UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8606
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
VERIZON SAVINGS and SECURITY PLAN
for NEW YORK and NEW ENGLAND ASSOCIATES
VERIZON COMMUNICATIONS INC.
1095 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
INDEPENDENT AUDITORS' REPORT
To the Verizon Employee Benefits Committee:
We have audited the accompanying statements of net assets available for benefits
of the Verizon Savings and Security Plan for New York and New England Associates
(the "Plan") as of December 31, 2001 and 2000, and the related statement of
changes in net assets available for benefits for the year ended December 31,
2001. These financial statements are the responsibility of the Plan's
administrator. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Verizon
Savings and Security Plan for New York and New England Associates as of December
31, 2001 and 2000, and the changes in its net assets available for benefits for
the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Mitchell & Titus, LLP
New York, New York
June 21, 2002
VERIZON SAVINGS AND SECURITY PLAN FOR NEW YORK AND NEW ENGLAND ASSOCIATES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2001 AND 2000
(thousands of dollars)
2001 2000
------------- ------------
ASSETS:
Investment in Master Trust $ 3,684,642 $ 3,678,730
RECEIVABLES:
Employee contributions receivable 4,491 -
Employer contributions receivable 2,051 -
------------ ------------
Total assets 3,691,184 3,678,730
------------ ------------
LIABILITIES:
Administrative expenses payable - 414
------------ ------------
Total liabilities - 414
------------ ------------
Net assets available for benefits $ 3,691,184 $ 3,678,316
============ ============
The accompanying notes are an integral part of the financial statements.
VERIZON SAVINGS AND SECURITY PLAN FOR NEW YORK AND NEW ENGLAND ASSOCIATES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2001
(thousands of dollars)
Additions:
Contributions:
Employee 242,637
Employer 107,345
---------------
Total additions 349,982
Deductions:
Transfers to other plans, net 9,161
Benefits paid to participants 247,891
Net investment loss 74,856
Administrative expenses 5,206
-------------
Total deductions 337,114
Net increase 12,868
Net assets available for benefits:
Beginning of year 3,678,316
---------------
End of year $3,691,184
================
The accompanying notes are an integral part of the financial statements.
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
December 31, 2001 and 2000
1. Description of the Plan
The following description of the Verizon Savings and Security
Plan for New York and New England Associates (the "Plan") provides only
general information. Participants should refer to the Benefits
Handbook, Plan Document and Prospectus for a complete description of
the Plan's provisions.
General
Effective January 1, 2001, The Bell Atlantic Savings and
Security Plan for Associates of Bell Atlantic North was renamed the
Verizon Savings and Security Plan for New York and New England
Associates.
Bell Atlantic Corporation Merger with GTE Corporation
On June 30, 2000, Bell Atlantic Corporation ("Bell Atlantic")
and GTE Corporation ("GTE") completed a merger under a definitive
merger agreement dated as of July 27, 1998, and began doing business as
Verizon Communications.
Under the terms of the agreement, GTE became a wholly owned
subsidiary of Bell Atlantic and GTE stockholders received 1.22 shares
of Bell Atlantic common stock for each share of GTE common stock they
owned.
On September 22, 2000, Bell Atlantic changed its name to
Verizon Communications Inc. ("Verizon").
Eligibility
The Plan is a defined contribution Plan covering certain
collectively bargained non-salaried, regular associate employees of
participating subsidiaries and affiliates of Verizon ("Participating
Affiliates"). The Plan was established by Verizon to provide a
convenient way for eligible associate employees to save on a regular
and long-term basis. Covered employees are eligible to make
tax-deferred or after-tax contributions to the Plan, and to receive
matching employer contributions, upon completion of enrollment in the
Plan as soon as practicable following the date of hire.
Vesting and Contributions
Eligible employees may authorize basic contributions of 1% to
6% of salary, as defined and supplementary contributions up to an
additional 10% of salary. For employees of most Participating
Affiliates, the employer matching contributions are in an amount equal
to 80% of basic contributions for Plan year 2000, up to August 5, 2001.
For pay periods on or after August 5, 2001, the employer matching
contributions increased to 82% of basic contributions. Contributions
are subject to applicable rules set forth in the Internal Revenue Code
(the "Code") and the regulations thereunder.
Employer matching contributions are invested only in the
Verizon shares fund until eligible employees reach age 50 and complete
one year of service, at which point they may begin to diversify the
matching contributions.
The Plan provides for 100% vesting of employer matching
contributions upon attaining three years of service. A terminated
employee's nonvested employer matching contributions are forfeited and
offset against the participating companies' obligation to make
subsequent contributions to the Plan.
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
Investment Options
Participants are able to invest in any of the current
investment options as outlined in the Plan document.
All the assets of the Plan are included in the Bell Atlantic
Master Trust (the "Master Trust") for which Mellon Bank, N.A., is the
trustee.
The Unifi Group of PricewaterhouseCoopers, LLP, is the
recordkeeper for the Plan.
Participant Loans
The Plan includes an employee loan provision authorizing
participants to borrow an amount from their vested account balances in
the Plan. Loans are generally repaid by payroll deductions. The term of
repayment for loans generally will not be less than six months nor more
than five years (fifteen years for a loan to purchase a principal
residence). Each new loan will bear interest at a rate based upon the
prime rate, as published in the Wall Street Journal, for loans up to
five years and prime rate plus one percent for loans sixty-one months
to fifteen years.
Termination Priorities
Although it has not expressed any intent to do so, Verizon has
the right under the Plan to discontinue all employer matching
contributions at any time and to terminate the Plan subject to the
provisions of the Employee Retirement Income Security Act ("ERISA") of
1974, as amended. In the event of Plan termination, participants would
become 100% vested in their accounts.
2. Accounting Policies
Value of Investments
Investments in securities traded on national and foreign
securities exchanges are valued at the last reported sale prices on the
last business day of the year or, if no sales were reported on that
date, at the last reported bid prices. Over-the-counter securities and
government obligations are valued at the bid prices or the average of
the bid and ask prices on the last business day of the year from
published sources where available or, if not available, from other
sources considered reliable, generally broker quotes.
Forward currency, index futures, and option contracts are
accounted for as contractual commitments on a trade-date basis and are
carried at fair value derived from their respective price prevailing on
the last business day of the year. Foreign exchange rates, index
futures and option prices are readily available from published sources.
Temporary cash investments are stated at redemption value, which
approximates fair value.
Net Investment Gain/(Loss)from Master Trust
The statement of changes in net assets available for benefits
reflects the net investment gain/(loss) in the fair value of the Plan's
investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) in value of those investments,
as well as interest and dividends earned. Purchases and sales of
investments are reflected as of the trade date. Realized gains and
losses on sales of investments are determined on the basis of
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
average cost. Dividend income is recorded on the ex-dividend date.
Interest earned on investments is recorded on the accrual basis.
Distributions
Distributions elected to be withdrawn from the Plan by
participants are recorded when paid.
Plan Expenses
The Plan pays certain administrative expenses out of assets
held in the Master Trust and out of interest income earned from the
Plan's disbursement account, as held by the Trustee, in accordance with
Plan provisions and to the extent permitted by law. Verizon pays any
expenses not paid by the Plan.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Plan administrator to make significant estimates
and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and the
changes in net assets available for benefits during the reporting
period and, when applicable, disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates.
Risks and Uncertainties
The Plan provides for various participant investment options
in various combinations of funds, which can invest in various
combinations of stocks, bonds, fixed income securities, and other
investment securities. Investment securities are exposed to various
risks, such as interest rate, market, equity price, and credit risks.
Due to the level of risk associated with certain investment securities,
it is at least reasonably possible that changes in the values of
investment securities will occur in the near term and that such changes
could materially affect participants' account balances and the amounts
reported in the statements of net assets available for benefits.
Reclassifications
Certain amounts in the prior year financial statements and
footnotes have been reclassified to conform to the current year
presentation.
3. Non Participant-Directed Investments
Information about the net assets and the significant
components of the changes in net assets related to the Plan's non
participant-directed investments is as follows (in thousands):
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
As of December 31,
------------------
2001 2000
---- ----
Net assets:
----------
Verizon common stock $1,102,033 $1,141,241
Changes in net assets: Year ended December 31, 2001
---------------------- ----------------------------
Employer contributions $ 105,312
Net investment loss (39,731)
Benefits paid to participants (101,762)
Other (3,027)
---------
Net decrease $ (39,208)
=========
4. Investment in Master Trust
The assets are either (1) pooled between defined benefit plans and
defined contribution plans or (2) net assets that are specific to defined
benefit plans, or (3) net assets specific to defined contribution plans.
On December 21, 2001, the assets of the Verizon's Bell Atlantic Savings
Plan for Salaried Employees (the "VBASP Plan") and the Verizon Savings and
Security Plan For Mid-Atlantic Associates (the "VSPMA Plan") that
participated in the Master Trust were transferred to Fidelity
Institutional Retirement Services Company.
The total fair value of the Master Trust at December 31, 2001 and
2000, was approximately $54.2 billion and $52.5 billion, respectively (of
which net assets totaling approximately $39.1 billion and $29.0 billion,
respectively are specific to the defined benefit plans, item (2) above,
for which separate financial statements are prepared).
Investments Held in Pooled Accounts
The pooled investments are unitized, aggregated and reported by the
Master Trust with a carrying value of $9.6 billion and $12.9 billion at
December 31, 2001 and 2000, respectively. Because the pooled accounts
include interests of the defined contribution plans and the defined
benefit plans, the totals in each respective statement do not equal the
carrying value or net investment income in the Master Trust pooled
accounts in this footnote.
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
Net assets held in the Master Trust pooled accounts at fair value
at December 31, were as follows (in thousands):
Description 2001 2000
----------- ---- ----
Receivables $ 1,104,615 $ 1,165,169
Common stock 7,754,020 11,627,100
Verizon common stock 35,718 65,105
Preferred stock 39,455 58,441
U.S. government securities 538,775 102,186
Corporate debt 548,857 161,373
Temporary cash investments 256,869 412,240
Other investments 824,092 461,293
----------- -----------
11,102,401 14,052,907
Liabilities 1,472,750 1,144,753
----------- -----------
Total pooled net assets $ 9,629,651 $12,908,154
=========== ===========
The Plan's percentage interest in pooled accounts was 2.4% and
4.6% at December 31, 2001 and 2000, respectively.
Investments Held in Defined Contribution Plan Specific Accounts
At December 31, 2001, the Plan, along with the VSPMA, the Verizon
GTE Savings Plan (the "GTE Savings Plan"), and the GTE Hourly Savings
Plan (the "GTE Hourly Plan") held certain investments in defined
contribution plan specific accounts.
Net assets held in the Master Trust for the defined contribution
plan specific accounts at fair value at December 31, were as follows (in
thousands):
2001 2000
---- ----
Description
-----------
Common stock $ 2,435,023 $ 478,463
Verizon common stock 2,222,435 8,105,225
Temporary cash investments 32,015 204,999
Investment contracts 494,501 1,792,864
Corporate debt 114,591 235,651
Loans to participants 177,201 414,369
Other 5,831 1,051
------------ -----------
5,481,597 11,232,622
Liabilities - 481,960
------------ -----------
Total net assets in defined contribution
plan specific accounts $ 5,481,597 $10,750,662
============ ===========
At December 31, 2001, of the total net assets listed above, all
except for the $2.4 billion investment in common stock is specific to the
Plan. The $2.4 billion investment in common stock represents the funds,
which the Plan, along with the VSPMA, the GTE Savings Plan, and the GTE
Hourly Plan participated. The Plan's percentage interest in these funds
at December 31, 2001 was 17%.
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
The Plan's percentage in total defined contribution plan specific
accounts was approximately 63% and 29% at December 31, 2001 and 2000.
The value of each contract with an insurance company or other
financial institution listed above is reported at contract value in the
statements of net assets available for benefits based upon the principal
invested in by the Plan plus the interest accrued on such principal,
which approximates the fair value. In connection with the fully
benefit-responsive investment contracts, the following information is
presented:
The contracts had an average yield of 6.3% for both years ended
December 31, 2001 and 2000. The crediting interest rates ranged from 5.2%
to 7.5% at December 31, 2001 and 5.1% to 7.9% at December 31, 2000. The
insurance contracts had scheduled maturities from January 2, 2002 to July
3, 2006. No valuation reserve was recorded at December 31, 2001 and 2000
to adjust contract values.
Included in the insurance contract account are synthetic
investment contracts which combine investments in fixed income securities
with wrap contracts to provide a crediting rate. There is no immediate
recognition of investment gains and losses on the fixed income
securities. Instead, the gain or loss is recognized over time by
adjusting the interest rate credited under the wrap contract. The
crediting rate is typically reset quarterly and has a floor rate of zero.
The repayment of principal depends on the creditworthiness of the
underlying fixed income securities. The fair value and contract value of
synthetic investment contracts at December 31, 2001, is $181 million and
$178 million, respectively.
The Plan's interests in the Master Trust carrying value and
investment loss of the Master Trust are reported in the "Investment in
Master Trust" in the statements of net assets available for benefits and
"net investment loss" in the statement of changes in net assets available
for benefits.
Investment Income (Loss)
Investment income (loss) is allocated to the Plan daily in
accordance with its daily percentage of interest in the Master Trust
pooled accounts. Percentage of interest is based on the daily ratio of
units owned by the Plan to the total units in the Master Trust pooled
accounts. Investment income (loss) related to the investments held in the
defined contribution plan specific accounts is allocated to the Plan
daily in accordance with its percentage of interest.
The net investment loss in pooled accounts and the defined
contribution plan specific accounts for the year ended December 31, 2001,
consists of the following (in thousands):
Interest Net Appreciation
& Dividends (Depreciation)
----------- --------------
Description
-----------
Common and preferred stock $200,046 $(986,525)
U.S. government securities 12,526 -
Corporate debt 31,839 -
Temporary cash investments 16,464 -
Other 88,453 4,041
-------- ---------
Total $349,328 $(982,484)
======== =========
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
For the year ended December 31, 2001, the allocated net investment
loss to the Plan was $74.9 million, which represents approximately 11% of
the net investment loss of the pooled accounts and the defined
contribution plan specific accounts.
5. Derivative Financial Investments
Derivative financial investments are used in the Master Trust's
pooled accounts primarily to rebalance fixed income/equity allocations,
to efficiently gain exposure to a specific underlying market, and to
offset the currency risk associated with foreign investments. Leveraging
of the Plan's assets and speculation are prohibited as stated in the Plan
documents. Offsetting currency positions are not permitted to exceed the
level of exposure in the Plan's foreign asset base.
All derivative activity is allocated to the Plan in accordance
with the Plan's percentage of interest. Derivative investments relate
primarily to futures and forward contracts and option contracts. The
Plan's interest in funds which utilized such financial instruments is not
considered material to the Plan's financial statements.
6. Tax Determination
On September 25, 1995, the Internal Revenue Service issued a
ruling that the Plan meets the requirements of Section 401(a) of the Code
and is exempt from Federal income taxes under the appropriate sections of
the Code. The Plan has been amended since receiving the determination
letter. However, the Plan's administrator and the Plan's counsel believe
that the Plan is designed and is currently being operated in compliance
with the applicable requirements of the Code.
7. Related Party Transactions
Verizon Investment Management Corp. ("VIMCO"), a wholly owned
subsidiary of Verizon, is the investment advisor for certain investment
funds and therefore qualifies as a party-in-interest. VIMCO received no
compensation from the Plan for the investment advisory services rendered
to the Plan.
8. Concentrations of Credit Risk
Financial instruments that potentially subject the Plan to
concentrations of credit risk consist principally of investment contracts
with insurance companies and other financial institutions.
The Plan places its investment contracts with high-credit quality
insurance companies and financial institutions in order to limit credit
exposure. The Plan regularly monitors the financial stability of the
financial institutions and insurance companies.
Verizon Savings and Security Plan for New York and New England
Associates
Notes to Financial Statements
(continued)
9. Reconciliation of Financial Statements to Form 5500
The Department of Labor requires that amounts allocated to accounts of
persons who have elected to withdraw from the Plan but have not yet been
paid be reported as liabilities on the Plan's Form 5500. In accordance with
the relevant American Institute of Certified Public Accountants audit and
accounting guide, benefit amounts should not be accrued as liabilities of
the Plan.
The following is a reconciliation of net assets available for benefits
per the financial statements to the amounts reported in Form 5500 (in
thousands):
2001 2000
---- ----
Net assets available for benefits presented
in the Statements of Net Assets Available
for Benefits $3,691,184 $3,678,316
Less: Benefit claims payable presented
in the Asset and Liability
Statements in Form 5500 1,034 1,270
---------- ----------
Net assets available for benefits presented in
the Asset and Liability Statements in Form 5500 $3,690,150 $3,677,046
========== ==========
The following is a reconciliation of benefits paid to participants per
the financial statements to the amounts reported in Form 5500 (in
thousands):
2001
----
Benefits paid to participants as
Presented in the Statement of Changes in
Net Assets Available for Benefits $247,891
Add: Current year benefit claims payable
presented in the Asset and Liability
Statements in Form 5500 1,034
Less: Prior year benefit claims payable
presented in the Asset and Liability
Statements in Form 5500 1,270
--------
Benefits paid to participants and beneficiaries
per the Form 5500 $247,655
========
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Verizon Employee Benefits Committee has duly caused this annual report to be
signed by the undersigned thereunto duly authorized.
Verizon Savings and Security Plan for
New York and New England Associates
By: /s/ Ezra D. Singer
------------------
Ezra D. Singer
(Chairman, Verizon Employee Benefits Committee)
Date: June 21, 2002