Alaska Communications Systems Reports Third Quarter 2013 Results

Alaska Communications Systems Group, Inc. (“ACS”) (NASDAQ: ALSK) today reported financial results for its third quarter ended September 30, 2013.

“We are pleased to report steady performance to our business plan. Another quarter of solid broadband revenue performance has driven total wireline revenue growth, representing an important way we create value. Consistent with the other mechanism in our plan to create value by strengthening our balance sheet, we achieved meaningful de-leveraging and strong cash flows in this quarter. Closing the AWN transaction allows us to direct our capital more efficiently to further broadband growth,” said Anand Vadapalli, President and Chief Executive Officer of ACS.

Year-Over-Year Financial Highlights for the Quarter:

The third quarter represents the first reporting period following the Alaska Wireless Network, LLC (“AWN”) close and we encourage readers to review our press release schedules for description of changes in mapping of certain revenue categories. Further, we are providing additional supplemental information for readers to understand the AWN preferred distribution structure and its impact to our results.
  • Wireline revenues include business and wholesale, consumer and access revenues. We are focused on achieving growth in wireline revenues by driving broadband revenue performance. Wireline revenues were $50.1 million which increased by $0.6 million, or 1.2%.
    • Business and wholesale revenue increased $0.9 million, or 3.7%, which was driven by broadband revenue growth of 17.0%.
    • Consumer revenue increased $0.5 million, or 5.3%, with broadband revenue growth of 21.3%.
    • Access revenue declined, as expected, $0.9 million, or 5.7%, due to lower switched, special and other access revenue.
  • Wireless and backhaul revenue was $33.8 million and, as expected, declined year-over-year.
    • Retail service revenue declined $1.0 million, or 5.5%.
    • As expected, foreign roaming revenue declined $13.3 million, as roaming revenue moved to AWN.
    • CETC revenue increased 3.2%. CETC is now a pass-through under the AWN structure and has no impact on Adjusted EBITDA.
  • Adjusted EBITDA was $24.8 million and free cash flow was $3.5 million. The decline in Adjusted EBITDA compared to last year was anticipated following the close of AWN.
    • The AWN preferred distribution contributed $9.6 million to Adjusted EBITDA.
    • Free cash flow was impacted by higher levels of capital spending associated with the summer build season.
  • Net debt, which represents total debt less cash and cash equivalents, stands at $404.4 million. This represents a decrease of $134.2 million, or 24.9%, since December 31, 2012, evidencing commitment to deleveraging.

Sequential Metric Highlights: Third Quarter 2013 Compared to Second Quarter 2013
  • Business broadband connections increased by 112, or 0.6%, to 19,216 and business broadband ARPU remained relatively flat at $175.00.
  • Consumer broadband connections increased by 506, or 1.3%, to 38,117 and consumer broadband ARPU declined slightly by 1.2% to $48.63.
  • Consumer access lines declined by 1,716, or 3.3%, to 50,722 and business access lines decreased by 446, or 0.6%, to 80,071.
  • Wireless connections declined by 2,305, or 2.0%, to 112,114. Connections were impacted by 782 fewer lifeline customers associated with continued compliance with new certification rules, and 2,453 fewer post-pay connections of which 714 were non-revenue-generating-internal-use connections that were disconnected as part of the AWN transaction, partially offset by an increase of 930 in prepaid connections.
  • Wireless broadband ARPU increased 7.5%. Retail wireless ARPU declined slightly to $52.08.

“This is the first quarter of results following the close of the AWN transaction, and we have provided additional information in this press release to enable readers to evaluate our performance under this new operating structure. During our upcoming conference call we will walk the readers through this information. Our path to deliver shareholder value is growing wireline and total broadband revenue, while strengthening the business through debt reductions. Our financial results are in-line with our expectations, with solid free cash flow generation for the year,” said Wayne Graham, Chief Financial Officer of ACS.

Guidance for the year is as follows:

Total revenue guidance is unchanged and expected to be $340 - $350 million.

Adjusted EBITDA guidance is unchanged and expected to be $105 - $110 million.

Capital spending, previously targeted to be around $50 million, is now expected to be moderately lower.

Previous Free Cash Flow guidance of $20 - $25 million is unchanged and we are comfortable with the high end of the range.

Guidance for 2014, with a full-year without the transition period of pre- and post-AWN ownership, will be provided when we report fourth quarter 2013 results.

Conference Call

The company will host a conference call and live webcast today at 5:00 p.m. Eastern time to discuss these results. Parties in the United States and Canada can access the call at 1-877-941-0843. Parties outside the United States and Canada can access the call at 1-480-629-9722. The live webcast of the conference call will be accessible from the "Events Calendar" section of the company's website ( www.alsk.com).

The webcast will be archived for a period of 90 days. A telephonic replay of the conference call will also be available two hours after the call and will run until December 31, 2013, at midnight Eastern time. To hear the replay, parties in the United States and Canada can call 1-800-406-7325 and enter pass code 4645116. Parties outside the United States and Canada can call 1-303-590-3030 and enter pass code 4645116.

About Alaska Communications

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

Non-GAAP Measures

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

Forward-Looking Statements

This press release includes certain “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s beliefs as well as on a number of assumptions concerning future events made using information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside ACS’ control. Such factors include, without limitation, Verizon’s continued build out of their wireless network in Alaska, Universal Service Fund changes, AWN’s future financial and operational performance and the wholesale terms it establishes, adverse national economic conditions, adverse conditions in the credit markets impacting the cost, including interest rates, and/or availability of financing, adverse local economic conditions, including an unexpected downturn in the Alaskan oil and gas or tourism markets, changes in capital expenditures, the effects of competition in our markets, the entry of one or more additional facilities-based carriers into the Alaska market; the Company’s ability to complete, manage, integrate, market, maintain, and attract sufficient customers to the products and services it may deliver, adverse changes in labor matters, including workforce levels, labor negotiations, and benefits costs; disruption of our suppliers’ provisioning of critical products or services; the impact of natural or man-made disasters; changes in Company’s relationships with large carrier or enterprise customers; unforeseen changes in public policies; changes in accounting policies, including the Company’s application of regulatory accounting rules, which could result in an impact on earnings; or disruptive technological developments in the telecommunications industry. For further information regarding risks and uncertainties associated with ACS’ business, please refer to the Company’s SEC filings, including, but not limited to, the sections entitled "Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K and quarterly reports on Form 10-Q. Copies of the Company’s SEC filings may be obtained by contacting its investor relations department at (907) 564-7556 or by visiting its investor relations website at www.alsk.com .
Schedule 1
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED SCHEDULE OF OPERATIONS
(Unaudited, In Thousands Except Per Share Amounts)
 
    Three Months Ended     Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
 
Operating revenues $ 83,841 $ 96,750 $ 272,657 $ 272,709
 
Operating expenses:
Cost of services and sales, inclusive of $11,228 of AWN 44,720 36,346 117,371 111,602
Selling, general & administrative 29,274 25,437 83,717 80,374
Depreciation and amortization 9,209 12,932 33,291 38,452
(Income) loss on disposal of assets, net (132,109 ) (2,559 ) (131,483 ) (2,140 )
Earnings on equity method investments (8,082 ) (45 ) (8,061 ) (45 )
AWN excess distribution   (2,867 )   -     (2,867 )   -  
Total operating (income) expenses   (59,855 )   72,111     91,968     228,243  
 
Operating income 143,696 24,639 180,689 44,466
 
Other income and expense:
Interest expense (9,785 ) (10,268 ) (29,970 ) (29,203 )
Loss on extinguishment of debt (2,094 ) - (2,370 ) (323 )
Interest income 19 9 37 31
Other   -     -     (13 )   -  
Total other income and expense   (11,860 )   (10,259 )

 
  (32,316 )   (29,495 )
 
Income before income tax expense 131,836 14,380 148,373 14,971
 
Income tax expense   (54,238 )   (6,136 )   (29,613 )   (6,385 )
 
Net income $ 77,598   $ 8,244   $ 118,760   $ 8,586  
 
Net income per share:
Basic $ 1.65   $ 0.18   $ 2.55   $ 0.19  
Diluted $ 1.33   $ 0.17   $ 2.09   $ 0.19  
 
Weighted average shares outstanding:
Basic   47,159     45,664     46,592     45,511  
Diluted   59,346     59,437     58,816     45,806  
 
 

Schedule 2
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands Except Per Share Amounts)
 
    September 30,     December 31,
Assets 2013 2012
 
Current assets:
Cash and cash equivalents $ 53,295 $ 16,839
Restricted cash 482 3,875
Short-term investments - 2,050
Accounts receivable-trade, net of allowance of $5,744 and $6,231 31,390 39,713
Materials and supplies 12,112 9,409
Prepayments and other current assets 7,672 5,566
Deferred income taxes   1,478     8,301  
Total current assets 106,429 85,753
 
Property, plant and equipment 1,345,048 1,463,320
Less: accumulated depreciation and amortization   (1,005,035 )   (1,052,459 )
Property, plant and equipment, net 340,013 410,861
 
Goodwill 4,650 8,850
Intangible assets, net - 24,118
Debt issuance costs 7,502 10,558
Deferred income taxes 48,337 69,049
Equity method investments 207,566 2,028
Other assets   400     3,510  
Total assets $ 714,897   $ 614,727  
 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term obligations $ 12,865 $ 21,628
Accounts payable, accrued and other current liabilities, inclusive of $3,926 of AWN 61,033 56,378
Advance billings and customer deposits   8,837     8,970  

Total current liabilities
82,735 86,976
 
Long-term obligations, net of current portion 444,782 533,772
Other long-term liabilities   93,571     28,662  
Total liabilities   621,088     649,410  
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value; 145,000 authorized 486 458
Additional paid in capital 151,784 144,377
Accumulated deficit (51,519 ) (170,279 )
Accumulated other comprehensive loss   (6,942 )   (9,239 )
Total stockholders' equity (deficit) 93,809 (34,683 )
 
Total liabilities and stockholders' equity (deficit) $ 714,897   $ 614,727  
 
 

Schedule 3
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In Thousands)
 
    Three Months Ended     Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Cash Flows from Operating Activities:
Net income $ 77,598 $ 8,244 $ 118,760 $ 8,586

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,209 12,932 33,291 38,452
Gain on sale/contribution of asset to AWN (132,424 ) - (132,424 ) -
AWN excess distribution (2,867 ) - (2,867 ) -
Gain on ineffective hedge adjustment 231 - (785 ) -
Amortization of debt issuance costs and debt discount 2,714 1,380 5,754 4,382
Amortization of ineffective hedge 1,082 - 1,948 -
Amortization of deferred AWN capacity revenue (738 ) - (738 ) -
Stock-based compensation 550 969 2,268 2,662
Deferred income taxes 53,640 6,136 29,015 6,385
Provision for uncollectible accounts 366 307 805 1,836
Cash distribution from equity method investments 5,389 32 5,389 32
Earnings on equity method investments (8,082 ) (45 ) (8,061 ) (45 )
Other non-cash expense, net (2,572 ) (2,585 ) (1,710 ) (2,042 )
Changes in operating assets and liabilities   7,161     (8,198 )   6,096     (4,038 )
Net cash provided by operating activities 11,257 19,172 56,741 56,210
 
Cash Flows from Investing Activities:
Capital expenditures (13,717 ) (13,876 ) (27,314 ) (36,319 )
Capitalized interest (421 ) (567 ) (1,291 ) (1,396 )
Change in unsettled capital expenditures 553 (1,279 ) (3,276 ) (5,648 )
Proceeds on sale of assets 2,812 2,923 4,747 2,923
Proceeds on sale/contribution of asset to AWN 100,000 - 100,000 -
AWN excess distribution 2,867 - 2,867 -
Net change in short-term investments 525 - 2,037 -
Change in unsettled acquisition costs (3,345 ) - (3,345 ) -
Net change in restricted accounts   3,345     (527 )   3,393     (1,071 )
Net cash provided (used) by investing activities 92,619 (13,326 ) 77,818 (41,511 )
 
Cash Flows from Financing Activities:
Repayments of long-term debt (67,001 ) (1,330 ) (97,382 ) (9,255 )
Debt issuance costs (25 ) - (206 ) -
Payment of cash dividend on common stock - (2,285 ) - (6,831 )
Payment of withholding taxes on stock-based compensation (2 ) (4 ) (632 ) (243 )
Proceeds from issuance of common stock   2     (1 )   117     179  
Net cash used by financing activities (67,026 ) (3,620 ) (98,103 ) (16,150 )
 
Change in cash and cash equivalents 36,850 2,226 36,456 (1,451 )
 
Cash and cash equivalents, beginning of period   16,445     16,813     16,839     20,490  
 
Cash and cash equivalents, end of period $ 53,295   $ 19,039   $ 53,295   $ 19,039  
 
Supplemental Cash Flow Data:
Interest paid $ 6,818 $ 7,796 $ 25,201 $ 24,799
Extinguishment of hedging instrument $ 4,073 $ - $ 4,073 $ -
Income tax paid (refunded), net $ - $ - $ - $ (24 )
 
Supplemental Non-cash Transactions:
Property (retired) acquired under capital leases, net $ (19 ) $ - $ (17 ) $ (24 )
Dividend declared, but not paid $ - $ 2,286 $ - $ 2,286
Additions to ARO asset $ 43 $ 24 $ 180 $ 78
Exchange of debt with common stock $ 6,000 $ - $ 6,000 $ -
 
 

Schedule 4
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
ADJUSTED EBITDA AND FREE CASH FLOW
(Unaudited, In Thousands)
 
    Three Months Ended     Nine Months Ended
September 30, September 30,
2013     2012 2013   2012
 
Net income $ 77,598 $ 8,244 $ 118,760 $ 8,586
Add (subtract):
Interest expense 9,785 10,268 29,970 29,203
Loss on extinguishment of debt 2,094 - 2,370 323
Interest income (19 ) (9 ) (37 ) (31 )
Depreciation and amortization 9,209 12,932 33,291 38,452
Loss on sale of short-term investments - - 13 -
(Gain) loss on disposal of assets 315 (2,559 ) 941 (2,140 )
Earnings on equity method investment in TekMate (18 ) (45 ) 3 (45 )
Earnings on equity method investment in AWN (8,064 ) - (8,064 ) -
Gain on sale/contribution of asset to AWN (132,424 ) - (132,424 ) -
TekMate distribution received - 32 - 32
AWN excess distribution (2,867 ) - (2,867 ) -
AWN distributions received 5,389 - 5,389 -

AWN distributions receivable within 14 days
4,167 - 4,167 -
Income tax expense 54,238 6,136 29,613 6,385
Stock-based compensation and long-term cash incentives 702 969 2,750 2,662
AWN transaction-related costs   4,702     587     5,974     5,046  
 
Adjusted EBITDA $ 24,807   $ 36,555   $ 89,849   $ 88,473  
 
Less:
Incurred capital expenditures (13,717 ) (13,876 ) (27,314 ) (36,319 )
Amortization of deferred AWN capacity revenue (738 ) - (738 ) -
AWN transaction-related capital costs, net change - 342 (41 ) 342
Cash interest expense   (6,818 )   (7,796 )   (25,201 )   (24,799 )
Free cash flow $ 3,534   $ 15,225   $ 36,555   $ 27,697  
 
Revenue $ 83,841   $ 96,750   $ 272,657   $ 272,709  
 
Adjusted EBITDA Margin 29.6 % 37.8 % 33.0 % 32.4 %
 
Note:   In an effort to provide investors with additional information regarding the Company's results as determined by GAAP, the Company also discloses certain non-GAAP information which management utilizes to assess performance and believes provides useful information to investors. The Company has disclosed Adjusted EBITDA as net income before interest, loss on extinguishment of debt, depreciation and amortization, loss on sale of short-term investments, gain or loss on asset purchases or disposals, earnings on equity method investments, gains and distributions related to AWN, amortization of deferred AWN service revenue, provisions for taxes, stock-based compensation, and AWN transaction-related costs, and Adjusted EBITDA Margin, defined as Adjusted EBITDA divided by Operating Revenues. Additionally, the Company has disclosed Free cash flow as Adjusted EBITDA, less capital expenditures that create an obligation to pay (“incurred capital expenditures”), less amortization of deferred AWN capacity revenue, less AWN transaction-related capital costs, less cash interest expense. These measures are provided because the Company believes they are important indicators regarding our ability to make principal payments on debt and fund working capital. Adjusted EBITDA, Adjusted EBITDA Margin and Free cash flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP.
 
 

Schedule 5
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
REVENUE GROWTH
(Unaudited, In Thousands)
 
    Three Months Ended     Nine Months Ended
September 30, September 30,
Wireline revenue 2013     2012 2013     2012
Business and wholesale
Retail service revenue
Voice $ 5,790 $ 5,967 $ 17,303 $ 18,046
Broadband 10,080 8,613 29,509 25,156
Equipment sales 480 311 1,340 927
Wholesale and other   9,193     9,736   28,288     29,686
Total business and wholesale revenue   25,543     24,627   76,440     73,815
 
Consumer
Retail service revenue
Voice 4,147 4,676 12,819 14,460
Broadband 5,596 4,613 16,443 13,469
Equipment sales 36 42 111 126
Other   478     413   1,275     971
Total consumer revenue   10,257     9,744   30,648     29,026
 
Access
High cost support 4,984 5,087 13,558 15,041
Switched, special and other access   9,273     10,024   28,056     30,503
Total access   14,257     15,111   41,614     45,544
Total wireline revenue   50,057     49,482   148,702     148,385
 
Wireless and backhaul revenue
Retail service revenue
Voice 9,993 12,355 31,824 37,231
Broadband 7,680 6,340 21,783 17,892
Equipment sales 1,255 1,737 3,785 4,594
Foreign roaming 5,594 18,919 40,029 40,996
Other 1,441 1,132 3,591 3,227
CETC 5,139 4,979 16,093 15,669
Wireless backhaul 1,944 1,806 6,112 4,715
Amortization of deferred AWN capacity   738     -   738     -
Total wireless and backhaul revenue   33,784     47,268   123,955     124,324
 
Total revenues $ 83,841   $ 96,750 $ 272,657   $ 272,709
 
Revenue Growth:
Business and wholesale 3.7 % 3.6 %
Consumer 5.3 % 5.6 %
Wireline 1.2 % 0.2 %
Total revenue -13.3 % 0.0 %
Broadband 19.4 % 19.8 %
 
 

Schedule 6
 
ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.
KEY OPERATING STATISTICS
(Unaudited)
 
    Three Months Ended
September 30,     June 30,     September 30,
2013 2013 2012
 
Voice:
Consumer access lines 50,722 52,438 57,483
Business access lines 80,071 80,517 81,330
 
Voice ARPU consumer $ 26.81 $ 27.25 $ 26.65
Voice ARPU business $ 24.04 $ 23.93 $ 24.34
 
Broadband: (1)
Consumer connections 38,117 37,611 36,152
Business connections (2) 19,216 19,104 18,605
 
ARPU consumer $ 48.63 $ 49.21 $ 41.73
ARPU business (2) $ 175.00 $ 174.87 $ 154.02
 
Wireless:
Postpaid connections (3) 86,423 88,876 94,530
Lifeline connections 9,077 9,859 12,690
Prepaid connections   16,614     15,684     13,755  
Total   112,114     114,419     120,975  
 
Retail wireless ARPU $ 52.08 $ 52.68 $ 51.79
Wireless broadband ARPU $ 26.40 $ 24.55 $ 19.70
 
Churn:
 
Voice connections (4) 1.4 % 1.3 % 1.4 %
Broadband connections (1) (4) 2.4 % 2.0 % 2.3 %
Wireless connections 3.2 % 2.4 % 2.0 %
 
 
Wireless equipment subsidy (1,062 ) (3,463 ) (2,608 )
 
(1)   Consumer and business broadband connections, ARPU, and churn have been restated to exclude dial up lines.
 
(2) Business broadband connections counts have been restated to correct how certain high bandwidth circuits types are measured. These change have no affect on our financial results, but will affect connection count and ARPU amounts presented above compared to their presentation in prior periods.
 
(3) September 30, 2013 Wireless connections have been reduced by 714, non-revenue generating, internal-use, connections.
 
(4) Voice and broadband churn have been restated to exclude wholesale lines.
 
 

Schedule 7

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. Summary AWN information (Unaudited, In Thousands)
Alaska Wireless Network, LLC
Stand Alone Selected Operating Results
For the Period July 23, 2013 - September 30, 2013
 
Operating revenues     $ 58,826  
 
Operating expenses:

 
 

Cost of services and sales
22,258

 

Selling, general & administrative
3,908

 

Depreciation and amortization
  7,327  
 

Total operating expenses
33,493
 
Operating income 25,333
 
Other income and (expense)   (74 )
 
Net income 25,259 A
 
Plus: Depreciation Expense 7,327
Other, net 753
Minus: Capital Spending 12,435
Management Fee to GCI   836  
Adjusted Free Cash Flow $ 20,068   D
 
Distributions paid or payable to ACS:
(includes balance to be received with 12 days) 9,556 E
 
Distributions to ACS as a proportion of Free Cash Flow: 47.6 %

 

The above information reflects summary unaudited financial performance of AWN, which Alaska Communication owns a 33.3% ownership interest. Certain additional summary information is included in our Form 10-Q filings.
 
Key AWN Results Included in the ACS Consolidated Balance Sheet:
       
Equity method investment $ 205,542
Deferred AWN capacity revenue: $ 76,337

Accounts payable, accrued and other current liabilities
$ 3,852
Other long-term liabilities $ 72,485

 

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

Key AWN Results included in the ACS Consolidated Income Statement:

AWN net income         $ 25,259   A
Adjusted for step-up in GCI assets   (1,066 ) B
AWN stepped-up earnings $ 24,193 C
Adjusted Free Cash Flow $ 20,068 D
Distributions paid or payable to ACS $ 9,556 E
ACS ownership percentage of AWN 33.33 % F

"Adjusted for step-up"(B) reflects the step up on basis on the GCI contributed assets to AWN and associated higher depreciation expense that ACS is required to incorporate in its consolidated financial statements.
Earnings on equity method investment in AWN         $ 8,064   C * F
 
Distributions paid or payable to ACS $ 9,556 E
Hypothetical distributions at 33.3%   6,689 D * F
AWN excess distribution $ 2,867

AWN's stepped up net income is used to calculate the equity in earnings at ACS' 1/3 ownership percentage or $8,064. Additionally, an AWN excess distribution, or $2,867, is recognized in the quarter to reflect the disproportionate nature of the AWN preferred distributions.
Key AWN Results Included in the ACS Non GAAP financial measures:
 
Cash distributions received during the quarter         $ 5,389
Less:   Distributions received during the quarter related to the previous period -
Plus: Distributions received within 14 business days of quarter-end 4,167
Amortization of deferred AWN capacity revenue   738
Equals AWN impact to Adjusted EBITDA $ 10,294
 
Less: Amortization of deferred AWN capacity revenue   738
Equals AWN impact to Free Cash Flow $ 9,556

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

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