Alaska Communications Systems Reports Fourth Quarter and Full Year 2013 Results

Full Year Revenue of $348.9 million, Adjusted EBITDA of $106.5 million, Free Cash Flow of $22.0 million

Full Year Total Service Revenue growth of 2.9% year over year, led by Broadband growth of 18.6%

ANCHORAGE, Alaska--(BUSINESS WIRE)--Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its fourth quarter and full year ended December 31, 2013.

“We are pleased with our performance in 2013. We generated strong growth in business and wholesale revenues, driven by continued performance in our broadband products. We see this momentum continuing into 2014. Additionally, we also delivered significant value through debt reductions of $105.6 million during the year.

“Looking ahead, our recent acquisition of TekMate positions us to be the leading provider of managed services to business customers in Alaska. Our confidence in the market opportunity remains strong and we are well positioned for solid performance in 2014,” said Anand Vadapalli, president and CEO of Alaska Communications.

Financial Highlights: Fourth Quarter 2013 Compared to Fourth Quarter 2012

• The quarter experienced strong revenue performance in our key areas of focus: business, wholesale and consumer customers:
  • Year over year was impacted by $15.7 million in lower revenues associated with the AWN transaction, which closed in July 2013. (Historical results have not been pro-formed for this transaction.) The AWN distribution, which is included in our Adjusted EBITDA now serves as the key measure of profitability for our wireless performance. Two events in 2012 also impacted comparability: a $1.5 million wholesale revenue transaction with another carrier and a $1.5 million equipment sale.
  • Excluding the wholesale revenue transaction, business and wholesale service revenue of $25.6 million grew $1.4 million or 5.7%, with broadband revenues growing 19.3%.
  • Consumer service revenue of $10.1 million grew $0.3 million, or 2.8%, with broadband revenues growing 15.0%.
  • Wireless revenue of $20.1 million declined $1.1 million, or 5.1%, as connections continued to experience declines.
• Adjusted EBITDA was $16.6 million with year over year comparisons impacted by the AWN transaction.
• Net income in the quarter was impacted by two events, that do not impact Adjusted EBITDA:
  • A $1.3 million impairment charge reflecting the value of the buyout of 51% of TekMate on our original 49% ownership interest.
  • A $1.6 million write off associated with a settlement for a project with a vendor that took place in 2009, $0.8 million of which is recorded as a loss on disposal of assets and $0.8 million as interest expense.

Metric Highlights: Fourth Quarter 2013 Compared to Third Quarter 2013

• Business broadband connections increased to 19,285 from 19,216 and business broadband ARPU increased to $181.77 from $175.00.
• Consumer broadband connections increased to 38,677 from 38,117 and consumer broadband ARPU of $48.59 was relatively unchanged.
• Wireless subscribers decreased by 3,266 to 108,848. The majority of the decline was due to approximately 1,900 fewer lifeline customers. Wireless ARPU increased to $53.14 from $52.08.

“This was a transitional quarter for us, as it reflected our first full quarter under the AWN structure. During the quarter we started implementing a plan to re-position our wireless operations. This included realigning our spending to reflect the new wireless operating model under AWN. These actions will drive performance in 2014 through increased free cash flow, which we continue to target for debt reduction, further strengthening our balance sheet. We ended 2013 with net debt of $413 million, which means our de-leveraging plans are ahead of schedule,” said Wayne Graham, ACS chief financial officer.

2014 Guidance:

Revenue is expected to be approximately $310 million.

Adjusted EBITDA is expected to be approximately $90 million.

Capital spending is expected to be approximately $40 million.

Free cash flow is expected to be approximately $20 million.

Conference Call

The company will host a conference call and live webcast at 5:00 p.m. Eastern time to discuss the results. The live webcast will include a slide presentation. Parties in the United States and Canada can access the call at 1-877-941-0844. Parties outside the United States and Canada can access the call at 1-480-629-9835.

The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's website (www.alsk.com). The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until April 3, 2014 at midnight Eastern time. To hear the replay, parties in the United States and Canada can call 1-800-406-7325 and enter pass code 4666717. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4666717.

About Alaska Communications

Alaska Communications is a leading provider of advanced broadband and managed service solutions for businesses and consumers in Alaska. The company operates a highly reliable, advanced statewide data and voice network with the latest technology and the most diverse undersea fiber optic system connecting Alaska to the contiguous United States. For more information, visit http://www.alaskacommunications.com or http://www.alsk.com.

Non-Gaap Measures

In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information which management utilizes to assess performance and believes provides useful information to investors. We have disclosed earnings before interest expense and income, loss on extinguishment of debt, depreciation and amortization, gain on sale of long-term investments, gain and loss on disposal of assets, gift of services, AWN transaction related costs, income taxes and stock-based compensation, and including return of capital from equity investment, as defined and reconciled below Adjusted EBITDA, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by operating revenues, because we believe they are important performance indicators and provide information about our ability to service debt, pay dividends to the extent permitted and fund capital expenditures. We also disclose Free Cash Flow, because we believe it is an important measure of our ability to fund business activities. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are not GAAP measures and should not be considered a substitute for operating income, net cash provided by operating activities, or net cash provided or used.

Forward-Looking Statements

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

Schedule 1
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Operating revenues
Operating revenues, non-affiliates	$	74,489		$	94,961		$	345,611		$	367,574
Operating revenues, affiliates*		1,778			44			3,313			140
Total operating revenues		76,267			95,005			348,924			367,714
Operating expenses:
Cost of services and sales, non-affiliates		32,712			36,716			138,124			148,125
Cost of services and sales, affiliates*		13,199			82			25,158			275
Selling, general & administrative		27,317			26,942			111,034			107,316
Depreciation and amortization		8,900			13,035			42,191			51,487
(Gain) loss on disposal of assets, net		2,177			(528	)		(204,200	)		(2,668	)
Loss on impairment of equity investment		1,267			-			1,267			-
Earnings from equity method investments		(4,985	)		(70	)		(13,046	)		(115	)
Total operating expenses		80,587			76,177			100,528			304,420
Operating income (loss)		(4,320	)		18,828			248,396			63,294
Other income and expense:
Interest expense		(9,820	)		(10,367	)		(39,790	)		(39,570	)
Loss on extinguishment of debt		-			(252	)		(2,370	)		(575	)
Interest income		16			12			53			43
Other		-			-			(13	)		-
Total other income and (expense)		(9,804	)		(10,607	)		(42,120	)		(40,102	)
Income (loss) before income tax benefit (expense)		(14,124	)		8,221			206,276			23,192
Income tax benefit (expense)		6,485			602			(52,846	)		(5,783	)
Net (loss) income	$	(7,639	)	$	8,823		$	153,430		$	17,409
Net (loss) income per share:
Basic	$	(0.16	)	$	0.19		$	3.26		$	0.38
Diluted	$	(0.16	)	$	0.18		$	2.69		$	0.38
Weighted average shares outstanding:
Basic		48,577			45,677			47,092			45,553
Diluted		48,577			58,920			59,107			45,878
* Affiliate balances are related to activity with our equity method investees TekMate and AWN

Schedule 2
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
	December 31,			December 31,
Assets	2013			2012
Current assets:
Cash and cash equivalents	$	43,039		$	16,839
Restricted cash		467			3,875
Short-term investments		-			2,050
Accounts receivable-trade, non-affiliates, net		34,066			39,698
Accounts receivable-trade, affiliates*		137			15
Materials and supplies		10,131			9,409
Prepayments and other current assets		7,300			5,566
Deferred income taxes		7,144			8,301
Total current assets		102,284			85,753
Property, plant and equipment		1,344,949			1,463,320
Less: accumulated depreciation and amortization		(992,936	)		(1,052,459	)
Property, plant and equipment, net		352,013			410,861
Goodwill		4,650			8,850
Intangible assets, net		-			24,118
Debt issuance costs		6,929			10,558
Deferred income taxes		17,631			69,049
Equity method investments		261,962			2,028
Other assets		502			3,510
Total assets	$	745,971		$	614,727
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations	$	14,256		$	21,628
Accounts payable, accrued and other current liabilities, non-affiliates		55,475			56,378
Accounts payable, accrued and other current liabilities, affiliates*		14,703			-
Advance billings and customer deposits		9,104			8,970
Total current liabilities		93,538			86,976
Long-term obligations, net of current portion		442,001			533,772
Other long-term liabilities		16,947			28,662
Deferred AWN capacity revenue, net of current portion		63,263			-
Total liabilities		615,749			649,410
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized		487			458
Additional paid in capital		152,193			144,377
Accumulated deficit		(16,849	)		(170,279	)
Accumulated other comprehensive loss		(5,609	)		(9,239	)
Total stockholders' equity (deficit)		130,222			(34,683	)
Total liabilities and stockholders' equity (deficit)	$	745,971		$	614,727
* Affiliate balances are related to activity with our equity method investees TekMate and AWN

Schedule 3
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Cash Flows from Operating Activities:
Net (loss) income	$	(7,639	)	$	8,823		$	153,430		$	17,409
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,900			13,035			42,191			51,487
Gain on sale/contribution of asset to AWN		-			-			(207,318	)		-
(Gain) loss on the disposal of assets		2,177			(528	)		3,118			(2,668	)
Loss on the impairment of equity investment		1,267			-			1,267			-
Gain on ineffective hedge adjustment		-			(231	)		(785	)		(231	)
Amortization of debt issuance costs and debt discount		1,178			1,593			6,932			5,975
Amortization of ineffective hedge		359			292			2,307			292
Amortization of deferred AWN capacity revenue		(774	)		-			(1,512	)		-
Stock-based compensation		592			888			2,860			3,550
Deferred income taxes		(5,887	)		(614	)		52,846			5,771
Provision for uncollectible accounts		1,042			752			1,847			2,588
Cash distribution from equity method investments		7,564			83			12,953			115
Earnings from equity method investments		(4,985	)		(70	)		(13,046	)		(115	)
Other non-cash expense, net		67			195			283			293
Changes in operating assets and liabilities		(653	)		3,928			5,443			(110	)
Net cash provided by operating activities		3,208			28,146			62,816			84,356
Cash Flows from Investing Activities:
Capital expenditures		(20,424	)		(17,887	)		(47,738	)		(54,206	)
Capitalized interest		(635	)		(565	)		(1,926	)		(1,961	)
Change in unsettled capital expenditures		4,768			2,922			1,492			(2,726	)
Proceeds on sale of assets		-			693			4,747			3,616
Proceeds on sale/contribution of asset to AWN		-			-			100,000			-
Return of capital from equity investment		4,891			32			4,891			32
Net change in short-term investments		-			(2,050	)		2,037			(2,050	)
Change in unsettled acquisition costs		-			(90	)		(3,345	)		(90	)
Net change in restricted accounts		15			2,152			3,408			1,081
Net cash provided (used) by investing activities		(11,385	)		(14,793	)		63,566			(56,304	)
Cash Flows from Financing Activities:
Repayments of long-term debt		(2,183	)		(10,222	)		(99,565	)		(19,477	)
Debt issuance costs		-			(3,167	)		(206	)		(3,167	)
Payment of cash dividend on common stock		-			(2,286	)		-			(9,117	)
Payment of withholding taxes on stock-based compensation		(6	)		(6	)		(638	)		(249	)
Proceeds from issuance of common stock		110			128			227			307
Net cash used by financing activities		(2,079	)		(15,553	)		(100,182	)		(31,703	)
Change in cash and cash equivalents		(10,256	)		(2,200	)		26,200			(3,651	)
Cash and cash equivalents, beginning of period		53,295			19,039			16,839			20,490
Cash and cash equivalents, end of period	$	43,039		$	16,839		$	43,039		$	16,839
Supplemental Cash Flow Data:
Interest paid	$	9,986		$	11,356		$	35,187		$	36,155
Cash paid on extinguishment of hedging instrument	$	-		$	-		$	4,073		$	-
Income tax paid (refunded), net	$	6		$	12		$	6		$	(12	)
Supplemental Non-cash Transactions:
Property (retired) acquired under capital leases, net	$	188		$	1,459		$	171		$	1,435
Additions to ARO asset	$	49		$	54		$	229		$	132
Exchange of debt with common stock	$	-		$	-		$	6,000		$	-

Schedule 4
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Net (loss) income	$	(7,639	)	$	8,823		$	153,430		$	17,409
Add (subtract):
Interest expense		9,820			10,367			39,790			39,570
Loss on extinguishment of debt		-			252			2,370			575
Interest income		(16	)		(12	)		(53	)		(43	)
Depreciation and amortization		8,900			13,035			42,191			51,487
Loss on the impairment of equity investment		1,267			-			1,267			-
Loss on sale of short-term investments		-			-			13			-
(Gain) loss on disposal of assets		2,177			(528	)		3,118			(2,668	)
Earnings from equity method investment in TekMate		(96	)		(70	)		(93	)		(115	)
Earnings from equity method investment in AWN		(4,889	)		-			(12,953	)		-
Gain on sale/contribution of asset to AWN		-			-			(207,318	)		-
TekMate distribution received		-			115			-			147
AWN distributions received		12,455			-			17,844			-
AWN distributions received for the prior period		(4,167	)		-			-			-
AWN distributions receivable within 12 days		4,167			-			4,167			-
Income tax expense (benefit)		(6,485	)		(602	)		52,846			5,783
Stock-based compensation and long-term cash incentives		741			888			3,491			3,550
AWN transaction-related costs		408			1,080			6,382			6,126
Adjusted EBITDA	$	16,643		$	33,348		$	106,492		$	121,821
Less:
Incurred capital expenditures		(20,424	)		(17,887	)		(47,738	)		(54,206	)
Amortization of deferred AWN capacity revenue		(774	)		-			(1,512	)		-
AWN transaction-related capital costs, net change		-			1,238			(41	)		1,580
Cash interest expense		(9,986	)		(11,356	)		(35,187	)		(36,155	)
Free cash flow	$	(14,541	)	$	5,343		$	22,014		$	33,040
Revenue	$	76,267		$	95,005		$	348,924		$	367,714
Adjusted EBITDA Margin		21.8	%		35.1	%		30.5	%		33.1	%

Note:

In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on the impairment of equity investments, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, provisions for taxes, stock-based compensation and certain LTCI, and AWN transaction-related costs, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by Operating Revenues. Additionally, the Company has disclosed Free cash flow as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), less amortization of deferred AWN capacity revenue, less AWN transaction-related capital costs, less cash interest expense. These measures are provided because the Company believes they are important indicators regarding our ability to make principal payments on debt and fund working capital. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP.

Schedule 5
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH
(Unaudited, In Thousands)
	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
Service Revenue:	2013			2012		2013			2012
Business and Wholesale Customers
Voice	$	5,644		$	5,796	$	22,947		$	23,842
Broadband		10,518			8,815		40,027			33,972
Other		1,690			1,850		7,659			7,385
Wholesale		7,728			9,245		30,047			33,393
Business and Wholesale service revenue		25,580			25,706		100,680			98,592
Consumer Customers
Voice		3,999			4,508		16,818			18,968
Broadband		5,665			4,928		22,108			18,398
Other		464			416		1,739			1,386
Consumer service revenue		10,128			9,852		40,665			38,752
Total Service Revenue		35,708			35,558		141,345			137,344
Growth in Service Revenue		0.4	%				2.9	%
Growth in Broadband Service Revenue		17.8	%				18.6	%
Other Revenue:
Equipment Sales		632			1,967		2,083			3,021
Access		8,977			9,746		37,033			40,250
High Cost Support		5,218			5,182		18,776			20,223
Total Service and Other Revenue		50,535			52,453		199,237			200,838
Growth in Service and Other Revenue		-3.7	%				-0.8	%
Growth excluding equipment sales		-1.2	%				-0.3	%
Wireless Revenue:
Business and Consumer service revenue		17,590			18,721		71,197			73,845
Equipment sales		1,062			1,421		4,847			6,015
Other		1,458			1,054		5,049			4,281
AWN Related:
Foreign Roaming		-			14,110		40,029			55,105
Wireless Backhaul		(77	)		2,182		6,035			6,897
CETC		4,925			5,064		21,018			20,733
Amortization of deferred AWN capacity revenue		774			-		1,512			-
Total AWN Related		5,622			21,356		68,594			82,735
Total Wireless & AWN Related Revenue		25,732			42,552		149,687			166,876
Total Revenue	$	76,267		$	95,005	$	348,924		$	367,714

Schedule 6
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
	Three Months Ended
	December 31,			September 30,			December 31,
	2013			2013			2012
Voice:
Consumer access lines		49,297			50,722			55,823
Business access lines		79,816			80,071			80,852
Voice ARPU consumer	$	26.65		$	26.81		$	26.53
Voice ARPU business	$	23.53		$	24.04		$	23.82
Broadband: (1)
Consumer connections		38,677			38,117			36,576
Business connections (2)		19,285			19,216			18,718
ARPU consumer	$	48.59		$	48.63		$	44.40
ARPU business (2)	$	181.77		$	175.00		$	157.06
Wireless:
Postpaid connections		85,982			86,423			91,804
Lifeline connections		7,145			9,077			9,106
Prepaid connections		15,721			16,614			14,107
Total		108,848			112,114			115,017
Retail wireless ARPU	$	53.14		$	52.08		$	52.96
Churn:
Voice connections (3)		1.3	%		1.4	%		1.4	%
Broadband connections (1) (3)		2.1	%		2.4	%		2.1	%
Wireless connections		3.4	%		3.2	%		3.7	%
Wireless equipment subsidy		(1,100	)		(1,062	)		(2,666	)

(1)	Consumer and business broadband connections, ARPU, and churn have been restated to exclude dial up lines.
(2)	Business broadband connections counts have been restated to correct how certain high bandwidth circuit types are measured. These change have no affect on our financial results, but will affect connection count and ARPU amounts presented above compared to their presentation in prior periods.
(3)	Voice and broadband churn have been restated to exclude wholesale lines.

Schedule 7
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Long Term Debt
(Unaudited, In Thousands)
		2013			2012
2010 senior credit facility term loan due 2016		$	345,900		$	431,200
Debt discount - 2010 senior credit facility term loan due 2016			(1,687	)		(2,796	)
6.25% convertible notes due 2018			114,000			120,000
Debt discount - 6.25% convertible notes due 2018			(9,213	)		(11,602	)
5.75% convertible notes due 2013			-			12,980
Debt discount - 5.75% convertible notes due 2013			-			(114	)
Revolving credit facility loan			-			-
Capital leases and other long-term obligations			7,257			5,732
			456,257			555,400
Less current portion			(14,256	)		(21,628	)
Long-term obligations, net of current portion		$	442,001		$	533,772
	Maturities
	2014	$	14,310
	2015		15,424
	2016		318,796
	2017		440
	2018		114,287
	Thereafter		3,900
		$	467,157

Schedule 8
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
Summary AWN information
(Unaudited, In Thousands)
Alaska Wireless Network, LLC
Stand Alone Selected Operating Results
For the Period July 23, 2013 - December 31, 2013
		Q3			Q4			YTD
Operating revenues			58,826			44,097		$	102,923
Operating expenses:
	Cost of services and sales		22,258			10,121			32,379
	Selling, general & administrative		3,908			5,946			9,854
	Depreciation and amortization		7,327			11,851			19,178
Total operating expenses			33,493			27,918			61,411
Operating income			25,333			16,179			41,512
Other income and (expense)			(74	)		(127	)		(201	)
Net income			25,259			16,052			41,311		A
Plus:	Depreciation Expense		7,327			11,851			19,178
	Other, net		753			1,335			2,088
Minus:	Capital Spending		12,435			9,572			22,007
	Management Fee to GCI		836			787			1,623
Adjusted Free Cash Flow		$	20,068		$	18,879		$	38,947
Distributions paid or payable to ACS:
(includes balance to be received with 14 days)			9,556			12,455			22,011
Distributions to ACS as a proportion of FCF:			47.6	%		66.0	%		56.5	%

The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q and 10-K filings.

Key AWN Results Included in the ACS Consolidated Balance Sheet:
Equity method investment	$	261,109
Deferred AWN capacity revenue:	$	66,670
Accounts payable, accrued and other current liabilities	$	3,407
Deferred AWN capacity revenue, net of current portion	$	63,263

Investment in AWN represents the value of ACS's 1/3 ownership interest in AWN. Deferred revenue represents capacity contributions and the operations and maintenance support of these capacity contributions for AWN's network. The benefit of this deferred revenue is recognized over 20 years.

Key AWN Results included in the ACS Consolidated Income Statement:
	Q3			Q4			YTD
AWN net income		25,259			16,052		$	41,311		A
Adjusted for step-up in GCI assets		(1,066	)		(1,385	)		(2,451	)	B
AWN stepped-up earnings		24,193			14,667		$	38,860		C
ACS ownership percentage of AWN		33.33	%		33.33	%		33.33	%	D
"Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.
Earnings on equity method investment in AWN	$	8,064		$	4,889		$	12,953		C * D
AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage or $12,953.

Key AWN Results Included in the ACS Non GAAP financial measures:
		Q3		Q4			YTD
Cash distributions received during the quarter		$	5,389	$	12,455		$	17,844
Less:	Distributions received during the quarter related to the previous period		-		(4,167	)		-
Plus:	Distributions received within 14 business days of quarter-end		4,167		4,167			4,167
	Amortization of deferred AWN capacity revenue		738		774			1,512
Equals	AWN impact to Adjusted EBITDA	$	10,294	$	13,229		$	23,523
Less:	Amortization of deferred AWN capacity revenue		738		774			1,512
Equals	AWN impact to Free Cash Flow	$	9,556	$	12,455		$	22,011

In our non-GAAP reporting of Adjusted EBITDA, ACS is using our Senior Credit Agreement definition, as amended, for the AWN distribution, which is distributions received or eligible to be received within 14 business days.