CITIZENS COMMUNICATIONS COMPANY


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003




<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the quarterly period ended March 31, 2003
                                                 --------------

                                       or
                                       --

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

              For the transition period from _________to__________

                        Commission file number: 001-11001
                                                ---------

                         CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                06-0619596
   --------------------------------       ------------------------------------
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)


         3 High Ridge Park
        Stamford, Connecticut                            06905
---------------------------------------                ----------
(Address of principal executive offices)               (Zip Code)

                                 (203) 614-5600
              ---------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                Yes  X    No
                                    ----     ----

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.)

                                Yes  X    No
                                    ----     ----

The number of shares  outstanding of the  registrant's  Common Stock as of April
30, 2003 was 283,448,803.

<PAGE>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                                                       Page No.
                                                                                                       --------

   Part I.  Financial Information (Unaudited)

<S>                                                                                                      <C>
    Consolidated Balance Sheets at March 31, 2003 and December 31, 2002                                    2

    Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002               3

    Consolidated Statements of Shareholders' Equity for the year ended December 31, 2002 and the
       three months ended March 31, 2003                                                                   4

    Consolidated Statements of Comprehensive Income for the three months ended March 31,
       2003 and 2002                                                                                       4

    Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002               5

    Notes to Consolidated Financial Statements                                                             6

    Management's Discussion and Analysis of Financial Condition and Results of Operations                 18

    Quantitative and Qualitative Disclosures about Market Risk                                            29

    Controls and Procedures                                                                               30

   Part II.  Other Information

    Legal Proceedings                                                                                     31

    Exhibits and Reports on Form 8-K                                                                      32

    Signature                                                                                             33

    Certifications                                                                                        34

</TABLE>


                                       1
<PAGE>

   ITEM 1.    FINANCIAL STATEMENTS
              --------------------
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                ($ in thousands)
                                   (Unaudited)


                                                                            March 31, 2003    December 31, 2002
                                                                          ------------------- ------------------
ASSETS
------
Current assets:
<S>                                                                                <C>                <C>
    Cash and cash equivalents                                                    $   455,923        $   393,177
    Accounts receivable, less allowances of $39,661 and $38,946, respectively        288,415            310,929
    Other current assets                                                              36,717             49,114
    Assets held for sale                                                             464,491            447,764
                                                                          ------------------- ------------------
      Total current assets                                                         1,245,546          1,200,984

Property, plant and equipment, net                                                 3,707,554          3,690,056
Goodwill, net                                                                      1,869,348          1,869,348
Other intangibles, net                                                               911,259            942,970
Investments                                                                           36,148             29,846
Other assets                                                                         428,713            413,538
                                                                          ------------------- ------------------
          Total assets                                                           $ 8,198,568        $ 8,146,742
                                                                          =================== ==================

LIABILITIES AND EQUITY
----------------------
Current liabilities:
    Long-term debt due within one year                                           $   110,305        $    58,911
    Accounts payable and other current liabilities                                   567,101            561,902
    Liabilities related to assets held for sale                                      129,527            150,053
                                                                          ------------------- ------------------
      Total current liabilities                                                      806,933            770,866

Deferred income taxes                                                                206,553            137,116
Customer advances for construction and contributions in aid of construction          134,751            146,661
Other liabilities                                                                    298,896            301,349
Equity units                                                                         460,000            460,000
Long-term debt                                                                     4,783,255          4,957,361
Company Obligated Mandatorily Redeemable Convertible Preferred Securities*           201,250            201,250

Shareholders' equity:
    Common stock, $0.25 par value (600,000,000 authorized shares; 283,282,000
      and 282,482,000 outstanding and 294,324,000 and 294,080,000 issued at
      March 31, 2003 and December 31, 2002, respectively)                             73,581             73,520
    Additional paid-in capital                                                     1,937,693          1,943,406
    Accumulated deficit                                                             (425,602)          (553,033)
    Accumulated other comprehensive loss                                             (98,279)          (102,169)
    Treasury stock                                                                  (180,463)          (189,585)
                                                                          ------------------- ------------------
      Total shareholders' equity                                                   1,306,930          1,172,139
                                                                          ------------------- ------------------
          Total liabilities and equity                                           $ 8,198,568        $ 8,146,742
                                                                          =================== ==================


*  Represents  securities  of a subsidiary  trust,  the sole assets of which are securities of a subsidiary
partnership,  substantially  all the assets of which are convertible debentures of the Company.
</TABLE>
        The accompanying Notes are an integral part of these Consolidated
                             Financial Statements.


                                       2
<PAGE>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    2003             2002
                                                                                              --------------   --------------
<S>                                                                                               <C>              <C>
Revenue                                                                                           $ 651,862        $ 679,334

Operating expenses:
     Cost of services                                                                               113,219          128,238
     Other operating expenses                                                                       235,821          260,854
     Depreciation and amortization                                                                  138,548          178,174
     Reserve for telecommunications bankruptcies                                                       -               7,804
     Restructuring and other expenses                                                                   (21)           3,905
                                                                                              --------------   --------------
Total operating expenses                                                                            487,567          578,975
                                                                                              --------------   --------------

Operating income                                                                                    164,295          100,359

Investment and other income (loss), net                                                              49,822          (48,508)
Loss on sale of assets                                                                                1,650             -
Interest expense                                                                                    109,276          122,050
                                                                                              --------------   --------------
     Income (loss) from continuing operations before income taxes, dividends on
        convertible preferred securities, and cumulative effect of change
           in accounting principle                                                                  103,191          (70,199)
Income tax expense (benefit)                                                                         39,976          (26,942)
                                                                                              --------------   --------------
      Income (loss) from continuing operations before dividends  on convertible
       preferred securities, and cumulative effect of change in accounting principle                 63,215          (43,257)

Dividends on convertible preferred securities, net of income tax benefit of $(963)                    1,553            1,553
                                                                                              --------------   --------------
     Income (loss) from continuing operations before cumulative effect of
        change in accounting principle                                                               61,662          (44,810)

Loss from discontinued operations, net of income tax benefit of $(920)                                 -              (1,478)
Gain on disposal of water segment, net of tax of $139,874                                              -             169,326
                                                                                              --------------   --------------
     Total income from discontinued operations, net of tax of $138,954                                 -             167,848

     Income before cumulative effect of change in accounting principle                               61,662          123,038

Cumulative effect of change in accounting principle, net of tax of
     $41,591 and $0, respectively                                                                    65,769          (39,812)
                                                                                              --------------   --------------
     Net income attributable to common shareholders                                               $ 127,431        $  83,226
                                                                                              ==============   ==============

Basic income per common share:
     Income (loss) from continuing operations before cumulative effect of
        change in accounting principle                                                            $    0.22        $   (0.16)
     Income from discontinued operations                                                          $      -         $    0.60
     Income before cumulative effect of change in accounting principle                            $    0.22        $    0.44
     Cumulative effect of change in accounting principle                                          $    0.23        $   (0.14)
     Net income attributable to common shareholders                                               $    0.45        $    0.30

Diluted income per common share:
     Income (loss) from continuing operations before cumulative effect of
        change in accounting principle                                                            $    0.22        $   (0.16)
     Income from discontinued operations                                                          $      -         $    0.59
     Income before cumulative effect of change in accounting principle                            $    0.22        $    0.43
     Cumulative effect of change in accounting principle                                          $    0.23        $   (0.14)
     Net income attributable to common shareholders                                               $    0.45        $    0.29

</TABLE>

        The accompanying Notes are an integral part of these Consolidated
                             Financial Statements.


                                       3
<PAGE>
<TABLE>
<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE YEAR ENDED DECEMBER 31, 2002 AND THE THREE MONTHS ENDED MARCH 31, 2003
                                ($ in thousands)
                                   (Unaudited)



                                                                          Retained    Accumulated
                                            Common Stock     Additional   Earnings      Other        Treasury Stock       Total
                                         ------------------   Paid-In   (Accumulated Comprehensive  ----------------  Shareholders'
                                         Shares    Amount     Capital     Deficit)    Income (Loss)  Shares   Amount     Equity
                                         --------- -------- ----------- ------------ -------------- -------- -------   -----------

<S>                                      <C>       <C>      <C>           <C>         <C>          <C>      <C>         <C>
Balances January 1, 2002                  292,840   $73,210  $ 1,927,518   $ 129,864   $   4,907    (11,551) $ (189,357) $1,946,142
   Stock plans                              1,240       310       15,888         -           -          (47)       (228)     15,970
   Net loss                                   -         -           -       (682,897)        -          -           -      (682,897)
   Other comprehensive income, net of
     tax and reclassifications adjustments    -         -           -            -      (107,076)       -           -      (107,076)
                                          --------- --------- ----------- ------------ ------------ -------- ----------- -----------
Balances December 31, 2002                294,080    73,520   1,943,406     (553,033)   (102,169)   (11,598)   (189,585)  1,172,139
   Stock plans                                244        61      (5,713)         -           -          556       9,122       3,470
   Net income                                 -         -           -        127,431         -          -           -       127,431
   Other comprehensive income, net of
     tax and reclassifications adjustments    -         -           -            -         3,890        -           -         3,890
                                         --------- --------- ----------- ------------ ------------ -------- ----------- -----------
Balances March 31, 2003                   294,324   $73,581  $ 1,937,693  $ (425,602)  $ (98,279)   (11,042) $ (180,463) $1,306,930
                                         ========= ========= =========== ============ ============ ======== =========== ===========



        The accompanying Notes are an integral part of these Consolidated
                             Financial Statements.



                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
                                ($ in thousands)
                                   (Unaudited)


                                                  For the three months ended March 31,
                                              ---------------------------------------------
                                                      2003                    2002
                                              ---------------------   ---------------------

Net income                                               $ 127,431                $ 83,226
Other comprehensive income (loss), net of
  tax and reclassifications adjustments*                     3,890                    (293)
                                              ---------------------   ---------------------
  Total comprehensive income                             $ 131,321                $ 82,933
                                              =====================   =====================

</TABLE>

   * Consists of unrealized holding gains/(losses) of marketable securities.



        The accompanying Notes are an integral part of these Consolidated
                             Financial Statements.


                                       4
<PAGE>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
                                ($ in thousands)

<TABLE>
<CAPTION>
                                                                          2003             2002
                                                                     ---------------  ---------------
Income (loss) from continuing operations before cumulative
<S>                                                                    <C>             <C>
   effect of change in accounting principle                            $  61,662       $     (44,810)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
      Depreciation and amortization expense                              138,548             178,174
      Investment write-down                                                  -                49,740
      Gain on extinguishment of debt                                     (46,868)                -
      Investment (gains)/losses                                              201                 -
      Loss on sale of assets                                               1,650                 -
      Allowance for equity funds used during construction                    (34)               (475)
      Deferred and accrued income taxes                                   79,808            (156,291)
      Change in accounts receivable                                       24,281               8,185
      Change in accounts payable, accrued expenses and
         other liabilities                                               (71,288)              6,431
      Change in other current assets                                      12,392              98,043
                                                                     ---------------  ---------------
Net cash provided by continuing operating activities                     200,352             138,997

Cash flows from investing activities:
      Proceeds from sale of assets, net of selling expenses                  553                 -
      Capital expenditures                                               (47,752)            (68,439)
      Securities purchased                                                   (22)               (450)
      Securities matured                                                     -                 2,014
      Other                                                                  -                   447
                                                                     ---------------  ---------------
Net cash used by investing activities                                    (47,221)            (66,428)

Cash flows from financing activities:
      Long-term debt principal payments                                  (89,438)           (148,097)
      Issuance of common stock                                             3,198               4,832
      Customer advances for construction
        and contributions in aid of construction                          (4,145)              1,402
                                                                     ---------------  ---------------
Net cash used by financing activities                                    (90,385)           (141,863)

Cash provided by (used by) discontinued operations
      Proceeds from sale of discontinued operations                          -               859,065
      Net cash used by discontinued operations                               -               (32,889)

Increase in cash and cash equivalents                                     62,746             756,882
Cash and cash equivalents at January 1,                                  393,177             215,869
                                                                     ---------------  ---------------

Cash and cash equivalents at March 31,                                 $ 455,923       $     972,751
                                                                     ===============  ===============

Cash paid during the period for:
      Interest                                                         $ 107,982       $     104,273
      Income taxes                                                     $     306       $       1,644

Non-cash investing and financing activities:
      Change in fair value of interest rate swaps                      $     711       $        (364)
      Note receivable from sale of assets                              $  21,306       $         -

</TABLE>

        The accompanying Notes are an integral part of these Consolidated
                             Financial Statements.


                                       5
<PAGE>
                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies:
     ------------------------------------------
     (a)  Basis of Presentation and Use of Estimates:
          Citizens  Communications  Company and its subsidiaries are referred to
          as "we," "us" "our" or the  "Company"  in this report.  Our  unaudited
          consolidated  financial  statements  have been  prepared in accordance
          with accounting  principles generally accepted in the United States of
          America (GAAP) and should be read in conjunction with the consolidated
          financial  statements  and notes included in our 2002 Annual Report on
          Form 10-K. These unaudited  consolidated  financial statements include
          all adjustments,  which consist of normal recurring accruals necessary
          to present fairly the results for the interim periods shown.

          The  preparation  of  financial  statements  in  conformity  with GAAP
          requires management to make estimates and assumptions which affect the
          amounts of assets, liabilities,  revenue and expenses we have reported
          and our disclosure of contingent assets and liabilities at the date of
          the  financial  statements.  Actual  results  may  differ  from  those
          estimates.  We believe that our critical  estimates  are  depreciation
          rates,  pension  assumptions,   calculations  of  impairment  amounts,
          intangible assets,  income taxes and contingencies,  and allowance for
          doubtful    accounts,     including    reserves     established    for
          telecommunication bankruptcies.

          Certain information and footnote disclosures have been excluded and/or
          condensed  pursuant to Securities  and Exchange  Commission  rules and
          regulations.  The results of the interim  periods are not  necessarily
          indicative of the results for the full year. Certain reclassifications
          of balances  previously  reported have been made to conform to current
          presentation.

     (b)  Cash Equivalents:
          We consider all highly liquid investments with an original maturity of
          three months or less to be cash equivalents.

     (c)  Goodwill and Other Intangibles:
          Intangibles represent the excess of purchase price over the fair value
          of identifiable  tangible  assets  acquired.  We undertake  studies to
          determine  the fair values of assets  acquired and  allocate  purchase
          prices  to  property,   plant  and   equipment,   goodwill  and  other
          identifiable intangibles.  On January 1, 2002, we adopted Statement of
          Financial  Accounting  Standards  (SFAS) No. 142,  "Goodwill and Other
          Intangible Assets," which applies to all goodwill and other intangible
          assets recognized in the statement of financial position at that date,
          regardless  of  when  the  assets  were  initially  recognized.   This
          statement requires that goodwill and other intangibles with indefinite
          useful  lives no longer be  amortized  to  earnings,  but  instead  be
          reviewed  for  impairment,  at least  annually.  The  amortization  of
          goodwill and other  intangibles  with  indefinite  useful lives ceased
          upon adoption of the statement on January 1, 2002. We annually (during
          the fourth  quarter)  examine the  carrying  value of our goodwill and
          other  intangibles with indefinite  useful lives to determine  whether
          there are any impairment losses.

     (d)  Impairment of Long-Lived  Assets and Long-Lived  Assets to Be Disposed
          of:
          We adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
          Long-Lived  Assets" as of January 1, 2002. In accordance with SFAS No.
          144, we review  long-lived  assets to be held and used and  long-lived
          assets to be disposed of, including  intangible  assets with estimated
          useful  lives,   for   impairment   whenever   events  or  changes  in
          circumstances indicate that the carrying amount of such assets may not
          be  recoverable.  Recoverability  of  assets  to be held  and  used is
          measured by comparing  the carrying  amount of the asset to the future
          undiscounted  net cash flows  expected to be  generated  by the asset.
          Recoverability  of assets held for sale is measured by  comparing  the
          carrying amount of the assets to their estimated fair market value. If
          any assets are  considered to be impaired,  the impairment is measured
          by the amount by which the carrying  amount of the assets  exceeds the
          estimated fair value.

     (e)  Derivative Instruments and Hedging Activities:
          On the date the derivative  contract is entered into, we designate the
          derivative  as either a fair value or cash flow hedge.  A hedge of the
          fair value of a recognized  asset or  liability or of an  unrecognized
          firm  commitment  is a fair  value  hedge.  A  hedge  of a  forecasted
          transaction  or the  variability  of cash flows to be received or paid
          related to a recognized  asset or  liability is a cash flow hedge.  We
          formally  document all relationships  between hedging  instruments and
          hedged items,  as well as its  risk-management  objective and strategy
          for undertaking the hedge  transaction.  This process includes linking
          all derivatives  that are designated as fair value or cash flow hedges
          to specific assets and liabilities on the balance sheet or to specific
          firm commitments or forecasted transactions.

                                       6
<PAGE>
          We also  formally  assess,  both at the  hedge's  inception  and on an
          ongoing  basis,  whether  the  derivatives  that are  used in  hedging
          transactions are highly effective in offsetting changes in fair values
          or cash flows of hedged items.  If it is determined  that a derivative
          is not  highly  effective  as a hedge  or that it has  ceased  to be a
          highly  effective  hedge,  we  would   discontinue   hedge  accounting
          prospectively.

          All  derivatives  are  recognized  on the balance  sheet at their fair
          value. Changes in the fair value of derivative  financial  instruments
          are either recognized in income or shareholders equity (as a component
          of other comprehensive income), depending on whether the derivative is
          being used to hedge changes in fair value or cash flows.

          We entered into interest rate swap arrangements during 2002 related to
          a portion of our fixed rate debt. These hedge  strategies  satisfy the
          fair value hedging requirements of SFAS No. 133. As a result, the fair
          value of the hedges is carried on the balance  sheet in other  current
          assets and the related  underlying  liabilities  are also  adjusted to
          fair value by the same amount.

     (f)  Employee Stock Plans:
          We have various employee stock-based  compensation plans. Awards under
          these plans are granted to eligible officers, management employees and
          non-management employees.  Awards may be made in the form of incentive
          stock options, non-qualified stock options, stock appreciation rights,
          restricted stock or other stock based awards.  As permitted by current
          accounting rules, we recognize  compensation  expense in the financial
          statements  only if the market price of the  underlying  stock exceeds
          the exercise price on the date of grant.

          At March 31, 2003, we have four stock based  compensation  plans:  the
          Management  Equity  Incentive Plan (MEIP),  the Equity  Incentive Plan
          (EIP),  the Employee  Stock  Purchase  Plan (ESPP) and our  Directors'
          Deferred  Fee  Equity  Plan.  We  apply  Accounting  Principles  Board
          Opinions  (APB) No. 25 and related  interpretations  in accounting for
          the employee stock plans  resulting in the use of the intrinsic  value
          to value the stock  option.  In addition,  we grant  restricted  stock
          awards to key employees in the form of our Common Stock.  Compensation
          expense is  recognized  as a component  of  operating  expense for our
          Directors'  Deferred  Fee Equity  Plan and  restricted  stock  grants.
          Compensation  cost  is  not  generally  recognized  in  the  financial
          statements  for  options  issued  pursuant  to the MEIP or EIP, as the
          exercise  price for such  options was equal to the market price of the
          stock at the time of grant.  Compensation  cost is also not recognized
          in the financial  statements  related to the ESPP because the purchase
          price is 85% of the fair value.  For purposes of presenting  pro forma
          information  the fair value of options  granted is computed  using the
          Black Scholes option-pricing model.


                                       7
<PAGE>
          Had we  determined  compensation  cost  based on the fair value at the
          grant  date for the MEIP,  EIP and ESPP,  our pro forma net income and
          net income per common share would have been as follows:

<TABLE>
<CAPTION>
                                                               Three Months Ended March 31,
                                                               ----------------------------
                                                                     2003          2002
                                                               ------------    ------------
             ($ in thousands)

<S>                                                             <C>             <C>
             Net income                        As reported      $  127,431      $  83,226
             Add: Stock-based employee
             compensation expense included
             in reported net income, net of
             related tax effects
                                                                       844          1,290
             Deduct: Total stock-based
             employee compensation expense
             determined under fair
             value based method for all
             awards, net of related tax
             effects                                                 (3,084)       (4,073)
                                                                ------------    ----------
                                               Pro forma        $   125,191     $  80,443
                                                                ============    ==========

             Net income per common share       As reported:
                                                  Basic         $      0.45     $    0.30
                                                  Diluted              0.45          0.29



                                               Pro forma:
                                                  Basic         $      0.44     $    0.29
                                                  Diluted              0.44          0.28

</TABLE>

     (g)  Revenue Recognition:
          Incumbent  Local Exchange  Carrier (ILEC) - Revenue is recognized when
          services are provided or when  products  are  delivered to  customers.
          Revenue that is billed in advance includes:  monthly recurring network
          access services,  special access services and monthly  recurring local
          line  charges.  The  unearned  portion of this  revenue  is  initially
          deferred as a component of other  current  liabilities  on our balance
          sheet and  recognized in revenue over the period that the services are
          provided.  Revenue that is billed in arrears  includes:  non-recurring
          network access services, switched access services, non-recurring local
          services and long-distance  services.  The earned but unbilled portion
          of  this  revenue  is  recognized  in  revenue  in  our  statement  of
          operations  and accrued in accounts  receivable in the period that the
          services are provided. Excise taxes are recognized as a liability when
          billed.  Installation  fees and their related  direct and  incremental
          costs are  initially  deferred and  recognized  as revenue and expense
          over the average  term of a customer  relationship.  We  recognize  as
          current period expense the portion of installation  costs that exceeds
          installation fee revenue.

          Electric  Lightwave,  Inc.  (ELI) -  Revenue  is  recognized  when the
          services are provided. Revenue from long-term prepaid network services
          agreements  including  Indefeasible  Rights to Use (IRU), are deferred
          and recognized on a straight-line  basis over the terms of the related
          agreements. Installation fees and their related direct and incremental
          costs are  initially  deferred and  recognized  as revenue and expense
          over the average  term of a customer  relationship.  We  recognize  as
          current period expense the portion of installation  costs that exceeds
          installation fee revenue.


                                       8
<PAGE>
          Public  Utilities  Services - Revenue is recognized  when services are
          provided for public utilities services.  Certain revenue is based upon
          consumption  while other revenue is based upon a flat fee.  Earned but
          unbilled public  services  revenue is accrued and included in accounts
          receivable and revenue.

     (h)  Net Income Per Common Share:
          Basic net income  per  common  share is  computed  using the  weighted
          average  number of common shares  outstanding  during the period being
          reported  on.  Diluted  net  income  per  common  share  reflects  the
          potential  dilution that could occur if securities or other  contracts
          to  issue  common  stock  that  are in the  money  were  exercised  or
          converted  into  common  stock at the  beginning  of the period  being
          reported on.

(2)  Property, Plant and Equipment, Net:
     ----------------------------------
     Property, plant and equipment at March 31, 2003 and December 31, 2002 is as
     follows:
<TABLE>
<CAPTION>

($ in thousands)                               March 31, 2003        December 31, 2002
                                           ----------------------  ---------------------

<S>                                                  <C>                    <C>
Property, plant and equipment                        $ 6,120,913            $ 6,139,772
Less accumulated depreciation                         (2,413,359)            (2,449,716)
                                           ----------------------  ---------------------
    Property, plant and equipment, net               $ 3,707,554            $ 3,690,056
                                           ======================  =====================

</TABLE>

     Depreciation  expense,  calculated using the straight-line method, is based
     upon the estimated  service lives of various  classifications  of property,
     plant and equipment. Depreciation expense was $106,836,000 and $147,820,000
     for the three months ended March 31, 2003 and 2002, respectively. Effective
     January 1, 2003,  as a result of the adoption of SFAS No. 143,  "Accounting
     for Asset  Retirement  Obligations",  we ceased  recognition of the cost of
     removal  provision in  depreciation  expense and  eliminated the cumulative
     cost of removal  included in  accumulated  depreciation.  In  addition,  we
     increased the average depreciable lives for certain of our equipment.  This
     change in estimate reduced  depreciation  expense by $18,463,000,  or $0.04
     per share,  for the  quarter  ended March 31, 2003 as compared to March 31,
     2002. For the three months ended March 31, 2002, we recognized  accelerated
     depreciation  of  $11,900,000  related to the  closing of our Plano,  Texas
     facility.

(3)  Discontinued Operations and Net Assets Held for Sale:
     ----------------------------------------------------
     On August 24, 1999,  our Board of Directors  approved a plan of divestiture
     for our public utilities services businesses,  which included gas, electric
     and water and wastewater businesses.

          Water and Wastewater
          --------------------
          On January 15, 2002, we completed the sale of our water and wastewater
          operations to American Water Works,  Inc. for $859,100,000 in cash and
          $122,500,000 of assumed debt and other  liabilities.  The pre-tax gain
          on the sale recognized in the first quarter of 2002 was  $309,200,000,
          subsequently adjusted to $316,672,000 in the fourth quarter of 2002.

          Electric and Gas
          ----------------
          On October 29, 2002, we entered into definitive agreements to sell our
          Arizona gas and electric divisions to UniSource Energy Corporation for
          $230,000,000  in cash  ($220,000,000  if we close the sale by July 28,
          2003),  subject  to  adjustments  specified  in  the  agreements.  The
          transaction,  which is  subject  to  regulatory  and  other  customary
          approvals, is expected to close during the second half of 2003.

          On  November  1, 2002,  we  completed  the sale of our Kauai  electric
          division to Kauai Island Utility  Cooperative  (KIUC) for $215,000,000
          in cash. The pre-tax gain on the sale recognized in the fourth quarter
          of 2002 was $8,273,000.

          On December 19, 2002,  we entered into a definitive  agreement to sell
          The Gas Company in Hawaii to K-1 USA Ventures,  Inc. for  $115,000,000
          in cash, subject to adjustments under the terms of the agreement.  The
          transaction,  which is  subject  to  regulatory  and  other  customary
          approvals, is expected to close during the second half of 2003.


                                       9
<PAGE>
          We have entered into  definitive  agreements to sell the assets of our
          Vermont electric division to Vermont Electric Power Company,  Inc. and
          Vermont Electric  Cooperative,  Inc. for an aggregate of approximately
          $25,000,000  in cash,  subject to  adjustments  under the terms of the
          agreements.  The  transactions,  which are subject to  regulatory  and
          other customary approvals, are expected to close by mid-2004.

     All our gas and electric  assets  (comprised  of Arizona gas and  electric,
     Hawaii  gas  and  Vermont  electric)  and  their  related  liabilities  are
     classified  as "assets  held for sale" and  "liabilities  related to assets
     held for sale,"  respectively.  These  assets have been written down to our
     best estimate of the net realizable value upon sale.

     Discontinued  operations  in  the  consolidated  statements  of  operations
     reflect the results of operations of the  water/wastewater  properties sold
     in January  2002  including  allocated  interest  expense  for the  periods
     presented.  Interest expense was allocated to the  discontinued  operations
     based  on  the  outstanding   debt   specifically   identified  with  these
     businesses.

     Summarized  financial  information  for  the  water/wastewater   operations
     (discontinued operations) is set forth below:
<TABLE>
<CAPTION>

     ($ in thousands)                                      For the three months ended March 31,
                                                        --------------------------------------------
                                                               2003                    2002
                                                        --------------------   ---------------------
<S>                                                             <C>                 <C>
     Revenue                                                    $   -               $   4,650
     Operating loss                                             $   -               $    (419)
     Income tax benefit                                         $   -               $    (920)
     Loss from discontinued operations, net of tax              $   -               $  (1,478)
     Gain on disposal of water segment, net of tax              $   -               $ 169,326


     Summarized  financial  information  for  the gas  and  electric  operations
     (assets held for sale) is set forth below:

($ in thousands)                                  March 31, 2003       December 31, 2002
                                                --------------------   -------------------

Current assets                                          $    48,839           $    49,549
Net property, plant and equipment                           368,519               358,135
Other assets                                                 47,133                40,080
                                                --------------------   -------------------
Total assets held for sale                              $   464,491           $   447,764
                                                ====================   ===================

Current liabilities                                     $    68,314           $    83,278
Other liabilities                                            61,213                66,775
                                                --------------------   -------------------
Total liabilities related to assets held for sale       $   129,527           $   150,053
                                                ====================   ===================

(4)  Other Intangibles:
     -----------------
     Other intangibles at March 31, 2003 and December 31, 2002 are as follows:

($ in thousands)                                       March 31, 2003         December 31, 2002
                                                   ------------------------  ---------------------

Customer base - amortizable over 96 months                $ 1,000,816            $ 1,000,816
Trade name - non-amortizable                                  122,058                122,058
                                                   ------------------------  ---------------------
   Other intangibles                                        1,122,874              1,122,874
Accumulated amortization                                     (211,615)              (179,904)
                                                   ------------------------  ---------------------
    Total other intangibles, net                          $   911,259            $   942,970
                                                   ========================  =====================

</TABLE>

                                       10
<PAGE>

     We have  reflected  assets  acquired at fair  market  values at the time of
     acquisition  in  accordance  with  purchase   accounting   standards.   Our
     allocations  are based  upon an  independent  appraisal  of the  respective
     properties acquired.

(5)  Restructuring Charges:
     ---------------------

     2002
     ----
     Restructuring  and other expenses  primarily consist of expenses related to
     our  various  restructurings,  including  reductions  in  personnel  at our
     telecommunications  operations,  costs that were spent at our Plano,  Texas
     facility and at other locations as a result of transitioning  functions and
     jobs. These costs were partially offset by a $2,100,000  reversal of a 2001
     ELI accrual recognized in the first quarter of 2002, which was subsequently
     adjusted  to  $2,825,000  in  the  fourth  quarter  of  2002.  See  further
     discussion below.

     2001
     ----
     During 2001,  we examined all aspects of our  business  operations  and our
     facilities  to take  advantage  of  operational  and  functional  synergies
     between  Frontier  and the  original  Citizens  businesses.  We continue to
     review  our  operations,   personnel  and  facilities  to  achieve  greater
     efficiency.

          Plano Restructuring
          Pursuant to a plan adopted in the third quarter of 2001, we closed our
          operations   support  center  in  Plano,  Texas  in  August  2002.  In
          connection  with this plan,  we recorded a pre-tax  charge of $839,000
          for the three months ended March 31, 2002. The restructuring  expenses
          primarily  consist of severance  benefits,  retention  earned  through
          March 31, 2002 and other planning and communication costs. We sold our
          Plano office building in March 2003.

          Sacramento Call Center Restructuring
          In April 2002, we closed our Sacramento  Customer Care Center pursuant
          to a plan adopted in the fourth  quarter of 2001. In  connection  with
          this  closing,  we recorded a pre-tax  charge of $62,000 for the three
          months ended March 31, 2002.

          ELI Restructuring
          In the first half of 2002, ELI redeployed the Internet routers,  frame
          relay switches and ATM switches from the Atlanta,  Cleveland,  Denver,
          Philadelphia  and New York markets to other locations in ELI's network
          pursuant to a plan adopted in the fourth  quarter of 2001.  ELI ceased
          leasing  the  collocation  facilities  and  off-net  circuits  for the
          backbone  and local loops  supporting  the  service  delivery in these
          markets.  It was  anticipated  that this would lead to  $4,179,000  of
          termination  fees, which were accrued for but not paid at December 31,
          2001. In the first quarter 2002, ELI adjusted  their original  accrual
          down by  $2,100,000  due to the favorable  settlement  of  termination
          charges for an off-net circuit  agreement.  By December 31, 2002, this
          accrual was adjusted down by $725,000.
<TABLE>
<CAPTION>

($ in thousands)
                   2001         Severance       Benefits       Retention       Other        Total
                             --------------  -------------- -------------- ------------- ----------

2001 Plano Restructuring
<S>                               <C>             <C>            <C>             <C>     <C>
Original accrued amount           $ 9,353         $ 1,535        $ 1,178        $ 936   $ 13,002
Amount paid                        (8,985)         (1,390)        (3,832)        (523)   (14,730)
Additional accrual                    616             -            2,943           27      3,586
Adjustments                          (984)           (132)          (289)        (440)    (1,845)
                             -------------  -------------- -------------- ------------ ----------
Accrued @ 12/31/2002                  -                13            -            -         13
                             -------------  -------------- -------------- ------------ ----------
Amount paid                           -               (13)           -            -        (13)
Additional accrual                    -               -              -            -          -
Adjustments                           -               -              -            -          -
                             -------------  -------------- -------------- ------------ ----------
Accrued @ 3/31/2003               $   -           $   -          $   -          $ -     $    -
                             =============  ============== ============== ============ ==========
</TABLE>

                                       11

<PAGE>

(6)  Long-Term Debt:
     --------------
     The activity in our long-term debt from December 31, 2002 to March 31, 2003
     is as follows:
<TABLE>
<CAPTION>
                                                       Three Months Ended March 31, 2003
                                                   --------------------------------------

                                                                   Interest                                 Interest Rate* at
                                      December 31,               Rate Swap/                     March 31,       March 31,
($ in thousands)                         2002        Payments** Reclassification     Other        2003            2003
                                      ------------   ---------- ----------------   ---------    ---------      ---------
FIXED RATE

<S>                                   <C>           <C>           <C>              <C>          <C>              <C>
  Rural Utilities Service Loan        $   30,874    $    (218)    $    -          $      -     $   30,656        6.210%
Contracts

  Senior Unsecured Debt                4,508,880      (88,700)        711                -      4,420,891        8.199%

  Equity Units                           460,000          -            -                 -        460,000        7.480%

  ELI Notes                                5,975          -            -                 -          5,975        6.232%
  ELI Capital Leases                     135,200         (517)                       (33,985)     100,698       10.282%
  Industrial Development Revenue         186,390          -            -                 -        186,390        6.091%
Bonds
  Other
                                              40           (3)         -                 -             37       12.985%
                                       ---------    ----------     --------        ----------   -----------
TOTAL FIXED RATE                       5,327,359      (89,438)        711            (33,985)   5,204,647
                                       ---------    ----------     --------        ----------   -----------
VARIABLE RATE

  Industrial Development Revenue
Bonds                                    148,913          -           -                  -        148,913        2.410%
                                       ---------                                                -----------
TOTAL VARIABLE RATE                      148,913          -           -                  -        148,913
                                       ---------                                                -----------
TOTAL LONG TERM DEBT                   5,476,272    $ (89,438)     $  711          $ (33,985)  $5,353,560
                                       ---------    ==========     ========        ==========   -----------


  Less:  Current Portion                 (58,911)                                                (110,305)
  Less:  Equity Units                   (460,000)                                                (460,000)
                                      ----------                                                -----------
                                      $4,957,361                                               $4,783,255
                                      ==========                                                ===========
</TABLE>

* Interest rate includes  amortization of debt issuance expenses,  debt premiums
or discounts.  The interest  rate for Rural  Utilities  Service Loan  Contracts,
Senior  Unsecured  Debt, and Industrial  Development  Revenue Bonds  represent a
weighted average of multiple issuances.

** Includes purchases on the open market.

On  February 1 2003,  we repaid at  maturity  $35,000,000  million  of  Frontier
Communications of Minnesota 7.61% Senior Notes.

During the first  quarter of 2003, we executed a series of purchases in the open
market of our outstanding  debt  securities.  The aggregate  principal amount of
debt  securities  purchased  was  $53,700,000  at  a  premium  of  approximately
$2,400,000 which is included in investment and other income (loss), net.

In March 2003, we terminated a capital lease  obligation at ELI with a principal
amount of approximately $33,985,000. The lease termination resulted in a pre-tax
non-cash  gain of  $40,703,000.  This  reduced our future  minimum  cash payment
commitments by approximately  $96,900,000  over the next 20 years.  Total future
minimum cash payment  commitments  over the next 24 years under ELI's  long-term
capital leases amounted to $218,530,000 as of March 31, 2003.


                                       12
<PAGE>


(7)  Income (Loss) Per Common Share:
     ------------------------------
     The  reconciliation  of the income (loss) per common share  calculation for
     the three  months  ended  March  31,  2003 and  2002,  respectively,  is as
     follows:
<TABLE>
<CAPTION>

($ in thousands, except per-share amounts)                        For the three months ended March 31,
                                                                ------------------------------------------
                                                                      2003                    2002
                                                                ------------------     -------------------
Net income (loss) used for basic and diluted earnings
   per common share
Income (loss) from continuing operations before
<S>                                                                    <C>                   <C>
   cumulative effect of change in accounting principle                 $   61,662            $    (44,810)
Income from discontinued operations                                           -                   167,848
                                                                ------------------     -------------------
Income before cumulative effect of change in
   accounting principle                                                    61,662                 123,038
Cumulative effect of change in accounting principle                        65,769                 (39,812)
                                                                ------------------     -------------------
Net income attributable to common shareholders                         $  127,431            $     83,226
                                                                ==================     ===================

Basic earnings per common share
Weighted-average shares outstanding - basic                               281,637                 280,257
                                                                ------------------     -------------------
Income (loss) from continuing operations before
   cumulative effect of change in accounting principle                 $     0.22            $      (0.16)
Income from discontinued operations                                           -                      0.60
                                                                ------------------     -------------------
Income before cumulative effect of change in
   accounting principle                                                      0.22                    0.44
Cumulative effect of change in accounting principle                          0.23                   (0.14)
                                                                ------------------     -------------------
Net income attributable to common shareholders                         $     0.45            $       0.30
                                                                ==================     ===================

Diluted earnings per common share
Weighted-average shares outstanding                                       281,637                 280,257
Effect of dilutive shares                                                   4,398                   4,350
                                                                ------------------     -------------------
Weighted-average shares outstanding - diluted                             286,035                 284,607
                                                                ==================     ===================
Income (loss) from continuing operations before
   cumulative effect of change in accounting principle                 $     0.22            $      (0.16)
Income from discontinued operations                                           -                      0.59
                                                                ------------------     -------------------
Income before cumulative effect of change in
   accounting principle                                                      0.22                    0.43
Cumulative effect of change in accounting principle                          0.23                   (0.14)
                                                                ------------------     -------------------
Net income attributable to common shareholders                         $     0.45            $       0.29
                                                                ==================     ===================
</TABLE>

     All share amounts  represent  weighted average shares  outstanding for each
     respective  period.  The diluted income (loss) per common share calculation
     excludes  the effect of  potentially  dilutive  shares when their  exercise
     price exceeds the average  market price over the period.  We have 4,025,000
     shares of potentially dilutive Mandatorily Redeemable Convertible Preferred
     Securities  which are convertible into common stock at a 3.76 to 1 ratio at
     an exercise price of $13.30 per share and 11,361,000  potentially  dilutive
     stock  options  exercisable  at prices  ranging  from  $10.24 to $21.47 per
     share. We also have  18,400,000  potentially  dilutive  equity units.  Each
     equity  unit  initially  consists  of a 6.75%  senior  note  due 2006 and a
     purchase  contract  (warrant)  for our common  stock.  These items were not
     included in the diluted income (loss) per common share  calculation for any
     of the above  periods as their effect was  antidilutive.  Restricted  stock
     awards of 1,553,000  shares and 1,197,000 shares at March 31, 2003 and 2002
     respectively,   are  excluded  from  our  basic  weighted   average  shares
     outstanding  and  included in our  dilutive  shares until the shares are no
     longer contingent upon the satisfaction of all specified conditions.


                                       13
<PAGE>

(8)  Segment Information:
     -------------------
     We  operate in four  segments,  ILEC,  ELI (a  competitive  local  exchange
     carrier (CLEC)), gas and electric. The ILEC segment provides both regulated
     and  unregulated  communications  services  to  residential,  business  and
     wholesale  customers and is typically the incumbent provider in its service
     areas.  Our gas and  electric  segments  are  intended  to be sold  and are
     classified  as "assets  held for sale" and  "liabilities  related to assets
     held for sale."

     As an ILEC,  we compete  with CLECs that may operate in our  markets.  As a
     CLEC, we provide telecommunications services, principally to businesses, in
     competition  with the incumbent  ILEC. As a CLEC, we frequently  obtain the
     "last mile" access to customers  through  arrangements  with the applicable
     ILEC. ILECs and CLECs are subject to different regulatory frameworks of the
     Federal Communications Commission (FCC). Our ILEC operations and ELI do not
     compete with each other.
<TABLE>
<CAPTION>

($ in thousands)                                      For the three months ended March 31, 2003
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
<S>                                       <C>              <C>             <C>           <C>           <C>
Revenue                                   $ 513,609        $ 41,093        $ 63,532      $ 33,628      $ 651,862
Depreciation and amortization               132,355           6,193             -             -          138,548
Operating income (loss)                     146,915             535          11,851         4,994        164,295
Capital expenditures, net                    37,877           1,147           3,169         5,145         47,338

($ in thousands)                                      For the three months ended March 31, 2002
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                   $ 508,031        $ 47,247        $ 71,365      $ 52,691      $ 679,334
Depreciation and amortization               158,290          19,800              84           -          178,174
Reserve for telecommunications
   bankruptcies                               7,804             -               -             -            7,804
Restructuring and other expenses              6,005          (2,100)            -             -            3,905
Operating income (loss)                      92,221         (17,020)         11,888        13,270        100,359
Capital expenditures, net                    56,040           2,589           4,379         5,204         68,212

</TABLE>

     The  following  table  reconciles  sector  capital  expenditures  to  total
     consolidated capital expenditures.

($ in thousands)                       For the three months ended
                                               March 31,
                                      ------------------------------
                                          2003            2002
                                      --------------  --------------
Total segment capital expenditures         $ 47,338        $ 68,212
General capital expenditures                    414             227
                                      --------------  --------------
Consolidated reported capital
   expenditures                            $ 47,752        $ 68,439
                                      ==============  ==============


(9)  Adelphia Investment:
     -------------------
     We recognized a loss of  $49,700,000 on our Adelphia  Communications  Corp.
     (Adelphia)  investment  as a reduction  to  investment  income in the three
     months ended March 31, 2002. This non-cash  charge  reflected an other than
     temporary  decline in Adelphia's  stock price.  As of June 30, 2002, we had
     written this  investment  down to zero, and therefore we have no additional
     exposure related to the market value of Adelphia stock.


                                       14
<PAGE>

(10) Derivative Instruments and Hedging Activities:
     ---------------------------------------------
     Interest rate swap  agreements are used to hedge a portion of our debt that
     is  subject  to  fixed  interest  rates.   Under  our  interest  rate  swap
     agreements, we agree to pay an amount equal to a specified variable rate of
     interest  times a notional  principal  amount,  and to receive in return an
     amount equal to a specified  fixed rate of interest times the same notional
     principal amount.  The notional amounts of the contracts are not exchanged.
     No other cash payments are made unless the agreement is terminated prior to
     maturity,  in which case the  amount  paid or  received  in  settlement  is
     established  by agreement at the time of  termination  and  represents  the
     market  value,  at the then  current  rate of  interest,  of the  remaining
     obligations to exchange payments under the terms of the contracts.

     The  interest  rate  swap  contracts  are  reflected  at fair  value in our
     consolidated balance sheet and the related portion of fixed-rate debt being
     hedged is  reflected at an amount equal to the sum of its book value and an
     amount  representing  the  change  in fair  value of the  debt  obligations
     attributable  to the interest rate risk being  hedged.  Changes in the fair
     value of interest rate swap  contracts,  and the offsetting  changes in the
     adjusted carrying value of the related portion of the fixed-rate debt being
     hedged,  are  recognized  in the  consolidated  statements of operations in
     interest expense. The notional amounts of fixed-rate indebtedness hedged as
     of March 31, 2003 and December 31, 2002 was  $250,000,000.  Such  contracts
     require  us to  pay  variable  rates  of  interest  (average  pay  rate  of
     approximately  4.85% as of March  31,  2003)  and  receive  fixed  rates of
     interest  (average  receive rate of 7.65% as of March 31,  2003).  The fair
     value of these  derivatives  is  reflected  in other assets as of March 31,
     2003, in the amount of $17,369,000 and the related underlying debt has been
     increased by a like amount.  The amounts  received  during the three months
     ended March 31, 2003 as a result of these contracts  amounted to $1,304,000
     and are included as a reduction of interest  expense.  We do not anticipate
     any  nonperformance by  counterparties  to its derivative  contracts as all
     counterparties have investment grade credit ratings.

(11) Shareholder Rights Plan:
     -----------------------
     On March 6, 2002, our Board of Directors adopted a Shareholder Rights Plan.
     The purpose of the  Shareholder  Rights Plan is to deter coercive  takeover
     tactics and to  encourage  third  parties  interested  in  acquiring  us to
     negotiate  with our Board of Directors.  It is intended to  strengthen  the
     ability of our Board of Directors to fulfill its  fiduciary  duties to take
     actions which are in the best interest of our shareholders. The rights were
     distributed to shareholders as a dividend at the rate of one right for each
     share of our common stock held by shareholders of record as of the close of
     business on March 26, 2002. The rights  generally are exercisable only if a
     person or group acquired beneficial  ownership of 20 percent or more of our
     common  stock (the  "Acquiror")  without  the  consent  of our  independent
     directors.  Each  right  not  owned by an  Acquiror  becomes  the  right to
     purchase our common stock at a 50 percent discount.

(12) Settlement of Retained Liabilities:
     ----------------------------------
     We were actively pursuing the settlement of certain retained liabilities at
     less than face value,  which are  associated  with  customer  advances  for
     construction from our disposed water properties. For the three months ended
     March 31, 2003,  we recognized  income of $6,165,000  which is reflected in
     investment and other income (loss), net, as a result of these settlements.

(13) Change in Accounting Principle and New Accounting Pronouncements:
     ----------------------------------------------------------------
     In June 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
     No. 143, "Accounting for Asset Retirement Obligations." We adopted SFAS No.
     143 effective January 1, 2003. As a result of our adoption of SFAS No. 143,
     we recognized an after tax non-cash gain of approximately $65,769,000. This
     gain  resulted  from the  elimination  of the  cumulative  cost of  removal
     included in accumulated  depreciation as a cumulative effect of a change in
     accounting principle in our statement of operations in the first quarter of
     2003 as the  Company  has no legal  obligation  to  remove  certain  of its
     long-lived assets.


                                       15
<PAGE>
     The following table presents a  reconciliation  between reported net income
     and adjusted net income.  Adjusted net income excludes depreciation expense
     recognized  in prior  periods  related to the cost of removal  provision as
     required by SFAS No. 143.
<TABLE>
<CAPTION>
                                                                     For the three months ended March 31,
                                                                 ---------------------------------------------
(In thousands, except per-share amounts)                                 2003                      2002
                                                                 ---------------------       -----------------

<S>                                                                      <C>                     <C>
Reported attributable to common shareholders                             $    127,431            $     83,226
Add back: Cost of removal in depreciation expense, net of tax                    -                      3,713
                                                                 ---------------------       -----------------
Adjusted attributable to common shareholders                             $    127,431            $     86,939
                                                                 =====================       =================

Basic earnings per share:
Reported attributable to common shareholders                             $       0.45            $       0.30
Cost of removal in depreciation expense                                          -                       0.01
                                                                 ---------------------       -----------------
Adjusted attributable to common shareholders                             $       0.45            $       0.31
                                                                 =====================       =================

Diluted earnings per share:
Reported attributable to common shareholders                             $       0.45            $       0.29
Cost of removal in depreciation expense                                          -                       0.01
                                                                 ---------------------       -----------------
Adjusted attributable to common shareholders                             $       0.45            $       0.30
                                                                 =====================       =================
</TABLE>

     In July 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
     Assets."  As a result of our  adoption of SFAS No.  142,  we  recognized  a
     transitional  impairment loss of $39,800,000 for goodwill related to ELI as
     a cumulative effect of a change in accounting principle in our statement of
     operations in the first quarter of 2002.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with Exit or Disposal  Activities,"  which  nullified  Emerging
     Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
     Employee  Termination  Benefits and Other Costs to Exit an Activity."  SFAS
     No. 146 requires  that a liability  for a cost  associated  with an exit or
     disposal activity be recognized when the liability is incurred, rather than
     on the date of commitment to an exit plan.  This Statement is effective for
     exit or disposal  activities that are initiated after December 31, 2002. We
     adopted  SFAS No. 146 on January 1, 2003.  The adoption of SFAS No. 146 did
     not have any  material  impact on our  financial  position  or  results  of
     operations.

     The FASB  recently  issued SFAS No. 149,  "Amendment  of  Statement  133 on
     Derivative  Instruments and Hedging," which clarifies financial  accounting
     and reporting for derivative  instruments including derivative  instruments
     embedded in other contracts.  We are currently evaluating the impact of the
     adoption of SFAS No. 149.

     The FASB also recently indicated that it will require stock-based  employee
     compensation  to be recorded as a charge to earnings  beginning in 2004. We
     will continue to monitor the progress on the issuance of this standard.

(14) Commitments and Contingencies:
     -----------------------------
     We have budgeted capital expenditures in 2003 of approximately $280,000,000
     for  ILEC  and  ELI  and  $45,200,000  (assuming  we own  all  our  utility
     businesses  for the entire year) for gas and electric.  Our public  utility
     properties  are  currently  carried at amounts that do not exceed their net
     realizable  values upon sale. Under the terms of the definitive  agreements
     relating to the sale of these  properties,  there will be no  adjustment to
     the sales  prices  for most of the  capital  expenditures  we will make for
     these  properties  prior to their  sale.  To the extent  that the  carrying
     amounts of these  properties  increase above their  realizable  values upon
     sale as a result of capital  expenditures or for any other reason, we would
     record an impairment charge for such excess. We currently  estimate we will
     make $20,000,000 of capital expenditures for these properties from April 1,
     2003 through their dates of sale. We did not expense any of our  $8,314,000
     of capital  additions  related to these properties during the first quarter
     of 2003.  If the sale of our Arizona  utility  businesses  to  UniSource is
     completed,  the sale agreement requires us to promptly redeem  $111,760,000
     principal amount of industrial revenue bonds.


                                       16
<PAGE>

     In March  1999,  ELI  entered  into a 20-year  fiber  agreement.  Under the
     agreement, we were to pay the other carrier approximately  $96,900,000 over
     the next 20 years.  ELI  terminated  the capital lease  obligation in March
     2003, which resulted in a non-cash pre-tax gain of $40,703,000.

(15) Subsequent Events:
     -----------------
     On April 1, 2003, we completed the sale of  approximately  11,000 telephone
     access lines in North Dakota for approximately $25,700,000 in cash.

     On  April 4,  2003,  we  completed  the  sale of our  wireless  partnership
     interest in Wisconsin for approximately $7,500,000 in cash.


                                       17
<PAGE>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


Item 2. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

This quarterly report on Form 10-Q contains forward-looking  statements that are
subject to risks and  uncertainties  which could cause actual  results to differ
materially from those  expressed or implied in the  statements.  Forward-looking
statements  (including oral  representations) are only predictions or statements
of current plans, which we review continuously.  Forward-looking  statements may
differ  from  actual  future  results  due to,  but not  limited  to, any of the
following possibilities:

     *    Changes in the number of our access lines;

     *    The effects of  competition  from wireless,  other  wireline  carriers
          (through Unbundled Network Elements (UNE),  Unbundled Network Elements
          Platform  (UNEP) or  otherwise),  high  speed  cable  modems and cable
          telephony;

     *    The effects of general and local economic conditions on our revenues;

     *    Our  ability  to   effectively   manage  and  otherwise   monitor  our
          operations, costs, regulatory compliance and service quality;

     *    Our  ability  to  divest  our  remaining  public  utilities   services
          businesses  and the  effect of the timing of the  divestitures  on the
          capital expenditures we make with respect to such businesses;

     *    Our ability to successfully  introduce new product offerings including
          our ability to offer bundled service  packages on terms  attractive to
          our customers, and our ability to sell enhanced and data services;

     *    Our ability to manage our operating expenses, capital expenditures and
          reduce our debt;

     *    The effects of greater  than  anticipated  competition  requiring  new
          pricing,  marketing  strategies or new product  offerings and the risk
          that we will not respond on a timely or profitable basis;

     *    The effects of bankruptcies in the  telecommunications  industry which
          could result in higher network access costs and potential bad debts;

     *    The effects of technological changes,  including the lack of assurance
          that our ongoing  network  improvements  will be sufficient to meet or
          exceed the capabilities and quality of competing networks;

     *    The effects of  increased  pension and retiree  medical  expenses  and
          related funding requirements;

     *    The  effects  of  changes  in  regulation  in  the  telecommunications
          industry as a result of the  Telecommunications  Act of 1996 and other
          federal and state  legislation  and regulation,  including  changes in
          access charges and subsidy payments;

     *    The effect of  restructuring  of  portions  of the  telecommunications
          market;

     *    The effects of possible state  regulatory cash management  policies on
          our ability to transfer cash among our  subsidiaries and to the parent
          company;

     *    Our ability to  successfully  renegotiate  expiring  union  contracts,
          including  the  contract  covering the 668  Communications  Workers of
          America  members in  Rochester  that is scheduled to expire in January
          2004; and

     *    The effects of more  general  factors,  including  changes in economic
          conditions;  changes  in the  capital  markets;  changes  in  industry
          conditions;  changes in our credit ratings;  and changes in accounting
          policies or practices adopted  voluntarily or as required by generally
          accepted accounting principles or regulators.


                                       18
<PAGE>

Competition in the telecommunications  industry is increasing.  Although we have
not faced as much  competition as larger,  more urban telecom  companies,  we do
experience  competition  from other wireline local  carriers  through  Unbundled
Network Elements (UNE) and potentially in the future through  Unbundled  Network
Elements Platform (UNEP),  from other long distance carriers (including Regional
Bell Operating  Companies),  from cable companies and internet service providers
with respect to internet access and  potentially in the future cable  telephony,
and from wireless carriers.  Most of the wireline  competition we face is in our
Rochester  market,  with limited  competition in a few other areas.  Competition
from cable  companies with respect to high-speed  Internet  access is intense in
Rochester and a few of our other markets such as Elk Grove, California (which is
near  Sacramento).  Competition  from  wireless  companies,  other long distance
companies and internet service providers is present in varying degrees in all of
our markets.

The  telecommunications  industry in general, and the CLEC sector in particular,
are undergoing significant changes and difficulties. Demand and pricing for CLEC
services have decreased substantially,  particularly for long haul services, and
economic and competitive pressures are likely to cause these trends to continue.
These factors result in a challenging  environment  with respect to revenues for
our CLEC business and to a lesser extent our ILEC business.  These factors could
also result in more  bankruptcies in the sector and therefore affect our ability
to collect  money owed to us by bankrupt  carriers.  We  reserved  approximately
$10.9 million and $21.2 million of receivables  owed to us from bankrupt telecom
companies in 2002 and 2001, respectively.

The market for internet  access,  long-haul  and related  services in the United
States is extremely competitive, with substantial overcapacity in the market. In
addition, new and enhanced internet services are constantly under development in
the  market and we expect  additional  innovation  in this  market by a range of
competitors.  Several  Interexchange  Carriers (IXC's) have filed for bankruptcy
protection,  which will allow them to substantially  reduce their cost structure
and debt. This could enable such companies to further reduce prices and increase
competition.

You should consider these important  factors in evaluating any statement in this
Form 10-Q or otherwise made by us or on our behalf. The following information is
unaudited  and should be read in  conjunction  with the  consolidated  financial
statements  and related  notes  included in this report and as  presented in our
2002 Annual Report on Form 10-K. We have no obligation to update or revise these
forward-looking statements.

(a)  Liquidity and Capital Resources
     -------------------------------
For the three  months ended March 31,  2003,  we used cash flow from  continuing
operations  and cash  and  investment  balances  to fund  capital  expenditures,
interest payments and debt repayments.  As of March 31, 2003, we maintained cash
and short-term investment balances aggregating $455.9 million.

We have budgeted for our 2003 capital projects  approximately $268.0 million for
the ILEC segment,  $12.0 million for the ELI segment and $45.2 million (assuming
we own all of our  remaining  utility  businesses  for the entire  year) for the
public  utilities  segment.   In  the  ordinary  course  of  business,   capital
expenditures  for the public  utilities  segment  would  increase  the amount of
assets that would be reflected  on the balance  sheet.  However,  we may expense
certain of our capital expenditures with respect to our public utilities segment
during 2003 if book values exceed our estimate of expected net realizable  sales
prices. (see Note 14 to Consolidated Financial Statements).

For the three months ended March 31, 2003, our actual capital  expenditures were
$37.9  million for the ILEC  segment,  $1.2  million for the ELI  segment,  $8.3
million for the public  utilities  segments and $0.4 million for general capital
expenditures.  Funds necessary for our 2003 capital  expenditures  were, and are
expected to continue to be,  provided from our  operations and our existing cash
and investment balances.

We have an available shelf registration for $825.6 million and we have available
lines of credit with  financial  institutions  in the  aggregate  amount of $805
million.  Associated  facility fees vary depending on our credit ratings and are
0.25% per annum as of March 31, 2003. The expiration  date for these  facilities
is October 24, 2006. During the term of the facilities we may borrow,  repay and
reborrow funds. As of March 31, 2003, there were no outstanding borrowings under
these facilities.


                                       19
<PAGE>

If the sale of our Arizona  utility  businesses to UniSource is  completed,  the
sale  agreement  requires us to promptly  redeem  $111.8  million of  industrial
development  revenue bonds. We intend to fund this  redemption  using cash flows
from continuing  operations,  the proceeds from the sale of utility  properties,
and/or cash and cash equivalents and investment balances.

Debt Reduction
--------------
In March 2003, we terminated a capital lease  obligation at ELI,  which resulted
in a non-cash  pre-tax gain of $40.7 million  included in  investment  and other
income, net.

On  February  1,  2003,  we  repaid  at  maturity   $35.0  million  of  Frontier
Communications of Minnesota 7.61% Senior Notes.

During the first  quarter of 2003, we executed a series of purchases in the open
market of our outstanding  debt  securities.  The aggregate  principal amount of
debt securities  purchased was $53.7 million at a premium of approximately  $2.4
million.

Interest Rate Management
------------------------
In order to manage our  interest  expense,  we entered into five  interest  swap
agreements in 2001 and 2002 with investment grade financial  institutions.  Each
agreement  covered a notional  amount of $50.0  million.  Under the terms of the
agreements, we make semi-annual,  floating interest rate interest payments based
on six month LIBOR and receive a fixed rate on the  notional  amount.  There are
two  interest  rate swap  agreements  that were  executed in 2001 that receive a
6.375%  fixed rate until the swaps'  termination  date of August 15,  2004,  and
there are three swaps that were  executed in 2002 that  receive an 8.500%  fixed
rate until their termination date of May 15, 2006. The underlying  variable rate
on the swaps is set  either in  advance,  in  arrears  or, as in the case of one
agreement,  based on each period's daily average  six-month LIBOR. In connection
with  these  swaps,  the  Company  entered  into a series of  supplemental  rate
agreements  which had the effect of setting  the  floating  rate  portion of the
swaps in advance of the contractually agreed upon rate determination date.

In  connection  with these swaps,  on August 8, 2002,  we entered into a Forward
Rate Agreement (FRA),  which set the effective rate for one of the swaps for the
period of  November  15,  2002 to May 15,  2003 at 5.310%,  as  compared  to the
unhedged rate of 8.50%. In addition, on August 28, 2002, we entered into another
FRA,  and set the  effective  rate on another swap during the period of February
18, 2003 to August 15,  2003 at 4.195%,  as  compared  to the  unhedged  rate of
6.375%. All swaps and associated  supplemental rate agreements are accounted for
under SFAS No. 133 as fair value hedges.

Covenants
---------
The terms  and  conditions  contained  in our  indentures  and  credit  facility
agreements  are of a general  nature,  and do not currently  impose  significant
financial performance criteria on us. These general covenants include the timely
and punctual  payment of principal and interest when due, the maintenance of our
corporate  existence,  keeping proper books and records in accordance with GAAP,
restrictions on the allowance of liens on our assets,  and restrictions on asset
sales and  transfers,  mergers  and  other  changes  in  corporate  control.  We
currently  have no  restrictions  on the  payment of  dividends  by us either by
contract, rule or regulation.

Our $805.0 million  credit  facilities and our $200.0 million term loan facility
with the Rural  Telephone  Finance  Cooperative  (RTFC)  previously  contained a
minimum net worth  covenant.  Additionally,  under the RTFC loan,  if we were to
lose investment grade ratings from either Moody's  Investors Service or Standard
& Poor's,  we would  become  subject to interest  coverage  and  leverage  ratio
covenants.  Effective March 31, 2003, we amended these facilities to replace all
of these  covenants  with a leverage  ratio  covenant.  Under the leverage ratio
covenant,  we are required to maintain a ratio of (i) total  indebtedness  minus
cash and cash equivalents in excess of $50 million to (ii) consolidated adjusted
EBITDA (as  defined in the  agreements)  over the last four  quarters no greater
than 4.50 to 1 through December 30, 2003, 4.25 to 1 from then until December 30,
2004,  and  4.00 to 1  thereafter.  We are in  compliance  with  all of our debt
covenants.

Divestitures
------------
On August 24, 1999, our Board of Directors  approved a plan of  divestiture  for
our public utilities services businesses, which included gas, electric and water
and  wastewater  businesses.  During  2001,  we  sold  two  of our  natural  gas
operations and in January 2002 we sold all of our water and wastewater treatment
operations and one electric business.


                                       20
<PAGE>

On January 15, 2002, we sold our water and  wastewater  services  operations for
$859.1 million in cash and $122.5 million in assumed debt and other liabilities.

On October 29, 2002, we entered into  definitive  agreements to sell our Arizona
gas and electric divisions to UniSource Energy Corporation for $230.0 million in
cash  ($220.0  million  if we  close  the  sale by July  28,  2003)  subject  to
adjustments  specified in the agreements.  The transaction,  which is subject to
regulatory and other customary approvals, is expected to close during the second
half of 2003.

On October 31, 2002,  we completed  the sale of  approximately  4,000  telephone
access lines in North Dakota for approximately $9.7 million in cash.

On November 1, 2002,  we completed  the sale of our Kauai  electric  division to
Kauai Island Utility Cooperative for $215.0 million in cash.

On December  19, 2002,  we entered  into a definitive  agreement to sell The Gas
Company in Hawaii to K-1 USA Ventures,  Inc. for $115.0 million in cash, subject
to  adjustments  under the terms of the  agreement.  The  transaction,  which is
subject to regulatory and other customary approvals, is expected to close during
the second half of 2003.

We have entered  into  definitive  agreements  to sell the assets of our Vermont
electric  division to Vermont Electric Power Company,  Inc. and Vermont Electric
Cooperative,  Inc.  for an  aggregate  of  approximately  $25.0  million in cash
subject to  adjustments  under the terms of the  agreements.  The  transactions,
which are subject to regulatory and other customary  approvals,  are expected to
close by mid-2004.

On April 1, 2003, we completed the sale of approximately 11,000 telephone access
lines in North Dakota for approximately $25.7 million in cash.

On April 4, 2003, we completed the sale of our wireless  partnership interest in
Wisconsin for approximately $7.5 million in cash.

All of our gas and electric assets and their related  liabilities are classified
as "assets  held for sale" and  "liabilities  related to assets  held for sale,"
respectively.  These assets have been  written down to our best  estimate of the
net  realizable  value  upon  sale.  As  discussed  in Note 14 to  Consolidated
Financial Statements we may record additional impairment losses during 2003.

Discontinued operations in the consolidated statements of operations reflect the
results of operations  and the gain on sale of the  water/wastewater  properties
sold in January  2002  including  allocated  interest  expense  for the  periods
presented.  Interest expense was allocated to the discontinued  operations based
on the outstanding debt specifically identified with this business.

Critical Accounting Policies and Estimates
------------------------------------------
We  review  all  significant  estimates  affecting  our  consolidated  financial
statements  on a  recurring  basis  and  record  the  effect  of  any  necessary
adjustment  prior to  their  publication.  Uncertainties  with  respect  to such
estimates  and   assumptions  are  inherent  in  the  preparation  of  financial
statements;  accordingly,  it is possible that actual  results could differ from
those  estimates  and changes to  estimates  could  occur in the near term.  The
preparation of our financial  statements  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of the contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period.  Estimates  and  judgments  are used when  accounting  for allowance for
doubtful  accounts,   impairment  of  long-lived   assets,   intangible  assets,
depreciation  and  amortization,   employee  benefit  plans,  income  taxes  and
contingencies, among others.

Our estimate of anticipated losses related to telecommunications bankruptcies is
a "critical  accounting  estimate."  We have significant  on-going normal course
business relationships with many telecom providers, some of which have filed for
bankruptcy.  We  generally  reserve  approximately  95% of the  net  outstanding
pre-bankruptcy  balances  owed to us and  believe  that our  estimate of the net
realizable value of the amounts owed to us by bankrupt entities is appropriate.

We  believe  that the  accounting  estimate  related  to asset  impairment  is a
"critical  accounting  estimate."  With  respect to ELI,  the estimate is highly
susceptible  to change from period to period  because it requires  management to
make significant judgments and assumptions about future revenue, operating costs
and capital  expenditures  over the life of the  property,  plant and  equipment
(generally  5 to 15  years)  as well as the  probability  of  occurrence  of the
various scenarios and appropriate discount rates. Management's assumptions about
ELI's future revenue,  operating  costs and capital  expenditures as well as the
probability  of  occurrence  of  these  various  scenarios  require  significant
judgment  because  the CLEC  industry is changing  and because  actual  revenue,
operating costs and capital  expenditures  have  fluctuated  dramatically in the
past and may continue to do so in the future.


                                       21
<PAGE>

The  calculation  of  depreciation  and  amortization  expense  is  based on the
estimated economic useful lives of the underlying property,  plant and equipment
and identifiable  intangible  assets.  Rapid changes in technology or changes in
market  conditions could result in revisions to such estimates that could affect
the  carrying  value of  these  assets  and our  future  consolidated  operating
results. Our depreciation expense has decreased substantially from prior periods
as a result of the impairment  write down we recorded  during 2002, the adoption
of SFAS No. 143 and the increase in the average depreciable lives for certain of
our equipment.

With respect to our remaining gas and electric properties, our estimate is based
upon expected future sales prices of these properties.

Our  indefinite  lived  intangibles  consist of goodwill  and trade name,  which
resulted from the purchase of ILEC  properties.  We test for impairment of these
assets annually, or more frequently,  as circumstances  warrant. All of our ILEC
properties share similar economic characteristics and as a result, our reporting
unit is the ILEC segment.  In determining fair value during 2002 we utilized two
tests.  One test utilized recent trading prices for completed ILEC  acquisitions
of similarly situated properties.  A second test utilized current trading values
for the Company's  publicly traded common stock. We reviewed the results of both
tests  for  consistency  to  insure  that  our  conclusions  were   appropriate.
Additionally,  we  utilized  a range of prices to gauge  sensitivity.  Our tests
determined  that fair values  exceeded book value.  Unless  economic  conditions
change significantly (i.e. we experience  unanticipated declines in revenue, and
or material declines in both our stock price and ILEC property values) we do not
believe that a charge for  impairment is reasonably  likely to occur in the near
future.

Our  estimates of pension  expense,  other post  retirement  benefits  including
retiree  medical  benefits  and related  liabilities  are  "critical  accounting
estimates."  Our pension and other post retirement  benefits  expenses are based
upon a set of assumptions that include  projections of future interest rates and
asset returns.  Actual results may vary from these estimates.  We are assuming a
long-term  rate of return on plan  assets of 8.25% and a discount  rate of 6.75%
for 2003.  Actual  returns have been negative in recent years.  If future market
conditions  cause  either a decline in interest  rates used to value our pension
plan  liabilities  or  reductions  to the value of our  pension  plan  assets we
potentially could incur additional  charges to our  shareholder's  equity at the
end of 2003. Based upon market conditions  existing at the end of April 2003, an
additional charge to equity of approximately $30 - $35 million would be required
at the end of 2003 should market conditions remain unchanged.

Our income tax expense is  computed  utilizing  an  estimated  annual  effective
income tax rate in accordance  with Accounting  Principles  Board Opinions (APB)
No. 28, "Interim Financial  Reporting." The tax rate is computed using estimates
as to the  Company's  net income before income taxes for the entire year and the
impact of estimated permanent book-tax differences relative to that forecast.

Management  has  discussed  the  development  and  selection  of these  critical
accounting  estimates with the audit committee of our board of directors and our
audit committee has reviewed our disclosure relating to them.

New Accounting Pronouncements
-----------------------------
In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations."  SFAS No. 143  applies to fiscal  years  beginning  after June 15,
2002, and addresses financial  accounting and reporting  obligations  associated
with the  retirement  of tangible  long-lived  assets and the  associated  asset
retirement  costs.  We adopted  SFAS No.  143  effective  January  1, 2003.  The
standard  applies  to  legal  obligations  associated  with  the  retirement  of
long-lived  assets that result from  acquisition,  construction,  development or
normal  use of the  assets  and  requires  that a legal  liability  for an asset
retirement  obligation be recognized  when incurred,  recorded at fair value and
classified as a liability in the balance sheet.  When the liability is initially
recorded, the entity will capitalize the cost and increase the carrying value of
the related long-lived asset.


                                       22
<PAGE>

The  liability  is then  accreted  to its  present  value  each  period  and the
capitalized  cost is depreciated  over the estimated  useful life of the related
asset.  At the  settlement  date,  the entity will settle the obligation for its
recorded amount or recognize a gain or loss upon settlement.

Depreciation  expense for the Company's  wireline  operations  has  historically
included  an  additional  provision  for  cost of  removal.  Effective  with the
adoption of SFAS No. 143, on January 1, 2003, the Company ceased  recognition of
the cost of  removal  provision  in  depreciation  expense  and  eliminated  the
cumulative cost of removal  included in accumulated  depreciation as the Company
has no legal  obligation to remove  certain  long-lived  assets.  The cumulative
effect of  retroactively  applying  these changes to periods prior to January 1,
2003, resulted in an after tax non-cash gain of approximately $65.8 million.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which nullified  Emerging Issues Task Force
(EITF) Issue No. 94-3,  "Liability  Recognition for Certain Employee Termination
Benefits  and Other Costs to Exit an  Activity."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the liability is incurred, rather than on the date of commitment to an exit
plan.  This  Statement is  effective  for exit or disposal  activities  that are
initiated  after  December 31, 2002. We adopted SFAS No. 146 on January 1, 2003.
The adoption of SFAS No. 146 did not have any material  impact on our  financial
position or results of operations.

The FASB recently issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging," which clarifies financial accounting and reporting for
derivative  instruments  including  derivative  instruments  embedded  in  other
contracts.  We are currently  evaluating  the impact of the adoption of SFAS No.
149.

The FASB also  recently  indicated  that it will  require  stock-based  employee
compensation  to be recorded as a charge to earnings  beginning in 2004. We will
continue to monitor the progress on the issuance of this standard.


                                       23
<PAGE>

(b)  Results of Operations
     ---------------------

                                    REVENUE

Consolidated  revenue for the three months ended March 31, 2003 decreased  $27.5
million, or 4%, as compared with the prior year period. The decrease is due to a
$6.2  million  decrease in ELI revenue and a $26.9  million  decrease in gas and
electric revenue partially offset by a $5.6 million increase in ILEC revenue.
<TABLE>
<CAPTION>

                           TELECOMMUNICATIONS REVENUE

($ in thousands)                                For the three months ended March 31,
                                     --------------------------------------------------------
                                         2003           2002         $ Change       % Change
                                     -------------- ------------- --------------- -------------
<S>                                      <C>           <C>            <C>                 <C>
Access services                          $ 164,997     $ 165,833      $     (836)        -1%
Local services                             221,095       216,800           4,295          2%
Long distance and data services             74,778        70,286           4,492          6%
Directory services                          27,043        26,244             799          3%
Other                                       25,696        28,868          (3,172)       -11%
                                     -------------- ------------- ---------------
   ILEC revenue                            513,609       508,031           5,578          1%
ELI                                         41,093        47,247          (6,154)       -13%
                                     -------------- ------------- ---------------
                                         $ 554,702     $ 555,278      $     (576)         0%
                                     ============== ============= ===============

</TABLE>

Changes  in the  number of our access  lines is the most  fundamental  driver of
changes in our telecommunications revenue.  Historically,  rural local telephone
companies  experienced  steady  growth  in  access  lines  because  of  positive
demographic  trends,  steady rural local  economies and little  competition.  In
recent  quarters  many rural local  telephone  companies  (including  ours) have
experienced  a loss of access lines  because of difficult  economic  conditions,
increased competition and by some customers disconnecting second lines when they
add DSL or cable modem service.  We lost approximately 9,200 access lines during
the three months ended March 31, 2003 but added approximately the same number of
DSL  subscribers  during this  period.  Residential  lines lost  represented  65
percent of the total loss. The  non-residential  line losses were principally in
Rochester,  New York while the  residential  losses were  throughout our markets
other than  Arizona and  California.  We expect to continue to lose access lines
during 2003. A continued  decrease in access  lines,  combined  with  continuing
difficult economic conditions and increased competition,  may cause our revenues
to decrease in 2003.

Prior  to 2003,  we  reported  service  activation  revenue  in  network  access
services,  local network  services,  long distance and data services,  and other
revenue categories.  Beginning in the first quarter 2003, all service activation
revenue  is  reported  in the  "other"  category.  All prior  periods  have been
conformed to this presentation.

Access services revenue for the three months ended March 31, 2003 decreased $0.8
million or 1% as compared with the prior year period.  Switched  access  revenue
decreased  $6.6  million due to the effect of tariff rate  reductions  effective
July 1, 2002 and the  reclassification of universal service fund (USF) high cost
funds and National Exchange Carrier Association (NECA) settlements to subsidies.
Special  access  revenue  increased $1.3 million as compared with the prior year
period due to growth in circuit sales.  Subsidies revenue increased $4.4 million
due to  higher  USF  surcharges,  Federal  Rural  Task  Force  support  and NECA
settlements. Our subsidy revenues in 2003 are expected to be slightly lower than
2002.

Local services  revenue for the three months ended March 31, 2003 increased $4.3
million or 2% as compared with the prior year period.  Local  revenue  increased
$1.7 million  primarily due to higher  subscriber  line charges (SLC)  effective
July  2002,  partially  offset by  continued  losses of access  lines.  Enhanced
services revenue  increased $2.6 million primarily due to the sale of additional
feature  packages.  Although we continue to increase our penetration of enhanced
services,  in current  economic  conditions  the rate of increase in revenues is
lower than in prior periods and we expect this trend to continue.

Long  distance  and data  services  revenue for the three months ended March 31,
2003  increased  $4.5 million or 6% as compared with the prior period  primarily
due to an increase of $1.0  million in long  distance in addition to a growth of
$3.5 million in data services  related to Internet and digital  subscriber lines
(DSL).  The rate of  increases in our data and long  distance  revenues has been
slowing recently because of economic  conditions and intense competition in some
of our  markets.  We expect  these  factors  will  continue  to affect  our long
distance and data services revenues during 2003.


                                       24
<PAGE>

Directory  revenue for the three  months  ended March 31,  2003  increased  $0.8
million or 3% as compared  with the prior period  primarily due to the growth of
yellow pages advertising.

Other revenue for the three months ended March 31, 2003  decreased  $3.2 million
or 11%  compared  with the prior  period  primarily  due to the  termination  at
December  31,  2002 of $1.4  million in  contract  services  provided  to Global
Crossing.  Other  decreases  include  conferencing  revenue of $0.7  million and
paystation  revenue of $0.6  million,  partially  offset by lower  uncollectible
revenue of $0.9 million.

ELI revenue for the three months ended March 31, 2003 decreased $6.2 million, or
13%,  as  compared  to the prior  year  period  primarily  due to a  decline  in
Integrated  Service  Digital  Network  (ISDN)  services  due to less demand from
Internet  service  providers  and lower demand for long haul  services.  ELI has
experienced nine consecutive quarters of declining revenue.
<TABLE>
<CAPTION>

                            GAS AND ELECTRIC REVENUE

       ($ in thousands)                 For the three months ended March 31,
                              ----------------------------------------------------------
                                  2003           2002         $ Change       % Change
                              -------------- ------------- --------------- -------------
<S>                              <C>           <C>            <C>               <C>
       Gas revenue               $ 63,532      $ 71,365       $  (7,833)       -11%
       Electric revenue          $ 33,628      $ 52,691       $ (19,063)       -36%
</TABLE>

Gas revenue for the three months ended March 31, 2003 decreased $7.8 million, or
11%,  as  compared  with the  prior  year  period  primarily  due to an  Arizona
commission  ruling  precluding  higher  purchased  gas  costs to be passed on to
consumers in 2003.

Electric  revenue for the three  months  ended March 31,  2003  decreased  $19.1
million,  or 36%, as compared  with the prior year period  primarily  due to the
sale of Kauai electric  partially  offset by increased unit sales and the effect
of a rate increase in Vermont on July 15, 2002.
<TABLE>
<CAPTION>
                                COST OF SERVICES

       ($ in thousands)                    For the three months ended March 31,
                                ----------------------------------------------------------
                                    2003           2002         $ Change       % Change
                                -------------- ------------- --------------- -------------
<S>                                 <C>           <C>            <C>                <C>
       Network access               $  56,515     $   57,958     $  (1,443)        -2%
       Gas purchased                   35,946         43,600        (7,654)       -18%
       Electric energy and
         fuel oil purchased            20,758         26,680        (5,922)       -22%
                                -------------- ------------- ---------------
                                    $ 113,219     $  128,238     $ (15,019)       -12%
                                ============== ============= ===============
</TABLE>

Network access expenses for the three months ended March 31, 2003 decreased $1.4
million,  or 2%, as compared  with the prior year period  primarily due to lower
costs at ELI as a result of  decreases in demand  partially  offset by increased
costs in the ILEC  sector  due to  increased  circuit  expense  associated  with
additional  data  product  introductions  and  increased  long  distance  access
expense.

Gas purchased for the three months ended March 31, 2003  decreased $7.7 million,
or 18%, as compared with the prior year period primarily due to the effect of an
Arizona  commission  ruling  precluding  higher  purchased  gas costs from being
passed on to consumers, thus deferring recoverability to a future period.

Electric energy and fuel oil purchased for the three months ended March 31, 2003
decreased $5.9 million, or 22%, as compared with the prior year period primarily
due to the sale of Kauai  electric  on  November  1,  2002  partially  offset by
increased purchased power costs.


                                       25
<PAGE>

In Arizona,  power costs  charged by our supplier were in excess of the rates we
charged our customers by approximately $128.5 million through March 31, 2003. We
believe that we are allowed to recover these charges from ratepayers through the
Purchase  Power  Fuel  Adjustment  clause  that  was  approved  by  the  Arizona
Corporation  Commission and has been in place for several years.  However, in an
attempt to limit "rate shock" to our  customers,  we requested in September 2001
that our unrecovered power costs, plus interest,  be recovered over a seven-year
period.  As  a  result,  we  deferred  these  costs  on  the  balance  sheet  in
anticipation  of  recovery  through the  regulatory  process.  This  balance was
reduced  by the  public  service  impairment  charge  recorded  during the third
quarter  of 2002,  which  reduced  the net assets of these  businesses  to their
estimated net  realizable  value.  In January  2003,  the  Commission  agreed to
consolidate  this matter with the  application  for  approval of the sale of our
Arizona electric property.
<TABLE>
<CAPTION>
                            OTHER OPERATING EXPENSES

($ in thousands)                               For the three months ended March 31,
                                     ----------------------------------------------------------
                                         2003           2002         $ Change       % Change
                                     -------------- ------------- --------------- -------------
<S>                                      <C>           <C>             <C>               <C>
Operating expenses                       $ 177,580     $ 199,253       $ (21,673)       -11%
Taxes other than income taxes               30,321        33,364          (3,043)        -9%
Sales and marketing                         27,920        28,237            (317)        -1%
                                     -------------- ------------- ---------------
                                         $ 235,821     $ 260,854       $ (25,033)       -10%
                                     ============== ============= ===============
</TABLE>

Operating  expenses for the three months  ended March 31, 2003  decreased  $21.7
million,  or 11%,  as  compared  with the prior  year  period  primarily  due to
increased  operating  efficiencies  and a reduction of personnel in the ILEC and
ELI sectors and decreased  operating  expenses in the electric sector due to the
sale of Kauai electric  partially offset by increased  pension expense discussed
below. We routinely  review our operations,  personnel and facilities to achieve
greater efficiencies. These reviews may result in reductions in personnel and an
increase in severance costs.

Included in operating  expenses is pension  expense.  In future periods,  if the
value of our pension assets decline and/or projected benefit costs increase,  we
may have increased pension expenses. Based on current assumptions and plan asset
values,  we estimate that our pension expense will increase from $4.3 million in
2002 to  approximately  $13.0 - $15.0 million in 2003 and that a contribution to
our pension plans will be required in 2003 in an amount  currently  estimated at
$0 - $5.0  million.  In  addition,  as medical  costs  increase the costs of our
retiree medical  obligations  also increase.  Our retiree medical costs for 2002
were $15.1 million and our current estimate for 2003 is $15.0 - $16.0 million.

In future periods,  compensation  expense related to variable stock plans may be
materially  affected  by our stock  price.  A $1.00  change  in our stock  price
impacts  compensation  expense  by  approximately  $1.0  million.  There  was no
material impact for the three months ended March 31, 2003.

Taxes other than income taxes  decreased  $3.0 million,  or 9%, as compared with
the prior year period  primarily due to decreased  property  taxes at ELI due to
lower asset property values.
<TABLE>
<CAPTION>

                      DEPRECIATION AND AMORTIZATION EXPENSE

       ($ in thousands)                 For the three months ended March 31,
                                     --------------------------------------------------------
                                         2003           2002         $ Change       % Change
                                     -------------- ------------- --------------- -------------
<S>                                      <C>           <C>             <C>               <C>
       Depreciation  expense             $ 106,836     $ 147,820       $ (40,984)       -28%
       Amortization expense                 31,712        30,354           1,358          4%
                                     -------------- ------------- ---------------
                                         $ 138,548     $ 178,174       $ (39,626)       -22%
                                     ============== ============= ===============
</TABLE>

Depreciation  expense for the three months ended March 31, 2003 decreased  $41.0
million, or 28%, as compared with the prior year period primarily due to the ELI
impairment  charge  recognized  during the third quarter of 2002,  which reduced
ELI's asset base,  the  adoption of SFAS No. 143 and the increase in the average
depreciable lives for certain of our equipment. Accelerated depreciation in 2002
of $11.9  million  relating to the  closing of our Plano,  Texas  facility  also
contributed to the decrease.


                                       26
<PAGE>

Amortization  expense for the three months ended March 31, 2003  increased  $1.4
million,  or 4%,  as  compared  with the  prior  year  period  primarily  due to
increased  amortization  of  customer  base,  due  to  a  final  purchase  price
allocation,  resulting  from the  receipt of the final  valuation  report of our
Frontier acquisition during the second quarter of 2002.
<TABLE>
<CAPTION>
                  RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES /
                        RESTRUCTURING AND OTHER EXPENSES

($ in thousands)                               For the three months ended March 31,
                                     --------------------------------------------------------
                                         2003           2002         $ Change      % Change
                                     -------------- ------------- --------------- -----------
Reserve for telecommunications
<S>                                       <C>         <C>            <C>             <C>
  bankruptcies                            $  -        $ 7,804        $ (7,804)      -100%
Restructuring and other expenses          $ (21)      $ 3,905        $ (3,926)      -101%
</TABLE>

Concurrent with the acquisition of Frontier,  we entered into several  operating
agreements  with Global  Crossing  Ltd.  (Global).  We have  ongoing  commercial
relationships  with  Global  affiliates.  As a result  of  Global's  filing  for
bankruptcy,  we  recorded  a  write-down  of the  net  realizable  value  of our
receivables from Global in the amount of $7.8 million in the first quarter 2002.

Prior to the date of Global's  bankruptcy  filing,  we provided  ordinary course
telecommunications  services as well as transitional  services to Global. Global
has provided us certain  customer  billing and  collection  functions as well as
other transitional services.  Although some of these arrangements have continued
after  the  bankruptcy  filing,  we are in the  process  of  transitioning  some
services and  functions  to provide them  ourselves.  The  Bankruptcy  Court has
granted relief to us and other telecommunications companies that provide service
to Global by,  among other  things,  directing a shortened  payment  period with
respect to post-petition  invoices, an expedited court process for post-petition
defaults in payments by Global,  and a priority for post-petition  expense items
over other unsecured debt. These procedures should minimize future economic loss
to us although we cannot  guarantee that  additional  losses will not occur.  If
other  telecommunications  companies file for bankruptcy we may have  additional
significant reserves in future periods.

Restructuring  and other expenses  primarily  consist of expenses related to our
various    restructurings,    including   reductions   in   personnel   at   our
telecommunications  operations,  and costs that were  spent at our Plano,  Texas
facility and at other locations as a result of transitioning functions and jobs.
These  costs were  partially  offset by a $2.1  million  reversal  of a 2001 ELI
accrual recognized in the first quarter of 2002, which was subsequently adjusted
to $2.8 million in the fourth quarter of 2002. See further discussion below.

     Plano Restructuring
     Pursuant  to a plan  adopted in the third  quarter  of 2001,  we closed our
     operations  support  center in Plano,  Texas in August 2002.  In connection
     with this plan, we recorded a pre-tax  charge of $0.8 million for the three
     months ended March 31, 2002. The restructuring  expenses  primarily consist
     of severance  benefits,  retention  earned through March 31, 2002 and other
     planning and  communication  costs.  We sold our Plano  office  building in
     March 2003.

     Sacramento Call Center Restructuring
     In April 2002, we closed our Sacramento  Customer Care Center pursuant to a
     plan  adopted  in the  fourth  quarter  of 2001.  In  connection  with this
     closing,  we recorded a pre-tax charge of $0.1 million for the three months
     ended March 31, 2002.

     ELI Restructuring
     In the first half of 2002, ELI redeployed the Internet routers, frame relay
     switches and ATM switches from the Atlanta, Cleveland, Denver, Philadelphia
     and New York markets to other locations in ELI's network pursuant to a plan
     adopted in the fourth quarter of 2001.  ELI ceased leasing the  collocation
     facilities and off-net circuits for the backbone and local loops supporting
     the service  delivery in these markets.  It was anticipated that this would
     lead to $4.2 million of  termination  fees,  which were accrued for but not
     paid at December 31, 2001. In the first quarter  2002,  ELI adjusted  their
     original  accrual down by $2.1 million due to the  favorable  settlement of
     termination  charges for an off-net  circuit  agreement.  This  accrual was
     further adjusted down by $0.7 million in the fourth quarter of 2002.


                                       27
<PAGE>
<TABLE>
<CAPTION>
            INVESTMENT AND OTHER INCOME (LOSS), NET / GAIN ON SALE OF
            ASSETS / INTEREST EXPENSE / INCOME TAX EXPENSE (BENEFIT)

       ($ in thousands)                        For the three months ended March 31,
                                     ---------------------------------------------------------
                                         2003           2002         $ Change       % Change
                                     -------------- ------------- --------------- -------------
        Investment and
<S>                                       <C>          <C>             <C>              <C>
         other income (loss), net         $ 49,822     $ (48,508)      $  98,330        203%
       Loss on sale of assets             $  1,650     $    -          $   1,650        100%
       Interest expense                   $109,276     $ 122,050       $ (12,774)       -10%
       Income tax expense (benefit)       $ 39,976     $ (26,942)      $  66,918        248%
</TABLE>

Investment  and other  income,  net for the three  months  ended  March 31, 2003
increased $98.3 million as compared with the prior year period  primarily due to
a $40.7 million non-cash pre-tax gain related to a capital lease  termination at
ELI  and the  recognition  in 2002 of a  $49.7  million  non-cash  pre-tax  loss
resulting from an other than temporary decline in the value of our investment in
Adelphia  Communications Corp. (Adelphia) (see Note 9 to Consolidated  Financial
Statements).

Loss on sale of assets  represents the loss  recognized on the sale of our Plano
office building in March 2003.

Interest  expense for the three  months  ended March 31,  2003  decreased  $12.8
million,  or 10%, as compared  with the prior year period  primarily  due to the
retirement of debt partially offset by higher average interest rates. During the
three months  ended March 31, 2003,  we had average  long-term  debt  (excluding
equity  units and  convertible  preferred  stock)  outstanding  of $4.9  billion
compared to $6.0  billion  during the three  months  ended March 31,  2002.  Our
composite  average  borrowing  rate for the three months ended March 31, 2003 as
compared with the prior year period was 40 basis points higher,  increasing from
7.65% to 8.05%,  due to the  repayment  of debt with  interest  rates  below our
average rate.

Income taxes for the three months ended March 31, 2003  increased  $66.9 million
as  compared  with the prior  year  period  primarily  due to changes in taxable
income.  The  effective  tax rate for the  first  quarter  of 2003 was  38.7% as
compared with 38.4% for the first quarter of 2002.

                             DISCONTINUED OPERATIONS

($ in thousands)                        For the three months
                                           ended March 31,
                                         2003           2002
                                     -------------- -------------
Revenue                                   $   -       $   4,650
Operating loss                            $   -       $    (419)
Loss from discontinued
  operations, net of tax                  $   -       $  (1,478)
Gain on disposal of water
  segment, net of tax                     $   -       $ 169,326

On  January  15,  2002,  we  completed  the  sale of our  water  and  wastewater
operations to American  Water Works,  Inc. for $859.1 million in cash and $122.5
million of assumed  debt and other  liabilities.  The  pre-tax  gain on the sale
recognized  in the  first  quarter  of 2002  was  $309.2  million,  subsequently
adjusted  to $316.7  million  in the  fourth  quarter  of 2002.  The gain on the
disposal of the water segment, net of tax was $169.3 million.


                                       28
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         ----------------------------------------------------------

Disclosure of primary market risks and how they are managed
We are exposed to market risk in the normal  course of our  business  operations
due to ongoing  investing  and  funding  activities.  Market  risk refers to the
potential  change  in fair  value  of a  financial  instrument  as a  result  of
fluctuations in interest rates and equity and commodity  prices.  We do not hold
or issue  derivative  instruments,  derivative  commodity  instruments  or other
financial instruments for trading purposes. As a result, we do not undertake any
specific  actions to cover our  exposure to market risks and we are not party to
any  market  risk  management  agreements  other  than in the  normal  course of
business or to hedge  long-term  interest  rate risk.  Our  primary  market risk
exposures are interest rate risk and equity and commodity price risk as follows:

Interest Rate Exposure

Our exposure to market risk for changes in interest  rates relates  primarily to
the  interest-bearing  portion of our  investment  portfolio and interest on our
long term debt and  capital  lease  obligations.  The long term debt and capital
lease  obligations  include  various  instruments  with various  maturities  and
interest rates.

Our  objectives  in managing our  interest  rate risk are to limit the impact of
interest  rate  changes  on  earnings  and cash  flows and to lower our  overall
borrowing costs. To achieve these objectives,  a majority of our borrowings have
fixed interest rates. Consequently,  we have limited material future earnings or
cash flow  exposures  from changes in interest  rates on our long-term  debt and
capital lease  obligations.  A hypothetical 10% adverse change in interest rates
would  increase  the amount that we pay on our  variable  obligations  and could
result in  fluctuations in the fair value of our fixed rate  obligations.  Based
upon our overall interest rate exposure at March 31, 2003, a near-term change in
interest rates would not materially affect our consolidated  financial position,
results of operations or cash flows.

In order to  manage  our  interest  rate risk  exposure,  we  entered  into five
interest  swap  agreements  in 2001 and 2002  with  investment  grade  financial
institutions.  Each agreement covered a notional amount of $50.0 million.  Under
the  terms  of the  agreements,  we make  semi-annual,  floating  interest  rate
interest  payments  based on six  month  LIBOR and  receive a fixed  rate on the
notional amount.  There are two interest rate swap agreements that were executed
in 2001 that  receive a 6.375% fixed rate until the swaps'  termination  date of
August 15,  2004,  and there are three swaps  executed  in 2002 that  receive an
8.500% fixed rate until their  termination  date of May 15, 2006. The underlying
variable  rate on the swaps is set either in  advance,  in arrears or, as in the
case of one agreement,  based on each period's daily average six-month LIBOR. In
connection  with these swaps,  the Company entered into a series of supplemental
rate agreements which had the effect of setting the floating rate portion of the
swaps in advance of the contractually agreed upon rate determination date.

Sensitivity analysis of interest rate exposure
At March 31,  2003,  the fair  value of our  long-term  debt and  capital  lease
obligations was estimated to be approximately $5.6 billion, based on our overall
weighted  average  rate of 8.0% and our overall  weighted  maturity of 13 years.
There has been no material change in the weighted average maturity applicable to
our obligations  since December 31, 2002. The overall  weighted average interest
rate declined by approximately 1 basis point during the first quarter of 2003. A
hypothetical  increase of 80 basis points (10% of our overall  weighted  average
borrowing  rate) would result in an approximate  $262.6 million  decrease in the
fair value of our fixed rate obligations.

Equity Price Exposure

Our exposure to market risk for changes in equity prices relate primarily to the
equity portion of our investment portfolio. The equity portion of our investment
portfolio includes marketable equity securities of media and  telecommunications
companies.

As of March 31, 2003, we owned 3,059,000  shares of Adelphia common stock. As of
June 30, 2002,  we had written this  investment  down to zero,  and therefore we
have no additional exposure related to the market value of Adelphia stock.

As of March 31,  2002,  we owned  2,305,908  common  shares  which  represent an
ownership of 19% of the equity in Hungarian Telephone and Cable Corp., a company
of which our  Chairman and Chief  Executive  Officer is a member of the Board of
Directors.  In  addition,  we  hold  30,000  shares  of  non-voting  convertible
preferred stock,  each share having a liquidation  value of $70 per share and is
convertible at our option into 10 shares of common stock.


                                       29
<PAGE>

As of March 31, 2003, we owned 1,333,500 shares of D & E Communications  (D & E)
common  stock.  As the  result of an other than  temporary  decline in the stock
price of D & E, we  recognized a non-cash  pre-tax loss of $16.4  million on our
investment during the fourth quarter 2002.

Sensitivity analysis of equity price exposure
At March 31,  2003,  the fair  value of the  equity  portion  of our  investment
portfolio  was estimated to be $36.1  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $3.6 million decrease in the
fair value of the equity portion of our investment portfolio.

Commodity Price Exposure

We purchase monthly gas future contracts, from time to time, to manage commodity
price  fluctuations,   caused  by  weather  and  other  unpredictable   factors,
associated  with our  commitments  to deliver  natural gas to customers at fixed
prices.  Customers  pay for gas service  based upon prices that are defined by a
tariff. A tariff is an agreement  between the public utility  commission and us,
which determines the price that will be charged to the customer. Fluctuations in
gas prices are routinely handled through a pricing mechanism called the purchase
gas adjustor  (PGA).  The PGA allows for a process whereby any price change from
the agreed upon tariff will be settled as a pass through to the  customer.  As a
result, if gas prices increase,  the PGA will increase and pass more costs on to
the customer. If gas prices decrease,  the PGA will decrease and refunds will be
provided to the customer.  This commodity activity relates to our gas businesses
and is not  material  to our  consolidated  financial  position  or  results  of
operations.  In all  instances  we take  physical  delivery  of the  gas  supply
purchased or  contracted  for by us. These gas future  contracts  and gas supply
contracts are considered derivative instruments as defined by SFAS 133. However,
such  contracts  are  excluded  from the  provisions  of SFAS 133 since they are
purchases  made in the  normal  course  of  business  and  not  for  speculative
purposes.  Based upon our overall  commodity price exposure at March 31, 2003, a
material near-term change in the quoted market price of gas would not materially
affect our consolidated financial position or results of operations.

Disclosure of limitations of sensitivity analysis
Certain  shortcomings  are  inherent in the method of analysis  presented in the
computation  of fair value of financial  instruments.  Actual  values may differ
from those presented should market  conditions vary from assumptions used in the
calculation of the fair value.  This analysis  incorporates only those exposures
that  exist as of March  31,  2003.  It does not  consider  those  exposures  or
positions, which could arise after that date. As a result, our ultimate exposure
with respect to our market risks will depend on the exposures  that arise during
the period and the fluctuation of interest rates and quoted market prices.

Item 4.   Controls and Procedures
          -----------------------

Within 90 days prior to the date of this report,  we carried out an  evaluation,
under the  supervision  and with the  participation  of our  management,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Based on this  evaluation,  our  principal  executive  officer  and
principal   financial  officer  concluded  that  our  disclosure   controls  and
procedures  are  effective  in  timely  alerting  them to  material  information
required to be included in our periodic SEC reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions,  and
there can be no assurance  that any design will succeed in achieving  its stated
goals.

In  addition,  we  reviewed  our  internal  controls,  and  there  have  been no
significant  changes in our  internal  controls or in other  factors  that could
significantly  affect  those  controls  subsequent  to the  date of  their  last
evaluation.

We  presented  the  results of our most  recent  evaluation  to our  independent
auditors, KPMG LLP, and the audit committee of our board of directors.  Based on
such evaluation,  our management,  including the principal executive officer and
principal  financial  officer,   concluded  that  our  disclosure  controls  and
procedures are adequate to insure the clarity and material  completeness  of our
disclosure in our periodic  reports  required to be filed with the SEC and there
are no significant deficiencies in the design or operation of internal controls,
which could significantly affect our ability to record,  process,  summarize and
report financial data.


                                       30
<PAGE>

                           PART II. OTHER INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

Item 1.   Legal Proceedings
          -----------------

On July 20, 2001, we notified Qwest Corporation (Qwest) that we were terminating
eight  acquisition  agreements.  On July 23, 2001, Qwest filed a notice of claim
for arbitration  with respect to the terminated  acquisition  agreements.  Qwest
asserts  that  we  wrongfully   terminated   these  agreements  and  is  seeking
approximately  $64.0  million in damages,  which is the  aggregate of liquidated
damages  under  letters  of credit  established  in the  terminated  acquisition
agreements.  On September 7, 2001, we filed a response and  counterclaims in the
same arbitration  proceedings,  contesting Qwest's asserted claims and asserting
substantial  claims  against  Qwest for  material  breaches of  representations,
warranties,  and covenants in the terminated  acquisition  agreements and in the
acquisition  agreement  relating to North Dakota  assets that we purchased  from
Qwest. The parties are currently  engaged in discovery.  An arbitration  hearing
has been scheduled to commence in the third quarter of 2003.

The City of Bangor,  Maine,  filed suit against us on November 22, 2002,  in the
U.S.  District  Court for the  District  of Maine  (City of  Bangor v.  Citizens
Communications Company, Civ. Action No. 02-183-B-S). The City has alleged, among
other things, that we are responsible for the costs of cleaning up environmental
contamination  alleged to have resulted from the operation of a manufactured gas
plant by Bangor Gas Company, which we owned from 1948-1963. The City alleged the
existence  of extensive  contamination  of the  Penobscot  River and nearby land
areas and has  asserted  that  money  damages  and other  relief at issue in the
lawsuit  could exceed  $50.0  million.  The City also  requested  that  punitive
damages be assessed against us. We have filed an answer denying liability to the
City,  and have asserted a number of counter  claims against the City. We intend
to defend ourselves vigorously against the City's lawsuit. In addition,  we have
identified  a  number  of  other  potentially  responsible  parties  that may be
responsible  for the damages  alleged by the City and have filed to join them as
parties to the lawsuit.  These additional parties include Honeywell Corporation,
the Army Corps of Engineers,  Guilford  Transportation  (formerly  Maine Central
Railroad), UGI Utilities, Inc., and Centerpoint Energy Resources Corporation. We
also have demanded that various of our insurance  carriers  defend and indemnify
us with respect to the City's lawsuit. On or about December 26, 2002, we filed a
declaratory  judgment  action against those  insurance  carriers in the Superior
Court  of  Penobscot  County,  Maine,  for the  purpose  of  establishing  their
obligations  to us with respect to the City's  lawsuit.  We intend to vigorously
pursue insurance coverage for the City's lawsuit.

On February 7, 2003, we received a letter from counsel  representing Enron North
America  Corporation  (formerly  known as Enron Gas Marketing,  Inc.)  demanding
payment of an "early termination  liability" of approximately $12.5 million that
Enron claims it is owed under a gas supply agreement that we lawfully terminated
in  November  2001.  The  demand was made in  connection  with  Enron's  ongoing
bankruptcy  proceeding  in the United States  Bankruptcy  Court for the Southern
District  of New York.  We  believe  Enron's  claim  lacks any merit and have so
advised that  company's  counsel.  Enron has threatened to initiate an adversary
proceeding  in the  bankruptcy  court to recover  the amount of its demand  plus
applicable  interest and  attorney's  fees. If that occurs,  we will  vigorously
defend against any such action.

In  connection  with an  inquiry  that we  believe  has  arisen  as a result  of
allegations  made  to  federal  authorities  during  their  investigation  of an
embezzlement by two of our former officers, our employees and we are cooperating
fully with the Office of the U.S. Attorney for the Southern District of New York
and with the New York office of the Securities and Exchange Commission.  We have
provided requested documents to the SEC and we have agreed to comply with an SEC
request that, in connection with the informal inquiry that it has initiated,  we
preserve financial,  audit, and accounting records. Since the filing of our Form
10-K on March 24, 2003, there have been no material developments concerning this
matter.

We are party to  proceedings  arising in the normal course of our business.  The
outcome of individual matters is not predictable.  However,  we believe that the
ultimate resolution of all such matters,  after considering  insurance coverage,
will not have a material  adverse effect on our financial  position,  results of
operations, or our cash flows.


                                       31
<PAGE>


Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

a)   Exhibits:

10.1 First Amendment, dated as of March 31, 2003, to the Competitive Advance and
     Revolving  Credit  Facility  Agreement for  $705,000,000  dated October 24,
     2001.

10.2 Amendment  No.  1 to the Loan  Agreement  between  Citizens  Communications
     Company and Rural  Telephone  Finance  Cooperative for  $200,000,000  dated
     October 24, 2001.

99.1 Certification  of Chief  Executive  Officer  pursuant to 18 U.S.C.  Section
     1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 Certification  of Chief  Financial  Officer  pursuant to 18 U.S.C.  Section
     1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


b)   Reports on Form 8-K:

     We filed on Form 8-K on January  21,  2003  under Item 5 "Other  Events and
     Regulation FD Disclosure"  and Item 7 "Financial  Statements and Exhibits",
     information concerning Amendment No. 1 to our Shareholder Rights Plan.

     We filed on Form 8-K on March 4, 2003  under Item 7  "Financial  Statements
     and Exhibits",  a press release announcing our earnings for the quarter and
     year ended December 31, 2002.



                                       32
<PAGE>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                                    SIGNATURE



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.






                         CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------
                                  (Registrant)


                                 By:   /s/ Robert J. Larson
                                      ---------------------
                                      Robert J. Larson
                                      Senior Vice President and
                                      Chief Accounting Officer






Date: May 9, 2003


                                       33
<PAGE>

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                                 CERTIFICATIONS

I, Leonard Tow, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Citizens Communications
Company;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 9, 2003
                                     By: /s/ Leonard Tow
                                         ---------------------------
                                         Leonard Tow
                                         Chief Executive Officer and
                                         Chairman of the Board of Directors
                                         (principal executive officer)



                                       34
<PAGE>

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                           CERTIFICATIONS (continued)

I, Jerry Elliott, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Citizens Communications
Company;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 9, 2003
                              By: /s/ Jerry Elliott
                                  ----------------------------
                                  Jerry Elliott
                                  Chief Financial Officer
                                  (principal financial officer)




                                       35