CITIZENS COMMUNICATIONS COMPANY

                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 March 31, 2002
                                                --------------

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

              For the transition period from _________to__________

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


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

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


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


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

                                      NONE
                                      ----
   (Former name, former address and former fiscal year, if changed since last
                                    report.)

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

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

The number of shares outstanding of the registrant's class of common stock as of
April 30, 2002 was 281,806,947.

<PAGE>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

<TABLE>
<CAPTION>


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

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

    Consolidated Statements of Income (Loss) for the three months ended March 31, 2002 and 2001           3

    Consolidated Statements of Shareholders' Equity for the year ended December 31, 2001 and the
       three months ended March 31, 2002                                                                  4

    Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31,
       2002 and 2001                                                                                      4

    Condensed Statements of Cash Flows for the three months ended March 31, 2002 and 2001                 5

    Notes to Condensed Consolidated Financial Statements                                                  6

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

    Quantitative and Qualitative Disclosures about Market Risk                                           27

Part II.  Other Information

    Legal Proceedings                                                                                    30

    Exhibits and Reports on Form 8-K                                                                     30

    Signature                                                                                            32
</TABLE>


                                       1
<PAGE>


                          PART I. FINANCIAL INFORMATION

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


                                                                                    March 31, 2002      December 31, 2001
                                                                                  -----------------     ------------------
ASSETS
------
Current assets:
<S>                                                                                        <C>                   <C>
    Cash and cash equivalents                                                         $    972,751          $    215,869
    Accounts receivable, net                                                               305,277               311,878
    Other current assets                                                                    51,159               150,573
    Assets held for sale                                                                 1,103,657             1,107,937
    Assets of discontinued operations                                                            -               746,791
                                                                                  -----------------     -----------------
      Total current assets                                                               2,432,844             2,533,048

Property, plant and equipment, net                                                       4,429,115             4,512,038

Intangibles, net                                                                         2,909,716             2,978,942
Investments                                                                                 88,979               141,208
Other assets                                                                               372,956               388,364
                                                                                  -----------------     -----------------
           Total assets                                                               $ 10,233,610          $ 10,553,600
                                                                                  =================     =================

LIABILITIES AND EQUITY
----------------------
Current liabilities:
    Long-term debt due within one year                                                $    461,062          $    483,906
    Accounts payable and other current liabilities                                         642,607               625,575
    Liabilities related to assets held for sale                                            175,523               218,775
    Liabilities of discontinued operations                                                       -               228,337
                                                                                  -----------------     -----------------
      Total current liabilities                                                          1,279,192             1,556,593

Deferred income taxes                                                                      383,767               429,544
Customer advances for construction and contributions in aid of construction                183,717               183,319
Other liabilities                                                                          237,885               241,846
Equity units                                                                               460,000               460,000
Long-term debt                                                                           5,453,053             5,534,906
                                                                                  -----------------     -----------------
      Total liabilities                                                                  7,997,614             8,406,208

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

Shareholders' equity
    Common stock, $.25 par value (600,000,000 authorized shares; 281,640,000
      and 281,289,000 outstanding and 293,200,000 and 292,840,000 issued at
      March 31, 2002 and December 31, 2001, respectively)                                   73,300                73,210
    Additional paid-in capital                                                           1,933,150             1,927,518
    Retained earnings                                                                      213,090               129,864
    Accumulated other comprehensive income                                                   4,614                 4,907
    Treasury stock                                                                        (189,408)             (189,357)
                                                                                  -----------------     -----------------
       Total shareholders' equity                                                        2,034,746             1,946,142
                                                                                  -----------------     -----------------
           Total liabilities and equity                                               $ 10,233,610          $ 10,553,600
                                                                                  =================     =================
</TABLE>

*  Represents  securities  of a subsidiary  trust,  the sole assets of which are
securities of a subsidiary  partnership,  substantially  all the assets of which
are convertible debentures of the Company.

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


                                       2
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                     2002             2001
                                                                                               --------------   --------------
<S>                                                                                                 <C>              <C>
 Revenue                                                                                           $ 679,334        $ 624,281

Operating expenses:
     Cost of services                                                                                128,238          226,121
     Other operating expenses                                                                        260,854          204,571
     Depreciation and amortization                                                                   178,174          105,706
     Write-down of Global Crossing receivables                                                         7,804                -
     Restructuring and other expenses                                                                  3,905                -
                                                                                               --------------   --------------
Total operating expenses                                                                             578,975          536,398
                                                                                               --------------   --------------

Operating income                                                                                     100,359           87,883

Investment and other income (loss), net                                                              (48,508)           2,784
Interest expense                                                                                     122,050           61,452
                                                                                               --------------   --------------
     Income (loss) from continuing operations before income taxes, dividends on
      convertible preferred securities and cumulative effect of change in accounting principle       (70,199)          29,215
Income tax expense (benefit)                                                                         (26,942)           9,047
                                                                                               --------------   --------------
     Income (loss) from continuing operations before dividends on convertible
       preferred securities and cumulative effect of change in  accounting principle                 (43,257)          20,168

Dividends on convertible preferred securities, net of income tax benefit                               1,553            1,553
                                                                                               --------------   --------------
Income (loss) from continuing operations before cumulative effect of change
       in accounting principle                                                                       (44,810)          18,615

Income (loss) from discontinued operations, net of tax expense (benefit) of  $(920)
        and $70, respectively                                                                         (1,478)           1,108
Gain on disposal of water segment, net of tax of  $139,874                                           169,326                -
                                                                                               --------------   --------------
      Total income from discontinued operations, net of tax of  $138,954 and $70, respectively       167,848            1,108

                                                                                               --------------   --------------
Income before cumulative effect of change in accounting principle                                    123,038           19,723
Cumulative effect of change in accounting principle                                                  (39,812)               -
                                                                                               --------------   --------------
Net income                                                                                         $  83,226        $  19,723
                                                                                               ==============   ==============


Basic income (loss) per common share:
     Income (loss) from continuing operations before cumulative effect of
       change in accounting principle                                                                  (0.16)            0.07
     Income from discontinued operations                                                                0.60             0.00
     Income before cumulative effect of change in accounting principle                                  0.44             0.08
     Loss from cumulative effect of change in accounting principle                                      0.14                -
     Net income for common shareholders                                                                 0.30             0.08

Diluted income (loss) per common share:
     Income (loss) from continuing operations before cumulative effect of
       change in accounting principle                                                                  (0.16)            0.07
     Income from discontinued operations                                                                0.59             0.00
     Income before cumulative effect of change in accounting principle                                  0.43             0.07
     Loss from cumulative effect of change in accounting principle                                      0.14                -
     Net income for common shareholders                                                                 0.29             0.07

</TABLE>

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


                                       3
<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

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

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

<S>                                       <C>        <C>              <C>              <C>      <C>           <C>
Balances January 1, 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 loss, 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                                   90         5,632              -            -          (51)          5,671
   Net income                                     -             -         83,226            -            -          83,226
   Other comprehensive loss, net of tax
     and reclassifications adjustments            -             -              -         (293)           -            (293)
                                        ------------ -------------  ------------- ------------  -----------  --------------
Balances March 31, 2002                    $ 73,300   $ 1,933,150      $ 213,090      $ 4,614    $(189,408)    $ 2,034,746
                                        ============ =============  ============= ============  ===========  ==============

</TABLE>

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



                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                ($ in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            For the three months ended March 31,
                                                                          -----------------------------------------
                                                                                2002                   2001
                                                                          ------------------    -------------------

<S>                                                                                <C>                    <C>
Net income                                                                         $ 83,226               $ 19,723
Other comprehensive loss, net of tax and reclassification adjustments                  (293)               (19,623)
                                                                          ------------------    -------------------
  Total comprehensive income                                                       $ 82,933               $    100
                                                                          ==================    ===================
</TABLE>

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



                                       4

<PAGE>


                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
                                ($ in thousands)


<TABLE>
<CAPTION>
                                                                                2002              2001
                                                                          ----------------  ----------------

<S>                                                                             <C>               <C>
Net cash provided by continuing operating activities                            $ 280,031         $ 152,766

Cash flows from investing activities:
       Capital expenditures                                                       (69,599)         (113,969)
       Securities purchased                                                          (450)             (522)
       Securities sold                                                                  -             1,245
       Securities matured                                                           2,014                 -
       Other                                                                          447               531
                                                                          ----------------  ----------------
Net cash used by investing activities                                             (67,588)         (112,715)

Cash flows from financing activities:
       Long-term debt borrowings                                                        -            39,871
       Long-term debt principal payments                                         (148,097)         (118,853)
       Issuance of common stock                                                     4,832             9,118
       Customer advances for construction and contributions
         in aid of construction                                                     1,402            (1,523)
                                                                          ----------------  ----------------
Net cash used by financing activities                                            (141,863)          (71,387)

Cash (used by) provided by discontinued operations                                686,302            (4,671)
                                                                          ----------------  ----------------

(Decrease) increase in cash and cash equivalents                                  756,882           (36,007)
Cash and cash equivalents at January 1,                                           215,869            70,086
                                                                          ----------------  ----------------

Cash and cash equivalents at March 31,                                          $ 972,751         $  34,079
                                                                          ================  ================


Non-cash investing and financing activities:
       Increase in capital lease asset                                          $       -         $  23,412
       Equity forward contracts                                                 $       -         $  49,556


</TABLE>

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

                                       5
<PAGE>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

(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 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 required us to make estimates and assumptions
          which affect the amounts of assets, liabilities,  revenue and expenses
          we  have  reported  and  our  disclosure  of  contingent   assets  and
          liabilities  at  the  date  of  the  financial   statements.   Certain
          information  and  footnote   disclosures  have  been  excluded  and/or
          condensed  pursuant to Securities  and Exchange  Commission  rules and
          regulations.  The results of the interim  periods are not  necessarily
          indicative of the results for the full year. Certain reclassifications
          of balances  previously  reported have been made to conform to current
          presentation.

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

      (c) Regulatory Assets and Liabilities:
          Certain of our local exchange telephone operations were and all of our
          public utilities services  operations are subject to the provisions of
          Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting
          for the Effects of Certain Types of  Regulation".  For these entities,
          regulators can establish  regulatory  assets and liabilities  that are
          required to be  reflected  on the  balance  sheet in  anticipation  of
          future recovery through the ratemaking  process.  In the third quarter
          of  2001,  due  to the  continued  process  of  deregulation  and  the
          introduction  of  competition  to our rural local  exchange  telephone
          properties and our  expectation  that these trends will  continue,  we
          concluded it was appropriate to discontinue the application of SFAS 71
          for our local exchange  telephone  properties.  Regulatory  assets and
          liabilities for our public utility services operations are included in
          assets held for sale and  liabilities  related to assets held for sale
          and discontinued operations.

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

          Electric  Lightwave,  Inc.  (ELI) -  Revenue  is  recognized  when the
          services are provided. Revenue from long-term prepaid network services
          agreements  including  Indefeasible  Right to Use (IRU) and Fiber swap
          agreements are deferred and recognized on a  straight-line  basis over
          the terms of the  related  agreements.  Installation  fees and related
          costs (up to the amount of  installation  revenue)  are  deferred  and
          recognized over the average customer term.  Installation related costs
          in excess of installation fees are expensed when incurred.

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

                                       6
<PAGE>
      (e) Minority Interest and Minority Interest in Subsidiary:
          We own all of ELI's Class B common stock and 27,571,332  shares of its
          Class A common stock, in total  representing an 85% economic  interest
          in ELI.  Since ELI's  initial  public  offering  in 1997,  we recorded
          minority  interest  on  our  income  statement  and  reduced  minority
          interest on our balance sheet by the amount of the minority interests'
          share of ELI's losses.  As of June 30, 2000, the minority  interest on
          the balance sheet had been reduced to zero. From that date forward, we
          discontinued   recording   minority  interest  income  on  our  income
          statement  as there is no  obligation  for the  minority  interests to
          provide additional funding for ELI. Therefore,  we are recording ELI's
          entire loss in our consolidated results.

       (f) 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.

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

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

          We also  formally  assess,  both at the hedge's  inception  and on the
          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 stockholders equity (as a component
          of other comprehensive income), depending on whether the derivative is
          being used to hedge changes in fair value or cash flows.

          We entered  into  interest  rate swap  arrangements  in December  2001
          related  to a portion of our fixed  rate  debt.  This  hedge  strategy
          satisfies  the fair  value  hedging  requirements  of SFAS  133.  As a
          result, the fair value of the hedge is carried on the balance sheet in
          other  current  assets and the related  underlying  liability  is also
          adjusted to fair value by the same amount.

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

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

<S>                                                <C>                    <C>
Property, plant and equipment                      $ 6,753,060            $ 6,699,928
Less accumulated depreciation                       (2,323,945)            (2,187,890)
                                           --------------------   --------------------
    Property, plant and equipment, net             $ 4,429,115            $ 4,512,038
                                           ====================   ====================
</TABLE>
                                       7
<PAGE>

     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 $147,820,000 and $92,383,000
     for the three months ended March 31, 2002 and 2001, respectively.

(3)  Frontier Acquisition:
     ---------------------
     On June 29, 2001, we purchased from Global  Crossing Ltd.  (Global) 100% of
     the stock of Frontier  Corp.'s local exchange carrier  subsidiaries,  which
     owns  approximately  1,096,700  telephone  access lines (as of December 31,
     2000) in Alabama,  Florida,  Georgia,  Illinois,  Indiana,  Iowa, Michigan,
     Minnesota,   Mississippi,   New  York,  Pennsylvania  and  Wisconsin,   for
     approximately  $3,373,000,000  in cash. This transaction has been accounted
     for using the purchase method of accounting. The results of operations have
     been included in our  financial  statements  from the date of  acquisition.
     Currently, our appraisal valuation for Frontier is preliminary.

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

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

          Electric
          --------
          In March 2002,  we entered  into a  definitive  agreement  to sell our
          Kauai electric division to Kauai Island Utility Cooperative (KIUC) for
          $215,000,000.   The  transaction,   which  is  subject  to  regulatory
          approvals, is expected to close by March 2003.

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

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

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

     We accounted for the planned  divestiture  of all our water and  wastewater
     properties as discontinued operations. Currently, we do not have agreements
     to sell our entire gas and electric segments.  Consequently, all of our gas
     and electric assets and their related liabilities are classified as "assets
     held  for  sale"  and  "liabilities  related  to  assets  held  for  sale,"
     respectively. Additionally, we no longer record depreciation expense on the
     gas assets and electric assets.  Such depreciation  expense would have been
     an  additional  $10.5  million and $13.9 million for the three months ended
     March 31, 2002 and 2001,  respectively.  We  continue  to  actively  pursue
     buyers for our remaining gas and electric businesses.

                                       8
<PAGE>

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

     ($ in thousands)                                    For the three months ended March 31,
                                                      -------------------------------------------
                                                             2002                    2001
                                                      --------------------    -------------------
<S>                                                         <C>                      <C>
     Revenue                                                $    4,650               $ 24,094
     Operating income (loss)                                $     (419)              $  3,762
     Income tax expense (benefit)                           $     (920)              $     70
     Income (loss) from discontinued
       operations, net of tax                               $   (1,478)              $  1,108
     Gain on disposal of water segment, net of tax          $  169,326               $      -

</TABLE>

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

($ in thousands)                                 March 31, 2002       December 31, 2001
                                               --------------------  --------------------

<S>                                                    <C>                   <C>
Current assets                                         $    66,940           $    66,511
Net property, plant and equipment                          817,096               805,653
Other assets                                               219,621               235,773
                                               --------------------  --------------------
Total assets held for sale                             $ 1,103,657           $ 1,107,937
                                               ====================  ====================

Current liabilities                                    $    70,908           $    71,259
Long-term debt                                         $         -           $    43,400
Other liabilities                                          104,615               104,116
                                               --------------------  --------------------
Total liabilities related to assets held
  for sale                                             $   175,523           $   218,775
                                               ====================  ====================
</TABLE>

(5)  Intangibles:
     -----------
     Intangibles at March 31, 2002 and December 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                    As of March 31, 2002
                                                           ----------------------------------------------------------
                                                           Gross Carrying         Accumulated        Net Carrying
              ($ in thousands)                                  Amount            Amortization           Amount
                                                           ------------------   ------------------  -----------------
<S>                                                              <C>                   <C>               <C>
              Goodwill                                           $ 2,029,159           $ (127,486)       $ 1,901,673
              Customer base and trade name                         1,077,398              (69,355)         1,008,043
                                                           ------------------   ------------------  -----------------
                  Total intangibles                              $ 3,106,557           $ (196,841)       $ 2,909,716
                                                           ==================   ==================  =================


                                                                  As of December 31, 2001
                                                           ----------------------------------------------------------
                                                             Gross Carrying         Accumulated        Net Carrying
              ($ in thousands)                                  Amount            Amortization           Amount
                                                           ------------------   ------------------  -----------------
              Goodwill                                           $ 2,068,032           $ (127,441)       $ 1,940,591
              Customer base and tradename                          1,077,398              (39,047)         1,038,351
                                                           ------------------   ------------------  -----------------
                  Total intangibles                              $ 3,145,430           $ (166,488)       $ 2,978,942
                                                           ==================   ==================  =================
</TABLE>
     We have reflected  assets acquired at fair market values in accordance with
     purchase   accounting   standards.   Our  allocations  are  based  upon  an
     independent appraisal of the respective properties acquired.


                                       9
<PAGE>

     Our  acquisitions  were made in order for us to execute  upon our  business
     strategy.   Our   strategy   is   to   focus   exclusively   on   providing
     telecommunications  services,  primarily in rural,  small and  medium-sized
     towns  where we  believe  we have a  competitive  advantage  because of our
     relatively larger size, greater resources,  local focus and lower levels of
     competition.  For both  our  existing  ILEC  operations  and  those we have
     recently  acquired,  we are the  dominant  provider  of  independent  local
     exchange  carrier  services in each of the markets in which we operate.  We
     believe  that our  operations  in these  areas will  provide us with steady
     revenue  growth  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  seller) of each of the
     businesses  acquired  in 2000 and  2001.  We based our  purchase  prices on
     estimates  of future  earnings  and  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  to  produce   earnings,   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 were impacted by the fact that our purchase
     price  was  accepted  by  the  sellers  after  a  competitive  bidding  and
     negotiation process.

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

     In July 2001,  the FASB issued  SFAS 142,  "Goodwill  and Other  Intangible
     Assets."  This  statement  requires that goodwill no longer be amortized to
     earnings,  but instead be reviewed  for  impairment.  Impairment  tests are
     required to be performed at least annually (see Note 13). The  amortization
     of goodwill  ceased upon adoption of the statement on January 1, 2002,  and
     applies to all  goodwill  and other  intangible  assets  recognized  in the
     statement of financial position at that date, regardless of when the assets
     were initially recognized.

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


              (In thousands, except per-share amounts)      For the three months ended March 31,
                                                           ---------------------------------------
                                                                  2002                 2001
                                                           ------------------   ------------------
<S>                                                                 <C>                  <C>
              Reported net income                                   $ 83,226             $ 19,723
              Add back: Goodwill amortization, net of tax                  -                7,246
                                                           ------------------   ------------------
              Adjusted net income                                   $ 83,226             $ 26,969
                                                           ==================   ==================

              Basic earnings per share:
              ------------------------
              Reported net income                                   $   0.30             $   0.08
              Goodwill amortization, net of tax                            -                 0.03
                                                           ------------------   ------------------
              Adjusted net income                                   $   0.30             $   0.11
                                                           ==================   ==================

              Diluted earnings per share:
              --------------------------
              Reported net income                                   $   0.29             $   0.07
              Goodwill amortization, net of tax                            -                 0.03
                                                           ------------------   ------------------
              Adjusted net income                                   $   0.29             $   0.10
                                                           ==================   ==================
</TABLE>


                                       10
<PAGE>

(6)  Restructuring Charges:
     ----------------------

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

          Plano Restructuring
          In the second quarter of 2001, we adopted plan to close our operations
          support center in Plano, Texas by August 2002. In connection with this
          plan, we recorded a pre-tax charge of $14,557,000 in 2001 and $839,000
          for the  three  months  ended  March 31,  2002.  Our  objective  is to
          concentrate  our resources in areas where we have the most  customers,
          to better  serve those  customers.  We intend to sell our Plano office
          building.  The  restructuring  will result in the  termination  of 750
          employees.  We communicated  with all affected  employees  during July
          2001.  Certain  employees will be relocated,  others have been offered
          severance,  job training and/or outplacement  counseling.  As of March
          31, 2002,  approximately  $8,743,000  was paid and 688 employees  were
          terminated.  The restructuring expenses primarily consist of severance
          benefits,  retention  earned  through  March  31,  2002,  early  lease
          termination  costs and other  planning  and  communication  costs.  We
          expect to incur additional costs of approximately $300,000 through the
          third quarter of 2002.

          Sacramento Call Center Restructuring
          In April 2002,  we closed our  Sacramento  Customer  Care  Center.  In
          connection with this closing, we recorded a pre-tax charge of $731,000
          in the fourth  quarter of 2001 and $62,000 for the three  months ended
          March  31,  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  March  31,  2002,
          approximately  $398,000 was paid and 81 employees were terminated.  We
          expect to incur additional  costs of approximately  $8,000 through the
          second quarter of 2002.

          ELI Restructuring
          In the first  half of 2002,  ELI  intends  to  redeploy  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  intends  to  cease  leasing  the
          collocation facilities and off-net circuits for the backbone and local
          loops  supporting  the  service  delivery  in  these  markets.  It was
          anticipated  that this would lead to  $4,179,000 of  termination  fees
          which were accrued for but not paid at December 31, 2001. In the first
          quarter 2002, ELI adjusted  their original  accrual down by $2,100,000
          due to the favorable  settlement of termination charges for an off-net
          circuit agreement.  The remaining accrual of $2,079,000 is included in
          current liabilities at March 31, 2002.


                                       11
<PAGE>

     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 March 31, 2002,  approximately  $4,413,000  has been paid,  42
     employees  were  terminated  and six  employees  who  were  expected  to be
     terminated took other positions within the company.  The remaining employee
     was  terminated  in February  2002.  These costs will be paid in the second
     quarter  2002.  At December  31, 2001 and 2000,  we adjusted  our  original
     accrual down by $139,000 and  $1,008,000,  respectively,  and the remaining
     accrual of $200,000 is included in other current  liabilities  at March 31,
     2002.
<TABLE>
<CAPTION>



                   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
                                            =================== ============== =============  ============= ===============


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
                                            =================== ============== =============  ============= ===============

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


                                             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

</TABLE>

                                       12
<PAGE>


(7)  Long-Term Debt:
     ---------------
     The activity in our long-term debt from December 31, 2001 to March 31, 2002
     is as followed:
<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                     -------------------------------------------                  Interest *
                                                                                                                   Rate at
                                          December 31,  Borrowings/     Reclass/      Payments/     March 31,      March 31,
($ in thousands)                             2001      Acquisitions      Other      Dispositions      2002           2002
                                         ------------- ------------- -------------- ------------- -------------  --------------
FIXED RATE

<S>                                         <C>                 <C>            <C>     <C>            <C>               <C>
    Rural Utilities Service Loan Contracts $  110,860           $ -       $      -    $  (79,318)  $    31,542          6.210%

    Debentures                                850,778             -              -             -       850,778          7.464%

    2001 Notes                              3,700,430             -           (364)            -     3,700,066          8.501%

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


    Senior Unsecured Notes                    108,825             -              -       (37,806)       71,019          7.833%

    ELI Notes                                 325,000             -              -             -       325,000          6.232%
    ELI Capital Leases                        137,382             -              -          (506)      136,876         11.781%
    Industrial Development Revenue Bonds      249,205                                    (30,100)      219,105          6.313%
    Other                                          54             -              -            (3)           51         12.985%

                                         ------------- ------------- -------------- ------------- -------------
TOTAL FIXED RATE                            5,942,534             -           (364)     (147,733)    5,794,437
                                         ------------- ------------- -------------- ------------- -------------

VARIABLE RATE

    ELI Bank Credit Facility                  400,000             -              -             -       400,000          2.391%
    Industrial Development Revenue Bonds      136,278             -         43,400             -       179,678          3.429%

                                         ------------- ------------- -------------- ------------- -------------
TOTAL VARIABLE RATE                           536,278             -         43,400             -       579,678
                                         ------------- ------------- -------------- ------------- -------------

TOTAL LONG TERM DEBT                       $6,478,812           $ -       $ 43,036    $ (147,733)  $ 6,374,115
                                         ============= ============= ============== ============= =============

    Less: Current Portion                    (483,906)                                                (461,062)
    Less: Equity Units                       (460,000)                                                (460,000)
                                         -------------                                            -------------
                                           $5,534,906                                              $ 5,453,053
                                         =============                                            =============
</TABLE>

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

(8)  Net Income Per Common Share:
     ---------------------------
     The  reconciliation  of the net income per common share calculation for the
     three months ended March 31, 2002 and 2001, respectively, is as follows:
<TABLE>
<CAPTION>

(In thousands, except per-share amounts)                           For the three months ended March 31,
                                              ----------------------------------------------------------------------------
                                                              2002                                   2001
                                              -------------------------------------  -------------------------------------
                                                Income       Shares     Per Share      Income       Shares      Per Share
                                              -----------  ------------ -----------  -----------  ------------  ----------
 Net income per common share:
<S>                                             <C>            <C>          <C>        <C>            <C>          <C>
  Basic                                         $ 83,226       280,257      $ 0.30     $ 19,723       262,190      $ 0.08
  Effect of dilutive options                           -         4,330           -            -        10,377           -
  Diluted                                       $ 83,226       284,587      $ 0.29     $ 19,723       272,567      $ 0.07

</TABLE>
                                       13
<PAGE>
     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 March 31, 2002,
     we have 4,025,000  shares of potentially  dilutive  Mandatorily  Redeemable
     Convertible Preferred  Securities,  which are convertible into common stock
     at a 3.76  to 1  ratio  at an  exercise  price  of  $13.30  per  share  and
     12,757,000  potentially  dilutive  stock  options  at a range of  $10.24 to
     $21.47 per share.  These items were not  included in the diluted net income
     (loss) per common share  calculation  for any of the above periods as their
     effect was  antidilutive.  Restricted  stock awards of 1,197,000 shares and
     836,000 shares at March 31, 2002 and 2001  respectively,  are excluded from
     our basic weighted average shares  outstanding and included in our dilutive
     shares until the shares are no longer  contingent upon the  satisfaction of
     all specified conditions.

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

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

     We own all of the  Class B Common  Stock and  27,571,332  shares of Class A
     Common Stock of ELI, a facilities based integrated  communications provider
     offering a broad range of  communications  services  in the western  United
     States. This ownership interest represents 85% of the economic interest and
     a 96% voting interest.  ELI's Class B Common Stock votes on a 10 to 1 basis
     with the Class A Common Stock, which is publicly traded. ELI is part of our
     consolidated  federal tax return. In order to maintain that  consolidation,
     we must maintain an ownership and voting interest in excess of 80%.

     Adjusted  EBITDA  is  operating   income  (loss)  plus   depreciation   and
     amortization. EBITDA is a measure commonly used to analyze companies on the
     basis  of  operating  performance.  We use this  measure  to  evaluate  the
     operating  performance of and allocate resources to our operating segments.
     Adjusted  EBITDA is a simple  estimate  of  financial  performance  that is
     easily  calculated  by  our  operating  managers.  It is not a  measure  of
     financial  performance under generally accepted  accounting  principles and
     should not be  considered as an  alternative  to net income as a measure of
     performance  nor as an  alternative  to cash flow as a measure of liquidity
     and may not be comparable to similarly titled measures of other companies.
<TABLE>
<CAPTION>

($ in thousands)                                       For the three months ended March 31, 2002
                                 -------------------------------------------------------------------------------------------
                                                                                                                 Total
                                     ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- ------------- -------------   ---------------
<S>                                  <C>             <C>             <C>           <C>             <C>    <C>     <C>
Revenue                              $ 508,031       $ 48,150       $  71,365      $ 52,691        $ (903)1       $ 679,334
Depreciation and Amortization          158,290         19,652              84             -           148 2         178,174
Operating Income (Loss)                 92,221        (17,180)         11,888        13,270           160 2,3       100,359
Adjusted EBITDA                        250,511          2,472          11,972        13,270           308 3         278,533


($ in thousands)                                       For the three months ended March 31, 2001
                                 -------------------------------------------------------------------------------------------
                                                                                                                 Total
                                     ILEC            ELI            Gas          Electric    Eliminations       Segments
                                 -------------- -------------- --------------- ------------- -------------   ---------------
Revenue                              $ 287,344       $ 62,562       $ 220,515      $ 54,697        $ (837)1       $ 624,281
Depreciation and Amortization           86,377         18,894             150             -           285 2         105,706
Operating Income (Loss)                 62,671        (15,601)         28,614        11,699           500 3          87,883
Adjusted EBITDA                        149,048          3,293          28,764        11,699           785 3         193,589

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

                                       14
<PAGE>
(10) Supplemental Segment Information:
     --------------------------------
     Supplemental  segment  income  statement  information  for the three months
     ended March 31, 2002 is as follows:
<TABLE>
<CAPTION>
                                                                                                             Corporate
($ in thousands)                                                                                Discontinue    and    Consolidated
                                                            ILEC      ELI       Gas    Electric  Operations Eliminations   Total
                                                         --------- --------- -------- ---------- ---------- ------------ ----------
<S>                                                       <C>      <C>       <C>       <C>       <C>        <C>          <C>
Revenue                                                   $508,031 $ 48,150  $ 71,365  $ 52,691  $       -  $    (903)   $679,334

Operating expenses:
   Cost of services                                         43,086   15,694    43,600    26,680          -       (822)    128,238
   Other operating expenses                                200,625   32,084    15,793    12,741          -       (389)    260,854
   Depreciation and amortization                           158,290   19,652        84         -          -        148     178,174
   Write-down of Global Crossing receivables                 7,804        -         -         -          -          -       7,804
   Restructuring and other expenses                          6,005   (2,100)        -         -          -          -       3,905
                                                          --------- -------- -------- ----------- ---------- ---------- ---------
      Total operating expenses                             415,810   65,330    59,477    39,421          -     (1,063)    578,975
                                                          --------- -------- -------- ----------- ---------- ---------- ---------

      Operating income (loss)                               92,221  (17,180)   11,888    13,270          -        160     100,359

Investment and other income (loss), net                      1,334     (176)     (242)      316          -    (49,740)    (48,508)
Interest expense                                            73,465   26,163     1,805     5,701          -     14,916     122,050
                                                          --------- -------- --------- ---------- ---------- ---------- ---------
   Income (loss) from continuing operations before income
    taxes, dividends on convertible preferred securities
    and cumulative effect of change in accounting
    principles                                              20,090  (43,519)    9,841     7,885          -    (64,496)    (70,199)

Income tax expense (benefit)                                 7,711       52     3,777     3,026          -    (41,508)    (26,942)
                                                          --------- -------- -------- ----------- ---------- ---------- ---------

   Income (loss) from continuing operations before
     dividends on convertible preferred securities
     and cumulative effect of change in accounting
     principles                                             12,379  (43,571)    6,064     4,859          -    (22,988)    (43,257)

Dividends on convertible preferred securities,
   net of income tax benefit                                 1,553        -         -         -          -          -       1,553
                                                         --------- --------- -------- ---------- ---------- ---------- ----------

   Income (loss) from continuing operations before
    cumulative effect of change in accounting principle     10,826  (43,571)    6,064     4,859          -    (22,988)    (44,810)

Income from discontinued operations, net of tax                  -        -         -         -     (1,478)         -      (1,478)
Gain on disposal of water segment, net of tax                    -        -         -         -    169,326          -     169,326
                                                         --------- --------- -------- ---------- ---------- ---------- ----------
   Total income from discontinued operations, net of tax         -        -         -         -    167,848          -     167,848

Income (loss) before cumulative effect of change in
   accounting principle                                     10,826  (43,571)    6,064     4,859    167,848    (22,988)    123,038
Cumulative effect of change in accounting principle              -  (39,812)        -         -          -          -     (39,812)
                                                         --------- --------- -------- ---------- ---------- ---------- ----------
   Net income (loss)                                      $ 10,826 $(83,383) $  6,064  $  4,859  $ 167,848  $ (22,988)   $ 83,226
                                                         ========= ========= ======== ========== ========== ========== ==========
</TABLE>
(11) Adelphia Investment:
     --------------------
     We  recognized  losses  of  $49,700,000  and  $79,000,000  on our  Adelphia
     Communications  Corp.  (Adelphia)  investment  as  reductions to investment
     income in the three  months  ended March 31, 2002 and  December  31,  2001,
     respectively.  These non-cash  charges reflect a decline in current trading
     values that have persisted for greater than a six month period. We continue
     to hold the shares.

(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.


                                       15
<PAGE>

(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 contract.

     The  interest  rate  swap  contracts  are  reflected  at fair  value in our
     consolidated balance sheet and the related portion of fixed-rate debt being
     hedged is  reflected at an amount equal to the sum of its book value and an
     amount  representing  the  change  in fair  value of the  debt  obligations
     attributable  to the interest rate risk being  hedged.  Changes in the fair
     value of interest rate swap  contracts,  and the offsetting  changes in the
     adjusted carrying value of the related portion of the fixed-rate debt being
     hedged,  are  recognized  in the  consolidated  statements of operations in
     interest expense. The notional amounts of fixed-rate indebtedness hedged as
     of March 31,  2002 and 2001 was  $100,000,000  and $0,  respectively.  Such
     contracts  required us to pay variable rates of interest  (average pay rate
     of  approximately  3.6% as of March 31,  2002) and  receive  fixed rates of
     interest  (average  receive rate of 6.375% as of March 31, 2002).  The fair
     value of these  derivatives  is  reflected  in other assets as of March 31,
     2002,  in the amount of $66,524  and the related  underlying  debt has been
     increased by a like amount.  The amounts  received  during the quarter as a
     result of these  contracts  amounted  to  $411,897  and are  included  as a
     reduction to interest expense.

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

(14) Shareholder Rights Plan:
     ------------------------
     On March 6, 2002, our Board of Directors adopted a Shareholder Rights Plan.
     The rights will be distributed to shareholders as a dividend at the rate of
     one  right  for  each  share  of  common  stock  of  the  company  held  by
     shareholders  of record as of the close of business on March 26, 2002. Each
     right initially will entitle  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) Change in Accounting Principle and New Accounting Pronouncements:
     -----------------------------------------------------------------
     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting  Standards (SFAS) No. 142, "Goodwill and
     Other Intangible  Assets." This statement  requires that goodwill no longer
     be  amortized  to earnings,  but instead be reviewed  for  impairment.  The
     amortization  of goodwill  ceased upon adoption of the statement on January
     1, 2002.  We have no other  intangibles  with  indefinite  lives other than
     goodwill.  We are 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.  Because of the extensive effort needed to comply with adopting
     SFAS 142, it is not practical to reasonably estimate the impact of adopting
     this statement on our other segments at the date of this report,  including
     whether  we  will  be  required  to  recognize  any  further   transitional
     impairment  losses  as a  cumulative  effect  of  a  change  in  accounting
     principle.  We are required to make this  assessment no later than June 30,
     2002, but such assessment is "as of" January 1, 2002.


                                       16
<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
     long-lived  assets to be disposed of by sale,  whether  previously held and
     used or newly  acquired,  and broadens  the  presentation  of  discontinued
     operations  to  include  more  disposal  transactions.  This  statement  is
     effective for fiscal years  beginning after December 15, 2001. The adoption
     of SFAS 144 has no immediate  material impact on our financial  statements.
     However,  at December 31, 2002 we will be required to apply new criteria as
     prescribed  by SFAS 144 to our  assets  held for  sale  properties.  If the
     criteria is met, we will  continue to classify the  properties  as held for
     sale. If the criteria is not met, we would be required to reclassify  these
     assets to be held and used and record any  depreciation  expense that would
     have been recognized had the assets been continuously held and used.

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

     As part of the  Frontier  acquisition,  Global  and we agreed  to  Global's
     transfer,  effective as of July 1, 2001, of certain  liabilities and assets
     under the Global  pension plan for Frontier  employees.  Such  transfer and
     assumption  of  liabilities  would be to a trustee  of a trust  established
     under our pension plan, and would exclude (1) those liabilities relating to
     certain current and former Frontier  employees who were not considered part
     of the Frontier acquisition (calculated using the "safe harbor" methodology
     of  the  Pension  Benefit   Guaranty   Corporation)  or  (2)  those  assets
     attributable to such liabilities. While all amounts and procedures had been
     agreed to by Global  and us prior to  Global's  bankruptcy  filing,  on the
     ground that its obligation to make this transfer might be "executory" under
     the  Bankruptcy   Code  Global  has  refused  to  execute  and  deliver  an
     authorization  letter to the Frontier plan trustee directing the trustee to
     transfer to our pension plan record ownership of the transferred assets and
     liabilities.  We have initiated an adversary proceeding with the Bankruptcy
     Court supervising  Global's bankruptcy  proceeding,  in which we believe we
     will prevail,  to require Global to execute and deliver such  authorization
     letter if Global does not do so as required by the Frontier  stock purchase
     agreement.  A conference  is scheduled to be held on May 20, 2002 to, among
     other things, schedule a hearing for determining our right to the requested
     relief.



                                       17

<PAGE>

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

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

     *    Changes in the number of our access lines;

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

     *    Our ability to divest our public utilities services businesses;

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

     *    Our ability to expand through attractively priced acquisitions;

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

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

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

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

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

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

(a)  Liquidity and Capital Resources
     --------------------------------
For the three  months ended March 31,  2002,  we used cash flow from  continuing
operations and cash and  investment  balances to fund capital  expenditures  and
debt  repayments.  As of March  31,  2002,  we  maintained  cash and  short-term
investment balances aggregating $972.8 million,  comprised primarily of proceeds
from the sale of our water and wastewater operations.

We have an available shelf  registration of $825.6 million and we have available
lines of credit with  financial  institutions  in the amount of $705 million and
$100  million.   The  credit  facilities  have  similar  terms  and  conditions.
Associated  facility fees vary,  depending on our credit ratings,  and are 0.25%
per annum as of March 31,  2002.  The  expiration  date for both  facilities  is
October 24, 2006.  During the term of the  facilities  we may borrow,  repay and
reborrow funds. As of March 31, 2002,  there were no outstanding  advances under
these facilities.


                                       18
<PAGE>

ELI has a $400 million  committed  revolving  line of credit with a syndicate of
commercial  banks that expires on November 21, 2002. The ELI credit facility has
an associated  facility fee of 0.08% per annum.  We have guaranteed all of ELI's
obligations  under this  revolving  line of credit.  As of March 31, 2002,  $400
million was outstanding under this credit facility. It is expected that when the
line  expires in November  2002,  we will provide the funding for ELI to pay the
debt.

We have committed to continue to finance ELI's cash requirements until March 31,
2003.  We extended a revolving  credit  facility to ELI for $450 million with an
interest  rate of 15% and a final  maturity of October 30, 2005. As of March 31,
2002, we have advanced  $212.5 million to ELI under this facility.  On April 30,
2002, ELI borrowed an additional  $110.0 million to exercise its purchase option
under an operating lease, described below. The remaining commitment is available
to be drawn by ELI for general  corporate  purposes.  We do not believe there is
currently  a  market  for ELI to  further  finance  or  refinance  its  existing
indebtedness except from us.

During 1995, ELI entered into a $110 million  construction  agency agreement and
an operating  lease  agreement in connection  with the  construction  of certain
network facilities.  In January 2002, ELI gave notice that it would exercise its
option to purchase  the  facilities  at the end of the lease term.  On April 30,
2002, a final payment of $110 million was made.  Citizens had  guaranteed all of
ELI's  obligations  under this  operating  lease and  provided the funds for the
purchase.

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.  Both  redemptions  were
funded with cash.

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 debt.  The proceeds are being used
for  general   corporate   purposes   including  the  repayment  of  outstanding
indebtedness.

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

On March 27, 2002, we repaid $40.0  million of Frontier  7.51% Medium Term Notes
at maturity. The redemption was funded with cash.

On March 31, 2002, we called for  redemption at par,  effective May 1, 2002, six
of our  outstanding  variable rate  Industrial  Development  Revenue Bond series
aggregating  approximately  $20.3 million of principal.  These  redemptions were
funded with cash.

On December 17, 2001, we entered into two interest rate swap  agreements  with a
subsidiary of Morgan  Stanley Dean Witter,  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,  the same day the loans are
due, and are being accounted for under SFAS 133 as fair value hedges.

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

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

                                       19
<PAGE>

We have budgeted  approximately  $494.0  million for our 2002 capital  projects,
including  approximately $437.0 million for the ILEC segment,  $15.0 million for
the ELI segment  (excluding the $110 million  purchase of equipment under lease)
and $42.0 million for the public  utilities  services  segment.  As of March 31,
2002,  our actual capital  expenditures  are $55.8 million for the ILEC segment,
$4.2  million  for the ELI segment  and $10.8  million for the public  utilities
services  segments  which  includes  $1.2  million for the water and  wastewater
segment sold in January  2002. We  anticipate  that the funds  necessary for our
2002 capital  expenditures  will be provided  from our ILEC  operations  and our
existing  cash and  investment  balances and if necessary,  by commercial  paper
issuance,  debt, equity and other financing  arrangements,  including borrowings
under our existing credit facilities.

Acquisitions
------------
On June 29, 2001, we purchased  from Global  Crossing Ltd.  (Global) 100% of the
stock of  Frontier  Corp.'s  local  exchange  carrier  subsidiaries,  which owns
approximately  1,096,700  telephone  access  lines (as of December  31, 2000) in
Alabama,  Florida,  Georgia,  Illinois,  Indiana,  Iowa,  Michigan,   Minnesota,
Mississippi,   New  York,   Pennsylvania   and  Wisconsin,   for   approximately
$3,373,000,000  in cash.  This  transaction  has been  accounted  for  using the
purchase  method of accounting.  The results of operations have been included in
our financial statements from the date of acquisition.

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

In March 2002, we entered into a definitive agreement to sell our Kauai electric
division  to Kauai  Island  Utility  Cooperative  (KIUC) for $215  million.  The
transaction, which is subject to regulatory  approvals,  is expected to close by
March 2003.

Currently,  we do not  have  agreements  to sell  our  entire  gas and  electric
segments.  Consequently,  all of our gas and electric  assets and their  related
liabilities are classified as "assets held for sale" and "liabilities related to
assets  held  for  sale,"  respectively.   Additionally,  we  no  longer  record
depreciation  expense on the gas assets and electric assets.  Such  depreciation
expense would have been an additional  $3.5 million for the gas  operations  and
$7.0 million for electric  operations for the three months ended March 31, 2002.
We  continue  to  actively  pursue  buyers for our  remaining  gas and  electric
business.

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.

New Accounting Pronouncements
-----------------------------
In July 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets."  This  statement  requires  that  goodwill  no longer be  amortized  to
earnings,  but instead be reviewed for impairment.  The amortization of goodwill
ceased  upon  adoption  of the  statement  on January 1, 2002.  We have no other
intangibles with indefinite  lives other than goodwill.  We are 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.  Because of the extensive  effort needed to comply
with adopting SFAS 142, it is not practical to reasonably estimate the impact of
adopting  this  statement  on our  other  segments  at the date of this  report,
including  whether we will be required  to  recognize  any further  transitional
impairment losses as a cumulative effect of a change in accounting principle. We
are  required  to make such  assessment  no later  than  June 30,  2002 but such
assessment is "as of" January 1, 2002.


                                       20
<PAGE>

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

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

(b)  Results of Operations
                                     REVENUE

Consolidated  revenue for the three months ended March 31, 2002 increased  $55.1
million, or 9%, as compared with the prior year period. The increase is due to a
$220.7 million  increase in  telecommunications  revenue  partially  offset by a
$14.5  million  decrease  in ELI revenue  and a $149.2  million  decrease in gas
revenue.
<TABLE>
<CAPTION>

                                  ILEC REVENUE

($ in thousands)                          For the three months ended March 31,
                                      ----------------------------------------------
                                           2002            2001          % Change
                                      --------------- ---------------  -------------
<S>                                        <C>             <C>               <C>
Network access services                    $ 189,787       $ 132,399         43%
Local network services                       190,820         100,691         90%
Long distance and data services               73,679          30,607        141%
Directory services                            26,244          10,690        146%
Other                                         27,501          12,957        112%
                                      --------------- ---------------
                                           $ 508,031       $ 287,344         77%
                                      =============== ===============
</TABLE>

We acquired Frontier on June 29, 2001.  Frontier  contributed  $207.2 million in
revenue for the three months ended March 31, 2002.

Network  access  services  revenue  for the three  months  ended  March 31, 2002
increased  $57.3  million,  or 43%,  as  compared  with the  prior  year  period
primarily  due to the impact of  Frontier  of $46.5  million.  Growth in special
access and subsidies  contributed $5.0 million and $2.4 million of the increase,
respectively.

Local  network  services  revenue  for the three  months  ended  March 31,  2002
increased  $90.1  million,  or 90%,  as  compared  with the  prior  year  period
primarily due to the impact of Frontier of $92.8 million.

Long  distance  and data  services  revenue for the three months ended March 31,
2002 increased  $43.0  million,  or 141%, as compared with the prior year period
primarily due to the impact of Frontier of $36.1 million, $4.5 million of growth
related to data and dedicated  circuits and growth in long distance  services of
$3.6 million.

Directory  services  revenue for the three months ended March 31, 2002 increased
$15.6 million,  or 146%, as compared with the prior year period primarily due to
the impact of Frontier of $15.3 million and growth of $0.3 million.

Other revenue for the three months ended March 31, 2002 increased $14.5 million,
or 112%, as compared  with the prior year period  primarily due to the impact of
Frontier of $16.5 million.

                                       21
<PAGE>

                              ELI REVENUE

($ in thousands)                    For the three months ended March 31,
                                ----------------------------------------------
                                     2002            2001          % Change
                                --------------- ---------------  -------------
Network services                      $ 23,787        $ 25,768         -8%
Local telephone services                12,933          21,797        -41%
Long distance services                   3,082           3,084          0%
Data services                            8,348          11,913        -30%
                                --------------- ---------------
                                        48,150          62,562        -23%
Intersegment revenue  *                   (903)           (837)         8%
                                --------------- ---------------
                                      $ 47,247        $ 61,725        -23%
                                =============== ===============

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

Network  services  revenue  decreased $2.0 million,  or 8%, as compared with the
prior year period.  Network services include Private Line Interstate (Long Haul)
and Private Line Intrastate (MAN).

     Revenue from our Long Haul  services  decreased  $3.4  million,  or 26%, as
     compared with the prior year period. The decrease is primarily due to lower
     demand from wholesale customers and current market price pressures.

     Revenue from our MAN services  increased $1.4 million,  or 12%, as compared
     with the prior year  period.  The  increase is  primarily  due to continued
     growth in our network and sales of additional  circuits to new and existing
     customers.

Local telephone  services  revenue  decreased $8.9 million,  or 41%, as compared
with the prior year period.  Local  telephone  services  include ISDN PRI,  dial
tone, Carrier Access Billings and reciprocal compensation.


                                      For the three months ended March 31,
                                  ----------------------------------------------
($ in thousands)                       2002            2001          % Change
                                  --------------- ---------------  -------------
ISDN PRI                                 $ 5,300         $ 8,030        -34%
Dial tone                                  3,581           4,703        -24%
Carrier access billings                    1,224           1,350         -9%
Reciprocal compensation                    2,828           7,714        -63%
                                  --------------- ---------------
                                         $12,933         $21,797        -41%
                                  =============== ===============

     ISDN PRI revenue decreased $2.7 million, or 34%, as compared with the prior
     year period.  Dial tone revenue  decreased  $1.1 million or 24% as compared
     with the prior year period. Decreases in revenue for both ISDN PRI and dial
     tone is the result of a decrease in the average access line  equivalents as
     compared with the prior year period.

     Reciprocal compensation revenue decreased $4.9 million, or 63%, as compared
     with the prior year  period.  The  decrease is due to a decrease in average
     monthly  minutes  processed  of 0.4 million,  or 34%, as compared  with the
     prior year period and a 44% decrease in average rates per minute due to the
     effect of implementing FCC rate changes.

     Reciprocal  compensation  relates to the  transportation and termination of
     traffic between networks.  We recognize reciprocal  compensation revenue as
     earned, based on the terms of interconnection agreements.

Long  distance  services  revenue  remained flat as compared with the prior year
period. Long distance services include retail and wholesale long distance.

     Retail long distance  revenue  increased $0.4 million,  or 18%, as compared
     with the prior year period. The increase is primarily due to an increase in
     average monthly minutes  processed of 3.3 million,  or 38%, offset by a 21%
     decrease in average  rates per minute for the three  months ended March 31,
     2002 as compared with the prior year period.

     Wholesale long distance revenue decreased $0.4 million, or 31%, as compared
     with the prior year  period.  The  decrease is due to a decrease in average
     monthly  minutes  processed  of 2.5  million,  or 18%, for the three months
     ended March 31, 2002 and a decrease of 20% in average rates per minute.

                                       22
<PAGE>

Data services revenue decreased $3.6 million, or 30%, as compared with the prior
year  period.  Data  services  include  Internet,  RSVP,  Frame  Relay and other
services.

     Other data services revenue decreased of $3.1 million,  or 72%, as compared
     with the prior year period, primarily due to the expiration on February 28,
     2001 of an 18-month take-or-pay contract with a significant customer.  This
     take-or-pay contract was not renewed.

     Revenue from our Frame Relay product  decreased  $0.4  million,  or 21%, as
     compared with the prior year period.

     Revenue from our Internet services product  decreased $0.3 million,  or 8%,
     as compared with the prior year period.

     These decreases were offset by increased  revenue from our RSVP products of
     $0.3 million,  or 24%, as compared with the prior year period primarily due
     to an increase number of ports sold.

                                   GAS REVENUE

($ in thousands)                       For the three months ended March 31,
                                  ----------------------------------------------
                                       2002            2001          % Change
                                  --------------- ---------------  -------------
Gas revenue                          $ 71,365       $ 220,515           -68%

Gas revenue for the three months ended March 31, 2002 decreased  $149.2 million,
or 68%, 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
$159.2 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

($ in thousands)               For the three months ended March 31,
                           ----------------------------------------------
                                2002            2001          % Change
                           --------------- ---------------  -------------
Electric revenue              $ 52,691        $ 54,697            -4%

Electric  revenue  for the three  months  ended March 31,  2002  decreased  $2.0
million,  or 4%, as compared  with the prior year period  primarily due to lower
purchase power prices and decreased  consumption.  Under tariff provisions,  the
cost of our electric  energy and fuel oil purchases  are primarily  passed on to
customers.


                                COST OF SERVICES
<TABLE>
<CAPTION>

($ in thousands)                                For the three months ended March 31,
                                            ----------------------------------------------
                                                 2002            2001          % Change
                                            --------------- ---------------  -------------
<S>                                            <C>             <C>               <C>
Gas purchased                                 $  43,600        $ 163,163         -73%
Electric energy and fuel oil purchased           26,680           29,686         -10%
Network access                                   58,780           34,028          73%
Intersegment expense  *                            (822)            (756)          9%
                                            --------------- ---------------
                                              $ 128,238        $ 226,121         -43%
                                            =============== ===============
</TABLE>

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

Gas  purchased  for the three  months  ended  March 31,  2002  decreased  $119.6
million,  or 73%, 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
$130.8  million of gas purchased by our  Louisiana and Colorado gas  operations,
which  were sold on July 2, 2001 and  November  30,  2001,  respectively.  Under
tariff  provisions,  the cost of our gas purchases  are  primarily  passed on to
customers.

                                       23
<PAGE>

Electric energy and fuel oil purchased for the three months ended March 31, 2002
decreased $3.0 million, or 10%, as compared with the prior year period primarily
due to lower  purchase  power  prices and  decreased  consumption.  Under tariff
provisions, the cost of our electric energy and fuel oil purchases are primarily
passed on to customers.

During the past two years,  power  supply  costs have  fluctuated  substantially
forcing  companies in some cases to pay higher  operating costs to operate their
electric  businesses.  In Arizona,  excessive  power costs  charged by our power
supplier in the amount of approximately $105 million through March 31, 2002 have
been incurred.  We are allowed to recover these charges from ratepayers  through
the Purchase Power Fuel Adjustment clause. However, in an attempt to limit "rate
shock" to our customers,  we requested in September 2001 that this amount,  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. We anticipate a determination  regarding recovery to be made
in 2002.

Network  access  expenses for the three  months  ended March 31, 2002  increased
$24.8 million,  or 73%, as compared with the prior year period  primarily due to
the impact of Frontier of $20.0 million and  increased  costs in the ILEC sector
primarily as a result of increased long distance and internet revenue.


                            OTHER OPERATING EXPENSES

($ in thousands)                       For the three months ended March 31,
                                   ---------------------------------------------
                                        2002            2001          % Change
                                   --------------- ---------------  ------------
Operating expenses                      $ 199,253       $ 160,967         24%
Taxes other than income taxes              33,364          25,836         29%
Sales and marketing                        28,237          17,768         59%
                                   --------------- ---------------
                                        $ 260,854       $ 204,571         28%
                                   =============== ===============

Operating  expenses for the three months  ended March 31, 2002  increased  $38.3
million,  or 24%,  as  compared  with the prior  year  period  primarily  due to
increased  operating  expenses  related to Frontier of $78.5 million,  partially
offset by increased  operating  efficiencies and a reduction of personnel in the
ILEC and ELI sectors and 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.

Taxes other than income taxes  increased $7.5 million,  or 29%, as compared with
the prior year period primarily due to the impact of Frontier of $8.4 million.

Sales and marketing expenses  increased $10.5 million,  or 59%, as compared with
the prior year period primarily due to the impact of Frontier of $10.4 million.


                      DEPRECIATION AND AMORTIZATION EXPENSE

($ in thousands)                    For the three months ended March 31,
                                ----------------------------------------------
                                     2002            2001          % Change
                                --------------- ---------------  -------------
Depreciation expense                 $ 147,820        $ 92,383         60%
Amortization expense                    30,354          13,323        128%
                                --------------- ---------------
                                     $ 178,174        $ 105,706        69%
                                =============== ===============

Depreciation  expense for the three months ended March 31, 2002 increased  $55.4
million,  or 60%, as compared  with the prior year period  primarily  due to the
impact  of  Frontier  of  $41.7  million  and  $11.9   million  of   accelerated
depreciation related to the closing of our Plano, Texas administrative facility.

Amortization  expense for the three months ended March 31, 2002 increased  $17.0
million,  or 128%, as compared  with the prior year period  primarily due to the
impact of Frontier of $23.8 million, partially offset by the fact that we ceased
amortization of goodwill  related to our previous  acquisitions as of January 1,
2002 in accordance  with  Statement of Financial  Accounting  Standards No. 142,
"Goodwill and Other Intangible  Assets." Included in March 31, 2001 amortization
expense was $10.4 million of amortization of goodwill.

                                       24
<PAGE>

   WRITE-DOWN OF GLOBAL CROSSING RECEIVABLES/RESTRUCTURING AND OTHER EXPENSES

($ in thousands)                        For the three months ended March 31,
                                    --------------------------------------------
                                         2002            2001          % Change
                                    --------------- ---------------  -----------
Write-down of Global receivables         $ 7,804           $ -           100%
Restructuring and other expenses         $ 3,905           $ -           100%

Concurrent with the acquisition of Frontier,  we entered into several  operating
agreements  with Global.  The write-down of the net  realizable  value of Global
Crossing  receivables  of $7.8 million for the three months ended March 31, 2002
is a result of Global's filing for  bankruptcy.  We are integrating the Frontier
acquisition from Global and have ongoing  commercial  relationships  with Global
affiliates.  We reserved a total of $30 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. We recorded a write- down of such
receivables in the amount of $21.2 million in the fourth quarter of 2001.  Prior
to the date of filing we provided ordinary course telecommunications services as
well as transitional services to Global. Global has provided us certain customer
billing and collection functions as well as other transitional  services.  These
arrangements  have continued after the bankruptcy  filing.  The receivables that
were  outstanding  at the date of  Global's  bankruptcy  filings  are subject to
potential  setoff  rights  and will be  treated  as any other  general  creditor
through the bankruptcy process, including through a potential chapter 11 plan of
reorganization.  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 three months ended March 31, 2002 are
primarily  related to our plan to close our operations  support center in Plano,
Texas by August 2002 and the closing of our  Sacramento,  California call center
in April  2002 and ELI's  decision  to exit  certain  long haul  markets.  These
restructurings  are a  result  of our  evaluation  of  our  facilities  to  take
advantage of operational and functional synergies.  Other expenses include costs
that are being spent at both our Plano, Texas facility and at other locations as
a result of  transitioning  functions  and jobs.  These costs were incurred only
temporarily and will not continue beyond the transition  which is expected to be
complete by August 2002. The discussion below includes our restructuring charges
and excludes the other expenses.

          Plano Restructuring
          In the  second  quarter  of  2001,  we  adopted  a plan to  close  our
          operations   support  center  in  Plano,  Texas  by  August  2002.  In
          connection  with this  plan,  we  recorded  a pre-tax  charge of $14.5
          million in 2001 and $0.8  million for the three months ended March 31,
          2002. Our objective is to concentrate  our resources in areas where we
          have the most customers, to better serve those customers. We intend to
          sell our Plano office building.  The restructuring  will result in the
          termination  of 750  employees.  We  communicated  with  all  affected
          employees  during  July 2001.  Certain  employees  will be  relocated,
          others have been offered severance,  job training and/or  outplacement
          counseling.  As of March 31, 2002, approximately $8.7 million was paid
          and  688  employees  were  terminated.   The  restructuring   expenses
          primarily  consist of severance  benefits,  retention  earned  through
          March 31, 2002, early lease  termination  costs and other planning and
          communication   costs.  We  expect  to  incur   additional   costs  of
          approximately $0.3 million through the third quarter of 2002.

          Sacramento Call Center Restructuring
          In April 2002,  we closed our  Sacramento  Customer  Care  Center.  In
          connection  with  this  closing,  we  recorded  a  pre-tax  charge  of
          approximately  $0.7  million in  restructuring  expenses in the fourth
          quarter of 2001 and $0.1  million for the three months ended March 31,
          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 March 31, 2002, approximately $0.4 million
          was  paid  and 81  employees  were  terminated.  We  expect  to  incur
          additional costs of approximately $8,000 through the second quarter of
          2002.

                                       25
<PAGE>

          ELI Restructuring
          In the first  half of 2002,  ELI  intends  to  redeploy  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  intends  to  cease  leasing  the
          collocation facilities and off-net circuits for the backbone and local
          loops  supporting  the  service  delivery  in  these  markets.  It was
          anticipated  that this would lead to  $4,179,000 of  termination  fees
          which were accrued for but not paid at December 31, 2001. In the first
          quarter 2002, ELI adjusted its original accrual down by $2,100,000 due
          to the  favorable  settlement  of  termination  charges for an off-net
          circuit agreement.  The remaining accrual of $2,079,000 is included in
          current liabilities at March 31, 2002.

                                OPERATING INCOME

($ in thousands)                   For the three months ended March 31,
                               ----------------------------------------------
                                     2002            2001          % Change
                               --------------- ---------------  -------------
Operating income                  $ 100,359        $ 87,883           14%

Operating  income for the three  months  ended  March 31, 2002  increased  $12.5
million,  or 14%, as compared  with the prior year period  primarily  due to the
impact of Frontier of $17.7 million and increased operating income from our ILEC
operations,  partially  offset by increased ELI losses and  decreased  operating
income in the gas  sector  due to the sale of our  Louisiana  and  Colorado  gas
operations  on July 2, 2001 and  November 30,  2001,  respectively.  Included in
operating  income for the three months ended March 31, 2001 was $13.5 million of
operating income from the Louisiana and Colorado gas operations.
<TABLE>
<CAPTION>

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

($ in thousands)                                    For the three months ended March 31,
                                                ----------------------------------------------
                                                      2002            2001          % Change
                                                --------------- ---------------  -------------
<S>                                                  <C>               <C>              <C>
Investment and other income (loss), net              $ (48,508)       $  2,784         -1842%
Interest expense                                     $ 122,050        $ 61,452            99%
Income tax expense (benefit)                         $ (26,942)       $  9,047          -398%

</TABLE>

Investment  and other  income,  net for the three  months  ended  March 31, 2002
decreased  $51.3  million,  or 1,842%,  as  compared  with the prior year period
primarily due to the recognition of a $49.7 million loss resulting from an other
than temporary decline in the value of our investment in Adelphia.

Interest  expense for the three  months  ended March 31,  2002  increased  $60.6
million,  or 99%, as compared with the prior year period  primarily due to $39.2
million of interest  expense on our $1.75  billion of notes  issued in May 2001,
$33.5 million of interest expense on our $1.75 billion of notes issued in August
2001, $7.8 million of interest  expense on our equity units issued in June 2001,
$3.3 million of increased amortization of debt discount expense and $3.1 million
of interest expense on our $200 million Rural Telephone Finance Cooperative note
issued in October 2001.  These amounts were  partially  offset by a reduction of
$16.4  million  of  interest  expense  on our lines of  credit,  a $2.5  million
decrease in ELI's interest  expense related to decreased  interest rates on bank
borrowings, and a $4.7 million decrease in amortization of costs associated with
our committed  bank credit  facilities.  During the three months ended March 31,
2002, we had average long-term debt outstanding of $5.9 billion compared to $3.0
billion  during the three  months ended March 31, 2001.  Our  composite  average
borrowing  rate for the three months  ended March 31, 2002 as compared  with the
prior  year  period  was 76 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.

Income taxes for the three months ended March 31, 2002 decreased  $36.0 million,
or 398%,  as  compared  with the prior year period  primarily  due to changes in
taxable  income.  The  estimated  annual  effective  tax rate for 2002 is 38% as
compared with 31% for 2001.

                                       26
<PAGE>
<TABLE>
<CAPTION>

                             DISCONTINUED OPERATIONS

($ in thousands)                                             For the three months ended March 31,
                                                         ----------------------------------------------
                                                              2002            2001          % Change
                                                         --------------- ---------------  -------------
<S>                                                             <C>            <C>               <C>
Revenue                                                       $   4,650        $ 24,094         -81%
Operating income (loss)                                       $    (419)       $  3,762        -111%
Income (loss) from discontinued operations, net of tax        $  (1,478)       $  1,108        -233%
Gain on disposal of water segment, net of tax                 $ 169,326        $      -         100%

</TABLE>

Revenue, operating income (loss) and net income from discontinued operations for
the three months ended March 31, 2002 decreased $19.4 million,  $4.2 million and
$2.6 million, respectively, as compared with the prior year period primarily due
to the sale of our water and wastewater businesses in January 2002.

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

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
<TABLE>
<CAPTION>

($ in thousands)                                              For the three months ended March 31,
                                                         ----------------------------------------------
                                                              2002            2001          % Change
                                                         --------------- ---------------  -------------
<S>                                                         <C>               <C>              <C>
Cumulative effect of change in accounting principle         $ (39,812)        $ -              100%
</TABLE>

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.

                    NET INCOME / NET INCOME PER COMMON SHARE

($ in thousands)                       For the three months ended March 31,
                                   ---------------------------------------------
                                        2002            2001          % Change
                                   --------------- ---------------  ------------
Net income                             $ 83,226        $ 19,723           322%
Net income per common share            $   0.30        $   0.08           275%

Net income and net income per share for the three  months  ended  March 31, 2002
increased  $63.5  million,  or 322%,  and 22(cent),  or 275%,  respectively,  as
compared  with the prior year period  primarily due to the after tax gain on the
sale of our water and wastewater  operations of $169.3 million and the impact of
the Frontier acquisition  partially offset by a cumulative effect of a change in
accounting  principle at ELI of $39.8  million,  the after tax  recognition of a
loss  resulting  from the decline in value of our Adelphia  investment  of $30.7
million,  the after tax  write-down of the Global  Crossing  receivables of $4.8
million and increased interest expense.

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

Disclosure of primary market risks and how they are managed

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

                                       27
<PAGE>

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 March 31, 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 a
subsidiary of Morgan  Stanley Dean Witter,  each  agreement  covering a notional
amount of $50 million. Under the terms of both agreements,  we make semi-annual,
floating rate  interest  payments  based on six-month  LIBOR and receive a fixed
6.375% rate on the notional amount.  Under the terms of one swap, the underlying
LIBOR rate is set in advance, while the second agreement utilizes LIBOR reset in
arrears.  Both swaps  terminate  on August  15,  2004 when the  underlying  debt
matures, and are being accounted for under SFAS 133 as fair value hedges.

Sensitivity analysis of interest rate exposure

At March 31,  2002,  the fair  value of our  long-term  debt and  capital  lease
obligations was estimated to be  approximately  $5,874.0  million,  based on our
overall weighted  average rate of 7.6% and our overall  weighted  maturity of 12
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 declined by  approximately 6 basis points,  consistent
with the general  decline of interest  rates  during the first  quarter  2002. A
hypothetical  increase of 76 basis points (10% of our overall  weighted  average
borrowing  rate) would result in an approximate  $311.3 million  decrease in the
fair value of our fixed rate obligations.

Equity Price Exposure

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

As of March 31,  2002,  we owned  3,059,000  shares of  Adelphia  Communications
(Adelphia)  common  stock and its market price was $14.90.  As a result,  of its
price decline we recognized a loss of $49.7  million on our  investment  for the
three months ended March 31, 2002 as the decline was determined to be other than
temporary. The market value of Adelphia has continued to decline and the closing
price at April 30,  2002 was $6.02  which could  result in an  additional  $27.2
million loss in the second quarter of 2002.

Sensitivity analysis of equity price exposure

At March 31,  2002,  the fair  value of the  equity  portion  of our  investment
portfolio  was estimated to be $89.0  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $8.9 million decrease in the
fair value of the equity portion of our investment portfolio.

                                       28
<PAGE>

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
March 31, 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 March  31,  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.

                                       29
<PAGE>


                           PART II. OTHER INFORMATION
                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

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

On July 20, 2001, we notified Qwest  Corporation that we were terminating  eight
acquisition  agreements  with Qwest relating to telephone  exchanges in Arizona,
Colorado,  Idaho/Washington,  Iowa, Minnesota, Montana, Nebraska and Wyoming. On
July 23, 2001, Qwest 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  tentatively  scheduled  to commence in the fourth
quarter of 2002.

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

As part of the Frontier acquisition,  Global and we agreed to Global's transfer,
effective as of July 1, 2001, of certain liabilities and assets under the Global
pension plan for Frontier employees. Such transfer and assumption of liabilities
would be to a trustee of a trust  established  under our pension plan, and would
exclude (1) those  liabilities  relating to certain  current and former Frontier
employees who were not considered part of the Frontier  acquisition  (calculated
using the "safe harbor" methodology of the Pension Benefit Guaranty Corporation)
or (2) those  assets  attributable  to such  liabilities.  While all amounts and
procedures  had been  agreed to by Global  and us prior to  Global's  bankruptcy
filing,  on the  ground  that its  obligation  to make  this  transfer  might be
"executory"  under the Bankruptcy Code Global has refused to execute and deliver
an  authorization  letter to the Frontier plan trustee  directing the trustee to
transfer to our pension  plan record  ownership  of the  transferred  assets and
liabilities. We have initiated an adversary proceeding with the Bankruptcy Court
supervising Global's bankruptcy proceeding, in which we believe we will prevail,
to require  Global to execute and deliver  such  authorization  letter if Global
does  not  do so as  required  by  the  Frontier  stock  purchase  agreement.  A
conference  is  scheduled  to be held on May 20, 2002 to,  among  other  things,
schedule a hearing for determining our right to the requested relief.

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

a)       Exhibits:
         None.

b)       Reports on Form 8-K:

We filed on Form 8-K on January 9, 2002  under Item 5,  "Other  Events," a press
release  providing 2002 guidance for our rural local exchange carrier (RLEC) and
competitive local exchange carrier (CLEC) operations.

We filed on Form 8-K/A on January  15,  2002 in respect of our Form 8-K filed on
December 13, 2001,  under Item 7,  "Financial  Statements,  Pro Forma  Financial
Information and Exhibits," the revised pro forma financial  information  related
to  the  Frontier  business  acquired,  the  Verizon  Acquisitions,   the  Qwest
acquisition and the public utility  services  dispositions  for the period ended
September 30, 2001 and the year ended December 31, 2000.

We filed on Form 8-K on January 15,  2002 under Item 5, "Other  Events," a press
release  announcing  that we had completed the sale of our water and  wastewater
treatment operations to American Water Works (NYSE: AWK).

                                       30
<PAGE>

We filed on Form 8-K on January 30, 2002 under Item 2,  "Disposition of Assets,"
and  item  7,  "Financial  Statements,   Pro  Forma  Financial  Information  and
Exhibits,"  the pro forma  balance sheet at September  30, 2001  reflecting  the
disposition of our water and wastewater treatment assets.

We filed on Form 8-K on  February  21,  2002 under Item 5,  "Other  Events,"  an
announcement  that we would recognize a $79 million  writedown in our year ended
December 31, 2001,  financial  statements on our holdings of 3,059,000 shares of
Class A Common Stock of Adelphia Communications Corp.

We  filed on Form 8-K on March 8,  2002  under  Item 7,  "Financial  Statements,
Exhibits," a press  release  announcing  earnings for the year and quarter ended
December 31, 2001.

We filed on Form 8-K on March 22, 2002 under Item 5, "Other Events,"  announcing
the adoption of a shareholder rights plan.

                                       31
<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: May 15, 2002