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
-----------------
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
----------
Frontier Union 401(k) Savings Plan
----------------------------------
(Full title of the Plan)
Citizens Communications Company
-------------------------------
3 High Ridge Park
-----------------
P.O. Box 3801
-------------
Stamford, CT 06905
------------------
(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 and Supplemental Schedules
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
Frontier Union 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 4-10
Supplemental Schedules:*
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year) as of December 31, 2002 11
Signature 12
Independent Auditors' Consent 13
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 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 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 its 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) is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, is 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
FRONTIER UNION 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
---------------- ---------------
Assets:
Investments (see note 3):
Citizens Communications Company common stock $ 7,516,296 $ 2,470,706
Global Crossing common stock 26,801 1,381,033
Mutual funds 13,890,801 15,065,738
Collective trusts 14,892,602 13,569,838
Participant loans 3,126,385 3,126,853
------------ -------------
Total investments 39,452,885 35,614,168
------------ -------------
Receivables:
Employer contribution 409,415 152,284
Participant contributions 65,666 202,132
------------ -------------
Total receivables 475,081 354,416
------------ -------------
Net assets available for benefits $ 39,927,966 $ 35,968,584
============ =============
See accompanying notes to financial statements.
2
FRONTIER UNION 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
Investment income (loss): ---------------
Dividends $ 638,357
Interest 221,010
Net depreciation in fair value of investments (note 3) (5,225,607)
---------------
(4,366,240)
---------------
Contributions:
Participant 6,538,608
Employer 3,907,845
Rollovers 22,641
---------------
10,469,094
---------------
Total additions 6,102,854
---------------
Deductions to net assets attributed to:
Benefits paid to participants (2,138,552)
Miscellaneous expenses (4,920)
---------------
Total deductions (2,143,472)
---------------
Net increase in assets available for benefits 3,959,382
Net assets available for benefits:
Beginning of period 35,968,584
---------------
End of period $ 39,927,966
===============
See accompanying notes to financial statements.
3
Frontier Union 401(k) Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
(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) Background
The Plan is a voluntary defined contribution plan sponsored by
Citizens Communications Company (the "Company"). At December 31, 2002,
there were 1,896 employees eligible to participate in the Plan and
1,737 active employees participating in the 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.
Frontier Communications - Prairie, Inc.
Frontier Communications of Sylvan Lake, Inc.
Frontier Telephone of Rochester, Inc.
Effective July 19, 2001, the Plan accepted a transfer of net assets of
the portion of the Frontier Group Bargaining Unit Employees'
Retirement Savings Plan (the "Frontier Bargaining Plan") in the amount
of $44,193,910, which is comprised of the accounts of Business
Employees (as defined in the Stock Purchase Agreement) who formerly
participated in the Frontier Bargaining Plan, pursuant to the spin-off
of such portion from the Frontier Bargaining Plan and merger of such
portion into the Plan in a transaction complying with the requirements
of Section 414(l) of the Internal Revenue Code of 1986, as amended
("IRC" or the "Code"). The Frontier Bargaining Plan was a defined
contribution plan established by the seller under the Stock Purchase
Agreement for all of its bargaining unit employees. The Plan
administrator believes transfer of plan assets was a tax-exempt
transaction under the applicable provisions of the IRC and, therefore,
is not subject to Federal income tax.
4
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.
(b) Participation
Under the terms of the Plan, bargaining unit employees, who are
covered by collective bargaining agreements, except for temporary,
summer, and leased employees, for the above Participating Employers
are 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.
(c) Contributions
Eligible participants may contribute 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 is making
Basic Contributions at the maximum rate of 3% of his/her contribution,
he/she may also elect 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 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.
Participating Employers may contribute 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 are equal to 100% or
the first 3% of a participant's compensation that he/she elects to
contribute to the Plan. The Participating Employer may make Employer
Profit Sharing Contributions depending on the terms of the relevant
collective bargaining agreement.
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
remain in the Company Stock fund and are 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 shall lose its restriction and may be
invested by the participant pursuant to the Plan document in any other
fund option or left in Citizens Communications Company common stock.
5
As of May 1, 2002, the Company contribution for certain 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 investment following
the same method of allocation as that for participant-directed
contributions.
(d) Participant Accounts
Each participant's account is credited with the participant's
contribution and an allocation of (a) the Participating Employer's
contributions 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.
(e) Investments
The Plan provides 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 direct 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 holds investments in the Global Crossing common stock as a
result of the transfer of net assets from the Frontier Bargaining 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.
(f) Vesting
Participants are immediately 100% vested in their contributions and
allocated earnings thereon. Vesting in the Participating Employer
contributions is based on years of continuous service. Participants
should refer to their respective bargaining agreements for vesting
requirements of Participating Employer contributions. Forfeited
nonvested accounts are used to reduce future Participating Employer
contributions.
6
(g) Payment of Benefits
Payment of benefits generally begins upon termination of service and
attaining normal retirement age of 65. A participant may elect to
receive either a lump-sum amount equal to the value of his or her
vested account balance, or a participant may elect to receive
installments over a period not to exceed 20 years. However, a
participant who has reached age 59 1/2 but who has 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 does not attain normal
retirement age and the participant's vested account balance is 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 is less than $5,000, the balance will be distributed to the
participant as soon as administratively feasible.
(h) Forfeitures
For the year ended December 31, 2002, there were no forfeited company
contributions. Forfeitures are retained in the Plan and are used to
reduce future company contributions.
(i) Participant Loans
Loans are available to participants in the Plan on a nondiscriminatory
basis. Participant loans cannot exceed the lesser of 50% of the vested
amounts in the participant's account or $50,000. A participant may
only have two loans outstanding, and they are treated as directed
investments by the borrower with respect to his or her account. The
interest rate on loans is established based on the prime rate, under
current plan provisions. Interest paid on the loan is credited to the
borrower's account and the participant does not share in the income of
the Plan's assets with respect to the amounts outstanding. Loans have
a term of no more than five years except that a loan may be granted
for a period not to exceed 15 years if the proceeds are used to
purchase the participant's principal residence.
(j) Administration
The Plan is administered by the Company's Retirement Committee whose
members are appointed by the Company's Board of Directors. The trustee
of the Plan is Putnam Fiduciary Trust Company (the Trustee).
(k) Plan Termination
Although it has not expressed any intention to do so, the Company has
the right under the Plan to discontinue its contributions at any time
and to terminate the Plan subject to the provisions of ERISA. In the
event of plan termination, participants will become 100% vested in
their accounts.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements have been prepared on the accrual basis of
accounting.
7
(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.
Certain reclassifications have been made to financial statements for
prior years to conform to current presentation.
(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. The net depreciation/appreciation
in the fair value of investments consists of the net realized gains
and losses on the disposal of investments and the unrealized
appreciation/depreciation of the market value for the investments
remaining in the Plan in 2002.
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
Significant expenses associated with the Plan are paid by the Company.
(f) 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.
(g) Adoption of New Accounting Pronouncement
Effective January 1, 2001, the Plan adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS
No. 133"). 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
------------------ ------------------
Putnam Income Fund $ 2,841,433 $ 2,326,280
Putnam Global Equity Fund 2,747,655 3,107,572
Putnam Voyager Fund 6,107,065 7,683,891
Putnam S&P 500 Index Fund 5,066,823 5,870,936
Putnam Stable Value Fund 9,825,779 7,698,902
Citizens Communications Company common stock:
Participant directed, 207,045 and 65,876
shares, respectively 2,184,316 702,239
Nonparticipant directed, 505,400 and
165,897 shares, respectively 5,331,980 1,768,467
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held for the period)
depreciated in value by $5,225,607 as follows:
Mutual funds $ (3,299,641)
Common stocks (524,140)
Collective trust (1,401,826)
-------------------
$ (5,225,607)
===================
(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 $ 5,331,980 $ 1,768,467
================== ==================
Changes in net assets:
Net appreciation in fair value of investments $ 563,949 $ 64,663
Employer contributions 3,085,454 1,349,783
Benefits paid to participants (175,130) (3,125)
Transfers out (276,327) (1,087)
Other 365,567 358,233
------------------ ------------------
Change in net assets $ 3,563,513 $ 1,768,467
================== ==================
9
(5) 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 $863 and
$976 for the years ended December 31, 2002 and 2001.
(6) Tax Status
The Plan submitted an application on February 27, 2002 for a
determination that the Frontier Union 401(k) Savings Plan is qualified
under Section 401(a) of the Code and the related trust is tax exempt
under Section 501(a) of the Code. On October 22, 2002, the Company
received a favorable determination letter from Internal Revenue
Service. The Plan Administrator and the Plan's tax counsel believe
that the Plan is currently designed and being operated in compliance
with the applicable requirements of the IRC.
(7) 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 amended effective January 1,
2003 (except as otherwise provided in the Plan), to reflect such
merger.
10
FRONTIER UNION 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; 712,445 shares; cost at $6,611,737 $ 7,516,296
* Global Crossing Limited Common Stock; 1,488,953 shares 26,801
---------------
Total common stocks 7,543,097
---------------
* Putnam Income Fund Mutual Funds; 425,364 shares 2,841,433
* Putnam Global Equity Fund Mutual Funds; 464,916 shares 2,747,655
* Putnam Voyager Fund Mutual Fund; 480,493 shares 6,107,065
* Putnam Fund for Growth & Income Mutual Fund; 113,746 shares 1,608,370
* Putnam Asset - Allocation Balanced Fund Mutual Fund; 70,129 shares 586,278
---------------
Total mutual funds 13,890,801
---------------
* Putnam S&P 500 Index Fund - Collective Trust Collective Trust; 234,142 shares 5,066,823
* Putnam Stable Value Fund - Collective Trust Collective Trust; 9,825,779 shares 9,825,779
---------------
Total collective trust 14,892,602
---------------
* Participant loans 524 loans with interest rates ranging from 4.25% to 9.50% 3,126,385
---------------
$ 39,452,885
===============
* Party-in-interest as defined by ERISA
See accompanying independent auditors' report.
11
Frontier Union 401(k) Savings Plan
Signatures
----------
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.
Frontier Union 401(k) Savings Plan
By /s/ Robert J. Larson
-----------------------------------
Robert J. Larson
Senior Vice President and Chief Accounting Officer
June 30, 2003
12
Independent Auditors' Consent
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 26, 2003, relating to the statement of net assets available for benefits
of the Frontier Union 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 schedule as of December 31, 2002,
which report appears in the annual report on Form 11-K of the Frontier Union
401(k) Savings Plan dated December 31, 2002.
/s/ KPMG LLP
New York, New York
June 26, 2003
13