CITIZENS COMMUNICATIONS COMPANY


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003








<PAGE>



                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended June 30, 2003
                                                 -------------
                                       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)

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

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


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

                                Yes  X   No
                                    ---     ---

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.)

                                Yes  X   No
                                    ---     ---

The number of shares outstanding of the registrant's Common Stock as of July 31,
2003 was 284,318,606.

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                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES

                                      Index

                                                                                                     Page No.
                                                                                                     --------

   Part I.  Financial Information (Unaudited)

   Financial Statements

<S>                                                                                                      <C>
       Consolidated Balance Sheets at June 30, 2003 and December 31, 2002                                  2

       Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002             3

       Consolidated Statements of Operations for the six months ended June 30, 2003 and 2002               4

       Consolidated Statements of Shareholders' Equity for the year ended December 31, 2002 and
           the six months ended June 30, 2003                                                              5

       Consolidated Statements of Comprehensive Income for the three and six months ended June 30,
           2003 and 2002                                                                                   5

       Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002               6

       Notes to Consolidated Financial Statements                                                          7

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

    Quantitative and Qualitative Disclosures About Market Risk                                            32

    Controls and Procedures                                                                               34

   Part II.  Other Information

    Legal Proceedings                                                                                     35

    Submission of Matters to a Vote of Security Holders                                                   36

    Other Information                                                                                     36

    Exhibits and Reports on Form 8-K                                                                      36

    Signature                                                                                             38

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                                       1
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                          PART I. FINANCIAL INFORMATION

   Item 1.Financial Statements
          --------------------

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

                                                                            June 30, 2003     December 31, 2002
                                                                          ------------------- ------------------
ASSETS
------
Current assets:
<S>                                                                              <C>                <C>
    Cash and cash equivalents                                                    $   385,038        $   393,177
    Accounts receivable, less allowances of $40,052 and $38,946, respectively        279,472            310,929
    Other current assets                                                              38,390             49,114
    Assets held for sale                                                             471,331            447,764
                                                                          ------------------- ------------------
      Total current assets                                                         1,174,231          1,200,984

Property, plant and equipment, net                                                 3,620,734          3,690,056
Goodwill, net                                                                      1,858,558          1,869,348
Other intangibles, net                                                               875,904            942,970
Investments                                                                           37,619             29,846
Other assets                                                                         395,226            413,538
                                                                          ------------------- ------------------
          Total assets                                                           $ 7,962,272        $ 8,146,742
                                                                          =================== ==================

LIABILITIES AND EQUITY
----------------------
Current liabilities:
    Long-term debt due within one year                                           $   105,776        $    58,911
    Accounts payable and other current liabilities                                   503,489            565,986
    Liabilities related to assets held for sale                                      113,186            145,969
                                                                          ------------------- ------------------
      Total current liabilities                                                      722,451            770,866

Deferred income taxes                                                                244,682            137,116
Customer advances for construction and contributions in aid of construction          133,811            146,661
Other liabilities                                                                    287,735            301,349
Equity units                                                                         460,000            460,000
Long-term debt                                                                     4,556,392          4,957,361
Company Obligated Manditorily Redeemable Convertible Preferred Securities*           201,250            201,250

Shareholders' equity:
    Common stock, $0.25 par value (600,000,000 authorized shares; 284,273,000
      and 282,482,000 outstanding and 295,312,000 and 294,080,000 issued at
      June 30, 2003 and December 31, 2002, respectively)                              73,828             73,520
    Additional paid-in capital                                                     1,951,460          1,943,406
    Accumulated deficit                                                             (391,545)          (553,033)
    Accumulated other comprehensive loss                                             (97,371)          (102,169)
    Treasury stock                                                                  (180,421)          (189,585)
                                                                          ------------------- ------------------
      Total shareholders' equity                                                   1,355,951          1,172,139
                                                                          ------------------- ------------------
          Total liabilities and equity                                           $ 7,962,272        $ 8,146,742
                                                                          =================== ==================

</TABLE>

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



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


                                       2
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                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)
                                                                                            2003             2002
                                                                                       --------------   --------------
<S>                                                                                        <C>              <C>
Revenue                                                                                    $ 643,954        $ 662,439

Operating expenses:
     Cost of services                                                                        113,537          113,786
     Other operating expenses                                                                232,493          251,426
     Depreciation and amortization                                                           150,359          186,378
     Reserve for telecommunications bankruptcies                                               2,260           10,001
     Restructuring and other expenses                                                         10,113           18,280
                                                                                       --------------   --------------
Total operating expenses                                                                     508,762          579,871
                                                                                       --------------   --------------

Operating income                                                                             135,192           82,568

Investment and other income (loss), net                                                       24,566          (29,188)
Gain on sales of assets                                                                        6,671                -
Interest expense                                                                             106,436          119,947
                                                                                       --------------   --------------
     Income (loss) before income taxes                                                        59,993          (66,567)

Income tax expense (benefit)                                                                  24,384          (26,560)
                                                                                       --------------   --------------
     Income (loss) before dividends on convertible preferred securities                       35,609          (40,007)

Dividends on convertible preferred securities, net of income tax benefit of $(963)             1,552            1,552
                                                                                       --------------   --------------

     Net income (loss) attributable to common shareholders                                 $  34,057        $ (41,559)
                                                                                       ==============   ==============

Basic and diluted income (loss) per common share                                           $    0.12        $   (0.15)


</TABLE>

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


                                       3
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<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                   ($ in thousands, except per-share amounts)
                                   (Unaudited)

                                                                                              2003             2002
                                                                                         --------------   --------------
<S>                                                                                        <C>              <C>
Revenue                                                                                    $ 1,295,816      $ 1,341,773

Operating expenses:
     Cost of services                                                                          226,756          242,024
     Other operating expenses                                                                  468,314          512,280
     Depreciation and amortization                                                             288,907          364,552
     Reserve for telecommunications bankruptcies                                                 2,260           17,805
     Restructuring and other expenses                                                           10,092           22,185
                                                                                         --------------   --------------
Total operating expenses                                                                       996,329        1,158,846
                                                                                         --------------   --------------

Operating income                                                                               299,487          182,927

Investment and other income (loss), net                                                         74,388          (78,139)
Gain on sales of assets, net                                                                     5,021                -
Interest expense                                                                               215,712          241,554
                                                                                         --------------   --------------
     Income (loss) from continuing operations before income taxes, dividends on
      convertible preferred securities and cumulative effect of change
           in accounting principle                                                             163,184         (136,766)
Income tax expense (benefit)                                                                    64,360          (53,502)
                                                                                         --------------   --------------

     Income (loss) from continuing operations before dividends on convertible
        preferred securities and cumulative effect of change in accounting principle            98,824          (83,264)

Dividends on convertible preferred securities, net of income tax benefit of $(1,926)             3,105            3,105
                                                                                         --------------   --------------

     Income from continuing operations before cumulative effect of
        change in accounting principle                                                          95,719          (86,369)
Loss from discontinued operations, net of income tax benefit of $(920)                               -           (1,478)
Gain on disposal of water segment, net of tax of $139,874                                            -          169,326
                                                                                         --------------   --------------
     Total income from discontinued operations, net of tax of $138,954                               -          167,848

Income before cumulative effect of change in accounting principle                               95,719           81,479

Cumulative effect of change in accounting principle, net of tax of
     $41,591 and $0, respectively                                                               65,769          (39,812)
                                                                                         --------------   --------------
     Net income attributable to common shareholders                                        $   161,488      $    41,667
                                                                                         ==============   ==============

Basic income (loss) per common share:
     Income (loss) from continuing operations before cumulative effect of
        change in accounting principle                                                     $      0.34      $     (0.31)
     Income from discontinued operations                                                   $         -      $      0.60
     Income before cumulative effect of change in accounting principle                     $      0.34      $      0.29
     Cumulative effect of change in accounting principle                                   $      0.23      $     (0.14)
     Net income attributable to common shareholders                                        $      0.57      $      0.15

Diluted income (loss) per common share:
     Income (loss) from continuing operations before cumulative effect of
        change in accounting principle                                                     $      0.33      $     (0.31)
     Income from discontinued operations                                                   $         -      $      0.59
     Income before cumulative effect of change in accounting principle                     $      0.33      $      0.28
     Cumulative effect of change in accounting principle                                   $      0.22      $     (0.13)
     Net income attributable to common shareholders                                        $      0.55      $      0.15

</TABLE>

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


                                       4
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<TABLE>
<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
   FOR THE YEAR ENDED DECEMBER 31, 2002 AND THE SIX MONTHS ENDED JUNE 30, 2003
                                ($ in thousands)
                                   (Unaudited)


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

<S>              <C>              <C>       <C>      <C>          <C>            <C>          <C>        <C>           <C>
Balances January 1, 2002          292,840   $73,210  $ 1,927,518  $   129,864    $   4,907    (11,551)   $ (189,357)   $1,946,142
   Stock plans                      1,240       310       15,888            -            -        (47)         (228)       15,970
   Net loss                             -         -            -     (682,897)           -          -             -      (682,897)
   Other comprehensive income, net
     of tax and reclassifications
     adjustments                        -         -            -            -     (107,076)         -             -      (107,076)
                                 --------- --------- ----------- ------------ ------------   ---------  ------------  -----------
Balances December 31, 2002        294,080    73,520    1,943,406     (553,033)    (102,169)   (11,598)     (189,585)    1,172,139
   Stock plans                      1,232       308        8,054            -            -        559         9,164        17,526
   Net income                           -         -            -      161,488            -          -             -       161,488
   Other comprehensive income, net
     of tax and reclassifications
     adjustments                        -         -            -            -        4,798          -             -         4,798
                                 --------- --------- ----------- ------------ ------------   --------   ------------  -----------
Balances June 30, 2003            295,312   $73,828  $ 1,951,460  $  (391,545)   $ (97,371)   (11,039)   $ (180,421)   $1,355,951
                                 ========= ========= =========== ============ ============   ========   ============  ===========


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


                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                                ($ in thousands)
                                   (Unaudited)



                                              For the three months ended June 30,       For the six months ended June 30,
                                             --------------------------------------   --------------------------------------
                                                   2003                2002                 2003                2002
                                             ------------------  ------------------   ------------------  ------------------

Net income (loss)                                     $ 34,057           $ (41,559)           $ 161,488            $ 41,667
Other comprehensive income (loss), net of
  tax and reclassifications adjustments*                   908              (5,189)               4,798              (5,482)
                                             ------------------  ------------------   ------------------  ------------------
  Total comprehensive income (loss)                   $ 34,965           $ (46,748)           $ 166,286            $ 36,185
                                             ==================  ==================   ==================  ==================


</TABLE>

                   * Consists of unrealized gains/(losses) of
                             marketable securities.


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


                                       5

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<CAPTION>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                                ($ in thousands)

                                                                          2003             2002
                                                                     ---------------  ---------------

Income (loss) from continuing operations before cumulative
<S>                                                                     <C>              <C>
   effect of change in accounting principle                             $  95,719        $ (86,369)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
      Depreciation and amortization expense                               288,907          364,552
      Investment write-downs                                                  -            100,377
      Gain on extinguishment of debt                                      (71,889)         (10,033)
      Investment (gains)/losses                                               -             (3,363)
      Gain on sales of assets, net                                         (5,021)             -
      Allowance for equity funds used during construction                     (96)            (895)
      Deferred and accrued income taxes                                   104,591         (148,964)
      Change in accounts receivable                                        39,407            9,049
      Change in accounts payable, accrued expenses and
         other liabilities                                               (118,337)        (145,085)
      Change in other current assets                                       10,479          110,014
                                                                     ---------------  ---------------
Net cash provided by continuing operating activities                      343,760          189,283

Cash flows from investing activities:
      Proceeds from sales of assets, net of selling expenses               54,900              -
      Capital expenditures                                               (115,602)        (162,558)
      Securities purchased                                                   (605)            (450)
      Securities sold                                                         -              8,387
      Securities matured                                                      -              2,014
      Other                                                                   -                498
                                                                     ---------------  ---------------
Net cash used by investing activities                                     (61,307)        (152,109)

Cash flows from financing activities:
      Long-term debt principal payments                                  (301,583)        (664,632)
      Issuance of common stock                                             15,706            8,079
      Customer advances for construction
        and contributions in aid of construction                           (4,715)          (1,597)
                                                                     ---------------  ---------------
Net cash used by financing activities                                    (290,592)        (658,150)

Cash provided by (used by) discontinued operations
      Proceeds from sale of discontinued operations                           -            859,065
      Net cash used by discontinued operations                                -            (32,889)

Increase (decrease) in cash and cash equivalents                           (8,139)         205,200
Cash and cash equivalents at January 1,                                   393,177          215,869
                                                                     ---------------  ---------------

Cash and cash equivalents at June 30,                                   $ 385,038        $ 421,069
                                                                     ===============  ===============

Cash paid during the period for:
      Interest                                                          $ 212,634        $ 247,139
      Income taxes                                                      $   1,236        $  10,895

Non-cash investing and financing activities:
      Change in fair value of interest rate swaps                       $     864        $   5,758


</TABLE>

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

                                       6
<PAGE>
                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies:
     ------------------------------------------
     (a)  Basis of Presentation  and Use of Estimates:  Citizens  Communications
          Company and its  subsidiaries  are  referred to as "we," "us" "our" or
          the  "Company" in this report.  Our unaudited  consolidated  financial
          statements have been prepared in accordance with accounting principles
          generally  accepted in the United States of America  (GAAP) and should
          be read in conjunction with the consolidated  financial statements and
          notes included in our 2002 Annual Report on Form 10-K. These unaudited
          consolidated  financial  statements  include  all  adjustments,  which
          consist of normal recurring  accruals  necessary to present fairly the
          results for the interim periods shown.

          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,
          intangible assets,  income taxes and contingencies,  and allowance for
          doubtful    accounts,     including    reserves     established    for
          telecommunication bankruptcies.

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

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

     (c)  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  acquired and  allocate  purchase
          prices  to  property,   plant  and   equipment,   goodwill  and  other
          identifiable intangibles.  On January 1, 2002, we adopted Statement of
          Financial  Accounting  Standards  (SFAS) No. 142,  "Goodwill and Other
          Intangible Assets," which applies to all goodwill and other intangible
          assets recognized in the statement of financial position at that date,
          regardless  of  when  the  assets  were  initially  recognized.   This
          statement requires that goodwill and other intangibles with indefinite
          useful  lives no longer be  amortized  to  earnings,  but  instead  be
          reviewed  for  impairment,  at least  annually.  The  amortization  of
          goodwill and other  intangibles  with  indefinite  useful lives ceased
          upon adoption of the statement on January 1, 2002. We annually (during
          the fourth  quarter)  examine the  carrying  value of our goodwill and
          other  intangibles with indefinite  useful lives to determine  whether
          there are any impairment losses.

     (d)  Impairment of Long-Lived  Assets and Long-Lived  Assets to Be Disposed
          of:
          We adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
          Long-Lived  Assets" as of January 1, 2002. In accordance with SFAS No.
          144, we review  long-lived  assets to be held and used and  long-lived
          assets to be disposed of, 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.

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

                                       7
<PAGE>

          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 shareholders equity (as a component
          of other comprehensive income), depending on whether the derivative is
          being used to hedge changes in fair value or cash flows.

          We entered into interest rate swap arrangements during 2002 and in May
          2003  related  to a  portion  of our  fixed  rate  debt.  These  hedge
          strategies  satisfy the fair value  hedging  requirements  of SFAS No.
          133.  As a result,  the fair  value of the  hedges is  carried  on the
          balance  sheet in other  current  assets  and the  related  underlying
          liabilities are also adjusted to fair value by the same amount.

     (f)  Employee Stock Plans:
          We have various employee stock-based  compensation plans. Awards under
          these plans are granted to eligible  employees.  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  recognize
          compensation  expense in the financial  statements  only if the market
          price of the  underlying  stock exceeds the exercise price on the date
          of grant.

          At June 30, 2003,  we have four stock based  compensation  plans:  the
          Management  Equity  Incentive Plan (MEIP),  the Equity  Incentive Plan
          (EIP),  the Employee  Stock  Purchase  Plan (ESPP) and our  Directors'
          Deferred  Fee  Equity  Plan.  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  option.  In addition,  we grant  restricted  stock
          awards to key employees in the form of our Common Stock.  Compensation
          expense is  recognized  as a component  of  operating  expense for our
          Directors'  Deferred  Fee Equity  Plan and  restricted  stock  grants.
          Compensation  cost  is  not  generally  recognized  in  the  financial
          statements  for  options  issued  pursuant  to the MEIP or EIP, as the
          exercise  price for such  options was equal to the market price of the
          stock at the time of grant.  Compensation  cost is also not recognized
          in the financial  statements  related to the ESPP because the purchase
          price is 85% of the fair value.  For purposes of presenting  pro forma
          information  the fair value of options  granted is computed  using the
          Black Scholes option-pricing model.


                                       8
<PAGE>
<TABLE>
<CAPTION>

          Had we  determined  compensation  cost  based on the fair value at the
          grant  date for the MEIP,  EIP and ESPP,  our pro forma net income and
          net income per common share would have been as follows:

                                                           Three Months Ended June 30,        Six Months Ended June 30,
                                                          -----------------------------       -------------------------
                                                               2003            2002               2003          2002
                                                          -------------     -----------       ------------    ---------
             ($ in thousands)

<S>                                                         <C>              <C>                <C>             <C>
             Net income (loss)            As reported       $  34,057        $ (41,559)         $161,488        $41,667


             Add: Stock-based employee
             compensation expense
             included in reported net
             income, net of related tax
             effects                                            2,721              314             3,565          1,604

             Deduct: Total stock-based
             employee compensation
             expense determined under
             fair value based method
             for all awards, net of
             related tax effects                               (5,035)          (3,901)           (8,140)        (7,989)
                                                            ---------        ---------          --------        -------

                                          Pro forma         $  31,743        $ (45,146)         $156,913        $35,282
                                                            =========        =========          ========        ========

             Net income (loss) per
             common share                As reported:
                                            Basic           $    0.12        $   (0.15)         $   0.57        $  0.15
                                            Diluted         $    0.12        $   (0.15)         $   0.55        $  0.15

                                          Pro forma:
                                            Basic           $    0.11        $  (0.16)          $   0.56        $  0.13
                                            Diluted         $    0.11        $  (0.16)          $   0.53        $  0.13
</TABLE>

     (g)  Revenue Recognition:
          Incumbent  Local Exchange  Carrier (ILEC) - Revenue is recognized when
          services are provided or when  products  are  delivered to  customers.
          Revenue that is billed in advance includes:  monthly recurring network
          access services,  special access services and monthly  recurring local
          line  charges.  The  unearned  portion of this  revenue  is  initially
          deferred as a component of other  current  liabilities  on our balance
          sheet and  recognized in revenue over the period that the services are
          provided.  Revenue that is billed in arrears  includes:  non-recurring
          network access services, switched access services, non-recurring local
          services and long-distance  services.  The earned but unbilled portion
          of  this  revenue  is  recognized  in  revenue  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,  Inc.  (ELI) -  Revenue  is  recognized  when the
          services are provided. Revenue from long-term prepaid network services
          agreements  including  Indefeasible  Rights to Use (IRU), are deferred
          and recognized on a straight-line  basis over the terms of the related
          agreements. Installation fees and 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.

                                       9
<PAGE>

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

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

(2)  Property, Plant and Equipment, Net:
     ----------------------------------
     Property,  plant and equipment at June 30, 2003 and December 31, 2002 is as
     follows:
<TABLE>
<CAPTION>

($ in thousands)                                 June 30, 2003       December 31, 2002
                                           ----------------------  ---------------------

<S>                                                  <C>                    <C>
Property, plant and equipment                        $ 6,167,963            $ 6,139,772
Less accumulated depreciation                         (2,547,229)            (2,449,716)
                                           ----------------------  ---------------------
    Property, plant and equipment, net               $ 3,620,734            $ 3,690,056
                                           ======================  =====================
</TABLE>

     Depreciation  expense,  calculated using the straight-line method, is based
     upon the estimated  service lives of various  classifications  of property,
     plant and equipment. Depreciation expense was $118,729,000 and $156,050,000
     for the  three  months  ended  June 30,  2003 and  2002,  respectively  and
     $225,565,000  and  $303,870,000  for the six months ended June 30, 2003 and
     2002, 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.  In addition,  we increased the average depreciable lives for
     certain of our  equipment.  This  change in estimate  reduced  depreciation
     expense by $10,141,000  and  $20,098,000,  or $0.02 and $0.04 per share for
     the three and six months ended June 30, 2003,  respectively.  For the three
     and six months ended June 30, 2002, we recognized accelerated  depreciation
     of $900,000 and  $12,800,000,  respectively,  related to the closing of our
     Plano, Texas facility.

(3)  Dispositions:
     ------------
     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  recognized  in the  second  quarter  of 2003 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 recognized in the second quarter of 2003 was $4,397,000.

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

          Water and Wastewater
          --------------------
          On January 15, 2002, we completed the sale of our water and wastewater
          operations to American Water Works,  Inc. for $859,100,000 in cash and
          $122,500,000 of assumed debt and other  liabilities.  The pre-tax gain
          on the sale recognized in the first quarter of 2002 was  $309,200,000,
          subsequently adjusted to $316,672,000 in the fourth quarter of 2002.

          Electric and Gas
          ----------------
          On October 29, 2002, we entered into definitive agreements to sell our
          Arizona gas and electric divisions to UniSource Energy Corporation for
          $230,000,000 in cash  ($220,000,000 if we close the sale by August 11,
          2003),  subject  to  adjustments  specified  in  the  agreements.  The
          transaction is subject to customary approvals and is expected to close
          in the third  quarter of 2003 (see Note 17 to  Consolidated  Financial
          Statements).


                                       10
<PAGE>

          On  November  1, 2002,  we  completed  the sale of our Kauai  Electric
          division to Kauai Island Utility  Cooperative  (KIUC) for $215,000,000
          in cash. The pre-tax gain on the sale recognized in the fourth quarter
          of 2002 was $8,273,000.

          On December 19, 2002,  we entered into a definitive  agreement to sell
          The Gas Company in Hawaii to K-1 USA Ventures,  Inc. for  $115,000,000
          in cash and  assumed  liabilities,  subject to  adjustments  under the
          terms of the  agreement.  The  transaction  is  subject  to  customary
          approvals  and is expected to close in the third  quarter of 2003 (see
          Note 17 to Consolidated Financial Statements).

          We have entered into  definitive  agreements to sell the assets of our
          Vermont electric division to Vermont Electric Power Company,  Inc. and
          Vermont Electric  Cooperative,  Inc. for an aggregate of approximately
          $25,000,000  in cash,  subject to  adjustments  under the terms of the
          agreements.  The  transactions,  which are subject to  regulatory  and
          other customary approvals, are expected to close by mid-2004.

     All our gas and electric  assets  (comprised  of Arizona gas and  electric,
     Hawaii  gas  and  Vermont  electric)  and  their  related  liabilities  are
     classified  as "assets  held for sale" and  "liabilities  related to assets
     held for sale,"  respectively.  These  assets have been written down to our
     best estimate of the net realizable value upon sale.

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

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

($ in thousands)                                      For the six months ended June 30,
                                                  -------------------------------------------
                                                         2003                   2002
                                                  -------------------    --------------------
<S>                                                       <C>                  <C>
Revenue                                                   $    -               $   4,650
Operating loss                                            $    -               $    (419)
Income tax benefit                                        $    -               $    (920)
Loss from discontinued operations, net of tax             $    -               $  (1,478)
Gain on disposal of water segment, net of tax             $    -               $ 169,326

</TABLE>

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

($ in thousands)                                   June 30, 2003       December 31, 2002
                                                --------------------   -------------------

<S>                                                       <C>                   <C>
Current assets                                            $  44,856             $  49,549
Net property, plant and equipment                           376,484               358,135
Other assets                                                 49,991                40,080
                                                --------------------   -------------------
Total assets held for sale                                $ 471,331             $ 447,764
                                                ====================   ===================

Current liabilities                                       $  54,402             $  79,194
Other liabilities                                            58,784                66,775
                                                --------------------   -------------------
Total liabilities related to assets held
  for sale                                                $ 113,186             $ 145,969
                                                ====================   ===================

</TABLE>

                                       11
<PAGE>

(5)  Goodwill:
     --------
     Goodwill at June 30, 2003 and December 31, 2002 is as follows:

     ($ in thousands)              June 30, 2003         December 31, 2002
                             ------------------------  ---------------------

         Goodwill, net               $ 1,858,558            $ 1,869,348
                             ========================  =====================

     On January 1, 2002, we adopted Statement of Financial  Accounting Standards
     (SFAS) No. 142,  "Goodwill and Other  Intangible  Assets," which applies to
     all goodwill and other  intangible  assets  recognized  in the statement of
     financial  position  at that  date,  regardless  of when  the  assets  were
     initially  recognized.  This  statement  requires  that  goodwill and other
     intangibles  with  indefinite  useful  lives  no  longer  be  amortized  to
     earnings,  but instead be reviewed for impairment,  at least annually.  The
     amortization of goodwill and other intangibles with indefinite useful lives
     ceased upon  adoption of the  statement on January 1, 2002.  The decline in
     goodwill at June 30, 2003 is due to the April 1, 2003 sale of access  lines
     in North Dakota.

(6)  Other Intangibles:
     -----------------
     Other intangibles at June 30, 2003 and December 31, 2002 are as follows:
<TABLE>
<CAPTION>

($ in thousands)                                   June 30, 2003         December 31, 2002
                                              ------------------------  ---------------------

<S>                                                        <C>                  <C>
Customer base - amortizable over 96 months                 $  995,853            $ 1,000,816
Trade name - non-amortizable                                  122,058                122,058
                                              ------------------------  ---------------------
   Other intangibles                                        1,117,911              1,122,874
Accumulated amortization                                     (242,007)              (179,904)
                                              ------------------------  ---------------------
    Total other intangibles, net                           $  875,904            $   942,970
                                              ========================  =====================
</TABLE>

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

     Amortization  expense was  $31,630,000 and $30,328,000 for the three months
     ended June 30, 2003 and 2002,  respectively and $63,342,000 and $60,682,000
     for the six months ended June 30, 2003 and 2002, respectively.  The decline
     in  customer  base at June 30,  2003 is due to the  April 1,  2003  sale of
     access lines in North Dakota.

(7)  Restructuring Charges and Other Expenses:
     ----------------------------------------

     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.  We continue to review our  operations,
     personnel and facilities to achieve greater efficiency.

     2002
     ----
     Restructuring  and other expenses  primarily consist of expenses related to
     our  various  restructurings,  including  reductions  in  personnel  at our
     telecommunications  operations,  costs that were spent at our Plano,  Texas
     facility and at other locations as a result of transitioning  functions and
     jobs, and  $6,800,000 of costs and expenses  related to our tender offer in
     June 2002 for all publicly held ELI common shares that we did not own.

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

                                       12
<PAGE>

     Plano Restructuring
     Pursuant  to a plan  adopted in the third  quarter  of 2001,  we closed our
     operations  support  center in Plano,  Texas in August 2002.  In connection
     with this plan,  we  recorded a pre-tax  charge of  $839,000  for the three
     months ended March 31, 2002 and we adjusted our accrual down by $92,000 for
     the three months ended June 30, 2002. The restructuring  expenses primarily
     consist of severance benefits,  retention earned through March 31, 2002 and
     other planning and  communication  costs. We sold our Plano office building
     in March 2003.

     Sacramento Call Center Restructuring
     In April 2002, we closed our Sacramento  Customer Care Center pursuant to a
     plan  adopted  in the  fourth  quarter  of 2001.  In  connection  with this
     closing, we recorded a pre-tax charge of $62,000 for the three months ended
     March 31, 2002 and $9,000 for the three months ended June 30, 2002.

     ELI Restructuring
     In the first half of 2002, ELI redeployed the internet routers, frame relay
     switches and ATM switches from the Atlanta, Cleveland, Denver, Philadelphia
     and New York markets to other locations in ELI's network pursuant to a plan
     adopted in the fourth quarter of 2001.  ELI ceased leasing the  collocation
     facilities and off-net circuits for the backbone and local loops supporting
     the service  delivery in these markets.  It was anticipated that this would
     lead to $4,179,000 of termination fees, which were accrued for but not paid
     at  December  31,  2001.  In the first and  second  quarters  of 2002,  ELI
     adjusted  its   original   accrual  down  by   $2,100,000   and   $100,000,
     respectively, due to the favorable settlement of termination charges for an
     off-net  circuit  agreement.  As of December  31,  2002,  this  accrual was
     adjusted down by $725,000, $1,354,000 was paid and no accrual remained.

     Tender Offer
     During May 2002,  we  announced a tender offer for all of the shares of ELI
     that we did not  already own for a price of $0.70 per share.  We  completed
     the tender offer in June 2002,  resulting  in ELI  becoming a  wholly-owned
     subsidiary,  for total costs and expenses of approximately  $6,800,000.  We
     accounted  for this  transaction  as a purchase  and  allocated  the entire
     amount to goodwill.  We evaluated  the  recoverability  of this goodwill in
     accordance with SFAS No. 142 and determined that a write-down was necessary
     based on fair market value as  determined by  discounted  cash flows.  This
     charge is included in restructuring and other expenses.
<TABLE>
<CAPTION>

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

2001 Plano Restructuring
<S>                                      <C>             <C>            <C>             <C>     <C>
Original accrued amount                  $ 9,353         $ 1,535        $ 1,178         $ 936   $ 13,002
Amount paid                               (8,985)         (1,390)        (3,832)         (523)   (14,730)
Additional accrual                           616               -          2,943            27      3,586
Adjustments                                 (984)           (132)          (289)         (440)    (1,845)
                                -----------------  -------------- -------------- ------------- ----------
Accrued @ 12/31/2002                           -              13              -             -         13
                                -----------------  -------------- -------------- ------------- ----------
Amount paid                                    -             (13)             -             -        (13)
Additional accrual                             -               -              -             -          -
Adjustments                                    -               -              -             -          -
                                -----------------  -------------- -------------- ------------- ----------
Accrued @ 6/30/2003                      $     -         $     -        $     -         $   -   $      -
                                =================  ============== ============== ============= ==========
</TABLE>


                                       13
<PAGE>
<TABLE>
<CAPTION>

(8)  Long-Term Debt:
     --------------
     The activity in our long-term  debt from December 31, 2002 to June 30, 2003
     is as follows:

                                                        Six Months Ended June 30, 2003
                                                    ---------------------------------------
                                                                                                             Interest Rate*
                                                                                                                  at
                                     December 31,                Interest                       June 30,       June 30,
($ in thousands)                        2002        Payments**   Rate Swap          Other        2003            2003
                                     ------------   ----------   ---------          -----       --------     --------------

FIXED RATE

  Rural Utilities Service Loan
<S>                                   <C>           <C>             <C>           <C>          <C>              <C>
   Contracts                          $    30,874   $   (433)       $      -      $            $    30,441      6.210%

  Senior Unsecured Debt                 4,508,880    (99,640)            864               -     4,410,104      8.095%

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

  ELI Notes                                 5,975           -              -               -         5,975      6.232%
  ELI Capital Leases                      135,200     (7,906)              -        (53,385)        73,909     10.267%
  Industrial Development Revenue
    Bonds                                 186,390    (74,655)              -               -       111,735      5.874%
  Other                                        40         (9)              -               -            31     12.986%
                                      -----------   ---------       ---------     ----------   -----------
TOTAL FIXED RATE                        5,327,359    (182,643)           864        (53,385)     5,092,195
                                      -----------   ----------      ---------     ----------   -----------

VARIABLE RATE

  Industrial Development Revenue Bonds    148,913    (118,940)             -               -        29,973     1.609%
                                      -----------   ----------      ---------     ----------   -----------
TOTAL VARIABLE RATE                       148,913    (118,940)             -               -        29,973
                                      -----------   ----------      ---------     ----------   -----------

TOTAL                                 $ 5,476,272   $(301,583)      $     864     $  (53,385)  $ 5,122,168
                                      -----------   ==========      =========     ===========  -----------

  Less:  Current Portion                 (58,911)                                                (105,776)
  Less:  Equity Units                   (460,000)                                                (460,000)
                                      -----------                                              -----------
TOTAL LONG TERM DEBT                  $ 4,957,361                                              $ 4,556,392
                                      ===========                                              ===========

</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.

** Includes purchases on the open market.

During June 2003, we redeemed five separate  issues of the Company's  Industrial
Development  Revenue  Bonds  aggregating  $75,500,000,  and seven  issues of the
Company's  Special Purpose Revenue Bonds aggregating  $88,800,000.  All of these
redemptions  were funded with cash. In addition,  we called for  redemption  two
additional Industrial  Development Revenue Bond series aggregating  $13,500,000,
$12,400,000 of which was redeemed with cash on July 2, 2003,  with the remaining
$1,100,000 issue to be redeemed with cash on August 1, 2003.

During the first six months of 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  $93,900,000  at a premium of  approximately
$3,100,000.

In March 2003, we terminated a capital lease  obligation at ELI,  which resulted
in a non-cash  pre-tax  gain of  $40,703,000  included in  investment  and other
income (loss), net. In addition, in June 2003, ELI reduced the number of optical
fibers leased under another capital lease,  which resulted in a non-cash pre-tax
gain of  approximately  $25,021,000  included  in  investment  and other  income
(loss),  net.  Total future  minimum cash payment  commitments  over the next 24
years under ELI's  long-term  capital leases amounted to $156,886,000 as of June
30, 2003.

On  February  1,  2003,   we  repaid  at   maturity   $35,000,000   of  Frontier
Communications of Minnesota 7.61% Senior Notes.

                                       14
<PAGE>


(9)  Income (Loss) Per Common Share:
     ------------------------------
     The  reconciliation  of the income (loss) per common share  calculation for
     the three and six months ended June 30, 2003 and 2002, respectively,  is as
     follows:
<TABLE>
<CAPTION>

($ in thousands, except per-share amounts)             For the three months ended June 30,   For the six months ended June 30,
                                                      ------------------------------------  ------------------------------------
                                                           2003              2002                2003              2002
                                                      ----------------  ------------------  ----------------  ------------------
Net income (loss) used for basic and diluted-
   earnings per common share
Income (loss) from continuing operations before
<S>                                                          <C>              <C>                  <C>              <C>
   cumulative effect of change in accounting principle       $ 34,057         $ (41,559)           $ 95,719         $ (86,369)
Income from discontinued operations                                 -                 -                   -           167,848
                                                      ----------------  ----------------    ----------------  ----------------
Income (loss) before cumulative effect of change in
   accounting principle                                        34,057           (41,559)             95,719            81,479
Cumulative effect of change in accounting principle                 -                 -              65,769           (39,812)
                                                      ----------------  ----------------    ----------------  ----------------
 Total basic net income (loss)                               $  34,057        $  (41,559)          $ 161,488        $   41,667
                                                      ================  ================    ================  ================

Effect of conversion of preferred securities                    1,552             1,552               3,105             3,105
                                                      ----------------  ----------------    ----------------  ----------------
Total diluted net income (loss)                              $ 35,609         $ (40,007)           $164,593         $  44,772
                                                      ================  ================    ================  ================

Basic earnings (loss) per common share
Weighted-average shares outstanding - basic                   282,180           280,610             281,934           280,432
                                                      ----------------  ----------------    ----------------  ----------------
Income (loss) from continuing operations before
   cumulative effect of change in accounting principle       $   0.12         $   (0.15)           $   0.34         $   (0.31)
Income from discontinued operations                                 -                 -                   -              0.60
                                                     ----------------  ----------------    ----------------  ----------------
Income (loss) before cumulative effect of change in
   accounting principle                                          0.12             (0.15)               0.34              0.29
Cumulative effect of change in accounting principle                 -                 -                0.23             (0.14)
                                                      ----------------  ----------------    ----------------  ----------------
Net income (loss) attributable to common shareholders        $   0.12         $   (0.15)           $   0.57         $   0.15
                                                      ================  ================    ================  ================

Diluted earnings (loss) per common share
Weighted-average shares outstanding                           282,180           280,610             281,934           280,432
Effect of dilutive shares                                       5,389             4,644               4,763             4,418
Effect of conversion of preferred securities                   15,134            15,134              15,134            15,134
                                                      ----------------  ----------------    ----------------  ----------------
Weighted-average shares outstanding - diluted                 302,703           300,388             301,831           299,984
                                                      ================  ================    ================  ================
Income (loss) from continuing operations before
   cumulative effect of change in accounting principle       $   0.12         $   (0.15)           $   0.33         $   (0.31)
Income from discontinued operations                                 -                 -                   -              0.59
                                                      ----------------  ----------------    ----------------  ----------------
Income (loss) before cumulative effect of change in
   accounting principle                                          0.12             (0.15)               0.33              0.28
Cumulative effect of change in accounting principle                 -                 -                0.22             (0.13)
                                                      ----------------  ----------------    ----------------  ----------------
Net income (loss) attributable to common shareholders        $   0.12         $   (0.15)           $   0.55         $    0.15
                                                      ================  ================    ================  ================

</TABLE>

     All share amounts  represent  weighted average shares  outstanding for each
     respective  period.  The diluted income (loss) per common share calculation
     excludes  the effect of  potentially  dilutive  shares when their  exercise
     price exceeds the average  market price over the period.  At June 30, 2003,
     4,025,000 shares of Mandatorily Redeemable Convertible Preferred Securities
     which are convertible into common stock at a 3.76 to 1 ratio at an exercise
     price of $13.30 per share have been  included in the diluted  income (loss)
     per common share calculation.  We also have 11,284,000 potentially dilutive
     stock options exercisable at prices ranging from $11.09 to $21.47 per share
     and  18,400,000   potentially  dilutive  equity  units.  Each  equity  unit
     initially  consists of a 6.75% senior note due 2006 and a purchase contract
     (warrant)  for our  common  stock.  These  items were not  included  in the
     diluted  income  (loss) per common share  calculation  for any of the above
     periods  as their  effect  was  antidilutive.  Restricted  stock  awards of
     1,553,000   shares  and  1,477,000   shares  at  June  30,  2003  and  2002
     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.


                                       15
<PAGE>

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

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



                                       16
<PAGE>

<TABLE>
<CAPTION>

($ in thousands)                                     For the three months ended June 30, 2003
                                      ---------------------------------------------------------------------------
                                                                                                        Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
<S>                                     <C>                <C>            <C>            <C>         <C>
Revenue                                 $   510,153        $ 43,719       $  56,150      $ 33,932    $   643,954
Depreciation and amortization               144,374           5,985               -             -        150,359
Reserve for telecommunications
   bankruptcies                               1,113           1,147               -             -          2,260
Restructuring and other expenses              9,482             631               -             -         10,113
Operating income                            121,814           2,350           6,159         4,869        135,192
Capital expenditures, net                    56,415           2,254           4,296         4,827         67,792

($ in thousands)                                     For the three months ended June 30, 2002
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $   514,686        $ 45,287       $  47,856      $ 54,610    $   662,439
Depreciation and amortization               154,741          31,591              46             -        186,378
Reserve for telecommunications
   bankruptcies                               9,567             434               -             -         10,001
Restructuring and other expenses              9,207           9,073               -             -         18,280
Operating income (loss)                     100,607         (38,976)          8,416        12,521         82,568
Capital expenditures, net                    81,364           3,067           4,940         4,500         93,871

($ in thousands)                                       For the six months ended June 30, 2003
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $ 1,023,762        $ 84,812       $ 119,681      $ 67,561    $ 1,295,816
Depreciation and amortization               276,729          12,178               -             -        288,907
Reserve for telecommunications
   bankruptcies                               1,113           1,147               -             -          2,260
Restructuring and other expenses              9,482             610               -             -         10,092
Operating income                            268,729           2,885          18,010         9,863        299,487
Capital expenditures, net                    94,292           3,401           7,465         9,972        115,130

($ in thousands)                                       For the six months ended June 30, 2002
                                      ---------------------------------------------------------------------------
                                                                                                       Total
                                          ILEC             ELI            Gas          Electric      Segments
                                      --------------  -------------- --------------- ------------- --------------
Revenue                                 $ 1,022,717        $ 92,534       $ 119,221      $107,301    $ 1,341,773
Depreciation and amortization               313,031          51,391             130             -        364,552
Reserve for telecommunications
   bankruptcies                              17,371             434               -             -         17,805
Restructuring and other expenses             15,212           6,973               -             -         22,185
Operating income (loss)                     192,828         (55,996)         20,304        25,791        182,927
Capital expenditures, net                   137,404           5,656           9,319         9,704        162,083


The following table reconciles sector capital expenditures to total consolidated
capital expenditures.


($ in thousands)                       For the three months ended      For the six months ended
                                                June 30,                        June 30,
                                      ------------------------------ -----------------------------
                                          2003            2002            2003           2002
                                      --------------  -------------- --------------- -------------
Total segment capital expenditures         $ 67,792        $ 93,871       $ 115,130     $ 162,083
General capital expenditures                     58             248             472           475
                                      --------------  -------------- --------------- -------------
Consolidated reported capital
   expenditures                            $ 67,850        $ 94,119       $ 115,602     $ 162,558
                                      ==============  ============== =============== =============
</TABLE>


                                       17

<PAGE>


(11) Adelphia Investment:
     -------------------
     We  recognized  losses  of  $45,600,000  and  $49,700,000  on our  Adelphia
     Communications Corp.  (Adelphia) investment for the three months ended June
     30, 2002 and March 31, 2002,  respectively.  This non-cash charge reflected
     an other than temporary  decline in Adelphia's  stock price. As of June 30,
     2002, we had written this investment down to zero.

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

     The  interest  rate  swap  contracts  are  reflected  at fair  value in our
     consolidated balance sheet and the related portion of fixed-rate debt being
     hedged is  reflected at an amount equal to the sum of its book value and an
     amount  representing  the  change  in fair  value of the  debt  obligations
     attributable  to the interest rate risk being  hedged.  Changes in the fair
     value of interest rate swap  contracts,  and the offsetting  changes in the
     adjusted carrying value of the related portion of the fixed-rate debt being
     hedged,  are  recognized  in the  consolidated  statements of operations in
     interest expense. The notional amounts of fixed-rate indebtedness hedged as
     of June 30, 2003 and December 31, 2002 was $350,000,000  and  $250,000,000,
     respectively.  Such contracts  require us to pay variable rates of interest
     (average pay rate of  approximately  4.67% as of June 30, 2003) and receive
     fixed  rates  of  interest  (average  receive  rate of 7.89% as of June 30,
     2003). The fair value of these  derivatives is reflected in other assets as
     of June 30, 2003, in the amount of $17,523,000  and the related  underlying
     debt has been increased by a like amount.  The amounts  received during the
     three and six  months  ended June 30,  2003 as a result of these  contracts
     amounted to $2,813,000  and  $4,117,000  and are included as a reduction of
     interest expense. We do not anticipate any nonperformance by counterparties
     to its derivative  contracts as all  counterparties  have investment  grade
     credit ratings.

(13) Shareholder Rights Plan:
     -----------------------
     On March 6, 2002, our Board of Directors adopted a Shareholder Rights Plan.
     The purpose of the  Shareholder  Rights Plan is to deter coercive  takeover
     tactics and to  encourage  third  parties  interested  in  acquiring  us to
     negotiate  with our Board of Directors.  It is intended to  strengthen  the
     ability of our Board of Directors to fulfill its  fiduciary  duties to take
     actions which are in the best interest of our shareholders. The rights were
     distributed to shareholders as a dividend at the rate of one right for each
     share of our common stock held by shareholders of record as of the close of
     business on March 26, 2002. The rights  generally are exercisable only if a
     person or group acquired beneficial  ownership of 20 percent or more of our
     common  stock  (an  "Acquiror")  without  the  consent  of our  independent
     directors.  Each  right  not  owned by an  Acquiror  becomes  the  right to
     purchase our common stock at a 50 percent discount.

(14) Settlement of Retained Liabilities:
     ----------------------------------
     We were actively pursuing the settlement of certain retained liabilities at
     less than face value,  which are  associated  with  customer  advances  for
     construction from our disposed water  properties.  For the six months ended
     June 30, 2003 and 2002, we recognized income of $6,165,000 and $10,000,000,
     respectively,  which is reflected in  investment  and other income  (loss),
     net, as a result of these settlements.

(15) Change in Accounting Principle and New Accounting Pronouncements:
     ----------------------------------------------------------------
     In June 2001, the Financial  Accounting  Standards Board (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 as a cumulative effect of a change in
     accounting principle in our statement of operations in the first quarter of
     2003 as the  Company  has no legal  obligation  to  remove  certain  of its
     long-lived assets.

     The following table presents reconciliation between reported net income and
     adjusted net income.  Adjusted  net income  excludes  depreciation  expense
     recognized  in prior  periods  related to the cost of removal  provision as
     required by SFAS No. 143.


                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                          For the three months ended June 30,   For the six months ended June 30,
                                                          ----------------------------------    ----------------------------------
(In thousands, except per-share amounts)                       2003              2002                2003              2002
                                                          ----------------  ----------------    ----------------  ----------------
<S>                                                              <C>              <C>                 <C>                <C>
Reported attributable to common shareholders                     $ 34,057         $ (41,559)          $ 161,488          $ 41,667
Add back: Cost of removal in depreciation expense,
  net of tax                                                            -             3,589                   -             7,302
                                                          ----------------  ----------------    ----------------  ----------------
Adjusted attributable to common shareholders                     $ 34,057         $ (37,970)          $ 161,488          $ 48,969
                                                          ================  ================    ================  ================
Basic earnings per share:
Reported attributable to common shareholders                     $   0.12         $   (0.15)          $    0.57          $   0.15
Cost of removal in depreciation expense                                 -              0.01                   -              0.03
                                                          ----------------  ----------------    ----------------  ----------------
Adjusted attributable to common shareholders                     $   0.12         $   (0.14)          $    0.57          $   0.18
                                                          ================  ================    ================  ================
Diluted earnings per share:
Reported attributable to common shareholders                     $   0.12         $   (0.15)          $    0.55          $   0.15
Cost of removal in depreciation expense                                 -              0.01                   -              0.02
                                                          ----------------  ----------------    ----------------  ----------------
Adjusted attributable to common shareholders                     $   0.12         $   (0.14)          $    0.55          $   0.17
                                                          ================  ================    ================  ================
</TABLE>
     In July 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
     Assets."  As a result of our  adoption of SFAS No.  142,  we  recognized  a
     transitional  impairment loss of $39,800,000 for goodwill related to ELI as
     a cumulative effect of a change in accounting principle in our statement of
     operations in the first quarter of 2002.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with Exit or Disposal  Activities,"  which  nullified  Emerging
     Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
     Employee  Termination  Benefits and Other Costs to Exit an Activity."  SFAS
     No. 146 requires  that a liability  for a cost  associated  with an exit or
     disposal activity be recognized when the liability is incurred, rather than
     on the date of commitment to an exit plan.  This Statement is effective for
     exit or disposal  activities that are initiated after December 31, 2002. We
     adopted  SFAS No. 146 on January 1, 2003.  The adoption of SFAS No. 146 did
     not have any  material  impact on our  financial  position  or  results  of
     operations.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments and Hedging," which clarifies financial  accounting
     and reporting for derivative  instruments including derivative  instruments
     embedded in other  contracts.  This  Statement is effective  for  contracts
     entered into or modified  after June 30, 2003. We are currently  evaluating
     the impact of the adoption of SFAS No. 149.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
     Financial Instruments with Characteristics of Both Liabilities and Equity."
     The Statement  requires  issuers to classify as  liabilities  (or assets in
     some circumstances)  certain financial  instruments that embody obligations
     of  the  issuer.  Generally,  the  Statement  is  effective  for  financial
     instruments  entered  into or modified  after May 31, 2003 and is otherwise
     effective at the beginning of the first interim period beginning after June
     15, 2003. We adopted the  provisions of the Statement on July 1, 2003.  The
     adoption of SFAS No. 150 did not have any material  impact on our financial
     position or results of operations.

     The FASB also recently indicated that it will require stock-based  employee
     compensation  to be recorded as a charge to earnings  beginning in 2004. We
     will continue to monitor the progress on the issuance of this standard.

(16) Commitments and Contingencies:
     -----------------------------
     We expect capital expenditures in 2003 to be approximately $270,000,000 for
     ILEC and ELI and  $45,200,000  (assuming we own all our utility  businesses
     for the  entire  year) for gas and  electric.  However,  if we close on our
     pending sales on the currently  expected dates we will spend  approximately
     $25,000,000  for  gas and  electric.  Our  public  utility  properties  are
     currently carried at amounts that do not exceed their net realizable values
     upon sale.  Under the terms of the  definitive  agreements  relating to the
     sale of these  properties,  there will be no adjustment to the sales prices
     for most of the  capital  expenditures  we will make for  these  properties
     prior to their  sale.  To the  extent  that the  carrying  amounts of these
     properties  increase above their realizable values upon sale as a result of
     capital expenditures or for any other reason, we would record an impairment
     charge for such excess.  We currently  estimate we will make  $6,100,000 of
     capital  expenditures  for these properties from July 1, 2003 through their
     expected  dates of  sale.  We did not  expense  any of our  $17,437,000  of
     capital  additions  related  to these  properties  during the first half of
     2003.  If the  sale of our  Arizona  utility  businesses  to  UniSource  is
     completed,  the sale agreement  requires us to promptly redeem  $31,240,000
     principal amount of industrial development revenue bonds.

                                       19
<PAGE>

     If the sale of our Hawaii gas  operations to K-1 USA Ventures is completed,
     the  buyer  has  agreed  to  assume  $17,593,000  of  our  special  purpose
     development bonds.

     In March  1999,  ELI  entered  into a 20-year  fiber  agreement.  Under the
     agreement, we were to pay the other carrier approximately  $96,900,000 over
     the next 20 years.  ELI  terminated  the capital lease  obligation in March
     2003,  which  resulted  in a  non-cash  pre-tax  gain  of  $40,703,000.  In
     addition,  in June 2003,  ELI reduced the number of optical  fibers  leased
     under another capital lease,  which resulted in a non-cash  pre-tax gain of
     approximately  $25,021,000.  These gains were reported for the three months
     ended  March 31,  2003 and June 30,  2003 in  investment  and other  income
     (loss), net.

(17) Subsequent Events:
     -----------------
     On August 8, 2003,  we  completed  the sale of our Gas Company in Hawaii to
     K-1 USA Ventures,  Inc. for approximately  $115,000,000 in cash and assumed
     liabilities.

     On August 11, 2003,  we completed  the sale of our Arizona gas and electric
     divisions to UniSource Energy Corporation for approximately $220,000,000 in
     cash and issued  call  notices on  $31,240,000  in  industrial  development
     revenue bonds to be repaid in the fourth quarter of 2003.


                                       20

<PAGE>

                    PART I. FINANCIAL INFORMATION (Continued)

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


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

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

     *    Changes in the number of our access lines;

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

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

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

     *    Our ability to successfully  introduce new product offerings including
          our ability to offer bundled service  packages on terms  attractive to
          our customers, and our ability to sell enhanced and data services;

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

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

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

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

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

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

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

     *    The effects of possible 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,
          including  the  contract  covering the 668  Communications  Workers of
          America  members in  Rochester  that is scheduled to expire in January
          2004; and

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


                                       21
<PAGE>

Competition in the telecommunications  industry is increasing.  Although we have
not  faced  as  much  competition  as  larger,  more  urban   telecommunications
companies,  we do experience  competition  from other  wireline  local  carriers
through  Unbundled  Network Elements (UNE) and potentially in the future through
Unbundled  Network Elements  Platform (UNEP),  from other long distance carriers
(including Regional Bell Operating Companies), from cable companies and internet
service  providers with respect to internet access and potentially in the future
cable telephony, and from wireless carriers. Most of the wireline competition we
face is in our  Rochester,  New York market,  with limited  competition in a few
other  areas.  Competition  from cable  companies  with  respect  to  high-speed
Internet  access is intense in Rochester  and a few of our other markets such as
Elk Grove,  California  (which is near  Sacramento).  Competition  from wireless
companies,  other long  distance  companies  and internet  service  providers is
present  in  varying  degrees  in all of our  markets.  One of the  ways  we are
responding  to actual and  potential  competition  is by bundling  services  and
products and offering them for a single price.  In addition,  revenues from data
products  and services  such as DSL continue to increase as a percentage  of our
total revenues. These factors may cause our margins to decrease.

The  telecommunications  industry in general, and the CLEC sector in particular,
are undergoing significant changes and difficulties. Demand and pricing for CLEC
services have decreased substantially,  particularly for long haul services, and
economic and competitive pressures are likely to cause these trends to continue.
These factors result in a challenging  environment  with respect to revenues for
our CLEC business and to a lesser extent our ILEC business.  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.

The market for internet  access,  long-haul  and related  services in the United
States is extremely competitive, with substantial overcapacity in the market. In
addition, new and enhanced internet services are constantly under development in
the  market and we expect  additional  innovation  in this  market by a range of
competitors.  Several  Interexchange  Carriers (IXC's) have filed for bankruptcy
protection,  which will allow them to substantially  reduce their cost structure
and debt. This could enable such companies to further reduce prices and increase
competition.

You should consider these important  factors in evaluating any statement in this
Form 10-Q or otherwise made by us or on our behalf. The following information is
unaudited  and should be read in  conjunction  with the  consolidated  financial
statements  and related  notes  included in this report and as  presented in our
2002 Annual Report on Form 10-K. We have no obligation to update or revise these
forward-looking statements.

(a)  Liquidity and Capital Resources
     -------------------------------
For the six  months  ended  June 30,  2003,  we used cash  flow from  continuing
operations  and cash  and  investment  balances  to fund  capital  expenditures,
interest  payments and debt repayments.  As of June 30, 2003, we maintained cash
and short-term investment balances aggregating $385.0 million.

We expect to spend on 2003 capital projects approximately $258.0 million for the
ILEC segment,  $12.0 million for the ELI segment and $45.2 million  (assuming we
own all of our remaining utility  businesses for the entire year) for the public
utilities  segment.  However,  if we close on our pending sales on the currently
expected dates we will spend  approximately  $25.0 million for gas and electric.
In the  ordinary  course  of  business,  capital  expenditures  for  the  public
utilities segment would increase the amount of assets that would be reflected on
the balance sheet.  However, we may expense certain of our capital  expenditures
with respect to our public  utilities  segment during 2003 if book values exceed
our  estimate  of  expected  net  realizable   sales  prices  (see  Note  16  to
Consolidated Financial Statements).

For the six months ended June 30, 2003,  our actual  capital  expenditures  were
$94.3  million for the ILEC  segment,  $3.4 million for the ELI  segment,  $17.4
million for the public  utilities  segments and $0.5 million for general capital
expenditures.  Funds necessary for our 2003 capital  expenditures  were, and are
expected to continue to be,  provided from our  operations and our existing cash
and investment balances.

We have an available shelf registration for $825.6 million and we have available
lines of credit with  financial  institutions  in the  aggregate  amount of $805
million.  Associated  facility fees vary depending on our credit ratings and are
0.25% per annum as of June 30, 2003. The expiration date for these facilities is
October 24, 2006.  During the term of the  facilities  we may borrow,  repay and
reborrow funds. As of June 30, 2003, there were no outstanding  borrowings under
these facilities.


                                       22
<PAGE>

If the sale of our Arizona  utility  businesses to UniSource is  completed,  the
sale  agreement  requires us to promptly  redeem $31.2  million of the Company's
Arizona  industrial   development   revenue  bonds.  We  intend  to  fund  these
redemptions using cash flows from continuing  operations,  the proceeds from the
sale of utility  properties,  and/or cash and cash  equivalents  and  investment
balances.

Debt Reduction
--------------
On  February  1,  2003,  we  repaid  at  maturity   $35.0  million  of  Frontier
Communications of Minnesota 7.61% Senior Notes.

In March 2003, we terminated a capital lease  obligation at ELI,  which resulted
in a non-cash  pre-tax gain of $40.7 million  included in  investment  and other
income (loss), net. In addition, in June 2003, ELI reduced the number of optical
fibers leased under another capital lease,  which resulted in a non-cash pre-tax
gain of $25.0 million included in investment and other income (loss), net.

During June 2003, we redeemed five separate  issues of the Company's  Industrial
Development  Revenue Bonds  aggregating  $75.5 million,  and seven issues of the
Company's Special Purpose Revenue Bonds aggregating $88.8 million.  All of these
redemptions  were funded with cash. In addition,  we called for  redemption  two
additional Industrial Development Revenue Bond series aggregating $13.5 million,
$12.4 million of which was redeemed with cash on July 2, 2003, and the remaining
$1.1 million issue was redeemed with cash on August 1, 2003.

During the first six months of 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 $93.9  million at a premium of  approximately
$3.1 million.

During  the  period  between  June 15,  2003 and July 15,  2003,  holders of the
Company's  outstanding  $15.1 million  principal  amount of 6.80% Debentures due
August  15,  2026  had the  option  to put the  Debentures  to the  Company  for
mandatory  redemption  at par on  August  15,  2003.  As a  result,  the  entire
outstanding principal amount of these debentures has been classified as debt due
within one year on the Company's  balance sheet since the third quarter of 2002.
By July 15, 2003 holders of $2.5 million of the debentures  had exercised  their
right to put the debentures to us on August 15, 2003. Accordingly,  the $12.6 of
debentures  that  were not put to us for  redemption  has been  reclassified  as
long-term debt on the balance sheet, with a final maturity of August 15, 2026.

Interest Rate Management
------------------------
In order to manage our  interest  expense,  we entered into five  interest  swap
agreements in 2002 and 2001 with investment grade financial institutions. During
the second quarter of 2003, we entered into two additional  interest rate swaps.
Each agreement covers a notional amount of $50.0 million. Under the terms of the
agreements,  we make  semi-annual,  floating rate interest payments based on six
month  LIBOR and  receive a fixed  rate on the  notional  amount.  There are two
interest rate swap  agreements  that were executed in 2001 that receive a 6.375%
fixed rate until the swaps'  termination  date of August 15, 2004, and there are
now five swaps that were  executed in 2002 and 2003 that receive an 8.500% fixed
rate until their termination date of May 15, 2006. The underlying  variable rate
on these  swaps is set either in  advance,  in arrears or, as in the case of one
agreement, based on each period's daily average six-month LIBOR.

In connection with these swaps,  we have entered into  agreements  which set the
average  effective  rate on $200  million  of swaps at 5.166%  for the six month
period ending  November 15, 2003, as well as setting the effective  rate on $200
million of swaps at an average rate of 6.218% for the six month period beginning
November 15, 2003,  all  compared to the unhedged  rate of 8.50%.  All swaps and
associated  supplemental rate agreements are accounted for under SFAS No. 133 as
fair value hedges.

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


                                       23
<PAGE>

Our $805.0 million  credit  facilities and our $200.0 million term loan facility
with the Rural Telephone Finance  Cooperative  (RTFC) contain 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
million to (ii) consolidated adjusted EBITDA (as defined in the agreements) over
the last four quarters no greater than 4.50 to 1 through December 30, 2003, 4.25
to 1 from then until  December 30,  2004,  and 4.00 to 1  thereafter.  We are in
compliance with all of our debt 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.  During  2001,  we  sold  two  of our  natural  gas
operations  and in  2002 we  sold  all of our  water  and  wastewater  treatment
operations and one electric business.

On January 15, 2002, we sold our water and  wastewater  services  operations for
$859.1 million in cash and $122.5 million in assumed debt and other liabilities.

On October 29, 2002, we entered into  definitive  agreements to sell our Arizona
gas and electric divisions to UniSource Energy Corporation for $230.0 million in
cash  ($220.0  million  if we close  the sale by August  11,  2003)  subject  to
adjustments specified in the agreements. The transaction is subject to customary
approvals  and is expected to close in the third quarter of 2003 (see Note 17 to
Consolidated Financial Statements).

On October 31, 2002,  we completed  the sale of  approximately  4,000  telephone
access lines in North Dakota for approximately $9.7 million in cash.

On November 1, 2002,  we completed the sale of our Kauai  Electric  division for
$215.0 million in cash.

On December  19, 2002,  we entered  into a definitive  agreement to sell The Gas
Company  in Hawaii to K-1 USA  Ventures,  Inc.  for  $115.0  million in cash and
assumed  liabilities,  subject to adjustments  under the terms of the agreement.
The  transaction  is subject to customary  approvals and is expected to close in
the third quarter of 2003 (see Note 17 to Consolidated Financial Statements).

We have entered  into  definitive  agreements  to sell the assets of our Vermont
electric  division to Vermont Electric Power Company,  Inc. and Vermont Electric
Cooperative,  Inc.  for an  aggregate  of  approximately  $25.0  million in cash
subject to  adjustments  under the terms of the  agreements.  The  transactions,
which are subject to regulatory and other customary  approvals,  are expected to
close during the first half of 2004.

On April 1, 2003, we completed the sale of approximately 11,000 telephone access
lines in North Dakota for approximately $25.7 million in cash.

On April 4, 2003, we completed the sale of our wireless  partnership interest in
Wisconsin for approximately $7.5 million in cash.

All of our gas and electric assets and their related  liabilities are classified
as "assets  held for sale" and  "liabilities  related to assets  held for sale,"
respectively.  These assets have been  written down to our best  estimate of the
net  realizable  value  upon  sale.  As  discussed  in Note  16 to  Consolidated
Financial Statements we may record additional impairment losses during 2003.

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


                                       24
<PAGE>

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  and
contingencies, among others.

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.

We  believe  that the  accounting  estimate  related  to asset  impairment  is a
"critical  accounting  estimate."  With  respect to ELI,  the estimate is highly
susceptible  to change from period to period  because it requires  management to
make significant judgments and assumptions about future revenue, operating costs
and capital  expenditures  over the life of the  property,  plant and  equipment
(generally  5 to 15  years)  as well as the  probability  of  occurrence  of the
various scenarios and appropriate discount rates. Management's assumptions about
ELI's future revenue,  operating  costs and capital  expenditures as well as the
probability  of  occurrence  of  these  various  scenarios  require  significant
judgment  because  the CLEC  industry is changing  and because  actual  revenue,
operating costs and capital  expenditures  have  fluctuated  dramatically in the
past and may continue to do so in the future.

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.  Rapid changes in technology or changes in
market  conditions could result in revisions to such estimates that could affect
the  carrying  value of  these  assets  and our  future  consolidated  operating
results. Our depreciation expense has decreased substantially from prior periods
as a result of the impairment  write down we recorded  during 2002, the adoption
of SFAS No. 143 and the increase in the average depreciable lives for certain of
our equipment.

With respect to our remaining gas and electric  properties,  our estimate of net
realizable value is based upon expected future sales prices of these properties.

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 during 2002 we utilized two
tests.  One test utilized recent trading prices for completed ILEC  acquisitions
of similarly situated properties.  A second test utilized current trading values
for the Company's  publicly traded common stock. We reviewed the results of both
tests  for  consistency  to  insure  that  our  conclusions  were   appropriate.
Additionally,  we  utilized  a range of prices to gauge  sensitivity.  Our tests
determined  that fair values  exceeded book value.

Our  estimates of pension  expense,  other post  retirement  benefits  including
retiree  medical  benefits  and related  liabilities  are  "critical  accounting
estimates."  Our pension and other post retirement  benefits  expenses are based
upon a set of assumptions that include  projections of future interest rates and
asset returns.  Actual results may vary from these estimates.  We are assuming a
long-term  rate of return on plan  assets of 8.25% and a discount  rate of 6.75%
for 2003.  Actual  returns have been negative in recent years.  If future market
conditions  cause  either a decline in interest  rates used to value our pension
plan  liabilities  or  reductions  to the value of our  pension  plan  assets we
potentially could incur additional  charges to our shareholder's  equity.  Based
upon  market  conditions  existing  at  the  end of  June  2003,  should  market
conditions remain unchanged, an additional charge to equity of approximately $15
- $20 million would be required at the end of 2003.

Our income tax expense is  computed  utilizing  an  estimated  annual  effective
income tax rate in accordance  with Accounting  Principles  Board Opinions (APB)
No. 28, "Interim Financial  Reporting." The tax rate is computed using estimates
as to the  Company's  net income before income taxes for the entire year and the
impact of estimated permanent book-tax differences relative to that forecast.


                                       25
<PAGE>

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.

New Accounting Pronouncements
-----------------------------
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, the entity will settle
the  obligation  for its  recorded  amount  or  recognize  a gain  or loss  upon
settlement.

Depreciation  expense for the Company's  wireline  operations  has  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 the first quarter of 2003.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which nullified  Emerging Issues Task Force
(EITF) Issue No. 94-3,  "Liability  Recognition for Certain Employee Termination
Benefits  and Other Costs to Exit an  Activity."  SFAS No. 146  requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
when the liability is incurred, rather than on the date of commitment to an exit
plan.  This  Statement is  effective  for exit or disposal  activities  that are
initiated  after  December 31, 2002. We adopted SFAS No. 146 on January 1, 2003.
The adoption of SFAS No. 146 did not have any material  impact on our  financial
position or results of operations.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging," which clarifies  financial  accounting and
reporting for derivative  instruments including derivative  instruments embedded
in other  contracts.  This Statement is effective for contracts  entered into or
modified  after June 30, 2003.  We are  currently  evaluating  the impact of the
adoption of SFAS No. 149.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of Both Liabilities and Equity." The Statement
requires  issuers to classify as liabilities  (or assets in some  circumstances)
certain financial instruments that embody obligations of the issuer.  Generally,
the Statement is effective for  financial  instruments  entered into or modified
after May 31, 2003 and is  otherwise  effective  at the  beginning  of the first
interim period  beginning  after June 15, 2003. We adopted the provisions of the
Statement  on July 1,  2003.  The  adoption  of SFAS  No.  150 did not  have any
material impact on our financial position or results of operations.

The FASB also  recently  indicated  that it will  require  stock-based  employee
compensation  to be recorded as a charge to earnings  beginning in 2004. We will
continue to monitor the progress on the issuance of this standard.


                                       26
<PAGE>


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

                                    REVENUE

Consolidated  revenue for the three and six months ended June 30, 2003 decreased
$18.5 million and $46.0 million,  respectively, or 3% as compared with the prior
year periods.  The decrease in the second  quarter is due to a $12.4 million net
decrease in gas and electric  revenue,  a $4.5 million decrease in ILEC revenue,
and a decrease in ELI revenue of $1.6 million. The year-to-date  decrease is due
to a $39.3  million net  decrease in gas and  electric  revenue,  a $7.7 million
decrease in ELI revenue  partially offset by an increase in ILEC revenue of $1.0
million.  On April 1,  2003,  we  completed  the  sale of  approximately  11,000
telephone  access lines in North Dakota.  The North Dakota revenues totaled $1.9
million  and $5.6  million  for the six  months  ended  June 30,  2003 and 2002,
respectively.
<TABLE>
<CAPTION>

                           TELECOMMUNICATIONS REVENUE

($ in thousands)                   For the three months ended June 30,             For the six months ended June 30,
                                --------------------------------------------  -----------------------------------------------
                                    2003       2002      $ Change   % Change      2003        2002      $ Change    % Change
                                ---------- ------------ ----------- --------  ------------ ----------- ------------ ---------
<S>                              <C>        <C>         <C>            <C>    <C>          <C>          <C>               <C>
Access services                  $ 160,142  $ 171,163   $ (11,021)    -6%     $  325,139   $  336,996    $ (11,857)       -4%
Local services                     220,710    217,638       3,072      1%        441,805      434,438        7,367         2%
Long distance and data services     76,487     71,029       5,458      8%        151,265      141,315        9,950         7%
Directory services                  26,736     25,810         926      4%         53,779       52,054        1,725         3%
Other                               26,078     29,046      (2,968)   -10%         51,774       57,914       (6,140)      -11%
                                ---------- ------------ -----------            -----------  ----------- ------------
   ILEC revenue                    510,153    514,686      (4,533)    -1%      1,023,762    1,022,717        1,045         0%
ELI                                 43,719     45,287      (1,568)    -3%         84,812       92,534       (7,722)       -8%
                                ---------- ------------ -----------            ----------- ----------- ------------
                                 $ 553,872  $ 559,973   $  (6,101)    -1%     $1,108,574   $1,115,251    $  (6,677)       -1%
                                ========== ============ ===========           ===========  =========== ============
</TABLE>

Changes  in the  number of our access  lines is the most  fundamental  driver of
changes in our telecommunications revenue.  Historically,  rural local telephone
companies  experienced  steady  growth  in  access  lines  because  of  positive
demographic  trends,  steady rural local  economies and little  competition.  In
recent  quarters  many rural local  telephone  companies  (including  ours) have
experienced  a loss of access lines  because of difficult  economic  conditions,
increased competition and disconnecting second lines by some customers when they
add DSL or other high-speed  internet service.  Excluding the North Dakota sale,
we lost  approximately  14,600 access lines during the six months ended June 30,
2003 but added more than 21,000 DSL subscribers during this period.  Residential
lines lost represented 81 percent of the total loss,  excluding the North Dakota
sale. The  non-residential  line losses were principally in Rochester,  New York
while the residential  losses were throughout our markets other than Arizona and
California.  We expect to continue to lose access lines during the  remainder of
2003. A continued decrease in access lines,  combined with continuing  difficult
economic conditions, lower access rates and increased competition, may cause our
revenues to decrease further during the remainder of 2003.

Beginning in the first  quarter 2003,  the  presentation  of revenue  categories
includes  certain   reclassifications  to  ensure  consistency  among  reporting
properties. All prior periods have been conformed to this presentation.

Access services revenue for the three months ended June 30, 2003 decreased $11.0
million or 6% as compared with the prior year period.  Switched  access  revenue
decreased  $5.2 million  primarily  due to the effect of access rate  reductions
effective July 1, 2002.  Subsidies  revenue  decreased $3.8 million due to lower
Universal Service Fund (USF) support.

Access  services  revenue for the six months ended June 30, 2003 decreased $11.9
million or 4% as compared with the prior year period primarily due to a decrease
of $10.4  million in  switched  access  revenue due to the effect of access rate
reductions  effective  July 1, 2002.  Our overall  subsidy  revenues in 2003 are
expected to be slightly lower than 2002.

Local  services  revenue for the three months ended June 30, 2003 increased $3.1
million or 1% as compared with the prior year period.  Local  revenue  increased
$0.4 million  primarily  due to $3.4 million in higher  subscriber  line charges
(SLC)  effective July 2002,  partially  offset by the $1.5 million impact of the
sale of our North Dakota  exchanges in 2003,  and a $1.6 million  decrease  from
continued  losses of access lines.  Enhanced  services  revenue  increased  $2.7
million primarily due to the sale of additional feature packages.


                                       27
<PAGE>

Local  services  revenue for the six months ended June 30, 2003  increased  $7.4
million or 2% as compared with the prior year period.  Local  revenue  increased
$2.0 million  primarily due to $7.1 million in higher SLC  effective  July 2002,
partially  offset by the $1.5  million  impact  of the sale of our North  Dakota
exchanges in 2003, and a $5.5 million  decrease from continued  losses of access
lines.  Enhanced  services revenue  increased $5.4 million  primarily due to the
sale of additional feature packages.

Long distance and data services revenue for the three months ended June 30, 2003
increased $5.5 million or 8% as compared with the prior period  primarily due to
growth of $7.8 million  related to data  partially  offset by a decrease of $2.3
million in long distance revenue due to declining minutes of use.

Long distance and data  services  revenue for the six months ended June 30, 2003
increased $10.0 million or 7% as compared with the prior period primarily due to
growth of $11.2 million  related to data partially  offset by a decrease of $1.3
million in long  distance  revenue  due to  declining  minutes of use.  Our long
distance  revenues  decreased  during  the  second  quarter  of 2003  because of
competition  from wireless  providers  and  declining  minutes of use. We expect
these factors will continue to affect our long distance revenues during 2003.

Directory  revenue  for the three  months  ended June 30,  2003  increased  $0.9
million  or 4% as  compared  with the prior  period  primarily  due to growth in
yellow pages advertising.

Directory  revenue for the six months ended June 30, 2003 increased $1.7 million
or 3% as compared with the prior period  primarily due to growth in yellow pages
advertising.

Other revenue for the three months ended June 30, 2003 decreased $3.0 million or
10% compared with the prior period primarily due to higher uncollectible revenue
of $1.1  million and the  termination  at December 31, 2002 of $1.1 million (for
the  three  months)  in  contract  services  provided  to Global  Crossing  Ltd.
(Global).

Other revenue for the six months ended June 30, 2003  decreased  $6.1 million or
11% compared with the prior period  primarily due to the termination at December
31, 2002 of $2.5 million (for the six months) in contract  services  provided to
Global Crossing.

ELI revenue  for the three and six months  ended June 30,  2003  decreased  $1.6
million, or 3%, and $7.7 million, or 8%, respectively,  as compared to the prior
year period  primarily due to a decline in Integrated  Service  Digital  Network
(ISDN)  services due to less demand from  Internet  service  providers and lower
demand for long haul  services.  ELI's  revenue rose from $41.1  million for the
three  months  ended March 31, 2003 to $43.7  million for the three months ended
June 30, 2003, reversing a nine consecutive quarter trend of declining revenues.
<TABLE>
<CAPTION>

                        GAS AND ELECTRIC REVENUE

  ($ in thousands)             For the three months ended June 30,                For the six months ended June 30,
                            --------------------------------------------    -----------------------------------------------
                               2003       2002      $ Change   % Change         2003        2002      $ Change    % Change
                            ---------- ----------- ----------- ---------    ------------ ----------- ------------ ---------
<S>                           <C>        <C>        <C>           <C>        <C>          <C>          <C>             <C>
  Gas revenue                 $ 56,150   $ 47,856   $   8,294     17%        $ 119,681    $ 119,221    $     460       0%
  Electric revenue            $ 33,932   $ 54,610   $ (20,678)   -38%        $  67,561    $ 107,301    $ (39,740)    -37%

</TABLE>

Gas revenue for the three months ended June 30, 2003 increased $8.3 million,  or
17%, as compared with the prior year period  primarily  due to higher  purchased
gas costs passed on to consumers in 2003. Under tariff provisions,  the costs of
our gas purchases are primarily passed on to customers.

Gas revenue for the six months  ended June 30, 2003  increased  $0.5  million as
compared with the prior year period  primarily due to higher purchased gas costs
passed  on to  consumers  in  Hawaii  offset  by an  Arizona  commission  ruling
precluding  higher  purchased gas costs to be passed on to consumers  during the
first three months of 2003.

Electric  revenue  for the three and six months  ended June 30,  2003  decreased
$20.7 million, or 38%, and $39.7 million, or 37%, respectively, as compared with
the prior year periods  primarily due to the sale of Kauai  Electric on November
1, 2002 partially offset by the effect of a rate increase in Vermont on July 15,
2002 and a slight increase in unit sales.


                                       28
<PAGE>
<TABLE>
<CAPTION>

                                COST OF SERVICES

      ($ in thousands)             For the three months ended June 30,                For the six months ended June 30,
                                ------------------------------------------     -----------------------------------------------
                                  2003       2002      $ Change   % Change        2003        2002       $ Change    % Change
                                --------- ----------- ----------- --------     ------------ ----------  ------------ ---------
<S>                             <C>        <C>          <C>           <C>      <C>          <C>          <C>               <C>
      Network access            $ 58,168   $  58,598    $ (430)      -1%       $ 114,683    $ 116,556    $  (1,873)       -2%
      Gas purchased               34,041      26,201     7,840       30%          69,987       69,801          186         0%
      Electric energy and
        fuel oil purchased        21,328      28,987    (7,659)     -26%          42,086       55,667      (13,581)      -24%
                                --------- ----------- -----------              -----------  ----------  ------------
                                $113,537   $ 113,786    $ (249)       0%       $ 226,756    $ 242,024    $ (15,268)       -6%
                                ========= =========== ===========              ===========  ==========  ============
</TABLE>

Network  access  expenses  for the  three and six  months  ended  June 30,  2003
decreased $0.4 million, or 1%, and $1.9 million, or 2%, respectively as compared
with the prior year periods.  ELI costs have declined  slightly due to a drop in
demand  while ILEC sector costs have risen  slightly  due to  increased  circuit
expense associated with additional data product introductions and increased long
distance access expense.

Gas purchased for the three months ended June 30, 2003  increased  $7.8 million,
or 30%, as compared with the prior year period primarily due to higher purchased
propane fuel expense due to an overall increase in petroleum prices.

Gas purchased for the six months ended June 30, 2003  increased  $0.2 million as
compared with the prior year period  primarily due to higher  purchased  propane
fuel  expense  offset by lower  commodity  pricing  and the effect of an Arizona
commission  ruling precluding higher purchased gas costs from being passed on to
consumers, thus deferring recoverability to a future period.

Electric  energy and fuel oil  purchased for the three and six months ended June
30,  2003  decreased  $7.7  million,   or  26%,  and  $13.6  million,   or  24%,
respectively,  as compared with the prior year periods primarily due to the sale
of Kauai  Electric on November 1, 2002 partially  offset by increased  purchased
power costs.
<TABLE>
<CAPTION>

                            OTHER OPERATING EXPENSES

($ in thousands)                   For the three months ended June 30,               For the six months ended June 30,
                                -------------------------------------------  -----------------------------------------------
                                   2003       2002      $ Change   % Change      2003        2002      $ Change    % Change
                                ----------- ----------- ----------- -------  ------------- ----------- ------------ --------
<S>                              <C>        <C>         <C>            <C>    <C>          <C>          <C>              <C>
Operating expenses               $ 178,038  $ 191,019   $ (12,981)    -7%     $ 355,618    $ 390,272    $ (34,654)      -9%
Taxes other than income taxes       28,566     31,384      (2,818)    -9%        58,887       64,748       (5,861)      -9%
Sales and marketing                 25,889     29,023      (3,134)   -11%        53,809       57,260       (3,451)      -6%
                                ----------- ----------- -----------           -----------  -----------  ------------
                                 $ 232,493  $ 251,426   $ (18,933)    -8%     $ 468,314    $ 512,280    $ (43,966)      -9%
                                =========== =========== ===========           ===========  ===========  ============
</TABLE>

Operating  expenses  for the three months  ended June 30, 2003  decreased  $13.0
million,  or 7%,  as  compared  with the  prior  year  period  primarily  due to
increased  operating  efficiencies  and a reduction of personnel in the ILEC and
ELI sectors and decreased  operating  expenses in the electric sector due to the
sale  of  Kauai  Electric.   Expenses  were  negatively  impacted  by  increased
compensation  expense of $4.3 million  primarily because of variable stock plans
(under variable stock plans,  the amount of compensation  expense changes as our
stock price changes) and increased pension expenses as discussed below.

Operating  expenses  for the six months  ended  June 30,  2003  decreased  $34.7
million,  or 9%,  as  compared  with the  prior  year  period  primarily  due to
increased  operating  efficiencies  and a reduction of personnel in the ILEC and
ELI sectors and decreased  operating  expenses in the electric sector due to the
sale  of  Kauai  Electric.   Expenses  were  negatively  impacted  by  increased
compensation  expense  of $3.5  million  related  to  variable  stock  plans and
increased   pension  expenses  as  discussed  below.  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.  We incurred  $2.7 million of severance  costs in our  telecommunications
operations during the three months ended June 30, 2003.


                                       29
<PAGE>

Included in operating  expenses is pension  expense.  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 expense will increase from $4.3 million in
2002 to approximately  $13.0 - $15.0 million in 2003 but that no contribution to
our pension  plans will be  required  in 2003.  In  addition,  as medical  costs
increase the costs of our retiree medical obligations also increase. Our retiree
medical costs for 2002 were $15.1  million and our current  estimate for 2003 is
$15.0 - $16.0 million.

In future periods,  compensation  expense related to variable stock plans may be
materially  affected  by our stock  price.  A $1.00  change  in our stock  price
impacts compensation expense by approximately $1.0 million.

Taxes other than income  taxes for the three and six months  ended June 30, 2003
decreased $2.8 million and $5.9 million, or 9%,  respectively,  as compared with
the prior year periods  primarily due to decreased  property taxes at ELI due to
lower asset values.

Sales and  marketing  expenses  for the three and six months ended June 30, 2003
decreased  $3.1  million,  or 11%, and $3.5  million,  or 6%,  respectively,  as
compared to the prior year period due to a reduction  of  personnel  and related
costs in the ILEC sector.
<TABLE>
<CAPTION>

                  DEPRECIATION AND AMORTIZATION EXPENSE

  ($ in thousands)             For the three months ended June 30,            For the six months ended June 30,
                            -------------------------------------------  ----------------------------------------------
                               2003       2002      $ Change   % Change     2003        2002      $ Change    % Change
                            ---------- ----------- ----------- --------  ---------- ----------- ------------ ----------
<S>                          <C>        <C>         <C>           <C>    <C>         <C>          <C>              <C>
  Depreciation  expense      $ 118,729  $ 156,050   $ (37,321)   -24%    $ 225,565   $ 303,870    $ (78,305)      -26%
  Amortization expense          31,630     30,328       1,302      4%       63,342      60,682        2,660         4%
                            ---------- ----------- -----------          ----------- ----------- ------------
                             $ 150,359  $ 186,378   $ (36,019)   -19%    $ 288,907   $ 364,552    $ (75,645)      -21%
                            ========== =========== ===========          =========== =========== ============
</TABLE>

Depreciation  expense for the three months ended June 30, 2003  decreased  $37.3
million, or 24%, as compared with the prior year period primarily due to the ELI
impairment  charge  recognized  during the third quarter of 2002,  which reduced
ELI's asset base,  the  adoption of SFAS No. 143 and the increase in the average
depreciable lives for certain of our equipment.

Depreciation  expense  for the six months  ended June 30, 2003  decreased  $78.3
million, or 26%, as compared with the prior year period primarily due to the ELI
impairment  charge  recognized  during the third quarter of 2002,  which reduced
ELI's asset base,  the  adoption of SFAS No. 143 and the increase in the average
depreciable lives for certain of our equipment. Accelerated depreciation in 2002
of $12.8  million  relating to the  closing of our Plano,  Texas  facility  also
contributed to the decrease.

Amortization  expense for the three and six months ended June 30, 2003 increased
$1.3 million and $2.7 million, or 4%,  respectively,  as compared with the prior
year periods primarily due to increased  amortization of customer base, due to a
final  purchase  price  allocation,  resulting  from the  receipt  of the  final
valuation report of our Frontier acquisition during the second quarter of 2002.
<TABLE>
<CAPTION>

                 RESERVE FOR TELECOMMUNICATIONS BANKRUPTCIES / RESTRUCTURING AND OTHER EXPENSES

($ in thousands)                   For the three months ended June 30,            For the six months ended June 30,
                                -------------------------------------------  -----------------------------------------------
                                    2003       2002      $ Change   % Change    2003        2002      $ Change    % Change
                                ---------- ----------- ----------- --------  ------------ ----------- ------------ ---------
Reserve for telecommunications
<S>                               <C>        <C>         <C>          <C>      <C>         <C>         <C>              <C>
  bankruptcies                    $  2,260   $ 10,001    $ (7,741)   -77%      $  2,260    $ 17,805    $ (15,545)      -87%
Restructuring and other expenses  $ 10,113   $ 18,280    $ (8,167)   -45%      $ 10,092    $ 22,185    $ (12,093)      -55%
</TABLE>

During the second quarter 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.

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


                                       30
<PAGE>

Concurrent with the acquisition of Frontier,  we entered into several  operating
agreements with Global.  We have ongoing  commercial  relationships  with Global
affiliates.  We reserved a total of $29.0 million of Global  receivables  during
2001 and 2002 as a result of Global's  filing for bankruptcy to reflect our best
estimate  of the  net  realizable  value  of  receivables  incurred  from  these
commercial  relationships.  We recorded a write-down of such  receivables in the
amount of $7.8 million in the first quarter 2002 and $21.2 million in the fourth
quarter  of 2001.  In the second  quarter  2002,  as the result of a  settlement
agreement with Global,  we reversed $11.6 million of our previous  write-down of
the net realizable value of these receivables.

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

During 2002,  restructuring  and other  expenses  primarily  consist of expenses
related to our various restructurings,  including reductions in personnel at our
telecommunications  operations,  and costs that were  spent at our Plano,  Texas
facility and at other locations as a result of transitioning functions and jobs.
<TABLE>
<CAPTION>

    INVESTMENT AND OTHER INCOME (LOSS), NET / GAIN (LOSS) ON SALE OF ASSETS /
                 INTEREST EXPENSE / INCOME TAX EXPENSE (BENEFIT)

($ in thousands)                 For the three months ended June 30,            For the six months ended June 30,
                              -------------------------------------------  ----------------------------------------------
                                 2003       2002      $ Change   % Change    2003        2002      $ Change    % Change
                              ----------- ---------- ----------- --------  ---------- ----------- ------------ ----------
 Investment and
<S>                             <C>       <C>          <C>         <C>       <C>        <C>          <C>             <C>
  other income (loss), net      $ 24,566  $ (29,188)   $ 53,754    184%      $ 74,388   $ (78,139)   $ 152,527       195%
Gain (loss) on sale of assets   $  6,671  $       -    $  6,671    100%      $  5,021   $       -    $   5,021       100%
Interest expense                $106,436  $ 119,947    $(13,511)   -11%      $215,712   $ 241,554    $ (25,842)      -11%
Income tax expense (benefit)    $ 24,384  $ (26,560)   $ 50,944    192%      $ 64,360   $ (53,502)   $ 117,862       220%
</TABLE>

Investment and other income (loss), net for the three months ended June 30, 2003
increased  $53.8 million as compared with the prior year period  primarily due a
$25.0  million  non-cash  pre-tax  gain  in  2003  related  to a  capital  lease
restructuring  at ELI. The 2002 activity  included  $10.0 million of income from
the  settlement of certain  retained  liabilities  at less than face value which
were associated with customer  advances for construction from our disposed water
properties, and the recognition in 2002 of a $45.6 million non-cash pre-tax loss
resulting from an other than temporary decline in the value of our investment in
Adelphia (see Note 11 to Consolidated  Financial  Statements).  The increase was
partially  offset by lower  income from money  market  balances  and  short-term
investments.

Investment and other income  (loss),  net for the six months ended June 30, 2003
increased $152.5 million as compared with the prior year period primarily due to
$65.7  million in  non-cash  pre-tax  gains in 2003  related  to  capital  lease
restructurings  at ELI,  $6.2  million  of  income in 2003  associated  with the
retained liabilities  settlements and the recognition in 2002 of a $95.3 million
non-cash  pre-tax loss  resulting  from an other than  temporary  decline in the
value of our  investment  in  Adelphia  (see Note 11 to  Consolidated  Financial
Statements). The increase was partially offset by lower income from money market
balances and short-term investments.

Gain on sale of assets  represents the gain on the sale of access lines in North
Dakota and the sale of our wireless partnership interest in Wisconsin, partially
offset by a loss  recognized  on the sale of our Plano office  building in March
2003.

Interest  expense  for the three  months  ended June 30,  2003  decreased  $13.5
million,  or 11%, as compared  with the prior year period  primarily  due to the
retirement of debt partially offset by higher average interest rates. During the
three months  ended June 30,  2003,  we had average  long-term  debt  (excluding
equity  units and  convertible  preferred  stock)  outstanding  of $4.7  billion
compared  to $5.4  billion  during the three  months  ended June 30,  2002.  Our
weighted  average  borrowing  rate for the three  months  ended June 30, 2003 as
compared with the prior year period was 27 basis points higher,  increasing from
7.76% to 8.03%,  due to the  repayment  of debt with  interest  rates  below our
average rate.


                                       31
<PAGE>

Interest expense for the six months ended June 30, 2003 decreased $25.8 million,
or 11%, as compared with the prior year period  primarily due to the  retirement
of debt partially offset by higher average interest rates. During the six months
ended June 30, 2003, we had average  long-term debt (excluding  equity units and
convertible  preferred  stock)  outstanding  of $4.8  billion  compared  to $5.4
billion  during  the six  months  ended  June 30,  2002.  Our  weighted  average
borrowing rate for the six months ended June 30, 2003 as compared with the prior
year period was 25 basis points higher,  increasing from 7.79% to 8.04%,  due to
the repayment of debt with interest rates below our average rate.

Income  taxes for the three and six months ended June 30, 2003  increased  $50.9
million  and  $117.9  million,  respectively,  as  compared  with the prior year
periods  primarily due to changes in taxable income.  The effective tax rate for
the first six months of 2003 was 39.4% as compared  with 39.1% for the first six
months of 2002.  Assuming the Company's operating structure remains the same, we
estimate that our effective tax rate will increase to  approximately  44% to 46%
for fiscal 2004.

                             DISCONTINUED OPERATIONS

($ in thousands)                  For the six months
                                     ended June 30,
                                   2003         2002
                                ----------  ------------
Revenue                           $   -      $  4,650
Operating income (loss)           $   -      $   (419)
Income (loss) from discontinued
  operations, net of tax          $   -      $ (1,478)
Gain on disposal of water
  segment, net of tax             $   -      $169,326

On  January  15,  2002,  we  completed  the  sale of our  water  and  wastewater
operations to American  Water Works,  Inc. for $859.1 million in cash and $122.5
million of assumed  debt and other  liabilities.  The  pre-tax  gain on the sale
recognized  in the  first  quarter  of 2002  was  $309.2  million,  subsequently
adjusted  to $316.7  million  in the  fourth  quarter  of 2002.  The gain on the
disposal of the water segment, net of tax was $169.3 million.

               CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

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.  During the first quarter of 2002,
as a result of our  adoption of SFAS No.  142,  "Goodwill  and Other  Intangible
Assets",  we  recognized a  transitional  impairment  loss of $39.8  million for
goodwill related to ELI (see Note 15 to Consolidated Financial Statements).

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

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

Interest Rate Exposure

Our exposure to market risk for changes in interest rates relates primarily to
the interest-bearing portion of our investment portfolio and interest on our
long term debt and capital lease obligations. The long term debt and capital
lease obligations include various instruments with various maturities and
interest rates.

                                       32
<PAGE>

Our  objectives  in managing our  interest  rate risk are to limit the impact of
interest  rate  changes  on  earnings  and cash  flows and to lower our  overall
borrowing costs. To achieve these objectives,  a majority of our borrowings have
fixed interest rates. Consequently,  we have limited material future earnings or
cash flow  exposures  from changes in interest  rates on our long-term  debt and
capital lease  obligations.  A hypothetical 10% adverse change in interest rates
would  increase  the amount that we pay on our  variable  obligations  and could
result in  fluctuations in the fair value of our fixed rate  obligations.  Based
upon our overall  interest rate exposure at June 30, 2003, 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  rate risk  exposure,  we  entered  into five
interest  swap  agreements  in 2002 and 2001  with  investment  grade  financial
institutions.  During the second quarter of 2003, we entered into two additional
interest rate swaps.  Each agreement covered a notional amount of $50.0 million.
Under the terms of the agreements,  we make semi-annual,  floating interest rate
interest  payments  based on six  month  LIBOR and  receive a fixed  rate on the
notional amount.  There are two interest rate swap agreements that were executed
in 2001 that  receive a 6.375% fixed rate until the swaps'  termination  date of
August 15, 2004, and there are five swaps executed in 2002 and 2003 that receive
an  8.500%  fixed  rate  until  their  termination  date  of May 15,  2006.  The
underlying  variable rate on the swaps is set either in advance,  in arrears or,
as in the case of one agreement,  based on each period's daily average six-month
LIBOR.  In  connection  with these swaps,  the Company  entered into a series of
supplemental  rate agreements  which had the effect of setting the floating rate
portion  of  the  swaps  in  advance  of  the  contractually  agreed  upon  rate
determination date.

Sensitivity analysis of interest rate exposure
At June  30,  2003,  the fair  value of our  long-term  debt and  capital  lease
obligations was estimated to be approximately $5.4 billion, based on our overall
weighted  average  rate of 8.0% and our overall  weighted  maturity of 12 years.
There has been no material change in the weighted average maturity applicable to
our obligations  since December 31, 2002. The overall  weighted average interest
rate declined  approximately 3 basis points during 2003. A hypothetical increase
of 80 basis points (10% of our overall  weighted  average  borrowing rate) would
result in an approximate  $242.7 million decrease in the fair value of our fixed
rate obligations.

Equity Price Exposure

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

As of June 30, 2003, we owned  3,059,000  shares of Adelphia common stock. As of
June 30, 2002,  we had written this  investment  down to zero,  and therefore we
have no additional exposure related to the market value of Adelphia stock.

As of June 30,  2003,  we owned  2,305,908  common  shares  which  represent  an
ownership of 19% of the equity in Hungarian Telephone and Cable Corp., a company
of which our  Chairman and Chief  Executive  Officer is a member of the Board of
Directors.  In  addition,  we  hold  30,000  shares  of  non-voting  convertible
preferred stock,  each share having a liquidation  value of $70 per share and is
convertible at our option into 10 shares of common stock.

As of June 30, 2003, we owned 1,333,500 shares of D & E  Communications  (D & E)
common  stock.  As the  result of an other than  temporary  decline in the stock
price of D & E, we  recognized a non-cash  pre-tax loss of $16.4  million on our
investment during the fourth quarter 2002.

Sensitivity analysis of equity price exposure
At June  30,  2003,  the fair  value of the  equity  portion  of our  investment
portfolio  was estimated to be $37.6  million.  A  hypothetical  10% decrease in
quoted market prices would result in an approximate $3.8 million decrease in the
fair value of the equity portion of our investment portfolio.


                                       33
<PAGE>

Commodity Price Exposure

We purchase monthly gas future contracts, from time to time, to manage commodity
price  fluctuations,   caused  by  weather  and  other  unpredictable   factors,
associated  with our  commitments  to deliver  natural gas to customers at fixed
prices.  Customers  pay for gas service  based upon prices that are defined by a
tariff. A tariff is an agreement  between the public utility  commission and us,
which determines the price that will be charged to the customer. Fluctuations in
gas prices are routinely handled through a pricing mechanism called the purchase
gas adjustor  (PGA).  The PGA allows for a process whereby any price change from
the agreed upon tariff will be settled as a pass through to the  customer.  As a
result, if gas prices increase,  the PGA will increase and pass more costs on to
the customer. If gas prices decrease,  the PGA will decrease and refunds will be
provided to the customer.  This commodity activity relates to our gas businesses
and is not  material  to our  consolidated  financial  position  or  results  of
operations.  In all  instances  we take  physical  delivery  of the  gas  supply
purchased or  contracted  for by us. These gas future  contracts  and gas supply
contracts are considered derivative instruments as defined by SFAS 133. However,
such  contracts  are  excluded  from the  provisions  of SFAS 133 since they are
purchases  made in the  normal  course  of  business  and  not  for  speculative
purposes.  Based upon our overall  commodity  price exposure at June 30, 2003, a
material near-term change in the quoted market price of gas would not materially
affect our consolidated financial position or results of operations.

Disclosure of limitations of sensitivity analysis
Certain  shortcomings  are  inherent in the method of analysis  presented in the
computation  of fair value of financial  instruments.  Actual  values may differ
from those presented should market  conditions vary from assumptions used in the
calculation of the fair value.  This analysis  incorporates only those exposures
that  exist as of June  30,  2003.  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 4.   Controls and Procedures
          -----------------------

(a) Evaluation of disclosure controls and procedures.

We carried out an evaluation,  under the supervision and with the  participation
of  our  management,  of  the  effectiveness  of  our  disclosure  controls  and
procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) as of the
end of the  period  covered  by  this  report.  Based  on this  evaluation,  our
principal  executive officer and principal  financial officer concluded that our
disclosure  controls and procedures were effective.  It should be noted that the
design of any system of controls is based in part upon certain assumptions,  and
there can be no assurance  that any design will succeed in achieving  its stated
goals.

(b) Changes in internal controls over financial reporting.

There  was no change in our  internal  control  over  financial  reporting  that
occurred  during the fiscal  quarter  covered by this report that has materially
affected,  or is reasonably likely to materially  affect,  our internal controls
over financial reporting.


                                       34
<PAGE>

                           PART II. OTHER INFORMATION

                CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES


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

On July 20, 2001, we notified Qwest Corporation (Qwest) that we were terminating
eight  acquisition  agreements.  On July 23, 2001, Qwest filed a notice of claim
for arbitration  with respect to the terminated  acquisition  agreements.  Qwest
asserted that we wrongfully terminated these agreements and sought approximately
$64.0 million in damages,  which is the  aggregate of  liquidated  damages under
letters of credit  established  in the  terminated  acquisition  agreements.  On
September 7, 2001, we filed a response and counterclaims in the same arbitration
proceedings, contesting Qwest's asserted claims and asserting substantial claims
against  Qwest  for  material  breaches  of  representations,   warranties,  and
covenants  in the  terminated  acquisition  agreements  and  in the  acquisition
agreement  relating to North  Dakota  assets that we purchased  from Qwest.  The
parties have entered into a settlement agreement, which became effective on June
19, 2003,  resolving all claims that were the subjects of the arbitration. There
was no impact on our financial position or results of operations.

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 has 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 by Bangor Gas Company, which we owned from 1948-1963. The City alleged the
existence  of extensive  contamination  of the  Penobscot  River and nearby land
areas and has  asserted  that  money  damages  and other  relief at issue in the
lawsuit  could exceed  $50.0  million.  The City also  requested  that  punitive
damages be assessed against us. We have filed an answer denying liability to the
City,  and have asserted a number of counter  claims against the City. We intend
to defend ourselves vigorously against the City's lawsuit. In addition,  we have
identified  a  number  of  other  potentially  responsible  parties  that may be
responsible  for the  damages  alleged by the City and joined them as parties to
the lawsuit.  These additional parties include Honeywell  Corporation,  the Army
Corps of Engineers,  Guilford Transportation  (formerly Maine Central Railroad),
UGI Utilities, Inc., and Centerpoint Energy Resources Corporation.  We also have
demanded  that various of our  insurance  carriers  defend and indemnify us with
respect  to the  City's  lawsuit.  On or about  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 insurance coverage for the City's lawsuit.

On February 7, 2003, we received a letter from counsel  representing Enron North
America  Corporation  (formerly  known as Enron Gas Marketing,  Inc.)  demanding
payment of an "early termination  liability" of approximately $12.5 million that
Enron claims it is owed under a gas supply agreement that we lawfully terminated
in  November  2001.  The  demand was made in  connection  with  Enron's  ongoing
bankruptcy  proceeding  in the United States  Bankruptcy  Court for the Southern
District  of New York.  We  believe  Enron's  claim  lacks any merit and have so
advised that  company's  counsel.  Enron has threatened to initiate an adversary
proceeding  in the  bankruptcy  court to recover  the amount of its demand  plus
applicable  interest and  attorney's  fees. If that occurs,  we will  vigorously
defend against any such action.  We are currently  engaged in  discussions  with
Enron in an effort to resolve these claims without litigation.

In  connection  with an  inquiry  that we  believe  has  arisen  as a result  of
allegations  made  to  federal  authorities  during  their  investigation  of an
embezzlement by two of our former officers, our employees and we are cooperating
fully with the Office of the U.S. Attorney for the Southern District of New York
and with the New York office of the Securities and Exchange Commission.  We have
provided requested documents to the SEC and we have agreed to comply with an SEC
request that, in connection with the informal inquiry that it has initiated,  we
preserve financial,  audit, and accounting records. Since the filing of our Form
10-K on March 24, 2003, there have been no material developments concerning this
matter.

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

                                       35
<PAGE>


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

     (a)  The registrant held its 2003 Annual Meeting of the Stockholders on May
          13, 2003.

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

                                                 Number of Votes
                                                 ---------------
         DIRECTORS                         FOR                  WITHHELD
         ---------                         ---                  --------

         Aaron I. Fleischman           232,329,933             23,394,579
         Rudy J. Graf                  235,188,578             20,535,934
         Stanley Harfenist             235,410,901             20,313,611
         Andrew N. Heine               234,921,536             20,802,976
         William M. Kraus              234,636,182             21,088,330
         Scott N. Schneider            235,397,940             20,326,572
         John L. Schroeder             234,937,237             20,787,275
         Robert A. Stanger             235,031,327             20,693,185
         Edwin Tornberg                235,362,909             20,361,603
         Claire L. Tow                 231,061,748             24,662,764
         Leonard Tow                   232,112,565             23,611,947
         David H. Ward                 235,373,974             20,350,538

     (c)  Ratification  of appointment of KPMG LLP as the Company's  independent
          public accountants for 2003.

                    Number of vote FOR                     250,568,674
                    Number of votes AGAINST/WITHHELD         2,751,007
                    Number of votes ABSTAINING               2,404,831
                    Number of BROKER NON-VOTES                       0

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

As  disclosed  in our proxy  statement  for the 2003  Annual  Meeting  under our
bylaws,  if any  stockholder  intends to propose  any matter at the 2004  annual
meeting,  the proponent  must give written notice to us not earlier than January
14, 2004 nor later than February 13, 2004.  Furthermore,  in accordance with the
proxy rules and  regulations  of the Securities  and Exchange  Commission,  if a
stockholder  does not notify us by February  13,  2004 of a  proposal,  then our
proxies  would  be  able  to  use  their  discretionary  voting  authority  if a
stockholder's proposal is raised at the meeting.

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

a) Exhibits:

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.


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<PAGE>

b)   Reports on Form 8-K:

     We  furnished  on Form  8-K on May 6,  2003  under  Item 9  "Regulation  FD
     Disclosure",  a press release announcing our earnings for the quarter ended
     March 31, 2003.


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<PAGE>

                                    SIGNATURE
                                    ---------


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.






                         CITIZENS COMMUNICATIONS COMPANY
                         -------------------------------
                                  (Registrant)


                          By:   /s/ Robert J. Larson
                                -------------------------
                                Robert J. Larson
                                Senior Vice President and
                                Chief Accounting Officer



Date: August 12, 2003


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