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Exhibit 99.2

Alaska Communications Systems Holdings, Inc.
Index to consolidated financial statements

		Page

Unaudited financial statements
Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		F-2
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002		F-3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002		F-4
Notes to Consolidated Financial Statements		F-5
Audited financial statements
Independent Auditors' Report		F-28
Consolidated Balance Sheets as of December 31, 2002 and 2001		F-29
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000		F-30
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000		F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000		F-32
Notes to Consolidated Financial Statements		F-33

F-1

Alaska Communications Systems Holdings, Inc.
Consolidated balance sheets

(Dollars in thousands)			June 30, 2003			December 31, 2002


Assets				(unaudited)			(unaudited)
Current assets:
	Cash and cash equivalents		$	64,560		$	18,565
	Restricted cash			110			3,440
	Accounts receivable-trade, net of allowance of $5,407 and $6,075			46,032			48,820
	Accounts receivable-affiliate			4,766			3,761
	Materials and supplies			11,603			11,203
	Prepayments and other current assets			5,753			6,172
	Assets held for sale			—			261

		Total current assets		132,824			92,222
Investment				1,097			—
Property, plant and equipment				1,100,073			1,090,365
Less: accumulated depreciation				662,128			625,276

	Property, plant and equipment, net			437,945			465,089
Goodwill				38,403			77,225
Intangible assets				22,804			23,269
Debt issuance costs, net of amortization of $21,200 and $15,883				15,813			21,130
Deferred charges and other assets				25,850			26,047

		Total assets	$	674,736		$	704,982

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term obligations		$	4,909		$	5,933
	Accounts payable-affiliates			3,524			1,319
	Accounts payable, accrued and other current liabilities			41,477			49,480
	Advance billings and customer deposits			9,146			9,804

		Total current liabilities		59,056			66,536
Long-term obligations, net of current portion				477,183			586,898
Other deferred credits and long-term liabilities				30,961			32,930
Commitments and contingencies				—			—
Stockholders' equity:
	Common stock, $.01 par value; 1,000 shares authorized, 1 share issued and outstanding
	Contributed capital			287,242			287,242
	Accumulated deficit			(164,460	)		(249,738	)
	Accumulated other comprehensive loss			(15,246	)		(18,886	)

		Total stockholders' equity		107,536			18,618

		Total liabilities and stockholders' equity	$	674,736		$	704,982

See Notes to Consolidated Financial Statements

F-2

Alaska Communications Systems Holdings, Inc.
Consolidated statements of operations

			Three Months Ended June 30,						Six Months Ended June 30,

(Dollars in thousands)			2003			2002			2003			2002

Operating revenue:				(unaudited)						(unaudited)
	Local telephone		$	55,210		$	63,991		$	109,211		$	119,313
	Wireless			11,947			11,162			22,277			20,517
	Directory			3,353			8,381			11,631			17,022
	Internet			9,037			4,551			16,193			8,393
	Interexchange			5,239			4,820			10,005			9,670

		Total operating revenue		84,786			92,905			169,317			174,915
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			27,487			32,571			55,334			61,569
	Wireless (exclusive of depreciation and amortization)			7,019			7,069			13,583			13,111
	Directory (exclusive of depreciation and amortization)			1,800			3,532			5,249			6,958
	Internet (exclusive of depreciation and amortization)			13,050			7,317			23,186			12,445
	Interexchange (exclusive of depreciation and amortization)			7,124			6,997			13,713			13,612
	Depreciation and amortization			22,091			19,973			44,691			39,232

		Total operating expense		78,571			77,459			155,756			146,927
Gain (loss) on disposal of assets				97,285			(273	)		96,539			(273	)

Operating income				103,500			15,173			110,100			27,715
Other income (expense):
	Interest expense			(14,920	)		(10,975	)		(27,607	)		(23,718	)
	Interest income and other			4,787			548			4,979			1,048

		Total other expense		(10,133	)		(10,427	)		(22,628	)		(22,670	)

Income before income taxes, discontinued operations and cumulative effect of change in accounting principle				93,367			4,746			87,472			5,045
Income tax benefit				—			—			—			—

Income from continuing operations				93,367			4,746			87,472			5,045
Loss from discontinued operations				—			(515	)		(52	)		(7,387	)

Income (loss) before cumulative effect of change in accounting principle				93,367			4,231			87,420			(2,342	)
Cumulative effect of change in accounting principle				—			—			—			(105,350	)

Net income (loss)			$	93,367		$	4,231		$	87,420		$	(107,692	)

See Notes to Consolidated Financial Statements

F-3

Alaska Communications Systems Holdings, Inc.
Consolidated statements of cash flows

			Six Months Ended June 30,

(Dollars in thousands)			2003			2002

			(unaudited)
Cash Flows from Operating Activities:
Net income (loss)			$	87,420		$	(107,692	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Loss on discontinued operations			52			7,387
	Cumulative effect of change in accounting principle			—			105,350
	Depreciation and amortization			44,691			39,232
	Loss (gain) on disposal of assets			(96,539	)		273
	Amortization of debt issuance costs and original issue discount			5,317			2,078
	Capitalized interest			(92	)		(767	)
	Other deferred credits			1,671			(1,891	)
	Changes in components of working capital:
		Accounts receivable and other current assets		1,725			(7,664	)
		Accounts payable and other current liabilities		(9,085	)		(9,730	)
		Other		(122	)		98
	Net cash used by discontinued operations			(41	)		(477	)

Net cash provided by operating activities				34,997			26,197
Cash Flows from Investing Activities:
Construction and capital expenditures, net of capitalized interest				(15,211	)		(31,975	)
Net proceeds from sale of business				138,091			—
Release of funds from escrow				3,539			—
Placement of funds in restricted account				(200	)		—

Net cash provided (used) by investing activities				126,219			(31,975	)
Cash Flows from Financing Activities:
Payments on long-term debt				(113,079	)		(6,640	)
Dividends				(2,142	)		—

Net cash used by financing activities				(115,221	)		(6,640	)
Increase (decrease) in cash and cash equivalents				45,995			(12,418	)
Cash and cash equivalents at beginning of the period				18,565			41,012

Cash and cash equivalents at the end of the period			$	64,560		$	28,594

Supplemental Cash Flow Data:
Interest paid			$	23,862		$	24,914
Income taxes paid				—			—
Supplemental Noncash Transactions:
Property acquired under capital leases and mortgages			$	2,340		$	2,306
Interest rate swap marked to market			$	(3,640	)	$	577

See Notes to Consolidated Financial Statements

F-4

Alaska Communications Systems Holdings, Inc.
Notes to consolidated financial statements
(Unaudited, dollars in thousands)

1. Description of company and summary of significant accounting policies

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the "Company" or "ACS Holdings"), a Delaware corporation, is an integrated communications provider engaged principally in providing local telephone, wireless, Internet, and interexchange 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 principal activities in 1998 and through May 14, 1999 were the preparation of systems and obtaining financing for pending acquisitions. On May 14, 1999, the Company was acquired and became a wholly owned subsidiary of Alaska Communications Systems Group, Inc. (the "Parent" or "ACS Group").

The financial statements for the Company represent the consolidated financial position, results of operations and cash flows principally of the following entities:

•: Alaska Communications Systems Holdings, Inc.
•: ACS of Alaska, Inc. ("ACSAK")
•: ACS of the Northland, Inc. ("ACSN")
•: ACS of Fairbanks, Inc. ("ACSF")
•: ACS of Anchorage, Inc. ("ACSA")
•: ACS Wireless, Inc. ("ACSW")
•: ACS Long Distance, Inc. ("ACSLD")
•: ACS Internet, Inc. ("ACSI")

On May 8, 2003, the Company completed the sale of a majority interest in its directory business, as described in Note 4, Gain on Disposal of Assets.

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. Certain reclassifications have been made to the 2002 financial statements to make them conform to the current presentation.

In the opinion of management, the financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented. The results of operations for the three and six months ended June 30, 2003 and 2002 are not necessarily indicative of the results of operations which might be expected for the entire year or any other interim periods.

Revenue Recognition

F-5

access revenue is initially recorded based on estimates. These estimates are derived from interim financial statements, available separations studies and the most recent information available about achieved rates of return. These estimates are subject to adjustment in future accounting periods as additional operational information becomes available. To the extent that disputes arise over revenue settlements, the Company's policy is to defer revenue collected until settlement methodologies are resolved and finalized. During the second quarter of 2002, the Company recognized as revenue $11,066 of previously deferred interstate access revenue and reversed $1,673 of interest expense previously accrued thereon as a result of a favorable ruling by the District of Columbia Court of Appeals related to a dispute on interstate access rates for the Anchorage market. At June 30, 2003 and 2002, the Company had liabilities of $15,423 and $20,656, respectively, related to its estimate of refundable access revenue.

Regulatory Accounting and Regulation

The local telephone exchange operations of the Company account for costs in accordance with the accounting principles for regulated enterprises prescribed by Statement of Financial Accounting Standards ("SFAS") No. 71, Accounting for the Effects of Certain Types of Regulation. This accounting recognizes the economic effects of rate regulation by recording cost and a return on investment as such amounts are recovered through rates authorized by regulatory authorities. Accordingly, under SFAS No. 71, plant and equipment is depreciated over lives approved by regulators and certain costs and obligations are deferred based upon approvals received from regulators to permit recovery of such amounts in future years. Historically, lives approved for regulatory purposes have approximated economically useful lives. On July 21, 2002, the Company received an order from the RCA which extended lives approved for ratemaking purposes beyond the economically useful lives of the underlying assets. Management petitioned for reconsideration on the ACSA order and the RCA has accepted additional testimony and held a hearing in June of 2003. A final order on the matter is not expected until the second half of 2003. The Company implemented, effective January 1, 2003, higher depreciation rates for its regulated telephone plant for the interstate jurisdiction. As a result, the Company has recorded a regulatory asset under SFAS No. 71 of $5,466 as of June 30, 2003 related to depreciation of the regulated telephone plant allocable to its intrastate and local jurisdictions. The Company has also deferred as a regulatory asset $894 of costs incurred in connection with regulatory rate making proceedings, which is being amortized over three years starting in 2003. The balance of this regulatory asset was $745 at June 30, 2003. If the Company were not following SFAS No. 71, it would have recorded additional depreciation expense of $5,466 for the intrastate and local jurisdictions and the deferred costs incurred in connection with regulatory rate making proceedings would have been charged to expense as incurred. Non-regulated revenues and costs incurred by the local telephone exchange operations and non-regulated operations of the Company are not accounted for under SFAS No. 71 principles.

Stock Incentive Plans

The Company's employees participate in various plans of ACS Group. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock incentive plans. Accordingly, no compensation cost has been recognized for options with exercise prices equal to or greater than fair value on the date of grant. No compensation costs were charged to operations for the six months ended June 30, 2003 or 2002. If

F-6

compensation costs had been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income (loss) on a pro forma basis for the six months ended June 30, 2003 and 2002 would have been as follows:

		For the six months ended June 30,

		2003		2002

Net income (loss):
	As reported	$	87,420	$	(107,692	)
	Pro forma		87,499		(108,574	)

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for grants:

	2003	2002


Risk free rate	2.56%	4.13%
Dividend yield	0.0%	0.0%
Expected volatility factor	65.7%	54.0%
Expected option life (years)	6.1	6.1

2. New accounting standards

On August 15, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This standard generally applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. Under the new accounting method, asset retirement obligations are recognized in the period in which they are incurred if a reasonable estimate of fair value can be made. When the liability is initially recorded, the cost is capitalized and increases the carrying value of the related long-lived asset. The liability is then accreted to its present value each period and the capitalized cost is depreciated over the estimated useful life of the related asset. At the settlement date, the obligation is settled for its recorded amount or a gain or loss is recognized upon settlement.

In accordance with federal and state regulations, depreciation expense for the Company's local exchange carriers regulated operations have historically included an additional provision for cost of removal. Under SFAS No. 143, the additional cost of removal provision would no longer be included in depreciation expense, because it does not meet the recognition and measurement principles of an asset retirement obligation. On December 20, 2002, the FCC notified local exchange carriers that they should not adopt the provisions of SFAS No. 143 unless specifically required by the FCC in the future. As a result of the FCC ruling, the Company will continue to record a regulatory liability for cost of removal for its local exchange carriers subsidiaries that follow SFAS No. 71 accounting.

F-7

The Company applied the provisions of SFAS No. 143 to its nonregulated subsidiaries effective January 1, 2003. The Company has cell site leases which typically have terms of 10 years that contain contractual obligations to restore the site to its original condition. Since the Company plans to renew these leases indefinitely, it is unable to determine when it might have to perform the restoration of the cell sites to their original condition. The Company is therefore unable to estimate the fair value of these asset retirement obligations and has not recorded a liability under SFAS No. 143.

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that companies recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company's adoption of this statement did not have a material impact on its financial position, results of operations, or cash flows.

On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not currently have plans to change to the fair value method of accounting for our stock based compensation. The disclosure requirements are now effective.

On April 30, 2003, FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not believe the adoption of this statement will have a material impact on its financial position, results of operations, or cash flows.

On May 15, 2003, FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The new Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity, be classified as liabilities in statements of financial position. Most of the guidance in SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 has no effect on the Company's financial position, results of operations or cash flows.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The disclosure requirements are effective for

F-8

financial statements of interim or annual periods ending after December 15, 2002. The recognition and measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 had no effect on the Company's financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities. FIN 46 addresses when a company should include in its financial statements the assets, liabilities and activities of a variable interest entity. FIN 46 defines variable interest entities as those entities with a business purpose that either do not have any equity investors with voting rights, or have equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. FIN 46 consolidation requirements are effective for all variable interest entities created after January 31, 2003, and to pre-existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements are effective for financial statements issued after January 31, 2003. The adoption of FIN 46 has no effect on the Company's financial position, results of operations or cash flows.

3. Long-term obligations

During the first quarter of 2003, the Company's lenders approved an amendment and waiver to its Senior Credit Facility that, among other things, permitted the Company to sell its directory business and required that in the event the sale was completed, 75% of proceeds would be used to repay outstanding Senior Credit Facility term loans. This amendment and waiver became effective on May 8, 2003, and on May 13, 2003, the Company paid down $106,650 of the outstanding Senior Credit Facility term loans. Long-term obligations consist of the following at June 30, 2003 and December 31, 2002:

	2003		2002


Senior credit facility term loan — tranche A	$	105,727	$	148,500
Senior credit facility term loan — tranche B		113,158		148,500
Senior credit facility term loan — tranche C		101,842		133,650
9³/8% senior subordinated notes due 2009		150,000		150,000
Capital leases and other long-term obligations		11,365		12,181

		482,092		592,831
Less current portion		4,909		5,933

Long-term obligations, net of current portion	$	477,183	$	586,898

F-9

The aggregate maturities of long-term obligations for each of the five years and thereafter subsequent to June 30, 2003 are as follows:


2003 (July 1 - December 31)		$	729
2004 (January 1 - December 31)			4,979
2005 (January 1 - December 31)			4,178
2006 (January 1 - December 31)			106,755
2007 (January 1 - December 31)			111,786
	Thereafter		253,665

		$	482,092

4. Gain on disposal of assets

On April 28, 2003, the Company entered into an underwriting agreement with a syndicate of Canadian investment banks to complete the sale of a majority interest in the newly formed ACS Media, LLC (the "Directories Business"). The Company subsequently filed on April 29, 2003, a final prospectus with Canadian securities regulators to sell a majority interest in its Directories Business in a public offering in Canada to the ACS Media Income Fund (the "Fund"), which is a Canadian income fund. The offering was sponsored by the Company. The transaction closed on May 8, 2003, with the Company selling an 87.42% interest and retaining a 12.58% interest in the Directories Business. The Company is accounting for its 12.58% interest in the Directories Business under the equity method.

The Fund sold 17,500 units on May 8, 2003 for net proceeds of $110,435, after deducting its underwriters' fees and transaction expenses of $10,246. The Fund's net proceeds were used to acquire from the Company an 87.42% interest in the Directories Business. The Company received net proceeds of $105,059 after deducting its fees and expenses associated with the transaction of $5,376.

The Company entered into an arrangement with the Metropolitan Life Insurance Company (MetLife) to provide a credit facility to its Directories Business on May 8, 2003 immediately prior to the sale of its Directories Business to the Fund. The Directories Business then drew $35,000 of term loans against the facility, using $1,468 to pay fees and expenses related to the debt issuance and $87 to prepay an annual agency fee to MetLife. Of the $33,445 in net cash proceeds, $413 was deposited into the Directories Business as cash working capital and $33,032 was distributed to the Company as a dividend. The credit facility is non-recourse to the Company.

The Company's retained 12.58% minority interest was recorded at an initial book value of $1,077 representing the pro-rata retained ownership at historical book value. The Company's retained 12.58% interest in ACS Media LLC is subject to an exchange rights agreement that permits it conversion to units of the Fund after the expiration of a 90 day lockup period. Units of the Fund are traded on the Toronto Stock Exchange under the symbol AYP.UN. The Company can sell its exchanged units to a qualified investor or investors in a private placement transaction or offer them in a secondary public offering at its option after the expiration of a 180 day lockup agreement that expires on November 4, 2003 with the underwriters of the Fund's offering in Canada.

F-10

The Company realized a gain on foreign exchange of $4,104 as a result of currency fluctuation from April 28, 2003, the date the underwriting and investment agreements were executed, to May 8, 2003, the date the offering closed and the transaction was consummated. The foreign exchange gain is included in Interest and other income in the Consolidated Statement of Operations. The Company recognized a gain on disposition of $97,578 on a pre-tax basis, exclusive of the $4,104 exchange gain. The income tax expense associated with the gain on disposition of $40,114 was offset by a reduction in the valuation allowance that had been established for the tax benefit of prior net operating losses.

The following table indicates the Company's basis in assets sold to and liabilities assumed by the Fund and its retained interest in ACS Media LLC.


Net proceeds of the Transaction			$	105,059

Basis in directories business sold:
	Assets sold to the Fund:
		Current assets	$	4,214
		Property, plant and equipment, net		90
		Goodwill		38,821
		Debt issue costs		1,468
		Current liabilities		(1,035	)
		Long-term debt		(35,000	)

Basis of Directories Business				8,558
Equity in minority interest retained				1,077

Basis in net assets sold to the Fund			$	7,481

Gain on sale of Directories Business			$	97,578

The Company has entered into several long-term contracts with the Directories Business, including a 50-year publishing agreement, a 50-year license agreement, a 45-year non-compete agreement, and a 10-year billing and collection agreement. The Company will also maintain minority representation through up to three Managers of the permitted nine Managers of ACS Media LLC so long as it owns an interest of 10% or more in the Directories Business. Currently, Charles E. Robinson, the Company's Chairman and CEO, and W. Dexter Paine, III and Wray T. Thorn, both Directors of the Company and employees of Fox Paine & Company, the Company's majority shareholder, are Managers of ACS Media LLC.

5. Discontinued operations

On March 30, 2002, the Company approved a plan to sell its wireless cable television service segment. As a result of this decision, the operating revenue and expense of this segment has been classified as discontinued operations under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, for all periods presented and the assets and liabilities of the disposal group have been written down to their fair value, net of expected selling expenses. The income tax benefit in all periods was offset by a valuation allowance. The Company completed its disposal of its wireless cable television segment as of March 31, 2003.

F-11

The following discloses the results of the discontinued operations for the six months ended June 30, 2003 and 2002:

	Six Months Ended June 30,

	2003			2002

Operating revenue	$	110		$	425
Operating expense		162			720

Operating loss		(52	)		(295	)
Interest expense		—			(32	)

Loss from operations of discontinued segment		(52	)		(327	)
Write down of net assets to fair value		—			(7,060	)

Loss from discontinued operations	$	(52	)	$	(7,387	)

6. Cumulative effect of change in accounting principle

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level upon adoption and at least annually thereafter, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the unit may be impaired. The amount, if any, of the impairment is then measured in the second step. The second step of the goodwill impairment test compares the implied fair value goodwill of the reporting unit with the carrying amount of that goodwill. The implied fair value of a reporting unit's goodwill is the excess of the fair value of a reporting unit over the amounts assigned to assets and liabilities. If the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

The Company has determined that its business segments constitute reporting units, with the exception of the Internet segment, which includes two reporting units. Those reporting units are (1) Internet service and (2) IP based private network service. The Company completed the initial step of impairment testing which indicated that goodwill recorded in the local telephone, Internet, and interexchange segments was impaired as of January 1, 2002. Due to the potential impairment, the Company then completed the second step of the test to measure the amount of the impairment. The Company determined the fair value of each reporting unit for purposes of this test primarily by using a discounted cash flow valuation technique. Significant estimates used in the valuation include estimates of future cash flows, both future short-term and long-term growth rates, and the Company's estimated cost of capital for purposes of arriving at a discount factor. Based on that analysis, a transitional impairment loss of $105,350 was recognized as the cumulative effect of a change in accounting principle in the consolidated statement of operations. The income tax benefit of $39,540 was offset by a valuation allowance.

7. Stock incentive plans

The Company's employees participate in various plans of ACS Group, which through its Compensation Committee of the Board of Directors, may grant stock options, stock appreciation rights and other awards to officers, employees and non-employee directors. At June 30, 2003, ACS Group has reserved a total of 6,060 shares of authorized common stock for issuance under the

F-12

plans. The plans terminate in approximately 10 years from the date of adoption and allow forfeited options to be reissued. In general, options under the plans vest ratably over three, four or five years and will have an exercise price equal to the fair market value of the common stock on the date of grant. The term of options granted under the plan may not exceed 10 years.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

ACS Group has reserved 4,910 shares under this plan, which was adopted by the Parent in November 1999. At June 30 2003, 5,712 options have been granted, 2,420 have been forfeited, 441 have been exercised, and 1,618 shares are available for grant under the plan.

Alaska Communications Systems Group, Inc. 1999 Non-Employee Director Stock Compensation Plan

The non-employee director stock compensation plan was adopted by ACS Group in November 1999. ACS Group has reserved 150 shares under this plan. At June 30, 2003, 110 shares have been awarded and 40 shares are available for grant under the plan. Prior to 2003, directors were required to receive not less than 25% of their annual retainer and meeting fees in the form of ACS Group's stock, and may have elected to receive up to 100% of director's compensation in the form of stock. Starting in 2003, directors no longer have the option of receiving stock and receive all of their annual retainer and meeting fees in cash.

Alaska Communications Systems Group, Inc. 1999 Employee Stock Purchase Plan

This plan was also adopted by ACS Group in November 1999. ACS Group has reserved 1,000 shares under this plan. At June 30, 2003, 547 shares are available for issuance and sale. On June 30, 2003, 87 shares were issued under the plan. 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. Business segments

The Company has four reportable segments: local telephone, wireless, Internet and interexchange. Local telephone provides landline telecommunications services, and consists of local telephone service, network access and deregulated and other revenue; wireless provides wireless telecommunications service; Internet provides Internet service and advanced IP based private networks; and interexchange provides switched and dedicated long distance services. Each reportable segment is a strategic business under separate management and offering different services than those offered by the other segments. The Company evaluates the performance of its segments based on operating income (loss).

Previously, the Company reported its Directories Business as a separate segment. As discussed in Note 4, the Company sold an 87.42% interest in its Directories Business during the second quarter of 2003 and is no longer directly engaged in day-to-day management of that business. Therefore, the Directories Business no longer constitutes a reportable segment. Accordingly, the historical operating results for the Directories Business are included in "All Other" in the accompanying tables.

The Company also incurs interest expense, interest income, equity in earnings of investments, and other operating and non operating 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 non operating income and expense

F-13

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 the Company and are allocated to the business segments based on operating revenue. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The following table illustrates selected financial data for each segment as of and for the six months ended June 30, 2003:

	Local Telephone		Wireless		Internet			Interexchange			All Other			Eliminations			Total


Operating revenue	$	109,211	$	22,318	$	16,193		$	15,197		$	24,239		$	(17,841	)	$	169,317
Depreciation and amortization		28,738		2,929		4,832			1,117			7,075			—			44,691
Operating income (loss)		14,438		1,764		(14,845	)		(197	)		108,949			(9	)		110,100
Interest expense		279		2		67			148			27,111			—			27,607
Interest income		1		—		—			—			596			—			597
Equity in earnings of minority investments		—		—		—			—			303			—			303
Income tax provision (benefit)		5,881		724		—			—			(6,605	)		—			—
Income (loss) from continuing operations		8,279		1,038		(14,912	)		(345	)		93,421			(9	)		87,472
Total assets		476,228		76,261		(42,816	)		(1,052	)		166,115			—			674,736
Capital expenditures		8,728		542		3,250			10			5,021			—			17,551

Operating revenue disclosed above includes intersegment operating revenue of $12,692 for local telephone, $883 for wireless, $6,863 for interexchange and $13,101 for all other. In accordance with SFAS No. 71, intercompany revenue between local telephone and all other segments is not eliminated above.

The following table illustrates selected financial data for each segment as of and for the six months ended June 30, 2002:

	Local Telephone		Wireless			Internet			Interexchange			All Other			Eliminations			Total


Operating revenue	$	119,313	$	20,536		$	8,393		$	14,638		$	26,918		$	(14,883	)	$	174,915
Depreciation and amortization		27,475		2,755			2,974			1,138			4,890			—			39,232
Operating income (loss)		22,945		1,926			(9,932	)		(566	)		13,379			(37	)		27,715
Interest expense		809		(2	)		(55	)		(151	)		(24,319	)		—			(23,718	)
Interest income		1		1			—			—			1,169			—			1,171
Income tax provision (benefit)		9,571		796			—			—			(10,367	)		—			—
Income (loss) from continuing operations		14,184		1,133			(9,987	)		(717	)		469			(37	)		5,045
Total assets		614,346		100,154			(8,516	)		19,660			53,392			—			779,036
Capital expenditures		13,295		5,111			10,099			—			5,776			—			34,281

Operating revenue disclosed above include intersegment operating revenue of $11,323 for local telephone, $881 for wireless, $6,809 for interexchange and $10,598 for all other. In accordance with SFAS No. 71, intercompany revenue between local telephone and all other segments is not eliminated above.

F-14

The following table illustrates selected financial data for each segment as of and for the three months ended June 30, 2003:

	Local Telephone		Wireless		Internet			Interexchange			All Other			Eliminations			Total


Operating revenue	$	55,210	$	11,965	$	9,037		$	8,358		$	9,640		$	(9,424	)	$	84,786
Depreciation and amortization		14,046		1,484		2,422			562			3,577			—			22,091
Operating income (loss)		8,112		1,735		(8,392	)		378			101,667			—			103,500
Interest expense		143		1		33			74			14,669			—			14,920
Interest income		—		—		—			—			351			—			351
Equity in earnings of minority investments		—		—		—			—			303			—			303
Income tax provision (benefit)		3,374		720		—			—			(4,094	)		—			—
Income (loss) from continuing operations		4,595		1,014		(8,425	)		304			95,879			—			93,367
Total assets		476,324		76,557		(42,456	)		(764	)		165,075			—			674,736
Capital expenditures		4,734		421		2,018			2			1,922			—			9,097

Operating revenue disclosed above includes intersegment operating revenue of $7,329 for local telephone, $470 for wireless, $3,990 for interexchange and $6,430 for all other. In accordance with SFAS No. 71, intercompany revenue between local telephone and all other segments is not eliminated above.

The following table illustrates selected financial data for each segment as of and for the three months ended June 30, 2002:

	Local Telephone		Wireless			Internet			Interexchange			All Other			Eliminations			Total


Operating revenue	$	63,991	$	11,172		$	4,551		$	7,504		$	13,436		$	(7,749	)	$	92,905
Depreciation and amortization		13,794		1,390			1,721			564			2,504			—			19,973
Operating income (loss)		14,356		1,169			(6,068	)		(287	)		6,018			(15	)		15,173
Interest expense		1,242		(1	)		(48	)		(76	)		(12,092	)		—			(10,975	)
Interest income		—		1			—			—			606			—			607
Income tax provision (benefit)		6,882		502			—			—			(7,384	)		—			—
Income (loss) from continuing operations		8,716		668			(6,116	)		(363	)		1,856			(15	)		4,746
Total assets		616,321		100,929			(8,240	)		18,947			51,080			—			779,037
Capital expenditures		7,325		4,156			6,973			—			2,581			—			21,035

Operating revenue disclosed above include intersegment operating revenue of $5,947 for local telephone, $477 for wireless, $351 for directory, $3,611 for interexchange and $5,055 for all other. In accordance with SFAS No. 71, intercompany revenue between local telephone and all other segments is not eliminated above.

9. Related party transactions

On April 17, 2001, the Company issued an interest bearing note receivable to an officer totaling $328. The note bore interest at the Mid-Term Applicable Federal Rate and was due on April 15, 2005. The note was secured by a pledge of 100 shares of ACS Group's stock held in the officer's name. In accordance with an addendum to the officer's employment agreement dated May 3, 2001, the loan was to be forgiven ratably over a three year period ending April 16, 2004. Accordingly, $114 was forgiven on April 16, 2002 and recognized as compensation expense. Upon the closing of the sale of the Company's Directories Business on May 8, 2003 for which the officer received a fee of $840, he waived certain rights under his employment agreement, including the forgiveness terms of this indebtedness that would have occurred during 2003 and 2004. On May 8, 2003, the officer paid off the note balance of $238, including accrued interest.

F-15

Fox Paine & Company, the majority stockholder, receives an annual management fee in the amount of one percent of the Company's net income before interest expense, income taxes and depreciation and amortization, calculated without regard to the fee. The management fee expense for the six months ended June 30, 2003 and 2002 was $571 and $656, respectively.

The board of directors approved the payment of a fee equal to 1% of the gross proceeds generated from the sale of the Company's Directories Business to Fox Paine & Company upon closing such sale, plus expenses in connection with such transaction, including the reimbursement by the Company of the $250 consulting fee and transaction bonus paid to an officer under the agreement described below. The Company paid Fox Paine & Company $2,095 on May 8, 2003.

Fox Paine & Company entered into a consulting agreement with an officer of the Company for services rendered for the benefit of the Company related to the sale of the Company's Directories Business. Under this agreement, the officer was paid a lump sum consulting fee and transaction bonus of $250 in May 2003. As described above, Fox Paine & Company was reimbursed for this expense.

As previously described, the Company has entered into several long-term contracts with ACS Media LLC, including a 50-year publishing agreement, a 50-year license agreement, a 45-year non-compete agreement, and a 10-year billing and collection agreement. At June 30, 2003, the Company had recorded in accounts payable — affiliates $2,933 due to ACS Media, LLC under these contracts, primarily under the billing and collection agreement. The Company will also maintain minority representation through up to three Managers of the permitted nine Managers of ACS Media LLC as long as it owns an interest of 10% or more. Currently, Charles E. Robinson, the Company's Chairman and CEO and W. Dexter Paine, III, and Wray T. Thorn, both Directors of the Company and employees of Fox Paine & Company, the Company's majority shareholder, are Managers of ACS Media LLC.

10. Severance and restructuring charges

In June 2002, the Company adopted a restructuring plan and recorded $862 of associated charges, including $523 of severance costs and $339 of lease termination costs for office space. The Company completed this plan as of June 30, 2003. The Company has paid out $434 accrued under this plan for 13 employees who were terminated and eligible for severance. The Company also reversed the remaining restructuring charges of $428 during the quarter ended June 30, 2003. This amount substantially related to a planned early termination of a real property operating lease, which the Company has subsequently determined to retain through its original term.

11. Condensed consolidating financial statements

ACS Group and ACS Holdings' subsidiaries are guarantors under ACS Holdings' 9³/8% senior subordinated notes. All ACS Group's and Holdings' subsidiaries (the "Subsidiaries") are 100% owned. The guarantees are full and unconditional. In addition, all guarantees are joint and several. Accordingly, the interim condensed consolidating financial statements are presented below. Additionally, see ACS Group's 10-Q (Commission File Number 000-28167) for ACS Group only financial statements.

F-16

Condensed Consolidated Balance Sheet June 30, 2003

			Combined Subsidiaries		ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Assets
Current assets:
	Cash and cash equivalents		$	214	$	64,346		$	—		$	64,560
	Restricted cash			—		110			—			110
	Accounts receivable-trade, net			18,700		27,332			—			46,032
	Accounts receivable-affiliates			206,523		(201,757	)		—			4,766
	Materials and supplies			11,534		69			—			11,603
	Prepayments and other current assets			2,046		3,707			—			5,753

		Total current assets		239,017		(106,193	)		—			132,824
Investments				1,097		614,275			(614,275	)		1,097
Property, plant and equipment				992,586		107,487			—			1,100,073
Less: accumulated depreciation				618,996		43,132			—			662,128

	Property, plant and equipment, net			373,590		64,355			—			437,945
Goodwill				—		—			38,403			38,403
Intangible assets				22,146		658			—			22,804
Debt issuance costs, net				—		15,813			—			15,813
Deferred charges and other assets				3,229		22,621			—			25,850

		Total assets	$	639,079	$	611,529		$	(575,872	)	$	674,736

Liabilities and Stockholder's Equity
Current liabilities:
	Current portion of long-term obligations		$	1,350	$	3,559		$	—		$	4,909
	Accounts payable-affiliates			—		3,524			—			3,524
	Accounts payable, accrued and other current liabilities			20,608		20,870			(1	)		41,477
	Advance billings and customer deposits			9,146		—			—			9,146

		Total current liabilities		31,104		27,953			(1	)		59,056
Long-term obligations, net of current portion				6,175		471,008			—			477,183
Deferred income taxes				11,765		(11,765	)		—			—
Other deferred credits and long-term liabilities				14,164		16,797			—			30,961
Commitments and contingencies				—		—			—			—
Stockholder's equity:
	Common stock			25					(25	)
	Treasury stock			—		—			—			—
	Paid in capital in excess of par value			361,124		287,242			(361,124	)		287,242
	Accumulated deficit			214,722		(164,460	)		(214,722	)		(164,460	)
	Accumulated other comprehensive loss			—		(15,246	)		—			(15,246	)

		Total stockholder's equity		575,871		107,536			(575,871	)		107,536

		Total liabilities and stockholder's equity	$	639,079	$	611,529		$	(575,872	)	$	674,736

F-18

Condensed Consolidated Balance Sheet December 31, 2002

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Assets
Current assets:
	Cash and cash equivalents		$	(73	)	$	18,638		$	—		$	18,565
	Restricted cash			—			3,440			—			3,440
	Accounts receivable-trade, net			28,713			20,107			—			48,820
	Accounts receivable-affiliates			34,625			(30,864	)		—			3,761
	Materials and supplies			11,176			27			—			11,203
	Prepayments and other current assets			2,941			3,231			—			6,172
	Assets held for sale			261			—			—			261

		Total current assets		77,643			14,579			—			92,222
Investments				—			550,964			(550,964	)		—
Property, plant and equipment				987,132			103,233			—			1,090,365
Less: accumulated depreciation				588,536			36,740			—			625,276

	Property, plant and equipment, net			398,596			66,493			—			465,089
Goodwill				38,821			—			38,404			77,225
Intangible assets				22,237			1,032			—			23,269
Debt issuance costs, net				—			21,130			—			21,130
Deferred charges and other assets				32,278			(6,231	)		—			26,047

		Total assets	$	569,575		$	647,967		$	(512,560	)	$	704,982

Liabilities and Stockholder's Equity
Current liabilities:
	Current portion of long-term obligations		$	1,312		$	4,621		$	—		$	5,933
	Accounts payable-affiliates			—			1,319			—			1,319
	Accounts payable, accrued and other current liabilities			18,834			30,646			—			49,480
	Advance billings and customer deposits			9,804			—			—			9,804

		Total current liabilities		29,950			36,586			—			66,536
Long-term obligations, net of current portion				6,899			579,999			—			586,898
Deferred income taxes				7,673			(7,673	)		—			—
Other deferred credits and long-term liabilities				12,493			20,437			—			32,930
Stockholder's equity:
	Common stock			25						(25	)		—
	Treasury stock			—			—			—			—
	Paid in capital in excess of par value			355,574			287,242			(355,574	)		287,242
	Accumulated deficit			156,961			(249,738	)		(156,961	)		(249,738	)
	Accumulated other comprehensive loss			—			(18,886	)		—			(18,886	)

		Total stockholder's equity		512,560			18,618			(512,560	)		18,618

		Total liabilities and stockholder's equity	$	569,575		$	647,967		$	(512,560	)	$	704,982

F-19

Condensed Consolidated Statement of Operations Three Months Ended June 30, 2003

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	55,210		$	—		$	—		$	55,210
	Wireless			11,965			—			(18	)		11,947
	Directory			3,353			—			—			3,353
	Internet			9,037			—			—			9,037
	Interexchange			8,358			—			(3,119	)		5,239
	Other			—			6,287			(6,287	)		—
		Total operating revenue		87,923			6,287			(9,424	)		84,786
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			32,759			142			(5,414	)		27,487
	Wireless (exclusive of depreciation and amortization)			8,746			—			(1,727	)		7,019
	Directory (exclusive of depreciation and amortization)			1,832			—			(32	)		1,800
	Internet (exclusive of depreciation and amortization)			15,007			—			(1,957	)		13,050
	Interexchange (exclusive of depreciation and amortization)			7,418			—			(294	)		7,124
	Depreciation and amortization			18,514			3,577			—			22,091

		Total operating expense		(84,276	)		3,719			(9,424	)		(78,571	)
Loss (gain) on disposal of assets				(97,285	)		—			—			(97,285	)

Operating income				100,932			2,568			—			103,500
Other income (expense):
	Interest expense			(251	)		(14,669	)		—			(14,920	)
	Interest income and other			4,407			58,833			(58,453	)		4,787

		Total other expense		4,156			44,164			(58,453	)		(10,133	)

Income (loss) before income taxes and discontinued operations				105,088			46,732			(58,453	)		93,367
Income tax expense (benefit)				46,635			(46,635	)		—			—

Income from continuing operations				58,453			93,367			(58,453	)		93,367
Loss from discontinued operations				—			—			—			—

Net income (loss)			$	58,453		$	93,367		$	(58,453	)	$	93,367

F-20

Condensed Consolidated Statement of Operations Three Months Ended June 30, 2002

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	63,991		$	—		$	—		$	63,991
	Wireless			11,172			—			(10	)		11,162
	Directory			8,381			—			—			8,381
	Internet			4,551			—			—			4,551
	Interexchange			7,504			—			(2,684	)		4,820
	Other			211			5,055			(5,266	)		—

		Total operating revenue		95,810			5,055			(7,960	)		92,905
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			35,841			1,234			(4,504	)		32,571
	Wireless (exclusive of depreciation and amortization)			8,509			—			(1,440	)		7,069
	Directory (exclusive of depreciation and amortization)			3,535			—			(3	)		3,532
	Internet (exclusive of depreciation and amortization)			8,874			—			(1,557	)		7,317
	Interexchange (exclusive of depreciation and amortization)			7,227			—			(230	)		6,997
	Other (exclusive of depreciation and amortization)			315			—			(315	)		—
	Depreciation and amortization			17,492			2,503			(22	)		19,973

		Total operating expense		81,793			3,737			(8,071	)		77,459
Loss on disposal of assets				128			145			—			273

Operating income				13,889			1,173			111			15,173
Other income (expense):
	Interest expense			1,113			(12,092	)		4			(10,975	)
	Interest income and other			2			(2,523	)		3,069			548

		Total other expense		1,115			(14,615	)		3,073			(10,427	)

Income (loss) before income taxes and discontinued operations				15,004			(13,442	)		3,184			4,746
Income tax expense (benefit)				9,376			(9,376	)		—			—

Income from continuing operations				5,628			(4,066	)		3,184			4,746
Loss from discontinued operations				(400	)		—			(115	)		(515	)

Net income (loss)			$	5,228		$	(4,066	)	$	3,069		$	4,231

F-21

Condensed Consolidated Statement of Operations Six Months Ended June 30, 2003

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	109,211		$	—		$	—		$	109,211
	Wireless			22,318			—			(41	)		22,277
	Directory			11,631			—			—			11,631
	Internet			16,193			—			—			16,193
	Interexchange			15,197			—			(5,192	)		10,005
	Other			110			12,608			(12,718	)		—

		Total operating revenue		174,660			12,608			(17,951	)		169,317
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			65,738			434			(10,838	)		55,334
	Wireless (exclusive of depreciation and amortization)			16,883			—			(3,300	)		13,583
	Directory (exclusive of depreciation and amortization)			5,359			—			(110	)		5,249
	Internet (exclusive of depreciation and amortization)			26,206			—			(3,020	)		23,186
	Interexchange (exclusive of depreciation and amortization)			14,277			—			(564	)		13,713
	Other (exclusive of depreciation and amortization)			160			—			(160	)		—
	Depreciation and amortization			37,628			7,073			(10	)		44,691

		Total operating expense		166,251			7,507			(18,002	)		155,756
Loss (gain) on disposal of assets				(96,538	)		—			(1	)		(96,539	)

Operating income				104,947			5,101			52			110,100
Other income (expense):
	Interest expense			(496	)		(27,111	)		—			(27,607	)
	Interest income and other			4,408			58,332			(57,761	)		4,979

		Total other expense		3,912			31,221			(57,761	)		(22,628	)

Income (loss) before income taxes and discontinued operations				108,859			36,322			(57,709	)		87,472
Income tax expense (benefit)				46,635			(46,635	)		—			—

Income from continuing operations				62,224			82,957			(57,709	)		87,472
Loss from discontinued operations				—			—			(52	)		(52	)

Net income (loss)			$	62,224		$	82,957		$	(57,761	)	$	87,420

F-22

Condensed Consolidated Statement of Operations Six Months Ended June 30, 2002

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	119,313		$	—		$	—		$	119,313
	Wireless			20,536			—			(19	)		20,517
	Directory			17,022			—			—			17,022
	Internet			8,393			—			—			8,393
	Interexchange			14,638			—			(4,968	)		9,670
	Other			425			9,896			(10,321	)		—

		Total operating revenue		180,327			9,896			(15,308	)		174,915
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			68,893			1,540			(8,864	)		61,569
	Wireless (exclusive of depreciation and amortization)			15,751			—			(2,640	)		13,111
	Directory (exclusive of depreciation and amortization)			6,964			—			(6	)		6,958
	Internet (exclusive of depreciation and amortization)			15,327			—			(2,882	)		12,445
	Interexchange (exclusive of depreciation and amortization)			14,066			—			(454	)		13,612
	Other (exclusive of depreciation and amortization)			657			—			(657	)		—
	Depreciation and amortization			34,444			4,888			(100	)		39,232

		Total operating expense		156,102			6,428			(15,603	)		146,927
Loss on disposal of assets				128			145			—			273

Operating income				24,097			3,323			295			27,715
Other income (expense):
	Interest expense			569			(24,319	)		32			(23,718	)
	Interest income and other			6			(3,894	)		4,936			1,048

		Total other expense		575			(28,213	)		4,968			(22,670	)

Income before income taxes, discontinued operations and cumulative effect of change in accounting principle				24,672			(24,890	)		5,263			5,045
Income tax expense (benefit)				14,501			(14,501	)		—			—

Income from continuing operations				10,171			(10,389	)		5,263			5,045
Loss from discontinued operations				(6,810	)		(250	)		(327	)		(7,387	)

Income (loss) before cumulative effect of change in accounting principle				3,361			(10,639	)		4,936			(2,342	)
Cumulative effect of change in accounting principle				(8,297	)		(97,053	)		—			(105,350	)

Net income (loss)			$	(4,936	)	$	(107,692	)	$	4,936		$	(107,692	)

F-23

Condensed Consolidated Statement of Cash Flows Six Months Ended June 30, 2003

	Combined Subsidiaries			ACS Holdings Parent Only			Eliminations		ACS Holdings Consolidated


Net cash provided (used) by operating activities	$	(124,533	)	$	159,530		$	—	$	34,997
Cash Flows from Investing Activities:
Construction and capital expenditures		(10,245	)		(4,966	)		—		(15,211	)
Net proceeds from sale of business		138,091			—			—		138,091
Other investing activities		—			3,339			—		3,339

Net cash provided (used) by investing activities		127,846			(1,627	)		—		126,219
Cash Flows from Financing Activities:
Payments on long-term debt		(3,026	)		(110,053	)		—		(113,079	)
Dividends		—			(2,142	)		—		(2,142	)
Purchase of treasury stock		—			—			—		—
Issuance of common stock		—			—			—		—

Net cash provided (used) by financing activities		(3,026	)		(112,195	)		—		(115,221	)
Increase in cash and cash equivalents		287			45,708			—		45,995
Cash and cash equivalents, beginning of the period		(73	)		18,638			—		18,565

Cash and cash equivalents, end of the period	$	214		$	64,346		$	—	$	64,560

Supplemental Cash Flow Data:
Interest paid	$	531		$	23,331		$	—	$	23,862
Income taxes paid	$	—		$	—		$	—	$	—
Supplemental Noncash Transactions:
Property acquired under capital leases and mortgages	$	2,340		$	—		$	—	$	2,340
Interest rate swap marked to market	$	—		$	(3,640	)	$	—	$	(3,640	)

F-24

Condensed Consolidated Statement of Cash Flows Six Months Ended June 30, 2002

	Combined Subsidiaries			ACS Holdings Parent Only			Eliminations		ACS Holdings Consolidated


Net cash provided (used) by operating activities	$	29,373		$	(3,176	)	$	—	$	26,197
Cash Flows from Investing Activities:
Construction and capital expenditures		(26,635	)		(5,340	)		—		(31,975	)

Net cash used by investing activities		(26,635	)		(5,340	)		—		(31,975	)
Cash Flows from Financing Activities:
Payments on long-term debt		(2,172	)		(4,468	)		—		(6,640	)
Issuance of common stock		—			—			—		—

Net cash provided (used) by financing activities		(2,172	)		(4,468	)		—		(6,640	)
Increase (decrease) in cash and cash equivalents		566			(12,984	)		—		(12,418	)
Cash and cash equivalents, beginning of the period		1,239			39,773			—		41,012

Cash and cash equivalents, end of the period	$	1,805		$	26,789		$	—	$	28,594

Supplemental Cash Flow Data:
Interest paid	$	(532	)	$	25,446		$	—	$	24,914
Income taxes paid	$	—		$	—		$	—	$	—
Supplemental Noncash Transactions:
Property acquired under capital leases and mortgages	$	2,306		$	—		$	—	$	2,306
Interest rate swap marked to market	$	—		$	577		$	—	$	577

F-25

12. Commitments and contingencies

The Company is involved in various claims, legal actions and regulatory proceedings arising in the ordinary course of business. The Company believes that the disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

A class action lawsuit was filed against the Company on March 14, 2001. The litigation alleges various contract and tort claims concerning the Company's decision to terminate its Infinite Minutes long distance plan. Although the Company believes this suit is without merit and intends to vigorously defend its position, it is impossible to determine at this time the actual number of plaintiffs or the claims that will actually continue to be in dispute.

In December 2001, the Company entered into a contract with the State of Alaska that became effective on April 1, 2002 to provide comprehensive telecommunications services for a period of five years. This contract, which is a complex and multi-faceted agreement, obligates the Company, among other things, to deploy and manage advanced and innovative technologies through new and previously untested business practices. The Company believes the capital investment to perform its obligations under the contract will be substantial over the term of the agreement. The Company has expended approximately $14,000 through June 30, 2003, and while the Company cannot estimate the total additional capital expenditures with precision, under the current terms of the contract, those additional capital expenditures could be between one and three times the amount that the Company has already expended. This total capital investment could exceed the Company's original expectations of capital obligations under the contract. The Company expects to fund any future capital expenditures related to the contract with cash on hand and cash flows from operations.

The contract contains specific completion dates for certain implementation aspects by as early as April 1, 2003, as well as specific ongoing service level agreements. Both parties to the contract have alleged breaches and failures to perform by the other party. The parties are, however, engaged in dispute resolution processes and are seeking to renegotiate certain provisions of the contract, including the aforementioned specific completion dates and service level agreements. The Company is unable to determine the outcome of the dispute resolution processes and contract renegotiations at this time, and the Company cannot give you any assurance that the renegotiated terms, if any, will permit it to perform profitably under the agreement. If the Company's renegotiation efforts are unsuccessful, it may be subject to certain penalties and/or damages, which could amount to as much as $325 a month. In addition, if the parties are unable to negotiate solutions to the many issues in dispute, the contract may be terminated. If termination occurs, the parties would be obliged to follow the disentanglement procedures set forth in the agreement and incur any costs associated with such disentanglement. In addition, if the Company is ultimately found to have breached the contract, it could be liable for damages to the State of Alaska, which damages amount is not estimable at this time, but could be significant and could have a material adverse effect on the Company.

On July 15, 2002, the Company fulfilled a commitment to Neptune Communications, L.L.C., ("Neptune") to provide a loan for an aggregate principal amount of $15,000 in return for certain consideration. The Company has an agreement that enables it to purchase additional fiber optic capacity in future years from Neptune Communications, L.L.C., or Neptune, the expenditures for

F-26

which are expected to be significant and may exceed $25,000 over the next four years. While the Company has an agreement with Neptune, certain material terms of the agreement remain subject to continued negotiation. As part of the agreement, the Company made a loan to Neptune Communications in the amount of $15,000. The loan is in two parts. One part is for $7,500 and bears interest at the applicable federal rate, which was 4.84% at June 30, 2003, and matures on July 2022. In connection with this part of the loan, Neptune has granted the Company an option to purchase certain of Neptune's network assets no later than January 2, 2006 at a price equal to the then outstanding loan balance. The other part of the loan is for $7,500 and bears interest at 8% and matures on July 15, 2006. The Company has also entered into a strategic agreement with Neptune for the life of the fiber optic cable system owned by Neptune. The significant provisions of this agreement are: (i) purchase commitments by the Company for capacity in 2005 and 2007, the final price and quantity of which are subject to future events, (ii) Neptune's restoration of the Company's traffic carried on another cable system, (iii) and specific interconnection arrangements between the Company and Neptune, should the Company exercise its option to purchase certain network assets from Neptune. The Company is currently negotiating the open elements of its agreement with Neptune, including with respect to the structure and terms of the loans, and renegotiating other terms and conditions of the agreement, and it is impossible to determine the ultimate outcome of these negotiations at this time.

In May 2003, the Company entered into a four-year purchase commitment with a telecommunications equipment supplier to acquire approximately $19 million of wireless switches, cell sites and related equipment.

F-27

[Deloitte & Touche LLP Letterhead]

[Deloitte & Touche Logo]

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholder
Alaska Communications Systems Holdings, Inc.
Anchorage, Alaska

We have audited the consolidated balance sheets of Alaska Communications Systems Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Alaska Communications Systems Holdings, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 5 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

DELOITTE & TOUCHE LLP

Portland, Oregon
February 20, 2003
(August 5, 2003 as to Notes 15 and 20)

[Deloitte Touche Tohmatsu logo]

F-28

Alaska Communications Systems Holdings, Inc.
Consolidated balance sheets
December 31, 2002 and 2001

			December 31,

(Dollars in thousands)			2002			2001

ASSETS
Current assets:
	Cash and cash equivalents		$	18,565		$	41,012
	Restricted cash			3,440			6,932
	Accounts receivable-trade, net of allowance of $6,075 and $4,944			48,820			46,912
	Accounts receivable-affiliate			3,761			2,475
	Materials and supplies			11,203			8,723
	Prepayments and other current assets			6,172			6,032
	Assets held for sale			261			—

		Total current assets		92,222			112,086
Property, plant and equipment				1,090,365			1,036,829
Less: Accumulated depreciation and amortization				625,276			557,849

Property, plant and equipment, net				465,089			478,980
Goodwill				77,225			250,495
Intangible assets, net				23,269			26,785
Debt issuance costs, net of amortization of $15,883 and $11,692				21,130			25,321
Deferred charges and other assets				26,047			9,875

		Total assets	$	704,982		$	903,542

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
	Current portion of long-term obligations		$	5,933		$	5,107
	Accounts payable-affiliate			1,319			1,303
	Accounts payable, accrued and other current liabilities			49,480			62,765
	Advance billings and customer deposits			9,804			9,190

		Total current liabilities		66,536			78,365
Long-term obligations, net of current portion				586,898			591,496
Other deferred credits and long-term liabilities				32,930			25,003
Commitments and contingencies				—			—
Stockholder's equity:
	Common stock, $.01 par value; 1,000 shares authorized, 1 share issued and outstanding			—			—
	Contributed capital			287,242			287,242
	Accumulated deficit			(249,738	)		(64,735	)
	Accumulated other comprehensive loss			(18,886	)		(13,829	)

		Total stockholder's equity		18,618			208,678

		Total liabilities and stockholder's equity	$	704,982		$	903,542

See Notes to Consolidated Financial Statements

F-29

Alaska Communications Systems Holdings, Inc.
Consolidated statements of operations

			Years Ended December 31,

(Dollars in thousands)			2002			2001			2000

Operating revenues:
	Local telephone		$	226,447		$	221,411		$	222,268
	Wireless			43,180			41,894			41,155
	Directory			33,604			33,870			29,156
	Internet			20,847			13,724			9,170
	Interexchange			19,424			21,316			11,778

		Total operating revenues		343,502			332,215			313,527
Operating expenses:
	Local telephone (exclusive of depreciation and amortization)			117,277			120,465			131,542
	Wireless (exclusive of depreciation and amortization)			27,912			25,649			26,306
	Directory (exclusive of depreciation and amortization)			14,170			14,684			13,334
	Internet (exclusive of depreciation and amortization)			29,502			15,677			11,785
	Interexchange (exclusive of depreciation and amortization)			27,547			29,509			19,749
	Unusual charges			—			—			5,288
	Depreciation and amortization			82,940			79,108			71,755
	Goodwill impairment loss			64,755			—			—

		Total operating expenses		364,103			285,092			279,759
	Loss on disposal of assets, net			2,163			—			—

Operating income (loss)				(22,764	)		47,123			33,768
Other income and expense:
	Interest expense			(49,113	)		(57,565	)		(61,958	)
	Interest income and other			2,203			3,250			3,560
	Equity in income (loss) of investments			—			69			(303	)

		Total other income (expense)		(46,910	)		(54,246	)		(58,701	)

Loss before income taxes, discontinued operations and cumulative effect of change in accounting principle				(69,674	)		(7,123	)		(24,933	)
Income tax benefit				—			195			197

Loss from continuing operations				(69,674	)		(6,928	)		(24,736	)
Loss from discontinued operations				(7,632	)		(1,718	)		(917	)

Loss before cumulative effect of change in accounting principle				(77,306	)		(8,646	)		(25,653	)
Cumulative effect of change in accounting principle				(105,350	)		—			—

Net loss			$	(182,656	)	$	(8,646	)	$	(25,653	)

See Notes to Consolidated Financial Statements

F-30

Alaska Communications Systems Holdings, Inc.
Consolidated statements of stockholder's equity

(Dollars in thousands)	Common Stock		Contributed Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Stockholder's Equity


Balance, December 31, 1999	$	—	$	287,242	$	(20,701	)	$	—		$	266,541
Dividends		—		—		(9,735	)		—			(9,735	)
Net loss		—		—		(25,653	)		—			(25,653	)

Balance, December 31, 2000		—		287,242		(56,089	)		—			231,153
Components of Comprehensive loss:
Net loss		—		—		(8,646	)		—			(8,646	)
Minimum pension liability adjustment		—		—		—			(2,392	)		(2,392	)
Interest rate swap marked to market		—		—		—			(11,437	)		(11,437	)

Total comprehensive loss												(22,475	)

Balance, December 31, 2001		—		287,242		(64,735	)		(13,829	)		208,678
Dividends		—		—		(2,347	)		—			(2,347	)
Components of Comprehensive loss:
Net loss		—		—		(182,656	)		—			(182,656	)
Minimum pension liability adjustment		—		—		—			(2,342	)		(2,342	)
Interest rate swap marked to market		—		—		—			(2,715	)		(2,715	)

Total comprehensive loss												(187,713	)

Balance, December 31, 2002	$	—	$	287,242	$	(249,738	)	$	(18,886	)	$	18,618

See Notes to Consolidated Financial Statements

F-31

Alaska Communications Systems Holdings, Inc.
Consolidated statements of cash flows

		Years ended December 31,

(Dollars in thousands)		2002			2001			2000

Cash Flows from Operating Activities:
Net loss		$	(182,656	)	$	(8,646	)	$	(25,653	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Loss on discontinued operations		7,632			1,718			917
	Cumulative effect of change in accounting principle		105,350			—			—
	Depreciation and amortization		82,940			79,108			71,755
	Loss on disposal of assets, net		2,163			—			—
	Goodwill impairment loss		64,755			—			—
	Amortization of debt issuance costs		4,191			4,312			4,526
	Investment tax credits		—			(195	)		(197	)
	Capitalized interest		(1,157	)		(1,416	)		(1,096	)
	Other deferred credits		3,073			418			(1,141	)
	Changes in components of working capital:
	Accounts receivable and other current assets		(4,722	)		95			(6,443	)
	Accounts receivable — affiliate		(1,286	)		(959	)		96,160
	Accounts payable and other current liabilities		(12,460	)		5,604			4,126
	Other		(1,375	)		(2,386	)		1,000
	Net cash used in discontinued operations		(649	)		(1,015	)		(407	)

Net cash provided by operating activities			65,799			76,638			143,547
Cash Flows from Investing Activities:
Construction and capital expenditures, net of capitalized interest			(66,977	)		(87,582	)		(69,101	)
Acquisition of PCS licenses			(300	)		—			—
Release of funds from escrow			3,706			—			—
Issuance of note receivable			(15,000	)		—			—
Proceeds from liquidation of minority interest investment			—			1,370			—
Issuance of note receivable from officer			—			(339	)		—
Cost of acquisitions, net of cash received			—			(1,000	)		(5,598	)
Placement of funds in escrow			—			(6,932	)		—

Net cash used by investing activities			(78,571	)		(94,483	)		(74,699	)
Cash Flows from Financing Activities:
Payments on long-term debt			(7,328	)		(3,039	)		(6,223	)
Dividends			(2,347	)		—			(9,735	)

Net cash used by financing activities			(9,675	)		(3,039	)		(15,958	)
Increase (decrease) in cash			(22,447	)		(20,884	)		52,890
Cash and cash equivalents at beginning of the year			41,012			61,896			9,006

Cash and cash equivalents at the end of the year		$	18,565		$	41,012		$	61,896
Supplemental Cash Flow Data:
Interest paid		$	45,830		$	49,456		$	57,418
Income taxes paid			—			—			—
Supplemental Noncash Transactions:
Property acquired under capital leases		$	4,187		$	—		$	3,152
Note payable in connection with acquisition			—			—			2,250
Minimum pension liability adjustment			2,342			2,392			—
Interest rate swap marked to market			2,715			11,437			—

See Notes to Consolidated Financial Statements

F-32

Alaska Communications Systems Holdings, Inc.
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
(In thousands)

1. Description of company and summary of significant accounting policies

Alaska Communications Systems Holdings, Inc. and Subsidiaries (the "Company" or "ACS Holdings") a Delaware corporation, is engaged principally in providing local telephone, wireless, directory, Internet and interexchange network and other 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. On May 14, 1999, the Company was acquired and became a wholly owned subsidiary of Alaska Communications Systems Group, Inc. (the "Parent" or "ACS Group").

The accompanying consolidated financial statements for the Company are as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 and represent the consolidated financial position, results of operations and cash flows principally of the following entities:

•: Alaska Communications Systems Holdings, Inc.
•: ACS of Alaska, Inc. ("ACSAK")
•: ACS of the Northland, Inc. ("ACSN")
•: ACS of Fairbanks, Inc. ("ACSF")
•: ACS of Anchorage, Inc. ("ACSA")
•: ACS Wireless, Inc. ("ACSW")
•: ACS Long Distance, Inc. ("ACSLD")
•: ACS Television, L.L.C. ("ACSTV")
•: ACS Internet, Inc. ("ACSI")
•: ACS InfoSource, Inc. ("ACSIS")

A summary of significant accounting policies followed by the Company is set forth below:

Basis Of Presentation

The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany balances have been eliminated. Certain reclassifications have been made to the 2001 and 2000 financial statements to make them conform to the current presentation.

Use Of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the significant estimates affecting the financial statements are those related to the realizable value of accounts receivable, materials

F-33

and supplies, long-lived assets, income taxes and network access revenue reserves. Actual results may differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated balance sheets and statements of cash flows, the Company generally considers all highly liquid investments with a maturity at acquisition of three months or less to be cash equivalents.

Restricted Cash

The Company placed in escrow restricted cash as a judicial requirement of an appeal of a claim. This claim is expected to be adjudicated or settled in 2003. In the event the Company prevails, the restriction will be lifted, otherwise, the cash will be paid to the claimants. Liabilities associated with this claim are recorded in the Company's accounts payable, accrued and other current liabilities.

Materials and Supplies

Materials and supplies are carried in inventory at the lower of weighted average cost or market.

Property, Plant and Equipment

Telephone plant is stated substantially at original cost of construction. Telephone plant retired in the ordinary course of business, together with the cost of removal, less salvage, is charged to accumulated depreciation with no gain or loss recognized. Renewals and betterments of telephone plant are capitalized while repairs, as well as renewals of minor items, are charged to operating expense as incurred. The Company provides for depreciation of telephone plant on the straight-line method, using rates approved by the regulatory authorities. The composite annualized rate of depreciation for all classes of property, plant, and equipment was 7.4%, 7.0%, and 6.6% for 2002, 2001 and 2000, respectively.

Non-Telephone plant is stated at purchased cost and, when sold or retired, a gain or loss is recognized. Depreciation of such property is provided on the straight-line method over its estimated service life ranging from two to 20 years.

The Company is the lessee of equipment and buildings under capital leases expiring in various years through 2019. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are amortized over the lower of their related lease terms or their estimated productive lives. Amortization of assets under capital leases is included in depreciation and amortization expense for 2002, 2001 and 2000.

Debt Issue Costs

Legal, accounting and financing fees, printing costs, and other expenses associated with the issuance of the Company's senior credit facility, senior subordinated notes, and discount debentures are being amortized using the straight-line method over the term of the debt, which

F-34

approximates the effective interest method. Amortization expense included in interest expense for 2002, 2001 and 2000 was $4,191, $4,312, and $4,526, respectively.

Revenue Recognition

Substantially all recurring service revenues are billed one month in advance and are deferred until earned. Nonrecurring and usage sensitive revenues are billed in arrears and are recognized when earned. Additionally, the Company establishes estimated bad debt reserves against uncollectible revenues incurred during the period. During 2002 one customer accounted for 11% of consolidated revenues and no other customer accounted for more than 10% of consolidated revenue. During 2001 and 2000, no customer accounted for more than 10% of the consolidated revenues of the Company.

In October and November 2001, under two separate regulatory orders, ACSA was authorized to implement interim and refundable rate increases for both loop rental rates on unbundled network elements and for local service revenue. The Company recognized $4,940 and $465 of revenue during 2002 and 2001, respectively, associated with these rate increase authorizations. Management believes that it is unlikely the Company will have a refund obligation associated with these interim rate increases upon final adjudication of rates.

Access revenue is recognized when earned. The Company participates in toll revenue pools with other telephone companies. Such pools are funded by toll revenue and/or access charges regulated by the Regulatory Commission of Alaska ("RCA") within the intrastate jurisdiction and the Federal Communications Commission ("FCC") within the interstate jurisdiction. Much of the interstate access revenue is initially recorded based on estimates. These estimates are derived from interim financial statements, available separations studies and the most recent information available about achieved rates of return. These estimates are subject to adjustment in future accounting periods as additional operational information becomes available. To the extent that disputes arise over revenue settlements, the Company's policy is to defer revenue collected until settlement methodologies are resolved and finalized. During the second quarter of 2002, the Company recognized as revenue $11,066 of previously deferred interstate access revenue and reversed $1,673 of interest expense previously accrued thereon as a result of a favorable ruling by the District of Columbia Court of Appeals related to a dispute on interstate access rates for the Anchorage market. At December 31, 2002 and 2001, the Company had liabilities of $20,548 and $31,748, respectively, related to its estimate of refundable access revenue.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes reflect the temporary differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that such deferred tax assets will not be realized. One of the acquired companies had a remaining unamortized regulatory investment tax credit of $695 at May 14, 1999, of which $195 and $197 was amortized against income in 2001 and 2000, respectively.

F-35

Regulatory Accounting and Regulation

The local telephone exchange operations of the Company account for costs in accordance with the accounting principles for regulated enterprises prescribed by Statement of Financial Accounting Standards ("SFAS") No. 71, Accounting for the Effects of Certain Types of Regulation. This accounting recognizes the economic effects of rate regulation by recording cost and a return on investment as such amounts are recovered through rates authorized by regulatory authorities. Accordingly, under SFAS No. 71, plant and equipment is depreciated over lives approved by regulators and certain costs and obligations are deferred based upon approvals received from regulators to permit recovery of such amounts in future years. Historically, lives approved for regulatory purposes have approximated economically useful lives. On July 21, 2002, the Company received an order from the RCA which appears to extend lives approved for rate-making purposes beyond the economically useful lives of the underlying assets. Management petitioned for reconsideration, and the RCA has agreed to take additional testimony. A final order on the matter is not expected until the second quarter of 2003. As of December 31, 2002 the Company has deferred as a regulatory asset $894 of costs incurred in connection with regulatory rate making proceedings, which will be amortized in future periods. If the Company were not following SFAS No. 71, these costs would have been charged to expense as incurred. Non-regulated revenues and costs incurred by the local telephone exchange operations and non-regulated operations of the Company are not accounted for under SFAS No. 71 principles.

The local telephone exchange activities of the Company are subject to rate regulation by the FCC for interstate telecommunication service, and the RCA for intrastate and local exchange telecommunication service. The Company, as required by the FCC, accounts for such activity separately. Long distance services of the Company are subject to rate regulation as a non-dominant interexchange carrier by the FCC for interstate telecommunication services and the RCA for intrastate telecommunication services. Wireless, directory and Internet operations are not subject to rate regulation.

Change in Accounting Estimate

During the third quarter of 2002, the Company changed its estimate of the useful lives of certain classes of assets, resulting in additional depreciation expense of $2,206 for the year ended December 31, 2002.

Comprehensive Income (Loss)

Comprehensive income (loss) represents net income (loss) plus the results of certain Stockholder's equity changes not reflected in the consolidated statements of operations. For 2002 and 2001, the Company has provided an income tax valuation allowance equal to the income tax benefit resulting from its other comprehensive loss. The Company's comprehensive loss is equal to its net loss for 2000.

Stock Incentive Plans

The Company's employees participate in various plans of ACS Group. The Company applies Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," in accounting for its stock incentive plans. Accordingly, no compensation cost has been recognized

F-36

for options with exercise prices equal to or greater than fair value on the date of grant. No compensation costs were charged to operations in 2002, 2001 or 2000. If compensation costs had been determined consistent with SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net loss on a pro forma basis for 2002, 2001 and 2000 would have been as follows:

	2002			2001			2000


Net loss:
As reported	$	(182,656	)	$	(8,646	)	$	(25,653	)
Pro forma		(184,111	)		(10,114	)		(27,315	)

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for grants:

	2002	2001	2000


Risk free rate	2.88%	4.45%	5.50%
Dividend yield	0.0%	0.0%	0.0%
Expected volatility factor	60.8%	55.2%	52.5%
Expected option life (years)	6.1	5.9	6.1

Recent Accounting Pronouncements

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, and have been included in Note 20, Commitments, Contingencies and Guarantees. The recognition and measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not believe the adoption of this interpretation will have a material impact on its financial position, results of operations, or cash flows.

On August 15, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for the Company's fiscal year beginning January 1, 2003. This statement requires, among other things, the accounting and reporting of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset. Certain amounts included in accumulated depreciation will be redesignated as a regulatory liability. The Company is evaluating, but has not yet determined the impact of the adoption of this standard on its financial position, results of operations and cash flows.

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses accounting and reporting of all long-lived

F-37

assets, except goodwill, that are either held and used or disposed of through sale or other means (see Note 12).

In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 will generally require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. Accordingly, gains or losses from extinguishments of debt for fiscal years beginning after May 15, 2002 will not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the provisions of APB Opinion No. 30. Upon adoption, any gain or loss on extinguishment of debt previously classified as an extraordinary item in prior periods presented that does not meet the criteria of APB Opinion No. 30 for such classification will be reclassified to conform with the provisions of SFAS No. 145. Earlier application of the provisions of SFAS No. 145 related to the rescission of SFAS No. 4 is encouraged. SFAS No. 145 does not have any impact on the Company's results of operations for the current periods reported.

On July 30, 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires companies recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not believe the adoption of this statement will have a material impact on its financial position, results of operations, or cash flows.

On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not currently have plans to change to the fair value method of accounting for our stock based compensation. The disclosure requirements are now effective.

2. Acquisitions

On September 30, 1999, the Company acquired a majority interest in Alaskan Choice Television, L.L.C., ("ACTV"). The cash purchase price was approximately $1,900. On February 14, 2000, the Company purchased the remaining one-third interest of ACTV for $3,042, including a $2,250 note payable. This acquisition has been accounted for using the purchase method and its operating results have been included in the consolidated statements of operations from the date of acquisition. On March 30, 2002, the Company approved a plan to sell its wireless cable television service segment. As a result of this decision, the operating revenue and expense of this segment has been classified as discontinued operations for all periods presented (See Note 12).

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On June 16, 2000, the Company acquired a 100% interest in Internet Alaska, Inc. It previously held a minority interest of 28.5%. On July 6, 2001, The Company acquired the assets and business of Internet Plus. L.L.C., dba MosquitoNet, a Fairbanks based Internet service provider with approximately 5,000 customers. These acquisitions have been accounted for using the purchase method and the operating results from these acquisitions have been included in the consolidated statements of operations from the dates of acquisition. Pro forma information is not provided since the impact of these acquisitions does not have a material effect on the Company's financial position, results of operations and cash flows.

3. Accounts receivable

Accounts receivable — trade consists of the following at December 31, 2002 and 2001:

	2002		2001


Accounts receivable — trade:
Customers	$	37,638	$	33,613
Connecting companies		12,032		13,822
Other		5,225		4,421

		54,895		51,856
Less allowance for doubtful accounts		6,075		4,944

Accounts receivable — trade, net	$	48,820	$	46,912

4. Property, plant and equipment

Property, plant, and equipment consists of the following at December 31, 2002 and 2001:

	2002		2001


Property, plant, and equipment:
Land, buildings and support assets	$	192,832	$	178,736
Central office switching and transmission		314,316		309,291
Outside plant cable and wire facilities		499,720		486,352
Wireless switching and transmission systems		51,538		40,224
Other		4,393		2,359
Assets held for future use		3,492		—
Construction work in progress		24,074		19,867

		1,090,365		1,036,829
Less accumulated depreciation and amortization		625,276		557,849

Property, plant and equipment, net	$	465,089	$	478,980

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The following is a summary of property held under capital leases included in the above property, plant and equipment:

	2002		2001


Property held under capital leases:
Land, buildings and support assets	$	16,930	$	13,318
Outside plant cable and wire facilities		2,710		2,710

		19,640		16,028
Less accumulated depreciation and amortization		6,612		4,810

Property held under capital leases, net	$	13,028	$	11,218

Amortization of assets under capital leases included in depreciation expense in 2002, 2001 and 2000 is $2,333, $1,202, and $1,008, respectively.

The Company leases various land, buildings, right-of-ways, and personal property under operating lease agreements. Rental expenses under operating leases for 2002, 2001 and 2000 were $3,733, $3,971, and $4,055, respectively. Future minimum payments under these leases for the next five years and thereafter are as follows:


2003	$	2,474
2004		1,971
2005		1,331
2006		1,014
2007		794
Thereafter		1,954

	$	9,538

5. Goodwill and other intangible assets

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. In accordance with the guidelines of this accounting principle, goodwill and indefinite-lived intangible assets are no longer amortized but will be assessed for impairment on at least an annual basis. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.

Goodwill amortization, which was $7,741 and $7,510 for the years ended December 31, 2001 and 2000, respectively, ceased effective January 1, 2002. In the first quarter of 2002, pursuant to SFAS No. 142, the Company completed its reassessment of previously recognized intangible assets, and ceased amortization of indefinite-lived intangible assets.

Wireless and PCS licenses have terms of 10 years, but are renewable indefinitely through a routine process involving a nominal fee. The Company has determined that no legal, regulatory, contractual, competitive, economic or other factors currently exist that limit the useful life of its wireless and PCS licenses. Therefore, the Company is no longer amortizing its wireless and PCS licenses based on the determination that these assets have indefinite lives. In accordance with SFAS No. 142, the Company will evaluate its determination of an indefinite useful life of its wireless and PCS licenses each reporting period. SFAS No. 142 requires that indefinite lived intangible assets be tested for impairment at least annually by comparing the fair value of the assets to their carrying amount. Upon adoption of SFAS No. 142 on January 1, 2002, the Company completed an impairment test for its wireless and PCS licenses that determined recognition of an impairment loss was not necessary, as the carrying value of its wireless and PCS licenses did not

F-40

exceed their fair value. The Company performs its annual impairment test as of the beginning of the fourth quarter or more frequently if events or changes in circumstance indicate possible impairment. The Company determined the fair value of its wireless and PCS licenses for purposes of these tests primarily by first performing a market value comparison of similar licenses against their carrying value and then performing a discounted cash flow valuation of the reporting unit against its total carrying value, including these licenses.

SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level upon adoption and at least annually thereafter, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the unit may be impaired. The amount, if any, of the impairment is then measured in the second step. The second step of the goodwill impairment test compares the implied fair value goodwill of the reporting unit with the carrying amount of that goodwill. The implied fair value of a reporting unit's goodwill is the excess of the fair value of a reporting unit over the amounts assigned to assets and liabilities. If the carrying value amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

The Company has determined that its business segments constitute reporting units, with the exception of the Internet segment, which includes two reporting units. Those reporting units are (1) Internet service and (2) IP based private network service. The Company completed the initial step of impairment testing during the second quarter which indicated that goodwill recorded in the local telephone, Internet, and interexchange segments was impaired as of January 1, 2002. Due to the potential impairment, the Company then completed the second step of the test to measure the amount of the impairment. The Company determined the fair value of each reporting unit for purposes of this test primarily by using a discounted cash flow valuation technique. Significant estimates used in the valuation include estimates of future cash flows, both future short-term and long-term growth rates, and estimated cost of capital for purposes of arriving at a discount factor. Based on that analysis, a transitional impairment loss of $105,350 was recognized as the cumulative effect of a change in accounting principle in the consolidated statement of operations. The income tax benefit of $39,540 was offset by a valuation allowance.

The Company performed its annual impairment test as of the beginning of the fourth quarter of 2002. The Company determined the fair value of each reporting unit for purposes of this test primarily by using a discounted cash flow valuation technique. Significant estimates used in the valuation include estimates of future cash flows, both future short-term and long-term growth rates, and estimated cost of capital for purposes of arriving at a discount factor. Based on comparing this discounted cash flow model to the carrying value of the reporting units, an impairment loss of $64,755 in the local telephone segment was recognized in the consolidated statement of operations for the year ended December 31, 2002. The Company attributes the impairment loss in the local telephone segment to competitively biased regulatory policy. On an ongoing basis, the Company expects to perform its annual impairment test during the fourth quarter absent any impairment indicators.

In connection with the Company's adoption of a plan to discontinue its wireless cable television service segment during the first quarter of 2002, the goodwill of that segment was considered impaired, and an impairment charge of $3,165 is included with the results of discontinued operations.

F-41

The changes in the carrying value of goodwill by segment for the year ended December 31, 2002 are as follows:

	Local Telephone			Wireless		Directory		Internet			Interexchange			All Other			Total


Balance, December 31, 2001	$	191,351		$	8,851	$	38,831	$	8,146		$	151		$	3,165		$	250,495
Impairment losses included in discontinued operations		—			—		—		—			—			(3,165	)		(3,165	)
Impairment losses — transitional		(97,053	)		—		—		(8,146	)		(151	)		—			(105,350	)
Impairment losses — annual test		(64,755	)		—		—		—			—			—			(64,755	)

Balance, December 31, 2002	$	29,543		$	8,851	$	38,831	$	—		$	—		$	—		$	77,225

Provided below is a reconciliation of previously reported financial statement information to adjusted amounts that reflect the elimination of goodwill and indefinite-lived intangible amortization for the comparable years ended December 31, 2001 and 2000 prior to adoption of SFAS No. 142:

	2001			2000


Reported net loss
Add back:	$	(8,646	)	$	(25,653	)
Goodwill amortization		7,741			7,510
Indefinite-lived intangible amortization		528			524

Adjusted net loss	$	(377	)	$	(17,619	)

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset as of December 31, 2002 based on the Company's reassessment of previously recognized intangible assets and their remaining amortization lives in accordance with the adoption of SFAS No. 142:

	Gross Carrying Amount		Accumulated Amortization		Amortizable Life


Amortizable intangible assets:
Customer list	$	915	$	275	5
Other intangible assets		2,625		1,593	5

Total amortizable intangible assets	$	3,540	$	1,868

Indefinite-lived intangible assets:
Cellular licenses	$	18,194
PCS licenses		3,323
Domain names and trade names		80

Total indefinite-lived intangible assets	$	21,597

For amortizable intangible assets the total intangible amortization expense for the years ended December 31, 2002, 2001 and 2000 was $708, $616 and $525, respectively. The estimated amortization expense for each of the next five years ending December 31 is as follows:


2003	$	951
2004		446
2005		183
2006		92
2007		—

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6. Accounts payable, accrued and other current liabilities

Accounts payable, accrued and other current liabilities consist of the following at December 31, 2002 and 2001:

	2002		2001


Accounts payable — trade	$	11,435	$	10,138
Accrued payroll, benefits, and related liabilities		6,413		8,379
Accrued personal time off		5,200		5,207
Accrued interest		6,106		6,983
Refundable access revenue		9,147		22,688
Other		11,179		9,370

Accounts payable, accrued and other current liabilities	$	49,480	$	62,765

7. Long-term obligations

Long-term obligations consist of the following at December 31, 2002 and 2001:

	2002		2001


Senior credit facility term loan — tranche A	$	148,500	$	150,000
Senior credit facility term loan — tranche B		148,500		150,000
Senior credit facility term loan — tranche C		133,650		135,000
9³/8% senior subordinated notes due 2009		150,000		150,000
Capital leases and other long-term obligations		12,181		11,603

		592,831		596,603
Less current portion		5,933		5,107

Long-term obligations, net of current portion	$	586,898	$	591,496

The aggregate maturities of long-term obligations for each of the five years and thereafter subsequent to December 31, 2002 are as follows:


2003	$	5,933
2004		6,060
2005		5,260
2006		147,846
2007		144,908
Thereafter		282,824

	$	592,831

Senior Credit Facility

On May 14, 1999, the Company entered into a credit agreement with a syndicate of commercial banks which provide the Company's senior credit facility. The senior credit facility provides $435,000 of term loans and a revolving credit facility with a $75,000 line of credit, of which $430,650 is outstanding at December 31, 2002. The Company's obligations under the senior credit facility are unconditionally and irrevocably guaranteed, joint and severally, by the Company and its subsidiaries, and secured by collateral that includes substantially all of the Company and its subsidiaries' assets. The senior credit facility contains a number of restrictive covenants and events of default, including covenants limiting capital expenditures, incurrence of debt, and the payment of dividends, and requires the Company to achieve certain financial ratios. During the second quarter of 2002, the Company's lenders approved an amendment to its senior credit facility that,

F-43

among other things, permits the Company to repurchase up to $15,000 of its outstanding common stock over the term of the Senior Credit Facility. As of December 31, 2002 and 2001 the Company was in compliance with all of the covenants of the senior credit facility.

The tranche A term loan of $148,500 is repayable in annual principal payments of $1,500 which commenced on May 14, 2002 with the balance due on November 14, 2006. The loan bears interest at an annual rate equal (at the Company's option) to: (1) an adjusted London interbank offered rate ("LIBOR") plus 2.25% or (2) a rate equal to 1.75% plus the greater of the administrative agent's prime rate, a certificate of deposit rate plus 1.00% or the federal funds rate plus .50%, in each case subject to reduction based on the Company's financial performance. The rate of interest in effect at December 31, 2002 and 2001 was 4.125% and 4.69%, respectively, and is based on the LIBOR rate option.

The tranche B term loan of $148,500 is repayable in annual principal payments of $1,500 which commenced on May 14, 2002 with the balance due on November 14, 2007. The loan bears interest at an annual rate equal (at the Company's option) to: (1) LIBOR plus 3.00% or (2) a rate equal to 2.00% plus the greater of the administrative agent's prime rate, a certificate of deposit rate plus 1.00% or the federal funds rate plus .50%. The rate of interest in effect at December 31, 2002 and 2001 was 4.88% and 5.44%, respectively, and is based on the LIBOR rate option.

The tranche C term loan of $133,650 is repayable in annual principal payments of $1,350 which commenced on May 14, 2002 with the balance due on May 14, 2008. The loan bears interest at an annual rate equal (at the Company's option) to: (1) LIBOR plus 3.25% or (2) a rate equal to 2.25% plus the greater of the administrative agent's prime rate, a certificate of deposit rate plus 1.00% or the federal funds rate plus .50%. The rate of interest in effect at December 31, 2002 and 2001 was 5.06% and 7.06%, respectively, and is based on the LIBOR rate option.

The senior credit facility also provides a revolving credit facility in the amount of $75,000 which is available, in part, for up to $25,000 in letters of credit and up to $10,000 in the form of swingline loans. This revolving facility is available through May 15, 2006 and outstanding balances thereunder will bear interest at an annual interest rate option equivalent to that provided under tranche A. There were no amounts outstanding under this revolving credit facility as of December 31, 2002 and 2001.

On July 24, 1999 the Company entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its floating rate long-term debt. This agreement fixed at 5.99% the underlying variable rate on one-half of the borrowings under the senior credit facility, or $217,500, expiring in June 2004. The differential to be paid or received is recorded as interest expense in the consolidated statement of operations in the period in which it is recognized. The Company is exposed to credit losses from counterparty nonperformance, but does not anticipate any such non-performance.

Senior Subordinated Notes

On May 14, 1999, the Company issued $150,000 in aggregate principal amount of 9³/8% senior subordinated notes due 2009. Interest on the notes is payable semi-annually on May 15 and November 15. The notes will mature on May 15, 2009, and are redeemable, in whole or in part, at the option of the Company, at any time on or after May 15, 2004 at 104.688% of the principal amount declining to 100% of the principal amount on or after May 15, 2007. The notes contain a number of restrictive covenants, including covenants limiting incurrence of debt and the payment of dividends. As of December 31, 2002 and 2001 the Company was in compliance with all the covenants of the notes.

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Capital leases and other long-term obligations

The Company has entered into various capital leases and other debt agreements totaling $12,181 and $11,603 with a weighted average interest rate of 8.05% and 8.74% at December 31, 2002 and 2001, respectively.

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8. Other deferred credits and long-term liabilities

Deferred credits and other long-term liabilities consist of the following at December 31, 2002 and 2001:

	2002		2001


Refundable access revenue	$	11,401	$	9,060
Interest rate swap, marked to market		14,152		11,437
Additional pension liability		6,285		4,147
Other deferred credits		1,092		359

Total deferred credits and other long-term liabilities	$	32,930	$	25,003

9. Local telephone operating revenue

Local telephone operating revenues consisted of the following for the years ended December 31, 2002, 2001 and 2000:

	2002		2001		2000


Local network service	$	99,512	$	96,270	$	94,098
Network access revenue		108,335		102,977		105,172
Deregulated revenue and other		18,600		22,164		22,998

Total local telephone operating revenues	$	226,447	$	221,411	$	222,268

10. Unusual charges

During 2000, the Company recorded $5,288 of unusual charges, consisting of the following:


Costs incurred in attempted acquisition	$	1,451
Severance and restructuring costs		3,019
Legal settlement		818

	$	5,288

During 2000, the Company attempted to acquire the Matanuska Telephone Association, a cooperative telephone association located in Alaska. The acquisition was subject to approval by a vote of the membership of the cooperative association requiring a super majority, which was held in September of 2000. The membership of the association voted to approve the acquisition but failed to achieve the required super majority. The Company had incurred $1,451 of legal, consulting and other out of pocket costs associated with the attempted acquisition which were charged to expense during September 2000. The Company also recorded $3,019 related to severance and restructuring charges under several plans adopted during 2000. In December 2000, the Company settled out of court a claim by a vendor that arose from an undisclosed contractual obligation it incurred in the purchase of the Company's operations in May 1999, resulting in a charge to expense of $818.

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11. Income taxes

The Company's combined federal income and state effective income tax rate from continuing operations was a benefit of 0.0%, 1.7%, and 0.8% in 2002, 2001 and 2000, respectively. The difference between taxes calculated as if the statutory federal rate of 34% was applied to loss from continuing operations before income tax and the recorded tax benefit is reconciled as follows:

			2002			2001			2000


Computed federal income taxes at the 34% statutory rate			$	(23,689	)	$	(2,422	)	$	(8,736	)
	Increase (reduction) in tax resulting from:
		State income taxes (net federal benefit)		(4,097	)		(381	)		(1,503	)
		Amortization of investment tax credits		—			(195	)		(197	)
		Prior year adjustment		269			—			—
		Other		453			(68	)		285
		Valuation allowance — book net operating loss		27,064			2,871			9,954

Total income tax benefit			$	—		$	(195	)	$	(197	)

The benefit for income taxes is summarized as follows:

			2002		2001			2000


Current:
	Federal income tax		$	—	$	—		$	—
	State income tax			—		—			—

		Total current		—		—			—
Deferred:
	Federal income tax			—		—			—
	State income tax			—		—			—

		Total deferred		—		—			—
Amortization of investment tax credits				—		(195	)		(197	)

Total income tax benefit			$	—	$	(195	)	$	(197	)

F-47

The effect of significant items comprising the Company's net deferred tax liability at 34% were as follows:

	2002			2001			2000


Deferred tax liabilities — long-term:
Property, plant and equipment	$	(20,786	)	$	(20,380	)	$	(16,338	)
Intangibles		—			(13,105	)		(7,235	)
Other		(88	)		—			—

Total long-term deferred tax liabilities		(20,874	)		(33,485	)		(23,573	)

Deferred tax assets:
Current:
Accrued compensation		4,249			4,081			5,329
Accrued bad debts		2,827			2,172			4,825
Interest rate swap mark to market		5,661			4,575			—
Minimum pension liability adjustment		1,893			957			—
Other		987			516			293

Total current deferred tax assets		15,617			12,301			10,447

Long-term:
Net operating loss carryforwards from operations		57,136			49,324			32,324
Intangibles		46,734			—			—
Debt issuance cost		1,213			—			—

Total long-term deferred tax assets		105,083			49,324			32,324

Total deferred tax assets		120,700			61,625			42,771

Valuation allowance		(99,826	)		(28,140	)		(19,048	)

Net deferred tax asset	$	—		$	—		$	150

The Company has available at December 31, 2002 unused operating loss carryforwards of $142,839 that may be applied against future taxable income and that expire as shown below. Per the schedule below the total Net Operating Loss ("NOL") is made up of NOLs generated by the consolidated group and NOLs obtained with the 2000 acquisition of Internet Alaska. The Internet Alaska NOLs are limited by special rules known as Separate Return Limitation Year ("SRLY") rules. SRLY NOLs can only be used in years that both the Consolidated Group and the entity that created the SRLY NOLs have taxable income. The tax benefits derived from the utilization of the SRYL NOLs will increase retained earnings.

Year of Expiration	Internet Alaska's SRLY		Unused Operating Loss Carryforwards		Total Unused Operating Loss Carryforwards


2017	$	27	$	—	$	27
2018		328		42		370
2019		852		16,767		17,619
2020		2,631		55,286		57,917
2021		—		46,615		46,615
2022		—		20,291		20,291

	$	3,838	$	139,001	$	142,839

F-48

12. Discontinued operations

On March 30, 2002, the Company approved a plan to sell its wireless cable television service segment. As a result of this decision, the operating revenue and expense of this segment has been classified as discontinued operations under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, for all periods presented and the assets and liabilities of the disposal group have been written down to their fair value, net of expected selling expense. The income tax benefit in all years was offset by a valuation allowance. The following discloses the results of the discontinued operations for years ended December 31, 2002, 2001 and 2000:

	2002			2001			2000


Operating revenue	$	716		$	960		$	1,131
Operating expense		1,255			2,555			1,968

Operating loss		(539	)		(1,595	)		(837	)
Interest expense		(33	)		(126	)		(151	)
Other		—			3			71

Loss from operations of discontinued segment		(572	)		(1,718	)		(917	)
Write down of net assets to fair value		(7,060	)		—			—

Loss from discontinued operations	$	(7,632	)	$	(1,718	)	$	(917	)

Assets held for sale December 31, 2002 consist of the following:


Accounts receivable, net of allowance of $42	$	50
Other current assets		7
Property, plant and equipment		201
Intangible assets		85
Current liabilities		(82	)

Assets held for sale	$	261

13. Stock incentive plans

The Company's employees participate in various plans of ACS Group. The Company may grant stock options, stock appreciation rights and other awards to officers, employees and non-employee directors through the Compensation Committee of ACS Group's Board of Directors. At December 31, 2002, ACS Group has reserved a total of 6,060 shares of authorized common stock for issuance under the plans. In general, options under the plans vest ratably over three, four or five years and the plans terminate in approximately 10 years. On April 3, 2002, ACS Group merged the ALEC Holdings, Inc. 1999 Stock Incentive Plan into the Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan.

Alaska Communications Systems Group, Inc. 1999 Stock Incentive Plan

ACS Group has reserved 4,910 shares under this plan, which was adopted by ACS Group in November 1999. At December 31, 2002, 5,712 options have been granted, 1,897 have been forfeited, 441 have been exercised, and 1,095 shares are available for grant under the plan.

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Information on outstanding options for the years ended December 31, 2002, 2001 and 2000 is summarized as follows:

	2002				2001				2000

	Number of Shares		Weighted Average of Exercise Price		Number of Shares		Weighted Average of Exercise Price		Number of Shares		Weighted Average of Exercise Price

Outstanding, January 1	3,606		$	7.47	3,998		$	7.55	3,154		$	6.15
Granted	278			7.82	260			6.81	1,752			10.03
Exercised	(76	)		6.08	(128	)		6.03	(198	)		6.96
Canceled or expired	(434	)		8.13	(524	)		8.43	(710	)		7.92

Outstanding, December 31	3,374			7.52	3,606			7.47	3,998			7.55

Options exercisable at December 31	2,632			7.33	2,208			7.11	1,728			6.72
Weighted average fair value of options granted				4.57				3.93				5.66

The outstanding options at December 31, 2002 have the following characteristics:

	Outstanding Options				Exercisable Options

Range of Exercise Price	Number of Shares	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

$5.50 - $8.00	2,812	6.39	$	6.19	2,224	$	6.08
$8.58 - $12.63	18	7.47		12.63	12		12.63
$14.20	544	7.12		14.20	396		14.20

ACS Group, Inc. 1999 Non-Employee Director Stock Compensation Plan

The non-employee director stock compensation plan was adopted by ACS Group in November 1999. ACS Group has reserved 150 shares under this plan. At December 31, 2002, 110 shares have been awarded and 40 shares are available for grant under the plan. For the years ended December 31, 2002, 2001, and 2000, directors were required to receive not less than 25% of their annual retainer and meeting fees in the form of ACS Group's stock, and may have elected to receive up to 100% of director's compensation in the form of stock. Starting in 2003, directors no longer have the option of receiving stock and will receive all of their annual retainer and meeting fees in cash.

During the year ended December 31, 2002, 58 shares under the plan were awarded to directors, of which 34 were elected to be deferred until termination of service by the directors. During the year ended December 31, 2001, 26 shares under the plan were awarded to directors, of which 19 were elected to be deferred until termination of service by the directors. During the year ended December 31, 2000, 26 shares under the plan were awarded to directors, of which 13 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 by ACS Group in November 1999. ACS Group has reserved 1,000 shares under this plan. At December 31, 2002, 632 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

F-50

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.

On December 31, 2002, 97 shares were issued under the plan. On June 30, 2002, 53 shares were issued under the plan. On December 31, 2001, 38 shares were issued under the plan. On June 29, 2001, 48 shares were issued under the plan. On December 29, 2000, 67 shares were issued under the plan. On June 30, 2000, 65 shares were issued under the plan.

A participant in the purchase plan may authorize regular salary deductions of a maximum of 15% and a minimum of 1% of base compensation. The fair market value of shares which may be purchased by any employee during any calendar year may not exceed $25. The amounts so deducted and contributed are applied to the purchase of full shares of common stock at 85% of the lesser of the fair market value of such shares on the date of purchase or on the offering date for such offering period. The offering dates are January 1 and July 1 of each purchase plan year, and each offering period will consist of one six-month purchase period. The first offering period under the plan commenced on January 1, 2000. Shares are purchased on the open market or issued from authorized but unissued shares on behalf of participating employees on the last business days of June and December for each purchase plan year and each such participant has the rights of a stockholder with respect to such shares. During the year ended December 31, 2002 approximately 15% of eligible employees elected to participate in the plan.

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14. Retirement plans

Pension benefits for substantially all of the Company's employees are provided through the Alaska Electrical Pension Plan ("AEPP"). The Company pays a contractual hourly amount based on employee classification or base compensation. As a multi-employer defined contribution plan, the accumulated benefits and plan assets are not determined for or allocated separately to the individual employer. The Company's portion of the plan's pension cost for 2002, 2001 and 2000 was $13,390, $11,830, and $10,978, respectively.

The Company also provides a 401(k) retirement savings plan covering substantially all of its employees. The plan allows for discretionary matching contributions as determined by the Board of Directors, subject to Internal Revenue Code limitations. There was no matching contribution for 2002, 2001 or 2000.

The Company also has a separate defined benefit plan that covers certain employees previously employed by Century Telephone Enterprise, Inc. ("CenturyTel Plan"). This plan was transferred to the Company in connection with the acquisition of CenturyTel's Alaska Properties. Existing plan assets and liabilities of the CenturyTel Plan were transferred to the ACS Retirement Plan on September 1, 1999. Accrued benefits under the ACS Retirement Plan were determined in accordance with the provisions of the CenturyTel Plan. Upon completion of the transfer to the Company, covered employees ceased to accrue benefits under the plan. On November 1, 2000 the ACS Retirement Plan was amended to conform early retirement reduction factors and various other terms to those provided by the AEPP. As a result of this amendment, prior service cost of $1,992 was recorded and will be amortized over the expected service life of the plan participants at the date of the amendment. The Company uses the traditional unit credit method for the determination of pension cost for financial reporting and funding purposes and complies with the funding requirements under the Employee Retirement Income Security Act of 1974 ("ERISA"). Since the plan is adequately funded under ERISA, no contribution was made in 2002, 2001 or 2000.

The following table represents the net periodic pension expense (benefit) for the ACS Retirement Plan for 2002, 2001 and 2000:

	2002			2001			2000


Interest cost	$	680		$	627		$	447
Expected return on plan assets		(723	)		(773	)		(813	)
Amortization of gain/loss		260			30			—
Amortization of prior year service costs		203			203			34

Net periodic pension expense (benefit)	$	420		$	87		$	(332	)

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The following is a reconciliation of the beginning and ending balances for 2002 and 2001 for the projected benefit obligation and the plan assets of the ACS Retirement Plan:

	2002			2001


Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	9,108		$	8,600
Amortization of prior service cost		(203	)		(203	)
Interest cost		680			627
Actuarial loss		1,279			215
Benefits paid		(249	)		(131	)

Projected benefit obligation at end of year	$	10,615		$	9,108

Change in plan assets:
Fair value of plan assets at beginning of year	$	8,736		$	9,257
Return on plan assets		(803	)		(390	)
Benefits paid		(249	)		(131	)

Fair value of plan assets at end of year	$	7,684		$	8,736

The following table represents the funded status of the ACS Retirement Plan at December 31, 2001 and 2000:

	2002			2001


Projected benefit obligation	$	(10,615	)	$	(9,108	)
Plan assets at fair value		7,684			8,736

Funded Status		(2,931	)		(372	)

Unrecognized prior service cost		1,551			1,755
Unrecognized net loss		4,734			2,392

Net amount recognized	$	3,354		$	3,775

The net amounts recognized in the balance sheet were classified as follows at December 31, 2002 and 2001:

	2002			2001


Accrued benefit liability	$	(2,931	)	$	(372	)
Intangible asset		1,551			1,755
Accumulated other comprehensive loss		4,734			2,392

Net amount recognized	$	3,354		$	3,775

The actuarial assumptions used to account for the plan as of December 31, 2002 and 2001 are as follows:

	2002		2001


Discount rate	6.75	%	7.25	%
Expected return on assets	8.50	%	8.50	%
Rate of compensation increase	0.00	%	0.00	%

The Company also has a separate executive post retirement health benefit plan. The Alaska Communications Systems Executive Retiree Health Benefit Plan ("The ACS Health Plan") was adopted by the Company in November 2001 and amended in October 2002. The ACS Health Plan

F-53

covers a select group of management or highly compensated employees. The group of eligible employees is selected by a committee appointed by the Compensation Committee of ACS Group's Board of Directors. Each eligible employee must complete 10 years of service and be employed by the Company in the capacity of an executive officer for a minimum of 36 consecutive months immediately preceding retirement. The ACS Health Plan provides a graded subsidy for medical, dental, and vision coverage. The amendment revised the premium subsidy, added a premium subsidy cap and suspends retirees' benefits from the ACS Health Plan during any period the retiree has access to employer health benefits. The Company uses the projected unit credit method for the determination of post retirement health cost for financial reporting and funding purposes and complies with the funding requirements under the ERISA. The Company made a contribution of $128 to the ACS Health Plan during 2001.

The following represents the net periodic postretirement benefit expense for the ACS Health Plan for 2002 and 2001:

	2002			2001


Service cost	$	69		$	11
Interest cost		40			6
Expected return on plan assets		(11	)		—
Amortization of prior service cost		24			4

Net periodic postretirement benefit expense	$	122		$	21

The following is a reconciliation of the beginning and ending balances for 2002 and 2001 for the projected benefit obligation and the plan assets for the ACS Health Plan:

	2002			2001


Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of the year:	$	588		$	—
Plan adoption		—			586
Plan amendment		(440	)		—
Service cost		69			11
Interest cost		40			6
Actuarial (gain)/loss		11			(15	)

Accumulated postretirement benefit obligation at end of the year:	$	268		$	588

Change in plan assets:
Fair value of plan assets at beginning of year	$	128		$	—
Employer contributions		—			128
Return on plan assets		(1	)		—

Fair value of plan assets at end of year	$	127		$	128

F-54

The following table represents the funded status of the ACS Health Plan at December 31, 2002 and 2001:

	2002			2001


Accumulated postretirement benefit obligation	$	(268	)	$	(588	)
Plan assets at fair value		127			128

Funded status		(141	)		(460	)

Unrecognized prior service cost		118			582
Unrecognized net (gain) or loss		7			(15	)

Prepaid (accrued) benefit costs	$	(16	)	$	107

The actuarial assumptions used to account for the ACS Health Plan as of December 31, 2002 and 2001 is an assumed discount rate of 6.75% and 7.25%, respectively, and an expected long term rate of return on plan assets of 8.50%. For measurement purposes, the assumed annual rates of increases in health care costs is as follows:

Year	Pre 65 Premiums	Post 65 Premiums


1	7.00%	10.00%
2	7.00%	9.00%
3	7.00%	8.00%
4	7.00%	7.00%
5 and thereafter	7.00%	7.00%

Assumed health care cost trend rates have a significant effect on the amounts reported for the ACS Health Plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects for 2002:

	+1%	-1%


Effect on total of service and interest cost components	13	(12	)
Effect on accumulated postretirement benefit obligation	71	(64	)

15. Business segments

Previously, the Company reported its Directories Business as a separate segment. The Company sold an 87.42% interest in its Directories Business during the second quarter of 2003 and is no longer directly engaged in day-to-day management of that business. Therefore, the Directories Business no longer constitutes a reportable segment. Accordingly, the historical operating results for the Directories Business are included in "All Other" in the accompanying tables.

F-55

The Company also has a wireless cable television service segment that did not meet the criteria for a reportable segment and was previously included in "All Other" that is now reported as discontinued operations.

The Company also incurs interest expense, interest income, equity in earnings of investments, goodwill amortization in 2001 and 2000 on the original May 14, 1999 purchases, goodwill impairment losses and other operating and non operating 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 non operating 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 the Company and are allocated to the business segments based on operating revenue. Included in the caption "All Other" are also the net assets held for sale of $261 and other net liabilities of the discontinued operation that would not be sold of $5,941. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

F-56

The following table illustrates selected financial data for each segment as of and for the year ended December 31, 2002:

	Local Telephone		Wireless			Internet			Interexchange			All Other			Eliminations			Total


Operating revenues	$	226,447	$	43,233		$	20,848		$	29,708		$	58,411		$	(35,145	)	$	343,502
Depreciation and amortization		55,498		5,541			6,744			2,256			12,901			—			82,940
Operating income (loss)		32,005		3,647			(21,468	)		(1,250	)		(35,622	)		(76	)		(22,764	)
Interest expense		435		(5	)		(146	)		(330	)		(49,067	)		—			(49,113	)
Interest income		3		3			—			2			2,416			—			2,424
Income tax provision (benefit)		13,214		1,527			—			—			(14,741	)		—			—
Income (loss) from continuing operations		19,199		2,113			(21,619	)		(1,583	)		(67,708	)		(76	)		(69,674	)
Total assets		526,333		83,985			(26,971	)		7,676			113,959			—			704,982
Capital expenditures		31,186		14,007			16,604			228			9,439			—			71,464

Operating revenues disclosed above include intersegment operating revenues of $22,634 for local telephone, $1,786 for wireless, $13,965 for interexchange, and $1,400 for all other. In accordance with SFAS No. 71, intercompany revenues between local telephone and non-local telephone operations are not eliminated above.

The following table illustrates selected financial data for each segment as of and for the year ended December 31, 2001:

	Local Telephone			Wireless			Internet			Interexchange			All Other			Eliminations			Total


Operating revenues	$	221,411		$	41,923		$	13,726		$	30,795		$	50,942		$	(26,582	)	$	332,215
Depreciation and amortization		53,242			5,626			2,606			2,284			15,350			—			79,108
Operating income (loss)		34,794			5,084			(9,504	)		(1,752	)		18,501			—			47,123
Interest expense		(1,716	)		(36	)		(97	)		(302	)		(55,414	)		—			(57,565	)
Interest income		13			14			—			—			1,963			—			1,990
Income tax provision (benefit)		13,534			2,164			—			—			(15,893	)		—			(195	)
Income (loss) from continuing operations		19,560			2,966			(9,591	)		(2,049	)		(17,814	)		—			(6,928	)
Total assets		653,412			108,475			3,679			28,887			109,089			—			903,542
Capital expenditures		45,635			5,786			16,319			19,787			55			—			87,582

Operating revenues disclosed above include intersegment operating revenues of $21,677 for local telephone, $1,603 for wireless, $2 for Internet, $13,851 for interexchange and $1,400 for all other. In accordance with SFAS No. 71, intercompany revenues between local telephone and non-local telephone operations are not eliminated above.

F-57

The following table illustrates selected financial data for each segment as of and for the year ended December 31, 2000:

	Local Telephone			Wireless			Internet			Interexchange			All Other			Eliminations			Total


Operating revenues	$	222,268		$	41,205		$	9,172		$	19,773		$	45,765		$	(24,656	)	$	313,527
Depreciation and amortization		56,912			5,029			1,495			1,345			6,974			—			71,755
Operating income (loss)		31,751			6,414			(8,760	)		(1,325	)		(5,688	)		—			33,768
Interest expense		(1,046	)		(11	)		(109	)		(312	)		(60,480	)		—			(61,958	)
Interest income		105			215			—			—			3,449			—			3,769
Income tax provision (benefit)		7,913			2,703			—			—			(10,813	)		—			(197	)
Income (loss) from continuing operations		22,814			3,944			(8,863	)		(1,631	)		(41,000	)		—			(24,736	)
Total assets		634,105			108,663			25,082			43,596			97,860			—			909,306
Capital expenditures		53,974			11,505			3,252			3,030			492			—			72,253

Operating revenues disclosed above include intersegment operating revenues of $9,840 for local telephone, $937 for wireless, $2 for Internet and $13,208 for interexchange. In accordance with SFAS No. 71, intercompany revenues between local telephone and non-local telephone operations are not eliminated above.

16. Related party transactions

The Company has various intercompany transactions with the Parent and at December 31, 2002 and 2001, $3,761 and $2,475, respectively was due from the Parent.

Fox Paine & Company, ACS Group's 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 loss of investments, calculated without regard to the fee. The management fee expense for 2002, 2001 and 2000 was $1,316, $1,285, and $1,169, respectively. The management fee payable at 2002 and 2001 was $1,319 and $1,303, respectively.

On April 17, 2001, the Company issued an interest bearing note receivable to an officer totaling $328. The note bears interest at the Mid-Term Applicable Federal Rate, which was 3.26% as of December 31, 2002, and is due on April 15, 2005. The note is secured by a pledge of 100 shares of ACS Group's stock held in the officer's name. In accordance with an addendum to the officer's employment agreement dated May 3, 2001, the loan will be forgiven ratably over a three year period on its anniversary date ending on April 16, 2004. Accordingly, $114 was forgiven on April 16, 2002 and recognized as compensation expense. The note balance, including accrued interest, was $235 and $339 as of December 31, 2002 and 2001, respectively.

17. Accounting for derivative instruments and hedging activities

Commencing January 1, 2001, The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and its corresponding amendments under SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative, and its designation as a hedge. Derivatives that are not hedges must be adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in fair value of derivatives either offset the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or are recognized in other comprehensive income until the hedged transaction is recognized in

F-58

earnings. The change in a derivative's fair value related to the ineffective portion of a hedge, if any, is immediately recognized in earnings.

As a result of adopting SFAS No. 133, the Company recognized as an asset at January 1, 2001, a cumulative transition adjustment of $1,243 related to marking to fair value a designated cash flow hedge in the form of a interest rate swap. The cumulative unrealized gain from the transition adjustment was recorded as a credit to other comprehensive income within the Consolidated Statements of Stockholder's Equity. As of December 31, 2002 and 2001, the fair value of the swap has declined to a liability of $14,152 and $11,437, respectively, which is recorded in other deferred credits and long-term liabilities on the Company's Consolidated Balance Sheets. The fair value of the Company's interest rate swap agreement represents the estimated amount the Company would receive or pay to terminate the agreement, calculated based on the present value of expected payments or receipts based on implied forward rates in the LIBOR yield curve at the end of the year. The realized gains and losses of the swap and its associated hedged long-term debt are recorded net in interest expense on the Company's Consolidated Statements of Operations. For the years ended December 31, 2002 and 2001, realized changes in the fair value of the cash flow hedge amounted to a charge of $9,046 and $3,653, of which the ineffective portion was $59 and $247, respectively. Both the realized effective and ineffective components of the cash flow hedge were recorded as an increase to interest expense. Assuming a weighted average variable rate based on implied forward rates in the LIBOR yield curve as of December 31, 2002, $10,040 would be charged to earnings as interest expense as a result of projected realized changes in fair value of the cash flow hedge expected to occur in 2003. The swap agreement currently in place expires on June 24, 2004.

The Company maintains an interest rate risk management strategy as a condition of its bank credit agreement that uses derivatives to minimize significant, unanticipated earnings and cash flow fluctuations caused by interest rate volatility. The Company's specific goals are (1) to manage interest rate sensitivity by modifying the repricing characteristics of certain of its debt and (2) to lower (where possible) the cost of borrowed funds. The Company does not enter into derivative financial instruments for speculative or trading purposes.

By using derivative financial instruments to hedge exposure to changes in interest rates, the Company exposes itself to credit risk and market risk. The Company has minimized its credit risk by entering into a transaction with a high-quality counter-party and monitoring the financial condition of that counterparty. Market risk is managed through the setting and monitoring of parameters that limit the types and degree of market risks that are acceptable.

18. Fair value of financial instruments

The fair values of cash and short-term investments, accounts receivable and payable, and other short-term assets and liabilities approximate carrying values due to their short-term nature. The Company's interest rate swap agreement is marked to fair value, therefore its carrying value is equal to its fair value.

The fair value for the Company's senior subordinated notes was estimated based on quoted market prices. The fair value of the Company's senior credit facility term debt approximates carrying values due to the variable interest rate nature of the debt and its senior position in the capital structure.

F-59

The following table summarizes the Company's carrying values and fair values of the debt components of its financial instruments at December 31, 2002:

	Carrying Value		Fair Value


Senior credit facility term debt — tranche A	$	148,500	$	148,500
Senior credit facility term debt — tranche B		148,500		148,500
Senior credit facility term debt — tranche C		133,650		133,650
9³/8% senior subordinated notes due 2009		150,000		107,250
Capital leases and other long-term obligations		12,181		12,181

	$	592,831	$	550,081

The following table summarizes the Company's carrying values and fair values of the debt components of its financial instruments at December 31, 2001:

	Carrying Value		Fair Value


Senior credit facility term debt — tranche A	$	150,000	$	150,000
Senior credit facility term debt — tranche B		150,000		150,000
Senior credit facility term debt — tranche C		135,000		135,000
9³/8% senior subordinated notes due 2009		150,000		148,500
Capital leases and other long-term obligations		11,603		11,603

	$	596,603	$	595,103

19. Severance and restructuring charges

In June 2002, the Company adopted a restructuring plan and recorded $862 of associated charges, including $523 of severance costs and $339 of lease termination costs for office space. Employee force reductions expected as a result of this plan total approximately 30 persons, and the plan is expected to be completed by June 2003. As of December 31, 2002, 11 employees have been terminated and are eligible for severance and the Company has paid out $172 accrued under this plan.

20. Condensed Consolidating Financial Statements

F-60

Condensed Consolidated Balance Sheet
December 31, 2002

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Assets
Current assets:
	Cash and cash equivalents		$	(73	)	$	18,638		$	—		$	18,565
	Restricted cash			—			3,440			—			3,440
	Accounts receivable-trade, net			28,713			20,107			—			48,820
	Accounts receivable-affiliates			34,625			(30,864	)		—			3,761
	Materials and supplies			11,176			27			—			11,203
	Prepayments and other current assets			2,941			3,231			—			6,172
	Assets held for sale			261			—			—			261

		Total current assets		77,643			14,579			—			92,222
Investments				—			550,964			(550,964	)		—
Property, plant and equipment				987,132			103,233			—			1,090,365
Less: accumulated depreciation				588,536			36,740			—			625,276

	Property, plant and equipment, net			398,596			66,493			—			465,089
Goodwill				38,821			—			38,404			77,225
Intangible assets				22,237			1,032			—			23,269
Debt issuance costs, net				—			21,130			—			21,130
Deferred charges and other assets				32,278			(6,231	)		—			26,047

Total assets			$	569,575		$	647,967		$	(512,560	)	$	704,982
Liabilities and Stockholder's Equity
Current liabilities:
	Current portion of long-term obligations		$	1,312		$	4,621		$	—		$	5,933
	Accounts payable-affiliates			—			1,319			—			1,319
	Accounts payable, accrued and other current liabilities			18,834			30,646			—			49,480
	Advance billings and customer deposits			9,804			—			—			9,804

		Total current liabilities		29,950			36,586			—			66,536
Long-term obligations, net of current portion				6,899			579,999			—			586,898
Deferred income taxes				7,673			(7,673	)		—			—
Other deferred credits and long-term liabilities				12,493			20,437			—			32,930
Stockholder's equity:
	Common stock			25						(25	)		—
	Treasury stock			—			—			—			—
	Paid in capital in excess of par value			355,574			287,242			(355,574	)		287,242
	Retained earnings (accumulated deficit)			156,961			(249,738	)		(156,961	)		(249,738	)
	Accumulated other comprehensive loss			—			(18,886	)		—			(18,886	)

		Total stockholder's equity		512,560			18,618			(512,560	)		18,618

Total liabilities and stockholder's equity			$	569,575		$	647,967		$	(512,560	)	$	704,982

F-61

Condensed Consolidated Balance Sheet
December 31, 2001

			Combined Subsidiaries		ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Assets
Current assets:
	Cash and cash equivalents		$	1,239	$	39,773		$	—		$	41,012
	Restricted cash			—		6,932			—			6,932
	Accounts receivable-trade, net			26,707		20,205			—			46,912
	Accounts receivable-affiliates			26,351		(23,876	)		—			2,475
	Materials and supplies			8,698		25			—			8,723
	Prepayments and other current assets			4,115		1,917			—			6,032

		Total current assets		67,110		44,976			—			112,086
Investments				—		683,372			(683,372	)		—
Property, plant and equipment				938,367		98,462			—			1,036,829
Less: accumulated depreciation				530,728		27,121			—			557,849

	Property, plant and equipment, net			407,639		71,341			—			478,980
Goodwill				11,311		—			239,184			250,495
Intangible assets				25,228		1,557			—			26,785
Debt issuance costs, net				—		25,321			—			25,321
Deferred charges and other assets				1,249		8,626			—			9,875

Total assets			$	512,537	$	835,193		$	(444,188	)	$	903,542
Liabilities and Stockholder's Equity
Current liabilities:
	Current portion of long-term obligations		$	514	$	4,593		$	—		$	5,107
	Accounts payable-affiliates			—		1,303			—			1,303
	Accounts payable, accrued and other current liabilities			32,273		30,492			—			62,765
	Advance billings and customer deposits			9,190		—			—			9,190

		Total current liabilities		41,977		36,388			—			78,365
Long-term obligations, net of current portion				6,876		584,620			—			591,496
Deferred income taxes				10,076		(10,076	)		—			—
Other deferred credits and long-term liabilities				9,420		15,583			—			25,003
Stockholder's equity:
	Common stock			25					(25	)		—
	Treasury stock			—		—			—			—
	Paid in capital in excess of par value			283,185		287,242			(283,185	)		287,242
	Retained earnings (accumulated deficit)			160,978		(64,735	)		(160,978	)		(64,735	)
	Accumulated other comprehensive loss			—		(13,829	)		—			(13,829	)

		Total stockholder's equity		444,188		208,678			(444,188	)		208,678

Total liabilities and stockholder's equity			$	512,537	$	835,193		$	(444,188	)	$	903,542

F-62

Condensed Consolidated Statement of Operations
Year Ended December 31, 2002

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	226,447		$	—		$	—		$	226,447
	Wireless			43,233			—			(53	)		43,180
	Directory			33,604			—			—			33,604
	Internet			20,848			—			(1	)		20,847
	Interexchange			29,708			—			(10,284	)		19,424
	Other			716			24,807			(25,523	)		—

		Total operating revenue		354,556			24,807			(35,861	)		343,502
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			138,948			2,188			(23,859	)		117,277
	Wireless (exclusive of depreciation and amortization)			33,940			—			(6,028	)		27,912
	Directory (exclusive of depreciation and amortization)			14,189			—			(19	)		14,170
	Internet (exclusive of depreciation and amortization)			35,547			—			(6,045	)		29,502
	Interexchange (exclusive of depreciation and amortization)			28,666			—			(1,119	)		27,547
	Other (exclusive of depreciation and amortization)			1,158			—			(1,158	)		—
	Depreciation and amortization			70,181			12,890			(131	)		82,940
	Goodwill impairment loss			—			64,755			—			64,755

		Total operating expense		322,629			79,833			(38,359	)		364,103
Loss on disposal of assets				204			—			1,959			2,163

Operating income				31,723			(55,026	)		539			(22,764	)
Other income (expense):
	Interest expense			(79	)		(49,067	)		33			(49,113	)
	Interest income and other			(37	)		(3,978	)		6,218			2,203

		Total other expense		(116	)		(53,045	)		6,251			(46,910	)

Income (loss) before income taxes, discontinued operations and cumulative effect of change in accounting principle				31,607			(108,071	)		6,790			(69,674	)
Income tax expense (benefit)				22,718			(22,718	)		—			—

Income (loss) from continuing operations				8,889			(85,353	)		6,790			(69,674	)
Loss from discontinued operations				(6,810	)		(250	)		(572	)		(7,632	)

Loss before cumulative effect of change in in accounting principle				2,079			(85,603	)		6,218			(77,306	)
Cumulative effect of change in accounting principle				(8,297	)		(97,053	)		—			(105,350	)

Net income (loss)			$	(6,218	)	$	(182,656	)	$	6,218		$	(182,656	)

F-63

Condensed Consolidated Statement of Operations
Year Ended December 31, 2001

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	221,411		$	—		$	—		$	221,411
	Wireless			41,923			—			(29	)		41,894
	Directory			33,870			—			—			33,870
	Internet			13,726			—			(2	)		13,724
	Interexchange			30,795			—			(9,479	)		21,316
	Other			960			17,072			(18,032	)		—

		Total operating revenue		342,685			17,072			(27,542	)		332,215
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			133,181			2,475			(15,191	)		120,465
	Wireless (exclusive of depreciation and amortization)			31,213			—			(5,564	)		25,649
	Directory (exclusive of depreciation and amortization)			14,713			—			(29	)		14,684
	Internet (exclusive of depreciation and amortization)			20,624			—			(4,947	)		15,677
	Interexchange (exclusive of depreciation and amortization)			30,263			—			(754	)		29,509
	Other (exclusive of depreciation and amortization)			1,949			—			(1,949	)		—
	Depreciation and amortization			64,463			15,348			(703	)		79,108

		Total operating expense		296,406			17,823			(29,137	)		285,092
Loss on disposal of assets				—			—			—			—

Operating income				46,279			(751	)		1,595			47,123
Other income (expense):
	Interest expense			(2,277	)		(55,414	)		126			(57,565	)
	Interest income and other			116			23,660			(20,457	)		3,319

		Total other expense		(2,161	)		(31,754	)		(20,331	)		(54,246	)

Income (loss) before income taxes and and discontinued operations				44,118			(32,505	)		(18,736	)		(7,123	)
Income tax expense (benefit)				23,664			(23,859	)		—			(195	)

Income (loss) from continuing operations				20,454			(8,646	)		(18,736	)		(6,928	)
Loss from discontinued operations				—			—			(1,718	)		(1,718	)

Net income (loss)			$	20,454		$	(8,646	)	$	(20,454	)	$	(8,646	)

F-64

Condensed Consolidated Statement of Operations
Year Ended December 31, 2000

			Combined Subsidiaries			ACS Holdings Parent Only			Eliminations			ACS Holdings Consolidated


Operating revenue:
	Local telephone		$	222,268		$	—		$	—		$	222,268
	Wireless			41,205			—			(50	)		41,155
	Directory			29,156			—			—			29,156
	Internet			9,172			—			(2	)		9,170
	Interexchange			19,773			—			(7,995	)		11,778
	Other			1,131			16,609			(17,740	)		—

		Total operating revenue		322,705			16,609			(25,787	)		313,527
Operating expense:
	Local telephone (exclusive of depreciation and amortization)			145,682			2,469			(16,609	)		131,542
	Wireless (exclusive of depreciation and amortization)			29,762			—			(3,456	)		26,306
	Directory (exclusive of depreciation and amortization)			13,334			—			—			13,334
	Internet (exclusive of depreciation and amortization)			16,348			—			(4,563	)		11,785
	Interexchange (exclusive of depreciation and amortization)			19,753			—			(4	)		19,749
	Other (exclusive of depreciation and amortization)			1,482			—			(1,482	)		—
	Unusual charges			5,288			—			—			5,288
	Depreciation and amortization			57,429			14,836			(510	)		71,755

		Total operating expense		289,078			17,305			(26,624	)		279,759
Loss on disposal of assets				—			—			—			—

Operating income				33,627			(696	)		837			33,768
Other income (expense):
	Interest expense			(1,629	)		(60,480	)		151			(61,958	)
	Interest income and other			349			18,496			(15,588	)		3,257

		Total other expense		(1,280	)		(41,984	)		(15,437	)		(58,701	)

Income (loss) before income taxes and discontinued operations				32,347			(42,680	)		(14,600	)		(24,933	)
Income tax expense (benefit)				16,830			(17,027	)		—			(197	)

Income (loss) from continuing operations				15,517			(25,653	)		(14,600	)		(24,736	)
Loss from discontinued operations				—			—			(917	)		(917	)

Net income (loss)			$	15,517		$	(25,653	)	$	(15,517	)	$	(25,653	)

F-65

Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2002

	Combined Subsidiaries			ACS Holdings Parent Only			Eliminations		ACS Holdings Consolidated


Net cash provided (used) by operating activities	$	59,261		$	6,538		$	—	$	65,799
Cash Flows from Investing Activities:
Construction and capital expenditures		(57,538	)		(9,439	)		—		(66,977	)
Acquisition of PCS license		(300	)		—			—		(300	)
Issuance of note receivable		—			(15,000	)		—		(15,000	)
Other investing activities		—			3,706			—		3,706

Net cash provided (used) by investing activities		(57,838	)		(20,733	)		—		(78,571	)
Cash Flows from Financing Activities:
Payments on long-term debt		(2,735	)		(4,593	)		—		(7,328	)
Dividends		—			(2,347	)		—		(2,347	)

Net cash used by financing activities		(2,735	)		(6,940	)		—		(9,675	)
Increase in cash and cash equivalents		(1,312	)		(21,135	)		—		(22,447	)
Cash and cash equivalents, beginning of the period		1,239			39,773			—		41,012

Cash and cash equivalents, end of the period	$	(73	)	$	18,638		$	—	$	18,565
Supplemental Cash Flow Data:
Interest paid	$	86		$	45,744		$	—	$	45,830
Income taxes paid	$	—		$	—		$	—	$	—
Supplemental Noncash Transactions:
Property acquired under capital leases and mortgages	$	4,187		$	—		$	—	$	4,187
Minimum pension liability adjustment	$	—		$	2,342		$	—	$	2,342
Interest rate swap marked to market	$	—		$	2,715		$	—	$	2,715

F-66

Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2001

	Combined Subsidiaries			ACS Holdings Parent Only			Eliminations		ACS Holdings Consolidated


Net cash provided (used) by operating activities	$	88,111		$	(11,473	)	$	—	$	76,638
Cash Flows from Investing Activities:
Construction and capital expenditures		(87,548	)		(34	)		—		(87,582	)
Other investing activities		—			(6,901	)		—		(6,901	)

Net cash provided (used) by investing activities		(87,548	)		(6,935	)		—		(94,483	)
Cash Flows from Financing Activities:
Payments on long-term debt		(1,337	)		(1,702	)		—		(3,039	)

Net cash used by financing activities		(1,337	)		(1,702	)		—		(3,039	)
Increase in cash and cash equivalents		(774	)		(20,110	)		—		(20,884	)
Cash and cash equivalents, beginning of the period		2,013			59,883			—		61,896

Cash and cash equivalents, end of the period	$	1,239		$	39,773		$	—	$	41,012
Supplemental Cash Flow Data:
Interest paid	$	2,285		$	47,171		$	—	$	49,456
Income taxes paid	$	—		$	—		$	—	$	—
Supplemental Noncash Transactions:
Interest rate swap marked to market	$	—		$	11,437		$	—	$	11,437
Minimum pension liability adjustment	$	—		$	2,392		$	—	$	2,392

F-67

Condensed Consolidated Statement of Cash Flows
Year Ended December 31, 2002

	Combined Subsidiaries			ACS Holdings Parent Only			Eliminations		ACS Holdings Consolidated


Net cash provided (used) by operating activities	$	69,421		$	74,126		$	—	$	143,547
Cash Flows from Investing Activities:
Construction and capital expenditures		(68,609	)		(492	)		—		(69,101	)
Other investing activities		—			(5,598	)		—		(5,598	)

Net cash provided (used) by investing activities		(68,609	)		(6,090	)		—		(74,699	)
Cash Flows from Financing Activities:
Payments on long-term debt		(3,058	)		(3,165	)		—		(6,223	)
Dividends		—			(9,735	)		—		(9,735	)

Net cash used by financing activities		(3,058	)		(12,900	)		—		(15,958	)
Increase in cash and cash equivalents		(2,246	)		55,136			—		52,890
Cash and cash equivalents, beginning of the period		4,259			4,747			—		9,006

Cash and cash equivalents, end of the period	$	2,013		$	59,883		$	—	$	61,896
Supplemental Cash Flow Data:
Interest paid	$	1,635		$	55,783		$	—	$	57,418
Income taxes paid	$	—		$	—		$	—	$	—
Supplemental Noncash Transactions:
Property acquired under capital leases and mortgages	$	3,152		$	—		$	—	$	3,152
Note payable in connection with acquisition	$	—		$	2,250		$	—	$	2,250

21. Commitments and contingencies

In December 2001, the Company entered into a material contract with the State of Alaska to provide it with comprehensive telecommunications services for a period of five years. This contract obligates the Company to, among other things, provide on the state's behalf customer premise equipment and other capital assets which the Company believes will range between $25,000 and $30,000 over the term of the agreement, of which approximately $12,400 has been expended through December 31, 2002. The Company intends to fund this commitment with cash on hand and cash flows from operations.

On July 15, 2002 the Company fulfilled a commitment to Neptune Communications, L.L.C. ("Neptune") to provide a loan in the form of an unsecured note receivable totaling $15,000 in return for certain consideration. The note, which is included in deferred charges and other assets on the Company's Consolidated Balance Sheets, bears interest at the applicable federal rate, which was 5.61% at the date of issuance, and matures on July 15, 2022. Interest is payable semiannually,

F-68

but Neptune may elect to add the interest to the principal in lieu of cash payments. The commitment was funded with cash on hand. In connection with this note, Neptune has granted the Company an option to purchase certain network assets of Neptune, no later than January 2, 2006 at a price equal to the then outstanding loan balance. The Company has also entered into a strategic agreement with Neptune for the life of the fiber optic cable system owned by Neptune. The significant provisions of this agreement are: i) purchase commitments by the Company for capacity in 2005 and 2007, the final price and quantity of which are subject to future events, ii) Neptune's restoration of the Company's traffic carried on another cable system, iii) and specific interconnection arrangements between the Company and Neptune, should the Company exercise its option to purchase certain network assets from Neptune. The Company is currently renegotiating the terms and conditions of this agreement and it is not possible to determine the ultimate outcome of these negotiations at this time.

The Company has been authorized by its Board of Directors to evaluate the possible disposition of its directory business, ACSIS. This transaction, if completed, would result in a deleveraging of the Company's balance sheet and generate cash for other corporate objectives. The Company expects to file on or about March 6, 2003, a preliminary prospectus with Canadian securities regulators relating to a proposed public offering in Canada of ACSIS through a Canadian income fund. Any prospective sale of ACSIS is subject to the approval of the Company's Board of Directors, which is dependent upon terms and pricing. Any such sale is also contingent upon a number of conditions including approval by securities regulators, the approval of an amendment of certain terms and conditions of the Company's senior credit facility and market conditions. There can be no assurance that the Company will consummate any transaction to sell ACSIS.

F-69

22. Consolidated quarterly operating information (unaudited)

	Quarterly Financial Data

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter

2002
Operating revenues	$	82,010		$	92,905		$	84,330		$	84,257
Operating income (loss)		12,542			15,173			5,909			(56,388	)
Income (loss) from continuing operations		299			4,746			(6,257	)		(68,462	)
Loss on discontinued operations		(6,872	)		(515	)		(136	)		(109	)
Income (loss) before cumulative effect of change in accounting principle		(6,573	)		4,231			(6,393	)		(68,571	)
Cumulative effect of change in accounting principle		(105,350	)		—			—			—
Net income (loss)		(111,923	)		4,231			(6,393	)		(68,571	)
2001
Operating revenues	$	81,301		$	81,850		$	82,981		$	86,083
Operating income		10,310			12,096			12,708			12,009
Loss from continuing operations		(3,912	)		(1,668	)		(225	)		(1,123	)
Loss on discontinued operations		(310	)		(491	)		(526	)		(391	)
Net loss		(4,222	)		(2,159	)		(751	)		(1,514	)
2000
Operating revenues	$	78,235		$	80,788		$	75,008		$	79,496
Operating income		11,453			12,084			3,524			6,707
Loss from continuing operations		(3,709	)		(3,143	)		(10,493	)		(7,391	)
Loss on discontinued operations		(139	)		(251	)		(223	)		(304	)
Net loss		(3,848	)		(3,394	)		(10,716	)		(7,695	)

On March 30, 2002, the Company approved a plan to sell its wireless cable television service segment. As a result of this decision, the operating revenue and expense of this segment has been classified as discontinued operations for all periods presented. Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets and a transitional impairment loss of $105,350 was recognized as the cumulative effect of a change in accounting principle in the consolidated statement of operations. The Company performed its annual goodwill impairment test during the fourth quarter of 2002 and recorded a goodwill impairment loss of $64,755 in operating expenses of the consolidated statement of operations.

F-70

QuickLinks

Exhibit 99.2

ALASKA COMMUNICATIONS SYSTEMS HOLDINGS INC 8-K