Frontier Union 401(k) Savings plan
Financial Statements and Supplemental Schedules
December 31, 2001
(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 period ended December 31, 2001
Commission file number 001-11 001
Frontier Union 401(k) Savings Plan
Citizens Communications Company
A Delaware Corporation
IRS Employer Identification Number 06-0619596
3 High Ridge Park
Stamford, CT 06905
Telephone (203) 614-5600
FRONTIER UNION 401(k) SAVINGS PLAN
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements:
Statement of Net Assets Available for Benefits - December 31, 2001 2
Statement of Changes in Net Assets Available for Benefits for the Period from June 29, 2001
(inception) to 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
* 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 statement of net assets available for benefits
of the Frontier Union 401(k) Savings Plan (the "Plan") as of December 31, 2001,
and the related statement of changes in net assets available for benefits for
the period from June 29, 2001 (inception) to 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 audit.
We conducted our audit 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 audit provides 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 the changes in its net assets available for benefits for
the period from June 29, 2001 (inception) to December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
as of December 31, 2001 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
New York, New York
June 26, 2002
FRONTIER UNION 401(k) SAVINGS PLAN
Statement of Net Assets Available for Benefits
December 31, 2001
Assets:
Investments (see note 3):
Citizens Communications Company common stock $ 2,470,706
Global Crossing common stock 1,381,033
Mutual funds 15,065,738
Collective trusts 13,569,838
Participant loans 3,126,853
--------------
Total investments 35,614,168
--------------
Receivables:
Employer contribution 152,284
Participants contributions 202,132
--------------
Total receivables 354,416
--------------
Net assets available for benefits $ 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
Period from June 29, 2001 (inception) to December 31, 2001
Additions to net assets attributed to:
Investment income (loss):
Dividends $ 638,341
Interest 112,858
Net depreciation in fair value of investment (note 3) (13,313,061)
---------------
(12,561,862)
---------------
Contributions:
Participant 2,982,970
Employer 1,502,067
Transfer in to Plan (note 1) 44,193,910
Rollovers 58,135
---------------
48,737,082
---------------
Total additions 36,175,220
---------------
Deductions to net assets attributed to:
Benefits paid to participants (204,886)
Miscellaneous expenses (1,750)
---------------
Total deductions (206,636)
---------------
Net increase in assets available for benefits 35,968,584
Net assets available for benefits:
Beginning of period --
---------------
End of period $ 35,968,584
===============
See accompanying notes to financial statements.
3
FRONTIER UNION 401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2001
(1) Description of the Plan
General
The following brief 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 defined contribution plan sponsored by the Citizens
Communications Company (the "Company"). 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 is 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) Contribution
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 13% of his/her
compensation, subject to certain maximum contribution restrictions.
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 attainment of financial
objectives in accordance with the terms of the relevant collective
bargaining agreement.
(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
All Participating Employer contributions and the earnings thereon are
invested initially in Citizens Communications Company common stock.
All Participating Employer contributions shall remain in the Company
Stock fund and 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.
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 Growth Fund
- Putnam Voyager Fund
- Putnam Fund For Growth & Income
- Putnam Asset Allocation Fund Balanced Portfolio
- Putnam S&P 500 Index Fund
- 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.
(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.
(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.
6
(h) Forfeitures
Forfeitures are retained in the Plan and are used to reduce future
company contributions. At December 31, 2001, there was no forfeited
nonvested company contribution.
(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 25 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.
(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 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 and
the unrealized appreciation/depreciation of the market value for the
investments remaining in the Plan in 2001.
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 ex-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 invest in security of a single issuer.
(g) Adoption of New Accounting Pronouncement
The Plan has 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 December 31, 2001:
Putnam Income Fund $ 2,326,280
Putnam Global Growth Fund 3,107,572
Putnam Voyager Fund 7,683,891
Putnam S&P 500 Index Fund 5,870,936
Putnam Stable Value Fund 7,698,902
Citizens Communications Company common stock:
Participant directed, 65,876 shares 702,239
Nonparticipant directed, 165,897 shares 1,768,467
For the period June 29, 2001 to December 31, 2001, the Plan's
investments (including gains and losses on investments bought and
sold, as well as held for the period) depreciated in value by
$13,313,061 as follows:
Mutual funds $ (1,224,837)
Common stocks (11,805,879)
Collective trust (282,345)
-------------
$ (13,313,061)
=============
(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
-------------
Net assets:
Common stock of the Company $ 1,768,467
=============
Changes in net assets:
Net appreciation in fair value of investments $ 64,663
Employer contributions 1,349,783
Benefits paid to participants (3,125)
Other 357,146
-------------
Change in net assets $ 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 $976 for
the period from June 29, 2001 to December 31, 2001.
(6) Federal Income 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. 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
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.
10
FRONTIER UNION 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; 231,774 shares; cost at $ 2,380,332 $ 2,470,706
* Global Crossing Limited Common Stock; 1,644,087 shares 1,381,033
-------------
Total common stocks 3,851,739
-------------
* Putnam Income Fund Mutual Funds; 358,441 shares 2,326,280
* Putnam Global Growth Fund Mutual Funds; 406,219 shares 3,107,572
* Putnam Voyager Fund Mutual Funds; 444,156 shares 7,683,891
* Putnam Fund for Growth & Income Mutual Funds; 80,153 shares 1,420,310
* Putnam Asset Allocation - Balanced Fund Mutual Funds; 53,791 shares 527,685
-------------
Total mutual funds 15,065,738
-------------
* Putnam S&P 500 Index Fund - Collective Trust Collective Trust; 210,806 shares 5,870,936
* Putnam Stable Value Fund - Collective Trust Collective Trust; 7,698,902 shares 7,698,902
-------------
Total collective trust 13,569,838
-------------
* Participant loans 752 loans with interest rates range from 5% to 9.5% 3,126,853
-------------
Total investments $ 35,614,168
=============
* 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
Vice President and Chief Accounting Officer
June 27, 2002