UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8606
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
------------------------------
VERIZON GTE SAVINGS PLAN
VERIZON COMMUNICATIONS INC.
1095 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
REPORT OF INDEPENDENT AUDITORS
To the Verizon Employee Benefits Committee:
We have audited the accompanying statements of net assets available for
benefits of the Verizon GTE Savings Plan as of December 31, 2001 and 2000, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2001. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Philadelphia, PA
June 7, 2002
VERIZON GTE SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2001
(thousands of dollars)
ESOP Shares ESOP Shares
Other Fund Fund
ASSETS: Investments Allocated Unallocated Total
------------- ----------- ------------- -------
Investments in master trusts $10,099,812 $ 1,545,318 $ 957,772 $12,602,902
RECEIVABLE:
Employer contribution receivable 1,801 - 37,748 39,549
----------- ----------- ------------ -----------
Total assets 10,101,613 1,545,318 995,520 12,642,451
LIABILITIES:
Interest payable - - 43,883 43,883
Notes payable - - 700,728 700,728
----------- ----------- ------------ -----------
Total liabilities - - 744,611 744,611
----------- ----------- ------------ -----------
Net assets available for benefits $10,101,613 $ 1,545,318 $ 250,909 $11,897,840
=========== =========== ============ ===========
The accompanying notes are an integral part of the financial statements.
GTE SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2000
(thousands of dollars)
ESOP Shares ESOP Shares
Other Fund Fund
ASSETS: Investments Allocated Unallocated Total
------------- ----------- ------------- ---------
Investments in Master Trust $4,493,325 $ 518,709 $ 578,017 $ 5,590,051
RECEIVABLES:
Employer contributions receivable 8,985 - 44,103 53,088
---------- --------- ----------- -----------
Total assets 4,502,310 518,709 622,120 5,643,139
LIABILITIES:
Interest payable - - 44,103 44,103
Note payable - - 387,953 387,953
---------- --------- ----------- -----------
Total liabilities - - 432,056 432,056
---------- --------- ----------- -----------
Net assets available for benefits $4,502,310 $ 518,709 $ 190,064 $ 5,211,083
========== ========= =========== ===========
The accompanying notes are an integral part of the financial statements.
VERIZON GTE SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2001
(thousands of dollars)
ESOP Shares ESOP Shares
Other Fund Fund
Additions: Investments Allocated Unallocated Total
------------- ----------- ------------- -------
Contributions:
Employee $ 178,335 $ - $ - $ 178,335
Employer 3,955 - 73,432 77,387
------------ ------------ ------------ ------------
182,290 - 73,432 255,722
------------ ------------ ------------ ------------
Transfers from other plans, net 6,293,058 896,879 121,657 7,311,594
Transfer between funds (156,910) 203,816 (46,906) -
------------ ------------ ------------ ------------
Total additions 6,318,438 1,100,695 148,183 7,567,316
------------ ------------ ------------ ------------
Deductions:
Benefits paid to participants 521,719 98,406 - 620,125
Net investment (gain)/loss from master trusts 196,996 (24,320) 43,455 216,131
Interest expense - - 43,883 43,883
Administrative expenses 420 - - 420
------------ ------------ ------------ ------------
Total deductions 719,135 74,086 87,338 880,559
------------ ------------ ------------ ------------
Net increase 5,599,303 1,026,609 60,845 6,686,757
Net assets available for benefits:
Beginning of year 4,502,310 518,709 190,064 5,211,083
------------ ------------ ------------ ------------
End of year $ 10,101,613 $ 1,545,318 $ 250,909 $ 11,897,840
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
(1) Description of the Plan:
The following description of the Verizon GTE Savings Plan provides only
general information. Participants should refer to the Summary Plan Description
for a more complete description of the Plan's provisions.
General
Effective January 1, 2001, the GTE Savings Plan was renamed the Verizon GTE
Savings Plan (the "Plan").
On December 31, 2001, Verizon's Bell Atlantic Savings Plan for Management
Employees (the "VBASP Plan") was merged into the Plan. Accordingly,
approximately $7.5 billion was transferred into the Plan.
GTE Corporation Merger With Bell Atlantic Corporation
On June 30, 2000, Bell Atlantic Corporation ("Bell Atlantic") and GTE
Corporation ("GTE") completed a merger under a definitive merger agreement dated
as of July 27, 1998, and began doing business as Verizon Communications.
Under the terms of the agreement, GTE became a wholly owned subsidiary of
Bell Atlantic and GTE shareholders received 1.22 shares of Bell Atlantic common
stock for each share of GTE common stock they owned.
On September 22, 2000, Bell Atlantic changed its name to Verizon
Communications Inc. ("Verizon").
As a result of GTE shareholder approval of the merger, certain protective
change in control provisions were triggered which remained in effect until
December 31, 2000. These provisions included: (1) past and future matching
contributions were immediately vested as soon as they were posted to
participants' accounts, (2) participants did not have to be employed on the last
day of the Plan year to be eligible for the match, and (3) matching
contributions were posted to participants' notional accounts on a monthly basis.
However, matching contributions will not be available for withdrawals, loans,
etc., until early the following year, since funding does not occur until the
ESOP loan payment is made at year-end, or shortly thereafter. Matching
contributions after the merger was completed were, and are to be made in Verizon
common stock.
On or after January 1, 2001, Verizon may amend the Plan without regard to
the change in control provisions, subject to applicable law and the Plan terms.
However, as of December 31, 2001, there have not been any amendments relative to
any of the change in control provisions.
Eligibility
The Plan is a defined contribution plan subject to the provisions of the
Employee Retirement Income Security Act of 1974. The Plan provides eligible
employees of Verizon and its subsidiaries ("Participating Affiliates") with a
convenient way to save for both medium and long-term needs. Eligible employee
generally means an employee of Verizon or a Participating Affiliate as defined
by the Plan document.
An individual's active participation in the Plan shall terminate when the
individual ceases to be an eligible employee; but the individual shall remain a
participant until the entire account balance under the Plan has been distributed
or forfeited.
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
Investment Options
Participants direct their contributions to be invested in any of the
current investment options. The Employee Benefits Committee may, at its sole
discretion, eliminate, and/or change the underlying composition of any of the
investment options, and may add other funds as a current investment option.
Participant Accounts
Each participant's account is credited with the participant's
contribution/rollovers, matching contributions and allocations of Plan income.
Allocations of Plan income are based on participant account balances. The
benefit to which a participant is entitled is the benefit that can be provided
from the participant's vested account balance.
Payment of Benefits
Benefits are payable in a lump sum cash payment unless a participant
elects, in writing, one of the three optional forms of benefit payment which
include: (1) a lump sum in Verizon shares for investments in the Verizon Company
Stock Fund (the "Stock Fund"), with the balance in cash, (2) annual, semiannual,
quarterly, or monthly installments in cash of approximately equal amounts to be
paid out for a period of 2 to 20 years, as selected by the participant, or (3)
for those participants eligible to receive their distribution in installments as
described in (2) above, a pro rata portion of each installment payment in
Verizon shares for investments in the Stock Fund, with the balance of each
installment in cash.
Participant Loans
A loan feature is available to participants, which permits borrowing up to
50% of a participant's vested account balance, subject to certain limitations.
Interest rates on loans are set based on the prime rate in effect on the
first business day of the calendar quarter the loan becomes effective.
Participant loans are withdrawn proportionately from the participants'
investment accounts. When loans are repaid, the principal and interest are
reinvested according to the participants' current investment choices. Short-term
loans are from six months to five years; long-term loans for the purchase of a
primary residence may exceed five years.
Master Trust
On December 21, 2001, an amended and restated Master Trust Agreement was
signed and the GTE Master Savings Trust (the "Former Master Trust") was renamed
the Verizon Master Savings Trust (the "Master Trust").
Also, on December 21, 2001, most of the assets of the VBASP Plan, and the
Verizon Savings and Security Plan for Mid-Atlantic Associates (the "VSPMA
Plan"), were transferred into the Master Trust from the Bell Atlantic Master
Trust (the "Mellon Master Trust") at Mellon Bank ("Mellon"). Certain funds in
the Master Trust were liquidated and transferred to funds held within the Mellon
Master Trust. Only Verizon's four savings plans participate in these funds.
Mellon is both trustee and custodian of these funds.
At December 31, 2001, the Plan participated in the Master Trust and, along
with the GTE Hourly Savings Plan (the "Hourly Plan") and the VSPMA Plan, owned a
percentage of the assets in the Master Trust. This percentage was based on a pro
rata share of the Master Trust assets. At December 31, 2001, the Plan owned
approximately 74% of the assets in the Master Trust.
At December 31, 2001, the Plan, along with the VSPMA Plan, the Hourly Plan,
and the Verizon Savings and Security Plan for New York and New England
Associates, owned a percentage of the funds at Mellon. This percentage was based
on a pro rata share of the funds. At December 31, 2001, the Plan owned
approximately 74% of the funds.
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
At December 31, 2000, the Plan participated in the Former Master Trust,
and, along with the Hourly Plan, owned a percentage of the assets in the Former
Master Trust. This percentage was based on a pro rata share of the Former Master
Trust assets. At December 31, 2000 the Plan owned approximately 75% of the
assets in the Former Master Trust.
Interest and dividends along with net appreciation/depreciation in fair
value of investments are allocated to the Plan on a daily basis based upon the
Plan's participation in the various investment funds and portfolios that
comprise the Master Trust as a percentage of the total participation in such
funds and portfolios. Investments are recorded on a trade-date basis.
Trustee
Fidelity Management Trust Company ("Trustee") has been designated as the
trustee under the Plan and is responsible for the investment, reinvestment,
control and disbursement of the funds and portfolios of the Plan including the
payment of principal and interest on the Employee Stock Ownership Plan's notes
payable. Expenses of administering the Plan, including fees and expenses of the
Trustee, may be charged to the participants' accounts pursuant to an account
maintenance fee. Loan fees are charged directly to the accounts of participants
who take loans. Certain investment fees are charged against the earnings of the
funds and portfolios; however, Verizon pays investment fees relating to the
Stock Fund. All other Plan administration expenses not paid by Verizon are paid
from Plan forfeitures. GTE Service Corporation dba Verizon Services Group, a
subsidiary of Verizon, is the plan administrator.
Plan Modification
GTE, Verizon and the most senior Human Resources officer of Verizon reserve
the right to modify, alter or amend the Plan at any time, provided that no such
change shall permit any of the funds to be used for any purpose other than the
exclusive benefit of the participants. GTE reserves the right to terminate the
Plan at any time.
(2) Accounting Policies:
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which requires
management to make estimates that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Benefits are recorded when paid.
(3) Non Participant-Directed Investments:
Information about the net assets and the significant components of the
changes in net assets relating to the Plan's non participant-directed
investments is as follows (in thousands):
As of December 31,
------------------
2001 2000
---- ----
Net assets:
-----------
Verizon common stock $2,832,614 $1,491,147
Year ended December 31, 2001
----------------------------
Changes in net assets:
----------------------
Employer contributions $ 75,233
Plan merger 1,591,912
Net investment loss (92,112)
Benefits paid to participants (191,735)
Interest expense (43,883)
Other 2,052
----------
Net increase $1,341,467
==========
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
(4) Contributions:
The Plan is funded by employee contributions up to a maximum of 16% of
compensation and by matching contributions in shares of Verizon common stock
equivalent in value to 75% of the initial 6% of the participants' contributions
of eligible compensation each payroll period not withdrawn or distributed during
the Plan year.
Participant contributions may be before tax ("Elective Contributions") or
from currently taxed compensation ("After-Tax Contributions"). Each
participant's Elective Contributions for the 2001 Plan year was limited to
$10,500. The total amount of Elective Contributions, After-Tax Contributions and
matching contributions and certain forfeitures that may be allocated to a Plan
participant was limited to the lesser of (1) $35,000 or (2) 25% of the
participant's total compensation; and the compensation on which such
contributions were based was limited to $170,000.
Effective April 28, 2000, the Plan was amended to allow for a
profit-sharing contribution for certain employees expected to transfer to
Verizon affiliates who were participants in a subsidiary 401K/Profit-Sharing
Plan, namely the BBN Retirement Trust Agreement (1998 revision). Once
transferred to a Verizon affiliate, they were immediately eligible to
participate in the Plan.
Matching contributions are made in Verizon common stock and in general,
participants cannot redirect these shares into other investment choices. For the
2001 Plan year, total company matching contributions of 1.6 million shares of
Verizon common stock were made with a market value at date of contribution of
$72.1 million.
(5) Employee Stock Ownership Plan:
An Employee Stock Ownership Plan (the "ESOP") was established within the
Plan. In 1989, the ESOP borrowed $700 million to acquire, at market value,
approximately 30 million shares of Verizon common stock which will be used to
meet a substantial portion of the estimated matching contributions to the Plan
through 2004. Verizon and the Participating Affiliates also make annual cash
contributions to the ESOP which, when combined with dividends on the Verizon
common stock held by the ESOP, are sufficient to repay the principal and
interest on the loan. As the ESOP makes loan payments, a percentage of the
Verizon common stock held by the ESOP is allocated to the participants' accounts
in the form of matching contributions.
Debt service payments for 2001 totaled $114 million. The principal
component was funded from $41 million of dividends accumulated on the Verizon
stock held by the ESOP and $36 million of cash contributions. The interest
component, paid on January 2, 2002, was funded by an accrued matching
contribution of $37 million.
The VBASP Plan, which merged into the Plan effective December 31, 2001,
also contained an ESOP feature. As a result, additional ESOP borrowings
consisting of two notes totaling approximately $389 million and 10.6 million
total shares of unallocated Verizon common stock transferred into the Plan. At
December 31, 2001, 18.9 million shares of Verizon common stock in the ESOP
Shares Fund were held as collateral for the ESOP loans. The borrowings of the
ESOP are as follows (in thousands):
Interest Maturity
Rate Dates 2001 2000
---- ----- ---- ----
Series B 9.73% 2001-2005 $311,357 $387,953
NYNEX ESOP 9.778% 1990-2015 310,007 -
BA ESOP 4.64-7.4% 1990-2005 79,364 -
Maturities of the outstanding loans are as follows (in thousands):
Maturity
Date Amount
---- ------
2002 $ 18,352
2003 129,411
2004 145,517
2005 162,225
2006 23,272
Thereafter 221,951
-------
Total $700,728
=======
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
Verizon has guaranteed all principal and interest payments on the ESOP
borrowings in the event of default by the Plan.
(6) Related Party Transactions:
Certain Plan investments are shares of mutual funds managed by the Trustee.
Therefore, those transactions qualify as party-in-interest, but they are subject
to an exemption to the party-in-interest rules. Fees paid by the Plan for the
investment management services amounted to $420 thousand for the 2001 Plan year.
(7) Income Tax Status:
The Plan has received a determination letter from the Internal Revenue
Service dated April 29, 1998, stating that the Plan is qualified under Section
401(a) of the Internal Revenue Code ("the Code") and therefore, the related
trust is exempt from taxation. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The Plan has been
amended since receiving the determination letter. However, the Plan
Administrator believes the Plan is being operated in compliance with the
applicable requirements of the Code and, therefore, believes that the Plan is
qualified and the related trust is tax exempt.
(8) Transfers From Other Plans, Net:
In 2001, transfers from other plans, net, consisted of approximately $7.5
billion of assets transferred in from the VBASP Plan, less transfers to other
qualified plans of $165 million.
Certain participants in the Plan were a part of Verizon's wireless
operations, which were spun off in July 2000. The Plan was amended to allow for
these employees to continue their participation in the Plan until December 31,
2000. On January 2, 2001, approximately nine thousand participants and net
assets of approximately $142 million were transferred into the Verizon Wireless
Savings and Retirement Plan.
(9) Investments in Master Trusts:
In the Master Trust, investments in common stock and mutual funds are
valued at fair value on the last business day of the plan year. Shares of mutual
funds are valued at published market prices that represent the net asset value
of shares held by the Master Trust at year-end. Shares of common stock are
valued at the quoted market price. Money market funds are stated at cost, which
approximates fair value.
A portion of certain funds is invested in 62 contracts held with 23
insurance companies and banks. Standard & Poor's, as of December 31, 2001 and
2000, rated the issuers of these contracts and the contracts' underlying
securities A or better. The contracts are included in the financial statements
at contract value, approximately $2.0 billion and $694 million, which
approximates fair value, as reported by the insurance companies and banks at
December 31, 2001 and 2000, respectively.
Contract value represents contributions made under the contracts, plus
accrued interest, less withdrawals and administrative expenses. Investment
contracts are normally set at a fixed rate through maturity, which is also the
minimum crediting rate. The repayment of principal when the contract matures is
solely the general debt obligation of the contract issuer. Synthetic contracts
combine investments in fixed income securities with wrap contracts to provide a
crediting rate. There is no immediate recognition of investment gains and losses
on the fixed income securities. Instead, the gain or loss is recognized over
time by adjusting the interest rate credited under the wrap contract. The
crediting rate is typically reset quarterly and has a floor rate of zero. The
repayment of principal depends on the creditworthiness of the underlying fixed
income securities. The fair value of the synthetic investment contracts was
approximately $1.3 billion and $560 million at December 31, 2001 and 2000,
respectively. The contract value of the synthetic investment contracts was
approximately $1.2 billion and $549 million at December 31, 2001 and 2000,
respectively.
VERIZON GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
The contracts had average yields of 6.62% and 6.66% at December 31, 2001
and 2000, respectively. The crediting interest rate for the contracts had a
range from 5.12% to 7.5% and 5.34% to 8.28% at December 31, 2001 and 2000,
respectively. The contracts have scheduled maturities from January 2, 2002 to
July 5, 2006, at December 31, 2001. No valuation reserve was recorded at
December 31, 2001 and 2000, to adjust contract amounts.
At December 31, 2001, the Master Trust contained certain investments in
futures contracts that are considered derivative investments. However, the total
fair value and the net investment gain or loss is not material to the Plan.
The following schedules reflect the Master Trust net investments by
investment type as of December 31, 2001 and 2000, and investment income (loss)
for the year ended December 31, 2001 (in thousands):
Net Investment Income (Loss)
Investments in in Master Trust
Master Trust Year Ended December 31, 2001
------------ ----------------------------
December 31, Interest & Net appreciation
2001 2000 Dividends (depreciation)
---- ---- --------- --------------
Verizon common stock $ 8,111,638 $3,345,980 $ 90,123 $(174,651)
Investment contracts 2,009,622 693,677 - 46,278
Commingled funds 1,241,379 839,505 - (77,195)
Mutual funds 1,356,184 2,119,320 27,379 (243,063)
Money market fund 1,255,707 274,552 12,211 -
Common stock 141,798 - - -
Loans to participants 438,295 195,654 14,423 -
---------- --------- -------- ----------
Total $14,554,623 $7,468,688 $144,136 $(448,631)
========== ========= ======== ==========
The funds, which are held within the Mellon Master Trust, are primarily
comprised of common stock with a fair value at December 31, 2001, of
approximately $2.4 billion. The funds had dividend and interest earnings of
approximately $5.9 million, and a net investment loss of approximately $55
million for the year. The Plan only participated in the funds held within the
Mellon Master Trust for the 10-day period December 21, 2001 to December 31,
2001.
(10) Subsequent Events:
As a result of the merger of the VBASP into the Plan on December 31, 2001,
effective January 1, 2002, the Plan was amended and renamed the Verizon Savings
Plan for Management Employees. Effective with the name change certain Plan
provisions were changed as follows: (1) the company match is changed to 100% on
the first 4% of eligible compensation each payroll period, and 50% on the next
2% of eligible compensation each payroll period; the total company match is
equivalent to 83 1/3% on 6% of eligible pay, (2) company match funding is
changed from monthly to bi-weekly, (3) due to change in control protections,
company contributions posted to participants' accounts by December 31, 2001 were
fully vested; company contributions after January 1, 2002 vest after three years
of service after date of hire, (4) participants age fifty and older are allowed
to move company matching contributions into other investment options, (5) loans
for the purchase of a primary residence cannot exceed fifteen years. The
interest rate for loans is set based on the prime rate in effect on the last
business day of the calendar quarter preceding the loans effective date.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Savings Plan Committee has duly caused this annual report to be signed by the
undersigned thereunto duly authorized.
VERIZON GTE SAVINGS PLAN
------------------------
(Name of Plan)
Date June 25, 2002 By /s/ Ezra D. Singer
--------------------- ----------------------------
(Ezra D. Singer)
Chairman, Verizon Employee Benefits Committee