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 SEPTEMBER 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 September 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
                                                    -----------------

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


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

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


The number of shares outstanding of the registrant's class of common stock as of
October 31, 2002 was 282,223,679.

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                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


                                                                                                       Page No.
                                                                                                       --------
Part I.  Financial Information (Unaudited)

<S>                                                                                                       <C>
    Consolidated Balance Sheets at September 30, 2002 and December 31, 2001                                2

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

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

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

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

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

    Notes to Condensed Consolidated Financial Statements                                                   7

    Management's Discussion and Analysis of Financial Condition and Results of Operations                 22

    Quantitative and Qualitative Disclosures about Market Risk                                            34

Part II.  Other Information

    Legal Proceedings                                                                                     36

    Controls and Procedures                                                                               36

    Exhibits and Reports on Form 8-K                                                                      37

    Signature                                                                                             38

    Certifications                                                                                        39

</TABLE>

                                       1

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<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

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


                                                                                   September 30, 2002    December 31, 2001
                                                                                 ---------------------  -------------------
ASSETS
------
Current assets:
<S>                                                                                         <C>                  <C>
    Cash and cash equivalents                                                             $   479,236         $    215,869
    Accounts receivable, net                                                                  310,834              311,878
    Other current assets                                                                       47,935              150,573
    Assets held for sale                                                                      749,154            1,107,937
    Assets of discontinued operations                                                               -              746,791
                                                                                 --------------------- --------------------
      Total current assets                                                                  1,587,159            2,533,048

Property, plant and equipment, net                                                          3,736,031            4,512,038

Intangibles, net                                                                            2,864,467            2,978,942
Investments                                                                                    31,298              141,208
Other assets                                                                                  393,498              388,364
                                                                                 --------------------- --------------------
           Total assets                                                                   $ 8,612,453         $ 10,553,600
                                                                                 ===================== ====================

LIABILITIES AND EQUITY
----------------------
Current liabilities:
    Long-term debt due within one year                                                    $   141,220         $    483,906
    Accounts payable and other current liabilities                                            607,814              625,575
    Liabilities related to assets held for sale                                               241,329              218,775
    Liabilities of discontinued operations                                                          -              228,337
                                                                                 --------------------- --------------------
      Total current liabilities                                                               990,363            1,556,593

Deferred income taxes                                                                          50,253              429,544
Customer advances for construction and contributions in aid of construction                   153,955              183,319
Other liabilities                                                                             245,181              241,846
Equity units                                                                                  460,000              460,000
Long-term debt                                                                              5,219,346            5,534,906
                                                                                 --------------------- --------------------
      Total liabilities                                                                     7,119,098            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; 282,220,000
      and 281,289,000 outstanding and 293,788,000 and 292,840,000 issued at
      September 30, 2002 and December 31, 2001, respectively)                                  73,447               73,210
    Additional paid-in capital                                                              1,936,307            1,927,518
    Retained earnings (accumulated deficit)                                                  (528,573)             129,864
    Accumulated other comprehensive income                                                        221                4,907
    Treasury stock                                                                           (189,297)            (189,357)
                                                                                 --------------------- --------------------
      Total shareholders' equity                                                            1,292,105            1,946,142
                                                                                 --------------------- --------------------
           Total liabilities and equity                                                   $ 8,612,453         $ 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
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<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

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

                                                                                                   2002             2001
                                                                                             --------------  ---------------
<S>                                                                                              <C>              <C>
Revenue                                                                                         $  668,831        $ 661,121

Operating expenses:
     Cost of services                                                                              115,795          123,214
     Other operating expenses                                                                      248,678          273,011
     Depreciation and amortization                                                                 199,611          193,662
     Restructuring and other expenses                                                                 (273)          13,002
     Loss on impairment                                                                          1,074,058                -
                                                                                             --------------  ---------------
Total operating expenses                                                                         1,637,869          602,889
                                                                                             --------------  ---------------

Operating income (loss)                                                                           (969,038)          58,232

Investment and other income, net                                                                    13,859            3,070
Gain on sale of assets                                                                               1,901          139,304
Interest expense                                                                                   116,459          123,452
                                                                                             --------------  ---------------
     Income (loss) from continuing operations before income taxes, dividends
       on convertible preferred securities and extraordinary expense                            (1,069,737)          77,154
Income tax expense (benefit)                                                                      (371,186)          39,610
                                                                                             --------------  ---------------
      Income (loss) from continuing operations before dividends
       on convertible preferred securities and extraordinary expense                              (698,551)          37,544

Dividends on convertible preferred securities, net of income tax benefit                             1,553            1,553
                                                                                             --------------  ---------------
      Income (loss) from continuing operations before extraordinary expense                       (700,104)          35,991

Income from discontinued operations, net of income tax of $0 and $4,571, respectively                    -            7,199
                                                                                             --------------  ---------------
     Income (loss) before extraordinary expense                                                   (700,104)          43,190

Extraordinary expense - discontinuation of Statement of Financial Accounting
     Standards No. 71, net of income tax (benefit) of $0 and $(7,292), respectively                      -           43,631
                                                                                             --------------  ---------------
     Net loss                                                                                   $ (700,104)       $    (441)
                                                                                             ==============  ===============

Carrying cost of equity forward contracts                                                                -            1,003
                                                                                             --------------  ---------------
     Net loss attributable to common shareholders                                               $ (700,104)       $  (1,444)
                                                                                             ==============  ===============

Basic income (loss) per common share:
     Income (loss) from continuing operations before extraordinary expense                      $    (2.49)       $    0.12
     Income from discontinued operations                                                        $        -        $    0.03
     Extraordinary expense                                                                      $        -        $   (0.15)
     Net loss attributable to common shareholders                                               $    (2.49)       $   (0.01)

Diluted income (loss) per common share:
     Income (loss) from continuing operations before extraordinary expense                      $    (2.49)       $    0.12
     Income from discontinued operations                                                        $        -        $    0.02
     Extraordinary expense                                                                      $        -        $   (0.15)
     Net loss attributable to common shareholders                                               $    (2.49)       $   (0.01)


</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 NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)
                                                                                                    2002           2001
                                                                                                -------------  -------------
<S>                                                                                              <C>            <C>
Revenue                                                                                          $ 2,010,604    $ 1,791,144

Operating expenses:
    Cost of services                                                                                 357,819        477,107
    Other operating expenses                                                                         760,958        680,637
    Depreciation and amortization                                                                    564,163        413,734
    Reserve for telecommunications bankruptcies                                                       17,805              -
    Restructuring and other expenses                                                                  21,912         13,002
    Loss on impairment                                                                             1,074,058              -
                                                                                                -------------  -------------
Total operating expenses                                                                           2,796,715      1,584,480
                                                                                                -------------  -------------

Operating income (loss)                                                                             (786,111)       206,664

Investment and other income (loss), net                                                              (62,725)        16,495
Gain on sale of assets                                                                                 1,901        139,304
Interest expense                                                                                     359,568        258,033
                                                                                                -------------  -------------
    Income (loss) from continuing operations before income taxes, dividends on convertible
      preferred securities, extraordinary expense and cumulative effect of change
      in accounting principle                                                                     (1,206,503)       104,430
Income tax expense (benefit)                                                                        (424,688)        49,183
                                                                                                -------------  -------------
    Income (loss) from continuing operations before dividends on convertible preferred
      securities, extraordinary expense and cumulative effect of change in accounting principle     (781,815)        55,247

Dividends on convertible preferred securities, net of income tax benefit                               4,658          4,658
                                                                                                -------------  -------------
Income (loss) from continuing operations before extraordinary expense and
  cumulative effect of change in accounting principle                                               (786,473)        50,589

Income (loss) from discontinued operations, net of income tax (benefit) of $(920)
   and $6,730, respectively                                                                           (1,478)        11,675
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
      $6,730, respectively                                                                           167,848         11,675

                                                                                                -------------  -------------
    Income (loss) before extraordinary expense and cumulative effect of change in
      accounting principle                                                                          (618,625)        62,264

Extraordinary expense - discontinuation of Statement of Financial Accounting
  Standards No. 71, net of income tax (benefit) of $0 and $(7,292), respectively                           -         43,631
Cumulative effect of change in accounting principle                                                  (39,812)             -
                                                                                                -------------  -------------
    Net income (loss)                                                                            $  (658,437)   $    18,633
                                                                                                =============  =============

Carrying cost of equity forward contracts                                                                  -         13,650
                                                                                                -------------  -------------
     Net income (loss) attributable to common shareholders                                       $  (658,437)   $     4,983
                                                                                                =============  =============

Basic income (loss) per common share:
    Income (loss) from continuing operations before extraordinary expense
      and cumulative effect of change in accounting principle                                    $     (2.80)   $      0.14
    Income from discontinued operations                                                          $      0.60    $      0.04
    Income (loss) before extraordinary expense and cumulative effect of change
      in accounting principl                                                                     $     (2.21)   $      0.23
    Extraordinary expense                                                                        $         -    $     (0.16)
    Loss from cumulative effect of change in accounting principle                                $     (0.14)   $         -
    Net loss attributable to common shareholders                                                 $     (2.35)   $      0.02

Diluted income (loss) per common share:
    Income (loss) from continuing operations before extraordinary expense
      and cumulative effect of change in accounting principle                                    $     (2.80)   $      0.13
    Income from discontinued operations                                                          $      0.59    $      0.04
    Income (loss) before extraordinary expense and cumulative effect of change
      in accounting principle                                                                    $     (2.21)   $      0.22
    Extraordinary expense                                                                        $         -    $     (0.16)
    Loss from cumulative effect of change in accounting principle                                $     (0.14)   $         -
    Net loss attributable to common shareholders                                                 $     (2.35)   $      0.02
</TABLE>
              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements.

                                       4
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<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 NINE MONTHS ENDED SEPTEMBER 30, 2002
                   ( $ in thousands, except per-share amounts)
                                   (Unaudited)

                                                                         Retained     Accumulated
                                              Common      Additional     Earnings        Other                      Total
                                               Stock       Paid-In     (Accumulated  Comprehensive   Treasury    Shareholders'
                                            ($0.25 par)    Capital       Deficit)    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                                      237         8,789              -            -           60           9,086
   Net loss                                           -             -       (658,437)           -            -        (658,437)
   Other comprehensive loss, net of tax
     and reclassifications adjustments                -             -              -       (4,686)           -          (4,686)
                                            ------------ -------------  ------------- ------------ ------------ ---------------
Balances September 30, 2002                    $ 73,447   $ 1,936,307      $(528,573)     $   221    $(189,297)    $ 1,292,105
                                            ============ =============  ============= ============ ============ ===============



              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 NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                                ($ in thousands)
                                   (Unaudited)

                                             For the three months ended September 30,    For the nine months ended September 30,
                                           ---------------------------------------------------------------------------------------
                                                  2002                  2001                   2002                  2001
                                           --------------------  --------------------   --------------------  --------------------

Net income (loss)                                   $ (700,104)            $    (441)            $ (658,437)            $  18,633
Other comprehensive income (loss), net of
  tax and reclassifications adjustments                    796               (34,696)                (4,686)              (59,565)
                                           --------------------  --------------------   --------------------  --------------------
  Total comprehensive loss                          $ (699,308)            $ (35,137)            $ (663,123)            $ (40,932)
                                           ====================  ====================   ====================  ====================

</TABLE>

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

                                       5

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<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

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

                                                                           2002             2001
                                                                     ---------------  ---------------
<S>                                                                       <C>              <C>
Net cash provided by operating activities                                 $ 459,206        $ 362,567

Cash flows from investing activities:
      Acquisitions                                                                -       (3,369,517)
      Proceeds from sale of assets                                                -          363,436
      Capital expenditures                                                 (354,203)        (309,604)
      Securities purchased                                                     (450)          (1,385)
      Securities sold                                                        11,681            1,218
      Securities matured                                                      2,014                -
      Other                                                                     912              940
                                                                     ---------------  ---------------
Net cash used by investing activities                                      (340,046)      (3,314,912)

Cash flows from financing activities:
      Long-term debt borrowings                                                   -        3,503,060
      Long-term debt principal payments                                    (717,721)        (956,821)
      Issuance of equity units                                                    -          460,000
      Common stock offering                                                       -          289,561
      Issuance of common stock for employee plans                             8,389           23,490
      Debt issuance cost                                                          -          (67,499)
      Settlement of equity forward contracts                                      -         (163,663)
      Customer advances for construction
        and contributions in aid of construction                             (5,526)           3,525
                                                                     ---------------  ---------------
Net cash provided by (used by) financing activities                        (714,858)       3,091,653

Cash provided by (used by) discontinued operations                          859,065          (28,976)
                                                                     ---------------  ---------------

Increase in cash and cash equivalents                                       263,367          110,332
Cash and cash equivalents at January 1,                                     215,869           70,086
                                                                     ---------------  ---------------

Cash and cash equivalents at September 30,                                $ 479,236        $ 180,418
                                                                     ===============  ===============


Non-cash investing and financing activities:
      Assets acquired under capital lease                                 $  38,000        $  33,985
      Change in fair value of interest rate swaps                         $  16,077        $       -


</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. Actual results may differ from those estimates. We believe
          that  our  critical   estimates  are   depreciation   rates,   pension
          assumptions,  carrying value of assets held for sale,  calculations of
          impairment  amounts and  reserves  established  for  telecommunication
          bankruptcies.

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

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

     (c)  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)  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 annually  examine the carrying  value of our goodwill
          and other identifiable  intangibles to determine whether there are any
          impairment losses (see Note 6).

     (e)  Impairment of Long-Lived  Assets and Long-Lived Assets to Be Disposed
          Of:
          We adopted Statement of Financial  Accounting Standard (SFAS) No. 144,
          "Accounting for the Impairment or Disposal of Long-Lived Assets" as of
          January 1, 2002. In accordance with SFAS No. 144, we review long-lived
          assets to be held and used and long-lived assets to be disposed of for
          impairment  whenever events or changes in circumstances  indicate that
          the   carrying   amount  of  such  assets  may  not  be   recoverable.
          Recoverability  of assets to be held and used is measured by comparing
          the carrying amount of the asset to the future  undiscounted  net cash
          flows expected to be generated by the asset.  Recoverability of assets
          held for sale is  measured by  comparing  the  carrying  amount of the
          assets  to their  estimated  fair  market  value.  If any  assets  are
          considered to be impaired, the impairment is measured by the amount by
          which the carrying  amount of the assets  exceeds the  estimated  fair
          value (see Note 3).

     (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.

                                       7
<PAGE>

          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  during 2001 and 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)  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 rights to use (IRU), 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.

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

                                       8
<PAGE>
(2)  Property, Plant and Equipment, Net:
     ----------------------------------
     Property,  plant and  equipment at September 30, 2002 and December 31, 2001
     is as follows:
<TABLE>
<CAPTION>
    ($ in thousands)                         September 30, 2002      December 31, 2001
                                          -----------------------  ---------------------
<S>                                                  <C>                    <C>
Property, plant and equipment                        $ 6,369,483            $ 6,699,928
Less accumulated depreciation                         (2,633,452)            (2,187,890)
                                          -----------------------  ---------------------
    Property, plant and equipment, net               $ 3,736,031            $ 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 $167,772,000 and $141,709,000
     for the three months ended  September 30, 2002 and 2001,  respectively  and
     $471,642,000  and $335,452,000 for the nine months ended September 30, 2002
     and 2001,  respectively.  The property,  plant and equipment balances above
     reflect  an  impairment  write down  related to ELI (see Note 3)  partially
     offset by asset additions.

(3)  Losses on Impairment:
     --------------------
     In the third quarter 2002, we recognized non-cash pre-tax impairment losses
     of $656,658,000 related to property,  plant and equipment in the ELI sector
     and  $417,400,000  related to the gas and electric  sector  assets held for
     sale, in each case in accordance with the provisions of SFAS 144.

     ELI
     ---
     Prior to the third  quarter of 2002,  we tested for  impairment  of ELI and
     determined that,  based on our assumptions,  the sum of the expected future
     cash  flows,  undiscounted  and  without  interest  charges,  exceeded  the
     carrying  value of its long lived assets and therefore we did not recognize
     an impairment.  Because sales for the nine months ended  September 30, 2002
     were  lower than those in 2001 and were  significantly  below our  original
     2002 budget  (which was used in the test for  impairment  at  December  31,
     2001),  we evaluated the long lived assets of ELI as of September 30, 2002.
     At that date,  we  estimated  that our future cash flows were less than the
     carrying  value of our  long-lived  assets.  As a result  we  recognized  a
     non-cash pre-tax  impairment loss of $656,658,000,  equal to the difference
     between the  estimated  fair value of the assets  (which we  determined  by
     calculating  the  discounted  value  of the  estimated  future  cash  flows
     weighting  various  possible  scenarios  for  management's   assessment  of
     probability of occurrence and  discounting  the  probability-weighted  cash
     flows at an appropriate rate) and the carrying amount of the assets. Making
     the  determinations  of  impairment  and the amount of  impairment  require
     significant  judgment by  management  and  assumptions  with respect to the
     future cash flows of the ELI  sector.  The  telecommunications  industry in
     general and the CLEC sector in particular is undergoing  significant change
     and disruption,  which makes judgments and assumptions  with respect to the
     future cash flows highly subjective.

     Gas and Electric Assets Held for Sale
     -------------------------------------
     On October 29,  2002,  our board  approved  the sale of our Arizona gas and
     electric utility  properties for $230,000,000 in cash, subject to customary
     adjustments under the terms of the agreements.  The board also approved, in
     principle,  the  sale of our  remaining  two  utility  properties  (Vermont
     Electric and The Gas Company in Hawaii) at currently offered prices,  which
     are below current  carrying cost. These two properties are the only utility
     properties which do not have a definitive  sales contract.  Our estimate of
     net realizable value is based on current negotiations and may be revised in
     future  periods.  As a  result,  for the  four  properties  noted  above we
     recorded a non-cash  pre-tax charge of $417,400,000 in the third quarter of
     2002 to reduce the  carrying  value of our assets held for sale to our best
     estimate of net realizable value upon sale (see Note 5).

     Previously,  we believed that the net realizable  value of these properties
     was equal to or above their carrying values. However, as a result of market
     conditions,  and the desire to complete the divestiture process in order to
     focus on our core telecommunications  operations and raise money to further
     reduce  debt,  we made a strategic  decision to accept  proceeds  less than
     carrying values.

 (4) 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  telephone  access  lines  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 of Frontier has been included in our
     financial statements from the date of acquisition.

                                       9
<PAGE>
     The following  summarizes the allocation of purchase price 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
               Debt                                    146,920
               Other liabilities                       279,536
                                                ---------------
             Total liabilities assumed                 426,456
                                                ---------------
             Cash paid                             $ 3,372,934
                                                ===============

     The following  pro forma  financial  information  for the nine months ended
     September 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.
<TABLE>
<CAPTION>
        ($ in thousands, except per share amount)                  For the nine months
                                                                ended September 30, 2001
                                                               ----------------------------
<S>                                                                    <C>
        Revenue                                                        $ 2,178,940
        Net loss                                                       $   (53,522)
        Net loss available to common shareholders per share            $     (0.25)

</TABLE>

     Included  in  revenue is  approximately  $217,200,000  of revenue  from our
     Louisiana and Colorado gas operations  for the nine months ended  September
     30, 2001. Such assets were sold during 2001 (see Note 5).

(5)  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 and Gas
          ----------------
          On October 29, 2002, we entered into definitive agreements to sell our
          Arizona gas and electric divisions to UniSource Energy Corporation for
          $230,000,000  in  cash,  subject  to  adjustments   specified  in  the
          agreements  (see  Note 3).  The  transactions,  which are  subject  to
          regulatory approvals,  are expected to close during the second half of
          2003.

          On  November  1, 2002,  we  completed  the sale of our Kauai  electric
          division to Kauai Island Utility  Cooperative  (KIUC) for $215,000,000
          in cash, which approximated its book value.

                                       10
<PAGE>

          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.

     Currently,  we do not have agreements to sell one of our gas and one of our
     electric properties.  All of our gas and electric assets (including Arizona
     gas and electric and Kauai  electric)  and their  related  liabilities  are
     classified  as "assets  held for sale" and  "liabilities  related to assets
     held for sale,"  respectively.  These  assets have been written down to our
     best  estimate  of the net  realizable  value  upon  sale  (see Note 3). We
     continue to  actively  pursue  buyers for our  remaining  gas and  electric
     businesses.

     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.

     Summarized  financial  information  for  the  water/wastewater   operations
     (discontinued operations) is set forth below:
<TABLE>
<CAPTION>
     ($ in thousands)                                           For the three months ended September 30,
                                                               --------------------------------------------
                                                                      2002                    2001
                                                               --------------------   ---------------------
<S>                                                                      <C>                      <C>
     Revenue                                                             $       -                $ 34,451
     Operating income                                                    $       -                $ 14,832
     Income tax expense                                                  $       -                $  4,571
     Income from discontinued operations, net of tax                     $       -                $  7,199

     ($ in thousands)                                            For the nine months ended September 30,
                                                               --------------------------------------------
                                                                      2002                    2001
                                                               --------------------   ---------------------
     Revenue                                                             $   4,650                $ 87,880
     Operating income (loss)                                             $    (419)               $ 26,777
     Income tax expense (benefit)                                        $    (920)               $  6,730
     Income (loss) from discontinued operations, net of tax              $  (1,478)               $ 11,675
     Gain on disposal of water segment, net of tax                       $ 169,326                $      -

</TABLE>

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

<TABLE>
<CAPTION>
       ($ in thousands)                                 September 30, 2002     December 31, 2002
                                                        ------------------     ------------------

<S>                                                               <C>                   <C>
       Current assets                                             $ 64,710              $ 66,511
       Net property, plant and equipment                           878,763               805,653
       Other assets                                                223,081               235,773
       Allowance for impairment (see Note 3)                      (417,400)                    -
                                                        --------------------   -------------------
       Total assets held for sale                                $ 749,154           $ 1,107,937
                                                        ====================   ===================

       Current liabilities                                        $ 82,386              $ 71,259
       Long-term debt                                               36,480                43,400
       Other liabilities                                           122,463               104,116
                                                        --------------------   -------------------
       Total liabilities related to assets held for sale         $ 241,329             $ 218,775
                                                        ====================   ===================

</TABLE>
                                       11
<PAGE>

(6)  Intangibles:
     -----------
     Intangibles at September 30, 2002 and December 31, 2001 are as follows:
<TABLE>
<CAPTION>
                                                                                    As of September 30, 2002
                                                               --------------------------------------------------------------------
                                                                  Gross Carrying           Accumulated            Net Carrying
              ($ in thousands)                                        Amount               Amortization              Amount
                                                               ----------------------  ---------------------  ---------------------
<S>                                                                      <C>                     <C>                   <C>
              Goodwill                                                   $ 1,991,712             $ (106,426)           $ 1,885,286
              Customer base, trade name and software                       1,127,668               (148,487)               979,181
                                                               ----------------------  ---------------------  ---------------------
                  Total intangibles                                      $ 3,119,380             $ (254,913)           $ 2,864,467
                                                               ======================  =====================  =====================


                                                                                    As of December 31, 2001
                                                               --------------------------------------------------------------------
                                                                  Gross Carrying           Accumulated            Net Carrying
              ($ in thousands)                                        Amount               Amortization              Amount
                                                               ----------------------  ---------------------  ---------------------
              Goodwill                                                   $ 2,068,032             $ (110,432)           $ 1,957,600
              Customer base, trade name and software                       1,077,398                (56,056)             1,021,342
                                                               ----------------------  ---------------------  ---------------------
                   Total intangibles                                     $ 3,145,430             $ (166,488)           $ 2,978,942
                                                               ======================  =====================  =====================
</TABLE>
     Amortization  expense was  $31,839,000 and $51,953,000 for the three months
     ended  September  30,  2002 and  2001,  respectively  and  $92,521,000  and
     $78,282,000  for the  nine  months  ended  September  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   independent   appraisals  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 ILEC operations we are typically the dominant provider of
     independent  local  exchange  carrier  services  in 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  because we  believed  there were  significant  revenue  and margin
     growth opportunities, economies of scale (e.g. cost savings opportunities),
     and the  potential  benefit  resident  in  expected  population/demographic
     trends.

     In July 2001, the Financial  Accounting  Standards Board (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 15). 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.

     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.

                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                             For the three months              For the nine months
    (In thousands, except per-share amounts)                  ended September 30,              ended September 30,
                                                     ---------------------------------     ------------------------------
                                                           2002                2001              2002            2001
                                                        ------------    --------------     ---------------  -------------
<S>                                                      <C>                 <C>             <C>               <C>
    Reported attributable to common shareholders          $ (700,104)         $ (1,444)       $ (658,437)      $  4,983
    Add back: Goodwill amortization, net of tax                    -            21,884                 -         35,240
                                                        ------------    --------------     ---------------  -------------
     Adjusted attributable to common shareholders         $ (700,104)         $ 20,440        $ (658,437)      $ 40,223
                                                        ============    ==============     ===============  =============
    Basic earnings per share:
    Reported attributable to common shareholders          $    (2.49)         $  (0.01)       $    (2.35)      $   0.02
    Goodwill amortization, net of tax                              -              0.08                 -           0.13
                                                        ------------    --------------     ---------------  -------------
    Adjusted attributable to common shareholders          $    (2.49)         $   0.07        $    (2.35)      $   0.15
                                                        ============    ==============     ===============  =============
    Diluted earnings per share:
    Reported attributable to common shareholders          $    (2.49)         $  (0.01)       $    (2.35)      $   0.02
    Goodwill amortization, net of tax                              -              0.07                 -           0.13
                                                        ------------    --------------     ---------------  -------------
    Adjusted attributable to common shareholders          $    (2.49)         $   0.07        $    (2.35)      $   0.14
                                                        ============    ==============     ===============  =============
</TABLE>
(7)  Restructuring and Other Charges:
     -------------------------------
     Restructuring and other expenses consist of expenses related to our various
     restructurings,  $10,200,000 of expenses related to reductions in personnel
     at our  telecommunications  operations,  costs  that were 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 the  original  Citizens  businesses.  We continue to
     review  our  operations,   personnel  and  facilities  to  achieve  greater
     efficiency.  We are currently evaluating  additional headcount  reductions,
     which may result in a restructuring charge in the fourth quarter of 2002.

          Plano Restructuring
          Pursuant to a plan  adopted in the second  quarter of 2001,  we closed
          our  operations  support  center in Plano,  Texas in August  2002.  In
          connection with this plan, we recorded a pre-tax charge of $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 and $561,000 for
          the  three  months  ended  June  30,  2002  and  September  30,  2002,
          respectively.  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  resulted
          in the termination of 750 employees. We communicated with all affected
          employees during July 2001.  Certain employees were relocated,  others
          were offered severance,  job training and/or outplacement  counseling.
          As of September 30, 2002,  approximately  $14,531,000 was paid and all
          affected  employees  were  terminated.   The  restructuring   expenses
          primarily  consist of severance  benefits,  retention  earned  through
          September 30, 2002, and other planning and communication costs.

          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 September 30, 2002,  approximately  $769,000 was
          paid and all affected 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,  second and third  quarters of 2002,  ELI adjusted
          its  original  accrual  down by  $2,100,000,  $100,000  and  $475,000,
          respectively,  due to the favorable settlements of termination charges
          for off-net circuit agreements.  As of September 30, 2002,  $1,204,000
          has been paid.  The  remaining  accrual of  $300,000  is  included  in
          current liabilities at September 30, 2002.

                                       13
<PAGE>

          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
          $6,800,000.  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 SFAS No. 142 and
          determined  that a write-off was necessary  based on fair market value
          as   determined  by   discounted   cash  flows  and  other   valuation
          methodologies.  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  6  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
     remained as of June 30, 2002.

                                       14
<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
                                            -----------------  -------------- -------------- ------------- ----------
Amount paid                                             (583)           (120)          (211)            -       (914)
Additional accrual                                         -               -             14             -         14
Adjustments                                             (389)              -            (69)         (117)      (575)
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 9/30/2002                                  $     -         $   212        $     -       $     -    $   212
                                            =================  ============== ============== ============= ==========

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
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 6/30/2002                                        6              16             27             -         49
                                            -----------------  -------------- -------------- ------------- ----------
Amount paid                                                -             (16)             -             -        (16)
Adjustments                                                4               -             (4)            -          -
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 9/30/2002                                  $    10         $     -        $    23       $     -    $    33
                                            =================  ============== ============== ============= ==========

ELI 2001 Restructuring
Accrued @ 12/31/2001                                 $     -         $     -        $     -       $ 4,179    $ 4,179
Adjustments                                                -               -              -        (2,100)    (2,100)
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 3/31/2002                                        -               -              -         2,079      2,079
                                            -----------------  -------------- -------------- ------------- ----------
Amount paid                                                -               -              -        (1,054)    (1,054)
Adjustments                                                -               -              -          (100)      (100)
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 6/30/2002                                        -               -              -           925        925
                                            -----------------  -------------- -------------- ------------- ----------
Amount paid                                                -               -              -          (150)      (150)
Adjustments                                                -               -              -          (475)      (475)
                                            -----------------  -------------- -------------- ------------- ----------
Accrued @ 9/30/2002                                  $     -         $     -        $     -       $   300    $   300
                                            =================  ============== ============== ============= ==========


                                             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>

                                       15

<PAGE>

(8)  Long-Term Debt:
     --------------
     The activity in our long-term  debt from December 31, 2001 to September 30,
     2002 is as follows:

<TABLE>
<CAPTION>
                                                         Nine Months Ended September 30, 2002
                                                      --------------------------------------------
                                                                      Interest                                    Interest Rate* at
                                       December 31,                  Rate Swap/                   September 30,    September 30,
($ in thousands)                           2001        Borrowings  Reclassification Payments***       2002             2002
                                      ----------------------------------------------------------- --------------  ----------------
FIXED RATE

     Rural Utilities Service Loan
<S>                                       <C>                <C>         <C>          <C>           <C>               <C>
       Contracts                          $   110,860        $ -         $      -     $  (79,782)   $    31,078       6.210%

     Debentures                               850,778          -                -        (21,250)       829,528       7.550%


     2001 Notes                             3,700,430          -           16,077        (23,667)     3,692,840       8.290%


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


     Senior Unsecured Notes                   108,825          -                -        (37,825)        71,000       8.050%

     ELI Notes                                325,000          -                -        (59,636)       265,364       6.232%
     ELI Capital Leases                       137,382          -                -         (2,128)       135,254      11.797%
     Industrial Development Revenue Bonds     249,205          -                -        (62,815)       186,390       6.091%
     Other                                         54          -                -            (10)            44      12.985%

                                      ---------------- -----------  ---------------  ------------- --------------
TOTAL FIXED RATE                            5,942,534          -           16,077       (287,113)     5,671,498
                                      ---------------- -----------  ---------------  ------------- --------------

VARIABLE RATE

     ELI Bank Credit Facility                 400,000          -                -       (400,000)             -       2.391%
     Industrial Development Revenue Bonds     136,278          -           43,400 **     (30,610)       149,068       4.267%

                                      ---------------- -----------  ---------------  ------------- --------------
TOTAL VARIABLE RATE                           536,278          -           43,400       (430,610)       149,068
                                      ---------------- -----------  ---------------  ------------- --------------

TOTAL LONG TERM DEBT                      $ 6,478,812        $ -         $ 59,477     $ (717,723)   $ 5,820,566
                                      ---------------- ===========  ===============  ============= --------------

     Less: Current Portion                   (483,906)                                                 (141,220)
     Less: Equity Units                      (460,000)                                                 (460,000)
                                      ----------------                                            --------------
                                          $ 5,534,906                                               $ 5,219,346
                                      ================                                            ==============
</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 the
long-term portion of multiple issuances.

**Reclassification from liabilities related to assets held for sale.

***Includes purchases on the open market (see Note 15).

Total future minimum cash payment commitments over the next 25 years under ELI's
long-term capital leases amounted to $318,300,000 as of September 30, 2002.


                                       16
<PAGE>
(9)  Net Income Per Common Share:
     ---------------------------
     The  reconciliation  of the net income per common share calculation for the
     three and nine months ended September 30, 2002 and 2001,  respectively,  is
     as follows:
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)                          For the three months ended September 30,
                                                ---------------------------------------------------------------------------
                                                                2002                                    2001
                                                -------------------------------------  ------------------------------------
                                                               Weighted                               Weighted
                                                               Average                                Average
                                                 Net Loss       Shares     Per Share    Net Loss       Shares    Per Share
                                                ------------  -----------  ----------  ------------  ----------- ----------
Net income (loss) per common share:
<S>                                               <C>            <C>                        <C>         <C>
  Basic                                           $(700,104)     280,778                  $   (441)     286,175
  Carrying cost of equity forward contracts               -            -                     1,003            -
                                                ------------  -----------              ------------  -----------
  Attributable to common shareholders             $(700,104)     280,778     $ (2.49)     $ (1,444)     286,175    $ (0.01)
  Effect of dilutive options                              -        3,545                         -        5,712
                                                ------------  -----------              ------------  -----------
  Diluted                                         $(700,104)     284,323     $ (2.49)     $ (1,444)     291,887    $ (0.01)
                                                ============  ===========              ============  ===========


(In thousands, except per-share amounts)                          For the nine months ended September 30,
                                                ---------------------------------------------------------------------------
                                                                2002                                   2001
                                                -------------------------------------  ------------------------------------
                                                               Weighted                               Weighted
                                                               Average                                Average
                                                 Net Loss       Shares     Per Share   Net Income      Shares    Per Share
                                                ------------  -----------  ----------  ------------  ----------- ----------
Net income (loss) per common share:
  Basic                                           $(658,437)     280,540                  $ 18,633      271,911
  Carrying cost of equity forward contracts               -            -                    13,650            -
                                                ------------  -----------              ------------  -----------
  Attributable to common shareholders             $(658,437)     280,540     $ (2.35)     $  4,983      271,911     $ 0.02
  Effect of dilutive options                              -        4,114                         -        6,438
                                                ------------  -----------              ------------  -----------
   Diluted                                        $(658,437)     284,654     $ (2.35)     $  4,983      278,349     $ 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 September 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  15,325,000  potentially  dilutive stock options at a range of $9.18 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 1,362,000 shares and
     590,000  shares at September 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.

(10) 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  typically  the
     incumbent  provider in its service areas. Our gas and electric segments are
     intended  to be sold and are  classified  as  "assets  held for  sale"  and
     "liabilities related to assets held for sale."

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

                                       17
<PAGE>

     EBITDA is a measure  commonly  used to  analyze  companies  on the basis of
     operating  performance.  Adjusted  EBITDA is operating  income  (loss) plus
     depreciation   and   amortization,   the  reserve  for   telecommunications
     bankruptcies,  restructuring and other expenses and loss on impairment.  We
     use Adjusted  EBITDA 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 September 30, 2002
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
<S>                                       <C>              <C>             <C>           <C>           <C>
Revenue                                 $   519,777       $  41,311       $  40,584     $  67,159    $   668,831
Depreciation and amortization               148,798          50,587               9           217        199,611
Restructuring and other expenses                138            (411)              -             -           (273)
Loss on impairment                                -         656,658         152,300       265,100      1,074,058
Operating income (loss)                     131,239        (702,326)       (148,345)     (249,606)      (969,038)
Adjusted EBITDA                             280,175           4,508           3,964        15,711        304,358

($ in thousands)                                      For the three months ended September 30, 2001
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $   507,202       $  52,249       $  37,717     $  63,953    $   661,121
Depreciation and amortization               173,014          20,161             152           335        193,662
Restructuring and other expenses             13,002               -               -             -         13,002
Operating income (loss)                      64,602         (21,735)          3,717        11,648         58,232
Adjusted EBITDA                             250,618          (1,574)          3,869        11,983        264,896

($ in thousands)                                       For the nine months ended September 30, 2002
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $ 1,542,494       $ 133,845       $ 159,805     $ 174,460    $ 2,010,604
Depreciation and amortization               461,829         101,978             139           217        564,163
Reserve for telecommunications
  bankruptcies                               17,371             434               -             -         17,805
Restructuring and other expenses             15,350           6,562               -             -         21,912
Loss on impairment                                -         656,658         152,300       265,100      1,074,058
Operating income (loss)                     324,067        (758,322)       (128,041)     (223,815)      (786,111)
Adjusted EBITDA                             818,617           7,310          24,398        41,502        891,827

($ in thousands)                                       For the nine months ended September 30, 2001
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $ 1,083,335       $ 173,308       $ 360,387     $ 174,114    $ 1,791,144
Depreciation and amortization               347,703          59,439             457         6,135        413,734
Restructuring and other expenses             13,002               -               -             -         13,002
Operating income (loss)                     187,957         (52,113)         42,213        28,607        206,664
Adjusted EBITDA                             548,662           7,326          42,670        34,742        633,400

</TABLE>

(11) Adelphia Investment:
     -------------------
     As  of  September  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 had written this investment down to zero.

                                       18
<PAGE>

(12) 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.

(13) 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  September  30,  2002  and  December  31,  2001  was   $250,000,000  and
     $100,000,000, respectively. Such contracts require us to pay variable rates
     of interest  (average pay rate of approximately  4.854% as of September 30,
     2002) and receive fixed rates of interest (average receive rate of 7.65% as
     of September 30, 2002). The fair value of these derivatives is reflected in
     other assets as of September 30, 2002, in the amount of $16,506,425 and the
     related  underlying  debt has been increased by a like amount.  The amounts
     received  during the three and nine months  ended  September  30, 2002 as a
     result  of  these   contracts   amounted  to  $1,378,599  and   $1,790,496,
     respectively, and are included as a reduction to interest expense.

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

(14) 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.

(15) New Accounting Pronouncements:
     -----------------------------
     In July 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
     Assets."  This  statement  requires that goodwill no longer be amortized to
     earnings,  but instead be reviewed  for  impairment.  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 and trade
     name. 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
     $39,800,000 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

                                       19
<PAGE>
     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" (see Notes 1(e) and 3).

     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 the nine
     months ended  September 30, 2002,  we  recognized  $6,000,000 of gains from
     early debt  retirement  as other  income.  There  were no similar  types of
     retirements in 2001. Also, see Note 16.

(16) Settlement of Retained Liabilities:
     ----------------------------------
     We are actively pursuing the settlement of certain retained  liabilities at
     less than face value,  which are  associated  with  customer  advances  for
     construction  from our disposed  water  properties.  For the three and nine
     months ended September 30, 2002, we recognized $10,800,000 and $20,800,000,
     respectively,  in investment  and other  income,  net, as a result of these
     settlements.

(17) 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 a $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.
     Although some of these  arrangements  have  continued  after the bankruptcy
     filing,  we are in the process of changing  some  services and functions to
     provide them ourselves.  The Bankruptcy  Court has granted relief to us and
     other telecommunications companies that provide service to Global by, among
     other  things,  directing  a  shortened  payment  period  with  respect  to
     post-petition  invoices,  an  expedited  court  process  for  post-petition
     defaults in payments by Global,  and a priority for  post-petition  expense
     items over other unsecured debt.  These  procedures  should minimize future
     economic loss to us although we cannot  guarantee  that  additional  losses
     will not occur.

(18) 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 have paid the  class  members  $5,500,000  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 and no
     accrual remains at September 30, 2002.

                                       20
<PAGE>

     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. We are waiting for a decision on the motions filed by us.



                                       21


<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  that could cause  actual  results to differ
materially from those  expressed or implied in the  statements.  Forward-looking
statements  (including oral  representations) are only predictions or statements
of current plans, which we review continuously.  Forward-looking  statements may
differ  from  actual  future  results  due to,  but not  limited  to, any of the
following possibilities:

     *    Changes in the number of our access lines;

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

     *    Our  ability  to  effectively   manage  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 sell second lines and enhanced and
          data services to markets currently under-penetrated;

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

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

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

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

     *    Effects of increased  pension and retiree medical expenses and funding
          requirements;

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

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

     *    The effects of possible state  regulatory cash management  policies on
          our ability to transfer cash among our  subsidiaries and to the parent
          company; 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 nine months ended  September 30, 2002, we used cash flow from continuing
operations,  the proceeds from the sale of discontinued  operations and cash and
investment  balances  to fund  ongoing  working  capital  requirements,  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 September 30, 2002,
we had cash and cash equivalents balances aggregating $479.2 million.


                                       22
<PAGE>

Our  revised  budget is  approximately  $357.0 to  $367.0  million  for our 2002
capital projects,  including approximately $300.0 to $310.0 million for the ILEC
segment,  $15.0 million for the ELI segment (excluding a $110.0 million purchase
of equipment  under lease) and $42.0 million for the public  utilities  services
segment.  For the nine months  ended  September  30,  2002,  our actual  capital
expenditures were $205.5 million for the ILEC segment,  $8.2 million for the ELI
segment  (excluding  the  purchase  for  $110.0  million  in cash  of  equipment
previously  under  lease) and $31.7  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 and public services  operations and
our existing cash and investment balances.

During 1995, ELI entered into a $110.0 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 $110.0 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 $805.0
million. Associated facility fees vary, depending on our credit ratings, and are
0.25% per annum as of September 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 September 30, 2002,  there were no outstanding  advances
under these facilities.

Tender Offer
------------
On May 16, 2002, we commenced 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 $400.0 million outstanding under ELI's committed revolving line of credit
with a syndicate of commercial banks.

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 $0.5 million 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 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.

On July 15, 2002, we redeemed at par three of our outstanding fixed and variable
rate Industrial Development Revenue Bond series aggregating  approximately $14.9
million in principal amount.

On August 7, 2002,  we  redeemed  at par one of our  outstanding  variable  rate
Industrial  Development  Revenue Bond series  totaling $5.5 million in principal
amount.

                                       23
<PAGE>

During the second and third  quarters,  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 $104.6 million and they
generated a pre-tax gain from the early  extinguishment of debt at a discount of
approximately $6.0 million.

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  $50.0  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 $50.0 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%.  On August 8, 2002,  we entered into another
FRA that set the  effective  rate that we pay on one of the swaps for the period
of November 15, 2002 to May 15, 2003 at 5.310%.

Acquisition
-----------
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
telephone access lines 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 of Frontier
has 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.

On October 29, 2002, we entered into  definitive  agreements to sell our Arizona
gas and electric divisions to UniSource Energy Corporation for $230.0 million in
cash,  subject to  adjustments  specified  in the  agreements  (see Note 3). The
transaction,  which is subject to  regulatory  approvals,  is  expected to close
during the second half of 2003.

On November 1, 2002,  we completed  the sale of our Kauai  electric  division to
Kauai  Island  Utility  Cooperative  (KIUC)  for $215.0  million in cash,  which
approximated its book value.

Currently,  we do not  have  agreements  to  sell  one of our gas and one of our
electric properties.  All our gas and electric assets (including Arizona gas and
electric and Kauai  electric) and their related  liabilities  are  classified as
"assets  held for sale" and  "liabilities  related  to  assets  held for  sale,"
respectively.  These assets have been  written down to our best  estimate of the
net  realizable  value upon sale (see Note 3). We continue  to  actively  pursue
buyers for our remaining gas and electric  businesses.  During the third quarter
of 2002, we  recognized a non-cash  pre-tax  impairment  loss on these assets of
$417.4 million.

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.

Critical Accounting Policies and Estimates
------------------------------------------
We  review  all  significant  estimates  affecting  our  consolidated  financial
statements  on a  recurring  basis  and  record  the  effect  of  any  necessary
adjustment  prior to  their  publication.  Uncertainties  with  respect  to such
estimates  and   assumptions  are  inherent  in  the  preparation  of  financial
statements;  accordingly,  it is possible that actual  results could differ from
those  estimates  and changes to  estimates  could  occur in the near term.  The
preparation of our financial  statements  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of the contingent assets and liabilities at the date of the financial

                                       24
<PAGE>
statements and the reported amounts of revenue and expenses during the reporting
period.  Estimates  and  judgments  are used when  accounting  for allowance for
doubtful  accounts,   impairment  of  long-lived   assets,   intangible  assets,
depreciation  and  amortization,   employee  benefit  plans,  income  taxes  and
contingencies, among others.

We  believe  that the  accounting  estimate  related  to asset  impairment  is a
"critical  accounting  estimate"  because  with  respect  to ELI,  it is  highly
susceptible  to change from period to period  because it requires  management to
make significant judgments and assumptions about future revenue, operating costs
and capital  expenditures  over the life of the  property,  plant and  equipment
(generally  5 to 15  years)  as well as the  probability  of  occurrence  of the
various  scenarios  and  appropriate  discount  rates.  With  respect to gas and
electric,   our  estimate  is  based  upon  an  expected  future  sales  prices.
Management's assumptions about ELI's future revenue, operating costs and capital
expenditures as well as the probability of occurrence of these various scenarios
require  significant  judgment because the CLEC industry is changing and because
actual  revenue,  operating  costs  and  capital  expenditures  have  fluctuated
dramatically in the past and may continue to do so in the future. Management has
discussed the  development  and selection of this critical  accounting  estimate
with the audit  committee of our board of directors and our audit  committee has
reviewed the company's disclosure relating to it.

Our estimate of anticipated losses related to telecommunications bankruptcies is
a "critical  accounting  estimate." We have  significant  on-going normal course
business  relationships  with WorldCom and Global Crossing,  both of which filed
for  bankruptcy.  We have  reserved  approximately  95% of the  net  outstanding
pre-bankruptcy  balances  owed to us and  believe  that our  estimate of the net
realizable  value  of the  amounts  owed  to us by  both of  these  entities  is
appropriate.   We  may  realize  more  or  less  than  that  amount  upon  final
determination of approved creditor claims by the bankruptcy courts.

Our estimates of pension  expense,  pension assets and related  liabilities  are
"critical  accounting  estimates."  Our  pension  expense is based upon a set of
assumptions that include projections of future interest rates and asset returns.
Actual  results  may vary from  these  estimates.  Additionally,  we have made a
judgment that we will prevail in bankruptcy  court in obtaining  certain pension
assets and the related  liabilities we acquired in our purchase of Frontier (see
Note 18). Our pension expense may vary  significantly in future periods if we do
not prevail in this matter.

The  calculation  of  depreciation  and  amortization  expense  is  based on the
estimated economic useful lives of the underlying property,  plant and equipment
and identifiable  intangible assets. Although we believe it is unlikely that any
significant  changes to the useful  lives of our tangible or  intangible  assets
will occur in the near term,  rapid  changes in  technology or changes in market
conditions  could result in revisions  to such  estimates  that could affect the
carrying value of these assets and our future  consolidated  operating  results.
Our  depreciation  expense of the ELI segment  will  decrease  substantially  in
future periods as a result of the impairment write down.

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 and trade name. 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.

                                       25
<PAGE>
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  impairment  of
long-lived  assets held and used and 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.

In the third quarter  2002, we recognized a non-cash  pre-tax loss on impairment
of $656.7  million for the  impairment of certain  long-lived  assets in the ELI
sector and a total of $417.4 million of non-cash pre-tax losses on impairment in
the gas and  electric  sectors.  We have  determined  that we may not be able to
recover the full value of ELI's  property,  plant,  and  equipment and therefore
have taken an impairment charge accordingly.  The gas and electric impairment is
associated with the proposed sale of our Arizona gas and electric  properties at
a price that is less than the current book  carrying  cost. We have also written
down the value of our two remaining  utilities to our estimate of net realizable
sales price. Our sales price for the Kauai electric  division for $215.0 million
approximates the current book value.

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 the nine months
ended  September 30, 2002,  we recognized  $6.0 million of gains from early debt
retirement as other income. There were no similar types of retirements in 2001.

Pension Contingency
-------------------
The assets of the Global  pension plan (see Note 18) are  invested  primarily in
equity securities.  Due to the general decline in the equity markets, during the
first nine months of 2002 the assets have  declined in value.  We believe  that,
unless market conditions change in our favor during the fourth quarter,  we will
be required to record a significant  adjustment to our minimum pension liability
as of December 31, 2002. Any pension  liability  would result from the declining
market value of the pension plan assets  during 2002  combined with lower market
interest  rates used to value the plan's  liabilities.  This  pension  liability
would be measured  as the amount of the plan's  accumulated  benefit  obligation
that is in excess of the plan's market value of assets at December 31, 2002 plus
any balance  remaining in deferred or "prepaid" benefit costs that were recorded
during  periods when our pension plan assets  exceeded our  accumulated  benefit
obligation.  A charge would be recorded to shareholder's  equity,  net of income
tax benefits, as a component of comprehensive loss. Although the exact amount of
the  charge to  shareholder's  equity is not known at this time  because it will
depend on the value of the plan assets and market interest rates at December 31,
2002, it would approximate $100.0 million (net of tax benefit) based upon market
conditions  that  existed at October 31,  2002.  We  estimate  that no charge to
equity will be recorded if asset values  increase by  approximately  3% from the
values  at  October  31,  2002.  However,  there  would  also  be no  charge  to
shareholders'  equity  if we made a cash  contribution  to the plan in an amount
equal to the  difference  at  December  31,  2002  between the value of the plan
assets and the accumulated benefit obligation.  The adjustment would be computed
separately for each plan that the Company  maintains but is mainly  attributable
to the actual  results of asset  performance  with respect to the Global pension
plan (see Note 18). This  adjustment  will not impact current year earnings,  or
the funding  requirements  of the plan.  However,  we  anticipate  that  pension
expense for 2003 will increase if these market declines continue.

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 $805.0 million credit
facilities  and our $200.0  million term loan facility with the Rural  Telephone
Finance  Cooperative  (RTFC)  requires the maintenance of a minimum net worth of
$1.5 billion.  These facilities define "net worth" as shareholders'  equity plus
equity units plus mandatorily redeemable convertible preferred securities. 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.

                                       26
<PAGE>

At September 30, 2002 the amount of our net worth as calculated  pursuant to the
credit facilities and the RTFC loan facility was $1.95 billion. This calculation
includes the effect of our loss on  impairment in the third quarter of 2002 (see
Note 3). In future periods, we may incur a reduction in shareholders'  equity as
a result of  certain  pension  matters  described  above or for  other  reasons.
Although  the  potential  amount  of  future   reductions  cannot  currently  be
determined  with  certainty and  assessments  of the potential  amounts  require
considerable assumptions, we currently believe that we will remain in compliance
with all of our debt covenants.

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

Consolidated  revenue for the three and nine  months  ended  September  30, 2002
increased $7.7 million,  or 1.2% and $219.5 million or 12.3%,  respectively,  as
compared with the prior year period.  The nine months  increase is primarily due
to $419.7 million of increased  telecommunications  revenue,  largely due to the
impact of the Frontier  acquisition on June 29, 2001, partially offset by $200.6
million of decreased gas revenue largely due to the disposition of the Louisiana
and Colorado gas operations.
<TABLE>
<CAPTION>
                           TELECOMMUNICATIONS REVENUE

($ in thousands)                 For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------------------- ----------- ------------ ---------
<S>                             <C>         <C>            <C>           <C>  <C>         <C>           <C>             <C>
Access services                 $ 168,526   $ 165,416      $ 3,110       2%   $  503,694  $  393,768    $ 109,926       28%
Local services                    219,764     218,016        1,748       1%      650,690     457,868      192,822       42%
Long distance and data services    77,918      71,860        6,058       8%      227,248     135,144       92,104       68%
Directory services                 26,443      25,253        1,190       5%       78,497      46,942       31,555       67%
Other                              27,126      26,657          469       2%       82,365      49,613       32,752       66%
                               ----------- ----------- ------------           ----------- ----------- ------------
   ILEC revenue                   519,777     507,202       12,575       2%    1,542,494   1,083,335      459,159       42%
ELI                                41,311      52,249      (10,938)    -21%      133,845     173,308      (39,463)     -23%
                               ----------- ----------- ------------           ----------- ----------- ------------
                                $ 561,088   $ 559,451      $ 1,637       0%   $ 1,676,339 $ 1,256,643   $ 419,696       33%
                               =========== =========== ============           =========== =========== ============
</TABLE>

Changes  in the  number of our access  lines is the most  fundamental  driver of
changes in our  revenue.  Historically  rural  local  telephone  companies  have
experienced  steady  growth in access  lines  because  of  positive  demographic
trends, steady rural local economies and little competition.  In recent quarters
many rural local telephone companies  (including the Company) have experienced a
loss of access lines primarily because of difficult  economic  conditions (which
principally  affect  business  lines  but  also to a lesser  extent  residential
lines),  increased  competition from competitive  wireline providers  (including
from  Unbundled  Network  Elements),  from  wireless  providers  and from  cable
companies  (currently  with respect to the broadband but which may in the future
expand to cable  telephony),  and by some customers  disconnecting  second lines
when they add DSL. We lost  approximately  30,000 access lines between September
30, 2001 and September 30, 2002 but added  approximately  42,000 DSL subscribers
during this period. The line losses were principally  non-residential and in our
more urban markets.

Access services  revenue for the three months ended September 30, 2002 increased
as compared  with the prior year period  primarily due to an increase in various
subsidies of $5.9 million and non-switched access revenue of $1.1 million due to
higher circuit sales.  Although the amount of subsidies we receive has generally
been  increasing  over time, the amounts vary from quarter to quarter because of
routine adjustments in subsidy  calculations and changes in subsidy rates. These
increases were partially offset by a decrease in switched access revenue of $3.9
million primarily from the effect of tariff rate reductions effective as of July
1,  2002,  access  line  losses and lower  switched  minutes  (minutes  that are
originating or terminating traffic for other carriers).

Access  services  revenue for the nine months ended September 30, 2002 increased
as compared  with the prior year period  primarily due to the impact of Frontier
of $92.4  million.  Increases  in subsidies  of $14.4  million and  non-switched
access revenue of $8.7 million were  partially  offset by a decrease in switched
access  revenue  of $5.6  million  primarily  from the  effect  of  tariff  rate
reductions  effective as of July 1, 2002,  access line losses and lower switched
minutes  (minutes  that  are  originating  or  terminating   traffic  for  other
carriers).

                                       27
<PAGE>

Local services  revenue for the three months ended  September 30, 2002 increased
as compared with the prior year period  primarily due to increases in subscriber
line  charges and growth in enhanced  services for feature  packages,  partially
offset  by line  losses.  Local  services  revenue  for the  nine  months  ended
September 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 September 30,
2002 increased as compared with the prior year period primarily due to growth of
$2.0 million in long distance and $4.1 million in data  services.  Long distance
and data services revenue for the nine months ended September 30, 2002 increased
as compared  with the prior year period  primarily due to the impact of Frontier
of $72.4 million,  $9.8 million of growth related to data and dedicated circuits
and growth in long distance services of $9.8 million.

Directory  services  revenue  for the three  months  ended  September  30,  2002
increased  as  compared  with the prior year period  primarily  due to growth in
yellow pages advertising revenue of $0.8 million. Directory services revenue for
the nine months ended  September  30, 2002  increased as compared with the prior
year period  primarily due to the impact of Frontier of $30.0 million and growth
in yellow pages advertising revenue of $1.1 million.

Other  revenue for the three  months ended  September  30, 2002  increased  $0.5
million as  compared  with the prior year  period.  Other  revenue  for the nine
months ended September 30, 2002 increased as compared with the prior year period
primarily due to the impact of Frontier of $32.8 million.

ELI revenue for the three and nine months  ended  September  30, 2002  decreased
primarily  due to a decrease in  reciprocal  compensation  minutes and price,  a
decline in Integrated Service Digital Network (ISDN) services due to less demand
from  internet  service  providers  and lower  demand  and  prices for long haul
services. Additionally, ELI revenue for the nine months ended September 30, 2002
decreased due to the expiration of a material data services contract in February
2001. ELI has experienced eight consecutive quarters of declining revenue.
<TABLE>
<CAPTION>
                            GAS AND ELECTRIC REVENUE

      ($ in thousands)           For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ------------ ----------- ------------ ---------
<S>                              <C>         <C>           <C>           <C>   <C>         <C>         <C>              <C>
      Gas revenue                $ 40,584    $ 37,717      $ 2,867       8%    $ 159,805   $ 360,387   $ (200,582)     -56%
      Electric revenue           $ 67,159    $ 63,953      $ 3,206       5%    $ 174,460   $ 174,114   $      346        0%
</TABLE>

Gas revenue for the three months ended  September 30, 2002 increased as compared
with the prior year period primarily due to higher purchased gas costs passed on
to customers.  Included in gas revenue for 2001 is approximately $1.6 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.

Gas revenue for the nine months ended  September 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  $217.2 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 months  ended  September  30, 2002  increased as
compared with the prior year period  primarily  due to increased  unit sales and
the effect of a rate  increase  approved in Vermont on July 15,  2002.  The rate
increase for the three months period is  approximately  $1.0  million.  Electric
revenue for the nine months ended  September 30, 2002 increased as compared with
the prior year period primarily due to increased unit sales, partially offset by
lower purchased power prices. Under tariff provisions,  the cost of our electric
energy and fuel oil purchases are primarily passed on to customers.


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                COST OF SERVICES

      ($ in thousands)           For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ------------ ----------- ------------ --------
<S>                             <C>         <C>           <C>            <C>   <C>         <C>         <C>              <C>
      Network access            $  58,218   $  62,077     $ (3,859)     -6%    $ 174,774   $ 129,238   $   45,536       35%
      Gas purchased                21,329      24,988       (3,659)    -15%       91,130     252,065     (160,935)     -64%
      Electric energy and
        fuel oil purchased         36,248      36,149           99       0%       91,915      95,804       (3,889)      -4%
                               ----------- ----------- ------------           ----------- ----------- ------------
                                $ 115,795   $ 123,214     $ (7,419)     -6%    $ 357,819   $ 477,107   $ (119,288)     -25%
                               =========== =========== ============           =========== =========== ============
</TABLE>

Network access  expenses for the three months ended September 30, 2002 decreased
as compared with the prior year period  primarily due to decreased costs of $5.1
million in ELI as a result of decreases in demand, partially offset by increased
costs of $1.2 million in the ILEC sector.

Network access  expenses for the nine months ended  September 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 $14.6  million  in the ILEC  sector,
partially  offset  by  decreased  costs of $10.3  million  in ELI as a result of
decreases in demand.

Gas  purchased  for the three  months  ended  September  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  $1.1  million  of gas
purchased by our Louisiana and Colorado gas operations,  which were sold on July
2, 2001 and November 30, 2001, respectively.

Gas purchased for the nine months ended September 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  $172.2  million  of gas
purchased by our Louisiana and Colorado gas operations.

Electric  energy and fuel oil purchased for the three months ended September 30,
2002 increased as compared with the prior year period primarily due to increased
unit sales.  Electric  energy and fuel oil  purchased  for the nine months ended
September 30, 2002  decreased as compared  with the prior year period  primarily
due to lower purchased power prices.  In Vermont,  where commodity costs are not
passed on to  customers,  commodity  costs  decreased as a result of lower power
costs and  "locking-in"  fixed prices for certain of our load. These prices were
below last year's prices.

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,  power costs charged by our power supplier in
the amount of approximately  $119.8 million through September 30, 2002 have been
incurred.  This  balance was  reduced by the public  service  impairment  charge
recognized during the third quarter of 2002 (see Note 3). 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.  We expect this matter will be resolved in conjunction with the sale
of our Arizona electric property to UniSource Energy Corporation.


                                       29
<PAGE>
<TABLE>
<CAPTION>
                            OTHER OPERATING EXPENSES

($ in thousands)                 For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ------------ ----------- ------------ --------
<S>                             <C>         <C>          <C>             <C>   <C>         <C>           <C>            <C>
Operating expenses              $ 189,410   $ 205,544    $ (16,134)     -8%    $ 570,904   $ 521,326     $ 49,578       10%
Taxes other than income taxes      33,550      37,989       (4,439)    -12%      107,076      88,262       18,814       21%
Sales and marketing                25,718      29,478       (3,760)    -13%       82,978      71,049       11,929       17%
                               ----------- ----------- ------------           ----------- ----------- ------------
                                $ 248,678   $ 273,011    $ (24,333)     -9%    $ 760,958   $ 680,637     $ 80,321       12%
                               =========== =========== ============           =========== =========== ============
</TABLE>
Operating  expenses for the three months ended  September 30, 2002  decreased as
compared  with the  prior  year  period  primarily  due to  increased  operating
efficiencies and a reduction of personnel in the ILEC and ELI sectors, partially
offset by increased  compensation  expense of $0.7  million  related to variable
stock  plans  (under  variable  stock plans the amount of  compensation  expense
increases if our stock price increases).  In future periods, if the value of our
pension assets declines  and/or  projected  benefit costs increase,  we may have
increased  pension  expenses.  Pension  expenses may also  increase if we do not
prevail in  obtaining  a transfer of the pension  assets  that we  purchased  in
connection  with our  acquisition of Frontier (see Pension Plan  Contingency and
Legal  Proceedings).  Although  the amount of our  pension  expense  and funding
requirements  for 2003 will not be determined  until next year, based on current
assumptions  and plan asset values,  we estimate that our pension  expense could
increase from  approximately $4 million in 2002 to approximately  $13 million in
2003 and that a cash payment to our pension plans will be required in 2003 in an
amount currently estimated at $15 - $25 million.  In addition,  as medical costs
increase  the costs of our retiree  medical  obligations  increase.  Our current
estimate of medical retiree costs for 2002 is approximately  $12 million and for
2003 is approximately $14 million.

Operating  expenses for the nine months ended  September  30, 2002  increased as
compared  with the  prior  year  period  primarily  due to  increased  operating
expenses  related to Frontier of $149.9 million,  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 $0.8 million  related to variable  stock
plans.

Taxes other than income  taxes for the three  months  ended  September  30, 2002
decreased as compared with the prior year period  primarily due to a decrease in
the ILEC  sector.  Taxes  other  than  income  taxes for the nine  months  ended
September 30, 2002  increased as compared  with the prior year period  primarily
due to the impact of Frontier of $25.6  million  partially  offset by  decreased
taxes in the ILEC sector and  decreased  taxes in the gas sector due to the sale
of our  Louisiana  and Colorado gas  operations on July 2, 2001 and November 30,
2001, respectively.

Sales and  marketing  expenses  for the three months  ended  September  30, 2002
decreased  as compared  with the prior year period  primarily  due to  decreased
sales  and  marketing  in the ELI  sector  of $3.1  million  primarily  due to a
reduction in personnel and related costs.  Sales and marketing  expenses for the
nine months ended  September 30, 2002  increased as compared with the prior year
period  primarily  due to the impact of  Frontier  of $22.2  million,  partially
offset by  decreased  sales and  marketing  in the ELI  sector of $8.5  million,
primarily due to a reduction in personnel and related costs.
<TABLE>
<CAPTION>
                      DEPRECIATION AND AMORTIZATION EXPENSE

      ($ in thousands)           For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change     % Change
                               ----------- ----------- ------------ --------  ------------ ----------- ------------ --------
<S>                             <C>         <C>           <C>           <C>    <C>         <C>          <C>             <C>
      Depreciation  expense     $ 167,772   $ 141,709     $ 26,063      18%    $ 471,642   $ 335,452    $ 136,190       41%
      Amortization expense         31,839      51,953      (20,114)    -39%       92,521      78,282       14,239       18%
                               ----------- ----------- ------------           ----------- ----------- ------------
                                $ 199,611   $ 193,662    $   5,949       3%    $ 564,163   $ 413,734    $ 150,429       36%
                               =========== =========== ============           =========== =========== ============
</TABLE>
Depreciation  expense for the three months ended September 30, 2002 increased as
compared with the prior year period  primarily due to increased  depreciation of
$30.7 million at ELI due to the purchase of $110.0 million of previously  leased
facilities in April 2002 and changes in our estimate of the depreciable lives as
of June 2002, partially offset by $8.8 million of decreased  depreciation due to
accelerated  depreciation in the prior year period 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.  As a
result of the impairment charge recognized during the third quarter of 2002 with
respect to ELI,  our  depreciation  expense for the ELI sector will  decrease in
future periods.

                                       30
<PAGE>

Depreciation  expense for the nine months ended  September 30, 2002 increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$82.6  million and  increased  depreciation  of $43.2  million at ELI due to the
purchase of $110.0  million of  previously  leased  facilities in April 2002 and
changes in our estimate of the depreciable lives as of June 2002. An increase of
$4.0  million as compared to the prior year period in  accelerated  depreciation
related to the closing of our Plano, Texas  administrative  facility contributed
to the increase. Accelerated depreciation has ceased on the Plano facility since
it is now carried at estimated  realizable  value. As a result of the impairment
charge  recognized  during the third  quarter of 2002 with  respect to ELI,  our
depreciation expense for the ELI sector will decrease in future periods.

Amortization  expense for the three months ended September 30, 2002 decreased as
compared  with the prior year  period  primarily  due to 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 (SFAS) No.
142,  "Goodwill  and  Other  Intangible  Assets."  For the  three  months  ended
September  30, 2001  amortization  expense  included  $33.2  million of goodwill
amortization.  The decrease was partially offset by an increase of $13.1 million
in amortization  of customer base resulting from the final  valuation  report of
our Frontier acquisition.

Amortization  expense for the nine months ended  September 30, 2002 increased as
compared  with the prior year period  primarily due to the impact of Frontier of
$47.6  million and $20.2  million in increased  amortization  of customer  base.
These increases were partially offset by the fact that we ceased amortization of
goodwill  related  to  our  previous  acquisitions  as of  January  1,  2002  in
accordance with SFAS No. 142,  "Goodwill and Other  Intangible  Assets." For the
nine  months  ended  September  30, 2001  amortization  expense  included  $53.6
million, of goodwill amortization.
<TABLE>
<CAPTION>
                 RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES / RESTRUCTURING AND OTHER EXPENSES

($ in thousands)                 For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ----------- ----------- ------------ ---------
Reserve for telecommunications
<S>                                <C>       <C>         <C>                    <C>         <C>          <C>           <C>
  bankruptcies                     $    -    $      -    $       -      -       $ 17,805    $      -     $ 17,805      100%
Restructuring and other expenses   $ (273)   $ 13,002    $ (13,275)   -102%     $ 21,912    $ 13,002     $  8,910       69%

</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.
Although some of these  arrangements have continued after the bankruptcy filing,
we are in the process of changing  some  services and  functions to provide them
ourselves.   The   Bankruptcy   Court  has  granted   relief  to  us  and  other
telecommunications  companies  that  provide  service to Global by,  among other
things,  directing a shortened  payment  period  with  respect to  post-petition
invoices,  an expedited court process for post-petition  defaults in payments by
Global,  and a priority for  post-petition  expense  items over other  unsecured
debt.  These  procedures  should minimize future economic loss to us although we
cannot guarantee that additional losses will not occur.

Restructuring  and other  expenses for the nine months ended  September 30, 2002
consist of expenses  related to our  various  restructurings,  $10.2  million of
expenses   related  to  reductions   in  personnel  at  our   telecommunications
operations, costs that were 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.  We  continue to review our
personnel  levels in light of current and  anticipated  business  conditions and
operating  performance.  Additional  headcount  reductions  are currently  being
evaluated  for the  fourth  quarter  of 2002 and if  implemented  may  result in
additional   restructuring   charges.   The   discussion   below   includes  our
restructuring charges and excludes the other expenses.

                                       31
<PAGE>


          Plano Restructuring
          Pursuant to a plan  adopted in the second  quarter of 2001,  we closed
          our  operations  support  center in Plano,  Texas in August  2002.  In
          connection  with this  plan,  we  recorded  a pre-tax  charge of $14.6
          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 $0.1 million
          and  $0.6  million  for the  three  months  ended  June  30,  2002 and
          September 30, 2002, respectively.  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  resulted  in  the  termination  of  750  employees.  We
          communicated  with all affected  employees  during July 2001.  Certain
          employees were relocated others were offered  severance,  job training
          and/or   outplacement   counseling.   As  of   September   30,   2002,
          approximately  $14.5 million was paid and all affected  employees were
          terminated.  The restructuring expenses primarily consist of severance
          benefits,  retention  earned  through  September  30, 2002,  and other
          planning and communication costs.

          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 $0.7
          million 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 September 30, 2002,  approximately  $0.8
          million was paid and all affected 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 $4.2 million of
          termination  fees which were  accrued for but not paid at December 31,
          2001. In the first,  second and third  quarters of 2002,  ELI adjusted
          its  original  accrual  down by $2.1  million,  $0.1  million and $0.5
          million, respectively, due to the favorable settlements of termination
          charges for off-net circuit agreements. As of September 30, 2002, $1.2
          million  has been  paid.  The  remaining  accrual  of $0.3  million is
          included in current liabilities at September 30, 2002.

                               LOSS ON IMPAIRMENT
<TABLE>
<CAPTION>
      ($ in thousands)           For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ----------- ----------- ------------ ---------
<S>                            <C>           <C>       <C>             <C>    <C>            <C>      <C>              <C>
      Loss on impairment       $ 1,074,058   $ -       $ 1,074,058     100%   $ 1,074,058    $ -      $ 1,074,058      100%
</TABLE>

In the third quarter 2002, we recognized  non-cash pre-tax  impairment losses of
$656.7  million  related to property,  plant and equipment in the ELI sector and
$417.4 million  related to the gas and electric sector assets held for sale. Our
assessment  of  impairment  for ELI was a result of continued  losses at ELI and
continued actual revenue declines in excess of projected revenue  declines.  The
gas and electric sector impairments are associated with the proposed sale of our
Arizona gas and  electric  properties  at a price that is less than the carrying
value and the write down of our two other remaining utilities to our estimate of
net  realizable  sales prices.  Previously,  we believed that the net realizable
value of these properties was equal to or above their carrying values.  However,
as a result of market  conditions,  and the desire to complete  the  divestiture
process in order to focus on our core  telecommunications  operations  and raise
money to further  reduce debt,  in the third quarter of 2002 we made a strategic
decision to accept  proceeds less than  carrying  values rather than continue to
market these properties for higher prices (See Critical  Accounting Policies and
Estimates above).

                                       32
<PAGE>
<TABLE>
<CAPTION>
       INVESTMENT AND OTHER INCOME (LOSS), NET / GAIN ON SALE OF ASSETS /
                 INTEREST EXPENSE / INCOME TAX EXPENSE (BENEFIT)

      ($ in thousands)               For the three months ended September 30,        For the nine months ended September 30,
                                   ---------------------------------------------  ------------------------------------------------
                                      2002        2001      $ Change    % Change      2002        2001      $ Change    % Change
                                   ----------- ----------- ------------ --------  ------------- ----------- ------------ ---------
       Investment and
<S>                                 <C>         <C>         <C>            <C>    <C>           <C>          <C>             <C>
        other income (loss), net    $  13,859   $   3,070   $   10,789     351%   $  (62,725)   $  16,495    $  (79,220)    -480%
      Gain on sale of assets        $   1,901   $ 139,304   $ (137,403)    -99%   $    1,901    $ 139,304    $ (137,403)     -99%
      Interest expense              $ 116,459   $ 123,452   $   (6,993)     -6%   $  359,568    $ 258,033    $  101,535       39%
      Income tax expense (benefit)  $(371,186)  $  39,610   $ (410,796)  -1037%   $ (424,688)   $  49,183    $ (473,871)    -963%

</TABLE>

Investment and other income,  net for the three months ended  September 30, 2002
increased  as  compared  with  the  prior  year  period  primarily  due  to  the
recognition of $10.8 million of income from the  settlement of certain  retained
liabilities at less than face value, which are associated with customer advances
for construction from our disposed water properties.  For the three months ended
September  30,  2002,  we executed a series of purchases in the open market of a
number of our outstanding notes and debentures and they generated a pre-tax gain
from the early extinguishment of debt of approximately $1.6 million,  which also
contributed to the increase.

Investment  and other income,  net for the nine months ended  September 30, 2002
decreased  as  compared  with  the  prior  year  period  primarily  due  to  the
recognition  in 2002 of $95.3  million of losses,  resulting  from an other than
temporary  decline in the value of our  investment in Adelphia.  This amount was
partially  offset by $20.8  million  of income  from the  settlement  of certain
retained liabilities at less than face value, which are associated with customer
advances for  construction  from our  disposed  water  properties.  For the nine
months ended  September  30, 2002, we executed a series of purchases in the open
market of our outstanding notes and debentures and they generated a pre-tax gain
from the early extinguishment of debt of approximately $6.0 million,  which also
contributed to the increase.

Gain on sale of assets for the nine months ended  September 30, 2001  represents
the gain  recognized  from the sale of our  Louisiana  Gas  operations  to Atmos
Energy Corporation on July 2, 2001.

Interest  expense for the three months  ended  September  30, 2002  decreased as
compared with the prior year period primarily due to a reduction of $9.3 million
of interest  expense on our lines of credit,  a $6.0  million  decrease in ELI's
interest  expense due to the repayment of the $400.0  million  revolving line of
credit and a series of purchases in the open market of outstanding notes, a $5.2
million  decrease in  amortization  of costs  associated with our committed bank
credit  facilities  and  a  $2.3  million  decrease  resulting  from  the  early
extinguishment  of debt. These amounts were partially offset by $16.4 million of
interest  expense on our $1.75  billion of notes  issued in August 2001 and $3.1
million of  interest  expense  on our $200.0  million  Rural  Telephone  Finance
Cooperative note issued in October 2001. During the three months ended September
30, 2002, we had average  long-term debt outstanding  excluding our equity units
of $5.3 billion compared to $5.8 billion during the three months ended September
30,  2001.  Our  composite  average  borrowing  rate for the three  months ended
September  30, 2002 as compared  with the prior year period was 52 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 nine months  ended  September  30, 2002  increased  as
compared with the prior year period  primarily due to $143.7 million of interest
expense on our $1.75  billion of notes issued in May 2001 and our $1.75  billion
of notes issued in August 2001,  $14.4 million of interest expense on our equity
units  issued in June 2001,  $7.5  million  of  increased  amortization  of debt
discount  expense  and $9.4  million of interest  expense on our $200.0  million
Rural Telephone  Finance  Cooperative note issued in October 2001. These amounts
were partially offset by a reduction of $34.5 million of interest expense on our
lines of credit,  a $12.7 million  decrease in ELI's interest expense due to the
repayment  of the  $400.0  million  revolving  line of  credit  and a series  of
purchases in the open market of outstanding  notes, a $14.7 million  decrease in
amortization of costs associated with our committed bank credit facilities and a
$6.9 million decrease  resulting from the early  extinguishment  of debt. During
the nine  months  ended  September  30,  2002,  we had  average  long-term  debt
outstanding  excluding our equity units of $5.4 billion compared to $4.4 billion
during the nine months ended September 30, 2001. Our composite average borrowing
rate for the nine months  ended  September  30, 2002 as compared  with the prior
year  period was 42 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.

                                       33
<PAGE>
Income taxes for the three and nine months ended September 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 35% as compared with 37% for
2001.
<TABLE>
<CAPTION>
                             DISCONTINUED OPERATIONS

($ in thousands)                 For the three months ended September 30,        For the nine months ended September 30,
                               ---------------------------------------------  ----------------------------------------------
                                  2002        2001      $ Change    % Change     2002        2001      $ Change    % Change
                               ----------- ----------- ------------ --------  ----------- ----------- ------------ ---------
<S>                                <C>      <C>         <C>           <C>      <C>         <C>         <C>             <C>
Revenue                            $ -      $ 34,451    $ (34,451)   -100%     $  4,650    $ 87,880    $ (83,230)     -95%
Operating income (loss)            $ -      $ 14,832    $ (14,832)   -100%     $   (419)   $ 26,777    $ (27,196)    -102%
Income (loss) from discontinued
  operations, net of tax           $ -      $  7,199    $  (7,199)   -100%     $ (1,478)   $ 11,675    $ (13,153)    -113%
Gain on disposal of water
  segment, net of tax              $ -      $      -    $       -       -      $169,326    $      -    $ 169,326      100%
</TABLE>

Revenue, operating income (loss) and income (loss) from discontinued operations,
net of tax, for the three and nine months ended  September 30, 2002 decreased as
compared with the prior year period 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 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  other  than in the  normal  course of
business or to hedge  long-term  interest  rate risk.  Our  primary  market risk
exposures are interest rate risk and equity and commodity price risk as follows:

Interest Rate Exposure

Our exposure to market risk for changes in interest  rates relates  primarily to
the  interest-bearing  portion of our  investment  portfolio and interest on our
long term debt and  capital  lease  obligations.  The long term debt and capital
lease  obligations  include  various  instruments  with various  maturities  and
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 September  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 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%.  On August 8, 2002,  we entered into another
FRA that set the  effective  rate that we pay on one of the swaps for the period
of November 15, 2002 to May 15, 2003 at 5.310%.


                                       34
<PAGE>
Sensitivity analysis of interest rate exposure
At September 30, 2002,  the fair value of our  long-term  debt and capital lease
obligations  excluding  our  equity  units  was  estimated  to be  approximately
$4,772.1  million,  based on our overall weighted average borrowing rate of 8.0%
and our overall weighted maturity of 13 years. There has been no material change
in the weighted  average maturity  applicable to our obligations  since December
31,  2001.  The  overall   weighted  average  interest  rate  has  increased  by
approximately 28 basis points.  A hypothetical  increase of 80 basis points (10%
of our overall weighted  average  borrowing rate) would result in an approximate
$280.6 million decrease in the fair value of our fixed rate obligations.

Equity Price Exposure

Our exposure to market risk for changes in equity prices relate primarily to the
equity portion of our investment portfolio. The equity portion of our investment
portfolio  consists  of  equity  securities  (principally  common  stock) of D&E
Communications, Inc. and Hungarian Telephone and Cable Corp.

As of September 30, 2002, we owned 3,059,000 shares of Adelphia common stock. As
a result of Adelphia's  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 had 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 September 30, 2002,  the fair value of the equity  portion of our  investment
portfolio  was estimated to be $31.3  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $3.1 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
September 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 September  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.

                                       35
<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 third 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 have  paid 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 and no
accrual remains at September 30, 2002.

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.  We are
waiting for a decision on the motions filed by us.

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

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

We have recently  reviewed our internal  control  structure  and our  disclosure
controls  and  procedures.  As a result  of such  review  we  implemented  minor
changes, primarily to formalize and document the controls and procedures already
in place. We have designed our disclosure controls and procedures to ensure that
material  information  related  to  the  Company,   including  our  consolidated
subsidiaries, is made known to our disclosure committee and senior management on
a regular basis, in particular  during the period in which the quarterly reports
are being  prepared.  We will  continue to  evaluate  the  effectiveness  of our
disclosure  controls and procedures on a quarterly  basis.  We believe that such
controls and procedures are operating effectively as designed.

The  Company  is  currently  investigating  possible  irregularities   involving
payments  made for  services  that the Company has to date been unable to verify
were actually received by the Company.  The Company is continuing to investigate
the amounts  involved but has to date  identified  at least $2.2  million.  Such
amount was  reflected in the  Company's  financial  statements  as payments were
made. If it is determined  that the payments were  improperly  made, the Company
believes  that most of this amount would be covered by  insurance.  Depending on
the results of the  investigation,  the Company  will  evaluate  whether to make
changes in its system of internal controls.

                                       36
<PAGE>

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

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

a)   Exhibits:

     10.16.4  Letter  agreement,  dated as of  October  1,  2000,  amending  the
              employment agreement, effective October 1, 2000, between  Citizens
              Communications Company and Leonard Tow (incorporated by  reference
              to  Exhibit 10 of the Registrant's Forms  S-4/A  filed February 4,
              2002, Registration No. 333-69740).

b)   Reports on Form 8-K:

     We filed on Form 8-K on August 2, 2002  under  Item 5,  "Other  Events",  a
     press release announcing that two additional independent directors,  Maggie
     Wilderotter and William Kraus, had been elected to our Board of Directors.

     We filed on Form 8-K on August 9, 2002 furnishing under Item 9, "Regulation
     FD Disclosure",  in accordance with Order No. 4-460 and pursuant to Section
     21 (a) (1) of the  Securities  Exchange  Act of 1934 and Section 906 of the
     Sarbanes-Oxley  Act of 2002,  statements  with the  Securities and Exchange
     Commission by our principal  executive officer and the principal  financial
     officer.


                                       37
<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: November 12, 2002

                                       38
<PAGE>



                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                                 CERTIFICATIONS

I, Leonard Tow, certify that:

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

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

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

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

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

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

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

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

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

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

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


Date: November 12, 2002
                                 By:   /s/ Leonard Tow
                                       --------------------------------------
                                       Leonard Tow
                                       Chief Executive Officer and
                                       Chairman of the Board of Directors
                                       (Principal Executive Officer)


                                       39
<PAGE>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                           CERTIFICATIONS (continued)

I, Jerry Elliott, certify that:

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

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

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

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

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

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

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

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

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

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

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


Date: November 12, 2002
                               By:   /s/ Jerry Elliott
                                     --------------------------------------
                                     Jerry Elliott
                                     Chief Financial Officer
                                     (Principal Financial Officer)


                                       40