Citizens 401(k) Savings Plan
Financial Statements and Supplemental Schedules
December 31, 2001 and 2000
(With Independent Auditors' Report Thereon)
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
[X] Annual Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 2001
or
[ ] Transition Report Pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2001
Commission file number 001-11 001
Citizens 401(k) Savings Plan
Citizens Communications Company
A Delaware Corporation
IRS Employer Identification Number 06-0619596
3 High Ridge Park
P.O.Box 3801
Stamford, CT 06905
Telephone (203) 614-5600
CITIZENS 401(k) SAVINGS PLAN
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements:
Statements of Net Assets Available for Benefits - December 31,
2001 and 2000 2
Statement of Changes in Net Assets Available for Benefits For
the Year Ended December 31, 2001 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, 2001 11
Schedule G, Part III - Schedule of Nonexempt Transactions for
the Year Ended December 31, 2001 12
* Schedules required by Form 5500 that are not applicable have not been included
Independent Auditors' Report
To Citizens Communications Company,
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, 2001 and
2000, and the related statement of changes in net assets available for benefits
for the year ended December 31, 2001. 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, 2001 and 2000 and the changes in net assets available for benefits
for the year ended December 31, 2001 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 schedules of assets held
at end of year and schedule of nonexempt transactions for the year ended
December 31, 2001 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
New York, New York
June 26, 2002
CITIZENS 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2001 and 2000
2001 2000
---------------- ---------------
Assets:
Investments (note 3):
Citizens Communications Company common stock $ 67,504,651 $ 100,520,640
Global Crossing common stock 1,408,877 --
Mutual funds 59,234,897 42,300,003
Collective trusts 94,513,180 75,179,396
Guaranteed investment contracts 6,759,527 13,167,635
Participant loans 9,830,247 7,941,462
--------------- --------------
Total investments 239,251,379 239,109,136
Receivables:
Employer contribution 306,038 28,275
Participant contributions 709,457 97,033
--------------- ---------------
Total receivables 1,015,495 125,308
Net assets available for benefits $ 240,266,874 $ 239,234,444
=============== ===============
See accompanying notes to financial statements.
2
CITIZENS 401(k) SAVINGS PLAN
Statement of Changes Net Assets Available for Benefits
Year ended December 31, 2001
Additions to net assets attributed to:
Investment income:
Dividends $ 3,844,539
Interest 720,506
Net depreciation in fair value of investments (note 3) (49,331,730)
----------------
(44,766,685)
----------------
Contributions:
Participant 22,440,796
Employer 7,038,089
Transfer in to Plan (note 1) 55,101,421
Rollover 14,302
----------------
84,594,608
----------------
Total additions 39,827,923
----------------
Deductions to net assets attributed to:
Benefits paid to participants (38,466,545)
Rollover (317,471)
Miscellaneous expenses (11,477)
----------------
Total deductions (38,795,493)
----------------
Net increase in assets available for benefits 1,032,430
Net assets available for benefits:
Beginning of year 239,234,444
----------------
End of year $ 240,266,874
================
See accompanying notes to financial statements.
3
Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
(1) Description of the Plan
The following brief 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,
2001 of continuous service are eligible to participate in the Plan. At
December 31, 2001 there were 11,138 employees eligible to participate
in the Plan and 8,665 active employees participating in the Plan. The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
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.
(b) Contributions
Eligible employees may contribute, in 1% increments, up to 16% 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 seven investment options specified below.
The Company contribution is determined for each Plan year by the Board
of Directors of the Company. The Company contribution for the 2001
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 to the Plan for participants not covered by collective
bargaining agreements. Company contributions for participants covered
by collective bargaining agreements were made in accordance with the
terms of the respective collective bargaining agreement. The Company
contributions are invested entirely in the Citizens Communications
Company stock fund unless a participant is age 55 or older in which
case the participant can elect 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.
4
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 investments following
the same method of allocation as that for participant-directed
investments.
(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:
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.
5
(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, 2001, forfeited nonvested Company
contributions totaled $249,341. These amounts were 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.
(i) Investments
The Plan offers the following investment options:
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 Stable Value Fund
Putnam S & P 500 Index Fund
Putnam Asset Allocation Balanced 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.
6
(2) Summary of 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.
(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 2001 and the net unrealized appreciation/depreciation of the
market value for the investments remaining in the Plan as of December
31, 2001.
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 ex-dividend date.
(d) Benefits
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 invest in security of a single issuer.
7
(f) Adoption of New Accounting Pronouncement
The Plan has 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:
2001 2000
-------------- --------------
Citizens Communications Company common stock:
Participant Directed, 2,589,353 and 3,213,242 shares,
respectively $ 27,602,505 $ 42,173,806
Non-participant Directed, 3,743,166 and 4,445,473 shares,
respectively 39,902,146 58,346,834
Putnam International Growth Fund 14,324,233 12,413,885
Putnam Stable Value Fund 35,375,673 16,137,246
Putnam S&P 500 Index Fund 59,137,507 59,042,150
PIMCO Total Return Fund 17,530,682 10,745,524
During 2001, the Plan's investments (including gains and losses on
investments bought and sold as well as held during the year) depreciated in
value by $49,331,730 as follows:
Common stocks $ (29,034,922)
Mutual funds (12,684,716)
Collective trusts (7,612,092)
----------------
$ (49,331,730)
================
(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:
2001 2000
-------------- --------------
Net assets:
Common Stock of the Company $ 39,902,146 $ 58,346,834
============= =============
Changes in net assets:
Net depreciation in fair value of investments (9,923,345) (4,769,391)
Employer contributions 6,425,134 6,150,322
Benefits paid to participants (13,908,973) (3,847,974)
Other (1,037,504) (1,436,047)
-------------- --------------
Change in net assets $ (18,444,688) $ (3,903,090)
============== ==============
Certain reclassifications have been made to the financial statements for
prior years to conform to current presentation.
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.
There are no reserves against contract value for credit risk of the
contract issuer or otherwise. 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 $77,407 for the year ended December 31, 2001.
(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
As of January 2, 1998, the assets of the Citizens Utilities 401(k) Savings
Plan were transferred into the CUC 401(k) Employee Benefit Plan. The name
of the CUC 401(k) Employee Benefit Plan was then changed to Citizens 401(k)
Savings Plan. The Citizens Utilities 401(k) Savings Plan and the CUC 401(k)
Employee Benefit Plan received determination letters from the Internal
Revenue Service dated January 25, 1995 and October 26, 1994, respectively,
stating that the plans were qualified under Section 401(a) of the Internal
Revenue Code (the Code) and the related trusts were tax exempt under
Section 501(a) of the Code. The Plan has been amended since the
determination letters were received. The Company applied for a new
determination letter for the Citizens 401(k) Savings Plan on February 27,
2002, and the Company fully expects the plan to qualify under Section
401(a) of the 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 2001 there were unintentional delays by the Company in submitting
employee deferrals, loan repayments and matching Company contributions. The
Company intends to reimburse the Plan for the lost earnings as soon as
administratively possible. The earnings rate is equivalent to the amount
that would have been earned if 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 also intends to report and pay the applicable
excise tax regarding these transactions to the Internal Revenue Service as
soon as administratively possible.
(9) Subsequent Events
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 balance of the
participant accounts of those employees in the amount of $3,876,484 were
transferred to the Savings Plan for Employees of American Water Works
Company, Inc., sponsored by American Water, on May 1, 2002.
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.
11
CITIZENS 401(k) SAVINGS PLAN
Schedule H, line 4(i) - Schedule of Assets (Held at End of Year)
December 31, 2001
Current
Identity of Issuer Description of Investment value
-- -------------------------------------------- -------------------------------------------------------------- ---------------
* Citizens Communications Company Common Stock; 6,332,519 shares; cost at $ 92,855,265 $ 67,504,651
* Global Crossing Limited Common Stock; 1,677,235 shares 1,408,877
--------------
Total common stocks 68,913,528
* PIMCO Total Return Fund Mutual Funds; 1,675,973 shares 17,530,682
* Putnam Growth & Income Fund; Mutual Funds; 136,198 shares 2,413,423
* Putnam OTC and Emerging Growth Fund; Mutual Fund; 1,323,174 shares 9,923,807
* Putnam International Growth Fund Mutual Fund; 722,716 shares 14,324,233
* Putnam Vista Fund Mutual Fund; 366,778 shares 3,168,958
* Putnam Voyager Fund Mutual Funds; 636,204 shares 11,006,334
* Putnam Asset Allocation - Balanced Fund Mutual Fund; 88,426 shares 867,460
--------------
Total mutual funds 59,234,897
* Putnam S&P 500 Index Fund - Collective Trust Collective Trust; 2,123,429 shares 59,137,507
* Putnam Stable Value Fund - Collective Trust Collective Trust; 35,375,673 shares 35,375,673
--------------
Total collective trust 94,513,180
Principal Mutual Life Insurance Company Guaranteed investment contracts: maturity date 6/29/02; rate 7.16% 642,694
Principal Mutual Life Insurance Company Guaranteed investment contracts: maturity date 6/29/02; rate 7.16% 1,189,644
Travelers Life and Annuity Guaranteed investment contracts: maturity date 3/31/03; rate 6.81% 940,229
Travelers Life and Annuity Guaranteed investment contracts: maturity date 3/31/03; rate 6.81% 3,986,960
--------------
Total guaranteed investment contracts 6,759,527
* Participant loans 1,525 loans with interest rates range from 5.0% to 9.5% 9,830,247
--------------
Total investments $ 239,251,379
==============
* 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, 2001
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 $ 23,379
with employee contributions
not timely remitted to the
Plan
See accompanying independent auditors' report.
13
Citizens 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.
Citizens 401(k) Savings Plan
By /s/Robert J. Larson
-------------------------------------------
Robert J. Larson
Vice President and Chief Accounting Officer
June 27, 2002