<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                         ------------------------------

                                   FORM 10-K

                         ------------------------------

(Mark one)
   [X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2000

                                       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

                             ----------------------

Securities registered pursuant to Section 12(b) of the Act: See attached
Schedule A.

Securities registered pursuant to Section 12(g) of the Act:  None.


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

<PAGE>

                             Verizon Delaware Inc.

                                  SCHEDULE A


Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
            Title of each class                             on which registered
----------------------------------------------             ---------------------

Forty Year 7% Debentures, due December 1, 2008                 New York Stock
                                                                 Exchange

<PAGE>

                              Verizon Delaware Inc.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

Item No.                                                                                                  Page
-------                                                                                                   ----
                                     PART I
<S>  <C>                                                                                                  <C>
1.   Business
     (Abbreviated pursuant to General Instruction I(2).)..............................................       1
2.   Properties ......................................................................................       6
3.   Legal Proceedings ...............................................................................       6
4.   Submission of Matters to a Vote of Security Holders .............................................       6
     (Omitted pursuant to General Instruction I(2).)

                                     PART II

5.   Market for Registrant's Common Equity and Related Stockholder Matters ...........................       7
6.   Selected Financial Data
     (Omitted pursuant to General Instruction I(2).)..................................................       7
7.   Management's Discussion and Analysis of Results of Operations
     (Abbreviated pursuant to General Instruction I(2).) .............................................       8
7A.  Quantitative and Qualitative Disclosures About Market Risk.......................................      14
8.   Financial Statements and Supplementary Data .....................................................      14
9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............      14


                                    PART III

     (Omitted pursuant to General Instruction I(2).):
10.  Directors and Executive Officers of the Registrant ..............................................      14
11.  Executive Compensation ..........................................................................      14
12.  Security Ownership of Certain Beneficial Owners and Management ..................................      14
13.  Certain Relationships and Related Transactions ..................................................      14


                                     PART IV

14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................................      15
</TABLE>


       UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 27, 2001
<PAGE>

                              Verizon Delaware Inc.

                                     PART I

Item 1.  Business
                                     GENERAL

     Verizon Delaware Inc. is incorporated under the laws of the State of
Delaware. Our principal offices are located at 901 Tatnall Street, Wilmington,
Delaware 19801 (telephone number 302-576-5416). We are a wholly owned subsidiary
of Verizon Communications Inc. (Verizon).

     We presently serve the state of Delaware and provide long distance calling
to southeastern Pennsylvania, since it is within the same Local Access and
Transport Area (LATA). A LATA is generally centered on a city or based on some
other identifiable common geography and, with certain limited exceptions, a LATA
marks the boundary within which we have been permitted by the "Modification of
Final Judgment" (MFJ) to provide telephone service.

     We currently provide two basic types of telecommunications services. First,
we transport telecommunications traffic between subscribers located within the
same LATA (intraLATA service), including both local and long distance services.
Local service includes the provision of local exchange (dial-tone), local
private line and directory assistance services. Among other local services
provided are Centrex (central office-based switched telephone service enabling
the subscriber to make both intercom and outside calls) and a variety of special
and custom calling services. Long distance service includes message toll service
(calling service beyond the local calling area) within LATA boundaries, and
intraLATA Wide Area Toll Service (WATS) and 800 services (volume discount
offerings for customers with highly concentrated demand). Second, we provide
exchange access service, which links a subscriber's telephone or other equipment
to the transmission facilities of interexchange carriers which, in turn,
provide telecommunications service between LATAs (interLATA service) to their
customers. We also provide exchange access service to interexchange carriers
which provide intrastate intraLATA long distance telecommunications service, as
well as local exchange access to competitive local exchange carriers for calls
within a LATA. Other services we provide include customer premises wiring and
maintenance, billing and collection and pay telephone services.

                            BELL ATLANTIC-GTE MERGER

     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. The merger qualified as
a tax-free reorganization and has been accounted for as a pooling-of-interests
business combination.

                                   OPERATIONS

     We are one of 16 public operating telephone companies owned by Verizon.
Verizon has organized certain telecommunications group functions into marketing
units operating across its operating telephone subsidiaries. The units focus on
specific market segments. Each of the operating telephone subsidiaries,
including the company, remains responsible within its respective service area
for the provision of telephone services, financial performance and regulatory
matters. Verizon's five strategic marketing units are comprised of the
following:

     The Enterprise unit markets communications and information technology and
services to large businesses and to departments, agencies and offices of the
executive, judicial and legislative branches of the federal and state
government. These services include voice switching/processing services (e.g.,
dedicated private lines, custom Centrex, call management, and voice messaging),
end-user networking (e.g., credit and debit card transactions and personal
computer-based conferencing, including data and video), internetworking
(establishing links between the geographically disparate networks of two or more
companies or within the same company), network optimization (disaster avoidance,
911 service, and intelligent vehicle highway systems) and other communications
services such as distance learning, telemedicine, videoconferencing and
interactive multimedia applications. The Enterprise unit also includes Verizon's
Data Solutions Group which provides data transmission and network integration
services (integrating multiple geographically disparate networks into one
system) and Verizon's Strategic Markets unit which operates as a provider of
network monitoring services and telecommunications equipment sales to medium and
large businesses.

     The Retail unit markets communications and information services to
residential customers and to small and medium-sized businesses within our
territory. This unit also provides operator and pay telephone services. The
Retail unit includes

                                       1
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                              Verizon Delaware Inc.

Verizon Avenue, a subsidiary of Verizon that markets to customers located in
multi-tenant buildings and Teleproducts, a subsidiary of Verizon that markets
customer premises equipment to the end-user.

     The Wholesale unit markets (i) switched and special access to the telephone
subsidiaries' local exchange networks, and (ii) billing and collection services,
including recording, rating, bill processing, bill rendering, CLEC services and
wireless interconnection. This unit also includes various technical planning
groups that provide strategic technology and network planning, new service
creation, and emerging business management.

     The Advanced Services unit markets Verizon's long distance, data and
Internet access services. In certain states, Verizon's long distance
subsidiaries operate as a reseller of national and international long-distance
services and provide service in all 50 states to residential and business
customers, including long distance services, calling cards, 800 services and
operator services to its customers. Verizon's Global Networks unit is building a
next generation long distance network using ATM (asynchronous transfer mode)
technology.

     The National Operations unit markets Verizon's Communications and
Construction services that supply installation and repair labor and manages
Verizon's Supply unit that is responsible for the procurement and management of
inventory and supplies for the operating telephone companies, as well as other
subsidiaries. The Supply unit also sells material and logistic services to third
parties.

Telecommunications Act of 1996

     The Telecommunications Act of 1996 (1996 Act) became effective on February
8, 1996, and replaced the MFJ, a consent decree that arose out of an antitrust
action brought by the United States Department of Justice against AT&T. In
general, the 1996 Act includes provisions that open local exchange markets to
competition and permit Bell Operating Companies, including ours, to engage in
manufacturing and to provide long distance service under prescribed conditions.

     Under the 1996 Act, our ability to offer in-region long distance services
(that is, services originating in the states where we operate as a local
exchange carrier) is largely dependent on satisfying prescribed 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 unbundled network elements (UNEs), or through their own networks. 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.

     We are unable to predict definitively the impact that the 1996 Act will
ultimately have on our business, results of operations, or financial condition.
The financial impact will depend on several factors, including the timing,
extent and success of competition in our markets, the timing and outcome of
various regulatory proceedings and any appeals, and the timing, extent and
success of our pursuit of new opportunities resulting from the 1996 Act.

FCC Regulation and Interstate Rates

     We are subject to the jurisdiction of the FCC with respect to interstate
services and related matters. In 2000, the FCC continued to implement reforms to
the interstate access charge system and to implement the "universal service" and
other requirements of the 1996 Act.

Access Charges

     Interstate access charges are the rates long distance carriers pay for use
and availability of our facilities for the origination and termination of
interstate service. The FCC required a phased restructuring of access charges,
from January 1998 until January 2000, pursuant to which we recover
non-usage-sensitive costs from long distance carriers and end-users through flat
rate charges, and usage-sensitive costs from long distance carriers through
usage-based rates.

     On May 31, 2000, the FCC adopted a plan advanced by members of the industry
(The Coalition for Affordable Local and Long Distance Service, or "CALLS") as a
comprehensive five-year plan for regulation of interstate access charges. The
CALLS plan has three main components. First, it establishes a portable
interstate access universal service support of $650 million for the industry. Of
that amount, Verizon expects approximately $340 million to be used to support
interstate access services in the operating telephone subsidiaries' service
territory. This explicit support replaces implicit support embedded in
interstate access charges. Second, the plan simplifies the patchwork of common
line charges into one subscriber line charge (SLC) and provides for de-averaging
of the SLC by zones and class of customers in a manner that will not undermine
comparable and affordable universal service. Third, the plan sets into place a
mechanism to transition to a set target of


                                       2
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                              Verizon Delaware Inc.

$.0055 per minute for switched access services. Once that target rate is
reached, local exchange carriers are no longer required to make further annual
price cap reductions to their switched access prices.

     As of September 14, 2000, Verizon formally elected to participate in the
full five-year term of the CALLS plan. As a result of this decision, price caps
on our interstate access charges will be set according to the conditions of the
FCC order on the 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, we reached the $0.0055 benchmark.

     The FCC has adopted rules for special access services that provide for
pricing flexibility and ultimately the removal of services from price regulation
when competitive thresholds are met. In order to use these rules, carriers must
forego the ability to take advantage of provisions in the current rules that
provide relief in the event earnings fall below prescribed thresholds. In
November and December 2000, Verizon made filings to obtain this added pricing
flexibility. On March 14, 2001, the FCC released an Order in which it approved
pricing flexibility for 46 Metropolitan Statistical Areas (MSAs) and three
states (Delaware, Vermont and Maryland) served by Verizon. In ten of the MSAs
and the state of Delaware, the services were awarded complete pricing
flexibility and were removed from price regulation. Partial pricing flexibility
was granted in the remaining MSAs and the two other states.

Universal Service

     As a result of a July 1999 decision of the U.S. Court of Appeals, Verizon's
contributions to the universal service fund were reduced by approximately $107
million annually beginning on November 1, 1999, and interstate access rates were
reduced accordingly because we will no longer have to recover these
contributions in our rates. Last year, the petitions asking the U.S. Supreme
Court to review the court of appeals decision were either withdrawn or rejected.

     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 Verizon. This system has been supplemented by the
new FCC access charge plan described above.

     On October 18, 2000, Verizon asked the U.S. Supreme Court to dismiss its
pending review of the FCC's use of a theoretical model as one factor to
determine the appropriate size of federal support for a fund for intrastate high
cost areas. The review was no longer necessary because, subsequent to Verizon's
petition to the U.S. Supreme Court, the FCC expressly disclaimed supervisory
authority over the states' universal service activities.

     The FCC is currently considering two modifications to its universal service
programs, both relating to support for rural carriers. The first, a proposal by
an appointed policy task force, would provide additional support for intrastate
services provided by rural carriers. The second, a proposal by a coalition of
rural carriers, would make explicit support for interstate access services
provided by rural carriers. The FCC is likely to address both these proposals in
2001.

Unbundling of Network Elements

     In November 1999, the FCC announced its decision setting forth new
unbundling requirements, eliminating elements that it had previously required to
be unbundled, limiting the obligation to provide others and adding new elements.
Appeals from this decision are pending.

     In addition to the unbundling requirements released in November 1999, the
FCC released an order in a separate proceeding in December 1999, requiring
incumbent local exchange companies also to unbundle and provide to competitors
the higher frequency portion of their local loop. This provides competitors with
the ability to provision data services on top of incumbent carriers' voice
services. Appeals from this order are also pending.

     In July 2000, the U.S. Court of Appeals for the Eighth Circuit found that
some aspects of the FCC's requirements for pricing UNEs were inconsistent with
the 1996 Act. In particular, it found that the FCC was wrong to require
incumbent carriers to base these prices not on their real costs but on the
imaginary costs of the most efficient equipment and the most efficient network
configuration. The court upheld the FCC's decision that UNEs be priced based on
a forward-looking cost

                                       3
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                              Verizon Delaware Inc.

model which ignores actual historical costs. The U.S. Supreme Court has accepted
this decision for review in a case to be heard in the fall term of 2001. That
portion of the court of appeals' decision has been stayed pending that review.

Compensation for Internet Traffic

     In March 2000, the Washington, D.C. Circuit Court of Appeals reversed and
remanded the FCC's February 1999 order that concluded that calls to the Internet
through Internet service providers (ISPs) do not terminate at the ISP but are
single interstate calls. The court found that the FCC had inadequately explained
why these Internet calls were not two calls. Under the FCC's decision, it was
left to carrier agreements and state regulators to determine which traffic is
subject to reciprocal compensation. The FCC is currently considering a new order
to address the issue in light of the court remand.

State Regulation of Rates and Services

     The Delaware Public Service Commission (DPSC) regulates our intrastate
rates and services and other matters.

     Since 1994, we have been regulated under the alternative regulation
provisions of the Delaware Telecommunications Technology Investment Act of 1993
(Delaware Telecommunications Act). The Delaware Telecommunications Act provides
the following:

     .    The prices of "Basic Telephone Services" (e.g., dial tone and local
          usage) will remain regulated and cannot change in any one year by more
          than the Gross Domestic Product - Price Index (GDP- PI) less 3%.

     .    The prices of "Discretionary Services" (e.g., Identa Ring(SM) and Call
          Waiting) cannot increase more than 15% per year per service.

     .    The prices of "Competitive Services" (e.g., voice messaging and
          message toll service) are not subject to tariff or regulation.

     .    We will develop a technology deployment plan with a commitment to
          invest a minimum of $250 million in Delaware's telecommunications
          network during the first five years of the plan.

     The Delaware Telecommunications Act also provides protections to ensure
that competitors will not be unfairly disadvantaged, including a prohibition on
cross-subsidization, imputation rules, service unbundling and resale service
availability requirements, and a review by the DPSC during the fifth year of the
plan. In March 1998, the DPSC approved our request to continue under the
Delaware Telecommunications Act until March 2002.

Competition

     Legislative changes, including provisions of the 1996 Act discussed above
under the section "Telecommunications Act of 1996," regulatory changes and new
technology are continuing to expand the types of available communications
services and equipment and the number of competitors offering such services. We
anticipate that these industry changes, together with the rapid growth, enormous
size and global scope of these markets, will attract new entrants and encourage
existing competitors to broaden their offerings. Current and potential
competitors in telecommunication services include long distance companies, other
local telephone companies, cable companies, wireless service providers, foreign
telecommunications providers, electric utilities, Internet service providers and
other companies that offer network services. Many of these companies have a
strong market presence, brand recognition and existing customer relationships,
all of which contribute to intensifying competition and may affect our future
revenue growth. In addition, a number of major industry participants have
announced mergers, acquisitions and joint ventures which could substantially
affect the development and nature of some or all of our markets.

Local Exchange Services

     The ability to offer local exchange services has historically been subject
to regulation by state regulatory commissions. Applications from competitors to
provide and resell local exchange services have been approved in the
jurisdiction in which we operate. The 1996 Act has significantly increased the
level of competition in our local exchange markets.

     One of the purposes of the 1996 Act was to ensure, and accelerate, the
emergence of competition in local exchange markets. Toward this end, the 1996
Act requires most existing local exchange carriers (incumbent local exchange
carriers, or ILECs), including our company, to permit potential competitors
(competitive local exchange carriers, or CLECs) to:

     .    purchase service from the ILEC for resale to CLEC customers

     .    purchase unbundled network elements from the ILEC, and/or

     .    interconnect the CLEC's network with the ILEC's network.

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                              Verizon Delaware Inc.

     The 1996 Act provides for arbitration by the state public utility
commission if an ILEC and a CLEC are unable to reach agreement on the terms of
the arrangement sought by the CLEC.

     Our negotiations with various CLECs, and arbitrations before our state
regulator, have continued. We expect that these agreements, and the 1996 Act,
will continue to lead to substantially increased competition in our local
exchange markets in 2001 and subsequent years. We believe that this competition
will be both on a facilities basis and in the form of resale by CLECs of our
service. Under the various agreements and arbitrations discussed above, we are
generally required to sell our services to CLECs at discounts from the prices we
charge our retail customers.

IntraLATA Toll Services

     IntraLATA toll calls originate and terminate within the same LATA, but
generally cover a greater distance than a local call. State regulatory
commissions rather than federal authorities generally regulate these services.
The state regulatory commission permits other carriers to offer intraLATA toll
services within the state.

     Until the implementation of "presubscription," we completed intraLATA toll
calls unless the customer dialed a code to access a competing carrier.
Presubscription changed this dialing method and enabled customers to make these
toll calls using another carrier without having to dial an access code. By
September 1997, we had fully implemented presubscription.

     Implementation of presubscription for intraLATA toll services has had a
material negative effect on intraLATA toll service revenues. However, the
negative effect has been partially mitigated by an increase in intraLATA network
access revenues.

Alternative Access

     A substantial portion of our revenues from business and government
customers is derived from a relatively small number of large, multiple-line
subscribers.

     We face competition from alternative communications systems, constructed by
large end-users, interexchange carriers and alternative access vendors, which
are capable of originating and/or terminating calls without the use of our
plant. The FCC's orders requiring us to offer collocated interconnection for
special and switched access services have enhanced the ability of such
alternative access providers to compete with us.

     Other potential sources of competition include cable television systems,
shared tenant services and other noncarrier systems which are capable of
bypassing our local plant, either partially or completely, through substitution
of special access for switched access or through concentration of
telecommunications traffic on fewer of our lines.

Wireless Services

     Wireless services also constitute potential sources of competition to our
wireline telecommunications services, especially as wireless carriers continue
to lower their prices to end-users. Wireless telephone services employ analog
and digital technology that allows customers to make and receive telephone calls
from any location using small handsets, and can also be used for data
transmission.

Public Telephone Services

     We face increasing competition in the provision of pay telephone services
from other providers. In addition, the growth of wireless communications
decreases usage of public telephones.

Operator Services

     Alternative operator services providers have entered into competition with
our operator services product line.

                                    EMPLOYEES

     As of December 31, 2000, we had approximately 900 employees.

                                       5
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                              Verizon Delaware Inc.

Item 2.  Properties

                                     GENERAL

     Our principal properties do not lend themselves to simple description by
character and location. Our investment in plant, property and equipment
consisted of the following at December 31:

                                                             2000         1999
--------------------------------------------------------------------------------
Central office equipment                                       44%          42%
Outside communications plant                                   42           43
Land and buildings                                              6            7
Furniture, vehicles and other work equipment                    6            6
Other                                                           2            2
                                                       -------------------------
                                                              100%         100%
                                                       =========================

     "Central office equipment" consists of switching equipment, transmission
equipment and related facilities. "Outside communications plant" consists
primarily of aerial cable, underground cable, conduit and wiring, and telephone
poles. "Land and buildings" consists of land and land improvements, and
principally central office buildings. "Furniture, vehicles and other work
equipment" consists of public telephone instruments and telephone equipment,
furniture, office equipment, motor vehicles and other work equipment. "Other"
property consists primarily of plant under construction, capital leases,
capitalized computer software costs and leasehold improvements.

     All of our properties, located in the state of Delaware, are generally in
good operating condition and are adequate to satisfy the needs of our business.

     Our customers are served by electronic switching systems that provide a
wide variety of services. Since December 31, 1996, our network has been fully
transitioned from an analog to a digital network, which provides the
capabilities to furnish advanced data transmission and information management
services.


                              CAPITAL EXPENDITURES

     We have been making and expect to continue to make significant capital
expenditures to meet the demand for communications services and to further
improve such services. Capital expenditures were approximately $93 million in
2000, $75 million in 1999 and $86 million in 1998. Capital expenditures exclude
additions under capital lease. Our total investment in plant, property and
equipment was approximately $1,023 million at December 31, 2000, $934 million at
December 31, 1999, and $870 million at December 31, 1998, including the effect
of retirements, but before deducting accumulated depreciation.


Item 3.  Legal Proceedings

         There were no proceedings reportable under Item 3.


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

         (Omitted pursuant to General Instruction I(2).)

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                              Verizon Delaware Inc.

                                     PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Not applicable.


Item 6.  Selected Financial Data

         (Omitted pursuant to General Instruction I(2).)

                                       7
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                              Verizon Delaware Inc.

Item 7.  Management's Discussion and Analysis of Results of Operations
         (Abbreviated pursuant to General Instruction I(2).)

     This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements listed in the index set forth on page F-1.

     The communications services we provide are subject to regulation by the
Delaware Public Service Commission (DPSC) with respect to intrastate rates and
services and certain other matters. For a further discussion of the company and
our regulatory plan, see Item 1 - "Description of Business."


RESULTS OF OPERATIONS
---------------------

     We reported net income of $37,986,000 in 2000 compared to net income of
$48,366,000 in 1999.

     Our results for 2000 and 1999 were affected by special items. The special
items in both periods include our allocated share of charges from Verizon
Services Corp. (Verizon Services), an affiliate that provides centralized
services on a contract basis.

     The following table shows how special items are reflected in our condensed
statements of income for each period:

<TABLE>
<CAPTION>
                                                                    (Dollars in Thousands)
Years Ended December 31,                                          2000              1999
-------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Operating Revenues
   Regulatory contingency                                        $   62            $  ---
                                                          ---------------------------------

Operations and Support Expenses
  Bell Atlantic-GTE merger direct incremental costs               1,736               ---
  Bell Atlantic-GTE merger severance costs                        1,499               ---
  Bell Atlantic-GTE merger transition costs                         972               ---
  Bell Atlantic-GTE merger related costs                             27               ---
  Bell Atlantic-NYNEX merger transition costs                       ---             1,801
  Other charges and special items                                 1,398               ---
                                                          ---------------------------------
                                                                  5,632             1,801
                                                          ---------------------------------
Interest Expense
   Regulatory contingency                                            22               ---
                                                          ---------------------------------
Net impact on pre-tax income                                     $5,716            $1,801
                                                          =================================
</TABLE>

     What follows is a further explanation of the nature of these special items.

Completion of Mergers

     On June 30, 2000, Bell Atlantic and GTE completed a merger under a
definitive merger agreement dated as of July 27, 1998. Under the terms of the
agreement, GTE became a wholly owned subsidiary of Bell Atlantic. With the
closing of the merger, the combined company began doing business as Verizon
Communications. The merger qualified as a tax-free reorganization and has been
accounted for as a pooling-of-interests business combination. Under this method
of accounting, Bell Atlantic and GTE are treated as if they had always been
combined for accounting and financial reporting purposes.

     In August 1997, Bell Atlantic and NYNEX completed a merger of equals under
a definitive merger agreement entered into on April 21, 1996 and amended on July
2, 1996. Under the terms of the amended agreement, NYNEX became a wholly owned
subsidiary of Bell Atlantic. The merger qualified as a tax-free reorganization
and has been accounted for as a pooling-of-interests.

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                              Verizon Delaware Inc.

Merger-Related Charges

Direct Incremental Costs

     Direct incremental costs related to the Bell Atlantic-GTE merger of
$1,736,000 (including $1,553,000 allocated from Verizon Services) include
compensation, professional services and other costs. Compensation includes
retention payments to employees that were contingent on the close of the merger.
Professional services include investment banking, legal, accounting, consulting
and other advisory fees incurred to obtain federal and state regulatory
approvals and take other actions necessary to complete the merger. Other
includes costs incurred to obtain shareholder approval of the merger, register
securities and communicate with shareholders, employees and regulatory
authorities regarding merger issues. Substantially all of the Bell Atlantic-GTE
merger direct incremental costs have been paid as of December 31, 2000.

Employee Severance Costs

     Employee severance costs related to the Bell Atlantic-GTE merger of
$1,499,000 (including $1,136,000 allocated from Verizon Services), as recorded
under SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
represent the benefit costs for the separation of management employees who are
entitled to benefits under pre-existing separation plans. The separations either
have or are expected to occur as a result of consolidations and process
enhancements within our company. Accrued postemployment benefit liabilities for
those employees are included in our balance sheets as a component of Accounts
Payable and Accrued Liabilities - Other.

Transition Costs

     In addition to the direct merger-related and severance costs discussed
above, from the date of the Bell Atlantic-GTE merger, we expect to incur
transition costs over the next several years related to the Bell Atlantic-GTE
merger. These costs will be incurred to integrate systems, consolidate real
estate, relocate employees and meet certain regulatory conditions of the merger.
They also include costs for advertising and other costs to establish the Verizon
brand. Transition costs related to the Bell Atlantic-GTE merger were $972,000 in
2000 (including $936,000 allocated from Verizon Services).

     In connection with the Bell Atlantic-NYNEX merger, we recorded transition
costs of $1,801,000 in 1999 (including $1,655,000 allocated from Verizon
Services) associated with integrating the operations of Bell Atlantic and NYNEX.

Other Initiatives

     During the second quarter of 2000, we also recorded a $27,000 charge for
other actions in relation to the Bell Atlantic-GTE merger. This charge was
related to the write-off of duplicate assets.

Other Charges and Special Items

Regulatory Contingency

     In the second quarter of 2000, we recognized a charge for a regulatory
matter totaling $84,000. We recorded a reduction to operating revenue in the
amount of $62,000 and a charge to interest expense of $22,000. This matter
relates to a specific issue currently under investigation by the Federal
Communications Commission (FCC). We believe that it is probable that the
ultimate resolution of this matter will result in refunds to our customers,
including interest.

Other Items

     In the second quarter of 2000, we recorded other charges and special items
totaling approximately $1,398,000. These charges included costs for the
write-off of accounts receivable and other miscellaneous items.

     These and other items affecting the comparison of our results of operations
for the years ended December 31, 2000 and 1999 are discussed in the following
sections.

Results of Operations

     We have one reportable segment, which provides domestic wireline
telecommunications services. You can find additional information about segment
reporting in Note 14 to the financial statements.

                                       9
<PAGE>

                              Verizon Delaware Inc.

OPERATING REVENUE STATISTICS
----------------------------

                                                2000         1999      % Change
--------------------------------------------------------------------------------
At Year-End
Access Lines in Service (in thousands)*
   Residence                                     380          372          2.2%
   Business                                      228          222          2.7
   Public                                          6            6          ---
                                               ------------------
                                                 614          600          2.3
                                               ==================
For the Year
Access Minutes of Use (in millions)            2,516        2,549         (1.3)%
                                               ==================

* 1999 reflects a restatement of access lines in service


OPERATING REVENUES
------------------
(Dollars in Thousands)

Years Ended December 31                       2000                 1999
--------------------------------------------------------------------------------
Local services                                    $184,782             $178,522
Network access services                             89,615               81,344
Long distance services                              16,230               20,628
Other services                                      24,583               21,131
                                                  ------------------------------
Total                                             $315,210             $301,625
                                                  ==============================


LOCAL SERVICES

                                    Increase
--------------------------------------------------------------------------------
     2000 - 1999             $6,260          3.5%
--------------------------------------------------------------------------------

     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.
Local services also include wholesale revenues from unbundled network element
(UNE) platforms, certain data transport revenues, and wireless interconnection
revenues.

     Local service revenues increased in 2000 primarily due to higher customer
demand and usage of our data transport and digital services. Local service
revenue was further increased by higher customer demand and usage of our value-
added services, as well as our national directory assistance and inside wire
maintenance services. Local service revenue growth also reflects higher usage of
our network facilities.


NETWORK ACCESS SERVICES

                                    Increase
--------------------------------------------------------------------------------
     2000 - 1999             $8,271          10.2%
--------------------------------------------------------------------------------

     Network access 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.

     Network access revenue growth in 2000 was mainly attributable to increased
demand for special access services, reflecting a greater utilization of our
network, and volume growth resulting from the continuing expansion of the
business

                                      10

<PAGE>

                              Verizon Delaware Inc.

market, particularly for high-capacity, high-speed digital services. Higher
network usage by alternative providers of intraLATA toll services and higher
end-user revenues further contributed to revenue growth this year.

     In addition, network access revenues included higher revenues received from
customers for the recovery of local number portability (LNP) costs. Network
access revenues also included the effect of a reversal of an accrual from a
prior period as the result of the favorable resolution of a regulatory matter.

     Volume-related growth was largely offset by price reductions associated
with federal price cap filings and other regulatory decisions. The FCC regulates
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. Rates included in the July 2000 CALLS
plan will be in effect through June 2001. You can find additional information on
FCC rulemakings concerning federal access rates, universal service and
unbundling network elements in Item 1- "Description of Business, Operations -
FCC Regulation and Interstate Rates." In addition, revenue was reduced by a
special charge for a contingency associated with a regulatory matter, as
described in the Results of Operations section.


LONG DISTANCE SERVICES

                                   (Decrease)
--------------------------------------------------------------------------------
     2000 - 1999            $(4,398)        (21.3)%
--------------------------------------------------------------------------------

     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 DPSC except where they cross state lines. Other long distance
services that we provide include 800 services and Wide Area Telephone Service
(WATS).

     The decline in long distance revenues 2000 was principally caused by the
competitive effects of presubscription, which enables customers to make
intraLATA toll calls using a competing carrier without having to dial an access
code. The negative effect of presubscription on long distance revenues was
partially mitigated by increased network access services for usage of our
network by alternative service providers. In response to presubscription, we
have implemented customer win-back and retention initiatives that include toll
calling discount packages and product bundling offers. This decline in long
distance revenue was offset, in part, by additional revenues generated by higher
calling volumes.


OTHER SERVICES

                                    Increase
--------------------------------------------------------------------------------
      2000 - 1999            $3,452           16.3%
--------------------------------------------------------------------------------

     Our other services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
nonaffiliates, collocation for competitive local exchange carriers, usage of
separately priced (unbundled) components of our network by competitive local
exchange carriers, public (coin) telephone, customer premises equipment (CPE)
and sales of materials and supplies to affiliates. Other services 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 services revenues increased in 2000 primarily as a result of higher
payments received from competitive local exchange carriers for interconnection
of their networks with our network and for the purchase of unbundled network
elements.

                                      11
<PAGE>

                              Verizon Delaware Inc.

OPERATING EXPENSES
------------------
(Dollars in Thousands)


OPERATIONS AND SUPPORT

                                    Increase
--------------------------------------------------------------------------------
     2000 - 1999            $18,118          12.5%
--------------------------------------------------------------------------------

     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 Verizon Services, rent, network software costs, operating taxes other than
income, the provision for uncollectible accounts receivable, and other costs.

     The increase in operations and support expenses was largely attributable to
a combination of higher costs for contract services, higher costs for repair and
maintenance activities and higher costs billed to us by an affiliate. Operations
and support expenses were further increased by merger-related costs and other
special items recorded in 2000. Annual salary and wage increases for management
and non-management employees and the effect of higher work force levels also
contributed to the increase in expense.

     These increases were partially offset by a decline in pension and benefit
costs. The decline in pension and benefit costs was chiefly due to favorable
pension plan investment returns and changes in actuarial assumptions. These
factors were partially offset by changes in certain plan provisions, increased
health care costs caused by inflation, as well as benefit improvements provided
for under a new contract with certain employees. In 2000, Verizon Communications
executed a new contract with the union representing our employees. The contract
provides for annual wage increases of 4 percent, 3 percent and 5 percent,
beginning in August 2000. Customer service representatives received an
additional 4 percent wage increase. Pension benefits for active employees will
increase by 5 percent on July 1, 2001, 5 percent on July 1, 2002 and 4 percent
on July 1, 2003. The contract also includes team-based incentive awards for
meeting higher service, performance and other standards, increased funding for
work and family programs, improvements to health and other benefits and certain
provisions relating to overtime, access to work and employment security. In
addition, all union-represented employees were granted options to purchase 100
shares of Verizon Communications' common stock.


DEPRECIATION AND AMORTIZATION

                                    Increase
--------------------------------------------------------------------------------
     2000 - 1999             $7,634          11.5%
--------------------------------------------------------------------------------

     Depreciation and amortization expense increased in 2000 principally due to
growth in depreciable telephone plant as a result of increased capital
expenditures for higher growth services. This increase was slightly offset by
the effect of lower rates of depreciation and amortization.


OTHER INCOME AND (EXPENSE), NET

                                   (Decrease)
--------------------------------------------------------------------------------
     2000 - 1999           $(1,667)        (854.9)%
--------------------------------------------------------------------------------

     The change in other income and (expense), net, was primarily attributable
to losses recognized from our investment in Verizon Advanced Data Inc. under the
equity method. This change was partially offset by additional interest income
associated with the settlement of a tax-related matter in 2000, an increase in
the income recognized from our investment in SMS/800 under the equity method and
higher interest income on our short-term investments.

                                      12
<PAGE>

                              Verizon Delaware Inc.

INTEREST EXPENSE

                                    Increase
--------------------------------------------------------------------------------
     2000 - 1999             $1,679          19.9%
--------------------------------------------------------------------------------

     Interest expense includes costs associated with borrowings and capital
leases, net of interest capitalized as a cost of acquiring or constructing plant
assets.

     Interest expense increased in 2000 primarily due to higher average debt
levels and higher interest rates. Interest expense was also impacted by
additional interest costs associated with a regulatory contingency, as described
in the Results of Operations section. These factors were partially offset by
higher capitalized interest costs resulting from higher levels of average
telephone plant under construction.

     See Note 5 to the financial statements for additional information about our
debt.


EFFECTIVE INCOME TAX RATES

     For the Years Ended December 31
--------------------------------------------------------------------------------
     2000                             42.5%
--------------------------------------------------------------------------------
     1999                             40.7%
--------------------------------------------------------------------------------

     The effective income tax rate is the provision for income taxes as a
percentage of income before the provision for income taxes and extraordinary
item. Our effective income tax rate was higher in 2000 principally due to equity
losses associated with our investment in Verizon Advanced Data Inc. for which we
do not recognize income tax benefits and non-recurring deferred income tax
expenses recorded in 2000.

     You can find a reconciliation of the statutory federal income tax rate to
the effective income tax rate for each period in Note 10 to the financial
statements.


OTHER MATTERS
-------------

Recent Accounting Pronouncements - Derivatives and Hedging Activities

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivatives be measured at fair value and recognized
as either assets or liabilities in our balance sheet. Changes in the fair values
of derivative instruments not used as hedges will be recognized in earnings
immediately. Changes in the fair values of derivative instruments used
effectively as hedges will be recognized either in earnings for hedges of
changes in fair value or in Other Comprehensive Income (Loss) for hedges of
changes in cash flows. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.

     In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amended SFAS No.
133. The amendments in SFAS No. 138 address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized
foreign-currency-denominated assets and liabilities, and intercompany
derivatives.

     Effective January 1, 2001, we will adopt SFAS No. 133 and SFAS No. 138. The
initial impact of adoption on our financial statements will not be material. The
ongoing effect of adoption on our 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.

                                      13
<PAGE>

                              Verizon Delaware Inc.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to interest rate risk in the normal course of our business.
The majority of our debt is fixed rate debt and we did not have any derivatives
as of December 31, 2000 and 1999. Our short-term borrowings from an affiliate
expose our earnings to changes in short-term interest rates since the interest
rate charged on such borrowings is typically fixed for less than one month. Our
variable-rate medium-term borrowings from affiliates expose our earnings to
changes in short-term interest rates since the interest rate charged on such
borrowings is reset each quarter.

     The following table summarizes the fair values of our long-term debt as of
December 31, 2000 and 1999. The table also provides a sensitivity analysis of
the estimated fair values of these financial instruments assuming
100-basis-point upward and downward parallel shifts in the yield curve. The
sensitivity analysis did not include the fair values of our short-term
borrowings from an affiliate or our variable-rate medium-term borrowings from
affiliates since they are not significantly affected by changes in market
interest rates.

<TABLE>
<CAPTION>
                                                                  December 31
                                                      ---------------------------------
(Dollars in Thousands)                                        2000               1999
---------------------------------------------------------------------------------------
<S>                                                        <C>               <C>
Fair value of long-term debt                               $88,018           $104,159
Fair value assuming a +100-basis-point shift                81,682             97,533
Fair value assuming a -100-basis-point shift                95,039            111,594
</TABLE>


Item 8.   Financial Statements and Supplementary Data

          The information required by this Item is set forth on Pages F-1
          through F-22.

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

          The information required by this item regarding a change in
          accountants is included in a Current Report on Form 8-K dated
          September 7, 2000.

                                   PART III

Item 10.  Directors and Executive Officers of Registrant

          (Omitted pursuant to General Instruction I(2).)


Item 11.  Executive Compensation

          (Omitted pursuant to General Instruction I(2).)


Item 12.  Security Ownership of Certain Beneficial Owners and Management

          (Omitted pursuant to General Instruction I(2).)


Item 13.  Certain Relationships and Related Transactions

          (Omitted pursuant to General Instruction I(2).)

                                      14
<PAGE>

                              Verizon Delaware Inc.

                                    PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)    The following documents are filed as part of this report:

            (1)   Financial Statements

                      See Index to Financial Statements and Financial Statement
                      Schedule appearing on Page F-1.

            (2)   Financial Statement Schedules

                      See Index to Financial Statements and Financial Statement
                      Schedule appearing on Page F-1.

            (3)   Exhibits

                      Exhibits identified in parentheses below, on file with the
                      Securities and Exchange Commission (SEC), are incorporated
                      herein by reference as exhibits hereto.

            3a    Certificate of Incorporation of the registrant, as amended and
                  restated June 17, 1987. (Exhibit 3a to the registrant's Annual
                  Report on Form 10-K for the year ended December 31, 1987, File
                  No. 1-7757.)

                  3a(i)     Certificate of Amendment of Certificate of
                            Incorporation, dated August 14, 1992. (Exhibit 3a(i)
                            to the registrant's Annual Report on Form 10-K for
                            the year ended December 31, 1992, File No. 1-7757.)

                  3a(ii)    Certificate of Amendment of Certificate of
                            Incorporation, dated January 10, 1994 and filed
                            January 13, 1994. (Exhibit 3a(ii) to the
                            registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1993, File No. 1-7757.)

                  3a(iii)   Certificate of Amendment of Restated Certificate of
                            Incorporation, dated June 30, 2000. (Exhibit 3a(iii)
                            to the registrant's Quarterly Report on Form 10-Q
                            for the quarter ended June 30, 2000, File No.
                            1-7757.)

            3b    By-Laws of the registrant, as amended December 15, 1995.
                  (Exhibit 3b to the registrant's Annual Report on Form 10-K for
                  the year ended December 31, 1995, File No. 1-7757.)

                  3b(i)     Consent of Sole Stockholder of Verizon Delaware
                            Inc., dated December 15, 1995. (Exhibit 3b(i) to the
                            registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1995, File No. 1-7757.)

            4     No instrument which defines the rights of holders of long-term
                  debt of the registrant is filed herewith pursuant to
                  Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
                  regulation, the registrant hereby agrees to furnish a copy of
                  any such instrument to the SEC upon request.

            10a   Agreement among Verizon Services Corp. and the Verizon
                  Communications Inc. telephone subsidiaries, dated November 7,
                  1983. (Exhibit 10b to Verizon Communications Inc. Annual
                  Report on Form 10-K for the year ended December 31, 1993, File
                  No. 1-8606.)


       (b)  Reports on Form 8-K:

                  There were no Current Reports on Form 8-K filed during the
quarter ended December 31, 1999.

                                      15
<PAGE>

                              Verizon Delaware Inc.

                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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.


Date :  March 30, 2001                      By  /s/ Edwin F. Hall
                                                --------------------------------
                                                    Edwin F. Hall
                                                    Controller




     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>

Signature                                  Title                               Date
---------                                  -----                               ----
<S>                                        <C>                                 <C>
/s/ Joshua W. Martin III                   President and                       March 30, 2001
----------------------------------         Chief Executive Officer
    Joshua W. Martin III                   and Director
                                           (Principal Executive Officer)


/s/ Edwin F. Hall                          Controller                          March 30, 2001
----------------------------------         (Principal Financial Officer)
    Edwin F. Hall


/s/ Debra M. Berry                         Director                            March 30, 2001
----------------------------------
    Debra M. Berry


/s/ Michael D. Sheehy                      Director                            March 30, 2001
----------------------------------
    Michael D. Sheehy
</TABLE>

                                      16
<PAGE>

                              Verizon Delaware Inc.

         Index to Financial Statements and Financial Statement Schedule


                                                                            Page
                                                                            ----

Report of Independent Auditors - Ernst & Young LLP ......................    F-2

Report of Independent Accountants - PricewaterhouseCoopers LLP ..........    F-3

Statements of Income
     For the years ended December 31, 2000, 1999 and 1998 ...............    F-4

Balance Sheets - December 31, 2000 and 1999 .............................    F-5

Statements of Changes in Shareowner's Investment
     For the years ended December 31, 2000, 1999 and 1998................    F-7

Statements of Cash Flows
     For the years ended December 31, 2000, 1999 and 1998................    F-8

Notes to Financial Statements ...........................................    F-9

Schedule II - Valuation and Qualifying Accounts
     For the years ended December 31, 2000, 1999 and 1998................   F-22


Financial statement schedules other than that listed above have been omitted
because such schedules are not required or applicable.

                                      F-1
<PAGE>

                             Verizon Delaware Inc.


                        REPORT OF INDEPENDENT AUDITORS



The Board of Directors and Shareowner
Verizon Delaware Inc.


We have audited the accompanying balance sheet of Verizon Delaware Inc. (the
Company) as of December 31, 2000 and the related statements of income,
shareowner's investment, and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Verizon Delaware Inc. at
December 31, 2000, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.


/s/  Ernst & Young LLP


New York, New York
February 1, 2001

                                      F-2

<PAGE>

                              Verizon Delaware Inc.

                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareowner of
Verizon Delaware Inc.


In our opinion, the 1999 and 1998 financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Verizon Delaware Inc. at December 31, 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the 1999 and 1998
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. We have not
audited the financial statements of Verizon Delaware Inc. for any period
subsequent to December 31, 1999.

As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for computer software costs in accordance with AICPA
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" effective January 1, 1999.



/s/ PricewaterhouseCoopers LLP



New York, New York
February 14, 2000

                                      F-3
<PAGE>

                              Verizon Delaware Inc.

                              STATEMENTS OF INCOME
                         For the Years Ended December 31
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                       2000            1999           1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>            <C>
OPERATING REVENUES (including $3,620, $4,128
   and $5,327 to affiliates)                                                       $315,210        $301,625       $281,194
                                                                                ---------------------------------------------

OPERATING EXPENSES
   Operations and support (including $69,107, $62,185 and
        $64,840 to affiliates)                                                      163,545         145,427        140,963
   Depreciation and amortization                                                     74,045          66,411         63,054
                                                                                ---------------------------------------------
                                                                                    237,590         211,838        204,017
                                                                                ---------------------------------------------

OPERATING INCOME                                                                     77,620          89,787         77,177

OTHER INCOME AND (EXPENSE), NET (including $(1,965), $60
    and $0 from affiliates)                                                          (1,472)            195            876

INTEREST EXPENSE (including $4,443, $2,532 and $3,064 to affiliates)                 10,108           8,429          9,493
                                                                                ---------------------------------------------

INCOME BEFORE PROVISION FOR INCOME TAXES
   AND EXTRAORDINARY ITEM                                                            66,040          81,553         68,560

PROVISION FOR INCOME TAXES                                                           28,054          33,187         27,701
                                                                                ---------------------------------------------

INCOME BEFORE EXTRAORDINARY ITEM                                                     37,986          48,366         40,859

EXTRAORDINARY ITEM
   Early extinguishment of debt, net of tax                                             ---             ---           (259)
                                                                                ---------------------------------------------

NET INCOME                                                                         $ 37,986        $ 48,366       $ 40,600
                                                                                =============================================
</TABLE>

                       See Notes to Financial Statements.

                                      F-4
<PAGE>

                              Verizon Delaware Inc.

                                 BALANCE SHEETS
                             (Dollars in Thousands)


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                    December 31
                                                                        ------------------------------------
                                                                                  2000                1999
------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                 <C>
CURRENT ASSETS
Short-term investments                                                        $  5,304            $  4,800
Accounts receivable:
    Trade and other, net of allowances for
    uncollectibles of $5,382 and $5,181                                         54,816              55,315
    Affiliates                                                                   5,499               4,657
Material and supplies                                                            1,987               1,232
Prepaid expenses                                                                 3,390               6,020
Deferred income taxes                                                            2,328               2,132
Other                                                                            9,892                 566
                                                                        ------------------------------------
                                                                                83,216              74,722
                                                                        ------------------------------------

PLANT, PROPERTY AND EQUIPMENT                                                1,022,528             934,084
Less accumulated depreciation                                                  587,168             512,150
                                                                        ------------------------------------
                                                                               435,360             421,934
                                                                        ------------------------------------

PREPAID PENSION ASSET                                                           14,767               2,812
                                                                        ------------------------------------

OTHER ASSETS                                                                    39,402               7,926
                                                                        ------------------------------------

TOTAL ASSETS                                                                  $572,745            $507,394
                                                                        ====================================
</TABLE>

                       See Notes to Financial Statements.

                                      F-5
<PAGE>

                              Verizon Delaware Inc.

                                 BALANCE SHEETS
                 (Dollars in Thousands, Except Per Share Amount)


                     LIABILITIES AND SHAREOWNER'S INVESTMENT
                     ---------------------------------------

<TABLE>
<CAPTION>
                                                                                           December 31
                                                                            -----------------------------------------
                                                                                         2000                 1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                  <C>
CURRENT LIABILITIES
Debt maturing within one year:
   Note payable to affiliate                                                         $ 17,850             $ 29,167
   Current portion of long-term debt:
     Affiliate                                                                            ---               20,000
     Other                                                                                ---                   50
Accounts payable and accrued liabilities:
   Affiliates                                                                          19,515               22,066
   Other                                                                               46,556               43,959
Other current liabilities                                                              18,939                8,918
                                                                            -----------------------------------------
                                                                                      102,860              124,160
                                                                            -----------------------------------------
LONG-TERM DEBT
Notes payable to affiliates                                                            75,000                  ---
Other                                                                                  86,345               86,319
                                                                            -----------------------------------------
                                                                                      161,345               86,319
                                                                            -----------------------------------------

EMPLOYEE BENEFIT OBLIGATIONS                                                           38,427               38,323
                                                                            -----------------------------------------

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes                                                                  44,271               37,833
Unamortized investment tax credits                                                      1,675                1,868
Other                                                                                  24,164               11,011
                                                                            -----------------------------------------
                                                                                       70,110               50,712
                                                                            -----------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 13)

SHAREOWNER'S INVESTMENT
Common stock - $25 par value per share                                                118,442              118,442
   Authorized shares: 5,262,280
   Outstanding shares: 4,737,686
Reinvested earnings                                                                    81,561               89,493
Accumulated other comprehensive loss                                                      ---                  (55)
                                                                            -----------------------------------------
                                                                                      200,003              207,880
                                                                            -----------------------------------------

TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT                                        $572,745             $507,394
                                                                            =========================================
</TABLE>

                       See Notes to Financial Statements.

                                       F-6
<PAGE>

                              Verizon Delaware Inc.

                STATEMENTS OF CHANGES IN SHAREOWNER'S INVESTMENT
                         For the Years Ended December 31
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                                2000             1999             1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>              <C>
COMMON STOCK
     Balance at beginning of year                                           $118,442         $118,442         $118,442
                                                                       --------------------------------------------------
     Balance at end of year                                                  118,442          118,442          118,442
                                                                       --------------------------------------------------

REINVESTED EARNINGS
     Balance at beginning of year                                             89,493           59,656           28,153
     Net income                                                               37,986           48,366           40,600
     Dividends paid to Verizon Communications                                (46,000)         (18,600)          (9,200)
     Other                                                                        82               71              103
                                                                       --------------------------------------------------
     Balance at end of year                                                   81,561           89,493           59,656
                                                                       --------------------------------------------------

ACCUMULATED OTHER COMPREHENSIVE LOSS
     Balance at beginning of year                                                (55)            (178)             ---
     Minimum pension liability adjustment                                         55              123             (178)
                                                                       --------------------------------------------------
     Balance at end of year                                                      ---              (55)            (178)
                                                                       --------------------------------------------------

TOTAL SHAREOWNER'S INVESTMENT                                               $200,003         $207,880         $177,920
                                                                       ==================================================

COMPREHENSIVE INCOME
     Net income                                                             $ 37,986         $ 48,366         $ 40,600
     Minimum pension liability adjustment                                         55              123             (178)
                                                                       --------------------------------------------------
TOTAL COMPREHENSIVE INCOME                                                  $ 38,041         $ 48,489         $ 40,422
                                                                       ==================================================
</TABLE>

                       See Notes to Financial Statements.

                                      F-7
<PAGE>

                              Verizon Delaware Inc.

                            STATEMENTS OF CASH FLOWS
                         For the Years Ended December 31
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                              2000                1999                1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                               $  37,986           $  48,366           $  40,600
Adjustments to reconcile net income to
     net cash provided by operating activities:
        Depreciation and amortization                                       74,045              66,411              63,054
        Extraordinary item, net of tax                                         ---                 ---                 259
     Employee retirement benefits                                          (11,558)             (5,440)             (3,501)
     Deferred income taxes, net                                              7,904              10,259               4,657
     Provision for uncollectible accounts                                    4,938               3,207               3,564
     Equity loss/(income) from affiliate                                     1,965                 (60)                ---
     Dividends received from equity affiliate                                   80                  60                 ---
     Changes in current assets and liabilities:
               Accounts receivable                                          (5,281)             (7,631)             (7,266)
               Material and supplies                                          (755)                351               1,524
               Other assets                                                 (6,696)             (2,355)              1,387
               Accounts payable and accrued liabilities                      1,964               3,316              (7,724)
               Other current liabilities                                    10,021                (109)                892
     Other items, net                                                      (11,865)             (4,257)                433
                                                                -------------------------------------------------------------
Net cash provided by operating activities                                  102,748             112,118              97,879
                                                                -------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments                                         (5,304)             (4,800)             (6,442)
Proceeds from sale of short-term investments                                 4,800               4,313               6,189
Capital expenditures                                                       (92,886)            (74,919)            (85,884)
Other, net                                                                  (8,068)             (3,210)                ---
                                                                -------------------------------------------------------------
Net cash used in investing activities                                     (101,458)            (78,616)            (86,137)
                                                                -------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from medium-term note payable to affiliates                        75,000                 ---                 ---
Principal repayment of medium-term note payable to affiliate               (20,000)                ---                 ---
Early extinguishment of debt                                                   ---                 ---             (15,000)
Principal repayments of capital lease obligations                              (46)                (43)                (58)
Net change in short-term note payable to affiliate                         (11,317)            (13,916)             11,613
Dividends paid                                                             (46,000)            (18,600)             (9,200)
Net change in outstanding checks drawn on controlled
   disbursement accounts                                                     1,073                (943)                903
                                                                -------------------------------------------------------------
Net cash used in financing activities                                       (1,290)            (33,502)            (11,742)
                                                                -------------------------------------------------------------

NET CHANGE IN CASH                                                             ---                 ---                 ---

CASH, BEGINNING OF YEAR                                                        ---                 ---                 ---
                                                                -------------------------------------------------------------

CASH, END OF YEAR                                                        $     ---           $     ---           $     ---
                                                                =============================================================
</TABLE>

                       See Notes to Financial Statements.

                                      F-8
<PAGE>

                              Verizon Delaware Inc.

                          NOTES TO FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

     Verizon Delaware Inc. is a wholly owned subsidiary of Verizon
Communications, Inc. (Verizon Communications). We presently provide local
service within Delaware. All of our operations are contained in a single Local
Access and Transport Area (LATA), which includes the state of Delaware and
southeastern Pennsylvania. We have one reportable segment which provides
domestic wireline telecommunications services. We currently provide two basic
types of telecommunications services. First, we transport telecommunications
traffic between subscribers located within the same LATA (intraLATA service),
including both local and long distance services. Local service includes voice
and data transport, enhanced and custom calling features, directory assistance
and private lines. Long distance service includes message toll service within
LATA boundaries and intraLATA Wide Area Toll Service/800 services. Second, we
provide exchange access service, which links a subscriber's telephone or other
equipment to the transmission facilities of interexchange carriers which, in
turn, provide telecommunications service between LATAs (interLATA service) to
their customers. We also provide exchange access service to interexchange
carriers which provide intrastate intraLATA long distance telecommunications
service, as well as local exchange access to competitive local exchange carriers
for calls within a LATA. Other services we provide include customer premises
wiring and maintenance, billing and collection and pay telephone services.

Basis of Presentation

     We prepare our financial statements under generally accepted accounting
principles which require management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates.

     We have a .27% ownership interest in SMS/800, a venture that is jointly
owned by the Bell Operating Companies. SMS/800 administers the centralized
national database system associated with toll free numbers. We use the equity
method of accounting for our investment in SMS/800.

     Our investment in Verizon Advanced Data Inc. (VADI), an affiliated company
which provides new exchange access services, is accounted for using the equity
method of accounting. At December 31, 2000, our ownership interest in VADI was
2.7%.

     We have reclassified certain amounts from prior periods to conform with our
current presentation.

Revenue Recognition

     We recognize revenue when services are rendered based on usage of our local
exchange network and facilities. For other products and services, revenues are
generally recognized when services are rendered or products are delivered to
customers.

     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, retroactive to January 1, 2000, as required
by the SEC. As a result of the adoption of SAB No. 101, we now defer
nonrecurring service activation revenues and costs and amortize them over the
expected term of the customer relationship. Previously, these revenues and costs
were recognized when the activation service was performed. This change in
accounting did not have a material impact on our results of operations for 2000.
Our balance sheet at December 31, 2000 includes deferred activation costs as a
component of Current assets - other ($9,165,000) and Other Assets ($16,293,000)
and deferred activation revenues as a component of Current liabilities - other
($9,165,000) and Deferred credits and other liabilities - other ($16,293,000).

Maintenance and Repairs

     We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, to Operations
and Support Expenses.

                                       F-9
<PAGE>

                              Verizon Delaware Inc.

Cash and Cash Equivalents

     We consider all highly liquid investments with a maturity of 90 days or
less when purchased to be cash equivalents, except cash equivalents held as
short-term investments. Cash equivalents are stated at cost, which approximates
market value.

Short-term Investments

     Our short-term investments consist of cash equivalents held in trust to pay
for certain employee benefits. Short-term investments are stated at cost, which
approximates market value.

Material and Supplies

     We include in inventory new and reusable materials which are stated
principally at average original cost, except that specific costs are used in the
case of large individual items.

Plant and Depreciation

     We state plant, property, and equipment at historical cost. 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. We used the following asset lives:

     Average Lives (in years)
     --------------------------------------------------------------------------
     Buildings                                                     30
     Central office equipment                                     5 - 10
     Outside communications plant                                16 - 50
     Furniture, vehicles and other                                3 - 12

     When we replace or retire depreciable telephone plant, we deduct the
carrying amount of such plant from the respective accounts and charge
accumulated depreciation.

     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.

Computer Software Costs

     We capitalize the cost of internal-use software which has a useful life in
excess of one year in accordance with Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Subsequent additions, modifications or upgrades to internal-use
software are capitalized only to the extent that they allow the software to
perform a task it previously did not perform. Software maintenance and training
costs are expensed in the period in which they are incurred. Also, we capitalize
interest associated with the development of internal-use software. Capitalized
computer software costs are amortized using the straight-line method over a
period of 3 to 5 years. The effect of adopting SOP No. 98-1 for Verizon
Communications was an increase in net income of approximately $560 million in
1999.

     Prior to adopting SOP No. 98-1, we capitalized initial right-to-use fees
for central office switching equipment, including initial operating system and
initial application software costs. For non-central office equipment, only the
initial operating system software was capitalized. Subsequent additions,
modifications, or upgrades of initial software programs, whether operating or
application packages, were expensed as incurred.

                                     F-10
<PAGE>

                              Verizon Delaware Inc.

Income Taxes

     Verizon Communications and its domestic subsidiaries, including us, file a
consolidated federal income tax return.

     Current and deferred tax expense is determined by applying the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes" to each subsidiary as if it were a separate taxpayer.

     We use the deferral method of accounting for investment tax credits earned
prior to the repeal of investment tax credits by the Tax Reform Act of 1986. We
also defer certain transitional credits earned after the repeal. We amortize
these credits over the estimated service lives of the related assets as a
reduction to the Provision for Income Taxes.

Advertising Costs

     We expense advertising costs as they are incurred.

Stock-Based Compensation

     We participate in stock-based employee compensation plans sponsored by
Verizon Communications. Verizon Communications accounts for stock-based employee
compensation plans under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations and
follows the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."

Employee Benefit Plans

     We participate in the Verizon Communications benefit plans. Under these
plans, pension and postretirement health care and life insurance benefits earned
during the year as well as interest on projected benefit obligations are accrued
currently. Prior service costs and credits resulting from changes in plan
benefits are amortized over the average remaining service period of the
employees expected to receive benefits.

Recent Accounting Pronouncements - Derivatives and Hedging Activities

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivatives be measured at fair value and recognized
as either assets or liabilities in our balance sheet. Changes in the fair values
of derivative instruments not used as hedges will be recognized in earnings
immediately. Changes in the fair values of derivative instruments used
effectively as hedges will be recognized either in earnings for hedges of
changes in fair value or in Other Comprehensive Income (Loss) for hedges of
changes in cash flows. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.

     In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amended SFAS No.
133. The amendments in SFAS No. 138 address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized
foreign-currency-denominated assets and liabilities, and intercompany
derivatives.

     Effective January 1, 2001, we will adopt SFAS No. 133 and SFAS No. 138. The
initial impact of adoption on our financial statements will not be material. The
ongoing effect of adoption on our 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.

                                      F-11
<PAGE>

                              Verizon Delaware Inc.

2.   COMPLETION OF MERGERS

     On June 30, 2000, Bell Atlantic and GTE completed a merger under a
definitive merger agreement dated as of July 27, 1998. Under the terms of the
agreement, GTE became a wholly owned subsidiary of Bell Atlantic. With the
closing of the merger, the combined company began doing business as Verizon
Communications. The merger qualified as a tax-free reorganization and has been
accounted for as a pooling-of-interests business combination. Under this method
of accounting, Bell Atlantic and GTE are treated as if they had always been
combined for accounting and financial reporting purposes.

     In August 1997, Bell Atlantic and NYNEX completed a merger of equals under
a definitive merger agreement entered into on April 21, 1996 and amended on July
2, 1996. Under the terms of the amended agreement, NYNEX became a wholly owned
subsidiary of Bell Atlantic. The merger qualified as a tax-free reorganization
and has been accounted for as a pooling-of-interests.

     The following table summarizes the one-time charges incurred for each
merger. Amounts for 2000 pertain to the Bell Atlantic-GTE merger. Transition
costs for 1999 and 1998 pertain to the Bell Atlantic-NYNEX merger.

                                                          (Dollars in Thousands)
Years Ended December 31,                           2000        1999        1998
--------------------------------------------------------------------------------

Direct incremental costs                         $1,736      $  ---      $  ---
Employee severance costs                          1,499         ---         ---
Transition costs                                    972       1,801       1,297
                                                 -------------------------------
Total Merger-Related Costs                       $4,207      $1,801      $1,297
                                                 -------------------------------

      The following table provides a reconciliation of the liabilities
associated with Bell Atlantic-GTE merger-related costs, Bell Atlantic-NYNEX
merger-related costs and other charges and special items described below:

<TABLE>
<CAPTION>
                                                                                                         (Dollars in Thousands)
                                                                        1998                                               1999
                                   ----------------------------------------------------------------------------------------------
                                                                       Asset                                  Asset
                                        Beginning                 Write-offs      End of                 Write-offs      End of
                                          of Year     Payments     and Other        Year     Payments     and Other        Year
                                   ----------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>             <C>        <C>         <C>             <C>
Merger-Related
Direct incremental costs                  $  ---        $  ---        $  ---      $  ---       $  ---        $  ---      $  ---
Employee severance costs                   2,016           (82)          313       2,247         (268)         (286)      1,693
Other Initiatives
Write-off of duplicate assets                ---           ---           ---         ---          ---           ---         ---
Other charges and special items            2,051          (557)          ---       1,494          ---           ---       1,494
                                   ----------------------------------------------------------------------------------------------
                                          $4,067        $ (639)       $  313      $3,741       $ (268)       $ (286)     $3,187
                                   ----------------------------------------------------------------------------------------------

<CAPTION>
                                                                     (Dollars in Thousands)
                                                                                      2000
                                     ------------------------------------------------------
                                           Charged                       Asset
                                        Expense or                  Write-offs      End of
                                           Revenue      Payments     and Other        Year
                                     -------------------------------------------------------
<S>                                     <C>             <C>         <C>             <C>
Merger-Related
Direct incremental costs                    $1,736       $(1,736)       $  ---      $  ---
Employee severance costs                     1,499        (1,144)         (192)      1,856
Other Initiatives
Write-off of duplicate assets                   27           ---           ---          27
Other charges and special items                ---           ---        (1,494)        ---
                                     -------------------------------------------------------
                                           $ 3,262       $(2,880)      $(1,686)     $1,883
                                     -------------------------------------------------------
</TABLE>

Merger-Related Charges

Direct Incremental Costs

     Direct incremental costs related to the Bell Atlantic-GTE merger of
$1,736,000 (including $1,553,000 allocated from Verizon Services) include
compensation, professional services and other costs. Compensation includes
retention payments to employees that were contingent on the close of the merger.
Professional services include investment banking, legal, accounting, consulting
and other advisory fees incurred to obtain federal and state regulatory
approvals and take other actions necessary to complete the merger. Other
includes costs incurred to obtain shareholder approval of the merger, register
securities and communicate with shareholders, employees and regulatory
authorities regarding merger issues. Substantially all of the Bell Atlantic-GTE
merger direct incremental costs have been paid as of December 31, 2000.

Employee Severance Costs

     Employee severance costs related to the Bell Atlantic-GTE merger of
$1,499,000 (including $1,136,000 allocated from Verizon Services), as recorded
under SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
represent the benefit costs for the separation of management employees who are
entitled to benefits under pre-existing separation plans. The separations either
have or are expected to occur as a result of consolidations and process
enhancements within our company. Accrued postemployment benefit liabilities for
those employees are included in our balance sheets as a component of Accounts
Payable and Accrued Liabilities - Other.

     In 1997, employee severance costs related to the Bell Atlantic-NYNEX merger
were approximately $1,200,000 (including approximately $876,000 allocated from
Verizon Services), as recorded under SFAS No. 112 and relate to the separation
of management employees during 1999, 1998 and 1997. Accrued postemployment
benefit liabilities were

                                      F-12
<PAGE>

                              Verizon Delaware Inc.

included in our balance sheets as a component of Employee Benefit Obligations at
December 31, 1999. There is no remaining severance liability as of December 31,
2000.

Transition Costs

     In addition to the direct merger-related and severance costs discussed
above, from the date of the Bell Atlantic-GTE merger, we expect to incur
transition costs over the next several years related to the Bell Atlantic-GTE
merger. These costs will be incurred to integrate systems, consolidate real
estate, relocate employees and meet certain regulatory conditions of the merger.
They also include costs for advertising and other costs to establish the Verizon
brand. Transition costs related to the Bell Atlantic-GTE merger were $972,000 in
2000 (including $936,000 allocated from Verizon Services).

     In connection with the Bell Atlantic-NYNEX merger, we recorded transition
costs of $1,801,000 in 1999 (including $1,655,000 allocated from Verizon
Services) and $1,297,000 in 1998 (including $898,000 allocated from Verizon
Services) associated with integrating the operations of Bell Atlantic and NYNEX.

Other Initiatives

     During the second quarter of 2000, we also recorded a $27,000 charge for
other actions in relation to the Bell Atlantic-GTE merger. This charge was
related to the write-off of duplicate assets.

     During 1997, we recorded other charges and special items totaling
approximately $3,800,000 (pre-tax) in connection with consolidating operations
and combining organizations, and for other special items arising during the
year. These charges were comprised of the following significant items.

Write-down of Assets

     In the third quarter of 1997, we recorded pre-tax charges of approximately
$1,300,000 for the write-down of obsolete fixed assets. As part of the Bell
Atlantic-NYNEX merger integration planning, a review was conducted of the
carrying values of long-lived assets. This review included estimating remaining
useful lives and cash flows and identifying assets to be abandoned. As a result
of these reviews, we recorded a charge of approximately $1,300,000 for the
write-off of assets. These assets primarily included computers and other
equipment used to transport data for internal purposes. None of these assets are
being held for disposal.

Regulatory Contingencies

     In 1997, we also recorded reductions to operating revenues totaling
approximately $2,500,000 (pre-tax) for federal regulatory matters. These matters
relate to specific issues that are currently under investigation by federal
regulatory commissions. We believe that it is probable that the ultimate
resolution of these pending matters will result in refunds to our customers.


3.   PLANT, PROPERTY AND EQUIPMENT

     The following table displays the details of plant, property and equipment,
which is stated at cost:

<TABLE>
<CAPTION>

                                                                                 December 31
                                                                    -------------------------------------
(Dollars in Thousands)                                                          2000               1999
---------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                <C>
Land                                                                      $    2,669         $    2,669
Buildings                                                                     63,801             58,909
Central office equipment                                                     449,349            393,549
Outside communications plant                                                 425,455            405,292
Furniture, vehicles and other work equipment                                  62,245             59,557
Other                                                                          7,459              3,784
Construction-in-progress                                                      11,550             10,324
                                                                    -------------------------------------
                                                                           1,022,528            934,084
Accumulated depreciation                                                    (587,168)          (512,150)
                                                                    -------------------------------------
Total                                                                     $  435,360         $  421,934
                                                                    =====================================
</TABLE>

                                      F-13
<PAGE>

                              Verizon Delaware Inc.

4.   LEASES

     We lease certain facilities and equipment for use in our operations under
both capital and operating leases. We did not incur any initial capital lease
obligations in 2000, 1999 and 1998.

     Capital lease amounts included in plant, property and equipment are as
follows:

<TABLE>
<CAPTION>

                                                                              December 31
                                                                --------------------------------------
(Dollars in Thousands)                                                      2000                1999
------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>
Capital leases                                                               $ --              $ 183
Accumulated amortization                                                       --               (137)
                                                                --------------------------------------
Total                                                                        $ --              $  46
                                                                ======================================

</TABLE>

     Total rent expense amounted to $5,979,000 in 2000, $5,645,000 in 1999, and
$5,139,000 in 1998. Of these amounts, $4,567,000 in 2000, $4,429,000 in 1999,
and $4,090,000 in 1998, were lease payments to affiliated companies.

     This table displays the aggregate minimum rental commitments under
noncancelable operating leases for the periods shown at December 31, 2000:

(Dollars in Thousands)
Years
------------------------------------------------------------------------------
2001                                                                  $ 190
2002                                                                    190
2003                                                                    189
2004                                                                    197
2005                                                                    197
Thereafter                                                              602
                                                          --------------------
Total minimum rental commitments                                     $1,565
                                                          ====================


5.   DEBT

     Debt Maturing Within One Year

     Debt maturing within one year consists of the following at December 31:

<TABLE>
<CAPTION>


(Dollars in Thousands)                                                                      2000               1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                <C>
Note payable to affiliate (VNFC)                                                          $17,850            $29,167
                                                                                -------------------------------------
Current portion of long-term debt
    Note payable to affiliate (VNSHI)                                                        ----             20,000
    Other                                                                                    ----                 50
                                                                                -------------------------------------
Total current portion of long-term debt                                                      ----             20,050
                                                                                -------------------------------------

Total debt maturing within one year                                                       $17,850            $49,217
                                                                                =====================================

Weighted average interest rate for note payable outstanding at year-end                      6.6%               5.9%
                                                                                =====================================

</TABLE>

     We have a contractual agreement with an affiliated company, Verizon Network
Funding Corporation (VNFC), for the provision of short-term financing and cash
management services. VNFC issues commercial paper and obtains bank loans to fund
the working capital requirements of Verizon Communications' network services
subsidiaries, including us, and invests funds in temporary investments on their
behalf.

                                      F-14
<PAGE>

                              Verizon Delaware Inc.

     Long-Term Debt

     Long-term debt consists of debentures and notes that we have issued.
Interest rates and maturities of the amounts outstanding are as follows at
December 31:

<TABLE>
<CAPTION>
                                                                        Interest
Description                                                                 Rate      Maturity         2000         1999
--------------------------------------------------------------------------------------------------------------------------
                                                                                                 (Dollars in Thousands)
<S>                                                                        <C>            <C>       <C>          <C>
Ten year debenture                                                         6 1/8%         2003      $20,000      $20,000
Forty year debenture                                                       4 5/8          2005        7,000        7,000
Forty year debenture                                                       7              2008       10,000       10,000
Thirty year debenture                                                      8 3/8          2019       15,000       15,000
Thirty year debenture                                                      7              2023       20,000       20,000
Forty year debenture                                                       8 5/8          2031       15,000       15,000
                                                                                                --------------------------
                                                                                                     87,000       87,000
Five year note payable to affiliate (VNSHI)                                5.95           2000          ---       20,000
Three year note payable to affiliate (VNSHI)                               6.4            2003       30,000          ---
Note payable to affiliate (VNFC)                                           6.6                       45,000          ---
Unamortized discount and premium, net                                                                 (655)        (681)
Capital lease obligations - average rate of 6.4%                                                        ---           50
                                                                                                --------------------------
Total long-term debt, including current maturities                                                  161,345      106,369
Less maturing within one year                                                                           ---       20,050
                                                                                                --------------------------
Total long-term debt                                                                              $ 161,345      $86,319
                                                                                                ==========================
</TABLE>

     Our long-term debt outstanding at December 31, 2000 includes $17,000,000
that is callable. The call prices range from 100.59% to 100.0% of face value,
depending upon the remaining term to maturity of the issue.

     We have a promissory note payable to an affiliated company, Verizon NSI
Holdings, Inc. (VNSHI). The note carries a floating interest rate priced at 3
month LIBOR plus 12bps, reset and paid quarterly, and matures on March 30, 2003.
On January 30, 2001, we established a $45,000,000 promissory note with VNSHI.
The term is five years, maturing on January 30, 2006. The note carries a
floating interest rate priced at 3 month LIBOR plus 45bps, reset and paid
quarterly. The proceeds from this issuance were used to pay down $45,000,000 of
our note payable with VNFC.

     In 1998, we an recorded extraordinary charge associated with the early
extinguishment of $15,000,000 of 7.75% debentures due in 2013. This charge
reduced net income by $259,000 (net of an income tax benefit of $177,000).

6.   FINANCIAL INSTRUMENTS

     Concentrations of Credit Risk

     Financial instruments that subject us to concentrations of credit risk
consist primarily of short-term investments and trade receivables.
Concentrations of credit risk with respect to trade receivables other than those
from AT&T are limited due to the large number of customers. We generated
revenues from services provided to AT&T (primarily network access and billing
and collection) of $14,116,000 in 2000, $15,764,000 in 1999 and $15,766,000 in
1998.

     Fair Values of Financial Instruments

     The table below provides additional information about our material
financial instruments at December 31:

<TABLE>
<CAPTION>

Financial Instrument                                           Valuation Method
-----------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
Short-term note payable to affiliate (VNFC), long-term         Carrying amounts
   variable notes payable to affiliates (VNFC and VNSHI)
   and short-term investments
Debt (excluding capital leases), fixed-rate note payable to    Future cash flows discounted at current rates
   affiliate (VNSHI)

<CAPTION>
                                                                        2000                              1999
                                                         -----------------------------------------------------------------
                                                                Carrying                         Carrying
                                                                  Amount       Fair Value          Amount       Fair Value
--------------------------------------------------------------------------------------------------------------------------
                                                                              (Dollars in Thousands)
<S>                                                             <C>              <C>             <C>              <C>
Debt                                                            $179,195         $180,868        $115,486         $114,632
Fixed-rate note payable to affiliate (VNSHI)                         ---              ---          20,000           18,694
</TABLE>

                                      F-15
<PAGE>

                              Verizon Delaware Inc.

7.   COMPREHENSIVE INCOME

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

     The change in other comprehensive loss, net of income tax expense
(benefit), is as follows:

<TABLE>
<CAPTION>

                                                                                         Years ended December 31
                                                                              ------------------------------------------
(Dollars in Thousands)                                                                 2000          1999         1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>          <C>         <C>
Other comprehensive income (loss):
  Minimum pension liability adjustment (net of income taxes of $37, $85 and
      $(122))                                                                          $ 55         $ 123       $ (178)
                                                                              ------------------------------------------
                                                                                       $ 55         $ 123       $ (178)
                                                                              ==========================================

</TABLE>

     Accumulated other comprehensive loss is comprised of the following:

<TABLE>
<CAPTION>

                                                                                            December 31
                                                                                   --------------------------
(Dollars in Thousands)                                                                    2000         1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>          <C>
Accumulated other comprehensive loss:
   Minimum pension liability adjustment                                                  $ ---        $ (55)
                                                                                   -------------- -----------
                                                                                         $ ---        $ (55)
                                                                                   ============== ===========

</TABLE>

8.   STOCK INCENTIVE PLANS

     We participate in stock-based compensation plans sponsored by Verizon
Communications. Verizon Communications applies APB Opinion No. 25 and related
interpretations in accounting for the plans and has adopted the disclosure-only
provisions of SFAS No. 123. If Verizon Communications had elected to recognize
compensation expense based on the fair value at the grant dates for 1998 and
subsequent awards consistent with the provisions of SFAS No. 123, our net income
would have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                                              Years ended December 31
                                                                                       ------------------------------------
(Dollars in Thousands)                                                                    2000          1999         1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>           <C>          <C>
Net income:
  As reported                                                                          $37,986       $48,366      $40,600
  Pro forma                                                                             37,300        47,888       40,168

</TABLE>

     The pro forma net income amounts were determined using the Black-Scholes
option-pricing model based on the following weighted-average assumptions:

<TABLE>
<CAPTION>

                                                                                          2000          1999         1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>           <C>          <C>
Dividend yield                                                                            3.3%          3.4%         3.9%
Expected volatility                                                                      27.5%         20.0%        18.4%
Risk-free interest rate                                                                   6.2%          5.3%         5.6%
Expected lives (in years)                                                                  6             6            6

</TABLE>

     The weighted average value of options granted was $13.09 per option during
2000, $11.58 per option during 1999 and $7.36 per option during 1998.


9.   EMPLOYEE BENEFITS

     We participate in the Verizon Communications benefit plans. Verizon
Communications maintains noncontributory defined benefit pension plans for
substantially all employees. The postretirement healthcare and life insurance
plans for our retirees and their dependents are both contributory and
noncontributory and include a limit on the company's share of cost for recent
and future retirees. We also sponsor defined contribution savings plans to
provide opportunities for eligible employees to save for retirement on a
tax-deferred basis and to encourage employees to acquire and maintain an equity
interest in Verizon Communications.

                                      F-16
<PAGE>

                              Verizon Delaware Inc.

     The structure of Verizon Communications' benefit plans does not provide for
the separate determination of certain disclosures for our company. The required
information is provided on a consolidated basis in Verizon Communications'
Annual Report on Form 10-K for the year ended December 31, 2000.

Pension and Other Postretirement Benefits

     Pension and other postretirement benefits for the majority of our employees
are subject to collective bargaining agreements. Modifications in benefits have
been bargained from time to time, and Verizon Communications may also
periodically amend the benefits in the management plans.

Benefit Cost

<TABLE>
<CAPTION>

                                                                                                 Years ended December 31
                                                     ----------------------------------------------------------------------
                                                                     Pension                      Healthcare and Life
                                                     ----------------------------------------------------------------------
(Dollars in Thousands)                                      2000       1999        1998       2000        1999       1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>         <C>            <C>         <C>      <C>
 Net periodic benefit (income) cost                    $(11,600)   $(5,998)    $(4,679)       $(7)        $770     $1,171

</TABLE>

     Amounts recognized on the balance sheets consist of:

<TABLE>
<CAPTION>

                                                                                                             December 31
                                                     ----------------------------------------------------------------------
                                                                    Pension                       Healthcare and Life
                                                     ----------------------------------------------------------------------
(Dollars in Thousands)                                           2000             1999              2000             1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>
 Prepaid pension asset                                       $ 14,767           $2,812               ---              ---
 Employee benefit obligations                                  (1,922)          (1,961)         $(33,427)        $(34,038)
 Other assets                                                     ---              101               ---              ---
 Accumulated other comprehensive loss                             ---               92               ---              ---

</TABLE>

     The changes in benefit obligations from year to year were caused by a
number of factors, including changes in actuarial assumptions (see Assumptions)
and plan amendments.

Assumptions

     The actuarial assumptions used are based on market interest rates, past
experience, and management's best estimate of future economic conditions.
Changes in these assumptions may impact future benefit costs and obligations.
The weighted-average assumptions used in determining expense and benefit
obligations are as follows:

<TABLE>
<CAPTION>

                                                                       Pension                    Healthcare and Life
                                                          ------------------------------------------------------------------
                                                             2000        1999      1998       2000        1999       1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>       <C>        <C>         <C>        <C>
Discount rate at end of year                                7.75%       8.00%     7.00%      7.75%       8.00%      7.00%
Long-term rate of return on plan assets for the year        9.25        9.00      8.90       9.25        9.00       8.90
Rate of future increases in compensation at end of year     5.00        4.00      4.00       4.00        4.20       4.00
Medical cost trend rate at end of year                                                       5.00        5.50       6.00
   Ultimate (year 2001)                                                                      5.00        5.00       5.00
Dental cost trend rate at end of year                                                        3.50        3.50       3.50
   Ultimate (year 2002)                                                                      3.00        3.00       3.00

</TABLE>

Savings Plans and Employee Stock Ownership Plans

     Substantially all of our employees are eligible to participate in savings
plans maintained by Verizon Communications. Verizon Communications maintains two
leveraged employee stock ownership plans (ESOPs) for its employees of the former
Bell Atlantic Companies. Under these plans, a certain percentage of eligible
employee contributions are matched with shares of Verizon Communications' common
stock. Verizon Communications recognizes leveraged ESOP cost based on the
modified shares allocated method for these leveraged ESOPs that held securities
before December 15, 1989. We recognize our proportionate share of total ESOP
cost based on our matching obligation attributable to our participating
employees. We recorded total savings plan costs of $1,164,000 in 2000, $749,000
in 1999 and $624,000 in 1998.

                                      F-17
<PAGE>

                              Verizon Delaware Inc.

10.  INCOME TAXES

     The components of income tax expense are presented in the following table:

<TABLE>
<CAPTION>

                                                                                Years ended December 31
                                                                        -------------------------------------
(Dollars in Thousands)                                                         2000         1999        1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>         <C>
Current:
    Federal                                                                 $15,808      $17,931     $18,067
    State and local                                                           4,342        4,997       4,977
                                                                        -------------------------------------
                                                                             20,150       22,928      23,044
                                                                        -------------------------------------
Deferred:
    Federal                                                                   6,594        8,353       3,922
    State and local                                                           1,503        2,158       1,042
                                                                        -------------------------------------
                                                                              8,097       10,511       4,964
                                                                        -------------------------------------
                                                                             28,247       33,439      28,008
Investment tax credits                                                         (193)        (252)       (307)
                                                                        -------------------------------------
Total income tax expense                                                    $28,054      $33,187     $27,701
                                                                        =====================================

</TABLE>

     The following table shows the primary reasons for the difference between
the effective income tax rate and the statutory federal income tax rate:

<TABLE>
<CAPTION>

                                                                               Years ended December 31
                                                                        -------------------------------------
                                                                               2000          1999       1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>         <C>
Statutory federal income tax rate                                              35.0%        35.0%       35.0%
Investment tax credits                                                          (.2)         (.2)        (.3)
State income taxes, net of federal tax benefits                                 5.8          5.7         5.7
Other, net                                                                      1.9           .2           --
                                                                        -------------------------------------
Effective income tax rate                                                      42.5%        40.7%       40.4%
                                                                        =====================================

</TABLE>

     Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities. Significant components of deferred tax
liabilities (assets) are shown in the following table:

<TABLE>
<CAPTION>

                                                                                          December 31
                                                                                  ---------------------------
(Dollars in Thousands)                                                                     2000         1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>             <C>
Deferred tax liabilities:
  Depreciation                                                                         $ 56,866     $ 60,846
  Software                                                                                3,343          ---
  Other                                                                                   5,608       13,262
                                                                                  ---------------------------
                                                                                         65,817       74,108
                                                                                  ---------------------------
Deferred tax assets:
  Employee benefits                                                                     (12,003)     (19,864)
  Allowance for uncollectible accounts                                                   (6,667)      (2,105)
  Advance payments                                                                       (1,274)      (2,192)
  Other                                                                                  (3,930)     (14,245)
                                                                                  ---------------------------
                                                                                        (23,874)     (38,406)
                                                                                  ---------------------------
Net deferred tax liability                                                             $ 41,943     $ 35,702
                                                                                  ===========================

</TABLE>

     Deferred tax assets include approximately $20,400,000 at December 31, 2000
and $21,800,000 at December 31, 1999 related to postretirement benefit costs
recognized under SFAS No. 106. This deferred tax asset will gradually be
realized over the estimated lives of current retirees and employees.

                                      F-18
<PAGE>

                              Verizon Delaware Inc.

11.  ADDITIONAL FINANCIAL INFORMATION

     The tables below provide additional financial information related to our
financial statements:

<TABLE>
<CAPTION>

                                                                                                       December 31
                                                                                              ----------------------------
(Dollars in Thousands)                                                                                2000          1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>           <C>
 BALANCE SHEETS:
 Accounts payable and accrued liabilities:
   Accounts payable - affiliates                                                                   $18,655       $21,826
   Accounts payable - other                                                                         34,991        32,633
   Accrued vacation pay                                                                              4,430         4,248
   Accrued expenses                                                                                  4,488         3,915
   Accrued taxes                                                                                     1,598         2,136
   Interest payable - other                                                                          1,049         1,027
   Interest payable - affiliate                                                                        860           240
                                                                                              ----------------------------
                                                                                                   $66,071       $66,025
                                                                                              ============================

 Other current liabilities:
   Advance billings and customer deposits                                                           $9,774        $8,918
   Other                                                                                             9,165           ---
                                                                                              ----------------------------
                                                                                                   $18,939        $8,918
                                                                                              ============================

<CAPTION>

                                                                                          Years ended December 31
                                                                               --------------------------------------------
(Dollars in Thousands)                                                                  2000           1999          1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>           <C>
 STATEMENTS OF CASH FLOWS:
 Cash paid during the year for:
   Income taxes, net of amounts refunded                                             $20,503        $22,452       $22,536
   Interest, net of amounts capitalized                                                9,430          8,450         8,884

 STATEMENTS OF INCOME:
 Interest expense incurred, net of amounts capitalized                                10,108          8,429         9,493
 Capitalized interest                                                                    634            420           944
 Advertising expense                                                                     346          1,927         2,586

</TABLE>

     Advertising expense includes $346,000 in 2000, $1,775,000 in 1999 and
$2,279,000 in 1998 allocated to us by Verizon Services Corp.

     At December 31, 2000 and 1999, $3,592,000 and $2,519,000 of bank overdrafts
were classified as accounts payable.


12.  TRANSACTIONS WITH AFFILIATES

     Our financial statements include transactions with Verizon Services Corp.
(Verizon Services), Verizon Network Funding Corporation (VNFC), Verizon NSI
Holdings, Inc. (VNSHI), Verizon Communications, and various other affiliates.

     We have contractual arrangements with Verizon Services for the provision of
various centralized services. These services are divided into two broad
categories. The first category is comprised of network related services which
generally benefit only Verizon Communications' operating telephone subsidiaries,
including us. These services include administration, marketing, product
advertising, sales, information systems, network technology planning, labor
relations, and staff support for various network operations. The second category
is comprised of overhead and support services which generally benefit all
subsidiaries of Verizon Communications. Such services include corporate
governance and staff support in finance, external affairs, legal and corporate
secretary, media relations, employee communications, corporate advertising,
human resources, and treasury. Costs may be either directly assigned to one
subsidiary or allocated to more than one subsidiary based on functional reviews
of the work performed.

     We recognize interest expense in connection with contractual arrangements
with VNFC to provide short-term financing, investing and cash management
services to us, and recognize interest expense related to a promissory note held
by VNSHI (see Note 5).

                                      F-19
<PAGE>

                              Verizon Delaware Inc.

     Operating revenues include obligations to affiliates in connection with an
interstate revenue sharing arrangement with Verizon Communications' operating
telephone subsidiaries. Other operating revenues and expenses include
miscellaneous items of income and expense resulting from transactions with other
affiliates, primarily rental of facilities and equipment.

     In December 2000, we transferred our advanced data assets, with a net book
value of approximately $5,600,000, for a 4.87% indirect ownership interest in
Verizon Advanced Data Inc. (VADI). VADI is an affiliated company which provides
new exchange access services. Our ownership interest has been reduced to 2.7% as
the result of the issuance of additional stock by VADI. In connection with our
investment, we record equity income/(losses).

     In June 1999, Bell Atlantic Full Services Channel, Inc., an affiliate, sold
its ownership interest in SMS/800 to us and the other operating telephone
companies of Verizon Communications at its fair value in accordance with a
Federal Communications Commission order. SMS/800 is a venture jointly held by
the Bell Operating Companies that administers the centralized national database
system associated with toll free numbers. We paid $11,222 to receive a .22%
ownership interest in SMS/800. Our ownership percentage has increased to .27% as
a result of the merger of SBC Communications, Inc. and Ameritech Corporation. In
connection with our investment, we record equity income and receive cash
dividends.

     We also paid cash dividends to our parent, Verizon Communications.

     Transactions with affiliates are summarized as follows:

<TABLE>
<CAPTION>

                                                                                        Years ended December 31
                                                                              -----------------------------------------
(Dollars in Thousands)                                                                 2000          1999         1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>           <C>          <C>
 Operating revenues:
   Interstate revenue sharing to affiliates                                        $(13,385)     $(13,385)    $(13,385)
   Other revenue from affiliates                                                      9,765         9,257        8,058
                                                                              -----------------------------------------
                                                                                     (3,620)       (4,128)      (5,327)
                                                                              -----------------------------------------
 Operating expenses:
   Verizon Services - network                                                        18,999        18,620       27,410
   Verizon Services - other                                                          38,134        32,778       27,593
   Other                                                                             11,974        10,787        9,837
                                                                              -----------------------------------------
                                                                                     69,107        62,185       64,840
                                                                              -----------------------------------------
 Other income:
   Equity income from SMS/800                                                           164            60          ---
   Equity loss from VADI                                                             (2,129)          ---          ---
                                                                              -----------------------------------------
                                                                                     (1,965)           60          ---
                                                                              -----------------------------------------

 Interest expense:
   VNFC                                                                               1,835         1,342        1,874
   VNSHI                                                                              2,608         1,190        1,190
                                                                              -----------------------------------------
                                                                                      4,443         2,532        3,064
                                                                              -----------------------------------------

 Dividends paid to Verizon Communications                                            46,000        18,600        9,200

 Dividends received from SMS/800                                                         80            60          ---

</TABLE>

     Outstanding balances with affiliates are reported on the balance sheets at
December 31, 2000 and 1999 as Accounts Receivable - Affiliates, Note Payable to
Affiliate, Current Portion of Long-term Debt - Affiliate, Accounts Payable and
Accrued Liabilities - Affiliates, and Long-term Debt - Affiliates.

     On February 1, 2001, we declared and paid a dividend in the amount of
$9,500,000 to Verizon Communications.

                                      F-20
<PAGE>

                              Verizon Delaware Inc.

13.  COMMITMENTS AND CONTINGENCIES

     Various legal actions and regulatory proceedings are pending to which we
are a party. We have established reserves for specific liabilities in connection
with regulatory and legal matters which 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 federal regulatory matters may require us to refund 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 will be resolved, is
not presently determinable.

     Federal and state regulatory conditions to the Bell Atlantic - GTE merger
include 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.


14.   SEGMENT INFORMATION

     We have one reportable segment, which provides domestic wireline
telecommunications services. Specifically, we provide local telephone services
including voice and data transport, enhanced and custom calling features,
network access, directory assistance and private lines. In addition, we provide
customer premises equipment distribution, billing and collection and pay
telephone services.


15.   QUARTERLY FINANCIAL INFORMATION (unaudited)

<TABLE>
<CAPTION>

                                                                                              Income Before
                                                                Operating       Operating     Extraordinary   Net Income
Quarter Ended                                                    Revenues          Income              Item
-------------------------------------------------------------------------------------------------------------------------
                                                                             (Dollars in Thousands)
<S>                                                              <C>              <C>               <C>          <C>
2000:
March 31                                                         $ 76,897         $23,423           $12,794      $12,794
June 30*                                                           77,611          12,933             5,850        5,850
September 30                                                       79,415          19,299             9,987        9,987
December 31                                                        81,287          21,965             9,355        9,355
                                                         ----------------------------------------------------------------
Total                                                            $315,210         $77,620           $37,986      $37,986
                                                         ================================================================

1999:
March 31                                                          $71,921         $25,030           $13,612      $13,612
June 30                                                            75,594          20,987            11,199       11,199
September 30                                                       76,566          24,217            13,169       13,169
December 31                                                        77,544          19,553            10,386       10,386
                                                         ----------------------------------------------------------------
Total                                                            $301,625         $89,787           $48,366      $48,366
                                                         ================================================================

</TABLE>

*Results of operations for the second quarter of 2000 include costs related to
the Bell Atlantic - GTE merger.

                                      F-21
<PAGE>

                              Verizon Delaware Inc.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 2000, 1999 and 1998
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                  Additions
                                                      ----------------------------------
                                          Balance at                          Charged to
                                        Beginning of        Charged to    Other Accounts        Deductions    Balance at End
Description                                   Period          Expenses           Note(a)          Note (b)         of Period
------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>              <C>                <C>
Allowance for Uncollectible
Accounts Receivable:

Year 2000                                     $5,181            $4,978            $5,691           $10,468            $5,382

Year 1999                                     $5,197            $3,010            $4,896           $ 7,922            $5,181

Year 1998                                     $5,048            $3,626            $5,561           $ 9,038            $5,197



Merger-Related Costs:

Year 2000                                     $3,187            $3,262            $  ---           $ 4,566            $1,883

Year 1999                                     $3,741            $  ---            $  ---           $   554            $3,187

Year 1998                                     $4,067            $  ---            $  ---           $   326            $3,741

</TABLE>

------------------------

(a)  (1) Allowance for Uncollectible Accounts Receivable includes amounts
     previously written off which were credited directly to this account when
     recovered, and (2) accruals charged to accounts payable for anticipated
     uncollectible charges on purchases of accounts receivable from others which
     we billed.

(b)  Amounts written off as uncollectible, utilized or paid.

                                      F-22
<PAGE>

Form 10-K for 2000
File No. 1-7757
Page 1 of 1

                                  EXHIBIT INDEX



Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto.


       3a     Certificate of Incorporation of the registrant, as amended and
              restated June 17, 1987. (Exhibit 3a to the registrant's Annual
              Report on Form 10-K for the year ended December 31, 1987, File No.
              1-7757.)

              3a(i)   Certificate of Amendment of Certificate of Incorporation,
                      dated August 14, 1992. (Exhibit 3a(i) to the registrant's
                      Annual Report on Form 10-K for the year ended December 31,
                      1992, File No. 1-7757.)

              3a(ii)  Certificate of Amendment of Certificate of Incorporation,
                      dated January 10, 1994 and filed January 13, 1994.
                      (Exhibit 3a(ii) to the registrant's Annual Report on Form
                      10-K for the year ended December 31, 1993, File
                      No. 1-7757.)

              3a(iii) Certificate of Amendment of Restated Certificate of
                      Incorporation, dated June 30, 2000. (Exhibit 3a(iii)
                      to the registrant's Quarterly Report on Form 10-Q
                      for the quarter ended June 30, 2000, File No.1-7757.)

       3b     By-Laws of the registrant, as amended December 15, 1995. (Exhibit
              3b to the registrant's Annual Report on Form 10-K for the year
              ended December 31, 1995, File No. 1-7757.)

              3b(i)   Consent of Sole Stockholder of Verizon Delaware Inc.,
                      dated December 15, 1995. (Exhibit 3b(i) to the
                      registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1995, File No. 1-7757.)

       4      No instrument which defines the rights of holders of long-term
              debt of the registrant is filed herewith pursuant to Regulation
              S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the
              registrant hereby agrees to furnish a copy of any such instrument
              to the SEC upon request.

       10a    Agreement among Verizon Services Corp. and the Verizon
              Communications Inc. telephone subsidiaries, dated November 7,
              1983. (Exhibit 10b to Verizon Communications Inc. Annual Report on
              Form 10-K for the year ended December 31, 1993, File No. 1-8606.)