1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Alaska Communications Systems Group, Inc. (“we”, “our”, “us”, the “Company” and “Alaska Communications”), a Delaware corporation, through its operating subsidiaries, provides broadband telecommunication and managed information technology (“IT”) services to customers in the State of Alaska and beyond using its telecommunications network.

The accompanying unaudited condensed consolidated financial statements represent the consolidated financial position, comprehensive income and cash flows of Alaska Communications Systems Group, Inc. and the following wholly-owned subsidiaries:

•	Alaska Communications Systems	•	Crest Communications Corporation
Holdings, Inc. ("ACS Holdings")		•	WCI Cable, Inc.
•	ACS of Alaska, LLC (“ACSAK”)	•	WCIC Hillsboro, LLC
•	ACS of the Northland, LLC (“ACSN”)	•	Alaska Northstar Communications, LLC
•	ACS of Fairbanks, LLC (“ACSF”)	•	WCI LightPoint, LLC
•	ACS of Anchorage, LLC (“ACSA”)	•	WorldNet Communications, Inc.
•	ACS Wireless, Inc. ("ACSW")	•	Alaska Fiber Star, LLC
•	ACS Long Distance, LLC	•	TekMate, LLC
•	Alaska Communications Internet, LLC (“ACSI”)
•	ACS Messaging, Inc.
•	ACS Cable Systems, LLC (“ACSC”)

In addition to the wholly-owned subsidiaries, the Company has a

fifty

percent controlling interest in ACS-Quintillion JV, LLC (“AQ-JV”), a joint venture formed by its wholly-owned subsidiary ACSC and Quintillion Holdings, LLC (“QHL”) in connection with the North Slope fiber optic network. See Note

“

Joint Venture

” for additional information.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form

-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

Certain information and note disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company believes the disclosures made are adequate to make the information presented

not

misleading.

See Note

“

Revenue Recognition

” for a summary of the Company’s revenue recognition policies and related disclosures.

The Company has consolidated the financial results of the AQ-JV based on its determination that, for accounting purposes, it holds a controlling financial interest in the joint venture and is the primary beneficiary of this variable interest entity. The Company has accounted for and reported QHL’s

percent ownership interest in the joint venture as a noncontrolling interest. See Note

“

Joint Venture

” for additional information.

In the opinion of management, the unaudited condensed consolidated financial statements contain all normal, recurring adjustments necessary to present fairly the consolidated financial position, comprehensive income (loss) and cash flows for all periods presented. Comprehensive income for the

three

and

nine

-month periods ended

September 30, 2018,

not

necessarily indicative of comprehensive income which might be expected for the entire year or any other interim periods. The balance sheet at

December 31, 2017

has been derived from the audited financial statements as of that date but does

not

include all information and notes required by GAAP for complete financial statements. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and the accompanying notes, including estimates of operating revenues, probable losses and expenses. Actual results could differ materially from those estimates.

Out-of-Period Adjustment

The Company determined that income tax expense as reported in its financial statements for the year ended

December 31, 2017

was overstated by

$703.

This error resulted in the net loss and net loss per share being understated by

$703

and

$0.01,

respectively, for that period. The Company considered the effect of this overstatement on its current period and prior period financial statements. Based on this assessment it determined that the error did

not

have a material effect on its financial statements for the year ended

December 31, 2017,

and is

not

expected to have a material effect on its financial statements for the full year ended

December 31, 2018.

Accordingly, the Company recorded the correction of this error as an out-of-period adjustment in the

three

-month period ended

March 31, 2018.

The income tax benefit of

$112

and net income of

$2,069

in the

three

-month period ended

March 31, 2018,

and income tax expense of

$2,080

and net income of

$7,276

in the

nine

-month period ended

September 30, 2018,

include the effect of the

$703

correction.

Recently Adopted Accounting Pronouncements

Effective

January 1, 2018,

the Company adopted Accounting Standards Codification (“ASC”)

606,

“

Revenue from Contracts with Customers

”

(“ASC

606”

) on a modified retrospective basis. ASC

606

requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of ASC

606

did

not

have a material effect on the Company’s recognition of revenue, operating expenses and cash flows. Adoption resulted in the establishment of a contract asset of

$6,898,

consisting of contract acquisition costs associated with sales commissions, and a resulting deferred income tax liability of

$1,960.

Accumulated deficit was reduced

$4,938.

See Note

“

Revenue Recognition

” for a summary of the Company’s revenue recognition policies and other disclosures required under ASC

606.

Effective

January 1, 2018,

the Company adopted ASU

No.

2017

07,

“

Compensation – Retirement Benefits (Topic

715

)

” (“ASU

2017

07”

). The amendments in ASU

2017

require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if

one

is presented. ASU

2017

also requires that only the service cost component is eligible for capitalization when applicable. Pension benefits for substantially all of the Company’s Alaska-based employees are provided through the Alaska Electrical Pension Fund, a multiemployer defined benefit plan. The Company pays a contractual hourly amount based on employee classification or base compensation. The components of net periodic pension costs are

not

specified in this amount. The Company’s sole single-employer defined benefit plan, which covers a limited number of employees previously employed by a predecessor to

one

of our subsidiaries, is frozen, and the cost of this plan does

not

include a service component. Accordingly, total net periodic pension (benefit) expense of (

$13

) and

$169

in the

three

and

nine

-month periods ended

September 30, 2018

has been reported as a component of “Other income (expense), net” in the Statement of Comprehensive Income (Loss). ASU

2017

was adopted on a retrospective basis and net periodic pension expense of

$153

and

$461

in the

three

and

nine

-month periods ended

September 30, 2017

was reclassified from “Selling, general and administrative” to “Other income (expense), net” in the Statement of Comprehensive Income (Loss). The Company utilized the practical expedient provided by ASU

2017

which permits the use of the amounts disclosed in the retirement plans note as the basis for applying the retrospective presentation requirements.

Effective

January 1, 2018,

the Company adopted ASU

No.

2017

09,

“

Compensation – Stock Compensation (Topic

718

)

Scope of Modification Accounting

” (“ASU

2017

09”

). The amendments in ASU

2017

are intended to provide clarity, and reduce diversity in practice and the cost and complexity of applying the guidance in Topic

718.

The primary provision of ASU

2017

is to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a change as a modification unless all the following conditions are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does

not

affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is

not

required to estimate the value immediately before and after the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisions of ASU

2017

will be applied prospectively to awards modified on or after

January 1, 2018.

The effect of the adoption of ASU

2017

on the Company’s financial statements and related disclosures will be dependent on the frequency and types of changes made to its share-based payment awards. There were

applicable changes made during the

nine

-month period ended

September 30, 2018.

Accounting Pronouncements

Issued

Not

Yet Adopted

February 2016,

the Financial Account Standards Board (“FASB”) issued ASU

No.

2016

02,

“

Leases (Topic

842

)

” (“ASU

2016

02”

). The primary change in GAAP addressed by ASU

2016

is the requirement for a lessee to recognize on the balance sheet a liability to make lease payments (“lease liability”) and a right-of-use asset representing its right to use the underlying asset for the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. ASU

2016

also requires qualitative and quantitative disclosures to enable users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU

2016

02,

including subsequent updates, is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those years. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company has identified its contracts and other arrangements subject to the guidance in ASU

2016

and is currently assessing the effect adoption will have on its consolidated financial statements, processes, systems and internal controls. Based on this assessment to date, the Company expects that adoption of ASU

2016

will have a material effect on its financial statements, related disclosures and internal controls. The Company is currently implementing new, and modifying existing, systems and processes in order to meet the accounting and disclosure requirements. The Company will adopt ASU

2016

02,

including subsequent updates, effective

January 1, 2019

on a modified retrospective basis, which will

not

require the recasting of the financial statements and related disclosures of periods presented prior to

2019.

August 2017,

the FASB issued ASU

No.

2017

12,

“

Derivatives and Hedging (Topic

815

), Targeted Improvements to Accounting for Hedging Activities

” (“ASU

2017

12”

). The amendments in ASU

2017

are intended to improve and simplify the accounting rules for hedge accounting, including providing a better portrayal of the economic results of an entity’s risk management activities in its financial statements and simplification of the application of hedge accounting guidance. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness and, for qualifying hedges, requires the entire change in the fair value of the hedging instrument to be presented in the same income statement line as the hedged item. ASU

2017

is effective for fiscal years beginning after

December 15, 2018.

Early adoption is permitted in any interim period or fiscal year prior to the effective date. The accounting and disclosure requirements are to be adopted on a prospective basis and a cumulative-effect adjustment is to be recorded for cash flow and net investment hedges existing at the date of adoption. The Company is evaluating the effect ASU

2017

will have on its consolidated financial statements and related disclosures.

August 2018,

the FASB issued ASU

No.

2018

13,

“

Fair Value Measurement (Topic

820

), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

” (“ASU

2018

13”

). The amendments in ASU

2018

are intended to improve the effectiveness of fair value measurement disclosures in the notes to the financial statements. The new guidance eliminates the requirement to disclose (i) the amount and reasons for transfers between Level

and Level

of the fair value hierarch; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level

fair value measurements. The new guidance also requires the disclosure of (i) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. ASU

2018

is effective for fiscal years beginning after

December 15, 2019

and early adoption is permitted. The Company is evaluating ASU

2018

and, based on its existing assets and liabilities measured at fair value, does

not

currently believe that adoption will have a material effect on its financial statements and related disclosures.

August 2018,

the FASB issued ASU

No.

2018

14,

“

Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic

715

), Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

” (“ASU

2018

14”

). The amendments in ASU

2018

are intended to improve the effectiveness of disclosures in the notes to the financial statements about employer-sponsored defined benefit plans. The new guidance eliminates, among other items, the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. Expanded disclosures required under ASU

2018

include an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. ASU

2018

is effective for fiscal years beginning after

December 15, 2020

and early adoption is permitted. The Company is evaluating the effect ASU

2018

will have on its disclosures.

August 2018,

the FASB issued ASU

No.

2018

15,

“

Intangibles – Goodwill and Other – Internal-Use Software (Subtopic

350

), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

” (“ASU

2018

15”

). The amendments in ASU

2018

align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU

2018

is effective for fiscal years beginning after

December 15, 2019

and early adoption is permitted. The Company is evaluating the effect ASU

2018

will have on its financial statements and related disclosures.