent. -- Recorded wireless ARPU of $57.46 down slightly from $57.99, inclusive of CETC revenue of $8.84 and $8.81, respectively. -- Increased DSL by 8.4 percent, or 2,800 lines, to over 35,800 lines. -- Increased long distance subscribers by approximately 2,760 to approximately 56,300 customers. -- Recorded over 199,300 local retail access lines reflecting an access line decrease of approximately 1,900 lines. -- Recorded over 270,800 total local network access lines. Total access lines decreased by approximately 7,100, reflecting wireless and broadband substitution and migration to cable telephony. Annual Financial Review For the year ended December 31, 2005: -- Total revenues were $326.8 million, which represented an 8.0 percent increase over 2004 revenues of $302.7 million; -- Net loss for the year 2005, inclusive of a loss on the extinguishment of debt of $34.9 million and $2.8 million of stock based compensation costs, was $41.6 million, or $1.04 per share, as compared to a net loss of $39.3 million, or $1.33 per share, in 2004; -- Net cash provided by operating activities for the year 2005, net of $18.3 million of early redemption premiums, was $56.3 million, as compared to $59.0 million in 2004; -- EBITDA for the year 2005, inclusive of $500,000 of secondary offering costs and $1.3 million of third party SOX compliance costs, was $112.4 million, an increase of 23.3 percent from $91.2 million in 2004; and -- Investment in construction and capital investments totaled $64.4 million, comprising maintenance capital spend of $35.1 million; investments in pre-funded wireless and fiber capacity growth capex projects of $26.7 million; and $2.6 million of investments in DSL footprint expansion and process improvement projects funded from excess cash generated in 2005. 2006 Business Outlook For the full year 2006, revenues are expected to be in the range of $335 million to $345 million, and EBITDA is expected to be in the range of $112 million to $116 million. For the year 2006, net cash interest expense is expected to be approximately $28 million. ACS expects capital expenditures for 2006 to be approximately $58 million, comprised of maintenance capital expenditures of approximately $37 million and pre-funded growth capital expenditures, DSL footprint expansion and process improvement initiatives of approximately $21 million. 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. For parties in the United States and Canada, call 866-250-3615 to access the earnings call. International parties can access the call at 303-262-2006. 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 Monday, February 27, 2006 at midnight ET. To hear the replay, parties in the United States and Canada should call 800-405-2236 and enter pass code 11052373. International parties should call 303-590-3000 and enter pass code 11052373. 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 its investor site at www.alsk.com. Forward-Looking EBITDA Guidance This press release includes management's estimate of EBITDA for the year ending December 31, 2005. Management believes the most directly comparable GAAP measure would be "Net cash provided by operating activities." Due to the difficulty in forecasting and quantifying the amounts that would be required to be included in this comparable GAAP measure, the Company is not providing an estimate of year-end net cash provided by operating activities at this time. Forward-Looking Statements We have included in this press release 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 are, without limitation, rapid technological developments and changes in the telecommunications industry; ongoing deregulation and increased competition; changes in our revenue from Universal Service Funds; regulatory limitations on our ability to change our pricing for communications services; changes in accounting policies or practices; our ability to bundle our products and services; changes in the demand for our products and services; changes in general industry and market conditions; changes in interest rates or other general national, regional or local economic conditions; governmental and public policy changes; our ability to generate sufficient earnings and cash flows to continue to make dividend payments to our stockholders; the continued availability of financing necessary to support our future business; and the success of any future acquisitions. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" on our annual report on Form 10-K and quarterly reports on Form 10-Q and "Risk Factors" on our current report on Form 8-K filed on November 30, 2005. Copies of our SEC filings may be obtained by contacting our investor relations department at (907) 564-7556 or by visiting our investor relations website at http://www.alsk.com. All information in this release is as of February 23, 2006. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations. Schedule 1 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Twelve Months Ended December 31, 2005 and 2004 (Unaudited, in Thousands, Except per Share Amounts) Three Months Twelve Months Ended Ended December 31, December 31, --------------- ------------------ 2005 2004 2005 2004 ------- ------- -------- --------- Operating revenues: Local telephone $49,455 $50,961 $202,842 $211,187 Wireless 23,565 15,428 86,235 56,694 Internet 5,490 5,160 21,672 20,173 Interexchange 3,965 3,576 16,060 14,653 ------- ------- -------- --------- Total operating revenues 82,475 75,125 326,809 302,707 Operating expenses: Local telephone 32,474 30,862 126,982 127,918 Wireless 13,191 10,689 49,407 37,918 Internet 6,714 4,535 23,298 25,739 Interexchange 4,683 4,262 17,314 19,773 Depreciation and amortization 20,759 20,701 82,819 78,387 Loss (gain) on disposal of assets, net (84) 29 (152) 2,854 ------- ------- -------- --------- Total operating expenses 77,737 71,078 299,668 292,589 Operating income 4,738 4,047 27,141 10,118 Other income and expense: Interest expense (8,685)(12,150) (35,894) (47,641) Loss on extinguishment of debt (1,790) - (34,882) (3,423) Interest income 929 867 2,253 1,633 Other (122) (48) (253) (200) ------- ------- -------- --------- Total other income (expense) (9,668)(11,331) (68,776) (49,631) ------- ------- -------- --------- Loss before income tax benefit (4,930) (7,284) (41,635) (39,513) Income tax benefit - 219 - 219 ------- ------- -------- --------- Net loss $(4,930)$(7,065)$(41,635)$(39,294) ======= ======= ======== ========= Loss per share - basic and diluted: Net loss $(0.12) $(0.23) $(1.04) $(1.33) ======= ======= ======== ========= Weighted average shares outstanding: Basic and diluted 41,580 30,105 40,185 29,592 ======= ======= ======== ========= Schedule 2 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, In Thousands Except Per Share Amounts) December December 31, 31, Assets 2005 2004 --------- ---------- Current assets: Cash and cash equivalents $ 28,877 $ 50,660 Restricted cash 4,415 4,690 Short-term investments 10,525 35,200 Accounts receivable-trade, net of allowance of $6,206 and $4,869 41,080 39,413 Materials and supplies 7,885 6,623 Prepayments and other current assets 3,445 3,724 --------- ---------- Total current assets 96,227 140,310 Property, plant and equipment 1,116,780 1,061,767 Less: accumulated depreciation and amortization 718,750 649,455 --------- ---------- Property, plant and equipment, net 398,030 412,312 Goodwill 38,403 38,403 Intangible assets, net 21,688 21,871 Debt issuance costs, net 11,733 15,482 Deferred charges and other assets 10,332 8,749 --------- ---------- Total assets $576,413 $637,127 ========= ========== Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 683 $ 2,298 Accounts payable-affiliate 2,844 3,973 Accounts payable, accrued and other current liabilities 54,920 53,843 Advance billings and customer deposits 9,712 8,948 --------- ---------- Total current liabilities 68,159 69,062 Long-term obligations, net of current portion 444,895 523,591 Other deferred credits and long-term liabilities 82,223 77,916 Commitments and contingencies Stockholders' equity (deficit): Preferred stock, no par, 5,000 authorized, no shares issued and outstanding - - Common stock, $.01 par value; 145,000 shares authorized, 46,230 and 35,245 shares issued and 41,681 and 30,696 outstanding, respectively 462 352 Treasury stock, 4,549, at cost (18,443) (18,443) Paid in capital in excess of par value 333,522 282,272 Accumulated deficit (334,727) (293,092) Accumulated other comprehensive income (loss) 322 (4,531) --------- ---------- Total stockholders' equity (deficit) (18,864) (33,442) --------- ---------- Total liabilities and stockholders' equity (deficit) $576,413 $637,127 ========= ========== Schedule 3 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31, 2005 and 2004 (Unaudited, in Thousands) 2005 2004 -------- -------- Net cash provided by operating activities $ 56,336 $59,025 Cash Flows from Investing Activities: Construction & capital expenditures, net of capitalized interest (58,422) (51,422) Purchase of short-term investments (95,095)(154,650) Sale of short-term investments 119,770 162,672 Placement of funds in restricted account (700) (1,055) Release of funds from escrow 975 - -------- -------- Net cash used by investing activities (33,472) (44,455) Cash Flows from Financing Activities: Repayments of long-term debt (459,015) (26,962) Proceeds from the issuance of long-term debt, net of discounts 375,000 - Debt issuance costs (11,307) - Payment of stock dividend, net (30,393) - Issuance of common stock 88,885 9,801 Stock issuance costs (7,817) - Purchase of treasury stock - (1,325) -------- -------- Net cash used by financing activities (44,647) (18,486) Decrease in cash (21,783) (3,916) Cash, Beginning of period 50,660 54,576 -------- -------- Cash, End of period $ 28,877 $50,660 ======== ======== Supplemental Cash Flow Data: Interest paid, net of capitalized interest $ 39,474 $44,502 ======== ======== Income taxes paid, net of refund $ - $ 876 ======== ======== Supplemental Non-cash Transactions: Interest rate swap marked to market $ (4,744) $ - ======== ======== Stock funding of pension $ 599 $ - ======== ======== Minimum pension liability adjustment $ (109) $ (12) ======== ======== Dividend declared, but not paid $ (8,347) $(5,694) ======== ======== Construction & capital expenditures, not paid $ (5,975) $ - ======== ======== Schedule 4 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF LOCAL TELEPHONE REVENUES For the Three Months and Twelve Months Ended December 31, 2005 and 2004 (Unaudited, in Thousands) Three Months Twelve Months Ended Ended December 31, December 31, --------------- ----------------- 2005 2004 2005 2004 ------- ------- ------- -------- Local telephone revenues: Local network service $20,807 $22,697 $ 86,482 $ 91,669 Network access revenue 22,836 22,174 92,379 97,536 Deregulated and other 5,812 6,090 23,981 21,982 ------- ------- -------- --------- Local telephone revenues $49,455 $50,961 $202,842 $211,187 ======= ======= ======== ========= Schedule 5 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. SCHEDULE OF EBITDA CALCULATION (Unaudited, in Thousands) Three Months Twelve Months Ended Ended December 31, December 31, --------------- ------------------ 2005 2004 2005 2004 ---------------------------------- Net cash provided by operating activities $24,314 $19,093 $56,336 $59,025 Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on disposal of assets and asset impairments 84 (29) 152 (2,854) Depreciation and amortization (20,759)(20,701) (82,819) (78,387) Amortization of debt issuance costs, warrants and original issue discount (1,252) (1,085) (18,760) (6,088) Non-cash stock compensation expense (1,417) - (2,800) - Other non-cash expenses (109) (12) (109) (12) Other deferred credits (1,986) (1,478) (502) (3,048) Changes in components of working capital: Accounts receivable and other current assets (2,923) (2,811) 2,650 (7,907) Accounts payable and other current liabilities (506) 404 7,977 (22) Deferred charges and other assets (376) (446) (3,760) (1) ------- ------- -------- -------- Net loss $(4,930)$(7,065)$(41,635)$(39,294) Add (subtract): Interest expense 8,685 12,150 35,894 47,641 Loss on extinguishment of debt 1,790 - 34,882 3,423 Interest income (929) (867) (2,253) (1,633) Income tax (benefit) expense - (219) - (219) Depreciation and amortization 20,759 20,701 82,819 78,387 (Gain) loss on disposal of assets and asset impairment charges, net (84) 29 (152) 2,854 Stock based compensation 1,417 - 2,800 - ------- ------- -------- ------- EBITDA $26,708 $24,729 $112,355 $91,159 ======= ======= ======== ======= 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. The Company has disclosed its net gain before interest expense, provisions for taxes, depreciation expense, amortization expense (EBITDA) because the Company believes it is an important indicator as it provides information about our ability to service debt, pay dividends and fund capital expenditures. EBITDA is not a GAAP measure 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. The calculation of "EBITDA" as presented in this press release differs from the calculation of, and therefore is not directly comparable to, "Indenture EBITDA" as presented in ACS' prospectus supplement, dated January 26, 2005, primarily because the calculation of "Indenture EBITDA" allows for additional adjustments that meet the criteria of being "non-cash," "extraordinary" or otherwise "non-recurring" in nature. Schedule 6 ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Allocation of Stock Based Compensation between Segments (Unaudited, in Thousands, Except per Share Amounts) Three Months Ended Twelve Months Ended December 31, 2005 December 31, 2005 ---------------------------- --------------------------- Stock Based Stock Based As Compen- As Compen- Reported sation Adjusted Reported sation Adjusted --------- --------- -------- --------- -------- -------- Operating expenses: Local telephone 32,474 (1,229) 31,245 126,982 (2,432)124,550 Wireless 13,191 (129) 13,062 49,407 (252) 49,155 Internet 6,714 (53) 6,661 23,298 (104) 23,194 Interexchange 4,683 (6) 4,677 17,314 (12) 17,302 Depreciation and amortization 20,759 - 20,759 82,819 - 82,819 (Loss) gain on disposal of assets, net (84) - (84) (152) - (152) --------- --------- -------- --------- -------- -------- Total operating expenses $ 77,737 $ (1,417)$ 76,320 $ 299,668 $ (2,800)$296,868 ========= ========= ======== ========= ======== ======== The balances reported on Schedule 1 -- Statement of Operations, include the company's third quarter 2005 adoption of FAS 123R Accounting for Stock-Based Compensation. The adoption resulted in a non-cash charge of $1,417 and $2,800 for the three and twelve months ended December 31, 2005. This schedule shows the company's operating performance prior to that expense being recorded to allow analysis of the operating segments without this noncash charge. Schedule 7A ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited) December September December 31, 30, 31, 2005 2005 2004 --------- --------- -------- Local telephone: Retail access lines(1) 199,341 201,284 206,209 Wholesale access lines 13,966 14,323 16,590 UNE loop lines 50,875 55,802 64,589 UNE platform lines 6,703 6,616 6,365 --------- --------- -------- Total local telephone access lines 270,885 278,025 293,753 ========= ========= ======== Average local telephone access lines for the quarter 274,455 281,042 296,887 Average monthly local telephone revenue per line for the quarter $ 60.06 $ 61.06 $ 57.22 Quarterly growth rate in local telephone access lines -2.6% -2.1% -2.1% Wireless Covered population 523,827 509,996 482,251 Post-paid cellular subscribers 107,144 100,297 83,828 Average post-paid cellular subscribers 103,721 97,721 81,478 Quarterly growth rate - post-paid cellular subscribers 6.8% 5.4% 5.9% Activations for the quarter 13,133 11,468 9,393 Deactivations for the quarter 6,286 6,316 4,692 Average monthly churn for the quarter 1.8% 2.0% 1.8% Average monthly revenue per subscriber for the quarter(3) $ 61.10 $ 61.64 $ 50.34 Prepaid cellular subscribers 5,710 6,292 10,404 Wholesale cellular subscribers 4,683 5,049 6,425 Total cellular subscribers 117,537 111,638 100,657 Average subscribers for the quarter 114,588 109,680 98,093 Quarterly growth rate 5.3% 3.6% 5.4% Activations for the quarter 13,290 11,674 10,642 Deactivations for the quarter 7,391 7,757 5,514 Average monthly churn for the quarter 2.0% 2.2% 1.7% Penetration 22.4% 21.9% 20.9% Quarterly minutes of use (000's)(2) 127,498 151,288 90,483 Average monthly revenue per subscriber for the quarter(3) $ 57.46 $ 57.99 $ 45.17 Long Distance: Long distance subscribers 56,317 53,558 47,050 Quarterly minutes of use (000's) 48,544 55,746 34,779 Average subscribers for the quarter 54,938 52,130 45,692 Average monthly revenue per subscriber for the quarter 24.06 27.80 26.09 Internet: DSL subscribers 35,844 33,070 24,711 Dial-up and other service subscribers 17,401 19,187 22,842 --------- --------- -------- Total Internet subscribers 53,245 52,257 47,553 ========= ========= ======== Average subscribers for the quarter 52,751 51,337 46,924 Average monthly DSL & dial up revenue per subscriber for the quarter $ 29.15 $ 30.06 $ 28.86 (1) Prior period retail access lines impacted by change in line count methodology. (2) Wireless MOU have been restated to include prepaid airtime certificates. (3) ACS was granted competitive eligible telecommunications carrier status (CETC) in the first quarter of 2005, which added $8.84 to wireless ARPU in the fourth quarter of 2005 and $8.81 in the third quarter of 2005. Schedule 7B ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. KEY OPERATING STATISTICS (Unaudited) December September 31, 30, Net 2005 2005 Movement --------- --------- -------- Local telephone retail access lines 199,341 201,284 (1,943) Wireless subscribers 117,537 111,638 Less adjustment for resellers (4,683) (5,049) --------- --------- 112,854 106,589 6,265 --------- --------- Long distance subscribers 56,317 53,558 2,759 Internet subscribers 53,245 52,257 988 --------- --------- -------- Total retail relationships 421,757 413,688 8,069 ========= ========= ======== CONTACT: Alaska Communications Systems Group, Inc. Meghan Stapleton, 907-297-3000 (Media) meghan.stapleton@acsalaska.com or Lippert/Heilshorn & Associates Kirsten Chapman, 415-433-3777 (Investors) David Barnard, CFA, 415-433-3777 (Investors) david@lhai-sf.com