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 fiscal year ended December 31, 2002
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or
--
[ ] 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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Citizens 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)
CITIZENS 401(k) SAVINGS PLAN
Financial Statements and Supplemental Schedules
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
CITIZENS 401(k) SAVINGS PLAN
Table of Contents
Page
----
Independent Auditors' Report 1
Financial Statements:
Statements of Net Assets Available for Benefits - December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits For the Year Ended December 31, 2002 3
Notes to Financial Statements 4-11
Supplemental Schedules:*
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year) as of December 31, 2002 12
Schedule G, Part III - Schedule of Nonexempt Transactions for the Year Ended December 31, 2002 13
Signature 14
Independent Auditors' Consent 15
Exhibits:
99.1 - 99.2 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* Schedules required by Form 5500 that are not applicable have not been included
Independent Auditors' Report
To Citizens Communications Company,
The Plan Administrator of the Citizens 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of the Citizens 401(k) Savings Plan (the "Plan") as of December 31, 2002 and
2001, and the related statement of changes in net assets available for benefits
for the year ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. 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
December 31, 2002 and 2001 and the changes in net assets available for benefits
for the year ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (Held
at End of Year) and schedule of nonexempt transactions for the year ended
December 31, 2002 are presented for the purposes of additional analysis and are
not a required part of the basic financial statements but are supplementary
information required by the Department of Labor Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan's
management. These supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
New York, New York
June 26, 2003
CITIZENS 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
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Assets:
Investments (note 3):
Citizens Communications Company common stock $ 60,119,769 $ 67,504,651
Global Crossing common stock 26,537 1,408,877
Mutual funds 58,521,443 59,234,897
Collective trusts 86,039,828 94,513,180
Guaranteed investment contracts 5,262,731 6,759,527
Participant loans 8,348,562 9,830,137
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Total investments 218,318,870 239,251,269
Receivables:
Employer contribution 121,075 306,038
Participant contributions 383,518 709,457
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Total receivables 504,593 1,015,495
--------------- ---------------
Net assets available for benefits $ 218,823,463 $ 240,266,764
=============== ===============
See accompanying notes to financial statements.
2
CITIZENS 401(k) SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Additions to net assets attributed to: 2002
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Investment income:
Dividends $ 3,825,863
Interest 593,497
Net depreciation in fair value of investments (note 3) (26,028,790)
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(21,609,430)
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Contributions:
Participant 21,361,052
Employer 6,757,081
Rollover 993,921
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29,112,054
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Total additions 7,502,624
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Deductions to net assets attributed to:
Benefits paid to participants (22,356,024)
Rollover (note 1) (6,578,680)
Miscellaneous expenses (11,221)
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Total deductions (28,945,925)
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Net decrease in assets available for benefits (21,443,301)
Net assets available for benefits:
Beginning of year 240,266,764
-------------------
End of year $ 218,823,463
===================
See accompanying notes to financial statements.
3
Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
General
The following description of the Citizens 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) Background
The Plan is a voluntary defined contribution plan sponsored by
Citizens Communications Company (the "Company"). Under the terms of
the Plan, bargaining or nonbargaining employees who have attained six
months through June 30, 2001 or three months subsequent to July 1,
2002 of continuous service are eligible to participate in the Plan. At
December 31, 2002 there were 6,753 employees eligible to participate
in the Plan and 5,091 active employees participating in the Plan. The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
On January 15, 2002, the Company completed the sale of its water and
wastewater operations to American Water Works, Inc. ("American
Water"). In conjunction with the sale, a significant number of the
Company's employees became employees of American Water. As a result,
the balances of the participant accounts of those employees in the
amount of $6,513,266 was transferred to the Savings Plan for Employees
of American Water Works Company, Inc., sponsored by American Water, on
May 1, 2002.
On November 1, 2002, the Company completed the sale of its Kauai
electric division to Kauai Island Utility Cooperative (KIUC). In
conjunction with the sale, the balances of participant accounts of
those employees in the amount of $22,270 was transferred to buyer's
retirement plan.
On June 29, 2001, 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.
Certain nonbargaining employees covered under Frontier Group
Employees' Retirement Savings Plan (the "Frontier Savings Plan")
became eligible to participate in the Plan on July 1, 2001. The
Frontier Savings Plan was a defined contribution plan established by
Global Crossing to provide benefits to all nonbargaining employees,
except for temporary, summer, and leased employees. Effective July 19,
2001, the Plan accepted a transfer of net assets of the portion of the
Frontier Savings Plan in the amount of $55,101,421, comprised of the
accounts of Business Employees (as defined in the Stock Purchase
Agreement) who formerly participated in the Frontier Savings Plan,
pursuant to the spin-off of such portion from the Frontier Savings
Plan and merger of such portion into the Plan. The Plan administrator
believes the above transaction was a tax-exempt transaction under the
applicable provision of the Internal Revenue Code ("IRC") and,
therefore, is not subject to Federal income tax. In addition, the Plan
was amended and restated as adopted April 1, 2001 to be in compliance
with certain tax laws.
On November 30, 2001, the Company completed the sale of its Colorado
Gas division to Kinder Morgan. In conjunction with the sale, the
balances of participant accounts for those employees in the amount of
$42,407 was transferred to buyer's retirement plan.
4
(b) Contributions
Eligible employees may contribute, in 1% increments, up to 50% (16%
prior to September 16, 2002) of their annual compensation through
payroll deductions, subject to certain maximum contribution
restrictions. Prior to January 1, 1992, participants had an option to
elect life insurance coverage as an investment vehicle. Beginning
January 1, 1992, such option was discontinued, except that
participants who elected life insurance coverage prior to January 1,
1992 could continue to make specific dollar allocations to purchase
additional life insurance coverage. Contributions may be apportioned
in 5% increments to any combination of the investment options
specified below.
All employees eligible to make contributions under the Plan and who
have attained or will attain age 50 before the close of the Plan year
shall be eligible to make catch-up contributions in accordance with,
and subject to the limitations of, Section 414(v) of the Code. No
matching contributions shall be made with respect to a Participant's
catch-up contributions.
The Company contribution is determined for each Plan year by the Board
of Directors of the Company. The Company contribution for the 2002
Plan year amounted to 50% of up to the first 6% of each Participant's
Annual Base Compensation (as defined by the Plan) that a participant
contributes not covered by collective bargaining agreements to the
Plan. Company contributions for participants covered by collective
bargaining agreements are made in accordance with the terms of the
respective collective bargaining agreement. Through April 30, 2002,
the Company contributions were invested entirely in the Citizens
Communications Company stock fund unless a participant was age 55 or
older in which case the participant could have elected to have the
Company contribution invested in investments at his/her own
discretion. In addition, at age 55 a participant can request to
transfer previous Company contributions invested in the above common
stock fund to other investment options.
As of May 1, 2002, the Company contribution for non-union and certain
union participants is no longer exclusively allocated to Citizens
Communications Company common stock. The Company contributions for
these participants made subsequent to May 1, 2002 are allocated to
Plan investments following the same method of allocation as that for
participant-directed investments. Additional profit sharing amounts
may be contributed at the option of the Company's Board of Directors
contingent upon the Company's exceeding financial targets.
(c) Participant Accounts
Each participant's account is credited with the participant's
contribution and an allocation of (a) the Company's contribution and
(b) Plan earnings or losses. Allocations are based on each
participant's contribution, as defined. The benefit to which a
participant is entitled is the amount that can be provided from the
participant's vested account.
(d) Vesting
Participants are vested immediately in their contributions plus the
allocated earnings thereon. Participants become 100% vested in the
Company contributions and the related earnings on the Company
contributions upon disability, death, attainment of normal retirement
age or after five years of service. For any other termination of
employment, the vesting schedule is as follows:
5
Vested percentage of
company contribution and
Years of service related earnings
------------------------------------------------- --------------------------
Less than 2 years 0%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
(e) Participant Loans
Participants in the Plan may request to borrow up to the lesser of 50%
of his/her vested account balance or $50,000. The interest rate paid
by the participant is equal to the prime interest rate in effect at
the beginning of the month in which the loan is processed and remains
fixed at that rate for the term of the loan. Loan repayments are made
through payroll deductions, after tax, and are credited to each
Participant's account as the payments are made. A participant may
repay a loan in full at any time by remitting his/her payment directly
to Putnam Investments ("Putnam"), the trustee of the Plan. In the
event of termination of employment, a participant's loan may be repaid
in full or the loan will be canceled and the participant's final
distribution will be reduced by the amount of the outstanding loan
balance.
(f) Payment of Benefits
Distribution of benefits must begin either on or before April 1st of
the year following the year the participant attains age 70 1/2. If the
participant is still employed by the Company at age 70 1/2, he/she
must take a minimum distribution of his/her balance on or before April
1st of the calendar year after the participant attains age 70 1/2.
Upon termination of employment, a participant is entitled to receive
payment in full of the vested portion of his/her account. If the value
of the terminating participant's vested account balance exceeds
$5,000, the participant may elect to defer his/her distribution.
(g) Forfeitures
For the year ended December 31, 2002 forfeited nonvested Company
contributions totaled $424,520. These amounts are used to reduce the
obligation of the Company to make contributions to the Plan.
(h) Administrative Costs
The majority of Plan administrative costs are paid by the Company.
6
(i) Investments
The Plan offered the following investment options as of December 31,
2002:
Citizens Communications Company Common Stock
PIMCO Total Return Fund
Putnam Growth and Income Fund
Putnam OTC and Emerging Growth Fund
Putnam International Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Asset - Allocation Balanced Fund
Putnam Stable Value Fund
Putnam S & P 500 Index Fund
The Plan has investments in Global Crossing common stock as a result
of the transfer of net assets from the Frontier Savings Plan to the
Plan. The Plan trustee will continue to hold such shares in trust for
the benefit of the previous Global Crossing employees until such time
as any such employee elects to dispose of his or her shares based upon
the Stock Purchase Agreement. However, the Plan does 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.
Effective July 1, 2003, the Plan added ten new investment choices and
eliminated three investment choices increasing to 17 the investment
fund choices available to plan participants.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method 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
amount of assets, liabilities, changes therein, and disclosures of
contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Certain reclassifications have been made to the financial statements
for prior years to conform to current presentation.
(c) Investments
The Plan's investments are stated at fair value, except for guaranteed
investment contracts, which are valued at contract value as they are
benefit responsive contracts. The investments in guaranteed investment
contracts are stated at cost, which approximates 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 notes
receivable are valued at cost, which approximates fair value. The net
depreciation/appreciation in the fair value of investments consists of
the net realized gains and losses on the disposal of investments
during 2002 and the net unrealized appreciation/depreciation of the
market value for the investments remaining in the Plan as of December
31, 2002.
7
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) Risks and Uncertainties
The Plan offers 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. Due to
the level of risk associated with certain investment securities, it is
reasonable to expect that changes in the values of investment
securities will occur in the near term and that such changes could
materially affect participant account balances.
The Plan's exposure to a concentration of credit risk is limited by
the diversification of investments across all participant-directed
fund elections. Additionally, the investments within each
participant-directed fund election 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.
(f) Adoption of New Accounting Pronouncement
Effective January 1, 2001, the Plan adopted the Financial Accounting
Standard Board's Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133), as amended. SFAS No.133, as amended, requires that all
derivative instruments be recognized in the financial statements and
measured at fair value regardless of the purpose or intent of holding
them. The adoption of SFAS No. 133 did not have an impact on the
Plan's financial statements.
8
(3) Investments
The following presents investments that represent 5% or more of the Plan's
net assets at the end of year:
2002 2001
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Citizens Communications Company common stock:
Participant Directed, 4,099,978 and 2,589,353 shares,
respectively $ 43,254,776 $ 27,602,505
Nonparticipant Directed, 1,598,578 and 3,743,166 shares,
respectively 16,864,993 39,902,146
Putnam International Growth Fund 12,283,627 14,324,233
Putnam Stable Value Fund 41,598,318 35,375,673
Putnam S&P 500 Index Fund 44,441,510 59,137,507
PIMCO Total Return Fund 22,227,452 17,530,682
During 2002, the Plan's investments (including gains and losses on investments
bought and sold as well as held during the year) depreciated in value by
$26,028,790 as follows:
Common stocks $ (2,765,120)
Mutual funds (10,402,940)
Collective trusts (12,860,730)
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$ (26,028,790)
================
(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:
2002 2001
------------------- -------------------
Net assets:
Common Stock of the Company $ 16,864,993 $ 39,902,146
=================== ===================
Changes in net assets:
Net depreciation in fair value of investments (1,760,283) (9,923,345)
Employer contributions 2,859,213 6,425,134
Benefits paid to participants (2,534,729) (13,908,973)
Transfers out (14,030,556) (654,182)
Other (7,570,798) (383,322)
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Change in net assets $ (23,037,153) $ (18,444,688)
=================== ===================
9
(5) Investment Contracts with Insurance Company
The Plan entered into two investment contracts with Principal Mutual Life
Insurance Company (Principal Mutual) and two investment contracts with
Travelers Life and Annuity Company (Travelers). Principal Mutual and
Travelers maintain the contributions in guaranteed investment contracts.
These contracts are credited with earnings on the underlying investments
and charged for participant withdrawals and administrative expenses. These
contracts are included in the financial statements at contract value as
reported to the Plan by Principal Mutual and Travelers. Contract value
represents contributions made under the contract, plus earnings, less
participant withdrawals and administrative expenses. Participants may
ordinarily direct the withdrawals or transfer of all or a portion of their
investments at contract value. During 2002, the Principal Mutual
investments contracts matured and were not redeemed.
There are no reserves against contract value for credit risk of the
contract issuer or otherwise. The yield and crediting interest rates for
Travelers Guaranteed Investment Contracts are 6.12% for 2002. The yield and
crediting interest rates for Principal Mutual Guaranteed Investment
Contracts and Travelers Guaranteed Investment Contracts were 7.16% and
6.81% for 2001, respectively. The crediting interest rates are based on a
formula agreed upon with the issuers. Such interest rates are fixed based
on the contracts.
(6) Related Party Transactions
Certain Plan assets are invested in shares of mutual funds that are managed
by Putnam. Putnam is the trustee as defined by the Plan, therefore, these
transactions qualify as party-in-interest transactions. Fees paid by the
Company to Putnam amounted to $4,732 and $77,407 for the years ended
December 31, 2002 and 2001, respectively.
(7) Plan Termination
The Company's Board of Directors has the right, under the terms of the Plan
to discontinue Company contributions at any time and may terminate the
Plan, subject to the terms of the ERISA.
(8) Tax Status
The Company received a favorable determination letter from the Internal
Revenue Service dated September 24, 2002 stating that the plan continues to
qualify under Section 401(a) of the Internal Revenue Code and the related
trusts to be tax exempt under Section 501(a) of the Code. The Plan
Administrator and the Plan's tax counsel believe that the Plan is currently
designed and being operated in compliance with IRC.
10
(8) Tax Status (continued)
During 2002 and 2001 there were unintentional delays by the Company in
submitting employee deferrals, loan repayments and matching contributions.
The Company paid $32,235 to the Plan to compensate for lost earnings
resulting from the delay, utilizing an earnings rate that was equivalent to
the rate that would have been earned if the amounts had been invested in
the fund that earned the highest rate of return in the Plan for the time
periods during which the employee deferrals, loan repayments and matching
Company contributions should have been invested. The Company has reported
the 2001 transactions to the Internal Revenue Service and paid the
applicable excise tax, and intends to report the 2002 transactions and pay
the resulting excise tax on or before the applicable due date.
The Company has identified certain unintentional errors in the operation of
the Plan. The Company is currently reviewing all the relevant facts and
circumstances of this situation and intends to take any necessary
corrective measures, including contributing to the Plan to compensate for
the potential loss in value of affected participants' accounts. The Company
believes that the outcome of the correction process will not have a
material effect on the Plan's financial statements.
(9) Subsequent Events
Effective January 1, 2002, the Company adopted "good faith" EGTRRA
amendments to the Plan and to the Frontier Union 401(k) Savings Plan.
Effective December 31, 2002, the Frontier Union 401(k) Savings Plan was
merged into the Plan. The Plan was hereby amended and restated, effective
January 1, 2003 (except as otherwise provided in the Plan), to reflect such
merger, to reflect the introduction of Supplemental Profit Sharing Matches,
and to reflect various administrative changes to the Plan.
11
Citizens 401(k) Savings Plan
Schedule H, line 4(i) - Schedule of Assets (Held at End of Year)
December 31, 2002
Current
Identity of Issuer Description of Investment value
-----------------------------------------------------------------------------------------------------------------------------------
* Citizens Communications Company Common Stock; 5,698,556 shares; cost at $ 57,063,704 $ 60,119,769
* Global Crossing Limited Common Stock; 1,474,254 shares 26,537
---------------
Total common stocks 60,146,306
* PIMCO Total Return Fund Mutual Funds; 2,083,173 shares 22,227,452
* Putnam Growth & Income Fund Mutual Funds; 257,466 shares 3,640,573
* Putnam OTC and Emerging Growth Fund Mutual Fund; 1,478,590 shares 7,452,094
* Putnam International Growth Fund Mutual Fund; 748,545 shares 12,283,627
* Putnam Vista Fund Mutual Fund; 500,286 shares 2,996,712
* Putnam Voyager Fund Mutual Funds; 685,410 shares 8,711,563
* Putnam Asset Allocation - Balanced Fund Mutual Fund; 144,668 shares 1,209,422
---------------
Total mutual funds 58,521,443
* Putnam S&P 500 Index Fund - Collective Trust Collective Trust; 2,053,674 shares 44,441,510
* Putnam Stable Value Fund - Collective Trust Collective Trust; 41,598,318 shares 41,598,318
---------------
Total collective trust 86,039,828
Travelers Life and Annuity Guaranteed investment contracts: maturity date 3/31/03; rate 6.81% 1,004,259
Travelers Life and Annuity Guaranteed investment contracts: maturity date 3/31/03; rate 6.81% 4,258,472
---------------
Total guaranteed investment contracts 5,262,731
* Participant loans 1,245 loans with interest rates range from 4.25% to 9.50% 8,348,562
---------------
$ 218,318,870
===============
* Party -in-interest as defined by ERISA
See accompanying independent auditors' report.
12
Citizens 401(k) Savings Plan
Schedule G, Part III - Schedule of Nonexempt Transactions
Year ended December 31, 2002
Description of transaction
Relationship to including maturity date,
plan, employer or rate of interest, collateral, Current value
Identity of party involved other party-in-interest par or maturity value of asset
----------------------------------------- ---------------------------- ------------------------------- -----------------
Citizens Communications Company Plan sponsor Lost earnings associated $ 2,400
with employee contributions
not timely remitted to the
Plan
See accompanying independent auditors' report.
13
Citizens 401(k) Savings Plan
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrators have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Citizens 401(k) Savings Plan
By /s/ Robert J. Larson
----------------------------------------
Robert J. Larson
Senior Vice President and Chief Accounting Officer
June 30, 2003
14
Independent Auditors' Consent
The Board of Directors
Citizens Communications Company:
We hereby consent to the incorporation by reference in Registration Statement
(No. 33-48683) on Form S-8 and in Registration Statement (No. 333-61432) on Form
S-8 of Citizens Communications Company of our report dated June 26, 2003,
relating to the statements of net assets available for benefits of the Citizens
401(k) Savings Plan as of December 31, 2002 and 2001, and the related statement
of changes in net assets available for benefits for the year ended December 31,
2002, and supplemental schedules as of and for the year ended December 31, 2002,
which report appears in the annual report on Form 11-K of the Citizens 401(k)
Savings Plan dated December 31, 2002.
/s/ KPMG LLP
New York, New York
June 26, 2003
15