UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





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FORM 10-Q





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(Mark one)





|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2002





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 1-7757





VERIZON DELAWARE INC.A Delaware Corporation

I.R.S. Employer Identification No. 23-0523775





901 Tatnall Street, Wilmington, Delaware 19801





Telephone Number (302) 576-5416





THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).





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  ̈




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PART IFINANCIAL INFORMATION





Item 1. Financial Statements





VERIZON DELAWARE INC.





CONDENSED STATEMENTS OF INCOME





Three Months Ended September 30,

Nine Months Ended September
30,(Dollars in Thousands) (Unaudited)

2002

2001

2002


2001OPERATING REVENUES (including $2,490, $1,024, $3,311 and $149 from affiliates)

$
89,570

$
81,035

$
257,729


$
242,461Operations and support expense (exclusive of items shown below)(including $18,296, $16,748, $53,113 and $49,599 to
affiliates)


34,837


39,629


111,900



119,197Depreciation and amortization


17,407


18,405


53,831



54,47652,244


58,034


165,731



173,673OPERATING INCOME


37,326


23,001


91,998



68,788OTHER INCOME AND (EXPENSE), NET (including $108, $(14), $140 and $(3,475) from affiliates)


144


54


284



(3,250
)INTEREST EXPENSE (including $561, $890, $2,304 and $3,256 to affiliates)


1,799


2,169


6,189



7,128INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM


35,671


20,886


86,093



58,410PROVISION FOR INCOME TAXES


14,526


8,467


35,073



25,119INCOME BEFORE EXTRAORDINARY ITEM


21,145


12,419


51,020



33,291EXTRAORDINARY ITEM Early extinguishment of debt, net of tax








(23
)


NET INCOME

$
21,145

$
12,419

$
50,997


$
33,291





See Notes to Condensed Financial Statements.




1




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VERIZON DELAWARE INC.





CONDENSED BALANCE SHEETS





(Dollars in Thousands)

September 30, 2002

December 31, 2001(Unaudited)ASSETSCURRENT ASSETSShort-term investments

$
225

$
9,400Note receivable from affiliate


19,690


Accounts receivable:Trade and other, net of allowances for uncollectibles of $9,652 and $7,046


53,083


53,398Affiliates


3,575


10,072Material and supplies


1,678


1,070Prepaid expenses


5,976


3,510Deferred income taxes


3,996


1,769Other


9,026


9,85297,249


89,071PLANT, PROPERTY AND EQUIPMENT


1,134,785


1,106,394Less accumulated depreciation


688,750


645,590446,035


460,804PREPAID PENSION ASSET


40,424


26,558OTHER ASSETS


27,621


30,744TOTAL ASSETS

$
611,329

$
607,177





See Notes to Condensed Financial Statements.




2




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VERIZON DELAWARE INC.





CONDENSED BALANCE SHEETS





(Dollars in Thousands, Except Per Share Amount)

September 30, 2002

December 31, 2001(Unaudited)LIABILITIES AND SHAREOWNERS INVESTMENTCURRENT LIABILITIESDebt maturing within one year:Note payable to affiliate

$


$
30,278Current portion of long-term debt:Affiliate


30,000


Other


34


31Accounts payable and accrued liabilities:Affiliates


18,788


25,944Other


54,186


55,927Other liabilities


19,265


18,758122,273


130,938LONG-TERM DEBTNote payable to affiliate


70,000


75,000Other


76,507


86,517146,507


161,517EMPLOYEE BENEFIT OBLIGATIONS


39,664


39,004DEFERRED CREDITS AND OTHER LIABILITIESDeferred income taxes


59,809


49,812Unamortized investment tax credits


1,445


1,527Other


17,379


22,13578,633


73,474SHAREOWNERS INVESTMENTCommon stock, $25 par value per share


118,442


118,442Authorized shares: 5,262,280Outstanding shares: 4,737,686Capital surplus


17,433


17,422Reinvested earnings


88,377


66,380224,252


202,244TOTAL LIABILITIES AND SHAREOWNERS INVESTMENT

$
611,329

$
607,177





See Notes to Condensed Financial Statements.




3




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VERIZON DELAWARE INC.





CONDENSED STATEMENTS OF CASH FLOWS





Nine Months Ended September 30,(Dollars in Thousands) (Unaudited)

2002


2001NET CASH PROVIDED BY OPERATING ACTIVITIES

$
95,967


$
91,417CASH FLOWS FROM INVESTING ACTIVITIESNet change in short-term investments


9,175



5,304Capital expenditures


(40,149
)


(72,241
)Change in note receivable from affiliate


(19,690
)


Other, net


(155
)


(628
)Net cash used in investing activities


(50,819
)


(67,565
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long-term note payable to affiliate


25,000



Early extinguishment of debt


(10,000
)


Principal repayments of capital lease obligations


(22
)


(13
)Change in short-term note payable to affiliate


(30,278
)


10,452Dividends paid


(29,000
)


(32,500
)Net change in outstanding checks drawn on controlled disbursement accounts


(848
)


(1,791
)Net cash used in financing activities


(45,148
)


(23,852
)NET CHANGE IN CASH






CASH, BEGINNING OF PERIOD






CASH, END OF PERIOD

$



$






See Notes to Condensed Financial Statements.




4




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VERIZON DELAWARE INC.





NOTES TO CONDENSED FINANCIAL STATEMENTS


(Unaudited)





1.    Basis of Presentation





Verizon Delaware Inc. is a wholly owned subsidiary of Verizon Communications Inc. (Verizon Communications). The accompanying unaudited condensed financial statements have been prepared based upon
Securities and Exchange Commission (SEC) rules that permit reduced disclosure for interim periods. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial position for the
interim periods shown including normal recurring accruals. The results for the interim periods are not necessarily indicative of results for the full year. The balance sheet at December 31, 2001 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For a more complete discussion of significant accounting policies and certain other
information, you should refer to the financial statements included in our 2001 Annual Report on Form 10-K.





We
have reclassified certain amounts from prior years data to conform to the 2002 presentation.





2.    Adoption
of New Accounting Standards





Goodwill and Other Intangible Assets





Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. 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 prescribed 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 goodwill impairment test under SFAS No. 142 requires a two-step approach, which is performed at the reporting unit level, as defined in SFAS No. 142. Step one identifies potential impairments by comparing the fair value of the
reporting unit to its carrying amount. Step two, which is only performed if there is a potential impairment, compares the carrying amount of the reporting units goodwill to its implied value, as defined in SFAS No. 142. If the carrying amount
of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for an amount equal to that excess. Intangible assets that do not have indefinite lives are amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 142 did not impact our results of operations or financial position because we had no
goodwill or indefinite-lived intangible assets at December 31, 2001 and 2000.





Our other intangible assets consist
of non-network software as follows:





As of September 30, 2002

As of December 31, 2001Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization(Dollars in Thousands)Non-network software (3 to 7 years)

$
15,928

$
5,807

$
15,773

$
3,821





Intangible assets amortization expense was $663,000 for the three
months ended September 30, 2002 and $1,986,000 for the nine months ended September 30, 2002. Amortization expense is estimated to be $663,000 for the remainder of 2002, $2,650,000 in 2003, $2,484,000 in 2004, $1,798,000 in 2005 and $1,349,000 in
2006, related to our non-network software.





Impairment or Disposal of Long-Lived Assets





Effective January 1, 2002, we adopted SFAS No. 144. This standard supersedes SFAS No. 121 and the provisions of Accounting
Principles Board (APB) Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, with regard to
reporting the effects of a disposal of a segment of a business. SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale and addresses several SFAS No. 121 implementation issues. The adoption of SFAS No. 144 did not
have a material effect on our results of operations or financial position.




5




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VERIZON DELAWARE INC.





3.    Recent Accounting Pronouncements





Asset Retirement Obligations





In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This standard provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a liability for asset
retirement obligations in the period in which the obligations are incurred and capitalize that amount as a part of the book value of the long-lived asset. That cost is then depreciated over the remaining life of the underlying long-lived asset. We
are required to adopt SFAS No. 143 effective January 1, 2003. We are currently evaluating the impact this new standard will have on our future results of operations or financial position.





Debt Extinguishment





In April
2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things, eliminates the requirement that all gains and losses on
the extinguishment of debt must be classified as extraordinary items on the income statement, thereby permitting the classification of such gains and losses as extraordinary items only if the criteria of APB No. 30 are met. We are required to adopt
this provision of SFAS No. 145 effective January 1, 2003 and, upon adoption, we will reclassify in our statements of income previously reported extraordinary charges for the early extinguishment of debt to income from continuing operations.





Exit or Disposal Activities





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This standard addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). EITF Issue No. 94-3 required accrual of liabilities related to exit and disposal activities at a plan (commitment) date. SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. The provisions of this standard are effective for exit or disposal activities that are initiated after December 31, 2002.





4.    Dividend





On November
1, 2002, we declared and paid a dividend in the amount of $9,500,000 to Verizon Communications.





5.    Debt





In March 2002, we recorded an extraordinary charge associated with the early extinguishment of $10,000,000 of
7% debentures due on December 1, 2008, which reduced net income by $23,000 (net of an income tax benefit of $16,000). In addition, we issued a $25,000,000 long-term note with an affiliated company, Verizon Network Services Holdings Inc. This note
will mature on March 30, 2007 and carries a floating interest rate, based upon the 3-month LIBOR plus 60 basis points, which will reset quarterly.





6.    Shareowners Investment





Common Stock

Capital Surplus

Reinvested Earnings(Dollars in Thousands)Balance at December 31, 2001

$
118,442

$
17,422

$
66,380Net income








50,997Dividends declared to Verizon Communications








(29,000
)Other





11Balance at September 30, 2002

$
118,442

$
17,433

$
88,377





Net income and comprehensive income were the same for the nine
months ended September 30, 2002 and 2001.




6




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VERIZON DELAWARE INC.





7.    Commitments and Contingencies





Various legal actions and regulatory proceedings are 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.





Several regulatory matters may require us to refund to customers
a portion of the revenues collected in the current and prior periods. The outcome of each pending matter, as well as the time frame within which each matter will be resolved, is not presently determinable.





Regulatory conditions to the Bell Atlantic  GTE merger include 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.





8.    Investment in Verizon Ventures III Inc.





In December 2000, we
transferred certain advanced data assets to an affiliated company, Verizon Ventures III Inc. (Ventures III) in exchange for common stock of Ventures III. This transfer was done to satisfy a condition of the Federal Communications Commissions
(FCC) approval of the Bell Atlantic  GTE merger, which required the provision of advanced data services through a separate affiliate. Throughout 2000 and 2001, we continued to invest in Ventures III through the transfer of additional
assets. As a result of the transfers, we acquired an ownership interest in Ventures III, which we accounted for under the equity method of accounting.





In September 2001, the FCC issued an order eliminating this merger condition. Following the FCC order, we made necessary filings with our state regulatory commission for approval of the transfer of
these assets back to us. During the fourth quarter of 2001, after required state regulatory approvals were obtained, Ventures III transferred these assets to us. In consideration of the transfer of these assets, we surrendered our common stock in
Ventures III and remitted cash compensation.





No gain or loss was recognized as a result of the reintegration of
the advanced data assets to us. This reintegration did not have a material effect on our results of operations or financial condition.





9.    Employee Severance and Other





In connection with the Bell
Atlantic  GTE merger on June 30, 2000, we incurred charges associated with employee severance of $1,499,000. These costs, as recorded under SFAS No. 112, Employers Accounting for Postemployment Benefits, represent
the benefit costs for the separation of management employees who were entitled to benefits under pre-existing separation plans. The severances in connection with the Bell Atlantic  GTE merger are complete.





During the fourth quarter of 2001, we recorded a charge of $5,680,000 for the voluntary and involuntary separation of employees in
accordance with SFAS No. 112. During the second quarter of 2002, we recorded a charge of $3,130,000 associated with employee severance and related pension enhancements. The charge included severance benefits of $2,130,000 as recorded under SFAS No.
112 and related pension enhancements of $1,000,000 as recorded under SFAS No. 88 Employers Accounting for Settlements and Curtailments of Defined Pension Plans and for Termination Benefits. As of September 30, 2002, a total of
approximately 70 management and associate employees have been separated under the 2001 and 2002 severance programs. The remaining severance liability relating to these programs is $5,456,000, which includes future payments to employees separated as
of September 30, 2002. We expect to complete the severance programs within a year of when the respective charges were recorded. During the nine months ended September 30, 2002, we recorded a net pension settlement gain of $2,430,000 in connection
with previously announced employee separations. SFAS No. 88 requires that settlement gains and losses be recorded once prescribed payment thresholds have been reached. Employee benefit costs are recorded in Operations and Support Expense in our
Statement of Income.





In addition, during the second quarter of 2002, we recorded an impairment charge of $800,000
driven by our financial statement exposure to WorldCom Inc.




7




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VERIZON DELAWARE INC.





Item 2.    Managements Discussion and Analysis of Results of Operations (Abbreviated pursuant to General Instruction H(2).)





This discussion should be read in conjunction with the Condensed Financial Statements and Condensed Notes to Financial Statements.





RESULTS OF OPERATIONS





We reported net income of $50,997,000 for the nine month period ended September 30, 2002, compared to net income of $33,291,000 for the same period in 2001. Our reported results included the following
special items:





Employee Severance





During the second quarter of 2002, we recorded a charge of $3,130,000 associated with employee severance and related pension enhancements. The charge included severance benefits of $2,130,000 as
recorded under Statement of Financial Accounting Standards (SFAS) No. 112, Employers Accounting for Postemployment Benefits, and related pension enhancements of $1,000,000 as recorded under SFAS No. 88, Employers
Accounting for Settlements and Curtailments of Defined Pension Plans and for Termination Benefits.





During
the nine months ended September 30, 2002, we recorded a net pension settlement gain of $2,430,000 in connection with previously announced employee separations. SFAS No. 88 requires that settlement gains and losses be recorded once prescribed payment
thresholds have been reached.





WorldCom Inc.





During the second quarter of 2002, we recorded an impairment charge of $800,000 driven by our financial statement exposure to WorldCom Inc. (WorldCom)





WorldCom, including its affiliates, purchases dedicated local exchange capacity from us to support its private networks and we
also charge WorldCom for access to our local network. In addition, we sell local wholesale interconnection services and provide billing and collection services to WorldCom. We purchase long distance and related services from WorldCom. On July 21,
2002, WorldCom filed for Chapter 11 bankruptcy protection.





During the third quarter of 2002, we recorded
revenues earned from the provision of primarily network access services to WorldCom of $3,966,000. If WorldCom terminates contracts with us for the provision of services, our operating revenues would be lower in future periods. Lower revenues as a
result of canceling contracts for the provision of services could be partially offset, in some cases, by the migration of customers on the terminated facilities to us or other carriers who purchase capacity and/or interconnection services from us.





At September 30, 2002, accounts receivable from WorldCom, net of a provision for uncollectibles, was $491,000. We
continue to closely monitor our collections on WorldCom account balances. WorldCom is current with respect to its post-bankruptcy obligations. We believe that we are adequately reserved for the potential risk of non-payment of pre-bankruptcy
receivables from WorldCom.





OPERATING REVENUES


(Dollars in Thousands)





Nine Months Ended September 30,2002

2001Local services

$
149,026

$
144,467Network access services


87,155


76,711Long distance services


9,439


9,153Other services


12,109


12,130Total

$
257,729

$
242,461




8




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VERIZON DELAWARE INC.





We recognize service revenues based upon usage of our local exchange network and facilities and contract fees. We recognize product and other service revenues when the
products are delivered and accepted by the customers and when services are provided in accordance with contract terms.





LOCAL SERVICES





20022001

IncreaseNine Months

$
4,559

3.2
%





Local service revenues are earned 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 revenues, but also includes local wholesale revenues from unbundled network elements (UNEs), interconnection revenues from competitive local exchange carriers (CLECs), certain data
transport revenues and wireless interconnection revenues.





Local service revenues increased in the first nine
months of 2002 primarily as a result of higher demand and usage of our private line and directory assistance services. These increases were partially offset by the effect of lower demand and usage of some basic wireline services and price discounts
on product bundling offers. Our switched access lines in service declined 0.5% from September 30, 2001 primarily reflecting the impact of the economic slowdown and competition. Technology substitution has also affected local service revenue growth,
as indicated by lower demand for residential access lines.





NETWORK ACCESS SERVICES





20022001

IncreaseNine Months

$
10,444

13.6
%





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





The increase in network access revenues in the first nine months of 2002 was mainly
attributable to higher customer demand for switched and special access services. Special access services growth primarily reflects a strong demand in the business market for high-capacity, high-speed digital services. Volume-related growth was
slightly offset by mandated price reductions on interstate and intrastate services and other regulatory decisions.





LONG DISTANCE
SERVICES





20022001

IncreaseNine Months

$
286

3.1
%





Long distance revenues are earned primarily from calls made to
points outside a customers local calling area, but within our service area (intraLATA toll). IntraLATA toll calls originate and terminate within the same LATA, but generally cover a greater distance than a local call. These services are
regulated by the Delaware Public Service Commission (DPSC), except where they cross state lines. Other long distance services that we provide include 800 services and Wide Area Telephone Service (WATS).





Long distance service revenues increased in the first nine months of 2002 primarily due to the effect of an accrual recorded in 2001 in
connection with required refunds to customers. This increase was partially offset by the effects of competition and toll calling discount packages and product bundling offers of our intraLATA toll services. Technology substitution and lower access
line growth due to the slowing economy also affected long distance service revenue growth.




9




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VERIZON DELAWARE INC.





OTHER SERVICES





20022001

(Decrease)Nine Months

$
(21
)

(.2
)%





Our other services include such services as billing and collections
for long distance carriers and affiliates, facilities rentals to affiliates and nonaffiliates, public (pay) telephone, customer premises equipment (CPE) and sales of materials and supplies to affiliates. Other service revenues also include fees paid
by customers for nonpublication of telephone numbers and multiple white page listings and fees paid by an affiliate for usage of our directory listings.





Other service revenues decreased in the first nine months of 2002 primarily due to lower facilities rental revenues from affiliates. This decrease was substantially offset by higher revenues from CPE
sales.





OPERATING EXPENSES


(Dollars in Thousands)





OPERATIONS AND SUPPORT





20022001

(Decrease)Nine Months

$
(7,297
)

(6.1
)%





Operations and support expenses consist of employee costs and other
operating expenses. Employee costs consist of salaries, wages and other employee compensation, employee benefits and payroll taxes. Other operating expenses consist of contract services including centralized services expenses allocated from
affiliates, rent, network software costs, operating taxes other than income, the provision for uncollectible accounts receivable, reciprocal compensation, and other costs.





The decrease in operations and support expenses was mainly attributable to lower interconnection costs and reduced spending for contracted and centralized services expenses
principally as a result of lower volumes of business and cost containment measures. Operating costs also included slightly lower employee costs driven by the effect of declining workforce levels, substantially offset by higher benefit costs. These
cost reductions were partially offset by increased costs associated with uncollectible accounts receivable. As described earlier, in 2002, we recorded charges of $3,130,000 associated with employee severance costs and other severance-related
activities and a charge of $800,000 associated with uncollectible accounts receivable from WorldCom. Further, we recorded a net pension settlement gain of $2,430,000 in 2002. Pension income (excluding settlement gains and losses) was $10,753,000 and
$12,512,000 for the nine month periods ended September 30, 2002 and 2001, respectively.





DEPRECIATION AND AMORTIZATION





20022001

(Decrease)Nine Months

$
(645
)

(1.2
)%





Depreciation expense is principally based on the composite group
remaining life method and straight-line composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining asset lives. This method
requires the periodic revision of depreciation rates.





Depreciation and amortization expense decreased in the
first nine months of 2002 primarily due to the effect of lower rates of depreciation. This decrease was substantially offset by growth in depreciable telephone plant and, to a lesser extent, increased software amortization costs.




10




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VERIZON DELAWARE INC.





OTHER RESULTS


(Dollars in Thousands)





OTHER INCOME AND (EXPENSE), NET





2002-2001

IncreaseNine Months

$
3,534

108.7
%





Other income and (expense), net includes equity income (losses),
interest income and other nonoperating income and expense items. As a result of the reintegration of Verizon Ventures III Inc. (Ventures III) completed in the fourth quarter of 2001, we no longer recognize equity income (losses) from this investment
(See Note 8 to the Condensed Financial Statements).





The increase in other income and (expense), net, was
primarily attributable to the effect of equity losses recognized in 2001 from our investment in Ventures III.





INTEREST EXPENSE





2002-2001

(Decrease)Nine Months

$
(939
)

(13.2)%





Interest expense includes costs associated with borrowing and
capital leases, net of capitalized interest costs. We capitalize interest associated with the acquisition or construction of plant assets. Capitalized interest is reported as a cost of plant and a reduction in interest expense.





Interest expense decreased in the first nine months of 2002, as compared to the same period in 2001, primarily as a result of
lower interest rates on short-term debt with an affiliate and the effect of lower average levels of short-term debt with an affiliate.





EFFECTIVE INCOME TAX RATES





Nine Months Ended September 30,2002

40.7
%2001

43.0
%





The effective income tax rate is the provision for income taxes as
a percentage of income before provision for income taxes and extraordinary item. Our effective income tax rate was lower for the nine months ended September 30, 2002, as compared to the same period in 2001, primarily due to the effect of equity
losses associated with our investment in Ventures III, which were recorded in 2001, for which we did not recognize income tax benefits.





EARLY EXTINGUISHMENT OF DEBT





In March 2002, we recorded an extraordinary charge associated
with the early extinguishment of $10,000,000 of 7% debentures due on December 1, 2008, which reduced net income by $23,000 (net of an income tax benefit of $16,000).





See Note 5 to the Condensed Financial Statements.




11




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VERIZON DELAWARE INC.





OTHER MATTERS





In-Region Long Distance





Under the Telecommunications Act of 1996, our ability to offer in-region long distance services (that is, services originating in the
state where we operate as a local exchange carrier) is largely dependent on satisfying specified requirements. The requirements include a 14-point competitive checklist of steps which we must take to help competitors offer local services
through resale, through purchase of UNEs, or by interconnecting their own networks to ours. We must also demonstrate to the Federal Communications Commission (FCC) that entry into the in-region long distance market would be in the public interest.





On September 25, 2002, the FCC released an order approving our application for permission to enter the in-region
long distance market in Delaware. Since October 8, 2002, in-region long distance is being offered by a separate non-regulated subsidiary of Verizon Communications Inc. as required by law.





Recent Accounting Pronouncements





Asset
Retirement Obligations





In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations. This standard provides the accounting for the cost of legal obligations associated with the retirement of long-lived assets. SFAS No. 143 requires that companies recognize the fair value of a
liability for asset retirement obligations in the period in which the obligations are incurred and capitalize that amount as a part of the book value of the long-lived asset. That cost is then depreciated over the remaining life of the underlying
long-lived asset. We are required to adopt SFAS No. 143 effective January 1, 2003. We are currently evaluating the impact this new standard will have on our future results of operations or financial position.





Debt Extinguishment





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things, eliminates the
requirement that all gains and losses on the extinguishment of debt must be classified as extraordinary items on the income statement, thereby permitting the classification of such gains and losses as extraordinary items only if the criteria of
Accounting Principles Board Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, are met. We
are required to adopt this provision of SFAS No. 145 effective January 1, 2003 and, upon adoption, we will reclassify in our statements of income previously reported extraordinary charges for the early extinguishment of debt to income from
continuing operations.





Exit or Disposal Activities





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This standard addresses financial accounting
and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). EITF Issue No. 94-3 required accrual of liabilities related to exit and disposal activities at a plan (commitment) date. SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. The provisions of this standard are effective for exit or disposal activities that are initiated after December 31, 2002.





Compensation for Internet Traffic





We continue
to incur expenditures related to reciprocal compensation arrangements with CLECs and other carriers to terminate calls on their network.





On April 27, 2001, the FCC released an order addressing intercarrier compensation for dial-up connections for Internet-bound traffic. 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 1996 Act. Instead, the FCC established federal rates per minute for this traffic that decline from
$0.0015 to $0.0007 over a three-year period. The FCC order also sets caps on the total minutes of this traffic 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. On May 3, 2002, the U.S. Court of Appeals for the District of Columbia




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VERIZON DELAWARE INC.





Circuit rejected the justification relied upon by the FCC in its April 27, 2001 order, and remanded the order for further proceedings. It did not vacate the interim pricing rules established in that order.





Several parties requested rehearing, asking the court to vacate the underlying order. Those requests were denied in a series of orders
released on September 24, 2002, and September 25, 2002. As a result, the FCCs underlying order remains in effect.




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VERIZON DELAWARE INC.





Item 4. Controls and Procedures





(a) Evaluation of disclosure controls and
procedures.





Our chief executive officer and chief financial officer have evaluated the effectiveness of the
registrants disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934), as of a date within 90 days of the filing date of this quarterly report (Evaluation Date), that ensure that
information relating to the registrant which is required to be disclosed in this report is recorded, processed, summarized and reported, within required time periods. They have concluded that as of the Evaluation Date, the registrants
disclosure controls and procedures were adequate and effective to ensure that material information relating to the registrant and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the
period in which this quarterly report was being prepared.





(b) Changes in internal controls.





There were no significant changes in the registrants internal controls or in other factors that could significantly
affect these controls subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in these controls requiring corrective actions.




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VERIZON DELAWARE INC.





PART IIOTHER INFORMATION





Item 1.    Legal
Proceedings





There were no proceedings reportable under this Item.





Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits:





Exhibit Number12 Computation of Ratio of Earnings to Fixed Charges.





(b)  There were no Current Reports on Form 8-K filed
during the quarter ended September 30, 2002.




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VERIZON DELAWARE INC.





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 DELAWARE INC.By:

/s/    EDWIN F.
HALLEdwin F. Hall Controller


Date: November 13, 2002





UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 2002.




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VERIZON DELAWARE INC.





CERTIFICATIONS





I, Lawrence T. Babbio, Jr., certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Verizon Delaware Inc.;
| | -- |  | ----------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including it consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 13, 2002

/s/Lawrence T. Babbio, Jr. Lawrence T. Babbio, Jr. Chairman of the Board and Chief Executive Officer




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VERIZON DELAWARE INC.





CERTIFICATIONS





I, Lawrence R. Whitman, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Verizon Delaware Inc.;
| | -- |  | ----------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including it consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 13, 2002

/s/Lawrence R. Whitman Lawrence R. Whitman Chief Financial Officer




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VERIZON DELAWARE INC.





EXHIBIT INDEX





Exhibit Number12

Computation of Ratio of Earnings to Fixed Charges.




19