CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------



                                    FORM 10-K
                                    ---------




                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  ---------------------------------------------


                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     --------------------------------------


                      FOR THE YEAR ENDED DECEMBER 31, 2005
                      ------------------------------------



<PAGE>
<TABLE>
<CAPTION>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the fiscal year ended December 31, 2005
                          -----------------
                                       OR

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

For the transition period from _________ to ___________

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

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

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

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

Registrant's telephone number, including area code:  (203) 614-5600
                                                     --------------
<S>                                                                            <C>
Securities registered pursuant to Section 12(b) of the Act:
  Title of each class                                                           Name of each exchange on which registered
---------------------------------                                                -----------------------------------------
Common Stock, par value $.25 per share                                              New York Stock Exchange
Guarantee of Convertible Preferred Securities of Citizens Utilities Trust           New York Stock Exchange
Citizens Convertible Debentures                                                                N/A
Guarantee of Partnership Preferred Securities of Citizens Utilities Capital L.P.               N/A
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
                                   Yes X    No
                                      ---     ---

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or 15(d) of the Act.
                                   Yes      No X
                                      ---     ---

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X   No
                                      ---    ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X   No
                                      ---    ---

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes     No X
                           ---    ---

The  aggregate  market  value of  common  stock  held by  non-affiliates  of the
registrant  on June  30,  2005  was  approximately  $4,590,836,087  based on the
closing price of $13.44 per share.

The number of shares outstanding of the registrant's  Common Stock as of January
31, 2006 was 328,457,505.

                       DOCUMENT INCORPORATED BY REFERENCE

Portions  of the Proxy  Statement  for the  Company's  2006  Annual  Meeting  of
Stockholders to be held on May 25, 2006 are  incorporated by reference into Part
III of this Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
                       CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


                                   TABLE OF CONTENTS
                                   -----------------

                                                                                        Page
                                                                                        ----
PART I
------

<S>                                                                                     <C>
Item 1.    Business                                                                        2

Item 1A.   Risk Factors                                                                    9

Item 1B.   Unresolved Staff Comments                                                      12

Item 2.    Properties                                                                     12

Item 3.    Legal Proceedings                                                              13

Item 4.    Submission of Matters to a Vote of Security Holders                            13

Executive Officers                                                                        14

PART II
-------

Item 5.    Market for Registrant's Common Equity,
               Related Stockholder Matters and Issuer Purchases of Equity Securities      16

Item 6.    Selected Financial Data                                                        21

Item 7.    Management's Discussion and Analysis of
               Financial Condition and Results of Operations                              22

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                     38

Item 8.    Financial Statements and Supplementary Data                                    39

Item 9.    Changes in and Disagreements with Accountants on Accounting                    39
               and Financial Disclosure

Item 9A.    Controls and Procedures                                                       39

Item 9B.     Other Information                                                            39

PART III
--------

Item 10.   Directors and Executive Officers of the Registrant                             39

Item 11.   Executive Compensation                                                         39

Item 12.   Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters                            40

Item 13.   Certain Relationships and Related Transactions                                 40

Item 14.    Principal Accountant Fees and Services                                        40

PART IV
-------

Item 15.   Exhibits and Financial Statement Schedules                                     40

Signatures                                                                                45

Index to Consolidated Financial Statements                                               F-1

</TABLE>
<PAGE>

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                                     PART I
                                     ------

Item 1.   Business
          --------

Citizens Communications Company and its subsidiaries (Citizens) will be referred
to as the "Company,"  "we," "us" or "our"  throughout this report.  Citizens was
incorporated in the state of Delaware in 1935 as Citizens Utilities Company.

We are a communications  company providing services to rural areas and small and
medium-sized  towns and cities. We offer our services under the "Frontier" name.
In addition, we provide competitive local exchange carrier, or CLEC, services to
business customers and to other communications  carriers in certain metropolitan
areas in the western United States through Electric Lightwave,  LLC, or ELI, our
wholly-owned  subsidiary.  Revenue  from our  Frontier  and ELI  operations  was
$2,003.3 million and $159.2 million, respectively, in 2005. In February 2006, we
entered into a definitive  agreement to sell ELI and we expect the sale to close
in the third quarter of 2006. Among the highlights for 2005:

          *    Cash Generation
               We  continued to grow free cash flow  through  further  growth of
               broadband and value added  services,  productivity  improvements,
               and a disciplined  capital  expenditure  program that  emphasizes
               return on investment.

          *    Stockholder Value
               During 2005, we  repurchased  $250.0  million of our common stock
               and we continued to pay an annual  dividend  of $1.00  per common
               share.  The share  repurchase  program was  completed  during the
               fourth quarter of 2005.

          *    Growth
               During  2005,  we  added  approximately   99,000  new  high-speed
               internet  customers  and almost 84,000  customers  began buying a
               bundle or package of our  services.  At December 31, 2005, we had
               more than 311,000  high-speed  data  customers and almost 442,000
               customers buying a bundle or package of services. During 2005, we
               also began  offering a  television  product in  partnership  with
               Echostar's  DISH  Network,   and  at  the  end  of  2005  we  had
               approximately  32,000 customers buying a "triple play" package of
               telephone, television and high-speed internet service.

Our objective is to be the leading provider of communications  services to homes
and businesses in our service areas.  We are committed to delivering  innovative
and reliable products and solutions with an emphasis on convenience, service and
customer  satisfaction.  We offer a variety of voice,  television  and  internet
services  that are  available  as  bundled  or  package  solutions  or, for some
products,  a la carte. We believe that superior  customer service and innovative
product  positioning  will continue to  differentiate us from our competitors in
the marketplace.

Telecommunications Services

As of December 31, 2005, we operated  incumbent  local  exchange  carriers in 23
states. Our CLEC services consist of a variety of integrated  telecommunications
products.

Frontier is typically the dominant incumbent carrier in the markets we serve and
provides  the "last  mile" of  telecommunications  services to  residential  and
business  customers in these markets.  As a CLEC, we provide  telecommunications
services to businesses and other carriers in competition with the incumbent.  As
a CLEC,  we  frequently  obtain  the "last  mile"  access to  customers  through
arrangements  with the  applicable  incumbent.  Frontier  and ELI are subject to
different regulatory frameworks of the Federal Communications  Commission (FCC).
ELI does not compete with our Frontier business.

The   telecommunications   industry  is  undergoing   significant   changes  and
difficulties  and our financial  results reflect the impact of this  challenging
environment.  As discussed in more detail in Management's  Discussion & Analysis
of  Financial  Condition  and  Results of  Operations  (MD&A),  we operate in an
increasingly  challenging  environment  and our Frontier  revenues have not been
growing.

                                       2
<PAGE>

Frontier
--------

Frontier accounted for $2,003.3 million,  or 93%, of our total revenues in 2005.
Approximately  8% of our 2005  Frontier  revenues  came from  federal  and state
subsidies and approximately 14% from regulated access charges.

Our Frontier  business is primarily with residential  customers and, to a lesser
extent, non-residential customers. Our Frontier segment principally provides:

         *        access services,

         *        local services,

         *        long distance services,

         *        data and internet services,

         *        directory services, and

         *        television services.

Access  services.  We provide both  switched  and  non-switched  network  access
services.  Switched  access  services  allow  other  carriers  the  use  of  our
facilities  to  originate  and  terminate  their  long  distance  voice and data
traffic.  These services are generally offered on a month-to-month basis and the
service  is billed on a  minutes-of-use  basis and access  charges  are based on
access rates filed with the FCC for interstate  services and with the respective
state regulatory  agency for intrastate  services.  Non-switched  network access
services  provide  other  carriers and  high-volume  commercial  customers  with
dedicated  high-capacity  circuits.  Such  services are  generally  offered on a
contract  basis and the service is billed on a fixed  monthly  recurring  charge
basis. In addition,  subsidies received from state and federal universal service
funds based on the high cost of  providing  telephone  service to certain  rural
areas are a part of our access services revenue.

Revenue is  recognized  when services are provided to customers or when products
are delivered to customers.  Monthly recurring network access service revenue is
billed in advance. The unearned portion of this revenue is initially deferred on
our balance  sheet and  recognized  in revenue over the period that the services
are provided. Non-recurring network access service revenue is billed in arrears.
The earned but unbilled  portion of this revenue is recognized in revenue in the
period that the services are provided.

Local  services.   We  provide  basic  telephone  wireline  access  services  to
residential  and  non-residential  customers in our service  areas.  Our service
areas are largely  residential and are generally less densely populated than the
primary service areas of the largest incumbent local exchange carriers.  We also
provide  enhanced  services  to our  customers  by  offering a number of calling
features including call forwarding,  conference calling,  caller identification,
voicemail and call waiting. We offer packages of communications  services. These
packages permit customers to bundle their basic telephone line with their choice
of enhanced,  long distance,  television and internet services for a monthly fee
and/or usage fee depending on the plan.

We intend to continue to  increase  the  penetration  of enhanced  services.  We
believe that increased  sales of such services will produce  revenue with higher
operating  margins due to the relatively low marginal  operating costs necessary
to offer such services.  We believe that our ability to integrate these services
with other services will provide us with the opportunity to capture an increased
percentage of our customers' communications expenditures.

Long distance  services.  We offer long distance  services in our territories to
our  customers.  We  believe  that many  customers  prefer  the  convenience  of
obtaining their long distance service through their local telephone  company and
receiving  a single  bill.  Long  distance  network  service to and from  points
outside of our operating  territories  is provided by  interconnection  with the
facilities of interexchange carriers, or IXCs.

Data and internet  services.  We offer data services  including  internet access
(via  dial  up  or  high-speed  internet  access),  frame  relay,  ethernet  and
asynchronous transfer mode (ATM) switching in portions of our system.


                                       3
<PAGE>

Directory  services.  Directory  services  involves  the  provision of white and
yellow page  directories of residential and business  listings.  We provide this
service  through a third-party  contractor and are paid a percentage of revenues
from the sale of advertising in these  directories.  Our directory  service also
includes  "Frontier Pages," an internet-based  directory service which generates
advertising  revenue. We recognize the revenue from these services over the life
of the related white or yellow pages book.

Television  services.  During 2005,  we began  offering a television  product in
partnership  with  Echostar's  DISH Network.  We provide  access to  all-digital
television channels featuring movies,  sports,  news, music, and high-definition
TV  programming.  We  offer  packages  that  include  60,  120 or 180  channels,
high-definition channels, family channels and ethnic channels.

Wireless and VOIP services.  During 2006, we expect to begin  offering  wireless
data and voice  services and  commercial  voice over  internet  protocol  (VOIP)
solutions  in certain  markets.  Our  wireless  data and VOIP  services  utilize
technologies  that are  relatively  new,  and we  depend  to some  degree on the
representations of equipment vendors,  lab testing and the experiences of others
who have been successful at deploying these new technologies.  In addition,  our
success  in  offering  wireless  voice  service  will,  to a  great  extent,  be
determined by the  relationships  we are developing with both wireless  carriers
and third-party wireless support  organizations,  and is also dependent on their
capabilities.

The following table sets forth certain  information  with respect to our revenue
generating units (RGUs), which consists of access lines plus high-speed internet
subscribers, as of December 31, 2005 and 2004.

                                         Frontier RGUs at December 31,
                                         -----------------------------
         State                             2005              2004
         -----                             ----              ----

         New York............             994,600          1,029,700
         Minnesota...........             293,600            289,300
         Arizona.............             191,400            182,000
         California..........             184,100            179,400
         West Virginia.......             169,100            165,000
         Illinois............             129,200            128,600
         Tennessee...........             108,500            104,500
         Wisconsin...........              78,600             77,600
         Iowa................              61,900             62,100
         Nebraska............              54,500             54,400
         All other states (13)...         264,400            260,400
                                        ---------          ---------
         Total                          2,529,900          2,533,000
                                        =========          =========

Change  in the  number of our  access  lines is  important  to our  revenue  and
profitability.  We have lost  access  lines  primarily  because of  competition,
changing consumer behavior, economic conditions, changing technology and because
some  customers  disconnect  second  lines  when  they add  high-speed  internet
service.  We lost  approximately  102,000  access  lines  during  the year ended
December 31, 2005, but added over 99,000 high-speed internet  subscribers during
this same period.  The loss of lines during 2005 was primarily among residential
customers.  The non-residential  line losses were principally in Rochester,  New
York,  while the residential  losses were  throughout our markets.  We expect to
continue to lose access lines but to increase  high-speed  internet  subscribers
during  2006.  A  continued  loss  of  access  lines,  combined  with  increased
competition and the other factors discussed in MD&A, may cause our profitability
and cash flows to decrease during 2006.

ELI
---

In February  2006,  we entered  into a  definitive  agreement to sell all of the
outstanding  membership  interests  in ELI to  Integra  Telecom  Holdings,  Inc.
(Integra),  for  $247.0  million,  including  $243.0  million  in cash  plus the
assumption of approximately $4.0 million in capital lease  obligations,  subject
to customary  adjustments under the terms of the agreement.  This transaction is
expected to close during the third  quarter of 2006.  The closing of the sale is
subject  to  several  conditions,  including  the  funding  of  Integra's  fully
committed financing and regulatory approvals.


                                       4
<PAGE>

ELI provides a broad range of wireline  communications  products and services to
businesses and other  carriers in the western  United States.  ELI accounted for
$159.2  million,  or 7%, of our total  revenues in 2005.  Our ELI revenues  have
declined  from a peak of $240.8  million in 2000,  however  2005  revenues  were
higher than 2004.

ELI's  facilities-based  network  consists  of optical  fiber and voice and data
switches. ELI has a national internet and data network with switches and routers
in key cities, linked by leased transport facilities. These assets are not being
sold and will  continue  to be owned  and  utilized  by  Frontier  to carry  our
customers' voice,  internet and data traffic. In addition,  ELI has a long-haul,
fiber-optic  network  connecting  the  cities it serves  in the  western  United
States,  which utilizes an optically  self-healing  Synchronous  Optical Network
(SONET)  architecture.  ELI currently provides the full range of its services in
the  following  cities and their  surrounding  areas:  Boise,  Idaho;  Portland,
Oregon; Salt Lake City, Utah; Seattle, Washington; Spokane, Washington; Phoenix,
Arizona; and Sacramento, California.

Regulatory Environment

Frontier Regulation
-------------------

The  majority of our  operations  are  regulated  extensively  by various  state
regulatory agencies, often called public service or utility commissions, and the
FCC.

Our Frontier  segment  revenue is subject to  regulation  by the FCC and various
state regulatory agencies.  We expect federal and state lawmakers to continue to
review  the  statutes   governing   the  level  and  type  of   regulation   for
telecommunications services.

The  Telecommunications  Act of 1996, or the 1996 Act,  dramatically changed the
telecommunications  industry. The main purpose of the 1996 Act was to open local
telecommunications  marketplaces to competition. The 1996 Act preempts state and
local  laws  to the  extent  that  they  prevent  competition  with  respect  to
communications services. Under the 1996 Act, however, states retain authority to
impose requirements on carriers necessary to preserve universal service, protect
public  safety and  welfare,  ensure  quality of service and protect  consumers.
States  are also  responsible  for  mediating  and  arbitrating  interconnection
agreements  between CLECs and ILECs if voluntary  negotiations fail. In order to
create an environment in which local competition is a practical possibility, the
1996 Act imposes a number of requirements  for access to network  facilities and
interconnection  on all local  communications  providers.  All  incumbent  local
carriers must interconnect with other carriers,  unbundle some of their services
at wholesale rates, permit resale of some of their services,  enable collocation
of equipment,  provide local  telephone  number  portability and dialing parity,
provide access to poles, ducts,  conduits and rights-of-way,  and complete calls
originated by competing carriers under termination arrangements.

At the federal  level and in a number of the states in which we operate,  we are
subject  to price cap or  incentive  regulation  plans  under  which  prices for
regulated  services are capped in return for the  elimination  or  relaxation of
earnings oversight.  The goal of these plans is to provide incentives to improve
efficiencies and increased  pricing  flexibility for competitive  services while
ensuring that customers  receive  reasonable  rates for basic services.  Some of
these plans have limited terms and, as they expire,  we may need to  renegotiate
with various  states.  These  negotiations  could impact rates,  service quality
and/or  infrastructure  requirements which could impact our earnings and capital
expenditures. In the other states in which we operate, we are subject to rate of
return regulation that limits levels of earnings and returns on investments.  In
some states,  we have been required to refund customers as a result of exceeding
earnings  limitations.  We continue to advocate our position of less  regulation
with various regulatory agencies.

For  interstate  services  regulated  by the  FCC,  we  have  elected  a form of
incentive  regulation  known as "price caps" for most of our operations.  In May
2000, the FCC adopted a methodology  for regulating the interstate  access rates
of price cap companies through May 2005. The program, known as the Coalition for
Affordable Local and Long Distance  Services,  or CALLS plan, reduced prices for
interstate-switched  access  services  and  phased  out  many  of  the  implicit
subsidies in interstate access rates. The CALLS program expired in 2005. The FCC
may address  future  changes in interstate  access  charges during 2006 and such
changes may adversely affect our revenues and profitability.

Another  goal of the 1996 Act was to remove  implicit  subsidies  from the rates
charged by local  telecommunications  companies.  The CALLS plan  addressed this
requirement for interstate services.  State legislatures and regulatory agencies
are  beginning to reduce the implicit  subsidies in intrastate  rates.  The most
common  subsidies are in access rates that  historically  have been priced above
their costs to allow basic local rates to be priced below cost.  Legislation has
been  considered  in several  states to require  regulators  to eliminate  these
subsidies and implement  state  universal  service  programs where  necessary to
maintain reasonable basic local rates. However, not all the reductions in access
charges would be fully offset.  We anticipate  additional state  legislative and
regulatory pressure to lower intrastate access rates.


                                       5
<PAGE>

Some state  legislatures  and  regulators  are also  examining  the provision of
telecommunications  services to previously  unserved areas.  Since many unserved
areas are located in rural  markets,  we could be required to expand our service
territory into some of these areas.

Recent and Potential Regulatory Developments
--------------------------------------------

Wireline and wireless carriers are required to provide local number  portability
(LNP).  LNP is the  ability of  customers  to switch from a wireline or wireless
carrier to another  wireline  or wireless  carrier  without  changing  telephone
numbers.  We are 100% LNP  capable in our  largest  markets  and over 98% of our
exchanges are LNP capable.  We will upgrade the remaining  exchanges in response
to bona fide requests as required by the FCC order.

LNP will promote further competition in an environment where the displacement of
traditional  wireline  services  has been  increasing  because of  technological
substitutions  such as cell phones,  e-mail,  cable telephony and Internet phone
calling.

In 1994,  Congress passed the Communications  Assistance for Law Enforcement Act
(CALEA)  to ensure  that  telecommunication  networks  can meet law  enforcement
wiretapping needs. We expect to be fully compliant by June 2006.

The FCC is expected to address issues involving inter-carrier compensation,  the
universal service fund and internet telephony in 2006. The FCC adopted a Further
Notice of Proposed Rulemaking (FNPRM) addressing  inter-carrier  compensation on
February  10,  2005.  Some of the  proposals  being  discussed  with  respect to
inter-carrier compensation, such as "bill and keep" (under which switched access
charges would be reduced or  eliminated),  could reduce our access  revenues and
our  profitability.  The  universal  service  fund is  under  pressure  as local
exchange  companies  lose  access  lines  and more  entities,  such as  wireless
companies,  seek to receive  monies  from the fund.  The rules  surrounding  the
eligibility of Competitive Eligible Telecommunication Carriers, such as wireless
companies,  to receive  universal  service funds are expected to be clarified by
the Federal-State  Joint Board on Universal Service and the clarification of the
rules may heighten the  pressures on the fund.  Changes in the funding or payout
rules of the universal  service fund could further  reduce our subsidy  revenues
and our profitability. As discussed in MD&A, our access and subsidy revenues are
important to our cash flows and both our access and subsidy revenues declined in
2005 compared to 2004. Our access revenues are likely to decline again in 2006.

The development  and growth of internet  telephony (also known as VOIP) by cable
and other  companies  has  increased  the  importance  of regulators at both the
federal and state levels  addressing  whether  such  services are subject to the
same or different regulatory and financial schemes as traditional telephony.  On
November  9, 2004,  the FCC issued an order in  response to a petition by Vonage
Holdings  Corp.   (Vonage),   declaring  that  Vonage-style  VOIP  services  are
jurisdictionally  interstate  in  nature  and  are  thereby  exempt  from  state
telecommunications regulations. The FCC stated that its order was not limited to
Vonage,  but rather  applied to all  Vonage-type  VOIP  offerings  provided over
broadband  services.  The FCC did not address  other  related  issues,  such as:
whether  or under  what  terms  VOIP  traffic  may be  subject  to  intercarrier
compensation;  if VOIP  services  are  subject  to  general  state  requirements
relating to taxation and general commercial  business  requirements;  or whether
VOIP is subject to 911, universal service fund (USF), and CALEA obligations. The
FCC is planning on addressing  these open questions in subsequent  orders in its
ongoing  "IP-Enabled  Services  Proceeding,"  which  opened  in  February  2004.
Internet  telephony may have an advantage  over our  traditional  services if it
remains less regulated. We are actively participating in the FCC's consideration
of all these issues.  On June 3, 2005,  the FCC issued an order  requiring  VOIP
services  interconnected  to the public  switched  telephone  network to include
E-911 calling capabilities by November 28, 2005. Subsequently,  the FCC issued a
number of public notices detailing the steps that could be considered sufficient
interim compliance. The FCC stated in a public notice that providers not in full
compliance would not be required to disconnect existing subscribers but would be
expected not to connect new subscribers in areas where they are not transmitting
911 calls in full  compliance  with the rules.  On September  23, 2005,  the FCC
issued an order  stating that both  interconnected  VOIP  services and broadband
internet  access services will be required to comply with CALEA by May 12, 2007.
Both the VOIP  E-911  order and the CALEA  order are  subject to  petitions  for
clarification  and  reconsideration  and both have been appealed and are pending
before federal courts.


                                       6
<PAGE>

The FCC's service outage  reporting rules require  telecommunications  providers
(regardless  of whether  they are cable,  wireless  or  wireline  communications
providers) to report outages of at least a 30 minute  duration that  potentially
affect at least  900,000  user-minutes.  The initial FCC order,  which  included
required  reporting of certain  non-service  interrupting  network outages,  was
partially stayed. The network modifications  necessary to comply with the stayed
portion  of the order  would  cost us in excess of $16.0  million.  The New York
Public Service Commission is also considering network reliability  requirements.
We and other carriers are opposing these proposed requirements.

Some  state  regulators  (including  New  York  and  Illinois)  have in the past
considered  imposing  on  regulated  companies  (including  us) cash  management
practices that could limit the ability of a company to transfer cash between its
subsidiaries or to its parent company.  None of the existing state  requirements
materially  affect our cash  management but future  changes by state  regulators
could  affect  our  ability to freely  transfer  cash  within  our  consolidated
companies.

ELI Regulation
--------------

As a CLEC, ELI is subject to federal,  state and local regulation.  However, the
level of  regulation  is typically  less than that  experienced  by an incumbent
carrier.  Local  governments  may require ELI to obtain  licenses or  franchises
regulating the use of public rights-of-way  necessary to install and operate its
networks.

ELI has various  interconnection  agreements in the states in which it operates.
These agreements  govern reciprocal  compensation  relating to the transport and
termination of traffic between the  incumbent's and ELI's networks.  The FCC has
significantly  reduced  intercarrier  compensation for internet service provider
(ISP) traffic,  also known as "reciprocal  compensation."  On December 15, 2004,
the FCC adopted rules that will increase  costs to ELI for services that it buys
from incumbent carriers.

Most  state  public  service  commissions  require  competitive   communications
providers,  such as ELI,  to  obtain  operating  authority  prior to  initiating
intrastate  services.  Most states  also  require the filing of tariffs or price
lists  and/or  customer-specific  contracts.  ELI is not  currently  subject  to
rate-of-return  or price regulation.  However,  ELI is subject to state-specific
quality of service,  universal service,  periodic reporting and other regulatory
requirements,  although the extent of these  requirements is generally less than
those applicable to incumbent carriers.

Competition

Frontier Competition
--------------------

Competition in the  telecommunications  industry is intense and  increasing.  We
experience  competition from many  communications  service  providers  including
cable operators,  wireless carriers,  VOIP providers,  long distance  providers,
competitive  local  exchange  carriers,  internet  providers and other  wireline
carriers.  We believe that competition will continue to intensify in 2006 across
all  products  and in all of our  markets.  Our  Frontier  business  experienced
erosion in access lines and switched  access  minutes of use in 2005 as a result
of  competition.  Competition  in our markets may result in reduced  revenues in
2006.

We are responding to this competitive environment with new product offers and by
bundling  products  and  services  together  with  an  end  user  contract  term
commitment.  Revenues from data services and packages  continue to increase as a
percentage  of our total  revenues.  There will  continue to be price and margin
pressures in our business that may result in less revenues and profitability.

The telecommunications industry is undergoing significant changes. The market is
extremely  competitive,  resulting in lower  prices,  and consumers are changing
behavior,  such as using wireless in place of wireline  services and using email
instead of making  calls.  These  trends are likely to continue  and result in a
challenging  revenue  environment.  These  factors  could  also  result  in more
bankruptcies  in the sector and  therefore  affect our ability to collect  money
owed to us by bankrupt carriers.

ELI Competition
---------------

ELI  faces  significant  competition  from  incumbents  in each of its  markets.
Principal  incumbent  competitors  include  Qwest,  at&t and  Verizon.  ELI also
competes with all of the major IXCs,  internet access providers and other CLECs.
CLEC service providers have generally encountered intense competitive pressures,
the  result  of  which is the  failure  of a number  of  CLECs  and  substantial
financial pressures on others.


                                       7
<PAGE>

Competitors in ELI's markets  include,  in addition to the incumbent  providers:
at&t,   Sprint,   Time  Warner   Telecom,   Verizon,   Integra  Telecom  and  XO
Communications. In each of the markets in which ELI operates, at least one other
CLEC,  and in some cases  several  other CLECs,  offer many of the same services
that ELI provides, generally at similar prices.

Competition is based on price, quality,  network reliability,  customer service,
service  features  and  responsiveness  to the  customer's  needs.  Many  of our
competitors  have  greater  market  presence and greater  financial,  technical,
marketing  and human  resources,  more  extensive  infrastructure  and  stronger
customer and strategic  relationships  than are available to us.  Competition in
the CLEC industry is intense and pricing  continues to decline.  ELI's  revenues
have declined since 2000, however 2005 revenues were higher than 2004.

Divestiture of Public Utilities Services

In the  past  we  provided  public  utilities  services  including  natural  gas
transmission and distribution,  electric  transmission and  distribution,  water
distribution and wastewater  treatment  services to primarily rural and suburban
customers  throughout  the  United  States.  In  1999,  we  announced  a plan of
divestiture for our public utilities  services  properties.  Since then, we have
divested all of our public utility operations for an aggregate of $1.9 billion.

We have retained a potential  payment  obligation  associated  with our previous
electric  utility  activities in the state of Vermont.  The Vermont Joint Owners
(VJO),  a  consortium  of 14 Vermont  utilities,  including  us,  entered into a
purchase power  agreement  with  Hydro-Quebec  in 1987.  The agreement  contains
"step-up" provisions which state that if any VJO member defaults on its purchase
obligation  under the  contract to purchase  power from  Hydro-Quebec,  then the
other VJO participants  will assume  responsibility  for the defaulting  party's
share on a pro-rata basis.  Our pro-rata share of the purchase power  obligation
is  10%.  If any  member  of the  VJO  defaults  on its  obligations  under  the
Hydro-Quebec  agreement,  the remaining members of the VJO, including us, may be
required  to pay for a  substantially  larger  share of the  VJO's  total  power
purchase  obligation  for the  remainder  of the  agreement  (which runs through
2015).  Paragraph 13 of FIN 45 requires that we disclose "the maximum  potential
amount of future payments (undiscounted) the guarantor could be required to make
under the guarantee." Paragraph 13 also states that we must make such disclosure
"... even if the likelihood of the guarantor's having to make any payments under
the  guarantee is  remote..." As noted above,  our  obligation  only arises as a
result of default by another VJO member, such as upon bankruptcy.  Therefore, to
satisfy the "maximum  potential  amount"  disclosure  requirement we must assume
that all members of the VJO  simultaneously  default, a highly unlikely scenario
given that the two  members of the VJO that have the largest  potential  payment
obligations  are  publicly  traded  with  credit  ratings  that are  equal to or
superior to ours, and that all VJO members are regulated  utility providers with
regulated  cost  recovery.  Regardless,  despite the remote  chance that such an
event  could  occur,  or that the State of Vermont  could or would allow such an
event, assuming that all the members of the VJO defaulted on January 1, 2007 and
remained  in default  for the  duration of the  contract  (another 9 years),  we
estimate that our undiscounted  purchase  obligation for 2007 through 2015 would
be approximately  $1.26 billion.  In such a scenario we would then own the power
and could seek to recover our costs.  We would do this by seeking to recover our
costs from the defaulting  members  and/or  reselling the power to other utility
providers or the northeast power grid. There is an active market for the sale of
power.  We could  potentially  lose money if we were unable to sell the power at
cost.  We  caution  that we cannot  predict  with any  degree of  certainty  any
potential outcome.

Segment Information

Note 22 to Consolidated  Financial  Statements  provides  financial  information
about our industry segments, Frontier and ELI, for the last three fiscal years.

Financial Information about Foreign and Domestic Operations and Export Sales

We have no foreign operations.

General

Order backlog is not a significant  consideration in our businesses.  We have no
material  contracts  or  subcontracts  that may be subject to  renegotiation  of
profits or  termination  at the election of the Federal  government.  We hold no
patents, licenses or concessions that are material.


                                       8
<PAGE>

Employees

As of December 31, 2005, we had 6,103  employees,  5,644 of whom were associated
with Frontier operations and 459 were associated with ELI. At December 31, 2005,
the total number of our employees  affiliated  with a union was 3,302,  of which
approximately  1,400 are covered by  agreements  set to expire  during 2006.  We
consider our relations with our employees to be good.

Available Information

We make available on our website,  free of charge,  the periodic reports that we
file with or furnish to the Securities and Exchange Commission,  or SEC, as well
as all amendments to these reports, as soon as reasonably practicable after such
reports are filed with or  furnished  to the SEC. We also make  available on our
website,  or in  printed  form  upon  request,  free of  charge,  our  Corporate
Governance Guidelines, Code of Business Conduct and Ethics, and the charters for
the Audit,  Compensation,  and Nominating and Corporate Governance committees of
the  Board of  Directors.  Stockholders  may  request  printed  copies  of these
materials  by  writing  to:  3 High  Ridge  Park,  Stamford,  Connecticut  06905
Attention: Corporate Secretary. Our website address is http://www.czn.net.

Item 1A.  Risk Factors
          ------------

Before  you invest in our  securities,  you should  carefully  consider  all the
information we have included or  incorporated by reference in this Form 10-K and
our  subsequent  periodic  filings  with  the SEC.  In  particular,  you  should
carefully  consider  the risk  factors  described  below  and read the risks and
uncertainties  related  to  "forward-looking  statements"  as set  forth  in the
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  section of this Form 10-K.  The risks and  uncertainties  described
below  are  not  the  only  ones  facing  our  company.   Additional  risks  and
uncertainties  that  are not  presently  known to us or that we  currently  deem
immaterial or that are not specific to us, such as general economic  conditions,
may also adversely affect our business and operations.

Risks Related to Competition and Our Industry
---------------------------------------------

     We face intense competition, which could adversely affect us.

     The telecommunications industry is extremely competitive and competition is
increasing.  The  traditional  dividing  lines  between  long  distance,  local,
wireless, cable and internet services are becoming increasingly blurred. Through
mergers  and  various  service  expansion  strategies,  services  providers  are
striving  to provide  integrated  solutions  both  within and across  geographic
markets.  Our  competitors  include  CLECs and  other  providers  (or  potential
providers) of services,  such as internet service providers,  or ISPs,  wireless
companies,  neighboring  incumbents,  VOIP  providers  such as Vonage  and cable
companies that may provide  services  competitive  with ours or services that we
intend to introduce.  Competition is intense and increasing and we cannot assure
you that we will be able to compete  effectively.  For example,  at December 31,
2005 we had 102,000  fewer  access lines than we had at December 31, 2004 and we
believe wireless and cable telephony providers have increased their market share
in our markets.  We expect to continue to lose access lines and that competition
with respect to all our products and services will increase.

     We expect  competition  to  intensify  as a result of the  entrance  of new
competitors and the development of new technologies,  products and services.  We
cannot  predict  which of the many  possible  future  technologies,  products or
services  will  be  important  to  maintain  our  competitive  position  or what
expenditures  will be  required  to  develop  and  provide  these  technologies,
products  or  services.  Our  ability to  compete  successfully  will  depend on
marketing  and on our ability to anticipate  and respond to various  competitive
factors affecting the industry, including a changing regulatory environment that
may  affect  our  competitors  and us  differently,  new  services  that  may be
introduced,  changes  in  consumer  preferences,  demographic  trends,  economic
conditions and pricing  strategies by  competitors.  Increasing  competition may
reduce our revenues and increase our costs as well as require us to increase our
capital expenditures and thereby decrease our cash flow.

     Some of our competitors  have superior  resources,  which may place us at a
cost and price disadvantage.

     Some  of our  current  and  potential  competitors  have  market  presence,
engineering,  technical and marketing capabilities, and financial, personnel and
other  resources  substantially  greater  than ours.  In  addition,  some of our
competitors  can raise capital at a lower cost than we can.  Consequently,  some
competitors may be able to develop and expand their  communications  and network
infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer  requirements,  take advantage of acquisition  and other
opportunities  more readily and devote  greater  resources to the  marketing and
sale of their products and services than we can. Additionally, the greater brand
name  recognition  of some  competitors  may require us to price our services at
lower  levels  in  order  to  retain  or  obtain  customers.  Finally,  the cost
advantages of some  competitors may give them the ability to reduce their prices
for an extended period of time if they so choose.


                                       9
<PAGE>

     ELI faces substantial competition for its telecommunications  services from
larger companies.

     ELI's  competitors  for  telecommunications  services are primarily  larger
incumbents,  CLECs and IXCs.  Because  it is not an  incumbent  provider,  ELI's
ability to succeed in the telecommunications  services market depends to a large
extent on its ability to provide differentiated  services for business customers
and to maintain its customer base and develop additional business customers.

     We anticipate that general pricing competition and pressures for CLECs will
increase, including ELI. We have not obtained significant market share in any of
the areas where we offer our CLEC services,  nor do we expect to do so given the
size of our ELI markets,  the intense  competition  therein and the diversity of
customer  requirements.  There  can be no  assurance  that  ELI  will be able to
compete  effectively in any of our markets.  Furthermore,  the  bankruptcies and
weakened  financial  position  of a number  of  CLECs  have  resulted  in a more
demanding  operating  environment for CLECs, as both customers and suppliers are
more concerned about each CLEC's creditworthiness.

Risks Related to Our Business
-----------------------------

     Decreases in certain types of our revenues will impact our profitability.

     Our  Frontier  business  has  been  experiencing  declining  access  lines,
switched  access  minutes of use,  long  distance  prices and  related  revenues
because  of  economic  conditions,  increasing  competition,  changing  consumer
behavior  (such as wireless  displacement  of wireline use,  email use,  instant
messaging  and  increasing  use of  VOIP),  technology  changes  and  regulatory
constraints.  These  factors  are  likely to cause our  local  network  service,
switched  network  access,  long  distance  and subsidy  revenues to continue to
decline, and these factors, together with our increasing employee costs, and the
potential need to increase our capital spending, may cause our cash generated by
operations to decrease.

     We may be unable to grow our revenue and cash flow despite the  initiatives
we have implemented.

     We must produce adequate cash flow that, when combined with funds available
under our  revolving  credit  facility,  will be sufficient to service our debt,
fund our capital  expenditures,  pay our taxes and maintain our current dividend
policy. We have implemented several growth initiatives, including increasing our
marketing  expenditures  and launching new products and services with a focus on
areas that are  growing or  demonstrate  meaningful  demand  such as  high-speed
internet.  There is no  assurance  that  these  initiatives  will  result  in an
improvement in our financial position or our results of operations.

     We may complete a significant  business  combination  or other  transaction
that could increase our shares outstanding,  affect our debt, result in a change
in control, or both.

     From time to time we evaluate potential acquisitions and other arrangements
that would  extend our  geographic  markets,  expand our  services,  enlarge the
capacity of our networks or increase the types of services  provided through our
networks.  If we complete any acquisition or other  arrangement,  we may require
additional  financing that could result in an increase in our shares outstanding
and/or debt,  result in a change in control,  or both. There can be no assurance
that we will enter into any transaction.

     Our  business  is  sensitive  to  the  creditworthiness  of  our  wholesale
customers.

     We have substantial  business  relationships with other  telecommunications
carriers for whom we provide service.  During the past few years, several of our
customers have filed for  bankruptcy.  While these  bankruptcies  have not had a
material  adverse  effect on our business to date,  future  bankruptcies  in our
industry  could  result  in  our  loss  of  significant  customers,  more  price
competition and uncollectible accounts receivable. As a result, our revenues and
results of operations could be materially and adversely affected.

                                       10
<PAGE>

Risks Related to Liquidity, Financial Resources, and Capitalization
-------------------------------------------------------------------

     Substantial debt and debt service obligations may adversely affect us.

     We have a significant amount of indebtedness. We may also obtain additional
long-term  debt and working  capital  lines of credit to meet  future  financing
needs,  subject to certain restrictions under our existing  indebtedness,  which
would increase our total debt.

     The  significant  negative  consequences  on our  financial  condition  and
results of operations that could result from our substantial debt include:

          *    limitations  on our ability to obtain  additional  debt or equity
               financing;

          *    instances in which we are unable to meet the financial  covenants
               contained in our debt  agreements or to generate cash  sufficient
               to make  required debt  payments,  which  circumstances  have the
               potential  of  accelerating  the  maturity  of some or all of our
               outstanding indebtedness;

          *    the  allocation  of a  substantial  portion of our cash flow from
               operations  to service our debt,  thus reducing the amount of our
               cash flow  available  for  other  purposes,  including  operating
               costs,  dividends and capital expenditures that could improve our
               competitive position or results of operations;

          *    requiring us to sell debt or equity securities or to sell some of
               our core assets,  possibly on unfavorable  terms, to meet payment
               obligations;

          *    compromising   our   flexibility   to  plan  for,  or  react  to,
               competitive  challenges  in our business  and the  communications
               industry; and

          *    the  possibility  of our being put at a competitive  disadvantage
               with  competitors  who  do not  have  as  much  debt  as us,  and
               competitors  who may be in a more  favorable  position  to access
               additional capital resources.

     We will require substantial capital to upgrade and enhance our operations.

     Replacing  or  upgrading  our  infrastructure  will  result in  significant
capital expenditures. If this capital is not available when needed, our business
will be adversely  affected.  Increasing  competition,  offering  new  services,
improving the  capabilities or reducing the  maintenance  costs of our plant may
cause our capital  expenditures  to increase in the  future.  In  addition,  our
ongoing annual  dividend of $1.00 per share under our current policy  utilizes a
significant portion of our cash generated by operations and therefore limits our
operating and financial  flexibility and our ability to  significantly  increase
capital  expenditures.  While we believe  that the amount of our  dividend  will
allow for adequate amounts of cash flow for capital spending and other purposes,
any material  reduction in cash  generated by  operations  and any  increases in
capital expenditures,  interest expense or cash taxes would reduce the amount of
cash  generated in excess of  dividends.  Losses of access  lines,  increases in
competition,  lower subsidy and access revenues and the other factors  described
above may reduce our cash generated by operations and may require us to increase
capital expenditures. In addition, we expect our cash paid for taxes to increase
significantly over the next several years.

Risks Related to Regulation
---------------------------

     The access charge revenues we receive may be reduced at any time.

     A significant  portion of our revenues is derived from access  charges paid
by IXCs for services we provide in originating  and  terminating  intrastate and
interstate  traffic.  The amount of access charge  revenues we receive for these
services is regulated by the FCC and state regulatory  agencies.  Recent rulings
regarding access charges have lowered the amount of revenue we receive from this
source.  Additional actions by these agencies could further reduce the amount of
access  revenues we receive.  In addition,  a portion of our access  revenues is
received from state and federal universal service funds based upon the high cost
of providing telephone service to certain rural areas. In the future,  there may
be  proposals  by state or federal  regulatory  agencies to  eliminate or reduce
these revenues. A material reduction in the revenues we receive from these funds
would adversely affect our financial results.


                                       11
<PAGE>

     We are reliant on support funds provided under federal and state laws.

     We receive a significant portion of our revenues from the federal universal
service fund and, to a lesser extent,  state support funds.  These  governmental
programs are reviewed  and amended from time to time,  and we cannot  assure you
that they will not be changed or impacted in a manner adverse to us.

     Our  company  and  industry  are  highly  regulated,  imposing  substantial
compliance costs and restricting our ability to compete in our target markets.

     As an incumbent,  we are subject to  significant  regulation  from federal,
state and local authorities. This regulation restricts our ability to change our
rates,  especially on our basic  services,  and imposes  substantial  compliance
costs  on  us.  Regulation  restricts  our  ability  to  compete  and,  in  some
jurisdictions,  it may restrict how we are able to expand our service offerings.
In  addition,  changes  to the  regulations  that  govern us may have an adverse
effect  upon our  business by reducing  the  allowable  fees that we may charge,
imposing  additional  compliance costs, or otherwise  changing the nature of our
operations and the competition in our industry.

     Recent rule changes now allow  customers to retain  their  wireline  number
when  switching  to another  service  provider.  This is likely to increase  the
number of our customers  who decide to  disconnect  their service from us. Other
pending  rulemakings,  including  those relating to  intercarrier  compensation,
universal service and VOIP regulations,  could have a substantial adverse impact
on our operations.

Risks Related to Technology
---------------------------

     In the future as  competition  intensifies  within our  markets,  we may be
unable to meet the technological needs or expectations of our customers, and may
lose customers as a result.

     The  telecommunications  industry  is  subject  to  significant  changes in
technology. If we do not replace or upgrade technology and equipment, we will be
unable to compete  effectively  because we will not be able to meet the needs or
expectations of our customers.  Replacing or upgrading our infrastructure  could
result in significant capital expenditures.

     In addition, rapidly changing technology in the telecommunications industry
may influence our customers to consider other service providers. For example, we
may be unable to retain customers who decide to replace their wireline telephone
service with wireless telephone  service.  In addition,  VOIP technology,  which
operates on broadband  technology,  now provides our competitors with a low-cost
alternative to provide voice services to our customers.

Item 1B.  Unresolved Staff Comments
          -------------------------

None.

Item 2.   Properties
          ----------

Our principal  corporate  offices are located in leased premises at 3 High Ridge
Park, Stamford, Connecticut.

An  operations  support  office is currently  located in leased  premises at 180
South Clinton Avenue,  Rochester,  New York. In addition,  our Frontier  segment
leases and owns space in various markets throughout the United States.

An operations  support office for ELI is located in a building we own at 4400 NE
77th Avenue,  Vancouver,  Washington.  In addition, our ELI segment leases local
office space in various markets throughout the United States, and also maintains
a warehouse  facility in Portland,  Oregon.  Our ELI segment also leases network
hub and network equipment installation sites in various locations throughout the
areas  in which it  provides  services.  For  additional  information  regarding
obligations under lease, see Note 25 to Consolidated Financial Statements.


                                       12
<PAGE>

Our Frontier and ELI segments own telephone properties which include: connecting
lines  between  customers'  premises  and the central  offices;  central  office
switching equipment;  fiber-optic and microwave radio facilities;  buildings and
land; and customer premise equipment. The connecting lines, including aerial and
underground cable, conduit, poles, wires and microwave equipment, are located on
public  streets and highways or on privately  owned land. We have  permission to
use these  lands  pursuant  to local  governmental  consent  or  lease,  permit,
franchise, easement or other agreement.

Item 3.   Legal Proceedings
          -----------------

The City of Bangor,  Maine,  filed suit against us on November 22, 2002,  in the
U.S.  District  Court for the  District  of Maine  (City of  Bangor v.  Citizens
Communications  Company,  Civ. Action No. 02-183-B-S).  The City alleged,  among
other things, that we are responsible for the costs of cleaning up environmental
contamination  alleged to have resulted from the operation of a manufactured gas
plant owned by Bangor Gas Company from  1852-1948 and by us from  1948-1963.  In
acquiring  the operation in 1948 we acquired the stock of Bangor Gas Company and
merged it into us. The City alleged the existence of extensive  contamination of
the Penobscot River and asserted that money damages and other relief at issue in
the lawsuit  could exceed  $50,000,000.  The City also  requested  that punitive
damages be assessed  against  us. We filed an answer  denying  liability  to the
City, and asserted a number of counterclaims  against the City. In addition,  we
identified a number of other potentially  responsible parties that may be liable
for the damages  alleged by the City and joined them as parties to the  lawsuit.
These additional parties include Honeywell Corporation,  Guilford Transportation
(operating as Maine  Central  Railroad),  UGI  Utilities,  Inc. and  Centerpoint
Energy  Resources  Corporation.  The Court  dismissed  all but two of the City's
claims,  including  its  claims  for  joint  and  several  liability  under  the
Comprehensive Environmental Response,  Compensation,  and Liability Act (CERCLA)
and the claim against us for punitive damages.  Trial was conducted in September
and October  2005 for the first  (liability)  phase of the case,  and a decision
from the court is anticipated by the end of the first quarter of 2006. We intend
to continue to defend ourselves  vigorously against the City's lawsuit.  We have
demanded  that various of our  insurance  carriers  defend and indemnify us with
respect to the City's lawsuit,  and on December 26, 2002, we filed a declaratory
judgment  action  against  those  insurance  carriers in the  Superior  Court of
Penobscot County, Maine, for the purpose of establishing their obligations to us
with respect to the City's lawsuit.  We intend to vigorously pursue this lawsuit
and to obtain from our insurance carriers  indemnification  for any damages that
may be assessed against us in the City's lawsuit as well as to recover the costs
of our defense of that lawsuit.

On June 7, 2004,  representatives  of Robert A. Katz Technology  Licensing,  LP,
contacted us regarding  possible  infringement  of several  patents held by that
firm.  The  patents  cover a wide  range of  operations  in which  telephony  is
supported by  computers,  including  obtaining  information  from  databases via
telephone,  interactive  telephone  transactions,  and  customer  and  technical
support applications. We were cooperating with the patent holder to determine if
we are currently  using any of the  processes  that are protected by its patents
but have not had any communication with them on this issue since mid-2004. If we
determine that we are utilizing the patent holder's  intellectual  property,  we
expect to commence negotiations on a license agreement.

On June 24,  2004,  one of our  subsidiaries,  Frontier  Subsidiary  Telco Inc.,
received a "Notice of Indemnity Claim" from Citibank, N.A., that is related to a
complaint  pending against Citibank and others in the U.S.  Bankruptcy Court for
the  Southern  District  of New York as part of the Global  Crossing  bankruptcy
proceeding. Citibank bases its claim for indemnity on the provisions of a credit
agreement  that was  entered  into in  October  2000  between  Citibank  and our
subsidiary.  We purchased Frontier  Subsidiary Telco, Inc., in June 2001 as part
of our acquisition of the Frontier  telephone  companies.  The complaint against
Citibank, for which it seeks indemnification, alleges that the seller improperly
used a portion of the  proceeds  from the  Frontier  transaction  to pay off the
Citibank credit  agreement,  thereby  defrauding  certain debt holders of Global
Crossing  North America Inc.  Although the credit  agreement was paid off at the
closing  of  the  Frontier  transaction,  Citibank  claims  the  indemnification
obligation survives. Damages sought against Citibank and its co-defendants could
exceed  $1.0  billion.  In August  2004 we  notified  Citibank by letter that we
believe its claims for  indemnification  are invalid  and are not  supported  by
applicable law. We have received no further  communications  from Citibank since
our August 2004 letter.

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

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

None in fourth quarter 2005.


                                       13
<PAGE>

Executive Officers of the Registrant

Our Executive Officers as of February 7, 2006 were:
<TABLE>
<CAPTION>

          Name              Age             Current Position and Officer
          ----              ---             ----------------------------
<S>                          <C>     <C>
Mary Agnes Wilderotter       51      Chairman of the Board and Chief Executive Officer
John H. Casey, III           49      Executive Vice President
Jerry Elliott                46      President and Acting Chief Financial Officer
Hilary E. Glassman           43      Senior Vice President, General Counsel and Secretary
Peter B. Hayes               48      Executive Vice President Sales, Marketing and Business Development
Robert J. Larson             46       Senior Vice President and Chief Accounting Officer
Daniel J. McCarthy           41      Executive Vice President and Chief Operating Officer
Cecilia K. McKenney          43      Senior Vice President, Human Resources
</TABLE>

There is no family  relationship  between directors or executive  officers.  The
term of office of each of the foregoing officers of Citizens will continue until
the next annual meeting of the Board of Directors and until a successor has been
elected and qualified.

MARY AGNES  WILDEROTTER  has been  associated with Citizens since November 2004.
She was elected  Chairman of the Board and Chief  Executive  Officer in December
2005.  Previously,  she was President and Chief Executive  Officer from November
2004 to December 2005. Prior to joining Citizens,  she was Senior Vice President
- Worldwide  Public Sector in 2004,  Microsoft Corp. and Senior Vice President -
Worldwide Business Strategy,  Microsoft Corp., 2002 to 2004. Before that she was
President and Chief Executive Officer, Wink Communications, 1997 to 2002.

JOHN H. CASEY,  III has been associated with Citizens since November 1999. He is
currently Executive Vice President.  Previously, he was Executive Vice President
and President and Chief  Operating  Officer of our ILEC Sector from July 2002 to
December 2004. He was Vice President of Citizens,  President and Chief Operating
Officer,  ILEC Sector from January 2002 to July 2002,  Vice  President and Chief
Operating  Officer,  ILEC Sector from February  2000 to January  2002,  and Vice
President, ILEC Sector from December 1999 to February 2000.

JERRY ELLIOTT has been associated with Citizens since March 2002. He was elected
President in December 2005 and remains  Acting Chief  Financial  Officer until a
successor  Chief  Financial  Officer  joins  the  Company.  Previously,  he  was
Executive Vice President and Chief Financial  Officer from July 2004 to December
2005.  He was Senior Vice  President and Chief  Financial  Officer from December
2002 to July 2004 and Vice President and Chief Financial Officer from March 2002
to December 2002. Prior to joining Citizens,  he was Managing Director of Morgan
Stanley's Media and Communications Investment Banking Group.

HILARY E. GLASSMAN has been associated  with Citizens since July 2005.  Prior to
joining Citizens,  from February 2003, she was associated with Sandler O'Neill &
Partners,  L.P., an investment  bank with a specialized  financial  institutions
practice,  first as Managing  Director,  Associate  General  Counsel and then as
Managing Director,  Deputy General Counsel.  From February 2000 through February
2003,  Ms.   Glassman  was  Vice  President  and  General   Counsel  of  Newview
Technologies,  Inc. (formerly e-Steel  Corporation),  a privately-held  software
company.

PETER B. HAYES has been  associated  with Citizens  since  February  2005. He is
currently Executive Vice President,  Sales,  Marketing and Business Development.
Previously,  he  was  Senior  Vice  President,  Sales,  Marketing  and  Business
Development from February 2005 to December 2005. Prior to joining  Citizens,  he
was associated with Microsoft Corp. and served as Vice President, Public Sector,
Europe,  Middle East,  Africa from 2003 to 2005 and Vice  President  and General
Manager, Microsoft U.S. Government from 1997 to 2003.

ROBERT J.  LARSON has been  associated  with  Citizens  since July 2000.  He was
elected  Senior  Vice  President  and Chief  Accounting  Officer of  Citizens in
December 2002.  Previously,  he was Vice President and Chief Accounting  Officer
from  July  2000 to  December  2002.  Prior  to  joining  Citizens,  he was Vice
President and Controller of Century Communications Corp.

DANIEL J. McCARTHY has been  associated with Citizens since December 1990. He is
currently Executive Vice President and Chief Operating Officer.  Previously,  he
was Senior Vice President, Field Operations from December 2004 to December 2005.
He was Senior Vice President Broadband  Operations from January 2004 to December
2004,  President and Chief Operating Officer of Electric  Lightwave from January
2002 to December 2004,  President and Chief Operating  Officer,  Public Services
Sector from November 2001 to January 2002,  Vice  President and Chief  Operating
Officer,  Public  Services  Sector  from  March 2001 to  November  2001 and Vice
President, Citizens Arizona Energy from April 1998 to March 2001.


                                       14
<PAGE>

CECILIA K. McKENNEY has been associated with Citizens since February 2006. Prior
to  joining  Citizens,  she was the Group  Vice  President,  Headquarters  Human
Resources of The Pepsi  Bottling  Group (PBG) from 2004 to 2005.  Previously  at
PBG, Ms. McKenney was the Vice President, Headquarters Human Resources from 2000
to 2004.

                                       15
<PAGE>

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


                                     PART II
                                     -------

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and
         ----------------------------------------------------------------------
         Issuer Purchases of Equity Securities
         -------------------------------------

                           PRICE RANGE OF COMMON STOCK

Our common stock is traded on the New York Stock  Exchange under the symbol CZN.
The  following  table  indicates  the high and low prices  per share  during the
periods indicated.

                                 2005                  2004
                        -------------------    -------------------
                          High       Low         High       Low
                          ----       ---         ----       ---
    First Quarter        $14.05     $12.25      $13.25     $11.37
    Second Quarter       $13.74     $12.16      $13.54     $12.06
    Third Quarter        $13.98     $13.05      $14.80     $12.04
    Fourth Quarter       $13.57     $12.08      $14.63     $13.11

As of January 31, 2006, the approximate number of security holders of record of
our common stock was 26,226.  This  information  was obtained  from our transfer
agent.

                                    DIVIDENDS

The amount and timing of  dividends  payable on our common  stock are within the
sole  discretion  of our  Board  of  Directors.  In  2004,  we  paid a  special,
non-recurring  dividend of $2.00 per share of common  stock,  and  instituted  a
regular annual dividend of $1.00 per share of common stock to be paid quarterly.
Cash dividends paid to shareholders were approximately $338.4 million and $832.8
million in 2005 and 2004,  respectively.  There are no material  restrictions on
our ability to pay dividends.  The table below sets forth  dividends paid during
the periods indicated.

                                  2005             2004
                               -----------     -----------
    First Quarter                 $  0.25         $   -
    Second Quarter                $  0.25         $   -
    Third Quarter                 $  0.25         $  2.25
    Fourth Quarter                $  0.25         $  0.25



     RECENT SALES OF  UNREGISTERED  SECURITIES,  USE OF PROCEEDS FROM REGISTERED
     SECURITIES

None.

                                       16
<PAGE>

                      ISSUER PURCHASES OF EQUITY SECURITIES

The following tables display issuer purchases of equity securities for the years
ended December 31, 2005 and 2004.
<TABLE>
<CAPTION>
                                                                                       (d) Maximum
                                                                                        Approximiate
                                                                   (c) Total Number    Dollar Value of
                                                                       of Shares        Shares that
                                            (a) Total               Purchased as Part     May Yet Be
                                             Number of  (b) Average    of Publicly        Purchased
                                              Shares     Price Paid  Announced Plans    Under the Plans
 Period                                      Purchaed    per Share    or Programs        or Programs
--------------------------------------------------------------------------------------------------------

January 1, 2005 to January 31, 2005
<S>                                          <C>         <C>           <C>             <C>
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                          -      $    -        N/A              N/A

February 1, 2005 to February 28, 2005
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                          -      $    -        N/A              N/A

March 1, 2005 to March 31, 2005
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                    128,049      $ 12.62       N/A              N/A

Totals January 1, 2005 to March 31, 2005
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                    128,049      $ 12.62       N/A              N/A

April 1, 2005 to April 30, 2005
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                          -      $    -        N/A              N/A

May 1, 2005 to May 31, 2005
Share Repurchase Program (1)                       -      $    -               -       $        -
Employee Transactions (2)                          -      $    -        N/A              N/A

June 1, 2005 to June 30, 2005
Share Repurchase Program (1)               1,400,000      $ 13.28       1,400,000      $231,400,000
Employee Transactions (2)                          -      $    -        N/A              N/A

Totals April 1, 2005 to June 30, 2005
Share Repurchase Program (1)               1,400,000      $ 13.28       1,400,000      $231,400,000
Employee Transactions (2)                          -      $    -        N/A              N/A

</TABLE>

                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                                                       (d) Maximum
                                                                                        Approximiate
                                                                   (c) Total Number    Dollar Value of
                                                                       of Shares        Shares that
                                            (a) Total               Purchased as Part     May Yet Be
                                             Number of  (b) Average    of Publicly        Purchased
                                              Shares     Price Paid  Announced Plans    Under the Plans
 Period                                      Purchaed    per Share    or Programs        or Programs
-----------------------------------------------------------------------------------------------------------

July 1, 2005 to July 31, 2005
<S>                                        <C>            <C>            <C>            <C>
Share Repurchase Program (1)                        -      $     -               -      $231,400,000
Employee Transactions (2)                           -      $     -        N/A               N/A

August 1, 2005 to August 31, 2005
Share Repurchase Program (1)                6,576,100      $ 13.68       6,576,100      $141,500,000
Employee Transactions (2)                           -      $     -        N/A               N/A

September 1, 2005 to September 30, 2005
Share Repurchase Program (1)                4,680,400      $ 13.56       4,680,400      $ 78,000,000
Employee Transactions (2)                         629      $ 13.51        N/A               N/A

Totals July 1, 2005 to September 30, 2005
Share Repurchase Program (1)               11,256,500      $ 13.62      11,256,500      $ 78,000,000
Employee Transactions (2)                         629      $ 13.51        N/A               N/A

October 1, 2005 to October 31, 2005
Share Repurchase Program (1)                        -      $     -               -      $ 78,000,000
Employee Transactions (2)                           -      $     -        N/A               N/A

November 1, 2005 to November 30, 2005
Share Repurchase Program (1)                  375,000      $ 13.06         375,000      $ 73,100,000
Employee Transactions (2)                      12,435      $ 12.17        N/A               N/A

December 1, 2005 to December 31, 2005
Share Repurchase Program (1)                5,743,656      $ 12.73       5,743,656      $        -
Employee Transactions (2)                       1,155      $ 12.85        N/A               N/A

Totals October 1, 2005 to December 31, 2005
Share Repurchase Program (1)                6,118,656      $ 12.75       6,118,656      $        -
Employee Transactions (2)                      13,590      $ 12.23        N/A               N/A

Totals January 1, 2005 to December 31, 2005
Share Repurchase Program (1)               18,775,156      $ 13.32      18,775,156      $        -
Employee Transactions (2)                     142,268      $ 12.59        N/A               N/A
</TABLE>


                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                                       (d) Maximum
                                                                                        Approximiate
                                                                   (c) Total Number    Dollar Value of
                                                                       of Shares        Shares that
                                            (a) Total               Purchased as Part     May Yet Be
                                             Number of  (b) Average    of Publicly        Purchased
                                              Shares     Price Paid  Announced Plans    Under the Plans
 Period                                      Purchaed    per Share    or Programs        or Programs
-----------------------------------------------------------------------------------------------------------

January 1, 2004 to January 31, 2004
<S>                                           <C>      <C>            <C>              <C>
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

February 1, 2004 to February 28, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

March 1, 2004 to March 31, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                   3,123      $ 12.64        N/A                  N/A

Totals January 1, 2004 to March 31, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                   3,123      $ 12.64        N/A                  N/A

April 1, 2004 to April 30, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

May 1, 2004 to May 31, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

June 1, 2004 to June 30, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

Totals April 1, 2004 to June 30, 2004
Share Repurchase Program (1)                    -      $     -               -          $      -
Employee Transactions (2)                       -      $     -        N/A                  N/A

</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                                                       (d) Maximum
                                                                                        Approximiate
                                                                   (c) Total Number    Dollar Value of
                                                                       of Shares        Shares that
                                            (a) Total               Purchased as Part     May Yet Be
                                             Number of  (b) Average    of Publicly        Purchased
                                              Shares     Price Paid  Announced Plans    Under the Plans
 Period                                      Purchaed    per Share    or Programs        or Programs
-----------------------------------------------------------------------------------------------------------
July 1, 2004 to July 31, 2004
<S>                                         <C>             <C>          <C>            <C>
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

August 1, 2004 to August 31, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                   1,503,748      $ 14.32        N/A              N/A

September 1, 2004 to September 30, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

Totals July 1, 2004 to September 30, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                   1,503,748      $ 14.32        N/A              N/A

October 1, 2004 to October 31, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

November 1, 2004 to November 30, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

December 1, 2004 to December 31, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

Totals October 1, 2004 to December 31, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                           -      $     -        N/A              N/A

Totals January 1, 2004 to December 31, 2004
Share Repurchase Program (1)                        -      $     -               -       $     -
Employee Transactions (2)                   1,506,871      $ 14.32        N/A              N/A

</TABLE>

(1)  On May  25,  2005,  our  Board  of  Directors  authorized  the  Company  to
     repurchase up to $250.0  million of the Company's  common stock,  either in
     the open market or through negotiated  transactions.  This share repurchase
     program  commenced on June 13, 2005 and was  completed  during  December of
     2005.
(2)  Includes  restricted  shares  withheld  (under  the terms of  grants  under
     employee  stock  compensation  plans) to  offset  minimum  tax  withholding
     obligations that occur upon the vesting of restricted shares. The Company's
     stock compensation plans provide that the value of shares withheld shall be
     the average of the high and low price of the Company's  common stock on the
     date the relevant transaction occurs.

                                       20
<PAGE>
<TABLE>
<CAPTION>
Item 6.  Selected Financial Data
         -----------------------

($ in thousands, except per share amounts)                             Year Ended December 31,
------------------------------------------        --------------------------------------------------------------
                                                      2005          2004         2003         2002         2001
                                                  ------------   ----------- ------------ ------------ -----------
<S>                                               <C>          <C>          <C>          <C>           <C>
Revenue (1)                                         $ 2,162,479  $ 2,168,422  $ 2,424,174  $ 2,647,671   $ 2,435,489
Income (loss) from continuing operations before
  extraordinary expense and cumulative effect of
  changes in accounting principle (2)               $   200,168  $    66,919  $   117,703  $  (828,140)  $   (68,434)
Net income (loss)                                   $   202,375  $    72,150  $   187,852  $  (682,897)  $   (89,682)
Basic income (loss) per share of common stock
  from continuing operations before extraordinary
  expense and cumulative effect of changes in
  accounting principle (2)                          $      0.59  $      0.22  $      0.42  $     (2.95)  $     (0.30)
Available for common shareholders per basic share   $      0.60  $      0.24  $      0.67  $     (2.43)  $     (0.38)
Available for common shareholders per diluted share $      0.60  $      0.23  $      0.64  $     (2.43)  $     (0.38)
Cash dividends declared (and paid) per common share $      1.00  $      2.50  $         -  $         -   $         -

                                                                         As of December 31,
                                                  -----------------------------------------------------------------
                                                       2005          2004        2003         2002         2001
                                                  -------------  ----------- ------------ ------------  -----------
Total assets                                        $ 6,412,109  $ 6,668,419  $ 7,445,545  $ 8,144,502   $10,551,351
Long-term debt                                      $ 3,999,376  $ 4,266,998  $ 4,195,626  $ 4,957,338   $ 5,534,867
Equity units (3)                                    $         -  $         -  $   460,000  $   460,000   $   460,000
Company Obligated Mandatorily Redeemable
  Convertible Preferred Securities (4)              $         -  $         -  $   201,250  $   201,250   $   201,250
Shareholders' equity                                $ 1,041,809  $ 1,362,240  $ 1,415,183  $ 1,172,139   $ 1,946,142

</TABLE>
(1)  Represents  revenue from continuing  operations.  Revenue from acquisitions
     contributed  $569.8 million for the year ended  December 31, 2001.  Revenue
     from gas  operations  sold was $137.7 million in 2003 and $218.8 million in
     2001.  Revenue  from  electric  operations  sold  was $9.7  million,  $67.4
     million,  $76.6  million and $94.3  million in 2004,  2003,  2002 and 2001,
     respectively.  Total revenue  associated with these operations is available
     in Note 22, "Segment Information."
(2)  Extraordinary  expense  represents  an  extraordinary  after tax expense of
     $43.6 million related to the discontinuance of the application of Statement
     of Financial  Accounting  Standards No. 71 to our local exchange  telephone
     operations  in  2001.  The  cumulative  effect  of  changes  in  accounting
     principles  represents  the $65.8 million after tax non-cash gain resulting
     from the adoption of Statement of Financial Accounting Standards No. 143 in
     2003, and the write-off of ELI's  goodwill of $39.8 million  resulting from
     the  adoption of Statement of  Financial  Accounting  Standards  No. 142 in
     2002.
(3)  On August  17,  2004,  we issued  common  stock to equity  unit  holders in
     settlement of the equity purchase contract.
(4)  The  consolidation  of this item  changed  effective  January  1, 2004 as a
     result of the  adoption of FIN 46R,  "Consolidation  of  Variable  Interest
     Entities." See Note 15 for a complete discussion.

                                       21
<PAGE>
Item 7.   Management's Discussion and Analysis of Financial Condition and
          ---------------------------------------------------------------
          Results of Operations
          ---------------------

Forward-Looking Statements
--------------------------

This annual report on Form 10-K  contains  forward-looking  statements  that are
subject to risks and  uncertainties  that could cause  actual  results to differ
materially from those  expressed or implied in the  statements.  Statements that
are not historical  facts are  forward-looking  statements  made pursuant to the
Safe  Harbor  Provisions  of the  Litigation  Reform Act of 1995.  Words such as
"believes,"  "anticipates,"  "expects" and similar  expressions  are intended to
identify forward-looking 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, and our future  results may be  materially
affected by, any of the following possibilities:

     *    Changes in the number of our revenue  generating units, which consists
          of access lines plus high-speed internet subscribers;

     *    The effects of  competition  from wireless,  other  wireline  carriers
          (through voice over internet protocol (VOIP) or otherwise), high speed
          cable modems and cable telephony;

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

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

     *    Our ability to successfully  introduce new product offerings including
          our ability to offer bundled  service  packages on terms that are both
          profitable to us and attractive to our customers;

     *    Our  ability to sell  enhanced  and data  services  in order to offset
          ongoing  declines in revenue from local services,  access services and
          subsidies;

     *    Our ability to comply with  Section 404 of the  Sarbanes-Oxley  Act of
          2002, which requires management to assess its internal control systems
          and disclose whether the internal  control systems are effective,  and
          the identification of any material  weaknesses in our internal control
          over financial reporting;

     *    Changes in accounting  policies or practices adopted voluntarily or as
          required by generally accepted accounting principles or regulators;

     *    The effects of changes in regulation in the communications industry as
          a result of federal and state  legislation and  regulation,  including
          potential  changes  in  access  charges  and  subsidy  payments,   and
          regulatory network upgrade and reliability requirements;

     *    Our ability to comply with  federal  and state  regulation  (including
          state rate of return  limitations  on our earnings) and our ability to
          successfully renegotiate state regulatory plans as they expire or come
          up for renewal from time to time;

     *    Our ability to manage our operating  expenses,  capital  expenditures,
          pay dividends and reduce or refinance our debt;

     *    Adverse  changes  in the  ratings  given  to our  debt  securities  by
          nationally  accredited  ratings  organizations,  which  could limit or
          restrict the availability, and/or increase the cost of financing;

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

     *    The effects of bankruptcies in the  telecommunications  industry which
          could result in more price competition and potential bad debts;


                                       22
<PAGE>

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

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

     *    Changes in income tax rates, tax laws, regulations or rulings,  and/or
          federal or state tax assessments;

     *    The  effect  of  changes  in  the  communications  market,   including
          significantly increased price and service competition;

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

     *    Our  ability to  successfully  renegotiate  expiring  union  contracts
          covering  approximately  1,468  employees that are scheduled to expire
          during 2006;

     *    Our ability to pay a $1.00 per common share  dividend  annually may be
          affected  by  our  cash  flow  from  operations,   amount  of  capital
          expenditures,  debt service  requirements,  cash paid for income taxes
          (which will increase in the future) and our liquidity;

     *    The  effects  of  any  future   liabilities  or  compliance  costs  in
          connection with worker health and safety matters;

     *    The  effects of any  unfavorable  outcome  with  respect to any of our
          current or future  legal,  governmental,  or  regulatory  proceedings,
          audits or disputes; and

     *    The effects of more general  factors,  including  changes in economic,
          business and industry conditions.

Any of the foregoing events, or other events, could cause financial  information
to vary from management's  forward-looking  statements  included in this report.
You should  consider  these  important  factors,  as well as the risks set forth
under Item 1A. "Risk  Factors"  above,  in evaluating any statement in this Form
10-K 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.  We have no obligation to
update or revise these forward-looking statements.

Overview
--------

We are a communications  company providing services to rural areas and small and
medium-sized  towns and cities as an incumbent local exchange carrier,  or ILEC.
We offer our ILEC services  under the "Frontier"  name. In addition,  we provide
competitive local exchange carrier,  or CLEC, services to business customers and
to other  communications  carriers in certain  metropolitan areas in the western
United  States  through  Electric  Lightwave,  LLC,  or  ELI,  our  wholly-owned
subsidiary. In February 2006, we entered into a definitive agreement to sell ELI
and we expect the sale to close in the third quarter of 2006.

Competition in the  telecommunications  industry is intense and  increasing.  We
experience competition from many telecommunications  service providers including
cable  operators,   wireless  carriers,  voice  over  internet  protocol  (VOIP)
providers,  long  distance  providers,   competitive  local  exchange  carriers,
internet providers and other wireline carriers. We believe that competition will
continue to intensify in 2006 across all products and in all of our markets. Our
Frontier  business  experienced  erosion  in access  lines and  switched  access
minutes  in 2005 as a result of  competition.  Competition  in our  markets  may
result in reduced revenues in 2006.

The communications  industry is undergoing  significant  changes.  The market is
extremely competitive, resulting in lower prices. Demand and pricing for certain
CLEC services have decreased substantially, particularly for long-haul services.
These  trends  are  likely  to  continue  and  result in a  challenging  revenue
environment.  These factors could also result in more bankruptcies in the sector
and therefore affect our ability to collect money owed to us by carriers.


                                       23
<PAGE>

Revenues from data and internet services such as high-speed internet continue to
increase as a percentage  of our total  revenues and revenues from services such
as local line and access charges and subsidies are decreasing as a percentage of
our revenues.  These factors, along with increasing operating costs, could cause
our profitability and our cash generated by operations to decrease.

(a) Liquidity and Capital Resources
    -------------------------------

For the year  ended  December  31,  2005,  we used cash  flows  from  continuing
operations,  the proceeds from the sale of  non-strategic  assets,  stock option
exercises and cash and cash equivalents to fund capital expenditures, dividends,
interest  payments,  debt repayments and stock  repurchases.  As of December 31,
2005, we had cash and cash equivalents aggregating $265.8 million.

For the year ended  December  31,  2005,  our capital  expenditures  were $268.5
million,  including $252.2 million for the Frontier  segment,  $16.1 million for
the ELI segment and $0.2 million of general capital expenditures. We continue to
closely  scrutinize all of our capital projects,  emphasize return on investment
and focus our capital  expenditures on areas and services that have the greatest
opportunities with respect to revenue growth and cost reduction. For example, we
will allocate  significant  capital to services  such as high-speed  internet in
areas that are growing or demonstrate meaningful demand as well as the launch of
new products such as wireless and VOIP services.

Increasing  competition,  offering new services  such as wireless and VOIP,  and
improving the  capabilities or reducing the  maintenance  costs of our plant may
cause our capital  expenditures  to increase in the future.  For 2006, we expect
our capital  expenditures  to increase in order to build  wireless data networks
and expand the capabilities of our data networks.

As of December  31,  2005,  we have  available  lines of credit  with  financial
institutions in the aggregate amount of $250.0 million. Associated facility fees
vary,  depending  on our debt  leverage  ratio,  and are  0.375% per annum as of
December 31,  2005.  The  expiration  date for the facility is October 29, 2009.
During the term of the  facility we may borrow,  repay and reborrow  funds.  The
credit facility is available for general corporate  purposes but may not be used
to fund dividend payments. We have never borrowed any money under the facility.

Our ongoing annual dividends of $1.00 per share under our current policy utilize
a significant  portion of our cash generated by operations and therefore  limits
our operating and financial flexibility. While we believe that the amount of our
dividends will allow for adequate  amounts of cash flow for other purposes,  any
reduction  in  cash  generated  by  operations  and  any  increases  in  capital
expenditures,  interest  expense or cash taxes  would  reduce the amount of cash
generated  in  excess  of  dividends.  Losses  of  access  lines,  increases  in
competition,  lower subsidy and access revenues and the other factors  described
above are expected to reduce our cash generated by operations and may require us
to increase capital  expenditures.  The downgrades in our credit ratings in July
2004 to below  investment  grade may make it more  difficult  and  expensive  to
refinance our maturing debt. We have in recent years paid relatively low amounts
of cash taxes.  We expect that over the next  several  years our cash taxes will
increase substantially.

We  believe  our  operating  cash  flows,  existing  cash  balances,  and credit
facilities  will be adequate to finance our working capital  requirements,  fund
capital  expenditures,  make required debt payments through 2007, pay taxes, pay
dividends  to our  shareholders  in  accordance  with our dividend  policy,  and
support our short-term and long-term operating strategies. We have approximately
$227.8 million,  $37.9 million and $701.1 million of debt maturing in 2006, 2007
and 2008, respectively.

Share Repurchase Programs
-------------------------
On May 25, 2005, our Board of Directors authorized us to repurchase up to $250.0
million of our common stock. This share repurchase program commenced on June 13,
2005.  As of December 31,  2005,  we completed  the  repurchase  program and had
repurchased a total of 18,775,156  common shares at an aggregate  cost of $250.0
million. In February 2006, our Board of Directors authorized us to repurchase up
to $300.0 million of our common stock in public or private transactions over the
following  twelve-month  period. We may in the future purchase additional shares
of our common stock.

Issuance of Common Stock
------------------------
On August  17,  2004 we issued  32,073,633  shares  of common  stock,  including
3,591,000  treasury  shares,  to our equity unit  holders in  settlement  of the
equity  purchase  contract  component of the equity  units.  With respect to the
$460.0 million senior note component of the equity units, we repurchased  $300.0
million  principal  amount of these  notes in July 2004.  The  remaining  $160.0
million of the senior notes were repriced and a portion was remarketed on August
12, 2004 as our 6.75% notes due August 17, 2006.


                                       24
<PAGE>

Issuance of Debt Securities
---------------------------
On November 8, 2004, we issued an aggregate  $700.0 million  principal amount of
6.25% senior notes due January 15, 2013 through a registered underwritten public
offering.  Proceeds  from the sale were used to redeem  our  outstanding  $700.0
million of 8.50% Notes due 2006.

Debt Reduction and Debt Exchanges
---------------------------------
For the year ended December 31, 2005, we retired an aggregate  principal  amount
of $36.4  million of debt,  including  $30.0  million  of 5%  Company  Obligated
Mandatorily  Redeemable  Convertible Preferred Securities due 2036 (EPPICS) that
were  converted  into our common  stock.  During the second  quarter of 2005, we
entered into two  debt-for-debt  exchanges of our debt securities.  As a result,
$50.0  million of our 7.625%  notes due 2008 were  exchanged  for  approximately
$52.2  million of our 9.00% notes due 2031.  The 9.00% notes are callable on the
same general  terms and  conditions as the 7.625% notes  exchanged.  No cash was
exchanged   in  these   transactions,   however  a  non-cash   pre-tax  loss  of
approximately  $3.2 million was  recognized in  accordance  with EITF No. 96-19,
"Debtor's  Accounting for a Modification or Exchange of Debt Instruments," which
is  included  in other  income  (loss),  net.  In  February  2006,  our Board of
Directors  authorized us to repurchase up to $150.0  million of our  outstanding
debt securities over the following  twelve-month  period.  These repurchases may
require us to pay premiums,  which would result in pre-tax losses to be recorded
in other income (loss), net.

For the year ended December 31, 2004, we retired an aggregate  $1,362.0  million
of  debt  (including  $148.0  million  of  EPPICS   conversions),   representing
approximately 28% of total debt outstanding at December 31, 2003.

During August and September 2004, we repurchased an additional $108.2 million of
our 6.75% notes which,  in addition to the $300.0  million we purchased in July,
resulted in a pre-tax  charge of  approximately  $20.1 million  during the third
quarter of 2004,  but  resulted in an annual  reduction  in interest  expense of
about  $27.6  million  per year.  See the  discussion  below  concerning  EPPICS
conversions for further information regarding the issuance of common stock.

We may from time to time repurchase our debt in the open market,  through tender
offers or privately negotiated transactions.  We may also exchange existing debt
obligations for newly issued debt obligations.

Interest Rate Management
------------------------
In order to manage our interest expense, we have entered into interest rate swap
agreements.  Under  the  terms  of  the  agreements,  which  qualify  for  hedge
accounting,  we make  semi-annual,  floating rate interest payments based on six
month  LIBOR and receive a fixed rate on the  notional  amount.  The  underlying
variable rate on these swaps is set in arrears.

The notional amounts of fixed-rate  indebtedness  hedged as of December 31, 2005
and December 31, 2004 were $500.0 million and $300.0 million, respectively. Such
contracts  require us to pay  variable  rates of interest  (average pay rates of
approximately  8.60% and 6.12% as of December  31, 2005 and 2004,  respectively)
and receive fixed rates of interest (average receive rates of 8.46% and 8.44% as
of December 31, 2005 and 2004, respectively).  All swaps are accounted for under
SFAS No. 133 (as amended) as fair value hedges. For the years ended December 31,
2005 and 2004,  the cash interest  savings  resulting  from these  interest rate
swaps totaled approximately $2.5 million and $9.4 million, respectively.

During  September 2005, we entered into a series of forward rate agreements that
fixed the underlying  variable rate component of some of our swaps at the market
rate as of the date of  execution  for certain  future  rate-setting  dates.  At
December 31, 2005, the rates obtained under these forward rate  agreements  were
below market rates.  Changes in the fair value of these forward rate agreements,
which do not qualify for hedge accounting,  are recorded in other income (loss),
net. Gains of $1.3 million and $0.6 million, respectively,  were recorded during
the third and fourth quarters of 2005.

Sale of Non-Strategic Investments
---------------------------------
In February  2006,  we entered  into a  definitive  agreement to sell all of the
outstanding  membership  interests  in ELI to  Integra  Telecom  Holdings,  Inc.
(Integra)  for  $247.0  million,  including  $243.0  million  in cash  plus  the
assumption of approximately $4.0 million in capital lease  obligations,  subject
to customary  adjustments  under the terms of the  agreement.  We anticipate the
recognition  of a  pre-tax  gain  on the  sale  of ELI of  approximately  $130.0
million.  The  transaction is expected to close in the third quarter of 2006 and
is subject to regulatory and other customary  approvals and conditions,  as well
as the  funding of  Integra's  fully  committed  financing.  We expect  that for
periods  subsequent  to  December  31,  2005,  ELI  will be  accounted  for as a
discontinued operation.


                                       25
<PAGE>

On  February  1,  2005,  we  sold  shares  of  Prudential  Financial,  Inc.  for
approximately  $1.1  million  in  cash,  and we  recognized  a  pre-tax  gain of
approximately $0.5 million that is included in other income (loss), net.

On March 15,  2005,  we  completed  the sale of our  conferencing  business  for
approximately  $43.6 million in cash.  The pre-tax gain on the sale of CCUSA was
$14.1 million.

In June 2005, we sold for cash our  interests in certain key man life  insurance
policies on the lives of Leonard  Tow, our former  Chairman and Chief  Executive
Officer,  and his  wife,  a former  director.  The cash  surrender  value of the
policies  purchased  by Dr. Tow  totaled  approximately  $24.2  million,  and we
recognized a pre-tax gain of  approximately  $457,000  that is included in other
income (loss), net.

During 2005, we sold shares of Global Crossing  Limited for  approximately  $1.1
million in cash,  and we  recognized  a pre-tax gain for the same amount that is
included in other income (loss), net.

Off-Balance Sheet Arrangements
------------------------------
We do not maintain any off-balance sheet arrangements, transactions, obligations
or other  relationship  with  unconsolidated  entities that would be expected to
have a material current or future effect upon our financial statements.

Future Commitments
------------------
A summary of our future contractual obligations and commercial commitments as of
December 31, 2005 is as follows:
<TABLE>
<CAPTION>
Contractual Obligations:
------------------------                                                  Payment due by period
                                                       ------------------------------------------------------------
                                                         Less than                                     More than
($ in thousands)                            Total          1 year        1-3 years      3-5 years       5 years
 --------------                             ------         ------        ---------      ---------       --------

Long-term debt obligations,
<S>                                      <C>              <C>            <C>          <C>              <C>
 excluding interest (see Note 11) (1)     $4,201,730       $227,693       $738,709     $ 5,393          $3,229,935


ELI capital lease
 obligations (see Note 25)                     4,287             41            236         310               3,700


Operating lease
   obligations (see Note 25)                  92,088         19,062         24,445      19,307              29,274


Purchase obligations (see Note 25)            76,384         30,619         29,354      11,296               5,115


Other long-term liabilities  (2)              33,785            -              -          -                 33,785
                                          -----------      ---------      ---------    --------         ----------
          Total                           $4,408,274       $277,415       $792,744     $36,306          $3,301,809
                                          ===========      =========      =========    ========         ==========
</TABLE>
(1) Includes interest rate swaps ($(8.7) million).
(2) Consists of our Equity  Providing  Preferred Income  Convertible  Securities
(EPPICS) reflected on our balance sheet.

At December 31, 2005, we have outstanding performance letters of credit totaling
$22.4 million.

Management Succession and Strategic Alternatives Expenses
---------------------------------------------------------
On July 11, 2004, our Board of Directors  announced that it completed its review
of our financial and strategic alternatives.  In 2004, we expensed $90.6 million
of costs related to management  succession and our  exploration of financial and
strategic alternatives.  Included are $36.6 million of non-cash expenses for the
acceleration  of stock  benefits,  cash  expenses of $19.2  million for advisory
fees,  $19.3 million for severance and retention  arrangements and $15.5 million
primarily for tax reimbursements.

                                       26
<PAGE>
EPPICS
------
In 1996, our consolidated wholly-owned subsidiary, Citizens Utilities Trust (the
Trust),  issued,  in an underwritten  public  offering,  4,025,000  shares of 5%
Company Obligated  Mandatorily  Redeemable  Convertible Preferred Securities due
2036 (Trust Convertible Preferred Securities or EPPICS),  representing preferred
undivided interests in the assets of the Trust, with a liquidation preference of
$50 per  security  (for a total  liquidation  amount of $201.3  million).  These
securities  have an  adjusted  conversion  price of $11.46 per  Citizens  common
share.  The conversion  price was reduced from $13.30 to $11.46 during the third
quarter  of 2004 as a result  of our  $2.00  per  share  special,  non-recurring
dividend paid on our common  stock.  The proceeds from the issuance of the Trust
Convertible Preferred Securities and a Company capital contribution were used to
purchase  $207.5  million  aggregate   liquidation   amount  of  5%  Partnership
Convertible Preferred Securities due 2036 from another wholly owned consolidated
subsidiary, Citizens Utilities Capital L.P. (the Partnership). The proceeds from
the issuance of the Partnership  Convertible  Preferred Securities and a Company
capital  contribution  were used to purchase  from us $211.8  million  aggregate
principal  amount of 5% Convertible  Subordinated  Debentures due 2036. The sole
assets of the Trust are the Partnership  Convertible Preferred  Securities,  and
our Convertible  Subordinated Debentures are substantially all the assets of the
Partnership.  Our obligations  under the agreements  related to the issuances of
such securities,  taken together,  constitute a full and unconditional guarantee
by us of the Trust's  obligations  relating to the Trust  Convertible  Preferred
Securities  and  the  Partnership's  obligations  relating  to  the  Partnership
Convertible Preferred Securities.

In accordance with the terms of the issuances, we paid the annual 5% interest in
quarterly installments on the Convertible  Subordinated Debentures in 2005, 2004
and 2003.  Only cash was paid (net of investment  returns) to the Partnership in
payment of the interest on the Convertible Subordinated Debentures. The cash was
then  distributed  by the  Partnership to the Trust and then by the Trust to the
holders of the EPPICS.

As of December 31, 2005, EPPICS  representing a total principal amount of $178.0
million had been converted  into  14,237,807  shares of our common stock,  and a
total of $23.3 million remains outstanding to third parties.  Our long-term debt
footnote  indicates $33.8 million of EPPICS  outstanding at December 31, 2005 of
which $10.5 million is intercompany debt. Our accounting treatment of the EPPICS
debt is in accordance with FIN 46R (see Notes 2 and 15).

We adopted the provisions of FASB Interpretation No. 46R (revised December 2003)
(FIN 46R),  "Consolidation of Variable Interest Entities,"  effective January 1,
2004.  Accordingly,  the Trust  holding  the  EPPICS  and the  related  Citizens
Utilities Capital L.P. are deconsolidated.

Covenants
---------
The terms  and  conditions  contained  in our  indentures  and  credit  facility
agreement  include the timely  payment of principal  and interest  when due, the
maintenance  of our  corporate  existence,  keeping  proper books and records in
accordance  with GAAP,  restrictions on the allowance of liens on our assets and
the provision of guarantees of debt by our  subsidiaries,  and  restrictions  on
asset sales and transfers,  mergers and other changes in corporate  control.  We
currently have no restrictions  on the payment of dividends  either by contract,
rule or regulation.

Our  $200.0  million  term  loan  facility  with  the  Rural  Telephone  Finance
Cooperative  (RTFC)  contains  a  maximum  leverage  ratio  covenant.  Under the
leverage  ratio  covenant,  we are  required  to  maintain  a ratio of (i) total
indebtedness  minus cash and cash equivalents in excess of $50.0 million to (ii)
consolidated  adjusted EBITDA (as defined in the agreements)  over the last four
quarters of no greater than 4.00 to 1.

Our $250.0 million credit facility  contains a maximum  leverage ratio covenant.
Under the leverage  ratio  covenant,  we are required to maintain a ratio of (i)
total indebtedness minus cash and cash equivalents in excess of $50.0 million to
(ii)  consolidated  adjusted  EBITDA (as defined in the agreement) over the last
four  quarters of no greater  than 4.50 to 1.  Although  the credit  facility is
unsecured,  it will be equally and ratably  secured by certain liens and equally
and ratably  guaranteed by certain of our  subsidiaries if we issue debt that is
secured  or  guaranteed.  We are in  compliance  with all of our debt and credit
facility covenants.

Divestitures
------------
On August 24, 1999, our Board of Directors  approved a plan of  divestiture  for
our public utilities services businesses, which included gas, electric and water
and  wastewater  businesses.  We have sold all of these  properties.  All of the
agreements  relating  to the  sales  provide  that we will  indemnify  the buyer
against  certain  liabilities  (typically  liabilities  relating  to events that
occurred prior to sale), including environmental liabilities, for claims made by
specified dates and that exceed threshold  amounts  specified in each agreement.

In  February  2006,  we entered  into a  definitive  agreement  to sell ELI.  We
anticipate the recognition of a pre-tax gain on the sale of ELI of approximately
$130.0 million. ELI had revenues of $159.2 million and operating income of $18.3
million for the year ended  December 31, 2005.  At December 31, 2005,  ELI's net
assets totaled $123.1 million.

                                       27
<PAGE>

Discontinued Operations
-----------------------
On March 15, 2005, we completed the sale of Conference Call USA, LLC (CCUSA) for
$43.6 million in cash,  subject to adjustments under the terms of the agreement.
The pre-tax gain on the sale of CCUSA was $14.1 million.  Our after-tax gain was
$1.2  million.   The  book  income  taxes   recorded  upon  sale  are  primarily
attributable to a low tax basis in the assets sold.

Rural Telephone Bank
--------------------
In August 2005,  the Board of Directors of the Rural  Telephone Bank (RTB) voted
to  dissolve  the bank.  In  November  2005,  the  Administration  approved  the
appropriate  provisions in the 2006 federal budget  necessary for dissolution of
the RTB. We expect to receive  during the second  quarter of 2006  approximately
$64.6 million in cash from the  dissolution  of the RTB, which would result in a
pre-tax gain of approximately $62.0 million when we receive the cash.

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

Telecommunications Bankruptcies
Our estimate of anticipated losses related to telecommunications bankruptcies is
a "critical  accounting  estimate." We have  significant  on-going normal course
business relationships with many telecom providers, some of which have filed for
bankruptcy.  We  generally  reserve  approximately  95% of the  net  outstanding
pre-bankruptcy  balances  owed to us and  believe  that our  estimate of the net
realizable value of the amounts owed to us by bankrupt  entities is appropriate.
In 2005 and 2004, we had no "critical  estimates" related to  telecommunications
bankruptcies.

Asset Impairment
In 2005 and 2004, we had no "critical estimates" related to asset impairments.

Depreciation and Amortization
The  calculation  of  depreciation  and  amortization  expense  is  based on the
estimated economic useful lives of the underlying property,  plant and equipment
and identifiable intangible assets. An independent study of the estimated useful
lives of our plant assets was completed in 2005.  We adopted the lives  proposed
in that study effective October 1, 2005.

Intangibles
Our  indefinite  lived  intangibles  consist of goodwill  and trade name,  which
resulted from the purchase of ILEC  properties.  We test for impairment of these
assets annually, or more frequently,  as circumstances  warrant. All of our ILEC
properties share similar economic characteristics and as a result, our reporting
unit is the ILEC segment.  In determining  fair value of goodwill during 2005 we
compared the net book value of the ILEC assets to trading values of our publicly
traded  common  stock.  Additionally,  we  utilized  a range of  prices to gauge
sensitivity.  Our  test  determined  that  fair  value  exceeded  book  value of
goodwill. An independent third party appraiser analyzed trade name.

Pension and Other Postretirement Benefits
Our  estimates of pension  expense,  other post  retirement  benefits  including
retiree  medical  benefits  and related  liabilities  are  "critical  accounting
estimates." We sponsor a noncontributory defined benefit pension plan covering a
significant number of our employees and other post retirement benefit plans that
provide medical,  dental, life insurance benefits and other benefits for covered
retired employees and their beneficiaries and covered dependents. The accounting
results  for pension  and post  retirement  benefit  costs and  obligations  are
dependent upon various  actuarial  assumptions  applied in the  determination of
such amounts. These actuarial assumptions include the following: discount rates,
expected long-term rate of return on plan assets, future compensation increases,
employee  turnover,  healthcare  cost  trend  rates,  expected  retirement  age,
optional form of benefit and mortality.  We review these assumptions for changes
annually with its outside actuaries.  We consider our discount rate and expected
long-term rate of return on plan assets to be our most critical assumptions.


                                       28
<PAGE>

The discount  rate is used to value,  on a present  basis,  our pension and post
retirement  benefit  obligation as of the balance  sheet date.  The same rate is
also used in the  interest  cost  component  of the pension and post  retirement
benefit cost  determination for the following year. The measurement date used in
the selection of our discount rate is the balance sheet date.  Our discount rate
assumption is determined  annually with  assistance  from our actuaries based on
the duration of our pension and postretirement benefit liabilities,  the pattern
of expected  future  benefit  payments  and the  prevailing  rates  available on
long-term, high quality corporate bonds that approximate the benefit obligation.
In making this determination we consider,  among other things, the yields on the
Citigroup  Pension  Discount Curve and Bloomberg  Finance.  This rate can change
from year-to-year  based on market conditions that impact corporate bond yields.
Our discount  rate  declined  from 6.00% at year-end  2004 to 5.625% at year-end
2005.

The  expected  long-term  rate  of  return  on plan  assets  is  applied  in the
determination  of  periodic  pension  and  post  retirement  benefit  cost  as a
reduction  in the  computation  of  the  expense.  In  developing  the  expected
long-term rate of return assumption, we considered published surveys of expected
market returns, 10 and 20 year actual returns of various major indices,  and our
own historical 5-year and 10-year  investment  returns.  The expected  long-term
rate of return on plan assets is based on an asset allocation  assumption of 30%
to 45% in fixed income securities, 45% to 55% in equity securities and 5% to 15%
in alternative investments. We review our asset allocation at least annually and
make  changes  when  considered  appropriate.  In 2005,  we did not  change  our
expected  long-term rate of return from the 8.25% used in 2004. Our pension plan
assets are valued at actual market value as of the measurement date.

Accounting  standards  require  that we record  an  additional  minimum  pension
liability  when the plan's  "accumulated  benefit  obligation"  exceeds the fair
market  value of plan assets at the pension  plan  measurement  (balance  sheet)
date.  In the fourth  quarter of 2004,  mainly due to a decrease in the year-end
discount rate, we recorded an additional minimum pension liability in the amount
of $17.4 million with a corresponding  charge to  shareholders'  equity of $10.7
million,  net of taxes of $6.7 million. In the fourth quarter of 2005, primarily
due to another decrease in the year-end discount rate, we recorded an additional
minimum  pension  liability in the amount of $36.4 million with a  corresponding
charge to shareholders'  equity of $22.5 million, net of taxes of $13.9 million.
These adjustments did not impact our net income or cash flows.

Actual results that differ from our  assumptions  are added or subtracted to our
balance of unrecognized actuarial gains and losses. For example, if the year-end
discount rate used to value the plan's projected  benefit  obligation  decreases
from the prior year-end then the plan's  actuarial  loss will  increase.  If the
discount rate increases  from the prior year-end then the plan's  actuarial loss
will decrease.  Similarly, the difference generated from the plan's actual asset
performance as compared to expected performance would be included in the balance
of unrecognized gains and losses.

The  impact  of the  balance  of  accumulated  actuarial  gains and  losses  are
recognized  in the  computation  of pension cost only to the extent this balance
exceeds 10% of the greater of the plan's projected benefit  obligation or market
value of plan assets.  If this  occurs,  that portion of gain or loss that is in
excess of 10% is amortized  over the  estimated  future  service  period of plan
participants  as a  component  of pension  cost.  The level of  amortization  is
affected  each  year by the  change in  actuarial  gains  and  losses  and could
potentially be eliminated if the gain/loss  activity reduces the net accumulated
gain/loss balance to a level below the 10% threshold.

We expect that our pension and other  postretirement  benefit  expenses for 2006
will be $15.0  million to $18.0  million  (they were $19.0  million in 2005) and
that no  contribution  will be required to be made by us to the pension  plan in
2006. No contribution was made to our pension plan during 2005.

Income Taxes
Our  effective  tax rate is  below  statutory  rate  levels  as a result  of the
completion  of audits with federal and state taxing  authorities  and changes in
the structure of certain of our subsidiaries.

Management  has  discussed  the  development  and  selection  of these  critical
accounting  estimates with the Audit Committee of our Board of Directors and our
Audit Committee has reviewed our disclosures relating to them.


                                       29
<PAGE>

New Accounting Pronouncements
-----------------------------

Accounting for Asset Retirement Obligations
In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations."  SFAS No. 143  applies to fiscal  years  beginning  after June 15,
2002, and addresses financial  accounting and reporting  obligations  associated
with the  retirement  of tangible  long-lived  assets and the  associated  asset
retirement  costs.  We adopted  SFAS No.  143  effective  January  1, 2003.  The
standard  applies  to  legal  obligations  associated  with  the  retirement  of
long-lived  assets that result from  acquisition,  construction,  development or
normal  use of the  assets  and  requires  that a legal  liability  for an asset
retirement  obligation be recognized  when incurred,  recorded at fair value and
classified as a liability in the balance sheet.  When the liability is initially
recorded, the entity will capitalize the cost and increase the carrying value of
the related  long-lived  asset.  The  liability is then  accreted to its present
value each period and the  capitalized  cost is  depreciated  over the estimated
useful life of the related  asset.  At the  settlement  date, we will settle the
obligation for our recorded amount or recognize a gain or loss upon settlement.

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

Stock-Based Compensation
In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of FASB Statement No.
123,   "Accounting  for  Stock-Based   Compensation."   SFAS  No.  148  provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting  for  stock-based  compensation  and amends the  disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim  financial  statements.  This  statement is  effective  for fiscal years
ending  after  December  15,  2002.  We have  adopted  the  expanded  disclosure
requirements of SFAS No. 148.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment,"  (SFAS No. 123R).  SFAS No. 123R requires  that  stock-based  employee
compensation be recorded as a charge to earnings.  In April 2005, the Securities
and Exchange  Commission  required  adoption of SFAS No. 123R for annual periods
beginning after June 15, 2005.  Accordingly,  we will adopt SFAS 123R commencing
January 1, 2006 and expect to  recognize  approximately  $2.8 million of expense
related to the  non-vested  portion of previously  granted stock options for the
year ended December 31, 2006.

Variable Interest Entities
In December 2003, the FASB issued FASB  Interpretation  No. 46 (revised December
2003) (FIN 46R),  "Consolidation of Variable Interest Entities," which addresses
how a business enterprise should evaluate whether it has a controlling financial
interest in an entity  through  means other than voting  rights and  accordingly
should  consolidate  the entity.  FIN 46R replaces FASB  Interpretation  No. 46,
"Consolidation of Variable Interest Entities," which was issued in January 2003.
We are  required to apply FIN 46R to  variable  interests  in variable  interest
entities,  or VIEs,  created after  December 31, 2003. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling  interests of the VIE initially would be measured
at their carrying  amounts with any  difference  between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative  effect of an accounting  change. If determining the carrying amounts
is not practicable,  fair value at the date FIN 46R first applies may be used to
measure  the  assets,  liabilities  and  noncontrolling  interest of the VIE. We
reviewed  all of our  investments  and  determined  that the  Trust  Convertible
Preferred   Securities  (EPPICS),   issued  by  our  consolidated   wholly-owned
subsidiary,  Citizens Utilities Trust and the related Citizens Utilities Capital
L.P.,  were our only VIEs.  Except as  described in Note 15, the adoption of FIN
46R on January 1, 2004 did not have a material impact on our financial  position
or results of operations.

Investments
In  March  2004,  the  FASB  issued  EITF  Issue  No.  03-1,   "The  Meaning  of
Other-Than-Temporary  Impairment  and Its  Application  to Certain  Investments"
(EITF 03-1) which provides new guidance for assessing  impairment losses on debt
and  equity  investments.   Additionally,  EITF  03-1  includes  new  disclosure
requirements for investments that are deemed not to be temporarily  impaired. In
September  2004,  the FASB  delayed  the  accounting  provisions  of EITF  03-1;
however,  the disclosure  requirements remain effective and were adopted for our
year ended  December 31, 2004.  Although we have no material  investments at the
present  time,  we will  evaluate  the  effect,  if any, of EITF 03-1 when final
guidance is released.


                                       30
<PAGE>
Exchanges of Productive Assets
In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,"  an  amendment  of APB  Opinion  No.  29.  SFAS No. 153  addresses  the
measurement  of exchanges  of certain  non-monetary  assets  (except for certain
exchanges  of  products  or  property  held for sale in the  ordinary  course of
business).  The Statement requires that non-monetary  exchanges be accounted for
at the  fair  value  of  the  assets  exchanged,  with  gains  or  losses  being
recognized,  if the fair value is determinable  within reasonable limits and the
transaction has commercial substance.  SFAS No. 153 is effective for nonmonetary
exchanges  occurring in fiscal periods  beginning after June 15, 2005. We do not
expect  the  adoption  of the new  standard  to have a  material  impact  on our
financial position, results of operations and cash flows.

Accounting for Conditional Asset Retirement Obligations
In March  2005,  the FASB  issued  FIN 47,  "Accounting  for  Conditional  Asset
Retirement  Obligations,"  an  interpretation  of FASB No. 143. FIN 47 clarifies
that the term conditional  asset  retirement  obligation as used in FASB No. 143
refers to a legal  obligation to perform an asset  retirement  activity in which
the timing or method of settlement are conditional on a future event that may or
may not be within  the  control of the  entity.  FIN 47 also  clarifies  when an
entity would have sufficient  information to reasonably  estimate the fair value
of an asset retirement  obligation.  Although a liability exists for the removal
of poles and asbestos,  sufficient  information  is not  available  currently to
estimate  our  liability,  as the range of time over which we may settle  theses
obligations is unknown or cannot be reasonably estimated. The adoption of FIN 47
during the fourth  quarter of 2005 had no impact on our  financial  position  or
results of operations.

Accounting Changes and Error Corrections
In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections," a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS
No. 154 changes the  accounting  for, and  reporting  of, a change in accounting
principle.  SFAS No. 154 requires  retrospective  application  to prior period's
financial statements of voluntary changes in accounting  principle,  and changes
required by new accounting standards when the standard does not include specific
transition  provisions,  unless it is  impracticable  to do so.  SFAS No. 154 is
effective for accounting  changes and corrections of errors made in fiscal years
beginning after December 15, 2005.

Partnerships
In June 2005,  the FASB issued  EITF No.  04-5,  "Determining  Whether a General
Partner,  or the General Partners as a Group,  Controls a Limited Partnership or
Similar  Entity When the Limited  Partners Have Certain  Rights," which provides
new guidance on how general partners in a limited  partnership  should determine
whether  they  control a limited  partnership.  EITF No. 04-5 is  effective  for
fiscal  periods  beginning  after December 15, 2005. The Company does not expect
the  adoption  of EITF  No.  04-5 to have a  material  impact  on our  financial
position, results of operations or cash flows.

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

Frontier revenue is generated primarily through the provision of local,  network
access, long distance and data services. Such services are provided under either
a  monthly  recurring  fee or based on usage at  agreed  upon  rates and are not
dependent  upon  significant  judgments by  management,  with the exception of a
determination of a provision for uncollectible amounts.

CLEC revenue is generated  through  local,  long  distance,  data and  long-haul
services. These services are primarily provided under a monthly recurring fee or
based on usage at agreed  upon  rates  and are not  dependent  upon  significant
judgments by management with the exception of the  determination  of a provision
for  uncollectible  amounts and realizability of reciprocal  compensation.  CLEC
usage based revenue  includes amounts  determined under reciprocal  compensation
agreements.  While this  revenue is  governed  by  specific  contracts  with the
counterparty, management defers recognition of disputed portions of such revenue
until  realizability  is assured.  Revenue  earned from  long-haul  contracts is
recognized over the term of the related agreement.

Consolidated  revenue  decreased  $5.9 million in 2005.  The decrease in 2005 is
primarily due to a $9.7 million decrease  resulting from the sale in 2004 of our
electric  utility  property,  partially offset by an increase of $3.8 million in
ILEC and ELI revenue.


                                       31
<PAGE>
Consolidated  revenue decreased $255.8 million,  or 11% in 2004. The decrease in
2004 was primarily due to $228.9  million of decreased gas and electric  revenue
primarily due to the disposition of our Arizona gas and electric operations, The
Gas Company in Hawaii and our Vermont  electric  division  and $26.9  million of
decreased telecommunications revenue.

Consolidated  revenue  decreased $223.5 million,  or 8% in 2003. The decrease in
2003 was primarily due to $192.7  million of decreased gas and electric  revenue
primarily due to the disposition of our Arizona gas and electric  operations and
The  Gas   Company  in  Hawaii   division   and  $30.8   million  of   decreased
telecommunications revenue.

On March 15, 2005, we completed the sale of our conferencing  service  business.
As a result of the  sale,  we have  classified  the  results  of  operations  as
discontinued operations in our consolidated statement of operations and restated
prior periods.

On April 1, 2003, we sold  approximately  11,000 telephone access lines in North
Dakota.  The revenues related to these access lines totaled $1.9 million for the
year ended December 31, 2003.

Change  in the  number of our  access  lines is  important  to our  revenue  and
profitability.  We have lost  access  lines  primarily  because of  competition,
changing consumer behavior,  economic conditions,  changing  technology,  and by
some customers  disconnecting  second lines when they add high-speed internet or
cable modem service. We lost approximately  102,000 access lines during 2005 but
added  approximately  99,000 high-speed  internet  subscribers  during this same
period. The loss of lines during 2005 was primarily among residential customers.
The non-residential  line losses were principally in Rochester,  New York, while
the  residential  losses were  throughout our markets.  We expect to continue to
lose access lines but to increase high-speed internet subscribers during 2006. A
continued  loss of access lines,  combined with  increased  competition  and the
other factors discussed in MD&A, may cause our revenues,  profitability and cash
flows to decrease in 2006.
<TABLE>
<CAPTION>
                    TELECOMMUNICATIONS REVENUE

($ in thousands)                        2005                              2004                  2003
----------------            ------------------------------  -------------------------------  ----------
                              Amount    $ Change   % Change   Amount     $ Change  % Change    Amount
                            ---------- -------------------- -----------  ------------------  ----------
<S>                         <C>         <C>             <C> <C>          <C>            <C>   <C>
Access services             $  623,918  $ (10,278)     -2%  $  634,196   $ (32,846)    -5%   $  667,042
Local services                 829,801    (21,376)     -3%     851,177      (7,825)    -1%      859,002
Long distance services         169,496    (14,127)     -8%     183,623     (15,759)    -8%      199,382
Data and internet services     175,026     36,795      27%     138,231      30,779     29%      107,452
Directory services             113,092      2,469       2%     110,623       3,689      3%      106,934
Other                           91,985      7,178       8%      84,807       4,448      6%       80,359
                            ---------- ----------           -----------  ----------           ----------
  ILEC revenue               2,003,318        661       0%   2,002,657     (17,514)    -1%    2,020,171
ELI                            159,161      3,131       2%     156,030      (9,359)    -6%      165,389
                            ---------- ----------           -----------  ----------           ----------
                            $2,162,479  $   3,792       0%  $2,158,687   $ (26,873)    -1%   $2,185,560
                            ========== ==========           ===========  ==========           ==========
</TABLE>
Access Services
Access  services  revenue for the year ended December 31, 2005  decreased  $10.3
million  or 2%,  as  compared  with the  prior  year.  Switched  access  revenue
decreased $9.5 million, as compared with the prior year period, primarily due to
a decline in minutes of use. Access service revenue includes subsidy payments we
receive from federal and state agencies. Subsidy revenue decreased $15.9 million
primarily due to decreased Universal Service Fund (USF) support of $19.2 million
because  of  increases  in the  national  average  cost per loop  (NACPL)  and a
decrease  of $2.0  million  related to changes in  measured  factors,  partially
offset by an increase of $6.4 million in USF  surcharge  rates.  Special  access
revenue  increased  $15.1  million  primarily  due to  growth  in  high-capacity
circuits.

Access  services  revenue for the year ended December 31, 2004  decreased  $32.8
million  or 5%,  as  compared  with the  prior  year.  Switched  access  revenue
decreased $19.6 million primarily due to $8.3 million  attributable to a decline
in minutes of use, the $7.4 million  effect of  federally  mandated  access rate
reductions  and $2.7  million  associated  with  state  intrastate  access  rate
reductions.  Subsidies  revenue decreased $12.8 million primarily due to an $8.3
million  decline in federal  USF  support  because  of  increases  in the NACPL,
including a $3.5 million  accrual  recorded during the third quarter of 2004 for
mistakes  made  during  2002  and 2003 by the  agency  that  calculates  subsidy
payments and true-ups related to 2002. The decreases were partially offset by an
increase  in  USF  surcharge  revenue  of  $2.1  million  resulting  from a rate
increase.


                                       32
<PAGE>
Increases  in the  number of  competitive  communications  companies  (including
wireless companies) receiving federal subsidies may lead to further increases in
the NACPL,  thereby resulting in further decreases in our subsidy revenue in the
future.  The FCC and state  regulators  are  currently  considering  a number of
proposals for changing the manner in which  eligibility for federal subsidies is
determined as well as the amounts of such  subsidies.  The FCC is also reviewing
the mechanism by which subsidies are funded. We cannot predict when or how these
matters  will  be  decided  nor  the  effect  on our  subsidy  revenues.  Future
reductions in our subsidy and access revenues are not expected to be accompanied
by  proportional  decreases  in our costs,  so any further  reductions  in those
revenues will directly affect our profitability and cash flow.

Local Services
Local  services  revenue for the year ended  December 31, 2005  decreased  $21.4
million or 3% as compared  with the prior year.  This  decline is  comprised  of
$18.8  million  related to the  continued  loss of access lines and $4.0 million
related  to a  reserve  associated  with  state  rate of return  limitations  on
earnings. Enhanced services revenue increased $5.9 million, as compared with the
prior year,  primarily due to sales of  additional  product  packages.  Economic
conditions or increasing  competition  could make it more  difficult to sell our
packages  and  bundles and cause us to lower our prices for those  products  and
services,  which would adversely affect our revenues and  profitability and cash
flow.

Local  services  revenue for the year ended  December  31, 2004  decreased  $7.8
million or 1% as compared  with the prior year.  Local revenue  decreased  $17.9
million  primarily  due to $4.7 million  related to  continued  losses of access
lines,  $2.2  million  as a result of  refunds  to  customers  because  of state
earnings  limitations,  the termination of an operator services contract of $3.4
million,  $3.5 million in decreased local measured service revenue and a decline
of $2.0 million in certain business services revenue.  Enhanced services revenue
increased $10.1 million, primarily due to sales of additional product packages.

Long Distance Services
Long distance  services  revenue for the year ended  December 31, 2005 decreased
$14.1 million or 8%, as compared with the prior year  primarily due to a decline
in the  average  rates we bill for long  distance  services.  Our long  distance
minutes of use increased  slightly  during 2005. Our long distance  revenues may
continue to decrease  in the future due to lower  rates  and/or  minutes of use.
Competing services such as wireless,  VOIP, and cable telephony are resulting in
a loss of customers,  minutes of use and further declines in the rates we charge
our  customers.  We expect these factors will  continue to adversely  affect our
long distance revenues during 2006.

Long distance  services  revenue for the year ended  December 31, 2004 decreased
$15.8 million or 8%, as compared with the prior year  primarily due to a decline
in the  average  rate per minute.  Our long  distance  minutes of use  increased
during 2004.

Data and Internet Services
Data and  internet  services  revenue for the years ended  December 31, 2005 and
2004 increased $36.8 million, or 27%, and $30.8 million,  or 29%,  respectively,
as compared with the prior year  primarily due to growth in data and  high-speed
internet services.

Directory Services
Directory  revenue for the years ended December 31, 2005 and 2004 increased $2.5
million,  or 2%, and $3.7  million,  or 3%,  respectively,  as compared with the
prior year due to growth in yellow pages advertising.

Other
Other revenue for the year ended December 31, 2005  increased  $7.2 million,  or
8%, compared with the prior year primarily due to a $4.8 million decrease in bad
debt expense and sales of television service.

Other revenue for the year ended December 31, 2004 increased $4.4 million or 6%,
as compared with the prior year primarily due to a $4.1 million  carrier dispute
settlement,  a decline in bad debt  expense of $3.2  million  and an increase in
service  activation  revenue of $2.5 million,  partially  offset by decreases of
$3.6 million in sales of customer  premise  equipment  (CPE) and $1.5 million in
call center services revenue.

ELI
ELI revenue for the year ended December 31, 2005 increased $3.1 million,  or 2%,
primarily due to increased demand and growth in local and data services. For the
year ended  December  31,  2004,  ELI revenue  decreased  $9.4  million,  or 6%,
primarily  due to lower  demand  and  prices for  long-haul  services  and lower
reciprocal compensation revenues.

                                       33
<PAGE>
<TABLE>
<CAPTION>
                            GAS AND ELECTRIC REVENUE

 ($ in thousands)                            2005                            2004                2003
 ----------------           -------------------------------  --------------------------------  ----------
                              Amount    $ Change   % Change   Amount     $ Change    % Change    Amount
                            ---------- --------------------  -----------  -------------------  -----------
<S>                          <C>        <C>              <C>    <C>      <C>            <C>     <C>
 Gas revenue                 $     -    $      -         0%     $     -  $ (137,686)   -100%    $ 137,686
 Electric revenue            $     -    $ (9,735)     -100%     $ 9,735  $  (91,193)    -90%    $ 100,928

Gas revenue
We did not have any gas  operations  in the years  ended  December  31, 2005 and
2004.

Electric revenue
Electric  revenue for the year ended December 31, 2005 decreased $9.7 million as
compared with the prior year due to the sale of our Vermont electric division on
April 1, 2004.  Electric  revenue for the year ended December 31, 2004 decreased
$91.2 million,  or 90%, as compared with the prior year. We have sold all of our
electric  operations  and as a result will have no  operating  results in future
periods for these businesses.

                                COST OF SERVICES

 ($ in thousands)                          2005                            2004                      2003
 ----------------            -------------------------------   --------------------------------  ----------
                               Amount    $ Change   % Change     Amount     $ Change   % Change     Amount
                             ---------- --------------------   -----------  -------------------  ----------
 Network access              $ 195,491    $ 2,076       1%     $ 193,415    $ (26,006)    -12%    $ 219,421
 Gas purchased                       -          -       0%             -      (82,311)   -100%       82,311
 Electric energy and fuel
  oil purchased                      -     (5,523)   -100%         5,523      (58,308)    -91%       63,831
                             ---------- ----------             -----------  ----------           ----------
                             $ 195,491    $(3,447)     -2%     $ 198,938    $(166,625)    -46%    $ 365,563
                             ========== ==========             ===========  ==========           ==========

Network access
Network  access  expenses for the year ended  December 31, 2005  increased  $2.1
million, or 1%, as compared with the prior year primarily due to increased costs
in circuit expense due to more data traffic associated with increased high-speed
internet  customers  and greater  long  distance  minutes of use in the Frontier
sector,  and higher  costs at ELI due to  increased  demand.  As we  continue to
increase our sales of data products  such as high-speed  internet and expand the
availability  of our unlimited long distance  calling plans,  our network access
expense is likely to increase.

Network access  expenses for the year ended  December 31, 2004  decreased  $26.0
million,  or 12%, as compared  with the prior year  primarily  due to  decreased
costs in long distance access expense related to rate changes  partially  offset
by increased  circuit expense  associated with  additional  high-speed  internet
customers.  ELI costs  declined due to a drop in demand  coupled  with  improved
network cost efficiencies.

Gas purchased
We did not have any gas  operations  in the years  ended  December  31, 2005 and
2004.

Electric energy and fuel oil purchased
Electric  energy and fuel oil  purchased  for the year ended  December  31, 2005
decreased  $5.5  million as compared  with the prior year due to the sale of our
Vermont  electric  division  on  April 1,  2004.  Electric  energy  and fuel oil
purchased for the year ended December 31, 2004 decreased $58.3 million,  or 91%,
as compared with the prior year. We have sold all of our electric operations and
as a  result  will  have no  operating  results  in  future  periods  for  these
businesses.

                            OTHER OPERATING EXPENSES

($ in thousands)                              2005                            2004               2003
----------------               ------------------------------ ------------------------------- ----------
                                Amount    $ Change   % Change   Amount     $ Change  % Change  Amount
                               ---------- ------------------- ------------  ----------------- ----------
Operating expenses             $ 607,581  $ (15,436)     -2%   $ 623,017   $ (61,952)    -9%  $ 684,969
Taxes other than income taxes     93,115       (771)     -1%      93,886      (2,870)    -3%     96,756
Sales and marketing              117,484      2,448       2%     115,036       2,653      2%    112,383
                               ---------- ----------          -----------  ----------         ----------
                               $ 818,180  $ (13,759)     -2%   $ 831,939   $ (62,169)    -7%  $ 894,108
                               ========== ==========          ===========  ==========         ==========
</TABLE>

                                       34
<PAGE>

Operating Expenses
Operating expenses for the year ended December 31, 2005 decreased $15.4 million,
or 2%, as compared with the prior year  primarily due to lower billing  expenses
as a result of the  conversion of one of our billing  systems in 2004  partially
offset by rate increases for federal USF mandated  contributions and annual fees
to  regulatory  agencies.  We routinely  review our  operations,  personnel  and
facilities  to  achieve  greater  efficiencies.  These  reviews  may  result  in
reductions in personnel and an increase in severance costs. As a result of early
retirement being offered to certain of our employees during the first quarter of
2006 we expect to recognize  $3.5 million to $4.0 million of severance  costs in
the first quarter of 2006.

Operating expenses for the year ended December 31, 2004 decreased $62.0 million,
or 9%, as compared  with the prior year  primarily  due to  decreased  operating
expenses in the public  services  sector due to the sales of our  utilities  and
increased   operating   efficiencies   and  a  reduction  of  personnel  in  our
communications business.

Operating expenses in 2004 include $4.2 million of expenses  attributable to our
efforts to comply with the internal control  requirements of the  Sarbanes-Oxley
Act of 2002.

Included in operating expenses is stock compensation expense. Stock compensation
expense was $8.4 million and $11.0 million for the years ended December 31, 2005
and 2004,  respectively.  In 2006, we expect to begin  expensing the cost of the
unvested  portion of  outstanding  stock  options  pursuant to SFAS No. 123R. We
expect to recognize  approximately  $2.8 million of stock option expense related
to the non-vested portion of previously granted stock options for the year ended
December 31, 2006.

Included  in  operating  expenses is pension  and other  postretirement  benefit
expenses.  In future periods,  if the value of our pension assets decline and/or
projected benefit costs increase, we may have increased pension expenses.  Based
on current  assumptions and plan asset values,  we estimate that our pension and
other  postretirement  benefit expenses will decrease from $19.0 million in 2005
to approximately $15.0 million to $18.0 million in 2006 and that no contribution
will be required to be made by us to the pension plan in 2006.  No  contribution
was made to our pension plan during 2005.

Taxes Other than Income Taxes
Taxes other than income  taxes for the year ended  December  31, 2004  decreased
$2.9 million,  or 3%, as compared with the prior year primarily due to decreased
property taxes in the public  services  sector of $11.6 million due to the sales
of our utilities and lower gross  receipts taxes of $3.7 million in the Frontier
sector that were  partially  offset by higher  payroll,  property and  franchise
taxes of $13.0 million.

Sales and Marketing
Sales and marketing expenses for the year ended December 31, 2005 increased $2.4
million,  or 2%, as  compared  with the prior year  primarily  due to  increased
marketing and  advertising in an  increasingly  competitive  environment and the
launch of new products. As our markets become more competitive and we launch new
products, we expect that our marketing costs will increase.

Sales and marketing expenses for the year ended December 31, 2004 increased $2.7
million, or 2%, as compared with the prior year primarily due to increased costs
in the Frontier sector.
<TABLE>
<CAPTION>
                      DEPRECIATION AND AMORTIZATION EXPENSE

 ($ in thousands)                      2005                            2004               2003
 ----------------      ------------------------------- ------------------------------- ----------
                         Amount    $ Change   % Change   Amount     $ Change  % Change  Amount
                       ---------- -------------------- -----------  ------------------ ----------
<S>                    <C>        <C>             <C>  <C>          <C>            <C> <C>
 Depreciation expense  $ 415,581  $ (28,707)     -6%   $ 444,288    $ (22,035)    -5%  $ 466,323
 Amortization expense    126,378       (142)      0%     126,520         (318)     0%    126,838
                       ---------- ----------           -----------  ----------         ----------
                       $ 541,959  $ (28,849)     -5%   $ 570,808    $ (22,353)    -4%  $ 593,161
                       ========== ==========           ===========  ==========         ==========
</TABLE>
Depreciation  expense for the years ended  December 31, 2005 and 2004  decreased
$28.7 million, or 6%, and $22.0 million, or 5%,  respectively,  as compared with
the prior years due to a declining asset base.  Effective with the completion of
an  independent  study of the  estimated  useful  lives of our  plant  assets we
adopted new lives beginning  October 1, 2005. Based on the study and our planned
capital  expenditures,  we expect that our depreciation  expense will decline in
2006 by  approximately  12.5% compared to 2005.  The decline is principally  the
result of extending the  remaining  useful lives of our copper  facilities  from
approximately 16 years to a range of 26 to 30 years.

                                       35
<PAGE>
<TABLE>
<CAPTION>
 RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES / RESTRUCTURING AND OTHER EXPENSES /
            MANAGEMENT SUCCESSION AND STRATEGIC ALTERNATIVES EXPENSES

($ in thousands)                                   2005                         2004                  2003
----------------                   ------------------------------ -------------------------------  ----------
                                    Amount    $ Change   % Change   Amount     $ Change  % Change    Amount
                                   ---------- ------------------- ------------  ------------------ -----------
Reserve for (recovery of)
<S>                                   <C>      <C>             <C>   <C>        <C>         <C>    <C>
   telecommunications bankruptcies    $  -     $      -        0%    $     -    $  4,377   -100%   $ (4,377)
Restructuring and other expenses      $  -     $      -        0%    $     -    $ (9,687)  -100%   $  9,687
Management succession and
   strategic alternatives expenses    $  -     $ (90,632)   -100%    $ 90,632   $      -      0%   $ 90,632

</TABLE>
On July 11, 2004, our Board of Directors  announced that it completed its review
of our financial and strategic alternatives.  In 2004, we expensed $90.6 million
of costs related to management  succession and our  exploration of financial and
strategic alternatives.  Included are $36.6 million of non-cash expenses for the
acceleration  of stock  benefits,  cash  expenses of $19.2  million for advisory
fees,  $19.3 million for severance and retention  arrangements and $15.5 million
primarily for tax reimbursements.

During the fourth quarter of 2003, an agreement with  WorldCom/MCI  was approved
by the bankruptcy  court settling all  pre-bankruptcy  petition  obligations and
receivables.   This   settlement   resulted  in  reduction  to  our  reserve  of
approximately  $6.6  million  in the fourth  quarter of 2003.  During the second
quarter of 2003,  we reserved  approximately  $2.3 million of trade  receivables
with Touch America as a result of Touch America's  filing for bankruptcy.  These
receivables   were   generated  as  a  result  of  providing   ordinary   course
telecommunication  services.  If  other  telecommunications  companies  file for
bankruptcy, we may have additional significant reserves in future periods.

Restructuring  and other  expenses  for 2003  primarily  consisted  of severance
expenses related to reductions in personnel at our telecommunications operations
and the write-off of software no longer used.

                   LOSS ON IMPAIRMENT

             ($ in thousands)        2003
             ----------------      ----------
                                     Amount
                                   ----------
              Loss on impairment    $ 15,300


During the third and fourth quarters of 2003, we recognized  additional  pre-tax
impairment  losses of $4.0  million  and $11.3  million  related to our  Vermont
property  to write  down  assets  to be sold to our best  estimate  of their net
realizable value upon sale.
<TABLE>
<CAPTION>
          INVESTMENT AND OTHER INCOME (LOSS), NET / INTEREST EXPENSE /
                          INCOME TAX EXPENSE (BENEFIT)

  ($ in thousands)                       2005                         2004                2003
  ----------------      ------------------------------- ------------------------------- ----------
                         Amount     $ Change   % Change   Amount     $ Change  % Change  Amount
                        ---------- -------------------- -----------  ------------------ ----------
<S>                      <C>        <C>            <C>   <C>         <C>          <C>    <C>
  Investment income      $  18,236  $ (15,380)    -46%   $  33,616   $  23,198   -223%   $  10,418
  Other income (loss),
   net                   $  (1,674) $  51,685     -97%   $ (53,359)  $ (97,418)  -221%   $  44,059
  Interest expense       $ 338,903  $ (40,118)    -11%   $ 379,021   $ (37,499)    -9%   $ 416,520
  Income tax expense     $  84,340  $  73,918     709%   $  10,422   $ (54,354)    84%   $  64,776
</TABLE>

Investment Income
Investment  income for the year ended December 31, 2005 decreased $15.4 million,
or 46%, as compared with the prior year primarily due to the sale in 2004 of our
investments in D & E  Communications,  Inc. (D & E) and Hungarian  Telephone and
Cable Corp.  (HTCC),  partially  offset by higher income in 2005 from short-term
investments.

Investment  income for the year ended December 31, 2004 increased  $23.2 million
as compared with the prior year primarily due to the sale of our  investments in
D & E and HTCC and higher income from short-term investments.


                                       36
<PAGE>

Other Income (Loss), net
Other income,  net for the year ended December 31, 2005 increased $51.7 million,
or 97%, as compared to prior year.  The increase is  primarily  due to a pre-tax
loss from the early  extinguishment  of debt of $66.5  million in 2004 and a net
loss on sales of assets of $1.9 million,  which is primarily attributable to the
loss on the sale of our corporate aircraft, partially offset by $25.3 million in
income from the  expiration of certain  retained  liabilities  at less than face
value,  which are associated with customer  advances for  construction  from our
disposed water properties. In addition, during 2005 $7.0 million was reserved in
the fourth quarter in connection  with a lawsuit,  and during the second quarter
we incurred a $3.2  million loss on the  exchange of debt,  partially  offset by
gains on our forward rate agreements

Other loss, net for the year ended December 31, 2004 increased  $97.4 million as
compared  to  prior  year  primarily  due  to a  pre-tax  loss  from  the  early
extinguishment  of debt of $66.5 million in 2004, and the recognition in 2003 of
$69.5 million in non-cash  pre-tax gains related to a capital lease  termination
and a capital  lease  restructuring  at ELI,  partially  offset in 2004 by $25.3
million in income from the  expiration of certain  retained  liabilities at less
than face value,  which are associated with customer  advances for  construction
from our disposed water  properties and a net loss on sales of assets in 2004 of
$1.9  million,  which is primarily  attributable  to the loss on the sale of our
corporate  aircraft,  compared to a net loss on sales of assets in 2003 of $20.5
million.

Interest Expense
Interest  expense for the year ended December 31, 2005 decreased  $40.1 million,
or 11%, as compared  with the prior year  primarily  due to the  retirement  and
refinancing  of debt.  Our composite  average  borrowing rate for the year ended
December  31, 2005 as  compared  with the prior year was 2 basis  points  lower,
decreasing from 7.96% to 7.94%.

Interest  expense for the year ended December 31, 2004 decreased  $37.5 million,
or 9%, as compared with the prior year  primarily due to the retirement of debt.
Our composite  average  borrowing  rate for the year ended  December 31, 2004 as
compared with the prior year was 11 basis points lower, decreasing from 8.07% to
7.96%.

Income Taxes
Income taxes for the year ended  December 31, 2005 increased  $73.9 million,  as
compared with the prior year  primarily due to changes in taxable income and the
effective  tax rate.  The effective tax rate for 2005 was 29.6% as compared with
13.5% for 2004. Our effective tax rate was below  statutory  rates in both years
as a  result  of  the  completion  of  audits  with  federal  and  state  taxing
authorities and changes in the structure of certain of our subsidiaries.

Income taxes for the year ended  December 31, 2004 decreased  $54.4 million,  or
84%, as compared with the prior year  primarily due to changes in taxable income
(loss).  The effective tax rate for 2004 was 13.5% as compared with an effective
tax rate of 34.3% for 2003.

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

($ in thousands)                                         2003
----------------                                      ----------
                                                        Amount
                                                      ----------
Cumulative effect of change in accounting principle   $ 65,769

During the first  quarter of 2003,  as a result of our adoption of SFAS No. 143,
"Accounting  for  Asset  Retirement  Obligations,"  we  recognized  an after tax
non-cash gain of approximately $65.8 million.

                             DISCONTINUED OPERATIONS

($ in thousands)                     2005       2004       2003
----------------                   ---------- ---------- --------
                                    Amount     Amount     Amount
                                   ---------- ---------- --------
Revenue                             $ 4,607    $ 24,558  $ 20,764
Operating income                    $ 1,489    $  8,188  $  6,820
Income taxes                        $   449    $  2,957  $  2,440
Net income                          $ 1,040    $  5,231  $  4,380

On March 15, 2005, we completed the sale of CCUSA for $43.6 million in cash. The
pre-tax gain on the sale of CCUSA was $14.1 million. Our after-tax gain was $1.2
million. The book income taxes recorded upon sale are primarily  attributable to
a low tax basis in the assets sold.

                                       37
<PAGE>

Item 7A.  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, including those associated with
our pension assets.  Market risk refers to the potential change in fair value of
a financial  instrument as a result of fluctuations in interest rates and equity
and commodity prices. We do not hold or issue derivative instruments, derivative
commodity  instruments or other financial instruments for trading purposes. As a
result, we do not undertake any specific actions to cover our exposure to market
risks and we are not party to any market risk management  agreements  other than
in the normal course of business or to hedge long-term interest rate risk.

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. 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 December 31, 2005, a near-term change
in  interest  rates  would not  materially  affect  our  consolidated  financial
position, results of operations or cash flows.

In order to manage our interest expense, we have entered into interest rate swap
agreements.  Under  the  terms  of  the  agreements,  which  qualify  for  hedge
accounting,  we make  semi-annual,  floating rate interest payments based on six
month  LIBOR and receive a fixed rate on the  notional  amount.  The  underlying
variable  rate for these  interest  rate swaps is set in arrears.  For the years
ended December 31, 2005 and 2004, the cash interest savings resulting from these
interest  rate  swaps  totaled  approximately  $2.5  million  and $9.4  million,
respectively.

During  September 2005, we entered into a series of forward rate agreements that
fixed the underlying  variable rate component of some of our swaps at the market
rate as of the date of  execution  for certain  future  rate-setting  dates.  At
December 31, 2005, the rates obtained under these forward rate  agreements  were
below market  rates.  A gain for the changes in the fair value of these  forward
rate  agreements  of $1.9 million is included in other income (loss) net for the
year ended December 31, 2005.

Sensitivity analysis of interest rate exposure
At December 31, 2005,  the fair value of our  long-term  debt and capital  lease
obligations was estimated to be approximately $4.0 billion, based on our overall
weighted average borrowing rate of 8.05% and our overall weighted maturity of 12
years.  There has been no material change in the weighted average maturity since
December 31, 2004.

The overall weighted average interest rate increased in 2005 by approximately 22
basis points. A hypothetical increase of 81 basis points in our weighted average
interest rate (10% of our overall weighted average  borrowing rate) would result
in an approximate  $210.3  million  decrease in the fair value of our fixed rate
obligations.

Equity Price Exposure

Our  exposure to market  risks for changes in equity  prices as of December  31,
2005 is limited to our investment in Adelphia,  and our pension assets of $762.2
million.

As of December  31, 2005 and December 31,  2004,  we owned  3,059,000  shares of
Adelphia  common  stock.  The  stock  price of  Adelphia  was $0.04 and $0.39 at
December 31, 2005 and December 31, 2004, respectively.

Sensitivity analysis of equity price exposure
At December 31,  2005,  the fair value of the equity  portion of our  investment
portfolio  was  estimated to be $0.1  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $12,000 decrease in the fair
value of the equity portion of our investment portfolio.


                                       38
<PAGE>

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 December 31,  2005.  It does not  consider  those  exposures or
positions which could arise after that date. As a result,  our ultimate exposure
with respect to our market risks will depend on the exposures  that arise during
the period and the fluctuation of interest rates and quoted market prices.

Item 8.   Financial Statements and Supplementary Data
          -------------------------------------------

The following documents are filed as part of this Report:

          1. Financial Statements, See Index on page F-1.

          2.  Supplementary  Data,  Quarterly  Financial Data is included in the
          Financial Statements (see 1. above).

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          ---------------------------------------------------------------
          Financial Disclosure
          ---------------------

None.

Item 9A.  Controls and Procedures
          -----------------------
(i)  Disclosure Controls and Procedures
     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
     participation of our management,  including our principal executive officer
     and principal financial officer,  regarding the effectiveness of the design
     and operation of our disclosure  controls and  procedures.  Based upon this
     evaluation, our principal executive officer and principal financial officer
     concluded, as of the end of the period covered by this report, December 31,
     2005, that our disclosure controls and procedures are effective.

(ii) Internal Control Over Financial Reporting
     (a) Management's annual report on internal control over financial reporting
     Our management report on internal control over financial  reporting appears
     on page F-2 and is incorporated by reference.
     (b) Attestation report of registered public accounting firm The attestation
     report of KPMG LLP, our independent  registered  public accounting firm, on
     management's  assessment of the  effectiveness of our internal control over
     financial reporting appears on page F-3 and is incorporated by reference.
     (c) Changes in internal  control over  financial  reporting We reviewed our
     internal  control over financial  reporting at December 31, 2005. There has
     been no change in our internal control over financial  reporting during the
     last  fiscal  quarter of 2005 that  materially  affected  or is  reasonably
     likely to materially affect our internal control over financial reporting.

Item 9B.  Other Information
          -----------------

None.

                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Registrant
          --------------------------------------------------

The  information  required by this Item is  incorporated  by reference  from our
definitive  proxy  statement for the 2006 Annual Meeting of  Stockholders  to be
filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2005.  See  "Executive  Officers  of the  Registrant"  in Part I of this  Report
following Item 4 for information relating to executive officers.

Item 11.  Executive Compensation
          ----------------------

The  information  required by this Item is  incorporated  by reference  from our
definitive  proxy  statement for the 2006 Annual Meeting of  Stockholders  to be
filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2005.


                                       39
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management and
          ------------------------------------------------------------------
          Related Stockholder Matters
          ---------------------------

The  information  required by this Item is  incorporated  by reference  from our
definitive  proxy  statement for the 2006 Annual Meeting of  Stockholders  to be
filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2005.

Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

The  information  required by this Item is  incorporated  by reference  from our
definitive  proxy  statement for the 2006 Annual Meeting of  Stockholders  to be
filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2005.

Item 14.   Principal Accountant Fees and Services
           --------------------------------------

The  information  required by this Item is  incorporated  by reference  from our
definitive  proxy  statement for the 2006 Annual Meeting of  Stockholders  to be
filed with the SEC pursuant to Regulation 14A within 120 days after December 31,
2005.

                                     PART IV
                                     -------

Item 15.  Exhibits and Financial Statement Schedules
          ------------------------------------------

          List of Documents Filed as a Part of This Report:

               (1)  Index to Consolidated Financial Statements:

Independent Auditors' Report

Consolidated balance sheets as of December 31, 2005 and 2004
Consolidated statements of operations for the years ended
   December 31, 2005, 2004 and 2003

Consolidated statements of shareholders' equity for the years ended
   December 31, 2005, 2004 and 2003

Consolidated statements of comprehensive income (loss) for the years ended
   December 31, 2005, 2004 and 2003

Consolidated statements of cash flows for the years ended
   December 31, 2005, 2004 and 2003

Notes to consolidated financial statements

               (2)  Index to Financial Statement Schedules:

                    Schedule II - Valuation and Qualifying Accounts

All other  schedules  have been  omitted  because the  required  information  is
included in the consolidated  financial  statements or the notes thereto,  or is
not applicable or required.

               (3)  Index to Exhibits:

Exhibit
  No.     Description
-------   -----------
  3.1     Restated  Certificate  of  Incorporation  of  Citizens  Communications
          Company,   (incorporated  by  reference  to  Exhibit  3.200.1  to  the
          Registrant's  Quarterly  Report on Form 10-Q for the six months  ended
          June 30, 2000, File No. 001-11001).

                                       40
<PAGE>

  3.2     By-laws of Citizens  Communications  Company, as amended (incorporated
          by reference to Exhibit 3.200.5 to the  Registrant's  Quarterly Report
          on Form 10-Q for the nine months ended  September  30, 2004,  File No.
          001-11001).
  4.1     Certificate  of Trust of  Citizens  Communications  Trust  dated as of
          April 27,  2001  (incorporated  by  reference  to  Exhibit  4.5 of the
          Registrant's   Amendment   No.1  to  Form  S-3   filed   May  7,  2001
          (Registration No. 333-58044)).
  4.2     Trust  Agreement  of Citizens  Capital  Trust I, dated as of April 27,
          2001  (incorporated  by reference  to Exhibit 4.6 of the  Registrant's
          Amendment  No.1  to Form  S-3  filed  May 7,  2001  (Registration  No.
          333-58044)).
  4.3     Form of Senior Note due 2011 (incorporated by reference to Exhibit 4.4
          of the Registrant's  Current Report on Form 8-K filed on May 24, 2001,
          File No. 001-11001).
  4.5     Form of Senior Note due 2008 and due 2031  (incorporated  by reference
          to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on
          August 22, 2001, File No. 001-11001).
  4.6     Form of Senior Note due 2013 (incorporated by reference to Exhibit 4.2
          of the  Registrant's  Current Report on Form 8-K filed on November 12,
          2004, File No. 001-11001).
  4.7     5%  Convertible  Subordinated  Debenture  due  2036  (incorporated  by
          reference to Exhibit A to Exhibit 4.200.2 to the Registrant's Form 8-K
          Current Report filed May 28, 1996, File No. 001-11001).
  4.8     Amended  and  Restated  Declaration  of Trust  dated as of January 15,
          1996,  of Citizens  Utilities  Trust  (incorporated  by  reference  to
          Exhibit 4.200.4 to the Registrant's  Form 8-K Current Report filed May
          28, 1996, File No. 001-11001).
  4.9     Convertible Preferred Security Certificate  (incorporated by reference
          to Exhibit A-1 to Exhibit 4.200.4 to the Registrant's Form 8-K Current
          Report filed May 28, 1996, File No. 001-11001).
  4.10    Amended and Restated Limited Partnership Agreement dated as of January
          15, 1996 of Citizens Utilities Capital L.P. (incorporated by reference
          to Exhibit 4.200.6 to the  Registrant's  Form 8-K Current Report filed
          May 28, 1996, File No. 001-11001).
  4.11    Partnership Preferred Security Certificate  (incorporated by reference
          to Annex A to Exhibit  4.200.6 to the  Registrant's  Form 8-K  Current
          Report filed May 28, 1996, File No. 001-11001).
  4.12    Convertible  Preferred  Securities  Guarantee  Agreement  dated  as of
          January  15,  1996  between  Citizens  Communications  Company  (f/k/a
          Citizens   Utilities  Company)  and  JPMorgan  Chase  Bank,  N.A.  (as
          successor to Chemical Bank),  as guarantee  trustee  (incorporated  by
          reference  to Exhibit  4.200.8 to the  Registrant's  Form 8-K  Current
          Report filed May 28, 1996, File No. 001-11001).
  4.13    Partnership  Preferred  Securities  Guarantee  Agreement  dated  as of
          January  15,  1996  between  Citizens  Communications  Company  (f/k/a
          Citizens   Utilities  Company)  and  JPMorgan  Chase  Bank,  N.A.  (as
          successor to Chemical Bank),  as guarantee  trustee  (incorporated  by
          reference  to Exhibit  4.200.9 to the  Registrant's  Form 8-K  Current
          Report filed May 28, 1996, File No. 001-11001).
  4.14    Letter of  Representations  dated  January  18,  1996,  from  Citizens
          Communications Company (f/k/a Citizens Utilities Company) and JPMorgan
          Chase Bank, N.A. (as successor to Chemical Bank), as trustee,  to DTC,
          for deposit of Convertible Preferred Securities with DTC (incorporated
          by reference to Exhibit 4.200.10 to the Registrant's  Form 8-K Current
          Report filed May 28, 1996, File No. 001-11001).
  4.15    Indenture of  Securities,  dated as of August 15,  1991,  and JPMorgan
          Chase  Bank,   N.A.  (as  successor  to  Chemical  Bank),  as  Trustee
          (incorporated  by  reference  to Exhibit  4.100.1 to the  Registrant's
          Quarterly  Report on Form 10-Q for the nine months ended September 30,
          1991, File No. 001-11001).
  4.16    Indenture,   dated  as  of  January   15,   1996,   between   Citizens
          Communications Company (f/k/a Citizens Utilities Company) and JPMorgan
          Chase Bank, N.A. (as successor to Chemical Bank), as indenture trustee
          (incorporated by reference to Exhibit 4.200.1 to the Registrant's Form
          8-K Current Report filed May 28, 1996, File No. 001-11001).
  4.16    First  Supplemental  Indenture,  dated as of January 15, 1996, between
          Citizens Communications Company (f/k/a Citizens Utilities Company) and
          JPMorgan  Chase  Bank,  N.A.  (as  successor  to  Chemical  Bank),  as
          indenture trustee (incorporated by reference to Exhibit 4.200.2 to the
          Registrant's  Form 8-K Current  Report  filed May 28,  1996,  File No.
          001-11001).
  4.17    Third Supplemental Indenture,  dated April 15, 1994, to JPMorgan Chase
          Bank, N.A. (as successor to Chemical  Bank), as Trustee  (incorporated
          by reference to Exhibit 4.100.6 to the  Registrant's  Form 8-K Current
          Report filed July 5, 1994, File No. 001-11001).
  4.18    Fourth  Supplemental  Indenture,  dated  October 1, 1994,  to JPMorgan
          Chase  Bank,   N.A.  (as  successor  to  Chemical  Bank),  as  Trustee
          (incorporated by reference to Exhibit 4.100.7 to Registrant's Form 8-K
          Current Report filed January 3, 1995, File No. 001-11001).


                                       41
<PAGE>

  4.19    Fifth Supplemental  Indenture,  dated as of June 15, 1995, to JPMorgan
          Chase  Bank,   N.A.  (as  successor  to  Chemical  Bank),  as  Trustee
          (incorporated by reference to Exhibit 4.100.8 to Registrant's Form 8-K
          Current Report filed March 29, 1996, File No. 001-11001).
  4.20    Sixth  Supplemental  Indenture,  dated  as of  October  15,  1995,  to
          JPMorgan Chase Bank,  N.A. (as successor to Chemical Bank), as Trustee
          (incorporated by reference to Exhibit 4.100.9 to Registrant's Form 8-K
          Current Report filed March 29, 1996, File No. 001-11001).
  4.21    Seventh Supplemental  Indenture,  dated as of June 1, 1996 to JPMorgan
          Chase Bank,  N.A. (as successor to Chemical  Bank),  (incorporated  by
          reference to Exhibit  4.100.11 to the  Registrant's  Annual  Report on
          Form 10-K for the year ended December 31, 1996, File No. 001-11001).
  4.22    Eighth  Supplemental  Indenture,  dated  as of  December  1,  1996  to
          JPMorgan   Chase  Bank,   N.A.  (as   successor  to  Chemical   Bank),
          (incorporated  by  reference to Exhibit  4.100.12 to the  Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1996,  File
          No. 001-11001).
  4.23    Senior  Indenture,   dated  as  of  May  23,  2001,  between  Citizens
          Communications  Company and JPMorgan Chase Bank, N.A. (as successor to
          The Chase Manhattan  Bank), as trustee  (incorporated  by reference to
          Exhibit 4.1 of the  Registrant's  Current  Report on Form 8-K filed on
          May 24, 2001, File No. 001-11001).
  4.24    First  Supplemental  Indenture,  dated as of May 23,  2001,  to Senior
          Indenture,   (incorporated   by   reference  to  Exhibit  4.2  of  the
          Registrant's  Current  Report on Form 8-K filed on May 24, 2001,  File
          No. 001-11001).
  4.25    Second  Supplemental  Indenture,  dated as of June 19, 2001, to Senior
          Indenture,  dated as of May 23, 2001  (incorporated  by  reference  to
          Exhibit 4.3 of the  Registrant's  Current  Report on Form 8-K filed on
          June 21, 2001, File No. 001-11001).
  4.26    Third Supplemental Indenture, dated as of November 12, 2004, to Senior
          Indenture,  dated as of May 23, 2001  (incorporated  by  reference  to
          Exhibit 4.1 of the  Registrant's  Current  Report on Form 8-K filed on
          November 12, 2004, File No. 001-11001).
  4.27    Indenture,   dated  as  of   August   16,   2001,   between   Citizens
          Communications  Company and JPMorgan Chase Bank, N.A. (as successor to
          The Chase Manhattan  Bank), as Trustee  (incorporated  by reference to
          Exhibit 4.1 of the  Registrant's  Current  Report on Form 8-K filed on
          August 22, 2001, File No. 001-11001).
  4.28    Underwriting  Agreement  dated  November  8,  2004,  between  Citizens
          Communications   Company  and  J.P.   Morgan   Securities   Inc.,   as
          Representative  of the several  listed  Underwriters,  relating to the
          sale of $700,000,000  principal  amount of the 6 1/4% Senior Notes due
          2013  (incorporated  by reference  to Exhibit 4.1 of the  Registrant's
          Current  Report  on Form 8-K  filed on  November  12,  2004,  File No.
          001-11001).
  10.1    Competitive  Advance  and  Revolving  Credit  Facility  Agreement  for
          $250,000,000  dated  October 29, 2004  (incorporated  by  reference to
          Exhibit 10.19 to the  Registrant's  Quarterly  Report on Form 10-Q for
          the nine months ended September 30, 2004, File No. 001-11001).
  10.2    Amended and Restated Non-Employee  Directors' Deferred Fee Equity Plan
          dated as of May 18, 2004, (incorporated by reference to Exhibit 10.1.2
          to the Registrant's Quarterly Report on Form 10-Q for the three months
          ended June 30, 2004, File No. 001-11001).
  10.3    Amendment No. 1 to the Citizens Communications Company (f/k/a Citizens
          Utilities Company)  Non-Employee  Directors'  Deferred Fee Equity Plan
          (incorporated by reference to Exhibit 10.2 to the Registrant's Current
          Report on Form 8-K, filed on December 20, 2005, File No. 001-11001).
  10.4    Separation  Agreement  between  Citizens  Communications  Company  and
          Leonard Tow  effective  July 10, 2004  (incorporated  by  reference to
          Exhibit 10.2.4 of the  Registrants'  Quarterly Report on Form 10-Q for
          the six months ended June 30, 2004, File No. 001-11001).
  10.5    Incentive Award Agreement between Citizens  Communications Company and
          Scott  N.  Schneider,   effective  March  11,  2004  (incorporated  by
          reference to Exhibit 10.3 to the  Registrant's  Annual  Report on Form
          10-K for the year ended December 31, 2003, File No. 001-11001).
  10.6    Citizens  Executive  Deferred  Savings  Plan  dated  January  1,  1996
          (incorporated by reference to Exhibit 10.19 to the Registrant's Annual
          Report on Form 10-K for the year ended  December  31,  1999,  File No.
          001-11001).
  10.7    Citizens Incentive Plan restated as of March 21, 2000 (incorporated by
          reference to Exhibit 10.19 to the  Registrant's  Annual Report on Form
          10-K for the year ended December 31, 1999, File No. 001-11001).
  10.8    1996 Equity Incentive Plan (incorporated by reference to Appendix A to
          the  Registrant's  definitive proxy statement on Schedule 14A filed on
          March 29, 1996, File No. 001-11001).
  10.8.1  2000 Equity Incentive Plan, as amended (incorporated by reference to
          Appendix A to the Registrant's  definitive proxy statement on Schedule
          14A filed on April 20, 2005, File No. 001-11001).
  10.9    Amendment to 1996 Equity Incentive Plan  (incorporated by reference to
          Exhibit B to the  Registrant's  definitive proxy statement on Schedule
          14A filed on March 31, 1997, File No. 001-11001).

                                       42
<PAGE>

  10.10   Amendment to 1996 Equity  Incentive  Plan  (effective  March 4, 2005)
          (incorporated  by  reference  to  Exhibit  10.1  to  the  Registrant's
          Quarterly  Report on Form 10-Q for the three  months  ended  March 31,
          2005, File No. 001-11001).
  10.11   Citizens  401(K)  Savings Plan  effective  as of January 1, 1997,  as
          amended   (incorporated   by  reference   to  Exhibit   10.37  to  the
          Registrant's  Quarterly  Report on Form 10-Q for the six months  ended
          June 30, 2001, File No. 001-11001).
  10.12   Loan  Agreement  between  Citizens  Communications  Company and Rural
          Telephone Finance  Cooperative for $200,000,000 dated October 24, 2001
          (incorporated  by  reference  to  Exhibit  10.39  to the  Registrant's
          Quarterly  Report on Form 10-Q for the nine months ended September 30,
          2001, File No. 001-11001).
  10.13   Amendment  No.  1,  dated as of March  31,  2003,  to Loan  Agreement
          between Citizens  Communications  Company and Rural Telephone  Finance
          Cooperative   (incorporated  by  reference  to  Exhibit  10.1  to  the
          Registrant's  Quarterly Report on Form 10-Q for the three months ended
          March 31, 2003, File No. 001-11001).
  10.14   Employment Agreement between Citizens Communications Company and Mary
          Agnes  Wilderotter,   effective  November  1,  2004  (incorporated  by
          reference to Exhibit  10.16 to the  Registrant's  Quarterly  Report on
          Form 10-Q for the nine  months  ended  September  30,  2004,  File No.
          001-11001).
  10.15   Employment  Agreement  between  Citizens  Communications  Company and
          Jerry Elliott,  effective September 1, 2004 (incorporated by reference
          to Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for
          the nine months ended September 30, 2004, File No. 001-11001).
  10.16   Employment  Agreement  between  Citizens  Communications  Company and
          Robert Larson,  effective September 1, 2004 (incorporated by reference
          to Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for
          the nine months ended September 30, 2004, File No. 001-11001).
  10.17   Employment Agreement between Citizens Communications Company and John
          H. Casey, III,  effective February 15, 2005 (incorporated by reference
          to Exhibit  10.20 to the  Registrant's  Annual Report on Form 10-K for
          the year ended December 31, 2004, File No. 001-11001).
  10.18   Offer of Employment  Letter between Citizens  Communications  Company
          and  Peter B.  Hayes,  effective  February  1, 2005  (incorporated  by
          reference to Exhibit 10.23 to the  Registrant's  Annual Report on Form
          10-K for the year ended December 31, 2004, File No. 001-11001).
  10.19   Separation Agreement between Citizens  Communications  Company and L.
          Russell  Mitten  dated July 13, 2005  (incorporated  by  reference  to
          Exhibit 10.24 to the  Registrant's  Quarterly  Report on Form 10-Q for
          the nine months ended September 30, 2005, File No. 001-11001).
  10.20   Amendment to the Separation Agreement between Citizens Communications
          Company and L. Russell Mitten dated August 31, 2005  (incorporated  by
          reference to Exhibit 10.24.1 to the  Registrant's  Quarterly Report on
          Form 10-Q for the nine  months  ended  September  30,  2005,  File No.
          001-11001).
  10.21   Summary of Compensation  Arrangements  for Named  Executive  Officers
          Outside of Employment Agreements (incorporated by reference to Exhibit
          10.1 to the Registrant's Current Report on Form 8-K filed February 28,
          2006, File No. 001-11001).
  10.22   Summary of Non-Employee Directors' Compensation  Arrangements Outside
          of Formal Plans, as amended, effective December 15, 2005 (incorporated
          by  reference to Exhibit 10.1 to the  Registrant's  Current  Report on
          Form 8-K filed on December 20, 2005, File No. 001-11001).
  10.23   Membership    Interest    Purchase    Agreement    between   Citizens
          Communications  Company  and  Integra  Telecom  Holdings,  Inc.  dated
          February 6, 2006  (incorporated  by  reference  to Exhibit 10.1 to the
          Registrant's  Current  Report on Form 8-K filed on  February  9, 2006,
          File No. 001-11001).
  10.24   Stock Redemption  Agreement between Citizens Utilities Rural Company,
          Inc.  and  The  Rural  Telephone  Bank  effective  November  10,  2005
          (including schedule of substantially  identical  agreements with other
          Subsidiaries of the Registrant).
  12.1    Computation  of  ratio of  earnings  to fixed  charges  (this  item is
          included herein for the sole purpose of incorporation by reference).
  21.1    Subsidiaries of the Registrant
  23.1    Auditors' Consent
  31.1    Certification  of  Principal   Executive   Officer  pursuant  to  Rule
          13a-14(a) under the Securities Exchange Act of 1934.
  31.2    Certification  of  Principal   Financial   Officer  pursuant  to  Rule
          13a-14(a) under the Securities Exchange Act of 1934.
  32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002.
  32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of
          2002.


                                       43
<PAGE>

Exhibits 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.8.1,  10.9, 10.10,  10.11,
10.14,  10.15,  10.16,  10.17,  10.18,  10.20,  10.21 and  10.22 are  management
contracts or compensatory plans or arrangements.


                                       44
<PAGE>


                                   SIGNATURES
                                   ----------

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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/ Mary Agnes Wilderotter
                                  ----------------------------------
                                      Mary Agnes Wilderotter
                         Chairman of the Board and Chief Executive Officer

                                        March 1, 2006



                                       45
<PAGE>


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated on the 1st day of March 2006.

               Signature                              Title
               ---------                              -----

     /s/ Leroy T. Barnes, Jr.                    Director
---------------------------------------
        (Leroy T. Barnes, Jr.)

     /s/ Jerry Elliott                           President; Acting Chief
---------------------------------------          Finiancial Officer and Director
        (Jerry Elliott)

     /s/ Jeri B. Finard                          Director
---------------------------------------
        (Jeri B. Finard)

     /s/ Lawton Fitt                             Director
---------------------------------------
        (Lawton Fitt)

     /s/ Stanley Harfenist                       Director
---------------------------------------
        (Stanley Harfenist)

     /s/ William Kraus                           Director
---------------------------------------
        (William Kraus)

     /s/ Robert J. Larson                        Senior Vice President and Chief
---------------------------------------          Accounting Officer
        (Robert J. Larson)

     /s/ Howard L. Schrott                       Director
---------------------------------------
        (Howard L. Schrott)

     /s/ Larraine D. Segil                       Director
---------------------------------------
        (Larraine D. Segil)

     /s/ Bradley E. Singer                       Director
---------------------------------------
        (Bradley E. Singer)

     /s/ Edwin Tornberg                          Director
---------------------------------------
        (Edwin Tornberg)

     /s/ David H. Ward                           Director
---------------------------------------
        (David H. Ward)

     /s/ Myron A. Wick, III                      Director
---------------------------------------
        (Myron A. Wick, III)

     /s/ Mary Agnes Wilderotter                  Chairman and Chief Executive
---------------------------------------          Officer
        (Mary Agnes Wilderotter)


                                       46
<PAGE>
<TABLE>
<CAPTION>


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                   Index to Consolidated Financial Statements


Item                                                                                                  Page
----                                                                                                  ----

<S>                                                                                                   <C>
Management's Report on Internal Control Over Financial Reporting                                       F-2

Report of Independent Registered Public Accounting Firm                                                F-3

Report of Independent Registered Public Accounting Firm                                                F-4

Consolidated balance sheets as of December 31, 2005 and 2004                                           F-5

Consolidated statements of operations for the years ended
   December 31, 2005, 2004 and 2003                                                                    F-6

Consolidated statements of shareholders' equity for the years ended
   December 31, 2005, 2004 and 2003                                                                    F-7

Consolidated statements of comprehensive income (loss) for the years ended
   December 31, 2005, 2004 and 2003                                                                    F-7

Consolidated statements of cash flows for the years ended
   December 31, 2005, 2004 and 2003                                                                    F-8

Notes to consolidated financial statements                                                             F-9
</TABLE>


                                      F-1
<PAGE>



        Management's Report on Internal Control Over Financial Reporting
        ----------------------------------------------------------------


The Board of Directors and Shareholders
Citizens Communications Company:


The  management  of  Citizens   Communications   Company  and   subsidiaries  is
responsible for  establishing  and maintaining  adequate  internal  control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f).

Under the supervision and with the participation of our management, we conducted
an  evaluation  of the  effectiveness  of our internal  control  over  financial
reporting  based on the  framework  in  Internal  Control--Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway Commission.
Based on our evaluation our management  concluded that our internal control over
financial  reporting  was  effective  as of December 31, 2005 and for the period
then ended.

Our  management's  assessment of the  effectiveness of our internal control over
financial  reporting  as of December  31, 2005 has been  audited by KPMG LLP, an
independent  registered  public accounting firm, as stated in their report which
is included herein.





Stamford, Connecticut
March 1, 2006


                                      F-2
<PAGE>

             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

The Board of Directors and Shareholders
Citizens Communications Company:

We  have  audited   management's   assessment,   included  in  the  accompanying
Management's Report on Internal Control Over Financial Reporting,  that Citizens
Communications  Company and subsidiaries  maintained  effective internal control
over financial reporting as of December 31, 2005, based on criteria  established
in Internal Control--Integrated  Framework issued by the Committee of Sponsoring
Organizations  of  the  Treadway  Commission  (COSO).   Citizens  Communications
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of the Company's
internal control over financial reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Citizens Communications Company and
subsidiaries  maintained  effective internal control over financial reporting as
of December 31, 2005,  is fairly  stated,  in all  material  respects,  based on
criteria  established in Internal  Control--Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission (COSO).  Also,
in our opinion,  Citizens Communications Company and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission (COSO).

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
Citizens  Communications  Company and  subsidiaries  as of December 31, 2005 and
2004,  and the related  consolidated  statements  of  operations,  shareholders'
equity and comprehensive  income (loss), and cash flows for each of the years in
the  three-year  period ended  December 31, 2005,  and our report dated March 1,
2006  expressed  an  unqualified   opinion  on  those   consolidated   financial
statements.


                                                 /s/  KPMG LLP

Stamford, Connecticut
March 1, 2006


                                      F-3
<PAGE>




             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------





The Board of Directors and Shareholders
Citizens Communications Company:


We have  audited  the  accompanying  consolidated  balance  sheets  of  Citizens
Communications  Company and  subsidiaries  as of December 31, 2005 and 2004, and
the  related  consolidated  statements  of  operations,   shareholders'  equity,
comprehensive  income  (loss)  and  cash  flows  for  each of the  years  in the
three-year  period  ended  December  31,  2005.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial   position  of  Citizens
Communications Company and subsidiaries as of December 31, 2005 and 2004 and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended  December 31, 2005, in conformity  with U.S.  generally
accepted  accounting  principles.  As  discussed  in Note 2 to the  consolidated
financial  statements,  the Company  adopted  Statement of Financial  Accounting
Standards No. 143,  "Accounting for Asset Retirement  Obligations" as of January
1, 2003.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight  Board  (United  States),  the  effectiveness  of Citizens
Communications   Company  and  subsidiaries   internal  control  over  financial
reporting  as of December 31, 2005,  based on criteria  established  in Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway  Commission  (COSO), and our report dated March 1,
2006 expressed an  unqualified  opinion on  management's  assessment of, and the
effective operation of, internal control over financial reporting.




                                                  /s/ KPMG LLP




Stamford, Connecticut
March 1, 2006



                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004
                                ($ in thousands)

                                                                                                 2005           2004
                                                                                             -------------- --------------
ASSETS
------
Current assets:
<S>                                                                                            <C>            <C>
   Cash and cash equivalents                                                                   $   265,775    $   163,759
   Accounts receivable, less allowances of $32,408 and $35,996, respectively                       229,107        233,690
   Prepaid expenses                                                                                 27,449         30,551
   Other current assets                                                                             19,764         18,758
   Assets of discontinued operations                                                                     -         24,122
                                                                                             -------------- --------------
     Total current assets                                                                          542,095        470,880

Property, plant and equipment, net                                                               3,186,465      3,335,850
                                                                                                         0              0
Goodwill, net                                                                                    1,921,465      1,921,465
Other intangibles, net                                                                             558,733        685,111
Investments                                                                                         19,136         23,062
Other assets                                                                                       184,215        232,051
                                                                                             -------------- --------------
        Total assets                                                                           $ 6,412,109    $ 6,668,419
                                                                                             ============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Long-term debt due within one year                                                          $   227,734    $     6,380
   Accounts payable                                                                                152,081        169,754
   Advanced billings                                                                                29,245         29,446
   Income taxes accrued                                                                              5,776         27,446
   Other taxes accrued                                                                              28,970         30,179
   Interest accrued                                                                                101,030         82,534
   Other current liabilities                                                                        71,806         71,046
   Liabilities of discontinued operations                                                                -            735
                                                                                             -------------- --------------
      Total current liabilities                                                                    616,642        417,520

Deferred income taxes                                                                              325,084        232,766
Other liabilities                                                                                  429,198        388,895
Long-term debt                                                                                   3,999,376      4,266,998

Shareholders' equity:
   Common stock, $0.25 par value (600,000,000 authorized shares; 328,168,000 and 339,633,000
     outstanding and 343,956,000 and 339,635,000 issued at December 31, 2005 and 2004,
     respectively)                                                                                  85,989         84,909
   Additional paid-in capital                                                                    1,374,610      1,664,627
   Accumulated deficit                                                                             (85,344)      (287,719)
   Accumulated other comprehensive loss, net of tax                                               (123,242)       (99,569)
   Treasury stock                                                                                 (210,204)            (8)
                                                                                             -------------- --------------
     Total shareholders' equity                                                                  1,041,809      1,362,240
                                                                                             -------------- --------------
        Total liabilities and shareholders' equity                                             $ 6,412,109    $ 6,668,419
                                                                                             ============== ==============
</TABLE>
              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
                 ($ in thousands, except for per-share amounts)

                                                                         2005           2004            2003
                                                                    --------------- --------------  --------------
<S>                                                                    <C>            <C>             <C>
Revenue                                                                $ 2,162,479    $ 2,168,422     $ 2,424,174

Operating expenses:
    Cost of services (exclusive of depreciation and amortization)          195,491        198,938         365,563
    Other operating expenses                                               818,180        831,939         894,108
    Depreciation and amortization                                          541,959        570,808         593,161
    Recovery of telecommunications bankruptcies                                  -              -          (4,377)
    Restructuring and other expenses                                             -              -           9,687
    Loss on impairment                                                           -              -          15,300
    Management succession and strategic alternatives expenses
      (see Note 13)                                                              -         90,632               -
                                                                    --------------- --------------  --------------
Total operating expenses                                                 1,555,630      1,692,317       1,873,442
                                                                    --------------- --------------  --------------
Operating income                                                           606,849        476,105         550,732

Investment income                                                           18,236         33,616          10,418
Other income (loss), net                                                    (1,674)       (53,359)         44,059
Interest expense                                                           338,903        379,021         416,520
                                                                    --------------- --------------  --------------
    Income from continuing operations before income taxes, dividends
      on convertible preferred securities and cumulative effect
      of change in accounting principle                                    284,508         77,341         188,689

Income tax expense                                                          84,340         10,422          64,776
                                                                    --------------- --------------  --------------
    Income from continuing operations before dividends on convertible
      preferred securities and cumulative effect of change in
      accounting principle                                                 200,168         66,919         123,913

Dividends on convertible preferred securities, net of income tax
      benefit of $(3,853)*                                                       -           6,210
                                                                    --------------- --------------  --------------
Income from continuing operations before cumulative effect of change
    in accounting principle                                                200,168         66,919         117,703


Discontinued operations (see Note 8):
    Income from operations of discontinued conferencing business
       (including gain on disposal of $14,061 in 2005)                      15,550          8,188           6,820
    Income tax expense                                                      13,343          2,957           2,440
                                                                    --------------- --------------  --------------
    Income from discontinued operations                                      2,207          5,231           4,380
                                                                    --------------- --------------  --------------
    Income before cumulative effect of change in accounting principle      202,375         72,150         122,083

Cumulative effect of change in accounting principle, net of tax of
    $0, $0 and $41,591, respectively                                             -              -          65,769
                                                                    --------------- --------------  --------------
    Net income available for common shareholders                       $   202,375    $    72,150     $   187,852
                                                                    =============== ==============  ==============
Basic income per common share:
    Income from continuing operations before cumulative effect of
      change in accounting principle                                   $      0.59    $      0.22     $      0.42
    Income from discontinued operations                                       0.01           0.02            0.02
    Income from cumulative effect of change in accounting principle              -              -            0.23
                                                                    --------------- --------------  --------------
    Net income per common share available for common shareholders      $      0.60    $      0.24     $      0.67
                                                                    =============== ==============  ==============
Diluted income per common share:
    Income from continuing operations before cumulative effect of
      change in accounting principle                                   $      0.59    $      0.22     $      0.41
    Income from discontinued operations                                       0.01           0.01            0.01
    Income from cumulative effect of change in accounting principle              -              -            0.22
                                                                    --------------- --------------  --------------
    Net income per common share available for common shareholders      $      0.60    $      0.23     $      0.64
                                                                    =============== ==============  ==============
</TABLE>
 *   The  consolidation  of this item  changed  effective  January  1, 2004 as a
     result of the  application  of a newly  mandated  accounting  standard "FIN
     46R." See Note 15 for a complete discussion.


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


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
                 ($ in thousands, except for per-share amounts)



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

<S>                                    <C>      <C>       <C>            <C>          <C>          <C>      <C>         <C>
Balance December 31, 2002              294,080  $ 73,520  $1,943,406     $ (553,033)  $(102,169)   (11,598) $ (189,585) $ 1,172,139
Stock plans                              1,354       338       9,911              -           -        873     14,450        24,699
Net income                                   -         -           -        187,852           -          -          -       187,852
Other comprehensive income, net of tax
   and reclassifications adjustments         -         -           -              -      30,493          -          -        30,493
                                      --------- --------- ------------ -------------- ------------ --------- ---------- ------------
Balance December 31, 2003              295,434    73,858   1,953,317       (365,181)    (71,676)   (10,725)  (175,135)    1,415,183
Stock plans                              4,821     1,206      14,236              -           -      6,407    106,823       122,265
Conversion of EPPICS                    10,897     2,724     133,621              -           -        725     11,646       147,991
Conversion of Equity Units              28,483     7,121     396,221              -           -      3,591     56,658       460,000
Dividends on common stock of
   $2.50 per share                           -         -    (832,768)             -           -          -          -      (832,768)
Net income                                   -         -           -         72,150           -          -          -        72,150
Tax benefit on equity forward contracts      -         -           -          5,312           -          -          -         5,312
Other comprehensive loss, net of tax
   and reclassifications adjustments         -         -           -              -     (27,893)         -          -       (27,893)
                                      --------- --------- ------------ -------------- -----------  --------- ---------- ------------
Balance December 31, 2004              339,635    84,909   1,664,627       (287,719)    (99,569)        (2)        (8)    1,362,240
Stock plans                              2,096       524      24,039              -           -      2,598     34,689        59,252
Conversion of EPPICS                     2,225       556      24,308              -           -        391      5,115        29,979
Dividends on common stock of
   $1.00 per share                           -         -    (338,364)             -           -          -          -      (338,364)
Shares repurchased                           -         -           -              -           -    (18,775)  (250,000)     (250,000)
Net income                                   -         -           -        202,375           -          -          -       202,375
Other comprehensive loss, net of tax
   and reclassifications adjustments         -         -           -              -     (23,673)         -          -       (23,673)
                                      --------- --------- ------------ -------------- ------------ --------- ---------- ------------
Balance December 31, 2005              343,956  $ 85,989  $1,374,610      $ (85,344)  $(123,242)   (15,788) $ (210,204) $ 1,041,809
                                      ========= ========= ============ ============== ============ ========= ========== ============
</TABLE>

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
                 ($ in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
                                                       2005             2004           2003
                                                   --------------   -------------  -------------
<S>                                                    <C>              <C>           <C>
Net income                                             $ 202,375        $ 72,150      $ 187,852
Other comprehensive income (loss), net of tax
  and reclassifications adjustments*                     (23,673)        (27,893)        30,493
                                                   --------------   -------------  -------------
  Total comprehensive income                           $ 178,702        $ 44,257      $ 218,345
                                                   ==============   =============  =============
</TABLE>

*    Consists of unrealized  holding  (losses)/gains  of marketable  securities,
     realized  gains taken to income as a result of the sale of  securities  and
     minimum pension liability (see Note 21).


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



                                      F-7

<PAGE>
<TABLE>
<CAPTION>
                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
                                ($ in thousands)


                                                                    2005             2004              2003
                                                               ---------------  ----------------  ----------------
Cash flows provided by (used in) operating activities:
<S>                                                               <C>               <C>               <C>
Net income                                                        $ 202,375         $  72,150         $ 187,852
       Deduct: Gain on sale of discontinued operations               (1,167)                -                 -
       Income from discontinued operations                           (1,040)           (5,231)           (4,380)
       Cumulative effect of change in accounting principle for
         the adoption of SFAS No. 143                                     -                 -           (65,769)
Adjustments to reconcile income to net cash provided by
   operating activities:
       Depreciation and amortization expense                        541,959           570,808           593,161
       Gain on expiration/settlement of customer advance               (681)          (25,345)           (6,165)
       Gain on capital lease termination/restructuring                    -                 -           (69,512)
       Stock based compensation expense                               8,427            47,581             8,956
       Loss on debt exchange                                          3,175                 -                 -
       Loss on extinguishment of debt                                     -            66,480            10,851
       Investment gains                                                (492)          (12,066)                -
       Gain on sales of assets                                            -             1,945            20,492
       Loss on impairment                                                 -                 -            15,300
       Other non-cash adjustments                                    20,481            30,397            20,091
       Deferred taxes                                               100,636            24,016            74,508
       Change in accounts receivable                                  4,583            11,895            69,619
       Change in accounts payable and other liabilities             (33,399)          (67,499)         (113,532)
       Change in other current assets                                  (640)           (3,694)              748
                                                               ---------------  ----------------  ----------------
Net cash provided by operating activities                           844,217           711,437           742,220

Cash flows provided from (used by) investing activities:
       Proceeds from sales of assets, net of selling expenses        24,195            30,959           388,079
       Proceeds from sale of discontinued operations                 43,565                 -                 -
       Capital expenditures                                        (268,459)         (275,204)         (277,371)
       Securities purchased                                               -                 -            (1,680)
       Securities sold                                                1,112            26,514                 -
       Other asset (purchased) distributions received                 5,724           (28,110)               68
                                                               ---------------  ----------------  ----------------
Net cash provided from (used by) investing activities              (193,863)         (245,841)          109,096

Cash flows provided from (used by) financing activities:
       Repayment of customer advances for construction
         and contributions in aid of construction                    (1,662)           (2,089)          (10,030)
       Long-term debt borrowings                                          -           700,000                 -
       Debt issuance costs                                                -           (15,502)                -
       Long-term debt payments                                       (6,433)       (1,214,018)         (653,442)
       Premium to retire debt                                             -           (66,480)          (10,851)
       Issuance of common stock                                      47,550           544,562            13,209
       Shares repurchased                                          (250,000)                -                 -
       Dividends paid                                              (338,364)         (832,768)                -
                                                               ---------------  ----------------  ----------------
Net cash used by financing activities                              (548,909)         (886,295)         (661,114)

Cash flows of discontinued operations
       Operating cash flows                                             578             1,361               956
       Investing cash flows                                              (7)             (571)             (644)
       Financing cash flows                                               -                (3)              (20)
                                                               ---------------  ----------------  ----------------
                                                                        571               787               292

Increase (decrease) in cash and cash equivalents                    102,016          (419,912)          190,494
Cash and cash equivalents at January 1,                             163,759           583,671           393,177
                                                               ---------------  ----------------  ----------------

Cash and cash equivalents at December 31,                         $ 265,775         $ 163,759         $ 583,671
                                                               ===============  ================  ================

Cash paid during the period for:
       Interest                                                   $ 318,638         $ 370,128         $ 418,561
       Income taxes (refunds)                                     $   4,711         $  (4,901)        $  (2,532)

Non-cash investing and financing activities:
       Change in fair value of interest rate swaps                $ (13,193)        $  (6,135)        $  (6,057)
       Conversion of EPPICS                                       $  29,980         $ 147,991         $       -
       Debt-for-debt exchange                                     $   2,171         $       -         $       -
       Investment write-downs                                     $       -         $   5,286         $       -

</TABLE>

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

                                      F-8
<PAGE>

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(1) Description of Business and Summary of Significant Accounting Policies:
    -----------------------------------------------------------------------

     (a)  Description of Business:
          ------------------------
          Citizens  Communications  Company and its subsidiaries are referred to
          as "we,"  "us,"  the  "Company,"  or "our"  in this  report.  We are a
          communications company providing services to rural areas and small and
          medium-sized  towns and cities as an incumbent local exchange carrier,
          or ILEC.  We offer our ILEC  services  under the  "Frontier"  name. In
          addition,  we provide  competitive  local exchange  carrier,  or CLEC,
          services to business customers and to other communications carriers in
          certain  metropolitan  areas  in the  western  United  States  through
          Electric  Lightwave,  LLC, or ELI,  our  wholly-owned  subsidiary.  In
          February 2006, we entered into a definitive  agreement to sell ELI and
          we expect the sale to close in the third quarter of 2006.

     (b)  Principles of Consolidation and Use of Estimates:
          -------------------------------------------------
          Our consolidated financial statements have been prepared in accordance
          with accounting  principles generally accepted in the United States of
          America  (GAAP).  Certain  reclassifications  of  balances  previously
          reported  have been made to conform to the current  presentation.  All
          significant   intercompany   balances  and   transactions   have  been
          eliminated in consolidation.

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

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

     (d)  Revenue Recognition:
          --------------------

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

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

     (e)  Property, Plant and Equipment:
          ------------------------------
          Property,  plant and  equipment  are stated at  original  cost or fair
          market  value  for  our  acquired  properties,  including  capitalized
          interest. Maintenance and repairs are charged to operating expenses as
          incurred.  The  gross  book  value  of  routine  property,  plant  and
          equipment retired is charged against accumulated depreciation.


                                      F-9
<PAGE>

     (f)  Goodwill and Other Intangibles:
          -------------------------------
          Intangibles represent the excess of purchase price over the fair value
          of identifiable  tangible  assets  acquired.  We undertake  studies to
          determine  the fair  values of assets  and  liabilities  acquired  and
          allocate   purchase  prices  to  assets  and  liabilities,   including
          property,  plant  and  equipment,   goodwill  and  other  identifiable
          intangibles.  We  annually  (during  the fourth  quarter)  examine the
          carrying  value of our goodwill  and trade name to  determine  whether
          there are any impairment losses and have determined for the year ended
          December  31, 2005 that there was no  impairment  (see Notes 2 and 7).
          All  intangibles at December 31, 2005 are associated with the Frontier
          segment, which is the reporting unit.

          SFAS No. 142 also  requires  that  intangible  assets  with  estimated
          useful  lives be  amortized  over  those  lives  and be  reviewed  for
          impairment in accordance with SFAS No. 144, "Accounting for Impairment
          or Disposal of Long-Lived  Assets" to determine whether any changes to
          these lives are required.  We periodically reassess the useful life of
          our intangible assets with estimated useful lives to determine whether
          any changes to those lives are required.

     (g)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
          ---------------------------------------------------------------------
          Of:
          ---
          We review  long-lived assets to be held and used and long-lived assets
          to be disposed of, including  intangible  assets with estimated useful
          lives,  for  impairment  whenever  events or changes in  circumstances
          indicate  that  the  carrying   amount  of  such  assets  may  not  be
          recoverable.  Recoverability of assets to be held and used is measured
          by  comparing  the  carrying   amount  of  the  asset  to  the  future
          undiscounted  net cash flows  expected to be  generated  by the asset.
          Recoverability  of assets held for sale is measured by  comparing  the
          carrying amount of the assets to their estimated fair market value. If
          any assets are  considered to be impaired,  the impairment is measured
          by the amount by which the carrying  amount of the assets  exceeds the
          estimated fair value (see Note 5).

     (h)  Derivative Instruments and Hedging Activities:
          ----------------------------------------------
          We account  for  derivative  instruments  and  hedging  activities  in
          accordance with 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 we enter into a derivative  contract  that  qualifies  for
          hedge  accounting,  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 our  risk-management
          objective and strategy for  undertaking  the hedge  transaction.  This
          process  includes  linking  all  derivatives  that are  designated  as
          fair-value or cash flow hedges to specific  assets and  liabilities on
          the  balance  sheet or to  specific  firm  commitments  or  forecasted
          transactions.

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

          All  derivatives  are  recognized  on the balance  sheet at their fair
          value. Changes in the fair value of derivative  financial  instruments
          are  either  recognized  in  income  or  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 have  interest rate swap  arrangements  related to a portion of our
          fixed rate debt. These hedge strategies satisfy the fair value hedging
          requirements of SFAS No. 133, as amended.  As a result, the fair value
          of the swaps is carried on the balance sheet in other  current  assets
          and the related hedged  liabilities are also adjusted to fair value by
          the same amount.

                                      F-10
<PAGE>

   (i)    Investments:
          ------------

          Marketable Securities
          We   classify   our   cost   method   investments   at   purchase   as
          available-for-sale.   We  do  not  maintain  a  trading  portfolio  or
          held-to-maturity securities.

          Securities classified as  available-for-sale  are carried at estimated
          fair market value.  These securities are held for an indefinite period
          of  time,  but  might  be sold in the  future  as  changes  in  market
          conditions or economic factors occur.  Net aggregate  unrealized gains
          and losses related to such securities, net of taxes, are included as a
          separate component of shareholders'  equity.  Interest,  dividends and
          gains and losses  realized  on sales of  securities  are  reported  in
          Investment income.

          We evaluate our  investments  periodically  to  determine  whether any
          decline in fair value,  below the cost basis, is other than temporary.
          To  determine  whether  an  impairment  is other  than  temporary,  we
          consider whether we have the ability and intent to hold the investment
          until a market price recovery and whether evidence indicating the cost
          of the investment is recoverable  outweighs  evidence to the contrary.
          Evidence  considered in this  assessment  includes the reasons for the
          impairment,  the severity and duration of the  impairment,  changes in
          value  subsequent  to  year-end,  and  forecasted  performance  of the
          investee.  If we determine  that a decline in fair value is other than
          temporary, the cost basis of the individual investment is written down
          to fair value,  which  becomes  the new cost basis.  The amount of the
          write-down is transferred from other  comprehensive  income (loss) and
          included in the statement of operations as a loss.

          Investments in Other Entities
          Investments in entities that we do not control,  but where we have the
          ability to exercise significant influence over operating and financial
          policies, are accounted for using the equity method of accounting.

     (j)  Income Taxes and Deferred Income Taxes:
          ---------------------------------------
          We file a consolidated federal income tax return. We utilize the asset
          and liability  method of accounting for income taxes.  Under the asset
          and liability  method,  deferred income taxes are recorded for the tax
          effect of temporary  differences between the financial statement basis
          and the tax basis of assets and  liabilities  using tax rates expected
          to be in  effect  when  the  temporary  differences  are  expected  to
          reverse.

     (k)  Stock Plans:
          ------------
          We have various  stock-based  compensation  plans.  Awards under these
          plans are granted to  eligible  officers,  management,  non-management
          employees and non-employee  directors.  Awards may be made in the form
          of  incentive  stock  options,   non-qualified  stock  options,  stock
          appreciation rights,  restricted stock or other stock based awards. As
          permitted by current accounting rules, we apply Accounting  Principles
          Board Opinions (APB) No. 25 and related  interpretations in accounting
          for the employee  stock plans  resulting  in the use of the  intrinsic
          value to value the stock.

          SFAS No. 123,  "Accounting for Stock-Based  Compensation" and SFAS No.
          148,  "Accounting  for  Stock-Based   Compensation  -  Transition  and
          Disclosure,  an amendment of SFAS No. 123," established accounting and
          disclosure  requirements using a fair-value-based method of accounting
          for stock-based employee  compensation plans. As permitted by existing
          accounting  standards,  we have  elected  to  continue  to  apply  the
          intrinsic-valued-based  method of accounting described above, and have
          adopted only the disclosure requirements of SFAS No. 123, as amended.

          In  December  2004,  the FASB  issued  SFAS No.  123  (revised  2004),
          "Share-Based  Payment,"  ("SFAS No.  123R").  SFAS 123R  requires that
          stock-based employee compensation be recorded as a charge to earnings.
          In April 2005,  the Securities  and Exchange  Commission  required the
          adoption of SFAS No. 123R for annual periods  beginning after June 15,
          2005. Accordingly,  we will adopt SFAS 123R commencing January 1, 2006
          and expect to recognize approximately $2,800,000 of expense related to
          the  non-vested  portion of  previously  granted stock options for the
          year ended December 31, 2006.

          We  provide  pro forma net  income and pro forma net income per common
          share disclosures for employee and non-employee  director stock option
          grants  based on the fair  value of the  options  at the date of grant
          (see Note 18). For purposes of presenting pro forma  information,  the
          fair value of  options  granted is  computed  using the Black  Scholes
          option-pricing model.


                                      F-11
<PAGE>

          Had we  determined  compensation  cost  based on the fair value at the
          grant date for the Management  Equity  Incentive  Plan (MEIP),  Equity
          Incentive Plan (EIP) and Directors'  Deferred Fee Equity Plan, our pro
          forma net income and net income per common share  available for common
          shareholders would have been as follows:
<TABLE>
<CAPTION>

                                                                              2005              2004            2003
                                                                         ---------------- ----------------- --------------
             ($ in thousands)
             ----------------

             Net income available for common
             <S>                                          <C>               <C>             <C>               <c>
             shareholders                                 As reported       $202,375          $72,150         $ 187,852
             Add: Stock-based employee compensation
             expense included in reported net income,
             net of related tax effects                                        5,267           29,381             6,014

             Deduct: Total stock-based employee
             compensation expense determined under fair
             value based method for all awards, net of
             related tax effects                                              (8,165)         (38,312)          (16,139)
                                                                            --------        ---------         ---------
                                                          Pro forma         $199,477          $63,219         $ 177,727
                                                                            ========        =========         =========

             Net income per common share                  As reported:
                available for common shareholders            Basic          $   0.60          $  0.24         $    0.67
                                                             Diluted            0.60             0.23              0.64

                                                          Pro forma:
                                                             Basic          $   0.59          $  0.21         $    0.63
                                                             Diluted            0.59             0.20              0.61
</TABLE>

          In connection with the payment of the special,  non-recurring dividend
          of $2.00 per common share on September 2, 2004, the exercise price and
          number of all  outstanding  options was adjusted such that each option
          had the same value to the holder  after the  dividend as it had before
          the dividend.  In accordance with FASB Interpretation No. 44 (FIN 44),
          "Accounting for Certain Transactions Involving Stock Compensation" and
          EITF 00-23,  "Issues Related to the Accounting for Stock  Compensation
          under APB No. 25 and FIN 44," there is no accounting  consequence  for
          changes made to the exercise price and the number of shares of a fixed
          stock option or award as a direct result of the special, non-recurring
          dividend.

     (l)  Net Income Per Common Share Available for Common Shareholders:
          --------------------------------------------------------------
          Basic net income  per  common  share is  computed  using the  weighted
          average  number of common shares  outstanding  during the period being
          reported on. Except when the effect would be antidilutive, diluted net
          income per common share  reflects  the dilutive  effect of the assumed
          exercise  of stock  options  using the  treasury  stock  method at the
          beginning  of the period  being  reported on as well as common  shares
          that  would  result  from  the  conversion  of  convertible  debt.  In
          addition,  the related  interest on debt (net of tax) is added back to
          income since it would not be paid if the debt was  converted to common
          stock.

 (2) Recent Accounting Literature and Changes in Accounting Principles:
     ------------------------------------------------------------------

     Accounting for Asset Retirement Obligations
     -------------------------------------------
     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
     Retirement Obligations." We adopted SFAS No. 143 effective January 1, 2003.
     As a result of our  adoption of SFAS No. 143,  we  recognized  an after tax
     non-cash  gain of  approximately  $65,769,000.  This gain resulted from the
     elimination  of the  cumulative  cost of removal  included  in  accumulated
     depreciation  and is  reflected  as a  cumulative  effect  of a  change  in
     accounting  principle in our statement of operations in 2003, as we have no
     legal obligation to remove certain of our long-lived assets.


                                      F-12
<PAGE>

     Stock-Based Compensation
     ------------------------
     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation  - Transition and  Disclosure,  an amendment of FASB Statement
     No. 123,  "Accounting for Stock-Based  Compensation." SFAS No. 148 provides
     alternative  methods of transition for a voluntary change to the fair value
     based method of  accounting  for  stock-based  compensation  and amends the
     disclosure requirements of SFAS No. 123 to require prominent disclosures in
     both annual and interim financial  statements.  This statement is effective
     for fiscal  years  ending  after  December  15,  2002.  We have adopted the
     expanded disclosure requirements of SFAS No. 148.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
     Payment," (SFAS No. 123R). SFAS No. 123R requires that stock-based employee
     compensation  be  recorded  as a charge to  earnings.  In April  2005,  the
     Securities and Exchange  Commission  required adoption of SFAS No. 123R for
     annual periods  beginning after June 15, 2005.  Accordingly,  we will adopt
     SFAS 123R commencing January 1, 2006 and expect to recognize  approximately
     $2,800,000  of expense  related  to the  non-vested  portion of  previously
     granted stock options for the year ended December 31, 2006.

     Variable Interest Entities
     --------------------------
     In  December  2003,  the FASB issued  FASB  Interpretation  No. 46 (revised
     December 2003) (FIN 46R),  "Consolidation of Variable  Interest  Entities,"
     which addresses how a business  enterprise should evaluate whether it has a
     controlling financial interest in an entity through means other than voting
     rights and accordingly should consolidate the entity. FIN 46R replaces FASB
     Interpretation No. 46, "Consolidation of Variable Interest Entities," which
     was issued in January  2003.  We are  required to apply FIN 46R to variable
     interests in variable interest  entities,  or VIEs,  created after December
     31, 2003.  For any VIEs that must be  consolidated  under FIN 46R that were
     created before January 1, 2004, the assets,  liabilities and noncontrolling
     interests of the VIE initially would be measured at their carrying  amounts
     with any  difference  between the net amount added to the balance sheet and
     any  previously  recognized  interest  being  recognized as the  cumulative
     effect of an accounting  change. If determining the carrying amounts is not
     practicable,  fair value at the date FIN 46R first  applies  may be used to
     measure the assets,  liabilities and noncontrolling interest of the VIE. We
     reviewed all of our investments  and determined that the Trust  Convertible
     Preferred  Securities  (EPPICS),  issued by our  consolidated  wholly-owned
     subsidiary,  Citizens  Utilities Trust and the related  Citizens  Utilities
     Capital  L.P.,  were our only  VIEs.  Except as  described  in Note 15, the
     adoption  of FIN 46R on January  1, 2004 did not have a material  impact on
     our financial position or results of operations.

     Investments
     -----------
     In March  2004,  the FASB  issued  EITF  Issue No.  03-1,  "The  Meaning of
     Other-Than-Temporary Impairment and Its Application to Certain Investments"
     (EITF 03-1), which provides new guidance for assessing impairment losses on
     debt  and  equity  investments.   Additionally,   EITF  03-1  includes  new
     disclosure  requirements  for investments that are deemed to be temporarily
     impaired.  In September 2004, the FASB delayed the accounting provisions of
     EITF 03-1; however,  the disclosure  requirements remain effective and were
     adopted for our year ended December 31, 2004.  Although we have no material
     investments  at the present time,  we will evaluate the effect,  if any, of
     EITF 03-1 when final guidance is released.

     Exchanges of Productive Assets
     ------------------------------
     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
     Assets," an  amendment  of APB Opinion No. 29. SFAS No. 153  addresses  the
     measurement of exchanges of certain non-monetary assets (except for certain
     exchanges of products or property  held for sale in the ordinary  course of
     business).  The Statement requires that non-monetary exchanges be accounted
     for at the fair value of the assets  exchanged,  with gains or losses being
     recognized,  if the fair value is determinable within reasonable limits and
     the  transaction  has commercial  substance.  SFAS No. 153 is effective for
     nonmonetary  exchanges occurring in fiscal periods beginning after June 15,
     2005.  We do not expect the adoption of the new standard to have a material
     impact on our financial position, results of operations and cash flows.

     Accounting for Conditional Asset Retirement Obligations
     -------------------------------------------------------
     In March 2005, the FASB issued FIN 47,  "Accounting for  Conditional  Asset
     Retirement  Obligations,"  an  interpretation  of  FASB  No.  143.  FIN  47
     clarifies that the term conditional asset retirement  obligation as used in
     FASB No. 143 refers to a legal  obligation  to perform an asset  retirement
     activity in which the timing or method of settlement  are  conditional on a
     future  event that may or may not be within the control of the entity.  FIN

                                      F-13
<PAGE>

     47 also  clarifies  when an entity  would have  sufficient  information  to
     reasonably  estimate  the fair  value of an  asset  retirement  obligation.
     Although  a  liability  exists  for the  removal  of  poles  and  asbestos,
     sufficient   information  is  not  available   currently  to  estimate  our
     liability, as the range of time over which we may settle theses obligations
     is unknown or cannot be reasonably estimated. The adoption of FIN 47 during
     the  fourth  quarter  of 2005 had no impact on our  financial  position  or
     results of operations.

     Accounting Changes and Error Corrections
     ----------------------------------------
     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
     Corrections," a replacement of APB Opinion No. 20 and FASB Statement No. 3.
     SFAS No. 154 changes the  accounting  for,  and  reporting  of, a change in
     accounting principle.  SFAS No. 154 requires  retrospective  application to
     prior  period's  financial  statements  of voluntary  changes in accounting
     principle,  and  changes  required  by new  accounting  standards  when the
     standard  does not include  specific  transition  provisions,  unless it is
     impracticable  to do so. SFAS No. 154 is effective for  accounting  changes
     and corrections of errors made in fiscal years beginning after December 15,
     2005.

     Partnerships
     ------------
     In June 2005, the FASB issued EITF No. 04-5, "Determining Whether a General
     Partner, or the General Partners as a Group, Controls a Limited Partnership
     or Similar  Entity When the Limited  Partners Have Certain  Rights,"  which
     provides  new  guidance  on how general  partners in a limited  partnership
     should determine whether they control a limited partnership.  EITF No. 04-5
     is effective for fiscal  periods  beginning  after December 15, 2005. We do
     not expect the  adoption of EITF No. 04-5 to have a material  impact on our
     financial position, results of operations or cash flows.

 (3) Accounts Receivable:
     --------------------

     The components of accounts  receivable at December 31, 2005 and 2004 are as
     follows:


($ in thousands)                                     2005             2004
----------------                                 --------------  ---------------

End user                                             $ 226,717        $ 227,385
Other                                                   34,798           42,301
Less:  Allowance for doubtful accounts                 (32,408)         (35,996)
                                                 -------------    -------------
   Accounts receivable, net                          $ 229,107        $ 233,690
                                                 =============    =============

     We maintain an allowance  for  estimated bad debts based on our estimate of
     collectibility  of our  accounts  receivable.  Bad debt  expense,  which is
     recorded  as a reduction  of  revenue,  was  $13,510,000,  $17,906,000  and
     $21,540,000  for the  years  ended  December  31,  2005,  2004,  and  2003,
     respectively.

(4)  Property, Plant and Equipment:
     ------------------------------

     The  components  of property,  plant and equipment at December 31, 2005 and
     2004 are as follows:
<TABLE>
<CAPTION>

                                                            Estimated
($ in thousands)                                           Useful Lives           2005              2004
----------------                                       ------------------- ----------------- -----------------

<S>                                                                                 <C>               <C>
Land                                                           N/A               $    20,748       $    21,481
Buildings and leasehold improvements                      30 to 41 years             359,339           357,983
General support                                           3 to 17 years              413,512           414,360
Central office/electronic circuit equipment               5 to 11 years            2,611,934         2,536,579
Cable and wire                                            15 to 60 years           3,085,338         2,972,919
Other                                                     5 to 30 years               35,458            31,993
Construction work in progress                                                         99,746            93,049
                                                                            ----------------  ----------------
                                                                                   6,626,075         6,428,364
Less: accumulated depreciation                                                    (3,439,610)       (3,092,514)
                                                                            ----------------  ----------------
Property, plant and equipment, net                                               $ 3,186,465       $ 3,335,850
                                                                            ================  ================

</TABLE>



                                      F-14
<PAGE>


     Depreciation  expense is principally  based on the composite  group method.
     Depreciation  expense was  $415,581,000,  $444,288,000 and $466,323,000 for
     the years ended December 31, 2005, 2004 and 2003,  respectively.  Effective
     January 1, 2003,  as a result of the adoption of SFAS No. 143,  "Accounting
     for Asset  Retirement  Obligations,"  we ceased  recognition of the cost of
     removal  provision in  depreciation  expense and  eliminated the cumulative
     cost of removal  included in accumulated  depreciation.  Effective with the
     completion of an  independent  study of the  estimated  useful lives of our
     plant assets we adopted new lives beginning October 1, 2005.

(5)  Losses on Impairment:
     ---------------------

     During 2005 and 2004, we did not recognize any impairment charges.

     During  2003,  we  recognized   non-cash  pre-tax   impairment   losses  of
     $15,300,000  related to our Vermont electric  division assets held for sale
     in accordance with the provisions of SFAS No. 144.

(6)  Dispositions:
     -------------

     Pre-tax gains (losses) in connection with the following  transactions  were
     recorded in other income (loss), net:

     2005
     ----
     On  February 1, 2005,  we sold shares of  Prudential  Financial,  Inc.  for
     approximately  $1,112,000  in cash,  and we  recognized  a pre-tax  gain of
     approximately $493,000.

     In June  2005,  we sold for  cash our  interests  in  certain  key man life
     insurance  policies on the lives of Leonard  Tow,  our former  Chairman and
     Chief  Executive  Officer,  and his  wife,  a  former  director.  The  cash
     surrender value of the policies purchased by Dr. Tow totaled  approximately
     $24,195,000, and we recognized a pre-tax gain of approximately $457,000.

     During 2005, we sold shares of Global  Crossing  Limited for  approximately
     $1,084,000 in cash, and we recognized a pre-tax gain for the same amount.

     2004
     ----
     In October 2004, we sold cable assets in California,  Arizona, Indiana, and
     Wisconsin for  approximately  $2,263,000  in cash.  The pre-tax gain on the
     sale was $40,000.

     During  the third  quarter  of 2004,  we sold our  corporate  aircraft  for
     approximately  $15,298,000  in  cash.  The  pre-tax  loss on the  sale  was
     $1,087,000.

     2003
     ----
     On April 1, 2003, we completed the sale of  approximately  11,000 telephone
     access lines in North Dakota for  approximately  $25,700,000  in cash.  The
     pre-tax gain on the sale was $2,274,000.

     On  April 4,  2003,  we  completed  the  sale of our  wireless  partnership
     interest in Wisconsin for  approximately  $7,500,000  in cash.  The pre-tax
     gain on the sale was $2,173,000.

(7)  Other Intangibles:
     ------------------

     Other intangibles at December 31, 2005 and 2004 are as follows:



($ in thousands)                                        2005             2004
----------------                                 ---------------  --------------

Customer base - amortizable over 96 months        $  994,605        $  994,605
Trade name - non-amortizable                         122,058           122,058
                                                 ---------------  --------------
    Other intangibles                              1,116,663         1,116,663
Accumulated amortization                            (557,930)         (431,552)
                                                 ---------------  --------------
    Total other intangibles, net                  $  558,733        $  685,111
                                                 ===============  ==============




                                      F-15
<PAGE>

     Amortization  expense was  $126,378,000,  $126,520,000 and $126,838,000 for
     the  years  ended   December  31,  2005,   2004  and  2003,   respectively.
     Amortization  expense,  based on our estimate of useful lives, is estimated
     to be $126,380,000  per year through 2008 and $57,533,000 in 2009, at which
     point these assets will have been fully amortized.

 (8) Discontinued Operations:
     ------------------------

     Conference Call USA
     -------------------
     In  February  2005,  we  entered  into  a  definitive   agreement  to  sell
     Conference-Call  USA, LLC (CCUSA), our conferencing  services business.  On
     March 15, 2005, we completed the sale for  $43,565,000 in cash,  subject to
     adjustments under the terms of the agreement.  The pre-tax gain on the sale
     of CCUSA was $14,061,000.  Our after-tax gain was approximately $1,167,000.
     The book income taxes  recorded upon sale are primarily  attributable  to a
     low tax basis in the assets sold.

     In  accordance  with SFAS No. 144, any  component  of our business  that we
     dispose of or classify as held for sale that has  operations and cash flows
     clearly  distinguishable  from  operations,  and  for  financial  reporting
     purposes,  and that will be eliminated from the ongoing operations,  should
     be classified as discontinued operations.  Accordingly,  we have classified
     the  results  of  operations  of CCUSA as  discontinued  operations  in our
     consolidated statements of operations and have restated prior periods.

     CCUSA had revenues of  approximately  $24,600,000  and operating  income of
     approximately  $8,000,000 for the year ended December 31, 2004. At December
     31, 2004, CCUSA's net assets totaled approximately $23,400,000. The company
     had no outstanding debt specifically identified with CCUSA and therefore no
     interest expense was allocated to discontinued operations.  In addition, we
     ceased to record depreciation expense effective February 16, 2005.

     Summarized financial information for CCUSA (discontinued operations) is set
     forth below:


( $ in thousands)                             For the years ended December 31,
-----------------                      -----------------------------------------
                                           2005          2004          2003
                                       ------------  ------------- -------------
Revenue                                   $ 4,607       $ 24,558      $ 20,764
Operating income                          $ 1,489       $  8,188      $  6,820
Income taxes                              $   449       $  2,957      $  2,440
Net income                                $ 1,040       $  5,231      $  4,380
Gain on disposal of CCUSA, net of tax     $ 1,167       $    -        $    -


                                                     December 31,
($ in thousands)                                         2004
----------------                                   -----------------

Current assets                                          $  2,819
Net property, plant and equipment                          2,450
Goodwill                                                  18,853
                                                   -----------------
Total assets of discontinued operations                 $ 24,122
                                                   =================

Current liabilities                                     $    735
                                                   -----------------
Total liabilities of discontinued operations            $    735
                                                   =================


Public Utilities
----------------
On April 1, 2004,  we completed  the sale of our Vermont  electric  distribution
operations for approximately  $13,992,000 in cash, net of selling expenses. With
that transaction,  we completed the divestiture of our public utilities services
business pursuant to plans announced in 1999. Losses on the sales of our Vermont
properties were included in the impairment charges recorded in 2003.



                                      F-16
<PAGE>

(9)  Investments:
     ------------

     The components of investments at December 31, 2005 and 2004 are as follows:

($ in thousands)                          2005             2004
----------------                     ---------------- ----------------

Marketable equity securities              $   122         $  2,336
Equity method investments                  19,014           20,726
                                     ---------------- ----------------
                                          $19,136         $ 23,062
                                     ================ ================

     Marketable Securities
     As of December  31, 2005 and 2004,  we owned  3,059,000  shares of Adelphia
     Communications  Corp.  (Adelphia)  common stock. As a result of write downs
     recorded  in 2002 and 2001,  our "book cost  basis" was reduced to zero and
     subsequent  increases  and  decreases,  except for those  deemed other than
     temporary, are included in accumulated other comprehensive income (loss).

     During 2004, we sold our investments in D & E Communications,  Inc. (D & E)
     and  Hungarian   Telephone  and  Cable  Corp.   (HTCC)  for   approximately
     $13,300,000 and $13,200,000 in cash, respectively. We recorded net realized
     gains of  $12,066,000  in our statement of operations for the sale of these
     marketable securities.

     The following  summarizes the adjusted cost, gross unrealized holding gains
     and losses and fair market value for marketable securities:

<TABLE>
<CAPTION>
($ in thousands)                        Adjusted             Unrealized Holding         Aggregate Fair
----------------                                      ---------------------------------
Investment Classification                  Cost            Gains          (Losses)       Market Value
-------------------------            ---------------- ---------------- ---------------- ----------------

As of December 31, 2005
-----------------------
<S>                                        <C>             <C>                <C>          <C>
Available-for-Sale                         $   -           $   122            $ -          $    122

As of December 31, 2004
-----------------------
Available-for-Sale                         $ 1,138         $ 1,198            $ -          $  2,336

</TABLE>
     At December 31, 2005 and 2004,  we did not have any  investments  that have
     been in a continuous  unrealized  loss position  deemed to be temporary for
     more than 12 months.  We  determined  that market  fluctuations  during the
     period are not other than  temporary  because the  severity and duration of
     the unrealized losses were not significant.

     Investments in Other Entities
     During 2004, we reclassified our investments accounted for under the equity
     method  from other  assets to the  investment  caption in our  consolidated
     balance sheets and conformed prior periods to the current presentation.

     Our  investments in entities that are accounted for under the equity method
     of accounting  consist of the  following:  (1) a 33% interest in the Mohave
     Cellular Limited  Partnership which is engaged in cellular mobile telephone
     service in the Arizona area; (2) a 16.8% interest in the Fairmount Cellular
     Limited  Partnership  which is engaged in cellular mobile telephone service
     in the Rural Service Area (RSA) designated by the FCC as Georgia RSA No. 3;
     and (3) our  investments  in CU Capital  and CU Trust with  relation to our
     convertible  preferred  securities.   The  investments  in  these  entities
     amounted to  $19,014,000  and  $20,726,000  at December  31, 2005 and 2004,
     respectively.

(10) Fair Value of Financial Instruments:
     ------------------------------------

     The following  table  summarizes  the carrying  amounts and estimated  fair
     values for certain of our  financial  instruments  at December 31, 2005 and
     2004. For the other  financial  instruments,  representing  cash,  accounts
     receivables, long-term debt due within one year, accounts payable and other
     accrued liabilities, the carrying amounts approximate fair value due to the
     relatively short maturities of those instruments.


                                      F-17
<PAGE>

     The fair value of our marketable securities and long-term debt is estimated
     based on quoted  market prices at the  reporting  date for those  financial
     instruments.  Other  securities and investments for which market values are
     not readily available are carried at cost.

<TABLE>
<CAPTION>

($ in thousands)                                  2005                                2004
----------------                   ----------------------------------- ---------------------------------
                                      Carrying                            Carrying
                                       Amount          Fair Value          Amount          Fair Value
                                   ---------------- ------------------ ---------------- ----------------
<S>                                    <C>                <C>              <C>              <C>
Investments                            $    19,136        $    19,136      $    23,062      $    23,062
Long-term debt (1)                     $ 3,999,376        $ 4,026,453      $ 4,266,998      $ 4,607,298

</TABLE>

     (1)  2005  and 2004  includes  interest  rate  swaps  of  $(8,727,000)  and
          $4,466,000, respectively. 2005 and 2004 includes EPPICS of $33,785,000
          and $63,765,000, respectively.

(11) Long-term Debt:
     ---------------

     The activity in our  long-term  debt from December 31, 2004 to December 31,
     2005 is summarized as follows:

<TABLE>
<CAPTION>
                                                           Twelve Months Ended
                                                  --------------------------------------
                                                                 Interest                               Interest Rate* at
                                    December 31,                   Rate                  December 31,      December 31,
($ in thousands)                        2004        Payments       Swap        Other         2005             2005
----------------

Rural Utilities Service Loan
<S>                                 <C>            <C>           <C>         <C>          <C>                 <C>
  Contracts                         $   29,108     $  (6,299)    $    -      $    -       $   22,809          6.070%

Senior Unsecured Debt                4,131,803           -        (13,193)      2,171      4,120,781          8.117%

EPPICS** (reclassified as a
  result of adopting FIN 46R)           63,765           -            -       (29,980)        33,785          5.000%

ELI Capital Leases                       4,421          (134)         -           -            4,287         10.364%
Industrial Development Revenue
  Bonds                                 58,140           -            -           -           58,140          5.559%
                                    ------------  ------------  -----------  ----------   -----------

TOTAL LONG TERM DEBT                $4,287,237     $  (6,433)    $(13,193)   $(27,809)    $4,239,802
                                    ------------  ============  ===========  ==========   -----------

  Less: Debt Discount                  (13,859)                                              (12,692)
  Less: Current Portion                 (6,380)                                             (227,734)
                                    ------------                                          -----------
                                    $4,266,998                                            $3,999,376
                                    ============                                          ===========
</TABLE>

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

**   In  accordance  with FIN 46R, the Trust  holding the EPPICS and the related
     Citizens Utilities Capital L.P. are now deconsolidated (see Note 15).


                                     F-18

<PAGE>

     Additional  information regarding our Senior Unsecured Debt at December 31,
     2005 is as follows:

                                          Principal       Interest
     ($ in thousands)                    Outstanding        Rate
     ----------------                  -----------------  ----------

     Senior Notes:
        Due 8/17/2006                       $    51,770      6.750%
        Due 8/15/2008                           698,470      7.625%
        Due 5/15/2011                         1,044,256      9.250%
        Due 10/24/2011                          200,000      6.270%
        Due 1/15/2013                           698,537      6.250%
        Due 8/15/2031                           748,006      9.000%
                                       ----------------
                                              3,441,039

     Debentures due 2006 - 2046                 643,742      7.263%
     Subsidiary Senior
        Notes due 12/1/2012                      36,000      8.050%

                                       ----------------
                  Total                     $ 4,120,781
                                       ================

     In February 2006, our Board of Directors  authorized us to repurchase up to
     $150.0  million  of our  outstanding  debt  securities  over the  following
     twelve-month  period.  These  repurchases  may require us to pay  premiums,
     which would result in pre-tax losses to be recorded in other income (loss),
     net.

     For the year ended  December 31, 2005, we retired an aggregate  $36,412,000
     of  debt  (including  $29,980,000  of  EPPICS  conversions),   representing
     approximately 1% of total debt outstanding at December 31, 2004. During the
     second quarter of 2005, we entered into two debt-for-debt  exchanges of our
     debt securities. As a result, $50,000,000 of our 7.625% Notes due 2008 were
     exchanged for  approximately  $52,171,000  of our 9.00% Notes due 2031. The
     9.00% Notes are callable on the same general  terms and  conditions  as the
     7.625%  Notes  exchanged.  No cash was  exchanged  in  these  transactions,
     however a non-cash pre-tax loss of approximately  $3,175,000 was recognized
     in accordance with EITF No. 96-19,  "Debtor's Accounting for a Modification
     or Exchange of Debt Instruments"  which is included in other income (loss),
     net.

     As of December 31, 2005,  EPPICS  representing a total principal  amount of
     $177,971,000 had been converted into 14,237,807 shares of our common stock.

     Total future minimum cash payment commitments under ELI's long-term capital
     leases including interest amounted to $9,113,000 as of December 31, 2005.

     The total outstanding  principal amounts of industrial  development revenue
     bonds were $58,140,000 at December 31, 2005 and 2004. The earliest maturity
     date for these bonds is in August 2015.  Under the terms of our  agreements
     to sell our former gas and  electric  operations  in Arizona,  completed in
     2003, we are  obligated to call for  redemption,  at their first  available
     call  dates,  three  Arizona  industrial  development  revenue  bond series
     aggregating to approximately $33,440,000. These bonds' first call dates are
     in 2007.  We expect to retire all called  bonds  with  cash.  In  addition,
     holders of $11,150,000 principal amount of industrial development bonds may
     tender such bonds to us at par and we have the simultaneous  option to call
     such bonds at par on August 7, 2007. We expect to call the bonds and retire
     them with cash.

     As of December  31, 2005 we had  available  lines of credit with  financial
     institutions in the aggregate  amount of $250,000,000  with a maturity date
     of  October  29,  2009.  Associated  facility  fees vary  depending  on our
     leverage ratio and were 0.375% as of December 31, 2005.  During the term of
     the credit facility we may borrow,  repay and re-borrow  funds.  The credit
     facility is available for general corporate purposes but may not be used to
     fund  dividend  payments.  There have never been any  borrowings  under the
     facility.

     For  the  year  ended   December   31,   2004,   we  retired  an  aggregate
     $1,362,012,000  of debt  (including  $147,991,000  of EPPICS  conversions),
     representing  approximately  28% of total debt  outstanding at December 31,
     2003.


                                      F-19
<PAGE>
     On January  15,  2004,  we repaid at  maturity  the  remaining  outstanding
     $80,955,000 of our 7.45% Debentures.

     On  January  15,  2004,  we  redeemed  at 101%  the  remaining  outstanding
     $12,300,000 of our Hawaii Special Purpose  Revenue Bonds,  Series 1993A and
     Series 1993B.

     On May 17, 2004, we repaid at maturity the remaining outstanding $5,975,000
     of ELI's 6.05% Notes. These Notes had been guaranteed by the Company.

     On July 15, 2004, we  renegotiated  and prepaid with $4,954,000 of cash the
     entire remaining $5,524,000 ELI capital lease obligation to a third party.

     On July 30, 2004, we purchased  $300,000,000 of the 6.75% notes that were a
     component of our equity units at 105.075% of par, plus accrued interest, at
     a premium of  approximately  $15,225,000  recorded in investment  and other
     income (loss), net.

     During  August  and  September  2004,  we  repurchased  through a series of
     transactions  an additional  $108,230,000  of the 6.75% notes due 2006 at a
     weighted  average  price of 104.486% of par,  plus accrued  interest,  at a
     premium of approximately $4,855,000 recorded in investment and other income
     (loss), net.

     On November 8, 2004, we issued an aggregate  $700,000,000  principal amount
     of  6.25%   senior   notes  due  January  15,  2013  through  a  registered
     underwritten  public  offering.  Proceeds from the sale were used to redeem
     our outstanding  $700,000,000  of 8.50% Notes due 2006,  which is discussed
     below.

     On November 12,  2004,  we called for  redemption  on December 13, 2004 the
     entire  $700,000,000  of our 8.50% Notes due 2006 at a price of 107.182% of
     the  principal  amount  called,  plus  accrued  interest,  at a premium  of
     approximately $50,300,000.

     As of December 31, 2004,  EPPICS  representing a total principal  amount of
     $147,991,000 had been converted into 11,622,749 shares of our common stock.

     During the twelve  months ended  December 31, 2003, we executed a series of
     purchases  in the open  market  of our  outstanding  debt  securities.  The
     aggregate principal amount of debt securities purchased was $94,895,000 and
     they  generated  a pre-tax  loss on the early  extinguishment  of debt at a
     premium of approximately  $3,117,000  recorded in other income (loss), net.

     Our principal payments and capital lease payments  (principal only) for the
     next five years are as follows:

        ($ in thousands)
        ----------------
                                    Principal         ELI Capital
                                    ---------        --------------
                                    Payments         Lease Payments
                                    ---------        --------------

            2006                     227,693               41
            2007                      37,771              110
            2008                     700,938              126
            2009                       1,006              145
            2010                       4,387              165


(12) Derivative Instruments and Hedging Activities:
     ----------------------------------------------

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


                                      F-20
<PAGE>

     The  interest  rate  swap  contracts  are  reflected  at fair  value in our
     consolidated  balance  sheets 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 interest  rate swap  contracts
     hedging  fixed-rate  indebtedness  as of December 31, 2005 and December 31,
     2004 were  $500,000,000  and  $300,000,000,  respectively.  Such  contracts
     require  us to pay  variable  rates  of  interest  (average  pay  rates  of
     approximately   8.60%  and  6.12%  as  of  December   31,  2005  and  2004,
     respectively) and receive fixed rates of interest (average receive rates of
     8.46% and 8.44% as of December 31, 2005 and 2004,  respectively).  The fair
     value of these  derivatives is reflected in other assets as of December 31,
     2005 and 2004, in the amount of $(8,727,000) and $4,466,000,  respectively.
     The related  underlying  debt has been  decreased in 2005 and  increased in
     2004 by a like amount.  The amounts received during the year ended December
     31, 2005 and 2004 as a result of these contracts amounted to $2,522,000 and
     $9,363,000,  respectively,  and are  included  as a  reduction  of interest
     expense.

     During  September  2005, we entered into a series of separate  forward rate
     agreements with our swap counter-parties that fixed the underlying variable
     rate  component  of some of our swaps at the market  rate as of the date of
     execution for certain future  rate-setting dates. At December 31, 2005, the
     rates obtained under these forward rate agreements were below market rates.
     The fair value of these derivatives is reflected in other current assets as
     of December 31, 2005, in the amount of  $1,129,000.  A gain for the changes
     in the  fair  value of these  forward  rate  agreements  of  $1,851,000  is
     included in other income (loss), net for the year ended December 31, 2005.

     As the result of our call of all of our 8.50%  Notes in November  2004,  we
     terminated  five  interest rate swaps  involving an aggregate  $250,000,000
     notional  amount of  indebtedness.  Proceeds from the swap  terminations of
     approximately   $3,026,000  and  U.S.  Treasury  rate  lock  agreements  of
     approximately  $971,000  were applied  against the cost to retire the debt,
     resulting in a net premium of approximately  $46,277,000  recorded in other
     income (loss), net.

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

(13) Management Succession and Strategic Alternatives Expenses:
     ----------------------------------------------------------

     On July 11, 2004,  our Board of Directors  announced  that it had completed
     its review of our financial and strategic alternatives, and on September 2,
     2004, we paid a special,  non-recurring  dividend of $2.00 per common share
     and a  quarterly  dividend  of $0.25 per common  share to  shareholders  of
     record on August 18, 2004.  Concurrently,  Leonard Tow decided to step down
     from his position as chief executive officer,  effective  immediately,  and
     resigned his position as Chairman of the Board on September  27, 2004.  The
     Board of  Directors  named  Mary  Agnes  Wilderotter  president  and  chief
     executive officer in November 2004.

     In  2004,  we  expensed  approximately  $90,632,000  of  costs  related  to
     management  succession  and our  exploration  of  financial  and  strategic
     alternatives.  Included  are  $36,618,000  of  non-cash  expenses  for  the
     acceleration of stock  benefits,  cash expenses of $19,229,000 for advisory
     fees,  $19,339,000 for severance and retention arrangements and $15,446,000
     primarily for tax reimbursements.



                                      F-21
<PAGE>

(14) Other Income (Loss), net:
     -------------------------

     The components of other income (loss), net for the years ended December 31,
     2005,   2004   and   2003  are  as   follows:

<TABLE>
<CAPTION>

($ in thousands)                                          2005               2004               2003
----------------                                     -----------------  -----------------  -----------------

<S>                                                     <C>                <C>               <C>
Legal contingencies                                     $ (7,000)          $     -           $     -
Gain on capital lease termination/restructuring              -                   -              69,512
Gain on expiration/settlement of customer advances           681              25,345             6,165
Loss on exchange of debt                                  (3,175)                -                 -
Premium on debt repurchases                                  -               (66,480)          (10,851)
Gain on forward rate agreements                            1,851                 -                 -
Gain (loss) on sale of assets                                -                (1,945)          (20,492)
Other, net                                                 5,969             (10,279)             (275)
                                                    -----------------  -----------------  -----------------
     Total other income (loss), net                     $ (1,674)          $ (53,359)        $  44,059
                                                    =================  =================  =================
</TABLE>


     In the fourth  quarter  of 2005,  we  recorded  $7,000,000  of expense  was
     recorded in connection with a legal matter. In connection with our exchange
     of debt  during  the second  quarter of 2005,  we  recognized  a  non-cash,
     pre-tax loss of approximately $3,175,000. 2005 also includes a gain for the
     changes in fair value of our forward rate agreements.

     During 2005, 2004 and 2003, we recognized income in connection with certain
     retained  liabilities  associated with customer  advances for  construction
     from  our  disposed  water  properties,  as  a  result  of  some  of  these
     liabilities  terminating.  During 2003, we  recognized  gains in connection
     with the termination/restructuring of capital leases at ELI. Gain (loss) on
     sale of assets in 2004 is primarily attributable to the loss on the sale of
     our  corporate  aircraft  during  the third  quarter.  In 2003,  the amount
     represents  the sales of The Gas  Company in Hawaii and our Arizona gas and
     electric  divisions,   access  lines  in  North  Dakota  and  our  wireless
     partnership interest in Wisconsin, and our Plano, Texas office building.

(15) Company Obligated Mandatorily Redeemable Convertible Preferred Securities:
     --------------------------------------------------------------------------

     In 1996, our consolidated wholly-owned subsidiary, Citizens Utilities Trust
     (the Trust),  issued, in an underwritten public offering,  4,025,000 shares
     of  5%  Company  Obligated  Mandatorily  Redeemable  Convertible  Preferred
     Securities due 2036 (EPPICS), representing preferred undivided interests in
     the assets of the Trust, with a liquidation  preference of $50 per security
     (for a total liquidation amount of $201,250,000).  These securities have an
     adjusted  conversion  price  of  $11.46  per  Citizens  common  share.  The
     conversion price was reduced from $13.30 to $11.46 during the third quarter
     of 2004 as a result of the $2.00 per share special, non-recurring dividend.
     The  proceeds  from  the  issuance  of  the  Trust  Convertible   Preferred
     Securities  and a  Company  capital  contribution  were  used  to  purchase
     $207,475,000  aggregate  liquidation  amount of 5% Partnership  Convertible
     Preferred  Securities  due  2036  from  another  wholly-owned   subsidiary,
     Citizens  Utilities Capital L.P. (the  Partnership).  The proceeds from the
     issuance of the Partnership  Convertible Preferred Securities and a Company
     capital  contribution were used to purchase from us $211,756,000  aggregate
     principal  amount of 5% Convertible  Subordinated  Debentures due 2036. The
     sole  assets  of  the  Trust  are  the  Partnership  Convertible  Preferred
     Securities,  and our Convertible  Subordinated Debentures are substantially
     all the assets of the  Partnership.  Our  obligations  under the agreements
     related to the issuances of such securities,  taken together,  constitute a
     full and unconditional  guarantee by us of the Trust's obligations relating
     to  the  Trust  Convertible  Preferred  Securities  and  the  Partnership's
     obligations relating to the Partnership  Convertible  Preferred Securities.
     In  accordance  with the  terms of the  issuances,  we paid the  annual  5%
     interest  in  quarterly   installments  on  the  Convertible   Subordinated
     Debentures in the four quarters of 2005,  2004 and 2003. Only cash was paid
     (net of investment  returns) to the  Partnership in payment of the interest
     on the Convertible Subordinated  Debentures.  The cash was then distributed
     by the Partnership to the Trust and then by the Trust to the holders of the
     EPPICS.

     As of December 31, 2005,  EPPICS  representing a total principal  amount of
     $177,971,000 had been converted into 14,237,807 shares of our common stock.


                                      F-22
<PAGE>

     We adopted the  provisions  of FIN 46R (revised  December  2003) (FIN 46R),
     "Consolidation of Variable Interest  Entities,"  effective January 1, 2004.
     Accordingly,  the  Trust  holding  the  EPPICS  and  the  related  Citizens
     Utilities Capital L.P. are deconsolidated.

(16) Capital Stock:
     --------------

     We are  authorized to issue up to 600,000,000  shares of common stock.  The
     amount and timing of dividends  payable on common stock are within the sole
     discretion of our Board of Directors.

(17) Stock Plans:
     ------------

     At December 31, 2005, we have four stock based  compensation  plans,  which
     are   described   below.   We  apply  APB   Opinion   No.  25  and  related
     interpretations in accounting for the employee stock plans resulting in the
     use of the intrinsic value to value the stock option. Compensation cost has
     not  generally  been  recognized in the  financial  statements  for options
     issued pursuant to the Management  Equity  Incentive Plan (MEIP),  the 1996
     Equity  Incentive  Plan (1996 EIP) or the Amended and Restated  2000 Equity
     Incentive Plan (2000 EIP), as the exercise price for such options was equal
     to the market price of the stock at the time of grant.

     In connection  with our Directors'  Deferred Fee Equity Plan,  compensation
     costs   associated  with  the  issuance  of  stock  units  was  $1,069,000,
     $2,222,000  and  $607,000  in  2005,  2004  and  2003,  respectively.  Cash
     compensation associated with this plan was $434,000,  $642,000 and $374,000
     in 2005, 2004 and 2003,  respectively.  These costs are recognized in other
     operating expenses.

     We have granted restricted stock awards to key employees in the form of our
     common stock. The number of shares issued as restricted stock awards during
     2005, 2004 and 2003 were 352,000, 2,172,000 and 312,000, respectively. None
     of the restricted stock awards may be sold, assigned,  pledged or otherwise
     transferred,  voluntarily  or  involuntarily,  by the  employees  until the
     restrictions  lapse. The restrictions are time based. At December 31, 2005,
     1,456,000  shares  of  restricted  stock  were  outstanding.   Compensation
     expense,  recognized in operating expense,  of $7,358,000,  $45,313,000 and
     $8,552,000,  for  the  years  ended  December  31,  2005,  2004  and  2003,
     respectively, has been recorded in connection with these grants.

                        Management Equity Incentive Plan
                        --------------------------------
     Under the MEIP,  awards of our  common  stock may be  granted  to  eligible
     officers,  management employees and non-management employees in the form of
     incentive stock options,  non-qualified  stock options,  stock appreciation
     rights  (SARs),   restricted  stock  or  other  stock-based   awards.   The
     Compensation Committee of the Board of Directors administers the MEIP.

     Since the expiration  date of the MEIP plan on June 21, 2000, no awards can
     be granted under the MEIP.  The exercise  price of stock options issued was
     equal to or greater  than the fair market  value of the  underlying  common
     stock on the date of grant.  Stock options are generally not exercisable on
     the date of grant but vest  over a period  of time.  Under the terms of the
     MEIP,  subsequent  stock  dividends  and stock  splits  have the  effect of
     increasing the option shares outstanding,  which correspondingly  decreases
     the average exercise price of outstanding options.

                             Equity Incentive Plans
                             ----------------------
     In May 1996,  our  shareholders  approved the 1996 EIP and in May 2001, our
     shareholders  approved  the 2000 EIP.  Under the EIP  plans,  awards of our
     common stock may be granted to eligible officers,  management employees and
     non-management   employees  in  the  form  of  incentive   stock   options,
     non-qualified  stock options,  SARs,  restricted stock or other stock-based
     awards. Directors may receive awards under the 2000 EIP (other than options
     for annual  retainer  fees).  SARs may be granted  under the 1996 EIP.  The
     Compensation Committee of the Board of Directors administers the EIP plans.

     The maximum number of shares of common stock,  which may be issued pursuant
     to awards at any time for both plans, is 25,358,000 shares,  which has been
     adjusted for  subsequent  stock  dividends.  No awards will be granted more
     than 10 years after the effective  dates (May 23, 1996 and May 18, 2000) of
     the EIP plans. The exercise price of stock options and SARs generally shall
     be equal to or greater than the fair market value of the underlying  common
     stock on the date of grant.  Stock options are generally not exercisable on
     the date of grant but vest over a period of time.


                                      F-23
<PAGE>

     Under the terms of the EIP  plans,  subsequent  stock  dividends  and stock
     splits have the effect of increasing the option shares  outstanding,  which
     correspondingly decrease the average exercise price of outstanding options.

     In connection  with the payment of the special,  non-recurring  dividend of
     $2.00 per common share on September 2, 2004,  the exercise price and number
     of all outstanding  options was adjusted such that each option had the same
     value to the holder  after the dividend as it had before the  dividend.  In
     accordance  with  FASB  Interpretation  No. 44 (FIN  44),  "Accounting  for
     Certain Transactions  Involving Stock Compensation" and EITF 00-23, "Issues
     Related to the Accounting for Stock  Compensation  under APB No. 25 and FIN
     44," there is no  accounting  consequence  for changes made to the exercise
     price and the number of shares of a fixed stock option or award as a direct
     result of the special, non-recurring dividend.

     The  following is a summary of share  activity  subject to option under the
     MEIP and EIP plans.

<TABLE>
<CAPTION>
                                                                                                   Weighted
                                                                                Shares             Average
                                                                              Subject to         Option Price
                                                                                Option            Per Share
     ------------------------------------------------------------------- --------------------- -----------------
<S>                                                                            <C>                  <C>
       Balance at January 1, 2003                                              19,132,000           $11.66
         Options granted                                                        2,017,000            12.14
         Options exercised                                                     (1,612,000)            7.97
         Options canceled, forfeited or lapsed                                 (1,572,000)           12.92
     ------------------------------------------------------------------- ---------------------
     Balance at December 31, 2003                                              17,965,000            11.94
         Options granted                                                              -                 -
         Options exercised                                                     (7,411,000)            9.69
         Options canceled, forfeited or lapsed                                   (355,000)           12.14
         Effect of special, non-recurring dividend                              2,212,000               -
     ------------------------------------------------------------------- ---------------------
     Balance at December 31, 2004                                              12,411,000            11.15
         Options granted                                                          183,000            11.58
         Options exercised                                                     (4,317,000)           10.52
         Options canceled, forfeited or lapsed                                   (292,000)           10.48
     ------------------------------------------------------------------- ---------------------
     Balance at December 31, 2005                                               7,985,000           $11.52
     =================================================================== =====================
</TABLE>

     The following table summarizes information about shares subject to options
     under the MEIP and EIP plans at December 31, 2005.
<TABLE>
<CAPTION>

                                  Options Outstanding                                          Options Exercisable
    ---------------------------------------------------------------------------------    ---------------------------------
                                                                  Weighted Average                            Weighted
         Number             Range of         Weighted Average         Remaining               Number          Average
       Outstanding       Exercise Prices      Exercise Price        Life in Years          Exercisable     Exercise Price
    ------------------ -------------------- -------------------- --------------------    ----------------- ---------------
<S>        <C>           <C>        <C>             <C>                 <C>                    <C>             <C>
           517,000       $ 6.45  -  6.67           $ 6.54               2.64                   517,000         $ 6.54
           300,000         7.33  -  7.98             7.37               1.92                   289,000           7.35
         1,228,000         8.19  -  8.19             8.19               6.38                   737,000           8.19
           173,000         8.80  -  9.68             9.02               1.55                   173,000           9.02
         1,399,000         10.44 - 10.44            10.44               7.41                   519,000          10.44
           815,000         10.64 - 11.15            11.13               4.78                   815,000          11.13
         1,430,000         11.79 - 11.79            11.79               5.38                 1,430,000          11.79
         2,123,000         11.90 - 18.46            16.14               4.95                 2,068,000          16.24
    ------------------                                                                   -----------------
         7,985,000       $  6.45 - 18.46           $11.52               5.32                 6,548,000         $11.92
    ==================                                                                   =================

</TABLE>
     The  number of  options  exercisable  at  December  31,  2004 and 2003 were
     9,235,000 and 11,690,000, respectively.

     The weighted  average fair value of options  granted during 2005 was $2.98.
     There were no option  grants made during 2004.  The  weighted  average fair
     value of options  granted  during 2003 was $6.04.  For  purposes of the pro
     forma calculation,  the fair value of each option grant is estimated on the
     date of  grant  using  the  Black  Scholes  option-pricing  model  with the
     following weighted average assumptions used for grants in 2005 and 2003:


                                      F-24
<PAGE>

                                      2005           2003
     --------------------------- --------------- --------------
     Dividend yield                     7.72%                -
      Expected volatility                 46%               44%
     Risk-free interest rate            4.16%             2.94%
     Expected life                    6 years           7 years
     --------------------------- --------------- --------------

                    Non-Employee Directors' Compensation Plan
                    -----------------------------------------
     Upon  commencement  of his or her service on the Board of  Directors,  each
     non-employee  director  receives a grant of 10,000 stock options,  which is
     awarded  under  our  2000  EIP.  The  price  of these  options,  which  are
     immediately  exercisable,  is set at the average of the high and low market
     prices of our common stock on the effective date of the director's  initial
     election to the board.

     Annually,  each non-employee  director also receives a grant of 3,500 stock
     units under our Formula Plan, which commenced in 1997 and continues through
     May 22, 2007. Prior to April 20, 2004, each non-employee  director received
     an award of 5,000 stock options.  The exercise price of the options granted
     under the  Formula  Plan was set at 100% of the average of the high and low
     market prices of our common stock on the third,  fourth,  fifth,  and sixth
     trading days of the year in which the options were granted. The options are
     exercisable six months after the grant date and remain  exercisable for ten
     years  after the grant  date.  In  addition,  on  September  1, 1996,  each
     non-employee  director received a grant, under the Formula Plan, of options
     to purchase 2,500 shares of common stock.  These options  granted under the
     Formula Plan became  exercisable six months after the grant date and remain
     exercisable for ten years after the grant date.

     Effective  April 2004,  the Formula  Plan was amended to replace the annual
     grant of stock options with an annual grant of 3,500 stock units. The stock
     units are awarded on the first  business day of each  calendar  year.  Each
     non-employee  director must elect,  by December 31 of the  preceding  year,
     whether the stock units  awarded under the Formula Plan will be redeemed in
     cash or stock upon the  director's  retirement or death,  whichever  occurs
     first.

     In  addition,  each  non-employee  director  is also  entitled  to annually
     receive a retainer, meeting fees, and, when applicable, fees for serving as
     a  committee  chair  or as Lead  Director,  which  are  awarded  under  the
     Non-Employee   Directors'   Deferred  Fee  Equity  Plan.  For  2005,   each
     non-employee  director had to elect,  by December 31 of the preceding year,
     to  receive  $30,000  cash or  5,000  stock  units as an  annual  retainer.
     Directors making a stock unit election must also elect to convert the units
     to either  common stock  (convertible  on a one-to-one  basis) or cash upon
     retirement  or death.  Prior to June 30,  2003,  a director  could elect to
     receive 20,000 stock options as an annual retainer in lieu of cash or stock
     units.  The exercise  price of the stock  options was set at the average of
     the high and low market  prices of our  common  stock on the date of grant.
     The options were  exercisable  six months after the date of grant and had a
     10-year term.

     As of any date,  the  maximum  number of shares of common  stock  which the
     Non-Employee  Directors'  Deferred  Fee Equity Plan is obligated to deliver
     shall not be more than one percent (1%) of the total outstanding  shares of
     our common stock as of June 30, 2003, subject to adjustment in the event of
     changes in our corporate  structure  affecting capital stock. There were 14
     directors  participating in the Directors' Plan during all or part of 2005.
     In 2005, the total options, plan units, and stock earned were 0, 64,000 and
     0, respectively.  In 2004, the total options,  plan units, and stock earned
     were 50,000,  57,226 and 0, respectively.  In 2003, the total options, plan
     units,  and stock  earned  were  83,125,  46,034  and 0,  respectively.  At
     December 31, 2005,  473,252 options were  exercisable at a weighted average
     exercise price of $9.80.

     For 2005, each non-employee director received fees of $2,000 for each Board
     of  Directors  and  committee  meeting  attended.  The chairs of the Audit,
     Compensation,  Nominating  and Corporate  Governance  and  Retirement  Plan
     Committees were paid an additional annual fee of $25,000,  $15,000,  $7,500
     and $5,000, respectively.  In addition, the Lead Director, who heads the ad
     hoc committee of non-employee directors,  received an additional annual fee
     of $17,000 (based on an annual fee that was changed from $20,000 to $15,000
     mid-year).  A director must elect, by December 31 of the preceding year, to
     receive  meeting and other fees in cash,  stock units,  or a combination of
     both.  All  fees  paid to the  non-employee  directors  in 2005  were  paid
     quarterly  (except for the retainer  which was paid at the beginning of the
     year. If the director  elects stock units,  the number of units credited to
     the  director's  account is determined as follows:  the total cash value of
     the fees  payable to the  director are divided by 85% of the average of the
     high and low market  prices of our common stock on the first trading day of
     the year the election is in effect.  Units are  credited to the  director's
     account quarterly.


                                      F-25
<PAGE>

     We account for the Directors'  Deferred Fee Equity Plan in accordance  with
     APB Opinion No. 25,  "Accounting for Stock Issued to Employees" and related
     interpretations.  Compensation  expense is  recorded if cash or stock units
     are elected. If stock units are elected,  the compensation expense is based
     on the market value of our common stock at the date of grant.  If the stock
     option election is chosen, compensation expense is not recorded because the
     options  are granted at the fair  market  value of our common  stock on the
     grant date.

     We had also maintained a Non-Employee  Directors' Retirement Plan providing
     for the payment of specified sums annually to our  non-employee  directors,
     or their designated  beneficiaries,  starting at the director's retirement,
     death or termination of directorship. In 1999, we terminated this Plan. The
     vested  benefit of each  non-employee  director,  as of May 31,  1999,  was
     credited to the director's account in the form of stock units. Such benefit
     will be payable to each director upon  retirement,  death or termination of
     directorship. Each participant had until July 15, 1999 to elect whether the
     value of the stock  units  awarded  would be payable  in our  common  stock
     (convertible  on a one-for-one  basis) or in cash. As of December 31, 2005,
     the  liability  for such payments was $634,000 all of which will be payable
     in stock (based on the July 15, 1999 stock price).

(18) Restructuring and Other Expenses:
     ---------------------------------

     2005 and 2004
     During 2005 and 2004,  we did not  recognize  any  restructuring  and other
     expenses. We continue to review our operations, personnel and facilities to
     achieve greater efficiency.

     2003
     Restructuring  and other expenses  primarily consist of expenses related to
     reductions  in  personnel  at our  telecommunications  operations  and  the
     write-off of software no longer useful.


                                      F-26
<PAGE>


 (19) Income Taxes:
      -------------

     The  following is a  reconciliation  of the  provision for income taxes for
     continuing  operations computed at federal statutory rates to the effective
     rates for the years ended December 31, 2005, 2004 and 2003:

<TABLE>
<CAPTION>

                                                                  2005         2004         2003
                                                               ------------ -----------  -----------
<S>                                                                 <C>         <C>          <C>
Consolidated tax provision at federal statutory rate                35.0 %      35.0 %       35.0 %
State income tax provisions, net of federal income tax
   benefit                                                           2.0 %       1.8 %        6.6 %
Tax reserve adjustment                                              (7.9)%     (19.3)%       (8.4)%
All other, net                                                       0.5 %      (4.0)%        1.1 %
                                                               ------------ -----------  -----------
                                                                    29.6 %      13.5 %       34.3 %
                                                               ============ ===========  ===========
</TABLE>

     The components of the net deferred income tax liability (asset) at December
     31 are as follows:

<TABLE>
<CAPTION>

($ in thousands)                                                  2005         2004
----------------                                               ------------ -----------

Deferred income tax liabilities:
--------------------------------
<S>                                                              <C>         <C>
   Property, plant and equipment basis differences               $ 567,411   $ 578,501
   Intangibles                                                     168,703     161,955
   Other, net                                                        7,752       9,004
                                                               ------------ -----------
                                                                   743,866     749,460
                                                               ------------ -----------

Deferred income tax assets:
---------------------------
   Minimum pension liability                                        76,368      62,435
   Tax operating loss carryforward                                 260,053     394,797
   Alternate minimum tax credit carryforward                        43,678      37,796
   Employee benefits                                                66,853      55,566
   Other, net                                                       21,279      23,095
                                                               ------------ -----------
                                                                   468,231     573,689
    Less: Valuation allowance                                      (38,131)    (43,503)
                                                               ------------ -----------
   Net deferred income tax asset                                   430,100     530,186
                                                               ------------ -----------
    Net deferred income tax liability                            $ 313,766   $ 219,274
                                                               ============ ===========


Deferred tax assets and liabilities are reflected in the following
------------------------------------------------------------------
   captions on the balance sheet:
   ------------------------------
    Deferred income taxes                                        $ 325,084   $ 232,766
    Other current assets                                           (11,318)    (13,492)
                                                               ------------ -----------
      Net deferred income tax liability                          $ 313,766   $ 219,274
                                                               ============ ===========
</TABLE>


     Our federal and state tax operating loss  carryforwards  as of December 31,
     2005 are estimated at $584,476,000 and  $1,409,983,000,  respectively.  Our
     federal loss  carryforward will begin to expire in the year 2021. A portion
     of  our  state  loss  carryforward  will  begin  to  expire  in  2006.  Our
     alternative  minimum  tax  credit as of  December  31,  2005 can be carried
     forward indefinitely to reduce future regular tax liability.


                                      F-27

<PAGE>

     The provision  (benefit) for federal and state income taxes, as well as the
     taxes charged or credited to  shareholders'  equity,  includes amounts both
     payable  currently and deferred for payment in future  periods as indicated
     below:
<TABLE>
<CAPTION>

($ in thousands)                                                  2005         2004         2003
----------------                                                ------------ -----------  -----------

Income taxes charged (credited) to the income statement for
   continuing operations:
   Current:
<S>                                                               <C>         <C>         <C>
      Federal                                                     $ 16,708    $ (9,951)   $ (12,632)
      State                                                        (33,004)     (3,643)       2,900
                                                               ------------ -----------  -----------
       Total current                                               (16,296)    (13,594)      (9,732)

   Deferred:
      Federal                                                       96,163      26,586       77,794
      Federal tax credits                                              (18)        (40)      (3,128)
      State                                                          4,491      (2,530)        (158)
                                                               ------------ -----------  -----------
       Total deferred                                              100,636      24,016       74,508
                                                               ------------ -----------  -----------
          Subtotal income taxes for continuing operations           84,340      10,422       64,776
Income taxes charged to the income statement for
   discontinued operations:
   Current:
      State                                                            -             3          -
                                                               ------------ -----------  -----------
       Total current                                                   -             3          -

   Deferred:
      Federal                                                       12,156       2,816        2,358
      State                                                          1,187         138           82
                                                               ------------ -----------  -----------
       Total deferred                                               13,343       2,954        2,440
                                                               ------------ -----------  -----------
          Subtotal income taxes for discontinued operations         13,343       2,957        2,440
Income tax benefit on dividends on convertible preferred
  securities:
   Current:
      Federal                                                          -           -         (3,344)
      State                                                            -           -           (508)
                                                               ------------ -----------  -----------
          Subtotal income taxes on dividends on convertible
            preferred securities                                       -           -         (3,852)
Income taxes charged  to the income statement for
   cumulative effect of change in accounting principle:
   Deferred:
      Federal                                                          -           -         35,414
      State                                                            -           -          6,177
                                                               ------------ -----------  -----------
          Subtotal income taxes for cumulative effect of
            change in accounting principle                             -           -         41,591
                                                               ------------ -----------  -----------
Total income taxes charged to the income statement (a)              97,683      13,379      104,955
   Income taxes charged (credited) to shareholders' equity:
   Deferred income taxes (benefits) on unrealized/realized
      gains or losses on securities classified as available-
        for-sale                                                      (411)    (10,982)       5,539
   Current benefit arising from stock options exercised and
        restrict                                                    (5,976)    (13,765)      (2,535)
   Deferred income taxes (benefits) arising from recognition of
      a minimum pension liability                                  (13,933)     (6,645)      13,373
                                                                ----------- -----------  -----------
      Income taxes charged (credited) to shareholders'
         equity (b)                                                (20,320)    (31,392)      16,377
                                                               ------------ -----------  -----------
Total income taxes: (a) plus (b)                                  $ 77,363    $(18,013)   $ 121,332
                                                               ============ ===========  ===========
</TABLE>




                                      F-28
<PAGE>


(20) Net Income Per Common Share:
     ----------------------------

     The  reconciliation  of the net income per common share calculation for the
     years ended December 31, 2005, 2004 and 2003 is as follows:
<TABLE>
<CAPTION>

($ in thousands, except per-share amounts)
------------------------------------------                              2005                2004                 2003
                                                                 ------------------  ------------------   ------------------
Net income used for basic and diluted
   earnings per common share:
Income from continuing operations before cumulative
<S>                                                                      <C>                  <C>                 <C>
   effect of change in accounting principle                              $ 200,168            $ 66,919            $ 117,703
Income from discontinued operations                                          2,207               5,231                4,380
                                                                 ------------------  ------------------   ------------------
Income before cumulative effect of change in accounting principle          202,375              72,150              122,083
Income from cumulative effect of change in accounting principle                -                   -                 65,769
                                                                 ------------------  ------------------   ------------------
Total basic net income available for common shareholders                 $ 202,375            $ 72,150            $ 187,852
                                                                 ==================  ==================   ==================

Effect of conversion of preferred securities                                 1,255                 -                  6,210
                                                                 ------------------  ------------------   ------------------
Total diluted net income available for common shareholders               $ 203,630            $ 72,150            $ 194,062
                                                                 ==================  ==================   ==================

Basic earnings per common share:
Weighted-average shares outstanding - basic                                337,065             303,989              282,434
                                                                 ------------------  ------------------   ------------------
Income from continuing operations before cumulative
   effect of change in accounting principle                              $    0.59            $   0.22            $    0.42
Income from discontinued operations                                           0.01                0.02                 0.02
                                                                 ------------------  ------------------   ------------------
Income before cumulative effect of change in accounting principle             0.60                0.24                 0.44
Income from cumulative effect of change in accounting principle                -                   -                   0.23
                                                                 ------------------  ------------------   ------------------
Net income per share available for common shareholders                   $    0.60            $   0.24            $    0.67
                                                                 ==================  ==================   ==================

Diluted earnings per common share:
Weighted-average shares outstanding                                        337,065             303,989              282,434
Effect of dilutive shares                                                    1,417               5,194                4,868
Effect of conversion of preferred securities                                 3,193                 -                 15,134
                                                                 ------------------  ------------------   ------------------
Weighted-average shares outstanding - diluted                              341,675             309,183              302,436
                                                                 ==================  ==================   ==================
Income from continuing operations before cumulative
   effect of change in accounting principle                              $    0.59            $   0.22            $    0.41
Income from discontinued operations                                           0.01                0.01                 0.01
                                                                 ------------------  ------------------   ------------------
Income before cumulative effect of change in accounting principle             0.60                0.23                 0.42
Income from cumulative effect of change in accounting principle                -                   -                   0.22
                                                                 ------------------  ------------------   ------------------
Net income per share available for common shareholders                   $    0.60            $   0.23            $    0.64
                                                                 ==================  ==================   ==================
</TABLE>


     Stock Options
     -------------
     For the years ended  December 31, 2005,  2004 and 2003 options of 1,930,000
     and  2,495,000  (at exercise  prices  ranging  from $13.09 to $18.46),  and
     10,190,000 (at exercise prices ranging from $9.18 to $21.47), respectively,
     issuable  under  employee   compensation   plans  were  excluded  from  the
     computation of diluted  earnings per share (EPS) for those periods  because
     the exercise  prices were  greater than the average  market price of common
     shares and, therefore, the effect would be antidilutive.

     In connection  with the payment of the special,  non-recurring  dividend of
     $2.00 per common share on September 2, 2004,  the exercise price and number
     of all outstanding  options was adjusted such that each option had the same
     value to the holder  after the dividend as it had before the  dividend.  In
     accordance  with  FASB  Interpretation  No. 44 (FIN  44),  "Accounting  for
     Certain Transactions  involving Stock Compensation" and EITF 00-23, "Issues
     Related to the Accounting for Stock  Compensation  under APB No. 25 and FIN
     44," there is no  accounting  consequence  for changes made to the exercise
     price and the number of shares of a fixed stock option or award as a direct
     result of the special,  non-recurring  dividend. In addition, for the years
     ended  December  31,  2005,  2004 and  2003,  restricted  stock  awards  of
     1,456,000,  1,686,000 and 1,249,000 shares, 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.


                                      F-29
<PAGE>

     Equity Units and EPPICS
     -----------------------
     On August 17, 2004 we issued 32,073,633  shares of common stock,  including
     3,591,000  treasury shares, to our equity unit holders in settlement of the
     equity purchase contract component of the equity units. With respect to the
     $460,000,000  Senior Note  component of the equity  units,  we  repurchased
     $300,000,000  principal  amount of these Notes in July 2004.  The remaining
     $160,000,000 of the Senior Notes were repriced and a portion was remarketed
     on August 12, 2004 as the 6.75% Notes due August 17, 2006.  During 2004, we
     repurchased  an  additional  $108,230,000  of the  6.75%  Notes  which,  in
     addition  to the  $300,000,000  purchased  in July,  resulted  in a pre-tax
     charge of approximately $20,080,000 during the third quarter of 2004.

     As a result of our July  dividend  announcement  with respect to our common
     shares,  our  5%  Company  Obligated  Mandatorily   Redeemable  Convertible
     Preferred  Securities due 2036 (EPPICS) began to convert into shares of our
     common  stock.  As of December  31, 2005,  approximately  88% of the EPPICS
     outstanding,  or about  $177,971,000  aggregate  principal amount of units,
     have converted to 14,237,807  shares of common stock,  including  1,116,000
     issued from treasury.

     At  December  31,  2005 and 2004,  we had  465,588  and  1,065,171  shares,
     respectively,  of potentially  dilutive EPPICS, which were convertible into
     common stock at a 4.36 to 1 ratio at an exercise price of $11.46 per share.
     As a result of the September  2004  special,  non-recurring  dividend,  the
     EPPICS  exercise  price for  conversion  into common stock was reduced from
     $13.30 to $11.46. These securities have been included in the diluted income
     per common  share  calculation  for the period  ended  December  31,  2005,
     however,  they  have not been  included  in the  diluted  income  per share
     calculation  for the period ended December 31, 2004 because their inclusion
     would have had an antidilutive effect.

     At December 31, 2003 we had 4,025,000 shares of potentially dilutive EPPICS
     that have been included in the diluted income per common share  calculation
     for the period ended December 31, 2003.

     Stock Units
     -----------
     At December 31, 2005,  2004 and 2003,  we had 206,630,  464,879 and 427,475
     stock  units,  respectively,  issuable  under our  Directors'  Deferred Fee
     Equity Plan and Non-Employee  Directors'  Retirement Plan. These securities
     have not been included in the diluted income per share calculation  because
     their inclusion would have had an antidilutive effect.

(21) Comprehensive Income (Loss):
     ----------------------------

     Comprehensive  income  consists  of net income  (loss) and other  gains and
     losses  affecting  shareholder's  investment and minimum pension  liability
     that, under GAAP, are excluded from net income (loss).



                                      F-30
<PAGE>

     Our other  comprehensive  income  (loss) for the years ended  December  31,
     2005, 2004 and 2003 is as follows:

<TABLE>
<CAPTION>

                                                                             2005
                                                        --------------------------------------------
                                                         Before-Tax     Tax Expense/    Net-of-Tax
($ in thousands)                                           Amount        (Benefit)        Amount
----------------                                        -------------- --------------- -------------

   Net unrealized holding losses on securities
<S>                                                          <C>               <C>           <C>
      arising during period                                 $  (1,055)      $    (395)    $    (660)
   Minimum pension liability                                  (36,416)        (13,933)      (22,483)
   Less: Reclassification adjustments for net gains
             on securities realized in net income                (537)             (7)         (530)
                                                        -------------- --------------- -------------
Other comprehensive loss                                    $ (38,008)      $ (14,335)    $ (23,673)
                                                        ============== =============== =============

                                                                             2004
                                                        --------------------------------------------
                                                         Before-Tax     Tax Expense/    Net-of-Tax
($ in thousands)                                           Amount        (Benefit)        Amount
----------------                                        -------------- --------------- -------------

   Net unrealized holding losses on securities
      arising during period                                 $  (1,901)      $    (742)    $  (1,159)
   Minimum pension liability                                  (17,372)         (6,645)      (10,727)
   Less: Reclassification adjustments for net gains
             on securities realized in net income             (26,247)        (10,240)      (16,007)
                                                        -------------- --------------- -------------
Other comprehensive loss                                    $ (45,520)      $ (17,627)    $ (27,893)
                                                        ============== =============== =============

                                                                             2003
                                                        --------------------------------------------
                                                         Before-Tax     Tax Expense/    Net-of-Tax
($ in thousands)                                           Amount        (Benefit)        Amount
----------------                                        -------------- --------------- -------------

   Net unrealized holding gains on securities
      arising during period                                 $  14,470       $   5,539     $   8,931
   Minimum pension liability                                   34,935          13,373        21,562
                                                        -------------- --------------- -------------
Other comprehensive income                                  $  49,405       $  18,912     $  30,493
                                                        ============== =============== =============

</TABLE>

(22) Segment Information:
     --------------------

     We operate in two segments, Frontier and ELI (a CLEC). The Frontier segment
     provides  both  regulated  and  unregulated   communications   services  to
     residential,   business  and  wholesale  customers  and  is  typically  the
     incumbent  provider in its service areas.  ELI provides  telecommunications
     services, principally to businesses. ELI frequently obtains the "last mile"
     access to customers through arrangements with the applicable ILEC.

     As permitted by SFAS No. 131, we have utilized the aggregation  criteria in
     combining our markets because all of our Frontier  properties share similar
     economic  characteristics,  in that  they  provide  the same  products  and
     services to similar  customers using comparable  technologies in all of the
     states that we operate in. The regulatory  structure is generally  similar.
     Differences  in the regulatory  regime of a particular  state do not impact
     the economic characteristics or operating results of a particular property.


                                      F-31
<PAGE>
<TABLE>
<CAPTION>

($ in thousands)                             For the year ended December 31, 2005
----------------                     --------------------------------------------------------
                                                                                Total
                                        Frontier            ELI               Segments
                                     ---------------- ----------------     ----------------
<S>                                      <C>                <C>                <C>
Revenue                                  $ 2,003,318        $ 159,161          $ 2,162,479
Depreciation and Amortization                516,982           24,977              541,959
Operating Income                             588,543           18,306              606,849
Capital Expenditures                         252,213           16,099              268,312
Assets                                     5,805,423          168,342            5,973,765

($ in thousands)                             For the year ended December 31, 2004
----------------                     ---------------------------------------------------------------------
                                                                                                Total
                                        Frontier            ELI               Electric         Segments
                                     ---------------- ----------------     ----------------  -------------
Revenue                                  $ 2,002,657        $ 156,030          $   9,735       $ 2,168,422
Depreciation and Amortization                546,747           24,061                -             570,808
Management Succession and
   Strategic Alternatives Expenses            87,279            3,353                -              90,632
Operating Income (Loss)                      468,889           10,350             (3,134)          476,105
Capital Expenditures                         263,193           11,644                -             274,837
Assets                                     6,077,424          173,369                -           6,250,793


($ in thousands)                             For the year ended December 31, 2003
----------------                     --------------------------------------------------------------------------------------
                                                                                                                 Total
                                        Frontier            ELI                  Gas           Electric        Segments
                                     ---------------- ----------------     ----------------  -------------   --------------
Revenue                                  $ 2,020,171        $ 165,389          $   137,686    $   100,928      $ 2,424,174
Depreciation and Amortization                569,651           23,510                  -              -            593,161
Reserve for Telecommunications
  Bankruptcies                                (5,524)           1,147                  -              -             (4,377)
Restructuring and Other Expenses               9,373              314                  -              -              9,687
Loss on Impairment                                 -                -                  -           15,300           15,300
Operating Income (Loss)                      530,368            9,710               14,013         (3,359)         550,732
Capital Expenditures                         243,445            9,496                9,877         13,984          276,802
Assets                                     6,399,953          184,559                  -           23,130        6,607,642


</TABLE>

     The following table presents supplemental financial data for ELI.


                       Summary Income Statement for ELI
-------------------------------------------------------------------------------

( $ in thousands)                            For the years ended December 31,
-----------------                          ------------------------------------
                                                 2005              2004
                                           ----------------- ------------------
Revenue                                           $ 159,161          $ 156,030
Operating expenses                                  115,878            121,619
Depreciation expense                                 24,977             24,061
Non-operating expense, net                              185                629
                                           ----------------- ------------------
Income before income taxes                        $  18,121          $   9,721
                                           ================= ==================




                                      F-32
<PAGE>

     The following  tables are  reconciliations  of certain  sector items to the
     total  consolidated  amount.
<TABLE>
<CAPTION>

Capital Expenditures                                       2005                 2004             2003
                                                      ----------------     ----------------  -------------
<S>                                                         <C>                  <C>            <C>
Total segment capital expenditures                        $   268,312          $   274,837      $ 276,802
General capital expenditures                                      147                  367            569
                                                      ----------------     ----------------  -------------
Consolidated reported capital expenditures                $   268,459          $   275,204      $ 277,371
                                                      ================     ================  =============

Assets                                                     2005                 2004
                                                      ----------------     ----------------
Total segment assets                                      $ 5,973,765          $ 6,250,793
General assets                                                438,344              393,504
Discontinued operations assets                                      -               24,122
                                                      ----------------     ----------------
Consolidated reported assets                              $ 6,412,109          $ 6,668,419
                                                      ================     ================

</TABLE>

(23) Quarterly Financial Data (Unaudited):
     -------------------------------------
<TABLE>
<CAPTION>

($ in thousands, except per share amounts)
------------------------------------------
2005                                                                  First quarter  Second quarter  Third quarter   Fourth quarter
----                                                                  -------------  --------------  -------------   --------------
<S>                                                                      <C>            <C>            <C>             <C>
Revenue                                                                  $ 537,223      $ 531,798      $ 537,346       $ 556,112
Operating income                                                           145,112        146,897        141,617         173,223
Net income                                                                  42,634         44,584         38,376          76,781
Net income available for common shareholders per basic share             $    0.13      $    0.13      $    0.11       $    0.23
Net income available for common shareholders per diluted share           $    0.12      $    0.13      $    0.11       $    0.23

2004
----
Revenue                                                                  $ 552,311      $ 537,796      $ 539,188       $ 539,127
Operating income                                                           137,598        126,014         70,087         142,406
Net income (loss)                                                           42,868         23,792        (11,290)         16,780
Net income (loss) available for common shareholders per basic share      $    0.15      $    0.08      $   (0.04)      $    0.05
Net income (loss) available for common shareholders per diluted shares   $    0.15      $    0.08      $   (0.04)      $    0.05

</TABLE>

     The quarterly net income (loss) per common share amounts are rounded to the
     nearest cent.  Annual net income (loss) per common share may vary depending
     on the effect of such rounding.

     2005 Transactions
     -----------------
     On  February 1, 2005,  we sold shares of  Prudential  Financial,  Inc.  for
     approximately  $1,112,000  in cash,  and we  recognized  a pre-tax  gain of
     approximately $493,000 that is included in other income (loss), net.

     On March 15, 2005, we completed the sale of our  conferencing  business for
     approximately  $43,565,000 million in cash. The pre-tax gain on the sale of
     CCUSA was $14,061,000. The after-tax gain was approximately $1,167,000.

     In June 2005,  the Company  sold for cash its  interests in certain key man
     life  insurance  policies on the lives of Leonard Tow, our former  Chairman
     and Chief  Executive  Officer,  and his wife, a former  director.  The cash
     surrender value of the policies purchased by Dr. Tow totaled  approximately
     $24,195,000,  and we  recognized a pre-tax gain of  approximately  $457,000
     that is included in other income (loss), net.

     During 2005, we sold shares of Global  Crossing  Limited for  approximately
     $1,084,000  in cash,  and we  recognized a pre-tax gain for the same amount
     that is included in other income (loss), net.

     2004 Transactions
     -----------------
     On  April  1,  2004,  we  completed  the  sale  of  our  Vermont   electric
     distribution  operations  for  approximately  $13,992,000  in cash,  net of
     selling expenses.


                                      F-33
<PAGE>

     During  the third  quarter  of 2004,  we sold our  corporate  aircraft  for
     approximately  $15,298,000  in  cash.  The  pre-tax  loss on the  sale  was
     $1,087,000.

     In October 2004, we sold cable assets in California,  Arizona, Indiana, and
     Wisconsin for  approximately  $2,263,000 in cash. The pre-tax gain on these
     sales was $40,000.

(24) Retirement Plans:
     -----------------

     We  sponsor a  noncontributory  defined  benefit  pension  plan  covering a
     significant number of our employees and other postretirement  benefit plans
     that provide medical,  dental,  life insurance  benefits and other benefits
     for  covered  retired   employees  and  their   beneficiaries  and  covered
     dependents.  The benefits  are based on years of service and final  average
     pay or career average pay.  Contributions are made in amounts sufficient to
     meet ERISA funding  requirements while considering tax deductibility.  Plan
     assets are invested in a diversified  portfolio of equity and  fixed-income
     securities and alternative investments.

     The  accounting  results for pension and  postretirement  benefit costs and
     obligations are dependent upon various actuarial assumptions applied in the
     determination  of such amounts.  These  actuarial  assumptions  include the
     following:  discount  rates,  expected  long-term  rate of  return  on plan
     assets, future compensation increases,  employee turnover,  healthcare cost
     trend  rates,  expected  retirement  age,  optional  form  of  benefit  and
     mortality.  We review  these  assumptions  for  changes  annually  with its
     outside  actuaries.  We consider our discount  rate and expected  long-term
     rate of return on plan assets to be our most critical assumptions.

     The discount rate is used to value,  on a present value basis,  our pension
     and  postretirement  benefit  obligation as of the balance sheet date.  The
     same rate is also used in the  interest  cost  component of the pension and
     postretirement  benefit cost  determination  for the  following  year.  The
     measurement  date used in the selection of our discount rate is the balance
     sheet date.  Our discount  rate  assumption  is  determined  annually  with
     assistance  from our  actuaries  based on the  duration  of our pension and
     postretirement benefit liabilities,  the pattern of expected future benefit
     payments and the  prevailing  rates  available on  long-term,  high quality
     corporate  bonds that  approximate the benefit  obligation.  In making this
     determination we consider,  among other things, the yields on the Citigroup
     Pension  Discount  Curve and Bloomberg  Finance.  This rate can change from
     year-to-year based on market conditions that impact corporate bond yields.

     The  expected  long-term  rate of return on plan  assets is  applied in the
     determination  of periodic  pension and  postretirement  benefit  cost as a
     reduction in the  computation  of the expense.  In developing  the expected
     long-term rate of return  assumption,  we considered  published  surveys of
     expected  market  returns,  10 and 20 year actual  returns of various major
     indices, and our own historical 5-year and 10-year investment returns.

     The expected  long-term  rate of return on plan assets is based on an asset
     allocation assumption of 30% to 45% in fixed income securities,  45% to 55%
     in equity  securities and 5% to 15% in alternative  investments.  We review
     our asset  allocation  at least  annually and make changes when  considered
     appropriate.  In 2005,  we did not change our  expected  long-term  rate of
     return from the 8.25% used in 2004.  Our pension  plan assets are valued at
     actual market value as of the measurement  date. The measurement  date used
     to  determine  pension and other  postretirement  benefit  measures for the
     pension plan and the postretirement benefit plan is December 31.

     Accounting  standards require that we record an additional  minimum pension
     liability when the plan's "accumulated benefit obligation" exceeds the fair
     market value of plan assets at the pension plan measurement (balance sheet)
     date.  In the  fourth  quarter of 2005,  mainly  due to a  decrease  in the
     year-end discount rate, we recorded an additional minimum pension liability
     in the amount of $36,416,000  with a corresponding  charge to shareholders'
     equity of $22,483,000,  net of taxes of $13,933,000.  In the fourth quarter
     of 2004,  mainly  due to a  decrease  in the  year-end  discount  rate,  we
     recorded  an  additional   minimum  pension  liability  in  the  amount  of
     $17,372,000  with  a  corresponding   charge  to  shareholders'  equity  of
     $10,727,000,  net of taxes of $6,645,000.  These adjustments did not impact
     our net income or cash flows for either  year.  If  discount  rates and the
     equity markets  performance  decline,  we would be required to increase our
     minimum pension  liabilities and record additional charges to shareholder's
     equity in the future.


                                      F-34
<PAGE>

     Actual results that differ from our  assumptions are added or subtracted to
     our balance of unrecognized actuarial gains and losses. For example, if the
     year-end   discount  rate  used  to  value  the  plan's  projected  benefit
     obligation  decreases from the prior  year-end,  then the plan's  actuarial
     loss will increase.  If the discount rate increases from the prior year-end
     then the plan's  actuarial  loss will decrease.  Similarly,  the difference
     generated from the plan's actual asset  performance as compared to expected
     performance  would be  included in the  balance of  unrecognized  gains and
     losses.

     The impact of the  balance of  accumulated  actuarial  gains and losses are
     recognized  in the  computation  of pension  cost only to the  extent  this
     balance  exceeds  10%  of  the  greater  of the  plan's  projected  benefit
     obligation or market value of plan assets. If this occurs,  that portion of
     gain or loss  that is in  excess  of 10% is  amortized  over the  estimated
     future service period of plan  participants as a component of pension cost.
     The level of  amortization is affected each year by the change in actuarial
     gains and losses  and could  potentially  be  eliminated  if the  gain/loss
     activity reduces the net accumulated gain/loss balance to a level below the
     10% threshold.


                                      F-35
<PAGE>
                                  Pension Plan
                                  ------------
     The  following  tables set forth the plan's  benefit  obligations  and fair
     values of plan  assets as of December  31,  2005 and 2004 and net  periodic
     benefit cost for the years ended December 31, 2005, 2004 and 2003.
<TABLE>
<CAPTION>

($ in thousands)                                                  2005          2004
----------------                                              ------------- --------------

Change in benefit obligation
----------------------------
<S>                                                              <C>            <C>
Benefit obligation at beginning of year                          $ 799,458      $ 761,683
Service cost                                                         6,117          5,748
Interest cost                                                       46,416         46,468
Actuarial loss                                                      48,750         44,350
Benefits paid                                                      (58,139)       (58,791)
                                                              ------------- --------------
Benefit obligation at end of year                                $ 842,602      $ 799,458
                                                              ============= ==============
Change in plan assets
---------------------
Fair value of plan assets at beginning of year                   $ 761,168      $ 719,622
Actual return on plan assets                                        59,196         80,337
Employer contribution                                                  -           20,000
Benefits paid                                                      (58,139)       (58,791)
                                                              ------------- --------------
Fair value of plan assets at end of year                         $ 762,225      $ 761,168
                                                              ============= ==============

(Accrued)/Prepaid benefit cost
------------------------------
Funded status                                                    $ (80,377)     $ (38,290)
Unrecognized prior service cost                                     (1,745)        (1,988)
Unrecognized net actuarial loss                                    223,525        183,481
                                                              ------------- --------------
Prepaid benefit cost                                             $ 141,403      $ 143,203
                                                              ============= ==============

Amounts recognized in the statement of financial position
---------------------------------------------------------
Accrued benefit liability                                        $ (58,250)     $ (20,034)
Other comprehensive income                                         199,653        163,237
                                                              ------------- --------------
Net amount recognized                                            $ 141,403      $ 143,203
                                                              ============= ==============

($ in thousands)                                                  2005          2004            2003
----------------                                              ------------- -------------- ---------------
Components of net periodic benefit cost
---------------------------------------
Service cost                                                     $   6,117      $   5,748       $   6,479
Interest cost on projected benefit obligation                       46,416         46,468          49,103
Return on plan assets                                              (60,371)       (57,203)        (53,999)
Amortization of prior service cost and unrecognized
       net obligation                                                 (244)          (244)           (172)
Amortization of unrecognized loss                                    9,882          8,806          11,026
                                                              ------------- -------------- ---------------
Net periodic benefit cost                                            1,800          3,575          12,437
Curtailment/settlement charge                                          -              -             6,585
                                                              ------------- -------------- ---------------
Total periodic benefit cost                                      $   1,800      $   3,575       $  19,022
                                                              ============= ============== ===============
</TABLE>
     The plan's weighted average asset allocations at December 31, 2005 and 2004
     by asset category are as follows:

                                          2005              2004
                                          ----              ----
Asset category:
---------------
    Equity securities                      50%               57%
    Debt securities                        34%               32%
    Alternative investments                13%                8%
    Cash and other                          3%                3%
                                         ------            ------
       Total                              100%              100%
                                         ======            ======


                                      F-36
<PAGE>

     The plan's expected benefit payments by year are as follows:

                    ($ in thousands)
                    ----------------
                        Year          Amount
                    -------------  --------------
                        2006           $  55,350
                        2007              57,171
                        2008              58,523
                        2009              61,394
                        2010              62,006
                    2011 - 2015          319,075
                                   --------------
                        Total          $ 613,519
                                   ==============

     Our required contribution to the plan in 2006 is $0.

     The  accumulated  benefit  obligation  for the  plan was  $820,475,000  and
     $781,202,000 at December 31, 2005 and 2004, respectively.

     Assumptions used in the computation of pension and postretirement  benefits
     other than pension costs/year-end benefit obligations were as follows:

                                                         2005            2004
                                                         ----            ----
Discount rate                                        6.00%/5.625%    6.25%/6.00%
Expected long-term rate of return on plan assets     8.25%/8.25%     8.25%/8.25%
Rate of increase in compensation levels              4.0%/4.0%       4.0%/4.0%


                                      F-37
<PAGE>

                   Postretirement Benefits Other Than Pensions
                   -------------------------------------------
     The following table sets forth the plan's benefit obligations,  fair values
     of plan assets and the postretirement  benefit liability  recognized on our
     balance   sheets  at  December   31,   2005  and  2004  and  net   periodic
     postretirement  benefit costs for the years ended  December 31, 2005,  2004
     and 2003:

     In 2005, we approved  changes to certain  retiree  medical plans.  The plan
     changes (reflected as amendments in the table below) and the related impact
     are included in the accumulated postretirement benefit obligation (APBO) as
     of December 31, 2005. The plan changes  resulted in a reduction in the APBO
     of  $59,798,000  which will be amortized as a reduction of retiree  medical
     expense over the average remaining service life.
<TABLE>
<CAPTION>

($ in thousands)                                                  2005          2004
----------------                                               ------------- --------------

Change in benefit obligation
----------------------------
<S>                                                              <C>            <C>
Benefit obligation at beginning of year                          $ 217,380      $ 223,337
Service cost                                                         1,046          1,128
Interest cost                                                       12,055         12,698
Plan participants' contributions                                     3,461          4,118
Actuarial (gain) loss                                                3,770         (1,706)
Amendments                                                         (59,798)        (3,045)
Benefits paid                                                      (16,992)       (19,150)
                                                              ------------- --------------
Benefit obligation at end of year                                $ 160,922      $ 217,380
                                                              ============= ==============
Change in plan assets
---------------------
Fair value of plan assets at beginning of year                   $  15,126      $  27,493
Actual return on plan assets                                           397            987
Benefits paid                                                      (13,530)       (15,032)
Employer contribution                                                9,431          1,678
                                                              ------------- --------------
Fair value of plan assets at end of year                         $  11,424      $  15,126
                                                              ============= ==============
Accrued benefit cost
--------------------
Funded status                                                    $(149,498)     $(202,254)
Unrecognized prior service cost                                    (61,161)        (2,617)
Unrecognized loss                                                   42,325         44,319
                                                              ------------- --------------
Accrued benefit cost                                             $(168,334)     $(160,552)
                                                              ============= ==============

($ in thousands)
----------------                                                    2005          2004            2003
                                                              ------------- -------------- ---------------
Components of net periodic postretirement benefit cost
------------------------------------------------------
Service cost                                                     $   1,046      $   1,128        $  1,387
Interest cost on projected benefit obligation                       12,055         12,698          13,606
Return on plan assets                                               (1,248)        (2,268)         (2,133)
Amortization of prior service cost and transition obligation        (1,255)          (204)             26
Amortization of unrecognized (gain)/loss                             6,615          5,238           3,985
                                                              ------------- -------------- ---------------
Net periodic postretirement benefit cost                         $  17,213      $  16,592        $ 16,871
                                                              ============= ============== ===============
</TABLE>
     The plan's weighted average asset allocations at December 31, 2005 and 2004
     by asset category are as follows:

                                              2005             2004
                                          ---------         --------
Asset category:
---------------
    Equity securities                           0%                0%
    Debt securities                           100%              100%
    Cash and other                              0%                0%
                                          ---------         --------
       Total                                  100%              100%
                                          =========         ========


                                      F-38
<PAGE>
     The plan's expected benefit payments by year are as follows:

($ in thousands)
----------------
                     Gross        Medicare D
     Year          Benefits        Subsidy          Total
---------------  --------------  -------------  --------------
     2006            $   9,847        $   676       $   9,171
     2007               10,375            712           9,663
     2008               10,843            742          10,101
     2009               11,282            770          10,512
     2010               11,656            793          10,863
 2011 - 2015            60,619          4,049          56,570
                 --------------  -------------  --------------
    Total            $ 114,622        $ 7,742       $ 106,880
                 ==============  =============  ==============

     Our expected contribution to the plan in 2006 is $9,847,000.

     For purposes of measuring year-end benefit obligations,  we used, depending
     on medical plan coverage for different  retiree groups,  a 9.5% annual rate
     of increase in the per-capita cost of covered medical  benefits,  gradually
     decreasing to 5% in the year 2015 and  remaining at that level  thereafter.
     The effect of a 1%  increase in the  assumed  medical  cost trend rates for
     each  future  year  on the  aggregate  of the  service  and  interest  cost
     components of the total postretirement benefit cost would be $1,306,000 and
     the effect on the accumulated  postretirement benefit obligation for health
     benefits would be  $13,397,000.  The effect of a 1% decrease in the assumed
     medical  cost trend  rates for each  future  year on the  aggregate  of the
     service and interest cost  components of the total  postretirement  benefit
     cost would be $(1,068,000) and the effect on the accumulated postretirement
     benefit obligation for health benefits would be $(11,480,000).

     In  December  2003,  the  Medicare   Prescription   Drug   Improvement  and
     Modernization  Act of 2003 (the  Act)  became  law.  The Act  introduces  a
     prescription drug benefit under Medicare.  It includes a federal subsidy to
     sponsors of retiree  health care benefit  plans that provide a benefit that
     is at least  actuarially  equivalent  to the Medicare  Part D benefit.  The
     amount  of the  federal  subsidy  will  be  based  on 28% of an  individual
     beneficiary's annual eligible  prescription drug costs ranging between $250
     and $5,000.  We have determined that the  Company-sponsored  postretirement
     healthcare  plans that provide  prescription  drug benefits are actuarially
     equivalent to the Medicare  Prescription  Drug  benefit.  The impact of the
     federal subsidy has been  incorporated in the December 31, 2005 measurement
     date.
                              401(k) Savings Plans
                              --------------------
     We sponsor an employee  retirement savings plan under section 401(k) of the
     Internal  Revenue  Code.  The  Plan  covers   substantially  all  full-time
     employees.  Under the Plan, we provide matching and certain  profit-sharing
     contributions.  Employer  contributions  were  $7,181,000,  $8,403,000  and
     $9,724,000 for 2005, 2004 and 2003, respectively.

(25) Commitments and Contingencies:
     ------------------------------

     The City of Bangor,  Maine,  filed suit against us on November 22, 2002, in
     the U.S.  District  Court  for the  District  of Maine  (City of  Bangor v.
     Citizens  Communications  Company,  Civ. Action No.  02-183-B-S).  The City
     alleged,  among  other  things,  that we are  responsible  for the costs of
     cleaning up environmental  contamination  alleged to have resulted from the
     operation  of a  manufactured  gas plant owned by Bangor Gas  Company  from
     1852-1948 and by us from  1948-1963.  In acquiring the operation in 1948 we
     acquired  the stock of Bangor Gas Company  and merged it into the  Company.
     The City alleged the existence of extensive  contamination of the Penobscot
     River and  asserted  that money  damages  and other  relief at issue in the
     lawsuit could exceed  $50,000,000.  The City also  requested  that punitive
     damages be assessed against us. We filed an answer denying liability to the
     City, and asserted a number of counterclaims against the City. In addition,
     we identified a number of other potentially responsible parties that may be
     liable for the  damages  alleged by the City and joined  them as parties to
     the  lawsuit.  These  additional  parties  include  Honeywell  Corporation,
     Guilford  Transportation   (operating  as  Maine  Central  Railroad),   UGI
     Utilities,  Inc. and Centerpoint  Energy Resources  Corporation.  The Court
     dismissed all but two of the City's claims,  including its claims for joint
     and  several  liability  under the  Comprehensive  Environmental  Response,
     Compensation,  and  Liability  Act  (CERCLA)  and the claim  against us for
     punitive damages. Trial was conducted in September and October 2005 for the
     first  (liability)  phase of the  case,  and a  decision  from the court is
     anticipated  by the end of the first quarter of 2006. We intend to continue
     to defend ourselves vigorously against the City's lawsuit. We have demanded
     that various of our insurance carriers defend and indemnify us with respect
     to the City's  lawsuit,  and on December 26, 2002,  we filed a  declaratory
     judgment action against those  insurance  carriers in the Superior Court of
     Penobscot County,  Maine, for the purpose of establishing their obligations
     to us with respect to the City's  lawsuit.  We intend to vigorously  pursue
     this lawsuit to obtain from our insurance carriers  indemnification for any
     damages that may be assessed against us in the City's lawsuit as well as to
     recover the costs of our defense of that lawsuit.

                                      F-39
<PAGE>

     On June 7, 2004,  representatives  of Robert A. Katz Technology  Licensing,
     LP, contacted us regarding possible infringement of several patents held by
     that firm. The patents cover a wide range of operations in which  telephony
     is supported by computers,  including obtaining  information from databases
     via  telephone,   interactive  telephone  transactions,  and  customer  and
     technical support applications.  We were cooperating with the patent holder
     to  determine  if we are  currently  using  any of the  processes  that are
     protected  by its patents but have not had any  communication  with them on
     this issue since mid-2004. If we determine that we are utilizing the patent
     holder's  intellectual  property,  we expect to commence  negotiations on a
     license agreement.

     On June 24, 2004, one of our subsidiaries,  Frontier Subsidiary Telco Inc.,
     received a "Notice of Indemnity Claim" from Citibank, N.A., that is related
     to a complaint  pending against Citibank and others in the U.S.  Bankruptcy
     Court for the Southern  District of New York as part of the Global Crossing
     bankruptcy  proceeding.  Citibank  bases  its claim  for  indemnity  on the
     provisions  of a credit  agreement  that was entered  into in October  2000
     between  Citibank  and our  subsidiary.  We purchased  Frontier  Subsidiary
     Telco,  Inc.,  in June  2001 as part  of our  acquisition  of the  Frontier
     telephone  companies.  The complaint against  Citibank,  for which it seeks
     indemnification,  alleges that the seller  improperly used a portion of the
     proceeds  from the  Frontier  transaction  to pay off the  Citibank  credit
     agreement, thereby defrauding certain debt holders of Global Crossing North
     America Inc.  Although the credit  agreement was paid off at the closing of
     the Frontier  transaction,  Citibank claims the indemnification  obligation
     survives.  Damages  sought  against  Citibank and its  co-defendants  could
     exceed $1,000,000,000.  In August 2004, we notified Citibank by letter that
     we believe its claims for indemnification are invalid and are not supported
     by applicable law. We have received no further communications from Citibank
     since our August 2004 letter.

     We are party to other legal 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.

     For 2006, we expect our capital  expenditures to increase in order to build
     wireless data networks and expand the  capabilities  of our data  networks.
     Although we from time to time make  short-term  purchasing  commitments  to
     vendors with respect to these expenditures,  we generally do not enter into
     firm, written contracts for such activities.



                                      F-40
<PAGE>

     We conduct  certain of our  operations  in leased  premises  and also lease
     certain equipment and other assets pursuant to operating leases.  The lease
     arrangements have terms ranging from 1 to 99 years and several contain rent
     escalation  clauses  providing  for  increases  in monthly rent at specific
     intervals.  When rent  escalation  clauses exist,  we record total expected
     rent payments on a straight-line  basis over the lease term. Certain leases
     also have renewal options.  Renewal options that are reasonably assured are
     included in determining the lease term.  Future minimum rental  commitments
     for all long-term noncancelable operating leases and future minimum capital
     lease  payments for  continuing  operations  as of December 31, 2005 are as
     follows:
<TABLE>
<CAPTION>

       ($ in thousands)
       ----------------                                                                    ELI
                                                                                         Capital          Operating
                                                                                          Leases            Leases
                                                                                       ----------        ----------
       Year ending December 31:
<S>         <C>                                                                          <C>               <C>
            2006                                                                        $   179            $ 19,062
            2007                                                                            549              12,605
            2008                                                                            555              11,840
            2009                                                                            561              10,416
            2010                                                                            566               8,891
            Thereafter                                                                    6,703              29,274
                                                                                       ---------         -----------

               Total minimum lease payments                                               9,113            $ 92,088
                                                                                                         ===========

       Less amount representing interest (rates range from 9.75% to 10.65%)             (4,826)
                                                                                       ---------


                     Present value of net minimum capital lease payments                 4,287

       Less current installments of obligations under capital leases                       (41)
                                                                                       --------
                      Obligations under capital leases, excluding
                         current installments                                           $4,246
                                                                                       ========
</TABLE>

     Total rental  expense  included in our results of operations  for the years
     ended December 31, 2005,  2004 and 2003 was  $24,146,000,  $26,349,000  and
     $33,801,000,  respectively.  Until March 1, 2005, we sublet  certain office
     space in our  corporate  office to a  charitable  foundation  formed by our
     former Chairman.

     We are a party to contracts with several unrelated long distance  carriers.
     The  contracts  provide  fees based on traffic they carry for us subject to
     minimum monthly fees.

     At December 31, 2005, the estimated  future payments for obligations  under
     our  noncancelable  long distance  contracts and service  agreements are as
     follows:

           ($ in thousands)
           ----------------

                 Year           ILEC / ELI
           ----------------   ---------------
                 2006               $ 30,619
                 2007                 18,337
                 2008                 11,017
                 2009                 10,244
                 2010                  1,052
              thereafter               5,115
                             ---------------
                Total               $ 76,384
                             ===============



                                      F-41
<PAGE>

     We sold all of our utility businesses as of April 1, 2004. However, we have
     retained  a  potential  payment  obligation  associated  with our  previous
     electric  utility  activities  in the state of Vermont.  The Vermont  Joint
     Owners (VJO), a consortium of 14 Vermont  utilities,  including us, entered
     into a purchase power  agreement with  Hydro-Quebec  in 1987. The agreement
     contains "step-up" provisions that state that if any VJO member defaults on
     its  purchase   obligation  under  the  contract  to  purchase  power  from
     Hydro-Quebec the other VJO participants will assume  responsibility for the
     defaulting  party's share on a pro-rata  basis.  Our pro-rata  share of the
     purchase power  obligation is 10%. If any member of the VJO defaults on its
     obligations under the Hydro-Quebec agreement, then the remaining members of
     the VJO,  including us, may be required to pay for a  substantially  larger
     share of the VJO's total power purchase obligation for the remainder of the
     agreement  (which runs through 2015).  Paragraph 13 of FIN 45 requires that
     we disclose "the maximum potential amount of future payments (undiscounted)
     the guarantor could be required to make under the guarantee."  Paragraph 13
     also states that we must make such  disclosure  "... even if the likelihood
     of the  guarantor's  having to make any  payments  under the  guarantee  is
     remote..."  As noted  above,  our  obligation  only  arises  as a result of
     default by another  VJO  member,  such as upon  bankruptcy.  Therefore,  to
     satisfy the  "maximum  potential  amount"  disclosure  requirement  we must
     assume  that  all  members  of the VJO  simultaneously  default,  a  highly
     unlikely  scenario  given  that the two  members  of the VJO that  have the
     largest  potential  payment  obligations  are  publicly  traded with credit
     ratings  equal to or  superior  to  ours,  and  that  all VJO  members  are
     regulated  utility  providers with  regulated  cost  recovery.  Regardless,
     despite the remote chance that such an event could occur, or that the State
     of  Vermont  could or would  allow  such an  event,  assuming  that all the
     members of the VJO defaulted on January 1, 2007 and remained in default for
     the  duration  of the  contract  (another 9 years),  we  estimate  that our
     undiscounted   purchase   obligation   for  2007   through  2015  would  be
     approximately $1,264,000,000. In such a scenario the Company would then own
     the power and could seek to recover its costs.  We would do this by seeking
     to recover our costs from the defaulting members and/or reselling the power
     to other utility  providers or the northeast power grid. There is an active
     market for the sale of power.  We could  potentially  lose money if we were
     unable to sell the power at cost.  We caution  that we cannot  predict with
     any degree of certainty any potential outcome.

     At December 31, 2005, we have outstanding  performance letters of credit as
     follows:

                          ($ in thousands)
                          ----------------

                          CNA                                     $19,404
                          State of New York                         2,993
                          ELI projects                                 50
                                                              -----------
                             Total                                $22,447
                                                              ===========

     CNA serves as our agent with  respect to general  liability  claims  (auto,
     workers  compensation  and other  insured  perils of the  Company).  As our
     agent,  they  administer  all  claims and make  payments  for claims on our
     behalf.  We reimburse  CNA for such  services  upon  presentation  of their
     invoice.  To serve  as our  agent  and make  payments  on our  behalf,  CNA
     requires  that we  establish a letter of credit in their  favor.  CNA could
     potentially  draw  against  this letter of credit if we failed to reimburse
     CNA in accordance with the terms of our agreement.  The value of the letter
     of credit is reviewed annually and adjusted based on claims history.

     None of the above letters of credit restrict our cash balances.

(26) Subsequent Event:
     ----------------

     In February 2006, we entered into a definitive agreement to sell all of the
     outstanding  membership  interests  in ELI, our CLEC  business,  to Integra
     Telecom Holdings, Inc. (Integra), for $247,000,000,  including $243,000,000
     in cash plus the  assumption of  approximately  $4,000,000 in capital lease
     obligations,  subject  to  customary  adjustments  under  the  terms of the
     agreement.  This  transaction is expected to close during the third quarter
     of 2006 and is subject to  regulatory  and other  customary  approvals  and
     conditions,  as well as the funding of Integra's fully committed financing.
     We expect that for periods  subsequent  to December 31,  2005,  ELI will be
     accounted for as a discontinued operation.




                                      F-42

<PAGE>



                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------


     The Board of Directors and Shareholders
     Citizens Communications Company:

     Under date of March 1, 2006,  we reported  separately  on the  consolidated
     balance sheets of Citizens  Communications  Company and  subsidiaries as of
     December  31, 2005 and 2004,  and the related  consolidated  statements  of
     operations,  shareholders'  equity,  comprehensive  income  (loss) and cash
     flows for each of the years in the  three-year  period  ended  December 31,
     2005.  In  connection  with our audits of the  aforementioned  consolidated
     financial statements,  we have also audited the related financial statement
     schedule.  The financial  statement  schedule is the  responsibility of the
     Company's  management.  Our  responsibility is to express an opinion on the
     financial  statement  schedule  based on our audits.  In our opinion,  such
     financial  statement  schedule,  when  considered  in relation to the basic
     consolidated financial statements taken as a whole, presents fairly, in all
     material respects, the information set forth therein.

     Our report refers to the adoption of Statement of Financial Accounting
     Standards No. 143, "Accounting for Asset Retirement Obligations" as of
     January 1, 2003.





                                                    /s/ KPMG LLP



     Stamford, Connecticut
     March 1, 2006



                                      F-43
<PAGE>


                                                                    Schedule II


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                        Valuation and Qualifying Accounts
                                ($ In thousands)


<TABLE>
<CAPTION>
                                                           Additions
                                                --------------------------------
                                   Balance at     Charges to     Charged to other               Balance at
                                  beginning of     costs and       accounts -                     End of
Accounts                             period        expenses          Revenue        Deductions    Period
------------------------------  -------------------------------------------------------------------------

Allowance for doubtful accounts
<S>      <C>                          <C>           <C>              <C>             <C>           <C>
         2003                         38,871        21,540           32,240          (45,342)      47,309
         2004                         47,309        17,906           13,446          (42,665)      35,996
         2005                         35,996        13,510           10,791          (27,889)      32,408

</TABLE>






                                      F-44