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 JUNE 30, 2001







<PAGE>




                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2001

|_|  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
                                  P.O. Box 3801
                           Stamford, Connecticut 06905
                        --------------------------------
               (Address, zip code of principal executive offices)


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

                                      NONE
                                      ----
   (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 twelve 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 ninety days.

                                    Yes  X     No
                                       -----      -----


The number of shares outstanding of the registrant's class of common stock as of
July 31, 2001 was 292,251,861.

<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 June 30, 2001 and December 31, 2000                                    2

    Consolidated Statements of Income for the three months ended June 30, 2001 and 2000                   3

    Consolidated Statements of Income for the six months ended June 30, 2001 and 2000                     4

    Consolidated Statements Comprehensive Loss for the three and six months ended
         June 30, 2001 and 2000                                                                           5

    Consolidated Statements of Shareholders' Equity for the year ended December 31, 2000 and the
       six months ended June 30, 2001                                                                     6

    Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000                 7

    Notes to Consolidated Financial Statements                                                            8

    Management's Discussion and Analysis of Financial Condition and Results of Operations                17

    Quantitative and Qualitative Disclosures about Market Risk                                           28

Part II.  Other Information

    Legal Proceedings                                                                                    30

    Submission of Matters to a Vote of Security Holders                                                  30

    Other Information                                                                                    31

    Exhibits and Reports on Form 8-K                                                                     32

    Signature                                                                                            33
</TABLE>

                                       1

<PAGE>


                          PART I. FINANCIAL INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                    Unaudited
<TABLE>
<CAPTION>



                                                                        June 30, 2001      December 31, 2000
ASSETS
Current assets:
<S>                                                                          <C>                   <C>
    Cash                                                                 $     31,115           $    31,223
    Accounts receivable, net                                                  336,490               243,304
    Short-term investments                                                     18,463                38,863
    Other current assets                                                       40,424                52,545
    Assets held for sale                                                    1,240,998             1,212,307
    Assets of discontinued operations                                         687,275               673,515
                                                                    ------------------  --------------------
      Total current assets                                                  2,354,765             2,251,757

Property, plant and equipment, net                                          4,662,361             3,520,712
Goodwill and customer base, net                                             3,014,751               633,268
Investments                                                                   173,318               214,359
Regulatory assets                                                             173,611               175,949
Other assets                                                                  466,882               158,961
                                                                    ------------------  --------------------
           Total assets                                                  $ 10,845,688           $ 6,955,006
                                                                    ==================  ====================

LIABILITIES AND EQUITY
Current liabilities:
    Long-term debt due within one year                                   $    222,522           $   181,014
    Accounts payable and other current liabilities                            416,207               330,383
    Liabilities related to assets held for sale                               255,774               290,575
    Liabilities of discontinued operations                                    189,856               190,496
                                                                    ------------------  --------------------
      Total current liabilities                                             1,084,359               992,468

Deferred income taxes                                                         688,562               490,487
Customer advances for construction and contributions
   in aid of construction                                                     200,688               205,604
Other liabilities                                                             245,888               108,321
Regulatory liabilities                                                         23,415                24,573
Equity units                                                                  460,000                     -
Long-term debt                                                              5,818,312             3,062,289
                                                                    ------------------  --------------------
      Total liabilities                                                     8,521,224             4,883,742

Equity forward contracts                                                      107,018               150,013
Company Obligated Mandatorily Redeemable Convertible
   Preferred Securities*                                                      201,250               201,250

Shareholders' equity                                                        2,016,196             1,720,001
                                                                    ------------------  --------------------
           Total liabilities and equity                                  $ 10,845,688           $ 6,955,006
                                                                    ==================  ====================
</TABLE>

*    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.

              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 INCOME
                FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                    (In thousands, except per-share amounts)
                                    Unaudited

<TABLE>
<CAPTION>

                                                                                     2001             2000
                                                                                --------------   --------------

<S>                                                                                 <C>              <C>
Revenue                                                                             $ 505,741        $ 418,607

Operating expenses:
     Cost of services                                                                 128,528          103,434
     Depreciation and amortization                                                    114,366           86,643
     Other operating expenses                                                         195,236          186,947
     Acquisition assimilation expense                                                   7,062            7,617
                                                                                --------------   --------------
Total operating expenses                                                              445,192          384,641
                                                                                --------------   --------------

Operating income                                                                       60,549           33,966

Investment and other income, net                                                       10,641            4,219
Minority interest                                                                           -            5,937
Interest expense                                                                       73,129           41,750
                                                                                --------------   --------------
     Income (loss) from continuing operations before income taxes and
       dividends on convertible preferred securities                                   (1,939)           2,372

Income tax expense                                                                        525              471
                                                                                --------------   --------------
     Income (loss) from continuing operations before dividends
       on convertible preferred securities                                             (2,464)           1,901

Dividends on convertible preferred securities, net of income tax benefit                1,552            1,552
                                                                                --------------   --------------
      Income (loss) from continuing operations                                         (4,016)             349

Income from discontinued operations, net of tax                                         3,367            2,663
                                                                                --------------   --------------

     Net income  (loss)                                                             $    (649)       $   3,012
                                                                                ==============   ==============

Carrying cost of equity forward contracts                                              12,647                -
                                                                                --------------   --------------

     Net income (loss) available to common shareholders                             $ (13,296)       $   3,012
                                                                                ==============   ==============

Income (loss) from continuing operations per common share:
     Basic                                                                          $   (0.01)       $    0.00
     Diluted                                                                        $   (0.01)       $    0.00

Income from discontinued operations per common share:
     Basic                                                                          $    0.01        $    0.01
     Diluted                                                                        $    0.01        $    0.01

Net income (loss) available to common shareholders per common share:
     Basic                                                                          $   (0.05)       $    0.01
     Diluted                                                                        $   (0.05)       $    0.01
</TABLE>



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


                                       3

<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                    (In thousands, except per-share amounts)
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                    2001             2000
                                                                                --------------   --------------

<S>                                                                               <C>                <C>
Revenue                                                                           $ 1,130,023        $ 867,309

Operating Expenses:
     Cost of services                                                                 353,893          224,342
     Depreciation and amortization                                                    220,072          182,624
     Other operating expenses                                                         395,080          376,054
     Acquisition assimilation expense                                                  12,546           11,591
                                                                                --------------   --------------
Total operating expenses                                                              981,591          794,611
                                                                                --------------   --------------

Operating income                                                                      148,432           72,698

Investment and other income, net                                                       13,425            9,817
Minority interest                                                                           -           12,222
Interest expense                                                                      134,581           79,340
                                                                                --------------   --------------
     Income from continuing operations before income taxes and dividends
       on convertible preferred securities                                             27,276           15,397

Income tax expense                                                                      9,573            5,298
                                                                                --------------   --------------
     Income from continuing operations before dividends
       on convertible preferred securities                                             17,703           10,099

Dividends on convertible preferred securities, net of income tax benefit                3,105            3,105
                                                                                --------------   --------------
     Income from continuing operations                                                 14,598            6,994

Income from discontinued operations, net of tax                                         4,476            3,344
                                                                                --------------   --------------

     Net income                                                                   $    19,074        $  10,338
                                                                                ==============   ==============

Carrying cost of equity forward contracts                                              12,647                -
                                                                                --------------   --------------

     Net income available to common shareholders                                  $     6,427        $  10,338
                                                                                ==============   ==============

Income from continuing operations per common share:
     Basic                                                                        $      0.05        $    0.03
     Diluted                                                                      $      0.05        $    0.03

Income from discontinued operations per common share:
     Basic                                                                        $      0.02        $    0.01
     Diluted                                                                      $      0.02        $    0.01

Net income available to common shareholders per common share:
     Basic                                                                        $      0.02        $    0.04
     Diluted                                                                      $      0.02        $    0.04

</TABLE>



              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 COMPREHENSIVE LOSS
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                 (In thousands)
                                    Unaudited
<TABLE>
<CAPTION>

                                          For the three months ended June 30,        For the six months ended June 30,
                                         --------------------------------------    ---------------------------------------
                                               2001                2000                  2001                 2000
                                         ------------------  ------------------    ------------------  -------------------

<S>                                                 <C>                <C>                  <C>                  <C>
Net income (loss)                                 $   (649)           $  3,012              $ 19,074            $  10,338
Other comprehensive loss, net of tax                (5,246)            (12,348)              (24,869)             (40,393)
                                         ------------------  ------------------    ------------------  -------------------
  Total comprehensive loss                        $ (5,895)           $ (9,336)             $ (5,795)           $ (30,055)
                                         ==================  ==================    ==================  ===================

</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
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
   FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE SIX MONTHS ENDED JUNE 30, 2001
                    (In thousands, except per-share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>


                                                                                           Accumulated
                                                 Common       Additional                      Other                        Total
                                                  Stock         Paid-In      Retained     Comprehensive    Treasury    Shareholders'
                                               ($0.25 par)      Capital      Earnings     Income (Loss)      Stock        Equity
                                              ----------- -------------- ------------- -----------------------------  --------------

<S>                                            <C>          <C>            <C>             <C>                 <C>     <C>
Balances January 1, 2000                        $ 65,519     $1,577,903     $ 261,590      $  14,923     $        -     $ 1,919,935
   Acquisitions                                       28          1,770             -              -          1,861           3,659
   Treasury stock acquisitions                         -              -             -              -        (49,209)        (49,209)
   Stock plans                                       895         42,156             -              -         (4,523)         38,528
   Equity forward contracts                            -       (150,013)            -              -              -        (150,013)
   Net loss                                            -              -       (28,394)             -              -         (28,394)
   Other comprehensive loss, net of tax                -              -             -        (14,505)             -         (14,505)
                                              ----------- -------------- ------------- -------------- --------------  --------------
Balances December 31, 2000                        66,442      1,471,816       233,196            418        (51,871)      1,720,001
   Stock plans                                       312         19,887             -              -           (317)         19,882
   Common stock offering                           6,289        283,498             -              -              -         289,787
   Equity units offering                               -          4,968             -              -              -           4,968
   Carrying cost of equity forward contracts           -              -       (12,647)             -              -         (12,647)
   Net income                                          -              -        19,074              -              -          19,074
   Other comprehensive loss, net of tax                -              -             -        (24,869)             -         (24,869)
                                              ----------- -------------- ------------- -------------- --------------  --------------
Balances June 30, 2001                          $ 73,043     $1,780,169     $ 239,623      $ (24,451)    $  (52,188)    $ 2,016,196
                                              =========== ============== ============= ============== ==============  ==============

</TABLE>



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


                                       6

<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                      2001              2000
                                                                ----------------  ----------------

<S>                                                                   <C>               <C>
Net cash provided by continuing operating activities                 $  162,929         $ 172,431

Cash flows from investing activities:
       Capital expenditures                                            (217,801)         (292,060)
       Securities purchased                                                (484)          (27,044)
       Securities sold                                                   21,641            49,684
       Securities matured                                                     -            10,400
       Acquisitions                                                  (3,367,987)         (205,404)
       ELI share purchases                                                    -           (17,493)
       Other                                                                187              (212)
                                                                ----------------  ----------------
Net cash used by investing activities                                (3,564,444)         (482,129)

Cash flows from financing activities:
       Long-term debt borrowings                                      2,781,318           350,953
       Issuance of equity units                                         446,200                 -
       Common stock offering                                            289,787                 -
       Long-term debt principal payments                               (120,008)           (9,163)
       Issuance of common stock for employee plans                       17,279            19,632
       Common stock buybacks                                                  -           (40,960)
       Other                                                             (3,244)            4,514
                                                                ----------------  ----------------
Net cash provided by financing activities                             3,411,332           324,976

Cash used by discontinued operations                                     (9,925)           (3,269)
                                                                ----------------  ----------------

(Decrease) increase in cash                                                (108)           12,009
Cash at January 1,                                                       31,223            37,141
                                                                ----------------  ----------------

Cash at June 30                                                      $   31,115         $  49,150
                                                                ================  ================

Non-cash investing and financing activities:
       Increase in capital lease asset                               $  (33,985)        $  96,510

</TABLE>


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


                                       7


<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:
          Citizens  Communications  Company and its subsidiaries are referred to
          as "we,"  "us" or "our" in this  report.  The  unaudited  consolidated
          financial  statements  include our accounts and have been  prepared in
          conformity with generally accepted accounting principles and should be
          read in conjunction  with the  consolidated  financial  statements and
          notes included in our 2000 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.  Certain  information  and
          footnote  disclosures  have been 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)  Regulatory Assets and Liabilities:
          Certain  of our local  exchange  telephone  operations  and all of our
          public utilities services  operations are subject to the provisions of
          Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting
          for the Effects of Certain Types of  Regulation".  For these entities,
          regulators can establish  regulatory  assets and liabilities  that are
          required to be  reflected  on the  balance  sheet in  anticipation  of
          future recovery through the ratemaking process.

          Our consolidated balance sheet as of June 30, 2001 included regulatory
          assets of  approximately  $61,600,000  and  regulatory  liabilities of
          approximately  $4,000,000 associated with our local exchange telephone
          operations.  The  remainder of the  regulatory  assets and  regulatory
          liabilities  on the  balance  sheet  are  associated  with our  public
          utilities  services   operations  and  have  not  been  classified  as
          assets/liabilities  held  for  sale  or  discontinued  operations.  In
          addition,  property, plant and equipment for the properties subject to
          SFAS 71 have been  depreciated  using the  straight-line  method  over
          plant lives approved by regulators.  Such depreciable lives may exceed
          the  lives  that  would  have  been  used if we did not  operate  in a
          regulated environment.

          SFAS No. 101 "Regulated  Enterprises Accounting for the Discontinuance
          of Application of SFAS No. 71" specifies the accounting  required when
          the regulated  operations of an enterprise  are no longer  expected to
          meet  the  provisions  of  SFAS 71 in the  future  due to  changes  in
          regulations,  competition  and the  operations of regulated  entities.
          SFAS 101 would  require the  write-off of a portion of our  regulatory
          assets and liabilities,  as a net non-cash charge or credit to income,
          if it were determined in the future that the conditions  requiring the
          use of SFAS 71 no longer  apply.  SFAS 101 further  provides  that the
          carrying amount of property,  plant and equipment would be adjusted to
          reflect the use of shorter  depreciation lives only to the extent that
          the net book value of these assets are impaired.

          The  ongoing  applicability  of  SFAS  71 to our  regulated  telephone
          operations is  continually  monitored due to the changing  regulatory,
          competitive and legislative environment and the changes that may occur
          in our future  operations  as we  acquire  and  consolidate  our local
          exchange telephone  operations.  It is possible that future changes in
          our business environment or changes in the demand for our products and
          services  could  result in our  telephone  operations  no longer being
          subject to the  provisions of SFAS 71. If  discontinuation  of SFAS 71
          becomes appropriate,  the accounting may result in a material non-cash
          effect on our results of operations  and  financial  position that can
          not be estimated at this time.

     (c)  Revenue Recognition:
          ILEC
          ----
          Network access  services - Monthly  recurring  network access services
          are billed in advance  with any  portion  that is billed but  unearned
          recorded as deferred  revenue on the balance  sheet as part of accrued
          expenses  which are then  recognized  as revenue  over the period that
          services  are  provided.  Non-recurring  network  access  services are
          billed in arrears and recognized as revenue in the period services are
          provided.  Earned  but  unbilled  network  access  service  revenue is
          accrued for and  included in  accounts  receivable  and revenue in the
          period  services  are  provided.   Network  access  revenue  primarily
          consists of switched access revenue billed to other carriers. Switched
          access  revenue is billed in arrears and  recognized as revenue in the
          period  services are provided  based on  originating  and  terminating
          minutes of use.  Network access  revenue also contains  special access
          revenue. Special access revenue is billed in arrears and recognized in
          revenue in the period services are provided.


                                       8
<PAGE>


          Local  services - Monthly  recurring  local line charges are billed to
          end users in  advance  and  recognized  as  revenue  in the  period of
          billing  with any  portion  that is billed but  unearned  recorded  as
          deferred  revenue on the  balance  sheet as part of accrued  expenses.
          Non-recurring  local  services are billed in arrears and recognized as
          revenue in the period services are provided. Earned but unbilled local
          service revenue is accrued for and included in accounts receivable and
          revenue in the period services are provided.

          Long distance  services - Long distance services are billed in arrears
          and recognized as revenue in the period services are provided.  Earned
          but  unbilled  long  distance  revenue is accrued for and  included in
          accounts receivable and revenue in the period services are provided.

          Directory services and Other - Revenue is recognized when services are
          provided or when  products are  delivered to  customers.  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 exceed installation fee revenue.

          ELI - Revenue is recognized  when the services are  provided.  Revenue
          from long-term  prepaid network  services  agreements are deferred and
          recognized  on a  straight-line  basis  over the terms of the  related
          agreements.  Installation  fees and related costs (up to the amount of
          installation  revenue) are deferred  and  recognized  over the average
          customer life.  Installation  related costs in excess of  installation
          fees are expensed when incurred.

          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 utilities services revenue is accrued for and included
          in accounts receivable and revenue.

     (d)  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 were exercised or converted into common stock at
          the beginning of the period being reported on (see Note 7).

(2)   Property, Plant and Equipment, Net:
      -----------------------------------
      Property, plant and equipment, net at June 30, 2001 and December 31, 2000
      is as follows:
<TABLE>
<CAPTION>


        ($ in thousands)                        June 30, 2001      December 31, 2000
                                             -----------------    --------------------

<S>                                               <C>                    <C>
        Property, plant and equipment             $ 6,591,189            $ 5,307,427
        Less accumulated depreciation              (1,928,828)            (1,786,715)
                                             ------------------   --------------------
        Property, plant and equipment, net        $ 4,662,361            $ 3,520,712
                                             ==================   ====================
</TABLE>


     At June 30, 2001,  approximately  $1,127,314,000 of net property, plant and
     equipment was related to our acquisition of Frontier Corp.  which closed on
     June 29, 2001 (see Note 3).

     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 $101,290,000 and $85,849,000
     for the  three  months  ended  June 30,  2001 and 2000,  respectively,  and
     $193,743,000  and  $181,195,000  for the six months ended June 30, 2001 and
     2000,  respectively.  We ceased to record  depreciation  expense on the gas
     assets  effective  October  1, 2000 and on the  electric  assets  effective
     January 1, 2001 (see Note 4).

                                       9


<PAGE>



(3)  Acquisitions:
     -------------
     From May 27, 1999 through July 12, 2000, we entered into several agreements
     to acquire telephone access lines. These transactions have been and will be
     accounted  for using the  purchase  method of  accounting.  The  results of
     operations of the acquired properties have been and will be included in our
     financial statements from the dates of acquisition of each property.  These
     agreements and the status of each transaction are described as follows:

          Verizon Acquisition
          -------------------
          On  May  27,  September  21,  and  December  16,  1999,  we  announced
          definitive  agreements to purchase from Verizon  Communications  Inc.,
          formerly GTE Corp.  (Verizon),  approximately 381,200 telephone access
          lines   (as  of   December   31,   2000)   in   Arizona,   California,
          Illinois/Wisconsin,   Minnesota   and   Nebraska   for   approximately
          $1,171,000,000  in cash.  On June 30, 2000,  we closed on the Nebraska
          purchase  of  approximately  62,200  access  lines  for  approximately
          $205,400,000  in cash.  On August 31, 2000, we closed on the Minnesota
          purchase  of  approximately  142,400  access  lines for  approximately
          $438,900,000  in  cash.  On  November  30,  2000,  we  closed  on  the
          Illinois/Wisconsin  purchase of approximately 112,900 access lines for
          approximately  $303,900,000  in cash.  We expect  that the Arizona and
          California  transactions,  which  are  subject  to  various  state and
          federal  regulatory  approvals,  will close during 2001.  Our expected
          cash requirement to complete the Verizon acquisitions is $222,800,000.

          Qwest Acquisition
          -----------------
          On June 16, 1999,  we announced a series of  definitive  agreements to
          purchase  from  Qwest  Communications,  formerly  U  S  WEST  (Qwest),
          approximately 556,800 telephone access lines (as of December 31, 2000)
          in Arizona,  Colorado,  Idaho/Washington,  Iowa,  Minnesota,  Montana,
          Nebraska, North Dakota and Wyoming for approximately $1,650,000,000 in
          cash and the assumption of certain  liabilities.  On October 31, 2000,
          we closed on the North Dakota purchase of approximately  17,000 access
          lines for  approximately  $38,000,000  in cash.  On July 20, 2001,  we
          delivered  a  notice  of  termination  for the  remaining  acquisition
          agreements  with Qwest.  On July 23,  2001,  Qwest  advised us that it
          intends to pursue a claim of $64 million  (available  under letters of
          credit  issued  by  us)  for  liquidated  damages  in  an  arbitration
          proceeding.  We will also pursue our substantial  claims for breach of
          contract against Qwest in the same arbitration.

          Frontier Acquisition
          --------------------
          On July 12, 2000, we announced a definitive agreement to purchase from
          Global  Crossing Ltd.  (Global)  100% of the stock of Frontier  Corp.,
          which owned  approximately  1,096,700  telephone  access  lines (as of
          December 31, 2000) in  Alabama/Florida,  Georgia,  Illinois,  Indiana,
          Iowa, Michigan,  Minnesota,  Mississippi,  New York,  Pennsylvania and
          Wisconsin,  for  approximately  $3,650,000,000 in cash which price was
          later  reduced to  $3,500,000,000.  On June 29, 2001, we closed on the
          Frontier acquisition for approximately $3,368,000,000 in cash, subject
          to  adjustment.  The  operations  of  Frontier  are  included  in  our
          financial statements from the date of acquisition.

          In conjunction  with the Frontier  acquisition,  we are evaluating our
          facilities to take advantage of operational  and functional  synergies
          between the two  companies  with the  objective of  concentrating  our
          resources  in the areas  where we have the most  customers,  to better
          serve those customers.  Accordingly, we intend to close our operations
          support center in Plano, Texas by April 2002. We communicated with all
          affected  employees  during  July  2001.  Certain  employees  will  be
          relocated;  others  will be offered  severance,  job  training  and/or
          outplacement counseling.  We intend to sublease our office space after
          April 30,  2002.  In  connection  with  this  plan,  we will  record a
          restructuring  charge to  operating  expenses in the third  quarter of
          2001.

     The following pro forma financial  information for the three and six months
     ended June 30, 2001 and 2000 present the combined results of our operations
     and the  Frontier  acquisition  acquired  on June 30,  2001.  The pro forma
     information  presents  the  combined  results  as if  the  acquisition  had
     occurred at the  beginning  of the year prior to its  acquisition.  The pro
     forma financial  information  does not  necessarily  reflect the results of
     operations  that would have  occurred had we  constituted  a single  entity
     during such periods.

                                       10
<PAGE>
<TABLE>
<CAPTION>
        ($ in thousands, except per share amounts)
                                       For the three months ended June 30,     For the six months ended June 30,
                                      -------------------------------------  -------------------------------------
                                            2001                2000               2001                2000
                                      -----------------   -----------------  -----------------   -----------------
<S>                                      <C>                 <C>              <C>                 <C>
        Revenue                          $ 701,269           $ 608,532        $ 1,517,819         $ 1,245,356
        Net loss                         $ (44,872)          $ (25,174)       $   (62,829)        $   (51,487)
        Net loss available to common
          shareholders per share         $   (0.19)          $   (0.09)       $     (0.26)        $     (0.18)
</TABLE>
(4)  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 include gas, electric
     and water and wastewater  businesses.  The proceeds from the sales of these
     public  utilities  services  businesses  have  been  and  will  be  used to
     partially fund the telephone access line purchases (see Note 3).

     Currently,  we  have  agreements  to  sell  all our  water  and  wastewater
     operations,  one of our  electric  operations  and one of our  natural  gas
     operations.  The proceeds from these agreements will include  approximately
     $1,391,000,000  in cash plus the assumption of certain  liabilities.  These
     agreements and the status of each transaction are described as follows:

          Water and  Wastewater
          ---------------------
          On October 18, 1999,  we announced the agreement to sell our water and
          wastewater  operations to American Water Works,  Inc. for $745,000,000
          in cash and  $90,000,000  of  assumed  debt.  These  transactions  are
          currently  expected  to close  in the  second  half of 2001  following
          regulatory  approval.  The contract may be  terminated if the required
          approvals are not received by September 30, 2001.

          Electric
          --------
          On February  15,  2000,  we  announced  that we had agreed to sell our
          electric  utility   operations.   The  Arizona  and  Vermont  electric
          divisions were under contract to be sold to Cap Rock Energy Corp. (Cap
          Rock). The agreement with Cap Rock was terminated on March 7, 2001. It
          is our intention to pursue the  disposition of the Vermont and Arizona
          electric divisions with alternative buyers. In August 2000, the Hawaii
          Public Utilities Commission denied the initial application  requesting
          approval of the purchase of our Kauai  electric  division by the Kauai
          Island   Electric  Co-op  for   $270,000,000  in  cash  including  the
          assumption  of certain  liabilities.  We are  considering a variety of
          options,  including  filing  a  request  for  reconsideration  of  the
          decision,  which may include filing a new  application.  Our agreement
          for the sale of this division may be terminated if regulatory approval
          is not received before February 2002.

          Gas
          ---
          On April 13, 2000,  we announced  the  agreement to sell our Louisiana
          Gas operations to Atmos Energy  Corporation  for  $365,000,000 in cash
          plus the assumption of certain  liabilities.  Regulatory  approval was
          received  in April  2001.  On July 2, 2001,  we closed on the sale for
          $363,400,000  in  cash.  The  estimated  pre-tax  gain on the  sale is
          approximately  $150,000,000  that  will  be  recognized  in the  third
          quarter.

          In July  2001,  an  agreement  was  signed  to sell the  Colorado  Gas
          division  to  Kinder  Morgan  for  $11,000,000.  This  transaction  is
          expected to close in the fourth quarter of 2001  following  regulatory
          approval.

     Discontinued  operations in the  consolidated  statements of income reflect
     the results of  operations  of the  water/wastewater  properties  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. The long-term debt presented
     in liabilities of discontinued  operations represents the only liability to
     be assumed by the buyer  pursuant  to the water and  wastewater  asset sale
     agreements.

     We  initially  accounted  for the  planned  divestiture  of all the  public
     utilities services properties as discontinued operations.  Currently, we do
     not  have  agreements  to  sell  our  entire  gas  and  electric  segments.
     Consequently,  we  reclassified  all of our gas (on September 30, 2000) and
     electric  assets (on December 31, 2000) and their  related  liabilities  to
     "assets held for sale" and  "liabilities  related to assets held for sale,"
     respectively.  We also  reclassified  the results of these  operations from
     discontinued operations to their original income statement captions as part
     of continuing operations.  Additionally,  because both our gas and electric
     operations  are  expected  to be sold at a  profit,  we  ceased  to  record
     depreciation expense on the gas assets effective October 1, 2000 and on the
     electric assets effective January 1, 2001. Such depreciation  expense would
     have been an additional  $14,200,000  and $28,100,000 for the three and six
     months ended June 30, 2001,  respectively.  We continue to actively  pursue
     buyers for our remaining gas and electric businesses.

                                       11
<PAGE>


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


    ($ in thousands)                       June 30, 2001       December 31, 2000
                                         ------------------   ------------------

    Current assets                                $ 20,041             $ 18,578
    Net property, plant and equipment              655,422              639,994
    Other assets                                    11,812               14,943
                                         ------------------   ------------------
     Total assets                                 $ 687,275            $ 673,515
                                         ==================   ==================

    Current liabilities                           $ 19,167             $ 21,062
    Long-term debt                                  90,448               90,546
    Other liabilities                               80,241               78,888
                                         ------------------   ------------------
     Total liabilities                            $ 189,856            $ 190,496
                                         ==================   ==================


    ($ in thousands)                      For the three months ended June 30,
                                         ---------------------------------------
                                               2001                 2000
                                         ------------------   ------------------
    Revenue                                       $ 29,335             $ 26,576
    Operating income                              $  8,183             $  7,009
    Income tax expense                            $  2,089             $  1,648
    Net income                                    $  3,367             $  2,663

    ($ in thousands)                       For the six months ended June 30,
                                         ---------------------------------------
                                                2001                 2000
                                         ------------------   ------------------
    Revenue                                       $ 53,429             $ 50,641
    Operating income                              $ 11,945             $ 10,030
    Income tax expense                            $  2,159             $  1,510
    Net income                                    $  4,476             $  3,344

     Summarized financial  information for the gas and electric operations (held
     for sale) is set forth below:
<TABLE>
<CAPTION>

($ in thousands)                                  June 30, 2001       December 31, 2000
                                               --------------------  --------------------

<S>                                                      <C>                   <C>
Current assets                                         $   108,133           $   127,495
Net property, plant and equipment                          984,367               953,328
Other assets                                               148,498               131,484
                                               --------------------  --------------------
Total assets held for sale                             $ 1,240,998           $ 1,212,307
                                               ====================  ====================

Current liabilities                                    $   128,553           $   169,066
Long-term debt                                              43,945                43,980
Other liabilities                                           83,276                77,529
                                               --------------------  --------------------
Total liabilities related to assets
    held for sale                                      $   255,774           $   290,575
                                               ====================  ====================
</TABLE>


                                       12

<PAGE>

(5)  Security Issuances:
     -------------------
     We issued the following  securities  during the three months ended June 30,
     2001  under  our  $3,800,000,000  shelf  registration  statement.  The  net
     proceeds from these issuances were used to repay bank  borrowings,  for the
     Frontier  Acquisition (see note 3) and for general corporate  purposes.  We
     have a remaining shelf registration of $825,600,000 after these issuances.

     Long-Term Debt
     --------------
     On May 18,  2001,  we  issued  an  aggregate  of  $1.75  billion  of  notes
     consisting  of $700 million  principal  amount of 8.50% notes,  due May 15,
     2006 and $1.05  billion  principal  amount of 9.25% notes due May 15, 2011.
     The net proceeds of this issuance was  $1,726,000,000  (after  underwriting
     discounts and commissions and before offering expenses).

     Equity Units
     ------------
     On June 13, 2001, we issued 18,400,000 equity units at $25 per unit for net
     proceeds of $446,200,000 (after underwriting  discounts and commissions and
     before offering  expenses).  Each equity unit will initially consist of a 6
     3/4 % senior note due 2006 and a purchase  contract  for our common  stock.
     The purchase contract  (warrant)  obligates the holder to purchase from us,
     no later than August 17, 2004 for a purchase  price of $25,  the  following
     number of shares of our common stock:

     o    If the  average  closing  price of our  common  stock  over the 20-day
          trading  period  ending on the third  trading  day prior to August 17,
          2004 equals or exceeds $14.52, 1.7218 shares;
     o    If the average  closing price of our common stock over the same period
          is less than  $14.52,  but  greater  than  $12.10,  a number of shares
          having a value,  based on the average  closing price over that period,
          equal to $25; and
     o    If the average  closing price of our common stock over the same period
          is less than or equal to $12.10, 2.0661 shares.

     The  equity  units  have been  approved  for  listing on The New York Stock
     Exchange under the symbol "CZB."

     Common Stock
     ------------
     On June 13,  2001,  we  issued  25,156,250  shares of our  common  stock at
     $12.10, for net proceeds of $289,787,000 (after underwriting  discounts and
     commissions).

(6)  1999 Restructuring Charges:
     ---------------------------
     In the  fourth  quarter of 1999,  we  approved  a plan to  restructure  our
     corporate  office  activities.  In connection with this plan, we recorded a
     pre-tax  charge of  $5,760,000  in other  operating  expenses in the fourth
     quarter  of  1999.  The  restructuring  resulted  in  the  reduction  of 49
     corporate  employees.  All affected employees were communicated  within the
     early part of November 1999.

     As of June 30, 2001,  approximately  $4,413,000 has been paid, 42 employees
     were  terminated  and 6 employees who were  expected to be terminated  took
     other  positions  within  the  company.  The  remaining  employee  will  be
     terminated  during 2001.  At December  31,  2000,  we adjusted our original
     accrual  down by  $1,008,000  and the  remaining  accrual  of  $339,000  is
     included in other  current  liabilities  at June 30, 2001.  These costs are
     expected to be paid in the third quarter of 2001.


                                       13
<PAGE>

 (7) Net Income Per Common Share:
     -----------------------------
     The  reconciliation  of the net income per common share calculation for the
     three and six months  ended  June 30,  2001 and 2000,  respectively,  is as
     follows:
<TABLE>
<CAPTION>


(In thousands, except per-share amounts)                             For the three months ended June 30,
                                                   -----------------------------------------------------------------------------
                                                                   2001                                    2000
                                                   --------------------------------------  -------------------------------------
                                                     Income       Shares      Per Share      Income        Shares     Per Share
                                                   ------------ ------------  -----------  ------------  -----------  ----------
Net income per common share:
<S>                                                     <C>         <C>                        <C>          <C>
  Basic                                               $   (649)     269,879                    $ 3,012      261,215
  Carrying cost of equity forward contracts             12,647            -                          -            -
                                                   ------------ ------------               ------------  -----------
   Net income available for common shareholders       $(13,296)     269,879      $ (0.05)      $ 3,012      261,215      $ 0.01
  Effect of dilutive options                                 -        2,924            -             -        6,259           -
                                                   ------------ ------------  -----------  ------------  -----------  ----------
  Diluted                                             $(13,296)     272,803      $ (0.05)      $ 3,012      267,474      $ 0.01
                                                   ============ ============  ===========  ============  ===========  ==========


(In thousands, except per-share amounts)                                For the six months ended June 30,
                                                   -----------------------------------------------------------------------------
                                                                   2001                                    2000
                                                   --------------------------------------  -------------------------------------
                                                     Income       Shares      Per Share      Income        Shares     Per Share
                                                   ------------ ------------  -----------  ------------  -----------  ----------
Net income per common share:
  Basic                                               $ 19,074      266,898                    $10,338      261,426
  Carrying cost of equity forward contracts             12,647            -                          -            -
                                                   ------------ ------------               ------------  -----------
  Net income available for common shareholders        $  6,427      266,898      $  0.02       $10,338      261,426      $ 0.04
  Effect of dilutive options                                 -        3,339            -             -        4,315           -
                                                   ------------ ------------  -----------  ------------  -----------  ----------
  Diluted                                             $  6,427      270,237      $  0.02       $10,338      265,741      $ 0.04
                                                   ============ ============  ===========  ============  ===========  ==========
</TABLE>

     All share amounts  represent  weighted average shares  outstanding for each
     respective  period.  The  diluted net income per common  share  calculation
     excludes  the effect of  potentially  dilutive  shares when their effect is
     antidilutive.  At June 30, 2001, 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  6,714,000  potentially  dilutive  stock  options at a
     range  of  $13.38  to  $21.47  per  share  that  are  not  included  in the
     calculation as they are antidilutive.  See Note 10 regarding carrying costs
     of equity forward contracts.

(8)  Segment Information:
     -------------------
     We operate in four segments,  Incumbent Local Exchange Carrier (ILEC), ELI,
     gas and electric.  The ILEC segment provides both regulated and competitive
     communications  services to residential,  business and wholesale customers.
     ELI is a facilities based  integrated  communications  provider  offering a
     broad range of communications services in the western United States. We own
     85% of ELI and guarantee all of ELI's  long-term  debt,  one of its capital
     leases and one of its operating  leases.  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."

     Adjusted EBITDA is operating income (loss) plus depreciation and
     amortization. EBITDA is a measure commonly used to analyze companies on the
     basis of operating performance. It is not a measure of financial
     performance under generally accepted accounting principles and should not
     be considered as an alternative to net income as a measure of performance
     nor as an alternative to cash flow as a measure of liquidity and may not be
     comparable to similarly titled measures of other companies.

                                       14
<PAGE>
<TABLE>
<CAPTION>


($ in thousands)                                              For the three months ended June 30, 2001
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                     ILEC              ELI            Gas          Electric    Eliminations       Segments
                                 --------------   -------------- --------------- ------------- -------------    ------------
<S>                                  <C>             <C>            <C>            <C>           <C>      <C>     <C>
Revenue                              $ 288,788       $ 60,429       $ 102,155     $  55,464      $ (1,095)1     $   505,741
Depreciation and Amortization           88,312         19,834             155         5,800           265 2         114,366
Operating Income (Loss)                 60,685        (15,770)          9,882         5,260           492 2,3        60,549
Adjusted EBITDA                        148,997          4,064          10,037        11,060           757 3         174,915


($ in thousands)                                              For the three months ended June 30, 2000
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                     ILEC              ELI            Gas          Electric    Eliminations       Segments
                                 --------------   -------------- --------------- ------------- -------------    ------------
Revenue                              $ 227,396       $ 60,620       $  77,366     $  53,917      $   (692)1     $   418,607
Depreciation and Amortization           59,765         14,721           5,922         6,247           (12)2          86,643
Operating Income (Loss)                 39,384        (16,156)          4,876         5,522           340 2,3        33,966
Adjusted EBITDA                         99,149         (1,435)         10,798        11,769           328 3         120,609



($ in thousands)                                                For the six months ended June 30, 2001
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                     ILEC              ELI            Gas          Electric    Eliminations       Segments
                                 --------------   -------------- --------------- ------------- -------------    ------------
Revenue                              $ 576,133      $ 122,991       $ 322,670     $ 110,161      $ (1,932)1     $ 1,130,023
Depreciation and Amortization          174,689         38,728             305         5,800           550 2         220,072
Operating Income (Loss)                123,355        (31,371)         38,496        16,959           993 2,3       148,432
Adjusted EBITDA                        298,044          7,357          38,801        22,759         1,543 3         368,504


($ in thousands)                                                For the six months ended June 30, 2000
                                 -------------------------------------------------------------------------------------------
                                                                                                                  Total
                                       ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 --------------   -------------- --------------- ------------- -------------    ------------
Revenue                              $ 453,708      $ 117,398       $ 190,421     $ 107,109      $ (1,327)1     $   867,309
Depreciation and Amortization          129,771         27,476          12,368        13,077           (68)2         182,624
Operating Income (Loss)                 71,356        (35,576)         22,950        13,388           580 2,3        72,698
Adjusted EBITDA                        201,127         (8,100)         35,318        26,465           512 3         255,322

</TABLE>

     1    Represents  revenue  received  by ELI  from  our  ILEC  operations.
     2    Represents  amortization  of the  capitalized  portion of intercompany
          interest  related  to  our  guarantees  of ELI  debt  and  leases  and
          amortization of goodwill related to our purchase of ELI stock.
     3    Represents the administrative  services fee charged to ELI pursuant to
          our management services agreement with ELI.


                                       15
<PAGE>
(9)  Supplemental Segment Information:
     --------------------------------
     Supplemental segment income statement  information for the six months ended
     June 30, 2001 is as follows:
<TABLE>
<CAPTION>
( $ in thousands)                                                                      Discontinued              Consolidated
                                            ILEC         ELI        Gas      Electric   Operations  Eliminations     Total
                                         ------------ ---------- ----------- ---------- ----------- ------------  -----------
<S>                                        <C>         <C>         <C>        <C>                     <C>         <C>
Revenue                                    $ 576,133  $ 122,991    $322,670   $110,161                $ (1,932)   $ 1,130,023

Operating expenses:
   Cost of services                           35,148     33,782     227,077     59,655           -      (1,769)       353,893
   Depreciation and amortization             174,689     38,728         305      5,800           -         550        220,072
   Other operating expenses                  230,395     81,852      56,792     27,747           -      (1,706)       395,080
   Acquisition assimilation expense           12,546          -           -          -           -           -         12,546
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
      Total operating expenses               452,778    154,362     284,174     93,202           -      (2,925)       981,591
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
      Operating income (loss)                123,355    (31,371)     38,496     16,959           -         993        148,432

Investment and other income, net              12,166        194       1,489       (424)          -           -         13,425
Interest expense                              89,057     46,365       9,807      8,847           -     (19,495)       134,581
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
   Income (loss) from continuing operations
     before income taxes and dividends on
     convertible preferred securities         46,464    (77,542)     30,178      7,688           -      20,488         27,276

Income tax expense (benefit)                  (3,312)       427       9,929      2,529           -           -          9,573
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
   Income (loss) from continuing operations
     before dividends on convertible
     preferred securities                     49,776    (77,969)     20,249      5,159           -      20,488         17,703

Dividends on convertible preferred
   securities, net of income tax benefit       3,105          -           -          -           -           -          3,105
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
   Income (loss) from continuing
     operations                               46,671    (77,969)     20,249      5,159           -      20,488         14,598

Income from discontinued operations,
     net of tax                                    -          -           -          -       4,476           -          4,476
                                         ------------ ---------- ----------- ---------- ----------- -------------------------
   Net income (loss)                       $  46,671  $ (77,969)   $ 20,249   $  5,159     $ 4,476    $ 20,488    $    19,074
                                         ============ ========== =========== ========== =========== =========================
</TABLE>
(10) Equity Forward Contracts:
     -------------------------
     During 2000, we entered into equity forward  contracts for the  acquisition
     of 9,140,000 shares as part of our share repurchase  programs.  Pursuant to
     transition accounting rules,  commencing December 31, 2000 through June 30,
     2001 we were required to report our equity forward contracts as a reduction
     to  shareholders'  equity and a component of temporary equity for the gross
     settlement  amount of the  contracts  ($150,013,000).  On June 28, 2001, we
     entered into a master confirmation agreement that amends the equity forward
     contracts to no longer permit share settlement of the contracts.  From time
     to time, we will settle the equity forward  contracts based on fluctuations
     in the closing  price of our stock.  We may "net cash settle" the contracts
     by paying the  difference  between our current stock price times the number
     of shares  purchased minus the redemption  amount of the contracts.  We may
     also "full physical  settle" the contracts by paying the redemption  amount
     and  taking  possession  of our  shares.  On  June  29,  2001,  we  accrued
     $42,995,000 to net cash settle a portion of the contracts, plus $12,647,000
     in associated  carrying costs. At June 30, 2001, the contracts are reported
     at their redemption amount of $107,018,000.

(11) Derivative Instruments and Hedging Activities:
     ----------------------------------------------
     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
     No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
     This  statement   establishes   accounting  and  reporting   standards  for
     derivative instruments and hedging activities and, as amended, is effective
     for all fiscal  quarters of fiscal years beginning after June 15, 2000. The
     statement  requires  balance sheet  recognition of derivatives as assets or
     liabilities  measured  at fair  value.  Accounting  for  gains  and  losses
     resulting from changes in the values of derivatives is dependent on the use
     of the  derivative  and  whether it  qualifies  for hedge  accounting.  The
     adoption of SFAS 133 could increase the volatility of reported earnings and
     other  comprehensive  income  in the  future.  In  general,  the  amount of
     volatility  will vary with the level of  derivative  activities  during any
     period. We adopted SFAS 133 on January 1, 2001. As of June 30, 2001 we have
     not identified any derivative instruments subject to the provisions of SFAS
     133.  Therefore,  SFAS 133 did not have any  impact on our first and second
     quarter 2001 financial statements.

                                       16
<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
        ---------------------

Statements  contained  in this  quarterly  report  on  Form  10-Q  that  are not
historical facts are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. In addition, words such
as "believes," "anticipates," "expects" and similar expressions  are intended to
identify  forward-looking  statements.   These  forward-looking  statements  are
subject to:

     o    Our ability to obtain new financing on favorable terms;

     o    Our  ability  to  timely  consummate  our  pending   acquisitions  and
          effectively  manage our growth,  including  the  integration  of newly
          acquired  operations  into our operations,  and otherwise  monitor our
          operations, costs, regulatory compliance and service quality;

     o    Our ability to divest our public utilities services businesses;

     o    Our  ability to  successfully  introduce  new product  offerings  on a
          timely  and cost  effective  basis,  including  our  ability  to offer
          bundled service packages on terms attractive to our customers, and our
          ability  to offer  second  lines  and  enhanced  services  to  markets
          currently under-penetrated;

     o    Our ability to expand through attractively priced acquisitions;

     o    Our  ability  to  identify  future  markets  and  successfully  expand
          existing ones;

     o    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;

     o    ELI's  ability to  complete a public or private  financing  that would
          provide the funds necessary to finance its cash requirements;

     o    The  effects of rapid  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;

     o    The  effects  of  changes  in  regulation  in  the  telecommunications
          industry as a result of the  Telecommunications  Act of 1996 and other
          similar federal and state legislation and regulation;

     o    The future applicability of Statement of Financial Accounting Standard
          No. 71, "Accounting for Certain Types of Regulation" to certain of our
          ILEC subsidiaries;

     o    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.

You should consider these important  factors in evaluating any statement in this
Form  10-Q or  otherwise  made  by us or on our  behalf.  These  forward-looking
statements  are  made  as  of  the  date  of  this  report  based  upon  current
expectations,  and we undertake no  obligation to update this  information.  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 2000 Annual Report on Form 10-K.

(a)  Liquidity and Capital Resources
     -------------------------------
For the  three  and six  months  ended  June 30,  2001,  we used  cash flow from
operations,  cash on hand  and  proceeds  from the  sale of  securities  to fund
capital expenditures and acquisitions of additional telephone access lines.

In May 2001,  we filed a $3.8  billion  shelf  registration  statement  with the
Securities  and  Exchange  Commission  on Form S-3 that permits us to offer from
time to time common stock, preferred stock,  depositary shares, debt securities,
warrants to purchase these types of securities  and units of the foregoing.  The
net proceeds from the sale of these  securities have been and are expected to be
used to refinance our bank borrowings and other extensions of credit,  to expand
our networks,  services and related  infrastructure and fund working capital and
pending and future  acquisitions,  and make further  investments  in the related
telecommunications  business as well as general  corporate  purposes.  After the
offerings  discussed  below,  we have a remaining  shelf  registration of $825.6
million.

                                       17
<PAGE>

In May 2001, we issued an aggregate of $1.75 billion of notes consisting of $700
million  principal  amount of 8.50%  notes,  due May 15, 2006 and $1.05  billion
principal  amount of 9.25% notes due May 15, 2011.  This offering was made under
the $3.8  billion  shelf  registration  statement.  The net proceeds of $1,726.0
million  (after  underwriting  discounts  and  commissions  and before  offering
expenses)  were used to repay bank  borrowings  and the  remainder  was used for
general corporate purposes and to finance acquisitions.

In June 2001, we issued equity  securities in two concurrent  public  offerings.
The first offering  consists of 25,156,250  shares of our common stock.  The net
proceeds of $289.9 million (after  underwriting  discounts and  commissions  and
before  offering  expenses) were used to fund the  acquisition of Frontier Corp.
The second offering  consisted of $460 million of equity units. The net proceeds
of $446.2  million  (after  underwriting  discounts and  commissions  and before
offering  expenses) were used to fund the  acquisition  of Frontier  Corp.  Each
equity unit will initially  consist of a senior note and a purchase contract for
our common  stock.  The price for the common stock under the  purchase  contract
will be  based  upon the  average  trading  price  of the  stock at the time the
contract is exercised.  These  offerings  were made under the $3.8 billion shelf
registration statement.

We have available lines of credit with financial  institutions in the amounts of
$2.87 billion with associated facility fees of 0.125% per annum and $450 million
with no  associated  facility  fees.  Our  ability to draw on our $2.87  billion
credit facility will end on October 26, 2001 and the debt outstanding under this
facility will mature no later than October 25, 2002. These credit facilities are
in addition to credit  commitments under which we may borrow up to $200 million,
with  associated  facility fees of 0.15% per annum,  that expire on December 16,
2003. As of June 30, 2001, $1.78 billion was outstanding under the $2.87 billion
credit  facility.  We intend to raise capital  through public or private debt or
equity financings,  or other financing arrangements to replace a portion of this
indebtedness.

Electric Lightwave Inc. (ELI) has $400 million of committed  revolving  lines of
credit with  commercial  banks,  which expire November 21, 2002. It has borrowed
$400 million under these lines at June 30, 2001. The ELI credit  facility has an
associated  facility  fee of 0.08% per annum.  We have  guaranteed  all of ELI's
obligations under these revolving lines of credit.

We have committed to continue to finance ELI's cash requirements  until June 30,
2002.  We extended a revolving  credit  facility to ELI for $450 million with an
interest rate of 15% and a final maturity of October 30, 2005. Funds for general
corporate  purposes  of $260  million are  available  to be drawn until June 30,
2002.  The  remaining  balance may be drawn by ELI to pay  interest  expense due
under the facility. As of June 30, 2001, we have advanced $112 million to ELI.

In January 2001, one of our subsidiaries,  Citizens Utilities Rural Company, was
advanced $1.0 million,  under its Rural  Utilities  Services Loan Contract.  The
initial interest rate on the advance was 5.4125% with an ultimate  maturity date
of November 1, 2016.

In April  2001,  we  converted  and  remarketed  $14.4  million  of 1991  Series
industrial  development  revenue  bonds as money  market  bonds  with an initial
interest rate of 5.25% and a maturity date of April 1, 2026.

In May 2001, we converted and  remarketed  $23.325  million of the Illinois 1997
series of environmental  facilities  revenue bonds due May 1, 2032 at an initial
interest rate of 5.85%. We also converted and remarketed  $18.250 million of the
Northampton  (Pennsylvania) 1998 series of industrial  development revenue bonds
due September 1, 2018 at an initial interest rate of 5.75%.

On June 29, 2001, we completed the  acquisition  of Frontier  Corp.  from Global
Crossing for $3,368.0 million in cash (see Acquisitions  below). The acquisition
was financed on an interim basis by the drawdown of our bank credit  facility of
$1,780.0 million with the remainder  derived from the proceeds of our registered
securities offerings.

We have $150 million of debentures  as  "long-term  debt due within one year" on
our balance sheet. Of this amount,  $50 million will mature on September 1, 2001
and $100 million is redeemable at par at the option of the holders on October 1,
2001.

                                       18

<PAGE>


On July 2, 2001, we completed the sales of our Louisiana Gas operations to Atmos
Energy  Corp for  $363.4  million  in cash.  The  proceeds  were used to repay a
portion of the borrowings under our bank credit facility.

As of June 30, 2001, our actual capital  expenditures are $148.8 million for the
ILEC segment, $35.3 million for the ELI segment and $46.6 million for the public
utilities  services  segments  which  includes  $12.9  million for the water and
wastewater  segment. We anticipate that the funds necessary for our 2001 capital
expenditures  will be provided from operations and from  commercial  paper notes
payable,  debt,  equity and other financing at appropriate  times and borrowings
under bank credit facilities.

Capital  expenditures for discontinued  operations and assets held for sale will
also be funded  through  requisitions  of  Industrial  Development  Revenue Bond
construction fund trust accounts and from parties desiring utility service. Upon
disposition,  we will  receive  reimbursement  of  certain  1999,  2000 and 2001
capital expenditures pursuant to the terms of each respective sales agreement.

Acquisitions
------------
From May 27, 1999 through July 12, 2000,  we entered into several  agreements to
acquire  telephone  access  lines.  These  transactions  have  been  and will be
accounted for using the purchase method of accounting. The results of operations
of the  acquired  properties  have been and will be  included  in our  financial
statements from the dates of acquisition of each property.  These agreements and
the status of each transaction are described as follows:

     Verizon Acquisition
     -------------------
     On May 27,  September  21, and December 16, 1999,  we announced  definitive
     agreements  to purchase  from  Verizon  Communications,  formerly GTE Corp.
     (Verizon), approximately 381,200 telephone access lines (as of December 31,
     2000) in Arizona,  California,  Illinois/Wisconsin,  Minnesota and Nebraska
     for approximately  $1,171.0 million in cash. On June 30, 2000, we closed on
     the   Nebraska   purchase  of   approximately   62,200   access  lines  for
     approximately  $205.4 million in cash. On August 31, 2000, we closed on the
     Minnesota purchase of approximately  142,400 access lines for approximately
     $438.9   million  in  cash.   On  November  30,  2000,  we  closed  on  the
     Illinois/Wisconsin  purchase  of  approximately  112,900  access  lines for
     approximately  $303.9  million  in cash.  We expect  that the  Arizona  and
     California  transactions,  which are  subject to various  state and federal
     regulatory approvals, will close during 2001. Our expected cash requirement
     to complete the Verizon acquisitions is $222.8 million.

     Qwest Acquisition
     -----------------
     On June 16,  1999,  we  announced  a series  of  definitive  agreements  to
     purchase   from  Qwest   Communications,   formerly   U  S  WEST   (Qwest),
     approximately  556,800  telephone access lines (as of December 31, 2000) in
     Arizona, Colorado,  Idaho/Washington,  Iowa, Minnesota,  Montana, Nebraska,
     North Dakota and Wyoming for approximately $1,650.0 million in cash and the
     assumption  of certain  liabilities.  On October 31, 2000, we closed on the
     North   Dakota   purchase  of   approximately   17,000   access  lines  for
     approximately  $38.0  million in cash.  On July 20,  2001,  we  delivered a
     notice of termination for the remaining acquisition  agreements with Qwest.
     On July 23, 2001, Qwest advised us that it intends to pursue a claim of $64
     million  (available  under letters of credit  issued by us) for  liquidated
     damages in an arbitration  proceeding.  We will also pursue our substantial
     claims for breach of contract against Qwest in the same arbitration.

     Frontier Acquisition
     --------------------
     On July 12,  2000,  we announced a  definitive  agreement to purchase  from
     Global Crossing Ltd.  (Global) 100% of the stock of Frontier  Corp.,  which
     owned  approximately  1,096,700  telephone access lines (as of December 31,
     2000) in  Alabama/Florida,  Georgia,  Illinois,  Indiana,  Iowa,  Michigan,
     Minnesota,   Mississippi,   New  York,  Pennsylvania  and  Wisconsin,   for
     approximately  $3,650.0  million in cash which  price was later  reduced to
     $3,500.0 million.  On June 29, 2001, we closed on the Frontier  acquisition
     for  approximately  $3,368.0  million in cash,  subject to adjustment.  The
     operations of Frontier are included in our  financial  statements  from the
     date of acquisition.

     In  conjunction  with  the  Frontier  acquisition,  we are  evaluating  our
     facilities  to take  advantage  of  operational  and  functional  synergies
     between the two companies with the objective of concentrating our resources
     in the  areas  where we have the most  customers,  to  better  serve  those
     customers. Accordingly, we intend to close our operations support center in
     Plano,  Texas by March 2002. We  communicated  with all affected  employees
     during  July 2001.  Certain  employees  will be  relocated;  others will be
     offered severance, job training and/or outplacement  counseling.  We intend
     to sublease our office space after March 31, 2002. In connection  with this
     plan, we will record a  restructuring  charge to operating  expenses in the
     third quarter of 2001.

                                       19



<PAGE>


We have and/or expect to temporarily  fund these telephone access line purchases
with cash and investment  balances,  proceeds from commercial  paper  issuances,
backed by the credit  commitments,  and  borrowings  under  lines of credit,  as
described  above.  Permanent  funding is expected to include cash and investment
balances,  the proceeds from the  divestiture of our public  utilities  services
businesses, direct drawdowns from certain of the credit facilities and issuances
of debt and equity securities, or other financing arrangements.

Divestitures
------------
On August 24, 1999, our Board of Directors  approved a plan of  divestiture  for
our public utilities services businesses,  which include gas, electric and water
and wastewater businesses. The proceeds from the sales of these public utilities
services  businesses  will be used to partially  fund the telephone  access line
purchases described above.

Currently,  we have agreements to sell all our water and wastewater  operations,
one of our  electric  operations  and one of our  natural  gas  operations.  The
proceeds from these  agreements will include  approximately  $1,391.0 million in
cash plus the assumption of certain liabilities. These agreements and the status
of each transaction are described as follows:

     Water and  Wastewater
     ---------------------
     On October 18,  1999,  we  announced  the  agreement  to sell our water and
     wastewater  operations to American Water Works,  Inc. for $745.0 million in
     cash and $90.0 million of assumed debt.  These  transactions  are currently
     expected to close in the second half of 2001 following regulatory approval.
     The contract may be terminated  if the required  approvals are not received
     by September 30, 2001.

     Electric
     --------
     On February 15, 2000, we announced  that we had agreed to sell our electric
     utility  operations.  The Arizona and Vermont electric divisions were under
     contract to be sold to Cap Rock Energy Corp. (Cap Rock). The agreement with
     Cap Rock was terminated on March 7, 2001. It is our intention to pursue the
     disposition of the Vermont and Arizona electric  divisions with alternative
     buyers.  In August 2000, the Hawaii Public Utilities  Commission denied the
     initial  application  requesting  approval  of the  purchase  of our  Kauai
     electric  division by the Kauai Island Electric Co-op for $270.0 million in
     cash including the assumption of certain liabilities.  We are considering a
     variety of options,  including filing a request for  reconsideration of the
     decision, which may include filing a new application. Our agreement for the
     sale of this  division  may be  terminated  if  regulatory  approval is not
     received before February 2002.

     Gas
     ---
     On April 13, 2000,  we announced  the  agreement to sell our  Louisiana Gas
     operations to Atmos Energy  Corporation for $365.0 million in cash plus the
     assumption  of certain  liabilities.  Regulatory  approval  was received in
     April 2001.  On July 2, 2001,  we closed on the sale for $363.4  million in
     cash. The estimated pre-tax gain on the sale is approximately  $152 million
     and will be recognized in the third quarter.

     In July 2001,  an agreement was signed to sell the Colorado Gas division to
     Kinder Morgan for $11 million. This transaction is expected to close in the
     fourth quarter of 2001 following regulatory approval.

Discontinued  operations in the  consolidated  statements of income  reflect the
results of operations of the  water/wastewater  properties  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. The long-term debt presented in liabilities of
discontinued operations represents the only liability to be assumed by the buyer
pursuant to the water and wastewater asset sale agreements.

We initially  accounted for the planned  divestiture of all the public utilities
services  properties  as  discontinued  operations.  Currently,  we do not  have
agreements  to sell our  entire  gas and  electric  segments.  Consequently,  we
reclassified all of our gas and electric assets and their related liabilities to
"assets  held for sale" and  "liabilities  related  to  assets  held for  sale,"
respectively.  We  also  reclassified  the  results  of  these  operations  from
discontinued  operations to their original income statement  captions as part of
continuing  operations.   Additionally,   because  both  our  gas  and  electric
operations are expected to be sold at a profit, we ceased to record depreciation
expense on the gas assets  effective  October 1, 2000 and on the electric assets
effective  January  1,  2001.  Such  depreciation  expense  would  have  been an
additional  $14.2  million and $28.1  million for the three and six months ended
June 30,  2001,  respectively.  We continue to  actively  pursue  buyers for our
remaining gas and electric businesses.

                                       20


<PAGE>


New Accounting Pronouncements
-----------------------------
In July 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting Standard (SFAS) No. 141, "Business  Combinations." This
statement  requires  that all business  combinations  be accounted for under the
purchase method of accounting. SFAS No. 141 requires that the purchase method of
accounting be used for business  combinations  initiated after June 30, 2001 and
prohibits the use of the pooling-of-interests method of accounting. The Frontier
acquisition  which closed on June 30, 2001 is  accounted  for using the purchase
method.

In July 2001,  the FASB  issued  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets."  This  statement  requires  that  goodwill  no longer be  amortized  to
earnings, but instead be reviewed for impairment.  Impairment tests are required
to be performed at least  annually.  The  amortization  of goodwill  ceases upon
adoption of the statement. The statement is effective for fiscal years beginning
after  December 15, 2001 for  companies  whose annual  reporting  period ends on
December  31,  2001 and  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.   We  will  cease  to  recognize
amortization of goodwill  starting  January 1, 2002. We will be required to test
for impairment of goodwill  annually  starting in 2002. The amount of any future
impairment, if any, cannot be estimated at this time.

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

Consolidated  revenue for the three and six months ended June 30, 2001 increased
$87.1 million,  or 21%, and $262.7 million,  or 30%,  respectively,  as compared
with the prior year  periods.  The increase is primarily  due to a $61.4 million
and $122.4 million  increase in  telecommunications  revenue and a $24.8 million
and $132.2  million  increase in gas revenue for the three and six months  ended
June 30, 2001, respectively, as compared with the prior year periods.
<TABLE>
<CAPTION>


                                  ILEC REVENUE

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                       <C>            <C>                <C>      <C>           <C>               <C>
Network access services                   $ 139,403      $ 108,423          29%      $ 271,800     $ 215,293         26%
Local network  services                      95,713         74,871          28%        196,405       147,924         33%
Long distance and data services              32,675         24,480          33%         63,284        49,462         28%
Directory services                           10,999          9,000          22%         21,689        17,922         21%
Other                                         9,998         10,622          -6%         22,955        23,107         -1%
                                       -------------  -------------               ------------- -------------
                                          $ 288,788      $ 227,396          27%      $ 576,133     $ 453,708         27%
                                       =============  =============               ============= =============

</TABLE>

We acquired the Verizon  Nebraska  access  lines on June 30,  2000,  the Verizon
Minnesota  access lines on August 31, 2000,  the Qwest North Dakota access lines
on October 31, 2000 and the Verizon  Illinois/Wisconsin access lines on November
30, 2000  (collectively  referred to as the  Acquisitions).  These  Acquisitions
contributed  $52.5  million and $100.6  million of revenue for the three and six
months  ended  June  30,  2001,  respectively.   Access  lines  excluding  these
Acquisitions  increased  45,596 from 1,017,188 to 1,062,784 as compared with the
prior year period.  Access lines from these Acquisitions totaled 340,736 at June
30, 2001. Minutes of use excluding these Acquisitions increased 129 million from
1,380  million to 1,509  million  for the three  months  ended June 30,  2001 as
compared  with the prior year  period.  Minutes  of use from these  Acquisitions
totaled 433 million for the three  months  ended June 30,  2001.  Minutes of use
excluding these  Acquisitions  increased 296 million from 2,703 million to 2,999
million for the six months  ended June 30, 2001 as compared  with the prior year
period. Minutes of use from these Acquisitions totaled 753.8 million for the six
months ended June 30,  2001.  We acquired  Frontier on June 29,  2001.  Frontier
contributed  $4.2 million in revenue for the three and six months ended June 30,
2001.  Revenue data includes  Frontier;  access lines and minutes of use data do
not include Frontier.


Network  access  services  revenue  for the three  months  ended  June 30,  2001
increased  $31.0  million,  or 29%,  as  compared  with the  prior  year  period
primarily due to the impact of the  Acquisitions  and Frontier of $24.5 million.
Growth in  minutes  of use  contributed  $.7  million  and  growth in  subsidies
contributed $3.7 million.  These increases were partially offset by $4.3 million
from the effect of the Federal  Communications  Commission's (FCC) Coalition for
Affordable Local and Long Distance Services (CALLS) mandate which reduced access
charges  paid by  long  distance  companies.  Network  access  also  includes  a
reclassification  of $6.3 million in revenue  reported as local network services
revenue in the prior year.

                                       21
<PAGE>

Network access services revenue for the six months ended June 30, 2001 increased
$56.5 million,  or 26%, as compared with the prior year period  primarily due to
the impact of the Acquisitions and Frontier of $44.5 million.  Growth in minutes
of use  contributed  $3.7  million  and growth in special  access and  subsidies
contributed  $3.4 million and $7.4 million,  respectively.  These increases were
partially  offset by $8.8  million  from the effect of the FCC's  CALLS  mandate
which reduced  access  charges paid by long distance  companies.  Network access
also includes a  reclassification  of $6.3 million in revenue  reported as local
network services revenue in the prior year.

Local  network  services  revenue  for the  three  months  ended  June 30,  2001
increased  $20.8  million,  or 28%,  as  compared  with the  prior  year  period
primarily  due to the impact of the  Acquisitions  and Frontier of $26.6 million
and growth in enhanced services of $1.0 million.  Local network services revenue
also reflects a reclassification  of $6.3 million in revenue reported as network
access revenue in the prior year.

Local network  services revenue for the six months ended June 30, 2001 increased
$48.5 million,  or 33%, as compared with the prior year period  primarily due to
the impact of the Acquisitions and Frontier of $51.3 million, growth in enhanced
services of $2.3 million and access line and second line growth of $1.6 million.
Local network services revenue also reflects a reclassification  of $6.3 million
in revenue reported as network access revenue in the prior year.

Long distance and data services revenue for the three months ended June 30, 2001
increased $8.2 million, or 33%, as compared with the prior year period primarily
due to $1.4  million of growth in  Digital  Subscriber  Line (DSL) and  Internet
services, $1.0 million of growth related to data and dedicated circuits and $3.4
million  of  growth in long  distance  services.  The  acquired  properties  and
Frontier also contributed $2.4 million in long distance and data revenue.

Long distance and data  services  revenue for the six months ended June 30, 2001
increased  $13.8  million,  or 28%,  as  compared  with the  prior  year  period
primarily  due to $2.8  million  of growth in DSL and  Internet  services,  $2.5
million of growth  related to data and  dedicated  circuits  and $5.4 million of
growth in long  distance  services.  The acquired  properties  and Frontier also
contributed $3.1 million in long distance and data revenue.

Directory  services  revenue for the three months ended June 30, 2001  increased
$2.0 million,  or 22%, as compared  with the prior year period  primarily due to
the impact of the  Acquisitions  and  Frontier of $1.8 million and growth of $.2
million.

Directory services revenue for the six months ended June 30, 2001 increased $3.8
million,  or 21%, as compared  with the prior year period  primarily  due to the
impact of the  Acquisitions  and  Frontier  of $3.3  million  and  growth of $.5
million.

Other revenue for the three months ended June 30, 2001 decreased $.6 million, or
6%, as  compared  with the prior year  period.  The  Acquisitions  and  Frontier
contributed  $1.4  million,  which was  partially  offset by a decrease  of $2.0
million in miscellaneous revenue categories.

Other revenue for the six months ended June 30, 2001  decreased $.2 million,  or
1%, as  compared  with the prior year  period.  The  Acquisitions  and  Frontier
contributed  $2.6  million,  which was  partially  offset by a decrease  of $2.8
million in miscellaneous revenue categories.
<TABLE>
<CAPTION>

                                   ELI REVENUE

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                        <C>            <C>               <C>       <C>           <C>              <C>
Network services                           $ 26,121       $ 17,173          52%      $  51,889     $  33,177         56%
Local telephone services                     21,868         25,951         -16%         43,664        50,225        -13%
Long distance services                        3,098          4,265         -27%          6,183         8,862        -30%
Data services                                 9,342         13,231         -29%         21,255        25,134        -15%
                                       -------------  -------------               ------------- -------------
                                             60,429         60,620           0%        122,991       117,398          5%
Intersegment revenue  *                      (1,095)          (692)         N/A         (1,932)       (1,327)        N/A
                                       -------------  -------------               ------------- -------------
                                           $ 59,334       $ 59,928          -1%      $ 121,059     $ 116,071          4%
                                       =============  =============               ============= =============

</TABLE>

*Intersegment revenue reflects revenue received by ELI from our ILEC operations.


                                       22
<PAGE>


Included in revenue for the three  months  ended June 30, 2001 is  approximately
$3.8 million of revenue representing a "net settlement" of past billing disputes
between  ELI and Qwest.  Additionally,  we are  currently  providing  service to
customers  that have filed for  protection  under  Chapter 11 of the  bankruptcy
code.  Of  our  largest  twenty-five  customers,   two  are  under  Chapter  11
protection.  These  two  customers  contribute  approximately  $1.1  million of
revenue monthly; amounts due from such customers are current.

Network  services  revenue  for the three and six  months  ended  June 30,  2001
increased $8.9 million,  or 52%, and $18.7  million,  or 56%,  respectively,  as
compared with the prior year periods. The increase is due to continued growth in
our network and sales of additional circuits to new and existing customers.

Local  telephone  services  revenue for the three and six months  ended June 30,
2001 decreased $4.1 million, or 16%, and $6.6 million, or 13%, respectively,  as
compared with the prior year periods. Local telephone services include ISDN PRI,
dial tone, Carrier Access Billings and reciprocal compensation.

<TABLE>
<CAPTION>
                                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
($ In thousands)                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                       <C>              <C>             <C>      <C>           <C>                 <C>
ISDN PRI                                   $   6,755      $  8,402        -20%      $ 14,785      $ 16,231        -9%
Dial tone                                      4,528         4,201          8%         9,231         8,749         6%
Carrier access billings                        2,574         2,948        -13%         3,923         5,219       -25%
Reciprocal compensation                        8,011        10,400        -23%        15,725        20,026       -21%
                                       -------------  -------------               ------------- -------------
                                           $  21,868      $ 25,951        -16%      $ 43,664      $ 50,225       -13%
                                       =============  =============               ============= =============
</TABLE>

          ISDN PRI  revenue  for the three and six months  ended  June 30,  2001
          decreased $1.6 million, or 20%, and $1.4 million, or 9%, respectively,
          as compared  with the prior year periods  primarily due to the decline
          in the consumer dial-up market.

          Dial tone revenue increased $0.3 million,  or 8%, and $0.5 million, or
          6%, respectively,  as compared with the prior year periods.  Increases
          in revenue for dial tone are the result of an  increase in the average
          access line  equivalents  of 14,747, or 16%, and 5,379, or 5%, for the
          three and six months ended June 30, 2001, respectively.

          Carrier  Access  Billings  revenue for the three and six months  ended
          June 30, 2001  decreased  $0.4 million,  or 13%, and $1.3 million,  or
          25%,  respectively,  as  compared  with the prior  year  periods.  The
          decrease  is the  result  of lower  average  rates per  minute  due to
          competitive pressures in the markets in which we operate, offset by an
          increase in average monthly minutes  processed of 1.7 million,  or 5%,
          and 8.7  million,  or 31%, for the three and six months ended June 30,
          2001, respectively, as compared with the prior year periods.

          Reciprocal  compensation  revenue  for the three and six months  ended
          June 30, 2001  decreased  $2.4 million,  or 23%, and $4.3 million,  or
          21%,  respectively,  as  compared  with the prior  year  periods.  The
          decrease is due to a decrease in average monthly minutes  processed of
          110  million,  or 9%,  and 35  million,  or 3%,  for the three and six
          months ended June 30, 2001,  respectively,  as compared with the prior
          year  periods and lower  average  rates per minute due to  competitive
          pressures in the markets in which we operate.

Long distance  services revenue for the three and six months ended June 30, 2001
decreased  $1.2 million,  or 27%, and $2.7  million,  or 30%,  respectively,  as
compared with the prior year periods.  Long distance services include retail and
wholesale long distance.

          Retail long  distance  revenue for the three and six months ended June
          30, 2001  decreased  $0.2 million,  or 9%, and $0.5  million,  or 10%,
          respectively, as compared with the prior year periods. The decrease is
          due to a decrease in average monthly minutes processed of 0.3 million,
          or 3%, and 0.2 million, or 2%, for the three and six months ended June
          30, 2001 and lower average rates per minute.

          Wholesale  long  distance  revenue for the three and six months  ended
          June 30, 2001  decreased  $0.5 million,  or 34%, and $1.5 million,  or
          43%,  respectively,  as  compared  with the prior  year  periods.  The
          decrease is due to a decrease in average monthly minutes  processed of
          4.3  million,  or 25%,  and 5  million, or 28%,  for the three and six
          months ended June 30, 2001 and lower average rates per minute.

                                       23
<PAGE>


Data services revenue for the three and six months ended June 30, 2001 decreased
$3.9 million, or 29%, and $3.9 million, or 15%,  respectively,  as compared with
the prior year periods.  Data services include  Internet,  RSVP, Frame Relay and
other services.

          Revenue  for the three and six  months  ended  June 30,  2001 from our
          Internet services product decreased $0.4 million, or 9%, and increased
          $0.2 million, or 2.9%,  respectively,  as compared with the prior year
          periods.

          Revenue for the three and six months ended June 30, 2001 from our RSVP
          products  increased  $0.4 million,  or 52%, and $1.1 million,  or 76%,
          respectively, as compared with the prior year periods.

          Revenue  for the three and six  months  ended  June 30,  2001 from our
          Frame Relay product decreased $0.1 million,  or 7%, and increased $0.1
          million, or 3%, respectively, as compared with the prior year periods.

          Revenue  for the three and six months ended  June 30,  2001 from other
          services revenue decreased $3.8 million,  or 70%, and $5.4 million, or
          51%, respectively,  as compared with the prior year periods, primarily
          due to the expiration on February 28, 2001 of an 18-month  take-or-pay
          contract with a significant  customer.  This take-or-pay  contract was
          not renewed.

<TABLE>
<CAPTION>

                                   GAS REVENUE

($ in thousands)             For the three months ended June 30,        For the six months ended June 30,
                           -----------------------------------------  ---------------------------------------
                               2001           2000        % Change        2001          2000       % Change
                           -------------  -------------  -----------  ------------- ------------- -----------
<S>                         <C>             <C>               <C>      <C>             <C>             <C>
Gas revenue                 $ 102,155       $ 77,366          32%      $ 322,670       190,421         69%
</TABLE>

Gas revenue for the three and six months  ended June 30,  2001  increased  $24.8
million,  or 32%, and $132.2  million,  or 69%, as compared  with the prior year
periods,  primarily due to higher purchased gas costs and customer growth. Under
tariff provisions, increases in our costs of gas purchased are largely passed on
to customers.  Included in gas revenue is approximately $52.7 million and $203.5
million  for the three and six months  ended  June 30,  2001,  respectively,  of
revenue from our Louisiana gas operations.  This revenue will not continue since
the sale of our Louisiana gas operations closed on July 2, 2001.

<TABLE>
<CAPTION>

                                ELECTRIC REVENUE

($ in thousands)             For the three months ended June 30,        For the six months ended June 30,
                           -----------------------------------------  ---------------------------------------
                               2001           2000        % Change        2001          2000       % Change
                           -------------  -------------  -----------  ------------- ------------- -----------
<S>                          <C>            <C>                <C>     <C>           <C>                <C>
Electric revenue             $ 55,464       $ 53,917           3%      $ 110,161     $ 107,109          3%

</TABLE>

Electric revenue for the three and six months ended June 30, 2001 increased $1.5
million,  or 3%, and $3.1  million,  or 3%,  respectively,  as compared with the
prior year periods,  primarily  due to higher  purchased  power costs,  customer
growth and increased consumption due to warmer weather conditions.  Under tariff
provisions, increases in our costs of electric energy and fuel oil purchased are
largely passed on to customers.

                                       24


<PAGE>
<TABLE>
<CAPTION>
                                COST OF SERVICES

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                      <C>            <C>             <C>      <C>           <C>                <C>
Gas purchased                            $ 63,914       $ 42,785        49%      $ 227,077     $ 100,056          127%
Electric energy and fuel oil purchased     29,969         27,801         8%         59,655        51,974           15%
Network access                             35,658         33,540         6%         68,930        73,639           -6%
Eliminations  *                            (1,013)          (692)       N/A         (1,769)       (1,327)         N/A
                                       -------------  -------------               ------------- -------------
                                         $128,528       $103,434        24%      $ 353,893     $ 224,342           58%
                                       =============  =============               ============= =============

</TABLE>

*Eliminations  represent  expenses  incurred by our ILEC  operations  related to
 network services provided by ELI.

Gas purchased for the three and six months ended June 30, 2001  increased  $21.1
million, or 49%, and $127.0 million, or 127%, respectively, as compared with the
prior year  periods,  primarily  due to an  increase  in the cost of gas.  Under
tariff provisions, increases in our costs of gas purchased are largely passed on
to  customers.  Included in gas  purchased is  approximately  $37.0  million and
$161.3  million for the three and six months ended June 30, 2001,  respectively,
of gas purchase by our  Louisiana  gas  operations.  This cost will not continue
since the sale of our Louisiana gas operations closed on July 2, 2001.

Electric  energy and fuel oil  purchased for the three and six months ended June
30, 2001 increased $2.2 million,  or 8%, and $7.7 million, or 15%, respectively,
as compared with the prior year periods, primarily due to higher purchased power
prices.

During the past two years the decrease in the  availability  of power in certain
areas of the country has caused power  supply  costs to increase  substantially,
forcing  companies  to pay  higher  operating  costs to operate  their  electric
businesses.  As a result,  companies  have  attempted to offset these  increased
costs by either renegotiating prices with their power suppliers or passing these
additional costs on to their customers  through a rate  proceeding.  In Arizona,
excessive   power  costs  charged  by  our  power  supplier  in  the  amount  of
approximately  $88  million  through  June 30,  2001 has been  incurred.  We are
allowed to recover these charges from ratepayers through the Purchase Power Fuel
Adjustment clause. In an attempt to limit "rate shock" to our customers, we will
request that this deferred amount,  plus interest,  be recovered over a extended
time period.  As a result,  we have deferred these costs on the balance sheet in
anticipation of recovering through the regulatory process.

On July 16, 2001,  Citizens terminated its existing contract with Arizona Public
Service  and  entered  into a new seven  year  purchase  power  agreement.  This
agreement  allows us to purchase all power  required for  operations  at a fixed
rate per kilowatt  hour.  This agreement is retroactive to June 1, 2001 and will
minimize any further increase in the deferred power cost account.

Network access  expenses for the three months ended June 30, 2001 increased $2.1
million,  or 6%, as  compared  with the prior year period  primarily  due to the
impact of the  Acquisitions  and an Internet remote call  forwarding  adjustment
partially  offset by a reduction in long distance access expense related to rate
changes in the ILEC sector and $1.2 million of reduced variable costs at ELI.

Network  access  expenses for the six months ended June 30, 2001  decreased $4.7
million,  or 6%, as compared  with the prior year period  primarily  due to $5.2
million of reduced variable costs at ELI and a reduction in long distance access
expense  related to rate  changes in the ILEC  sector,  partially  offset by the
impact of the Acquisitions and an Internet remote call forwarding adjustment.
<TABLE>
<CAPTION>

                      DEPRECIATION AND AMORTIZATION EXPENSE

($ in thousands)               For the three months ended June 30,        For the six months ended June 30,
                             -----------------------------------------  ---------------------------------------
                                 2001           2000        % Change        2001          2000       % Change
                             -------------  -------------  -----------  ------------- ------------- -----------
<S>                             <C>             <C>               <C>      <C>           <C>                <C>
Depreciation  expense           $ 101,290       $ 85,849          18%      $ 193,743     $ 181,195          7%
Amortization expense               13,076            794        1547%         26,329         1,429       1742%
                             -------------  -------------               ---------------------------
                                $ 114,366       $ 86,643          32%      $ 220,072     $ 182,624         21%
                             =============  =============               ===========================
</TABLE>



                                       25

<PAGE>


Depreciation  expense for the three and six months ended June 30, 2001 increased
$15.4 million, or 18%, and $12.5 million, or 7%, respectively,  as compared with
the prior year periods, primarily due to the impact of the Acquisitions of $14.0
million  and  $32.1  million,  respectively,  and  higher  property,  plant  and
equipment  balances  in  the  telecommunications   sector.  The  increases  were
partially offset by a decrease of $6.2 million and $19.3 million,  respectively,
of depreciation  expense related to our gas and electric  sectors  classified as
"assets held for sale" which requires us to cease depreciating these assets, and
$3.6  million  and $17.4  million,  respectively,  in the prior year  periods of
accelerated  depreciation  related to the change in useful life of an  operating
system in the telecommunications sector.

Amortization  expense for the three and six months ended June 30, 2001 increased
$12.3 million, or 1547%, and $24.9 million, or 1742%, respectively,  as compared
with the prior year periods,  primarily due to amortization of goodwill of $11.7
million and $23.4 million, respectively, related to the Acquisitions.
<TABLE>
<CAPTION>


                            OTHER OPERATING EXPENSES

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                       <C>            <C>                 <C>     <C>           <C>                <C>
Operating expenses                        $ 149,839      $ 139,633           7%      $ 303,236     $ 283,472          7%
Taxes other than income taxes                24,437         28,311         -14%         50,273        55,089         -9%
Sales and marketing                          20,960         19,003          10%         41,571        37,493         11%
                                       -------------  -------------               ------------- -------------
                                          $ 195,236      $ 186,947           4%      $ 395,080     $ 376,054          5%
                                       =============  =============               ============= =============
</TABLE>

Operating  expenses  for the three months  ended June 30, 2001  increased  $10.2
million,  or 7%, as  compared  with the prior  year  periods,  primarily  due to
increased operating expenses related to the Acquisitions and increased operating
costs of $7.5  million  in the gas and  electric  sectors,  partially  offset by
decreased  operating  expenses  of $4.8  million  at ELI due to a  reduction  in
personnel.

Operating  expenses  for the six months  ended  June 30,  2001  increased  $19.7
million,  or 7%, as  compared  with the prior  year  periods,  primarily  due to
increased operating expenses related to the Acquisitions and increased operating
costs of $4.7  million  in the gas and  electric  sectors  partially  offset  by
decreased  operating  expenses  of $6.4  million  at ELI due to a  reduction  in
personnel.

Taxes other than income taxes decreased $3.9 million,  or 14%, and $4.8 million,
or 9%, respectively,  as compared with the prior year periods,  primarily due to
franchise tax refunds received by the gas sector.

Sales and marketing expenses  increased $2.0 million,  or 10%, and $4.1 million,
or 11%, respectively,  as compared with the prior year periods, primarily due to
increased telemarketing costs in the telecommunications sector.
<TABLE>
<CAPTION>

                        ACQUISITION ASSIMILATION EXPENSE

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                      <C>            <C>               <C>      <C>           <C>               <C>
Acquisition assimilation expense         $ 7,062        $ 7,617          -7%       $ 12,546      $ 11,591          8%

</TABLE>

Acquisition  assimilation expense of $7.1 million and $7.6 million for the three
months ended June 30, 2001 and 2000,  respectively,  and $12.6 million and $11.6
million  for the six  months  ended  June 30,  2001 and 2000,  respectively,  is
related to the completed and pending  acquisitions of approximately  1.5 million
telephone  access  lines.  As  we  complete  the  acquisitions  currently  under
contracts, we will continue to incur assimilation costs.

                                       26


<PAGE>
<TABLE>
<CAPTION>


                                OPERATING INCOME

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                      <C>            <C>               <C>      <C>            <C>             <C>
Operating Income                         $ 60,549       $ 33,966          78%      $ 148,432      $ 72,698        104%

</TABLE>

Operating  income for the three and six months  ended  June 30,  2001  increased
$26.6 million,  or 78%, and $75.7 million,  or 104%,  respectively,  as compared
with prior year  periods,  primarily  due to ILEC  growth,  increased  operating
income from the gas and electric  sectors and decreased  ELI  operating  losses.
Included in operating income is approximately $158,000 and $12.7 million for the
three and six months ended June 30, 2001, respectively, of operating income from
our Louisiana gas operations.  This operating income will not continue since the
sale of our Louisiana gas operations closed on July 2, 2001.
<TABLE>
<CAPTION>


              INVESTMENT AND OTHER INCOME, NET / MINORITY INTEREST
                          INTEREST EXPENSE/INCOME TAXES

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                        <C>             <C>             <C>        <C>            <C>             <C>
Investment and other income, net           $ 10,641        $ 4,219         152%       $ 13,425      $  9,817         37%
Minority interest                          $      -        $ 5,937        -100%       $      -      $ 12,222       -100%
Interest expense                           $ 73,129        $41,750          75%       $134,581      $ 79,340         70%
Income taxes                               $    525        $   471          11%       $  9,573      $  5,298         81%

</TABLE>

Investment  and other  income,  net for the three and six months  ended June 30,
2001 increased $6.4 million, or 152%, and $3.6 million, or 37%, respectively, as
compared  with the prior year periods,  primarily  due to increased  income from
higher  money  market  balances,  an  increase  in the equity  component  of the
allowance  for  funds  used  during   construction   (AFUDC)  and  increases  in
miscellaneous income items.

Minority  interest,  as  presented  on  the  income  statement,  represents  the
minority's  share of ELI's  net loss  which we were able to  recognize  in prior
periods to the extent of minority  interest on our balance sheet. As of June 30,
2000,  the  minority  interest  on the balance  sheet had been  reduced to zero.
Therefore,  from that point going forward,  we discontinued  recording  minority
interest  income  on our  income  statement  as there is no  obligation  for the
minority interests to provide additional funding for ELI.

Interest  expense  for the three  months  ended June 30,  2001  increased  $31.4
million, or 75%, as compared with the prior year periods, primarily due to $16.9
million of interest  expense on our $1.75  billion of notes  issued in May 2001,
$7.8 million of interest expense on our lines of credit, a $1.9 million increase
in ELI's  interest  expense  related to  increased  borrowings,  $0.9 million of
interest  expense on our equity  units  issued in June 2001 and $0.8 million for
amortization  of costs  associated  with our committed  bank credit  facilities.
During the three  months  ended June 30,  2001,  we had average  long-term  debt
outstanding  of $3.7 billion  compared to $2.4  billion  during the three months
ended June 30, 2000.  Our composite  average  borrowing  rate paid for the three
months  ended June 30, 2001 as compared  with the prior year period was 46 basis
points higher due to the impact of higher interest rates on our new borrowings.

Interest expense for the six months ended June 30, 2001 increased $55.2 million,
or 70%, as compared with the prior year periods,  primarily due to $16.9 million
of  interest  expense on our $1.75  billion of notes  issued in May 2001,  $20.0
million of interest  expense on our lines of credit,  a $5.1 million increase in
ELI's interest expense related to increased borrowings,  a $4.0 million increase
due to an  increase  in our  commercial  paper  outstanding,  $3.9  million  for
amortization of costs  associated with our committed bank credit  facilities and
$0.9 million of interest expense on our equity units issued in June.  During the
six months ended June 30, 2001, we had average  long-term  debt  outstanding  of
$3.7 billion compared to $2.3 billion during the six months ended June 30, 2000.
Our composite average borrowing rate paid for the six months ended June 30, 2001
as  compared  with the prior year period was 82 basis  points  higher due to the
impact of higher interest rates on our new borrowings.


                                       27

<PAGE>


Income  taxes for the three and six months ended June 30, 2001  increased  $0.05
million,  or 11%, and $4.3 million, or 81%,  respectively,  as compared with the
prior year periods,  primarily due to changes in taxable  income.  The estimated
annual effective tax rate for 2001 is 31% as compared with 37% for 2000.  Income
tax expense for the three and six months ended June 30, 2000 include true-ups to
arrive at this rate.
<TABLE>
<CAPTION>


                             DISCONTINUED OPERATIONS

($ in thousands)           For the three months ended June 30,        For the six months ended June 30,
                         -----------------------------------------  ---------------------------------------
                             2001           2000        % Change        2001          2000       % Change
                         -------------  -------------  -----------  ------------- ------------- -----------
<S>                          <C>            <C>               <C>       <C>           <C>               <C>
Revenue                      $ 29,335       $ 26,576          10%       $ 53,429      $ 50,641          6%
Operating income             $  8,183       $  7,009          17%       $ 11,945      $ 10,030         19%
Net income                   $  3,367       $  2,663          26%       $  4,476      $  3,344         34%

</TABLE>

Revenue from discontinued operations for the three and six months ended June 30,
2001 increased $2.8 million, or 10%, and $2.8 million, or 6%,  respectively,  as
compared with the prior year periods,  primarily due to customer  growth and new
water sales related to the completion of a multi-year $50 million water pipeline
project in Illinois in March 2001.

Operating income from discontinued operations for the three and six months ended
June  30,  2001  increased  $1.2  million,  or 17%,  and $1.9  million,  or 19%,
respectively, as compared with the prior year periods, primarily due to customer
growth and new water sales related to the completion of a water pipeline project
in Illinois in March 2001.

Net income from discontinued  operations for the three and six months ended June
30, 2001 increased $0.7 million, or 26%, and $1.2 million, or 34%, respectively,
as compared with prior year periods,  primarily due to the respective changes in
operating income net of income taxes.
<TABLE>
<CAPTION>


                                NET INCOME (LOSS)

($ in thousands)                         For the three months ended June 30,        For the six months ended June 30,
                                       -----------------------------------------  ---------------------------------------
                                           2001           2000        % Change        2001          2000       % Change
                                       -------------  -------------  -----------  ------------- ------------- -----------
<S>                                       <C>           <C>             <C>        <C>           <C>              <C>
Net income (loss)                         $ (649)       $ 3,012        -122%       $ 19,074      $ 10,338         85%

</TABLE>

Net  income  (loss) for the three  months  ended June 30,  2001  decreased  $3.7
million,  or 122%,  as compared  with the prior year  period,  primarily  due to
increased  interest expense which partially offset increased  operating  income.
Net income for the six months ended June 30, 2001  increased  $8.7  million,  or
85%,  respectively,  as  compared  with the prior year period  primarily  due to
increased operating income partially offset by increased interest expense.

During 2000, we entered into equity  forward  contracts for the  acquisition  of
9,140,000  shares  as  part  of  our  share  repurchase  programs.  Pursuant  to
transition  accounting rules,  commencing December 31, 2000 through June 30,2001
we were  required  to report our equity  forward  contracts  as a  reduction  to
shareholders'  equity  and  a  component  of  temporary  equity  for  the  gross
settlement amount of the contracts ($150,013,000).  On June 28, 2001, we entered
into a master confirmation agreement that amends the equity forward contracts to
no longer permit share  settlement of the  contracts.  We are required to report
the accrued  carrying  costs as a reduction  of net income  available  to common
shareholders.  Accordingly,  we accrued  $12,647,000  in  associated  cumulative
carrying costs at June 30, 2001. Future quarters will reflect the carrying costs
for the period  being  reported on computed  at LIBOR plus the  carrying  spread
times the  redemption  amount as a reduction  of net income  available to common
shareholders.  At June 30, 2001, the contracts are reported on the balance sheet
at their redemption amount of $107,018,000.


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.  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 long term debt and
capital  lease  obligations.  The long term debt and capital  lease  obligations
include  various  instruments  with  various  maturities  and  weighted  average
interest rates.

                                       28


<PAGE>

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 and variable rate debt is refinanced  when  advantageous.
Consequently,  we have no 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 June 30,  2001,  a  near-term  change in  interest  rates would not
materially affect our consolidated financial position,  results of operations or
cash flows.

Sensitivity analysis of interest rate exposure
At June  30,  2001,  the fair  value of our  long-term  debt and  capital  lease
obligations was estimated to be  approximately  $6,098.6  million,  based on our
overall  weighted  average  rate of 7.0% and our  overall  weighted  maturity of
approximately 9 years. There has been no material change in the overall weighted
average  interest rate  applicable to our  obligations  since December 31, 2000.
However, the overall weighted average maturity has decreased due to the issuance
of $1.75  billion of notes in May 2001 and the  increase in our credit  facility
since December 31, 2000. A hypothetical  increase of 70 basis points (10% of our
overall weighted average  borrowing rate) would result in an approximate  $154.4
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 and our common stock buyback program.
The equity  portion  of our  investment  portfolio  includes  marketable  equity
securities of media and telecommunications  companies.  The common stock buyback
program  includes equity forward  contracts  indexed to our common stock.  Based
upon our overall  equity price  exposure at June 30, 2001, a material  near-term
change  in the  quoted  market  price  of our  common  stock  could  affect  our
consolidated financial position, results of operations or cash flows.

Sensitivity analysis of equity price exposure

At June  30,  2001,  the fair  value of the  equity  portion  of our  investment
portfolio  and of the  equity  forward  contracts  were  estimated  to be $170.5
million and $110.1 million,  respectively. A hypothetical 10% decrease in quoted
market prices would result in an approximate  $17.1 million decrease in the fair
value of the equity portion of our investment portfolio and an approximate $11.0
million decrease in the fair value of the equity forward contracts.

Commodity Price Exposure

We purchase monthly gas future contracts to manage well-defined  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. 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 June 30, 2001 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 June  30,  2001.  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.

                                       29

<PAGE>

                           PART II. OTHER INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

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

On July 20, 2001, we notified Qwest  Corporation that we were terminating  eight
acquisition  agreements  with Qwest relating to telephone  exchanges in Arizona,
Colorado, Idaho/ Washington, Iowa, Minnesota,  Montana, Nebraska and Wyoming. On
July 23, 2001,  Qwest  informed us that it intends to file a notice of claim for
arbitration  in Denver,  Colorado  under the rules of the  American  Arbitration
Association with respect to the terminated acquisition agreements. Qwest asserts
that we wrongfully  terminated these agreements and is seeking approximately $64
million,  which is the aggregate of  liquidated  damages under letters of credit
established in the terminated acquisition agreements. We intend to file a notice
of claim in the same arbitration proceeding,  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.

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.

Item 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------
None.

Item 3.  Defaults upon Senior Securities
         -------------------------------
None.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

(a)  The Registrant held its 2001 Annual Meeting of the  Stockholders on May 17,
     2001.

(b)  Proxies for the Annual Meeting were solicited  pursuant to Regulation  14A;
     there was no  solicitation  in  opposition  to  management's  nominees  for
     directors as listed in the Proxy Statement.  All such nominees were elected
     pursuant to the following votes:


                                               Number of Votes
                                               ---------------
                Directors                For                    Abstain
                ---------                ---                    -------

         N.I. Botwinik                222,874,582              10,190,709
         A.I. Fleischman              223,882,433               9,182,858
         R.J. Graf                    224,071,770               8,993,522
         S. Harfenist                 224,035,721               9,029,570
         A.N. Heine                   223,786,197               9,279,094
         S.N. Schneider               224,105,767               8,959,525
         J.L. Schroeder               223,844,904               9,220,387
         R.D. Siff                    223,584,472               9,480,820
         R.A. Stanger                 224,042,297               9,022,994
         E. Tornberg                  223,597,675               9,467,616
         C. Tow                       220,505,895              12,559,397
         L. Tow                       221,639,802              11,425,489

(c)  At the 2001 Annual Meeting of the Stockholders,  the shareholders  approved
     the 2000 Equity  Incentive  Plan.  The  following  sets forth the number of
     votes on this proposal.


                       For               Against             Abstain
                       ---               -------             -------
                   182,286,407         46,547,822           4,230,564


                                       30
<PAGE>


Item 5.  Other Information
         -----------------

As  disclosed  in our proxy  statement  for the 2001 Annual  Meeting,  under our
bylaws,  if any  stockholder  intends to propose  any matter at the 2002  annual
meeting,  the proponent  must give written notice to us not earlier than January
1, 2002 nor later than February 15, 2002.  Furthermore,  in accordance  with the
proxy rules and  regulations  of the Securities  and Exchange  Commission,  if a
stockholder  does not notify us by February  14,  2002 of a  proposal,  then our
proxies  would be able to use  their  discretionary  voting  authority  when the
stockholder's proposal is raised at the meeting.

On April 2, 2001, ELI received a notice from The Nasdaq Stock Market,  Inc. that
ELI's Class A common stock would be subject to delisting after July 2, 2001 from
The Nasdaq  National  Market  because it has failed to maintain a $5 minimum bid
price.  Nasdaq suggested that ELI may consider filing an application to have its
Class A common stock listed on The Nasdaq SmallCap Market.  On July 5, 2001, ELI
filed an  application  to have its Class A common  stock  listed  on The  Nasdaq
SmallCap  Market.  ELI  is  currently  in  discussions  with  Nasdaq  as to  the
application and their ability to meet the applicable  listing  requirements.  In
order to meet a separate requirement  concerning market  capitalization of ELI's
common stock, we may convert  sufficient shares of ELI Class B common stock that
we hold to Class A common stock to provide a market  capitalization of the Class
A common stock of $35 million.  It is uncertain whether ELI will be able to meet
the applicable listing requirements including the requirement that a minimum bid
price of $1.00 per share be maintained.  If the  requirements are not met, ELI's
Class A common  stock may not be eligible  for trading on Nasdaq and ELI expects
that it would  trade  in the  over-the-counter  market.  ELI  continues  to have
discussions with Nasdaq and does have the ability to appeal any determination of
Nasdaq.  In addition,  ELI continues to review  alternative  resolutions to this
matter.  There can be no assurance of the outcome of these discussions or of any
appeal if ELI  determines  to seek one. If ELI's  Class A common  stock fails to
remain included on Nasdaq,  the delisting may have a material  adverse impact on
the market value of its Class A common stock.

                                       31


<PAGE>

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

         a)    Exhibits:

               10.37  Citizens  401(K)  Savings Plan  effective as of January 1,
               1997 reflecting amendments made through April,2001.

         b)    Reports on Form 8-K:

               We filed on Form 8-K on April 4, 2001 under Item 5 "Other Events"
               and Item 7 "Financial  Statements  and Exhibits," a press release
               announcing  that we plan to  offer $3  billion  worth of debt and
               equity securities under a shelf registration statement.

               We  filed  on Form  8-K on April  25,  2001  under  Item 5 "Other
               Events" and Item 7 "Financial  Statements  and Exhibits," a press
               release  announcing  that  we  received  approval  of sale of our
               Louisiana Gas assets.

               We  filed  on Form  8-K on April  27,  2001  under  Item 5 "Other
               Events" and Item 7 "Financial  Statements  and Exhibits," a press
               release  announcing  that we received  approval from the New York
               Public Service  Commission for the purchase of Global  Crossing's
               Local Exchange Carrier Business.

               We filed on Form 8-K on May 7, 2001 under  Item 5 "Other  Events"
               and Item 7 "Financial Statements, Pro Forma Financial Information
               and Exhibits,"  financial  statements of businesses  acquired and
               pro forma financial information.

               We filed  on Form 8-K on May 10,  2001  under  Item 7  "Financial
               Statements and Exhibits," a press release announcing earnings for
               the  quarter  ended  March 31,  2001 and  certain  financial  and
               operating data.

               We filed on Form 8-K on May 16, 2001 under Item 5 "Other  Events"
               and Item 7  "Financial  Statements,  Exhibits,"  a press  release
               announcing  that we  intend  to sell up to $1  billion  in Senior
               Unsecured Debt.

               We filed on Form 8-K on May 24, 2001 under Item 5 "Other  Events"
               and Item 7  "Financial  Statements,  Exhibits,"  a press  release
               announcing  that we issued $1.75 billion of notes,  consisting of
               $700,000,00  principal  amount  of  8.50%  notes  due  2006   and
               $1,050,000,000 principal amount of 9.25% notes due 2011.

               We filed on Form 8-K on June 4, 2001 under Item 5 "Other  Events"
               and Item 7  "Financial  Statements,  Exhibits,"  a press  release
               announcing that we plan two concurrent public offerings of equity
               securities.

               We filed on Form 8-K on June 12,  2001  under  Item 7  "Financial
               Statements and Exhibits" certain agreements related to our equity
               units offering.

               We filed on Form 8-K on June 14, 2001 under Item 5 "Other Events"
               and Item 7  "Financial  Statements,  Exhibits,"  a press  release
               announcing pricing of equity units and common stock offerings.

               We filed on Form 8-K on June 21, 2001 under Item 5 "Other Events"
               and Item 7 "Financial  Statements,  Exhibits," certain agreements
               related to our equity units and common stock offerings.


                                       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
                                     Vice President and Chief Accounting Officer






Date: August 10, 2001