United States Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
(Mark One)
[x] Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of
1934
For the period ended January 2, 2003
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or
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[ ] Transition Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the transition period from _______to______________
Commission file number 001-11 001
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Frontier Union 401(k) Savings Plan
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(Full title of the Plan)
Citizens Communications Company
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3 High Ridge Park
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P.O. Box 3801
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Stamford, CT 06905
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(Name of issuer of the securities held
pursuant to the Plan and the address of its principal executive offices)
FRONTIER UNION 401(k) SAVINGS PLAN
Financial Statements
January 2, 2003 and December 31, 2002
(With Report of Independent Registered Public Accounting Firm Thereon)
Frontier Union 401(k) SAVINGS PLAN
Table of Contents
Page
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Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits - January 2, 2003 and December 31, 2002 2
Statement of Changes in Net Assets Available for Benefits for the period from January 1, 2003
to January 2, 2003 3
Notes to Financial Statements 4-10
Signature 11
Consent of Independent Registered Public Accounting Firm 12
* Schedules required by Form 5500 that are not applicable have not been included
Report on Independent Registered Public Accounting Firm
To Citizens Communications Company,
The Plan Administrator of Frontier Union 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of the Frontier Union 401(k) Savings Plan (the "Plan") as of January 2, 2003 and
December 31, 2002, and the related statement of changes in net assets available
for benefits for the period from January 1, 2003 to January 2, 2003. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
January 2, 2003 and December 31, 2002, and the changes in its net assets
available for benefits for the period from January 1, 2003 to January 2, 2003,
in conformity with accounting principles generally accepted in the United States
of America.
As further discussed in Note 1, the Plan was merged into the Citizens 401(k)
Savings Plan effective December 31, 2002 and the net assets of the Plan were
transferred on January 2, 2003.
/s/ KPMG LLP
New York, New York
June 28, 2004
FRONTIER UNION 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
at January 2, 2003 and December 31, 2002
2003 2002
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Assets:
Investments (see note 3):
Citizens Communications Company common stock $ - $ 7,516,296
Global Crossing common stock - 26,801
Mutual funds - 13,890,801
Collective trusts - 14,892,602
Participant loans - 3,126,385
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Total investments - 39,452,885
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Receivables:
Employer contributions - 409,415
Participant contributions - 65,666
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Total receivables - 475,081
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Net assets available for benefits (see note 1(a)) $ - $ 39,927,966
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See accompanying notes to financial statements.
2
FRONTIER UNION 401(k) SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
For the period January 1, 2003 to January 2, 2003
2003
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Net assets available for benefits:
Beginning of period $ 39,927,966
Transfer to Citizens 401(k) Savings Plan (see note 1(a)) (39,927,966)
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End of period $ -
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See accompanying notes to financial statements.
3
FRONTIER UNION 401(k) SAVINGS PLAN
Notes to Financial Statements
January 2, 2003 and December 31, 2002
(1) Description of the Plan
General
The following description of the Frontier Union 401(k) Savings Plan (the
"Plan") provides general information. Participants should refer to the Plan
document for a more comprehensive description of the Plan's provisions.
(a) Plan merger
Effective December 31, 2002, the Plan was merged into the
Citizens 401(k) Savings Plan and the net assets of the Plan were
transferred on January 2, 2003. The Plan was amended effective
January 1, 2003 to reflect such merger. Accordingly, all benefits
earned under the Plan and contributions due to the Plan prior to
January 2, 2003 will be payable from or receivable by the
Citizens 401(k) Savings Plan. The Plan administrator believes the
Plan merger was a tax-exempt transaction under the applicable
provision of the Internal Revenue Code (IRC) and, therefore, is
not subject to federal income tax.
(b) Background
The Plan was a voluntary defined contribution plan sponsored by
Citizens Communications Company (the "Company"). At January 2,
2003, there were 1,756 employees eligible to participate in the
Plan and 1,624 active employees participating in the Plan.
Effective January 1, 2002, the Company adopted "good faith"
Economic Growth and Tax Relief Reconciliation Act (EGTRRA)
amendments to the Plan and to the Citizens 401(k) Savings Plan.
On June 29, 2001, under a Stock Purchase Agreement, the Company
purchased from Global Crossing Limited ("Global Crossing") 100%
of the stock of Frontier Corp's local exchange carrier
subsidiaries under a Stock Purchase Agreement. Under the terms of
the Stock Purchase Agreement, the Company established the Plan
effective June 29, 2001 to provide benefits to the bargaining
unit employees of the following entities ("Participating
Employers"):
Frontier Communications of AuSable Valley, Inc.
Frontier Communications of Illinois, Inc.
Frontier Communications of Iowa, Inc.
Frontier Communications of Lakeside, Inc.
Frontier Communications of Michigan, Inc.
Frontier Communications - Midland, Inc.
Frontier Communications of Minnesota, Inc.
Frontier Communications of Mt. Pulaski, Inc.
Frontier Communications of New York, Inc.
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Frontier Communications - Prairie, Inc.
Frontier Communications of Sylvan Lake, Inc.
Frontier Telephone of Rochester, Inc.
The Plan is intended to qualify as a profit sharing plan pursuant
to provisions of Code Section 401(a) and 401(k) and is subject to
the applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") as amended.
(c) Participation
Under the terms of the Plan, bargaining unit employees, except
for temporary, summer, and leased employees, were eligible to
participate in the Plan on the first day of the month coincident
with or next following his/her completion of 30 days of
employment.
(d) Contributions
Eligible participants may have contributed the Basic Contribution
(as defined by the Plan), in 1% increments, up to 3% of their
annual compensation through payroll deductions, subject to
certain maximum contribution restrictions. In addition, if a
participant was making Basic Contributions at the maximum rate of
3% of his/her compensation, he/she may have also elected to make
Supplemental Contributions (as defined by the Plan), in 1%
increments, from 1% to 47% of his/her compensation, subject to
certain maximum contribution restrictions.
All employees who were eligible to make contributions under the
Plan and who had attained age 50 before the close of the Plan
year were eligible to make catch-up contributions in accordance
with, and subject to the limitations of, Section 414(v) of the
Code. No matching contributions were to be made with respect to a
Participant's catch-up contributions.
The Participating Employer may have contributed Employer Fixed
Contributions, Employer Matching Contributions or Employer Profit
Sharing Contributions (as defined by the Plan). Participants
should refer to their respective bargaining agreements for
employer fixed contribution requirements. The Employer Matching
Contributions were equal to 100% of the first 3% of a
participant's compensation that he/she elected to contribute to
the Plan. The Participating Employer may have made Employer
Profit Sharing Contributions depending on the terms of the
relevant collective bargaining agreement.
5
All Participating Employer contributions and the earnings thereon
were invested initially in Citizens Communications Company common
stock through April 30, 2002. All Participating Employer
contributions remained in the Company Stock fund and were
allocated to the Participant's Restricted Employer Contribution
Account until the fifth anniversary of the date of investment. At
the expiration of the five-year period, the investment in a
Participant's Restricted Employer Contribution Account lost its
restriction and may have been invested by the participant
pursuant to the Plan document in any other fund option or left in
Citizens Communications Company common stock.
As of May 1, 2002, the Company contribution for participants
under certain collective bargaining agreements was no longer
exclusively allocated to Citizens Communications Company common
stock. The Company contributions for these participants made
subsequent to May 1, 2002 were allocated to Plan investments
following the same method of allocation as that for
participant-directed contributions.
(e) Participant Accounts
Each participant's account was credited with the participant's
contribution and an allocation of (a) the Participating
Employer's contributions and (b) Plan earnings or losses.
Allocations were based on each participant's contribution, as
defined. The benefit to which a participant is entitled was the
amount that could be provided from the participant's vested
account.
(f) Investments
The Plan provided participants the option of having their Basic
and Supplemental Contributions to the Plan made on a salary
reduction basis and on a deferred tax basis. Upon enrollment in
the Plan, a participant may have directed contributions into the
following investment options.
* Putnam Income Fund
* Putnam Global Equity Fund
* Putnam Voyager Fund
* Putnam Fund For Growth & Income
* Putnam Asset - Allocation Balanced Fund
* Putnam S&P 500 Index Fund
* Putnam Stable Value Fund
* Citizens Communications Company common stock
The Plan held investments in Global Crossing common stock, which
were transferred into the Plan following the closing of the
Frontier acquisition. The Plan trustee continued to hold such
shares in trust for the benefit of the transferred employees
previously employed by Global Crossing until such time as any
such employee elected to dispose of his or her shares based upon
the Stock Purchase Agreement. However, the Plan did not permit
the participants to otherwise invest in Global Crossing common
stock, whether with additional contributions made into the Plan,
reallocation of other assets of a participant's account, or
otherwise. On January 28, 2002, Global Crossing filed for
bankruptcy. The value of the Plan's investment in Global Crossing
common stock has declined significantly since December 31, 2001.
6
(g) Vesting
Participants were immediately 100% vested in all contributions
and allocated earnings thereon.
(h) Payment of Benefits
Payment of benefits generally began upon termination of service.
A participant may elect to receive a lump-sum amount equal to the
value of his or her vested account balance. However, a
participant who had reached age 59 1/2 but who had not yet
terminated employment may withdraw all or a portion of his or her
vested accumulated account balance in accordance with the terms
of the Plan.
If upon termination of service a participant had not attained
normal retirement age and the participant's vested account
balance was greater than $5,000, the participant may elect to
receive a lump-sum amount, a direct rollover to a qualified plan
under Section 401 of the IRC, or a direct rollover to a qualified
Individual Retirement Account equal to the value of his or her
vested account balance. If the vested account balance was less
than $5,000, the balance would be distributed to the participant
as soon as administratively feasible following termination of
service.
(i) Forfeitures
For the period ended January 2, 2003, there were no forfeited
Company contributions.
(j) Participant Loans
Loans were available to participants in the Plan on a
nondiscriminatory basis. Participant loans could not exceed the
lesser of 50% of the vested amounts in the participant's account
or $50,000. A participant may only have had two loans
outstanding, and they were treated as directed investments by the
borrower with respect to his or her account. The interest rate on
loans was established based on the prime rate, under the plan
provisions. Interest paid on the loan was credited to the
borrower's account and the participant did not share in the
income of the Plan's assets with respect to the amounts
outstanding. Loans had a term of no more than five years except
that a loan may have been granted for a period not to exceed 15
years if the proceeds were used to purchase the participant's
principal residence.
(k) Administration
The Plan was administered by the Company's Retirement Committee
whose members are appointed by the Company's Board of Directors.
The trustee of the Plan was Putnam Fiduciary Trust Company (the
Trustee).
(l) Plan Termination
The Company had the right under the Plan to discontinue its
contributions at any time and to terminate the Plan subject to
the provisions of ERISA, Collective Bargaining Agreements and the
National Labor Relations Board. In the event of plan termination,
participants would have become 100% vested in their accounts.
7
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements have been prepared on the accrual basis
of accounting.
(b) 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, liabilities, and
changes therein, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual
results could differ from those estimates.
(c) Investments
The Plan's investments are stated at fair value. Shares of
registered investment companies (mutual funds) are valued at
quoted market prices, which represent the net asset value of
shares held by the Plan. Investments in collective trusts are
valued at fair value based on the underlying net assets of the
trust as reported by the sponsor of the collective trust. Common
stock is valued at its quoted market price as of the end of the
Plan year. Participant loans are valued at cost, which
approximates fair value.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recorded on the accrual basis.
Dividends are recorded on the dividend date.
(d) Benefits Paid
Benefits are recorded when paid.
(e) Administrative Expenses
The majority of the Plan administrative costs were paid by
Participants through investment management fees.
(f) Risks and Uncertainties
The Plan offered a number of investment options including the
Company common stock and a variety of pooled investment funds,
some of which are registered investment companies. The investment
funds include U.S. equities, international equities, and fixed
income securities. Investment securities, in general, are exposed
to various risks, such as interest rate, credit, and overall
market volatility risk. The Plan's exposure to a concentration of
credit risk is limited by the participant-directed
diversification of investments across all fund elections.
Additionally, the investments within each fund are further
diversified into varied financial instruments, with the exception
of the Company common stock, which is invested in the security of
a single issuer.
8
(3) Investments
The following investments represent 5% or more of the Plan's net assets as
of:
January 2, December 31,
2003 2002
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Putnam Income Fund $ - $ 2,841,433
Putnam Global Equity Fund - 2,747,655
Putnam Voyager Fund - 6,107,065
Putnam S&P 500 Index Fund - 5,066,823
Putnam Stable Value Fund - 9,825,779
Citizens Communications Company common stock:
Participant directed, 0 and 207,045
shares, respectively - 2,184,316
Nonparticipant directed, 0 and
505,400 shares, respectively - 5,331,980
For the period from January 1, 2003 to January 2, 2003, the Plan's
investments (including gains and losses on investments bought and sold, as
well as held for the period) did not change.
(4) Nonparticipant-Directed Investments
Information about the net assets available for benefits and significant
components of the changes in net assets available for benefits relating to
the nonparticipant-directed investments is as follows:
2003 2002
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Net assets:
Common Stock of the Company $ - $ 5,331,980
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Changes in net assets:
Net appreciation in fair value of investments $ - $ 563,949
Employer contributions - 3,085,454
Benefits paid to participants - (175,130)
Transfers out (5,331,980) (276,327)
Other - 365,567
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Change in net assets $ (5,331,980) $ 3,563,513
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(5) Related-Party Transactions
Certain Plan assets were invested in shares of mutual funds that were
managed by Putnam. Putnam was the trustee as defined by the Plan,
therefore, these transactions qualified as party-in-interest transactions.
Fees paid by the Company to Putnam amounted to $0 and $863 for the periods
from January 1, 2003 to January 2, 2003 and December 31, 2002.
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(6) Tax Status
The Plan submitted an application on February 27, 2002 for a determination
that the Frontier Union 401(k) Savings Plan was qualified under Section
401(a) of the Code and the related trust was tax exempt under Section
501(a) of the Code. On October 22, 2002, the Company received a favorable
determination letter from the Internal Revenue Service. The Plan
Administrator and the Plan's ERISA counsel believe that the Plan was
designed and operated in compliance with the applicable requirements of the
IRC.
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Signature
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrators have duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Citizens 401(k) Savings Plan
By /s/ Robert J. Larson
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Robert J. Larson
Senior Vice President and
Chief Accounting Officer
June 28, 2004
11
Consent of Independent Registered Accounting Firm
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The Board of Directors
Citizens Communications Company:
We hereby consent to the incorporation by reference in Registration Statement
No. 333-91054 on Form S-8 of Citizens Communications Company of our report dated
June 28, 2004, relating to the statement of net assets available for benefits of
the Frontier Union 401(k) Savings Plan as of January 2, 2003 and December 31,
2002, and the related statement of changes in net assets available for benefits
for the period from January 1, 2003 to January 2, 2003, which report appears in
the annual report on Form 11-K of the Frontier Union 401(k) Savings Plan for the
period ended January 2, 2003 and December 31, 2002.
Our report dated June 28, 2004, contains an explanatory paragraph that states
that the Plan was merged into the Citizens 401(k) Savings Plan effective
December 31, 2002 and the net assets of the Plan were transferred on January 2,
2003.
/s/ KPMG LLP
New York, New York
June 28, 2004
12