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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002

OR

|o | 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 30837

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GENUITY INC.(Exact name of registrant as specified in its charter)

Delaware

74-2864824(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)225 Presidential Way,
Woburn, MA

01801(Address of principal executive offices)

(Zip Code)


Registrant's telephone number, including area code 781-865-2000

(Former name, former address and former fiscal year, if changed since last report)

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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 ý    No o

The
Company had 205,248,400 shares of $0.01 par value Class A common stock outstanding and 18,256,000 shares of $0.01 par value Class B common stock outstanding at
May 10, 2002.

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TABLE OF CONTENTS

|          |  |                                                                                                            |  | Page
|--------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|PART I.   |  | INFORMATION                                                                                                |  |     
|Item 1.   |  | Condensed Consolidated Financial Statements (Unaudited)                                                    |  |     
|          |  | Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2001 and 2002         |  | 2   
|          |  | Condensed Consolidated Balance Sheets
as of December 31, 2001 and March 31, 2002                           |  | 3   
|          |  | Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2001 and 2002         |  | 4   
|          |  | Condensed Consolidated Statements of Comprehensive Loss
for the Three Months Ended March 31, 2001 and 2002 |  | 5   
|          |  | Notes to Unaudited Condensed Consolidated Financial Statements                                             |  | 6   
|Item 2.   |  | Management's Discussion and Analysis of Financial Condition and
Results of Operations                      |  | 30  
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 38  
|PART II.  |  | OTHER INFORMATION                                                                                          |  |     
|Item 1.   |  | Legal Proceedings                                                                                          |  | 40  
|Item 2.   |  | Changes in Securities and Use of Proceeds                                                                  |  | 40  
|Item 3.   |  | Defaults upon Senior Securities                                                                            |  | 40  
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                        |  | 40  
|Item 5.   |  | Other Information                                                                                          |  | 40  
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                           |  | 40  
|SIGNATURE |  | 41                                                                                                        

1

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GENUITY INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (Unaudited)(In Thousands, except Per Share Data)

|                                                             |                                     | Three Months Ended
March 31, |         
|------------------------------------------------------------ | ----------------------------------- | ---------------------------- | --------
|
|Revenues                                                     |                                     | $                            | 299,467 
|Operating Expenses                                           |                                     |                              |         
|                                                             | Cost of sales                       |                              |         
|                                                             | Selling, general and administrative |                              |         
|                                                             | Depreciation and amortization       |                              |         
|                                                             | Special items                       |                              |         
|                                                             |                                     |                              |         
|                                                             |                                     | Total operating expenses     |         
|                                                             |                                     |                              |         
|Operating Loss                                               |                                     |                              | (292,357
|Other Income (Expense)                                       |                                     |                              |         
|                                                             | Interest income (expense), net      |                              |         
|                                                             | Minority interest                   |                              |         
|                                                             | Other, net                          |                              |         
|                                                             |                                     |                              |         
|Loss Before Income Taxes                                     |                                     |                              | (291,324
|Income Taxes                                                 |                                     |                              | 1,026   
|                                                             |                                     |                              |         
|Net Loss                                                     |                                     | $                            | (292,350
|                                                             |                                     |                              |         
|Basic and Diluted Loss Per Common Share                      |                                     | $                            | (1.52   
|                                                             |                                     |                              |         
|Basic and Diluted Weighted-Average Common Shares Outstanding |                                     |                              | 192,169 
|                                                             |                                     |                              |         

The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

2

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GENUITY INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (Unaudited)(Dollars in Thousands, except Share Data)

|                                               |                                                                                                                  | December 31,
2001 |                                                      | March 31,
2002 |  
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ----------------- | ---------------------------------------------------- | -------------- | -
|ASSETS                                         |                                                                                                                 
|Current Assets:                                |                                                                                                                  |                   |                                                      |                |  
|                                               | Cash and cash equivalents                                                                                        |                   | $                                                    | 956,718        |  
|                                               | Restricted cash                                                                                                  |                   |                                                      | 23,000         |  
|                                               | Receivables, less allowances of $24,408 and $28,350, respectively                                                |                   |                                                      | 291,476        |  
|                                               | Other current assets                                                                                             |                   |                                                      | 55,378         |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total current assets                                 |                |  
|Property, Plant and Equipment, Net             |                                                                                                                  |                   | 1,482,217                                            |                |  
|Goodwill, Net                                  |                                                                                                                  |                   | 90,122                                               |                |  
|Intangibles, Net                               |                                                                                                                  |                   | 77,648                                               |                |  
|Other Assets                                   |                                                                                                                  |                   | 17,912                                               |                |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total assets                                         |                | $
|                                               |                                                                                                                  |                   |                                                      |                |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                                                                                                 
|Current Liabilities:                           |                                                                                                                  |                   |                                                      |                |  
|                                               | Short-term obligations, including current maturities                                                             |                   | $                                                    | 157,405        |  
|                                               | Accounts payable                                                                                                 |                   |                                                      | 123,502        |  
|                                               | Accrued compensation and related liabilities                                                                     |                   |                                                      | 45,846         |  
|                                               | Accrued circuits                                                                                                 |                   |                                                      | 96,958         |  
|                                               | Accrued liabilities                                                                                              |                   |                                                      | 243,460        |  
|                                               | Deferred revenue                                                                                                 |                   |                                                      | 22,204         |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total current liabilities                            |                |  
|Long-Term Obligations                          |                                                                                                                  |                   | 2,349,183                                            |                |  
|Other Liabilities                              |                                                                                                                  |                   | 60,832                                               |                |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total liabilities                                    |                |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|Minority Interest                              |                                                                                                                  |                   | 3,111                                                |                |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|Stockholders' Equity (Deficit):                |                                                                                                                  |                   |                                                      |                |  
|                                               | Preferred stock$0.01 par value; 50,000,000 shares authorized; no shares issued and outstanding                  |                   |                                                      |               |  
|                                               | Class A common stock$0.01 par value; 1,600,000,000 shares authorized; 205,248,400 shares issued and outstanding |                   |                                                      | 2,052          |  
|                                               | Class B common stock$0.01 par value; 21,000,000 shares authorized; 18,256,000 shares issued and outstanding     |                   |                                                      | 183            |  
|                                               | Class C common stock  $0.01 par value; 800,000,000 shares authorized; no shares issued and outstanding          |                   |                                                      |               |  
|                                               | Additional paid-in capital                                                                                       |                   |                                                      | 6,106,893      |  
|                                               | Accumulated other comprehensive loss                                                                             |                   |                                                      | (2,416         | )
|                                               | Accumulated deficit                                                                                              |                   |                                                      | (6,214,742     | )
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total stockholders' equity (deficit)                 |                |  
|                                               |                                                                                                                  |                   |                                                      |                |  
|                                               |                                                                                                                  |                   | Total liabilities and stockholders' equity (deficit) |                | $
|                                               |                                                                                                                  |                   |                                                      |                |  

The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

3

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GENUITY INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)(Dollars in Thousands)

|                                               |                                                                   | Three Months Ended March 31,                        |                          
|---------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | -------------------------
|
|Cash Flows from Operating Activities:          |                                                                   |                                                     |                          
|                                               | Net loss                                                          |                                                     | $                        
|                                               | Adjustments to reconcile net loss to net cash used in operations: |                                                     |                          
|                                               |                                                                   | Depreciation and amortization                       |                          
|                                               |                                                                   | Provision for bad debt                              |                          
|                                               |                                                                   | Changes in current assets and current liabilities:  |                          
|                                               |                                                                   |                                                     | Receivables              
|                                               |                                                                   |                                                     | Other current assets     
|                                               |                                                                   |                                                     | Other current liabilities
|                                               |                                                                   | Other, net                                          |                          
|                                               |                                                                   |                                                     |                          
|                                               |                                                                   | Net cash used in operating activities               |                          
|                                               |                                                                   |                                                     |                          
|Cash Flows from Investing Activities:          |                                                                   |                                                     |                          
|                                               | Capital expenditures                                              |                                                     |                          
|                                               | Capitalized software                                              |                                                     |                          
|                                               |                                                                   |                                                     |                          
|                                               |                                                                   | Net cash used in investing activities               |                          
|                                               |                                                                   |                                                     |                          
|Cash Flows from Financing Activities:          |                                                                   |                                                     |                          
|                                               | Repayment of debt                                                 |                                                     |                          
|                                               | Principal payments under capital lease obligations                |                                                     |                          
|                                               | Proceeds from borrowings                                          |                                                     |                          
|                                               |                                                                   |                                                     |                          
|                                               |                                                                   | Net cash provided by (used in) financing activities |                          
|                                               |                                                                   |                                                     |                          
|                                               |                                                                   | Net decrease in cash and cash equivalents           |                          
|Cash and cash equivalents, beginning of period |                                                                   |                                                     | 868,926                  
|                                               |                                                                   |                                                     |                          
|Cash and cash equivalents, end of period       |                                                                   | $                                                   | 160,772                  
|                                               |                                                                   |                                                     |                          
|Supplemental Cash Flow Disclosures:            |                                                                   |                                                     |                          
|Cash paid during the period for:               |                                                                   |                                                     |                          
|                                               | Interest                                                          |                                                     | $                        
|                                               |                                                                   |                                                     |                          
|                                               | Income taxes                                                      |                                                     | $                        
|                                               |                                                                   |                                                     |                          
|Non-cash investing and financing activities:   |                                                                   |                                                     |                          
|                                               | Assets recorded under capital lease obligations                   |                                                     | $                        
|                                               |                                                                   |                                                     |                          
|                                               | Assets recorded under accruals                                    |                                                     | $                        
|                                               |                                                                   |                                                     |                          

The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

4

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GENUITY INC.        CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS        (Unaudited)(Dollars in Thousands)

|                                      |                                          | Three Months Ended
March 31, |         
|------------------------------------- | ---------------------------------------- | ---------------------------- | --------
|
|Net Loss                              |                                          | $                            | (292,350
|Other Comprehensive Loss, net of tax: |                                          |                              |         
|                                      | Foreign currency translation adjustments |                              |         
|                                      |                                          |                              |         
|Comprehensive Loss                    |                                          | $                            | (293,976
|                                      |                                          |                              |         

The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

5

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GENUITY INC.        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    General

Organization

Prior to its initial public offering, Genuity Inc. ("Genuity" or the "Company"), a Delaware corporation, was a wholly-owned subsidiary of GTE Corporation
("GTE"), now part of Verizon Communications Inc. ("Verizon"). On June 22, 2000, Genuity completed a recapitalization. As part of the recapitalization, Genuity converted 510 shares of
common stock issued and outstanding to 18,256,000 shares of Class B common stock.

Genuity
completed its initial public offering of its Class A common stock on June 30, 2000. Genuity sold 173,913,000 shares of Class A common stock, which trade on
the Nasdaq National Market under the symbol "GENU".

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments), considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2002.

The
balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 2001.

The
unaudited condensed consolidated financial statements of Genuity include the accounts of the Company and its three wholly-owned subsidiaries; Genuity Telecom Inc., Genuity
Solutions Inc. and Genuity International Networks Inc. The unaudited condensed consolidated financial statements also reflect the acquisition of a 93% ownership interest in Integra S.A.
("Integra") in 2001. All significant inter-company amounts have been eliminated.

Genuity
prepares its condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States, which require that management make
estimates and assumptions that affect reported amounts. Actual results could differ from these estimates.

Summary of Significant Accounting Policies

The Company's significant accounting policies are described in more detail in Note 2 of the Notes to the Consolidated Financial Statements included in its
most recent annual report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows the same significant accounting
policies.

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Revenue Recognition

Revenue is generally recognized when services are rendered or products are delivered to customers. Billings made or payments received in advance of providing
services are deferred until the period these services are provided.

Genuity
has contracts with some customers that provide service level commitments. If Genuity does not meet the required service levels, it may be obligated to provide credits, usually in
the form of free service for a short period of time. These amounts are accounted for in cost of sales. To date, credits issued under these arrangements for Genuity's failure to meet service level
commitments have not been material.

The
majority of Genuity's contracts consist of separate agreements to provide Internet access, web hosting, transport or value-added eBusiness services to customers.

Access

Internet access services include dial-up, dedicated and broadband access and voice-over-IP for service providers and enterprise customers. Internet
access customers typically sign one or two-year contracts providing for monthly recurring service fees that are earned and recognized based on either fixed fees or usage. Access also
includes revenue associated with the development, operation and maintenance of a nationwide dial-up network for America Online, Inc. ("America Online" or "AOL").

Hosting and Value-Added Services

Web hosting services provide reliable hosting and high-speed network infrastructure as well as flexible, fast and secure hosting platforms and an
experienced technical support staff. Web hosting services include managed hosting, collocation, content delivery and high end managed storage. Value-added services include managed security services
and virtual private networks for secure data transmission and professional consulting. Web hosting and value-added services customers typically sign contracts ranging from one or two years, although a
three-year contract is available for certain hosting services. Hosting revenues are based primarily on monthly fees for server management, physical facilities and bandwidth utilization.
Revenues for security and virtual private network service contracts are earned and recorded based on fixed, monthly recurring fees.

Transport

Transport services include services such as asynchronous transfer mode, or ATM, and private line services. ATM transfer service, a form of high-speed
data transfer, is targeted primarily at enterprises, carriers and Internet service providers with high-bandwidth voice, video and data transmission requirements. Private line service
provides dedicated point-to-point transport services through non-switched, non-usage sensitive dedicated facilities. Transport revenues are earned and
recognized based on customer usage of circuit mileage and capacity. Transport customers typically sign one or two-year contracts.

International

International revenues include all international revenues for access, web hosting and value-added services, and transport. These revenues are recognized on a
basis consistent with domestic services. The international contracts typically range from one to two years, although a three-year contract is available for certain services.

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Cash and Cash Equivalents

Cash and cash equivalents include investments in short-term, highly liquid securities, which have maturities when purchased of three months or less.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over the assets' estimated useful life
using the straight-line method. Useful lives used in computing depreciation are as follows: buildings10 to 30 years, communications networkfiber optic
cable20 to 25 years, communications networkdata processing equipment and machinery which include labor and other direct costs3 to 10 years and
furniture and fixtures5 to 7 years. Leasehold improvements are amortized over the shorter of the lease period or their estimated useful life using the straight-line
method. Maintenance and repairs are charged to expense as incurred; improvements are capitalized. In connection with the impairment charge recorded in the fourth quarter of 2001, the Company reviewed
the useful lives used in computing depreciation for property, plant and equipment and determined that the lives were still appropriate.

When
property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the condensed consolidated balance sheet and any gain or loss on the
transaction is included in the accompanying condensed consolidated statements of operations.

Work
in progress represents costs incurred for the build-out and expansion of the network infrastructure, purchase of network hardware and includes engineering costs and
capitalized interest. When these assets are placed in service, the costs are recorded in the appropriate property, plant and equipment accounts and depreciation begins.

Genuity
leases data communications equipment and facilities under capital lease agreements. The assets under capital leases are recorded at the lower of the assets' fair value or the
present value of future minimum lease payments. Assets under capital leases are depreciated over the shorter of the useful life of the asset or the term of the lease. Depreciation for these assets
ranges from 3 to 10 years.

Indefeasible
rights of use ("IRU") agreements are accounted for as service or lease arrangements based on the rights conveyed in the underlying agreements. Agreements qualifying for
lease accounting treatment are accounted for as operating or capital leases in accordance with SFAS No. 13, "Accounting for Leases." IRUs qualifying for capital lease treatment are capitalized
within property, plant and equipment as communications networkfiber optic cable. These assets are amortized over the shorter of the assets' useful life or the underlying lease term.
Depreciation for these assets ranges from 20 to 25 years.

The
Company has entered into several long-term network agreements for the construction of managed modems. Costs associated with contracts that qualify for capital lease
treatment in accordance with SFAS No. 13, "Accounting for Leases," are capitalized and depreciated over the shorter of the underlying assets' useful life or lease term. Costs are capitalized
within work in progress during the construction phase and classified as communications network-data processing equipment and machinery when the assets have been placed into service.

Goodwill, Net

Goodwill pertains to the acquisitions of BBN Corporation and Genuity Incorporated, both acquired in 1997 and the acquisition of Integra acquired in
September 2001. The Company determined

8

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that the goodwill associated with the BBN Corporation acquisition was impaired as of December 31, 2001 and was written down to fair value.

The
Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" in its entirety on January 1, 2002, and as a result, goodwill is no longer being amortized. In
addition, upon adoption of SFAS No. 142, in-place workforce was reclassified to goodwill, as the intangible asset does not meet the recognition criteria.

Intangibles, Net

Intangible assets pertain to the acquisitions of BBN Corporation and Genuity Incorporated, both acquired in 1997, the acquisition of Integra acquired in
September 2001 and internal use software. The
Company determined that the intangibles associated with the BBN Corporation acquisition were impaired as of December 31, 2001 and were written down to fair value.

The
Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" in its entirety on January 1, 2002, and as a result, in-place workforce was reclassified
to goodwill, as the intangible asset does not meet the recognition criteria. Intangible assets include customer lists, trademarks, and developed technology in connection with the acquisitions, and
internal use software. Customer lists are amortized in a manner consistent with historical attrition patterns over 3 to 10 years. Trademarks and developed technology are amortized on a
straight-line basis over 3 to 10 years. Internal use software is amortized on a straight-line basis over 3 to 5 years. Software maintenance costs are expensed as
incurred.

Valuation of Assets

The impairment of tangible and intangible assets is assessed when changes in circumstances indicate that their carrying value may not be recoverable. Prior to
January 1, 2002, impairment determinations were based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under SFAS No. 121, a determination of impairment, if any, is made based on estimated future cash flows,
salvage value or expected net sales proceeds depending on the circumstances. An impairment loss would be measured based on the amount by which the carrying amount of the asset exceeds the fair value
of the asset. In instances where goodwill has been recorded in connection with impaired assets, the carrying amount of the goodwill is first eliminated before any reduction to the carrying value of
tangible or identifiable intangible assets. Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
This statement retains the requirements of SFAS No. 121 to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted
cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. The Company also adopted SFAS No. 142 on January 1, 2002. Pursuant
to this statement, the Company is required to record an impairment loss on goodwill whenever the fair value of the underlying reporting unit does not support the carrying value of goodwill. Genuity's
policy is to record asset impairment losses as well as net gains or losses on sales of assets as a component of operating expenses.

No
impairment losses were recognized in the first quarter of 2001. The Company recorded a loss on the sale of miscellaneous assets of approximately $0.1 million for the three
months ended March 31, 2002, which is included in special items in the accompanying condensed consolidated statements of operations.

9

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Debt Issuance Costs

Costs incurred in connection with the issuance of debt are amortized to interest expense using the effective interest rate method over the terms of the
corresponding borrowings. The unamortized debt issuance costs totaled $11.8 million and $11.0 million as of December 31, 2001 and March 31, 2002, respectively, and are
included in other assets in the accompanying condensed consolidated balance sheets.

Concentrations of Credit Risk and Significant Customers

Genuity's accounts receivable are subject to credit risk. Genuity performs regular credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. Genuity's risk of loss is limited due to its ability to terminate service on delinquent accounts. The credit risk is also mitigated by the large number of
customers comprising the customer base, with the exception of two large customers, America Online and Verizon.

AOL Time Warner

Revenues from AOL Time Warner, Inc. ("AOL TW"), the parent company of America Online, in relation to Genuity's total revenues are significant. Revenues
from AOL TW represented $97.3 million, or 33%, and $91.1 million, or 32%, of Genuity's total revenues for the three months ended March 31, 2001 and 2002, respectively. The average
accounts receivable balance related to amounts owed to Genuity by AOL TW represented $76.8 million, or 21%, and $66.3 million, or 23%, of Genuity's ending gross accounts receivable
balance at March 31, 2001 and 2002, respectively. (See Note 12 for further discussion.)

Verizon

Revenues from Verizon were $40.3 million, or 13%, and $75.2 million, or 27%, of Genuity's total revenues for the three months ended March 31,
2001 and 2002, respectively. The average accounts receivable balance related to amounts owed to Genuity by Verizon represented $57.6 million, or 16%, and $94.9 million, or 33%, of
Genuity's ending gross accounts receivable balance at March 31, 2001 and 2002, respectively. (See Note 13 for further discussion.)

Earnings (Loss) per Share

Basic earnings or loss per share ("EPS") is measured as the income or loss attributable to common stockholders divided by the weighted-average outstanding common
shares for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the later of the date of issuance or the beginning of
the periods presented. Potential common shares that have an anti-dilutive effect are excluded from diluted EPS. Contingently issuable shares are included in the calculation of diluted EPS
if all of the necessary conditions regarding the share issuance have been met as of the end of the reporting period.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This Statement addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141
requires that all business combinations be accounted for by the purchase method and that all intangible assets be recognized as assets apart from goodwill if they meet certain

10

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criteria. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. Genuity has adopted SFAS No. 141 in its entirety as of January 1,
2002. The adoption of this statement did not have a material effect on the Company's results of operations or financial position.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses the accounting for the acquisition of intangible assets
and the financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Under SFAS No. 142, goodwill and acquired intangible assets with indefinite
lives will no longer be amortized, while acquired intangible assets with determinable lives will continue to be amortized. These assets will be subject to periodic impairment tests. The Company is
required to record an impairment loss whenever the fair value of the underlying reporting unit does not support the goodwill value. This standard is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement pertaining to business combinations were adopted as required to account for the acquisition of Integra, a transaction consummated after
June 30, 2001. The remaining provisions of this statement were adopted in January 2002. As a result, goodwill is no longer being amortized. Management continues to assess the financial
statement impact of the adoption of this statement, including the effect of the new method for impairment testing which is required to be completed by the second quarter of 2002. Goodwill amortization
expense will be reduced by approximately $28.0 million in 2002, including a $7.0 million reduction as a result of adopting this statement on January 1, 2002, and a
$21.0 million reduction resulting from the impairment of goodwill recognized in the fourth quarter of 2001.

In
August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under SFAS No 143, the fair value
of a liability for an asset retirement obligation is required to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Additionally, the associated
asset retirement costs are required to be capitalized as part of the carrying amount of the long-lived asset. This Statement is effective for all fiscal years beginning after
June 15, 2002. The adoption of this statement is not expected to have a material effect on the Company's results of operations or financial position.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. SFAS No. 144 provides further
guidance on the accounting for long-lived assets held for sale. This statement retains the requirements of SFAS No. 121 to recognize an impairment loss only if the carrying amount
of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. In
addition, future operating losses are no longer recognized as part of the loss on disposal on discontinued operations. The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The adoption of this statement on January 1, 2002 did not have a material effect on the Company's results of operations or financial
position.

11

---

Reclassifications

Certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation. Such reclassifications have no effect on previously
reported net loss or stockholders' equity (deficit).

2.    Restructuring Charge

On May 3, 2001, the Company announced a plan to reduce future expenditures. This plan resulted in a reduction of the Company's full-time
equivalent employees by 964, or 16%, and a reduction of 2001 capital expenditures from $2.2 billion to $1.4 billion. The projected 2001 capital expenditures were further reduced to a
range of $1.2 billion to $1.25 billion on August 22, 2001. The reduction in the Company's employees impacted multiple functional areas throughout the Company. All 964
full-time equivalent employees assumed in the plan were terminated as of August 31, 2001. This included 776 employees and 188 contractors. Severance and associated termination
benefits for the 776 employees included in the restructuring charge in 2001 were approximately $17.9 million.

In
the fourth quarter of 2001, the Company announced several cost saving initiatives. These included the decision to de-emphasize and later exit the wholesale
dial-up access business, with the exception of our two largest customers, AOL and Verizon, and an expected reduction in the future capital expenditure program. In addition, on
November 1, 2001 the Company announced a company-wide restructuring and cost savings plan. This included a reduction in the U.S.-based Company full-time equivalent
employees by 1,098, or 21%. The 1,098 full-time equivalent employees included 979 full-time employees and 119 contractor positions. Of the 1,098 full-time
equivalent employees assumed in the plan, 922 were terminated in the fourth quarter of 2001 and the remaining 176, related to our international operations, received a termination notification in the
fourth quarter of 2001 and ceased employment in the first quarter of 2002. Severance and associated termination benefits for the 979 employees included in the restructuring charge in 2001 were
approximately $21.7 million.

The
Company has vacated 55 of the 58 locations identified by the Company in 2001 as sites, which would be exited. These sites included a data center, several POP facilities, sales sites
and administrative buildings. The Company estimates that the remaining 3 locations will be vacated by the end of the third quarter of 2002. The lease termination dates on the underlying sites extend
through 2030. Management is negotiating early buyouts on these lease facilities, where possible, or entering into sublease agreements in lieu of paying termination costs. Facility and equipment
related costs of approximately $83.2 million in the 2001 restructuring charge include lease termination costs, future lease commitments, net of estimated recoveries from subleasing, and
impairment losses for related leasehold improvements. The Company also recorded a $3.0 million adjustment in the fourth quarter of 2001 to reduce the estimated lease termination costs recorded
in the second quarter of 2001.

The
remaining costs within the 2001 restructuring charge of $54.5 million represent various contract termination costs including the expected termination costs associated with the
Company's decision to exit the wholesale dial-up access business.

12

---



During the first quarter of 2002, the Company completed its reduction in workforce as part of the Company's cost saving initiatives that were previously announced
during the fourth quarter of 2001. This included an additional reduction in the U.S.-based full-time equivalent employees by 231. The 231 full-time equivalent employees
included 189 full-time employees and 42 contractor positions. Severance and associated termination benefits for the 189 employees included in the restructuring charge, which is included in
special items in the accompanying condensed consolidated statements of operations, were approximately $2.2 million.

The
Company also recorded a $1.3 million adjustment in the first quarter of 2002 to increase the estimated severance costs recorded in 2001.

As
a result of these restructuring actions taken in 2001 and the first quarter of 2002, the Company has recorded a cumulative restructuring charge, which is included in special items in
2001 and 2002, totaling $180.8 million associated with the reduction in force and the reduced capital expenditure program. As of March 31, 2002, approximately $71.7 million has been
paid, including approximately $35.9 million related to employee severance and associated benefits, approximately $21.0 million represents impairment losses associated with leasehold
improvements on the facilities that will be vacated and approximately $3.0 million represents an adjustment to reduce the estimated lease termination costs. The remaining accrual associated
with the restructuring charge was approximately $85.1 million as of March 31, 2002.

The
activity for the first quarter of 2002 associated with the restructuring charge was as follows (in thousands):

Balance as of December 31, 2001

$
115,314First quarter 2002 charge


2,179Increase to 2001 restructuring charge


1,263Cash Paid during the quarter


(33,657
)Balance as of March 31, 2002

$
85,099


3.    Property, Plant and Equipment, Net

Property, plant and equipment, net, was comprised of the following (in thousands):

December 31,
2001

March 31,
2002Land

$
10,020

$
10,020Buildings


108,472


110,735Communications networkfiber-optic cable


239,626


291,891Communications networkdata processing equipment and machinery


812,509


874,072Furniture and fixtures


42,126


54,949Leasehold improvements


261,471


286,677Work in progress


282,956


228,205Subtotal


1,757,180


1,856,549Accumulated depreciation


(274,963
)

(351,895
)Total

$
1,482,217

$
1,504,654


13

---

Depreciation
expense was $78.3 million and $75.4 million for the three months ended March 31, 2001 and 2002, respectively.

4.    Goodwill, Net

Goodwill, net, was comprised of the following by segment (in thousands):

Hosting

International

TotalBalance as of December 31, 2001

$
41,413

$
48,709

$
90,122Additions





1,228


1,228Deductions





(244
)

(244
)Balance as of March 31, 2002

$
41,413

$
49,693

$
91,106


The
additions to goodwill during the quarter pertain to additional capitalizable costs associated with the acquisition of Integra. The deductions in goodwill are related to foreign
currency translation.

The
Company adopted SFAS No. 142 on January 1, 2002. Under this statement, the Company is required to perform an impairment test on goodwill within six months of adopting
the statement. The Company plans on performing this assessment in the second quarter of 2002. In addition, upon adoption of SFAS No. 142, in-place workforce was reclassified to
goodwill, as the intangible asset does not meet the recognition criteria. The following table compares the first quarter of 2001 and 2002, assuming that SFAS No. 142 was applied in the first
quarter of 2001 and goodwill was not amortized in that period (in thousands, except per share data):

For the three months ended March 31,2001

2002Reported Net Loss

$
(292,350
)
$
(257,508
)Goodwill Amortization


7,066


Adjusted Net Loss

$
(285,284
)
$
(257,508
)Basic and Diluted Earnings (Loss) Per Common ShareReported Net Loss Per Share

$
(1.52
)
$
(1.15
)Goodwill Amortization Per Share


.04


Adjusted Net Loss Per Share

$
(1.48
)
$
(1.15
)


14

---

5.    Intangibles, Net

Intangibles, net, was comprised of the following (in thousands):

|                      |       | December 31, 2001 |        | March 31, 2002
|--------------------- | ----- | ----------------- | ------ | --------------
|
|Customer lists        |       | $                 | 4,000  |               
|Trademarks            |       |                   | 4,000  |               
|Developed technology  |       |                   | 19,000 |               
|Other intangibles     |       |                   | 21,282 |               
|Internal use software |       |                   | 93,832 |               
|                      |       |                   |        |               
|                      | Total |                   | $      | 142,114       
|                      |       |                   |        |               

Amortization
expense for intangibles was $8.1 million and $12.2 million for the three months ended March 31, 2001 and 2002, respectively. Based on the assets as of
March 31, 2002, estimated amortization expense for intangibles for the next five years is approximately $20.9 million in 2002 and 2003, $20.5 million, $12.0 million and
$2.4 million in 2004, 2005 and 2006, respectively.

Other
intangibles represent the Company's preliminary estimate of identifiable intangible assets acquired as part of the Integra acquisition. Further refinements may be made to this
estimate based on the completion of a final valuation study expected in the second quarter of 2002.

Upon
adoption of SFAS No. 142, in-place workforce was reclassified to goodwill, as the intangible asset does not meet the recognition criteria.

6.    Short-Term and Long-Term Obligations

Short-term and long-term obligations were as follows (in thousands):

December 31,
2001

March 31,
2002Current portion of capital leases

$
149,433

$
144,7786% convertible subordinated debentures


7,634


7,584Other short-term debt


338


262Total short-term obligations

$
157,405

$
152,624Capital leases

$
49,183

$
57,302Borrowings


2,300,000


2,300,000Total long-term obligations

$
2,349,183

$
2,357,302


On
April 1, 1987, BBN Corporation, an entity acquired by GTE (now part of Verizon) in 1997, issued $84.7 million of 6% convertible subordinated debentures. The debentures,
due 2012, may be converted at any time by the bondholders into cash at an exchange ratio of $966.67 for each $1,000 of principal. The debentures are unsecured obligations and are subordinated in right
of payment to Genuity's senior indebtedness, if any.

As
of March 31, 2002, Genuity had purchased and retired debentures with a face value of $77.1 million, which has been used to satisfy the annual sinking fund requirements
through 2011. The

15

---

remaining balance at March 31, 2002 has been included in short-term obligations based on an estimate of the timing for the remaining debt conversions.

On
March 5, 2001, as amended on September 28, 2001, the Company entered into a credit facility with Verizon Investments Inc., (the "Verizon Facility") a wholly-owned
subsidiary of Verizon. Under this facility, as amended, the Company may borrow up to $2 billion. This facility matures on the earlier of
September 5, 2005 or the date that is three months prior to the scheduled expiration of the option of Verizon to convert its Class B common stock into Class C common stock.
Interest is payable periodically depending on the terms of the individual borrowings, with the principal due at maturity. Interest expense on the credit facility is based on London
Inter-bank Offer Rate ("LIBOR") plus 200 basis points when the principal amount borrowed is less than $1.0 billion. When the principal amount borrowed equals or exceeds
$1.0 billion, the interest rate on the total borrowings will be based on LIBOR plus 225 basis points. As of March 31, 2002, borrowings under the Verizon Facility totaled
$1.15 billion.

Genuity
has a committed and unsecured $2.0 billion revolving line of credit facility with nine participating banks (the "Bank Facility"). On September 24, 2001, this
facility was amended and restated primarily to provide us with the option of using available amounts under the facility through the issuance of letters of credit and to provide us with additional
operating flexibility. As of March 31, 2002, the fee for the Bank Facility, which is based on our credit rating as determined by Moody's Investors Service ("Moody's") and Standard &
Poor's ("S&P"), was 20 basis points and is payable quarterly in arrears. The Bank Facility matures on the earlier of September 5, 2005 or the date that is three months prior to the scheduled
expiration of the option of Verizon to convert its Class B common stock into Class C common stock. The Bank Facility is guaranteed by the Company's principal domestic operating
subsidiaries. The Bank Facility contains certain restrictions, including our ability to incur liens, and requires that we do not exceed a maximum ratio of debt to debt plus contributed capital of 73%.
Additionally, this facility requires that Verizon maintain or have the ability to realize (through the exercise of its option in Genuity) a voting ownership interest in the Company that is greater
than 50%. Credit provided to Genuity and loans extended to the Company will be callable in the event that this condition does not exist.

On
September 27, 2001, a $1.15 billion letter of credit was issued under the Bank Facility to back a private placement bond transaction. The bond transaction was executed
on the same date and for the same amount. Interest on the bonds is based on three month LIBOR plus 55 basis points and is payable quarterly in arrears. To secure payment of interest on the bonds, we
are required to maintain a $23.0 million cash reserve while the bonds are outstanding. On August 20, 2005, the bonds mature and the letter of credit expires. The fee on the letter of
credit varies based on Genuity's credit rating.

On
March 15, 2002, S&P announced a reduction of our credit rating from BBB+ to BB. This reduction resulted in an increase in the facility fee for our Bank Facility from 12.5 to 20
basis points per annum and an increase in the fee for the letter of credit issued under our Bank Facility from 97.5 to 115 basis points per annum payable quarterly in arrears. Although these fees are
tied to our credit rating, they are subject to maximum and minimum limitations. The fee limitations under the Bank Facility are as follows:

Minimum

MaximumFacility Fee

8 basis points

50 basis pointsLetter of Credit Fee

82 basis points

385 basis points


16

---

Credit
rating reductions will not restrict the Company's ability to draw additional funds or trigger repayment under the Verizon Facility or the Bank Facility. The maximum total increase
for fees tied to our credit rating that the Company could be subject to is 300 basis points over the fees charged as of March 31, 2002.

The
remaining amount available under the Bank Facility can be drawn by issuance of a letter of credit or by making a credit advance. Credit advances bear interest at a rate equal to
either (1) for base rate advances, the higher of the prime rate announced by Chase Manhattan Bank or 50 basis points per annum above the federal funds rates or (2) for LIBOR advances,
LIBOR plus a percentage determined based on our credit rating. The interest on any credit advances will be payable in quarterly installments.

Unamortized
debt issuance costs were $11.8 million and $11.0 million as of December 31, 2001 and March 31, 2002, respectively, and are included in other
assets in the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense based on the effective interest method over the terms of the corresponding
borrowings.

7.    Stockholders' Equity (Deficit)

Preferred Stock

The board of directors has the authority, without further action by the holders of Class A common stock or Class C common stock, to issue from time
to time, shares of Genuity preferred stock in one or more series. The issuance of shares of preferred stock is, however, subject to the approval of holders of the
Class B common stock. Once the approval of the holders of the Class B common stock has been obtained, the board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock.

Common Stock

Our Class A common stock trades on the NASDAQ under the symbol "GENU" and the Nouveau Marché under the symbol "Genuity A-REGS
144." Until October 11, 2002, the shares of Class A common stock which trade on the Nouveau Marché may not be resold, pledged, or otherwise hedged or transferred directly
or indirectly in the United States or to U.S. Persons, as such term is defined in Regulation S under the Securities Act of 1933. In addition, during the one-year period ending on
October 11, 2003, the shares of Class A common stock which trade on the Nouveau Marché may not be resold, pledged, or otherwise hedged or transferred, except in compliance
with either Regulation S or Rule 144 under the Securities Act.

The
shares of Genuity's Class A common stock, Class B common stock and Class C common stock are identical in all respects except for voting rights, conversion rights
and as otherwise described below. The rights, preferences and privileges of holders of Class A common stock, Class B common stock and Class C common stock are subject to the
rights of the holders of shares of any other class of common stock that Genuity may authorize and issue and any series of preferred stock that Genuity may designate and issue in the future.

17

---



Voting Rights.Except as required by law or as described below, the holders of the Class A common stock,
Class B common stock and Class C common stock vote together as a single class on all matters submitted to a vote of Genuity's stockholders. Each share of Class A common stock
entitles the holder to one vote per share. So long as 50% or more of the shares of Class B common stock outstanding at the completion of the initial public offering remain outstanding, no
holder or group of holders of Class A common stock may vote any of their shares in excess of 20% of the aggregate number of the then outstanding number of shares of Class A common stock.

Each
share of Class B common stock entitles the holder to one vote per share. The holders of Class B common stock, voting separately as a class, are entitled to elect one
director to Genuity's board of directors. Genuity is also required to obtain the consent of the holders of Class B common stock before taking specific actions, including making significant
acquisitions or dispositions, entering into major business combinations, and incurring indebtedness or issuing additional equity securities in excess of specified limits. Under the terms of the
Federal Communications Commission's ("FCC") Memorandum and Order, dated June 16, 2000 (the "FCC Order"), Verizon has agreed that it will not consent to Genuity's acquisition of a traditional
voice long-distance provider unless the FCC has first reviewed and approved the acquisition.

Each
share of Class C common stock entitles the holder to five votes per share.

Conversion.The Class A common stock has no conversion rights. Verizon, directly or indirectly, owns all of the
outstanding shares of Class B common stock.

Under
the terms of the FCC order:



Under
the terms of the FCC Order, if Verizon has not eliminated the applicable Section 271 restrictions as to 100% of the former Bell Atlantic in-region lines on or
before June 30, 2005, which may be extended under certain circumstances, Verizon's ability to convert the Class B common stock into 800,000,000 shares of Class A common stock or
Class C common stock will expire. If Verizon has satisfied the applicable Section 271 restrictions as to 100% of the former Bell Atlantic in-region lines

18

---

on or before that date, or any extension, its ability to convert the Class B common stock into 800,000,000 shares of Class A common stock or Class C common stock will not expire.
The Class B common stock transferred to a third party will not be subject to this expiration limitation.

Each
share of Class C common stock is convertible by the holder at any time into one share of Class A common stock. Each share of Class C common stock will
automatically convert into one share of Class A common stock if at any time the aggregate number of outstanding shares of Class C common stock, together with shares of Class C
common stock issuable upon conversion of Class B common stock, constitutes less than 10% of Genuity's outstanding common stock.

As
of February 28, 2002, Verizon has eliminated regulatory restrictions in 5 of the 14 jurisdictions covered in the FCC Order, representing 56% of the former Bell Atlantic
in-region access lines.

Verizon's Right to Acquire Additional Shares.If at any time during the one year following conversion by Verizon or its
affiliates of any shares of Class B common stock, Verizon and its affiliates beneficially own shares of Class A common stock and Class C common stock that in the aggregate exceed
70% of the total number of shares of outstanding common stock, Verizon may acquire from Genuity during
this one-year period a number of shares of Class A common stock so that it will own shares of common stock equal to 80% of the total number of shares of the outstanding common
stock.

Registration Rights Agreement.Under a Registration Rights Agreement, Verizon and its transferees or assignees will be
entitled to cause us to register shares of Class A common stock that are issued following the conversion of either our Class B common stock or our Class C common stock.

Genuity Right of First Offer.Under the terms of the FCC order, if Verizon seeks to sell some or all of its shares of Genuity
Class B common stock, or the shares of Genuity common stock received by it on conversion of all or some of its shares of Genuity's Class B common stock, after eliminating the applicable
Section 271 restrictions as to at least 50% but less than 95% of the former Bell Atlantic in-region lines, Verizon will first offer to sell those shares to Genuity with the purchase
price payable in the form of an unsubordinated, marketable debt instrument of Genuity with a fair market value equal to its face value. Genuity's issuance to Verizon of such a debt instrument shall
constitute an exception to any limitation on the aggregate amount of Genuity's debt that Verizon may hold pursuant to the FCC Order. This debt instrument will bear interest at a commercially
reasonable rate, comparable to rates under similar instruments held by companies with debt ratings comparable to Genuity's, with a commercially reasonable time for repayment. The purchase price for
all of the shares of Class B common stock will be equal to the lower of (a) the fair market value of those shares as determined by a nationally recognized independent investment banker
selected jointly by Verizon and Genuity or (b) the sum of:



Verizon
has agreed to grant any consent necessary for Genuity to be able to complete the repurchase of the Class B common stock held by Verizon.

19

---

Liquidation.In the event of any dissolution, liquidation, or winding up of Genuity's affairs, whether voluntary or
involuntary, the holders of the Class A common stock, the Class B common stock, and the Class C common stock will be entitled to share ratably, in proportion to the number of
shares they represent of Genuity's outstanding common stock, in the assets legally available for distribution to
stockholders, in each case after payment of all of Genuity's liabilities and subject to preferences that may apply to any series of preferred stock then outstanding. Genuity may not dissolve,
liquidate or wind up its affairs without obtaining the consent of the holders of the outstanding shares of its Class B common stock.

Mergers and Other Business Combinations.If Genuity enters into a merger, consolidation or other similar transaction in which
shares of its common stock are exchanged for or converted into securities, cash or any other property, the holders of each class of Genuity's common stock will be entitled to receive an equal per
share amount of the securities, cash, or any other property, as the case may be, for which or into which each share of any other class of common stock is exchanged or converted; provided that in any
such merger, consolidation or other similar transaction, the holders of the shares of Class B common stock shall be entitled to receive, at their election, either (1) the merger
consideration such holders would have received had they converted their shares of Class B common stock immediately prior to the consummation of such transaction or (2) a new security
that is convertible into the merger consideration and has substantially identical voting and other rights as the Class B common stock. In any transaction in which shares of capital stock are
distributed, the shares that are exchanged for or converted into the capital stock may differ as to voting rights and conversion rights only to the extent that the voting rights and conversion rights
of Class A common stock, Class B common stock and Class C common stock differ at that time. The holders of the Class B common stock, voting separately as a class, must
consent to any such merger, consolidation or other similar transaction.

8.    Earnings (Loss) Per Share

The weighted-average common shares outstanding for both basic and diluted earnings per share were approximately 192,169,000 shares and 223,504,400 shares for the
three month periods ending March 31, 2001 and 2002, respectively.

Potential
common shares excluded in the computation of weighted-average diluted shares outstanding were approximately 71,062,000 and 33,532,000 for the three months ended
March 31, 2001 and 2002, respectively, as their inclusion would have an anti-dilutive effect.

As
of March 31, 2002 Verizon has met the applicable Section 271 restrictions as to at least 50% of the former Bell Atlantic in-region lines. As a result,
Verizon is able, under circumstances described in the recapitalization agreement, to transfer its shares of Class B common stock to a disposition trustee for sale to one or more third parties
that would then be able to convert the Class B common stock in the aggregate into 800,000,000 shares of Class A common stock. This transfer could only be made after the Class B
common shares are first offered to Genuity. While Verizon has met the applicable restrictions, Verizon has not made a first offer of sale to Genuity or made any indication that they intend to sell or
otherwise dispose of the Class B common stock prior to eliminating a greater percentage of the applicable Section 271 restrictions on the former Bell Atlantic in-region
lines. The Class B common shares have not been reflected in the basic earnings per share calculation on an as-converted basis as Verizon has not taken any actions related to its
Class B common stock conversion rights and, management does not believe that Verizon currently intends to transfer its Class B common stock.

20

---

9.    Segment Reporting

Genuity's operations are reported in four segments: Access, Hosting and Value-Added Services, Transport and International.

Access.Internet access pertains to a variety of global Internet access services, including dial-up, dedicated,
DSL and other broadband and voice-over-IP, by providing and managing the underlying scaleable infrastructure. Genuity also provides a range of customer premise equipment
necessary to connect to the Internet, including routers, channel service units/data service units, modems, software and other products. Customers receive 24 hours per day, seven days per week
network monitoring and technical support from Genuity's Network Operations Centers ("NOC").

Hosting and Value-Added Services.Hosting pertains to services that allow customers to successfully implement their eBusiness
strategies through scaleable, reliable and secure Web sites, which serve as the infrastructure to communicate with suppliers, customers and employees, as well as to deliver interactive content and
conduct online commerce. The eBusiness model enables companies to decrease sales costs; accelerate time to market; access new sales channels; increase revenues, productivity and customer satisfaction;
and gain competitive advantage. Genuity currently operates 8 data centers in the United States. Through the Web hosting operation center, Genuity monitors these systems 24 hours a day, seven
days a week. Value-Added Services includes revenue for professional consulting and value-added Internet services such as security and virtual private networks.

Transport.Genuity provides a broad range of transport services to customers through a single point of contact for planning,
ordering, installing, billing, maintaining and managing customers' transport services. Genuity provides seamless operation of local loops, central office connections and interexchange carrier
transport. Through Genuity's NOC, network faults, intrusion or environmental alarms are observed, diagnostics are performed, and referrals or dispatches are initiated as needed.

International.International revenues include all international revenues for Access, Hosting and Value-Added Services, and
Transport. Genuity operates 10 data centers outside of the United States: one in AmsterdamNetherlands and as a result of the acquisition of Integra in ReadingEngland,
ParisFrance, FrankfurtGermany, MilanItaly, StockholmSweden, MadridSpain, OsloNorway, CopenhagenDenmark and
MunichGermany.

Network
costs within Global Network Infrastructure ("GNI") which are incurred to support the Access, Hosting and Value-Added Services, Transport and International segments are not
allocated to these segments for management reporting or segment reporting purposes. Similarly, selling, general and administrative expenses are not allocated to the segments for management or segment
reporting purposes.

Revenues
received from AOL TW are part of the Access and International segments. Revenues received from Verizon are part of the Access and Transport segments. Revenues for AOL TW,
including AOL Japan, in relation to Genuity's total revenues were $97.3 million, or 33%, and $91.1 million, or 32%, for the three months ended March 31, 2001 and 2002,
respectively. Revenues from Verizon in relation to Genuity's total revenues were $40.3 million, or 13%, and $75.2 million, or 27%, for the three months ended March 31, 2001 and
March 31, 2002, respectively.

Management
utilizes several measurements to evaluate its operations and allocate resources. However, the principal measurements are consistent with Genuity's financial statements. The
accounting policies of the segments are the same as those described in Note 1.

21

---

Financial
information for Genuity's segments is as follows (in thousands):

Three Months Ended
March 31,2001

2002RevenuesAccess

$
218,104

$
216,977Hosting and Value-Added Services


38,683


25,776Transport


25,662


16,317International


17,018


22,524Total revenues


299,467


281,594Operating ExpensesCost of sales


345,253


311,295Selling, general and administrative


153,046


110,103Depreciation and amortization


93,525


87,649Special items





3,567Total operating expenses


591,824


512,614Operating Loss


(292,357
)

(231,020
)Other Income (Expense)Interest income (expense), net


1,215


(25,659
)Minority interest





1,500Other, net


(182
)

(957
)Loss Before Income Taxes

$
(291,324
)
$
(256,136
)Capital Expenditures(1)Access

$
250,342

$
47,452Hosting and Value-Added Services


34,231


5,785GNI/Transport


305,140


10,617International


299


6,535Other


65,172


8,107Total

$
655,184

$
78,496Depreciation and AmortizationAccess

$
20,618

$
27,933Hosting and Value-Added Services


11,918


16,691GNI/Transport


43,330


22,461International


3,094


7,570Other


14,565


12,994Total

$
93,525

$
87,649


---

22

---

December 31, 2001

March 31, 2002Property, Plant and Equipment, NetAccess

$
360,650

$
410,564Hosting and Value-Added Services


217,515


212,632GNI/Transport


486,582


479,989International


140,283


133,618Other


277,187


267,851Total

$
1,482,217

$
1,504,654


10.  Commitments and Contingencies

Leases

Genuity leases office space, data centers, points of presence, network equipment and managed modems under long-term capital and operating leases. Many
of these leases have options for renewal with provisions for increased rent upon renewal. Genuity's rent expense was $24.3 million and $16.8 million for the three months ended
March 31, 2001 and 2002, respectively. Rent expense attributable to our fiber optic network, including points of presence and data centers, is included in cost of sales and all other rent
expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

As
of March 31, 2002, the future minimum lease payments under non-cancelable capital and operating leases with initial or remaining periods in excess of one year were
as follows (in thousands):

Capital
Leases

Operating
Leases2002

$
96,700

$
33,3002003


108,500


40,2002004


8,900


36,9002005


7,300


33,9002006


7,500


30,300Thereafter


27,300


88,000Total minimum lease payments


256,200

$
262,600Amount representing interest


(54,100
)Present value of minimum lease payments

$
202,100


Consistent
with the terms of the FCC Order, GTE, now part of Verizon, guarantees some of Genuity's existing real estate leases.

Contract Commitments

Genuity has entered into several agreements for indefeasible rights of use ("IRUs") for its network infrastructure in the United States. The initial terms of the
IRUs are for 20-25 years, with options to extend the terms. Genuity is obligated to pay operating and maintenance costs under the contract

23

---

terms. As of March 31, 2002, the future minimum commitments under these agreements were as follows (in thousands):

2002

$
12,000Thereafter


Total future minimum commitments

$
12,000


Genuity
has entered into a number of agreements for IRUs to trans-oceanic cable systems that are either deployed or in the process of being deployed. The initial terms of the IRUs are
for 25 years. As of March 31, 2002, the outstanding commitments under the agreements were as follows (in thousands):

2002

$
10,000Thereafter


Total future minimum commitments

$
10,000


Genuity
has entered into non-cancelable long-term purchase commitments for circuits with communications providers. The purchase agreements contain provisions that
require Genuity to purchase a minimum amount of services annually. If Genuity does not purchase the minimum service, it is required to pay the amount of the shortfall between the minimum commitments
and actual purchases. As of March 31, 2002, future minimum payments under these non-cancelable purchase commitments were as follows (in thousands):

2002

$
160,0002003


268,0002004


151,0002005


85,0002006


86,000Thereafter


33,000Total future minimum commitments

$
783,000


In
addition to the long-term purchase commitments, we also purchase circuits on a monthly basis under agreements with other communications providers. These agreements do not
contain minimum purchase commitments; however, we are obligated to pay a termination fee related to certain agreements for early termination. In addition, certain agreements contain volume commitments
and Genuity is obligated to pay a penalty if these volume levels are not achieved.

24

---



Genuity has entered into long-term network service agreements for the development of managed modems to be utilized in the dial-up modem
services business. These agreements contain minimum purchase commitments based on the achievement of various production milestones. These contracts also contain most-favored customer
pricing and business downturn provisions that could reduce the contractual commitments in the event that market prices for similar services decrease over the contract term or if there is a material
downturn in customer demand for modem services. As of March 31, 2002, the future minimum commitments under these agreements were as follows (in thousands):

2002

$
50,0002003


203,0002004


121,0002005


20,0002006


63,000Thereafter


Total future minimum commitments

$
457,000


Contingencies

The Company is subject to claims arising in the ordinary course of business. In the opinion of management, these claims are not expected to have a material effect
on operations.

11.  Related Party Transactions

Bank Facility

On September 5, 2000, the Company entered into a $2.0 billion revolving line of credit facility, as amended and restated with a consortium of 9
banks (See Note 6 for further discussion). One of these banks is also a major stockholder of the Company. The terms of the bank facility were entered into based on prevailing market rates. On
September 27, 2001, a $1.15 billion letter of credit was issued to guarantee a private placement bond issuance.

12.  Transactions with America Online

Effective January 8, 2002, we amended our existing agreement with AOL. The term of the amended agreement remains unchanged with certain obligations
continuing through December 31, 2006. Under the amended agreement, AOL is obligated to satisfy minimum purchase commitments for dial-up access ports through 2003 and to purchase
managed digital subscriber line network access services through 2004. However, under the amended agreement, AOL is no longer obligated to purchase and Genuity is no longer obligated to provide other
non-digital subscriber line broadband network access services. In addition to amending the terms of the AOL agreement, the amendment provided for the payment by AOL of previously withheld
amounts and resolved those issues previously reported.

Under
the amended agreement, AOL may purchase dial-up access ports through 2006 for a fixed monthly fee for each activated dial-up access port managed by us. The
fixed monthly fee for each dial-up access port will be reduced by specified amounts throughout the term of the amended agreement. Such specified price reductions are to be implemented in
April 2002, January 2003, and January 2004. The amended agreement contains minimum commitments for such ports through the end of 2003. The Company does not anticipate that AOL
will exceed the minimum commitment during this

25

---

period. Given the fixed price and volume commitments in the amended agreement for the first two years, revenue will be recognized on a straight-line basis through December 31,
2003. Assuming the number of dial-up access ports remains constant, revenues in 2002 will be approximately $77.7 million lower than 2001 revenues. The cash payments received in
excess of the revenue recognized during 2002 will be recorded as deferred revenue, which will be amortized and recognized as revenue in 2003. The estimated revenue that will be deferred at the end of
2002 will be approximately $35.7 million of which $25.6 million was recorded through March 31, 2002.

Under
the amended agreement, starting in January 2004, AOL has the option of reducing the number of dial-up access ports to a reduced commitment level. Revenue in 2004
through the end of the amended agreement will be recognized monthly based on the per port price and volumes in effect each month. Assuming the number of dial-up access ports remains
constant, revenues in 2004 will be approximately $55.4 million lower than 2003 revenues. Assuming the number of dial-up access ports remains constant, the estimated impact of these
price declines would be a year over year reduction of cash received of approximately $41.9 million, $71.4 million and $19.7 million in 2002, 2003 and 2004, respectively. Actual
declines in both revenues and cash receipts could be greater starting in 2004 if AOL exercises its option to reduce the number of dial-up access ports to the reduced commitment level.

Additionally,
we remain obligated to offer to AOL, subject to certain limitations as set forth in the amended agreement, reduced pricing if we offer a third party better pricing for
comparable dial-up access services than that paid by AOL. Under the amended agreement, AOL may request lower pricing for dial-up access ports effective on or after
January 1, 2005, if the market price for comparable services, as defined in the amended agreement, is lower than the pricing then being offered to AOL. If we do not agree to reduce the fees we
charge to AOL for the applicable dial-up access ports to the market price, AOL may, subject to advance notice and other limitations, terminate future dial-up service
commitments to us and decommission an equal number of its existing dial-up access ports with us. Similarly, AOL may reduce its dial-up service commitments in the event we fail
to meet monthly or geographic delivery targets.

Pursuant
to the amended agreement, AOL may, on or after January 1, 2004 and subject to advance notice and other limitations, decommission dial-up access ports managed
by us in proportion to their decommissioning of dial-up access ports provided by other vendors. We are required to maintain a dedicated network operations center to service the portions of
our network dedicated to AOL.

We
continue to provide broadband services to AOL in connection with their digital subscriber line service offerings. Under the prior agreement, AOL was committed to purchase from us the
network services necessary to serve specified percentages of their broadband customers other than digital subscriber line customers (i.e. cable and satellite broadband customers). However, under the
amended agreement, AOL is no longer obligated to purchase additional network services from us in connection with these other broadband service offerings.

In
connection with providing DSL service to an AOL customer, AOL is responsible for providing its customers with the local access circuit and we are responsible for the interconnection
of that circuit to our backbone, transmission of the traffic to AOL and the monitoring, management and control of the network. We receive a specified monthly fee for each AOL DSL customer for whom we
provide network services. These fees are subject to agreed upon reductions, as the number of AOL DSL customers for whom we are providing services increases. At specified times during the course of the
amended agreement, AOL has the right to seek a reduction in the fee paid to us for broadband

26

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backhaul services based on the then prevailing market prices for comparable broadband backhaul services. If we do not agree to reduce our fees to AOL for broadband network services to the market
price in the manner described in the amended agreement, AOL may, subject to advance notice and other limitations, terminate future broadband service purchase commitments to us and terminate existing
broadband service. AOL may also terminate future broadband service purchase commitments in the event we fail to deliver services to a new local access and transport area within a specified period.

Additionally,
the Company entered into a separate marketing agreement with AOL Time Warner, Inc. ("AOL TW"), the parent company of America Online, effective January 4,
2002. Under this agreement, the Company has committed to pay AOL TW $40.5 million through December 31, 2003 for various marketing media inventory, including advertising in print and
online. Advertising will be expensed as incurred. As of March 31, 2002, the Company has incurred $2.3 million of advertising costs under this agreement.

13.  Transactions with Verizon

Concurrent with the closing of the initial public offering, Genuity executed agreements with Verizon and certain of its affiliates including transition services
agreements, a Purchase, Resale and Marketing agreement, intellectual property agreements, a network monitoring agreement and real estate agreements. The transition services, intellectual property,
network monitoring, Purchase, Resale, and Marketing and real estate agreements involve services provided to and received from Verizon. The transition and network monitoring agreements vary from four
to twelve months with rights to terminate earlier. These transition services were completed as of December 31, 2001. The fees paid or received from these agreements are fixed under the
agreements and were based on historical costs and comparable market prices. Under the Purchase, Resale and Marketing agreement, Verizon has agreed to purchase at least $500 million of Genuity's
services over a five-year period. Since inception, Verizon has purchased approximately $131.7 million of services under this agreement through March 31, 2002.

The
recapitalization agreement executed on June 22, 2000 requires Genuity to obtain the consent of Verizon prior to taking actions such as making acquisitions for consideration
that exceed 20% of Genuity's market capitalization, making any acquisitions with a purchase price in excess of $100 million or entering into any joint venture with an investment in excess of
$100 million that is not closely related to Genuity's business, making any disposition in excess of 20% of Genuity's market capitalization, and certain other restrictions on incurring
indebtedness and other protective rights.

GTE,
now part of Verizon, granted to TELUS Corporation the exclusive right to our trademarks and to all proprietary technology that we had developed prior to the date of our initial
public offering for use solely in Canada for the provision of telecommunications services, including Internet services. We have entered into a licensing arrangement with TELUS (the "TELUS Agreement")
to grant it similar rights with respect to all trademarks and proprietary technology that we develop or acquire after June 30, 2000. The TELUS agreement also limits our ability to directly
provide Internet services in Canada. However, the agreement does not preclude other commercial business with TELUS, which we continued to develop with TELUS during 2001.

On
March 5, 2001, as amended on September 28, 2001, the Company entered into a line of credit facility with Verizon Investments Inc., (the "Verizon Facility") a
wholly-owned subsidiary of Verizon. Under this facility, as amended, the Company may borrow up to $2 billion. This facility matures on the earlier of September 5, 2005 or the date that
is three months prior to the scheduled expiration of the option of Verizon to convert its Class B common stock into Class C common stock. Interest is payable

27

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periodically depending on the terms of the individual borrowings, with the principal due at maturity. Interest expense on the credit facility is based on LIBOR plus 200 basis points when the
principal amount borrowed is less than $1.0 billion. When the principal amount borrowed equals or exceeds $1.0 billion, the interest rate on the total borrowings will be based on LIBOR
plus 225 basis points. As of March 31, 2002, borrowings under the Verizon Facility totaled $1.15 billion.

In
June 2001, Genuity entered into a five year agreement with Verizon for DSL access services. This agreement includes tiered pricing based on the level of DSL line volumes
achieved. The agreement contains volume commitments and Genuity is obligated to pay a penalty if these volume levels are not achieved. Amounts charged by Verizon are based on tariffs approved by the
FCC.

Effective
January 3, 2002, Genuity entered into an agreement with Verizon Service Corp. on behalf of certain Verizon operating telephone companies ("OTCs") and Verizon Advanced
Data Inc. ("VADI") for dedicated access services, frame relay, ATM, and certain other services (collectively "Access Services"). Under this agreement, Genuity is committed to purchase an
aggregate minimum of $283 million of Access Services over a five year period, including minimum commitments to purchase certain amounts of Access Services in each state, and minimum commitments
to purchase certain amounts of Access Services from each of VADI and OTCs. Amounts charged by Verizon are subject to tariff approvals from individual states.

In
February 2002, Genuity signed a letter of intent with Verizon regarding a new agreement to purchase CyberPop service, a tariffed service offered by Verizon (the "CyberPop
Agreement") and the modification of several existing contracts under which Genuity provides services to Verizon companies. The CyberPop agreement will supplement Genuity's existing agreements with
other vendors for managed modems, which agreements collectively allow Genuity to provide service to AOL. The existing contracts that will be modified are the Purchase, Resale and Marketing agreement,
the Master Agreement for Wholesale Dial Access Services and the Master Agreement for Wholesale ISP DSL Service. The amendments reflecting these contractual modifications were finalized in the second
quarter of 2002. (See Note 14 for further discussion.)

In
February 2002, we entered into a ISDN/PRI Services Agreement with Verizon, which re-prices existing ISDN/PRI local telecommunications services in certain states at
rates which are lower than the rates we were previously paying Verizon for these services. Under this agreement, we are committed to purchase certain minimum amounts of ISDN/PRI services in certain
Verizon states. The state-by-state purchase commitments continue over a period of three years, or less if all of the ISDN/PRI services are converted to Verizon CyberPOP
services. All new ISDN/PRI services purchased by us under this
Agreement have a minimum service term of three years. Amounts charged by Verizon are subject to tariff approvals from individual states.

14.  Subsequent Events

Effective April 1, 2002, the Company amended its Master agreement with Verizon in which Genuity provides Wholesale Dial Access services to Verizon. The
amendment provides for, among other things, a reduction in Verizon's minimum purchase commitment in 2002 and 2003 from $24 million to $20 million.

On
April 15, 2002, Moody's Investor Services announced a reduction of our credit rating from Baa2 to Ba1. This reduction will result in an increase in the facility fee for our
Bank Facility from 20 to 25 basis points per annum and an increase in the fee for the letter of credit issued under our Bank Facility from 115 to 160 basis points per annum payable quarterly in
arrears. These fee increases will

28

---

result in approximately $9.8 million of additional annual interest expense as compared to 2001 based on the $1.15 billion currently outstanding under the Bank Facility.

On
April 17, 2002, Verizon was granted approval to offer long distance service in Vermont, which resulted in the elimination of regulatory restrictions in 6 of the 14
jurisdictions covered in the FCC Order, representing 57% of the former Bell Atlantic in-region access lines.

Effective
April 22, 2002, the Company entered into an agreement with Verizon for Cyberpop service. This agreement will supplement Genuity's existing agreements with other vendors
for managed modems. Amounts owed under the contract for the Cyberpop service are based on tariff-approved rates and estimated to be approximately $127 million. The agreement has a minimum term
of 36 months with renewal options.

Effective
April 30, 2002, the Company amended its Purchase, Resale and Marketing agreement with Verizon. The amendment requires Verizon to make a $100 million prepayment by
May 31, 2002. As a result of this prepayment, the total purchase commitment is reduced from $500 million to $491 million. This reduction represents the parties' agreement to the
time value of money associated with the prepayment.

On
May 2, 2002, the Company announced a new company-wide restructuring. Genuity will reduce its headcount by an additional 1,100 to 1,200 employees, or 27 to
29 percent of its employee base during the second quarter. The Company is also currently evaluating further consolidations of data center and administrative facilities to improve its overall
asset utilization and eliminate business offerings not core
to its strategic goals. Internationally, Genuity has announced its intent to exit the professional services business in France, Italy and Spain, and is assessing the ongoing profitability potential of
all international operations. Lastly, Genuity will take actions to reduce cash capital spending in 2002 from the previous target of $500-$600 million to
$400-$500 million, reflecting deferrals in light of the continued slower near-term growth environment.

On
May 1, 2002, the Company amended its Master Agreement with Verizon in which Genuity provides Wholesale DSL ISP services to Verizon. The amendment, which is effective on or
about June 30, 2002, modifies the rates paid by Verizon for both consumer and non-consumer DSL services and designates Genuity as the preferred provider for IP backbone services to
Verizon. In addition, the amendment extends the term of the original Master Agreement to March 31, 2003 with an additional extension possible to March 31, 2005, subject to agreement by
the parties on rates and other terms and conditions.

On
May 8, 2002, the Company entered into a standby letter of credit agreement with a related party, Citibank, N.A., based on prevailing market rates. The Company will be required
to pledge cash as collateral for any amount outstanding. As of May 14, 2002, no letters of credit have been issued under this agreement.

29

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

This Form 10-Q contains certain forward-looking statements regarding, among other things, our future financial performance, our anticipated
growth strategies and anticipated trends in our business as well as projections relating to our capital expenditure requirements, our network expansion plans, locations of new data centers, network
operations centers and points of presence, expected deployment dates for capacity on trans-oceanic cable, our plans for transitioning customer traffic from leased capacity to our network, research and
development initiatives and expected restructuring activities. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are
predictions based solely on our current expectations and projections about certain events. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we
caution investors that our future financial and operating results may differ materially from those projected in the forward-looking statements. Such forward-looking statements involve known and
unknown risks and uncertainties and, accordingly, there are many factors that may cause our actual results, level of activity, performance or achievements to be materially different from any future
results, level of activity, performance of achievements expressed or implied by such forward-looking statements. Those factors that may cause our actual results, level of activity, performance or
achievements to be materially different from that expressed or implied by any forward-looking statement include our ability to maintain or increase our market share and therefore maintain our status
as a Tier 1 Internet backbone provider, maintain and strengthen our relationship with America Online, Verizon, and other significant customers, obtain additional capital to fund our operations and the
expansion of our capacity and network infrastructure, successfully maintain and continue to strengthen our brand recognition, compete effectively for service and enterprise customers, reduce operating
expenses and introduce new services.

The
following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report.

RESULTS OF OPERATIONS

2002 Compared to 2001

Revenues (in thousands)

Three Months Ended March 31,2001

2002Amount

%

Amount

%Access

$
218,104

73
%
$
216,977

77
%Hosting and Value-Added Services


38,683

13


25,776

9Transport


25,662

8


16,317

6International


17,018

6


22,524

8Total

$
299,467

100
%
$
281,594

100
%


Total
revenues for the quarter ended March 31, 2002 decreased $17.9 million, or 6%, over the same period in 2001. Total revenues for the quarter ended March 31, 2002
from Verizon increased $34.9 million, or 87%, over the same period in 2001 and represented 27% of Genuity's total revenue in 2002. Verizon purchases Genuity's services both in connection with
the Purchase, Resale and Marketing agreement and outside of this agreement. Under the Purchase, Resale and Marketing agreement, executed at the time of Genuity's initial public offering, Verizon
agreed to purchase at least $500 million of Genuity's services over a five-year period. This agreement was amended in April 2002 to require Verizon to make a $100 million
prepayment and reduce the purchase commitment from

30

---

$500 million to $491 million. Since inception, Verizon has purchased approximately $131.7 million of services under this agreement through March 31, 2002.

Access.Access revenues for the quarter ended March 31, 2002 decreased $1.1 million, or 1%, over the same
period in 2001. Broadband revenues increased $42.1 million, or 126%, year over year including an increase in the number of broadband subscribers from approximately 325,000 subscribers as of
March 31, 2001 to approximately 775,000 subscribers as of March 31, 2002 (including America Online, "AOL"). This increase was offset by a $29.2 million, or 24%,
decrease in dial-up revenues due to the renegotiated AOL contract and the Company's exit from the wholesale dial-up access business in the fourth quarter of 2001, except for
providing dial-up access to our two largest customers, America Online and Verizon. Dial-up revenues from AOL decreased $12.2 million, or 14%, over the same period in
2001. Also offsetting the increase in broadband revenues was a decrease in dedicated access revenues of $6.7 million, or 13%, year over year primarily due to continued churn and
non-service related customer credits, continued price pressures and a greater number of lower priced connections. Additionally, VoIP revenues decreased $5.3 million, or 73%, year of
year primarily due to the lower minutes of use volumes.

The
America Online agreement includes provisions for minimum purchase requirements at fixed monthly fees, service level requirements and termination provisions. The fixed monthly fees
for dial-up access services decrease at various intervals over the contract term.

Effective
January 8, 2002, we amended our existing agreement with America Online. The term of the amended agreement remains unchanged with certain obligations continuing through
December 31, 2006. Under the amended agreement, America Online is obligated to satisfy minimum purchase commitments for dial-up access ports through 2003 and to purchase managed
digital subscriber line network access services through 2004. However, under the amended agreement, America Online is no longer obligated to purchase and Genuity is no longer obligated to provide
other non-digital subscriber line broadband network access services. In addition to amending the terms of the America Online agreement, the amendment provided for the payment by America
Online of previously withheld amounts and resolved those issues previously reported.

Under
the amended agreement, America Online may purchase dial-up access ports through 2006 for a fixed monthly fee for each activated dial-up access port managed
by us. The fixed monthly fee for each dial-up access port will be reduced by specified amounts throughout the term of the amended
agreement. Such specified price reductions are to be implemented in April 2002, January 2003, and January 2004. The amended agreement contains minimum commitments for such ports
through the end of 2003. We do not anticipate that America Online will exceed the minimum commitment during this period. Given the fixed price and volume commitments in the amended agreement for the
first two years, revenue will be recognized on a straight-line basis through December 31, 2003. Assuming the number of dial-up access ports remains constant, revenues in
2002 will be approximately $77.7 million lower than 2001 revenues. The cash payments received in excess of the revenue recognized during 2002 will be recorded as deferred revenue, which will be
amortized and recognized as revenue in 2003. The estimated revenue that will be deferred at the end of 2002 will be approximately $35.7 million of which $25.6 million was recorded
through March 31, 2002.

31

---

Under the amended agreement, starting in January 2004, America Online has the option of reducing the number of dial-up access ports to a reduced commitment level.
Revenue in 2004 through the end of the amended agreement will be recognized monthly based on the per port price and volumes in effect each month. Assuming the number of dial-up access
ports remains constant, revenues in 2004 will be approximately $55.4 million lower than 2003 revenues. Assuming the number of dial-up access ports remains constant, the estimated
impact of these price declines would be a year over year reduction of cash received of approximately $41.9 million, $71.4 million and $19.7 million in 2002, 2003 and 2004,
respectively. Actual declines in both revenues and cash receipts could be greater starting in 2004 if America Online exercises its option to reduce the number of dial-up access ports to
the reduced commitment level.

Additionally,
we remain obligated to offer to America Online, subject to certain limitations as set forth in the amended agreement, reduced pricing if we offer a third party better
pricing for comparable dial-up access services than that paid by America Online. Under the amended agreement, America Online may request lower pricing for dial-up access ports
effective on or after January 1, 2005, if the market price for comparable services, as defined in the amended agreement, is lower than the pricing then being offered to America Online. If we do
not agree to reduce the fees we charge to America Online for the applicable dial-up access ports to the market price, America Online may, subject to advance notice and other limitations,
terminate future dial-up service commitments to us and decommission an equal number of its existing dial-up access ports with us. Similarly, America Online may reduce its
dial-up service commitments in the event we fail to meet monthly or geographic delivery targets.

Pursuant
to the amended agreement, America Online may, on or after January 1, 2004 and subject to advance notice and other limitations, decommission dial-up access
ports managed by us in proportion to their decommissioning of dial-up access ports provided by other vendors. We are required to maintain a dedicated network operations center to service
the portions of our network dedicated to America Online.

We
continue to provide broadband services to America Online in connection with their digital subscriber line service offerings. Under the prior agreement, America Online was committed to
purchase from us the network services necessary to serve specified percentages of their broadband customers other than digital subscriber line customers (i.e. cable and satellite broadband customers).
However, under the amended agreement, America Online is no longer obligated to purchase additional network services from us in connection with these other broadband service offerings.

In
connection with providing DSL service to an America Online customer, America Online is responsible for providing its customers with the local access circuit and we are responsible for
the interconnection of that circuit to our backbone, transmission of the traffic to America Online and the monitoring, management and control of the network. We receive a specified monthly fee for
each America Online DSL customer for whom we provide network services. These fees are subject to agreed upon reductions, as the number of America Online DSL customers for whom we are providing
services increases. At specified times during the course of the amended agreement, America Online has the right to seek a reduction in the fee paid to us for broadband backhaul services based on the
then prevailing market prices for comparable broadband backhaul services. If we do not agree to reduce our fees to America Online for broadband network services to the market price in the manner
described in the amended agreement, America Online may, subject to advance notice and other limitations, terminate future broadband service purchase commitments to us and terminate existing broadband
service. America Online may also terminate future broadband service purchase commitments in the event we fail to deliver services to a new local access and transport area within a specified period.

Hosting and Value Added Services.Hosting and Value Added Services revenues for the quarter ended March 31, 2002
decreased $12.9 million, or 33%, over the same period in 2001 due to a loss of

32

---

customers and a slower pace of new order activity in hosting services. The number of hosting customers declined from 372 as of March 31, 2001 to 204 as of March 31, 2002.

Transport.Transport revenues for the quarter ended March 31, 2002 decreased $9.3 million, or 36%, over the
same period in 2001 primarily due to a loss of customers and lower pricing. In addition, in the fourth quarter 2001, the Company terminated a transitional supply arrangement with a customer related to
the initial spin-off of Genuity.

International.International revenues for the quarter ended March 31, 2002 increased $5.5 million, or 32%, over
the same period in 2001 as a result of the Integra acquisition in the fourth quarter of 2001. Excluding the impact of the Integra acquisition, revenues were $1.3 million, or 8%, lower than
2001, due to the cancellation of certain voice over Internet Protocol (IP) customers for credit-related reasons.

Cost of Sales

Cost of sales for the quarter ended March 31, 2002 decreased $34.0 million, or 10%, over the same period in 2001. Cost of sales, as a percentage of
total revenues, was 115% and 111% for the three months ended March 31, 2001 and 2002, respectively. This decrease reflects the Company's efforts to reduce circuit and other costs.
Telecommunications circuit costs are the largest component of cost of sales and as a percentage of total cost of sales, were approximately 69% and 67% for the three months ended March 31, 2001
and 2002, respectively. Telecommunication circuit costs for the three months ended March 31, 2002 decreased $29.1 million, or 12%, over the same period in 2001. The decline in circuit
costs was primarily the result of the Company's decision to exit the wholesale dial-up access business in the fourth quarter of 2001, except for providing dial-up access to our
two largest customers,
America Online and Verizon. As a result, we have negotiated an agreement to outsource the remaining portion of the dial access network to providers specializing in this capability, except for the
provision of services to America Online and Verizon. Also contributing to the decline were lower costs associated with the lower minutes of use volumes associated with our VoIP services. Partially
offsetting the lower circuit costs were higher costs associated with the growth in broadband services.

The
Company is focused on improving the efficiency of the network by increasing the utilization of our current network, disconnecting unused circuits on a timely basis and deploying
managed modems. The Company has entered into long-term agreements with several managed modem vendors. These agreements are capitalized and financed through lease obligations. These assets
are depreciated over the terms of the contract as the modems are deployed and the leased circuits are terminated. As of March 31, 2002, there were approximately 345,000 managed modems deployed.
For the three months ended March 31, 2002, depreciation and interest expense associated with these modems was $19.9 million compared to $1.2 million in the same period in 2001.
The Company expects to increase the deployment of these modems significantly during 2002, which will result in lower circuit expense as circuits are terminated, but will also result in future
increases in depreciation and interest expense.

Labor
and related costs as well as travel and contractor expenses to support our network infrastructure and customer service were approximately 20% and 16% of cost of sales for the
quarter ended March 31, 2001 and 2002, respectively. These costs decreased by approximately $19.6 million, or 29%, over the same period in 2001. The decrease was due primarily to a lower
level of full-time equivalent employees during the first quarter of 2002. Other costs, such as facilities, maintenance, property taxes and customer premise equipment (CPE) costs were
approximately 11% and 17% of cost of sales for the quarter ended March 31, 2001 and 2002, respectively. These costs increased $14.8 million, or 39%, over 2001 due primarily to the
build-out of our network infrastructure as well as higher CPE costs associated with the increased broadband revenues in 2002.

33

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the quarter ended March 31, 2002 decreased $42.9 million, or 28%, over the same period in 2001. The
decrease is primarily due to the benefit of the headcount reduction implemented in the second and fourth quarters of 2001. Contractor, labor and related expenses decreased $38.8 million, or
40%, over the same period in 2001. Also contributing to the overall decrease are lower advertising and research and development costs. These decreases were partially offset by a $3.4 million,
or 61%, increase in bad debt expense.

Depreciation and Amortization

Depreciation and amortization expenses for the quarter ended March 31, 2002 decreased $5.9 million, or 6%, over the same period in 2001. This
decrease was primarily due to the impairment charge that was recorded in the fourth quarter of 2001 and the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." Pursuant to the
adoption of SFAS No. 142, goodwill and acquired intangibles with indefinite lives are no longer amortized. Partially offsetting the lower depreciation resulting from the impairment was an
increase in managed modem depreciation of approximately $16.5 million.

Special Items

Special items include costs associated with the Company's workforce reduction initiatives announced in the fourth quarter of 2001 and loss on sales of
miscellaneous assets.

The
Company recorded a restructuring charge of approximately $3.4 million in the quarter ended March 31, 2002 pursuant to the Company's workforce reduction initiatives
announced in the fourth quarter of 2001. The $3.4 million represents severance and associated termination benefits for the additional employees that were terminated in the first quarter of
2002.

No
impairment losses were recognized in the first quarter of 2001. The Company recorded a loss on the sale of miscellaneous assets of approximately $0.1 million for the quarter
ended March 31, 2002.

Interest Income (Expense), net

Interest expense, net, for the quarter ended March 31, 2002 was $25.7 million compared to interest income, net, of $1.2 million for the
quarter ended March 31, 2001. The increase in net interest expense is primarily due to the increase in the Company's long-term debt to $2.3 billion as of March 31,
2002 compared to March 31, 2001.

Income Taxes

Genuity generated pre-tax book losses of $291.3 million and $256.1 million for the quarters ended March 31, 2001 and 2002,
respectively. The tax provision represents the amounts owed for state and foreign taxes. A valuation allowance has been established to fully reserve the tax benefits associated with the net operating
losses as their future realizability is uncertain.

Net Loss

Net losses decreased to $257.5 million for the quarter ended March 31, 2002 compared to $292.4 million for the quarter ended March 31,
2001.

LIQUIDITY AND CAPITAL RESOURCES

Genuity has used cash in operating and investing activities during both periods. Prior to our initial public offering, the Company funded these cash requirements
principally through permanent

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contributions of capital from GTE and borrowings from GTE's affiliates. Since our initial public offering, we have funded these cash requirements principally through the proceeds from the initial
public offering of Class A common stock and proceeds from borrowings.

Net
cash used in operating activities was $252.7 million and $157.0 million for the first three months of 2001 and 2002, respectively. Net cash used in operating activities
for these periods was primarily the result of operating losses.

Net
cash used in investing activities was $648.9 million and $32.0 million for the first three months of 2001 and 2002, respectively. Net cash used in investing activities
in each of these periods was primarily the result of capital expenditures for the construction of network infrastructure, data centers and facilities.

Net
cash provided by financing activities was $193.5 million for the first three months of 2001. Net cash used in financing activities was $46.6 million for the first three
months of 2002. In the first quarter of 2002, cash used in financing activities is a result of principal payments for capital leases, including the managed modem agreements.

On
March 5, 2001, as amended on September 28, 2001, the Company entered into a credit facility with Verizon Investments Inc., (the "Verizon Facility") a wholly-owned
subsidiary of Verizon. Under this facility, as amended, the Company may borrow up to $2 billion. This facility matures on the earlier of September 5, 2005 or the date that is three
months prior to the scheduled expiration of the option of Verizon to convert its Class B common stock into Class C common stock. Interest is payable periodically depending on the terms
of the individual borrowings, with the principal due at maturity. Interest expense on the credit facility is based on London Inter-bank Offer Rate ("LIBOR") plus 200 basis points when the
principal amount borrowed is less than $1.0 billion. When the principal amount
borrowed equals or exceeds $1.0 billion, the interest rate on the total borrowings will be based on LIBOR plus 225 basis points. As of March 31, 2002, borrowings under the Verizon
Facility totaled $1.15 billion.

Genuity
has a committed and unsecured $2.0 billion revolving line of credit facility with nine participating banks (the "Bank Facility"). On September 24, 2001, this
facility was amended and restated primarily to provide us with the option of using available amounts under the facility through the issuance of letters of credit and to provide us with additional
operating flexibility. As of March 31, 2002, the fee for the Bank Facility, which is based on our credit rating as determined by Moody's Investors Service ("Moody's") and Standard &
Poor's ("S&P"), was 20 basis points and is payable quarterly in arrears. The Bank Facility matures on the earlier of September 5, 2005 or the date that is three months prior to the scheduled
expiration of the option of Verizon to convert its Class B common stock into Class C common stock. The Bank Facility is guaranteed by the Company's principal domestic operating
subsidiaries. The Bank Facility contains certain restrictions, including our ability to incur liens, and requires that we do not exceed a maximum ratio of debt to debt plus contributed capital of 73%.
Additionally, this facility requires that Verizon maintain or have the ability to realize (through the exercise of its option in Genuity) a voting ownership interest in the Company that is greater
than 50%. Credit provided to Genuity and loans extended to the Company will be callable in the event that this condition does not exist.

As
of March 31, 2002, Verizon has met the applicable Section 271 restrictions as to at least 50% of the former Bell Atlantic in-region lines. As a result,
Verizon is able, under circumstances described in the recapitalization agreement, to transfer its shares of Class B common stock to a disposition trustee for sale to one or more third parties
that would then be able to convert the Class B common stock in the aggregate into 800,000,000 shares of Class A common stock. This transfer could only be made after the Class B
common shares are first offered to Genuity. While Verizon has met the applicable restrictions, Verizon has not made a first offer of sale to Genuity or made any indication that they intend to sell or
otherwise dispose of the Class B common stock prior to eliminating a greater

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percentage of the applicable Section 271 restrictions on the former Bell Atlantic in-region lines. Management does not believe that Verizon currently intends to transfer its
Class B common stock. However, as discussed above, Verizon has the legal right to transfer its Class B common stock.

On
September 27, 2001, a $1.15 billion letter of credit was issued under the Bank Facility to back a private placement bond transaction. The bond transaction was executed
on the same date and for the same amount. Interest on the bonds is based on three month LIBOR plus 55 basis points and is payable quarterly in arrears. To secure payment of interest on the bonds, we
are required to maintain a $23.0 million cash reserve while the bonds are outstanding. The fee on the letter of credit varies based on Genuity's credit rating. As of March 31, 2002, the
fee on the letter of credit was 115 basis points and is payable quarterly in arrears. A reduction in the Company's credit rating would result in an increase in the letter of credit fees owed. On
August 20, 2005, the bonds mature and the letter of credit expires.

The
remaining amount available under the Bank Facility can be drawn by issuance of a letter of credit or by making a credit advance. Credit advances bear interest at a rate equal to
either (1) for base rate
advances, the higher of the prime rate announced by Chase Manhattan Bank or 50 basis points per annum above the federal funds rates or (2) for LIBOR advances, LIBOR plus a percentage determined
based on our credit rating. The interest on any credit advances will be payable in quarterly installments.

On
April 15, 2002, Moody's Investor Services announced a reduction of our credit rating from Baa2 to Ba1. This reduction will result in an increase in the facility fee for our
Bank Facility from 20 to 25 basis points per annum and an increase in the fee for the letter of credit issued under our Bank Facility from 115 to 160 basis points per annum payable quarterly in
arrears. These fee increases will result in approximately $9.8 million of additional annual interest expense as compared to 2001 based on the $1.15 billion currently outstanding under
the Bank Facility. Although these fees are tied to our credit rating, they are subject to maximum and minimum limitations. The fee limitations under the Bank Facility are as follows:

Minimum

MaximumFacility Fee

8 basis points

50 basis pointsLetter of Credit Fee

82 basis points

385 basis points


Credit
rating reductions will not restrict the Company's ability to draw additional funds or trigger repayment under the Verizon Facility or the Bank Facility. The
maximum total increase for fees tied to our credit rating that the Company could be subject to is 300 basis points over the fees charged as of March 31, 2002.

Unamortized
debt issuance costs were $11.8 million and $11.0 million as of December 31, 2001 and March 31, 2002, respectively, and are included in other
assets in the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense based on the effective interest method over the terms of the corresponding
borrowings.

The
Company expects capital expenditures on a cash basis for 2002 will be approximately $400.0 million to $500.0 million. Genuity believes that its current liquidity and
committed capital is sufficient to meet its current operating and capital needs until the Company meets the point of free cash flow break even assumed within the business plan.

As
of March 31, 2002, Genuity's indebtedness included $7.6 million of 6% convertible subordinated debentures. These debentures are due in 2012 and may be converted at any
time by the bondholders into cash at an exchange ratio of $966.67 for each $1,000 of principal. The debentures are unsecured obligations and are subordinated in right of payment to any senior
indebtedness that we may incur.

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As
of March 31, 2002, Genuity's indebtedness also included $202.1 million in capital leases. The capital leases have original terms of 5 to 10 years from the date of
purchase. Principal and interest are payable either monthly or quarterly in advance, with the exception of managed modem agreements for which payments are made based on the achievement of production
milestones.

Summary of Contractual Obligations and Commercial Commitments(in thousands):

|                                   |  | Payments due by year
|---------------------------------- |  | --------------------
|
|Contractual Obligations:           |  |                     
|Short-term debt                    |  | $                   
|Long-term debt                     |  |                     
|Capital Lease Obligations          |  |                     
|Operating Leases                   |  |                     
|Other Commercial Commitments       |  |                     
|                                   |  |                     
|Total Contractual Cash Obligations |  | $                   
|                                   |  |                     

INFLATION AND CHANGING PRICES

Cost increases from suppliers have not had a material adverse impact on the Company's business or operating results during the periods presented, nor does the
Company believe that supplier cost increases will have a material impact on future business or operating results. Price decreases in our service offerings have been and will continue to be
significant, given the general excess capacity for fiber network and data center space in our market sector and have negatively affected the Company's profitability.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This Statement addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141
requires that all business combinations be accounted for by the purchase method and that all intangible assets be recognized as assets apart from goodwill if they meet certain criteria. The provisions
of this Statement apply to all business combinations initiated after June 30, 2001. Genuity has adopted SFAS No. 141 in its entirety as of January 1, 2002. The adoption of this
statement did not have a material effect on the Company's results of operations or financial position.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses the accounting for the acquisition of intangible assets
and the financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Under SFAS No. 142, goodwill and acquired intangible assets with indefinite
lives will no longer be amortized, while acquired intangible assets with determinable lives will continue to be amortized. These assets will be subject to periodic impairment tests. The Company is
required to record an impairment loss whenever the fair value of the underlying reporting unit does not support the goodwill value. This standard is effective for fiscal years beginning after
December 15, 2001. The provisions of this statement pertaining to business combinations were adopted as required to account for the acquisition of Integra, a transaction
consummated after June 30, 2001. As a result, goodwill arising from the acquisition is not being amortized. The remaining provisions of this statement were adopted on January 1, 2002.
Management continues to assess the financial statement impact of the adoption of this statement, including the effect of the new method for impairment testing, which is required to be completed by the
second quarter of 2002. Goodwill amortization expense will be reduced by approximately $28.0 million in 2002, including a $7.0 million reduction as a result of adopting this statement on

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January 1, 2002, and a $21.0 million reduction resulting from the impairment of goodwill recognized in the fourth quarter of 2001.

In
August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under SFAS No 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Additionally, the associated asset retirement costs are required to be
capitalized as part of the carrying amount of the long-lived asset. This Statement is effective for all fiscal years beginning after June 15, 2002. The adoption of this statement is
not expected to have a material effect on the Company's results of operations or financial position.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. SFAS No. 144 provides further
guidance on the accounting for long-lived assets held for sale. This statement retains the requirements of SFAS No. 121 to recognize an impairment loss only if the carrying amount
of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. In
addition, future operating losses are no longer recognized as part of the loss on disposal on discontinued operations. The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The adoption of this statement on January 1, 2002 did not have a material effect on the Company's results of operations or financial
position.

COMMON STOCK

As of March 31, 2002, the Company's common stock outstanding totaled approximately 223,504,400 consisting of 205,248,400 shares of Class A common
stock and 18,256,000 shares of Class B common stock. The Class B shares are wholly-owned either directly or indirectly, by Verizon. These shares are convertible, under certain
conditions, into 800,000,000 shares of Class A or Class C common stock resulting in a total of approximately 1,005,248,400 common shares outstanding.

Under
generally accepted accounting principles the Class B shares cannot be reflected on an as-converted basis until the conditions surrounding the share conversion
have been met. External sources, such as the research reports written by major investment banks, typically reflect these Class B shares on an as-converted basis, utilizing the
1,005,248,400 shares as the basis for their calculations. However, some external sources, utilize only Class A, or Class A plus Class B, shares for the per share calculations.
Investors relying on any external information sources should understand the share basis that was used for the calculations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Genuity's interest rate risk exposure relates primarily to its short-term investments and debt. Currently, short-term investments are
classified as cash and cash equivalents and consist primarily of commercial paper and money market instruments. Our investment income is subject to interest rate risk resulting from potential future
decreases in interest rates. To mitigate this risk, we ensure that our short-term investments are comprised of high quality, highly liquid instruments.

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As
of December 31, 2001 and March 31, 2002, Genuity's debt portfolio consisted of short-term 6% convertible subordinated debentures and short-term
borrowings. The carrying value of these short-term borrowings approximates fair value as of December 31, 2001 and March 31, 2002.

As
of December 31, 2001 and March 31, 2002, Genuity's debt included $2.3 billion of floating-rate debt, which was exposed to changes in interest rates.
This exposure was linked to changes in LIBOR. An increase of one percentage point in LIBOR would increase annual pre-tax interest expense by $23 million.

Genuity
will be exposed to foreign currency risk in the future as the Company's international operations grow. To date, the foreign currency risk has not been material to Genuity's
results of operations or financial position.

Currently,
Genuity does not use interest rate derivative instruments to manage its exposure to interest rate changes; however, Genuity may utilize derivative instruments to hedge certain
exposures in the future.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

None.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

Changes in Securities

None.

Use of Proceeds

Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

None.

ITEM 5.    OTHER INFORMATION

Not applicable.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





Genuity
filed a current report on Form 8-K on February 7, 2002, reporting under Item 5, the issuance of a press release discussing the financial results for the
quarter ended December 31, 2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                    |  | GENUITY INC.
|------------------- |  | ------------
|                    |  | By:         
|Dated: May 15, 2002 |  |             

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