Forward Looking Statements and Analysts' Reports This Form 10-Q and future filings by ACS and its consolidated subsidiaries on Forms 10-K, 10-Q and 8-K and the documents incorporated therein by reference include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"), as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these provisions. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, pricing plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, regulatory and competitive outlook, investment and expenditure plans, financing needs and availability and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as "aims", "anticipates", "believes", "could", "estimates", "expects", "hopes", "intends", "may", "plans", "projects", "seeks", "should" and variations of these words and similar expressions are intended to identify these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Forward-looking statements by us are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. Such forward-looking statements may be contained in this Form 10-Q under "Management's discussion and analysis of financial condition and results of operations" and elsewhere. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by us as a result of a number of important factors. Examples of these factors include (without limitation):
• our strongly competitive environment, which comprises national and local wireless and wireline facilities-based competitors;

• our ability to manage, integrate, market, maintain and attract sufficient customers to our Northstar and AKORN long-haul fiber facilities and our ability to develop attractive integrated products and services making use of the facility;

• the continued availability of financing in the amounts, at the terms, and subject to the conditions necessary, to support our future business;

• our ability to generate sufficient earnings and cash flows to continue to make dividend payments to our stockholders;

• rapid technological developments and changes in the telecommunications industries;

• changes in revenue resulting from regulatory actions affecting inter-carrier compensation;

• regulatory limitations on our ability to change our pricing for communications services;

• possible widespread or lengthy failures of our system or network cables, particularly our non-redundant systems, including our primary fiber link connecting Alaska and the lower 48 states, which would cause significant delays or interruptions of service and/or loss of customers;

• other unanticipated damage to one or more of our high capacity cables resulting from construction or digging mishaps, fishing boats or natural disasters;

• changes in revenue from Universal Service Funds ("USFs");

• changes in the demand for our products and services;

• changes in general industry and market conditions and growth rates;

• changes in interest rates or other general national, regional or local economic conditions;

• worse-than-assumed economic and demographic experience for our postretirement benefit plans (e.g., discount rates or investment returns);

• governmental and public policy changes;

• ongoing negotiations with our labor union, the International Brotherhood of Electrical Workers Local 1547 ("IBEW") and the potential outcome of such negotiations;

• the success of any future acquisitions and

• the matters described under "Item 1A-Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and this Quarterly Report on Form 10-Q.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. Additional risks that we may currently deem immaterial or that are not currently known to us could also cause the forward-looking events discussed in this Form 10-Q or our other reports not to occur as described. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any

forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Form 10-Q.
Investors should also be aware that while we do, at various times, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by an analyst irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. Overview
We believe we are the leading provider of integrated communications services in Alaska. Our wireline business comprises one of the most expansive end-to-end IP networks in Alaska and we are the largest local exchange carrier network in the state. We believe our wireless business comprises the most extensive, reliable wireless network in Alaska with third-generation ("3G") data transmission capabilities.
The sections that follow provide information about important aspects of our operations and investments and include discussions of our results of operations, financial condition and sources and uses of cash. In addition, we have highlighted key trends and uncertainties to the extent practicable. The content and organization of the financial and non-financial data presented in these sections are consistent with information we use in evaluating performance and allocating resources. We also monitor the state of the economy in general. In doing so, we compare Alaskan economic activity with broader economic conditions. In general, we believe that the Alaskan telecommunications market, as well as general economic activity in Alaska, is affected by certain economic factors, which include:
• activity in the oil and gas markets;

• military activity;

• the cost of long-haul telecommunications bandwidth;

• local customer preferences;

• average usage of Internet technology;

• unemployment levels and

• housing activity.

We have observed variances in economic effect on Alaska when compared to the U.S. as a whole. Some factors, particularly the price of oil and gas, may have the opposite effect on the Alaskan economy than the U.S. economy as a whole. In forecasting the local economic conditions that affect us, we take particular note of these factors.
Our results of operations, financial position and sources and uses of cash in the current and future periods continue to reflect our focus on the following strategic imperatives:
• Emphasis on Top-Line Growth: We emphasize revenue growth as well as growth in net cash provided by operating activities. We devote more resources to higher growth markets such as wireless, including wireless data, wireline broadband connections, including our long-haul fiber investment connecting our network to the lower 48, as well as expanded strategic services to business markets rather than to the traditional wireline voice market.

• Investment with Discipline: We focus on gaining market share in those markets that contain high revenue producing customers. In our wireline business, we focus on deploying and selling broadband connections in each market covered by our network. We have targeted investment in deploying high speed fiber conductivity in and between Alaska's urban centers. During 2008, we invested heavily in interstate capacity through our purchase of Crest and construction of AKORN. We have increasingly targeted enterprise customers. Revenues from these customers grew 47.2% and 49.1% in 2009 compared with the same three and six months ended June 30, 2008, respectively, primarily driven by sales of advanced IP services and increases in revenues from agreements with carriers to terminate their Alaskan long distance traffic. We have directed resources towards offering wireless plans that encourage customer adoption of large, monthly minute postpaid plans and unlimited postpaid plans. By directing resources carefully, we seek to distinguish ourselves from our competitors in a cost effective way.

• Profitability Improvement: We seek to increase operating income and margins. In support of this goal, our capital spending continues to be directed toward growth markets. High speed evolution data optimized ("EVDO") and

cutting-edge data services, deployment of our AKORN fiber facility coupled with the complimentary purchase of Crest, as well as expanded services to enterprise customers, including Metro Ethernet, are examples of initiatives designed to tap high growth markets. As a result of our investment in AKORN, we expect 2009 capital expenditures to be lower than 2008 levels. We expect additional capital expenditures to support the growth of our wireless network and enhance its reliability and data transmission speeds though an upgrade to EVDO Rev A technology.

• Process Improvement: While focusing resources on revenue growth and market share gains, we continually challenge our management team and employees at all levels to lower expenses and improve the customer experience through process improvements. We expect to invest in technology-assisted process improvement, including self-service initiatives. We expect efforts such as call center routing improvements, self-pay kiosk deployment and customer service tools, to improve our cost structure and maintain or improve operating income margins. As a result of past successes, we have been able to serve more customers while maintaining our workforce at or below prior levels.

• Pay for Performance: We embrace a culture of urgency and accountability. We establish goals for all of our employees that are tied to the imperatives described above. We seek to provide our non-represented employees cash incentives and equity compensation that are tied to these goals. We carefully design executive compensation programs to align executives' and shareholders' long-term interests.

RESULTS OF OPERATIONS
     All amounts are discussed at the consolidated level after the elimination
of certain affiliate revenue and expense.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
     The following table summarizes results of operations for the three months
ended June 30, 2009 and 2008:

                                                                  Three Months ended June 30,
                                                   2009               2008             Change          % Change
Operating revenues:
Wireline
Retail                                          $  22,537          $ 23,900          $ (1,363 )           -5.7 %
Wholesale                                           4,429             5,081              (652 )          -12.8 %
Access                                             21,182            21,601              (419 )           -1.9 %
Enterprise                                         12,492             8,489             4,003             47.2 %
Wireless                                           35,481            35,285               196              0.6 %

Total operating revenues                           96,121            94,356             1,765              1.9 %


Operating expenses:
Wireline (exclusive of depreciation and
amortization)                                      46,691            43,972             2,719              6.2 %
Wireless (exclusive of depreciation and
amortization)                                      19,415            20,802            (1,387 )           -6.7 %
Depreciation and amortization                      15,175            19,138            (3,963 )          -20.7 %
Loss on disposal of assets, net                        19               745              (726 )          -97.4 %

Total operating expenses                           81,300            84,657            (3,357 )           -4.0 %


Operating income                                   14,821             9,699             5,122             52.8 %
Operating margin                                     15.4 %            10.3 %

Other income and expense:
Interest expense                                  (10,302 )          (9,143 )          (1,159 )           12.7 %
Interest income                                        17               706              (689 )          -97.6 %
Other                                                 (42 )             (75 )              33            -44.0 %

Total other income and expense                    (10,327 )          (8,512 )          (1,815 )           21.3 %


Income before income tax expense                    4,494             1,187             3,307            278.6 %

Income tax expense                                 (1,961 )            (554 )          (1,407 )          254.0 %


Net income                                      $   2,533          $    633          $  1,900            300.2 %


Net income per share:
Basic                                           $    0.06          $   0.01          $   0.05

Diluted                                         $    0.06          $   0.01          $   0.05

Revenue Sources by Segment
We have two reportable business segments, wireline and wireless, which conduct the following principal activities:
• Wireline: We provide communications services including voice, data, broadband, multi-protocol label switching services, network access, long distance and other services to consumers, carriers, businesses and government customers throughout Alaska and to and from Alaska.

• Wireless: We provide wireless voice and data services, products, other value-added services and equipment sales across Alaska.

Operating Revenues
Wireline
Retail: Retail revenue decreased in the three months ended June 30, 2009 over June 30, 2008 primarily due to a $0.7 million decline in local exchange revenue associated with residential line losses, $0.4 million lower CPE sales to businesses and a $0.4 million decline in long distance sales. These losses were offset, in part, by a $0.2 million increase in revenue from our Internet Service Provider ("ISP") subscriber base.
Declines in retail switched access lines in service in the second quarter were concentrated in the residential market which is impacted by wireless substitution.
Wholesale: Wholesale revenues decreased due to declines in unbundled network elements ("UNEs") and wholesale local revenue primarily attributable to the ongoing migration of lines leased to our key competitor as they continue to move to cable telephony. As a result of ongoing declines in UNE and wholesale local lines, we expect that wholesale revenue will continue to decline as a component of wireline revenue for the foreseeable future.
Access: Access revenues decreased in the second quarter of 2009 due to a decline in allocable expenses eligible for cost recovery.
Enterprise: Enterprise revenue increased in the second quarter of 2009 primarily due to a $3.5 million increase in carrier data revenue and a $1.0 million increase in sales of advanced network services to large business and government customers, partially offset by a $0.6 million decrease in long distance wholesale carrier voice revenue.
Wireless
In the quarter ended June 30, 2009, wireless revenue increased by $0.2 million as compared to the same period ended June 30, 2008. Although we saw increases of $0.9 million in Competitive Eligible Telecommunications Carrier ("CETC") revenue, these increases were substantially offset by a $0.6 million decline in roaming revenue reflecting the downturn in the global economy resulting in fewer people traveling outside their own network coverage area. Operating Expense
Operating expense decreased year over year for the three months ended June 30, 2009, with increases in wireline expenses offset by decreases in wireless expenses and depreciation.
Wireline: Wireline expenses, which include local telephone, Internet, interexchange and cable systems operating costs, increased for the quarter ended June 30, 2009 over June 30, 2008, due to a $1.4 million increase in labor expense primarily related to our new cable operations, a $0.8 million increase in ISP access and leased circuit expenses, a $0.5 million increase in land and building facilities related charges, and a $0.3 million increase in LD interstate COGS. These increases were offset, in part, by a $0.4 million decrease in legal expenses resulting from favorable settlements of contingent liabilities.
Wireless: Wireless expense decreased by $1.4 million primarily driven by reductions in handset, accessory and data content expenses.
Depreciation and Amortization: Depreciation and amortization expense decreased primarily due to reductions in the depreciation of assets that had reached their maximum depreciable lives and lower depreciation charges for our regulatory assets related to our regulated telephone plant allocable to intrastate and local jurisdictions.
Other Income and Expense: Other income and expense was a net expense of $10.3 million due to lower levels of capitalized interest on fixed assets in the course of construction following the commercial launch of AKORN in April 2009 and reduced interest income due to a reduced amount of excess investible cash.

Income Taxes: Income taxes are currently being calculated using our estimated effective tax rate for the second quarter of 2009 of 43.6%. At June 30, 2009 we had tax net operating loss ("NOL") carry forwards of approximately $152.5 million. Income tax expense will not involve a significant cash outflow until these NOL's are utilized.
Net Income: The increase in net income is primarily a result of the factors discussed above.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008 The following table summarizes results of operations for the six months ended June 30, 2009 and 2008:

                                                               Six Months ended June 30,
                                                2009             2008            Change          % Change
Operating revenues:
Wireline
Retail                                        $  45,488        $  47,546        $ (2,058 )            -4.3 %
Wholesale                                         8,927           10,416          (1,489 )           -14.3 %
Access                                           42,363           47,905          (5,542 )           -11.6 %
Enterprise                                       24,313           16,310           8,003              49.1 %
Wireless                                         71,039           68,955           2,084               3.0 %

Total operating revenues                        192,130          191,132             998               0.5 %


Operating expenses:
Wireline (exclusive of depreciation and
amortization)                                    93,028           87,242           5,786               6.6 %
Wireless (exclusive of depreciation and
amortization)                                    37,888           40,923          (3,035 )            -7.4 %
Depreciation and amortization                    36,060           35,601             459               1.3 %
Loss on disposal of assets, net                     469              759            (290 )           -38.2 %

Total operating expenses                        167,445          164,525           2,920               1.8 %


Operating income                                 24,685           26,607          (1,922 )            -7.2 %
Operating margin                                   12.8 %           13.9 %

Other income and expense:
Interest expense                                (18,642 )        (16,372 )        (2,270 )            13.9 %
Interest income                                      51            1,009            (958 )           -94.9 %
Other                                               (87 )           (151 )            64             -42.4 %

Total other income and expense                  (18,678 )        (15,514 )        (3,164 )            20.4 %


Income before income tax expense                  6,007           11,093          (5,086 )           -45.8 %

Income tax expense                               (2,630 )         (4,684 )         2,054             -43.9 %


Net income                                    $   3,377        $   6,409        $ (3,032 )           -47.3 %


Net income per share:
Basic                                         $    0.08        $    0.15        $  (0.07 )

Diluted                                       $    0.08        $    0.14        $  (0.06 )

Operating Revenues
Wireline
Retail: Retail revenue decreased in the six months ended June 30, 2009 over June 30, 2008 primarily due to a $1.4 million decline in local exchange revenue associated with residential line losses, $0.6 million lower CPE sales to businesses and a $0.6 million decline in long distance sales. These losses were offset, in part, by a $0.5 million increase in revenue from our Internet Service Provider ("ISP") subscriber base.
Declines in retail switched access lines in service in 2009 were concentrated in the residential market which is impacted by wireless substitution.
Wholesale: Wholesale revenues decreased due to declines in unbundled network elements and wholesale local revenue primarily attributable to the ongoing migration of lines leased to our key competitor as they continue to move to cable telephony. As a result of ongoing declines in UNE and wholesale local lines, we expect that wholesale revenue will continue to decline as a component of wireline revenue for the foreseeable future.
Access: Access revenues decreased $5.5 million in the six months ended June 30, 2009 due to a net decrease in reserve releases, from settlements, of $3.0 million in the first half of 2009. These releases were attributable to a $4.2 million release in 2008 primarily related to refundable USF support, offset in part by a $1.2 million reserve release in 2009 related to a reserve for deferred tax asset study risk. The remaining decrease in allocable expenses is attributable to a decline in eligible cost recovery.
Enterprise: Enterprise revenue increased in the first six months of 2009 primarily due to a $5.8 million increase in carrier data and a $1.8 million increase in sales of advanced network services to large business and government customers.
Wireless
In the six months ended June 30, 2009, wireless revenue increased 3.0% over the period ended June 30, 2008. The increase is due primarily to $3.4 million in CETC revenue. These increases were partially offset by a $0.6 million decline in roaming revenue reflecting the downturn in the global economy resulting in fewer people traveling outside their own network coverage area and $0.4 million in handset and accessory sales. Additionally, lower-priced voice plans were initiated in the prior year to match national price points for voice plans. Operating Expense
Operating expense increased year over year for the six months ended June 30, 2009, with increases in wireline expenses and depreciation partially offset by decreases in wireless expenses.
Wireline: Wireline expenses, which include local telephone, Internet, interexchange and cable systems operating costs, increased for the six months ended June 30, 2009 over June 30, 2008, due to a $3.0 million increase in labor expense primarily related to our new cable operations, a $1.5 million increase in land and building facilities related charges, a $0.9 million increase in ISP access and leased circuit expenses, and a $0.8 million increase in LD interstate COGS. These increases were offset, in part, by a $0.4 million decrease in legal expenses resulting from favorable settlements of contingent liabilities.
Wireless: Wireless expense decreased by $3.0 million driven primarily by reductions in handset, accessory and data content expenses.
Depreciation and Amortization: Depreciation and amortization expense increased slightly due to additional depreciation on the assets purchased from Crest and additional depreciation related to the completion of the AKORN fiber facility offset, in part, by reductions in the depreciation of assets that had reached their maximum depreciable lives.
Other Income and Expense: Other income and expense was a net expense of $18.7 million due to higher interest expense on the $125.0 million, 5.75% Convertible Notes issued April 8, 2008 offset by a decline in interest income due to a reduced amount of excess investible cash.

Income Taxes: Income taxes are currently being calculated using our estimated effective tax rate for the six months ended June 30, 2009 of 43.8%. At June 30, 2009 we had tax NOL carry forwards of approximately $152.5 million. Income tax expense will not involve a substantial cash outflow until these NOL's are utilized.
Net Income: The decrease in net income is primarily a result of the factors discussed above.
Liquidity and Capital Resources
Our major sources and uses of funds for the six months ended June 30, 2009 and 2008 are as follows:

                                                            Six months ended
                                                                June 30,
                                                           2009           2008
      Net cash provided by operating activities        $   51,696     $   40,185
      Capital expenditures                             $  (20,673 )   $  (70,582 )
      Net settlement of capital expenditures payable   $  (12,104 )   $     (160 )
      Net borrowings/(repayments)                      $   (5,465 )   $  107,647
      Dividends                                        $  (18,912 )   $  (18,531 )

Sources
We have satisfied our cash requirements in the first six months of 2009 for operations, capital expenditures and debt service primarily through internally generated funds. For the six months ended June 30, 2009, our net cash flows . . .