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, 2002







<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, 2002
                                                 -------------

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

              For the transition period from _________to__________

                        Commission file number 001-11001


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

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


                                3 High Ridge Park
                           Stamford, Connecticut 06905
                           ---------------------------
               (Address, 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, 2002 was 282,221,277.

<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, 2002 and December 31, 2001                                     2

    Consolidated Statements of Income (Loss) for the three months ended June 30, 2002 and 2001             3

    Consolidated Statements of Income (Loss) for the six months ended June 30, 2002 and 2001               4

    Consolidated Statements of Shareholders' Equity for the year ended December 31, 2001 and the
       six months ended June 30, 2002                                                                      5

    Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30,
       2002 and 2001                                                                                       5

    Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001        6

    Notes to Condensed Consolidated Financial Statements                                                   7

    Management's Discussion and Analysis of Financial Condition and Results of Operations                 21

    Quantitative and Qualitative Disclosures about Market Risk                                            30

Part II.  Other Information

    Legal Proceedings                                                                                     32

    Submission of Matters to a Vote of Security Holders                                                   33

    Other Information                                                                                     33

    Exhibits and Reports on Form 8-K                                                                      33

    Signature                                                                                             34

</TABLE>

                                       1
<PAGE>
<TABLE>
<CAPTION>


                          PART I. FINANCIAL INFORMATION

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



                                                                             June 30, 2002    December 31, 2001
                                                                            ---------------  -------------------
ASSETS
Current assets:
<S>                                                                               <C>                 <C>
    Cash and cash equivalents                                                   $   421,069        $    215,869
    Accounts receivable, net                                                        307,176             311,878
    Other current assets                                                             38,803             150,573
    Assets held for sale                                                          1,112,466           1,107,937
    Assets of discontinued operations                                                     -             746,791
                                                                            ----------------  ------------------
      Total current assets                                                        1,879,514           2,533,048

Property, plant and equipment, net                                                4,488,913           4,512,038

Intangibles, net                                                                  2,896,281           2,978,942
Investments                                                                          30,020             141,208
Other assets                                                                        374,205             388,364
                                                                            ----------------  ------------------
           Total assets                                                         $ 9,668,933        $ 10,553,600
                                                                            ================  ==================

LIABILITIES AND EQUITY
Current liabilities:
    Long-term debt due within one year                                          $    63,924        $    483,906
    Accounts payable and other current liabilities                                  613,938             625,575
    Liabilities related to assets held for sale                                     175,469             218,775
    Liabilities of discontinued operations                                                -             228,337
                                                                            ----------------  ------------------
      Total current liabilities                                                     853,331           1,556,593

Deferred income taxes                                                               416,683             429,544
Customer advances for construction and contributions in aid of construction         170,385             183,319
Other liabilities                                                                   236,515             241,846
Equity units                                                                        460,000             460,000
Long-term debt                                                                    5,339,414           5,534,906
                                                                            ----------------  ------------------
      Total liabilities                                                           7,476,328           8,406,208

Company Obligated Mandatorily Redeemable Convertible Preferred Securities*          201,250             201,250

Shareholders' equity
    Common stock, $0.25 par value (600,000,000 authorized shares; 282,213,000
      and 281,289,000 outstanding and 293,750,000 and 292,840,000 issued at
      June 30, 2002 and December 31, 2001, respectively)                             73,437              73,210
    Additional paid-in capital                                                    1,936,038           1,927,518
    Retained earnings                                                               171,531             129,864
    Accumulated other comprehensive income (loss)                                      (575)              4,907
    Treasury stock                                                                 (189,076)           (189,357)
                                                                            ----------------  ------------------
       Total shareholders' equity                                                  1,991,355           1,946,142
                                                                            ----------------  ------------------
           Total liabilities and equity                                         $ 9,668,933        $ 10,553,600
                                                                            ================  ==================
</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>
<TABLE>
<CAPTION>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)



                                                                                                 2002             2001
                                                                                             --------------  ---------------
<S>                                                                                              <C>              <C>
Revenue                                                                                          $ 662,439        $ 505,741

Operating expenses:
     Cost of services                                                                              113,786          128,528
     Other operating expenses                                                                      251,426          202,298
     Depreciation and amortization                                                                 186,378          114,366
     Reserve for telecommunications bankruptcies                                                    10,001                -
     Restructuring and other expenses                                                               18,280                -
                                                                                             --------------  ---------------
Total operating expenses                                                                           579,871          445,192
                                                                                             --------------  ---------------

Operating income                                                                                    82,568           60,549

Investment and other income (loss), net                                                            (28,076)          10,641
Interest expense                                                                                   121,059           73,129
                                                                                             --------------  ---------------
     Loss from continuing operations before income taxes and dividends
       on convertible preferred securities                                                         (66,567)          (1,939)
Income tax expense (benefit)                                                                       (26,560)             525
                                                                                             --------------  ---------------
     Loss from continuing operations before dividends on convertible preferred securities          (40,007)          (2,464)

Dividends on convertible preferred securities, net of income tax benefit                             1,552            1,552
                                                                                             --------------  ---------------
     Loss from continuing operations                                                               (41,559)          (4,016)

Income from discontinued operations, net of tax                                                          -            3,367
                                                                                             --------------  ---------------
     Net loss                                                                                    $ (41,559)       $    (649)
                                                                                             ==============  ===============

Carrying cost of equity forward contracts                                                                -           12,647
                                                                                             --------------  ---------------
     Available for common shareholders                                                           $ (41,559)       $ (13,296)
                                                                                             ==============  ===============

Basic income (loss) per common share:
     Income (loss) from continuing operations                                                    $   (0.15)       $   (0.01)
     Income from discontinued operations                                                         $       -        $    0.01
     Available for common shareholders                                                           $   (0.15)       $   (0.05)

Diluted income (loss) per common share:
     Income (loss) from continuing operations                                                    $   (0.15)       $   (0.01)
     Income from discontinued operations                                                         $       -        $    0.01
     Available for common shareholders                                                           $   (0.15)       $   (0.05)

</TABLE>

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


                                       3


<PAGE>

<TABLE>
<CAPTION>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                 FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)


                                                                                                      2002            2001
                                                                                                 --------------  --------------
<S>                                                                                                <C>             <C>
Revenue                                                                                            $ 1,341,773     $ 1,130,023

Operating expenses:
    Cost of services                                                                                   242,024         353,893
    Other operating expenses                                                                           512,280         407,626
    Depreciation and amortization                                                                      364,552         220,072
    Reserve for telecommunications bankruptcies                                                         17,805               -
    Restructuring and other expenses                                                                    22,185               -
                                                                                                 --------------  --------------
Total operating expenses                                                                             1,158,846         981,591
                                                                                                 --------------  --------------

Operating income                                                                                       182,927         148,432

Investment and other income (loss), net                                                                (76,584)         13,425
Interest expense                                                                                       243,109         134,581
                                                                                                 --------------  --------------
    Income (loss) from continuing operations before income taxes, dividends on
     convertible preferred securities and cumulative effect of change in accounting principle         (136,766)         27,276
Income tax expense (benefit)                                                                           (53,502)          9,573
                                                                                                 --------------  --------------
    Income (loss) from continuing operations before dividends on convertible
      preferred securities and cumulative effect of change in  accounting principle                    (83,264)         17,703

Dividends on convertible preferred securities, net of income tax benefit                                 3,105           3,105
                                                                                                 --------------  --------------
Income (loss) from continuing operations before cumulative effect of change
      in accounting principle                                                                          (86,369)         14,598

Income (loss) from discontinued operations, net of income tax (benefit) expense of  $(920)
        and $2,159, respectively                                                                        (1,478)          4,476
Gain on disposal of water segment, net of income taxes of  $139,874                                    169,326               -
                                                                                                 --------------  --------------
    Total income from discontinued operations, net of income taxes of  $138,954 and $2,159
      respectively                                                                                     167,848           4,476

                                                                                                 --------------  --------------
Income before cumulative effect of change in accounting principle                                       81,479          19,074
Cumulative effect of change in accounting principle                                                    (39,812)              -
                                                                                                 --------------  --------------
    Net income                                                                                     $    41,667     $    19,074
                                                                                                 ==============  ==============

Carrying cost of equity forward contracts                                                                    -          12,647
                                                                                                 --------------  --------------
     Available for common shareholders                                                             $    41,667     $     6,427
                                                                                                 ==============  ==============

Basic income (loss) per common share:
    Income (loss) from continuing operations before cumulative effect of
      change in accounting principle                                                               $     (0.31)    $      0.05
    Income from discontinued operations                                                            $      0.60     $      0.02
    Income before cumulative effect of change in accounting principle                              $      0.29     $      0.07
    Loss from cumulative effect of change in accounting principle                                  $     (0.14)    $         -
    Available for common shareholders                                                              $      0.15     $      0.02

Diluted income (loss) per common share:
    Income (loss) from continuing operations before cumulative effect of
      change in accounting principle                                                               $     (0.31)    $      0.05
    Income from discontinued operations                                                            $      0.59     $      0.02
    Income before cumulative effect of change in accounting principle                              $      0.29     $      0.07
    Loss from cumulative effect of change in accounting principle                                  $     (0.14)    $         -
    Available for common shareholders                                                              $      0.15     $      0.02

</TABLE>

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

                                       4
<PAGE>

<TABLE>
<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
   FOR THE YEAR ENDED DECEMBER 31, 2001 AND THE SIX MONTHS ENDED JUNE 30, 2002
                   ( $ in thousands, except per-share amounts)
                                   (Unaudited)

                                                                                   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, 2001                    $ 66,442   $ 1,471,816      $ 233,196      $   418    $ (51,871)    $ 1,720,001
   Common stock offering                       6,289       283,272              -            -            -         289,561
   Equity units offering                           -         4,968              -            -            -           4,968
   Stock plans                                   479        17,449              -            -       12,527          30,455
   Settlement of equity forward contracts          -       150,013        (13,650)           -     (150,013)        (13,650)
   Net loss                                        -             -        (89,682)           -            -         (89,682)
   Other comprehensive income, net of tax and
     reclassifications adjustments                 -             -              -        4,489            -           4,489
                                         ------------ -------------  ------------- ------------ ------------ ---------------
Balances December 31, 2001                    73,210     1,927,518        129,864        4,907     (189,357)      1,946,142
   Stock plans                                   227         8,520              -            -          281           9,028
   Net income                                      -             -         41,667            -            -          41,667
   Other comprehensive loss, net of tax and
     reclassifications adjustments                 -             -              -       (5,482)           -          (5,482)
                                         ------------ -------------  ------------- ------------ ------------ ---------------
Balances June 30, 2002                      $ 73,437   $ 1,936,038      $ 171,531      $  (575)   $(189,076)    $ 1,991,355
                                         ============ =============  ============= ============ ============ ===============

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


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                ($ in thousands)
                                   (Unaudited)

                                         For the three months ended June 30,          For the six months ended June 30,
                                       ----------------------------------------    -----------------------------------------
                                               2002                 2001                   2002                 2001
                                       -------------------  -------------------    -------------------  --------------------

Net income (loss)                               $ (41,559)            $   (649)              $ 41,667              $ 19,074
Other comprehensive loss, net of tax
  and reclassifications adjustments                (5,189)              (5,246)                (5,482)              (24,869)
                                       -------------------  -------------------    -------------------  --------------------
  Total comprehensive income (loss)             $ (46,748)            $ (5,895)              $ 36,185              $ (5,795)
                                       ===================  ===================    ===================  ====================

</TABLE>
              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements.


                                       5
<PAGE>
<TABLE>
<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                ($ in thousands)


                                                                          2002             2001
                                                                     ---------------  ---------------

<S>                                                                       <C>              <C>
Net cash provided by continuing operating activities                      $ 442,364        $ 162,929

Cash flows from investing activities:
      Capital expenditures                                                 (275,765)        (217,801)
      Securities purchased                                                     (450)          (1,084)
      Securities sold                                                         8,387            1,241
      Securities matured                                                      2,014                -
      Acquisitions                                                                -       (3,367,987)
      Other                                                                     498              787
                                                                     ---------------  ---------------
Net cash used by investing activities                                      (265,316)      (3,584,844)

Cash flows from financing activities:
      Long-term debt borrowings                                                   -        2,781,318
      Issuance of equity units                                                    -          446,200
      Common stock offering                                                       -          289,787
      Long-term debt principal payments                                    (664,632)        (120,008)
      Issuance of common stock for employee plans                             8,079           17,279
      Repayment of customer advances for construction
        and contributions in aid of construction                             (1,597)          (3,244)
                                                                     ---------------  ---------------
Net cash used by financing activities                                      (658,150)       3,411,332

Cash provided by (used by) discontinued operations                          686,302           (9,925)
                                                                     ---------------  ---------------

(Decrease) increase in cash and cash equivalents                            205,200          (20,508)
Cash and cash equivalents at January 1,                                     215,869           70,086
                                                                     ---------------  ---------------

Cash and cash equivalents at June 30,                                     $ 421,069        $  49,578
                                                                     ===============  ===============


Non-cash investing and financing activities:
      Assets acquired under capital lease                                 $       -        $ (33,985)
      Change in fair value of interest rate swaps                         $   5,758        $       -


</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

(1)   Summary of Significant Accounting Policies:
      -------------------------------------------
      (a) Basis of Presentation and Use of Estimates:
          Citizens  Communications  Company and its subsidiaries are referred to
          as "we,"  "us" or "our" in this  report.  The  unaudited  consolidated
          financial  statements have been prepared in conformity with accounting
          principles  generally  accepted  in the United  States of America  and
          should  be  read  in  conjunction  with  the  consolidated   financial
          statements  and notes included in our 2001 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.  Preparing
          financial  statements  in  conformity  with GAAP  requires  us to make
          estimates  and  assumptions   which  affect  the  amounts  of  assets,
          liabilities,  revenue and expenses we have reported and our disclosure
          of  contingent  assets and  liabilities  at the date of the  financial
          statements.  Certain  information and footnote  disclosures  have been
          excluded  and/or   condensed   pursuant  to  Securities  and  Exchange
          Commission rules and  regulations.  The results of the interim periods
          are not  necessarily  indicative  of the  results  for the full  year.
          Certain  reclassifications  of balances  previously reported have been
          made to conform to current presentation.

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

      (c) Regulatory Assets and Liabilities:
          Certain of our local exchange telephone operations were 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.  In the third quarter
          of  2001,  due  to the  continued  process  of  deregulation  and  the
          introduction  of  competition  to our rural local  exchange  telephone
          properties and our  expectation  that these trends will  continue,  we
          concluded it was appropriate to discontinue the application of SFAS 71
          for our local exchange  telephone  properties.  Regulatory  assets and
          liabilities for our public utility services operations are included in
          assets held for sale and  liabilities  related to assets held for sale
          and discontinued operations.

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

          Electric  Lightwave,  Inc.  (ELI) -  Revenue  is  recognized  when the
          services are provided. Revenue from long-term prepaid network services
          agreements  including  indefeasible  right to use (IRU) and fiber swap
          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 term.  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  services  revenue is accrued and included in accounts
          receivable and revenue.

                                       7
<PAGE>

      (e) 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.

      (f) Derivative Instruments and Hedging Activities:
          Effective  January 1, 2001, we adopted SFAS No. 133,  "Accounting  for
          Derivative  Instruments and Hedging Activities",  as amended. SFAS No.
          133, as amended,  requires that all  derivative  instruments,  such as
          interest rate swaps,  be recognized  in the financial  statements  and
          measured at fair value  regardless of the purpose or intent of holding
          them.

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

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

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

          We entered into interest rate swap  arrangements  in December 2001 and
          May 2002  related to a portion of our fixed  rate  debt.  These  hedge
          strategies satisfy the fair value hedging requirements of SFAS 133. As
          a result, the fair value of the hedges is carried on the balance sheet
          in other current  assets and the related  underlying  liabilities  are
          also adjusted to fair value by the same amount.

      (g) Intangibles:
          Intangibles represent the excess of purchase price over the fair value
          of identifiable assets acquired. We undertake studies to determine the
          fair  values  of  assets  acquired  and  allocate  purchase  prices to
          property,  plant  and  equipment,   goodwill  and  other  identifiable
          intangibles.  We regularly  examine the carrying value of our goodwill
          and other identifiable  intangibles to determine whether there are any
          impairment losses (see Note 5).

(2)  Property, Plant and Equipment, Net:
     -----------------------------------
     Property,  plant and equipment at June 30, 2002 and December 31, 2001 is as
     follows:
<TABLE>
<CAPTION>

        ($ in thousands)                          June 30, 2002        December 31, 2001
                                               -----------------    --------------------

<S>                                                <C>                    <C>
        Property, plant and equipment              $ 6,954,708            $ 6,699,928
        Less accumulated depreciation               (2,465,795)            (2,187,890)
                                               -----------------    --------------------
        Property, plant and equipment, net         $ 4,488,913            $ 4,512,038
                                               =================    ====================
</TABLE>

     Depreciation  expense,  calculated using the straight-line method, is based
     upon the estimated  service lives of various  classifications  of property,
     plant and equipment. Depreciation expense was $156,050,000 and $101,290,000
     for the  three  months  ended  June 30,  2002 and  2001,  respectively  and
     $303,870,000  and  $193,743,000  for the six months ended June 30, 2002 and
     2001, respectively.


                                       8
<PAGE>

(3)  Frontier Acquisition:
     ---------------------
     On June 29, 2001, we purchased from Global  Crossing Ltd.  (Global) 100% of
     the  stock  of  Frontier  Corp.'s  local  exchange   carrier   subsidiaries
     (Frontier),  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  $3,373,000,000 in cash. This transaction has
     been accounted for using the purchase method of accounting.  The results of
     operations have been included in our financial  statements from the date of
     acquisition.  Our valuation  and  allocation  of purchase  price  including
     adjustments to assets and liabilities for Frontier is final.

     The following  summarizes  the allocation of purchase price and funding for
     our Frontier acquisition:

             ($ in thousands)
             Assets acquired:
               Property, plant and equipment       $ 1,108,514
               Current assets                          119,016
               Goodwill                              1,504,694
               Customer base                           793,936
               Trade name                              122,058
               Other assets                            151,172
                                                ---------------
             Total assets acquired                   3,799,390

             Liabilities assumed
               Current liabilities                     146,920
               Other liabilities                       279,536
                                                ---------------
             Total liabilities assumed                 426,456
                                                ---------------
             Cash paid                             $ 3,372,934
                                                ===============

     The following pro forma financial  information for the three and six months
     ended June 30, 2001 presents the combined results of our operations and the
     Frontier  acquisition.  The pro forma  information  presents  the  combined
     results as if the  acquisition had occurred at the beginning of the year of
     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.  The sale of our Louisiana
     and Colorado gas operations  (see Note 4) are presented on an actual basis.
     Included  in revenue  is  approximately  $56,400,000  and  $215,600,000  of
     revenue from our  Louisiana and Colorado gas  operations  for the three and
     six months ended June 30, 2001, respectively.
<TABLE>
<CAPTION>

($ in thousands, except per share amounts)           For the three months    For the six months
                                                     ended June 30, 2001     ended June 30, 2001
                                                     --------------------   ----------------------
<S>                                                           <C>                <C>
Revenue                                                       $ 701,269          $ 1,517,819
Net loss                                                      $ (44,872)         $   (62,829)
Net loss available to common shareholders per share           $   (0.19)         $     (0.26)
</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 included gas, electric
     and water and wastewater businesses.

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

          Electric
          --------
          In March 2002,  we entered  into a  definitive  agreement  to sell our
          Kauai electric division to Kauai Island Utility Cooperative (KIUC) for
          $215,000,000.   The  transaction,   which  is  subject  to  regulatory
          approvals, is expected to close by the end of 2002.


                                       9

<PAGE>

          Gas
          ---
          On July 2, 2001, we completed the sale of our Louisiana Gas operations
          to Atmos Energy Corporation for $363,436,000 in cash. The pre-tax gain
          on the sale recognized in the third quarter of 2001 was $139,304,000.

          On November  30,  2001,  we sold our  Colorado  Gas division to Kinder
          Morgan  for  approximately  $8,900,000  in cash after  purchase  price
          adjustments.

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

     Currently,  we do not have  agreements  to sell all of our gas and electric
     properties.  Our gas and electric assets and their related  liabilities are
     classified  as "assets  held for sale" and  "liabilities  related to assets
     held  for  sale,"   respectively.   Additionally,   we  no  longer   record
     depreciation   expense  on  the  gas  assets  and  electric  assets.   Such
     depreciation  expense  would  have  been  an  additional   $10,600,000  and
     $14,200,000 for the three months ended June 30, 2002 and 2001, respectively
     and  $21,200,000 and $28,100,000 for the six months ended June 30, 2002 and
     2001, respectively. We continue to actively pursue buyers for our remaining
     gas and electric businesses.

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

     ($ in thousands)                                            For the three months ended June 30,
                                                             --------------------------------------------
                                                                    2002                    2001
                                                             --------------------    --------------------
<S>                                                                    <C>                  <C>
     Revenue                                                           $       -            $ 29,335
     Operating income                                                  $       -            $  8,183
     Income tax expense                                                $       -            $  2,089
     Net income                                                        $       -            $  3,367

     ($ in thousands)                                             For the six months ended June 30,
                                                             --------------------------------------------
                                                                    2002                    2001
                                                             --------------------    --------------------
      Revenue                                                          $   4,650            $  53,429
     Operating income (loss)                                           $    (419)           $  11,945
     Income tax expense (benefit)                                      $    (920)           $   2,159
     Income (loss) from discontinued operations, net of tax            $  (1,478)           $   4,476
     Gain on disposal of water segment, net of tax                     $ 169,326            $       -

</TABLE>

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


($ in thousands)                                   June 30, 2002       December 31, 2001
                                                --------------------   -------------------

<S>                                                    <C>                   <C>
Current assets                                          $    65,564           $    66,511
Net property, plant and equipment                           827,615               805,653
Other assets                                                219,287               235,773
                                                --------------------   -------------------
Total assets held for sale                              $ 1,112,466           $ 1,107,937
                                                ====================   ===================

Current liabilities                                     $    72,197           $    71,259
Long-term debt                                                    -                43,400
Other liabilities                                           103,272               104,116
                                                --------------------   -------------------
Total liabilities related to assets held for sale       $   175,469           $   218,775
                                                ====================   ===================
</TABLE>



                                       10
<PAGE>

(5)  Intangibles:
     ------------
     Intangibles at June 30, 2002 and December 31, 2001 are as follows:
<TABLE>
<CAPTION>

                                                                As of June 30, 2002
                                            ----------------------------------------------------------
                                              Gross Carrying        Accumulated        Net Carrying
($ in thousands)                                  Amount           Amortization           Amount
                                            -------------------  ------------------  -----------------
<S>                                                <C>                  <C>               <C>
Goodwill                                           $ 2,046,053          $ (127,318)       $ 1,918,735
Customer base and trade name                         1,077,398             (99,852)           977,546
                                            -------------------  ------------------  -----------------
    Total intangibles                              $ 3,123,451          $ (227,170)       $ 2,896,281
                                            ===================  ==================  =================


                                                            As of December 31, 2001
                                            ----------------------------------------------------------
                                              Gross Carrying        Accumulated        Net Carrying
($ in thousands)                                  Amount           Amortization           Amount
                                            -------------------  ------------------  -----------------
Goodwill                                           $ 2,068,032          $ (127,318)       $ 1,940,714
Customer base and trade name                         1,077,398             (39,170)         1,038,228
                                            -------------------  ------------------  -----------------
    Total intangibles                              $ 3,145,430          $ (166,488)       $ 2,978,942
                                            ===================  ==================  =================
</TABLE>

     Amortization  expense was  $30,328,000 and $13,076,000 for the three months
     ended June 30, 2002 and 2001,  respectively and $60,682,000 and $26,329,000
     for the six months ended June 30, 2002 and 2001, respectively.

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

     Our  acquisitions  were made in order for us to execute  upon our  business
     strategy.   Our   strategy   is   to   focus   exclusively   on   providing
     telecommunications  services,  primarily in rural,  small and  medium-sized
     towns  where we  believe  we have a  competitive  advantage  because of our
     relatively larger size, greater resources,  local focus and lower levels of
     competition.  For both  our  existing  ILEC  operations  and  those we have
     recently  acquired,  we are the  dominant  provider  of  independent  local
     exchange  carrier  services in each of the markets in which we operate.  We
     believe  that our  operations  in these  areas will  provide us with stable
     revenue and margin enhancement  opportunities.  To reach our objectives, we
     intend to continue to achieve  economies of scale  through  clustering  and
     increasing operational  efficiencies,  among other strategies. In following
     our  strategy,  we  selectively  pursue  acquisitions  that we believe will
     enhance  shareholder value through increased revenue growth and operational
     efficiencies consistent with our corporate strategy and objectives.

     We have paid more than the net book values (of the  sellers) of each of the
     businesses  acquired  in 2000 and  2001.  We based our  purchase  prices on
     estimates of future cash flows of the businesses acquired. The "premium" to
     book value paid,  including the allocation to goodwill for each  respective
     property,  reflects the value created by all of the tangible and intangible
     operating assets (existing and acquired) of our businesses coming together,
     including  without  limitation,  the fact that we were able to  immediately
     commence   operations  as  the  dominant  local  exchange  carrier  in  the
     applicable operating area. Additionally, the premiums paid reflect the fact
     that our  purchase  price was accepted by the sellers  after a  competitive
     bidding and negotiation process.

     We were willing to pay a premium (i.e. goodwill) over the fair value of the
     tangible and  identifiable  intangible  assets  acquired  less  liabilities
     assumed in order to obtain product cross-selling  opportunities,  economies
     of scale (e.g.  cost  savings  opportunities),  and the  potential  benefit
     resident in expected population/demographic trends.

     In July 2001,  the FASB issued  SFAS 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 (see Note 14). The  amortization
     of goodwill  ceased upon adoption of the statement on January 1, 2002,  and
     applies to all goodwill  recognized in the statement of financial  position
     at that date, regardless of when the assets were initially recognized.


                                       11
<PAGE>

     The following table presents a  reconciliation  between reported net income
     and adjusted net income.  Adjusted net income excludes amortization expense
     recognized  in prior  periods  related to goodwill  that is no longer being
     amortized.
<TABLE>
<CAPTION>

($ in thousands, except per-share amounts)        For the three months ended June 30,      For the six months ended June 30,
                                                 ---------------------------------------  ------------------------------------
                                                        2002                2001                2002               2001
                                                 -------------------  ------------------  -----------------  -----------------
<S>                                                       <C>                 <C>                 <C>                <C>
Reported available for common shareholders                $ (41,559)          $ (13,296)          $ 41,667           $  6,427
Add back: Goodwill amortization, net of tax                       -               6,110                  -             13,356
                                                 -------------------  ------------------  -----------------  -----------------
Adjusted available for common shareholders                $ (41,559)          $  (7,186)          $ 41,667           $ 19,783
                                                 ===================  ==================  =================  =================

Basic earnings per share:
Reported available for common shareholders                $   (0.15)          $   (0.05)          $   0.15           $   0.02
Goodwill amortization, net of tax                                 -                0.02                  -               0.05
                                                 -------------------  ------------------  -----------------  -----------------
Adjusted available for common shareholders                $   (0.15)          $   (0.03)          $   0.15           $   0.07
                                                 ===================  ==================  =================  =================

Diluted earnings per share:
Reported available for common shareholders                $   (0.15)          $   (0.05)          $   0.15           $   0.02
Goodwill amortization, net of tax                                 -                0.02                  -               0.05
                                                 -------------------  ------------------  -----------------  -----------------
Adjusted available for common shareholders                $   (0.15)          $   (0.03)          $   0.15           $   0.07
                                                 ===================  ==================  =================  =================
</TABLE>

(6)  Restructuring and Other Charges:
     --------------------------------
     Restructuring and other expenses consist of expenses related to our various
     restructurings  in 2001  and  2002,  $10,200,000  of  expenses  related  to
     reductions in personnel at our  telecommunications  operations,  costs that
     are being spent at both our Plano, Texas facility and at other locations as
     a result of  transitioning  functions and jobs, and $6,800,000 of costs and
     expenses  related to our tender  offer in June 2002 for all of the publicly
     held ELI  common  shares  that we did not  already  own.  These  costs were
     incurred only temporarily and will not continue.

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

          Plano Restructuring
          In the  second  quarter  of  2001,  we  adopted  a plan to  close  our
          operations   support  center  in  Plano,  Texas  by  August  2002.  In
          connection with this plan, we recorded a pre-tax charge of $14,557,000
          in the second half of 2001,  $839,000 for the three months ended March
          31,  2002 and we adjusted  our  accrual  down by $92,000 for the three
          months  ended June 30,  2002.  Our  objective  is to  concentrate  our
          resources in areas where we have the most  customers,  to better serve
          those  customers.  We intend to sell our Plano  office  building.  The
          restructuring  will result in the  termination  of 750  employees.  We
          communicated  with all affected  employees  during July 2001.  Certain
          employees  have  been/will  be  relocated,  others  have been  offered
          severance, job training and/or outplacement counseling. As of June 30,
          2002,  approximately  $13,617,000  was  paid  and 721  employees  were
          terminated.  The restructuring expenses primarily consist of severance
          benefits,   retention  earned  through  June  30,  2002,  early  lease
          termination  costs and other  planning  and  communication  costs.  We
          expect to incur  additional  costs of  approximately  $122,000  in the
          third quarter of 2002.

          Sacramento Call Center Restructuring
          In April 2002,  we closed our  Sacramento  Customer  Care  Center.  In
          connection with this closing, we recorded a pre-tax charge of $731,000
          in the fourth  quarter of 2001,  $62,000  for the three  months  ended
          March 31, 2002 and $9,000 for the three months ended June 30, 2002. We
          redirected the call traffic and other work  activities to our Kingman,
          Arizona call center.  This restructuring  resulted in the reduction of
          98  employees.  We  communicated  with all affected  employees  during
          November  2001. As of June 30, 2002,  approximately  $753,000 was paid
          and all the employees were terminated.


                                       12
<PAGE>

          ELI Restructuring
          In the first half of 2002, ELI redeployed the internet routers,  frame
          relay switches and ATM switches from the Atlanta,  Cleveland,  Denver,
          Philadelphia and New York markets to other locations in ELI's network.
          ELI ceased leasing the collocation facilities and off-net circuits for
          the backbone and local loops  supporting the service delivery in these
          markets.  It was  anticipated  that this would lead to  $4,179,000  of
          termination  fees which were  accrued for but not paid at December 31,
          2001.  In the first and second  quarters  of 2002,  ELI  adjusted  its
          original accrual down by $2,100,000 and $100,000, respectively, due to
          the favorable  settlements of termination  charges for off-net circuit
          agreements.  As of June  30,  2002,  $1,054,000  has  been  paid.  The
          remaining  accrual of $925,000 is included in current  liabilities  at
          June 30, 2002.

          Tender Offer
          During May 2002,  we announced a tender offer for all of the shares of
          ELI that we did not  already  own for a price of $0.70 per  share.  We
          completed  the tender offer in June 2002,  resulting in ELI becoming a
          wholly-owned subsidiary, for total costs and expenses of approximately
          $6.8  million.  We accounted  for this  transaction  as a purchase and
          allocated   the  entire   amount  to  goodwill.   We   evaluated   the
          recoverability of this goodwill in accordance with Statement Financial
          Accounting  Standards  No. 142 and  determined  that a write-down  was
          necessary  based on fair market value as determined by discounted cash
          flows. This charge is included in restructuring and other expenses.

     1999
     ----
     In the  fourth  quarter  of 1999,  we  adopted  a plan to  restructure  our
     corporate  office  activities.  In connection with this plan, we recorded a
     pre-tax   charge  of  $5,760,000  in  the  fourth   quarter  of  1999.  The
     restructuring  resulted in the  reduction  of 49 corporate  employees.  All
     affected  employees  were  communicated  with in the early part of November
     1999.  As of June 30,  2002,  approximately  $4,602,000  has been paid,  43
     employees  were  terminated  and six  employees  who  were  expected  to be
     terminated  took other  positions  within the  company.  At June 30,  2002,
     December 31, 2001 and December 31, 2000,  we adjusted our original  accrual
     down by $11,000,  $139,000  and  $1,008,000,  respectively,  and no accrual
     remains at June 30, 2002.



                                       13
<PAGE>
<TABLE>
<CAPTION>


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

2001 Plano Restructuring
<S>                                                    <C>            <C>           <C>             <C>            <C>
Original accrued amount                                $ 9,353        $ 1,535       $ 1,178         $  936         $13,002
Amount paid                                             (1,386)           (35)          (80)          (177)         (1,678)
Additional accrual                                         551              -         1,793             27           2,371
Adjustments                                               (325)          (104)          (64)          (323)           (816)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 12/31/2001                                     8,193          1,396         2,827            463          12,879
                                            ------------------- -------------- -------------  ------------- ---------------
Amount paid                                             (4,870)             -        (2,083)          (112)         (7,065)
Additional accrual                                          25              -           923              -             948
Adjustments                                                (63)           (28)          (18)             -            (109)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 3/31/2002                                      3,285          1,368         1,649            351           6,653
                                            ------------------- -------------- -------------  ------------- ---------------
Amount paid                                             (2,146)        (1,036)       (1,458)          (234)         (4,874)
Additional accrual                                          40              -           213              -             253
Adjustments                                               (207)             -          (138)             -            (345)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 6/30/2002                                    $   972        $   332       $   266         $  117         $ 1,687
                                            =================== ============== =============  ============= ===============


2001 Sacramento Call Center Restructuring
Accrued @ 12/31/2001                                   $   552        $    94       $    85         $    -         $   731
Amount paid                                               (317)             -           (81)             -            (398)
Additional accrual                                          45              -           107              -             152
Adjustments                                                (72)           (11)           (7)             -             (90)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 3/31/2002                                        208             83           104              -             395
                                            ------------------- -------------- -------------  ------------- ---------------
Amount paid                                               (202)           (67)          (86)             -            (355)
Additional accrual                                           -              -             9              -               9
Adjustments                                                  -              -             -              -               -
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 6/30/2002                                    $     6        $    16       $    27         $    -         $    49
                                            =================== ============== =============  ============= ===============


ELI 2001 Restructuring
Accrued @ 12/31/2001                                   $     -        $     -       $     -         $4,179         $ 4,179
Amount paid                                                  -              -             -              -               -
Additional accrual                                           -              -             -              -               -
Adjustments                                                  -              -             -         (2,100)         (2,100)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 3/31/2002                                          -              -             -          2,079           2,079
                                            ------------------- -------------- -------------  ------------- ---------------
Amount paid                                                  -              -             -         (1,054)         (1,054)
Additional accrual                                           -              -             -              -               -
Adjustments                                                  -              -             -           (100)           (100)
                                            ------------------- -------------- -------------  ------------- ---------------
Accrued @ 6/30/2002                                    $     -        $     -       $     -         $  925         $   925
                                            =================== ============== =============  ============= ===============


                                             Original Accrued       Amount        Accrual       Remaining
                   1999                           Amount         Paid to Date    Adjustments     Accrual
                                            ------------------- -------------------------------------------

1999 Corporate Office Restructuring
For the year ended December 31, 1999                   $ 5,760        $  (221)      $     -         $5,539
For the year ended December 31, 2000                     5,539         (3,993)       (1,008)           538
For the year ended December 31, 2001                       538           (199)         (139)           200
For the three months ended March 31, 2002                  200              -             -            200
For the three months ended June 30, 2002                   200           (189)          (11)             -

</TABLE>

                                       14
<PAGE>

(7)  Long-Term Debt:
     ---------------
     The activity in our long-term  debt from December 31, 2001 to June 30, 2002
     is as follows:
<TABLE>
<CAPTION>
                                                               Six Months Ended
                                                    ----------------------------------------
                                                                    Interest                                 *Interest
                                         December 31,               Rate Swap/                  June 30,       Rate at
($ in thousands)                            2001      Borrowings  Reclassification  Payments      2002      June 30, 2002
                                        ------------- --------------------------------------- ------------  -------------
FIXED RATE

<S>                                        <C>               <C>       <C>         <C>        <C>                <C>
   Rural Utilities Service Loan Contracts  $ 110,860         $ -       $      -    $ (79,522) $    31,338        6.190%

   Debentures                                850,778           -              -      (18,650)     832,128        7.472%


   2001 Notes                              3,700,430           -          5,758      (23,665)   3,682,523        8.470%


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


   Senior Unsecured Notes                    108,825           -              -      (37,807)      71,018        8.050%

   ELI Notes                                 325,000           -              -      (30,000)     295,000        6.232%
   ELI Capital Leases                        137,382           -              -       (2,101)     135,281       11.613%
   Industrial Development Revenue Bonds      249,205           -              -      (54,900)     194,305        6.153%
   Other                                          54           -              -           (7)          47       12.985%

                                        ------------- ----------- -------------- ------------ ------------
TOTAL FIXED RATE                           5,942,534           -          5,758     (246,652)   5,701,640
                                        ------------- ----------- -------------- ------------ ------------


VARIABLE RATE

   ELI Bank Credit Facility                  400,000           -              -     (400,000)           -        2.391%
   Industrial Development Revenue Bonds      136,278           -         43,400      (17,980)     161,698        3.152%

                                        ------------- ----------- -------------- ------------ ------------
TOTAL VARIABLE RATE                          536,278           -         43,400     (417,980)     161,698
                                        ------------- ----------- -------------- ------------ ------------

TOTAL LONG TERM DEBT                     $ 6,478,812         $ -       $ 49,158    $(664,632) $ 5,863,338
                                        ------------- =========== ============== ============ ------------

   Less: Current Portion                    (483,906)                                             (63,924)
   Less: Equity Units                       (460,000)                                            (460,000)
                                        -------------                                         ------------
                                         $ 5,534,906                                          $ 5,339,414
                                        =============                                         ============
</TABLE>

     *Interest  rate  includes  amortization  of debt  issuance  expenses,  debt
     premiums or discounts.  The interest rate for Rural Utilities  Service Loan
     Contracts,  Debentures,  2001 Notes, ELI's Capital Leases, Senior Unsecured
     Notes,  and  Industrial  Development  Revenue  Bonds  represent  a weighted
     average of multiple issuances.

     Total future minimum cash payment  commitments over the next 25 years under
     ELI's  long-term  capital leases  amounted to $318.6 million as of June 30,
     2002.

                                       15
<PAGE>


(8)   Net Income Per Common Share:
      ----------------------------
     The reconciliation of the net income per common share calculation for the
     three and six months ended June 30, 2002 and 2001, respectively, is as
     follows:
<TABLE>
<CAPTION>


(In thousands, except per-share amounts)                             For the three months ended June 30,
                                                 --------------------------------------------------------------------------
                                                                2002                                   2001
                                                 -------------------------------------  -----------------------------------
                                                               Weighted                              Weighted
                                                               Average                                Average
                                                  Net Loss      Shares     Per Share     Net Loss     Shares     Per Share
                                                 -----------  -----------  -----------  ----------- ------------ ----------
Net loss per common share:
<S>                                                <C>           <C>                      <C>           <C>
  Basic                                            $(41,559)     280,610                  $   (649)     269,129
  Carrying cost of equity forward contracts               -            -                    12,647            -
                                                 -----------  -----------               ----------- ------------
  Available for common shareholders                $(41,559)     280,610      $ (0.15)    $(13,296)     269,129    $ (0.05)
  Effect of dilutive options                              -        4,709            -            -        6,551          -
                                                 -----------  -----------               ----------- ------------
  Diluted                                          $(41,559)     285,319      $ (0.15)    $(13,296)     275,680    $ (0.05)
                                                 ===========  ===========               =========== ============


(In thousands, except per-share amounts)                               For the six months ended June 30,
                                                 --------------------------------------------------------------------------
                                                                 2002                                   2001
                                                 -------------------------------------  -----------------------------------
                                                                Weighted                              Weighted
                                                                Average                               Average
                                                  Net Income    Shares     Per Share    Net Income    Shares     Per Share
                                                 ------------------------  -----------  ------------------------ ----------
Net income per common share:
  Basic                                            $ 41,667      280,432                  $ 19,074      266,106
  Carrying cost of equity forward contracts               -            -                    12,647            -
                                                 -----------  -----------               ----------- ------------
  Available for common shareholders                $ 41,667      280,432       $ 0.15     $  6,427      266,106     $ 0.02
  Effect of dilutive options                              -        4,833            -            -        6,966          -
                                                 -----------  -----------               ----------- ------------
   Diluted                                         $ 41,667      285,265       $ 0.15     $  6,427      273,072     $ 0.02
                                                 ===========  ===========               =========== ============

</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  exercise
     price exceeds the average  market price over the period.  At June 30, 2002,
     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
     12,485,000  potentially  dilutive  stock  options  at a range of  $10.24 to
     $21.47 per share.  These items were not  included in the diluted net income
     (loss) per common share  calculation  for any of the above periods as their
     effect was  antidilutive.  Restricted  stock awards of 1,477,000 shares and
     710,000  shares at June 30, 2002 and 2001  respectively,  are excluded from
     our basic weighted average shares  outstanding and included in our dilutive
     shares until the shares are no longer  contingent upon the  satisfaction of
     all specified conditions.

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

     As an ILEC, we are the dominant  incumbent  carrier in the markets we serve
     and provide the "last mile" of  telecommunications  services to residential
     and business customers in these markets.  As an ILEC, we compete with CLECs
     that may operate in our markets.  As a CLEC, we provide  telecommunications
     services,  principally  to businesses,  in  competition  with the incumbent
     ILEC. As a CLEC,  we frequently  obtain the "last mile" access to customers
     through  arrangements with the applicable ILEC. ILECs and CLECs are subject
     to different regulatory frameworks of the Federal Communications Commission
     (FCC).  We do not provide both ILEC and CLEC services in  competition  with
     each other in any individual market.


                                       16
<PAGE>

     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.  We use this  measure  to  evaluate  the
     operating  performance of and allocate resources to our operating segments.
     Adjusted  EBITDA is a simple  estimate  of  financial  performance  that is
     easily  calculated  by  our  operating  managers.  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.
<TABLE>
<CAPTION>


($ in thousands)                                     For the three months ended June 30, 2002
                                 --------------------------------------------------------------------------
                                                                                                 Total
                                     ILEC            ELI            Gas          Electric      Segments
                                 -------------- -------------- --------------- ------------- --------------
<S>                                <C>              <C>             <C>           <C>          <C>
Revenue                            $   514,686      $  45,287       $  47,856     $  54,610    $   662,439
Depreciation and Amortization          154,741         31,591              46             -        186,378
Operating Income (Loss)                100,607        (38,976)          8,416        12,521         82,568
Adjusted EBITDA                        255,348         (7,385)          8,462        12,521        268,946


($ in thousands)                                      For the three months ended June 30, 2001
                                 --------------------------------------------------------------------------
                                                                                                 Total
                                     ILEC            ELI            Gas          Electric      Segments
                                 -------------- -------------- --------------- ------------- --------------
Revenue                            $   288,788      $  59,334       $ 102,155     $  55,464    $   505,741
Depreciation and Amortization           88,312         20,099             155         5,800        114,366
Operating Income (Loss)                 60,685        (15,278)          9,882         5,260         60,549
Adjusted EBITDA                        148,997          4,821          10,037        11,060        174,915



($ in thousands)                                      For the six months ended June 30, 2002
                                 --------------------------------------------------------------------------
                                                                                                 Total
                                     ILEC            ELI            Gas          Electric      Segments
                                 -------------- -------------- --------------- ------------- --------------
Revenue                            $ 1,022,717      $  92,534       $ 119,221     $ 107,301    $ 1,341,773
Depreciation and Amortization          313,031         51,391             130             -        364,552
Operating Income (Loss)                192,828        (55,996)         20,304        25,791        182,927
Adjusted EBITDA                        505,859         (4,605)         20,434        25,791        547,479


($ in thousands)                                       For the six months ended June 30, 2001
                                 --------------------------------------------------------------------------
                                                                                                 Total
                                     ILEC            ELI            Gas          Electric      Segments
                                 -------------- -------------- --------------- ------------- --------------
Revenue                            $   576,133      $ 121,059       $ 322,670     $ 110,161    $ 1,130,023
Depreciation and Amortization          174,689         39,278             305         5,800        220,072
Operating Income (Loss)                123,355        (30,378)         38,496        16,959        148,432
Adjusted EBITDA                        298,044          8,900          38,801        22,759        368,504
</TABLE>

(10) Adelphia Investment:
     --------------------
     As of June 30, 2002, we owned 3,059,000  shares of Adelphia  Communications
     Corp.  (Adelphia)  common  stock.  As a result of  Adelphia's  recent price
     declines and filing for  bankruptcy,  we recognized  losses of $45,600,000,
     $49,700,000  and  $79,000,000  on our investment for the three months ended
     June 30, 2002, March 31, 2002 and December 31, 2001,  respectively,  as the
     declines were determined to be other than  temporary.  As of June 30, 2002,
     we have written this investment down to zero.


                                       17
<PAGE>

(11) Equity Forward Contracts:
     -------------------------
     During  2000,  we entered  into a forward  contract to  purchase  9,140,000
     shares of our common stock with Citibank,  N.A. These  purchases and others
     made by us for cash during 2000 were made in open-market transactions.  The
     forward amount to be paid in the future included a carrying cost,  based on
     LIBOR plus a spread,  and the dollar amount paid for the shares  purchased.
     Our equity forward contract was a temporary financing arrangement that gave
     us the  flexibility  to purchase  our stock and pay for those  purchases in
     future  periods.   Pursuant  to  transition  accounting  rules,  commencing
     December  31, 2000  through  June 30,  2001 we were  required to report our
     equity  forward  contract as a reduction to  shareholders'  equity and as a
     component  of  temporary  equity  for the  gross  settlement  amount of the
     contract  ($150,013,000).  On June  28,  2001,  we  entered  into a  master
     confirmation  agreement  that  amended  the equity  forward  contract to no
     longer permit share  settlement  of the  contract.  In 2001, we settled the
     contract by paying the redemption  amount of $150,013,000  plus $13,650,000
     in associated carrying costs and took possession of our shares.

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

     The  interest  rate  swap  contracts  are  reflected  at fair  value in our
     consolidated balance sheet and the related portion of fixed-rate debt being
     hedged is  reflected at an amount equal to the sum of its book value and an
     amount  representing  the  change  in fair  value of the  debt  obligations
     attributable  to the interest rate risk being  hedged.  Changes in the fair
     value of interest rate swap  contracts,  and the offsetting  changes in the
     adjusted carrying value of the related portion of the fixed-rate debt being
     hedged,  are  recognized  in the  consolidated  statements of operations in
     interest expense. The notional amounts of fixed-rate indebtedness hedged as
     of June 30, 2002 and December 31, 2001 was $250,000,000  and  $100,000,000,
     respectively.  Such contracts required us to pay variable rates of interest
     (average pay rate of approximately  4.843% as of June 30, 2002) and receive
     fixed  rates  of  interest  (average  receive  rate of 7.65% as of June 30,
     2002). The fair value of these  derivatives is reflected in other assets as
     of June 30, 2002,  in the amount of $6,187,812  and the related  underlying
     debt has been increased by a like amount.  The amounts  received during the
     three and six  months  ended June 30,  2002 as a result of these  contracts
     amounted to $0 and $411,897,  respectively, and are included as a reduction
     to interest expense.

     We do not anticipate any nonperformance by counterparties to its derivative
     contracts as all counterparties have investment grade credit ratings.

(13) Shareholder Rights Plan:
     ------------------------
     On March 6, 2002, our Board of Directors adopted a Shareholder Rights Plan.
     The purpose of the  Shareholder  Rights Plan is to deter coercive  takeover
     tactics and to  encourage  third  parties  interested  in  acquiring  us to
     negotiate  with our Board of Directors.  It is intended to  strengthen  the
     ability of our Board of Directors to fulfill its  fiduciary  duties to take
     actions which are in the best interest of our shareholders. The rights were
     distributed to shareholders as a dividend at the rate of one right for each
     share of our common stock held by shareholders of record as of the close of
     business on March 26, 2002. Each right initially  entitles  shareholders to
     buy one one-thousandth of a share of a new Series A Participating Preferred
     Stock at an exercise  price of $47 per right,  subject to  adjustment.  The
     rights  generally  will be  exercisable  only if a person or group acquires
     beneficial ownership of 15 percent or more of our common stock.


                                       18
<PAGE>

(14) Change in Accounting Principle and New Accounting Pronouncements:
     -----------------------------------------------------------------
     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting  Standards (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.  The
     amortization  of goodwill  ceased upon adoption of the statement on January
     1, 2002.  We have no other  intangibles  with  indefinite  lives other than
     goodwill. We were required to test for impairment of goodwill as of January
     1, 2002 and at least annually thereafter.  Any transitional impairment loss
     at January 1, 2002 is  recognized as the  cumulative  effect of a change in
     accounting  principle in our statement of operations.  As a result of ELI's
     adoption of SFAS 142, we recognized a transitional impairment loss of $39.8
     million as a cumulative  effect of a change in accounting  principle in our
     statement of  operations  in the first  quarter of 2002.  We evaluated  the
     recoverability  of this goodwill in accordance with SFAS 142 and determined
     that a write-down was necessary based on fair market value as determined by
     discounted cash flows.  During the first quarter of 2002, we reassessed the
     useful lives of our customer  base and trade name and  determined no change
     was  required.  The adoption of SFAS 142 did not have a material  impact on
     our other segments.

     In October 2001, the FASB issued SFAS 144,  "Accounting  for the Impairment
     or Disposal of  Long-lived  Assets."  This  statement  establishes a single
     accounting  model,  based on the  framework  established  in SFAS 121,  for
     long-lived  assets to be disposed of by sale,  whether  previously held and
     used or newly  acquired,  and broadens  the  presentation  of  discontinued
     operations  to  include  more  disposal  transactions.  This  statement  is
     effective for fiscal years  beginning after December 15, 2001. The adoption
     of SFAS 144 has no immediate  material impact on our financial  statements.
     However,  at December 31, 2002 we will be required to apply new criteria as
     prescribed  by SFAS 144 to our  assets  held for  sale  properties.  If the
     criteria is met, we will  continue to classify the  properties  as held for
     sale. If the criteria is not met, we would be required to reclassify  these
     assets to be held and used and record any  depreciation  expense that would
     have been recognized had the assets been continuously held and used.

     In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
     4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
     Corrections."  This  statement  eliminates the  requirement  that gains and
     losses from  extinguishment  of debt be required to be  aggregated  and, if
     material,  classified as an  extraordinary  item, net of related income tax
     effect. The statement requires gains and losses from extinguishment of debt
     to be classified as  extraordinary  items only if they meet the criteria in
     Accounting  Principles  Board  Opinion  No. 30,  "Reporting  the Results of
     Operations - Reporting  the Effects of Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions" which provides guidance for distinguishing  transactions that
     are part of an entity's recurring operations from those that are unusual or
     infrequent or that meet the criteria for classification as an extraordinary
     item.  We adopted SFAS 145 in the second  quarter of 2002.  During 2002, we
     recognized  $4.4  million  of gains from  early  debt  retirement  as other
     income, rather than as an extraordinary item.

(15) Global /WorldCom Receivables:
     -----------------------------
     During the second  quarter 2002, we reserved  approximately  $21,600,000 of
     trade  receivables  with  WorldCom  as a result of  WorldCom's  filing  for
     bankruptcy.  These  receivables  were  generated  as a result of  providing
     ordinary  course  telecommunications  services.  This charge was  partially
     offset in the second quarter with an $11,600,000  settlement with Global as
     discussed below.

     Concurrent  with the  acquisition  of  Frontier,  we entered  into  several
     operating agreements with Global. We have ongoing commercial  relationships
     with  Global  affiliates.  We  reserved  a total of  $29,000,000  of Global
     receivables  to reflect our best  estimate of the net  realizable  value of
     receivables  incurred from these commercial  relationships  during 2001 and
     2002  as a  result  of  Global's  filing  for  bankruptcy.  We  recorded  a
     write-down  of such  receivables  in the amount of  $7,800,000 in the first
     quarter 2002 and  $21,200,000  in the fourth quarter of 2001. In the second
     quarter 2002, as the result of a settlement  agreement with Global, we have
     reversed $11,600,000 of our previous write-down of the net realizable value
     of these receivables.  Prior to the date of Global's  bankruptcy filing, we
     provided   ordinary   course   telecommunications   services   as  well  as
     transitional  services to Global.  Global has provided us certain  customer
     billing and collection  functions as well as other  transitional  services.
     These   arrangements  have  continued  after  the  bankruptcy  filing.  The
     Bankruptcy  Court has  granted  relief  to us and other  telecommunications
     companies that provide service to Global by, among other things,  directing
     a shortened  payment  period with  respect to  post-petition  invoices,  an
     expedited court process for  post-petition  defaults in payments by Global,
     and a priority for  post-petition  expense items over other unsecured debt.
     These  procedures  should  minimize  future economic loss to us although we
     cannot guarantee that additional losses will not occur.



                                       19
<PAGE>

(16) Commitments and Contingencies:
     ------------------------------
     On December 21, 2001, we entered into a settlement  agreement resolving all
     claims in a class action lawsuit  pending against the company in Santa Cruz
     County,  Arizona (Chilcote,  et al. v. Citizens  Utilities Company,  No. CV
     98-471).  The  lawsuit  arose  from  claims by a class of  plaintiffs  that
     includes  all of our  electric  customers  in Santa Cruz County for damages
     resulting  from  several  power  outages  that  occurred  during the period
     January  1,  1997,  through  January  31,  1999.  Under  the  terms  of the
     settlement  agreement,  and without any admission of guilt or wrongdoing by
     us, we will pay the class  members  $5.5  million  in  satisfaction  of all
     claims. The court approved the settlement  agreement on March 29, 2002, and
     the lawsuit  against us was dismissed with  prejudice.  We have accrued the
     full settlement amount, plus an additional amount sufficient to cover legal
     fees and other related expenses, during the fourth quarter of 2001.

     As part of the  Frontier  acquisition,  Global  and we agreed  to  Global's
     transfer,  effective as of July 1, 2001, of certain  liabilities and assets
     under the Global  pension plan for Frontier  employees.  Such  transfer and
     assumption  of  liabilities  would be to a trustee  of a trust  established
     under our pension plan, and would exclude (1) those liabilities relating to
     certain current and former Frontier  employees who were not considered part
     of the Frontier acquisition (calculated using the "safe harbor" methodology
     of  the  Pension  Benefit   Guaranty   Corporation)  or  (2)  those  assets
     attributable to such liabilities. While all amounts and procedures had been
     agreed to by Global  and us prior to  Global's  bankruptcy  filing,  on the
     ground that its obligation to make this transfer might be "executory" under
     the  Bankruptcy  Code,  Global  has  refused  to  execute  and  deliver  an
     authorization  letter to the Frontier plan trustee directing the trustee to
     transfer to our pension plan record ownership of the transferred assets and
     liabilities.  We have initiated an adversary proceeding with the Bankruptcy
     Court supervising  Global's bankruptcy  proceeding,  in which we believe we
     will prevail,  to require Global to execute and deliver such  authorization
     letter if Global does not do so as required by the Frontier  stock purchase
     agreement. A decision on dispositive motions filed by us is expected in the
     third quarter of 2002.



                                       20

<PAGE>

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

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

          *    Changes in the number of our access lines;

          *    Our  ability to  effectively  manage our  growth,  including  the
               integration  of  acquired  operations  into our  operations,  and
               otherwise monitor our operations,  costs,  regulatory  compliance
               and service quality;

          *    Our ability to divest our public utilities services businesses;

          *    Our  ability to  successfully  introduce  new  product  offerings
               including our ability to offer bundled service  packages on terms
               attractive  to our  customers,  and our  ability to offer  second
               lines  and  enhanced  and  data  services  to  markets  currently
               under-penetrated;

          *    Our ability to expand through attractively priced acquisitions;

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

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

          *    The effects of 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;

          *    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;

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

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

You should consider these important  factors in evaluating any statement in this
Form 10-Q or otherwise made by us or on our behalf. The following information is
unaudited  and should be read in  conjunction  with the  consolidated  financial
statements  and related  notes  included in this report and as  presented in our
2001 Annual Report on Form 10-K. We have no obligation to update or revise these
forward-looking statements.

(a)  Liquidity and Capital Resources
     -------------------------------
For the six  months  ended  June 30,  2002,  we used cash  flow from  continuing
operations,  the proceeds from the sale of discontinued  operations and cash and
investment balances to fund capital expenditures and debt repayments. On January
15,  2002,  we  completed  the sale of our water and  wastewater  operations  to
American Water Works for $859.1 million in cash plus the assumption by the buyer
of $122.5 million of our debt and other liabilities. The proceeds are being used
for  general   corporate   purposes   including  the  repayment  of  outstanding
indebtedness.  As of June 30, 2002,  we had cash and cash  equivalents  balances
aggregating $421.1 million.

We have  budgeted  approximately  $407.0 to $432.0  million for our 2002 capital
projects, including approximately $350.0 to $375.0 million for the ILEC segment,
$15.0  million  for the ELI  segment  (excluding  the $110  million  purchase of
equipment  under  lease) and $42.0  million  for the public  utilities  services
segment. For the six months ended June 30, 2002, our actual capital expenditures
were  $138.7  million  for the ILEC  segment,  $8.1  million for the ELI segment
(excluding the purchase for $110 million in cash of equipment  previously  under
lease)  and $20.2  million  for the public  utilities  services  segments  which
includes $1.2 million for the water and wastewater segment sold in January 2002.
We anticipate that the funds necessary for our 2002 capital expenditures will be
provided from our ILEC operations and our existing cash and investment balances.


                                       21
<PAGE>

During 1995, ELI entered into a $110 million  construction  agency agreement and
an operating  lease  agreement in connection  with the  construction  of certain
network facilities. On April 30, 2002, ELI purchased the facilities at the lease
termination for $110 million.  Citizens had guaranteed all of ELI's  obligations
under this operating lease and provided the funds for the purchase.

We have an available shelf  registration of $825.6 million and we have available
lines of credit with  financial  institutions  in the  aggregate  amount of $805
million. Associated facility fees vary, depending on our credit ratings, and are
0.25% per annum as of June 30, 2002. The  expiration  date for the facilities is
October 24, 2006.  During the term of the  facilities  we may borrow,  repay and
reborrow  funds. As of June 30, 2002,  there were no outstanding  advances under
these facilities.

Tender Offer
On May 16, 2002, we announced that we were  commencing a tender offer,  at $0.70
per share, for all of the publicly held Class A common shares of ELI that we did
not already own. The tender  offer  expired on June 17, 2002,  at which time the
total of shares  tendered,  combined  with the ELI shares  already  owned by us,
represented approximately 95.5% of total outstanding ELI Class A shares. On June
20, 2002, we completed a short-form merger in which ELI became our wholly owned,
not publicly traded,  subsidiary and each share of common stock not tendered was
converted into a right to receive $0.70 in cash without interest. The total cost
(including fees and expenses) of the tender was approximately $6.8 million.

Following the  completion of the merger with ELI, we repaid and  terminated  the
entire $400 million  outstanding under ELI's committed  revolving line of credit
with a syndicate of commercial banks on June 24, 2002.

Debt Reduction
On January 7, 2002, we called for redemption at par two of our outstanding  1991
series of industrial  development  revenue bonds, the $20.0 million 7.15% Mohave
series and the $10.1 million 7.15% Santa Cruz series.

On January 31, 2002, we repaid  approximately  $76.9 million principal amount of
subsidiary debt from the Rural Utilities  Service,  Rural Telephone Bank and the
Federal Financing Bank. We paid a premium of $482,000 on these redemptions.

On March 27, 2002, we repaid $40.0  million of Frontier  7.51% Medium Term Notes
at maturity.

On May 1,  2002,  we  redeemed  at par  six  of our  outstanding  variable  rate
Industrial  Development  Revenue  Bond series  aggregating  approximately  $20.3
million in principal amount.

On June 10,  2002,  we  called  for  redemption  at par four of our  outstanding
Industrial  Development  Revenue  Bond series  aggregating  approximately  $20.4
million in  principal  amount.  These  redemptions  are expected to occur in the
third quarter.

On June 27, 2002, we redeemed at par $24.8 million principal amount of our 7.05%
Mohave Industrial Development Revenue Refunding Bonds due August 1, 2020.

During the second quarter,  we executed a series of purchases in the open market
of a number of our  outstanding  notes and debentures.  The aggregate  principal
amount of notes and debentures  purchased was $72.3 million and they generated a
pre-tax  gain  from  the  early   extinguishment   of  debt  at  a  discount  of
approximately $4.4 million.

                                       22
<PAGE>

Interest Rate Management
------------------------
On December 17, 2001, we entered into two interest rate swap  agreements with an
investment  grade  financial  institution,  each  agreement  covering a notional
amount of $50 million. Under the terms of both agreements,  we make semi-annual,
floating rate  interest  payments  based on six-month  LIBOR and receive a fixed
6.375% rate on the notional amount.  Under the terms of one swap, the underlying
LIBOR rate is set in advance, while the second agreement utilizes LIBOR reset in
arrears.  Both swaps  terminate on August 15, 2004 and are being  accounted  for
under SFAS 133 as fair value hedges.

During  May 2002,  we entered  into three  interest  rate swap  agreements  with
investment  grade  financial  institutions,  each agreement  covering a notional
amount of $50 million.  Under the terms of the agreements,  we make semi-annual,
floating rate  interest  payments  based on six-month  LIBOR and receive a fixed
8.50% rate on the notional amount.  Under the terms of two swaps, the underlying
LIBOR  rate is set in  arrears,  while  the  third  agreement  is  based on each
period's daily average  six-month  LIBOR.  All three swaps  terminate on May 15,
2006 and are  being  accounted  for  under  SFAS 133 as fair  value  hedges.  In
connection  with these swaps,  on June 26, 2002,  we entered into three  Forward
Rate Agreements  (FRAs),  which set the LIBOR rate for the initial period of the
three swaps,  which ends  November 15, 2002.  The average rate of the three FRAs
for the current period is 5.6717%.

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

The  principal  financial  performance  covenant  under our $805 million  credit
facilities  and our $200 million  term loan  facility  with the Rural  Telephone
Finance  Cooperative  (RTFC)  requires the maintenance of a minimum net worth of
$1.5  billion.  Under the RTFC loan,  in the event that our credit  rating  from
either Moody's  Investors Service or Standard & Poor's declines below investment
grade  (Baa3/BBB-,  respectively),  we would also be  required  to  maintain  an
interest  coverage ratio of 2.00 to 1 or greater and a leverage ratio of 6.00 to
1 or lower. We are in compliance with all of our debt covenants.

Acquisitions
------------
On June 29, 2001, we purchased  from Global  Crossing Ltd.  (Global) 100% of the
stock of Frontier  Corp.'s  local  exchange  carrier  subsidiaries,  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 $3,373.0
million in cash.  This  transaction  has been  accounted  for using the purchase
method of  accounting.  The  results of  operations  have been  included  in our
financial statements from the date of acquisition.

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

In March 2002, we entered into a definitive agreement to sell our Kauai electric
division  to Kauai  Island  Utility  Cooperative  (KIUC) for $215  million.  The
transaction,  which is subject to regulatory approvals,  is expected to close by
the end of 2002.

Currently,  we do not  have  agreements  to sell  all of our  gas  and  electric
properties.  Our gas and  electric  assets  and their  related  liabilities  are
classified as "assets held for sale" and "liabilities related to assets held for
sale," respectively.  Additionally,  we no longer record depreciation expense on
the gas assets and electric assets. Such depreciation expense would have been an
additional  $10.6  million and $14.2 million for the three months ended June 30,
2002 and 2001,  respectively  and $21.2  million  and $28.1  million for the six
months  ended June 30,  2002 and 2001,  respectively.  We  continue  to actively
pursue buyers for our remaining gas and electric businesses.

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

                                       23
<PAGE>

New Accounting Pronouncements
-----------------------------
In July 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (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.  The amortization of goodwill
ceased  upon  adoption  of the  statement  on January 1, 2002.  We have no other
intangibles with indefinite lives other than goodwill.  We were required to test
for  impairment  of  goodwill  as of  January  1,  2002  and at  least  annually
thereafter. Any transitional impairment loss at January 1, 2002 is recognized as
the  cumulative  effect of a change in accounting  principle in our statement of
operations.  As a  result  of  ELI's  adoption  of SFAS  142,  we  recognized  a
transitional impairment loss of $39.8 million as a cumulative effect of a change
in  accounting  principle in our statement of operations in the first quarter of
2002.  During the first quarter of 2002,  we reassessed  the useful lives of our
customer base and trade name and  determined  that no change was  required.  The
adoption of SFAS 142 did not have a material impact on our other segments.

In August  2001,  the FASB issued  SFAS 143,  "Accounting  for Asset  Retirement
Obligations."  This statement  addresses the financial  accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement  costs. SFAS 143 requires that the fair value of
a liability  for an asset  retirement  obligation be recognized in the period in
which it is incurred  if a  reasonable  estimate of fair value can be made.  The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset and reported as a liability. This statement is effective
for fiscal years beginning after June 15, 2002. We are currently  evaluating the
impact of the adoption of SFAS 143.

In October 2001,  the FASB issued SFAS 144,  "Accounting  for the  Impairment or
Disposal of Long-lived  Assets." This statement  establishes a single accounting
model, based on the framework  established in SFAS 121, for long-lived assets to
be disposed of by sale, whether previously held and used or newly acquired,  and
broadens the  presentation of  discontinued  operations to include more disposal
transactions.  This  statement is effective  for fiscal  years  beginning  after
December 15, 2001. The adoption of SFAS 144 has no immediate  material impact on
our financial  statements.  However, at December 31, 2002 we will be required to
apply  new  criteria  as  prescribed  by SFAS  144 to our  assets  held for sale
properties.  If the criteria is met, we will continue to classify the properties
as held for sale. If the criteria is not met, we would be required to reclassify
these assets to be held and used and record any depreciation  expense that would
have been recognized had the assets been continuously held and used.

In April 2002, the FASB issued SFAS 145,  "Rescission of FASB  Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
statement  eliminates the requirement that gains and losses from  extinguishment
of  debt be  required  to be  aggregated  and,  if  material,  classified  as an
extraordinary  item,  net of related income tax effect.  The statement  requires
gains and losses from  extinguishment  of debt to be classified as extraordinary
items only if they meet the criteria in Accounting  Principles Board Opinion No.
30,  "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business,  and Extraordinary,  Unusual and Infrequently Occurring
Events and Transactions" which provides guidance for distinguishing transactions
that are part of an entity's recurring operations from those that are unusual or
infrequent  or that meet the criteria  for  classification  as an  extraordinary
item.  We  adopted  SFAS 145 in the  second  quarter of 2002.  During  2002,  we
recognized  $4.4 million of gains from early debt  retirement  as other  income,
rather than as an extraordinary item.

                                       24
<PAGE>


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

Consolidated  revenue for the three and six months ended June 30, 2002 increased
$156.7 million, or 31% and $211.8 million or 19%, respectively, as compared with
the prior year  period.  The  increase is  primarily  due to $211.9  million and
$418.1  million,  respectively,  of  increases  in  telecommunications  revenue,
largely due to the impact of the Frontier acquisition, partially offset by $54.3
million  and $203.4  million of  decreases  in gas revenue for the three and six
months ended June 30, 2002, respectively,  largely due to the disposition of the
Louisiana and Colorado gas operations.
<TABLE>
<CAPTION>

                           TELECOMMUNICATIONS REVENUE

($ in thousands)                      For the three months ended June 30,           For the six months ended June 30,
                                ---------------------------------------------  ----------------------------------------------
                                    2002        2001      $ Change   % Change     2002        2001       $ Change   % Change
                                ----------- ----------- ----------- ---------- ----------- ------------ ----------- ---------
<S>                              <C>         <C>         <C>            <C>    <C>          <C>          <C>             <C>
Access services                  $ 169,413   $ 117,146   $  52,267      45%    $  335,168   $  228,353   $ 106,815       47%
Local services                     216,075     117,970      98,105      83%       430,926      239,852     191,074       80%
Long distance and data services     75,658      32,675      42,983     132%       149,330       63,284      86,046      136%
Directory                           25,810      10,999      14,811     135%        52,054       21,689      30,365      140%
Other                               27,730       9,998      17,732     177%        55,239       22,955      32,284      141%
ELI                                 45,287      59,334     (14,047)    -24%        92,534      121,059     (28,525)     -24%
                                ----------- ----------- -----------            ----------- ------------ -----------
                                 $ 559,973   $ 348,122   $ 211,851      61%    $1,115,251   $  697,192   $ 418,059       60%
                                =========== =========== ===========            =========== ============ ===========
</TABLE>

We acquired  Frontier on June 29, 2001. As a result,  the periods ended June 30,
2001 include two days of operating results of Frontier.  Revenue for the two day
period was $4.2 million.  Frontier contributed $209.5 million and $416.7 million
in revenue for the three and six months ended June 30, 2002, respectively.

Prior to the second quarter of 2002, we reported  subscriber  line charges (SLC)
in both the  access  and local  revenue  categories.  Beginning  with the second
quarter of 2002, all SLC revenue is reported in the local services category. All
prior periods have been  conformed to this  presentation.  The average amount of
SLC that was previously reported in access is $23.1 million per quarter.

Access  services  revenue for the three months ended June 30, 2002  increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$45.9 million. Growth in non-switched access contributed $3.6 million and growth
in subsidies contributed $5.2 million.

Access  services  revenue for the six months  ended June 30, 2002  increased  as
compared  with the prior year period  primarily due to the impact of Frontier of
$92.4 million. Growth in non-switched access contributed $7.6 million and growth
in subsidies contributed $7.6 million.

Local  services  revenue for the three months  ended June 30, 2002  increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$92.0 million.

Local  services  revenue  for the six months  ended June 30, 2002  increased  as
compared  with the prior year period  primarily due to the impact of Frontier of
$184.8 million.

Long distance and data services revenue for the three months ended June 30, 2002
increased as compared with the prior year period  primarily due to the impact of
Frontier of $36.2 million,  $2.2 million of growth related to data and dedicated
circuits and growth in long distance services of $4.4 million.

Long distance and data  services  revenue for the six months ended June 30, 2002
increased as compared with the prior year period  primarily due to the impact of
Frontier of $72.4 million,  $5.8 million of growth related to data and dedicated
circuits and growth in long distance services of $7.8 million.

Directory  services  revenue  for the three and six months  ended June 30,  2002
increased as compared with the prior year periods primarily due to the impact of
Frontier of $14.7 million and $30.0 million, respectively.


                                       25
<PAGE>

Other  revenue  for the three and six months  ended June 30, 2002  increased  as
compared with the prior year periods  primarily due to the impact of Frontier of
$16.3 million and $32.8 million, respectively.

ELI revenue for the three and six months ended June 30, 2002 decreased primarily
due to a decrease in  reciprocal  compensation  minutes and price,  a decline in
ISDN due to less demand from  internet  service  providers  and lower demand and
prices for long haul  services.  Additionally,  ELI  revenue  for the six months
ended June 30, 2002  decreased due to the expiration of a material data services
contract in February  2001.  ELI has  experienced  six  consecutive  quarters of
declining revenue.
<TABLE>
<CAPTION>

                            GAS AND ELECTRIC REVENUE

      ($ in thousands)              For the three months ended June 30,             For the six months ended June 30,
                                --------------------------------------------  -----------------------------------------------
                                   2002        2001      $ Change   % Change     2002        2001        $ Change    % Change
                                ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
<S>                               <C>        <C>         <C>            <C>    <C>          <C>          <C>              <C>
      Gas revenue                 $ 47,856   $ 102,155   $ (54,299)    -53%    $ 119,221    $ 322,670    $ (203,449)     -63%
      Electric revenue            $ 54,610   $  55,464   $    (854)     -2%    $ 107,301    $ 110,161    $   (2,860)      -3%

</TABLE>
Gas revenue for the three months ended June 30, 2002  decreased as compared with
the prior year period  primarily  due to the sale of our  Louisiana and Colorado
gas  operations  partially  offset by higher  purchased  gas costs  passed on to
customers.  Included in gas revenue for 2001 is  approximately  $56.4 million of
revenue from our Louisiana and Colorado gas operations,  which were sold on July
2, 2001 and November 30, 2001, respectively.  Under tariff provisions,  the cost
of our gas purchases are primarily passed on to customers.

Gas revenue for the six months ended June 30, 2002  decreased  as compared  with
the prior year period  primarily  due to the sale of our  Louisiana and Colorado
gas  operations  partially  offset by higher  purchased  gas costs  passed on to
customers.  Included in gas revenue for 2001 is approximately  $215.6 million of
revenue from our Louisiana and Colorado gas operations,  which were sold on July
2, 2001 and November 30, 2001, respectively.  Under tariff provisions,  the cost
of our gas purchases are primarily passed on to customers.

Electric  revenue for the three and six months ended June 30, 2002  decreased as
compared  with the prior year periods  primarily  due to lower  purchased  power
prices.  Under tariff  provisions,  the cost of our electric energy and fuel oil
purchases are primarily passed on to customers.
<TABLE>
<CAPTION>

                                COST OF SERVICES

      ($ in thousands)              For the three months ended June 30,             For the six months ended June 30,
                                --------------------------------------------  ------------------------------------------------
                                   2002        2001      $ Change   % Change     2002         2001       $ Change     % Change
                                ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
<S>                              <C>          <C>          <C>           <C>    <C>         <C>         <C>              <C>
       Network access            $   58,598   $  34,645    $ 23,953      69%    $ 116,556   $  67,161   $   49,395       74%
       Gas purchased                 26,201      63,914     (37,713)    -59%       69,801     227,077     (157,276)     -69%
       Electric energy and
        fuel oil purchased           28,987      29,969        (982)     -3%       55,667      59,655       (3,988)      -7%
                                ----------- ----------- -----------           ----------- ------------ -----------
                                 $  113,786   $ 128,528    $(14,742)    -11%    $ 242,024   $ 353,893   $ (111,869)     -32%
                                =========== =========== ===========           =========== ============ ===========
</TABLE>

Network  access  expenses for the three months ended June 30, 2002  increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$21.3 million and increased costs of $6.7 million in the ILEC sector,  partially
offset by  decreased  costs of $4.2  million in ELI as a result of  decreases in
demand.

Network  access  expenses  for the six months  ended June 30, 2002  increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$41.3 million and increased costs of $13.3 million in the ILEC sector, partially
offset by  decreased  costs of $7.4  million in ELI as a result of  decreases in
demand.

Gas  purchased  for the three months  ended June 30, 2002  decreased as compared
with the  prior  year  period  primarily  due to the sale of our  Louisiana  and
Colorado  gas  operations  partially  offset by an  increase in the cost of gas.
Included  in gas  purchased  for  2001 is  approximately  $40.3  million  of gas
purchased by our Louisiana and Colorado gas operations,  which were sold on July
2, 2001 and November 30, 2001, respectively.  Under tariff provisions,  the cost
of our gas purchases are primarily passed on to customers.


                                       26
<PAGE>
Gas purchased for the six months ended June 30, 2002  decreased as compared with
the prior year period  primarily  due to the sale of our  Louisiana and Colorado
gas operations  partially offset by an increase in the cost of gas.  Included in
gas purchased for 2001 is  approximately  $171.1 million of gas purchased by our
Louisiana and Colorado gas operations.

Electric  energy and fuel oil  purchased for the three and six months ended June
30, 2002  decreased  as compared  with the prior year periods  primarily  due to
lower purchased power prices. Under tariff provisions,  the cost of our electric
energy and fuel oil purchases are primarily passed on to customers.

During the past two years,  power  supply  costs have  fluctuated  substantially
forcing  companies in some cases to pay higher  operating costs to operate their
electric  businesses.  In Arizona,  excessive  power costs  charged by our power
supplier in the amount of  approximately  $111.3  million  through June 30, 2002
have been incurred. We believe that we are allowed to recover these charges from
ratepayers through the Purchase Power Fuel Adjustment clause,  that was approved
by the Arizona  Corporation  Commission and has been in place for several years.
However,  in an attempt to limit "rate shock" to our customers,  we requested in
September 2001 that our  unrecovered  power costs,  plus interest,  be recovered
over a  seven-year  period.  As a result,  we have  deferred  these costs on the
balance sheet in anticipation of recovery through the regulatory process.  Parts
of our proposal have been contested by one or more parties to a pending  Arizona
Commission proceeding convened to consider the matter. A determination regarding
recovery could be made in 2002 but the timing is not certain.
<TABLE>
<CAPTION>
                            OTHER OPERATING EXPENSES

($ in thousands)                    For the three months ended June 30,               For the six months ended June 30,
                                ---------------------------------------------  -----------------------------------------------
                                   2002        2001      $ Change   % Change     2002        2001        $ Change    % Change
                                ----------- ----------- ----------- ---------  ------------ ------------ ----------- ---------
<S>                              <C>         <C>          <C>           <C>    <C>          <C>          <C>            <C>
Operating expenses               $ 191,019   $ 156,901    $ 34,118      22%    $ 390,272    $ 315,782    $ 74,490       24%
Taxes other than income taxes       31,384      24,437       6,947      28%       64,748       50,273      14,475       29%
Sales and marketing                 29,023      20,960       8,063      38%       57,260       41,571      15,689       38%
                                ----------- ----------- -----------            ----------- ------------ -----------
                                 $ 251,426   $ 202,298    $ 49,128      24%    $ 512,280    $ 407,626    $ 104,654      26%
                                =========== =========== ===========            =========== ============ ===========
</TABLE>
Operating expenses for the three and six months ended June 30, 2002 increased as
compared  with the prior  year  periods  primarily  due to  increased  operating
expenses related to Frontier of $71.4 million and $149.9 million,  respectively,
partially  offset  by  increased  operating  efficiencies  and  a  reduction  of
personnel in the ILEC and ELI sectors,  decreased  operating expenses in the gas
sector due to the sale of our Louisiana  and Colorado gas  operations on July 2,
2001 and November 30, 2001, respectively,  and decreased compensation expense of
$1.7 million and $1.5 million, respectively, related to variable stock plans. In
future  periods,  as a result of  decreases  in the value of our pension  assets
because of declines in the stock and bond markets, we may have increased pension
expenses.

Taxes other than income taxes  increased as compared with the prior year periods
primarily  due to the impact of  Frontier  of $8.4  million  for the three month
period and $16.8 million for the six month period.

Sales and marketing  expenses  increased as compared with the prior year periods
primarily  due to the impact of  Frontier  of $11.7  million for the three month
period and $22.2 million for the six month period, partially offset by decreased
sales and  marketing  in the ELI sector of $2.8 million and $5.4 million for the
three and six  months  ended June 30,  2002,  respectively,  primarily  due to a
reduction in personnel and related costs.
<TABLE>
<CAPTION>
                      DEPRECIATION AND AMORTIZATION EXPENSE

      ($ in thousands)              For the three months ended June 30,             For the six months ended June 30,
                                --------------------------------------------  ------------------------------------------------
                                   2002        2001      $ Change   % Change     2002          2001       $ Change   % Change
                                ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
<S>                              <C>         <C>          <C>           <C>    <C>          <C>         <C>             <C>
      Depreciation  expense      $ 156,050   $ 101,290    $ 54,760      54%    $ 303,870    $ 193,743   $ 110,127       57%
      Amortization expense          30,328      13,076      17,252     132%       60,682       26,329      34,353      130%
                                ----------- ----------- -----------           ----------- ------------ -----------
                                 $ 186,378   $ 114,366    $ 72,012      63%    $ 364,552    $ 220,072   $ 144,480       66%
                                =========== =========== ===========           =========== ============ ===========
</TABLE>
Depreciation  expense for the three and six months ended June 30, 2002 increased
as compared with the prior year periods  primarily due to the impact of Frontier
of $40.9  million and $82.6  million,  respectively,  and $0.9 million and $12.8
million, respectively, of accelerated depreciation related to the closing of our
Plano, Texas administrative facility. Accelerated depreciation has ceased on the
Plano facility since it is now carried at estimated  realizable value. The three
and six months were also impacted by $10.4 million of increased  depreciation at
ELI due to the purchase of $110.0 million  previously leased facilities in April
2002.


                                       27
<PAGE>

Amortization  expense for the three and six months ended June 30, 2002 increased
as compared with the prior year periods  primarily due to the impact of Frontier
of $23.8 million and $47.6 million,  respectively,  partially offset by the fact
that we ceased amortization of goodwill related to our previous  acquisitions as
of  January  1,  2002 in  accordance  with  Statement  of  Financial  Accounting
Standards No. 142, "Goodwill and Other Intangible Assets." For the three and six
months ended June 30, 2001 amortization expense included $10.0 million and $20.4
million, respectively, of goodwill amortization.
<TABLE>
<CAPTION>

                 RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES / RESTRUCTURING AND OTHER EXPENSES

($ in thousands)                    For the three months ended June 30,           For the six months ended June 30,
                                --------------------------------------------  ------------------------------------------------
                                   2002        2001      $ Change   % Change     2002          2001       $ Change   % Change
                                ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
Reserve for telecommunications
<S>                               <C>           <C>       <C>          <C>      <C>             <C>      <C>           <C>
  bankruptcies                    $ 10,001      $ -       $ 10,001     100%     $ 17,805        $ -      $ 17,805      100%
Restructuring and other expenses  $ 18,280      $ -       $ 18,280     100%     $ 22,185        $ -      $ 22,185      100%

</TABLE>

During the second quarter 2002, we reserved approximately $21.6 million of trade
receivables  with  WorldCom,  as a result of WorldCom's  filing for  bankruptcy.
These  receivables  were  generated  as a result of  providing  ordinary  course
telecommunications  services.  This  charge was  partially  offset in the second
quarter with an $11.6 million settlement with Global as discussed below.

Concurrent with the acquisition of Frontier,  we entered into several  operating
agreements with Global.  We have ongoing  commercial  relationships  with Global
affiliates.  We  reserved  a total of $29.0  million  of Global  receivables  to
reflect our best estimate of the net realizable  value of  receivables  incurred
from these commercial relationships during 2001 and 2002 as a result of Global's
filing for  bankruptcy.  We recorded a  write-down  of such  receivables  in the
amount of $7.8 million in the first quarter 2002 and $21.2 million in the fourth
quarter  of 2001.  In the second  quarter  2002,  as the result of a  settlement
agreement with Global, we have reversed $11.6 million of our previous write-down
of the net realizable value of these receivables.  Prior to the date of Global's
bankruptcy  filing, we provided ordinary course  telecommunications  services as
well as transitional services to Global. Global has provided us certain customer
billing and collection functions as well as other transitional  services.  These
arrangements  have continued after the bankruptcy  filing.  The Bankruptcy Court
has granted  relief to us and other  telecommunications  companies  that provide
service to Global by, among other things,  directing a shortened  payment period
with  respect  to  post-petition   invoices,  an  expedited  court  process  for
post-petition  defaults in payments by Global,  and a priority for post-petition
expense items over other unsecured debt. These procedures should minimize future
economic loss to us although we cannot guarantee that additional losses will not
occur.

Restructuring  and other expenses for the six months ended June 30, 2002 consist
of  expenses  related  to our  various  restructurings  in 2001 and 2002,  $10.2
million of expenses related to reductions in personnel at our telecommunications
operations,  costs that are being spent at both our Plano, Texas facility and at
other  locations  as a result of  transitioning  functions  and  jobs,  and $6.8
million of costs and expenses related to our tender offer in June 2002 of all of
the publicly  held ELI common  shares that we did not already  own.  These costs
were  incurred only  temporarily  and will not continue.  The  discussion  below
includes our restructuring charges and excludes the other expenses.

          Plano Restructuring
          In the  second  quarter  of  2001,  we  adopted  a plan to  close  our
          operations   support  center  in  Plano,  Texas  by  August  2002.  In
          connection  with this  plan,  we  recorded  a pre-tax  charge of $14.5
          million in the second half of 2001,  $0.8 million for the three months
          ended March 31, 2002 and we adjusted  our accrual  down by $92,000 for
          the three months ended June 30, 2002.  Our objective is to concentrate
          our  resources  in areas where we have the most  customers,  to better
          serve those  customers.  We intend to sell our Plano office  building.
          The restructuring will result in the termination of 750 employees.  We
          communicated  with all affected  employees  during July 2001.  Certain
          employees  have  been/will  be  relocated  others  have  been  offered
          severance, job training and/or outplacement counseling. As of June 30,
          2002,  approximately  $13.6  million was paid and 721  employees  were
          terminated.  The restructuring expenses primarily consist of severance
          benefits,   retention  earned  through  June  30,  2002,  early  lease
          termination  costs and other  planning  and  communication  costs.  We
          expect to incur additional costs of approximately  $0.1 million in the
          third quarter of 2002.


                                       28
<PAGE>

          Sacramento Call Center Restructuring
          In April 2002,  we closed our  Sacramento  Customer  Care  Center.  In
          connection  with  this  closing,  we  recorded  a  pre-tax  charge  of
          approximately  $0.7  million in  restructuring  expenses in the fourth
          quarter of 2001,  $0.1  million for the three  months  ended March 31,
          2002 and $9,000 for three months ended June 30,  2002.  We  redirected
          the call traffic and other work  activities  to our  Kingman,  Arizona
          call  center.  This  restructuring  resulted  in the  reduction  of 98
          employees. We communicated with all affected employees during November
          2001. As of June 30, 2002, approximately $0.8 million was paid and all
          the employees were terminated.

          ELI Restructuring
          In the first half of 2002, ELI redeployed the internet routers,  frame
          relay switches and ATM switches from the Atlanta,  Cleveland,  Denver,
          Philadelphia and New York markets to other locations in ELI's network.
          ELI ceased leasing the collocation facilities and off-net circuits for
          the backbone and local loops  supporting the service delivery in these
          markets.  It was  anticipated  that this would lead to  $4,179,000  of
          termination  fees which were  accrued for but not paid at December 31,
          2001.  In the first and second  quarters  of 2002,  ELI  adjusted  its
          original accrual down by $2,100,000 and $100,000, respectively, due to
          the favorable settlement of termination charges for an off-net circuit
          agreement.  As of  June  30,  2002,  $1,054,000  has  been  paid.  The
          remaining  accrual of $925,000 is included in current  liabilities  at
          June 30, 2002.
<TABLE>
<CAPTION>

                    INVESTMENT AND OTHER INCOME (LOSS), NET /
                 INTEREST EXPENSE / INCOME TAX EXPENSE (BENEFIT)

      ($ in thousands)                For the three months ended June 30,            For the six months ended June 30,
                                  --------------------------------------------  -----------------------------------------------
                                     2002        2001      $ Change   % Change     2002          2001       $ Change   % Change
                                  ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
      Investment and
<S>                                <C>          <C>        <C>            <C>     <C>          <C>         <C>            <C>
        other income (loss), net   $ (28,076)   $ 10,641   $ (38,717)    -364%    $ (76,584)   $  13,425   $ (90,009)    -670%
      Interest expense             $ 121,059    $ 73,129   $  47,930       66%    $ 243,109    $ 134,581   $ 108,528       81%
      Income tax expense (benefit) $ (26,560)   $    525   $ (27,085)   -5159%    $ (53,502)   $   9,573   $ (63,075)    -659%
</TABLE>

Investment  and other  income,  net for the three and six months  ended June 30,
2002  decreased  as compared  with the prior years period  primarily  due to the
recognition  of  $45.6  million  and  $95.3  million  of  losses,  respectively,
resulting from an other than temporary decline in the value of our investment in
Adelphia.

Interest  expense for the three months ended June 30, 2002 increased as compared
with the prior year period primarily due to $21.7 million of interest expense on
our $1.75 billion of notes issued in May 2001, $34.0 million of interest expense
on our $1.75  billion of notes issued in August  2001,  $6.8 million of interest
expense  on our equity  units  issued in June 2001,  $3.7  million of  increased
amortization  of debt discount  expense and $3.1 million of interest  expense on
our $200 million  Rural  Telephone  Finance  Cooperative  note issued in October
2001.  These  amounts  were  partially  offset by a reduction of $8.8 million of
interest  expense  on our lines of  credit,  a $4.2  million  decrease  in ELI's
interest expense related to decreased  interest rates on bank borrowings,  and a
$4.7 million  decrease in  amortization  of costs  associated with our committed
bank credit  facilities.  During the three months  ended June 30,  2002,  we had
average  long-term  debt  outstanding  of $5.9 billion  compared to $3.7 billion
during the three months ended June 30, 2001.  Our  composite  average  borrowing
rate for the three  months  ended June 30, 2002 as compared  with the prior year
period was 94 basis points higher due to the impact of higher  interest rates as
a result of our  refinancing  our variable  rate debt with fixed rate  long-term
debt.

Interest  expense for the six months  ended June 30, 2002  increased as compared
with the prior year period primarily due to $60.8 million of interest expense on
our $1.75 billion of notes issued in May 2001, $67.6 million of interest expense
on our $1.75  billion of notes issued in August 2001,  $14.6 million of interest
expense  on our equity  units  issued in June 2001,  $7.0  million of  increased
amortization  of debt discount  expense and $6.3 million of interest  expense on
our $200 million  Rural  Telephone  Finance  Cooperative  note issued in October
2001.  These  amounts were  partially  offset by a reduction of $25.2 million of
interest  expense  on our lines of  credit,  a $6.6  million  decrease  in ELI's
interest expense related to decreased  interest rates on bank borrowings,  and a
$9.5 million  decrease in  amortization  of costs  associated with our committed
bank  credit  facilities.  During the six months  ended  June 30,  2002,  we had
average  long-term  debt  outstanding  of $5.9 billion  compared to $3.7 billion
during the six months ended June 30, 2001. Our composite  average borrowing rate
for the six months  ended June 30, 2002 as  compared  with the prior year period
was 79 basis  points  higher  due to the  impact of higher  interest  rates as a
result of our refinancing our variable rate debt with fixed rate long-term debt.


                                       29
<PAGE>

Income  taxes for the three and six months  ended  June 30,  2002  decreased  as
compared with the prior year periods primarily due to changes in taxable income.
The estimated annual effective tax rate for 2002 is 39% as compared with 35% for
2001.  The change in the  effective  tax rate is primarily  attributable  to the
discontinuation  of the  application of SFAS 71  "Accounting  for the Effects of
Certain Types of Regulation," for our local exchange telephone properties.
<TABLE>
<CAPTION>

         DISCONTINUED OPERATIONS

($ in thousands)                    For the three months ended June 30,             For the six months ended June 30,
                                --------------------------------------------  ------------------------------------------------
                                   2002        2001      $ Change   % Change     2002          2001       $ Change   % Change
                                ----------- ----------- ----------- --------  ------------- ------------ ----------- ---------
<S>                                 <C>     <C>         <C>           <C>      <C>          <C>         <C>             <C>
Revenue                             $ -     $ 29,335    $ (29,335)   -100%     $  4,650     $ 53,429    $ (48,779)     -91%
Operating income (loss)             $ -     $  8,183    $  (8,183)   -100%     $   (419)    $ 11,945    $ (12,364)    -104%
Income (loss) from discontinued
  operations, net of tax            $ -     $  3,367    $  (3,367)   -100%     $ (1,478)    $  4,476    $  (5,954)    -133%
Gain on disposal of water
  segment, net of tax               $ -     $      -    $       -       -      $169,326     $      -    $ 169,326      100%

</TABLE>

Revenue, operating income (loss) and net income from discontinued operations for
the three and six months  ended June 30, 2002  decreased  as  compared  with the
prior  year  period  primarily  due to the  sale  of our  water  and  wastewater
businesses  in January  2002.  On January 15, 2002, we completed the sale of our
water and wastewater operations to American Water Works, Inc. for $859.1 million
in cash and $122.5  million of assumed debt and other  liabilities.  The pre-tax
gain on the sale recognized in the first quarter of 2002 was $309.2 million. The
gain on the disposal of the water segment, net of tax was $169.3 million.

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

Our  objectives  in managing our  interest  rate risk are to limit the impact of
interest  rate  changes  on  earnings  and cash  flows and to lower our  overall
borrowing costs. To achieve these objectives,  a majority of our borrowings have
fixed  interest  rates;  variable  rate debt is  refinanced  when  advantageous.
Consequently,  we have limited  material  future earnings or cash flow exposures
from  changes  in  interest  rates  on our  long-term  debt  and  capital  lease
obligations.  A hypothetical 10% adverse change in interest rates would increase
the  amount  that  we  pay on our  variable  obligations  and  could  result  in
fluctuations  in the fair  value of our fixed rate  obligations.  Based upon our
overall  interest rate exposure at June 30, 2002, a near-term change in interest
rates would not materially affect our consolidated  financial position,  results
of operations or cash flows.

On December 17, 2001, we entered into two interest rate swap  agreements with an
investment  grade  financial  institution,  each  agreement  covering a notional
amount of $50 million. Under the terms of both agreements,  we make semi-annual,
floating rate  interest  payments  based on six-month  LIBOR and receive a fixed
6.375% rate on the notional amount.  Under the terms of one swap, the underlying
LIBOR rate is set in advance, while the second agreement utilizes LIBOR reset in
arrears.  Both swaps  terminate  on August  15,  2004 when the  underlying  debt
matures, and are being accounted for under SFAS 133 as fair value hedges.


                                       30
<PAGE>

During  May 2002,  we entered  into three  interest  rate swap  agreements  with
investment  grade  financial  institutions,  each agreement  covering a notional
amount of $50 million.  Under the terms of the agreements,  we make semi-annual,
floating rate  interest  payments  based on six-month  LIBOR and receive a fixed
8.50% rate on the notional amount.  Under the terms of two swaps, the underlying
LIBOR  rate is set in  arrears,  while  the  third  agreement  is  based on each
period's daily average  six-month  LIBOR.  All three swaps  terminate on May 15,
2006 and are  being  accounted  for  under  SFAS 133 as fair  value  hedges.  In
connection  with these swaps,  on June 26, 2002,  we entered into three  Forward
Rate Agreements  (FRAs),  which set the LIBOR rate for the initial period of the
three swaps,  which ends  November 15, 2002.  The average rate of the three FRAs
for the current period is 5.6717%.

Sensitivity analysis of interest rate exposure
At June  30,  2002,  the fair  value of our  long-term  debt and  capital  lease
obligations was estimated to be  approximately  $4,791.5  million,  based on our
overall weighted  average rate of 7.9% and our overall  weighted  maturity of 13
years.  There has been no  material  change  in the  weighted  average  maturity
applicable to our  obligations  since  December 31, 2001.  The overall  weighted
average  interest  rate  has  increased  by  approximately  21 basis  points.  A
hypothetical  increase of 79 basis points (10% of our overall  weighted  average
borrowing  rate) would result in an approximate  $270.7 million  decrease in the
fair value of our fixed rate obligations.

Equity Price Exposure

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

As of June 30,  2002,  we owned  3,059,000  shares  of  Adelphia  Communications
(Adelphia)  common stock. As a result,  of Adelphia's  recent price declines and
filing for bankruptcy,  we recognized losses of $45.6 million, $49.7 million and
$79.0 million on our investment for the three months ended June 30, 2002,  March
31, 2002 and December 31, 2001, respectively, as the declines were determined to
be other than  temporary.  As of June 30, 2002, we have written this  investment
down to zero, and therefore we have no additional exposure related to the market
value of Adelphia stock.

Sensitivity analysis of equity price exposure
At June  30,  2002,  the fair  value of the  equity  portion  of our  investment
portfolio  was estimated to be $30.0  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $3.0 million decrease in the
fair value of the equity portion of our investment portfolio.

Commodity Price Exposure

We  purchase  monthly  gas  future  contracts,  from  time to  time,  to  manage
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,  2002 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,  2002.  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.

                                       31
<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 filed a notice of claim for arbitration with respect to the
terminated acquisition  agreements.  Qwest asserts that we wrongfully terminated
these agreements and is seeking  approximately $64 million in damages,  which is
the aggregate of liquidated  damages under letters of credit  established in the
terminated acquisition agreements. On September 7, 2001, we filed a response and
counterclaims in the same arbitration  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.  The parties are currently  engaged in  discovery.  An
arbitration hearing has been scheduled to commence in the first quarter of 2003.

On December 21,  2001,  we entered into a  settlement  agreement  resolving  all
claims in a class  action  lawsuit  pending  against  the  company in Santa Cruz
County, Arizona (Chilcote, et al. v. Citizens Utilities Company, No. CV 98-471).
The lawsuit arose from claims by a class of plaintiffs  that includes all of our
electric customers in Santa Cruz County for damages resulting from several power
outages that occurred  during the period  January 1, 1997,  through  January 31,
1999. Under the terms of the settlement agreement,  and without any admission of
guilt or  wrongdoing  by us,  we will pay the  class  members  $5.5  million  in
satisfaction of all claims. The court approved the settlement agreement on March
29, 2002, and the lawsuit  against us was dismissed with  prejudice.  We accrued
the full settlement amount,  plus an additional amount sufficient to cover legal
fees and other related expenses, during the fourth quarter of 2001.

As part of the Frontier acquisition,  Global and we agreed to Global's transfer,
effective as of July 1, 2001, of certain liabilities and assets under the Global
pension plan for Frontier employees. Such transfer and assumption of liabilities
would be to a trustee of a trust  established  under our pension plan, and would
exclude (1) those  liabilities  relating to certain  current and former Frontier
employees who were not considered part of the Frontier  acquisition  (calculated
using the "safe harbor" methodology of the Pension Benefit Guaranty Corporation)
or (2) those  assets  attributable  to such  liabilities.  While all amounts and
procedures  had been  agreed to by Global  and us prior to  Global's  bankruptcy
filing,  on the  ground  that its  obligation  to make  this  transfer  might be
"executory" under the Bankruptcy Code, Global has refused to execute and deliver
an  authorization  letter to the Frontier plan trustee  directing the trustee to
transfer to our pension  plan record  ownership  of the  transferred  assets and
liabilities. We have initiated an adversary proceeding with the Bankruptcy Court
supervising Global's bankruptcy proceeding, in which we believe we will prevail,
to require  Global to execute and deliver  such  authorization  letter if Global
does not do so as required by the Frontier stock purchase agreement.  A decision
on dispositive motions filed by us is expected in the third quarter of 2002.

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.

                                       32
<PAGE>

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

     (a)  The registrant held its 2002 Annual Meeting of the Stockholders on May
          16, 2002.

     (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                  WITHHELD
         ---------                         ---                  --------

         Norman I. Botwinik              237,641,461             11,138,209
         Aaron I. Fleischman             235,999,660             12,780,010
         Rudy J. Graf                    238,101,807             10,677,863
         Stanley Harfenist               238,254,625             10,525,045
         Andrew N. Heine                 238,154,691             10,624,979
         Scott N. Schneider              238,362,434             10,417,236
         John L. Schroeder               238,153,112             10,626,558
         Robert A. Stanger               238,383,272             10,396,398
         Edwin Tornberg                  238,102,049             10,677,621
         Claire L. Tow                   234,471,565             14,308,105
         Leonard Tow                     235,561,322             13,218,348


     (c)  Ratification  of appointment of KPMG LLP as the Company's  independent
          public accountants for 2002.

                Number of votes FOR             243,243,679
                Number of votes AGAINST           3,837,778
                Number of votes ABSTAINING        1,698,213

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

As  disclosed  in our proxy  statement  for the 2002 Annual  Meeting,  under our
bylaws,  if any  stockholder  intends to propose  any matter at the 2003  annual
meeting,  the proponent  must give written notice to us not earlier than January
1, 2003 nor later than February 15, 2003.  Furthermore,  in accordance  with the
proxy rules and  regulations  of the Securities  and Exchange  Commission,  if a
stockholder  does not notify us by February  15,  2003 of a  proposal,  then our
proxies  would  be  able  to  use  their  discretionary  voting  authority  if a
stockholder's proposal is raised at the meeting.

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

     a)   Exhibits:
          None.

     b)   Reports on Form 8-K:

          We  filed  on  Form  8-K on May 14,  2002  under  Item  7,  "Financial
          Statements,  Exhibits," a press  release  announcing  earnings for the
          quarter ended March 31, 2002.

          We filed on Form 8-K on May 16, 2002 under Item 5, "Other  Events" and
          Item 7, "Financial  Statements,  Exhibits," a press release announcing
          our intent to acquire all  outstanding  shares of Electric  Lightwave,
          Inc. not presently owned by us or our subsidiaries.

          We filed on Form 8-K on June 18, 2002 under Item 5, "Other Events" and
          Item 7, "Financial  Statements,  Exhibits," a press release announcing
          the successful  completion of our cash tender offer at $0.70 per share
          for all the outstanding  publicly-held Class A common shares of shares
          of ELI that we did not  already  own and the  prepayment  by us of all
          $400 million outstanding under ELI's bank facility.

                                       33
<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 7, 2002


                                       34