1
                                  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, 2001

                                       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 1-8606

                           VERIZON COMMUNICATIONS INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


        DELAWARE                                              23-2259884
(STATE OF INCORPORATION)                                   (I.R.S. EMPLOYER
                                                          IDENTIFICATION NO.)

     1095 AVENUE OF THE AMERICAS                                10036
         NEW YORK, NEW YORK                                   (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                  REGISTRANT'S TELEPHONE NUMBER (212) 395-2121

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
                                        ---      ---

At June 30, 2001, 2,709,370,282 shares of the registrant's Common Stock were
outstanding, after deducting 42,280,202 shares held in treasury.
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TABLE OF CONTENTS

ITEM NO.

PART I. FINANCIAL INFORMATION                                            PAGE
-----------------------------                                            ----

1.  FINANCIAL STATEMENTS (UNAUDITED)

    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    Three and six months ended June 30, 2001 and 2000                       1

    CONDENSED CONSOLIDATED BALANCE SHEETS
    June 30, 2001 and December 31, 2000                                     2

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    Six months ended June 30, 2001 and 2000                                 3

    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                    4

2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS                                                  14

3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK             34


PART II. OTHER INFORMATION
--------------------------

1.  LEGAL PROCEEDINGS                                                      35

4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    35

6.  EXHIBITS AND REPORTS ON FORM 8-K                                       36
   3
 PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  Verizon Communications Inc. and Subsidiaries



(Dollars in Millions, Except Per Share                  THREE MONTHS ENDED       SIX MONTHS ENDED
Amounts) (Unaudited)                                         JUNE 30,                  JUNE 30,
                                                     ---------------------     --------------------
                                                       2001         2000          2001       2000
                                                     -------      --------     ---------   --------
                                                                               
OPERATING REVENUES                                  $ 16,909      $ 16,769      $ 33,175   $ 31,301

Operations and support expense                         9,713        11,392        19,012     19,600
Depreciation and amortization                          3,400         3,224         6,760      5,817
Gains on sales of assets, net                             (5)       (2,456)           (5)    (2,553)
                                                    --------      --------      --------   --------
OPERATING INCOME                                       3,801         4,609         7,408      8,437
Equity in income (loss) from unconsolidated
  businesses                                          (3,664)        3,283        (3,448)     3,513
Other income and (expense), net                          114            12           184         90
Interest expense                                        (909)         (915)       (1,830)    (1,689)
Minority interest                                       (209)           (9)         (307)       (35)
Mark-to-market adjustment - financial
instruments                                              (37)        1,112          (153)       287
                                                    --------      --------      --------   --------
Income (loss) before provision for income
  taxes, extraordinary item and cumulative
  effect of change in accounting principle              (904)        8,092         1,854     10,603
Provision for income taxes                               117         3,188         1,121      4,135
                                                    --------      --------      --------   --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
  PRINCIPLE                                           (1,021)        4,904           733      6,468
Extraordinary item, net of tax                            --            --            --         (9)
Cumulative effect of change in accounting
  principle, net of tax                                   --            --          (182)       (40)
                                                    --------      --------      --------   --------
NET INCOME (LOSS)                                     (1,021)        4,904           551      6,419
Redemption of subsidiary preferred stock                  --            --            --         (8)
                                                    --------      --------      --------   --------
NET INCOME (LOSS) AVAILABLE TO COMMON
  SHAREOWNERS                                       $ (1,021)     $  4,904      $    551   $  6,411
                                                    ========      ========      ========   ========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item and
  cumulative effect of change in accounting
  principle                                           $ (.38)       $ 1.80        $  .27     $ 2.37
Extraordinary item, net of tax                            --            --            --         --
Cumulative effect of change in accounting
  principle, net of tax                                   --            --          (.07)      (.01)
                                                    --------      --------      --------   --------
NET INCOME (LOSS)                                     $ (.38)       $ 1.80        $  .20     $ 2.36
                                                    ========      ========      ========   ========
Weighted-average shares outstanding (in
millions)                                              2,707         2,718         2,706      2,722
                                                    ========      ========      ========   ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item and
  cumulative effect of change in accounting
  principle                                           $ (.38)       $ 1.79        $  .27     $ 2.34
Extraordinary item, net of tax                            --            --            --         --
Cumulative effect of change in accounting
  principle, net of tax                                   --            --          (.07)      (.01)
                                                    --------      --------      --------   --------
NET INCOME (LOSS)                                     $ (.38)       $ 1.79        $  .20     $ 2.33
                                                    ========      ========      ========   ========
Weighted-average shares outstanding -
  diluted  (in millions)                               2,707         2,747         2,728      2,752
                                                    ========      ========      ========   ========
Dividends declared per common share                   $ .385        $ .385        $  .77     $  .77
                                                    ========      ========      ========   ========


See Notes to Condensed Consolidated Financial Statements


                                       1

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                      CONDENSED CONSOLIDATED BALANCE SHEETS
                  Verizon Communications Inc. and Subsidiaries




 (Dollars in Millions, Except Per Share Amounts) (Unaudited)                JUNE 30,   DECEMBER 31,
                                                                                2001           2000
                                                                           ---------   ------------
ASSETS
Current assets
                                                                                   
  Cash and cash equivalents                                                 $  2,616      $    757
  Short-term investments                                                         797         1,613
  Accounts receivable, net of allowances of $1,717 and $1,562                 13,777        14,010
  Inventories                                                                  2,047         1,910
  Net assets held for sale                                                       279           518
  Prepaid expenses and other                                                   3,744         3,313
                                                                            --------      --------
Total current assets                                                          23,260        22,121
                                                                            --------      --------
Plant, property and equipment                                                167,219       158,957
  Less accumulated depreciation                                               93,677        89,453
                                                                            --------      --------
                                                                              73,542        69,504
                                                                            --------      --------
Investments in unconsolidated businesses                                      11,850        13,115
Intangible assets                                                             43,627        41,990
Other assets                                                                  17,894        18,005
                                                                            --------      --------
Total assets                                                                $170,173      $164,735
                                                                            ========      ========

LIABILITIES AND SHAREOWNERS' INVESTMENT
Current liabilities
  Debt maturing within one year                                             $ 20,591      $ 14,838
  Accounts payable and accrued liabilities                                    11,740        13,965
  Other                                                                        5,433         5,433
                                                                            --------      --------
Total current liabilities                                                     37,764        34,236
                                                                            --------      --------
Long-term debt                                                                44,280        42,491
Employee benefit obligations                                                  12,115        12,543
Deferred income taxes                                                         15,689        15,260
Other liabilities                                                              3,677         3,797

Minority interest                                                             21,739        21,830

Shareowners' investment
  Series preferred stock ($.10 par value; none issued)                           --             --
  Common stock ($.10 par value; 2,751,650,484 shares issued in both
  periods)                                                                       275           275
  Contributed capital                                                         24,498        24,555
  Reinvested earnings                                                         13,137        14,667
  Accumulated other comprehensive loss                                          (692)       (2,176)
                                                                            --------      --------
                                                                              37,218        37,321
  Less common stock in treasury, at cost                                       1,525         1,861
  Less deferred compensation - employee stock ownership plans and
  other                                                                          784           882
                                                                            --------      --------
Total shareowners' investment                                                 34,909        34,578
                                                                            --------      --------
Total liabilities and shareowners' investment                               $170,173      $164,735
                                                                            ========      ========



See Notes to Condensed Consolidated Financial Statements


                                       2
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                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Verizon Communications Inc. and Subsidiaries




(Dollars in Millions) (Unaudited)                                         SIX MONTHS ENDED JUNE 30,
                                                                                   2001        2000
                                                                             ----------   ---------
CASH FLOWS FROM OPERATING ACTIVITIES
                                                                                      
Income before extraordinary item and cumulative effect of change in
  accounting principle                                                          $   733     $ 6,468
Adjustments to reconcile income before extraordinary item and
  cumulative effect of change in accounting principle to net cash
  provided by operating activities:
    Depreciation and amortization                                                 6,760       5,817
    Gains on sales of assets, net                                                    (5)     (2,553)
    Mark-to-market adjustment - financial instruments                               153        (287)
    Employee retirement benefits                                                 (1,118)     (1,760)
    Deferred income taxes                                                          (349)      2,085
    Provision for uncollectible accounts                                            782         539
    Equity in income (loss) from unconsolidated businesses                        3,448      (3,513)
    Changes in current assets and liabilities, net of effects from
      acquisition/disposition of businesses                                      (2,961)      1,750
    Other, net                                                                      215        (217)
                                                                               --------     --------
Net cash provided by operating activities                                         7,658       8,329
                                                                               --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                             (9,163)     (7,632)
Acquisitions, net of cash acquired, and investments                              (2,212)     (1,132)
Proceeds from disposition of businesses and assets                                   --       1,899
Investments in notes receivable                                                      --        (979)
Net change in short-term investments                                              1,010         483
Other, net                                                                         (510)       (234)
                                                                               --------     --------
Net cash used in investing activities                                           (10,875)     (7,595)
                                                                               --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings                                                8,253       2,822
Repayments of long-term borrowings and capital lease obligations                 (1,604)     (4,651)
Increase in short-term obligations, excluding current maturities                    620       3,518
Dividends paid                                                                   (2,079)     (2,099)
Proceeds from sale of common stock                                                  242         380
Purchase of common stock for treasury                                                (8)     (1,382)
Other, net                                                                         (348)         (9)
                                                                               --------     --------
Net cash provided by (used in) financing activities                               5,076      (1,421)
                                                                               --------     --------
Increase (decrease) in cash and cash equivalents                                  1,859        (687)
Cash and cash equivalents, beginning of period                                      757       2,033
                                                                               --------     --------
Cash and cash equivalents, end of period                                        $ 2,616     $ 1,346
                                                                               ========     ========


See Notes to Condensed Consolidated Financial Statements

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              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  Verizon Communications Inc. and Subsidiaries
                                   (Unaudited)

1.    BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared based upon Securities and Exchange Commission (SEC) rules that permit
reduced disclosure for interim periods. The condensed consolidated financial
statements for the six months ended June 30, 2000 give retroactive effect to the
merger of Bell Atlantic Corporation (Bell Atlantic) and GTE Corporation (GTE) on
June 30, 2000, as required for business combinations using pooling-of-interests
accounting.

These financial statements reflect all adjustments that are necessary for a fair
presentation of results of operations and financial condition for the interim
periods shown including normal recurring accruals and other items. The results
for the interim periods are not necessarily indicative of results for the full
year. For a more complete discussion of significant accounting policies and
certain other information, you should refer to the financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2000.

We have reclassified certain amounts from prior year's data to conform to the
2001 presentation.


2.    RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets."

SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001.

SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under certain conditions) for impairment in accordance with this
statement. This impairment test uses a fair value approach rather than the
undiscounted cash flows approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The amortization of goodwill included in our investments in
equity investees will also no longer be recorded upon adoption of the new rules.
Intangible assets that do not have indefinite lives will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 121. We are required to adopt SFAS No. 142 effective January 1, 2002.
We are currently evaluating our intangible assets in relation to the provisions
of SFAS No. 142 to determine the impact, if any, the adoption of SFAS No. 142
will have on our results of operations or financial position.



3.    MERGER CHARGES

In connection with the merger of Bell Atlantic and GTE on June 30, 2000, we
incurred charges associated with employee severance of $584 million ($371
million after-tax, or $.14 per diluted share). Employee severance costs, as
recorded under SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," represent the benefit costs for the separation of approximately 5,500
management employees who are entitled to benefits under pre-existing separation
plans, as well as an accrual of ongoing SFAS No. 112 obligations for GTE
employees. The remaining severance liability as of June 30, 2001 is $354
million. During the second quarter of 2000, in connection with the merger, we
also recorded a pretax charge of $472 million ($378 million after-tax, or $.14
per diluted share) for direct, incremental merger-related costs, including
compensation, professional services and other direct costs. In addition, we
recorded $385 million ($236 million after-tax, or $.09 per diluted share) for
other actions in relation to the merger or other strategic decisions, in the
second quarter of 2000.


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From the date of the merger, we expect to incur a total of approximately $2
billion of transition costs related to the merger and the formation of the
wireless joint venture. These costs will be incurred to integrate systems,
consolidate real estate and relocate employees. They also include approximately
$500 million for advertising and other costs to establish the Verizon brand.
Transition costs related to the merger have totaled $1,136 million since the
date of the merger. During the second quarter and for the first six months of
2001, we incurred transition costs of $279 million and $442 million ($162
million and $250 million after taxes and minority interests, or $.06 and $.09
per diluted share), respectively. During the second quarter of 2000, we incurred
$172 million ($47 million after taxes and minority interests, or $.02 per
diluted share) of transition costs.



4.    GAINS ON SALES OF ASSETS, NET

During 2001 and 2000, we recognized net gains in operations related to sales of
assets and impairments of assets held for sale, as follows:



(Dollars in Millions)               THREE MONTHS ENDED JUNE 30,                  SIX MONTHS ENDED JUNE 30,
                                   2001                   2000                 2001                 2000
                            -------------------   --------------------   ------------------   ------------------
                            PRETAX    AFTER-TAX   PRETAX     AFTER-TAX   PRETAX   AFTER-TAX   PRETAX   AFTER-TAX
                            ------    ---------   ------     ---------   ------   ---------   ------   ---------
                                                                               
Wireline properties         $   --   $   --       $ 1,078     $   655     $  --    $   --    $ 1,078   $   655
Wireless properties              5        3         1,922       1,156         5         3      1,922     1,156
Other, net                      --       --          (544)       (356)       --        --       (447)     (301)
                            ------   ------       -------     -------     -----    ------    --------  -------
                            $    5   $    3       $ 2,456     $ 1,455     $   5    $    3    $ 2,553   $ 1,510
                            ======   ======       =======     =======     =====    ======    ========  =======


Wireline Property Sales

During June 2000, we sold approximately 471,000 access lines located in Iowa,
Nebraska and Oklahoma for combined cash proceeds of $1,433 million and $125
million in convertible preferred stock. The pretax gain on the sales was $1,078
million ($655 million after-tax or $.24 per diluted share).

Wireless Overlap

A U.S. Department of Justice consent decree issued on December 6, 1999 required
GTE Wireless, Bell Atlantic Mobile, Vodafone AirTouch Group plc and PrimeCo
Personal Communications L.P. (PrimeCo) to resolve a number of wireless market
overlaps in order to complete the wireless joint venture and the Bell
Atlantic-GTE merger. As a result, during April 2000 we completed a transaction
with ALLTEL Corporation (ALLTEL) that provided for the exchange of several
former Bell Atlantic Mobile markets in Texas, New Mexico and Arizona for several
of ALLTEL's wireless markets in Nevada and Iowa and cash. In a separate
transaction entered into by GTE, in June 2000, we exchanged several former GTE
markets in Florida, Alabama and Ohio, as well as an equity interest in South
Carolina, for several ALLTEL interests in Pennsylvania, New York, Indiana and
Illinois. These exchanges were accounted for as purchase business combinations
and resulted in combined pretax gains of $1,922 million ($1,156 million
after-tax, or $.42 per diluted share).

As of June 30, 2001, we completed the sales of all overlap properties with the
exception of the Chicago market. The sale of the Cincinnati market was completed
during the second quarter of 2001. The pretax gain was $80 million ($48 million
after-tax, or $.02 per diluted share). In addition, during the quarter an
agreement to sell the Chicago market at a price lower than the net book value of
the Chicago assets was executed. Consequently, we recorded an impairment charge
of $75 million ($45 million after-tax, or $.02 per diluted share) related to the
expected sale. The sale of the Chicago market is expected to close in the second
half of 2001.

Other Transactions

In connection with our decisions to exit the video business and GTE Airfone, we
recorded an impairment charge during the second quarter of 2000 of $566 million
($362 million after-tax, or $.13 per diluted share) to reduce the carrying value
of these investments to their estimated net realizable value. In addition, other
sales during the quarter resulted in a net pretax gain of approximately $22
million ($6 million after-tax, or less than $.01 per diluted share). During the
first quarter of 2000, we recorded a pretax gain of $97 million ($55 million
after-tax, or $.02 per diluted share), primarily comprised of the gain on the
sale of our CyberTrust line of business.


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5.    EXTRAORDINARY ITEM

Results for the six months ended June 30, 2000 include the retirement in the
first quarter of 2000 of $128 million of debt prior to the stated maturity date,
resulting in a one-time, pretax extraordinary charge of $15 million ($9 million
after-tax, or less than $.01 per diluted share).



6.    WIRELESS JOINT VENTURE

On April 3, 2000, Verizon and Vodafone Group plc consummated the previously
announced agreement to combine U.S. wireless assets, including cellular,
Personal Communications Services (PCS) and paging operations. We accounted for
this transaction as a purchase business combination, and accordingly, began
reporting the combined wireless operations prospectively in the second quarter
of 2000.



7.    INVESTMENTS

Marketable Securities
We have investments in marketable securities, primarily common stocks, which are
considered "available-for-sale" under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." These investments have been included
in our condensed consolidated balance sheets in Investments in Unconsolidated
Businesses and Other Assets.

Under SFAS No. 115, available-for-sale securities are required to be carried at
their fair value, with unrealized gains and losses (net of income taxes) that
are considered temporary in nature recorded in Accumulated Other Comprehensive
Loss. The fair values of our investments in marketable securities are determined
based on market quotations.

The following table shows certain summarized information related to our
investments in marketable securities:



                                                               GROSS        GROSS
                                                          UNREALIZED   UNREALIZED
(Dollars in Millions)                              COST        GAINS       LOSSES   FAIR VALUE
                                                 ------   ----------   ----------   ----------
AT JUNE 30, 2001
                                                                        
Investments in unconsolidated businesses         $1,935         $620        $  (4)      $2,551
Other assets                                        342           23           --          365
                                                 ------        ------       -------     -------
                                                 $2,277         $643        $  (4)      $2,916
                                                 ======        ======       =======     =======
AT DECEMBER 31, 2000
Investments in unconsolidated businesses         $4,529         $559      $(1,542)      $3,546
Other assets                                      1,326           29         (241)       1,114
                                                 ------        ------       -------     -------
                                                 $5,855         $588      $(1,783)      $4,660
                                                 ======        ======       =======     =======



We continually evaluate our investments in marketable securities for impairment
due to declines in market value considered to be other than temporary. That
evaluation includes, in addition to persistent, declining stock prices, general
economic and company-specific evaluations. In the event of a determination that
a decline in market value is other than temporary, a charge to earnings is
recorded for all or a portion of the unrealized loss, and a new cost basis in
the investment is established.

Prior to the second quarter of 2001, we considered the declines in the market
values of our marketable securities investments to be temporary, due principally
to the overall weakness in the securities markets as well as telecommunications
sector share prices. However, in June 2001, we recognized a pretax loss of
$3,913 million ($2,926 million after-tax, or $1.07 diluted loss per share)
primarily relating to our investments in Cable & Wireless plc (C&W), NTL
Incorporated (NTL) and Metromedia Fiber Network, Inc. (MFN). We determined,
through the evaluations described above, that market value declines in these
investments were considered other than temporary.


                                       6
   9
During the second quarter of 2000, we recognized a pretax gain of $3,088 million
($1,941 million after-tax, or $.71 per diluted share) related to the
restructuring of our equity investment in Cable & Wireless Communications plc
(CWC). In exchange for our equity investment in CWC, we received shares of C&W
and NTL.

At June 30, 2001, the unrealized gains on marketable securities relate primarily
to our investment in Telecom Corporation of New Zealand Limited (TCNZ).

Other Securities
Prior to the merger of Bell Atlantic and GTE, we owned and consolidated Genuity
Inc. (Genuity). In June 2000, as a condition of the merger, 90.5% of the voting
equity of Genuity was issued in an initial public offering (IPO). We currently
own 9.5% of the voting equity of Genuity, which contains a contingent conversion
feature. The conversion rights are dependent on the percentage of certain of
Verizon's access lines that are compliant with Section 271 of the
Telecommunications Act of 1996. Verizon cannot currently exercise this
conversion feature.

Genuity's revenues for the second quarter and first half of 2000 were $275
million and $529 million, respectively, its net losses were $153 million and
$281 million, respectively. These periods preceded the IPO when Genuity was
wholly owned by Verizon. Consequently, these revenues and losses were included
in Verizon's consolidated results. Although no longer included in Verizon's
consolidated results of operations as a result of the IPO, Genuity's revenues
for the second quarter and first half of 2001 were $303 million and $602
million, respectively, its net losses were $354 million and $646 million,
respectively.


8.    ACCOUNTING CHANGE - DERIVATIVE FINANCIAL INSTRUMENTS

Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." SFAS No. 133 requires
that all derivatives, including derivatives embedded in other financial
instruments, be measured at fair value and recognized as either assets or
liabilities on our balance sheet. Changes in the fair values of derivative
instruments not qualifying as hedges under SFAS No. 133 or any ineffective
portion of hedges are recognized in earnings in the current period. Changes in
the fair values of derivative instruments used effectively as fair value hedges
are recognized in earnings, along with changes in the fair value of the hedged
item. Changes in the fair value of the effective portions of cash flow hedges
are reported in other comprehensive income (loss), and recognized in earnings
when the hedged item is recognized in earnings. The initial impact of adoption
on our consolidated financial statements was recorded as a cumulative effect of
an accounting change resulting in a charge of $182 million to current earnings
and income of $110 million to other comprehensive income (loss). The recognition
of assets and liabilities was immaterial to our financial position.

The ongoing effect of SFAS No. 133 on our consolidated financial statements will
be determined each quarter by several factors, including the specific hedging
instruments in place and their relationships to hedged items, as well as market
conditions at the end of each period. For the three months ended June 30, 2001,
we recorded a charge to current earnings of $37 million and a loss of $2 million
to other comprehensive income (loss). For the six months ended June 30, 2001, we
recorded a charge to current earnings of $153 million (before minority interest
of $2 million) and a loss of $14 million to other comprehensive income (loss).

The charges to current earnings are primarily due to changes in the fair value
of the conversion option on our investment in MFN debt securities which allows
us to convert our debt securities into MFN common stock. The conversion option
has, as its underlying risk, changes in the MFN stock price. This risk is not
clearly and closely related to the change in interest rate risk underlying the
debt securities and therefore the conversion option does not qualify as a hedge
under SFAS No. 133. The fair value of the conversion option is recognized as an
asset in our balance sheet and we record the mark-to-market adjustment in
current earnings.

A net charge of $186 million related to the MFN conversion option was included
as part of the cumulative effect of the accounting change recorded on January 1,
2001. A net charge of $41 million was recorded to mark-to-market adjustment for
the three months ended June 30, 2001. A net charge of $149 million was recorded
to mark-to-market adjustment for the six months ended June 30, 2001.


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9.    DEBT

Exchangeable Notes

Previously, Verizon Global Funding issued two series of notes that are
exchangeable for shares of TCNZ and for C&W and NTL shares.

The exchangeable notes are indexed to the fair market value of the common stock
into which they are exchangeable. If the price of the shares exceeds the
exchange price established at the offering date, a mark-to-market adjustment is
recorded, recognizing an increase in the carrying value of the debt obligation
and a charge to income. If the price of the shares subsequently declines, the
debt obligation is reduced (but not to less than the amortized carrying value of
the notes).

At June 30, 2001, the exchange price of the notes exchangeable into C&W and NTL
shares exceeded the combined value of the share prices. Consequently, the notes
were recorded at their amortized carrying value with no mark-to-market
adjustments recorded in the second quarter or in the first six months of 2001.
At June 30, 2000, the decrease in the debt obligation since December 31, 1999 of
$287 million ($186 million after-tax, or $.07 per diluted share) was recorded as
an increase to income in the first six months of 2000 and an increase to income
of $1,112 million ($722 million after-tax, or $.26 per diluted share) in the
second quarter of 2000. As of June 30, 2001, we have recorded no mark-to-market
adjustments for the TCNZ exchangeable notes.

Support Agreements

All of Verizon Global Funding's debt (including the TCNZ and the C&W and NTL
exchangeable notes) have the benefit of Support Agreements between us and
Verizon Global Funding, which guarantee payment of interest, premium (if any)
and principal outstanding should Verizon Global Funding fail to pay. The holders
of Verizon Global Funding debt do not have recourse to the stock or assets of
most of our telephone operations or TCNZ; however, they do have recourse to
dividends paid to us by any of our consolidated subsidiaries as well as assets
not covered by the exclusion. Verizon Global Funding's long-term debt, including
current portion, aggregated $19,697 million at June 30, 2001. The carrying value
of the available assets reflected in our condensed consolidated financial
statements was approximately $68.4 billion at June 30, 2001.

Debt Issuances

In April 2001, Verizon South Inc., an indirect wholly owned subsidiary of
Verizon Communications, issued $300 million of 7% Series F debentures due 2041
at a discount, resulting in gross proceeds of approximately $291 million.

In May 2001, Verizon Global Funding issued $2 billion of floating rate notes due
2002. Interest on the notes is reset quarterly at three-month LIBOR plus .05%.

In May 2001, Verizon Global Funding issued approximately $5.4 billion in
principal amount at maturity of zero-coupon convertible notes due 2021,
resulting in gross proceeds of approximately $3 billion. The notes are
convertible into shares of our common stock at an initial price of $69.50 per
share if the closing price of Verizon common stock on the New York Stock
Exchange exceeds specified levels or in other specified circumstances. The
conversion price increases by at least 3% a year. The initial conversion price
represents a 25% premium over the May 8, 2001 closing price of $55.60 per share.
There are no scheduled cash interest payments associated with the notes.

Reclassification of Long-Term Debt

During the second quarter of 2001, approximately $5.1 billion of revolving loans
was reclassified to short-term debt in connection with the expiration of the
current credit facility agreement in the second quarter of 2002.


                                       8
   11
10.     COMPREHENSIVE INCOME

Comprehensive income consists of net income and other gains and losses affecting
shareowners' investment that, under generally accepted accounting principles,
are excluded from net income.

Changes in the components of other comprehensive income (loss) are as follows:



(Dollars in Millions)                                        THREE MONTHS ENDED JUNE 30,  SIX MONTHS ENDED JUNE 30,
                                                                    2001      2000            2001       2000
                                                                  --------   -------       ---------   --------
                                                                                           
NET INCOME (LOSS)                                                 $(1,021)   $ 4,904       $   551     $ 6,419
                                                                  --------   -------       ---------   --------
OTHER COMPREHENSIVE INCOME (LOSS), net of
  taxes
Foreign currency translation adjustments                              100        (99)          348        (163)
Unrealized gains (losses) on marketable securities                  1,947       (761)        1,152         202
Unrealized derivative losses on cash flow hedges                       (2)        --           (16)         --
Minimum pension liability adjustment                                   --         --            --         (22)
                                                                  --------   -------       ---------   --------
                                                                    2,045       (860)        1,484          17
                                                                  --------   -------       ---------   --------
TOTAL COMPREHENSIVE INCOME                                        $ 1,024    $ 4,044       $ 2,035     $ 6,436
                                                                  ========   =======       =========   ========


The change in unrealized gains (losses) on marketable securities in 2001
primarily relates to the reclassification of after-tax realized losses of $2,926
million recorded due to the other than temporary decline in market value of
certain of our marketable securities (see Note 7). The net unrealized gains
(losses) on marketable securities in 2000 primarily related to our investments
in MFN and TCNZ.

The components of accumulated other comprehensive loss are as follows:




(Dollars in Millions)                                       AT JUNE 30, 2001    AT DECEMBER 31, 2000
                                                            ----------------    --------------------
                                                                          
Foreign currency translation adjustments                             $(1,060)           $(1,408)
Unrealized gains (losses) on marketable securities                       418               (734)
Unrealized derivative losses on cash flow hedges                         (16)                --
Minimum pension liability adjustment                                     (34)               (34)
                                                                    --------            -------
Accumulated other comprehensive loss                                 $  (692)           $(2,176)
                                                                    ========            =======


                                       9


   12
11.   EARNINGS PER SHARE

The following table is a reconciliation of the share amounts used in computing
earnings per share.



(Dollars and Shares in Millions, Except Per            THREE MONTHS ENDED        SIX MONTHS ENDED
Share Amounts)                                               JUNE 30,                JUNE 30,
                                                        2001       2000         2001        2000
                                                      -------    --------      -------    --------
                                                                              
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREOWNERS
Income (loss) before extraordinary item and
  cumulative effect of change in accounting
  principle                                           $(1,021)   $ 4,904         $733     $ 6,468
Redemption of subsidiary preferred stock                   --         --           --          (8)
                                                      -------    --------      -------    --------
Income (loss) available to common shareowners*         (1,021)     4,904          733       6,460
Extraordinary item, net of tax                             --         --           --          (9)
Cumulative effect of change in accounting
principle, net of tax                                      --         --         (182)        (40)
                                                      -------    --------      -------    --------
Net income (loss) available to common
shareowners*                                          $(1,021)   $ 4,904         $551     $ 6,411
                                                      =======    ========      =======    ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Weighted-average shares outstanding                     2,707      2,718        2,706       2,722
                                                      -------    --------      -------    --------
Income (loss) available to common shareowners
  before extraordinary item and cumulative
  effect of change in accounting principle             $ (.38)    $ 1.80        $ .27      $ 2.37
Extraordinary item, net of tax                             --         --           --          --
Cumulative effect of change in accounting
principle, net of tax                                      --         --         (.07)       (.01)
                                                      -------    --------      -------    --------
Net income (loss) available to common
shareowners                                            $ (.38)    $ 1.80        $ .20      $ 2.36
                                                      =======    ========      =======    ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Weighted-average shares outstanding                     2,707      2,718        2,706       2,722
Effect of dilutive securities                              --         29           22          30
                                                      -------    --------      -------    --------
Weighted-average shares outstanding - diluted           2,707      2,747        2,728       2,752
                                                      -------    --------      -------    --------
Income (loss) available to common shareowners
  before extraordinary item and cumulative
  effect of change in accounting principle             $ (.38)    $ 1.79        $ .27      $ 2.34
Extraordinary item, net of tax                             --         --           --          --
Cumulative effect of change in accounting
principle, net of tax                                      --         --         (.07)       (.01)
                                                      -------    --------      -------    --------
Net income (loss) available to common
shareowners                                            $ (.38)    $ 1.79        $ .20      $ 2.33
                                                      =======    ========      =======    ========


*Income (loss) and Net income (loss) available to common shareowners are the
same for purposes of calculating basic and diluted earnings per share.

Stock options for 116 million shares for the three months ended June 30, 2001
and 117 million shares for the six months ended June 30, 2001 were not included
in the computation of diluted earnings per share because the exercise price of
stock options was greater than the average market price of the common stock. For
the three and six months ended June 30, 2000, the number of shares not included
in the computation of diluted earnings per share was 53 million for both
periods. No other contingently issuable shares were included in the diluted
earnings per share calculation since conversion conditions were not met.



12.   SEGMENT INFORMATION

We have four reportable segments, which we operate and manage as strategic
business units and organize by products and services. Our segments include a
Domestic Telecom group which provides domestic wireline communications services;
a Domestic Wireless group which provides domestic wireless communications
services; an International group which includes our foreign wireline and
wireless communications investments; and an Information Services group which is
responsible for our domestic and international publishing businesses and
electronic commerce services.

We measure and evaluate our reportable segments based on adjusted net income,
which excludes unallocated corporate expenses and other adjustments arising
during each period. The other adjustments include transactions that management
excludes in assessing business unit performance due primarily to their
nonrecurring and/or non-operational nature. Although such transactions are
excluded from the business segment results, they are included in reported
consolidated earnings.


                                       10
   13
REPORTABLE SEGMENTS
The following table provides adjusted operating financial information for our
four reportable segments and a reconciliation of adjusted segment results to
consolidated results:



(Dollars in Millions)                           THREE MONTHS ENDED          SIX MONTHS ENDED
                                                     JUNE 30,                    JUNE 30,
                                                2001          2000         2001          2000
                                               -------       -------      -------       -------
                                                                            
EXTERNAL OPERATING REVENUES
Domestic Telecom                               $10,817       $10,706      $21,601       $21,122
Domestic Wireless                                4,373         3,943        8,411         6,098
International                                      586           471        1,111           928
Information Services                               970         1,031        1,754         1,781
                                               -------       -------      -------       -------
Total segments - adjusted                       16,746        16,151       32,877        29,929
Reconciling items                                  163           618          298         1,372
                                               -------       -------      -------       -------
Total consolidated - reported                  $16,909       $16,769      $33,175       $31,301
                                               =======       =======      =======       =======
INTERSEGMENT REVENUES
Domestic Telecom                                $  136        $  210       $  272        $  410
Domestic Wireless                                   10             9           18            18
International                                       12            --           14            --
Information Services                                14            25           19            54
                                               -------       -------      -------       -------
Total segments - reported                          172           244          323           482
Reconciling items                                 (172)         (244)        (323)         (482)
                                               -------       -------      -------       -------
Total consolidated - reported                   $   --        $   --       $   --        $   --
                                               =======       =======      =======       =======
TOTAL OPERATING REVENUES
Domestic Telecom                               $10,953       $10,916      $21,873       $21,532
Domestic Wireless                                4,383         3,952        8,429         6,116
International                                      598           471        1,125           928
Information Services                               984         1,056        1,773         1,835
                                               -------       -------      -------       -------
Total segments - adjusted                       16,918        16,395       33,200        30,411
Reconciling items                                   (9)          374          (25)          890
                                               -------       -------      -------       -------
Total consolidated - reported                  $16,909       $16,769      $33,175       $31,301
                                               =======       =======      =======       =======
NET INCOME
Domestic Telecom                               $ 1,361       $ 1,378      $ 2,711       $ 2,640
Domestic Wireless                                  151            91          249           220
International                                      243           155          453           326
Information Services                               298           329          510           527
                                               -------       -------      -------       -------
Total segments - adjusted                        2,053         1,953        3,923         3,713
Reconciling items                               (3,074)        2,951       (3,372)        2,706
                                               -------       -------      -------       -------
Total consolidated - reported                  $(1,021)      $ 4,904      $   551       $ 6,419
                                               =======       =======      =======       =======






(Dollars in Millions)             JUNE 30, 2001     DECEMBER 31,2000
ASSETS                            -------------     ----------------
                                             
Domestic Telecom                       $  80,025        $  78,112
Domestic Wireless                         59,047           56,029
International                             14,853           14,466
Information Services                       3,555            3,148
                                       ---------        ----------
Total segments                           157,480          151,755
Reconciling items                         12,693           12,980
                                       ---------        ----------
Total consolidated                     $ 170,173        $ 164,735
                                       =========        ==========



                                       11
   14
Major reconciling items between the segments and the consolidated results are as
follows:



 (Dollars in Millions)                                   THREE MONTHS ENDED   SIX MONTHS  ENDED
                                                              JUNE 30,             JUNE 30,
                                                         2001       2000        2001      2000
                                                         -------    -------     ------    ------
                                                                            
TOTAL REVENUES
Genuity (see Note 7)                                    $    --     $  275    $    --    $  529
Significant operations sold in 2000                          --        349         --       709
Regulatory settlements                                       --        (69)        --       (69)
Corporate, eliminations and other                            (9)      (181)       (25)     (279)
                                                        -------     ------    -------   ------
                                                        $    (9)    $  374    $   (25)   $  890
                                                        =======     ======    =======   ======
NET INCOME
Genuity (see Note 7)                                    $    --     $ (153)   $    --    $ (281)
(Loss)/gain on marketable securities (see Note 7)        (2,926)     1,941     (2,926)    1,941
Mark-to-market adjustment - exchangeable notes (see
Note 9)                                                      --        722         --       186
Mark-to-market adjustment - other financial
instruments (see Note 8)                                    (37)        --       (151)       --
Other charges and special items (see Note 3)                 --       (491)        --      (526)
Merger related costs (see Note 3)                            --       (749)        --      (749)
Transition costs (see Note 3)                              (162)       (47)      (250)      (47)
Gains on sales of assets, net (see Note 4)                    3      1,455          3     1,510
Cumulative effect of accounting change (see Note 8)          --         --       (182)      (40)
Pension settlements                                          --        260         --       564
Extraordinary item (see Note 5)                              --         --         --        (9)
Corporate, eliminations and other                            48         13        134       157
                                                        -------     ------    -------    ------
                                                        $(3,074)    $2,951    $(3,372)   $2,706
                                                        =======     ======    =======    ======


Pension settlement gains before tax of $425 million ($260 million after-tax) and
$911 million ($564 million after-tax) were recognized for the three- and
six-month periods ended June 30, 2000, respectively. These gains were recorded
in accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits."
They relate to certain settlements of pension obligations for former GTE
employees through direct payment, the purchase of annuities or otherwise. There
were no similar pension settlement gains recorded during 2001.

Corporate, eliminations and other includes unallocated corporate expenses,
intersegment eliminations recorded in consolidation, the results of other
businesses such as lease financing, and asset impairments and expenses that are
not allocated in assessing segment performance due to their nonrecurring nature.

We generally account for intersegment sales of products and services and asset
transfers at current market prices. We are not dependent on any single customer.


13.   COMMITMENTS AND CONTINGENCIES

Several state and federal regulatory proceedings may require our telephone
operations to refund a portion of the revenues collected in the current and
prior periods. There are also various legal actions pending to which we are a
party and claims which, if asserted, may lead to other legal actions. We have
established reserves for specific liabilities in connection with regulatory and
legal matters that we currently deem to be probable and estimable.

We do not expect that the ultimate resolution of pending regulatory and legal
matters in future periods will have a material effect on our financial
condition, but it could have a material effect on our results of operations.

Verizon Wireless was the winning bidder for 113 licenses in the Federal
Communications Commission's (FCC) auction of 1.9 GHz spectrum, which concluded
in January 2001. These licenses would add capacity for growth and advanced
services in markets including New York, Boston, Los Angeles, Chicago,
Philadelphia, Washington, D.C., Seattle and San Francisco. The total price of
these licenses was approximately $8.8 billion, $1.8 billion of which has already
been paid and the balance of which will be paid when the FCC requires payment.


                                       12
   15
There were no legal challenges to Verizon Wireless's qualifications to acquire
these licenses. However, most of the licenses that were auctioned are the
subject of pending litigation by the original licensees, NextWave Personal
Communications Inc. and NextWave Power Partners Inc., which have appealed to the
federal courts the FCC's action canceling NextWave's licenses and reclaiming the
spectrum. In a decision on June 22, 2001, the U.S. appeals court ruled that the
FCC was not allowed to repossess the NextWave licenses. The FCC has announced
that it intends to appeal the U.S. appeals court decision to the U.S. Supreme
Court. If the licenses must be returned, the FCC has stated that it will refund
to winning bidders any amounts that they may have paid, without interest. Nearly
all of Verizon Wireless's $8.8 billion license cost relates to licenses subject
to NextWave's appeal.

During the fourth quarter of 2000, Verizon Wireless agreed to acquire the
wireless business of Price Communications for $1.5 billion in Verizon Wireless
stock and the repayment by Verizon Wireless of $550 million in net debt. The
transaction was conditioned upon completion of a Verizon Wireless initial public
offering by September 30, 2001. Since we have disclosed that the initial public
offering cannot be completed by September 30, 2001, we have begun discussions
with Price Communications to explore alternative forms of consideration and
other terms for an acquisition of the wireless business of Price Communications.

In the first quarter of 2001, we agreed to provide up to $500 million in interim
financing to Genuity. We subsequently increased the amount to $1,150 million. As
of June 30, 2001, $750 million of that commitment had been loaned to Genuity.



                                       13







   16


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


OVERVIEW

Verizon Communications Inc. was formed in June 2000 by the merger of Bell
Atlantic Corporation and GTE Corporation. Financial information for the three
and six months ended June 30, 2000 gives retroactive effect to the merger, as
required for business combinations using pooling-of-interests accounting. The
formation of the wireless joint venture occurred in April 2000. Financial
information for the six months ended June 30, 2000 does not give retroactive
effect to the formation of the wireless joint venture, as required for purchase
business combinations.


CONSOLIDATED RESULTS OF OPERATIONS

In this section, we discuss our overall reported results and highlight special
and nonrecurring items. In the following section, we review the performance of
our segments on an adjusted basis. We adjust the segments' reported results for
the effects of these items, which management does not consider in assessing
segment performance due primarily to their nonrecurring and/or non-operational
nature. We believe that this presentation will assist readers in better
understanding trends from period to period.

Reported consolidated revenues were $16,909 million for the quarter ended June
30, 2001, compared to $16,769 million for the similar period of the prior year.
Consolidated revenues reported during the first six months of 2001 were $33,175
million, compared to $31,301 million for the first six months of 2000. Reported
revenues were not adjusted for prior year sales of wireline operations and the
deconsolidation of Genuity Inc. (Genuity). In addition, prior year revenues
include the formation of the Verizon Wireless joint venture beginning in April
2000 and include overlapping wireless properties through June 30, 2000.

Consolidated second quarter 2001 revenues, adjusted for the items in the
preceding paragraph, increased 5.0% to $16,909 million from $16,104 million in
second quarter of 2000. Six-month 2001 consolidated adjusted revenues were
$33,175 million, or 6.0% higher than the first six months of 2000 adjusted
revenues of $31,308 million.

We reported a net loss of $1,021 million, or $.38 diluted loss per share for the
quarter ended June 30, 2001, compared to net income available to common
shareowners of $4,904 million, or $1.79 diluted earnings per share for the
quarter ended June 30, 2000. Reported net income available to common shareowners
for the first six months of 2001 was $551 million, or $.20 diluted earnings per
share, compared to $6,411 million, or $2.33 diluted earnings per share, for the
same period in 2000.

Our reported results were affected by special items. After adjusting for such
items, net income would have been $2,101 million, or $.77 diluted earnings per
share in the second quarter of 2001 and $1,966 million, or $.72 diluted earnings
per share in the second quarter of 2000. For the first half of 2001, net income
would have been $4,057 million, or $1.49 diluted earnings per share compared to
$3,870 million, or $1.41 diluted earnings per share for the first half of 2000.


                                       14
   17
The table below summarizes reported and adjusted results of operations for each
period.




(Dollars in Millions, Except Per Share Amounts)         THREE MONTHS ENDED JUNE 30,        SIX MONTHS ENDED JUNE 30,
-----------------------------------------------         ---------------------------        -------------------------
                                                           2001             2000             2001             2000
                                                           ----             ----             ----             ----
                                                                                                
Reported operating revenues                              $ 16,909         $ 16,769         $ 33,175         $ 31,301
Reported operating expenses                                13,108           12,160           25,767           22,864
                                                         --------         --------         --------         --------
Reported operating income                                   3,801            4,609            7,408            8,437

REPORTED NET INCOME (LOSS) AVAILABLE TO
  COMMON SHAREHOLDERS                                      (1,021)           4,904              551            6,411
                                                         --------         --------         --------         --------
Merger-related costs                                           --              749               --              749
Transition costs                                              162               47              250               47
Gains on sales of assets, net                                  (3)          (1,455)              (3)          (1,510)
Pension settlements                                            --             (260)              --             (564)
Loss/(gain) on marketable securities                        2,926           (1,941)           2,926           (1,941)
Mark-to-market adjustment - financial instruments              37             (722)             151             (186)
Genuity loss                                                   --              153               --              281
Other charges and special items                                --              491               --              526
Extraordinary item                                             --               --               --                9
Cumulative effect of accounting change                         --               --              182               40
Redemption of subsidiary preferred stock                       --               --               --                8
                                                         --------         --------         --------         --------
ADJUSTED NET INCOME                                      $  2,101         $  1,966         $  4,057         $  3,870
                                                         ========         ========         ========         ========
DILUTED EARNINGS (LOSS) PER SHARE - REPORTED             $   (.38)        $   1.79         $    .20         $   2.33
DILUTED EARNINGS PER SHARE - ADJUSTED                    $    .77         $    .72         $   1.49         $   1.41



MERGER-RELATED COSTS

Charges associated with employee severance of $584 million ($371 million
after-tax, or $.14 per diluted share) were recorded during the second quarter of
2000. Employee severance costs, as recorded under Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits," represent the benefit costs for the separation of approximately 5,500
management employees who are entitled to benefits under pre-existing separation
plans, as well as an accrual of ongoing SFAS No. 112 obligations for GTE
employees. The remaining severance liability as of June 30, 2001 is $354
million.

In addition, during the second quarter of 2000, in connection with the merger,
we recorded a pretax charge of $472 million ($378 million after-tax, or $.14 per
diluted share) for direct, incremental merger-related costs, including
compensation, professional services and other direct costs.


TRANSITION COSTS

From the date of the merger, we expect to incur a total of approximately $2.0
billion of transition costs related to the merger and the formation of the
wireless joint venture. These costs will be incurred to integrate systems,
consolidate real estate and relocate employees. They also include approximately
$500 million for advertising and other costs to establish the Verizon brand.
Transition costs related to the merger have totaled $1,136 million since the
date of the merger. During the second quarter and for the first six months of
2001, we incurred transition costs of $279 million and $442 million ($162
million and $250 million after taxes and minority interests, or $.06 and $.09
per diluted share), respectively. During the second quarter of 2000, we incurred
$172 million ($47 million after taxes and minority interests, or $.02 per
diluted share) of transition costs.


                                       15
   18
GAINS ON SALES OF ASSETS, NET

As of June 30, 2001, we completed the sales of all overlap wireless properties
with the exception of the Chicago market. The sale of the Cincinnati market was
completed during the second quarter of 2001. The pretax gain was $80 million
($48 million after-tax, or $.02 per diluted share). In addition, during the
quarter an agreement to sell the Chicago market at a price lower than the net
book value of the Chicago assets was executed. Consequently, we recorded an
impairment charge of $75 million ($45 million after-tax, or $.02 per diluted
share) related to the expected sale. The sale of the Chicago market is expected
to close in the second half of 2001.

During the second quarter of 2000, we recognized net gains of $2,456 million
($1,455 million after-tax, or $.53 per diluted share) related to sales of assets
and impairments of assets held for sale. These net gains resulted primarily from
a pretax gain on the sale of access lines of $1,078 million ($655 million
after-tax, or $.24 per diluted share); pretax gains on exchanges of wireless
overlap properties of $1,922 million ($1,156 million after-tax, or $.42 per
diluted share); and an impairment charge in connection with our exit from the
video business and GTE Airfone of $566 million ($362 million after-tax, or $.13
per diluted share). Results for the six months ended June 30, 2000 also include
a pretax gain recorded in the first quarter of 2000 of $97 million ($55 million
after-tax, or $.02 per diluted share), primarily comprised of the gain on the
sale of our CyberTrust line of business.


PENSION SETTLEMENTS

Pension settlement gains of $425 million ($260 million after-tax, or $.09 per
diluted share) and $911 million ($564 million after-tax, or $.20 per diluted
share) were recognized for the three- and six-month periods ended June 30, 2000,
respectively. These gains were recorded in accordance with SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." They relate to certain settlements
of pension obligations for former GTE employees through direct payment, the
purchase of annuities or otherwise. There were no similar pension settlement
gains recorded during 2001.


LOSS/(GAIN) ON MARKETABLE SECURITIES

We continually evaluate our investments in marketable securities for impairment
due to declines in market value considered to be other than temporary. That
evaluation includes, in addition to persistent, declining stock prices, general
economic and company-specific evaluations. In the event of a determination that
a decline in market value is other than temporary, a charge to earnings is
recorded for all or a portion of the unrealized loss, and a new cost basis in
the investment is established.

Prior to the second quarter of 2001, we considered the declines in the market
values of our marketable securities investments to be temporary, due principally
to the overall weakness in the securities markets as well as telecommunications
sector share prices. However, in June 2001, we recognized a pretax loss of
$3,913 million ($2,926 million after-tax, or $1.07 diluted loss per share)
primarily relating to our investments in Cable & Wireless plc (C&W), NTL
Incorporated (NTL) and Metromedia Fiber Network, Inc. (MFN). We determined,
through the evaluations described above, that market value declines in these
investments were considered other than temporary.

In May 2000, C&W, NTL and Cable & Wireless Communications plc (CWC) completed a
restructuring of CWC. In connection with the restructuring, we, as a shareholder
in CWC, received shares in the two acquiring companies, representing
approximately 9.1% of the NTL shares outstanding at the time and approximately
4.6% of the C&W shares outstanding at the time. Based on this level of
ownership, our investments in NTL and C&W are accounted for under the cost
method. Our previous interest in CWC was accounted for using the equity method.
Our exchange of CWC shares for C&W and NTL shares resulted in the recognition of
a non-cash pretax gain of $3,088 million ($1,941 million after-tax, or $.71 per
diluted share) and a corresponding increase in the cost basis of the shares
received.


                                       16
   19
MARK-TO-MARKET ADJUSTMENT - FINANCIAL INSTRUMENTS

During 2001, we began recording mark-to-market adjustments in earnings relating
to some of our financial instruments in accordance with newly effective
accounting rules on derivative financial instruments. Mark-to-market losses of
$37 million ($37 million after taxes and minority interest, or $.01 per diluted
share) and $153 million ($151 million after taxes and minority interest, or $.06
per diluted share) were recorded during the three- and six-month periods ended
June 30, 2001, respectively, due primarily to the change in the fair value of
the MFN debt conversion option.

In addition, during the three- and six-month periods ended June 30, 2000, we
recorded mark-to-market gains of $1,112 million ($722 million after-tax, or $.26
per diluted share) and $287 million ($186 million after-tax, or $.07 per diluted
share), respectively, related to our $3,180 million notes which are exchangeable
into shares of C&W and NTL. These mark-to-market adjustments were required
because the carrying value of the exchangeable notes is indexed to the fair
market value of the underlying common stock. As the combined fair value of the
C&W and NTL common stock declines, our debt obligation is reduced (but not to
less than its amortized carrying value) and income is increased. If the combined
fair value of the C&W and NTL common stock increases, our debt obligation
increases and income is decreased.


GENUITY LOSS

In accordance with the provisions of a Federal Communications Commission (FCC)
order in June 2000, Genuity, formerly a wholly owned subsidiary of GTE, sold in
a public offering 174 million of its Class A common shares, representing 100% of
the issued and outstanding Class A common stock and 90.5% of the overall voting
equity in Genuity. GTE retained 100% of Genuity's Class B common stock, which
represents 9.5% of the voting equity in Genuity and contains a contingent
conversion feature. The sale transferred ownership and control of Genuity to the
Class A common stockholders and, accordingly, we deconsolidated our investment
in Genuity on June 30, 2000 and are accounting for our investment in Genuity
using the cost method. The impact of this change is that Genuity's revenues and
expenses, as well as changes in balance sheet accounts and cash flows subsequent
to June 30, 2000 are no longer included in our consolidated financial results.
As a result, for comparability, we have adjusted the reported results for the
first and second quarters of 2000 to exclude the results of Genuity. Genuity's
after-tax losses for the second quarter and the first half of 2000 were $153
million (or $.06 per diluted share) and $281 million (or $.10 per diluted
share), respectively.


OTHER CHARGES AND SPECIAL ITEMS

During the three and six months ended June 30, 2000, we recognized other charges
and special items of $744 million ($491 million after-tax, or $.18 per diluted
share) and $801 million ($526 million after-tax or $.19 per diluted share),
respectively. Other charges and special items for the three and six months ended
June 30, 2000 include the cost of disposing or abandoning redundant assets,
discontinued system development projects in connection with the merger,
regulatory settlements and other asset write-downs.


EXTRAORDINARY ITEM

Results for the six months ended June 30, 2000 include the retirement in the
first quarter of 2000 of $128 million of debt prior to the stated maturity date,
resulting in a one-time, pretax extraordinary charge of $15 million ($9 million
after-tax, or less than $.01 per diluted share).


                                       17
   20
CUMULATIVE EFFECT OF ACCOUNTING CHANGE

Impact of SAB No. 101

We adopted the provisions of the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements"
in the fourth quarter of 2000, retroactive to January 1, 2000, as required by
the SEC. The impact to Verizon pertains to the deferral of certain non-recurring
fees, such as service activation and installation fees, and associated
incremental direct costs, and the recognition of those revenues and costs over
the expected term of the customer relationship. Results for the six months ended
June 30, 2000 include the initial impact of adoption recorded as a cumulative
effect of an accounting change of $40 million after-tax (or $.01 per diluted
share) in the first quarter of 2000.

Impact of SFAS No. 133

We adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and the related SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" on January 1,
2001. The impact to Verizon pertains to the recognition of changes in the fair
value of derivative instruments. Results for the six months ended June 30, 2001
include the initial impact of adoption recorded as a cumulative effect of an
accounting change of $182 million (or $.07 per diluted share) in the first
quarter of 2001. This cumulative effect charge primarily relates to the change
in the fair value of the MFN debt conversion option prior to January 1, 2001.


SEGMENT RESULTS OF OPERATIONS

We have four reportable segments, which we operate and manage as strategic
business units and organize by products and services. Our segments are Domestic
Telecom, Domestic Wireless, International and Information Services. You can find
additional information about our segments in Note 12 to the condensed
consolidated financial statements.

We measure and evaluate our reportable segments based on adjusted net income,
which excludes unallocated corporate expenses and other adjustments arising
during each period. Other adjustments include transactions that management has
excluded in assessing business unit performance, due primarily to their
nonrecurring and/or non-operational nature, but has included in reported
consolidated earnings. We previously described these items in the "Consolidated
Results of Operations" section.


                                       18
   21
Special items affected our segments as follows:



(Dollars in Millions)     THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
---------------------     ---------------------------      -------------------------
                             2001            2000            2001            2000
                             ----            ----            ----            ----
                                                                
DOMESTIC TELECOM
Reported net income         $ 1,204         $ 1,290         $ 2,485         $ 2,839
Special items                   157              88             226            (199)
                            -------         -------         -------         -------
Adjusted net income         $ 1,361         $ 1,378         $ 2,711         $ 2,640
                            =======         =======         =======         =======
DOMESTIC WIRELESS
Reported net income         $   137         $   548         $   216         $   678
Special items                    14            (457)             33            (458)
                            -------         -------         -------         -------
Adjusted net income         $   151         $    91         $   249         $   220
                            =======         =======         =======         =======
INTERNATIONAL
Reported net income         $(1,506)        $ 2,064         $(1,296)        $ 2,195
Special items                 1,749          (1,909)          1,749          (1,869)
                            -------         -------         -------         -------
Adjusted net income         $   243         $   155         $   453         $   326
                            =======         =======         =======         =======
INFORMATION SERVICES
Reported net income         $   293         $   219         $   502         $   419
Special items                     5             110               8             108
                            -------         -------         -------         -------
Adjusted net income         $   298         $   329         $   510         $   527
                            =======         =======         =======         =======
CORPORATE AND OTHER
Reported net income         $(1,149)        $   783         $(1,356)        $   288
Special items                 1,197            (770)          1,490            (131)
                            -------         -------         -------         -------
Adjusted net income         $    48         $    13         $   134         $   157
                            =======         =======         =======         =======


Corporate and Other includes intersegment eliminations.


DOMESTIC TELECOM

Our Domestic Telecom segment consists primarily of our telephone operations that
provide local telephone services in over 30 states. These services include voice
and data transport, enhanced and custom calling features, network access,
directory assistance, private lines and public telephones. This segment also
provides customer premises equipment distribution, data solutions and systems
integration, billing and collections, Internet access services, research and
development and inventory management services. In addition, this segment
includes our long distance service.



(Dollars in Millions)                       THREE MONTHS ENDED JUNE 30,                   SIX MONTHS ENDED JUNE 30,
---------------------                       ---------------------------                   -------------------------
                                               2001            2000         % CHANGE         2001           2000      % CHANGE
                                               ----            ----         --------         ----           ----      --------
                                                                                                    
RESULTS OF OPERATIONS - ADJUSTED BASIS

OPERATING REVENUES
Local services                                $ 5,545        $  5,537         0.1%         $11,165        $10,967        1.8%
Network access services                         3,399           3,297         3.1            6,691          6,527        2.5
Long distance services                            758             779        (2.7)           1,520          1,583       (4.0)
Other services                                  1,251           1,303        (4.0)           2,497          2,455        1.7
                                              -------        --------                      -------        -------
                                               10,953          10,916         0.3           21,873         21,532        1.6
                                              -------        --------                      -------        -------
OPERATING EXPENSES
Operations and support                          5,904           6,118        (3.5)          11,861         12,129       (2.2)
Depreciation and amortization                   2,344           2,155         8.8            4,627          4,256        8.7
                                              -------        --------                      -------        -------
                                                8,248           8,273        (0.3)          16,488         16,385        0.6
                                              -------        --------                      -------        -------
OPERATING INCOME                              $ 2,705        $  2,643         2.3          $ 5,385        $ 5,147        4.6
                                              =======        ========                      =======        =======
ADJUSTED NET INCOME                           $ 1,361        $  1,378        (1.2)         $ 2,711        $ 2,640        2.7



                                       19
   22
DOMESTIC TELECOM - CONTINUED

HIGHLIGHTS

Domestic Telecom's adjusted operating income grew 2.3% for the second quarter of
2001 and 4.6% for the first half of 2001. Adjusted results for the second
quarter of 2001 reflect revenue growth of 0.3% and a reduction in operating
costs of 0.3%, while year-to-date results include revenue growth of 1.6% and a
slight increase in operating costs of 0.6%. The modest revenue growth in the
first half of 2001 reflects the impact of a slowing U.S. economy and weakening
demand for basic wireline services and we expect these factors to impact the
revenue growth of our Domestic Telecom business in 2001.

Our revenue growth was sustained by strong demand for our data transport and
long distance services. Data transport revenues, which include our
high-bandwidth, packet-switched and special access services, as well as Digital
Subscriber Line (DSL) services, grew nearly 25% over the second quarter of 2000
and more than 27% year-to-date. We ended the second quarter of 2001 with data
circuits in service equivalent to 63 million voice-grade access lines, up 53.0%
from the same period in 2000. Our interLATA long distance business also showed
strong growth in the first half of 2001, fueled by the introduction of interLATA
long distance service in the state of Massachusetts in late April 2001. We ended
the second quarter of 2001 with 6.0 million long distance customers nationwide,
an increase of 1.9 million new customers, or 47.2%, over the second quarter of
2000. Our revenues were negatively affected by federal and state regulatory
price reductions of approximately $230 million in the second quarter of 2001 and
approximately $480 million in the first six months of 2001, primarily affecting
our network access revenues.

Lower employee costs, effective cost-control management and merger-related
expense savings and other cost reductions, partially offset by increased costs
associated with our growth businesses such as long distance and data services,
contributed to lower operations and support expenses of 3.5% and 2.2% in the
second quarter and first half of 2001, respectively.

These and other items affecting Domestic Telecom's adjusted results of
operations for the three and six months ended June 30, 2001 and 2000 are
discussed in the following section.


OPERATING REVENUES

Local Services

Local service revenues are earned by our telephone operations from the provision
of local exchange, local private line, wire maintenance, voice messaging and
value-added services. Value-added services are a family of services that expand
the utilization of the network, including products such as Caller ID, Call
Waiting and Return Call. The provision of local exchange services not only
includes retail revenue but also includes local wholesale revenues from
unbundled network elements (UNEs), interconnection revenues from competitive
local exchange carriers, certain data transport revenues, and wireless
interconnection revenues.

Growth in local service revenues of $8 million, or 0.1%, and $198 million, or
1.8%, in the second quarter and first six months of 2001, respectively, reflect
higher payments received from competitive local exchange carriers for
interconnection of their networks with our network and solid demand for our
value-added services as a result of new packaging of services.

These factors were substantially offset by the effects of lower demand and usage
of our basic local wireline services and mandated intrastate price reductions.
Our switched access lines in service declined 0.4% from June 30, 2000, primarily
reflecting the impact of an economic slowdown. In addition, technology
substitution is increasing, as more customers are choosing wireless and Internet
services over certain basic wireline services.

Network Access Services

Network access services revenues are earned from end-user subscribers and long
distance and other competing carriers who use our local exchange facilities to
provide usage services to their customers. Switched access revenues


                                       20
   23
DOMESTIC TELECOM - CONTINUED

are derived from fixed and usage-based charges paid by carriers for access to
our local network. Special access revenues originate from carriers and end-users
that buy dedicated local exchange capacity to support their private networks.
End-user access revenues are earned from our customers and from resellers who
purchase dial-tone services.

Our network access revenues grew $102 million, or 3.1%, and $164 million, or
2.5%, in the second quarter and first six months of 2001, respectively, compared
to the same periods in 2000. This growth was mainly attributable to higher
customer demand, primarily for special access services (including DSL) that grew
approximately 28% over the second quarter of 2000 and 30% year-to-date. Special
access revenue growth reflects a continuing expansion of the business market,
particularly for high-capacity, high-speed digital services.

Volume-related growth was largely offset by price reductions of approximately
$173 million and $359 million for the three and six months ended June 30, 2001,
respectively. These price reductions are associated with federal and state price
cap filings and other regulatory decisions. State public utility commissions
regulate our telephone operations with respect to certain intrastate rates and
services and certain other matters. The FCC regulates the rates that we charge
long distance carriers and end-user subscribers for interstate access services.
We are required to file new access rates with the FCC each year. In July 2000,
we implemented the Coalition for Affordable Local and Long Distance Service
(CALLS) plan. Under the plan, direct end-user access charges are increased while
access charges to long distance carriers are reduced. While the plan continues
the 6.5% (less inflation) annual reductions for most interstate access charges,
it provides for a price freeze when switched access service prices reach $0.0055
per-minute. As a result of tariff adjustments, which became effective in August
2000, our telephone operations in 19 states and the District of Columbia reached
the $0.0055 benchmark. Rates included in the July 2000 CALLS plan were in effect
through June 2001. Effective July 3, 2001, we implemented further rate
reductions in accordance with the plan.

The impact of the slowing economy also affected network access revenues in the
first half of 2001, as reflected by a decline in minutes of use and a reduction
in switched access lines in service.

Long Distance Services

Long distance service revenues include both intraLATA toll services and
interLATA long distance voice and data services.

Long distance service revenues declined $21 million, or 2.7%, in the second
quarter of 2001 and $63 million, or 4.0%, in the first half of 2001 primarily
due to competition and the effects of toll calling discount packages and product
bundling offers of our intraLATA toll services. These reductions were partially
offset by revenue growth from our interLATA long distance services offered
throughout the region, including substantial customer win-backs resulting from
the introduction of interLATA long distance services in New York in January 2000
and in Massachusetts in late April 2001.

Other Services

Our other services include such services as billing and collections for long
distance carriers, public (pay) telephone and customer premises equipment
services. Other services revenues also include services provided by most of our
non-regulated subsidiaries such as inventory management and purchasing, Internet
access, and data solutions and systems integration businesses.

Revenues from other services declined $52 million, or 4.0%, in the second
quarter of 2001 and increased $42 million, or 1.7%, in the first six months of
2001, compared to the same periods last year. Both periods reflect a decline in
public telephone revenues, as more customers substituted wireless communications
for pay phone services. The second quarter of 2001 also included lower billing
and collection revenues, reflecting the take-back of these services by
interexchange carriers and lower data solutions and systems integration revenues
due to slower demand resulting from the downturn of the economy. These revenue
reductions were partially offset in the second quarter of 2001 and more than
offset in the first half of 2001 by higher revenues from other non-regulated
services.


                                       21
   24
DOMESTIC TELECOM - CONTINUED

OPERATING EXPENSES

Operations and Support

Operations and support, which consists of employee costs and other operating
expenses, decreased by $214 million, or 3.5%, in the second quarter of 2001 and
by $268 million, or 2.2%, year-to-date principally due to lower costs at our
telephone operations. These reductions were largely attributable to lower
employee costs, primarily due to reduced employee overtime for repair and
maintenance activity as a result of improved productivity and reduced volumes at
our dispatch and call centers. Operating costs have also decreased due to
business integration activities and achievement of merger synergies. Other
effective cost containment measures, including lower spending by non-strategic
businesses and declining workforce levels and associated employee costs, also
contributed to cost reductions in both periods.

These cost reductions were partially offset by higher costs associated with our
growth businesses such as long distance and data services.

Depreciation and Amortization

Depreciation and amortization expense increased by $189 million, or 8.8%, in the
second quarter of 2001 and $371 million, or 8.7%, in the first six months of
2001, compared to the same periods in 2000. These expense increases were
principally due to growth in depreciable telephone plant as a result of
increased capital expenditures for higher growth services and increased software
amortization costs. These factors were partially offset by the effect of lower
rates of depreciation.


                                       22
   25
DOMESTIC WIRELESS

Our Domestic Wireless segment provides cellular, personal communications
services (PCS) and paging services and equipment sales. This segment primarily
represents the operations of Verizon Wireless, a joint venture combining our
merged wireless properties with the U.S. properties and paging assets of
Vodafone Group plc (Vodafone), including the consolidation of PrimeCo
Communications (PrimeCo). The formation of Verizon Wireless occurred in April
2000. Verizon owns a 55% interest in the joint venture and Vodafone owns the
remaining 45%. The 2001 financial results included in the table below reflect
the combined results of Verizon Wireless. The period prior to the formation of
Verizon Wireless is reported on a historical basis, and therefore, does not
reflect the contribution of the Vodafone properties and the consolidation of
PrimeCo. In addition, the financial results of several overlap properties were
included in Domestic Wireless's results through June 30, 2000.



                                                THREE MONTHS ENDED                              SIX MONTHS ENDED
(Dollars in Millions)                                 JUNE 30,                                     JUNE 30,
---------------------                         -----------------------                       -----------------------
                                                2001            2000         % CHANGE         2001            2000        % CHANGE
                                                ----            ----         --------         ----            ----        --------
                                                                                                        
RESULTS OF OPERATIONS - ADJUSTED BASIS

OPERATING REVENUES
Wireless services                             $ 4,383         $ 3,952          10.9%        $ 8,429         $ 6,116          37.8%
                                              -------         -------                       -------         -------

OPERATING EXPENSES
Operations and support                          2,817           2,633           7.0           5,454           4,117          32.5
Depreciation and amortization                     887             877           1.1           1,806           1,199          50.6
                                              -------         -------                       -------         -------
                                                3,704           3,510           5.5           7,260           5,316          36.6
                                              -------         -------                       -------         -------
OPERATING INCOME                              $   679         $   442          53.6         $ 1,169         $   800          46.1
                                              =======         =======                       =======         =======
MINORITY INTEREST                             $  (232)        $  (120)         93.3         $  (387)        $  (151)        156.3
ADJUSTED NET INCOME                           $   151         $    91          65.9         $   249         $   220          13.2



OPERATING REVENUES

Revenues earned from our consolidated wireless businesses grew by $431 million,
or 10.9%, in the second quarter of 2001 and $2.3 billion, or 37.8% in the first
six months of 2001 compared to the similar periods in 2000. By including the
revenues of the properties of the wireless joint venture and excluding the
impact of wireless overlap properties on a basis comparable with the second
quarter and first six months of 2001, revenues were $590 million, or 15.6%, and
$1.2 billion, or 16.4%, higher than the similar periods of 2000. On this
comparable basis, revenue growth was largely attributable to customer additions
and higher revenue per customer per month. Our domestic wireless customer base
grew to 27.9 million customers in the second quarter of 2001, compared to 24.8
million customers in the second quarter of 2000, an increase of 12.7%. In the
first quarter of 2001, we removed approximately 900,000 non-revenue producing
customers as a result of a customer base assessment performed as part of the
merger integration process. Prior period subscribers reflect the impact from the
subscriber base adjustment allocable to the prior period. The company's strong
subscriber growth and financial performance resulted from a number of
initiatives during the quarter, including the company's launch of its
store-within-a-store at 4,400 RadioShack locations, the introduction of its
Worry Free Guarantee for customers, nationwide promotions and its new digital
prepay product. In addition, on June 30, 2001, approximately 18 million
customers were using digital service, representing 64% of total subscribers.


OPERATING EXPENSES

Operations and Support

Operations and support expenses, which represent employee costs and other
operating expenses, increased by $184 million, or 7.0%, in the second quarter of
2001 and $1.3 billion, or 32.5%, in the first six months of 2001. By including
the expenses of the properties of the wireless joint venture and excluding the
impact of wireless overlap properties on a basis comparable with the second
quarter and first six months of 2001, operations and support expenses were $349
million, or 14.1%, and $707 million, or 14.9% higher than the similar periods of
2000. On this comparable basis, higher costs were also attributable to the
significant growth in the subscriber base described above, as well as the
continuing migration of analog customers to digital.


                                       23
   26
DOMESTIC WIRELESS - CONTINUED

Depreciation and Amortization

Depreciation and amortization expense increased by $10 million, or 1.1%, in the
second quarter of 2001 and $607 million or 50.6% in the first six months of 2001
as compared to the same periods in 2000. The year to date increase was mainly
attributable to the formation of the wireless joint venture in the second
quarter of 2000. Adjusting for the wireless joint venture in a manner similar to
operations and support expenses above, depreciation and amortization increased
$31 million, or 3.6%, in the second quarter of 2001 and $128 million, or 7.6%,
in the first six months of 2001 compared to the similar periods of 2000. On this
comparable basis, capital expenditures for our cellular network have increased
in 2001 to support increased demand in all markets, partially offset by lower
amortization expense in the second quarter of 2001.

MINORITY INTEREST

The increase in minority interest in the second quarter of 2001 is primarily
driven by higher earnings. The significant increases in minority interest for
the first half of 2001 were principally due to the formation of the wireless
joint venture at the beginning of the second quarter of 2000 and the significant
minority interest attributable to Vodafone.


INTERNATIONAL

Our International segment includes international wireline and wireless
telecommunication operations, investments and management contracts in the
Americas, Europe, Asia and the Pacific. Our consolidated international
investments include Grupo Iusacell (Iusacell) (Mexico), CODETEL (Dominican
Republic), CTI Holdings, S.A. (CTI) (Argentina) and Micronesian
Telecommunications Corporation (Northern Mariana Islands). Our international
investments in which we have a less than controlling interest are accounted for
on either the cost or equity method.




                                              THREE MONTHS ENDED                           SIX MONTHS ENDED
(Dollars in Millions)                               JUNE 30,                                   JUNE 30,
---------------------                        ---------------------                       ---------------------
                                              2001           2000        % CHANGE         2001           2000        % CHANGE
                                              ----           ----        --------         ----           ----        --------
                                                                                                   
RESULTS OF OPERATIONS - ADJUSTED BASIS

OPERATING REVENUES
Wireline and other                           $  243         $  175         38.9%         $  452         $  355         27.3%
Wireless                                        355            296         19.9             673            573         17.5
                                             ------         ------                       ------         ------
                                                598            471         27.0           1,125            928         21.2
                                             ------         ------                       ------         ------

OPERATING EXPENSES
Operations and support                          432            288         50.0             816            616         32.5
Depreciation and amortization                   114             83         37.3             219            164         33.5
                                             ------         ------                       ------         ------
                                                546            371         47.2           1,035            780         32.7
                                             ------         ------                       ------         ------
OPERATING INCOME                             $   52         $  100        (48.0)         $   90         $  148        (39.2)
                                             ======         ======                       ======         ======
EQUITY IN INCOME FROM UNCONSOLIDATED
  BUSINESSES                                 $  266         $  128        107.8          $  483         $  300         61.0
ADJUSTED NET INCOME                          $  243         $  155         56.8          $  453         $  326         39.0



The revenues and operating expenses for the International segment exclude
QuebecTel, which was deconsolidated in the second quarter of 2000. QuebecTel's
net results for all periods are included in Equity in Income from Unconsolidated
Businesses.


                                       24
   27
INTERNATIONAL - CONTINUED

OPERATING REVENUES

Revenues earned from our international businesses grew by $127 million, or
27.0%, in the second quarter of 2001 and $197 million, or 21.2% in the first six
months of 2001 as compared to the same periods in 2000. The increase in revenues
is primarily due to an increase in wireless subscribers and wireline access
lines of the consolidated subsidiaries and the results of CTI's Buenos Aires PCS
operations, which commenced commercial operations in the second quarter of 2000.
In addition, revenues for the three and six months ended June 30, 2001 were
generated by the Verizon Global Solutions Inc. (GSI) network which began its
switching operations in the first quarter of 2001 and continued its expansion
into the second quarter of 2001.

OPERATING EXPENSES

Operations and Support

Operations and support expenses, which represent employee costs and other
operating expenses, increased $144 million, or 50.0%, in the second quarter of
2001 and increased $200 million, or 32.5%, in the first six months of 2001 as
compared to the same periods in 2000. The increase was driven primarily by
variable costs associated with the increased revenues and the start-up of CTI's
Buenos Aires PCS operations and GSI's operations.

Depreciation and Amortization

Depreciation and amortization expense increased $31 million, or 37.3%, for the
second quarter of 2001 and $55 million, or 33.5%, for the first six months of
2001 as compared to the same periods in 2000. This increase is attributable to
the ongoing network capital expenditures necessary to support the increased
subscriber base.

EQUITY IN INCOME FROM UNCONSOLIDATED BUSINESSES

Equity in income from unconsolidated businesses increased $138 million, or
107.8%, in the second quarter of 2001 and $183 million, or 61.0%, in the first
six months of 2001 compared to the similar periods in 2000. The increase is
primarily due to improved operational growth at Omnitel Pronto Italia S.p.A and
dividends received in the current year from C&W, compared to equity losses in
the prior year periods relating to CWC. These increases were partially offset by
lower income from our Canadian investments due primarily to TELUS's investment
in Clearnet Communications Inc. in the third quarter of 2000 and a reduction in
dividends received from Telecom Corporation of New Zealand Limited.


                                       25
   28

INFORMATION SERVICES

Our Information Services segment consists of our domestic and international
publishing businesses, including print and electronic directories and
Internet-based shopping guides, as well as website creation and other electronic
commerce services. This segment has operations principally in North America,
Europe, Asia and Latin America.



                                              THREE MONTHS ENDED                          SIX MONTHS ENDED
 (Dollars in Millions)                             JUNE 30,                                   JUNE 30,
                                              2001           2000       % CHANGE         2001          2000        % CHANGE
                                              ----           ----       --------         ----          ----        --------
                                                                                                 
RESULTS OF OPERATIONS - ADJUSTED BASIS

OPERATING REVENUES
Information services                       $     984      $   1,056       (6.8)%      $   1,773      $   1,835       (3.4)%
                                           ---------      ---------                   ---------      ---------
OPERATING EXPENSES
Operations and support                           453            475       (4.6)             869            909       (4.4)
Depreciation and amortization                     20             20         --               41             39        5.1
                                           ---------      ---------                   ---------      ---------
                                                 473            495       (4.4)             910            948       (4.0)
                                           ---------      ---------                   ---------      ---------
OPERATING INCOME                           $     511      $     561       (8.9)       $     863      $     887       (2.7)
                                           =========      =========                   =========      =========
ADJUSTED NET INCOME                        $     298      $     329       (9.4)       $     510      $     527       (3.2)



OPERATING REVENUES

Operating revenues from our Information Services segment declined by $72
million, or 6.8%, in the second quarter of 2001 and $62 million, or 3.4%, in the
first six months of 2001 compared to the same periods in 2000. The decrease was
primarily generated by the delayed publication of several large directories and
lower affiliate transactions.


OPERATING EXPENSES

Total operating expenses for the second quarter of 2001 decreased $22 million,
or 4.4%, and $38 million, or 4.0%, in the first six months of 2001 from the
corresponding periods in 2000. These decreases were primarily attributable to a
reduction in operations and support expenses from our ongoing cost containment
efforts to reduce directory publishing expenses and lower costs associated with
the delayed publication of several large directories mentioned above.


NONOPERATING ITEMS



(Dollars in Millions)                   THREE MONTHS ENDED JUNE 30,               SIX MONTHS ENDED JUNE 30,
                                            2001         2000        % CHANGE        2001          2000         % CHANGE
                                            ----         ----        --------        ----          ----         --------
                                                                                                
OTHER INCOME AND (EXPENSE), NET
Interest Income                           $    62      $    58           6.9%       $   115      $   126          (8.7)%
Foreign exchange gains (losses), net           41          (32)       (228.1)            40          (21)       (290.5)
Other, net                                     11          (14)       (178.6)            29          (15)       (293.3)
                                          -------      --------                     -------      --------
Total                                     $   114      $    12            --        $   184      $    90         104.4
                                          =======      ========                     =======      ========


The changes in other income and expense in the three and six months ended June
30, 2001, compared to the same periods in 2000, were primarily due to changes in
interest income and foreign exchange gains and losses. We recorded additional
interest income in the first six months of 2000 in connection with the
settlement of a tax-related matter. Foreign exchange gains were affected
primarily by our Iusacell subsidiary, which uses the Mexican peso as its
functional currency. We expect that our earnings will continue to be affected by
foreign currency gains or losses associated with the U.S. dollar denominated
debt issued by Iusacell.

                                       26
   29


(Dollars in Millions)                    THREE MONTHS ENDED JUNE 30,                SIX MONTHS ENDED JUNE 30,
                                             2001          2000         % CHANGE       2001           2000       % CHANGE
                                             ----          ----         --------       ----           ----       --------
                                                                                                  
INTEREST EXPENSE
Interest expense                           $   909       $   915          (0.7)%      $ 1,830       $ 1,689          8.3%
Capitalized interest costs                      93            52          78.8            177            97         82.5
                                           -------       -------                      -------       -------
Total interest costs on debt balances      $ 1,002       $   967           3.6        $ 2,007       $ 1,786         12.4
                                           =======       =======                      =======       =======
Average debt outstanding                   $63,879       $52,999          20.5        $61,622       $51,029         20.8
Effective interest rate                        6.3%          7.3%                         6.5%          7.0%


The increase in interest costs for the three and six months ended June 30, 2001,
compared to the same periods in 2000, were principally attributable to higher
average debt levels partially offset by lower interest rates. The increase in
debt levels was mainly the result of the debt assumed by Verizon Wireless in
connection with the formation of Verizon Wireless, anticipated payments for FCC
licenses (see "Other Factors That May Affect Future Results") and higher capital
expenditures primarily in our Domestic Telecom and Domestic Wireless segments.





(Dollars in Millions)     THREE MONTHS ENDED JUNE 30,               SIX MONTHS ENDED JUNE 30,
                          2001            2000    % CHANGE          2001       2000     % CHANGE
                          ----            ----    --------          ----       ----     --------
                                                                      
MINORITY INTEREST         $209              $9          --          $307        $35           --


The increase in minority interest during the second quarter of 2001 compared to
the prior year period is due to higher earnings at Verizon Wireless. The
year-to-date variance is primarily driven by the formation of Verizon Wireless
at the beginning of the second quarter of 2000.



                                  THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                       2001           2000           2001       2000
                                       ----           ----           ----       ----
                                                                    
EFFECTIVE INCOME TAX RATES           (12.9)%          39.4%          60.5%      39.0%


The effective income tax rate is the provision for income taxes as a percentage
of income (loss) before the provision for income taxes. Our effective income tax
rate for the three- and six-month periods ended June 30, 2001 are not consistent
with the same periods last year primarily because tax benefits were not
available on some of the losses resulting from the other than temporary decline
in market value of several of our marketable securities.


CONSOLIDATED FINANCIAL CONDITION



(Dollars in Millions)                                       SIX MONTHS ENDED JUNE 30,
                                                           2001                 2000         $ CHANGE
                                                           ----                 ----         --------
                                                                                    
CASH FLOWS PROVIDED BY (USED IN)
Operating activities                                     $  7,658             $ 8,329        $  (671)
Investing activities                                      (10,875)             (7,595)        (3,280)
Financing activities                                        5,076              (1,421)         6,497
                                                         --------             -------        -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         $  1,859             $  (687)       $ 2,546
                                                         ========             =======        =======


We use the net cash generated from our operations and from external financing to
fund capital expenditures for network expansion and modernization, pay dividends
and invest in new businesses. While current liabilities exceeded current assets
at June 30, 2001, our sources of funds, primarily from operations and, to the
extent necessary, from readily available external financing arrangements, are
sufficient to meet ongoing operating and investing requirements. We expect that
capital spending requirements will continue to be financed primarily through
internally generated funds. Additional debt or equity financing may be needed to
fund additional development activities (including the purchase of wireless
licenses obtained in the recent FCC auction, see "Other Factors That May Affect
Future Results") or to maintain our capital structure to ensure our financial
flexibility.

                                       27
   30
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

Cash generated from operations continued to be one of our primary sources of
funds. The decrease in cash from operations compared to the first half of 2000
primarily reflects an increase in working capital requirements, partially offset
by improved results of operations.

CASH FLOWS USED IN INVESTING ACTIVITIES

Capital expenditures continued to be our primary use of capital resources. We
invested $6,406 million in our Domestic Telecom business in the first half of
2001, compared to $5,594 million in the first half of 2000 to facilitate the
introduction of new products and services, enhance responsiveness to competitive
challenges and increase the operating efficiency and productivity of the
network. We also invested approximately $2,372 million in our Domestic Wireless
businesses in the first half of 2001, compared to $1,386 million during the same
period last year. The increase in 2001 is primarily due to the inclusion of both
Vodafone and PrimeCo properties in Verizon Wireless in April 2000, as well as
increased capital spending in existing Bell Atlantic and GTE wireless
properties. We expect total capital expenditures in 2001 to be approximately
$17.5 billion.

We invested $2,212 million in acquisitions and investments in businesses during
the first six months of 2001, including $1,625 million for wireless licenses
obtained in the recent FCC auction and $410 million for additional wireless
spectrum purchased from another telecommunications carrier. In the first six
months of 2000, we invested $1,132 million in acquisitions and investments in
businesses, including approximately $715 million in the equity of MFN and $205
million in wireless properties. During the first half of 2000, we also invested
$975 million in subordinated convertible notes of MFN.

In the first half of 2000, we received cash proceeds of $1,899 million,
including $1,433 million from the sale of non-strategic access lines and $144
million from the sale of CyberTrust.

The net change in short-term investments in 2001 includes the maturity of a $375
million short-term investment and other, net investing activities include loans
to Genuity of $750 million.


CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

The net cash proceeds from increases in our total debt from December 31, 2000 of
$7,269 million was primarily due to the issuance of $7.0 billion of long-term
debt by Verizon Global Funding, partially offset by net repayments of $589
million of commercial paper and other short-term borrowings by Verizon Global
Funding and by $617 million of maturities of other corporate long-term debt. In
addition, Verizon Wireless issued $580 million of long-term debt and Domestic
Telecom incurred $298 million of long-term debt, issued $1.2 billion of net
short-term debt and retired $570 million of long-term debt.

The $1,689 million increase in our total debt during the first half of 2000 was
primarily due to the issuances of $893 million of medium term notes, $757
million of financing transactions of cellular assets and $386 million of new
wireless long-term bank debt, partially offset by repayments of short term debt.
Our debt ratio was 65.0% as of June 30, 2001, compared to 61.0% as of June 30,
2000.

As of June 30, 2001, we had in excess of $7.9 billion of unused bank lines of
credit and $5.1 billion in bank borrowings outstanding. As of June 30, 2001, our
telephone and financing subsidiaries had shelf registrations for the issuance of
up to $7.5 billion of unsecured debt securities. The debt securities of our
telephone and financing subsidiaries continue to be accorded high ratings by
primary rating agencies. However, in April 2001, Moody's Investors Service
(Moody's) revised our credit rating outlook from stable to negative. Moody's
cited concern about our ability to complete an initial public offering (IPO) of
Verizon Wireless in a timely fashion in order to pay for the anticipated FCC
spectrum auction purchases of $8.8 billion. A delay in the IPO would require us
to issue debt to cover these purchases. See "Other Factors That May Affect
Future Results." A change in an outlook does not necessarily signal a rating
downgrade but rather highlights an issue whose final resolution may result in
placing a company on review for possible downgrade.

                                       28
   31
We also have a $2.0 billion Euro Medium Term Note Program, under which we may
issue notes that are not registered with the SEC. The notes may be issued from
time to time by Verizon Global Funding, and will have the benefit of a support
agreement between Verizon Global Funding and us. There have been no notes issued
under this program.

As in prior quarters, dividend payments were a significant use of capital
resources. We determine the appropriateness of the level of our dividend
payments on a periodic basis by considering such factors as long-term growth
opportunities, internal cash requirements, and the expectations of our
shareowners. In the first and second quarters of 2001, we announced a quarterly
cash dividend of $.385 per share. In the first quarter of 2000, we announced a
quarterly cash dividend of $.385 per share; and in the second quarter of 2000,
we announced two separate prorata dividends to ensure that the respective
shareowners of Bell Atlantic and GTE received dividends at an appropriate rate.


INCREASE IN CASH AND CASH EQUIVALENTS

Our cash and cash equivalents at June 30, 2001 totaled $2,616 million, an
increase of $1,859 million compared to December 31, 2000. This increase in cash
is primarily related to the anticipated payments for FCC licenses (see "Other
Factors That May Affect Future Results").


MARKET RISK

We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations, changes in equity investment prices and changes in
corporate tax rates. We employ risk management strategies using a variety of
derivatives, including interest rate swap agreements, interest rate caps and
floors, foreign currency forwards and options, equity options and basis swap
agreements. We do not hold derivatives for trading purposes.

It is our general policy to enter into interest rate, foreign currency and other
derivative transactions only to the extent necessary to achieve our desired
objectives in limiting our exposures to the various market risks. Our objectives
include maintaining a mix of fixed and variable rate debt to lower borrowing
costs within reasonable risk parameters and protecting against earnings and cash
flow volatility resulting from changes in market conditions. We do not hedge our
market risk exposure in a manner that would completely eliminate the effect of
changes in interest rates, equity prices and foreign exchange rates on our
earnings. While we do not expect that our liquidity and cash flows will be
materially affected by these risk management strategies, our net income may be
materially affected by certain market risks associated with the exchangeable
notes discussed below.


EXCHANGEABLE NOTES

In 1998, we issued exchangeable notes as described in Note 9 to the condensed
consolidated financial statements and discussed earlier under "Mark-to-Market
Adjustment - Financial Instruments." These financial instruments expose us to
market risk, including:

-    Equity price risk, because the notes are exchangeable into shares that are
     traded on the open market and routinely fluctuate in value.

-    Foreign exchange rate risk, because the notes are exchangeable into shares
     that are denominated in a foreign currency.

-    Interest rate risk, because the notes carry fixed interest rates.

Periodically, equity price or foreign exchange rate movements may require us to
mark-to-market the exchangeable note liability to reflect the increase or
decrease in the current share price compared to the established exchange price,
resulting in a charge or credit to income. The following sensitivity analysis
measures the effect on earnings and

                                       29
   32
financial condition due to changes in the underlying share prices of the Telecom
Corporation of New Zealand Limited (TCNZ), C&W and NTL stock.

-    At June 30, 2001, the exchange price for the TCNZ shares (expressed as
     American Depositary Receipts) was $44.93. The C&W and NTL notes of $3,180
     million are exchangeable into 128.4 million shares of C&W stock and 24.5
     million shares of NTL stock.

-    For each $1 increase in the value of the TCNZ shares above the exchange
     price, our pretax earnings would be reduced by approximately $55 million.
     Assuming the aggregate value of the C&W and NTL stocks exceeds the value of
     the debt liability, each $1 increase in the value of the C&W shares
     (expressed as American Depositary Receipts) or NTL shares would reduce our
     pretax earnings by approximately $43 million or $24 million, respectively.
     A subsequent decrease in the value of these shares would correspondingly
     increase earnings, but not to exceed the amount of any previous reduction
     in earnings.

-    Our cash flows would not be affected by mark-to-market activity relating to
     the exchangeable notes.

-    If we decide to deliver shares in exchange for the notes, the exchangeable
     note liability (including any mark-to-market adjustments) will be
     eliminated and the investment will be reduced by the fair market value of
     the related number of shares delivered. Upon settlement, the excess of the
     liability over the book value of the related shares delivered will be
     recorded as a gain. We also have the option to settle these liabilities
     with cash upon exchange.


EQUITY RISK

We also have equity price risk associated with our cost investments, primarily
in common stocks, and equity price sensitive derivatives and derivatives
embedded in other financial instruments that are carried at fair value. The
value of these cost investments and derivatives is subject to changes in the
market prices of the underlying securities. Our cost investments and equity
price sensitive derivatives recorded at fair value totaled $2,983 million at
June 30, 2001.

A sensitivity analysis of our cost investments and equity price sensitive
derivatives recorded at fair value indicated that a 10% increase or decrease in
the fair value of the underlying common stock equity prices would result in a
$255 million increase or decrease in the fair value of our cost investments and
equity price sensitive derivatives. Of this amount, a change in the fair value
of our cost investments of $242 million would be recognized in Accumulated Other
Comprehensive Loss in our condensed consolidated statement of changes in
shareowners' investment under SFAS No. 115. Our equity price sensitive
derivatives and embedded derivatives (primarily a MFN conversion option and
several long-term call options on our common stock) (see Note 8 - Accounting
Change - Derivative Financial Instruments) do not qualify for hedge accounting
under SFAS No. 133. As such, a change of approximately $13 million in the fair
value of our equity price sensitive derivatives and embedded derivatives would
be recognized in our condensed consolidated balance sheets and in current
earnings in mark-to-market adjustment.

We continually evaluate our investments in marketable securities for impairment
due to declines in market value considered to be other than temporary. That
evaluation includes, in addition to persistent, declining stock prices, general
economic and company-specific evaluations. In the event of a determination that
a decline in market value is other than temporary, a charge to earnings is
recorded for all or a portion of the unrealized loss, and a new cost basis in
the investment is established.

Prior to the second quarter of 2001, we considered the declines in the market
values of our marketable securities investments to be temporary, due principally
to the overall weakness in the securities markets as well as telecommunications
sector share prices. However, in June 2001, we recognized a pretax loss of
$3,913 million ($2,926 million after-tax, or $1.07 diluted loss per share)
primarily relating to our investments in C&W, NTL and MFN. We determined,
through the evaluations described above, that market value declines in these
investments were considered other than temporary.

                                       30
   33
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS

On July 31, 2001 and August 2, 2001, we filed Current Reports on Form 8-K
announcing our second quarter financial results and supplemental information
about our revised 2001 earnings guidance.


BELL ATLANTIC-GTE MERGER

Federal and state regulatory conditions to the merger included certain
commitments to, among other things, promote competition and the widespread
deployment of advanced services while helping to ensure that consumers continue
to receive high-quality, low-cost telephone services. In some cases there are
significant penalties associated with not meeting these commitments. The cost of
satisfying these commitments could have a significant impact on net income in
future periods. The pretax cost to begin compliance with these conditions was
approximately $200 million in 2000. We expect a similar impact in 2001 and 2002.


RECENT DEVELOPMENTS


VERIZON WIRELESS
FCC Auctions

Verizon Wireless was the winning bidder for 113 licenses in the FCC's auction of
1.9 GHz spectrum, which concluded in January 2001. These licenses would add
capacity for growth and advanced services in markets including New York, Boston,
Los Angeles, Chicago, Philadelphia, Washington, D.C., Seattle and San Francisco.
The total price of these licenses was approximately $8.8 billion, $1.8 billion
of which has already been paid and the balance of which will be paid when the
FCC requires payment.

There were no legal challenges to Verizon Wireless's qualifications to acquire
these licenses. However, most of the licenses that were auctioned are the
subject of pending litigation by the original licensees, NextWave Personal
Communications Inc. and NextWave Power Partners Inc., which have appealed to the
federal courts the FCC's action canceling NextWave's licenses and reclaiming the
spectrum. In a decision on June 22, 2001, the U.S. court of appeals ruled that
the FCC was not allowed to repossess the NextWave licenses. The FCC has
announced that it intends to appeal the U.S. appeals court decision to the U.S.
Supreme Court. If the licenses must be returned, the FCC has stated that it will
refund to winning bidders any amounts that they may have paid, without interest.
Nearly all of Verizon Wireless's $8.8 billion license cost relates to licenses
subject to NextWave's appeal.


Timing of Initial Public Offering

In late 2000, we announced that Verizon Wireless would defer its planned IPO of
common stock. We have periodically reiterated that the IPO will occur when
market conditions are favorable.


Price Communications Wireless

During the fourth quarter of 2000, Verizon Wireless agreed to acquire the
wireless business of Price Communications for $1.5 billion in Verizon Wireless
stock and the repayment by Verizon Wireless of $550 million in net debt. The
transaction was conditioned upon completion of a Verizon Wireless IPO by
September 30, 2001. Since we have disclosed that the IPO cannot be completed by
September 30, 2001, we have begun discussions with Price Communications to
explore alternative forms of consideration and other terms for an acquisition of
the wireless business of Price Communications.


POTENTIAL SALE OF ACCESS LINES

We are currently exploring the sale of 1.2 million access lines in Alabama,
Kentucky and Missouri.


                                       31
   34
TELECOMMUNICATIONS ACT OF 1996

In-Region Long Distance

We now have authority to offer in-region long distance service in three states
in the former Bell Atlantic territory. In addition to the New York order
released in December 1999, on April 16, 2001 and July 23, 2001, the FCC released
orders approving our applications for permission to enter the in-region long
distance market in Massachusetts and Connecticut, respectively. Several parties
have appealed the Massachusetts order to the U.S. Court of Appeals. On July 25,
2001, the court denied their request for a stay of the FCC's Massachusetts order
pending the appeal.

On June 21, 2001, we filed an application with the FCC for approval to offer
in-region long distance in Pennsylvania. Under the terms of the
Telecommunications Act of 1996 (the Telecommunications Act), the FCC is required
to act on our application no later than September 19, 2001.

In addition, on July 25, 2001 and July 31, 2001, we filed state applications for
support of our anticipated applications with the FCC for permission to enter the
in-region long distance market in Rhode Island and New Hampshire. In support of
these applications, the accounting and consulting firm KPMG conducted a review
comparing operations support systems (OSS) in Rhode Island to those in
Massachusetts and PricewaterhouseCoopers LLP is doing the same for the remaining
New England states of Vermont, New Hampshire and Maine. KPMG is also nearing
completion of a comprehensive assessment of our OSS in New Jersey. Once that
assessment is complete we expect to file for state support of our anticipated
application with the FCC for permission to enter the in-region long distance
market in New Jersey.


FCC REGULATION AND INTERSTATE RATES
Universal Service

In November 1999, the FCC adopted a new mechanism for providing universal
service support to high cost areas served by large local telephone companies.
This funding mechanism provides additional support for local telephone services
in several states served by our telephone operations. On July 31, 2001, the U.
S. Court of Appeals for the Tenth Circuit reversed and remanded to the FCC for
further proceedings. The court concluded that the FCC had failed to adequately
explain some aspects of its decision and had failed to address any need for
state universal service mechanisms.


Compensation for Internet Traffic

In March 2000, the U. S. Court of Appeals for the District of Columbia Circuit
reversed and remanded the FCC's February 1999 order that concluded that calls to
the Internet through Internet service providers (ISP) do not terminate at the
ISP but are single interstate calls. The FCC had concluded that calls to the
Internet are not therefore subject to reciprocal compensation under section
251(b)(5) of the Telecommunications Act, but left it to state regulatory
commissions to determine whether local interconnection agreements entered into
with competing carriers required the payment of compensation on such calls.

On April 27, 2001, the FCC released an order responding to the court's remand.
The FCC found that Internet-bound traffic is interstate and subject to the FCC's
jurisdiction. Moreover, the FCC again found that Internet-bound traffic is not
subject to reciprocal compensation under section 251(b)(5) of the
Telecommunications Act. Instead, the FCC established federal rates that decline
from $0.0015 to $0.0007 over a three year period. The FCC order also sets caps
on the total minutes that may be subject to any intercarrier compensation and
requires that incumbent local exchange carriers must offer to pay reciprocal
compensation for local traffic at the same rate as they are required to pay on
Internet-bound traffic.


STATE REGULATION
Verizon Virginia

On June 26, 2001, the Virginia State Corporation Commission rejected a petition
by competing carriers to order a retail/wholesale structural separation of
Verizon Virginia.

                                       32
   35
OTHER MATTERS
RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets."

SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001.

SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under certain conditions) for impairment in accordance with this
statement. This impairment test uses a fair value approach rather than the
undiscounted cash flows approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The amortization of goodwill included in our investments in
equity investees will also no longer be recorded upon adoption of the new rules.
Intangible assets that do not have indefinite lives will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 121. We are required to adopt SFAS No. 142 effective January 1, 2002.
We are currently evaluating our intangible assets in relation to the provisions
of SFAS No. 142 to determine the impact, if any, the adoption of SFAS No. 142
will have on our results of operations or financial position.

                                       33
   36
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

In this Management's Discussion and Analysis, and elsewhere in this Quarterly
Report, we have made forward-looking statements. These statements are based on
our estimates and assumptions and are subject to risks and uncertainties.
Forward-looking statements include the information concerning our possible or
assumed future results of operations. Forward-looking statements also include
those preceded or followed by the words "anticipates," "believes," "estimates,"
"hopes" or similar expressions. For those statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.

The following important factors, along with those discussed elsewhere in this
Quarterly Report, could affect future results and could cause those results to
differ materially from those expressed in the forward-looking statements:

-    materially adverse changes in economic conditions in the markets served by
     us or by companies in which we have substantial investments;

-    material changes in available technology;

-    an adverse change in the ratings afforded our debt securities by nationally
     accredited ratings organizations;

-    the final outcome of federal, state and local regulatory initiatives and
     proceedings, including arbitration proceedings, and judicial review of
     those initiatives and proceedings, pertaining to, among other matters, the
     terms of interconnection, access charges, universal service, and unbundled
     network elements and resale rates;

-    the extent, timing, success and overall effects of competition from others
     in the local telephone and toll service markets;

-    the timing and profitability of our entry into the in-region long distance
     market;

-    our ability to combine former Bell Atlantic and GTE operations, satisfy
     regulatory conditions and obtain revenue enhancements and cost savings;

-    the profitability of our entry into the broadband access market;

-    the ability of Verizon Wireless to combine operations, achieve revenue
     enhancements and cost savings, and obtain sufficient spectrum resources;

-    our ability to convert our ownership interest in Genuity into a controlling
     interest consistent with regulatory conditions, and Genuity's ensuing
     profitability; and

-    changes in our accounting assumptions that may be required by regulatory
     agencies, including the SEC, or that result from changes in the accounting
     rules or their application, which could result in an impact on earnings.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to market risk is included in Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in the
Consolidated Financial Condition section under the caption "Market Risk."


                                       34
   37
PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

On April 10, 2001, Telesector Resources Group, Inc. (TRG), a wholly owned
indirect subsidiary of Verizon, entered into an agreement with the New York
State Attorney General's Office to resolve on a civil basis, without a finding
of liability on the part of TRG, the Attorney General's investigation of
possible environmental violations and false document charges relating to the
former Orangeburg, New York, Material Reclamation Center. Pursuant to the
agreement TRG has paid a $100,000 civil penalty and $2.65 million in support of
certain environmental projects.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our 2001 Annual Meeting of Shareholders was held on April 25, 2001. At the
meeting, the following items were submitted to a vote of shareholders. (a) The
following nominees were elected to serve on the Board of Directors:



     Name of Nominee                    Votes Cast For            Votes Withheld
     -------------------                --------------            --------------
                                                            
     James R. Barker                     2,108,794,467               53,380,914
     Edward H. Budd                      2,107,519,900               54,655,481
     Richard L. Carrion                  2,110,133,231               52,042,150
     Robert F. Daniell                   2,107,520,191               54,655,190
     Helene L. Kaplan                    2,073,494,907               88,680,474
     Charles R. Lee                      2,104,429,700               57,745,681
     Sandra O. Moose                     2,081,382,018               80,793,363
     Joseph Neubauer                     2,083,011,508               79,163,873
     Thomas H. O'Brien                   2,109,170,210               53,005,171
     Russell E. Palmer                   2,108,553,598               53,621,783
     Hugh B. Price                       2,083,513,192               78,662,189
     Ivan G. Seidenberg                  2,105,869,919               56,305,462
     Walter V. Shipley                   2,108,284,553               53,890,828
     John W. Snow                        2,082,717,438               79,457,943
     John R. Stafford                    2,108,077,647               54,097,734
     Robert D. Storey                    2,077,788,901               84,386,480


(b)  The appointment of Ernst and Young LLP as independent accountants for 2001
     was ratified with 2,113,861,117 votes for, 30,499,820 votes against, and
     17,814,444 abstentions.

(c)  A management proposal regarding approval of Verizon Communications Inc.
     Long-Term Incentive Plan was ratified with 1,418,698,501 votes for,
     300,250,940 votes against, 35,586,315 abstentions and 407,639,625 broker
     non-votes.

(d)  A management proposal regarding approval of Verizon Communications Inc.
     Short-Term Incentive Plan was ratified with 1,872,479,151 votes for,
     251,204,706 against and 38,491,524 abstentions.

(e)  A shareholder proposal regarding additional Director Nominees was defeated
     with 172,650,379 votes for, 1,529,318,945 votes against, 52,577,937
     abstentions and 407,628,120 broker non-votes.

(f)  A shareholder proposal regarding Executive Severance Agreements was
     defeated with 533,918,976 votes for, 1,155,560,575 votes against,
     65,067,704 abstentions and 407,628,126 broker non-votes.

(g)  A shareholder proposal regarding composition of the Board of Directors was
     defeated with 504,751,053 votes for, 1,178,661,058 votes against,
     71,135,151 abstentions and 407,628,119 broker non-votes.

(h)  A shareholder proposal regarding Calculation of Incentive Compensation was
     defeated with 318,957,589 votes for, 1,384,639,453 votes against,
     50,943,214 abstentions and 407,635,125 broker non-votes.

                                       35
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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(b)  Reports on Form 8-K filed during the quarter ended June 30, 2001:



     A Current Report on Form 8-K, dated April 24, 2001, was filed regarding our
     first quarter 2001 financial results.

     A Current Report on Form 8-K, dated May 9, 2001, was filed regarding our
     sale of zero-coupon convertible notes due 2021. It also included a current
     ratio of earnings to fixed charges.

     A Current Report on Form 8-K, dated June 5, 2001, was filed summarizing
     forward-looking information presented in an analyst meeting.


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SIGNATURES

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.



                                     VERIZON COMMUNICATIONS INC.

Date: August 14, 2001                By /s/ Lawrence R. Whitman
                                        --------------------------------------
                                          Lawrence R. Whitman
                                          Senior Vice President and Controller
                                          (Principal Accounting Officer)




UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 8, 2001.

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