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, 2006
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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 001-11001
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Citizens 401(k) Savings Plan
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(Full title of the Plan)
Citizens Communications Company
3 High Ridge Park
P.O. Box 3801
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 Schedule
December 31, 2006 and 2005
(With Report of Independent Registered Public Accounting Firm)
CITIZENS 401(k) SAVINGS PLAN
Table of Contents
Page
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Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits - December 31, 2006 and 2005 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2006 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, 2006 11
Signature 12
Consent of Independent Registered Public Accounting Firm 13
* Schedules required by Form 5500 that are not applicable have not been included.
Report of Independent Registered Public Accounting Firm
To the Participants and Plan Administrator
of the Citizens 401(k) Savings Plan:
We have audited the statements of net assets available for benefits of the
Citizens 401(k) Savings Plan (the "Plan") as of December 31, 2006 and 2005, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2006. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2006 and 2005 and the changes in net assets available for benefits
for the year ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule H, Schedule of
Assets (Held at End of Year), for the year ended December 31, 2006 is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements but is supplementary information required by the United
States Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. This supplemental
schedule is the responsibility of the Plan's management. 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.
As further discussed in Note 2, the Plan adopted Financial Accounting Standards
Board Staff Position AAG INV-1 and SOP 94-4-1 for the years ended December 31,
2006 and 2005.
/s/ Insero & Company CPAs, P.C.
Certified Public Accountants
Insero & Company CPAs, P.C.
Certified Public Accountants
Rochester, New York
June 26, 2007
1
CITIZENS 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2006 and 2005
2006 2005
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Assets:
Cash and Cash Equivalents:
Uninvested Cash $ 57,133 $ 72,519
Investments (note 3):
Citizens Communications Company common stock 56,348,759 57,369,952
Mutual funds 198,833,321 166,262,876
Collective trusts 137,350,003 129,912,167
Participant loans 15,795,960 15,806,492
Brokerage accounts 184,248 155,981
------------------- -------------------
Total investments, at fair value 408,512,291 369,507,468
Receivables:
Employer contributions 343,066 195,383
Participant contributions 1,504,766 833,434
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Total receivables 1,847,832 1,028,817
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Net assets available for benefits, at fair value 410,417,256 370,608,804
------------------- -------------------
Adjustment from fair value to contract value for interest in
collective trust relating to fully benefit-responsive investment
contracts 605,079 579,711
------------------- -------------------
Net assets available for benefits $ 411,022,335 $ 371,188,515
=================== ===================
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, 2006
Additions to net assets attributed to: 2006
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Investment income:
Dividends $ 23,260,247
Interest 828,398
Net appreciation in fair value of investments (note 3) 29,413,694
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53,502,339
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Contributions:
Participant 22,824,681
Employer 7,367,767
Rollover 444,285
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30,636,733
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Total additions 84,139,072
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Deductions from net assets attributed to:
Distributions to participants (44,305,252)
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Total deductions (44,305,252)
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Net increase in assets available for benefits 39,833,820
Net assets available for benefits:
Beginning of year 371,188,515
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End of year $ 411,022,335
=================
See accompanying notes to financial statements.
3
CITIZENS 401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2006 and 2005
(1) Description of the Plan
General
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.
Copies of the Plan document are available from the Plan sponsor.
(a) Background
The Plan is a defined contribution plan sponsored and managed by
Citizens Communications Company (the "Company"). Under the terms of
the Plan, employees are eligible to participate in the Plan as of the
first day of the month (the "entry date") immediately following the
employee's completion of 30 days of service, provided that the
employee is employed by a participating employer in an eligible class
of employees. Leased employees, individuals not on the employer's
payroll, per diem and casual workers, temporary employees, and
scholarship students are ineligible to participate. The Plan is
subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").
(b) Contributions
Eligible employees may contribute, in 1% increments, up to 75% of
their annual eligible compensation in elective pre-tax deferrals
through payroll deductions, subject to certain maximum contribution
restrictions. The maximum contribution allowed for deferral for U.S.
federal income tax purposes in 2006 was $15,000.
In addition, eligible Frontier union employees covered by collective
bargaining agreements may also elect to make after-tax contributions,
in 1% increments of their annual eligible compensation, through
payroll deductions up to (i) 50% of the participant's eligible
compensation reduced by (ii) the percentage of eligible compensation
deferred through elective pre-tax deferrals.
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 Internal
Revenue Code ("IRC"). The maximum allowable catch-up contribution for
2006 was $5,000. No matching contributions are made with respect to a
participant's catch-up contributions.
The Company contributes 50% of each non-bargaining participant's
contribution up to 6% of each participant's eligible compensation.
Company contributions for participants covered by collective
bargaining agreements are determined based on the terms of those
agreements. The Company contributions for non-union and certain union
participants are allocated to Plan investments following the same
method of allocation as that for participant-directed investments.
For certain union employees covered by collective bargaining
agreements, the Company may contribute Employer Fixed Contributions,
Employer Matching Contributions, Discretionary Contributions, and
Special Transition-Year Contributions (as defined by the Plan).
Participants should refer to their respective bargaining agreements
for all employer contribution requirements.
4
Supplemental Profit Sharing Matches may be contributed, contingent
upon the Company exceeding certain financial targets. For each 1%
above the Company's operating income plus depreciation and
amortization ("EBITDA") goal approved by the Company's Board of
Directors, the Company provides eligible employees with 0.5% of
eligible pay in the form of a matching contribution into the 401(k)
Plan, up to a maximum of 3%. Only non-union and certain union
employees who have contributed at least 1% of their eligible pay
during the year as elective deferrals are eligible for a Supplemental
Profit Sharing Match. For the year ended December 31, 2006, the
Company did not exceed its EBITDA goal and therefore no supplemental
profit sharing match was made on behalf of the employees.
(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) investment earnings or losses. Allocations are based on each
participant's investment election(s). 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, or attainment of normal
retirement age while an employee. Except as otherwise noted, for any
other termination of employment, the vesting schedule for Company
contributions and related earnings is as follows:
Years of Service Vesting Percentage
-------------------------------------------------------
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%
Frontier union employees and certain other employees covered by
collective bargaining agreements are immediately 100% vested in all
contributions and allocated earnings thereon.
(e) Participant Loans
Participants in the Plan may request to borrow up to the lesser of 50%
of their 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 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 the trustee of the Plan. Any
distribution following a participant's termination of employment is
reduced by any loan balance outstanding at the time of such
distribution.
(f) Payment of Benefits
Inactive participants do not have the option to keep any portion of
their account in the Plan beyond the attainment of age 70 1/2.
Participants still employed by the Company at age 70 1/2, must take a
full distribution of their balances on or before April 1st of the
calendar year after they retire.
5
Upon termination of employment or permanent disability, 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 does not exceed $1,000 ($5,000 prior to March 28,
2005), the participant's balance will be distributed automatically at
that time.
(g) Forfeitures
Forfeitures of nonvested Company contributions are applied first to
the payment of Plan administrative expenses, to the extent not
previously paid by the Company, with any excess being applied to
reduce future contributions of the Company. For the year ended
December 31, 2006, forfeited nonvested Company contributions totaled
$209,362. Forfeited nonvested Company contributions of $0 were used to
fund Plan administrative expenses, and $72,367 (including amounts
remaining from prior years) was used to partially fund the Company
match for the year ended December 31, 2006.
(h) Administrative Expenses
The majority of Plan administrative expenses are paid by participants
through investment management fees. There were no Plan administrative
expenses charged by T. Rowe Price for the years ended December 31,
2006 and 2005.
(i) Investments
The Plan offered the following 17 investment options as of December
31, 2006:
Citizens Communications Company Common Stock
PIMCO Total Return Fund, Admin. Shares
PIMCO Long Term U.S. Government Fund, Admin.
Dreyfus Premier New Leaders Fund, A
JP Morgan Diversified Mid Cap Growth Fund
JP Morgan Mid Cap Value Fund, A
Morgan Stanley Institutional Small Company Growth Portfolio, B
Morgan Stanley Institutional International Equity Portfolio, B
Morgan Stanley Institutional U.S. Real Estate Fund, B
T. Rowe Price Stable Value Fund
T. Rowe Price Equity Index Trust
T. Rowe Price Equity Income Fund
T. Rowe Price Growth Stock Fund
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price TradeLink
Effective January 1, 2006, the Plan was amended to implement
restrictions on a participant's ability to invest in Citizens
Communications Company common stock if the value of the Company stock
fund exceeds 15% of the total value of the participant's account. In
addition, a participant is restricted from investing more than 15% of
current contributions in the Company stock fund.
6
(j) Mutual Fund Fees
Investments in mutual funds are subject to sales charges and annual
fees for marketing and distribution costs of the funds. These fees are
deducted prior to the allocation of the investment earnings activity
and thus not separately identifiable as an expense of the Plan.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting.
As described in Financial Accounting Standards Board Staff Position,
FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive
Investment Contracts Held by Certain Investment Companies Subject to
the AICPA Investment Company Guide and Defined Contribution Health and
Welfare and Pensions Plans (the FSP), investment contracts held by a
defined contribution plan are required to be reported at fair value.
However, contract value is the relevant measurement attribute for that
portion of the net assets available for benefits of a defined
contribution plan attributable to fully benefit-responsive investment
contracts because contract value is the amount participants would
receive if they were to initiate permitted transactions under the
terms of the Plan. The Plan invests in investment contracts through a
collective trust. As required by the FSP, the Statement of Net Assets
Available for Benefits presents the fair value of the investment in
the collective trust as well as the adjustment of the investment in
the collective trust from fair value to contract value relating to the
investment contracts. The Statement of Changes in Net Assets Available
for Benefits is prepared on a contract value basis.
(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. The preparation of these financial statements also
requires the use of plan administrator estimates. Actual results may
differ from these estimates. Certain reclassifications of balances
previously reported have been made to conform to the 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. The Plan's interest in collective trusts are valued based on
information reported by the investment advisor using the audited
financial statements of the collective trust at year-end. 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.
In addition, the Plan offers a brokerage option, Tradelink, whereby
participants invest in publicly traded mutual funds not offered
directly by the Plan. The net appreciation in fair value of
investments consists of the net realized gains and losses on the
disposal of investments during 2006 and the net unrealized
appreciation/depreciation of the market value for the investments
remaining in the Plan as of December 31, 2006.
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
Distributions to participants are recorded when paid.
(e) Risks and Uncertainties
The Plan offers a number of investment options including the Company's
common stock and a variety of pooled investment funds, some of which
are registered investment companies. The investment funds principally
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 issuer risk is limited by
the diversification of investments across all participant-directed
fund elections except for the Company Common Stock Fund, which is
invested in the security of a single issuer. Additionally, the
investments within certain participant-directed fund elections may be
further diversified into varied financial instruments.
(3) Investments
The following presents investments at fair value that represent 5% or
more of the Plan's net assets at the end of year:
2006 2005
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Citizens Communications Company Common Stock Fund:
Participant-Directed, 3,770,805 and 4,432,500 shares,
respectively $ 54,173,081 $ 54,207,800
Company-Directed, 150,473 and 258,420 shares, respectively 2,175,678 3,162,152
PIMCO Total Return Fund, Admin. Shares 26,133,941 26,592,597
Morgan Stanley Institutional International Equity Portfolio, B 32,703,399 25,744,817
T. Rowe Price Growth Stock Fund 29,677,168 26,640,127
T. Rowe Price Stable Value Fund 70,581,648 68,892,174
T. Rowe Price Equity Index Trust 66,768,355 61,019,993
T. Rowe Price Equity Income Fund 21,817,534 ***
*** Fund represented less than 5% of Plan's net assets in 2005.
Citizens Communications Company Common Stock Fund includes investments in
Citizens Communications common stock and additional uninvested cash.
8
During 2006, the Plan's investments (including gains and losses on
investments bought and sold as well as held during the year)
appreciated in value by $29,413,694 as follows:
Common stocks $ 9,183,934
Mutual funds 9,490,035
Collective trusts 10,739,725
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$ 29,413,694
====================
(4) Company-Directed Investments
Information about the assets available for benefits and significant
components of the changes in assets available for benefits relating to
the nonparticipant-directed investments is as follows:
2006 2005
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Assets:
Common Stock of the Company at December 31 $ 2,175,678 $ 3,162,152
============== =============
Changes in assets:
Dividends 204,053 259,362
Net change in fair value of investments 441,212 (415,859)
Distributions to participants (1,631,739) (458,524)
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Change in assets $ (986,474) $ (615,021)
============== =============
(5) Related Party Transactions
Certain Plan assets are invested in shares of mutual funds and
collective trust funds that are managed by T. Rowe Price. T. Rowe
Price is the trustee as defined by the Plan and therefore,
transactions involving these assets qualify as party-in-interest
transactions. There were no trustee fees paid by the Company to T.
Rowe Price for the years ended December 31, 2006 and 2005.
(6) 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,
Collective Bargaining Agreements and the National Labor Relations
Board. In the event of plan termination, participants will become 100%
vested in their accounts.
9
(7) Tax Status
The Plan received a favorable determination letter from the Internal
Revenue Service dated January 9, 2006, indicating that it meets the
requirements of Section 401(a) and 501(a) of the Internal Revenue Code
("IRC") and has qualified status as an employee retirement plan. The
Plan has been amended since receiving the determination letter.
However, 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.
(8) Reconciliation of Financial Statements to Form 5500
The following is a reconciliation from the financial statements to the
Form 5500 at December 31, 2006:
Net Assets Available for Benefits per the Financial Statements $ 411,022,335
Adjustment from contract value to fair value for interest in
collective trust relating to fully benefit-responsive
investment contracts (605,079)
---------------------
Net Assets Available for Benefits per the Form 5500 $ 410,417,256
=====================
Net Increase in Assets Available for Benefits per the
Financial Statements $ 39,833,820
Adjustment from contract value to fair value for interest in
collective trust relating to fully benefit-responsive
investment contracts (605,079)
---------------------
Net Income per the Form 5500 $ 39,228,741
=====================
10
CITIZENS 401(k) SAVINGS PLAN
EIN #: 06-0619596 Plan #005
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year)
December 31, 2006
(a) (b) (c) (e)
Identity of Issuer Description of Investment Current Value
---------------------------------------------------------------------------------------------------------------------------------
* Citizens Communications Company Common Stock; 3,921,278 shares; cost at $46,245,856 $ 56,348,759
---------------
* T. Rowe Price TradeLink Brokerage Accounts; 184,248 shares 184,248
---------------
PIMCO Total Return Fund, Admin. Shares Mutual Funds; 2,517,721 shares 26,133,941
Dreyfus Premier New Leaders Fund, A Mutual Funds; 170,454 shares 8,169,882
JP Morgan Diversified Mid Cap Growth Fund Mutual Fund; 435,946 shares 9,725,955
JP Morgan Mid Cap Value Fund, A Mutual Fund; 379,020 shares 9,763,553
PIMCO Long Term U.S. Government Fund, Admin. Mutual Fund; 331,771 shares 3,520,089
Morgan Stanley Institutional Small Company Growth Portfolio, B Mutual Fund; 1,539,114 shares 19,439,004
Morgan Stanley Institutional International Equity Portfolio, B Mutual Fund; 1,603,108 shares 32,703,399
Morgan Stanley Institutional U.S. Real Estate Fund, B Mutual Fund; 582,921 shares 16,292,653
* T. Rowe Price Personal Strategy Balanced Fund Mutual Fund; 540,010 shares 10,832,609
* T. Rowe Price Personal Strategy Income Fund Mutual Fund; 286,231 shares 4,533,901
* T. Rowe Price Growth Stock Fund Mutual Fund; 938,260 shares 29,677,168
* T. Rowe Price Equity Income Fund Mutual Fund; 738,326 shares 21,817,534
* T. Rowe Price Personal Strategy Growth Fund Mutual Fund; 245,411 shares 6,223,633
---------------
Total mutual funds 198,833,321
---------------
* T. Rowe Price Stable Value Fund Collective Trust; 71,186,728 shares 70,581,648
* T. Rowe Price Equity Index Trust Collective Trust; 1,572,500 shares 66,768,355
---------------
Total collective trust 137,350,003
---------------
* Participant loans 3,406 loans, maturing in 1 to 20 years,
with interest rates ranging from 4.0% to
9.5% 15,795,960
---------------
$ 408,512,291
===============
* Party-in-interest as defined by ERISA
See accompanying independent auditors' report.
11
CITIZENS 401(k) SAVINGS PLAN
Signature
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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 26, 2007
12
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement (No.
33-48683) on Form S-8 and in Registration Statement (No. 333-91054) on Form S-8
of Citizens Communications Company of our report dated June 22, 2007, relating
to the statements of net assets available for benefits of the Citizens 401(k)
Savings Plan as of December 31, 2006 and 2005, and the related statement of
changes in net assets available for benefits for the year ended December 31,
2006, which report appears in the Annual Report on Form 11-K.
/s/ Insero & Company CPAs, P.C.
Certified Public Accountants
Rochester, New York
June 26, 2007
13