<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------
                                  FORM 10-Q/A

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

            FOR THE TRANSITION PERIOD FROM           TO           .

                         COMMISSION FILE NUMBER 1-1105

                                   AT&T CORP.

<TABLE>
<S>                                            <C>
           A NEW YORK CORPORATION                     I.R.S. EMPLOYER NO. 13-4924710
</TABLE>

            32 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10013-2412

                      TELEPHONE -- AREA CODE 212-387-5400

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                               Yes  [X]  No  [ ]

     At April 30, 2001, the following shares of stock were outstanding:

     AT&T common stock -- 3,746,483,877 shares
     Liberty Media Group Class A common stock -- 2,375,751,504 shares
     Liberty Media Group Class B common stock -- 212,045,288 shares
     AT&T Wireless Group common stock -- 363,392,125 shares
--------------------------------------------------------------------------------
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<PAGE>   2

                        PART I -- FINANCIAL INFORMATION

                          AT&T CORP. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                FOR THE THREE
                                                                 MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                               2001       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Revenue.....................................................  $16,763    $15,901
Operating Expenses
Costs of services and products (excluding depreciation of
  $1,540 and $1,178 included below).........................    4,837      3,915
Access and other connection.................................    3,286      3,588
Selling, general and administrative.........................    3,868      3,289
Depreciation and other amortization.........................    2,141      1,566
Amortization of goodwill, franchise costs and other
  purchased intangibles.....................................      846        368
Net restructuring and other charges.........................      808        773
Total operating expenses....................................   15,786     13,499
Operating income............................................      977      2,402
Other (expense) income......................................     (781)       668
Interest expense............................................      969        589
Income before income taxes, minority interest, (losses)
  earnings from equity investments and cumulative effect of
  accounting change.........................................     (773)     2,481
Provision for income taxes..................................      292        509
Minority interest income (expense)..........................      650        (44)
Equity (losses) earnings from Liberty Media Group...........     (697)       942
Net losses from other equity investments....................      136        187
(Losses) income before cumulative effect of accounting
  change....................................................   (1,248)     2,683
Cumulative effect of accounting change -- net of income
  taxes of $578.............................................      904         --
Net (losses) income.........................................     (344)     2,683
Dividend requirements of preferred stock....................      181         --
Net (losses) income available to common shareowners.........  $  (525)   $ 2,683
AT&T Common Stock Group -- per basic share:
(Losses) earnings -- before cumulative effect of accounting
  change....................................................  $ (0.19)   $  0.55
Cumulative effect of accounting change......................     0.09         --
AT&T Common Stock Group (losses) earnings...................  $ (0.10)   $  0.55
AT&T Common Stock Group -- per diluted share:
(Losses) earnings -- before cumulative effect of accounting
  change....................................................  $ (0.19)   $  0.54
Cumulative effect of accounting change......................     0.09         --
AT&T Common Stock Group (losses) earnings...................  $ (0.10)   $  0.54
Dividends declared..........................................  $0.0375    $  0.22
AT&T Wireless Group -- per basic and diluted share:
AT&T Wireless Group losses..................................  $  0.02    $    --
Liberty Media Group -- per basic and diluted share:
(Losses) earnings -- before cumulative effect of accounting
  change....................................................  $ (0.27)   $  0.37
Cumulative effect of accounting change......................     0.21         --
Liberty Media Group (losses) earnings.......................  $ (0.06)   $  0.37
</TABLE>

                 See Notes to Consolidated Financial Statements
                                        1
<PAGE>   3

                          AT&T CORP. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              MARCH 31,    DECEMBER 31,
                                                                2001           2000
                                                              ---------    ------------
<S>                                                           <C>          <C>
ASSETS
Cash and cash equivalents...................................  $    136       $    126
Receivables, less allowances of $1,373 and $1,379...........    10,633         11,144
Other receivables...........................................     1,805          1,703
Investments.................................................     1,676          2,102
Deferred income taxes.......................................       855            812
Other current assets........................................     1,148          1,200
TOTAL CURRENT ASSETS........................................    16,253         17,087
Property, plant and equipment, net of accumulated
  depreciation of $34,239 and $32,871.......................    52,265         51,161
Franchise costs, net of accumulated amortization of $1,921
  and $1,664................................................    47,924         48,218
Licensing costs, net of accumulated amortization of $1,856
  and $1,762................................................    13,568         13,626
Goodwill, net of accumulated amortization of $1,218 and
  $850......................................................    30,525         31,478
Investment in Liberty Media Group and related receivables,
  net.......................................................    34,072         34,290
Other investments and related advances......................    34,287         34,261
Prepaid pension costs.......................................     3,092          3,003
Other assets................................................     9,155          9,099
TOTAL ASSETS................................................  $241,141       $242,223
LIABILITIES
Accounts payable............................................  $  4,905       $  6,455
Payroll and benefit-related liabilities.....................     1,882          2,423
Debt maturing within one year...............................    17,225         31,947
Liability under put options.................................     2,627          2,564
Other current liabilities...................................     7,805          7,478
TOTAL CURRENT LIABILITIES...................................    34,444         50,867
Long-term debt..............................................    39,004         33,092
Long-term benefit-related liabilities.......................     3,654          3,670
Deferred income taxes.......................................    36,665         36,713
Other long-term liabilities and deferred credits............     5,114          5,090
TOTAL LIABILITIES...........................................   118,881        129,432
Minority Interest...........................................     4,222          4,883
Company-Obligated Convertible Quarterly Income Preferred
  Securities of Subsidiary Trust Holding Solely Subordinated
  Debt Securities of AT&T...................................     4,713          4,710
Convertible Preferred Stock.................................     9,362             --
SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized 6,000,000,000
  shares; issued and outstanding 3,809,487,226 shares (net
  of 416,033,726 treasury shares) at March 31, 2001 and
  3,760,151,185 shares (net of 416,887,452 treasury shares)
  at December 31, 2000......................................     3,809          3,760
AT&T Wireless Group Common Stock, $1 par value, authorized
  6,000,000,000 shares; issued and outstanding 363,203,425
  shares at March 31, 2001 and 361,802,200 shares at
  December 31, 2000.........................................       363            362
Liberty Media Group Class A Common Stock, $1 par value,
  authorized 4,000,000,000 shares; issued and outstanding
  2,376,748,041 shares (net of 53,732,514 treasury shares)
  at March 31, 2001 and 2,363,738,198 shares (net of
  59,512,496 treasury shares) at December 31, 2000..........     2,377          2,364
Liberty Media Group Class B Common Stock, $1 par value,
  authorized 400,000,000 shares; issued and outstanding
  212,045,288 shares (net of 10,607,776 treasury shares) at
  March 31, 2001 and 206,221,288 shares (net of 10,607,776
  treasury shares) at December 31, 2000.....................       212            206
Additional paid-in capital..................................    92,045         90,496
Retained earnings...........................................     6,732          7,408
Accumulated other comprehensive income......................    (1,575)        (1,398)
TOTAL SHAREOWNERS' EQUITY...................................   103,963        103,198
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY...................  $241,141       $242,223
</TABLE>

                 See Notes to Consolidated Financial Statements
                                        2
<PAGE>   4

                          AT&T CORP. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FOR THE THREE
                                                                 MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------    -------
<S>                                                           <C>         <C>
AT&T Common Shares
  Balance at beginning of year..............................  $  3,760    $ 3,196
  Shares issued (acquired), net:
    Under employee plans....................................         4          1
    For acquisitions........................................        44         --
    Other...................................................         1        (50)
Balance at end of period....................................     3,809      3,147
AT&T Wireless Group Common Stock
  Balance at beginning of year..............................       362         --
  Shares issued under employee plans........................         1         --
Balance at end of period....................................       363         --
Liberty Media Group Class A Common Stock
  Balance at beginning of year..............................     2,364      2,314
  Shares issued, net:
    For acquisitions........................................        --         49
    Other...................................................        13         --
Balance at end of period....................................     2,377      2,363
Liberty Media Group Class B Common Stock
  Balance at beginning of year..............................       206        217
  Shares issued (acquired), net:
    Other...................................................         6        (11)
Balance at end of period....................................       212        206
Additional Paid-In Capital
  Balance at beginning of year..............................    90,496     59,526
  Shares issued (acquired), net:
    Under employee plans....................................       107         50
    For acquisitions........................................       827        737
    Other...................................................       290     (2,619)
  Gain on issuance of common stock by affiliates............        25        (95)
  Beneficial conversion value of preferred stock............       295         --
  Other.....................................................         5         37
Balance at end of period....................................    92,045     57,636
Guaranteed ESOP Obligation
  Balance at beginning of year..............................        --        (17)
  Amortization..............................................        --         17
Balance at end of period....................................        --         --
Retained Earnings
  Balance at beginning of year..............................     7,408      6,712
  Net (losses) income.......................................      (344)     2,683
  Dividends declared -- common stock........................      (143)      (692)
  Dividends declared -- preferred stock.....................      (181)        --
Treasury shares issued at less than cost....................        (8)      (150)
Balance at end of period....................................     6,732      8,553
Accumulated Comprehensive Income
  Balance at beginning of year..............................    (1,398)     6,979
  Other comprehensive income................................      (177)     1,821
Balance at end of year......................................    (1,575)     8,800
Total Shareowners' Equity...................................  $103,963    $80,705
Summary of Total Comprehensive Income:
(Losses) income before cumulative effect of accounting
  change....................................................  $ (1,248)   $ 2,683
Cumulative accounting change................................       904         --
Net (losses) income.........................................      (344)     2,683
Dividend requirements of preferred stock....................       181         --
Net (losses) income available to common shareowners.........  $   (525)   $ 2,683
Net foreign currency translation adjustment (net of income
  taxes of $(136) and $(34))................................      (192)       (58)
Net revaluation of securities:
  Unrealized (losses) gain (net of income taxes of $(293)
    and $260)...............................................      (494)       401
  Recognition of previously unrealized losses (gains) on
    available-for-sale securities (net of income taxes of
    $313 and $967)..........................................       509      1,478
Comprehensive Income........................................  $   (702)   $ 4,504
</TABLE>

                                        3
<PAGE>   5

     In the first quarter of 2001, the recognition of previously unrealized
losses (gains) on available-for-sale securities included $0.7 billion ($1.2
billion pretax, recorded in other income) resulting from the reclassification of
securities from "available-for-sale" to "trading" in conjunction with the
adoption of Statement of Financial Accounting Standard (SFAS) No. 133, $(0.1)
billion ($(0.2) billion pretax) relating to the sales of various securities and
$0.1 billion relating to LMG's adoption of SFAS No. 133 (see note j).

     In the first quarter of 2001, other comprehensive income included Liberty
Media Group's (LMG) foreign currency translation adjustments totaling $(149),
net of applicable taxes and the revaluation of LMG's available-for-sale
securities totaling $50, net of applicable taxes.

     In the first quarter of 2000, other comprehensive income included LMG's
foreign currency translation adjustments totaling $(31), net of applicable
taxes, and revaluation of LMG's available-for-sale securities totaling $3,259,
net of applicable taxes, partially offset by the recognition of previously
unrecognized available for sale securities of $1,478.

     AT&T accounts for treasury stock as retired stock, and as of March 31,
2001, had 416 million treasury shares of which 346 million shares were owned by
AT&T Broadband subsidiaries and 70 million shares related to the purchase of
AT&T shares previously owned by Liberty Media Group.

     We have 100 million authorized shares of preferred stock at $1 par value.
In the first quarter of 2001, AT&T issued 812,511.778 share of convertible
preferred stock with a par value of $1 per share to NTT DoCoMo. These shares are
economically equivalent to 406 million shares of AT&T Wireless Group tracking
stock and are intended to reflect approximately 16% of the financial performance
and economic value of AT&T Wireless Group (See note (h)).

                 See Notes to Consolidated Financial Statements
                                        4
<PAGE>   6

                          AT&T CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FOR THE THREE
                                                                 MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------    -------
<S>                                                           <C>         <C>
OPERATING ACTIVITIES
Net (losses) income.........................................  $   (344)   $ 2,683
Adjustments to reconcile net (losses) income to net cash
  provided by operating activities:
  Cumulative effect of accounting change -- net of tax......      (904)        --
  Net gains on sales of businesses and investments..........      (218)      (594)
  Net restructuring and other charges.......................       796        748
  Depreciation and amortization.............................     2,987      1,934
  Provision for uncollectible receivables...................       424        284
  Deferred income taxes.....................................      (250)      (477)
  Minority interest (income) expense........................      (665)        39
  Net equity losses (earnings) from Liberty Media Group.....       697       (942)
  Net losses from other equity investments..................       238        301
  Increase in receivables...................................       (24)      (890)
  Decrease in accounts payable..............................    (1,078)       (73)
  Net revaluation of trading securities.....................       944         --
  Net change in other operating assets and liabilities......      (820)      (483)
  Other adjustments, net....................................       155         (2)
NET CASH PROVIDED BY OPERATING ACTIVITIES...................     1,938      2,528
INVESTING ACTIVITIES
Capital expenditures and other additions....................    (3,923)    (3,236)
Proceeds from sale or disposal of property, plant and
  equipment.................................................        11        143
Increase in other receivables...............................       (34)      (980)
Net acquisitions of licenses................................       (39)       (82)
Sales of marketable securities..............................        88         --
Equity investment distributions and sales...................       742        417
Equity investment contributions and purchases...............      (733)    (1,059)
Net disposition (acquisitions) of businesses net of cash
  disposed/acquired.........................................       613       (188)
Other investing activities, net.............................        91        (16)
NET CASH USED IN INVESTING ACTIVITIES.......................    (3,184)    (5,001)
FINANCING ACTIVITIES
Proceeds from long-term debt issuances......................     6,345        739
Retirement of long-term debt................................      (130)    (1,007)
Issuance of convertible preferred securities and warrants...     9,811         --
Redemption of redeemable securities.........................        --       (152)
Issuance of AT&T common shares..............................        61         --
Issuance of AT&T Wireless Group common shares...............        31         --
Net issuance (acquisition) of treasury shares...............        15       (393)
Dividends paid on common stock..............................      (141)      (703)
Dividends paid on preferred securities......................       (22)       (97)
(Decrease) increase in short-term borrowings, net...........   (14,715)     3,179
Other financing activities, net.............................         1        (15)
NET CASH PROVIDED BY FINANCING ACTIVITIES...................     1,256      1,551
Net increase (decrease) in cash and cash equivalents........        10       (922)
Cash and cash equivalents at beginning of year..............       126      1,024
Cash and cash equivalents at end of period..................  $    136    $   102
</TABLE>

    The notes are an integral part of the consolidated financial statements.
                                        5
<PAGE>   7

                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

(a) BASIS OF PRESENTATION

     The consolidated financial statements have been prepared by AT&T Corp.
(AT&T) pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of management, include all adjustments
necessary for a fair statement of the consolidated results of operations,
financial position and cash flows for each period presented. The consolidated
results for interim periods are not necessarily indicative of results for the
full year. These financial results should be read in conjunction with AT&T's
Form 10-K405/A for the year ended December 31, 2000, which includes the
financial statements of AT&T Wireless Group and Liberty Media Group, and the
financial statements of Liberty Media Group and AT&T Wireless Group for the
quarter ended March 31, 2001, included as Exhibit 99.1 and 99.2, respectively,
to this AT&T quarterly report on Form 10-Q.

     We have reclassified certain prior period amounts to conform with our
current presentation. In addition, we restated prior year share and per share
amounts to reflect the June 2000 two-for-one split of Liberty Media Group common
stock.

(b) RESTRUCTURING OF AT&T

     On October 25, 2000, AT&T announced a restructuring plan designed to fully
separate or issue separately tracked stocks intended to reflect the financial
performance and economic value of each of AT&T's four major operating units.
Upon completion of the plan, AT&T Wireless, AT&T Broadband, AT&T Business and
AT&T Consumer will all be represented by asset-based or tracking stocks.

     As part of the first phase of the restructuring plan, on April 18, 2001,
AT&T announced details of an offer to exchange shares of AT&T common stock for
shares of AT&T Wireless Group tracking stock. On the same date, AT&T Wireless
Services, Inc., filed its initial registration statement in connection with the
planned split-off. Under the terms of the exchange offer, AT&T will issue 1.176
shares of AT&T Wireless Group tracking stock in exchange for each share of AT&T
common stock validly tendered and not withdrawn, subject to specified
conditions. Following the exchange offer and subject to receipt of specific
conditions, AT&T plans to split-off AT&T Wireless Group from AT&T. AT&T intends
to retain up to $3 billion of AT&T Wireless shares for future sale, exchange or
monetization within six months following the split-off. We expect AT&T Wireless
will become an independent, publicly-held company in mid-2001, upon receipt of
appropriate tax and other approvals.

     In addition to the split-off of AT&T Wireless, we intend to fully separate
or issue separate tracking stocks to reflect the financial performance and
economic value of each of our other major business units. We plan to create and
issue new classes of stock to track the financial performance and economic value
of our AT&T Broadband unit and AT&T Consumer unit. We plan to sell some
percentage of shares of the AT&T Broadband unit in the fall of 2001. Within 12
months of such sale, we intend to completely separate AT&T Broadband from AT&T,
as an asset-based stock. The AT&T Consumer tracking stock is expected to be
fully distributed to AT&T shareowners in the second half of 2001.

     AT&T expects that these transactions will be tax-free to U.S. shareholders.
AT&T's restructuring plan is complicated and involves a substantial number of
steps and transactions, including obtaining various conditions, such as Internal
Revenue Service rulings. In addition, future financial conditions, superior
alternatives or other factors may arise or occur that make it inadvisable to
proceed with part or all of AT&T's restructuring plans. Any or all of the
elements of AT&T's restructuring plan may not occur as we currently expect or in
the time frames that we currently contemplate, or at all. Alternative forms of
restructuring, including sales of interests in these businesses, would reduce
what is available for distribution to shareholders in the restructuring.

                                        6
<PAGE>   8
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     On April 11, 2001, the Internal Revenue Service ruled that the proposed
split-off of Liberty Media Corporation, which will own all of the assets
reflected in the Liberty Media Group (LMG), qualifies as a tax-free transaction
for AT&T, Liberty Media and their shareowners. AT&T acquired Liberty Media
through the acquisition of Tele-Communications, Inc. (TCI). AT&T does not have a
controlling financial interest for financial accounting purposes in LMG;
therefore, our investment in LMG is accounted for under the equity method in the
accompanying consolidated financial statements. The amounts attributable to LMG
are reflected as separate line items "Equity earnings (losses) from Liberty
Media Group" and "Investment in Liberty Media Group and related receivables,
net," in the accompanying consolidated financial statements.

     By mid-2001, AT&T plans to convert the LMG tracking stock into an
asset-based security and launch Liberty Media Corporation as an independent,
publicly-traded company.

(c) MERGER WITH MEDIAONE, INC (MEDIAONE)

     On June 15, 2000, AT&T completed a merger with MediaOne Group, Inc.
(MediaOne) in a cash and stock transaction valued at approximately $45 billion.
For each share of MediaOne stock, MediaOne shareowners received, in the
aggregate, 0.95 of a share of AT&T common stock and $36.27 per share in cash,
consisting of $30.85 per share as stipulated in the merger agreement and $5.42
per share based on AT&T's stock price preceding the merger, which was below a
predetermined amount. AT&T issued approximately 603 million shares of common
stock in the transaction, of which approximately 60 million were treasury
shares. The AT&T shares had an aggregate market value of approximately $21
billion and cash payments totaled approximately $24 billion.

     The merger was accounted for under the purchase method. Accordingly, the
results of MediaOne have been included in the accompanying consolidated
financial statements since the date of acquisition as part of our Broadband
segment.

     Approximately $16 billion of the purchase price of $45 billion has been
attributed to agreements with local franchise authorities that allow access to
homes in our broadband service areas ("franchise costs") and is being amortized
on a straight-line basis over 40 years. Also included in the purchase price was
approximately $23 billion related to nonconsolidated investments, including
investments in Time Warner Entertainment Company, L.P. (TWE) and Vodafone Group
plc (Vodafone), approximately $5 billion related to property, plant and
equipment, and approximately $6 billion of other net assets. In addition,
included was approximately $14 billion in deferred income tax liabilities,
approximately $10 billion attributable to MediaOne debt, and approximately $1
billion of minority interest in Centaur Funding Corporation, a subsidiary of
MediaOne. The purchase resulted in goodwill of approximately $20 billion, which
is being amortized on a straight-line basis over 40 years.

                                        7
<PAGE>   9
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

PRO FORMA RESULTS

     Following is a summary of the pro forma results of AT&T as if the merger
with MediaOne had closed effective January 1, 2000:

<TABLE>
<CAPTION>
SHARES IN MILLIONS
FOR THE THREE MONTHS ENDED MARCH 31,                             2000
------------------------------------                          -----------
                                                              (UNAUDITED)
<S>                                                           <C>
Revenue.....................................................    $16,607
Net income..................................................      3,505
Weighted-average AT&T common shares.........................      3,788
Weighted-average AT&T common shares and potential common
  shares....................................................      3,863
Weighted-average Liberty Media Group Shares.................      2,563
AT&T Common Stock Group (losses) earnings per common share:
  Basic.....................................................    $  0.68
  Diluted...................................................    $  0.67
Liberty Media Group earnings (losses) per common share:
  Basic and diluted.........................................    $  0.37
</TABLE>

     Pro forma data may not be indicative of the results that would have been
obtained had these events actually occurred at the beginning of the periods
presented, nor does it intend to be a projection of future results.

(d) OTHER ACQUISITIONS, EXCHANGES AND DISPOSITIONS

COX AND COMCAST

     On January 12, 2001, AT&T announced that Cox Communications, Inc. and
Comcast Corporation had exercised their rights to sell a combined total of 60.4
million shares of Excite@Home Series A common stock to AT&T as part of an
agreement announced in August 2000 to reorganize Excite@Home's governance. Cox
and Comcast elected to receive shares of AT&T common stock in exchange for their
Excite@Home shares. AT&T is currently in discussions to renegotiate the terms of
the put options which may result in a change to the number of shares of AT&T
stock that Cox and Comcast will receive, as well as the number of Excite@Home
shares, if any, AT&T receives. There can be no assurance that an agreement will
be reached with Cox and Comcast.

CABLEVISION

     On January 8, 2001, AT&T and Cablevision Systems Corporation (Cablevision)
completed agreements for the transfer of cable-systems. AT&T received
cable-systems serving 358 thousand subscribers in Boston and Eastern
Massachusetts. In exchange, Cablevision received cable-systems serving
approximately 130 thousand subscribers in northern New York suburbs, and 44
million shares of AT&T common stock valued at approximately $0.9 billion, and
approximately $0.2 billion in cash. Cablevision recorded a gain as a result of
the transaction. Due to AT&T's ownership interest in Cablevision, AT&T recorded
an after-tax gain of approximately $0.1 billion as part of "Net losses from
other equity investments."

INSIGHT COMMUNICATIONS COMPANY LP

     Effective January 1, 2001, AT&T sold to Insight Communications Company LP
(Insight) several Illinois cable-systems serving approximately 98 thousand
customers for $392. Insight subsequently contributed the purchased cable-system
and additional cable-systems serving approximately 177 thousand customers to

                                        8
<PAGE>   10
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

Insight Midwest L.P. in which AT&T has a 50% interest. AT&T also contributed
entities owning cable-systems serving approximately 248 thousand customers in
Illinois to Insight Midwest L.P. The transactions resulted in pretax gains of
$179, which were deferred due to a keep well agreement with Insight Midwest,
L.P.

(e) NET RESTRUCTURING AND OTHER CHARGES

     During the first quarter of 2001, AT&T recorded $808 of net restructuring
and other charges, which included $739 of asset impairment charges related to
Excite@Home, and $69 for restructuring and exit costs which consisted of $59 for
cash severance costs, $6 related to facility closings and $4 related to
termination of lease obligations.

     The asset impairment charges included $600 recorded by Excite@Home
associated with goodwill impairment of various acquisitions, primarily Excite,
and a related goodwill impairment charge of $139 recorded by AT&T associated
with its acquisition goodwill of Excite@Home. The impairment resulted from the
continued weakness of the online media market that Excite@Home operates in.
Since we consolidate, but only own approximately 23% of Excite@Home, 77% of the
charge recorded by Excite@Home was not included as a reduction to AT&T's net
income, but rather eliminated in our March 31, 2001 Consolidated Statement of
Income as "Minority interest income (expense)."

     The $59 of cash severance costs were primarily a result of synergies
created by the MediaOne merger related to approximately 2,350 employees.
Approximately 10% of the individuals were management employees and 90% were
non-management employees. Nearly 88% of the affected employees have left their
positions as of March 31, 2001, and the remaining employees will leave the
company by the end of 2001.

     In the second quarter of 2001, we expect to incur additional restructuring
charges resulting from MediaOne synergies and work force reductions at
Excite@Home.

     The following table displays the activity and balances of the restructuring
reserve account from January 1, 2001, to March 31, 2001:

                                  TYPE OF COST

<TABLE>
<CAPTION>
                                                  EMPLOYEE      FACILITY
                                                 SEPARATIONS    CLOSINGS    OTHER    TOTAL
                                                 -----------    --------    -----    -----
<S>                                              <C>            <C>         <C>      <C>
Balance at January 1, 2001.....................     $ 259         $173       $36     $ 468
Additions......................................        59            6         4        69
Deductions.....................................      (108)         (14)        0      (122)
Balance at March 31, 2001......................     $ 210         $165       $40     $ 415
</TABLE>

     Deductions reflect cash payments of $108 related to employee separations
and $14 related to facilities. The cash outlay was primarily funded through cash
from operations.

     During the first quarter of 2000, AT&T recorded $773 of net restructuring
and other charges, which included $682 for restructuring and exit costs
associated with AT&T's initiative to reduce costs by the end of 2000, and $91
related to the government-mandated disposition of AT&T Communications (U.K.)
Ltd., which would have competed directly with Concert.

     Included in restructuring and exit costs was $458 of cash termination
benefits associated with the involuntary separation of approximately 6,200
employees. Approximately half of the individuals were management employees and
half were non-management employees. Nearly 60% of the affected employees have
left their positions as of March 31, 2001, and the remaining employees will
leave the company during 2001.
                                        9
<PAGE>   11
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     We also recorded $62 of network lease and other contract termination costs
associated with penalties incurred as part of notifying vendors of the
termination of these contracts during the quarter.

     Also included in restructuring and exit costs was $144 of benefit
curtailment costs associated with employee separations as part of these exit
plans. We also recorded an asset impairment charge of $18 related to the
write-down of unrecoverable assets in certain businesses in which the carrying
value is no longer supported by future cash flows.

(f) EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE

     (Losses) earnings attributable to the different classes of AT&T common
stock is as follows:

<TABLE>
<CAPTION>
                                             AT&T COMMON           AT&T          LIBERTY
                                             STOCK GROUP      WIRELESS GROUP   MEDIA GROUP
                                           ----------------   --------------   ------------
FOR THE THREE MONTHS ENDED MARCH 31,        2001      2000    2001     2000    2001    2000
------------------------------------       -------   ------   -----    -----   -----   ----
<S>                                        <C>       <C>      <C>      <C>     <C>     <C>
(Losses) income before cumulative effect
  of accounting change...................  $  (544)  $1,741   $ (7)    $ --    $(697)  $942
Cumulative effect of accounting change...      359       --     --       --      545     --
Net (losses) income......................     (185)   1,741     (7)      --     (152)   942
Dividend requirements of preferred
  stock..................................      181       --     --       --       --     --
Net (losses) income available to common
  shareowners............................  $  (366)  $1,741   $ (7)    $ --    $(152)  $942
</TABLE>

     Basic (losses) earnings per share for AT&T Common Stock Group for the three
months ended March 31, 2001 and 2000, were computed by dividing AT&T Common
Stock Group (losses) income by the weighted-average number of shares outstanding
during the period of 3,805 million and 3,185 million, respectively.

     Since AT&T recorded losses for the three months ended March 31, 2001,
diluted losses per share are the same as basic, as any potentially dilutive
securities would be antidilutive. Diluted earnings per share (EPS) for AT&T
Common Stock Group for the three months ended March 31, 2000, was computed by
dividing AT&T Common Stock Group income, adjusted for the conversion of
securities, by the weighted-average number of shares and dilutive potential
shares outstanding during the period, assuming conversion of the potential
shares at the beginning of the periods presented. Shares issuable upon
conversion of preferred stock of subsidiaries, convertible debt securities of a
subsidiary, stock options and other performance awards have been included in the
diluted calculation of weighted-average shares to the extent that the assumed
issuance of such shares would have been dilutive, as illustrated below.

     The convertible quarterly income preferred securities were antidilutive and
were excluded from the computation of diluted EPS. Computed on a quarterly
basis, the dividends would have an after-tax impact to earnings of approximately
$40. Assuming conversion of the securities, the dividends would no longer have
to be included as a reduction to net income and the securities would convert
into approximately 67 million shares of AT&T common stock. There were seven
million potentially dilutive AT&T securities outstanding at March 31, 2001.

                                        10
<PAGE>   12
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     A reconciliation of the income and share components for diluted EPS
calculations with respect to AT&T Group is as follows:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,                           2000
------------------------------------                          ------
<S>                                                           <C>
AT&T Common Stock Group:
Income......................................................  $1,741
Income impact of assumed conversion of preferred stock of
  subsidiary................................................       8
Income adjusted for conversion of securities................  $1,749
Shares in millions Weighted-average common shares...........   3,185
Stock options...............................................      31
Preferred stock of subsidiary...............................      40
Weighted-average common shares and potential common
  shares....................................................   3,256
</TABLE>

     Basic losses per share for AT&T Wireless Group for the quarter ended March
31, 2001 was computed by dividing the AT&T Wireless Group losses by the
weighted-average number of shares outstanding of AT&T Wireless Group of 363
million. Since AT&T Wireless Group recorded losses for the three months ended
March 31, 2001, diluted losses per share are the same as basic, as any
potentially dilutive securities would be antidilutive. There were 311 million
potentially dilutive AT&T Wireless securities (including NTT DoCoMo convertible
preferred stock) outstanding at March 31, 2001.

     Basic (losses) income per share for LMG were computed by dividing the LMG
(losses) income by the weighted-average number of shares outstanding of LMG of
2,574 million and 2,563 million, for the three months ended March 31, 2001 and
2000, respectively. Potentially dilutive securities, including fixed and
nonvested performance awards and stock options, have not been factored into the
dilutive calculations because past history has indicated that these contracts
are generally settled in cash. There were 99 million of these potentially
dilutive securities outstanding at March 31, 2000. Since LMG recorded losses for
the three months ended March 31, 2001, diluted losses per share are the same as
basic, as any potentially dilutive securities would be antidilutive. There were
101 million potentially dilutive LMG securities outstanding at March 31, 2001.

(g) LONG-TERM DEBT

     On March 6, 2001, AT&T Wireless Services (AWS), a wholly-owned subsidiary
of AT&T, completed a private placement of $6.5 billion in unsecured and
unsubordinated Senior Notes. The notes pay interest semi-annually at rates
ranging from 7.35% to 8.75% per annum, with maturity dates ranging from 2006 to
2031. The notes include customary covenants and registration rights.

     Also, on March 23, 2001, AWS entered into $2.5 billion in revolving credit
facilities. The facilities consist of a 364-day facility of $1.25 billion and a
five-year revolving credit facility of $1.25 billion. The facilities are subject
to a facility fee ranging from 8 to 30 basis points, payable quarterly on the
total commitment, used or unused. The facility fees are based on the respective
agreement and will fluctuate based on AT&T Wireless Group's Senior Note rating.
The facilities are also subject to a utilization fee of 12.5 basis points if
borrowings exceed certain levels as defined in the agreement. The facilities
bear interest at variable rates based upon, in various cases, LIBOR plus 32.5 to
100 basis points depending on (i) AT&T Wireless Group's Senior Notes rating, or
(ii) the greater of the prime rate or the Federal funds effective rate plus 50
basis points. The facilities are to be used for general corporate purposes and
are subject to customary covenants, representations and warranties, and events
of default. The facilities were unused at March 31, 2001.

     As a result of the issuance of notes by AWS, the investment by NTT DoCoMo,
and the sale of Japan Telecom, AT&T's $25 billion credit facility was reduced to
$17.5 billion.

                                        11
<PAGE>   13
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

(h) CONVERTIBLE PREFERRED STOCK

     On January 22, 2001, NTT DoCoMo invested approximately $9.8 billion for
812,511.778 shares of a new class of AT&T preferred stock with a par value of $1
per share; and five-year warrants to purchase the equivalent of an additional
41.7 million shares of AT&T Wireless Group tracking stock at $35 per share. The
$9.8 billion proceeds were recorded as $9.2 billion for preferred shares, $0.3
billion for the warrants, and $0.3 billion for the beneficial conversion
feature, based on their relative fair values. The preferred shares are
economically equivalent to 406 million shares (a 16 percent interest) of AT&T
Wireless Group tracking stock. These shares will convert to AT&T Wireless common
stock at the time of split-off. Upon conversion, AT&T will reduce its portion of
the financial performance and economic value in the AT&T Wireless Group by 178
million shares, and the balance of the 406 million shares will come from the
issuance of 228 million new shares of AT&T Wireless Group tracking stock.

     In the event that AT&T has not split-off AT&T Wireless by specified dates
beginning January 1, 2002, DoCoMo will have the right, at its election, to
require AT&T to repurchase the preferred shares at NTT DoCoMo's original
purchase price plus a carrying cost of approximately 7% up to date of payment.
In addition to the approximate 7% carrying cost we accrue on the DoCoMo
convertible preferred stock, there is an intrinsic value embedded in the
conversion feature of the preferred stock that is accreted over the period that
DoCoMo can put the shares back to us. This intrinsic value, referred to as the
beneficial conversion feature, represents the difference in the fair value
assigned to the preferred stock and the fair market value equivalent of the
Wireless tracking stock. The total of the carrying costs and the accretion of
the beneficial conversion feature was $0.2 billion and is treated as a preferred
stock dividend recorded as a reduction of AT&T Common Stock Group earnings. At
March 31, 2001, the preferred stock had a liquidation value of $9.4 billion.

(i) RELATED PARTY TRANSACTIONS

     AT&T has various related party transactions with Concert since the
commencement of this global venture in January 2000.

     Included in revenue for the first quarter of 2001 and 2000, was $0.3
billion for services provided to Concert.

     Included in access and other connection expenses are charges from Concert
representing costs incurred on our behalf to connect calls made to foreign
countries (international settlements) and costs paid by AT&T to Concert for
distributing Concert products. Such charges totaled $0.5 billion and $0.6
billion, for the three months ended March 31, 2001 and March 31, 2000,
respectively.

     During the first quarter of 2000, AT&T loaned $1.0 billion to Concert; that
loan is included within investments and related advances in the accompanying
Consolidated Balance Sheets. Interest income of $17 and $13, were recognized for
the quarters ended March 31, 2001 and 2000, respectively.

     At March 31, 2001, AT&T had a floating rate loan from Concert due on demand
in the amount of $0.1 billion. The loan is included in "Debt maturing within one
year" in the accompanying Consolidated Balance Sheets. Interest expense was $2
for the quarter ended March 31, 2001.

     Included in accounts receivable and accounts payable was $0.4 billion and
$0.1 billion, and $0.5 billion and $0.5 billion, at March 31, 2001 and December
31, 2000, respectively, related to transactions with Concert. Included in other
receivables and other current liabilities was $0.9 billion and $1.1 billion, and
$1.1 billion and $1.0 billion, at March 31, 2001 and December 31, 2000,
respectively, related to transactions associated with Concert.

                                        12
<PAGE>   14
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     In addition, we had various related party transactions with LMG. Included
in costs of services and products were programming expenses related to services
from LMG. Those expenses amounted to $82 and $52 for the three months ended
March 31, 2001 and 2000, respectively.

     Included in "Other current liabilities" at March 31, 2001 was $25 payable
to LMG. Included in "Investment in Liberty Media Group and related receivables,
net" was $155 receivable from LMG at December 31, 2000. These amounts primarily
related to taxes pursuant to a tax-sharing agreement between LMG and Broadband.
That agreement existed prior to the TCI merger.

(j) STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133 "ACCOUNTING FOR
    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"

     Effective January 1, 2001, AT&T adopted Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and its corresponding amendments under SFAS No. 138. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. All derivatives, whether designated in hedging relationships
or not, are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are recognized in the income
statement when the hedged item affects earnings. Changes in fair values of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges, if any, are recognized in earnings in the current period.

     The adoption of SFAS No. 133 on January 1, 2001, resulted in a pretax
cumulative-effect increase to income of $1.5 billion ($0.9 billion net-of-tax).
$0.6 billion ($0.4 billion net-of-tax) and $0.9 billion ($0.5 billion
net-of-tax) were attributable to AT&T Group and Liberty Media Group,
respectively.

AT&T GROUP

     AT&T Group's cumulative-effect increase to net income of $0.4 billion was
attributable primarily to equity based derivative instruments embedded in
indexed debt instruments and warrants held in both public and private companies.

     Included in the after tax cumulative effect benefit of $0.4 billion, was a
$0.2 billion benefit for the separation of embedded derivative instruments from
the indexed debt instruments and $0.2 billion benefit for changes in the fair
value of warrants. Additionally within the cumulative effect of adoption, AT&T
Group recorded a gain for amounts previously recorded within accumulated OCI on
the indexed debt obligations that had been considered a hedge of Comcast,
Microsoft and Vodaphone available for sale securities. This gain has been offset
with the related loss on the securities which had previously been recorded in
accumulated OCI. These offsetting transition adjustments had no net impact on
the cumulative effect benefit.

     In addition, the adoption of SFAS No. 133 also resulted in a cumulative
pretax charge to OCI of $10 ($6 net-of-tax) on cash flow hedges. The net
derivative losses included in OCI as of January 1, 2001 will be reclassified
into earnings over the life of the instruments, of which the last expires in
February of 2005.

                                        13
<PAGE>   15
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     Upon adoption, AT&T Group, as permitted by SFAS 133, also reclassified $9.3
billion of securities from "available-for-sale" to "trading". This
reclassification resulted in a pretax charge of $1.2 billion ($0.7 billion
net-of-tax) recorded in other income. This $0.7 billion represents the net
revaluation of securities to fair market value which was accounted for in OCI
prior to the adoption of SFAS 133.

FOREIGN CURRENCY RISK

     We enter into foreign currency exchange contracts, including forward and
option contracts, to manage our exposure to changes in currency exchange rates
related to foreign-currency-denominated transactions. In first quarter 2001,
this consisted primarily of Brazilian reais, Swiss francs and Canadian dollar
related to debt.

COLLARS AND EQUITY SECURITIES PRICE RISK

     We enter into option agreements to hedge our exposure on debt that is
collateralized by securities we own. From time to time, AT&T Group uses options
and collars to manage the risk from changes in fair values and cash flows on
certain equity securities, primarily on those being used to collateralize
underlying debt instruments. The securities selected for hedging are determined
by market conditions, up-front costs, and other relevant factors. Once
established, the hedges are not dynamically managed or traded, and are generally
not removed until maturity of the option contracts.

INTEREST RATE SWAP AGREEMENTS

     We enter into interest rate swaps to manage our exposure to changes in
interest rates and to lower our overall costs of financing. We enter into swap
agreements to manage the fixed/floating mix of our debt portfolio in order to
reduce aggregate risk to interest rate movements. Interest rate swaps also allow
us to raise funds at floating rates and effectively swap them into fixed rates
that are lower than those available to us if fixed-rate borrowings were made
directly. These agreements involve the exchange of floating-rate for fixed-rate
payments, fixed-rate for floating-rate payments or floating-rate for other
floating-rate payments without the exchange of the underlying principal amount.

OTHER DERIVATIVES

     In addition, AT&T Group may hold warrants to purchase securities of other
companies. Warrants that can be net share settled are deemed derivative
financial instruments and are generally not eligible to be designated as hedging
instruments as there is no corresponding underlying exposure. This includes
warrants held in both public and private companies.

     Hedge ineffectiveness, determined in accordance with SFAS 133, had no
impact on earnings for the three months ended March 31, 2001. No fair value
hedges or cash flow hedges were derecognized or discontinued for the three
months ended March 31, 2001.

     For the three months ended March 31, 2001, other income included a total
pretax gain of $735, comprised of a $664 gain for changes in the value of
options for fair value hedges and $71 net gain for changes in the fair value of
warrants, swaps and foreign currency transactions. We also recorded a pretax
loss of $524 in other income for trading securities related to FAS 133
instruments.

     Derivative gains and losses included in OCI are reclassified into earnings
at the time the forecasted transaction is recognized. During the three months
ended March 31, 2001, no gains or losses were reclassified to income. We
reclassified $14 pretax from OCI to interest expense related to amortization of
interest for prepaid interest rate swaps.

                                        14
<PAGE>   16
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

LIBERTY MEDIA GROUP (LMG)

     LMG's cumulative-effect increase to income of $0.5 billion was attributable
primarily to separately recording the embedded call option obligations
associated with LMG's senior exchangeable debentures. Also included in the
cumulative-effect was $87 previously included in OCI related primarily to
changes in the fair value of LMG's warrants and options to purchase certain
available-for-sale securities.

DERIVATIVE INSTRUMENTS

     LMG uses various derivative instruments including equity collars, put
spread collars, interest rate swaps and forward foreign exchange contracts to
manage fair value risk associated with certain investments, interest rate risk
on certain indebtedness, and foreign exchange rate risk. Derivative instruments
are generally not used for speculative purposes. The derivative instruments may
involve elements of credit and market risk in excess of amounts recognized in
the financial statements. LMG monitors its positions and the credit quality of
counter-parties, consisting primarily of major financial institutions, and do
not anticipate nonperformance by any counter-party.

     For derivatives designed either as fair value or cash flow hedges, changes
in the time value of the derivatives are excluded from the assessment of hedge
effectiveness and are recognized in earnings. Hedge ineffectiveness, determined
in accordance with SFAS No. 133, had no impact on LMG's earnings for the three
months ended March 31, 2001. No fair value hedges or cash flow hedges were
derecognized or discontinued during the three months ended March 31, 2001.

(k) COMMITMENTS

     AT&T has entered into various purchase commitments for wireless network
equipment and handsets. The commitments totaled $2.2 billion as of March 31,
2001. These commitments expire between 2001 and 2004.

     AT&T has committed to provide funding to a joint venture with other
investors, Alaska Native Wireless (ANW), which was formed in November 2000 to
participate in the Federal Communication Commission's license spectrum auction.
The auction concluded in January 2001 and ANW was the highest bidder on
approximately $2.9 billion in licenses. AT&T has committed to fund approximately
$2.6 billion to ANW to fund ANW's purchase of licenses. As of March 31, 2001,
AT&T Wireless Group funded approximately $309 of the commitment and has
committed to provide the remaining approximate $2.3 billion when such licenses
are granted.

(l) SEGMENT REPORTING

     AT&T's results are segmented according to the way we manage our business:
Business Services, Consumer Services, Wireless Services and Broadband. In
connection with our corporate restructuring program set forth in late 2000, our
existing segments reflect certain managerial changes since the publication of
our 2000 annual results. The changes are as follows: The Business Services
segment was expanded to include the results of international operations and
ventures. In addition, certain corporate costs that were previously recorded
within the Corporate and Other Group have been allocated to the respective
segments in an effort to ultimately have the results of these businesses reflect
all direct corporate costs as well as overhead for shared services. All prior
period results have been restated to reflect these changes. Total assets for our
reportable segments generally include all asset, except intercompany
receivables. However, our Wireless Services Segment included intercompany
receivables from AT&T and the related interest income since these assets relate
to the results of the AT&T Wireless Group tracked businesses.

                                        15
<PAGE>   17
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

     Reflecting the dynamics of our business, we continuously review our
management model and structure, which may result in additional adjustments to
our operating segments in the future. In addition, when we create tracking
stocks for our Consumer and Broadband units, we will begin allocating 'pure'
corporate overhead to these units. See note (b) for further detail on our
restructuring plan.

REVENUE

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,                        2001       2000
------------------------------------                       -------    -------
<S>                                                        <C>        <C>
  Business services external revenue.....................  $ 6,940    $ 7,094
  Business services internal revenue.....................      228        158
Total Business Services revenue..........................    7,168      7,252
Consumer Services external revenue.......................    4,007      5,037
Wireless Services external revenue.......................    3,212      2,198
  Broadband external revenue.............................    2,461      1,557
  Broadband internal revenue.............................        4          0
Total Broadband revenue..................................    2,465      1,557
  Total reportable segments..............................   16,852     16,044
Corporate and Other(a)...................................      (89)      (143)
Total revenue............................................  $16,763    $15,901
</TABLE>

---------------
(a) Includes $143 Excite@Home revenue in first quarter 2001.

RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO INCOME BEFORE
INCOME TAXES

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,                         2001       2000
------------------------------------                        -------    ------
<S>                                                         <C>        <C>
Business services.........................................  $ 1,018    $1,146
Consumer services.........................................    1,318     1,658
Wireless services.........................................      118       111
Broadband.................................................     (508)      236
  Total reportable segments...............................    1,946     3,151
Corporate and Other(a)....................................   (1,424)     (453)
Deduct: Pretax minority interest income (expense).........      563       (70)
Add: Pretax losses from other equity investments..........      237       302
Interest expense..........................................      969       589
  Total (losses) income before income taxes...............  $  (773)   $2,481
</TABLE>

---------------
(a) Includes $(272) and $(269) related to Excite@Home in the first quarter of
    2001 and 2000, respectively. The Excite@Home EBIT impact for the first
    quarter 2001, includes approximately $278 of asset impairment charges.

                                        16
<PAGE>   18
                          AT&T CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)

ASSETS

<TABLE>
<CAPTION>
                                                        AT MAR. 31,    AT DEC. 31,
                                                           2001           2000
                                                        -----------    -----------
<S>                                                     <C>            <C>
Business services.....................................   $ 42,562       $ 42,747
Consumer services.....................................      2,768          3,150
Wireless services.....................................     46,930         35,184
Broadband.............................................    114,191        114,848
  Total reportable segments...........................    206,451        195,929
Corporate and Other:
  Other segments......................................      1,161          1,174
  Prepaid pension costs...............................      3,092          3,003
  Deferred income taxes...............................        388            406
  Other corporate assets(a)...........................     (4,023)         7,421
Investment in Liberty Media Group and related
  receivables, net....................................     34,072         34,290
Total assets..........................................   $241,141       $242,223
</TABLE>

---------------
(a) Includes $1,705 and $2,541 related to Excite@Home at March 31, 2001 and
    December 31, 2000, respectively.

(m) GUARANTEE OF PREFERRED SECURITIES

TCI SECURITIES:

     Prior to the consummation of the TCI merger, TCI issued mandatorily
redeemable preferred securities through subsidiary trusts that held subordinated
debt securities of TCI. At March 31, 2001, $1,245 of the guaranteed redeemable
preferred securities remained outstanding.

MEDIAONE SECURITIES:

     Prior to the consummation of the MediaOne merger, MediaOne issued
mandatorily redeemable preferred securities through subsidiary trusts that held
subordinated debt securities of MediaOne. At March 31, 2001, $776 of the
guaranteed redeemable preferred securities remained outstanding.

     AT&T provides a full and unconditional guarantee on the outstanding
securities issued by TCI Communications Financing I, II and IV and the
outstanding securities issued by MediaOne Financing I and II and MediaOne
Finance II and III. The following are the condensed consolidating financial
statements of AT&T Corp., which include the financial results of TCI and
MediaOne for each of the corresponding periods. The results of MediaOne have
been included in the financial results of AT&T since the date of acquisition on
June 15, 2000, and the results of TCI have been included since the March 9,
1999, date of acquisition.

                                        17
<PAGE>   19

                                   AT&T CORP.

                   CONSOLIDATING CONDENSED INCOME STATEMENTS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                         GUARANTOR   GUARANTOR    GUARANTOR       TCI         TCI         TCI      MEDIAONE
                                           AT&T      SUBSIDIARY   SUBSIDIARY   FINANCING   FINANCING   FINANCING   FINANCING
                                          PARENT        TCI        MEDIAONE        I          II          IV           I
                                         ---------   ----------   ----------   ---------   ---------   ---------   ---------
<S>                                      <C>         <C>          <C>          <C>         <C>         <C>         <C>
Revenue................................   $4,975      $    --       $  --         $--         $--         $--         $--
Operating Expenses
Costs of services and products.........      855
Access and other connection............    1,682
Selling, general and administrative....      467          (46)          4
Depreciation and other amortization....      404           13           1
Amortization of goodwill, franchise
 costs and other purchased
 intangibles...........................       23                      125
Net restructuring and other charges....
Total operating expenses...............    3,431          (33)        130
Operating income (losses)..............    1,544           33        (130)
Other income (expense).................     (504)           1           2          11          12           4           1
Interest expense (benefit).............    1,319          478          88          11          12           4           1
Income (losses) before income taxes,
 minority interest and earnings
 (losses) from equity investments and
 cumulative effect of accounting
 change................................     (279)        (444)       (216)
Provision (benefit) for income taxes...     (114)        (228)        (23)
Minority interest income (expenses)....      (40)          (1)         (1)
Equity losses from Liberty Media
 Group.................................                  (697)
Net earnings (losses) from other equity
 investments...........................    1,759       (1,778)        (65)
Income (losses) before cumulative
 effect of accounting change...........    1,554       (2,692)       (259)
Cumulative effect of accounting
 change................................      508          545
Net income (losses)....................    2,062       (2,147)       (259)
Dividend requirements on preferred
 stock.................................      181
Net income (losses) available to common
 shareowners...........................   $1,881      $(2,147)      $(259)        $--         $--         $--         $--

<CAPTION>
                                         MEDIAONE    MEDIAONE    MEDIAONE                    ELIMINATION AND
                                         FINANCING    FINANCE     FINANCE    NON-GUARANTOR    CONSOLIDATION    CONSOLIDATED
                                            II          II          III      SUBSIDIARIES      ADJUSTMENTS      AT&T CORP.
                                         ---------   ---------   ---------   -------------   ---------------   ------------
<S>                                      <C>         <C>         <C>         <C>             <C>               <C>
Revenue................................     $--         $--         $--         $12,386          $  (598)        $16,763
Operating Expenses
Costs of services and products.........                                           4,523             (541)          4,837
Access and other connection............                                           1,660              (56)          3,286
Selling, general and administrative....                                           3,444               (1)          3,868
Depreciation and other amortization....                                           1,723                            2,141
Amortization of goodwill, franchise
 costs and other purchased
 intangibles...........................                                             698                              846
Net restructuring and other charges....                                             808                              808
Total operating expenses...............                                          12,856             (598)         15,786
Operating income (losses)..............                                            (470)                             977
Other income (expense).................       1           5          11             949           (1,274)           (781)
Interest expense (benefit).............       1           5          11             271           (1,232)            969
Income (losses) before income taxes,
 minority interest and earnings
 (losses) from equity investments and
 cumulative effect of accounting
 change................................                                             208              (42)           (773)
Provision (benefit) for income taxes...                                             657                              292
Minority interest income (expenses)....                                             692                              650
Equity losses from Liberty Media
 Group.................................                                                                             (697)
Net earnings (losses) from other equity
 investments...........................                                            (135)              83            (136)
Income (losses) before cumulative
 effect of accounting change...........                                             108               41          (1,248)
Cumulative effect of accounting
 change................................                                            (149)                             904
Net income (losses)....................                                             (41)              41            (344)
Dividend requirements on preferred
 stock.................................                                              42              (42)            181
Net income (losses) available to common
 shareowners...........................     $--         $--         $--         $   (83)         $    83         $  (525)
</TABLE>

                                        18
<PAGE>   20

                                   AT&T CORP.
                     CONSOLIDATING CONDENSED BALANCE SHEETS
                              AS OF MARCH 31, 2001
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>

                                          GUARANTOR   GUARANTOR    GUARANTOR       TCI         TCI         TCI      MEDIAONE
                                            AT&T      SUBSIDIARY   SUBSIDIARY   FINANCING   FINANCING   FINANCING   FINANCING
                                           PARENT        TCI        MEDIAONE        I          II          IV           I
                                          ---------   ----------   ----------   ---------   ---------   ---------   ---------
<S>                                       <C>         <C>          <C>          <C>         <C>         <C>         <C>
ASSETS
Cash and cash equivalents...............  $     --     $    --      $    --       $ --        $ --        $ --         $--
Other current assets....................    12,773       3,380          237
TOTAL CURRENT ASSETS....................    12,773       3,380          237
Property, plant & equipment, net........     9,066          86           22
Franchise costs, net....................     1,610          30
Goodwill, net...........................       158                   19,774
Investment in Liberty Media Group and
 related receivables, net...............                34,072
Other investments and related
 advances...............................   170,979      34,265       28,457
Other assets............................     7,123           1                     527         514         204          51
TOTAL ASSETS............................  $201,709     $71,834      $48,490       $527        $514        $204         $51
LIABILITIES
Debt maturing within one year...........  $ 49,335     $   383      $ 1,892       $ --        $ --        $ --         $--
Other current liabilities...............     9,371         941           96
TOTAL CURRENT LIABILITIES...............    58,706       1,324        1,988
Long-term debt..........................    20,811      30,292        2,355        527         514         204          30
Deferred income taxes...................       634                      230
Other long-term liabilities and deferred
 credits................................     7,317         982          189
TOTAL LIABILITIES.......................    87,468      32,598        4,762        527         514         204          30
Minority interest.......................                 1,461        1,149
Company-Obligated Convertible Quarterly
 Income Preferred Securities of
 Subsidiary Trust Holding Solely
 Subordinated Debt Securities of AT&T...     4,713
Convertible preferred stock.............     9,362
SHAREOWNERS' EQUITY
AT&T Common Stock.......................     4,225
AT&T Wireless Group common stock........       363
Liberty Media Group Class A
 Common Stock...........................     2,377
Liberty Media Group Class B
 Common Stock...........................       212
Other shareowners' equity...............    92,989      37,775       42,579                                             21
TOTAL SHAREOWNERS' EQUITY...............   100,166      37,775       42,579                                             21
TOTAL LIABILITIES AND SHAREOWNERS'
 EQUITY.................................  $201,709     $71,834      $48,490       $527        $514        $204         $51

<CAPTION>
                                                                                             ELIMINATION
                                          MEDIAONE    MEDIAONE   MEDIAONE                        AND
                                          FINANCING   FINANCE    FINANCE    NON-GUARANTOR   CONSOLIDATION   CONSOLIDATED
                                             II          II        III      SUBSIDIARIES     ADJUSTMENTS     AT&T CORP.
                                          ---------   --------   --------   -------------   -------------   ------------
<S>                                       <C>         <C>        <C>        <C>             <C>             <C>
ASSETS
Cash and cash equivalents...............     $--        $ --       $ --       $    136        $      --       $    136
Other current assets....................                                        64,383          (64,656)        16,117
TOTAL CURRENT ASSETS....................                                        64,519          (64,656)        16,253
Property, plant & equipment, net........                                        43,094               (3)        52,265
Franchise costs, net....................                                        46,284                          47,924
Goodwill, net...........................                                        10,593                          30,525
Investment in Liberty Media Group and
 related receivables, net...............
Other investments and related
 advances...............................                                        49,622         (249,036)        34,287
Other assets............................      44         230        516         29,296          (12,691)        25,815
TOTAL ASSETS............................     $44        $230       $516       $243,408        $(326,386)      $241,141
LIABILITIES
Debt maturing within one year...........     $--        $ --       $ --       $  7,396        $ (41,781)      $ 17,225
Other current liabilities...............                                        15,603           (8,792)        17,219
TOTAL CURRENT LIABILITIES...............                                        22,999          (50,573)        34,444
Long-term debt..........................      28         214        504         10,197          (26,672)        39,004
Deferred income taxes...................                                        35,801                          36,665
Other long-term liabilities and deferred
 credits................................                                           359              (79)         8,768
TOTAL LIABILITIES.......................      28         214        504         69,356          (77,324)       118,881
Minority interest.......................                                         1,612                           4,222
Company-Obligated Convertible Quarterly
 Income Preferred Securities of
 Subsidiary Trust Holding Solely
 Subordinated Debt Securities of AT&T...                                                                         4,713
Convertible preferred stock.............                                         3,000           (3,000)         9,362
SHAREOWNERS' EQUITY
AT&T Common Stock.......................                                          (416)                          3,809
AT&T Wireless Group common stock........                                                                           363
Liberty Media Group Class A
 Common Stock...........................                                                                         2,377
Liberty Media Group Class B
 Common Stock...........................                                                                           212
Other shareowners' equity...............      16          16         12        169,856         (246,062)        97,202
TOTAL SHAREOWNERS' EQUITY...............      16          16         12        169,440         (246,062)       103,963
TOTAL LIABILITIES AND SHAREOWNERS'
 EQUITY.................................     $44        $230       $516       $243,408        $(326,386)      $241,141
</TABLE>

                                        19
<PAGE>   21

                                   AT&T CORP.
                CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>

                                          GUARANTOR   GUARANTOR    GUARANTOR       TCI         TCI         TCI      MEDIAONE
                                            AT&T      SUBSIDIARY   SUBSIDIARY   FINANCING   FINANCING   FINANCING   FINANCING
                                           PARENT        TCI        MEDIAONE        I          II          IV           I
                                          ---------   ----------   ----------   ---------   ---------   ---------   ---------
<S>                                       <C>         <C>          <C>          <C>         <C>         <C>         <C>
NET CASH PROVIDED BY (USED IN) OPERATING
 ACTIVITIES.............................   $  (173)     $ 501        $(582)       $ --        $ --        $ --        $ --
INVESTING ACTIVITIES
Capital expenditures and other
 additions..............................      (254)        (6)          (1)
Other...................................      (692)      (739)         841
NET CASH (USED IN) PROVIDED BY INVESTING
 ACTIVITIES.............................      (946)      (745)         840
FINANCING ACTIVITIES
Proceeds from long-term debt
 issuances..............................                               187
Proceeds from debt from AT&T............       101        337
Issuance of convertible preferred
 securities and warrants................     9,811
Increase (decrease) in short-term
 borrowings, net........................    (9,911)       (50)        (445)
Other...................................     1,118        (43)
NET CASH PROVIDED BY (USED IN) FINANCING
 ACTIVITIES.............................     1,119        244         (258)
Net (decrease) increase in cash and cash
 equivalents............................
Cash and cash equivalents at beginning
 of year................................
Cash and cash equivalents at end of
 period.................................   $    --      $  --        $  --        $ --        $ --        $ --        $ --

<CAPTION>
                                                                                             ELIMINATION
                                          MEDIAONE    MEDIAONE   MEDIAONE                        AND
                                          FINANCING   FINANCE    FINANCE    NON-GUARANTOR   CONSOLIDATION   CONSOLIDATED
                                             II          II        III      SUBSIDIARIES     ADJUSTMENTS     AT&T CORP.
                                          ---------   --------   --------   -------------   -------------   ------------
<S>                                       <C>         <C>        <C>        <C>             <C>             <C>
NET CASH PROVIDED BY (USED IN) OPERATING
 ACTIVITIES.............................    $ --        $ --       $ --        $ 2,192         $    --        $  1,938
INVESTING ACTIVITIES
Capital expenditures and other
 additions..............................                                        (3,662)                         (3,923)
Other...................................                                        (3,525)          4,854             739
NET CASH (USED IN) PROVIDED BY INVESTING
 ACTIVITIES.............................                                        (7,187)          4,854          (3,184)
FINANCING ACTIVITIES
Proceeds from long-term debt
 issuances..............................                                         6,158                           6,345
Proceeds from debt from AT&T............                                          (337)           (101)
Issuance of convertible preferred
 securities and warrants................                                                                         9,811
Increase (decrease) in short-term
 borrowings, net........................                                           540          (4,849)        (14,715)
Other...................................                                        (1,356)             96            (185)
NET CASH PROVIDED BY (USED IN) FINANCING
 ACTIVITIES.............................                                         5,005          (4,854)          1,256
Net (decrease) increase in cash and cash
 equivalents............................                                            10                              10
Cash and cash equivalents at beginning
 of year................................                                           126                             126
Cash and cash equivalents at end of
 period.................................    $ --        $ --       $ --        $   136         $    --        $    136
</TABLE>

                                        20
<PAGE>   22

                                   AT&T CORP.

                   CONSOLIDATING CONDENSED INCOME STATEMENTS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                   GUARANTOR   GUARANTOR       TCI         TCI         TCI                      ELIMINATION AND
                                     AT&T      SUBSIDIARY   FINANCING   FINANCING   FINANCING   NON-GUARANTOR    CONSOLIDATION
                                    PARENT        TCI           I          II          IV       SUBSIDIARIES      ADJUSTMENTS
                                   ---------   ----------   ---------   ---------   ---------   -------------   ---------------
<S>                                <C>         <C>          <C>         <C>         <C>         <C>             <C>
Revenue..........................   $5,922       $  --         $--         $--         $--         $10,431          $  (452)
Operating Expenses
Costs of services and products...      742                                                           3,548             (375)
Access and other connection......    1,874                                                           1,789              (75)
Selling, general and
  administrative.................      664          28                                               2,599               (2)
Depreciation and other
  amortization...................      513          14                                               1,039
Amortization of goodwill,
  franchise costs and other
  purchased intangibles..........        8                                                             360
Net restructuring and other
  charges........................      663          16                                                  94
Total operating expenses.........    4,464          58                                               9,429             (452)
Operating income (losses)........    1,458         (58)                                              1,002
Other income (expense)...........      304                      9          10           4            1,195             (854)
Interest expense (benefit).......      956         354          9          10           4              110             (854)
Income (losses) before income
  taxes, minority interest and
  earnings (losses) from equity
  investments....................      806        (412)                                              2,087
Provision (benefit) for income
  taxes..........................      376         (66)                                                199
Minority interest income
  (expense)......................      (40)         (5)                                                  1
Equity earnings from Liberty
  Media Group....................                  942
Net earnings (losses) from other
  equity investments.............    1,702                                                            (186)          (1,703)
Net income (losses)..............   $2,092       $ 591         $--         $--         $--         $ 1,703          $(1,703)

<CAPTION>

                                   CONSOLIDATED
                                    AT&T CORP.
                                   ------------
<S>                                <C>
Revenue..........................    $15,901
Operating Expenses
Costs of services and products...      3,915
Access and other connection......      3,588
Selling, general and
  administrative.................      3,289
Depreciation and other
  amortization...................      1,566
Amortization of goodwill,
  franchise costs and other
  purchased intangibles..........        368
Net restructuring and other
  charges........................        773
Total operating expenses.........     13,499
Operating income (losses)........      2,402
Other income (expense)...........        668
Interest expense (benefit).......        589
Income (losses) before income
  taxes, minority interest and
  earnings (losses) from equity
  investments....................      2,481
Provision (benefit) for income
  taxes..........................        509
Minority interest income
  (expense)......................        (44)
Equity earnings from Liberty
  Media Group....................        942
Net earnings (losses) from other
  equity investments.............       (187)
Net income (losses)..............    $ 2,683
</TABLE>

                                        21
<PAGE>   23

                                   AT&T CORP.

                     CONSOLIDATING CONDENSED BALANCE SHEETS
                            AS OF DECEMBER 31, 2000
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                        GUARANTOR   GUARANTOR    GUARANTOR       TCI         TCI         TCI      MEDIAONE
                                          AT&T      SUBSIDIARY   SUBSIDIARY   FINANCING   FINANCING   FINANCING   FINANCING
                                         PARENT        TCI        MEDIAONE        I          II          IV           I
                                        ---------   ----------   ----------   ---------   ---------   ---------   ---------
<S>                                     <C>         <C>          <C>          <C>         <C>         <C>         <C>
ASSETS
Cash and cash equivalents.............  $     --     $    --      $    --       $ --        $ --        $ --         $--
Receivables...........................    11,424       2,577           78
Investments...........................
Deferred income taxes.................       811
Other current assets..................     1,103          11
TOTAL CURRENT ASSETS..................    13,338       2,588           78
Property, plant & equipment, net......     9,064          93           22
Franchise costs, net..................       838
Licensing costs, net..................                    30
Goodwill, net.........................       161                   19,786
Investment in Liberty Media Group and
 related receivables, net.............                34,290
Other investments and related
 advances.............................   164,844      35,358       29,325
Other assets..........................     5,500                                 528         514         204          51
TOTAL ASSETS..........................  $193,745     $72,359      $49,211       $528        $514        $204         $51
LIABILITIES
Debt maturing within one year.........  $ 52,556     $   435      $ 2,337       $ --        $ --        $ --         $--
Liability under put options...........
Other current liabilities.............     9,535       1,166           76
TOTAL CURRENT LIABILITIES.............    62,091       1,601        2,413
Long-term debt........................    21,333      30,096        2,168        528         514         204          30
Deferred income taxes.................       569                      230
Other long-term liabilities and
 deferred credits.....................     7,341         939          129
TOTAL LIABILITIES.....................    91,334      32,636        4,940        528         514         204          30
Minority interest.....................                 1,462        1,147
Company-Obligated Convertible
 Quarterly Income Preferred Securities
 of Subsidiary Trust Holding Solely
 Subordinated Debt Securities of
 AT&T.................................     4,710
SHAREOWNERS' EQUITY
AT&T Common Stock.....................     4,176
AT&T Wireless Group common stock......       362
Liberty Media Group Class A Common
 Stock................................     2,364
Liberty Media Group Class B Common
 Stock................................       206
Other shareowners' equity.............    90,593      38,261       43,124                                             21
TOTAL SHAREOWNERS' EQUITY.............    97,701      38,261       43,124                                             21
TOTAL LIABILITIES AND SHAREOWNERS'
 EQUITY...............................  $193,745     $72,359      $49,211       $528        $514        $204         $51

<CAPTION>
                                        MEDIAONE    MEDIAONE   MEDIAONE       NON-       ELIMINATION AND
                                        FINANCING   FINANCE    FINANCE     GUARANTOR      CONSOLIDATION    CONSOLIDATED
                                           II          II        III      SUBSIDIARIES     ADJUSTMENTS      AT&T CORP.
                                        ---------   --------   --------   ------------   ---------------   ------------
<S>                                     <C>         <C>        <C>        <C>            <C>               <C>
ASSETS
Cash and cash equivalents.............     $--        $  --      $  --      $    126        $      --        $    126
Receivables...........................                                        50,788          (52,020)         12,847
Investments...........................                                         2,102                            2,102
Deferred income taxes.................                                             1                              812
Other current assets..................                                            90               (4)          1,200
TOTAL CURRENT ASSETS..................                                        53,107          (52,024)         17,087
Property, plant & equipment, net......                                        41,985               (3)         51,161
Franchise costs, net..................                                        47,380                           48,218
Licensing costs, net..................                                        13,596                           13,626
Goodwill, net.........................                                        11,531                           31,478
Investment in Liberty Media Group and
 related receivables, net.............                                                                         34,290
Other investments and related
 advances.............................                                        23,059         (218,325)         34,261
Other assets..........................      44          230        516        17,020          (12,505)         12,102
TOTAL ASSETS..........................     $44        $ 230      $ 516      $207,678        $(282,857)       $242,223
LIABILITIES
Debt maturing within one year.........     $--        $  --      $  --      $  6,409        $ (29,790)       $ 31,947
Liability under put options...........                                         2,564                            2,564
Other current liabilities.............                                        13,972           (8,393)         16,356
TOTAL CURRENT LIABILITIES.............                                        22,945          (38,183)         50,867
Long-term debt........................      28          214        504         3,895          (26,422)         33,092
Deferred income taxes.................                                        35,914                           36,713
Other long-term liabilities and
 deferred credits.....................                                           431              (80)          8,760
TOTAL LIABILITIES.....................      28          214        504        63,185          (64,685)        129,432
Minority interest.....................                                         2,274                            4,883
Company-Obligated Convertible
 Quarterly Income Preferred Securities
 of Subsidiary Trust Holding Solely
 Subordinated Debt Securities of
 AT&T.................................                                                                          4,710
SHAREOWNERS' EQUITY
AT&T Common Stock.....................                                          (416)                           3,760
AT&T Wireless Group common stock......                                                                            362
Liberty Media Group Class A Common
 Stock................................                                                                          2,364
Liberty Media Group Class B Common
 Stock................................                                                                            206
Other shareowners' equity.............      16           16         12       142,635         (218,172)         96,506
TOTAL SHAREOWNERS' EQUITY.............      16           16         12       142,219         (218,172)        103,198
TOTAL LIABILITIES AND SHAREOWNERS'
 EQUITY...............................     $44        $ 230      $ 516      $207,678        $(282,857)       $242,223
</TABLE>

                                        22
<PAGE>   24

                                   AT&T CORP.

                CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                              GUARANTOR   GUARANTOR       TCI         TCI         TCI                      ELIMINATION AND
                                AT&T      SUBSIDIARY   FINANCING   FINANCING   FINANCING   NON-GUARANTOR    CONSOLIDATION
                               PARENT        TCI           I          II          IV       SUBSIDIARIES      ADJUSTMENTS
                              ---------   ----------   ---------   ---------   ---------   -------------   ---------------
<S>                           <C>         <C>          <C>         <C>         <C>         <C>             <C>
NET CASH PROVIDED BY (USED
  IN) OPERATING
  ACTIVITIES................   $  (260)    $   381       $ 11        $ 12         $ 5         $ 2,379         $     --
INVESTING ACTIVITIES
Capital expenditures and
  other additions...........       (19)                                                        (3,217)
Equity investment
  distributions and sales...        57                                                            360
Equity investment
  contributions and
  purchases.................       (16)     (7,409)                                            (1,043)           7,409
Net (acquisitions)
  dispositions of businesses
  net of cash
  acquired/disposed.........      (197)                                                             9
Other.......................      (708)       (105)                                            (4,832)           4,710
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES...      (883)     (7,514)                                            (8,723)          12,119
FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances.................       739
Proceeds from debt from
  AT&T......................                 7,648                                             (7,648)
Retirement of long-term
  debt......................      (487)       (258)                                              (262)
Dividends paid on common
  stock.....................      (703)
Increase (decrease) in
  short-term borrowings,
  net.......................     7,889        (257)                                               257           (4,710)
Other.......................    (6,295)                   (11)        (12)         (5)         13,075           (7,409)
NET CASH PROVIDED BY (USED
  IN) FINANCING
  ACTIVITIES................     1,143       7,133        (11)        (12)         (5)          5,422          (12,119)
Net decrease in cash and
  cash equivalents..........                                                                     (922)
Cash and cash equivalents at
  beginning of year.........                                                                    1,024
Cash and cash equivalents at
  end of period.............   $    --     $    --       $ --        $ --         $--         $   102         $     --

<CAPTION>

                              CONSOLIDATED
                               AT&T CORP.
                              ------------
<S>                           <C>
NET CASH PROVIDED BY (USED
  IN) OPERATING
  ACTIVITIES................    $ 2,528
INVESTING ACTIVITIES
Capital expenditures and
  other additions...........     (3,236)
Equity investment
  distributions and sales...        417
Equity investment
  contributions and
  purchases.................     (1,059)
Net (acquisitions)
  dispositions of businesses
  net of cash
  acquired/disposed.........       (188)
Other.......................       (935)
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES...     (5,001)
FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances.................        739
Proceeds from debt from
  AT&T......................
Retirement of long-term
  debt......................     (1,007)
Dividends paid on common
  stock.....................       (703)
Increase (decrease) in
  short-term borrowings,
  net.......................      3,179
Other.......................       (657)
NET CASH PROVIDED BY (USED
  IN) FINANCING
  ACTIVITIES................      1,551
Net decrease in cash and
  cash equivalents..........       (922)
Cash and cash equivalents at
  beginning of year.........      1,024
Cash and cash equivalents at
  end of period.............    $   102
</TABLE>

(n) CONSOLIDATING CONDENSED FINANCIAL INFORMATION

     In conjunction with the issuance of AT&T Wireless Group and Liberty Media
Group tracking stocks, AT&T has separated, for financial reporting purposes in
all periods, the AT&T Common Stock Group, Liberty Media Group and AT&T Wireless
Group. Provided below is the consolidating financial information reflecting the
businesses of these individual groups, including the allocation of expenses
between the groups in accordance with our allocation policies, as well as other
related party transactions such as sales of services between groups and interest
income and expense on intercompany borrowings. The AT&T Common Stock Group
presented below excludes its retained portion of the value of AT&T Wireless
Group. AT&T does not have a controlling financial interest in LMG for financial
accounting purposes; therefore, our ownership in LMG is reflected as an
investment accounted for under the equity method and is reflected as such in the
consolidating financial statements.

     AT&T Wireless Group purchases long distance and other network-related
services from AT&T at market-based prices and accordingly such amounts are
eliminated. Prior to the offering of AT&T Wireless Group tracking stock, the
capital structure of AT&T Wireless Group had been assumed based upon AT&T's
historical capital ratio adjusted for certain items. Intercompany interest rates
are intended to be substantially equivalent to the interest rate that AT&T
Wireless Group would be able to obtain or receive if it were a stand-alone
entity. General corporate overhead related to AT&T's corporate headquarters and
common support

                                        23
<PAGE>   25

divisions has been allocated to AT&T Wireless Group based on the ratio of AT&T
Wireless Group's external costs and expenses to AT&T's consolidated external
costs and expenses, adjusted for any functions that AT&T Wireless Group performs
on its own. The consolidated income tax provision or benefit, related tax
payments or refunds, and deferred tax balances of AT&T have been allocated to
AT&T Wireless Group based principally on the taxable income or losses and tax
credits directly attributable to AT&T Wireless Group.

     Pursuant to the Inter-Group agreement, AT&T does not allocate general
overhead expenses to Liberty Media Group (LMG) and only charges LMG for specific
services that LMG receives from AT&T pursuant to service agreements or similar
arrangements. Additionally, as LMG operates independent of AT&T, there is no
cash or debt allocated to them.

                                        24
<PAGE>   26

                                      AT&T

                    CONSOLIDATING CONDENSED INCOME STATEMENT
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                AT&T         AT&T     LIBERTY
                                            COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                               GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                            ------------   --------   -------   -------------   ------------
<S>                                         <C>            <C>        <C>       <C>             <C>
External Revenue..........................    $13,551       $3,212     $  --                      $16,763
Inter-group revenue.......................        101                               $(101)
Total Revenue.............................     13,652        3,212                   (101)        $16,763
Operating expenses:
Costs of services and products............      3,624        1,348                   (135)          4,837
Access and other connection...............      3,151                                 135           3,286
Selling, general and administrative.......      2,858        1,010                                  3,868
Depreciation and other amortization.......      1,702          576                   (137)          2,141
Amortization of goodwill, franchise costs
  and other purchased intangibles.........        709                                 137             846
Net restructuring and other charges.......        808                                                 808
Inter-group expenses......................        (36)         137                   (101)
Total operating expenses..................     12,816        3,071                   (101)         15,786
Operating income..........................        836          141                                    977
Other income (expense)....................       (784)           7                     (4)           (781)
Inter-group interest income...............         82           77                   (159)
Interest expense..........................        962            7                                    969
Inter-group interest expense..............         77           40                   (117)
Income (loss) before income taxes,
  minority interest, earnings (losses)
  from equity investments and cumulative
  effect of accounting change.............       (905)         178                    (46)           (773)
(Benefit) provision for income taxes......        213           79                                    292
Minority interest income (expense)........        646                                   4             650
Equity (losses) from Liberty Media
  Group...................................                              (697)                        (697)
Net losses from other equity
  investments.............................        (37)         (99)                                  (136)
Income (losses) before cumulative effect
  of accounting change....................       (509)           0      (697)         (42)         (1,248)
Cumulative effect of accounting change....        359                    545                          904
Net (losses) income.......................       (150)           0      (152)         (42)           (344)
Dividend requirements on preferred
  stock...................................        181           42                    (42)            181
Net income (losses) available to common
  shareowners.............................    $  (331)      $  (42)    $(152)       $  --         $  (525)
                                              =======       ======     =====        =====         =======
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        25
<PAGE>   27

                                      AT&T

                     CONSOLIDATING CONDENSED BALANCE SHEET
                               AT MARCH 31, 2001
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                              AT&T         AT&T     LIBERTY
                                          COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                             GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                          ------------   --------   -------   -------------   ------------
<S>                                       <C>            <C>        <C>       <C>             <C>
ASSETS:
Cash and cash equivalents...............    $    102     $    34    $           $               $    136
Other current assets....................      13,781       2,567                    (231)         16,117
Short-term note due from related
  party.................................                  10,588                 (10,588)
TOTAL CURRENT ASSETS....................    $ 13,883     $13,189                 (10,819)         16,253
Property, plant and equipment, net......      41,540      10,725                                  52,265
Franchise costs, net....................      47,924                                              47,924
Goodwill, net...........................      25,839       5,653                    (967)         30,525
Investment in Liberty Media Group and
  related receivables, net..............                             34,072                       34,072
Other investments and related
  advances..............................      30,383       3,904                                  34,287
Other assets............................      11,278      13,568                     969          25,815
Long-term assets due from related
  party.................................       4,800                              (4,800)
TOTAL ASSETS............................    $175,647     $47,039    $34,072     $(15,617)       $241,141
LIABILITIES:
Debt maturing within one year...........    $ 17,076     $   103    $           $     46        $ 17,225
Short-term debt due to related party....      10,588                             (10,588)
Other current liabilities...............      14,891       2,641                    (313)         17,219
TOTAL CURRENT LIABILITIES...............      42,555       2,744                 (10,855)         34,444
Long-term debt..........................      32,514       6,487                       3          39,004
Long-term debt due to related party.....                   1,800                  (1,800)
Deferred income taxes...................      31,926       4,739                                  36,665
Other long-term liabilities and deferred
  credits...............................       8,478         290                                   8,768
TOTAL LIABILITIES.......................    $115,473     $16,060                $(12,652)       $118,881
                                            ========     =======                ========        ========
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        26
<PAGE>   28

                                      AT&T

                     CONSOLIDATING CONDENSED BALANCE SHEET
                               AT MARCH 31, 2001
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                              AT&T         AT&T     LIBERTY
                                          COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                             GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                          ------------   --------   -------   -------------   ------------
<S>                                       <C>            <C>        <C>       <C>             <C>
Minority interest.......................       4,180          42                                   4,222
Company-obligated convertible quarterly
  income preferred securities of
  subsidiary trust holding solely
  subordinated debt securities of
  AT&T..................................       4,713                                               4,713
Convertible Preferred Stock.............       9,362                                               9,362
Other shareowners' equity due to related
  party.................................                   3,000                  (3,000)
AT&T common stock.......................                                           3,809           3,809
AT&T Wireless Group common stock........                                             363             363
Liberty Media Group Class A.............                                           2,377           2,377
Liberty Media Group Class B.............                                             212             212
Other shareowners' equity...............      41,919      27,937     34,072       (6,726)         97,202
Total shareowners' equity...............      41,919      30,937     34,072       (2,965)        103,963
Total liabilities and shareowners'
  equity................................    $175,647     $47,039    $34,072     $(15,617)       $241,141
                                            ========     =======    =======     ========        ========
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        27
<PAGE>   29

                                   AT&T CORP.

                CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                             AT&T         AT&T     LIBERTY
                                         COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                            GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                         ------------   --------   -------   -------------   ------------
<S>                                      <C>            <C>        <C>       <C>             <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES.................    $ 2,050      $    655   $            $  (767)       $  1,938
INVESTING ACTIVITIES
Capital expenditures and other
  additions............................     (2,516)       (1,407)                                (3,923)
Other..................................      1,223       (11,112)                10,628             739
NET CASH (USED IN) INVESTING
  ACTIVITIES...........................     (1,293)      (12,519)                10,628          (3,184)
FINANCING ACTIVITIES
Proceeds from long-term debt
  issuance.............................                    6,345                                  6,345
Issuance of convertible preferred
  securities and warrants..............      3,670         6,141                                  9,811
Increase (decrease) in short-term
  borrowings, net......................     (4,174)         (638)                (9,903)        (14,715)
Other..................................       (215)          (12)                    42            (185)
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES.................       (719)       11,836                 (9,861)          1,256
Net (decrease) increase in cash and
  cash equivalents.....................         38           (28)                                    10
Cash and cash equivalents at beginning
  of year..............................         64            62                                    126
Cash and cash equivalents at end of
  period...............................    $   102      $     34   $            $              $    136
                                           =======      ========   =======      =======        ========
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        28
<PAGE>   30

                                      AT&T

                    CONSOLIDATING CONDENSED INCOME STATEMENT
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                        AT&T          AT&T      LIBERTY
                                    COMMON STOCK    WIRELESS     MEDIA     ELIMINATIONS/    CONSOLIDATED
                                       GROUP         GROUP       GROUP     RECLASSES(1)      AT&T CORP.
                                    ------------    --------    -------    -------------    ------------
<S>                                 <C>             <C>         <C>        <C>              <C>
External Revenue..................    $13,703        $2,198      $ --          $ --           $15,901
Inter-group revenue...............         70                                   (70)
Total Revenue.....................     13,773         2,198                     (70)           15,901
Operating expenses:
Costs of services and products....      3,002         1,001                     (88)            3,915
Access and other connection.......      3,506                                    82             3,588
Selling, general and
  administrative..................      2,652           637                                     3,289
Depreciation and other
  amortization....................      1,270           369                     (73)            1,566
Amortization of goodwill,
  franchise costs and other
  purchased intangibles...........        301                                    67               368
Net restructuring and other
  charges.........................        773                                                     773
Inter-group expenses..............        (95)          165                     (70)
Total operating expenses..........     11,409         2,172                     (82)           13,499
Operating income..................      2,364            26                      12             2,402
Other income (expense)............        648            24                      (4)              668
Inter-group interest income.......         85                                   (85)
Interest expense..................        610           (21)                                      589
Inter-group interest expense......                       72                     (72)
Income (loss) before income taxes,
  minority interest, earnings
  (losses) from equity investments
  and cumulative effect of
  accounting change...............      2,487            (1)                     (5)            2,481
(Benefit) provision for income
  taxes...........................        490            (2)                     21               509
Minority interest income
  (expense).......................        (48)                                    4               (44)
Equity (losses) from Liberty Media
  Group...........................                                942                             942
Net losses from other equity
  investments.....................       (224)           25                      12              (187)
Income (losses) income............      1,725            26       942           (10)            2,683
Dividend requirements on preferred
  stock...........................                       13                     (13)
Net (losses) income available to
  common shareowners..............    $ 1,725        $   13      $942          $  3           $ 2,683
                                      =======        ======      ====          ====           =======
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        29
<PAGE>   31

                                      AT&T

                     CONSOLIDATING CONDENSED BALANCE SHEET
                            AS OF DECEMBER 31, 2000
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                    AT&T         AT&T     LIBERTY
                                                COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                                   GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                                ------------   --------   -------   -------------   ------------
<S>                                             <C>            <C>        <C>       <C>             <C>
ASSETS:
Cash and cash equivalents.....................    $     64     $    62    $            $              $    126
Other receivables.............................      11,053       2,010                    (216)         12,847
Deferred income taxes.........................         719          93                                     812
Investments...................................       2,102                                               2,102
Other current assets..........................         788         417                      (5)          1,200
Short-term note due from related party........         638                                (638)
Total current assets..........................      15,364       2,582                    (859)         17,087
Property, plant and equipment, net............      41,269       9,892                                  51,161
Franchise costs, net..........................      48,218                                              48,218
Licensing costs, net..........................                  13,627                      (1)         13,626
Goodwill, net.................................      26,782       5,816                  (1,120)         31,478
Investment in Liberty Media Group and related
  receivables, net............................                             34,290                       34,290
Other investments and related advances........      30,876       3,385                                  34,261
Other assets..................................      10,984                               1,118          12,102
Long-term assets due from related party.......       4,800                              (4,800)
Total assets..................................    $178,293     $35,302    $34,290      $(5,662)       $242,223
LIABILITIES:
Debt maturing within one year.................    $ 31,838     $   109    $            $              $ 31,947
Short-term debt due to related party..........                     638                    (638)
Liability under put options...................       2,564                                               2,564
Other current liabilities.....................      13,709       2,907                    (260)         16,356
Total current liabilities.....................      48,111       3,654                    (898)         50,867
Long-term debt................................      33,089                                   3          33,092
Long-term debt due to related party...........                   1,800                  (1,800)
Deferred income taxes.........................      32,054       4,659                                  36,713
Other long-term liabilities and deferred
  credits.....................................       8,493         271                      (4)          8,760
Total liabilities.............................     121,747      10,384                  (2,699)        129,432
                                                  ========     =======                 =======        ========
Minority interest.............................       4,842          41                                   4,883
Company-obligated convertible quarterly income
  preferred securities of subsidiary trust
  holding solely subordinated debt securities
  of AT&T.....................................       4,710                                               4,710
AT&T common stock.............................                                           3,760           3,760
AT&T Wireless Group common stock..............                                             362             362
Liberty Media Group Class A Tracking stock....                                           2,364           2,364
Liberty Media Group Class B tracking stock....                                             206             206
Other shareowners' equity.....................      46,994      21,877     34,290       (6,655)         96,506
Other shareowners' equity due to related
  party.......................................                   3,000                  (3,000)
Total shareowners' equity.....................      46,994      24,877     34,290       (2,963)        103,198
Total liabilities and shareowners' equity.....    $178,293     $35,302    $34,290      $(5,662)       $242,223
                                                  ========     =======    =======      =======        ========
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        30
<PAGE>   32

                                   AT&T CORP.

                CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                     FOR THREE MONTHS ENDED MARCH 31, 2000
                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                AT&T         AT&T     LIBERTY
                                            COMMON STOCK   WIRELESS    MEDIA    ELIMINATIONS/   CONSOLIDATED
                                               GROUP        GROUP      GROUP    RECLASSES(1)     AT&T CORP.
                                            ------------   --------   -------   -------------   ------------
<S>                                         <C>            <C>        <C>       <C>             <C>
NET CASH PROVIDED BY (USED IN) OPERATING
  ACTIVITIES..............................    $ 2,314       $ 228      $            $ (14)        $ 2,528
INVESTING ACTIVITIES
Capital expenditures and other
  additions...............................     (2,418)       (818)                                 (3,236)
Equity investment distributions and
  sales...................................        391          26                                     417
Equity investment contribution and
  purchases...............................       (985)        (74)                                 (1,059)
Net acquisitions of businesses net of cash
  acquired/disposed.......................       (188)                                               (188)
Other.....................................     (1,153)        (82)                    300            (935)
NET CASH (USED IN) PROVIDED BY INVESTING
  ACTIVITIES..............................     (4,353)       (948)                    300          (5,001)
FINANCING ACTIVITIES
Proceeds from long-term debt issuance.....        739                                                 739
Retirement of long-term debt..............     (1,009)                                  2          (1,007)
Dividends paid on common stock............       (703)                                               (703)
Increase (decrease) in short-term
  borrowings, net.........................      3,179                                               3,179
Other.....................................     (1,094)        725                    (288)           (657)
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES..............................      1,112         725                    (286)          1,551
Net (decrease) increase in cash and cash
  equivalents.............................       (927)          5                                    (922)
Cash and cash equivalents at beginning of
  year....................................      1,019           5                                   1,024
Cash and cash equivalents at end of
  period..................................    $    92       $  10      $            $             $   102
                                              =======       =====      =====        =====         =======
</TABLE>

---------------
(1) Includes the elimination of inter-group transactions, consolidating entries
    as well as reclassifications and adjustments related to the AT&T Wireless
    Group tracking stock financial statements.

                                        31
<PAGE>   33

                                   AT&T CORP.

                CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
              FOR THREE MONTHS ENDED MARCH 31, 2000 -- (CONTINUED)

(o) NEW ACCOUNTING PRONOUNCEMENT

     In September 2000, the Financial Accounting Standards Board (FASB) issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. Under these
standards, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement is effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after March 31, 2001. AT&T does not expect that the adoption of SFAS No. 140
will have a material impact on AT&T's results of operations, financial position
or cash flows.

(p) SUBSEQUENT EVENTS

     On May 7, 2001, AT&T agreed to sell our 99.75% interest in an entity owning
the Baltimore Maryland cable-system serving approximately 110,000 customers to
Comcast for approximately $0.5 billion. Pending certain closing conditions and
regulatory approvals, the transaction is expected to close in second or third
quarter of 2001.

     On April 30, 2001, AT&T received 63.9 million common shares of AT&T common
held by Comcast Corporation in exchange for an entity owning cable-systems which
serves approximately 590 thousand customers in six states. The transaction
resulted in a pretax loss of $0.3 billion.

     On April 27, 2001, AT&T completed the sale announced on February 27, 2001,
of our 10% stake in Japan Telecom Co. Ltd to Vodafone Group plc for $1.35
billion in cash. The proceeds from the transaction were split evenly between
AT&T and AT&T Wireless Group. The transaction resulted in a pretax gain of
approximately $0.9 billion.

     On April 26, 2001, AT&T initiated a 364-day accounts receivable
securitization program providing for up to $0.5 billion of funding. Under the
program, a small percentage of consumer accounts receivable will be sold on a
discounted, revolving basis, to a special purpose, wholly-owned subsidiary,
which assigns interests in such receivables to unrelated third-party financing
entities. The proceeds will be used for general corporate purposes, including
the repayment of commercial paper.

                                        32
<PAGE>   34

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

     AT&T Corporation (AT&T) is among the world's communications leaders,
providing voice, data, video and broadband telecommunications services to large
and small businesses, consumers and government agencies. We provide domestic and
international long distance; regional, local and wireless communications
services; cable television and Internet communications services. We also provide
directory and calling-card services to support our communications business.

TRACKING STOCKS

     A tracking stock is designed to provide financial returns to its holders
based on the financial performance and economic value of the assets it tracks.
Ownership of shares of AT&T common stock, AT&T Wireless Group tracking stock or
Liberty Media Class A or B tracking stock does not represent a direct legal
interest in the assets and liabilities of any of the groups, but an ownership of
AT&T in total. The specific shares represent an interest in the economic
performance of the net assets of each of the groups.

     AT&T Wireless Group is an integrated business of AT&T and Liberty Media
Group is a combination of certain assets and businesses of AT&T, neither of
which is a stand-alone entity. As AT&T Wireless Group and Liberty Media Group
are tracking stocks of AT&T, separate financial statements are not required to
be filed. We have provided the financial statements as exhibits to this document
to provide additional disclosures to investors to allow them to assess the
financial performance of AT&T Wireless Group and Liberty Media Group. Since the
tracking stocks are governed by a common board of directors, the AT&T board of
directors could make operational and financial decisions or implement policies
that affect disproportionately the businesses of any group. For example, our
board of directors may decide to transfer funds or to reallocate assets,
liabilities, revenue, expenses and cash flows among groups, without the consent
of shareholders. All actions by the board of directors are subject to the board
members' fiduciary duties to all shareholders of AT&T as a group and not just to
holders of a particular class of tracking stock and to our charter, policy
statements, by-laws and inter-company agreements.

     Our board of directors may change or supplement the policies set forth in
the tracking stock policy statements and our by-laws in the sole discretion of
our board of directors, subject to the provisions of any inter-group agreement
but without approval of our shareholders. In addition, the fact that we have
separate classes of common stock could give rise to occasions when the interests
of the holders of AT&T common stock, AT&T Wireless Group common stock and
Liberty Media Group tracking stock diverge, conflict or appear to diverge or
conflict. Our board of directors would make any change or addition to the
policies set forth in the tracking stock policy statements or our by-laws, and
would respond to any actual or apparent divergence of interest among our groups,
in a manner consistent with its fiduciary duties to AT&T and all of our
shareholders after giving consideration to the potentially divergent interests
and all other relevant interests of the holders of the separate classes of our
shares.

     You should consider that as a result of the flexibility provided to our
board of directors, it may be difficult for investors to assess the future
prospects of a tracking stock group based on that group's past performance.

RESTRUCTURING OF AT&T

     On October 25, 2000, AT&T announced a restructuring plan designed to fully
separate or issue separately tracked stocks intended to reflect the financial
performance and economic value of each of AT&T's four major operating units.
Upon completion of the plan, AT&T Wireless, AT&T Broadband, AT&T Business and
AT&T Consumer will all be represented by asset-based or tracking stocks.

     As part of the first phase of the restructuring plan, on April 18, 2001,
AT&T announced details of an offer to exchange shares of AT&T common stock for
shares of AT&T Wireless Group tracking stock. On the same date, AT&T Wireless
Services, Inc., filed its initial registration statement in connection with the
planned split-

                                        33
<PAGE>   35

off. Under the terms of the exchange offer, AT&T will issue 1.176 shares of AT&T
Wireless Group tracking stock in exchange for each share of AT&T common stock
validly tendered and not withdrawn, subject to specified conditions. Following
the exchange offer and subject to receipt of specific conditions, AT&T plans to
split-off AT&T Wireless Group from AT&T. AT&T intends to retain up to $3 billion
of AT&T Wireless shares for future sale, exchange or monetization within six
months following the split-off. We expect AT&T Wireless will become an
independent, publicly-held company in mid-2001, upon receipt of appropriate tax
and other approvals.

     In addition to the split-off of AT&T Wireless, we intend to fully separate
or issue separate tracking stocks to reflect the financial performance and
economic value of each of our other major business units. We plan to create and
issue new classes of stock to track the financial performance and economic value
of our AT&T Broadband unit and AT&T Consumer unit. We plan to sell some
percentage of shares of the AT&T Broadband unit in the fall of 2001. Within 12
months of such sale, we intend to completely separate AT&T Broadband from AT&T,
as an asset-based stock. The AT&T Consumer tracking stock is expected to be
fully distributed to AT&T shareowners in the second half of 2001.

     AT&T expects that these transactions will be tax-free to U.S. shareholders.
AT&T's restructuring plan is complicated and involves a substantial number of
steps and transactions, including obtaining various conditions, such as Internal
Revenue Services rulings. In addition, future financial conditions, superior
alternatives or other factors may arise or occur that make it inadvisable to
proceed with part or all of AT&T's restructuring plans. Any or all of the
elements of AT&T's restructuring plan may not occur as we currently expect or in
the timeframes that we currently contemplate, or at all. Alternative forms of
restructuring, including sales of interests in these businesses, would reduce
what is available for distribution to shareholders in the restructuring.

     On April 11, 2001, the Internal Revenue Services ruled that the proposed
split-off of Liberty Media Corporation, which will own all of the assets
reflected in the Liberty Media Group (LMG), qualifies as a tax-free transaction
for AT&T, Liberty Media and their shareowners. AT&T acquired Liberty Media
through the acquisition of Tele-Communications, Inc.(TCI). AT&T does not have a
controlling financial interest for financial accounting purposes in LMG;
therefore, our investment in LMG is accounted for under the equity method in the
accompanying consolidated financial statements. The amounts attributable to LMG
are reflected as separate line items "Equity earnings (losses) from Liberty
Media Group" and "Investment in Liberty Media Group and related receivables,
net," in the accompanying consolidated financial statements.

     By mid-2001, AT&T plans to convert the LMG tracking stock into an
asset-based security and launch Liberty Media Corporation as an independent,
publicly-traded company.

FORWARD-LOOKING STATEMENTS

     This document may contain forward-looking statements with respect to AT&T's
restructuring plan, financial condition, results of operations, cash flows,
dividends, financing plans, business strategies, operating efficiencies or
synergies, budgets, capital and other expenditures, network build out and
upgrade, competitive positions, availability of capital, growth opportunities
for existing products, benefits from new technologies, availability and
deployment of new technologies, plans and objectives of management, and other
matters.

     These forward-looking statements, including, without limitation, those
relating to the future business prospects, revenue, working capital, liquidity,
capital needs, network build out, interest costs and income, are necessarily
estimates reflecting the best judgment of senior management and involve a number
of risks and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements including, without
limitation:

     - the risks associated with the implementation of AT&T's restructuring
       plan, which is complicated and involves a substantial number of different
       transactions each with separate conditions, any or all of

                                        34
<PAGE>   36

       which may not occur as we currently intend, or which may not occur in the
       timeframe we currently expect,

     - the risks associated with each of AT&T's main business units, operating
       as independent entities as opposed to as part of an integrated
       telecommunications provider following completion of AT&T's restructuring
       plan, including the inability of these groups to rely on the financial
       and operational resources of the combined company and these groups having
       to provide services that were previously provided by a different part of
       the combined company,

     - the impact of existing and new competitors in the markets in which these
       groups compete, including competitors that may offer less expensive
       products and services, desirable or innovative products, technological
       substitutes, or have extensive resources or better financing.

     - the impact of oversupply of capacity resulting from excessive deployment
       of network capacity,

     - the ongoing global and domestic trend towards consolidation in the
       telecommunications industry, which trend may have the effect of making
       the competitors of these entities larger and better financed and afford
       these competitors with extensive resources and greater geographic reach,
       allowing them to compete more effectively,

     - the effects of vigorous competition in the markets in which the company
       operates, which may decrease prices charged, increase churn and change
       customer mix, profitability and average revenue per user,

     - the ability to enter into agreements to provide, and the cost of entering
       new markets necessary to provide, nationwide services,

     - the ability to establish a significant market presence in new geographic
       and service markets,

     - the availability and cost of capital and the consequences of increased
       leverage,

     - the successful execution of plans to dispose of non-strategic assets as
       part of an overall corporate deleveraging plan,

     - the potential impact of NTT DoCoMo's investment in AT&T, including
       provisions of the agreements that restrict AT&T Wireless Group's future
       operations, and provisions that may require AT&T to repurchase NTT
       DoCoMo's interest in AT&T if AT&T or AT&T Wireless Group fail to meet
       specified conditions,

     - the impact of any unusual items resulting from ongoing evaluations of the
       business strategies of the company,

     - the requirements imposed on the company or latitude allowed to
       competitors by the Federal Communications Commission (FCC) or state
       regulatory commissions under the Telecommunications Act of 1996 or other
       applicable laws and regulations,

     - the risks and costs associated with the need to acquire additional
       wireless spectrum for current and future services,

     - the risks associated with technological requirements, technology
       substitution and changes and other technological developments,

     - the results of litigation filed or to be filed against the company,

     - the possibility of one or more of the markets in which the company
       competes being impacted by changes in political, economic or other
       factors, such as monetary policy, legal and regulatory changes or other
       external factors over which these groups have no control, and

     - the risks related to AT&T's investments in LMG and joint ventures.

     The words "estimate," "project," "intend," "expect," "believe," "plan" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this document. Moreover, in the future, AT&T,
                                        35
<PAGE>   37

through its senior management, may make forward-looking statements about the
matters described in this document or other matters concerning AT&T.

     The discussion and analysis that follows provides information management
believes is relevant to an assessment and understanding of AT&T's consolidated
results of operations for the years ended March 31, 2001 and 2000, and financial
condition as of March 31, 2001 and December 31, 2000.

CONSOLIDATED RESULTS OF OPERATIONS

     The comparison of first quarter 2001 results with the first quarter of 2000
was impacted by events, such as acquisitions and dispositions, that occurred
during these two years. For example, at year-end 2000, we acquired the wireless
property in Los Angeles as a result of the AB Cellular redemption of AT&T's
equity interest in AB Cellular. Prior to that date, AT&T held a 55.62% equity
interest in AB cellular with 50% voting interest and recorded the investment
under the equity method of accounting. The consolidation of the Los Angeles
property resulted in the inclusion of 100% of its results in each line item of
AT&T's Consolidated Balance Sheet on December 31, 2000 and the results were also
included in AT&T's Consolidated Income Statements starting January 2001. In
addition, in 2000, we acquired MediaOne and wireless properties in the San
Francisco Bay area, which were both included in our first quarter 2001 results,
but were not included in the first quarter 2000 results.

     Year-over-year comparison was also impacted by the consolidation of At Home
Corp. (Excite@Home) beginning September 1, 2000, due to corporate-governance
changes, which gave AT&T a controlling interest. At that time and on March 31,
2001, we had an approximate 23% economic interest and 74% voting interest in
Excite@Home. The consolidation of Excite@Home resulted in the inclusion of 100%
of its results in each line item of AT&T's Consolidated Balance Sheet and
Consolidated Income Statement. The approximate 77% we do not own is reflected in
the March 31, 2001 and December 31, 2000 Consolidated Balance Sheets within
"Minority Interest" and as a component of "Minority interest income (expense)"
in the Consolidated Statement of Income for the three months ended March 31,
2001. For the three months ended March 31, 2000, our ownership interest in
Excite@Home was accounted for under the equity method of accounting, with
earnings or losses included as a component of "Net losses from other equity
investments" in the Consolidated Statement of Income.

     Effectively July 1, 2000, the Federal Communication Commission (FCC)
eliminated Primary Interexchange Carrier Charges (PICC or per-line charges) that
AT&T pays for residential and single-line businesses. The elimination of these
per-line charges resulted in lower access expense as well as lower revenue,
since AT&T has historically billed its customers for these charges.

REVENUE

<TABLE>
<CAPTION>
                                                   FOR THE THREE MONTHS
                                                     ENDED MARCH 31,
                                                   --------------------
DOLLARS IN MILLIONS                                  2001        2000
-------------------                                --------    --------
<S>                                                <C>         <C>
Business services................................  $ 7,168     $ 7,252
Consumer services................................    4,007       5,037
Wireless services................................    3,212       2,198
Broadband........................................    2,465       1,557
Corporate and Other..............................      (89)       (143)
Total revenue....................................  $16,763     $15,901
</TABLE>

     Total revenue increased 5.4%, or $0.9 billion, in the first quarter of 2001
compared with the prior year period. Approximately $1.0 billion of the increase
is due to the impact of acquisitions and the consolidation of Excite@Home
partially offset by the elimination of PICC and dispositions. Also contributing
to the revenue growth was Wireless Services, data and Internet protocol (IP)
growth within Business Services and Broadband. These increases were largely
offset by the accelerating declines in long distance voice revenue. We

                                        36
<PAGE>   38

expect long distance revenue to continue to be negatively impacted by ongoing
competition and product substitution.

     Revenue by segment is discussed in more detail in the segment results
section.

OPERATING EXPENSES

<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                             ENDED MARCH 31,
                                                             ----------------
DOLLARS IN MILLIONS                                           2001      2000
-------------------                                          ------    ------
<S>                                                          <C>       <C>
Costs of services and products.............................  $4,837    $3,915
</TABLE>

     Costs of services and products increased $0.9 billion, or 23.6%, in the
first quarter of 2001 compared with the first quarter of 2000. Approximately
$0.7 billion of the increase was due to acquisitions, primarily MediaOne, net of
dispositions, and the impact of consolidating Excite@Home. The higher costs
associated with new outsourcing contracts as well as our growing wireless
subscriber base increased expenses by approximately $0.2 billion. The higher
wireless expenses primarily related to higher costs of handsets sold due to an
increase in gross subscriber additions in the first quarter of 2001 compared
with the same period in the prior year.

<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                             ENDED MARCH 31,
                                                             ----------------
DOLLARS IN MILLIONS                                           2001      2000
-------------------                                          ------    ------
<S>                                                          <C>       <C>
Access and other connection................................  $3,286    $3,588
</TABLE>

     Access and other connection expenses decreased 8.4%, to $3.3 billion in the
first quarter of 2001, compared with $3.6 billion in the first quarter of 2000.
Included within access and other connection expenses are costs that we pay to
connect calls on the facilities of other service providers. Mandated reductions
in per-minute access costs and decreased per-line charges effective in the
second half of 2000 resulted in lower costs of approximately $0.5 billion. These
decreases were partially offset by approximately $0.2 billion of higher costs
due to volume increases, as well as higher Universal Service Fund contributions.
Since most of these charges are passed through to the customer, the per-minute
access-rate and per-line charge reductions and the Universal Service Fund
contributions have generally resulted in a corresponding impact on revenue.

<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                             ENDED MARCH 31,
                                                             ----------------
DOLLARS IN MILLIONS                                           2001      2000
-------------------                                          ------    ------
<S>                                                          <C>       <C>
Selling, general and administrative........................  $3,868    $3,289
</TABLE>

     Selling, general and administrative (SG&A) expenses increased $0.6 billion,
or 17.6%, in the first quarter of 2001, compared with the first quarter of 2000.
Increased marketing, advertising and customer care in support of our growing
Wireless and Broadband businesses drove approximately $0.3 billion of the
increase. In addition, $0.4 billion of the increase was due to acquisitions,
primarily MediaOne, net of dispositions, and the impact of consolidating
Excite@Home. Partially offsetting these increases was cost savings of
approximately $0.2 billion as a result of continued cost-control initiatives,
primarily from our Consumer Services Business.

<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                             ENDED MARCH 31,
                                                             ----------------
DOLLARS IN MILLIONS                                           2001      2000
-------------------                                          ------    ------
<S>                                                          <C>       <C>
Depreciation and other amortization........................  $2,141    $1,566
</TABLE>

     Depreciation and other amortization expenses increased $0.6 billion, or
36.8%, to $2.1 billion in the first quarter of 2001 compared with the
corresponding prior-year period. Approximately half of the increase was due to a
higher asset base resulting from continued infrastructure investment, and the
remaining increase resulted from acquisitions activity, primarily MediaOne.
Capital expenditures were $3.3 billion for the first

                                        37
<PAGE>   39

quarter of 2001 compared with $2.8 billion for the same period in 2000. The
primary focus for capital expenditures in 2001 continues to be on the core
growth areas of wireless, broadband, data and IP, and local.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
DOLLARS IN MILLIONS                                            2001      2000
-------------------                                           ------    ------
<S>                                                           <C>       <C>
Amortization of goodwill, franchise costs and other
  purchased intangibles.....................................   $846      $368
</TABLE>

     Amortization of goodwill, franchise costs and other purchased intangibles
increased $0.5 billion to $0.8 billion, or 129.6%, in the first quarter of 2001
compared with the corresponding prior year period. This increase was largely
attributable to acquisitions, primarily MediaOne, as well as the consolidation
of Excite@Home.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
DOLLARS IN MILLIONS                                            2001      2000
-------------------                                           ------    ------
<S>                                                           <C>       <C>
Net restructuring and other charges.........................   $808      $773
</TABLE>

     During the first quarter of 2001, AT&T recorded $808 million of net
restructuring and other charges, which had an approximate $0.21 impact on basic
and diluted earnings per share. Included in these charges was $739 million for
asset impairment charges related to Excite@Home, and $69 for restructuring and
exit costs which consisted of $59 million for cash severance costs, $6 million
related to facilities and $4 million related to termination of lease
obligations.

     The asset impairment charges included $600 recorded by Excite@Home
associated with goodwill impairment of various acquisitions, primarily Excite,
and a related goodwill impairment charge of $139 recorded by AT&T associated
with its acquisition goodwill of Excite@Home. The impairment resulted from the
continued weakness of the online media market that Excite@Home operates in.
Since we consolidate, but only own approximately 23% of Excite@Home, 77% of the
charge recorded by Excite@Home was not included as a reduction to AT&T's net
income, but rather eliminated in our March 31, 2001 Consolidated Statement of
Income as "Minority interest income (expense)."

     The $59 million of cash severance costs were primarily recorded as a result
of synergies created by the MediaOne merger related to approximately 2,350
employees. Approximately 10% of the individuals were management employees and
90% were non-management employees. Nearly 88% of the affected employees have
left their positions as of March 31, 2001, and the remaining employees will
leave the company by the end of 2001.

     This restructuring initiative is projected to yield cash savings of
approximately $42 million in 2001 (net of severance benefit pay-outs of
approximately $59 million) and approximately $132 million per year thereafter,
as well as EBIT savings of approximately $97 million in 2001 and approximately
$101 million per year thereafter. We expect increased spending in growth
businesses will largely offset these cash and EBIT savings. The EBIT savings,
primarily attributable to reduced personnel-related expenses, will be realized
in costs of services and products and SG&A expenses.

     In the second quarter of 2001, we expect to incur additional restructuring
charges resulting from MediaOne synergies and work force reductions at
Excite@Home.

     During the first quarter of 2000, AT&T recorded $773 million of net
restructuring and other charges, which included $682 million for restructuring
and exit costs associated with AT&T's initiative to reduce costs by the end of
2000, and $91 million related to the government-mandated disposition of AT&T
Communications (U.K.) Ltd., which would have competed directly with Concert.
Included in restructuring and exit costs was $458 million of cash termination
benefits associated with the involuntary separation of approximately 6,200
employees. Approximately one-half of the individuals were management employees
and one-half were non-management employees. Nearly 60% of the affected employees
have left their positions as of March 31, 2001, and the remaining employees will
leave the company during 2001.

                                        38
<PAGE>   40

     We also recorded $62 million of network lease and other contract
termination costs associated with penalties incurred as part of notifying
vendors of the termination of these contracts during the quarter.

     Also included in restructuring and exit costs was $144 of benefit
curtailment costs associated with employee separations as part of these exit
plans. We also recorded an asset impairment charge of $18 related to the
write-down of unrecoverable assets in certain businesses in which the carrying
value is no longer supported by future cash flows.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                    DOLLARS IN MILLIONS                       2001      2000
                    -------------------                       -----    -------
<S>                                                           <C>      <C>
Operating Income............................................  $977     $2,402
</TABLE>

     Operating income decreased $1.4 billion, or 59.4%, in the first quarter of
2001 compared with the same period in 2000. The decrease was primarily due to
the impact of acquisitions and the consolidation of Excite@Home, which lowered
operating income by nearly $1.1 billion. A majority of the impact of operating
losses and the restructuring charge generated by Excite@Home was offset in
minority interest income (expense), reflecting the approximate 77% of
Excite@Home we do not own. Also contributing to the decrease in operating income
was the impact of lower revenue in Consumer Services, and higher operating
expenses for advanced Broadband services, including digital video, high-speed
data and broadband telephony, partially offset by restructuring charges, net of
asset impairment, recorded in the first quarter of 2000.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                    DOLLARS IN MILLIONS                        2001     2000
                    -------------------                       ------    -----
<S>                                                           <C>       <C>
Other (expense) income......................................  $(781)    $668
</TABLE>

     Other (expense) income for the first quarter of 2001 was an expense of $0.8
billion, compared with income of $0.7 billion in the first quarter of 2000, an
increase in expense of $1.4 billion. Effective January 1, 2001, in conjunction
with the adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," we reclassified certain investment securities, which
support debt that is indexed to those securities, from "available-for-sale" to
"trading." As a result of the reclassification, we recorded a pretax charge of
$1.0 billion in other income. Also contributing to the increase in expense were
lower net gains on sale of businesses and investments of approximately $0.4
billion.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                    DOLLARS IN MILLIONS                        2001      2000
                    -------------------                       ------    ------
<S>                                                           <C>       <C>
Interest Expense............................................   $969      $589
</TABLE>

     Interest expense increased 64.6%, or $0.4 billion, in first quarter of 2001
compared with the same period in 2000. The increase was primarily due to the
higher average debt balance as a result of our June 2000 acquisition of
MediaOne, including outstanding debt of MediaOne and debt issued to fund the
MediaOne acquisition and debt issuance by AT&T Wireless in the quarter.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                    DOLLARS IN MILLIONS                        2001      2000
                    -------------------                       ------    ------
<S>                                                           <C>       <C>
Provision for income taxes..................................   $292      $509
</TABLE>

     The provision for income taxes was $0.3 billion in the first quarter of
2001 compared with $0.5 billion in the first quarter of 2000. The decrease in
expense was primarily due to a net loss before income taxes in the first quarter
of 2001, compared with earnings before income taxes in the first quarter of
2000. As AT&T recorded a tax provision despite having pretax losses for the
first quarter of 2001, the effective tax rate for the quarter was a negative
37.6%, compared with 20.5% for the first quarter of 2000. The first quarter 2001

                                        39
<PAGE>   41

effective tax rate was impacted by a charge associated with the adoption of SFAS
No. 133, as well as a non tax-deductible asset impairment charge recorded
related to Excite@Home. The first quarter of 2001 effective tax rate was also
negatively impacted by the consolidation of operational losses of Excite@Home,
which is unable to record tax benefits on its pretax losses, and higher non
tax-deductible goodwill amortization. The first quarter 2000 effective tax rate
was positively impacted by a tax-free gain resulting from an exchange of AT&T
stock for an entity owning certain cable-systems and other assets with Cox, and
the benefit of the write-off of the related deferred tax liability.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                    DOLLARS IN MILLIONS                        2001      2000
                    -------------------                       ------    ------
<S>                                                           <C>       <C>
Minority interest income (expense)..........................   $650      $(44)
</TABLE>

     Minority interest income (expense), which is recorded net of income taxes,
represents an adjustment to AT&T's income to reflect the less than 100%
ownership of consolidated subsidiaries as well as dividends on preferred stock
issued by subsidiaries of AT&T. The $0.7 billion decrease in minority interest
for the first quarter ended March 31, 2001, as compared with the corresponding
prior-year period resulted from the consolidation of Excite@Home effective
September 1, 2000. The minority interest income in 2001 primarily reflects
losses generated by Excite@Home, including an asset impairment charge that were
attributable to the approximate 77% of Excite@Home not owned by AT&T. The income
tax benefit recorded on minority interest income (expense) was $87 million and
$26 million for the first quarter of 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                    DOLLARS IN MILLIONS                        2001     2000
                    -------------------                       ------    -----
<S>                                                           <C>       <C>
Equity (losses) earnings from Liberty Media Group...........  $(697)    $942
</TABLE>

     Equity losses from LMG, which are recorded net of income taxes, were $0.7
billion in the first quarter of 2001, compared with earnings of $0.9 billion for
the same period in 2000. The decline was primarily due to lower gains on
dispositions, including gains associated with the mergers of various companies
that LMG had investments in. Gains were recorded for the difference between the
carrying value of LMG's interest in the acquired company and the fair value of
securities received in the merger. In addition, the impairment charges recorded
on LMG's investments to reflect other than temporary declines in value also
contributed to the decline. These were partially offset by tax benefits recorded
in the quarter associated with the net loss before cumulative accounting change
compared with tax expense in the prior year quarter associated with net
earnings.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                    DOLLARS IN MILLIONS                        2001      2000
                    -------------------                       ------    ------
<S>                                                           <C>       <C>
Net losses from other equity Investments....................   $136      $187
</TABLE>

     Net losses from other equity investments, which were recorded net of income
taxes, were $0.1 billion in the first quarter of 2001, a 27.0% decrease compared
with the first quarter of 2000. This decrease was primarily due to the
consolidation of Excite@Home and higher earnings related to Cablevision Systems
Corp. reflecting a gain associated with the swap of cable properties, partially
offset by higher losses from its normal business operations. Partially
offsetting these decreases were higher equity losses from various investments
including Concert, as well as equity earnings in the first quarter of 2000 from
investments sold in 2000. The income tax benefit recorded on net losses from
other equity investments were $102 million and $115 million for the first
quarter of 2001 and the first quarter of 2000, respectively.

                                        40
<PAGE>   42

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                           -----      -----
<S>                                                           <C>        <C>
Cumulative effect of accounting change......................  $904        $--
</TABLE>

     Cumulative effect of accounting change, net of applicable income taxes, was
$0.4 billion, in the first quarter of 2001 for AT&T Group. It represented fair
value adjustments of equity based derivative instruments embedded in indexed
debt instruments including those acquired in conjunction with the MediaOne
merger, as well as to our warrant portfolio due to the adoption of SFAS No. 133.

     Cumulative effect of accounting change, net of applicable income taxes, was
$0.5 billion, for Liberty Media Group in the first quarter of 2001. The increase
was primarily due to separately recording the embedded call option obligations
associated with LMG's senior exchangeable debentures.

<TABLE>
<CAPTION>
                                                                  FOR THE
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
DOLLARS IN MILLIONS                                           2001      2000
-------------------                                           -----     -----
<S>                                                           <C>       <C>
Dividend requirements of preferred stock....................  $181       $--
</TABLE>

     Dividend requirements of preferred stock were $0.2 billion in the first
quarter of 2001. The preferred stock dividend represented interest in connection
with convertible preferred stock issued to NTT DoCoMo.

<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                             ENDED MARCH 31,
                                                             ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)               2001      2000
-----------------------------------------------              ------    ------
<S>                                                          <C>       <C>
AT&T Common Stock Group:
(Losses) income............................................  $ (366)   $1,741
AT&T Common Stock Group -- per basic share:
(Losses) earnings -- before cumulative effect of accounting
  change...................................................  $(0.19)   $ 0.55
Cumulative effect of accounting change.....................    0.09        --
AT&T Common Stock Group (losses) earnings..................  $(0.10)   $ 0.55
AT&T Common Stock Group -- per diluted share:
(Losses) earnings -- before cumulative effect of accounting
  change...................................................  $(0.19)   $ 0.54
Cumulative effect of accounting change.....................    0.09        --
AT&T Common Stock Group (losses) earnings..................  $(0.10)   $ 0.54
AT&T Wireless Group:
Losses.....................................................  $    7        --
Losses per basic and diluted...............................  $ 0.02        --
Liberty Media Group:
(Losses) earnings..........................................  $ (152)   $  942
Liberty Media Group -- per basic and diluted share:
(Losses) earnings -- before cumulative effect of accounting
  change...................................................  $(0.27)   $ 0.37
Cumulative effect of accounting change.....................    0.21        --
Liberty Media Group (losses) earnings......................  $(0.06)   $ 0.37
</TABLE>

     Losses per diluted share attributable to the AT&T Common Stock Group were
$0.10 in the first quarter of 2001 compared with EPS on a diluted basis of $0.54
in the first quarter of 2000. The decrease was primarily driven by lower
operating income, lower gains on the sales of businesses and investments, and
the net impact of the adoption of SFAS No. 133, which includes a $0.15 per share
charge relating to the revaluation of certain securities reclassified from
"available-for-sale" to "trading" recorded in other income and a net benefit of
$0.09 per share relating to the cumulative effect of adoption. Also contributing
to the decrease in earnings was increased interest expense, partially offset by
higher minority interest income.

                                        41
<PAGE>   43

     Losses per diluted share attributable to Liberty Media Group (LMG) were
$0.06 in the first quarter of 2001, compared with earnings of $0.37 on a diluted
basis, in the first quarter of 2000. The decline was primarily due to lower
gains on dispositions, including gains associated with the mergers of various
companies that LMG had investments in. Gains were recorded for the difference
between the carrying value of LMG's interest in the acquired company and the
fair value of securities received in the merger. In addition, the impairment
charges recorded on LMG's investments to reflect other than temporary declines
in value also contributed to the decline. These were partially offset tax
benefits recorded in the quarter associated with the net loss before cumulative
accounting change compared with tax expense in the prior year quarter associated
with net earnings as well as by the cumulative effect of the accounting changes
due to the adoption of SFAS 133.

SEGMENT RESULTS

     In support of the services we provide, we segment our results by the
business units that support our primary lines of business: Business Services,
Consumer Services, Wireless Services and Broadband. The balance of AT&T's
operations, excluding LMG is included in a Corporate and Other category.
Although not a segment, we also discuss the results of LMG.

     The discussion of segment results includes revenue; EBIT (earnings before
interest, taxes, the cumulative effect of accounting changes and dividend
requirements on preferred stock); EBITDA [EBIT excluding depreciation and
amortization, and minority interest (expense) income other than Excite@Home's
minority (expense) interest]; total assets, and capital additions. The
discussion of EBITDA for Wireless Services and Broadband is modified to exclude
other income and net losses from equity investments. Total assets for each
segment generally include all assets, except intercompany receivables. However,
our Wireless Services segment included intercompany receivables from AT&T and
the related interest income since these assets relate to the results of the AT&T
Wireless Group tracked business. Prepaid pension assets and corporate-owned or
leased real estate are generally held at the corporate level, and therefore are
included in the Corporate and Other group. Capital additions for each segment
include capital expenditures for property, plant and equipment, acquisitions of
licenses, additions to nonconsolidated investments, increases in franchise costs
and additions to internal-use software.

     EBIT is the primary measure used by AT&T's chief operating decision makers
to measure AT&T's operating results and to measure segment profitability and
performance. AT&T calculates EBIT as earnings before interest, taxes, the
cumulative effect of accounting changes and dividend requirements on preferred
stock. In addition, management also uses EBITDA as a measure of segment
profitability and performance, and is defined as EBIT, excluding depreciation
and amortization, minority interest (expense) income other than Excite@Home's
minority (expense) interest. Interest and taxes are not factored into the
segment profitability measure used by the chief operating decision makers;
therefore, trends for these items are discussed on a consolidated basis.
Management believes EBIT is meaningful to investors because it provides analysis
of operating results using the same measures used by AT&T's chief operating
decision makers and provides a return on total capitalization measure. We
believe EBITDA is meaningful to investors as a measure of each segment's
liquidity consistent with the measure utilized by our chief operating decision
makers. In addition, we believe that both EBIT and EBITDA allow investors a
means to evaluate the financial results of each segment in relation to total
AT&T. EBIT for AT&T was $0.5 billion and $2.7 billion for the quarters ended
March 31, 2001 and 2000, respectively. EBITDA for AT&T was $3.5 billion and $4.8
billion for the three months ended March 31, 2001 and 2000, respectively. Our
calculation of EBIT and EBITDA may or may not be consistent with the calculation
of these measures by other public companies. EBIT and EBITDA should not be
viewed by investors as an alternative to generally accepted accounting
principles (GAAP) measures of income as a measure of performance or to cash
flows from operating, investing and financing activities as a measure of
liquidity. In addition, EBITDA does not take into account changes in certain
assets and liabilities as well as interest and taxes which can affect cash flow.

     In connection with our corporate restructuring program set forth in late
2000, our existing segments reflect certain managerial changes enacted since the
publication of our 2000 annual results. The changes are as follows: The Business
Services segment was expanded to include the results of international operations
and
                                        42
<PAGE>   44

ventures. In addition, certain corporate costs that were previously recorded
within the Corporate and Other Group have been allocated to the respective
segments in an effort to ultimately have the results of these businesses reflect
all direct corporate costs as well as overhead for shared services. All prior
period results have been restated to reflect these changes. Total assets for our
reportable segments generally include all asset, except intercompany
receivables. However, our Wireless Services Segment included intercompany
receivables from AT&T and the related interest income since these assets relate
to the results of the AT&T Wireless Group tracked businesses.

     Reflecting the dynamics of our business, we continuously review our
management model and structure, which may result in additional adjustments to
our operating segments in the future. In addition, when we create tracking
stocks for our Consumer and Broadband units, we will begin allocating 'pure'
corporate overhead to these units. See note (b) for further detail on our
restructuring plan.

BUSINESS SERVICES

     Our Business Services segment offers a variety of global communications
services, including long distance, local, and data and IP networking to small
and medium-sized businesses, large domestic and multinational businesses and
government agencies. Business Services is also a provider of voice, data and IP
transport to service resellers (wholesale services).

     Business Services includes AT&T Solutions, the company's
professional-services outsourcing business, which provides seamless solutions
that maximize the competitive advantage of networking-based electronic
applications for global clients. AT&T Solutions also provides e-infrastructure
and high-availability services to enterprise clients, and manages AT&T's unified
global network. Business Services also includes the results of International
ventures and operations.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                             ------------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                          -------    -------
<S>                                                          <C>        <C>
External revenue...........................................  $6,940     $7,094
Internal revenue...........................................     228        158
Total revenue..............................................   7,168      7,252
EBIT.......................................................   1,018      1,146
EBITDA.....................................................   2,036      2,152
OTHER ITEMS
Capital additions..........................................  $1,287     $1,366
</TABLE>

<TABLE>
<CAPTION>
                                                          AT             AT
                                                       MARCH 31,    DECEMBER 31,
                                                         2001           2000
                                                       ---------    ------------
<S>                                                    <C>          <C>
Total assets.........................................   $42,562       $42,747
</TABLE>

REVENUE

     Business Services revenue declined $0.1 billion, or 1.2%, in the first
quarter of 2001 compared with the first quarter of 2000. The decrease was
primarily due to a decline in long distance voice revenue of approximately $0.5
billion, offset by growth in data/IP of approximately $0.4 billion.

     Long distance voice services revenue declined at a low-teens percentage
rate in the first quarter due to a declining average price per minute reflecting
the competitive forces within the industry that are expected to continue.
Partially offsetting this decline was a mid single-digit percentage growth rate
in minutes.

     Data services, which represent the transportation of data, rather than
voice, along our network, grew at a high-teens percentage rate in the first
quarter. Growth was led by the continued strength of frame relay services; IP
services, which include IP-connectivity services and virtual private network
(VPN) services; and high-speed private-line services.

                                        43
<PAGE>   45

     AT&T Solutions outsourcing revenue grew at a mid-teens percentage rate in
the first quarter primarily due to growth from new contract signings and add-on
business from existing clients.

     Local voice services revenue grew at a low-teens percentage rate in the
first quarter. AT&T added approximately 90,000 access lines in the first quarter
bringing total access lines in service as of March 31, 2001 to almost 2.4
million, an increase of 42.5% compared to March 31, 2000. AT&T serves more than
6,000 buildings on-net representing a 3.2% increase compared to March 31, 2000.

     Business Services internal revenue increased $0.1 billion, or 44.6%, in the
first quarter as a result of greater sales of business long distance services to
other AT&T units that resell such services to their external customers,
primarily Broadband, Wireless Services and Excite@Home.

EBIT/EBITDA

     EBIT and EBITDA declined $0.1 billion, or 11.2% and 5.4%, respectively, in
the first quarter of 2001 compared with the same period last year. The decline
primarily reflects the impact of pricing pressure within the long distance voice
business as well as the shift from higher margin long distance services to lower
margin growth services. The decline also reflects the impact of equity losses
recorded for Concert in the first quarter of $0.1 billion, representing a
decrease of approximately $0.2 billion compared to the first quarter of 2000.
Mostly offsetting the overall decrease was lower restructuring charges of $0.4
billion in the first quarter of 2001. For the remainder of 2001, Concert is
expected to continue to generate operating losses. Currently, Concert is
considering restructuring its business in order to return to profitability.
These actions could result in significant restructuring charges. In addition,
AT&T and BT are discussing ways to improve the performance of the Concert
business. These discussions include a variety of strategic alternatives,
including the acquisition of, or other business combination of our business
services operations with BT's business services unit. We have also considered
narrowing the scope of Concert's business, as well as its termination as a joint
venture.

OTHER ITEMS

     Capital additions decreased $0.1 billion, or 5.8%, in the first quarter of
2001 compared to the first quarter of 2000.

     Total assets decreased $0.2 billion, or 0.4%, at March 31, 2001 compared
with December 31, 2000.

CONSUMER SERVICES

     Our Consumer Services segment provides a variety of any-distance
communications services including long distance, local toll (intrastate calls
outside the immediate local area) and Internet access to residential customers.
In addition, Consumer Services provides transaction services, such as prepaid
calling card and operator-handled calling services. Local phone service is also
provided in certain areas.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                             ------------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                          -------    -------
<S>                                                          <C>        <C>
Revenue....................................................  $4,007     $5,037
EBIT.......................................................   1,318      1,658
EBITDA.....................................................   1,365      1,715
OTHER ITEMS
Capital additions..........................................  $   22     $   23
</TABLE>

<TABLE>
<CAPTION>
                                                          AT             AT
                                                       MARCH 31,    DECEMBER 31,
                                                         2001           2000
                                                       ---------    ------------
<S>                                                    <C>          <C>
Total assets.........................................   $2,768         $3,150
</TABLE>

                                        44
<PAGE>   46

REVENUE

     Consumer Services revenue declined 20.5%, or 1.0 billion, in the first
quarter of 2001 compared with the first quarter of 2000. The decline was
primarily due to a decline in traditional voice services, such as Domestic Dial
1, reflecting the ongoing competitive nature of the consumer long distance
industry, which has resulted in pricing pressures. In addition, approximately
$0.3 billion decline was related to the elimination of per-lines charges in
2000. Also negatively impacting revenue was product substitution and market
migration away from direct-dial wireline and higher priced calling-card services
to lower-priced prepaid-card services.

     The calling volume decline was in the low-teen percentage rate in the first
quarter of 2001 primarily due to both the competition in the long distance
industry and production substitution which we expect will continue to negatively
impact Consumer Services revenue.

EBIT/EBITDA

     EBIT and EBITDA for Consumer Services declined 20.5% and 20.4%,
respectively, in the first quarter of 2001 compared with the first quarter of
last year. The declines were primarily driven by impacts of lower revenue
partially offset by cost-control initiatives.

OTHER ITEMS

     Capital additions was essentially flat in the first quarter of 2001
compared with the year-ago quarter.

     Total assets declined $0.4 billion in the first quarter to $2.8 billion at
March 31, 2001. The decline was primarily driven by lower accounts receivables,
reflecting lower revenue.

WIRELESS SERVICES

     Our Wireless Services segment offers wireless voice and data services and
products to customers in our 850 megahertz (cellular) and 1900 megahertz
(Personal Communications Services, or PCS) markets. Wireless Services also
includes certain interests in partnerships and affiliates that provide wireless
services in the United States and internationally, aviation-communications
services and fixed wireless. Fixed wireless services provide high-speed Internet
access and any-distance voice services using wireless technology to residential
and small business customers.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                             ------------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                          -------    -------
<S>                                                          <C>        <C>
Revenue....................................................  $3,212     $2,198
EBIT.......................................................     118        111
EBITDA*....................................................     717        401
OTHER ITEMS
Capital additions..........................................  $1,904     $1,390
</TABLE>

<TABLE>
<CAPTION>
                                                           AT             AT
                                                        MARCH 31,    DECEMBER 31,
                                                          2001           2000
                                                        ---------    ------------
<S>                                                     <C>          <C>
Total assets..........................................   $46,930       $35,184
</TABLE>

---------------
* EBITDA for Wireless Services excludes net pretax (losses) earnings from equity
  investments and other income.

REVENUE

     Wireless Services revenue grew $1.0 billion, or 46.2%, to $3.2 billion in
the first quarter of 2001 compared with the first quarter of 2000. Approximately
$0.5 billion of the growth was due to acquisitions, primarily Bay Area
Properties acquired in June 2000 and the Los Angeles market acquired in December
2000. The

                                        45
<PAGE>   47

remaining increase was due to subscriber growth, slightly offset by a decline in
average monthly revenue per user (ARPU).

     Consolidated subscribers grew 57.7% during the first quarter of 2001 to
15.7 million from 10.0 million for the first quarter of 2000. This growth
included approximately 3 million subscribers from acquisitions closed subsequent
to the first quarter of 2000. ARPU was $62.20 for the first quarter of 2001, a
7.4% decrease compared with the first quarter of 2000. AT&T Wireless Group's
average monthly churn rate in the first quarter of 2001 was 3.0% compared with
2.9% in the first quarter of 2000. The decline in ARPU and the increase in
average monthly churn are primarily a result of competitive pricing pressures,
expansion into a broader base of consumer segments, including prepaid wireless
services, and the impact of acquisitions which closed subsequent to the first
quarter of 2000.

EBIT/EBITDA

     EBIT increased $7 million, or 6.5%, to $0.1 billion in the first quarter of
2001 compared with the first quarter of 2000. The increase was primarily due to
higher revenue associated with the mobility business. However, these increases
were partially offset by higher SG&A and network costs to support growth in
subscribers and the wireless network, higher depreciation and amortization
expenses associated with an increased asset base and higher net pretax losses
from equity investments.

     EBITDA, which excludes net pretax (losses) earnings of equity investments
and other income, increased $0.3 billion, or 78.9%, in the first quarter of 2001
to $0.7 billion compared with the prior year quarter. The improvement was
primarily driven by revenue growth associated with the mobility business. These
improvements were partially offset by related increase in expenses associated
with subscriber growth.

OTHER ITEMS

     Capital additions increased $0.5 billion in the first quarter of 2001 to
$1.9 billion compared with the first quarter of 2000. The increase was primarily
driven by capital expenditures to upgrade and increase network capacity and
improve network quality.

     Total assets were $47.0 billion as of March 31, 2001, an increase of $11.7
billion, or 33.4%, compared with December 31, 2000. $6.3 billion of the increase
was due to the net proceeds from the Senior Notes offering. Also contributing to
the increase was $6.2 billion of proceeds from the NTT DoCoMo investment that
was allocated to AT&T Wireless Group from AT&T. These amounts received were
loaned back to AT&T, in the form of an intercompany receivable. These increases
were partially offset by the repayment of short-term debt due to AT&T.

BROADBAND

     Our Broadband segment offers a variety of services through our cable
broadband network, including traditional analog video and advanced services such
as digital video service, high-speed data service and broadband telephony
service.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                             ------------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                          -------    -------
<S>                                                          <C>        <C>
Revenue....................................................  $2,465     $1,557
EBIT.......................................................    (508)       236
EBITDA excluding other income..............................     394        329
OTHER ITEMS
Capital additions..........................................  $  910     $1,344
</TABLE>

                                        46
<PAGE>   48

<TABLE>
<CAPTION>
                                                        AT               AT
                                                    MARCH 31,       DECEMBER 31,
                                                       2001             2000
                                                   ------------    ---------------
<S>                                                <C>             <C>
Total assets.....................................    $114,191         $114,848
</TABLE>

---------------
* EBITDA for Broadband excludes net losses from equity investments and other
  income

     Results of operations for the three months ended March 2001, include the
results of MediaOne since its acquisition on June 15, 2000, while the three
months ended March 2000, does not include any results of MediaOne.

REVENUE

     Broadband revenue grew $0.9 billion, or 58.3% for the three months ended
March 31, 2001 compared with the corresponding prior year period. Approximately
$0.8 billion of the increase in revenue was due to the acquisition of MediaOne
in 2000. In addition, revenue from advanced services (digital video, high-speed
data, and broadband telephony) contributed approximately $0.1 billion to the
increase.

     At March 31, 2001, Broadband serviced approximately 15.9 million basic
cable customers, passing approximately 28.1 million homes, compared with 11.1
million basic cable customers, passing approximately 19.2 million homes at March
31, 2000. At March 2001, we provided digital video service to approximately 3.1
million customers, high-speed data service to approximately 1.3 million
customers and broadband telephony service to approximately 0.7 million
customers. This compares with nearly 2.0 million digital-video customers,
approximately 0.3 million high-speed data customers, and nearly 40,000 broadband
telephony customers at March 31, 2000.

EBIT/EBITDA

     EBIT for the first quarter ended March 31, 2001 was a deficit of $0.5
billion, a decline of $0.7 billion from EBIT of $0.2 billion for the comparable
prior year period. This decline was primarily due to $0.4 billion of gains on
sales of businesses and investments, recorded in the first quarter of 2000,
primarily gains on the swap of cable properties with Cox as well as the prior
year sale of our investment in Lenfest. Also contributing to the decline was the
impact of the acquisition of MediaOne, including higher amortization of goodwill
and purchased intangibles, and higher expenses associated with high-speed data
and broadband telephony services of approximately $0.5 billion. These decreases
were offset by $0.2 billion of lower pretax losses from equity investments.

     EBITDA, which excludes net losses from equity investments and other income,
was $0.4 billion for the three months ended March 31, 2001 an improvement of
$0.1 billion, or 19.9% from the comparable prior year period. This improvement
was primarily due to the acquisition of MediaOne offset by increased expenses
associated with high-speed data and broadband telephony services.

OTHER ITEMS

     Capital additions decreased 32.3% to $0.9 billion at March 31, 2001, as
compared with $1.3 billion at March 31, 2000. This decrease was primarily driven
by decreased contributions to various nonconsolidated investments, slightly
offset by increased property, plant and equipment.

     Total assets at March 31, 2001, were $114.2 billion compared with $114.9
billion at December 31, 2000. The decrease in total assets at March 31, 2001 is
primarily due to lower mark-to-market valuations on certain investments.

CORPORATE AND OTHER

     This group reflects the results of corporate staff functions, the
elimination of transactions between segments, as well as the results of
Excite@Home.

                                        47
<PAGE>   49

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                MARCH 31,
                                                            ------------------
DOLLARS IN MILLIONS                                           2001       2000
-------------------                                         --------    ------
<S>                                                         <C>         <C>
Revenue...................................................  $   (89)    $(143)
EBIT......................................................   (1,424)     (453)
EBITDA....................................................   (1,239)     (308)
OTHER ITEMS
Capital additions.........................................  $   183     $  30
</TABLE>

<TABLE>
<CAPTION>
                                                        AT               AT
                                                    MARCH 31,       DECEMBER 31,
                                                       2001             2000
                                                   ------------    ---------------
<S>                                                <C>             <C>
Total assets.....................................      $618            $12,004
</TABLE>

REVENUE

     Revenue for corporate and other primarily includes the elimination of
intercompany revenue of negative $0.3 billion ($97 million increase from prior
year) and revenue from Excite@Home of approximately $0.1 billion which was
consolidated beginning September 1, 2000. The Corporate and other revenue
decline was primarily due to the higher intercompany elimination as a result of
higher sales from Business Services to Wireless and Broadband.

EBIT/EBITDA

     EBIT and EBITDA declined $1.0 billion and $0.9 billion, respectively to
deficits of $1.4 billion and $1.2 billion, respectively, in the first quarter of
2001 compared with the first quarter of 2000. The decline was primarily due to
the adoption of SFAS 133 in the quarter, which resulted in a charge of
approximately $1.0 billion. Also contributing to the decline was asset
impairment charges, net of minority interest, of $0.3 billion recorded by
Excite@Home and AT&T related to Excite@home.

OTHER ITEMS

     Capital additions increased approximately $0.2 billion in the first quarter
of 2001 compared with the first quarter of 2000. The increase was driven by the
capital additions of Excite@Home of $0.1 billion.

     Total assets declined $11.4 billion during the first quarter of 2001 to
$0.6 billion. The decline was primarily driven by elimination of intercompany
receivables with AT&T Wireless Group of approximately $10.6 billion.

LIBERTY MEDIA GROUP RESULTS

     Liberty Media Group (LMG) produces, acquires and distributes entertainment,
educational and informational programming services through all available formats
and media. LMG is also engaged in electronic retailing services, direct
marketing services, advertising sales relating to programming services,
infomercials and transaction processing. Losses from LMG were $0.2 billion for
the three months ended March 31, 2001, compared with earnings of $0.9 billion
for the three months ended March 31, 2000. The decline was primarily due to
lower gains on dispositions, including gains associated with the mergers of
various companies that LMG had investments in. Gains were recorded for the
difference between the carrying value of LMG's interest in the acquired company
and the fair value of securities received in the merger. In addition, the
impairment charges recorded on LMG's investments to reflect other than temporary
declines in value also contributed to the decline. These were partially offset
tax benefits recorded in the quarter associated with the net loss before
cumulative accounting change compared with tax expense in the prior year quarter
associated with net earnings as well as by the cumulative effect of the
accounting changes due to the adoption of SFAS 133.

                                        48
<PAGE>   50

LIQUIDITY

<TABLE>
<CAPTION>
                                                                FOR THE
                                                              THREE MONTHS
                                                            ENDED MARCH 31,
                                                           ------------------
DOLLARS IN MILLIONS                                         2001       2000
-------------------                                        -------    -------
<S>                                                        <C>        <C>
CASH FLOWS:
  Provided by operating activities.......................  $ 1,938    $ 2,528
  Used in investing activities...........................   (3,184)    (5,001)
  Provided by financing activities.......................    1,256      1,551
</TABLE>

     In the first quarter of 2001, net cash provided by operating activities
decreased $0.6 billion, compared with the prior year period. The decrease was
primarily driven by decreases in accounts payable and net income excluding the
noncash income items. These decreases were partially offset by lower
receivables.

     AT&T's investing activities resulted in a net use of cash of $3.2 billion
for the first quarter of 2001, compared with use of cash of $5.0 billion for the
first quarter of 2000. During the first quarter of 2001, AT&T paid approximately
$3.9 billion for capital expenditures and received approximately $0.6 billion
primarily related to the net dispositions of businesses. During the first
quarter of 2000, AT&T spent approximately $3.2 billion on capital expenditures,
$1.1 billion primarily for investments in cable and wireless businesses and
loaned $1.0 billion to Concert.

     During the first quarter of 2001, net cash provided by financing activities
was $1.3 billion, compared with $1.6 billion for the first quarter of 2000.
During the first quarter of 2001, AT&T received $9.8 billion from the issuance
of convertible preferred stock to NTT DoCoMo and $6.5 billion from the bond
offering completed by AT&T Wireless, proceeds which in part were used to repay
short-term debt of $14.7 billion. During the first quarter of 2000, AT&T
received $3.2 billion from the issuance of short-term notes. This source of cash
was partially offset by the repayment of long-term debt of $1.0 billion and the
payment of dividends of $0.8 billion.

     At March 31, 2001, we had current assets of $16.3 billion and current
liabilities of $34.4 billion. A significant portion of the current liabilities,
$17.2 billion, relates to short-term notes, the majority of which were
commercial paper or debt with an original maturity of one year or less. During
the first quarter of 2001, we continued to make progress in reducing our debt.
We have used proceeds received from the NTT DoCoMo transaction and the Wireless
bond offering to retire $14.7 billion of the short-term debt. We expect that we
will retire a portion of the remaining short-term debt with other financing
arrangements, including the monetization of publicly-held securities, sales of
certain non-strategic assets and investments, and securitization of certain
accounts receivable. During the quarter we have closed or announced the sale of
investments or assets, which will result in gross cash proceeds of approximately
$4.8 billion. Subsequent to March 31, 2001, we also entered into a program to
securitize a small percentage of our Consumer accounts receivable to receive up
to $0.5 billion, which will be used to retire a portion of the commercial paper.

     At March 31, 2001, we had a current liability of $2.6 billion, reflecting
our obligation under put options held by Comcast and Cox. In January 2001,
Comcast and Cox exercised their rights under the put options and elected to
receive AT&T stock in lieu of cash. In addition, on February 28, 2001, we
exercised our registration rights in TWE and formally requested TWE to begin the
process of converting the limited partnership into a corporation with registered
equity securities. On May 14, 2001, we named Credit Suisse First Boston as our
investment banker for the registration process under the TWE partnership
agreement. We also have requested Cablevision Systems Corporation (Cablevision)
to register for sale up to 30 million Cablevision shares currently owned by
AT&T.

     In connection with the planned split-off of AT&T Wireless, we announced
that we will retain up to $3 billion in shares of AT&T Wireless Services, which
we will dispose of within six months following the split-off. Another aspect of
our restructuring is the expected sale, in late-2001, of a new class of stock
which will track our Broadband business.

     AT&T is in a joint venture with Alaska Native Wireless (ANW), which
participated in the Federal Communication Commission's recent auction of license
spectrum. In January 2001, the auction was
                                        49
<PAGE>   51

completed, and ANW was the highest bidder on approximately $2.9 billion in
licenses. AT&T has committed to contribute $2.6 billion to fund this purchase.
As of March 31, 2001, AT&T Wireless Group funded approximately $309 of the
commitment and has committed to provide the remaining approximate $2.3 billion
when such licenses are granted.

     Since the announced restructuring plans to create four new businesses,
AT&T's debt ratings have been under review by the applicable rating agencies. As
a result of this review, AT&T's ratings have been either downgraded and/or put
on credit watch with negative outlook. These actions will result in an increased
cost of future borrowings and will limit our access to the capital markets.

     AT&T is pursing various measures to reduce its debt level. However, there
can be no assurance that we will be able to obtain financing on terms that are
acceptable to us. If these efforts cannot be completed successfully or on terms
and within the timeframe contemplated, AT&T's financial condition would be
materially adversely affected. Some of these adverse conditions include the
company's ability to pursue acquisitions or make capital expenditures to expand
its network and cable plant, or pay dividends.

     On December 28, 2000, we entered into a 364-day, $25 billion
revolving-credit facility syndicated to 39 banks. This facility was reduced to
$17.5 billion primarily as a result of the NTT DoCoMo investment of $9.8
billion, the AT&T Wireless bond offering and the sale of Japan Telecom. The
364-day facility exists principally as a back-up source to our commercial paper
program. On March 31, 2001, this facility was unused and AT&T has no current
plans to borrow against this facility. In addition, on March 23, 2001, AT&T
Wireless Services entered into $2.5 billion in revolving credit facilities. The
facilities include a 364-day tranche and a 5-year tranche. The facilities are
for general corporate purposes.

     Also in connection with our restructuring plan, we have reviewed our
dividend policy as it relates to each of the new businesses. On December 20,
2000, we announced that the board of directors reduced AT&T's quarterly dividend
to $0.0375 per share, from $0.22 per share.

     Our board of directors has the power to make determinations that may impact
the financial and liquidity position of each of the tracking stock groups. This
power includes the ability to set priorities for use of capital and debt
capacity, to determine cash management policies and to make decisions regarding
whether to make capital expenditures and as to the timing and amount of any
capital expenditures. All actions by the board of directors are subject to the
board members fiduciary duties to all shareholders of AT&T as a group and not
just to holders of a particular class of tracking stock and to our policy
statements, by-laws and inter-company agreements. As a result of this discretion
of our board of directors, it may be difficult for investors to assess each
group's liquidity and capital resource needs and in turn the future prospects of
each group based on past performance.

FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                       MARCH 31,    DECEMBER 31,
                                                         2001           2000
                                                       ---------    ------------
<S>                                                    <C>          <C>
Total assets.........................................  $241,141       $242,223
Total liabilities....................................   118,881        129,432
Total shareowners' equity............................   103,963        103,198
</TABLE>

     Total assets decreased $1.0 billion, or 0.4%, to $241.1 billion at March
31, 2001 from $242.2 billion at December 31, 2000. The decrease was primarily
due to reduced goodwill, primarily driven by the Excite@Home impairment charge,
lower trade receivables and the lower market value of our short-term
investments. Partially offsetting this decrease was an increase in property,
plant and equipment resulting from capital expenditures net of depreciation.

     Total liabilities decreased $10.6 billion, or 8.2%, to $118.9 billion at
March 31, 2001 from $129.4 billion at December 31, 2000. This decrease primarily
resulted from the payment of short-term debt and accounts payable with the
proceeds from the NTT DoCoMo agreement. Partially offsetting this decrease was
the issuance of $6.5 billion in long-term debt through AT&T Wireless Services.

                                        50
<PAGE>   52

     Minority Interest decreased $0.7 billion, or 13.5%, to $4.2 billion at
March 31, 2001 from $4.9 billion at December 31, 2000. This decrease primarily
reflects the losses of Excite@Home, primarily driven by an asset impairment
charge.

     Total shareowners' equity increased $0.8 billion, or 0.7%, to $104.0
billion at March 31, 2001 from $103.2 billion at December 31, 2000. This
increase primarily resulted from the issuance of stock to acquire cable-systems
from Cablevision, and an increase in additional paid-in capital related to the
NTT DoCoMo warrants, as well as issuance of stock in connection with our
employee benefit plans.

     Net debt-to-annualized EBITDA was 3.19x at March 31, 2001 as compared with
3.28x at December 31, 2000, reflecting lower EBITDA partially offset by lower
debt. The debt ratio (debt divided by total debt and equity) was 39.5% at March
31, 2001 as compared with 46.2% at December 31, 2000. For purposes of this
calculation, equity includes the convertible quarterly trust preferred
securities, redeemable preferred stock of subsidiary as well as convertible
preferred stock. The decrease in debt-to-capital was driven by the repayment of
short-term debt offset somewhat by the issuance of wireless bonds.

     In addition, included in debt is approximately $8.6 billion of notes, which
are exchangeable into or collateralized by securities we own. Excluding this
debt, the ratio of debt to total capital at March 31, 2001 was 35.6%.

RISK MANAGEMENT

     We are exposed to market risk from changes in interest and foreign exchange
rates. On a limited basis we use certain derivative financial instruments,
including interest rate swaps, options, forwards and other derivative contracts
to manage these risks. We do not use financial instruments for trading or
speculative purposes. All financial instruments are used in accordance with
board-approved policies.

     Assuming a 10% downward shift in interest rates at March 31, 2001, the fair
value of unhedged debt would have increased by approximately $0.6 billion.

NEW ACCOUNTING PRONOUNCEMENTS

     In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a Replacement of FASB Statement No. 125." This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. Under these standards, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after March 31, 2001. AT&T
does not expect that the adoption of SFAS No. 140 will have a material impact on
AT&T's results of operations, financial position or cash flows.

SUBSEQUENT EVENTS

     On May 7, 2001, AT&T agreed to sell our 99.75% interest in an entity owning
the Baltimore Maryland cable-system serving approximately 110,000 customers to
Comcast for approximately $0.5 billion. Pending certain closing conditions and
regulatory approvals, the transaction is expected to close in second or third
quarter of 2001.

     On April 30, 2001, AT&T received 63.9 million common shares of AT&T common
held by Comcast Corporation in exchange for an entity owning cable-systems which
serves approximately 590 thousand customers in six states. The transaction
resulted in a pretax loss of $0.3 billion.

                                        51
<PAGE>   53

     On April 27, 2001, AT&T completed the sale announced on February 27, 2001,
of our 10% stake in Japan Telecom Co. Ltd to Vodafone Group plc for $1.35
billion in cash. The proceeds from the transaction were split evenly between
AT&T and AT&T Wireless Group. The transaction resulted in a pretax gain of
approximately $0.9 billion.

     On April 26, 2001, AT&T initiated a 364-day accounts receivable
securitization program providing for up to $0.5 billion of funding. Under the
program, a small percentage of consumer accounts receivable will be sold on a
discounted, revolving basis, to a special purpose, wholly-owned subsidiary,
which assigns interests in such receivables to unrelated third-party financing
entities. The proceeds will be used for general corporate purposes, including
the repayment of commercial paper.

                                        52
<PAGE>   54

          AT&T WIRELESS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

AT&T WIRELESS GROUP OVERVIEW

     AT&T Wireless Group is an integrated business of AT&T and is not a
stand-alone entity. As AT&T Wireless Group is a tracking stock of AT&T, separate
financial statements are not required to be filed. We have provided the
financial statements as an exhibit to this document to provide additional
disclosures to investors to allow them to assess the financial performance of
AT&T Wireless Group. Since the tracking stocks are governed by a common board of
directors, the AT&T board of directors could make operational and financial
decisions or implement policies that affect disproportionately the businesses of
any group. For example, our board of directors may decide to transfer funds or
to reallocate assets, liabilities, revenue, expenses and cash flows among
groups, without the consent of shareholders. All actions by the board of
directors are subject to the board members' fiduciary duties to all shareholders
of AT&T as a group and not just to holders of a particular class of tracking
stock and to our charter, policy statements, by-laws and inter-company
agreements.

     AT&T's board of directors may change or supplement the policies set forth
in the tracking stock policy statements and our by-laws in the sole discretion
of our board of directors, subject to the provisions of any inter-group
agreement but without approval of our shareholders. In addition, the fact that
we have separate classes of common stock could give rise to occasions when the
interests of the holders of AT&T common stock, AT&T Wireless Group tracking
stock and Liberty Media Group tracking stock diverge, conflict or appear to
diverge or conflict. AT&T's board of directors would make any change or addition
to the policies set forth in the tracking stock policy statements or our
by-laws, and would respond to any actual or apparent divergence of interest
among our groups, in a manner consistent with its fiduciary duties to AT&T and
all of our shareholders after giving consideration to the potentially divergent
interests and all other relevant interests of the holders of the separate
classes of our shares.

     You should consider that as a result of the flexibility provided to our
board of directors, it may be difficult for investors to assess the future
prospects of a tracking stock group based on that group's past performance.

     AT&T Wireless Group is a wireless telecommunications company which
primarily provides domestic wireless voice and data services and products in the
850 megahertz (cellular) and 1900 megahertz (Personal Communications Services,
or PCS) markets. Additionally, AT&T Wireless Group offers wireless local
telephone and internet services to residential customers through its Fixed
Wireless business. AT&T Wireless Group also holds equity interests in various
domestic and international wireless communications ventures and partnerships.

     On April 27, 2000, AT&T completed an offering of 15.6%, or 360 million
shares, of AT&T Wireless Group tracking stock at an offering price of $29.50 per
share. AT&T Wireless Group tracking stock is a class of AT&T common stock, which
is intended to provide holders with financial returns based on the financial
performance and economic value of AT&T's wireless services' businesses. AT&T
Wireless Group tracking stock issued in the offering reflected only a portion of
the authorized shares. The remaining 84.4% was reserved for the benefit of AT&T
Common Stock Group (which consists of the operations of AT&T other than those
attributed to AT&T tracking stocks) and is intended to be reflected in AT&T
common stock. See below for discussion of the investment by NTT DoCoMo which
closed in January 2001. As a result of the DoCoMo investment, assuming
conversion, AT&T Common Stock Group would retain an approximate 70% economic
interest in AT&T Wireless Group.

     The combined financial statements of AT&T Wireless Group primarily include
the legal entity results of AT&T Wireless Services, Inc. and its subsidiaries
(AWS) and AT&T Wireless Group, LLC (AWG), both of which were direct subsidiaries
of AT&T Corp., as of March 31, 2001. AWG will be transferred to AWS prior to the
split-off.

     On October 25, 2000, as part of its restructuring plan, AT&T announced its
decision to present an exchange offer to AT&T common shareowners to allow them
to exchange any portion of shares of AT&T common stock for shares of AT&T
Wireless Group tracking stock, subject to pro-ration. AT&T released details of
its exchange offer on April 18, 2001 and anticipates that the exchange offer
will be completed during
                                        53
<PAGE>   55

the second quarter of 2001. Under the terms of the exchange offer, AT&T will
issue 1.176 shares of AT&T Wireless Group tracking stock in exchange for each
share of AT&T common stock validly tendered and not withdrawn, subject to
specified conditions. AT&T Wireless Group will continue to be a part of AT&T
following the completion of the exchange offer. This exchange offer will result
in an increase in the percentage of outstanding shares held by public
shareholders and a decrease to the percentage reserved for the benefit of AT&T
Common Stock Group.

     In connection with its restructuring plan, following the completion of the
exchange offer and subject to certain conditions, AT&T intends to split-off AT&T
Wireless Group from AT&T. These conditions include the receipt of a favorable
ruling on the split-off from the Internal Revenue Service (IRS) and satisfaction
of conditions contained in an AT&T credit agreement, including the repayment of
AT&T Wireless Group's intercompany obligations to AT&T.

     On April 18, 2001, AT&T Wireless Services, Inc., filed its initial
registration statement in connection with the planned split-off. The split-off,
which is anticipated to be completed in mid-2001, will include several steps.
These steps include transferring substantially all of the assets and liabilities
of AT&T Wireless Group to AT&T Wireless Services, Inc., mandatorily exchanging
all issued and outstanding shares of AT&T Wireless Group tracking stock,
including those shares issued in the exchange offer as well as the shares held
by DoCoMo, for shares of AT&T Wireless Services, Inc. common stock, and
distributing a majority of the shares of AT&T Wireless Services, Inc. common
stock held by AT&T Common Stock Group, to holders of AT&T common stock on a pro
rata basis. AT&T intends to retain up to $3 billion of AT&T Wireless Services,
Inc. common stock for its own account for sale or exchange within six months of
the split-off, subject to receipt of a satisfactory IRS ruling.

DOCOMO INVESTMENT

     In January 2001, NTT DoCoMo, a leading Japanese wireless communications
company, invested $9.8 billion in a security of AT&T that, like AT&T Wireless
Group tracking stock, is intended to reflect a portion of the financial
performance and economic value of AT&T Wireless Group. AT&T Wireless Group,
through AWS and AWG, was allocated $6.2 billion of the gross proceeds from
DoCoMo's $9.8 billion investment in AT&T. Additionally, AT&T Wireless Group was
allocated $18 of costs associated with the transaction. AT&T retained the
remaining $3.6 billion of the DoCoMo investment proceeds as consideration for
the reduction in AT&T's retained portion of AT&T Wireless Group's value.
Following the split-off, this investment will be converted into approximately
16% of AT&T Wireless Services' common shares. DoCoMo also received warrants at
an exercise price of $35 per AT&T Wireless Group tracking share equivalent that
would represent an approximate additional 1.6% of AT&T Wireless Services' common
shares after the split-off. As part of this investment, AT&T Wireless Group,
through AWS, has entered into a strategic alliance with DoCoMo to develop mobile
multimedia services on a global-standard, high-speed wireless network. DoCoMo
may require the repurchase of its investment at DoCoMo's original purchase
price, plus interest, if AT&T does not complete the split-off by specified dates
beginning January 1, 2002, or if AT&T Wireless Group fails to meet specified
technological milestones.

AT&T WIRELESS GROUP FORWARD-LOOKING STATEMENTS

     Except for the historical statements and discussions contained herein,
statements herein constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation, statements concerning future
business prospects, revenue, operating performance, working capital, liquidity,
capital needs, and general industry growth rates and AT&T Wireless Group's
performance relative thereto. These forward-looking statements rely on a number
of assumptions concerning future events, including AT&T Wireless Group's ability
to achieve a significant market penetration in new markets. These
forward-looking statements are subject to a number of uncertainties and other
factors, many of which are outside AT&T Wireless Group's control, that could
cause actual results to differ materially from such statements. AT&T and AT&T
Wireless Group disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

                                        54
<PAGE>   56

AT&T WIRELESS GROUP COMBINED RESULTS OF OPERATIONS

  For the Three Months Ended March 31, 2001 Compared with the Three Months Ended
March 31, 2000

     Revenue

     Total revenue includes wireless voice and data services, the sale of
handsets and accessories, and revenue associated with the aviation
communications and fixed wireless operations. AT&T Wireless Group records
revenue as services are provided or when the product is sold. Services revenue
primarily includes monthly recurring charges, airtime and toll usage charges,
and roaming charges billed to subscribers for usage outside of AT&T Wireless
Group's network as well as charges billed to other wireless providers for
roaming on AT&T Wireless Group's network. The revenue and related expenses
associated with the sales of wireless handsets and accessories are recognized
when the products are delivered and accepted by the customer, as this is
considered to be a separate earnings process from the sale of wireless services.

     Total revenue increased 46.2% to $3,212 million for the three months ended
March 31, 2001, compared with the same period in the prior year. Total revenue
increased 25.7% for the three months ended March 30, 2001, compared with the
same period for 2000, when adjusted to exclude the impact of the Bay Area
Properties and the Los Angeles market for the three months ended March 31, 2001.

     The revenue increase for the three months ended March 31, 2001, was
primarily due to growth in our mobility business services revenue, driven by
strong consolidated subscriber growth, which was slightly offset by a decline in
the average monthly revenue per user (ARPU).

     Services revenue for the three months ended March 31, 2001, was $2,931
million, an increase of $939 million, or 47.2%, compared with the respective
period in 2000.

     As of March 31, 2001, AT&T Wireless Group's Mobility business had over 15.7
million consolidated subscribers, an increase of 57.7%, compared with the prior
year, including approximately 3 million subscribers associated with acquisitions
that closed subsequent to the first quarter of 2000. Net consolidated wireless
subscriber additions in the first quarter of 2001 totaled 585 thousand, a 40.0%
increase over the prior year quarter. AT&T Wireless Group's average monthly
churn rate in the first quarter of 2001 was 3.0% compared with 2.9% in the first
quarter of 2000.

     AT&T Wireless Group's ARPU for the three months ended March 31, 2001, was
$62.20, an decrease of $5.00, or 7.4%, compared with the same period in 2000.
The decline in ARPU is primarily a result of competitive pricing pressures,
expansion into a broader base of consumer segments, including prepaid wireless,
and the impact of acquisitions which closed subsequent to the first quarter of
2000.

     Equipment revenue for the three months ended March 31, 2001, was $281
million, an increase of $75 million, or 36.6%, compared with the same period in
2000. This increase was primarily due to an increase in gross consolidated
subscriber additions in the three months ended March 31, 2001, compared with the
same period in 2000. AT&T Wireless Group supplies to its subscribers a selection
of handsets at competitive prices, which are generally offered at or below cost.

     Costs of services

     Costs of services include the costs to place calls over the network
(including the costs to operate and maintain AT&T Wireless Group's network as
well as roaming costs paid to other wireless providers) and the charges paid to
connect calls on other networks, including those of AT&T. Additionally, costs of
services includes provision for uncollectible receivables, as well as non-income
related taxes.

     Costs of services for the three months ended March 31, 2001, were $921
million, an increase of $259 million, or 39.3%, for the three months ended March
31, 2001, compared with the same period in 2000. Approximately one-third of the
increase was due to an increase in the provision for uncollectible receivables,
which resulted from a change in the mix of the subscriber base as a result of
broadening AT&T Wireless Group's market segments. Additionally, another one-half
of the increase was due to an increase in charges paid to connect calls on other
networks, including AT&T's, as well as an increase in the costs to maintain the
AT&T Wireless Group's network. These increases were driven by growth in
subscriber base and the related increased minutes of use.

                                        55
<PAGE>   57

     Costs of equipment sales

     Costs of equipment sales include the costs of the handsets and accessories
provided to AT&T Wireless Group customers. Costs of equipment sales for the
three months ended March 31, 2001 were $490 million, an increase of $99 million,
or 25.2%, compared with the same period in 2000. This increase was due entirely
to higher equipment sales, as well as an increase in handset subsidies resulting
from the increase in gross subscriber additions in the first quarter of 2001
compared with the first quarter of 2000.

     Selling, general and administrative

     Selling, general and administrative expenses for the three months ended
March 31, 2001, were $1,084 million compared with $750 million for the three
months ended March 31, 2000. Approximately forty percent of the increase was
attributable to higher marketing and selling costs, including advertising and
commissions, associated with the increase in gross consolidated subscriber
additions for the three months ended March 31, 2001. Cost per gross subscriber
addition, which includes the cost of handset subsidies recorded in costs of
equipment sales in the accompanying combined statement of operations, was $327
for the three months ended March 31, 2001, compared with $360 for the three
months ended March 31, 2000. In addition, approximately one-third of the
increase was the result of growth in the wireless subscriber customer base and
the related increases in customer care and billing costs.

     Depreciation and amortization

     Depreciation and amortization expenses for the three months ended March 31,
2001, were $576 million, an increase of $207 million, or 56.1%, compared with
the three months ended March 31, 2000. The increase primarily resulted from the
growth in the AT&T Wireless Group's depreciable asset base resulting from
capital expenditures and property, plant and equipment acquired with
acquisitions that closed subsequent to the first quarter of 2000. Additionally,
effective January 1, 2001, AT&T Wireless Group shortened the depreciable lives
of certain wireless communications equipment which resulted in approximately $36
million of additional depreciation expense for the three months ended March 31,
2001. Total capital expenditures were $1,252 million for the three months ended
March 31, 2001. Amortization expense increased from the prior year quarter as a
result of an increase in the amortization expense of licensing costs, goodwill,
and other acquisition related intangibles as a result of acquisitions that
closed subsequent to the first quarter of 2000. As a result of AT&T Wireless
Group's evaluation of recent changes in the wireless telecommunications industry
and the views of regulatory authorities, effective January 1, 2001, AT&T
Wireless Group will use an amortization period for all licensing costs and
goodwill associated with newly acquired wireless operations not to exceed 25
years. This change did not have a material impact to AT&T Wireless Group's
results of operations for the three months ended March 31, 2001.

     Other income

     Other income primarily includes gains or losses on sales or exchanges of
assets and intercompany interest income on the note receivable from AT&T. Other
income for the three months ended March 31, 2001, was $84 million compared with
$24 million for the respective period in 2000. The increase was due primarily to
$77 million of intercompany interest income on the note receivable from AT&T for
the first quarter of 2001.

     Interest expense

     Interest expense consists primarily of interest expense on long-term debt
to others and intercompany debt due to AT&T, less interest expense capitalized.
Interest expense for the first quarter of 2001, was $47 million, a decrease of
$4 million, or 6.8%, compared with the first quarter of 2000. The decrease was
primarily due to lower levels of average outstanding debt due to AT&T.
Additionally, capitalized interest increased as a result of increased capital
expenditures. These decreases were offset by interest expense associated with
the $6.5 billion of Senior Notes issued by AWS in March 2001.

     Provision (benefit) for income taxes

     The provision (benefit) for income taxes for the three months ended March
31, 2001, was a provision of $79 million compared with $2 million of benefit for
the same period in 2000. The increase was due primarily to

                                        56
<PAGE>   58

the increase in income before net equity earnings (losses) in the current year
quarter compared with the prior year quarter. The effective income tax rate for
the three months ended March 31, 2001, was 44.4% and was primarily impacted by
goodwill associated with acquisitions that closed during 2000. Excluding a
one-time gain recorded in the first quarter of 2000, the effective income tax
rate for the prior year quarter was 48.9% and was also impacted primarily by
goodwill associated with the 2000 acquisitions.

     Net equity (losses) earnings from investments

     Net equity (losses) earnings from investments, net of tax, were $99 million
of losses for the three months ended March 31, 2001, compared with $25 million
of earnings for the respective period in 2000. The decrease was primarily due to
equity earnings from CMT Partners and AB Cellular during the first quarter of
2000. AT&T Wireless Group acquired the remaining interest in CMT partners that
they did not own in June 2000, and therefore, this entity was consolidated
subsequent to the acquisition. Additionally, AT&T Wireless Group's equity
interest in AB Cellular was redeemed in December 2000. In addition, equity
losses increased associated with AT&T Wireless Group's affiliate and
international investments in the first quarter of 2001 compared with the first
quarter of 2000.

     Dividend requirements on preferred stock held by AT&T

     At March 31, 2001, and December 31, 2000, AT&T Wireless Group had
outstanding, $3.0 billion of preferred stock held by AT&T that pays dividends at
9% per annum. Dividend requirements on this preferred stock for the three months
ended March 31, 2001 were $42 million compared with $13 million for the
respective period in 2000, net of amounts recorded in accordance with the tax
sharing agreement. The increase was a result of the May 1, 2000,
recapitalization of $2.0 billion of outstanding intercompany indebtedness to
AT&T into an additional $2.0 billion of 9% cumulative preferred stock held by
AT&T.

AT&T WIRELESS GROUP LIQUIDITY AND CAPITAL RESOURCES

     Currently, financing activities for AT&T Wireless Group are managed by AT&T
on a centralized basis and are subject to the review of AT&T Wireless Group's
capital stock committee. The AT&T Wireless Group capital stock committee is
selected by AT&T's board of directors to oversee the interaction between
businesses of AT&T Common Stock Group and AT&T Wireless Group in accordance with
the AT&T Wireless Group Policy Statement. Under the AT&T Wireless Group Policy
Statement, all material transactions between AT&T Common Stock Group and AT&T
Wireless Group are determined and governed by a process of fair dealing. Sources
for AT&T Wireless Group's future financing requirements may include the
borrowing of funds, including additional short-term floating rate debt from AT&T
prior to the split-off, and/or third-party debt. Loans from AT&T to any member
of AT&T Wireless Group have been made at interest rates and on other terms and
conditions intended to be substantially equivalent to the interest rates and
other terms and conditions that AT&T Wireless Group would be able to obtain from
third parties, including the public markets, as a non-affiliate of AT&T without
the benefit of any guaranty by AT&T. This policy contemplates that these loans
will be made on the basis set forth above regardless of the interest rates and
other terms and conditions on which AT&T may have acquired the funds. If,
however, AT&T incurs any fees or charges in order to keep available funds for
use by AT&T Wireless Group, those fees or charges will be allocated to AT&T
Wireless Group.

     AT&T's board of directors has the power to make determinations that may
impact the financial and liquidity position of each of the tracking stock
groups. This power includes the ability to set priorities for use of capital and
debt capacity, to determine cash management policies and to make decisions
regarding whether to make capital expenditures and as to the timing and amount
of any capital expenditures. All actions by the board of directors are subject
to the board members fiduciary duties to all shareholders of AT&T as a group and
not just to holders of a particular class of tracking stock and to our policy
statements, by-laws and inter-company agreements. As a result of this discretion
of AT&T's board of directors, it may be difficult for investors to assess each
group's liquidity and capital resource needs and in turn the future prospects of
each group based on past performance.

     The continued expansion of AT&T Wireless Group's network and footprint,
including spectrum auctions and the marketing and distribution of its products
and services, will continue to require substantial capital.
                                        57
<PAGE>   59

Prior to 2001, AT&T Wireless Group funded its operations with proceeds from the
April 2000 offering of AT&T Wireless Group tracking stock attributed from AT&T,
intercompany borrowings from AT&T, internally generated funds, as well as
capital contributions from AT&T prior to the April 2000 offering. Capital
contributions from AT&T prior to the April 2000 offering included acquisitions
made by AT&T that have been attributed to AT&T Wireless Group. Noncash capital
contributions from AT&T to AT&T Wireless Group related to acquisitions and
initial investments funded by AT&T totaled $552 million for the three months
ended March 31, 2000.

     The April 2000 offering of AT&T Wireless Group tracking stock resulted in
net proceeds to AT&T after deducting underwriter's discount and related fees and
expenses of $10.3 billion. AT&T attributed $7.0 billion of the net proceeds to
AT&T Wireless Group in the form of an intercompany note receivable, which was
repaid by December 31, 2000, and was used primarily to fund acquisitions and
capital expenditures.

     On May 1, 2000, in conjunction with the offering, AT&T Wireless Group
recapitalized $2.0 billion of outstanding intercompany indebtedness to AT&T into
an additional $2.0 billion of 9% cumulative preferred stock held by AT&T. In
conjunction with the recapitalization, AT&T Wireless Group's long-term debt due
to AT&T was recapitalized to be 10 year term debt that bears interest at a fixed
rate of 8.1% per annum.

     On January 22, 2001, AT&T closed their transaction with NTT DoCoMo. AT&T
attributed $6.1 billion of the approximate $9.8 billion of net proceeds received
from the DoCoMo investment to AT&T Wireless Group in the form of an intercompany
note receivable. AT&T Wireless Group intends to utilize the proceeds to continue
executing their strategy to expand their capacity, enlarge their footprint,
create an advanced mobile internet and invest in other strategic growth
initiatives, as well as to satisfy intercompany obligations. It is intended that
any outstanding balance on the intercompany note receivable will be repaid by
AT&T prior to the split-off.

     On March 6, 2001, AT&T Wireless Group, through AWS, completed a private
placement of $6.5 billion in unsecured and unsubordinated Senior Notes with
maturity dates from March 1, 2006 to March 1, 2031. The notes pay interest at
fixed rates ranging from 7.350% to 8.750% per annum, payable semi-annually and
include customary covenants. The notes include registration rights, such that
AWS is required to exchange the notes for a new issue of notes registered under
the Securities Act of 1933 and are to be declared effective no later than 240
days after the issue date. AT&T Wireless Group had $38 of interest expense for
the quarter ended March 31, 2001 related to those notes.

     On March 23, 2001, AT&T Wireless Group, through AWS, entered into
Competitive Advance and Revolving Credit Facilities (the "Facilities") in the
aggregate amount of $2.5 billion consisting of an up to $1.25 billion 364-day
Competitive Advance and Revolving Credit Facility and an up to $1.25 billion
Five-Year Competitive Advance and Revolving Credit Facility. The Facilities are
subject to a facility fee ranging from 8 to 30 basis points, payable quarterly
on the total commitment, used or unused. The facility fees are based on the
respective agreement and will fluctuate based on AT&T Wireless Group's Senior
Notes rating. The Facilities are also subject to a utilization fee of 12.5 basis
points if borrowings exceed certain levels as defined in the agreement. The
Facilities bear interest at variable rates based upon, in various cases, (i)
LIBOR plus 32.5 to 100 basis points depending on AT&T Wireless Group's Senior
Notes rating, or (ii) the greater of the prime rate or the Federal funds
effective rate plus 50 basis points. The Facilities are to be used for general
corporate purposes and are subject to customary covenants, representations and
warranties and events of default. In addition, the Facilities contain financial
covenants requiring AT&T Wireless Group to maintain certain financial ratios and
prohibit AWS from declaring and/or paying dividends prior to the split-off. The
Facilities also specifies limitations on AT&T's and AT&T Wireless Group's
ability to consummate the split-off including a provision that it will
constitute an event of default if the split-off is consummated without obtaining
a favorable tax ruling from the IRS or an unqualified tax opinion that the
split-off will qualify as a tax-free transaction. In addition, the existence of
an obligation by AT&T Wireless Group to repurchase equity interests from DoCoMo
may under certain circumstances constitute an event of default. No amounts had
been borrowed under the Facilities at March 31, 2001.

     In association with the intended split-off of AT&T Wireless Group from AT&T
announced on October 25, 2000, AT&T and AT&T Wireless Services, Inc. anticipate
that they will enter into a separation and distribution agreement that will
govern the terms of the split-off. As part of this agreement, AT&T
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<PAGE>   60

Wireless Services will agree, upon completion of the split-off, to repay the
full amount of the principal and accrued but unpaid interest or face value and
accrued but unpaid dividends, of all outstanding indebtedness owned by AT&T
Wireless Group to AT&T, and all preferred stock in AT&T Wireless Group held by
AT&T.

     AT&T performs cash management functions on behalf of AT&T Wireless Group.
Substantially all of AT&T Wireless Group's cash balances are swept to AT&T on a
daily basis, where they are managed and invested by AT&T. Prior to the offering
of AT&T Wireless Group tracking stock, transfers of cash to and from AT&T were
reflected as a component of combined attributed net assets, with no interest
income or expense reflected. Subsequent to the offering, transfers are reflected
as changes in the note receivable from or short-term debt payable to AT&T. Cash
balances maintained and reported by AT&T Wireless Group primarily represent cash
balances for which no right of offset exists with AT&T.

     Net cash provided by operating activities for the three months ended March
31, 2001, was $655 million, compared with $228 million for the same period in
2000. The increase in cash provided by operating activities was primarily due to
a $322 million increase in operating income excluding depreciation and
amortization, resulting from revenue growth and expense leveraging as well as an
increase in deferred income taxes. These increases were partially offset by a
larger decrease in payroll and benefit related liabilities for the three months
ended March 31, 2001, compared with the prior year. Net cash used in investing
activities for the three months ended March 31, 2001, was $12,519 million,
compared with $948 million for the three months ended March 31, 2000. The
increase was due primarily to the issuance of a note receivable from AT&T
totaling $10,588 million, increased contributions into equity investments, and
higher capital expenditures to upgrade and increase network capacity. Net cash
provided by financing activities for the three months ended March 31, 2001, was
$11,836 million, compared with $725 million for the three months ended March 31,
2000. The increase was primarily due to the $6.1 billion of net proceeds from
the DoCoMo investment that AT&T attributed to AT&T Wireless Group, as well as
the $6.3 billion of net proceeds from the issuance of the Senior Notes,
partially offset by the repayment of the $638 million of short-term debt due to
AT&T.

     EBITDA, defined as operating income plus depreciation and amortization, is
the primary measure used by the chief operating decision-makers to measure our
ability to generate cash flow. EBITDA may or may not be consistent with the
calculation of EBITDA for other public companies and should not be viewed by
investors as an alternative to generally accepted accounting principles,
measures of performance or to cash flows from operating, investing and financing
activities as a measure of liquidity.

     EBITDA for the three months ended March 31, 2001, was $717 million compared
with $395 million for the same period in 2000. The increase was primarily the
result of growth in services revenue, partially offset by increased customer
acquisition costs associated with the increase in gross consolidated subscriber
additions, increased network costs attributable to subscriber growth and the
related minutes of use, increased provision for uncollectible receivables, and
increased customer care and billing related expenses to support growth in the
subscriber base.

     For the Mobility business, EBITDA for the three months ended March 31,
2001, was $788 million compared with $431 million for the same period in 2000.

     For the Fixed Wireless business, EBITDA for the three months ended March
31, 2001, was a deficit of $68 million compared with a deficit of $34 million
for the same period in 2000.

     EBITDA margin, defined as EBITDA as a percentage of total revenue, was
22.3% for the first quarter of 2001, compared with 18.0% for the first quarter
of 2000. The improvement in EBITDA margin was primarily due to revenue growth
and expense leveraging, primarily off-network roaming expenses, partially offset
by increased provision for uncollectible receivables.

     EBITDA margin for the Mobility business was 24.5% for the first quarter of
2001 compared with 19.6% for the first quarter of 2000.

AT&T WIRELESS GROUP FINANCIAL CONDITION

     Total assets were $47,039 million as of March 31, 2001, an increase of
$11,737 million, or 33.2%, compared with December 31, 2000. The increase was due
primarily to an increase in the intercompany note receivable from AT&T of
$10,588 million which resulted from AT&T attributing $6.1 billion of the DoCoMo
                                        59
<PAGE>   61

investment net proceeds to AT&T Wireless Group, and AT&T Wireless Group loaning
the $6.3 billion of net proceeds from the Senior Notes to AT&T. Partially
offsetting these proceeds were the repayment of the $638 million of short-term
debt due to AT&T, as well as capital expenditures and contributions made to non-
consolidated investments during the first quarter of 2001.

     Total liabilities were $16,060 million as of March 31, 2001, an increase of
$5,676 million, or 54.7%, compared with December 31, 2000. The increase was
primarily due to the issuance of the $6.5 billion of Senior Notes, as well as
increased operating accruals, partially offset by the repayment of $638 million
of short-term debt due to AT&T, and decreases in payroll and benefit related
liabilities and accounts payable.

     Total combined attributed net assets was $30,937 million as of March 31,
2001, an increase of $6,606 million, or 24.4%, compared with December 31, 2000.
The increase was primarily due to AT&T's attribution of the $6.1 billion of
DoCoMo investment net proceeds to AT&T Wireless Group.

RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2000, the Financial Accounting Standards Board (FASB) issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities -- A Replacement of FASB No. 125". This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Under these standards,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. AT&T Wireless Group does not expect that the adoption of SFAS No. 140 will
have a material impact on its results of operations, financial position or cash
flows.

AT&T WIRELESS GROUP SUBSEQUENT EVENTS

     On April 27, 2001, AT&T completed the sale of its entire interest in Japan
Telecom for approximately $1.35 billion in cash. AT&T attributed $.5 billion of
the net after-tax proceeds from the sale to AT&T Wireless Group. AT&T Wireless
Group recognized an after-tax gain of $298 million associated with the
transaction, which was recorded in net equity earnings from investments in the
second quarter of 2001.

     During the first quarter of 2001, AT&T Wireless Group, through AWS, made
unsecured term loans to Rogers Wireless to pay for spectrum it successfully bid
upon in the recently completed Canadian spectrum auctions. In April 2001, Rogers
Wireless effected a rights offering of its equity securities in which AT&T
Wireless Group's joint venture with British Telecommunications, JVII,
participated. The participation increased JVII's ownership interest in Rogers
Wireless to 34.36%. AT&T Wireless Group funded the purchase on behalf of JVII by
offsetting it against the unsecured, interest bearing note made by AWS. This
transaction resulted in AT&T Wireless Group obtaining a controlling interest of
JVII, as well as increasing the indirect ownership percentage in Rogers
Wireless. As a result of the consolidation of JVII, which holds the equity
interest in Rogers Wireless, AT&T Wireless Group's investments in unconsolidated
subsidiaries, as well as minority interest liability, increased approximately
$420 million in April 2001.

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<PAGE>   62

                          PART II -- OTHER INFORMATION

ITEM 2c.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     On January 22, 2001, in a private placement transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
as a transaction not involving a public offering, the company sold to NTT DoCoMo
for an aggregate price of $9.8 billion newly issued AT&T convertible preferred
stock and warrants.

     The convertible preferred stock is convertible into 406 million shares of
AT&T Wireless Group tracking stock at the option of NTT DoCoMo. The warrants
will be exercisable in five years to purchase 41.7 million AT&T Wireless Group
tracking stock at $35 per share.

     Consulting fees associated with the transaction of approximately $35
million were paid to our financial advisors, Salomon Smith Barney and Credit
Suisse First Boston Corporation, in association with the deal. The fees were
discounted from the proceeds from the convertible preferred stock and will be
accreted monthly for thirteen months. The company allocated $6.1 billion of the
net proceeds to AT&T Wireless Group which will be used to continue executing its
strategy to expand its capacity, enlarge its footprint, create an advanced
mobile Internet, and invest in other strategic growth initiatives, as well as to
satisfy intercompany obligations. The remaining proceeds from the deal was used
to reduce AT&T's debt.

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

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C>       <S>
  12      Computation of Ratio of Earnings to Fixed Charges

  99.1    Liberty Media Group financial results for the three months
          ended March 31, 2001 and 2000

  99.2    AT&T Wireless Group financial results for the three months
          ended March 31, 2001 and 2000
</TABLE>

(b) Reports on Form 8-K

     Form 8-K dated February 16, 2001 was filed pursuant to Item 5 (Other
Events) and Item 7 (Financial Statements and Exhibits) on February 16, 2001.
Form 8-K dated February 28, 2001 was filed pursuant to Item 5 on March 1, 2001.
Form 8-K dated March 28, 2001 was filed pursuant to Item 7 on March 28, 2001.
Form 8-K dated March 28, 2001 was filed pursuant to Item 5 and Item 7 on March
29, 2001.

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<PAGE>   63

                                   SIGNATURES

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

                                          AT&T Corp.

                                          /s/        N. S. CYPRUS
                                          --------------------------------------
                                          By: N. S. Cyprus
                                            Vice President and Controller
                                            (Principal Accounting Officer)

Date: May 15, 2001

                                        62
<PAGE>   64

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C>       <S>
  12      Computation of Ratio of Earnings to Fixed Charges

  99.1    Liberty Media Group financial results for the three months
          ended March 31, 2001 and 2000

  99.2    AT&T Wireless Group financial results for the three months
          ended March 31, 2001 and 2000
</TABLE>

                                        63