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, 2005
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or
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[ ] 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
--------------------------------
(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, 2005 and 2004
(With Report of Independent Registered Public Accounting Firm Thereon)
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, 2005 and 2004 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2005 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, 2005 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, 2005 and 2004, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2005. 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, 2005 and 2004 and the changes in net assets available for benefits
for the year ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles.
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, 2005 is presented
for the purposes 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.
/s/ Insero & Company CPAs, P.C.
Certified Public Accountants
Insero & Company CPAs, P.C.
Certified Public Accountants
Rochester, New York
May 19, 2006
1
CITIZENS 401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2005 and 2004
2005 2004
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Assets:
Investments (note 3):
Citizens Communications Company common stock $ 57,369,952 $ 66,737,216
Mutual funds 166,262,876 128,063,359
Collective trusts 130,491,878 118,778,484
Participant loans 15,879,011 14,468,743
Brokerage accounts 155,981 132,009
------------------- -------------------
Total investments 370,159,698 328,179,811
Receivables:
Employer contributions 195,383 127,763
Participant contributions 833,434 319,990
Global Crossing settlement (note 8) - 20,771,420
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Total receivables 1,028,817 21,219,173
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Net assets available for benefits $ 371,188,515 $ 349,398,984
=================== ===================
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, 2005
Additions to net assets attributed to: 2005
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Investment income:
Dividends $ 16,951,952
Interest 694,464
Net depreciation in fair value of investments (note 3) (3,013,353)
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14,633,063
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Contributions:
Participant 24,306,103
Employer 8,239,037
Rollover 624,233
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33,169,373
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Total additions 47,802,436
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Deductions to net assets attributed to:
Distributions to participants (26,012,905)
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Total deductions (26,012,905)
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Net increase in assets available for benefits 21,789,531
Net assets available for benefits:
Beginning of year 349,398,984
-------------------
End of year $ 371,188,515
===================
See accompanying notes to financial statements.
3
CITIZENS 401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2005 and 2004
(1) Description of the Plan
General
The following description of the Citizens 401(k) Savings Plan (the "Plan")
provides general information. Participants should refer to the Plan
document for a more comprehensive description of the Plan's provisions.
(a) Background
The Plan is a defined contribution plan sponsored by Citizens
Communications Company (the "Company"). Under the terms of the Plan,
employees (other than Frontier union employees covered by collective
bargaining agreements) are eligible to participate in the Plan on the
first day of the month coincident with or next following his or her
completion of three months of continuous service. Frontier union
employees covered by collective bargaining agreements 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. 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 2005 was $14,000.
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
2005 as prescribed by the IRC was $4,000. 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.
Through December 31, 2005, the Company contribution rate was 75%
(instead of 50%) for non-bargaining participants who were employed
with a GTE business when the Company acquired that business in 2000.
Company contributions for participants covered by collective
bargaining agreements are determined based on the terms of those
agreements. Through April 30, 2002, the Company contributions were
invested entirely in the Citizens Communications Company stock fund
unless a participant was age 55 or older in which case the participant
could have elected to have the Company contribution invested in
investments at his/her own discretion. In addition, at age 55 a
participant could request to transfer previous Company contributions
invested in the above common stock fund to other investment options.
Effective March 1, 2004, the Company match made previously in the form
of Company stock became unrestricted for certain collective bargaining
employees. As of May 1, 2002, the Company contribution for non-union
and certain union participants is no longer exclusively allocated to
Citizens Communications Company common stock. The Company
contributions for these participants made subsequent to May 1, 2002
are allocated to Plan investments following the same method of
allocation as that for participant-directed investments.
4
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.
Supplemental Profit Sharing Matches may be contributed, contingent
upon the Company exceeding certain financial targets. For each 1%
above the Company's earnings before interest, taxes, 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%. For the year ended December 31, 2005, the
Company exceeded its EBITDA goal and a 1.5% supplemental profit
sharing match was made on behalf of 2,109 employees. For the year
ended December 31, 2004, the Company exceeded its EBITDA goal and a
1.5% supplemental profit sharing match was made on behalf of 2,133
employees. 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.
(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 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 is as follows:
Vested percentage of
Company contributions 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%
Frontier union employees and certain other employees covered by
collective bargaining agreements are immediately 100% vested in all
contributions and allocated earnings thereon.
5
(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.
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
For the year ended December 31, 2005 forfeited nonvested Company
contributions totaled $259,061. These amounts are generally used to
reduce the obligation of the Company to make contributions to the Plan
and defray administrative costs. For the year ended December 31, 2005,
$0 of forfeited nonvested Company contributions were used to fund Plan
administrative expenses, and $342,234 (including amounts remaining
from prior years) were used to fund the Company match.
(h) Administrative Costs
The majority of Plan administrative costs 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,
2005 and 2004.
(i) Investments
The Plan offered the following investment options as of December 31,
2005:
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
6
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets, liabilities, changes therein, and disclosures of
contingent assets and liabilities at the date of the financial
statements. The preparation of these financial statements also
requires the use of plan administrator estimates. Actual results may
differ from these 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 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 during 2005 and the net
unrealized appreciation/depreciation of the market value for the
investments remaining in the Plan as of December 31, 2005.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the dividend date.
(d) Benefits Paid
Benefits are recorded when paid.
(e) Risks and Uncertainties
The Plan offers a number of investment options including the Company'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.
7
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.
(3) Investments
The following presents investments that represent 5% or more of the Plan's
net assets at the end of year:
2005 2004
------------------- -------------------
Citizens Communications Company Common Stock:
Participant-Directed, 4,430,828 and 4,565,627 shares,
respectively $ 54,207,800 $ 62,960,043
Nonparticipant-Directed, 260,092 and 273,910 shares,
respectively 3,162,152 3,777,173
PIMCO Total Return Fund, Admin. Shares 26,592,597 25,146,749
Morgan Stanley Institutional International Equity Portfolio, B 25,744,817 21,287,656
T. Rowe Price Growth Stock Fund 26,640,127 21,700,334
T. Rowe Price Stable Value Fund 69,471,885 59,671,544
T. Rowe Price Equity Index Trust 61,019,993 59,106,940
During 2005, the Plan's investments (including gains and losses on
investments bought and sold as well as held during the year) depreciated in
value by $3,013,353 as follows:
Common stocks $ (7,427,800)
Mutual funds 1,517,066
Collective trusts 2,897,381
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$ (3,013,353)
================
8
(4) Nonparticipant-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:
2005 2004
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Assets:
Common Stock of the Company at December 31 $ 3,162,152 $ 3,777,173
================= ===============
Changes in assets:
Dividends 259,362 605,635
Net change in fair value of investments (415,859) 3,065,827
Distributions to participants (458,524) (572,621)
Transfers out - (15,182)
Transfer to participant-directed investments - (13,800,830)
Other - (3,031,717)
----------------- ---------------
Change in assets $ (615,021) $ (13,748,888)
================= ===============
(5) Related Party Transactions
Certain Plan assets are invested in shares of mutual funds that are managed
by T. Rowe Price. T. Rowe Price is the trustee as defined by the Plan,
therefore these transactions qualify as party-in-interest transactions.
There were no fees paid by the Company to T. Rowe Price for the years ended
December 31, 2005 and 2004.
(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.
(7) Tax Status
As a result of the Company's internal audit of the Plan, the Company
identified certain unintentional errors in the operation of the Plan. The
Company completed its evaluation of the previously identified unintentional
errors in the operation of the Plan, and amended and resubmitted the Plan
to the Internal Revenue Service ("IRS") for a new determination letter and
approval on June 18, 2004, as supplemented on February 18, 2005, and
revised on July 15, 2005 and November 16, 2005, through the IRS's Voluntary
Compliance Program, of the proposed remedies for such errors.
On January 9, 2006 the IRS issued a compliance statement approving the
proposed remedies and a favorable determination letter with respect to the
qualified status of the Plan under Section 401(a) of the IRC and the tax
exemption of the related trusts under Section 501(a) of the IRC.
9
(8) Subsequent Events and Other Matters
During 2004, the United States District Court for the Southern District of
New York approved a settlement of the class action suits brought on behalf
of Plan participants whose accounts held Global Crossing common stock. The
settlement included a plan of allocation under which the proceeds of
$20,771,420 were allocated to the Plan accounts of the class members on May
19, 2005.
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 company stock 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 company stock.
Effective January 1, 2006, each eligible employee not otherwise
participating in the Plan shall become a participant 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. For plan years
beginning prior to January 1, 2006, each eligible employee not otherwise
participating in the Plan shall become a participant as of the entry date
immediately following (i) the employee's attainment of age 21 (this
requirement is not applicable on or after August 1, 2003), and (ii) the
employee's completion of three months of continuous service, provided that
the employee is employed by a participating employer in an eligible class
of employees.
10
CITIZENS 401(k) SAVINGS PLAN
Schedule H, line 4(i) - Schedule of Assets (Held at End of Year)
December 31, 2005
Identity of Issuer Description of Investment Current Value
-----------------------------------------------------------------------------------------------------------------------------------
* Citizens Communications Company Common Stock; 4,690,920 shares; cost at $64,111,635 $ 57,369,952
* T. Rowe Price TradeLink Brokerage Accounts; 155,981 shares 155,981
PIMCO Total Return Fund, Admin. Shares Mutual Funds; 2,532,628 shares 26,592,597
Dreyfus Premier New Leaders Fund, A Mutual Funds; 141,492 shares 6,652,972
JP Morgan Diversified Mid Cap Growth Fund Mutual Fund; 334,504 shares 7,961,184
JP Morgan Mid Cap Value Fund, A Mutual Fund; 360,995 shares 8,403,972
PIMCO Long Term U.S. Government Fund, Admin. Mutual Fund; 299,519 shares 3,294,711
Morgan Stanley Institutional Small Company Growth
Portfolio, B Mutual Fund; 1,440,115 shares 17,727,819
Morgan Stanley Institutional International Equity
Portfolio, B Mutual Fund; 1,275,127 shares 25,744,817
Morgan Stanley Institutional U.S. Real Estate Fund, B Mutual Fund; 446,484 shares 10,362,884
* T. Rowe Price Personal Strategy Balanced Fund Mutual Fund; 447,771 shares 8,404,663
* T. Rowe Price Personal Strategy Income Fund Mutual Fund; 167,146 shares 2,518,890
* T. Rowe Price Growth Stock Fund Mutual Fund; 938,033 shares 26,640,127
* T. Rowe Price Equity Income Fund Mutual Fund; 680,283 shares 17,632,935
* T. Rowe Price Personal Strategy Growth Fund Mutual Fund; 187,324 shares 4,325,305
----------------
Total mutual funds 166,262,876
----------------
* T. Rowe Price Stable Value Fund Collective Trust; 69,471,885 shares 69,471,885
* T. Rowe Price Equity Index Trust Collective Trust; 1,703,993 shares 61,019,993
----------------
Total collective trust 130,491,878
----------------
* Participant loans 3,557 loans, maturing in 1 to 20 years, with
interest rates ranging from 4.0% to 10.0% 15,879,011
----------------
$ 370,159,698
================
* 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 29, 2006
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 May 19, 2006, relating to
the statements of net assets available for benefits of the Citizens 401(k)
Savings Plan as of December 31, 2005 and 2004, and the related statement of
changes in net assets available for benefits for the year ended December 31,
2005, which report appears in the Annual Report on Form 11-K.
/s/ Insero & Company CPAs, P.C.
Certified Public Accountants
Rochester, New York
June 29, 2006
13