3 .	JOINT VENTURE

2015,

the Company entered into a series of transactions including the acquisition of a fiber optic network on the North Slope arctic area of Alaska and the establishment of AQ-JV to own, operate and market part of that network. The network provides reliable fiber-optic connectivity where only high-cost microwave and high-latency satellite communications was previously available. Through AQ-JV, this network has been made available to other telecom carriers in the market.

April 2, 2015,

the Company, through its wholly-owned subsidiary ACS Cable Systems, LLC, entered into a joint venture agreement with QHL to form AQ-JV for the purpose of expanding the fiber optic network, and making the network available to other telecom carriers.

The Company determined that the Joint Venture is a Variable Interest Entity as defined in ASC

810,

“

Consolidation

.” The Company consolidates the financial results of AQ-JV based on its determination that, the

percent voting interest of each party notwithstanding, for accounting purposes it holds a controlling financial interest in, and is the primary beneficiary of, the joint venture. This determination was based on (i) the Company’s expected future utilization of certain assets of the joint venture in the operation of the Company’s business; (ii) the Company’ engineering, design, installation, service and maintenance expertise in the telecom industry and its existing relationships and presence in the Alaska telecom market are expected to be significant factors in the successful operation of the joint venture; and (iii) the Company’s role as joint venture manager and its right to a management fee equal to a percentage of the joint venture’s collected gross revenue. There was

gain or loss recognized by the Company on the initial consolidation of the joint venture. The Company has accounted for and reported QHL’s

percent ownership interest in AQ-JV as a noncontrolling interest.

The table below provides certain financial information about the joint venture included on the Company’s consolidated balance sheet at

September 30, 2018

and

December 31, 2017.

Cash

may

be utilized only to settle obligations of the joint venture. Because the joint venture is an LLC, and the Company has

not

guaranteed its operations, the joint venture’s creditors do

not

have recourse to the general credit of the Company.

	2018		2017
Cash	$	270	$	190
Property, plant and equipment, net of accumulated depreciation of $285 and $211	$	1,856	$	1,930

The operating results and cash flows of the joint venture in the

three

and

nine

-month periods of

2018

and

2017

were

not

material to the Company’s consolidated financial results.

ALASKA COMMUNICATIONS SYSTEMS GROUP, INC.

Notes to

Condensed

Consolidated Financial Statements

(

Unaudited,

In Thousands Except Per Share Amounts

)