<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

        |X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002

                                       OR

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

          For the transition period from _____________to _____________

                          Commission file number 1-1105

                                   AT&T CORP.

A New York                                                       I.R.S. Employer
Corporation No.                                                     13-4924710

            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 July 31, 2002, the following shares of stock were outstanding:

AT&T common stock - 3,845,513,811 shares


                                       1
<PAGE>
                         PART I - FINANCIAL INFORMATION
                           AT&T CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTHS         FOR THE SIX MONTHS
                                                                   ENDED JUNE 30,              ENDED JUNE 30,
                                                                 2002          2001          2002          2001
                                                                 ----          ----          ----          ----
<S>                                                            <C>           <C>           <C>           <C>
Revenue                                                        $ 12,104      $ 13,265      $ 24,088      $ 26,738
                                                               --------      --------      --------      --------

Operating Expenses
Costs of services and products (excluding depreciation of
  $1,437, $1,181, $2,774 and $2,368 included below)               3,339         3,410         6,629         6,982
Access and other connection                                       2,763         3,105         5,571         6,256
Selling, general and administrative                               2,644         2,749         5,190         5,465
Depreciation and amortization                                     1,959         2,350         3,854         4,762
Net restructuring and other charges                                  --           287            56         1,095
Goodwill and franchise impairment charges                        16,479            --        16,479            --
                                                               --------      --------      --------      --------
Total operating expenses                                         27,184        11,901        37,779        24,560
                                                               --------      --------      --------      --------

Operating (loss) income                                         (15,080)        1,364       (13,691)        2,178

Other (expense), net                                               (829)         (308)         (991)       (1,091)
Interest (expense)                                                 (716)         (761)       (1,483)       (1,640)
                                                               --------      --------      --------      --------
(Loss) income from continuing operations before income
  taxes, minority interest and dividends on subsidiary
  preferred stock and net (losses) related to equity
  investments                                                   (16,625)          295       (16,165)         (553)
Benefit for income taxes                                          4,631           436         4,365           218
Minority interest and dividends on subsidiary preferred
  stock                                                             (31)          198           (88)          838
Net (losses) related to other equity investments                   (724)         (980)       (1,021)       (1,037)
Equity (losses) from Liberty Media Group                             --        (2,125)           --        (2,822)
                                                               --------      --------      --------      --------
(Loss) from continuing operations                               (12,749)       (2,176)      (12,909)       (3,356)
(Loss) income from discontinued operations (net of income
  taxes of $44, $(119), $44 and $(158))                             (88)          218           (88)          150
                                                               --------      --------      --------      --------
(Loss) before extraordinary gain and cumulative effect of
  accounting changes                                            (12,837)       (1,958)      (12,997)       (3,206)
Extraordinary gain (net of income taxes of $(5) and $(30))            7            --            48            --
Cumulative effect of accounting changes (net of income
  taxes of $530 and $(578))                                          --            --          (856)          904
                                                               --------      --------      --------      --------
Net (loss)                                                      (12,830)       (1,958)      (13,805)       (2,302)
Dividend requirements of preferred stock, net                        --          (236)           --          (417)
Premium on exchange of AT&T Wireless tracking stock                  --           (80)           --           (80)
                                                               --------      --------      --------      --------
(Loss) attributable to common shareowners                      $(12,830)     $ (2,274)     $(13,805)     $ (2,799)
                                                               ========      ========      ========      ========

AT&T Common Stock Group - per basic and diluted share:
(Loss) from continuing operations                              $  (3.49)     $  (0.10)     $  (3.59)     $  (0.28)
(Loss) income from discontinued operations                        (0.03)         0.05         (0.03)         0.03
Extraordinary gain                                                   --            --          0.01            --
Cumulative effect of accounting changes                              --            --         (0.23)         0.10
                                                               --------      --------      --------      --------
(Loss)                                                         $  (3.52)     $  (0.05)     $  (3.84)     $  (0.15)
                                                               ========      ========      ========      ========

Dividends declared                                             $ 0.0375      $ 0.0375      $  0.075      $  0.075

AT&T Wireless Group - per basic and diluted share:
Income from discontinued operations                            $     --      $   0.08      $     --      $   0.08
                                                               ========      ========      ========      ========

Liberty Media Group - per basic and diluted share:
(Loss) before cumulative effect of accounting change           $     --      $  (0.82)     $     --      $  (1.09)
Cumulative effect of accounting change                               --            --            --          0.21
                                                               --------      --------      --------      --------
(Loss)                                                         $     --      $  (0.82)     $     --      $  (0.88)
                                                               ========      ========      ========      ========
</TABLE>

    The notes are an integral part of the consolidated financial statements.


                                       2
<PAGE>
                           AT&T CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            AT               AT
                                                                         JUNE 30,        DECEMBER 31,
                                                                           2002             2001
                                                                           ----             ----
<S>                                                                      <C>             <C>
ASSETS
Cash and cash equivalents                                                $   5,606        $  10,592
Accounts receivable, less allowances of $832 and $827                        7,191            7,736
Other receivables                                                              374            1,645
Investments                                                                    414              668
Deferred income taxes                                                        1,981            1,230
Other current assets                                                           978              657
                                                                         ---------        ---------
TOTAL CURRENT ASSETS                                                        16,544           22,528
                                                                         ---------        ---------

Property, plant and equipment, net of accumulated depreciation of
  $35,165 and $32,046                                                       41,460           41,322
Goodwill, net of accumulated amortization of $1,307 in 2001                 20,526           24,675
Franchise costs, net of accumulated amortization of $2,501 in 2001          29,083           42,819
Other purchased intangible assets, net of accumulated amortization
  of $782 and $647                                                           2,064            2,222
Investments and related advances                                            18,676           23,818
Prepaid pension costs                                                        3,466            3,337
Other assets                                                                 6,076            4,561
                                                                         ---------        ---------
TOTAL ASSETS                                                             $ 137,895        $ 165,282
                                                                         =========        =========
LIABILITIES
Accounts payable                                                         $   4,330        $   4,744
Payroll and benefit-related liabilities                                      1,551            2,084
Debt maturing within one year                                                5,889           12,958
AT&T Canada obligation                                                       3,664               --
Other current liabilities                                                    4,779            5,641
                                                                         ---------        ---------
TOTAL CURRENT LIABILITIES                                                   20,213           25,427
                                                                         ---------        ---------

Long-term debt                                                              37,271           40,527
Long-term benefit-related liabilities                                        3,632            3,594
Deferred income taxes                                                       23,911           28,160
Other long-term liabilities and deferred credits                             3,991            7,614
                                                                         ---------        ---------
TOTAL LIABILITIES                                                           89,018          105,322
                                                                         ---------        ---------

Minority Interest                                                            1,397            3,560

Company-Obligated Convertible Quarterly Income Preferred
  Securities of Subsidiary Trust Holding Solely Subordinated Debt
  Securities of AT&T                                                         4,725            4,720

SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares;
  issued and outstanding 3,845,223,065 shares (net of 858,521,242
  treasury shares) at June 30, 2002 and 3,542,405,744 shares (net
  of 851,746,431 treasury shares) at December 31, 2001                       3,845            3,542
Additional paid-in capital                                                  56,312           51,964
Accumulated (deficit)                                                      (17,288)          (3,484)
Accumulated other comprehensive (loss)                                        (114)            (342)
                                                                         ---------        ---------
TOTAL SHAREOWNERS' EQUITY                                                   42,755           51,680
                                                                         ---------        ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY                                $ 137,895        $ 165,282
                                                                         =========        =========
</TABLE>

    The notes are an integral part of the consolidated financial statements.


                                       3
<PAGE>
                           AT&T CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FOR THE SIX MONTHS ENDED
                                                                         JUNE 30,
                                                                     2002           2001
                                                                     ----           ----
<S>                                                              <C>           <C>
AT&T Common Shares
  Balance at beginning of year                                   $  3,542      $   3,760
  Shares issued, net:
    Under employee plans                                               20              7
    For acquisitions                                                   --             44
    Settlement of put option                                           --            155
    Exchange of AT&T Wireless tracking stock                           --           (372)
    For funding AT&T Canada obligation                                230             --
    Redemption of TCI Pacific preferred stock                          52             --
    Other*                                                              1            (62)
                                                                 --------      ---------
Balance at end of period                                            3,845          3,532
                                                                 --------      ---------
AT&T Wireless Group Common Stock
  Balance at beginning of year                                         --            362
  Shares issued:
    Under employee plans                                               --              2
    Exchange of AT&T Wireless tracking stock                           --            438
                                                                 --------      ---------
Balance at end of period                                               --            802
                                                                 --------      ---------
Liberty Media Group Class A Common Stock
  Balance at beginning of year                                         --          2,364
  Shares issued, net                                                   --             14
                                                                 --------      ---------
Balance at end of period                                               --          2,378
                                                                 --------      ---------
Liberty Media Group Class B Common Stock
  Balance at beginning of year                                         --            206
  Shares issued, net                                                   --              6
                                                                 --------      ---------
Balance at end of period                                               --            212
                                                                 --------      ---------
Additional Paid-In Capital
  Balance at beginning of year                                     51,964         90,496
  Shares issued, net:
    Under employee plans                                              249            164
    For acquisitions                                                   --            827
    For funding AT&T Canada obligation                              2,301             --
    Redemption of TCI Pacific preferred stock                       2,045             --
    Other*                                                             21         (1,044)
  Gain on issuance of common stock by affiliates                       --             18
  Exchange of AT&T Wireless tracking stock                             --             14
  Settlement of put option                                             --          3,237
  Beneficial conversion value of preferred stock                       --            295
  Dividends declared - AT&T Common Stock Group                       (278)            --
  Other                                                                10              6
                                                                 --------      ---------
Balance at end of period                                           56,312         94,013
                                                                 --------      ---------
(Accumulated Deficit)/Retained Earnings
  Balance at beginning of year                                     (3,484)         7,408
  Net (loss)                                                      (13,805)        (2,302)
  Dividends declared - AT&T Common Stock Group                         --           (275)
  Dividends accrued - preferred stock                                  --           (417)
  Premium on exchange of AT&T Wireless tracking stock                  --            (80)
  Treasury shares issued at less than cost                              1             (9)
                                                                 --------      ---------
Balance at end of period                                          (17,288)         4,325
                                                                 --------      ---------
</TABLE>

                                   (CONTINUED)


                                       4
<PAGE>
                           AT&T CORP. AND SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONT'D)
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 FOR THE SIX MONTHS ENDED
                                                                         JUNE 30,
                                                                     2002           2001
                                                                     ----           ----
<S>                                                              <C>           <C>
Accumulated Comprehensive (Loss)
  Balance at beginning of year                                       (342)        (1,398)
  Other comprehensive income                                          228          2,118
                                                                 --------      ---------
Balance at end of period                                             (114)           720
                                                                 --------      ---------
Total Shareowners' Equity                                        $ 42,755      $ 105,982
                                                                 ========      =========

Summary of Total Comprehensive (Loss):
Net (loss)                                                       $(13,805)     $  (2,302)
Net foreign currency translation adjustment (net of income
         taxes of $(31) and $143)(1)                                   49           (247)
Net revaluation of securities and derivative instruments:
Unrealized gains (losses) (net of income taxes of $425 and
         $(1,189))(1)                                                (688)         1,782
Recognition of previously unrealized losses (gains) (net of
         income taxes of $(538) and $(361))(2)                        867            583
                                                                 --------      ---------
Comprehensive (Loss)                                             $(13,577)     $    (184)
                                                                 ========      =========
</TABLE>

*     Other activity in 2001 represents AT&T stock received in exchange for
      entities owning certain cable systems.

AT&T accounts for treasury stock as retired stock. We have 100 million
authorized shares of preferred stock at $1 par value.

(1)   In the first six months of 2001, total comprehensive (loss) included LMG's
      foreign currency translation adjustments totaling $(151), net of
      applicable income taxes and unrealized gains (losses) on
      available-for-sale securities totaling $2,056, net of applicable income
      taxes.

(2)   See note (d) for a summary of the "Recognition of previously unrealized
      losses (gains)".

    The notes are an integral part of the consolidated financial statements.


                                       5
<PAGE>
                           AT&T CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (DOLLARS IN MILLIONS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                FOR THE SIX MONTHS ENDED
                                                                                        JUNE 30,
                                                                                     2002         2001
                                                                                     ----         ----
<S>                                                                             <C>            <C>
OPERATING ACTIVITIES
Net (loss)                                                                       $(13,805)     $(2,302)
Deduct: (Loss) income from discontinued operations                                    (88)         150
                                                                                 --------      -------
(Loss) from continuing operations                                                 (13,717)      (2,452)

Adjustments to reconcile (loss) from continuing operations to net cash
  provided by operating activities of continuing operations:
    Goodwill and franchise impairment charges                                      16,479           --
    Depreciation and amortization                                                   3,854        4,762
    Net equity losses from Liberty Media Group                                         --        2,822
    Net losses related to other equity investments                                  1,653        1,639
    Cost method investment impairment charges                                       1,416          195
    Cumulative effect of accounting changes - net of income taxes                     856         (904)
    Provision for uncollectible receivables                                           614          531
    Net restructuring and other charges                                                15        1,009
    Deferred income taxes                                                          (4,610)        (932)
    Net revaluation of certain financial instruments                                 (231)         913
    Net gains on sales of businesses and investments                                  (13)        (577)
    Minority interest and dividends on subsidiary preferred stock                     (49)        (953)
    Extraordinary gain - net of income taxes                                          (48)          --
    Put option mark-to-market charge                                                   --          838
    Decrease in receivables                                                           159          196
    Decrease in accounts payable                                                     (425)        (763)
    Net change in other operating assets and liabilities                           (1,125)      (1,576)
    Other adjustments, net                                                             86          (39)
                                                                                 --------      -------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS                  4,914        4,709
                                                                                 --------      -------
INVESTING ACTIVITIES
Capital expenditures and other additions                                           (3,412)      (4,666)
Investment contributions and purchases                                                (20)        (367)
Investment distributions and sales                                                     21        1,560
Proceeds from sale or disposal of property, plant and equipment                       254           14
Net dispositions of businesses, net of cash disposed                                   14        3,120
Increase in restricted cash                                                          (413)          --
Other investing activities, net                                                      (143)         (98)
                                                                                 --------      -------
NET CASH (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS                   (3,699)        (437)
                                                                                 --------      -------

FINANCING ACTIVITIES
Decrease in short-term borrowings, net                                             (6,029)      (8,466)
Retirement of long-term debt                                                       (2,468)        (814)
Dividends paid on common stock                                                       (267)        (284)
Dividends paid on preferred securities                                               (107)        (106)
Proceeds from long-term debt issuances                                                106          195
Issuance of AT&T common shares                                                      2,593           88
Net (acquisition) issuance of treasury shares                                         (28)          19
Issuance of convertible preferred securities and warrants                              --        9,811
Issuance of AT&T Wireless Group common shares                                          --           54
Other financing activities, net                                                        (1)         (37)
                                                                                 --------      -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS       (6,201)         460
                                                                                 --------      -------
Net cash provided by discontinued operations                                           --        4,921
Net (decrease) increase in cash and cash equivalents                               (4,986)       9,653
Cash and cash equivalents at beginning of year                                     10,592           64
                                                                                 --------      -------
Cash and cash equivalents at end of period                                       $  5,606      $ 9,717
                                                                                 ========      =======
</TABLE>

    The notes are an integral part of the consolidated financial statements.


                                       6
<PAGE>
                           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-K/A for the year ended December
      31, 2001 and AT&T's Form 10-Q for the quarter ended March 31, 2002. We
      have reclassified certain prior period amounts to conform to our current
      presentation.

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.

            On July 10, 2002, AT&T and Comcast Corporation (Comcast) shareowners
      approved the proposed merger between AT&T Broadband and Comcast. The
      merger still remains subject to certain regulatory reviews and approvals
      and certain other conditions and is expected to close by the end of 2002.
      Under the terms of the agreement, AT&T will spin-off AT&T Broadband and
      simultaneously AT&T Broadband and Comcast will merge into subsidiaries of
      a new company to be called AT&T Comcast Corporation (AT&T Comcast). AT&T
      shareowners will receive approximately 0.32 of a share of AT&T Comcast for
      each share of AT&T they own, based on calculations using June 30, 2002
      share prices. AT&T shareowners will own an approximate 55% economic stake
      and have an approximate 61% voting interest in the new company. The
      spin-off of AT&T Broadband could result in the recognition of a loss for
      the difference between the fair value of the Comcast shares to be received
      by AT&T shareholders in the merger and the net book value of AT&T
      Broadband. At June 30, 2002, the book value of AT&T Broadband approximated
      the fair value of the Comcast shares to be received based on the June 30,
      2002 Comcast stock trading price of $24.20 per share (see Note g). If the
      Comcast stock price decreases below $24.20 per share, AT&T will need to
      record a charge to adjust the AT&T Broadband book value to the fair value
      of the Comcast shares.

            On July 10, 2002, AT&T shareholders also approved the creation of a
      separate tracking stock intended to reflect the financial performance and
      economic value of its AT&T Consumer Services business. AT&T has not yet
      determined the timing, if any, of the distribution. A decision on a
      distribution will depend on market conditions and other factors. In
      addition, AT&T shareowners approved a one-for-five reverse stock split.
      The purpose of the reverse stock split is to seek to adjust the trading
      price of AT&T common stock upward following completion of the various
      transactions to effect AT&T's restructuring plan.

            These restructuring activities are complicated and involve a
      substantial number of steps and transactions, including obtaining various
      approvals, such as Internal Revenue Service (IRS) rulings. AT&T
      anticipates, however, that the transactions associated with AT&T's
      restructuring plan will be tax-free to U.S. shareowners. 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 AT&T shareowners in the restructuring.

            On July 9, 2001, AT&T completed the split-off of AT&T Wireless as a
      separate, independently traded company. On August 10, 2001, AT&T completed
      the split-off of Liberty Media Corporation as an independent, publicly
      traded company.


                                       7
<PAGE>
c)    SIGNIFICANT ACCOUNTING POLICIES

      STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 142, "GOODWILL AND
      OTHER INTANGIBLE ASSETS"

            Effective January 1, 2002, AT&T adopted SFAS No. 142, "Goodwill and
      Other Intangible Assets." SFAS No. 142 requires that goodwill and
      indefinite-lived intangible assets no longer be amortized, but instead be
      tested for impairment at least annually. Intangible assets that have
      finite useful lives will continue to be amortized over their useful lives.
      In addition, the amortization period for intangible assets with finite
      lives will no longer be limited to 40 years. We have determined that our
      franchise costs are indefinite-lived assets, as defined in SFAS No. 142,
      and therefore are not subject to amortization beginning in 2002. In
      accordance with SFAS No. 142, goodwill was tested for impairment by
      comparing the fair value of our reporting units to their carrying values.
      As of January 1, 2002, the fair value of the reporting units' goodwill
      exceeded their carrying value, and therefore no impairment loss was
      recognized upon adoption. Franchise costs were tested for impairment as of
      January 1, 2002, by comparing the fair value to the carrying value (at the
      market level). An impairment loss of $0.9 billion, net of taxes of $0.5
      billion, or $0.23 per basic and diluted share was recorded relating to our
      AT&T Broadband segment in the first quarter of 2002 and is included in
      "Cumulative effect of accounting changes" in the Consolidated Statement of
      Operations. (See Note g for discussion of interim testing of goodwill and
      franchise costs.)

            The following tables present the impact of SFAS No. 142 on net
      (loss) income and (loss) earnings per share had the standard been in
      effect on January 1, 2001.

<TABLE>
<CAPTION>
                                                        AT&T COMMON STOCK           AT&T WIRELESS             LIBERTY MEDIA
                                                              GROUP                     GROUP                      GROUP
                                                              -----                     -----                      -----
      FOR THE THREE MONTHS ENDED JUNE 30,                  2002       2001          2002         2001          2002        2001
                                                           ----       ----          ----         ----          ----        ----
<S>                                                    <C>           <C>        <C>          <C>           <C>          <C>
      NET (LOSS) INCOME:
      Reported (loss) from continuing operations
        before extraordinary gain                      $(12,749)     $ (51)     $     --     $     --      $     --     $(2,125)
      Dividend requirements of preferred stock               --       (236)           --           --            --          --
      Premium on exchange of AT&T Wireless
        tracking stock                                       --        (80)           --           --            --          --
                                                       --------      -----      --------     --------      --------     -------
      Reported (loss) form continuing operations
          available to common shareowners               (12,749)      (367)           --           --            --      (2,125)
      Add back amortization, net of tax:
        Goodwill*                                            --        194            --           --            --         148
        Equity method excess basis                           --         47            --           --            --         107
        Franchise costs                                      --        192            --           --            --           2
                                                       --------      -----      --------     --------      --------     -------
      Adjusted (loss) income from continuing
          operations before extraordinary gain
          available to common shareowners              $(12,749)     $  66      $     --     $     --      $     --     $(1,868)
      Reported (loss) income from discontinued
        operations                                          (88)       176            --           42            --          --
      Add back discontinued operations
        amortization, net of tax                             --         75            --           21            --          --
      Extraordinary gain                                      7         --            --           --            --          --
                                                       --------      -----      --------     --------      --------     -------

      ADJUSTED NET (LOSS) INCOME AVAILABLE TO
          COMMON SHAREOWNERS                           $(12,830)     $ 317      $     --     $     63      $     --     $(1,868)
                                                       ========      =====      ========     ========      ========     =======

      BASIC AND DILUTED (LOSS) EARNINGS PER SHARE:
      Reported basic and diluted (loss)
        per share from continuing operations
        before extraordinary gain                      $  (3.49)     $(0.10)    $     --     $     --      $     --     $ (0.82)
      Add back amortization, net of tax:
        Goodwill*                                            --       0.06            --           --            --        0.06
        Equity method excess basis                           --       0.01            --           --            --        0.04
        Franchise costs                                      --       0.05            --           --            --          --
                                                       --------      -----      --------     --------      --------     -------
      Adjusted basic and diluted (loss) earnings
        per share from continuing operations
        before extraordinary gain                      $  (3.49)     $0.02      $     --     $     --      $     --     $ (0.72)
      Reported (loss) income from discontinued
        operations                                        (0.03)      0.05            --        (0.08)           --          --
      Add back discontinued operations
        amortization, net of tax                             --       0.02            --         0.04            --          --
      Extraordinary gain                                     --         --            --           --            --          --
                                                       --------      -----      --------     --------      --------     -------
      ADJUSTED BASIC AND DILUTED (LOSS) EARNINGS
        PER SHARE                                      $  (3.52)     $0.09      $     --     $  (0.04)     $     --     $ (0.72)
                                                       ========      =====      ========     ========      ========     =======
</TABLE>

*     Goodwill amortization is net of the Excite@Home minority interest impact
      on goodwill.


                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                        AT&T COMMON STOCK           AT&T WIRELESS             LIBERTY MEDIA
                                                              GROUP                     GROUP                      GROUP
                                                              -----                     -----                      -----
      FOR THE SIX MONTHS ENDED JUNE 30,                    2002         2001          2002         2001         2002        2001
                                                           ----         ----          ----         ----         ----        ----
<S>                                                    <C>           <C>          <C>          <C>          <C>          <C>
      NET (LOSS) INCOME:
      Reported (loss) from continuing operations
        before extraordinary gain and cumulative
        effect of accounting changes                   $(12,909)     $  (534)     $     --     $     --     $     --     $(2,822)
      Dividend requirements of preferred stock               --         (417)           --           --           --          --
      Premium on exchange of AT&T Wireless
        tracking stock                                       --          (80)           --           --           --          --
                                                       --------      -------      --------     --------     --------     -------
      Reported (loss) form continuing operations
          available to common shareowners               (12,909)      (1,031)           --           --           --      (2,822)
      Add back amortization, net of tax:
        Goodwill*                                            --          405            --           --           --         300
        Equity method excess basis                           --           97            --           --           --         322
        Franchise costs                                      --          391            --           --           --           3
                                                       --------      -------      --------     --------     --------     -------
      Adjusted (loss) from continuing operations
          before extraordinary gain and
          cumulative effect of accounting changes      $(12,909)     $  (138)     $     --     $     --     $     --     $(2,197)
      Reported (loss) income from discontinued
        operations                                          (88)         115            --           35           --          --
      Add back discontinued operations
        amortization, net of tax                             --          152            --           36           --          --
      Extraordinary gain                                     48           --            --           --           --          --
      Cumulative effect of accounting changes              (856)         359            --           --           --         545
                                                       --------      -------      --------     --------     --------     -------

      ADJUSTED NET (LOSS) INCOME                       $(13,805)     $   488      $     --     $     71     $     --     $(1,652)
                                                       ========      =======      ========     ========     ========     =======

      BASIC AND DILUTED (LOSS) EARNINGS PER SHARE:
      Reported basic and diluted (loss) per share
        from continuing operations before
        extraordinary gain and cumulative effect
        of accounting changes                          $  (3.59)     $ (0.28)     $     --     $     --     $     --     $ (1.09)
      Add back amortization, net of tax:
        Goodwill*                                            --         0.12            --           --           --        0.12
        Equity method excess basis                           --         0.02            --           --           --        0.12
        Franchise costs                                      --         0.10            --           --           --          --
                                                       --------      -------      --------     --------     --------     -------
      Adjusted basic and diluted (loss) per share
        from continuing operations before
        extraordinary gain and cumulative effect
        of accounting changes                          $  (3.59)     $ (0.04)     $     --     $     --     $     --     $ (0.85)
      Reported (loss) earnings from discontinued
        operations                                        (0.03)        0.03            --         0.08           --          --
      Add back discontinued operations
        amortization, net of tax                             --         0.04            --         0.08           --          --
      Extraordinary gain                                   0.01           --            --           --           --          --
      Cumulative effect of accounting changes             (0.23)        0.10            --           --           --        0.21
                                                       --------      -------      --------     --------     --------     -------
      ADJUSTED BASIC AND DILUTED (LOSS) EARNINGS
        PER SHARE                                      $  (3.84)     $  0.13      $     --     $   0.16     $     --     $ (0.64)
                                                       ========      =======      ========     ========     ========     =======
</TABLE>

*     Goodwill amortization is net of the Excite@Home minority interest impact
      on goodwill.

            At June 30, 2002, goodwill declined $4.1 billion from December 31,
      2001 primarily as a result of impairment losses recorded related to AT&T
      Broadband in the second quarter of 2002 (see Note g). Goodwill at June 30,
      2002, by reportable segment is as follows:

<TABLE>
<CAPTION>
                                 CARRYING AMOUNT
                                 ---------------
<S>                              <C>
      AT&T Broadband                 $15,180
      AT&T Business Services           5,275
      AT&T Consumer Services              71
                                     -------
      Total goodwill                 $20,526
                                     =======
</TABLE>

Identifiable intangible assets at June 30, 2002 are comprised of:

<TABLE>
<CAPTION>
                                              GROSS CARRYING     ACCUMULATED
                                                  AMOUNT         AMORTIZATION
                                                  ------         ------------
<S>                                           <C>                <C>
      Non-amortizable intangible assets:
         Franchise costs                          $29,083            $ --
      Amortizable other purchased
       intangible assets:
         Customer lists and relationships           2,735             720
         Other                                        111              62
                                                  -------            ----
      Total identifiable intangible assets        $31,929            $782
                                                  =======            ====
</TABLE>

            The amortization expense associated with other purchased intangible
      assets for the three and six months ended June 30, 2002 was $69 and $136,
      respectively. Amortization expense for other purchased intangible assets
      is estimated to be approximately $270 for each of the years ended December
      31, 2002 and 2003, $250 for the year ended December 31, 2004 and $240 for
      each of the years ended December 31, 2005 and 2006.


                                       9
<PAGE>
            The following table presents the impact of SFAS No. 142 on net
      (loss) income and (loss) earnings per share had the standard been in
      effect for the three years ended December 31, 2001. AT&T Wireless Group
      tracking stock was issued in April 2000, therefore data for this group is
      not applicable for 1999.

<TABLE>
<CAPTION>
      ($ in millions, except per share amounts)          AT&T Common Stock       AT&T Wireless           Liberty Media
                                                               Group                  Group                  Group
                                                   --------------------------   --------------   ---------------------------

      FOR THE YEAR ENDED DECEMBER 31,                 2001      2000     1999     2001    2000      2001      2000      1999
                                                      ----      ----     ----     ----    ----      ----      ----      ----
<S>                                                <C>        <C>      <C>       <C>     <C>     <C>        <C>      <C>
      NET (LOSS) INCOME:
      Reported (loss) income from continuing
       operations before cumulative effect of
       accounting change                           $(4,131)   $2,645   $5,883    $  --   $  --   $(2,711)   $1,488   $(2,022)
      Dividend requirements of preferred stock        (652)       --       --       --      --        --        --        --
      Premium on exchange of AT&T Wireless
        tracking stock                                 (80)       --       --       --      --        --        --        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      Reported (loss) income from continuing
           operations available to common
           shareowners                              (4,863)    2,645    5,883       --      --    (2,711)    1,488    (2,022)
      Add back amortization, net of tax:
        Goodwill*                                      766       687      135       --      --       350       568       424
        Equity method excess basis                     128       337      294       --      --       346       654       285
        Franchise costs                                754       645      445       --      --         4         8         5
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      Adjusted (loss) income from continuing
        operations before cumulative effect
        of accounting change available to
        common shareowners                         $(3,215)   $4,314   $6,757    $  --   $  --   $(2,011)   $2,718   $(1,308)
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      Reported income (loss) from discontinued
        Operations                                     115       460     (433)      35      76        --        --        --
      Add back discontinued operations
        Amortization, net of tax                       152       222      204       36      27        --        --        --
      Gain on disposition of discontinued
        Operations                                  13,503        --       --       --      --        --        --        --
      Cumulative effect of accounting change           359        --       --       --      --       545        --        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------

      ADJUSTED NET INCOME (LOSS)                   $10,914     4,996   $6,528    $  71   $ 103   $(1,466)   $2,718   $(1,308)
                                                   =======    ======   ======    =====   =====   =======    ======   =======
      BASIC (LOSS) EARNINGS PER SHARE:
      Reported basic (loss) earnings per share
        from continuing operations before
        cumulative effect of accounting change     $ (1.33)   $ 0.76   $ 1.91    $  --   $  --   $ (1.05)   $ 0.58   $ (0.80)
      Add back amortization, net of tax:
        Goodwill*                                     0.21      0.20     0.04       --      --      0.14      0.22      0.17
        Equity method excess basis                    0.03      0.10     0.10       --      --      0.13      0.25      0.11
        Franchise costs                               0.21      0.18     0.14       --      --        --      0.01        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      Adjusted basic (loss) earnings per share
       from continuing operations before
       cumulative effect of accounting change      $ (0.88)   $ 1.24   $ 2.19    $  --   $  --   $ (0.78)   $ 1.06   $ (0.52)
      Reported earnings (loss) per share from
        discontinued operations                       0.03      0.13    (0.14)    0.08    0.21        --        --        --
      Add back discontinued operations
        amortization, net of tax                      0.04      0.06     0.07     0.08    0.08        --        --        --
      Gain on disposition of discontinued
        operations                                    3.70        --       --       --      --        --        --        --
      Cumulative effect of accounting change          0.10        --       --       --      --      0.21        --        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      ADJUSTED BASIC EARNINGS (LOSS)
        PER SHARE                                  $  2.99    $ 1.43   $ 2.12    $0.16   $0.29   $ (0.57)   $ 1.06   $ (0.52)
                                                   =======    ======   ======    =====   =====   =======    ======   =======
</TABLE>


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                         AT&T Common Stock       AT&T Wireless           Liberty Media
      ($ in millions, except per share amounts)                Group                  Group                  Group
                                                         -----------------       -------------           -------------

      FOR THE YEAR ENDED DECEMBER 31,                 2001      2000     1999     2001    2000      2001      2000      1999
                                                      ----      ----     ----     ----    ----      ----      ----      ----
<S>                                                <C>        <C>      <C>       <C>     <C>     <C>        <C>      <C>
      DILUTED (LOSS) EARNINGS PER SHARE:
      Reported diluted (loss) earnings per share
        from continuing operations before
        cumulative effect of accounting change     $ (1.33)   $ 0.75   $ 1.87    $  --   $  --   $ (1.05)   $ 0.58   $ (0.80)
      Add back amortization, net of tax:
        Goodwill*                                     0.21      0.19     0.04       --      --      0.14      0.22      0.17
        Equity method excess basis                    0.03      0.10     0.10       --      --      0.13      0.25      0.11
        Franchise costs                               0.21      0.18     0.14       --      --        --      0.01        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------
      Adjusted diluted (loss) earnings per share
        from continuing operations before
        cumulative effect of accounting change     $ (0.88)   $ 1.22   $ 2.15    $  --   $  --   $ (0.78)   $ 1.06   $ (0.52)
      Reported earnings (loss) per share from
        discontinued operations                       0.03      0.13    (0.13)    0.08    0.21        --        --        --
      Add back discontinued operations
        amortization, net of tax                      0.04      0.06     0.07     0.08    0.08        --        --        --
      Gain on disposition of discontinued
        Operations                                    3.70        --       --       --      --        --        --        --
      Cumulative effect of accounting change          0.10        --       --       --      --      0.21        --        --
                                                   -------    ------   ------    -----   -----   -------    ------   -------

      ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE   $  2.99    $ 1.41   $ 2.09    $0.16   $0.29   $ (0.57)   $ 1.06   $ (0.52)
                                                   =======    ======   ======    =====   =====   =======    ======   =======
</TABLE>

      *     Goodwill amortization is net of the Excite@Home minority interest
            impact on goodwill.

      EITF ISSUE 01-9, "ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A
      CUSTOMER"

            The Emerging Issues Task Force (EITF) recently reached a consensus
      on Issue 01-9, "Accounting for Consideration Given by a Vendor to a
      Customer," that cash incentives given to customers should be characterized
      as a reduction of revenue when recognized in the income statement, unless
      an identifiable benefit is received in exchange. Prior to this consensus,
      cash incentives to acquire customers were recorded as advertising and
      promotion expense within selling, general and administrative expenses.
      These cash incentives are now recorded as a reduction of revenue and prior
      periods have been reclassified to conform with this presentation. Total
      AT&T revenue and AT&T Consumer Services revenue for the quarters ended
      March 31, 2002, December 31, 2001, September 30, 2001, June 30, 2001 and
      March 31, 2001 was reduced by $39, $45, $52, $61, and $78, respectively.
      Net income was not affected by this reclassification.

      SFAS NO. 144,"ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
      ASSETS"

            On January 1, 2002, AT&T adopted SFAS No. 144,"Accounting for the
      Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No.
      121, "Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all
      long-lived assets, including discontinued operations, and consequently
      amends Accounting Principles Board (APB) Opinion No. 30, "Reporting the
      Results of Operations-Reporting the Effects of Disposal of a Segment of a
      Business, and Extraordinary, Unusual and Infrequently Occurring Events and
      Transactions." SFAS No. 144 also amends Accounting Research Bulletin No.
      51, "Consolidated Financial Statements" to eliminate the exception to
      consolidation for a subsidiary for which control is likely to be
      temporary. The adoption had no impact on AT&T's results of operations,
      financial position or cash flows.

            For a detailed discussion of significant accounting polices, refer
      to AT&T's Form 10-K/A for the year ended December 31, 2001.

d)    SUMMARY OF RECOGNITION OF PREVIOUSLY UNREALIZED LOSSES (GAINS) IN OTHER
      COMPREHENSIVE INCOME

            AT&T has investment holdings classified as "available-for-sale"
      under the scope of SFAS No. 115, "Accounting for Certain Investments in
      Debt and Equity Securities." These securities are carried at fair value
      with any unrealized gains or losses, net of income taxes, included within
      "Accumulated other comprehensive (loss)" as a component of shareowners'
      equity. Under SFAS No. 115, when the "available-for-sale" securities are
      sold or when we believe a decline in the investment value is
      other-than-temporary, the previously unrealized gains or losses are
      recognized in earnings in "Other (expense), net"


                                       11
<PAGE>
      in the Consolidated Statement of Operations. In addition, upon the
      adoption of SFAS No. 133, "Accounting for Derivative Instruments and
      Hedging Activities," in January 2001, we reclassified certain securities
      to "trading," resulting in the recognition in earnings of previously
      unrealized losses. Following is a summary of the previously unrealized
      losses (gains) that were recognized in the Consolidated Statements of
      Operations for the six months ended June 30, 2002 and 2001.

               RECOGNITION OF PREVIOUSLY UNREALIZED LOSSES (GAINS)

<TABLE>
<CAPTION>
                                                                         2002                        2001
                                                                -------------------------------------------------
      FOR THE SIX MONTHS ENDED JUNE 30,                          PRETAX     AFTER-TAX      PRETAX       AFTER-TAX
                                                                 ------     ---------      ------       ---------
<S>                                                              <C>        <C>            <C>          <C>
      AT&T GROUP:
       Other expense, net:
         Reclassification of securities to "trading"
         in conjunction with the adoption of SFAS No. 133        $   --        $ --        $ 1,154         $ 713
         Sale of various securities                                  --          --           (239)         (148)
         Other-than-temporary investment impairments              1,405         867             --            --

      LIBERTY MEDIA GROUP:
       Equity earnings (losses) from Liberty Media Group:
         Sales of various securities                                 --          --            173           105
       Cumulative effect of accounting change                        --          --           (144)          (87)
                                                                 ------        ----        -------         -----
      Total recognition of previously unrealized losses          $1,405        $867        $   944         $ 583
                                                                 ======        ====        =======         =====
</TABLE>

e)    DISCONTINUED OPERATIONS

            Discontinued operations for the three and six months ended June 30,
      2002 reflects an estimated loss on the settlement of a litigation
      associated with the business of Lucent Technologies Inc., which was
      spun-off from AT&T in 1996. Sparks, et al. v. AT&T and Lucent Technologies
      Inc. et al., is a class action lawsuit filed in 1996 in Illinois state
      court. As a result of recent negotiations, a settlement proposal was
      submitted to and accepted by the court on August 9, 2002. In accordance
      with the separation and distribution agreement between AT&T and Lucent,
      AT&T recorded its proportionate share of the settlement and estimated
      legal costs, which totaled $132 pretax ($88 after-tax, or $0.03 per
      share). (See Note l for a complete discussion of this matter.)

            Pursuant to APB Opinion No. 30, the consolidated financial
      statements of AT&T reflect the disposition of AT&T Wireless, which was
      split-off from AT&T on July 9, 2001, as discontinued operations.
      Accordingly, the revenue, costs and expenses, and cash flows of AT&T
      Wireless through June 30, 2001, the effective split-off date for
      accounting purposes, have been excluded from the respective captions in
      the 2001 Consolidated Statements of Operations and Consolidated Statements
      of Cash Flows and have been reported as "Income from discontinued
      operations," net of applicable income taxes; and as "Net cash provided by
      discontinued operations." Revenue from discontinued operations was $3,380
      and $6,592 for the three and six months ended June 30, 2001, respectively.
      Interest expense of $70 and $153 for the three and six months ended June
      30, 2001, respectively, was allocated to discontinued operations based on
      the debt of AT&T that was attributable to AT&T Wireless.

f)    CONCERT AND AT&T CANADA

            On April 1, 2002, Concert, our joint venture with British
      Telecommunications plc (BT) was officially unwound and the venture's
      assets and customer accounts were distributed back to the parent
      companies. Under the partnership termination agreement, each of the
      partners generally reclaimed the customer contracts and assets that were
      initially contributed to the joint venture, including international
      transport facilities and gateway assets. In addition, AT&T assumed certain
      other assets that BT originally contributed to the joint venture.

            At June 30, 2002, AT&T had a 31% equity ownership in AT&T Canada.
      Under the terms of the 1999 merger agreement, AT&T has the right to
      trigger, at any time, the purchase by AT&T or another entity the remaining
      equity of AT&T Canada for the Back-end Price which is the greater of the
      floor price and the fair market value. The floor price accretes at 4% each
      quarter, commencing on June 30, 2000. In the third and fourth quarters of
      2001, AT&T recorded charges reflecting the difference between the
      underlying value of AT&T Canada shares and the price AT&T has committed to
      pay for them, including the 4% accretion of the floor price. At December
      31, 2001, this liability of $3.0 billion was included in "Other long-term
      liabilities and deferred credits" in the Consolidated


                                       12
<PAGE>
      Balance Sheet. In the second quarter and first half of 2002, AT&T recorded
      after-tax charges of $0.1 billion ($0.2 billion pretax) and after-tax
      charges of $0.3 billion ($0.5 billion pretax), respectively, reflecting
      further deterioration in the underlying value of AT&T Canada as well as
      the accretion of the floor price. The charges are included in "Net
      (losses) related to other equity investments" in the Consolidated
      Statement of Operations and the related liability of $3.7 billion within
      "AT&T Canada obligation" in the Consolidated Balance Sheet. The liability
      at June 30, 2002, also reflects foreign currency translation losses due to
      fluctuations in the Canadian dollar of $0.2 billion pretax. AT&T has a
      hedge related to this obligation and at June 30, 2002, had realized and
      unrealized gains of $0.2 billion pretax relating to this hedge.

            On June 25, 2002, AT&T provided notice triggering the requirement to
      purchase in cash the outstanding shares of AT&T Canada from the public.
      Under the terms of the 1999 merger agreement, the June 25 notification
      effectively ceases further accretion on the publicly held shares. AT&T has
      arranged for Tricap Investments Corporation, a wholly owned subsidiary of
      Brascan Financial Corporation, to purchase an approximate 63% equity
      interest in AT&T Canada and CIBC Capital Partners to acquire an
      approximate 6% equity interest in AT&T Canada. AT&T has agreed to pay the
      purchase price for the AT&T Canada shares on behalf of Tricap and CIBC
      Capital Partners The purchase of AT&T Canada shares is expected to occur
      in the fourth quarter of this year, subject to the terms and conditions of
      the 1999 agreement, including obtaining the required regulatory approval.
      AT&T will fund the purchase price of the AT&T Canada shares partly with
      the net proceeds of approximately $2.5 billion received from the sale of
      230 million shares of AT&T common stock on June 11, 2002. The remaining
      portion of the obligation will be financed through short-term sources.
      Tricap and CIBC Partners will make a nominal payment to AT&T upon
      completion of the transaction. After the transaction closes, AT&T will
      continue to hold a 31% ownership interest.

g)    IMPAIRMENT CHARGES

      Goodwill and Franchise Impairment Charges

            SFAS No. 142 requires that intangible assets not subject to
      amortization and goodwill shall be tested for impairment annually, or more
      frequently if events or changes in circumstances indicate that the asset
      might be impaired. The impairment test shall consist of a comparison of
      the fair value of the intangible asset/goodwill with its carrying amount.

            In the second quarter of 2002, we noted significant changes in the
      general business climate as evidenced by the severe downward movement in
      the U.S. stock market (including the decline in values of publicly traded
      cable industry stocks). At June 30, 2002, five of our cable competitors as
      a group experienced an average decline in total market capitalization of
      over 20% since January 1, 2002. We have also witnessed corporate
      bankruptcies. We believe these factors coupled with the pending merger of
      AT&T Broadband and Comcast (which was approved by both companies'
      shareholders on July 10, 2000) created a "trigger event" for our AT&T
      Broadband segment, which necessitated the testing of goodwill and
      franchise costs for impairment as of the end of the second quarter.

            We assessed our impairment on the same principles employed during
      the initial adoption of SFAS No. 142. Such testing resulted in the
      recognition of a $12.3 billion franchise cost impairment charge and a $4.2
      billion goodwill impairment charge (aggregating to $11.8 billion
      after-tax) recorded in "Goodwill and franchise impairment charges" in the
      Consolidated Statement of Operations.

      Investment Impairment Charges

            In accordance with SFAS No. 115 and APB Opinion No. 18 "The Equity
      Method of Accounting for Investments in Common Stock," we evaluated our
      portfolio of investments as of June 30, 2002 for potential impairments.
      SFAS No. 115 and APB Opinion No. 18 both require the recognition in
      earnings of declines in value of cost and equity method securities which
      are "other than temporary."

            Given the significant decline in stock prices in the last six
      months, the length of time these investments have been below market and
      industry specific issues, we believe that certain investments would not
      recover our cost basis in the foreseeable future. Accordingly, we believe
      the declines in value are "other than temporary" and, as a result, AT&T
      recorded total investment impairments of $2.2 billion pretax ($1.3 billion
      after-


                                       13
<PAGE>
      tax). The following is a breakout of the investment impairment charges
      recorded in the second quarter by type of investment.

      Cost Method Investments

            In the second quarter of 2002, we recorded investment impairment
      charges on cost method investments of $1.2 billion pretax ($0.7 billion
      after tax), within "Other (expense), net" in the Consolidated Statement of
      Operations. These charges relate to securities that are classified as
      "available-for-sale" and were marked-to-market through "Other
      comprehensive income" as a component of shareowners' equity. These charges
      primarily consisted of impairments on our investments in Cablevision
      Systems Corporation ($0.6 billion pretax, $0.4 billion after-tax), Comcast
      ($0.3 billion pretax, $0.2 billion after-tax) and Microsoft Corporation
      ($0.2 billion pretax, $0.1 billion after-tax). In the first half of 2002,
      we recorded impairment charges on cost method investments of $1.4 billion
      on a pretax basis.

            Our investment in Cablevision stock is monetized by debt which is
      indexed to the value of Cablevision shares. The debt contains an embedded
      derivative which is designated as a cash-flow hedge under the provisions
      of SFAS No. 133 and is marked-to-market through "Other comprehensive
      income." At the time we recognized the other than temporary decline in the
      value of the Cablevision stock as an expense, as permitted by SFAS No.
      133, we also recognized, in earnings, the unrealized gain on the embedded
      derivative that was previously recorded in "Other comprehensive income,"
      resulting in the $0.6 billion pretax impairment discussed above.

      Equity Method Investments

            In the second quarter of 2002, we recorded investment impairment
      charges on equity method investments of $1.0 billion pretax ($0.6 billion
      after-tax) within "Net (losses) related to other equity investments" in
      the Consolidated Statement of Operations. These charges consisted of
      impairments of our cable partnerships, primarily Texas Cable Partners, LP
      ($0.4 billion pretax, $0.2 billion after-tax), Insight Midwest LP ($0.2
      billion pretax, $0.1 billion after-tax), Kansas City Cable Partners ($0.2
      billion pretax, $0.1 billion after-tax), Parnassos Communications, LP
      ($0.1 billion pretax and after-tax) and Century-TCI California
      Communications, LP ($0.1 billion pretax and after-tax). Parnassos
      Communications, LP and Century-TCI California Communications, LP represent
      the only partnership investments we have with Adelphia Communications
      Corporation. Adelphia Communications Corporation and subsidiaries
      (including Parnassos Communications, LP and Century-TCI California
      Communications, LP) filed for Chapter 11 bankruptcy on June 25, 2002.

h)    NET RESTRUCTURING AND OTHER CHARGES

            In the second quarter of 2002, AT&T recorded $23 of restructuring
      and other charges for facility closing costs in connection with buildings
      that have been vacated as a result of previously announced employee exit
      plans. These charges were entirely offset by the reversal of $23 of excess
      vintage facility closing restructuring reserves that are no longer
      necessary. These reserves became unnecessary due to recent changes in
      certain commercial real estate markets enabling AT&T to relieve itself of
      certain contractual obligations for which the reserves were originally
      established.

            Net restructuring and other charges for the six months ended June
      30, 2002, totaled $56 which represents the restructuring and exit costs
      associated with AT&T Broadband's efforts to reorganize and streamline
      certain centralized and field functions.

            The $56 is comprised of headcount reductions of $42 associated with
      employee separation costs resulting from this exit plan, $50 in connection
      with facility closings and $4 for other charges. These charges were
      partially offset by the reversal of $40, $23 related to excess vintage
      facility closing restructuring reserves and $17 related to the business
      restructuring plan from the second quarter of 2001, primarily due to the
      redeployment of certain employees to different functions within AT&T
      Broadband. Approximately 900 employees will be involuntarily separated in
      conjunction with this exit plan, approximately 75% of which are management
      and 25% are non-management. Approximately 75% of the employees affected by
      this exit plan have left their positions as of June 30, 2002, with the
      remaining reductions occurring throughout the remainder of 2002. More than
      $32 of termination benefits were paid to employees during the first half
      of 2002 related to this exit plan.


                                       14
<PAGE>
            The following table displays the activity and balances of the
      restructuring reserve account from January 1, 2002 to June 30, 2002:

<TABLE>
<CAPTION>
                                                         TYPE OF COST
                                       EMPLOYEE      FACILITY
                                      SEPARATIONS    CLOSINGS      OTHER         TOTAL
                                      -----------    --------      -----         -----
<S>                                   <C>            <C>           <C>           <C>
      Balance at January 1, 2002        $ 508         $ 316         $ 19         $ 843
      Additions                            42            50            4            96
      Deductions                         (269)          (62)          (9)         (340)
                                        -----         -----         ----         -----
      Balance at June 30, 2002          $ 281         $ 304         $ 14         $ 599
                                        =====         =====         ====         =====
</TABLE>

            Deductions reflect cash payments of $291, of which $243 represents
      cash termination benefits funded primarily through cash from operations.
      Deductions also reflect reversals of $40, $23 related to excess vintage
      facility closing restructuring reserves and $17 personnel-related. In
      addition, deductions include $9 primarily due to the issuance of common
      stock to satisfy restricted stock obligations that vested upon separation,
      primarily to executives.

            During the second quarter of 2001, AT&T recorded $287 of net
      restructuring and other charges, which included $56 of asset impairment
      charges related to Excite@Home including the write-off of property, plant
      and equipment, and $231 for restructuring and exits costs which consisted
      of $88 of severance costs, $136 related to facility closings and $7
      primarily related to termination of contractual obligations.

            The severance costs for approximately 4,500 employees primarily
      resulted from synergies created by the MediaOne merger. Approximately 27%
      of the affected employees were management employees and 73% were
      non-management employees. This business restructuring plan was
      substantially completed by March 31, 2002.

            Net restructuring and other charges for the six months ended June
      30, 2001, totaled $1,095. The charge included $795 of asset impairment
      charges related to At Home Corporation (Excite@Home), $300 for
      restructuring and exits costs, which consisted of $147 for severance
      costs, $142 for facilities closing and $11 primarily related to the
      termination of contractual obligations. The severance costs, for
      approximately 6,900 employees, primarily resulted from synergies created
      by the MediaOne merger. Approximately 21% of the affected employees were
      management employees and 79% were non-management employees. These business
      restructuring plans were substantially completed by March 31, 2002.

            The asset impairment charges included $656 recorded by Excite@Home
      associated with the write-down of goodwill and other intangible assets,
      warrants granted in connection with distributing the @Home service and
      fixed assets. These charges were due to continued deterioration in the
      business climate of, and reduced levels of venture capital funding
      activity for, Internet advertising and other Internet-related companies,
      continued significant declines in the market values of Excite@Home's
      competitors in the Internet advertising industry, and changes in their
      operating and cash flow forecasts for the remainder of 2001. These charges
      were also impacted by Excite@Home's decision to sell or shut down
      narrowband operations. In addition, AT&T recorded a related goodwill
      impairment charge of $139 associated with its acquisition goodwill of
      Excite@Home. Since we consolidated, but only owned approximately 23% of
      Excite@Home, a portion of the charges recorded by Excite@Home was not
      included as a reduction to AT&T's net income, but rather was eliminated in
      our Consolidated Statement of Operations as a component of "Minority
      interest and dividends on subsidiary preferred stock."

            Of the approximately 10,300 employees impacted by the exit plan
      announced in the fourth quarter of 2001, nearly 64% have left their
      positions as of June 30, 2002, with the remaining reductions to occur
      throughout the remainder of 2002. Nearly $171 of termination benefits were
      paid to employees during the first half of 2002.

i)    EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE

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

<TABLE>
<CAPTION>
                                                       AT&T COMMON STOCK        AT&T WIRELESS       LIBERTY MEDIA
                                                             GROUP                  GROUP                GROUP
                                                             -----                  -----                -----
      FOR THE THREE MONTHS ENDED JUNE 30,                2002         2001       2002    2001      2002        2001
                                                         ----         ----       ----    ----      ----        ----
<S>                                                  <C>           <C>          <C>      <C>      <C>       <C>
      (Loss) from continuing operations              $(12,749)     $   (51)     $  --     $--     $  --     $(2,125)
      Dividend requirements of preferred stock             --         (236)        --      --        --          --
      Premium on exchange of AT&T Wireless
        tracking stock                                     --          (80)        --      --        --          --
                                                     --------      -------      -----     ---     -----     -------
      (Loss) from continuing operations
        attributable to common shareowners            (12,749)        (367)        --      --        --      (2,125)
      (Loss) income from discontinued operations          (88)         176         --      42        --          --
      Extraordinary gain                                    7           --         --      --        --          --
                                                     --------      -------      -----     ---     -----     -------
      Net (loss) income attributable to common
        Shareowners                                  $(12,830)     $  (191)     $  --     $42     $  --     $(2,125)
                                                     ========      =======      =====     ===     =====     =======

      FOR THE SIX MONTHS ENDED JUNE 30,                  2002         2001       2002    2001      2002        2001
                                                         ----         ----       ----    ----      ----        ----
      (Loss) from continuing operations              $(12,909)     $  (534)     $  --     $--     $  --     $(2,822)
      Dividend requirements of preferred stock             --         (417)        --      --        --          --
      Premium on exchange of AT&T Wireless
        Tracking stock                                     --          (80)        --      --        --          --
                                                     --------      -------      -----     ---     -----     -------
      (Loss) from continuing operations
        attributable to common shareowners            (12,909)      (1,031)        --      --        --      (2,822)
      (Loss) income from discontinued
          operations                                      (88)         115         --      35        --          --
      Extraordinary gain                                   48           --         --      --        --          --
      Cumulative effect of accounting changes            (856)         359         --      --        --         545
                                                     --------      -------      -----     ---     -----     -------
      Net (loss) income attributable to common
        shareowners                                  $(13,805)     $  (557)     $  --     $35     $  --     $(2,277)
                                                     ========      =======      =====     ===     =====     =======
</TABLE>


                                       15
<PAGE>
            Basic loss per share for AT&T Common Stock Group was computed by
      dividing AT&T Common Stock Group loss by the weighted-average number of
      shares outstanding of 3,649 million and 3,694 million, for the three
      months ended June 30, 2002 and 2001, respectively, and 3,598 million and
      3,749 million for the six months ended June 30, 2002 and 2001,
      respectively.

            Since AT&T recorded a loss from continuing operations for the three
      and six months ended June 30, 2002 and 2001, respectively, the diluted
      loss per share is the same as basic loss per share, as any potentially
      dilutive securities would be antidilutive to continuing operations. At
      June 30, 2002, potentially dilutive securities outstanding included shares
      issuable for stock options and convertible quarterly income preferred
      securities.

            Basic and diluted earnings per share from discontinued operations
      for AT&T Wireless Group for the three and six months ended June 30, 2001,
      were computed by dividing income attributable to AT&T Wireless Group by
      the weighted-average number of shares outstanding of AT&T Wireless Group
      of 513 million and 438 million, respectively. AT&T Wireless was split-off
      from AT&T in July 2001.

            Basic and diluted loss per share for LMG was computed by dividing
      the loss attributable to LMG by the weighted-average number of shares
      outstanding of LMG of 2,588 million and 2,581 million for the three and
      six months ended June 30, 2001, respectively. LMG was split-off from AT&T
      in August 2001.

j)    EQUITY TRANSACTIONS

            Pursuant to the AT&T Broadband and Comcast merger agreement, AT&T
      was required to redeem the outstanding TCI Pacific Communications, Inc.
      Class A Senior Cumulative Exchangeable Preferred Stock for AT&T common
      stock. Each share of TCI Pacific preferred stock was exchangeable at the
      option of the holder for 8.365 shares of AT&T common stock. As of June 30,
      2002, all outstanding (approximately 6.2 million) shares of TCI Pacific
      preferred stock with a carrying value of $2.1 billion had either been
      exchanged or redeemed for approximately 51.8 million shares of AT&T common
      stock. No gain or loss was recorded on the exchange/redemption of the TCI
      Pacific preferred stock.

            In the second quarter of 2002, AT&T issued 13.9 million shares of
      AT&T common stock to certain current and former senior managers in
      settlement of their deferred compensation accounts. Pursuant to AT&T's
      deferred compensation plan, senior managers may defer short- and long-term
      incentive compensation awards. The issuance of these shares resulted in an
      increase to total shareowners' equity of $186.4 million.

            In June of 2002, AT&T completed a public equity offering of 230
      million shares of AT&T common stock at a price of $11.25 per share for net
      proceeds of $2.5 billion. AT&T anticipates, and under the Comcast merger
      agreement is limited to, using the proceeds from the offering to satisfy a
      portion of its obligation to AT&T Canada common shareholders.

            On January 22, 2001, NTT DoCoMo invested approximately $9.8 billion
      for 812,512 shares of a new class of AT&T preferred stock with a par value
      of $1 per share. On July


                                       16
<PAGE>
      9, 2001, in conjunction with the split-off of AT&T Wireless Group, these
      preferred shares were converted into AT&T Wireless common stock. In the
      second quarter and first half of 2001, we recorded dividend requirements
      on this preferred stock of $0.2 billion and $0.4 billion, respectively.
      The preferred stock dividend represented interest in connection with the
      DoCoMo preferred stock as well as accretion of the beneficial conversion
      feature associated with this preferred stock. The beneficial conversion
      feature was recorded upon the issuance of the preferred stock and
      represented the excess of the fair value of the preferred shares issued
      over the proceeds received.

k)    DEBT OBLIGATIONS

            During 2001, AT&T initiated a 364-day accounts receivable
      securitization program providing for up to $2.7 billion of funding,
      limited by monthly eligible receivables. Under the program, certain of
      AT&T Business Services' and AT&T Consumer Services' accounts receivable
      can be sold on a discounted, revolving basis, to a special purpose,
      wholly-owned subsidiary of AT&T, which assigns interests in such
      receivables to unrelated third-party financing entities. AT&T has renewed
      both its AT&T Business Services and AT&T Consumer Services customer
      accounts receivable securitization facilities. The terms of these
      facilities have been extended to June (AT&T Business Services) and July
      (AT&T Consumer Services) of 2003. Together the programs, as renewed,
      provide up to $2.0 billion of available financing, limited by the eligible
      receivables balance, which varies from month to month. The securitization
      proceeds were recorded as a borrowing and included in "Debt maturing
      within one year" in the Consolidated Balance Sheets. At June 30, 2002 and
      December 31, 2001, such short-term notes totaled $0.2 billion and $2.3
      billion, respectively.

            During the first half of 2002, AT&T called $1.5 billion of TCI
      Communications Financing I, II and IV, MediaOne Financing Trust A and B
      and MediaOne Finance II preferred securities for early redemption. This
      redemption resulted in a gain on early extinguishment of debt recorded as
      an extraordinary gain of $7 million, net of taxes ($12 million pretax) and
      $48 million, net of taxes ($78 million pretax) for the three and six-month
      periods ending June 30, 2002, respectively. The gain represents the
      difference between the carrying value of the debt and the cash paid to
      extinguish the debt.

            In June 2002, AT&T registered $7.0 billion of the private placement
      notes sold in November 2001 and commenced a tender of the private notes
      for registered notes. The note exchange was completed on August 2, 2002.
      The terms of the registered notes are identical to the private notes.

            As of June 30, 2002, AT&T has approximately $0.8 billion in private
      debt outstanding that is partially collateralized with restricted cash of
      approximately $0.4 billion. The restricted cash is recorded in "Other
      Assets" in the Consolidated Balance Sheet.

l)    COMMITMENTS AND CONTINGENCIES

            In the normal course of business we are subject to proceedings,
      lawsuits and other claims, including proceedings under laws and
      regulations related to environmental and other matters. Such matters are
      subject to many uncertainties, and outcomes are not predictable with
      assurance. However, management makes its best estimate of the outcome of
      these matters based on all available facts and records loss contingencies
      as appropriate. Consequently, we are unable to ascertain the ultimate
      aggregate amount of monetary liability or financial impact with respect to
      these matters at June 30, 2002. These matters could affect the operating
      results of any one quarter when resolved in future periods. However, we
      believe that after final disposition, any monetary liability or financial
      impact to us beyond that provided for at June 30, 2002 would not be
      material to our annual consolidated financial statements.

            Sprint PCS, a wireless carrier, sued AT&T for access charges for
      AT&T long distance calls terminated on Sprint PCS' network and for
      toll-free calls that Sprint PCS customers originated and which were
      terminated on AT&T's network. AT&T refused to pay Sprint PCS based on
      longstanding industry practice that wireless carrier-long distance carrier
      interconnection is on a bill and keep basis and that wireless carriers
      charged their customers for calls they received. On July 3, 2002, the FCC
      ruled that wireless carriers such as Sprint PCS are not prohibited from
      charging AT&T access charges, but that AT&T was not required to pay such
      charges absent a contractual obligation to do so. The FCC


                                       17
<PAGE>
      further held that the question whether the parties entered into a contract
      concerning an access payment obligation is not a matter of federal
      communications law but rather should to be determined by the court that
      had referred the issue to the FCC. Because there was no express contract
      between AT&T and Sprint PCS, the court will need to determine whether an
      implied-in-fact contract can be inferred in light of the parties' conduct
      and their tacit understanding. Petitions of Sprint PCS and AT&T Corp. for
      Declaratory Ruling Regarding CMRS Access Charges, WT Docket No. 01-316,
      Declaratory Ruling, FCC 02-203, rel. July 3, 2002. The FCC remanded the
      matter to the federal district court, Sprint Spectrum, L.P. v. AT&T
      Communications, Inc., Civil Action No. 00-0973-CV-W-5 (W.D. Mo.). AT&T has
      petitioned for review of the FCC's ruling in the U.S. Court of Appeals for
      the District of Columbia Circuit, AT&T Corp. v. FCC et al., No. 02-1240
      (D.C. Cir. filed Aug. 1, 2002), and has requested a continuance of the
      stay from the federal district court in Missouri pending appellate review.
      An adverse decision in the present litigation may result in additional
      wireless carriers seeking similar compensation from AT&T. AT&T believes
      the case is without merit and intends to defend it vigorously, but cannot
      predict the outcome of any such proceedings.

            Sparks, et al. v. AT&T and Lucent Technologies Inc. et al., is a
      class action lawsuit filed in 1996 in Illinois state court under the name
      of Crain v. Lucent Technologies. The complaint seeks damages on behalf of
      present and former customers based on a claim that the AT&T Consumer
      Products business (which became part of Lucent in 1996) and Lucent had
      defrauded and misled customers who leased telephones, resulting in
      payments in excess of the cost to purchase the telephones. Similar
      consumer class actions pending in various state courts have been stayed
      pending the outcome of the Sparks case and, in July 2001, the Illinois
      court certified a nationwide class of plaintiffs. Lucent filed pretrial
      motions for, among other things, decertification of the class and summary
      judgment in Lucent's favor. On July 29, 2002, the judge denied Lucent's
      motions, and set trial to begin on August 5, 2002.

            As a result of recent negotiations, a settlement proposal was
      submitted to and accepted by the court on August 9, 2002. AT&T and Lucent
      deny they have defrauded or misled their customers, but have decided to
      settle this matter to avoid the uncertainty of litigation and the
      diversion of resources and personnel that the continuation of pursuing
      this matter would require. The separation and distribution agreement
      between AT&T and Lucent governs how the cost of these settlements are
      shared by each party. In accordance with the separation and distribution
      agreement, AT&T recorded its proportionate share of the settlement and
      estimated legal costs, which totaled $132 pretax ($88 after-tax).
      Depending upon the number of claims submitted and accepted, the actual
      cost of the settlement to AT&T may be less than stated amounts, but it is
      not possible to estimate the amount at this time.

            On March 13, 2002, AT&T Broadband informed CSG Systems, Inc. that
      it was considering the initiation of an arbitration against CSG relating
      to a Master Subscriber Management System Agreement that the two companies
      entered into in 1997. Pursuant to the Master Agreement, CSG provides
      billing support to AT&T Broadband. On May 10, 2002, AT&T Broadband filed a
      demand for arbitration against CSG before the American Arbitration
      Association. On May 31, 2002, CSG answered AT&T Broadband's arbitration
      demand and asserted various counterclaims. On June 21, 2002, CSG filed a
      lawsuit against Comcast Corporation in federal court located in Denver,
      Colorado asserting claims related to the Master Agreement and the pending
      arbitration. In the event that this process results in the termination of
      the Master Agreement, AT&T Broadband may incur significant costs in
      connection with its replacement of these customer care and billing
      services and may experience temporary disruptions to its operations.

m)    RELATED PARTY TRANSACTIONS

            AT&T had various related party transactions with Concert until the
      joint venture was officially unwound on April 1, 2002.

            Included in "Revenue" in the Consolidated Statements of Operations
      for the first half of 2002 was $0.3 billion, and for the three and six
      months ended June 30, 2001 was $0.3 billion and $0.6 billion,
      respectively, for services provided to Concert.

            Included in "Access and other connection expense" in the
      Consolidated Statements of Operations 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 for
      the six months ended June 30, 2002 and $0.5 billion and $1.1 billion,
      respectively for the three and six months ended June 30, 2001.

            Included in "Accounts receivable" in the Consolidated Balance Sheet
      at December 31, 2001 was $0.4 billion related to telecommunications
      transactions with Concert. Included in "Accounts payable" in the
      Consolidated Balance Sheet at December 31, 2001 was $0.2 billion related
      to transactions with Concert.

            Included in "Other receivables" in the Consolidated Balance Sheet at
      December 31, 2001 was $0.8 billion related to administrative transactions
      performed on behalf of Concert. Included in "Other current liabilities" in
      the Consolidated Balance Sheet at December 31, 2001 was $0.9 billion
      related to administrative transactions performed by Concert on our behalf.

            During 2001, we had various related party transactions with LMG.
      Included in "Costs of services and products" in the Consolidated Statement
      of Operations were programming


                                       18
<PAGE>
      expenses related to services from LMG while owned by AT&T of $91 and $172,
      respectively, for the three and six-month periods ended June 30, 2001.

n)    SEGMENT REPORTING

            AT&T's results are segmented according to the way we manage our
      business: AT&T Business Services, AT&T Consumer Services and AT&T
      Broadband.

            Our existing segments reflect certain managerial changes that were
      implemented during 2002. The changes primarily include the following:
      revenue previously recorded by the AT&T Business Services segment as
      "Internal Revenue" for services provided to certain other AT&T units and
      then eliminated within the Corporate & Other group, is now recorded as a
      contra-expense by AT&T Business Services; the results of certain units
      previously included in the Corporate & Other group were transferred to the
      AT&T Business Services segment and the financial impacts of SFAS No. 133
      that were previously recorded in the Corporate & Other group were
      transferred to the appropriate segments. In addition, AT&T Consumer
      Services and total AT&T revenue was reclassified in accordance with EITF
      issue 01-9, "Accounting for Consideration Given by a Vendor to a
      Customer," which requires cash incentives given to customers previously
      recorded as advertising and promotion expense now to be recorded as a
      reduction of revenue when recognized in the income statement, unless an
      identifiable benefit is received in exchange (see note c). All prior
      periods have been restated to reflect these changes.

            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.

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS        FOR THE SIX MONTHS
      REVENUE                                                    ENDED JUNE 30,             ENDED JUNE 30,
                                                                 2002          2001          2002          2001
                                                                 ----          ----          ----          ----
<S>                                                          <C>           <C>           <C>           <C>
        AT&T Business Services external revenue              $  6,650      $  6,853      $ 13,095      $ 13,790
        AT&T Business Services internal revenue                    92           158           175           317
                                                             --------      --------      --------      --------
      Total AT&T Business Services revenue                      6,742         7,011        13,270        14,107
      AT&T Consumer Services external revenue                   2,911         3,724         5,997         7,653

        AT&T Broadband external revenue                         2,524         2,560         4,960         5,021
        AT&T Broadband internal revenue                             2             5             5             9
                                                             --------      --------      --------      --------
      Total AT&T Broadband revenue                              2,526         2,565         4,965         5,030
                                                             --------      --------      --------      --------

      Total reportable segments                                12,179        13,300        24,232        26,790

      Corporate and Other (a)                                     (75)          (35)         (144)          (52)
                                                             --------      --------      --------      --------
      Total revenue                                          $ 12,104      $ 13,265      $ 24,088      $ 26,738
                                                             ========      ========      ========      ========
</TABLE>

      (a)   Includes revenue related to Excite@Home of $134 and $278 for the
            three and six months ended June 30, 2001.

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

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS        FOR THE SIX MONTHS
      REVENUE                                                    ENDED JUNE 30,             ENDED JUNE 30,
                                                                 2002          2001          2002          2001
                                                                 ----          ----          ----          ----
<S>                                                          <C>           <C>           <C>           <C>
      AT&T Business Services                                 $    691      $  1,399      $  1,143      $  2,405
      AT&T Consumer Services                                      802         1,217         1,634         2,535
      AT&T Broadband                                          (18,460)         (819)      (18,885)       (2,361)
                                                             --------      --------      --------      --------
        Total reportable segments                             (16,967)        1,797       (16,108)        2,579
      Corporate and Other (a)                                    (170)       (2,057)         (365)       (2,380)
      Deduct:
        Pretax minority interest and dividends on
          subsidiary preferred stock                              (56)          192          (138)          751
        Pretax (losses) related to other equity
          investments                                          (1,172)       (1,508)       (1,653)       (1,639)
      Interest (expense)                                         (716)         (761)       (1,483)       (1,640)
                                                             --------      --------      --------      --------
      Income (loss) from continuing operations before
        income taxes, minority interest and dividends on
        subsidiary preferred stock and net (losses)
        related to equity investments                        $(16,625)     $    295      $(16,165)     $   (553)
                                                             ========      ========      ========      ========
</TABLE>

      (a)   Includes $(85) and $(420) related to Excite@Home for the three and
            six months ended June 30, 2001, respectively.


                                       19
<PAGE>
      ASSETS

<TABLE>
<CAPTION>
                                        AT JUNE 30,   AT DECEMBER 31,
                                           2002            2001
                                           ----            ----
<S>                                     <C>           <C>
      AT&T Business Services             $ 39,150        $ 40,316
      AT&T Consumer Services                1,877           2,141
      AT&T Broadband                       81,816         103,060
                                         --------        --------
        Total reportable segments         122,843         145,517

      Corporate and Other:
      Other segments                        1,126           1,145
      Prepaid pension costs                 3,465           3,329
      Deferred income taxes                 1,769             960
      Other corporate assets (a)            8,692          14,331
                                         --------        --------
      Total assets                       $137,895        $165,282
                                         ========        ========
</TABLE>

            (a)   2002 and 2001 amounts include cash of $5.3 billion and $10.4
                  billion, respectively.

o)    GUARANTEE OF PREFERRED SECURITIES

            Prior to AT&T's acquisition of TCI and MediaOne, TCI and MediaOne
      issued mandatorily redeemable preferred securities through subsidiary
      trusts that held subordinated debt securities of TCI and MediaOne.

            In the first half of 2002, AT&T called mandatorily redeemable
      preferred securities issued by TCI Communications Financing I, II and IV,
      MediaOne Financing A and B, and MediaOne Finance II for early redemption.
      As of June 30, 2002, AT&T provides a full and unconditional guarantee on
      outstanding securities issued by MediaOne Finance III. At June 30, 2002,
      $504 of MediaOne Finance III securities were outstanding.


                                   AT&T CORP.
                      CONSOLIDATING CONDENSED BALANCE SHEET
                               AS OF JUNE 30, 2002
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                   GUARANTOR    GUARANTOR                MEDIA-ONE                    ELIMINATION AND
                                     AT&T      SUBSIDIARY                 FINANCE      NON-GUARANTOR   CONSOLIDATION    CONSOLIDATED
                                    PARENT      MEDIAONE        TCI         III        SUBSIDIARIES     ADJUSTMENTS       AT&T CORP.
                                   ---------   ----------       ---      ---------     -------------  ---------------   ------------
<S>                              <C>           <C>           <C>         <C>           <C>            <C>               <C>
ASSETS

Cash and cash equivalents...        $5,323                    $     4                    $    279                          $  5,606
Receivables.................        20,148                                                 46,078          (58,661)           7,565
Investments.................                                                                  414                               414
Other current assets........         1,070          1,548         110         527             585             (881)           2,959
TOTAL CURRENT ASSETS........        26,541          1,548         114         527          47,356          (59,542)          16,544

Property, plant &
         equipment, net.....         9,375                        150                      31,935                            41,460
Franchise costs, net........                                       19                      29,064                            29,083
Goodwill, net...............            70          2,526                                  17,930                            20,526
Investments and related
         advances...........       115,835         33,202       9,936                      40,353         (180,650)          18,676
Other assets................         6,483                        151                       9,369           (4,397)          11,606
TOTAL ASSETS................      $158,304        $37,276      10,370        $527        $176,007        $(244,589)        $137,895

LIABILITIES
Debt maturing within one
         year...............       $34,712           $379     $ 1,458                      $6,605        $ (37,265)        $  5,889
Other current liabilities...         6,939            380         558          11          17,825          (11,389)          14,324
TOTAL CURRENT LIABILITIES...        41,651            759       2,016          11          24,430          (48,654)          20,213

Long-term debt..............        23,596          2,164      11,109         504          14,099          (14,201)          37,271
Deferred income taxes.......         1,429                                                 22,482                            23,911
Other long-term liabilities
  and deferred credits......         6,421             11         136                       2,148           (1,093)           7,623
TOTAL LIABILITIES...........        73,097          2,934      13,261         515          63,159          (63,948)          89,018

Minority Interest...........                                                                1,397                             1,397
Company-Obligated
   Convertible Quarterly
   Income Preferred
   Securities of Subsidiary
   Trust Holding Solely
   Subordinated Debt
   Securities of AT&T.......         4,725                                                                                    4,725

SHAREOWNERS' EQUITY
AT&T Common Stock...........         3,845                                                                                    3,845
Preferred stock issued to
         subsidiaries.......        10,559                                                                 (10,559)              --
Other shareowners' equity...        66,078         34,342      (2,891)         12         111,451         (170,082)          38,910
TOTAL SHAREOWNERS' EQUITY...        80,482         34,342      (2,891)         12         111,451         (180,641)          42,755
TOTAL LIABILITIES AND
         SHAREOWNERS' EQUITY      $158,304        $37,276     $10,370        $527        $176,007        $(244,589)        $137,895
</TABLE>


                                       20
<PAGE>
                                   AT&T CORP.
                 CONSOLIDATING CONDENSED STATEMENTS OF OPERATION
                    FOR THE THREE MONTHS ENDED JUNE 30, 2002
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                             ELIMINATION
                           GUARANTOR      GUARANTOR               MEDIA-ONE                      AND
                              AT&T        SUBSIDIARY              FINANCE    NON-GUARANTOR  CONSOLIDATION      CONSOLIDATED
                             PARENT        MEDIAONE      TCI        III      SUBSIDIARIES    ADJUSTMENTS        AT&T CORP.
                           ---------      ---------      ---      ---------  -------------  -------------      ------------
<S>                        <C>            <C>         <C>         <C>        <C>            <C>                <C>
Revenue                     $4,059                                 $  --         $ 8,392         $(347)         $12,104

Operating Expenses
Costs of services and
   products.............       686                                                 2,991          (338)           3,339
Access and other
   connection...........     1,352                                                 1,420            (9)           2,763
Selling, general and
   administrative.......       694             (7)       162                       1,795                          2,644
Depreciation and
   amortization.........       501                        24                       1,434                          1,959
Net restructuring and
   other charges........
 Goodwill and franchise
   cost impairment
   charges                                                                        16,479                         16,479
Total operating expenses     3,233             (7)       186                      24,119          (347)          27,184

Operating income (loss).       826              7       (186)                    (15,727)           --          (15,080)

Other income (expense),
   net..................       261            146         11          12            (147)       (1,112)            (829)
Interest (expense)......      (853)           (90)      (176)        (12)           (697)        1,112             (716)
Income (loss) from
   continuing operations
   before income taxes,
   minority interest, and
   dividends
   on subsidiary preferred
   stock, and net
   (losses) earnings
   related to other
   equity investments...       234             63       (351)                    (16,571)                       (16,625)

(Provision) benefit for
   income taxes.........       (95)           (24)       135                       4,615                          4,631
Minority interest and
   dividends on
   subsidiary preferred
   stock................       (40)                                                    9                            (31)
 Net (losses) earnings
   related to other
   equity investments...       224         (7,262)    (5,633)                       (706)       12,653             (724)
Income (loss) from
   continuing operations       323         (7,223)    (5,849)                    (12,653)       12,653          (12,749)

(Loss) from
   discontinued
   operation (net of
   income taxes)........       (88)                                                                                 (88)
(Loss) income before
   extraordinary gain...       235         (7,223)    (5,849)                   (12,653)        12,653          (12,837)
Extraordinary gain (net
   of income taxes).....                                   7                                                          7
Net (loss) income.......       235         (7,223)    (5,842)                   (12,653)        12,653          (12,830)
</TABLE>


                                       21
<PAGE>
                                   AT&T CORP.
                 CONSOLIDATING CONDENSED STATEMENTS OF OPERATION
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                               GUARANTOR      GUARANTOR             MEDIA-ONE                       ELIMINATION AND
                                 AT&T         SUBSIDIARY             FINANCE       NON-GUARANTOR     CONSOLIDATION     CONSOLIDATED
                                PARENT        MEDIAONE      TCI        III          SUBSIDIARIES      ADJUSTMENTS       AT&T CORP.
                              ----------      ----------    ---     ---------      -------------    ----------------   ------------
<S>                            <C>            <C>         <C>       <C>            <C>              <C>                <C>
Revenue                        $ 8,022                                $ --           $  16,923          $  (857)         $24,088

Operating Expenses
Costs of services
   and   products.....           1,337                                                   6,129             (837)           6,629
Access and other
   connection.........           2,745                                                   2,846              (20)           5,571
Selling, general and
   administrative.....           1,261             (9)       357                         3,581                             5,190
Depreciation and
   amortization.......             961                        44                         2,849                             3,854

Net restructuring and
   other charges......                                                                      56                                56
 Goodwill and
   franchise cost
   impairment charges                                                                   16,479                            16,479
Total operating
   expenses...........           6,304             (9)       401                        31,940             (857)          37,779

Operating income
   (loss).............           1,718              9       (401)                      (15,017)                          (13,691)

Other income
   (expense), net.....             388            349         22        23                 (50)          (1,723)            (991)
Interest (expense)....          (1,654)          (114)      (336)      (23)             (1,079)           1,723           (1,483)
Income (loss) from
   continuing operations
   before income taxes,
   minority interest, and
   dividends
   on subsidiary preferred
   stock, and net
   (losses) earnings
   related to other
   equity investments.             452            244       (715)                      (16,146)                          (16,165)

(Provision) benefit
   for income taxes...            (169)           (93)       274                         4,353                             4,365
Minority interest and
   dividends on
   subsidiary
   preferred stock....             (80)                                                     (8)                              (88)
 Net (losses)
   earnings related
   to other equity
   investments........             428         (8,113)    (5,993)                         (990)          13,647           (1,021)
Income (loss) from
   continuing
   operations.........             631         (7,962)    (6,434)                      (12,791)          13,647          (12,909)

(Loss) from
   discontinued
   operation (net of
   income taxes)......             (88)                                                                                      (88)
(Loss) income before
   extraordinary gain
   and cumulative
   effect of
   accounting changes.             543         (7,962)    (6,434)                      (12,791)          13,647          (12,997)
Extraordinary gain
   (net of income
   taxes).............                                        48                                                              48
Cumulative effect of
   accounting changes
   (net of income
   taxes).............                                                                    (856)                             (856)
Net income (loss).....             543         (7,962)    (6,386)                      (13,647)          13,647          (13,805)
</TABLE>


                                       22
<PAGE>
                                   AT&T CORP.
                 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2002
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                                 ELIMINATION
                             GUARANTOR     GUARANTOR               MEDIA-ONE                         AND
                               AT&T        SUBSIDIARY               FINANCE    NON-GUARANTOR    CONSOLIDATION      CONSOLIDATED
                              PARENT        MEDIAONE      TCI         III      SUBSIDIARIES      ADJUSTMENTS         AT&T CORP.
                             ---------     ----------     ---      ---------   -------------    -------------      ------------
<S>                          <C>           <C>           <C>       <C>         <C>              <C>                <C>
NET CASH PROVIDED BY
   (USED IN) OPERATING
   ACTIVITIES OF
   CONTINUING
   OPERATIONS..........      $   646        $(767)       $(291)                   $ 5,326                              $4,914

INVESTING ACTIVITIES
Capital expenditures
     and other
     additions.........       (1,104)                     (117)                    (2,191)                             (3,412)
Other                         (3,078)         206       (1,630)                    (5,013)             9,228             (287)
NET CASH (USED IN)
   PROVIDED BY
   INVESTING
   ACTIVITIES OF
   CONTINUING
   OPERATIONS..........       (4,182)         206       (1,747)                    (7,204)             9,228           (3,699)

FINANCING ACTIVITIES
Proceeds from debt
   from AT&T...........                     1,407        4,800                                        (6,207)
Proceeds from
   long-term debt                                                                     106                                 106
Retirement of
   long-term debt......         (501)         (28)        (454)                    (1,485)                             (2,468)
Retirement of AT&T debt                      (830)      (2,304)                                        3,134

(Decrease)increase in
   short-term
   borrowings, net.....       (3,932)                                              (2,097)                             (6,029)
(Decrease)increase in
   short-term
   borrowings from
   AT&T, net                    4,732                                                                 (4,732)
Issuance of AT&T
   common shares                2,593                                                                                   2,593
Other                          (4,448)                                              5,468             (1,423)            (403)
NET CASH (USED IN)
   PROVIDED BY
   FINANCING
   ACTIVITIES OF
   CONTINUING
   OPERATIONS..........       (1,556)         549        2,042                      1,992             (9,228)          (6,201)

Net (decrease)
   increase in cash
   and cash equivalents       (5,092)         (12)           4                        114                              (4,986)
Cash and cash
   equivalents at
   beginning of year...       10,415           12           --                        165                              10,592

Cash and cash
   equivalents at end
   of period...........      $ 5,323        $  --      $     4        $ --        $   279            $    --          $ 5,606
</TABLE>


                                       23
<PAGE>
                                   AT&T CORP.
                    CONSOLIDATING CONDENSED INCOME STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 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.......................    $4,949      $             $            $          $           $                $

Operating Expenses
Costs of services and products       833                        1
Access and other connection...     1,656
Selling, general and
  administrative..............       533           122          5
Depreciation and amortization.       456            19         17
Net restructuring and other
  charges.....................
Total operating expenses......     3,478           141         23

Operating income (loss).......     1,471          (141)       (23)

Other (expense) income........       (69)           44        443           11         11         5               1
Interest (expense)............    (1,210)         (400)       (77)         (11)       (11)       (5)
Income (loss) from
  continuing operations
  before income taxes,
  minority interest
  and earnings (losses) from
  equity investments .........       192          (497)       343                                                 1

(Provision) benefit for
  income taxes................       (68)          185       (136)
Minority interest and
  dividends on subsidiary
  preferred stock.............       (40)            1
Equity (losses) from Liberty
  Media Group.................                  (2,125)
Net earnings (losses) from
  other equity investments....       531           177       (523)
Income (loss) from continuing
  operations..................       615        (2,259)      (316)                                                1

Income from discontinued
  operations (net of income
  taxes)
Net income (loss) ............       615        (2,259)      (316)                                                1
Dividend requirements of
  preferred stock.............      (236)
Premium on Wireless tracking
  stock exchange                     (80)
Net income (loss) available
  to common shareowners.......      $299      $ (2,259)     $(316)       $          $           $                $1
</TABLE>

<TABLE>
<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.......................       $          $         $          $ 8,942          $  (626)        $13,265

Operating Expenses
Costs of services and products                                         3,124             (548)          3,410
Access and other connection...                                         1,514              (65)          3,105
Selling, general and
  administrative..............                                         2,090               (1)          2,749
Depreciation and amortization.                                         1,858                            2,350
Net restructuring and other
  charges.....................                                           287                              287
Total operating expenses......                                         8,873             (614)         11,901

Operating income (loss).......                                            69              (12)          1,364

Other (expense) income........        1           5        12           (197)            (575)           (308)

Interest (expense)............                   (5)      (12)          (141)           1,111            (761)
Income (loss) from
  continuing operations
  before income taxes,
  minority interest
  and earnings (losses) from
  equity investments .........        1                                 (269)             524             295

(Provision) benefit for
  income taxes................                                           455                              436
Minority interest and
  dividends on subsidiary
  preferred stock.............                                           237                              198
Equity (losses) from Liberty
  Media Group.................                                                                         (2,125)
Net earnings (losses) from
  other equity investments....                                          (515)            (650)           (980)
Income (loss) from continuing
  operations..................        1                                  (92)            (126)         (2,176)

Income from discontinued
  operations (net of income
  taxes)                                                                 261              (43)            218
Net income (loss) ............        1                                  169             (169)         (1,958)
Dividend requirements of
  preferred stock.............                                                                           (236)
Premium on Wireless tracking
  stock exchange                                                                                          (80)
Net income (loss) available
  to common shareowners.......       $1         $         $          $   169            $(169)        $(2,274)
</TABLE>


                                       24
<PAGE>
                                   AT&T CORP.
                    CONSOLIDATING CONDENSED INCOME STATEMENTS
                     FOR THE SIX MONTHS ENDED JUNE 30, 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.......................    $9,846        $     --         $   --          $  --          $  --         $  --         $  --

Operating Expenses
Costs of services and products     1,688                              1
Access and other connection...     3,338
Selling, general and
  administrative..............       922             244              9
Depreciation and other
  amortization................       887              32             36
Net restructuring and other
  charges.....................
Total operating expenses......     6,835             276             46

Operating income (loss).......     3,011            (276)           (46)

Other income (expense)........      (573)             89          1,112             22             23             9             2
Interest (expense) ...........    (2,529)           (865)          (155)           (22)           (23)           (9)           (1)

Income (loss) from
  continuing operations
  before income taxes,
  minority interest,
  earnings (losses)
  from equity investments
  and cumulative effect of
  accounting change...........       (91)         (1,052)           911                                                         1

Benefit (provision) for
  income taxes................        46             395           (360)
Minority interest and
  dividends on subsidiary
  preferred stock                    (80)
Equity (losses) from Liberty
  Media Group.................                    (2,822)
Net earnings (losses) from
  other equity investments....     2,417          (1,472)        (1,789)
Income (loss) from continuing
  operations..................     2,292          (4,951)        (1,238)                                                        1

Income from discontinued
  operations (net of income
  taxes)
Cumulative effect of
  accounting change (net of
  income taxes)...............       508             545            540
Net income (loss) ............     2,800          (4,406)          (698)                                                        1
Dividend requirements of
  preferred stock.............      (417)
Premium on exchange of AT&T
  Wireless tracking stock            (80)
Net income (loss) available
  to common shareowners.......    $2,303         $(4,406)        $ (698)         $  --          $  --         $  --         $   1
</TABLE>

<TABLE>
<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.......................          $  --         $ --        $ -          $18,116             $(1,224)             $26,738

Operating Expenses
Costs of services and products                                                   6,371              (1,078)               6,982
Access and other connection...                                                   3,039                (121)               6,256
Selling, general and
  administrative..............                                                   4,292                  (2)               5,465
Depreciation and other
  amortization................                                                   3,807                                    4,762
Net restructuring and other
  charges.....................                                                   1,095                                    1,095
Total operating expenses......                                                  18,604              (1,201)              24,560

Operating income (loss).......                                                    (488)                (23)               2,178

Other income (expense)........              2           10          23             (39)             (1,771)              (1,091)
Interest (expense) ...........             (1)         (10)        (23)           (305)              2,303               (1,640)

Income (loss) from
  continuing operations
  before income taxes,
  minority interest,
  earnings (losses)
  from equity investments
  and cumulative effect of
  accounting change...........              1                                     (832)                509                 (553)

Benefit (provision) for
  income taxes................                                                     137                                      218
Minority interest and
  dividends on subsidiary
  preferred stock                                                                  918                                      838
Equity (losses) from Liberty
  Media Group.................                                                                                           (2,822)
Net earnings (losses) from
  other equity investments....                                                    (571)                378               (1,037)
Income (loss) from continuing
  operations..................              1                                     (348)                887               (3,356)

Income from discontinued
  operations (net of income
  taxes)                                                                           178                 (28)                 150
Cumulative effect of
  accounting change (net of
  income taxes)...............                                                    (689)                                     904
Net income (loss) ............              1                                     (859)                859               (2,302)
Dividend requirements of
  preferred stock.............                                                                                             (417)
Premium on exchange of AT&T
  Wireless tracking stock                                                                                                   (80)
Net income (loss) available
  to common shareowners.......          $   1          $ -         $ -         $  (859)             $  859              $(2,799)
</TABLE>


                                       25
<PAGE>
                                   AT&T CORP.
                CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 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 OF
  CONTINUING OPERATIONS.......     $ 2,996       $ (195)       $ (79)       $ --            $ --         $ --         $  1

INVESTING ACTIVITIES
Capital expenditures and
  other additions.............        (806)         (11)
Equity investment
  distributions and sales              689       16,871           79
Net dispositions
  (acquisitions) of
  businesses, net of cash
  disposed/acquired                     14
Other.........................       3,172           24
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES OF
  CONTINUING OPERATIONS.......       3,069       16,884           79

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances...................
Retirement of long-term debt          (836)         (95)
Retirement of AT&T debt             (5,176)     (16,594)
Issuance of convertible
  preferred securities
  and warrants................       9,811
(Decrease) increase in
  short-term borrowings, net..      (6,019)
Other.........................       5,108                                                                              (1)
NET CASH PROVIDED BY (USED
  IN) FINANCING ACTIVITIES OF
  CONTINUING OPERATIONS.......       2,888      (16,689)                                                                (1)

Net cash provided by (used
  in) discontinued operations
Net (decrease) increase in
  cash and cash equivalents...       8,953
Cash and cash equivalents at
  beginning of year...........
Cash and cash equivalents at
  end of period...............     $ 8,953     $     --        $  --        $ --            $ --         $ --         $ --
</TABLE>

<TABLE>
<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 OF
  CONTINUING OPERATIONS.......       $  1         $ --       $ --         $ 1,880           $    105     $ 4,709

INVESTING ACTIVITIES
Capital expenditures and
  other additions.............                                             (3,849)                        (4,666)
Equity investment
  distributions and sales                                                     553            (16,632)      1,560
Net dispositions
  (acquisitions) of
  businesses, net of cash
  disposed/acquired                                                         3,106                          3,120
Other.........................                                              1,637             (5,284)       (451)
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES OF
  CONTINUING OPERATIONS.......                                              1,447            (21,916)       (437)

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances...................                                                195                            195
Retirement of long-term debt                                                  117                           (814)
Retirement of AT&T debt                                                       (79)            21,849
Issuance of convertible
  preferred securities
  and warrants................                                                                             9,811
(Decrease) increase in
  short-term borrowings, net..                                              5,191             (7,638)     (8,466)
Other.........................         (1)                                (12,811)             7,439        (266)
NET CASH PROVIDED BY (USED
  IN) FINANCING ACTIVITIES OF
  CONTINUING OPERATIONS.......         (1)                                 (7,387)            21,650         460

Net cash provided by (used
  in) discontinued operations                                               4,760                161       4,921
Net (decrease) increase in
  cash and cash equivalents...                                                700                          9,653
Cash and cash equivalents at
  beginning of year...........                                                 64                             64
Cash and cash equivalents at
  end of period...............       $ --         $ --       $ --         $   764           $     --      $9,717
</TABLE>


                                       26
<PAGE>
p)    RECENT ACCOUNTING PRONOUNCEMENTS

            In August 2001, the Financial Accounting Standards Board (FASB)
      issued SFAS No. 143,"Accounting for Asset Retirement Obligations." This
      standard requires that obligations associated with the retirement of
      tangible long-lived assets be recorded as liabilities when those
      obligations are incurred, with the amount of the liability initially
      measured at fair value. Upon initially recognizing a liability for an
      asset retirement obligation, an entity must capitalize the cost by
      recognizing an increase in the carrying amount of the related long-lived
      asset. Over time, this liability is accreted to its future value, and the
      capitalized cost is depreciated over the useful life of the related asset.
      Upon settlement of the liability, an entity either settles the obligation
      for its recorded amount or incurs a gain or loss upon settlement. SFAS No.
      143 is effective for financial statements issued for fiscal years
      beginning after June 15, 2002. For AT&T, this means that the standard will
      be adopted on January 1, 2003. AT&T does not expect that the adoption of
      this statement will have a material impact on AT&T's results of
      operations, financial position or cash flows.

            On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of SFAS
      Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13 and
      Technical Corrections." SFAS No. 145 eliminates the requirement (in SFAS
      No. 4) that gains and losses from the extinguishments of debt be
      aggregated and classified as extraordinary items, net of the related
      income tax. An entity is not prohibited from classifying such gains and
      losses as extraordinary items, as long as they meet the criteria of APB
      Opinion No. 30. In addition, SFAS No. 145 requires sales-lease back
      treatment for certain modifications of a capital lease that result in the
      lease being classified as an operating lease. The rescission of SFAS No. 4
      is effective for fiscal years beginning after May 15, 2002, which for AT&T
      would be January 1, 2003. Earlier application is encouraged. Any gain or
      loss on extinguishment of debt that was previously classified as an
      extraordinary item would be reclassified to other income (expense), net.
      The remainder of the statement is generally effective for transactions
      occurring after May 15, 2002. AT&T does not expect that the adoption of
      SFAS No. 145 will have a material impact on AT&T's results of operations,
      financial position or cash flows.

            On June 28, 2002, the FASB issued SFAS No. 146, "Accounting for Exit
      or Disposal Activities." This statement addresses the recognition,
      measurement and reporting of costs that are associated with exit and
      disposal activities. This statement includes the restructuring activities
      that are currently accounted for pursuant to the guidance set forth in
      EITF 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to exit an Activity (including Certain Costs
      Incurred in a Restructuring)," costs related to terminating a contract
      that is not a capital lease and one-time benefit arrangements received by
      employees who are involuntarily terminated - nullifying the guidance under
      EITF 94-3. Under SFAS No. 146 the cost associated with an exit or disposal
      activity is recognized in the periods in which it is incurred rather than
      at the date the company committed to the exit plan. This statement is
      effective for exit or disposal activities initiated after December 31,
      2002 with earlier application encouraged. Previously issued financial
      statements will not be restated. The provisions of EITF 94-3 shall
      continue to apply for exit plans initiated prior to the adoption of SFAS
      No. 146. Accordingly, the initial adoption of SFAS No. 146 will not have
      an effect on AT&T's results of operations, financial position or cash
      flows. However, liabilities associated with future exit and disposal
      activities will not be recognized until actually incurred.

q)    SUBSEQUENT EVENTS

            On July 1, 2002, AT&T completed the sale of its headquarters
      facility and corporate conference center in Basking Ridge, New Jersey, to
      Pharmacia for $0.2 billion. The transaction resulted in a pretax gain of
      approximately $40.

            AT&T owns a 49% economic interest in Alestra S. de R.L. de C.V., a
      telecommunications company in Mexico. Alestra has announced that it may
      not be able to make a $35 bond payment due in November 2002 and that it is
      working jointly with Morgan Stanley in analyzing available options to
      address the company's financial condition, including its liquidity
      position. Standard and Poor's has downgraded Alestra's corporate credit
      rating and said it would likely default on its debt obligations during
      financial year 2002, probably by way of a bond restructuring. Moody's also
      downgraded all ratings of Alestra stating that "based upon current long
      distance network asset valuations, Moody's considers that unsecured debt
      holders face poor recovery prospects in a distress scenario." AT&T cannot
      predict what the impact of these developments will be.

            On August 11, 2002, US Airways Group Inc. filed for Chapter 11
      bankruptcy protection. AT&T leases airplanes under leveraged leases to US
      Airways. Under a leveraged lease, the assets are secured with debt, which
      is non-recourse to AT&T. In connection with the bankruptcy filing, US
      Airways can reject or reaffirm its leases. AT&T does not know if US
      Airways will reject or affirm its leases. If it does reject the leases and
      the non-recourse debtholder forecloses on the assets, AT&T could incur an
      after-tax loss of approximately $70 to $80 (based on June 30, 2002
      balances).

            On August 12, 2002, in connection with the proposed merger between
      AT&T Broadband and Comcast, AT&T filed a preliminary prospectus
      contemplating a potential offer to exchange an aggregate of $11.8 billion
      of AT&T's existing debt securities. The exchange offer involves two types
      of transactions. The first, which is expected to be subject to proration,
      involves an exchange of certain series of AT&T notes for new notes that
      would ultimately become obligations of AT&T Broadband Corp., a newly
      formed company to which AT&T will spin-off its AT&T Broadband unit prior
      to completing the merger. AT&T Comcast and certain of its subsidiaries
      would guarantee these obligations upon completion of the merger. The
      second, which is not expected to be subject to proration, involves an
      exchange of other series of AT&T notes for new notes that would remain
      obligations of AT&T.

            Neither AT&T, AT&T Broadband, nor any other entity would receive any
      proceeds from the issuance of the new notes in the exchange offer. The new
      notes would represent a new offering with respect to those notes that
      ultimately become obligations of AT&T Broadband and would reduce the
      amount that AT&T Broadband would otherwise be required to pay to AT&T upon
      completion of the merger with Comcast. The new notes would represent a
      refinancing with respect to those notes that remain obligations of AT&T
      after the merger.

            The exchange offer would be subject to various conditions as
      described in the prospectus. A decision to proceed with the exchange offer
      will be based on market and business conditions over the next several
      months, finalization of the exchange offer on terms that are mutually
      acceptable to AT&T and Comcast, and other factors. Terms of the exchange
      offer have not yet been determined and will be announced upon launch.


                                       27
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

      OVERVIEW

            AT&T Corp. (AT&T or the company) is among the world's communications
      leaders, providing voice, data and video communications services to large
      and small businesses, consumers and government agencies. We provide
      domestic and international long distance, regional and local
      communications services, cable (broadband) television and Internet
      communication services.

      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.

            On July 10, 2002, AT&T and Comcast Corporation (Comcast) shareowners
      approved the proposed merger between AT&T Broadband and Comcast. The
      merger still remains subject to certain regulatory reviews and approvals
      and certain other conditions and is expected to close by the end of 2002.
      Under the terms of the agreement, AT&T will spin-off AT&T Broadband and
      simultaneously AT&T Broadband and Comcast will merge into subsidiaries of
      a new company to be called AT&T Comcast Corporation (AT&T Comcast). AT&T
      shareowners will receive approximately 0.32 of a share of AT&T Comcast for
      each share of AT&T they own, based on calculations using June 30, 2002
      share prices. AT&T shareowners will own an approximate 55% economic stake
      and have an approximate 61% voting interest in the new company. The
      spin-off of AT&T Broadband could result in the recognition of a loss for
      the difference between the fair value of the Comcast shares to be received
      by AT&T shareholders in the merger and the net book value of AT&T
      Broadband. At June 30, 2002, the book value of AT&T Broadband approximated
      the fair value of the Comcast shares to be received based on the June
      30,2002 Comcast stock trading price of $24.20 per share (see Note g). If
      the Comcast stock price decreases below $24.20 per share, AT&T will need
      to record a charge to adjust the AT&T Broadband book value to the fair
      value of the Comcast shares.

            On July 10, 2002, AT&T shareholders also approved the creation of a
      separate tracking stock intended to reflect the financial performance and
      economic value of its AT&T Consumer Services business. AT&T has not yet
      determined the timing, if any, of the distribution. A decision on a
      distribution will depend on market conditions and other factors. In
      addition, AT&T shareowners approved a one-for-five reverse stock split.
      The purpose of the reverse stock split is to seek to adjust upward the
      trading price of AT&T common stock following completion of the various
      transactions to effect AT&T's restructuring plan.

            These restructuring activities are complicated and involve a
      substantial number of steps and transactions, including obtaining various
      approvals, such as Internal Revenue Service (IRS) rulings. AT&T
      anticipates, however, that the transactions associated with AT&T's
      restructuring plan will be tax-free to U.S. shareowners. 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 AT&T shareowners in the restructuring.

            On July 9, 2001, AT&T completed the split-off of AT&T Wireless as a
      separate, independently traded company. On August 10, 2001, AT&T completed
      the split-off of Liberty Media Corporation as an independent, publicly
      traded company.

      TRACKING STOCKS

            In 2001, AT&T had tracking stocks that reflected the financial
      performance of Liberty Media Group (LMG) and AT&T Wireless Group. The
      shares initially issued tracked approximately 100% and 16% of the
      performance of LMG and AT&T Wireless Group, respectively.


                                       28
<PAGE>
            In 2001, the earnings attributable to AT&T Wireless Group are
      excluded from the earnings available to AT&T Common Stock Group and are
      reflected as "Income from discontinued operations," net of applicable
      taxes in the Consolidated Statement of Operations. Similarly, the earnings
      and (losses) related to LMG are excluded from the earnings available to
      AT&T Common Stock Group. The remaining results of operations of AT&T,
      including the financial performance of AT&T Wireless Group not represented
      by the tracking stock, are referred to as the AT&T Common Stock Group and
      are represented by AT&T common stock.

            We did not have a controlling financial interest in LMG for
      financial accounting purposes; therefore, our ownership in LMG was
      reflected as an investment accounted for under the equity method in AT&T's
      consolidated financial statements. The amounts attributable to LMG are
      reflected in the accompanying Consolidated Statement of Operations and
      Cash Flows as "Equity (losses) from Liberty Media Group" prior to its
      split-off from AT&T.

            AT&T Wireless Group was an integrated business of AT&T, and LMG was
      a combination of certain assets and businesses of AT&T; neither was a
      stand-alone entity prior to its split-off from AT&T.

      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 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 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 toward consolidation in the
      telecommunications industry, which 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,


                                       29
<PAGE>
-     the risks associated with possible disruptions to the telecommunications
      industry related to the bankruptcy of major telecommunications providers,

-     the ability to enter into agreements to provide services, and the cost of
      entering new markets necessary to provide 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 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 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 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, 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 three and six months
      ended June 30, 2002 and 2001, respectively, and financial condition as of
      June 30, 2002 and December 31, 2001.

      CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

            AT&T's financial statements are prepared in accordance with
      accounting principles that are generally accepted in the United States.
      The preparation of these financial statements requires management to make
      estimates and judgments that affect the reported amounts of assets,
      liabilities, revenue and expenses as well as the disclosure of contingent
      assets and liabilities. Management continually evaluates its estimates and
      judgments including those related to revenue recognition, allowances for
      doubtful accounts, the carrying values and useful lives of property, plant
      and equipment, internal use software and intangible assets, investments,
      derivative contracts, pension and other postretirement benefits and income
      taxes. Management bases its estimates and judgments on historical
      experience and other factors that are believed to be reasonable under the
      circumstances. Actual results may differ from these estimates under
      different assumptions or conditions. For a detailed discussion of
      significant accounting polices that may involve a higher degree of
      judgment or complexity, refer to AT&T's Form 10-K/A for the year ended
      December 31, 2001.

      CONSOLIDATED RESULTS OF OPERATIONS

            The comparison of results for the second quarter and first half of
      2002 with the corresponding periods in 2001 was impacted by events, such
      as net cable dispositions which affect comparability. For example, in
      2001, we disposed of several cable systems, which


                                       30
<PAGE>
      were therefore not included in 2002 results, but were included in the
      prior period results until the date of disposition.

            Year-over-year comparison was also impacted by the deconsolidation
      of At Home Corp. (Excite@Home). In 2001, Excite@Home was fully
      consolidated for the period January 1, 2001, through September 28, 2001,
      the date Excite@Home filed for Chapter 11 bankruptcy protection. As a
      result of the bankruptcy and AT&T removing its members from the
      Excite@Home board of directors, AT&T no longer consolidated Excite@Home as
      of September 30, 2001.

            The comparison of 2002 results with 2001 results is also affected by
      the unwind of Concert, , our joint venture with British Telecommunications
      plc (BT) on April 1, 2002. As a result of the unwindof Concert, the
      venture's assets and customer accounts were distributed back to the parent
      companies. AT&T combined these assets with its existing international
      networking and other assets and began recording revenue from multinational
      customers and foreign-billed revenue previously recorded by Concert. In
      2001, charges from Concert were recorded as access and other connection
      expenses. Effective April 2002, as AT&T took back the assets and customer
      relationships from Concert, we began recording the expenses in each line
      based on how the assets and customer are served and managed. As a result,
      beginning in the second quarter of 2002, access and other connection
      expenses are lower than 2001 as the costs associated with managing these
      assets and customer relationships are recorded on other expense lines such
      as cost of products and services, depreciation and selling, general and
      administrative expenses. In addition, beginning in the second quarter of
      2002, AT&T no longer records equity losses related to Concert.

      REVENUE

<TABLE>
<CAPTION>
                                  FOR THE THREE MONTHS         FOR THE SIX MONTHS
                                     ENDED JUNE 30,              ENDED JUNE 30,
      (DOLLARS IN MILLIONS)          2002          2001          2002          2001
                                     ----          ----          ----          ----
<S>                              <C>           <C>           <C>           <C>
      AT&T Business Services     $  6,742      $  7,011      $ 13,270      $ 14,107
      AT&T Consumer Services        2,911         3,724         5,997         7,653
      AT&T Broadband                2,526         2,565         4,965         5,030
      Corporate and Other             (75)          (35)         (144)          (52)
                                 --------      --------      --------      --------
      Total revenue              $ 12,104      $ 13,265      $ 24,088      $ 26,738
                                 ========      ========      ========      ========
</TABLE>

            Total revenue for the three months ended June 30, 2002, decreased
      8.7%, or $1.2 billion, compared with the second quarter of 2001. The
      decline was primarily driven by declines in long distance voice revenue of
      approximately $1.3 billion and an approximate $0.4 billion impact of net
      cable dispositions and the deconsolidation of Excite@Home. Partially
      offsetting the decline was increased revenue of $0.4 billion primarily
      from AT&T Broadband's advanced services (telephony, high-speed data and
      digital video) and growth in data/ Internet Protocol (IP)/managed services
      within AT&T Business Services. In addition, revenue increased as a result
      of the reintegration of customers and assets from the unwind of Concert.

            Total revenue for the first half of 2002 decreased 9.9%, or $2.7
      billion, compared with the first half of 2001. The decline was primarily
      driven by declines in long distance voice revenue of approximately $2.8
      billion and an approximate $0.9 billion impact of net cable dispositions
      and the deconsolidation of Excite@Home. Partially offsetting the decline
      was increased revenue of $0.8 billion from AT&T Broadband's advanced
      services (telephony, high-speed data and digital video) and growth in
      data/ Internet Protocol (IP)/managed services within AT&T Business
      Services. In addition, revenue increased as a result of the reintegration
      of customers and assets from the unwind of Concert.

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

      OPERATING EXPENSES

<TABLE>
<CAPTION>
                                       FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                          ENDED JUNE 30,        ENDED JUNE 30,
      (DOLLARS IN MILLIONS)               2002       2001       2002       2001
                                          ----       ----       ----       ----
<S>                                     <C>        <C>        <C>        <C>
      Costs of services and products    $3,339     $3,410     $6,629     $6,982
</TABLE>

            Cost of services and products include the cost of operating and
      maintaining our networks, costs to support our outsourcing contracts,
      programming for cable services, the


                                       31
<PAGE>
      provision for uncollectible receivables and other service-related costs,
      including cost of equipment sold.

            Cost of services and products decreased $0.1 billion, or 2.1%, in
      the second quarter of 2002 and decreased $0.4 billion, or 5.1%, for the
      six months ended June 30, 2002, compared with the comparable periods in
      2001. Approximately $0.3 billion of the second quarter decrease and $0.6
      billion of the year-to-date decrease was due to 2001 net cable
      dispositions and the deconsolidation of Excite@Home. These decreases were
      partially offset by increased costs of approximately $0.1 billion in the
      second quarter and $0.2 billion in the year-to-date period resulting from
      a higher provision for uncollectibles due to economic conditions and
      increased costs at AT&T Broadband, primarily higher cable programming
      costs due to higher rates. In addition, costs of services and products
      increased as a result of the reintegration of customers and assets from
      the unwind of Concert.

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                        ENDED JUNE 30,       ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001       2002       2001
                                        ----       ----       ----       ----
<S>                                   <C>        <C>        <C>        <C>
      Access and other connection     $2,763     $3,105     $5,571     $6,256
</TABLE>

            Access and other connection expenses decreased $0.3 billion, or
      11.0%, in the second quarter of 2002 and decreased $0.7 billion, or 11.0%
      for the six months ended June 30, 2002, compared with the same periods in
      2001. Included within access and other connection expenses are costs we
      pay to connect calls on the facilities of other service providers, as well
      as the Universal Service Fund contributions and multi-line per line
      charges mandated by the FCC. The decrease in both periods was due to lower
      Universal Service Fund contributions, international connection rates, per
      line charges for multi-line business customers and per minute access
      rates. In addition, access and other connection expenses decreased as a
      result of the reintegration of customers and assets from the unwind of
      Concert.

<TABLE>
<CAPTION>
                                             FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                ENDED JUNE 30,         ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002        2001       2002        2001
                                                ----        ----       ----        ----
<S>                                           <C>         <C>        <C>         <C>
      Selling, general and administrative     $2,644      $2,749     $5,190      $5,465
</TABLE>

            Selling, general and administrative (SG&A) expenses decreased $0.1
      billion, or 3.8%, in the second quarter of 2002, compared with the second
      quarter of 2001. The decrease was primarily attributable to lower costs of
      approximately $0.2 billion associated with decreased volumes at AT&T
      Consumer services due to a reduction in the number of customers and cost
      control efforts at AT&T Business Services and AT&T Broadband. Partially
      offsetting this decrease was increased advertising expense primarily new
      local service offerings by AT&T Consumer, and increased AT&T Broadband
      customer care expense, as well as costs associated with the reintegration
      of customers and assets from the unwind of Concert.

            Selling, general and administrative (SG&A) expenses decreased $0.3
      billion, or 5.0%, in the first half of 2002, compared with the first half
      of 2001. Approximately $0.1 billion of the decrease was due to expenses
      associated with net cable dispositions in the first half of 2001 and the
      deconsolidation of Excite@Home. Also contributing to the decrease were
      lower costs of approximately $0.5 billion as a result of cost control
      efforts at AT&T Business Services and AT&T Broadband and decreased volumes
      at AT&T Consumer Services due to a reduction in the number of customers.
      Partially offsetting this decrease was lower pension credits resulting
      from decreased returns on plan assets and lower transaction costs
      associated with AT&T's restructuring announced in October of 2000 of
      approximately $0.2 billion, as well as increased AT&T Broadband customer
      care expense and AT&T Consumer advertising expense of approximately $0.1
      billion. In addition, SG&A expenses increased as a result of the
      reintegration of customers and assets from the unwind of Concert.

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                        ENDED JUNE 30,       ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001       2002       2001
                                        ----       ----       ----       ----
<S>                                   <C>        <C>        <C>        <C>
      Depreciation and amortization   $1,959     $2,350     $3,854     $4,762
</TABLE>


                                       32
<PAGE>
            Depreciation and amortization expenses declined $0.4 billion and
      $0.9 billion, or 16.7% and 19.1%, in the second quarter and first half of
      2002, respectively, compared with the corresponding periods in 2001. The
      decline in both periods was primarily due to the adoption of Statement of
      Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
      Intangible Assets" as of January 1, 2002, which eliminated amortization of
      goodwill and franchise costs. In the second quarter and first half of
      2001, we recorded $0.5 billion and $1.1 billion, respectively, of
      amortization expense on goodwill and franchise costs. The deconsolidation
      of Excite@Home and net cable dispositions also contributed to the decline.
      The decline was partially offset by increased depreciation expense due to
      a higher asset base resulting from continued infrastructure investment as
      well as the reintegration of customers and assets from the unwind of
      Concert. Total capital expenditures were $1.9 billion and $2.4 billion for
      the three months ended June 30, 2002 and 2001, respectively and were $3.3
      billion and $4.7 billion for the first half of 2002 and 2001,
      respectively. We continue to focus the vast majority of our capital
      spending on our growth businesses of broadband and data/IP/managed
      services.

<TABLE>
<CAPTION>
                                             FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                                 ENDED JUNE 30,       ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002       2001       2002       2001
                                                ----       ----       ----       ----
<S>                                            <C>         <C>        <C>      <C>
      Net restructuring and other charges      $  --       $287        $56     $1,095
</TABLE>

            In the second quarter of 2002, AT&T recorded $23 million of
      restructuring and other charges for facility closing costs in connection
      with buildings that have been vacated as a result of previously announced
      employee exit plans. These charges were entirely offset by the reversal of
      $23 million of excess vintage facility closing restructuring reserves that
      are no longer necessary. These reserves became unnecessary due to recent
      changes in certain commercial real estate markets enabling AT&T to relieve
      itself of certain contractual obligations for which the reserves were
      originally established.

            Net restructuring and other charges for the six months ended June
      30, 2002, totaled $56 million which represents the restructuring and exit
      costs associated with AT&T Broadband's efforts to reorganize and
      streamline certain centralized and field functions.

            The $56 million is comprised of headcount reductions of $42 million
      associated with employee separation costs resulting from this exit plan,
      $50 million in connection with facility closings and $4 million for other
      charges. These charges were partially offset by the reversal of $40
      million, $23 million related to excess vintage facility closing
      restructuring reserves and $17 million related to the business
      restructuring plan from the second quarter of 2001, primarily due to the
      redeployment of certain employees to different functions within AT&T
      Broadband. Approximately 900 employees will be involuntarily separated in
      conjunction with this exit plan, approximately 75% of which are management
      and 25% are non-management. Approximately 75% of the employees affected by
      this exit plan have left their positions as of June 30, 2002, with the
      remaining reductions occurring throughout the remainder of 2002. More than
      $32 million of termination benefits were paid to employees during the
      first half of 2002 related to this exit plan.

            This restructuring and exit plan is expected to yield cash savings
      of approximately $4 million (net of severance benefit payouts) in 2002. In
      subsequent years, the net cash savings will continue to increase, due to
      the timing of actual separations and associated payments, until the
      completion of the exit plan at which time we expect to yield approximately
      $65 million of cash savings per year. Additionally, there will be no
      benefit to operating income (net of the restructuring charges recorded) in
      2002. In subsequent years, the operating income benefit will continue to
      increase, due to the timing of actual separations, until the completion of
      the exit plan at which time we expect a benefit to operating income of
      approximately $74 million per year.

            During the second quarter of 2001, AT&T recorded $287 million of net
      restructuring and other charges, which included $56 million of asset
      impairment charges related to Excite@Home including the write-off of
      property, plant and equipment, and $231 million for restructuring and
      exits costs which consisted of $88 million of severance costs, $136
      million related to facility closings and $7 million primarily related to
      termination of contractual obligations.

            The severance costs, for approximately 4,500 employees, primarily
      resulted from synergies created by the MediaOne merger. Approximately 27%
      of the affected employees are management employees and 73% are
      non-management employees. This business restructuring plan was
      substantially completed by March 31, 2002.


                                       33
<PAGE>
            Net restructuring and other charges for the six months ended June
      30, 2001, totaled $1,095 million. The charge included $795 million of
      asset impairment charges related to Excite@Home, $300 million for
      restructuring and exits costs, which consisted of $147 million for
      severance costs, $142 million for facilities closing and $11 million
      primarily related to termination of contractual obligations. The severance
      costs, for approximately 6,900 employees, primarily resulted from
      synergies created by the MediaOne merger. Approximately 21% of the
      affected employees were management employees and 79% were non-management
      employees. These business restructuring plans were substantially completed
      by March 31, 2002.

            The asset impairment charges included $656 million recorded by
      Excite@Home associated with the write-down of goodwill and other
      intangible assets, warrants granted in connection with distributing the
      @Home service and fixed assets. These charges were due to continued
      deterioration in the business climate of, and reduced levels of venture
      capital funding activity for, Internet advertising and other
      Internet-related companies, continued significant declines in the market
      values of Excite@Home's competitors in the Internet advertising industry,
      and changes in their operating and cash flow forecasts for the remainder
      of 2001. These charges were also impacted by Excite@Home's decision to
      sell or shut down narrowband operations. In addition, AT&T recorded a
      related goodwill impairment charge of $139 million associated with its
      acquisition goodwill of Excite@Home. Since we consolidated, but only owned
      approximately 23% of Excite@Home, a portion of the charges recorded by
      Excite@Home was not included as a reduction to AT&T's net income, but
      rather was eliminated in our Consolidated Statement of Operations as a
      component of "Minority interest and dividends on subsidiary preferred
      stock."

            Of the approximately 10,300 employees impacted by the exit plan
      announced in the fourth quarter of 2001, nearly 64% have left their
      positions as of June 30, 2002, with the remaining reductions to occur
      throughout the remainder of 2002. Nearly $171 million of termination
      benefits were paid to employees during the first half of 2002.

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                        ENDED JUNE 30,       ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001        2002      2001
                                        ----       ----        ----      ----
<S>                                   <C>        <C>        <C>        <C>
      Goodwill and franchise
        impairment charges            $16,479    $   --     $16,479    $   --
</TABLE>

            In the second quarter of 2002, we noted significant changes in the
      general business climate as evidenced by the severe downward movement in
      the U.S. stock market (including the decline in values of publicly traded
      cable industry stocks). At June 30, 2002, five of our cable competitors as
      a group experienced an average decline in total market capitalization of
      over 20% since January 1, 2002. We have also witnessed corporate
      bankruptcies. We believe these factors coupled with the pending merger of
      AT&T Broadband and Comcast (which was approved by both companies'
      shareholders on July 10, 2000) created a "trigger event" for our AT&T
      Broadband segment, which necessitated the testing of goodwill and
      franchise costs for impairment as of the end of the second quarter.

            We assessed our impairment using the same principles employed during
      the initial adoption of SFAS No. 142. Such testing resulted in the
      recognition of a $12.3 billion franchise cost impairment charge and a $4.2
      billion goodwill impairment charge (aggregating to $11.8 billion
      after-tax).

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS     FOR THE SIX MONTHS
                                        ENDED JUNE 30,         ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001         2002       2001
                                        ----       ----         ----       ----
<S>                                   <C>        <C>        <C>          <C>
      Operating (loss) income         $(15,080)  $1,364     $(13,691)    $2,178
</TABLE>

            Operating (loss) income decreased $16.4 billion and $15.9 billion in
      the second quarter of 2002 and the first half of 2002, respectively,
      compared with the same periods in 2001. The decrease was primarily
      attributable to the recognition of a $12.3 billion franchise cost
      impairment charge and a $4.2 billion goodwill impairment charge recorded
      for our AT&T Broadband segment.


                                       34
<PAGE>
<TABLE>
<CAPTION>
                                     FOR THE THREE MONTHS   FOR THE SIX MONTHS
                                        ENDED JUNE 30,        ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001       2002        2001
                                        ----       ----       ----        ----
<S>                                   <C>        <C>        <C>        <C>
      Other (expense), net            $ (829)    $ (308)    $ (991)    $(1,091)
</TABLE>

            Other (expense), net for the second quarter of 2002 was $0.8
      billion, compared with $0.3 billion in the second quarter of 2001, an
      increase in expense of $0.5 billion, which primarily resulted from higher
      cost method investment impairment charges of approximately $1.1 billion,
      primarily related to our investments in Cablevision Systems Corporation
      (Cablevision), Comcast and Microsoft. Also contributing to the increase in
      expense were lower net gains on the sales of businesses and investments of
      approximately $0.3 billion in the second quarter of 2002 versus the prior
      year quarter. Net gains in the second quarter of 2001 included a gain on
      the sale of our stake in Japan Telecom of approximately $0.5 billion, a
      gain on the sale of Baltimore cable-systems to Comcast of approximately
      $0.1 billion and a loss on the redemption of AT&T stock held by Comcast in
      exchange for cable-systems of approximately $0.3 billion. These expense
      increases were partially offset by a $0.8 billion loss recorded in the
      second quarter of 2001 on the Excite@Home put obligation settlement with
      Cox Communications, Inc. (Cox) and Comcast, combined with increased income
      in the second quarter of 2002 of $0.2 billion related to the revaluation
      of certain financial instruments.

            Other (expense), net for the first half of 2002 was $1.0 billion,
      compared with $1.1 billion in same period in 2001, a decrease in expense
      of $0.1 billion. The decreased expense primarily resulted from the
      adoption of SFAS No. 133, "Accounting for Derivative Instruments and
      Hedging Activities" in the first quarter of 2001. In conjunction with the
      adoption, we reclassified certain investment securities, which support
      debt that is indexed to those securities, from "available-for-sale" to
      "trading," resulting in a pretax charge of $1.2 billion. Also contributing
      to the decrease was a $0.8 billion loss on the Excite@Home put obligation
      settlement with Cox and Comcast recorded in the first half of 2001. The
      expense decreases were partially offset by higher cost investment
      impairment charges in the first half of 2002 of $1.2 billion, primarily
      related to our investments in Cablevision, Comcast, Microsoft, Vodafone
      plc and Time Warner Telecom. Also offsetting the decreased expense was
      lower net gains on sale of businesses and investments of $0.6 billion.

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                        ENDED JUNE 30,        ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001        2002       2001
                                        ----       ----        ----       ----
<S>                                 <C>          <C>        <C>        <C>
      Interest (expense)              $ (716)    $ (761)    $(1,483)   $(1,640)
</TABLE>

            Interest expense decreased 6.1%, or $45 million, in the second
      quarter of 2002 compared with the second quarter of 2001, and decreased
      9.6%, or $0.2 billion, in the first half of 2002 compared with the first
      half of 2001. The decrease in both periods was primarily due to a lower
      average debt balance in 2002 compared with 2001, reflecting the company's
      debt reduction efforts. The decrease in the second quarter of 2002
      compared with the second quarter of 2001 was partially offset by a higher
      average interest rate primarily driven by our $10 billion global bond
      offering in November 2001.

<TABLE>
<CAPTION>
                                    FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                        ENDED JUNE 30,        ENDED JUNE 30,
      (DOLLARS IN MILLIONS)             2002       2001        2002      2001
                                        ----       ----        ----      ----
<S>                                 <C>          <C>        <C>        <C>
      Benefit for income taxes        $4,631     $  436      $4,365    $  218
</TABLE>

            The benefit for income taxes increased $4.2 billion in the second
      quarter of 2002 compared with the second quarter of 2001. The increase was
      primarily due to a loss before income taxes in the second quarter of 2002
      compared with income before income taxes in the second quarter of 2001,
      partially offset by the impact of the effective tax rates. The effective
      tax benefit rate for the second quarter of 2002 was 27.9%, compared with a
      negative 147.6% for the prior year quarter. The second quarter 2002
      effective tax benefit rate was negatively impacted by non tax-deductible
      expenses, primarily the AT&T Broadband goodwill impairment charge. The
      second quarter 2001 negative effective tax rate was positively impacted by
      the net tax benefits resulting from the Excite@Home put obligation
      settlement with Cox and Comcast and the redemption of AT&T stock held by
      Comcast in exchange for an entity owning certain cable systems. These
      impacts were partially offset by the consolidation of the operational
      losses of Excite@Home, for which the company was unable to record tax
      benefits, and non tax-deductible goodwill amortization.

            The benefit for income taxes increased $4.1 billion in the first
      half of 2002 compared with the first half of 2001. The increase was
      primarily due to a higher loss before


                                       35
<PAGE>
      income taxes in the first half of 2002 compared with the first half of
      2001, partially offset by a lower effective tax benefit rate. The
      effective tax benefit rate for the first half of 2002 was 27.0%, compared
      with 39.4% for the prior year period. The first half 2002 effective tax
      benefit rate was negatively impacted by non tax-deductible expenses,
      primarily the AT&T Broadband goodwill impairment charge. The first half
      2001 effective tax benefit rate was positively impacted by the net tax
      benefits resulting from the Excite@Home put obligation settlement with Cox
      and Comcast and the redemption of AT&T stock held by Comcast in exchange
      for an entity owning certain cable systems. These impacts were partly
      offset by the consolidation of the operational losses of Excite@Home,
      including an asset impairment charge, for which the company was unable to
      record tax benefits, and non tax-deductible goodwill amortization.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      Minority interest and dividends on
         subsidiary preferred stock            $ (31)       $ 198       $ (88)       $ 838
</TABLE>

            Minority interest and dividends on subsidiary preferred stock was
      $31 million of expense in the second quarter of 2002 and $0.2 billion of
      income in the second quarter of 2001 and $0.1billion of expense for the
      six months ended June 30, 2002 and $0.8 billion of income for the six
      months ended June 30, 2000. These variances were due to income recorded in
      the three and six months ended June 30, 2001 primarily relating to losses
      generated by Excite@Home, including asset impairment charges, that were
      attributable to the approximately 77% of Excite@Home not owned by AT&T. In
      2002, Excite@Home was not consolidated; therefore we no longer recorded
      minority interest income (expense) related to Excite@Home. The income tax
      benefit recorded on minority interest and dividends on subsidiary
      preferred stock was $25 million and $6 million for the second quarter of
      2002 and 2001, respectively, and $50 million and $87 million for the first
      half of 2002 and 2001, respectively.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS       FOR THE SIX MONTHS
                                                 ENDED JUNE 30,            ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001          2002         2001
                                               -----        -----         -----        -----
<S>                                            <C>          <C>         <C>          <C>
      Net (losses) related to other
        equity investments                     $(724)       $(980)      $(1,021)     $(1,037)
</TABLE>

            Net losses related to other equity investments, which are recorded
      net of income taxes, were $0.7 billion in the second quarter of 2002
      compared with $1.0 billion in the second quarter of 2001, a decrease in
      net losses of approximately $0.3 billion. The decrease was primarily
      driven by a $1.1 billion pretax impairment of our investment in Net2Phone
      recorded in the second quarter of 2001 as well as a decrease in equity
      losses of approximately $0.2 billion (pretax) from Concert due to the
      unwinding of this joint venture on April 1, 2002. Partially offsetting the
      decrease in losses were $1.0 billion of pretax cable partnership
      impairment charges recorded in the second quarter of 2002. In addition, we
      recorded $0.2 billion (pretax) of accretion of the floor price of AT&T's
      obligation to purchase the shares of AT&T Canada not owned by AT&T in the
      second quarter of 2002.

            The income tax benefit recorded on net losses related to other
      equity investments was $448 million in the second quarter of 2002 and $528
      million in the second quarter of 2001, a decrease of $80 million. The
      amortization of excess basis associated with nonconsolidated investments,
      recorded as a reduction of income, totaled $76 million in the second
      quarter of 2001. Effective January 1, 2002, in accordance with the
      provisions of SFAS No. 142, we no longer amortize excess basis related to
      nonconsolidated investments.

            Net losses related to other equity investments, which are recorded
      net of income taxes, were $1.0 billion for both the first half of 2002 and
      2001. The 2002 net losses related primarily to $1.0 billion of pretax
      cable partnership impairment charges recorded as well as approximately
      $0.5 billion (pretax) recorded in the first half of 2002 related to the
      estimated loss on AT&T's commitment to purchase the shares of AT&T Canada
      not owned by AT&T. This charge reflects the accretion of the floor price
      of AT&T's obligation to purchase AT&T Canada shares as well as the
      deterioration in the underlying value of AT&T Canada since December 31,
      2001. The 2001 net losses consisted primarily of a $1.1 billion pretax
      impairment of our investment in Net2Phone. We recorded equity losses from
      Concert


                                       36
<PAGE>
      in 2002 and 2001. These losses decreased approximately $0.3 billion on a
      pretax basis due to the unwind of this joint venture on April 1, 2002.

            The income tax benefit recorded on net losses related to other
      equity investments was $632 million in the first half of 2002 and $602
      million in the first half of 2001, an increase of $30 million. The
      amortization of excess basis associated with nonconsolidated investments,
      recorded as a reduction of income, totaled $156 million in the first half
      of 2001. Effective January 1, 2002, in accordance with the provisions of
      SFAS No. 142, we no longer amortize excess basis related to
      nonconsolidated investments.

<TABLE>
<CAPTION>
                                               FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                  ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002           2001      2002           2001
                                               -----          -----     -----          -----
<S>                                            <C>          <C>         <C>          <C>
      Equity (losses) from Liberty
        Media Group                            $  --        $(2,125)    $  --        $(2,822)
</TABLE>

            As a result of the split-off of LMG on August 10, 2001, we no longer
      record the results of LMG.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      (Loss) income from discontinued
          operations                           $ (88)       $ 218       $ (88)       $ 150
</TABLE>

            Discontinued operations for the three and six months ended June 30,
      2002 reflects an estimated loss on the settlement associated with the
      business of Lucent Technologies Inc., which was spun-off from AT&T in
      1996. Sparks, et al. v. AT&T and Lucent Technologies Inc. et al., is a
      class action lawsuit filed in 1996 in Illinois state court. The complaint
      seeks damages on behalf of present and former customers based on a claim
      that the AT&T Consumer Products business (which became part of Lucent in
      1996) and Lucent had defrauded and misled customers who leased telephones,
      resulting in payments in excess of the cost to purchase the telephones. As
      a result of recent negotiations, a settlement proposal was submitted to
      the and accepted by court on August 9, 2002. In accordance with the
      separation and distribution agreement between AT&T and Lucent, AT&T
      recorded its proportionate share of the settlement and estimated legal
      costs, which totaled $132 million pretax ($88 million after-tax).

            Income from discontinued operations in 2001 represents the results
      of AT&T Wireless Group, which was split-off from AT&T on July 9, 2001.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      Extraordinary gain - net
         of income Taxes                       $   7        $  --       $  48        $  --
</TABLE>

            In the second quarter of 2002, AT&T called $0.2 billion of trust
      originated preferred securities for early redemption, resulting in a gain
      on early extinguishment of debt of $7 million, net of $5 million of income
      taxes. The year-to-date gain of $48 million, net of $30 million of income
      taxes relates to $1.5 billion of trust originated preferred securities
      called for early redemption in the first half of 2002. The gains represent
      the difference between the carrying value of the debt and the cash paid to
      extinguish the debt.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      Cumulative effect of accounting
         changes - net of income taxes         $  --        $  --       $(856)       $ 904
</TABLE>

            Cumulative effect of accounting changes, net of applicable income
      taxes, was a loss of $0.9 billion in the first six months of 2002 compared
      with a gain of $0.9 billion in the first half of 2001. Effective January
      1, 2002, we adopted SFAS No. 142 and in accordance with SFAS No. 142,
      franchise costs were tested for impairment as of January 1, 2002, by
      comparing the fair value to the carrying value (at the market level). As a
      result of this test, an impairment loss of $0.9 billion, net of income
      taxes of $0.5 billion was recorded in 2002.


                                       37
<PAGE>
            The cumulative effect of accounting change related to the adoption
      of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
      Activities," net of applicable income taxes, in the first six months of
      2001 was comprised of $0.4 billion for AT&T Group (other than LMG) and
      $0.5 billion for LMG. The $0.4 billion recorded by AT&T, excluding LMG,
      was attributable primarily to fair value adjustments of equity derivative
      instruments related to indexed debt instruments and warrants held in
      public and private companies. The $0.5 billion recorded by LMG represents
      the impact of separately recording the embedded call option obligations
      associated with LMG's senior exchangeable debentures.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      Dividend requirements of
        preferred stock, net                   $  --        $(236)      $  --        $(417)
</TABLE>

            Dividend requirements of preferred stock were $0.2 billion in the
      second quarter of 2001 and $0.4 billion for the first half of 2001. The
      preferred stock dividend represented interest in connection with
      convertible preferred stock issued to NTT DoCoMo in January of 2001 as
      well as accretion of the beneficial conversion feature. On July 9, 2001,
      in conjunction with the split-off of AT&T Wireless Group, these preferred
      shares were converted into AT&T Wireless common stock and accordingly were
      no longer outstanding.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                 ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                     2002         2001        2002         2001
                                               -----        -----       -----        -----
<S>                                           <C>           <C>         <C>          <C>
      Premium on wireless tracking
        stock exchange                         $  --        $ (80)      $  --        $ (80)
</TABLE>

            The premium on the wireless tracking stock exchange was $80 million
      for the three and six months ended June 30, 2001. The premium represents
      the excess of fair value of the Wireless tracking stock issued over the
      fair value of the AT&T common stock exchanged and was calculated based on
      the closing share prices of AT&T common stock and AT&T Wireless tracking
      stock on May 25, 2001, the date the exchange [closed].

<TABLE>
<CAPTION>
                                               FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                  ENDED JUNE 30,           ENDED JUNE 30,
      (DOLLARS IN MILLIONS)                      2002         2001        2002         2001
                                                -----        -----       -----        -----
<S>                                            <C>          <C>         <C>          <C>
      AT&T Common Stock Group - per
            basic and diluted share:
         (Loss) - continuing operations        $(3.49)      $(0.10)     $(3.59)      $(0.28)
         Total (loss)                          $(3.52)      $(0.05)     $(3.84)      $(0.15)
</TABLE>

            In the second quarter of 2002, AT&T Common Stock Group had a loss
      from continuing operations, per diluted share of $3.49, compared with a
      loss per diluted share of $0.10 in the second quarter of 2001. In the
      first half of 2002, AT&T Common Stock Group had a loss from continuing
      operations of $3.59 per diluted shares compared with a loss of $0.28 per
      diluted share in 2001. The increased loss in both periods was primarily
      driven by goodwill and franchise impairment charges recorded in the second
      quarter of 2002, combined with an unfavorable year over year variance in
      other (expense), net. Such unfavorable impacts were offset somewhat by
      dividend requirements of preferred stock and the premium on exchange of
      AT&T Wireless stock recorded in 2001. In addition, the second quarter
      decrease was offset by lower net losses related to other equity
      investments and the first half decrease was offset by lower net
      restructuring and other charges.

            In the second quarter of 2002, the total loss per diluted share of
      AT&T Common Stock Group of $3.52 reflects the loss from continuing
      operations as discussed above of $3.49, and a loss from discontinued
      operations of $0.03. In the second quarter of 2001, the total loss per
      diluted share of AT&T Common Stock Group of $0.05 included a loss from
      continuing operations as discussed above of $0.10 and income from
      discontinued operations of $0.05.

            The total loss per diluted share of AT&T Common Stock Group in the
      first half of 2002 of $3.84 included the loss from continuing operations
      of $3.59, a loss related to the cumulative effect of accounting change of
      $0.23 and a loss from discontinued operations of $0.03, partially offset
      by an extraordinary gain of $0.01. In the first half of 2001, the total
      loss per diluted share of AT&T Common Stock Group of $0.15 included a loss
      from


                                       38
<PAGE>
      continuing operations of $0.28, income from discontinued operations of
      $0.03 and income related to the cumulative effect of accounting change of
      $0.10.

            In the second quarter of 2001, Liberty Media Group (LMG) reported a
      loss of $0.82 per diluted share. For the first half of 2001, LMG reported
      a loss of $0.88 per diluted share, which included income of $0.21 per
      diluted share related to the cumulative effect of accounting change.

            AT&T Wireless group reported income of $0.08 per diluted share for
      both the three and six-month periods ended June 30, 2001.

      SEGMENT RESULTS

            In support of the services we provide, we segment our results by
      the operating units that support our primary lines of business: AT&T
      Business Services, AT&T Consumer Services and AT&T Broadband. The balance
      of AT&T's operations, excluding LMG, is included in a corporate and other
      category. LMG was split-off from AT&T in August 2001.

            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 operating income
      (loss) plus other income (expense), minority interest and dividends on
      subsidiary preferred stock and net pretax earnings (losses) related to
      other equity investments. In addition to EBIT, we also use EBITDA,
      excluding other income, to measure AT&T Broadband's segment profitability
      and performance. EBITDA, excluding other income, for AT&T Broadband is
      defined as EBIT, excluding other income (expense), net pretax earnings
      (losses) related to other equity investments, the 2002 goodwill and
      franchise cost impairment charges, and minority interest and dividends on
      subsidiary preferred stock, plus depreciation and amortization. Interest
      expense and income 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 and EBITDA, excluding other income, for AT&T Broadband are
      meaningful to investors because they provide analyses of operating
      results using the same measures used by AT&T's chief operating decision
      makers. In addition, we believe that EBIT allows investors a means to
      evaluate the financial results of each segment in relation to total AT&T.
      EBIT for AT&T was a deficit of $17,137 million and a deficit of $260
      million for the three months ended June 30, 2002 and 2001, respectively.
      EBIT was a deficit of $16,473 million and earnings of $199 million for
      the six months ended June 30, 2002 and 2001, respectively. Our
      calculations of EBIT and EBITDA, excluding other income, for AT&T
      Broadband may or may not be consistent with the calculation of these
      measures by other public companies. EBIT and EBITDA, excluding other
      income, 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, excluding
      other income, does not take into account changes in certain assets and
      liabilities as well as interest, income taxes and other income (expense)
      that can affect cash flow.

            The discussion of segment results includes revenue, EBIT, capital
      additions and total assets. In addition, for AT&T Broadband, we include
      EBITDA, excluding other income. Total assets for each segment generally
      include all assets, except intercompany receivables. 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. The income from discontinued operations is not reflected in the
      corporate and other group. Capital additions for each segment include
      capital expenditures for property, plant and equipment, internal-use
      software, additions to nonconsolidated investments and increases in
      franchise costs.

            Our existing segments reflect certain managerial changes that were
      implemented during 2002. The changes primarily include the following:
      revenue previously recorded by the AT&T Business Services segment as
      "Internal Revenue" for services provided to certain other AT&T units and
      then eliminated within the Corporate & Other group, is now recorded as a
      contra-expense by AT&T Business Services; the results of certain units
      previously included in the Corporate & Other group were transferred to the
      AT&T Business Services segment; the financial impacts of SFAS No. 133 that
      were previously recorded in the Corporate & Other group were transferred
      to the appropriate segments. In addition, AT&T Consumer Services and total
      AT&T revenue was restated in accordance with EITF issue 01-9, "Accounting
      for Consideration Given by a Vendor to a Customer," which requires cash
      incentives given to customers previously recorded as advertising and
      promotion expense now to be recorded as a reduction of revenue when
      recognized in the income statement, unless an identifiable benefit is
      received in exchange. All prior periods have been restated to reflect
      these changes.


                                       39
<PAGE>
            Reflecting the dynamics of our business, we continuously review our
      management model and structure, and make adjustments to our operating
      segments accordingly.

      AT&T BUSINESS SERVICES

            AT&T Business Services offers a variety of global communications
      services to small and medium-sized businesses, large domestic and
      multinational businesses and government agencies. AT&T Business' services
      include long distance, international, toll-free and local voice; data and
      IP networking; managed networking services and outsourcing solutions; and
      wholesale transport services (sales of services to service resellers).

<TABLE>
<CAPTION>
                                   FOR THE THREE MONTHS        FOR THE SIX MONTHS
                                      ENDED JUNE 30,             ENDED JUNE 30,
      DOLLARS IN MILLIONS             2002         2001          2002          2001
                                      ----         ----          ----          ----
<S>                                <C>           <C>          <C>           <C>
      External revenue
        Service revenue             $6,558       $6,788       $12,905       $13,654
        Equipment and product
          sales revenue                 92           65           190           136
                                    ------       ------       -------       -------
      Total external revenue         6,650        6,853        13,095        13,790
      Internal revenue                  92          158           175           317
                                    ------       ------       -------       -------
      Total revenue                 $6,742       $7,011       $13,270       $14,107
                                    ======       ======       =======       =======

      EBIT                          $  691       $1,399       $ 1,143       $ 2,405

      OTHER ITEMS
      Capital additions             $  930       $1,414       $ 1,506       $ 2,696
</TABLE>

<TABLE>
<CAPTION>
                                     AT JUNE 30, 2002         AT DECEMBER 31, 2001
<S>                                  <C>                      <C>
      Total assets                        $39,150                    $40,316
</TABLE>

      REVENUE

            AT&T Business Services total revenue decreased $0.3 billion, or
      3.8%, in the second quarter of 2002, and declined $0.8 billion, or 5.9%,
      for the six months ended June 30, 2002, compared with the same periods in
      2001. The decreases were primarily due to a decline in long distance voice
      revenue of approximately $0.4 billion and $1.2 billion in the second
      quarter of 2002 and the first six months of 2002, respectively. The
      decreases were partially offset by growth in data/IP/managed services,
      including equipment and product sales, and local voice services of
      approximately $0.2 billion and $0.4 billion for the second quarter of 2002
      and the first six months of 2002, respectively.

            Long distance voice services revenue decreased approximately 12% in
      the second quarter of 2002 and approximately 16% for six months ended June
      30, 2002. The decrease was primarily driven by a lower average price per
      minute reflecting the competitive forces within the industry as well as a
      wholesale-retail product mix shift. Long distance voice minute volumes
      were relatively flat for the second quarter of 2002 and the six months
      ended June 30, 2002.

            Data/IP/managed services, excluding equipment and product sales,
      increased approximately 7% for the second quarter of 2002 and
      approximately 6% for the six months ended June 30, 2002, compared with the
      same periods in 2001. When we include equipment and product sales, these
      services increased approximately 7% in both periods. Growth was driven by
      packet services (IP, frame relay and ATM) partially offset by a decline in
      domestic private line service.

            Local voice services revenue grew nearly 6% in the second quarter of
      2002 and nearly 11% for the six months ended June 30, 2002, compared with
      the same periods in 2001. This growth reflects our continued focus on
      increasing the utilization of our existing footprint. AT&T added more than
      200,000 access lines in the second quarter of 2002 and had approximately
      3.3 million access lines in service at June 30, 2002. Access lines enable
      AT&T to provide local service to customers by allowing direct connection
      from customer equipment to the AT&T network.

            AT&T Business Services internal revenue decreased $66 million and
      $142 million in the second quarter and first half of 2002 compared with
      the same periods in the prior year. The impact of internal revenue is
      included in the revenue by product discussions above. These decreases were
      primarily due to the split-off of AT&T Wireless on July 9, 2001, as these
      sales are now reported as external revenue.


                                       40
<PAGE>
      EBIT

            EBIT declined $0.7 billion, or 50.6%, in the second quarter of 2002
      compared with the second quarter of 2001. This decline reflects a
      reduction in other expense of $0.5 billion in the second quarter of 2002
      compared with other income in the second quarter of 2001 due to a gain
      recorded on the sale of Japan Telecom in April 2001. In addition, the
      decline reflects lower operating income of $0.3 billion resulting from the
      impact of lower prices within the long distance business, which includes
      competitive pricing pressures as well as a shift from higher margin long
      distance services to lower margin products.

            EBIT declined $1.3 billion, or 52.5%, for the six months ended June
      30, 2002, compared with the same period in 2001. This decrease was driven
      by a $0.6 billion decrease in operating income reflecting the impact of
      lower prices within the long distance business, which includes competitive
      pricing pressures as well as a shift from higher margin long distance
      services to lower margin products. In addition, the decline includes a
      reduction in other expense of $0.5 billion for the six months ended June
      30, 2002, compared with other income for the six months ended June 30,
      2001, resulting primarily from a gain recorded on the sale of Japan
      Telecom in April 2001.

      OTHER ITEMS

            Capital additions decreased $0.5 billion, or 34.2%, in the second
      quarter of 2002 and declined $1.2 billion, or 44.1%, in the first half of
      2002 compared with the same periods in 2001. These declines reflect
      significantly lower capital expenditures on our core network.

            Total assets decreased $1.2 billion, or 2.9%, at June 30, 2002,
      compared with December 31, 2001. The decrease reflects lower receivables
      primarily driven by the settlement of receivables from Concert in
      connection with the Concert unwind and lower long distance revenue.

      AT&T CONSUMER SERVICES

            AT&T Consumer Services provides a variety of communications services
      to residential customers including domestic and international long
      distance; transaction-based long distance, such as operator-assisted
      service and prepaid phone cards; local and local toll (intrastate calls
      outside the immediate local area); and dial-up Internet.

<TABLE>
<CAPTION>
                                FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                   ENDED JUNE 30,           ENDED JUNE 30,
      DOLLARS IN MILLIONS         2002         2001         2002         2001
                                  ----         ----         ----         ----
<S>                             <C>          <C>          <C>          <C>
      Revenue                   $2,911       $3,724       $5,997       $7,653
      EBIT                      $  802       $1,217       $1,634       $2,535

      OTHER ITEMS
      Capital additions         $   33       $   31       $   61       $   53
</TABLE>

<TABLE>
<CAPTION>
                                AT JUNE 30, 2002          AT DECEMBER 31, 2001
<S>                             <C>                       <C>
      Total assets                   $1,877                      $2,141
</TABLE>

      REVENUE

            AT&T Consumer Services revenue decreased $0.8 billion, or 21.8%, in
      the second quarter of 2002, and declined $1.7 billion, or 21.6%, for the
      six months ended June 30, 2002, compared with the same periods in 2001.
      The revenue decline in both periods reflects the impact of long distance
      volume reductions, primarily in traditional long distance voice services;
      such as domestic and international dial services (long distance calls
      where the number "1" is dialed before the call), and domestic calling card
      services. The traditional long distance voice services were negatively
      impacted by wireless and internet substitution, and the impact of ongoing
      competition, which has led to a loss of market share. In addition, the
      continued migration of customers to lower-priced products and optional
      calling plans has also negatively impacted revenue. Calling volumes
      declined at a low-teens percentage rate in the second quarter of 2002, and
      a mid-teens percentage rate for the period ended June 30, 2002, as a
      result of competition and substitution, partially offset by prepaid card
      usage.


                                       41
<PAGE>
      EBIT

            EBIT declined $0.4 billion, or 34.1%, in the second quarter of 2002
      compared with the second quarter of 2001. EBIT declined $0.9 billion, or
      35.6%, for the six months ended June 30, 2002, compared with the same
      period in 2001. The decline in both periods was primarily due to the
      revenue declines in the long distance business.

            EBIT margin declined to 27.5% in the second quarter of 2002 from
      32.7% in the second quarter of 2001. EBIT margin declined to 27.2% for
      the six months ended June 30, 2002, from 33.1% for the period ended
      June 30, 2001. Customers who substitute long distance calling with
      wireless and internet services and/or migrate to lower priced calling
      plans and lower margin products and remain AT&T Consumer Services
      customers generate less revenue, however the billing, customer care and
      fixed costs remain, resulting in lower EBIT margins.

      OTHER ITEMS

            Capital additions were about the same in the second quarter of 2002
      and the six months ended June 30, 2002 compared with the same periods in
      2001.

            Total assets declined $0.3 billion to $1.9 billion at June 30, 2002,
      compared with $2.1 billion at December 31, 2001. The decline was primarily
      due to lower accounts receivable, reflecting lower revenue.

      AT&T BROADBAND

            AT&T Broadband offers a variety of services through our cable
      broadband network, including traditional analog video and advanced
      services such as high-speed data (HSD) service, broadband telephony
      service and digital video service.

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS              FOR THE SIX MONTHS
                                                 ENDED JUNE 30,                   ENDED JUNE 30,
      DOLLARS IN MILLIONS                    2002            2001              2002           2001
                                             ----            ----              ----           ----
<S>                                        <C>           <C>                 <C>           <C>
       External revenue                    $  2,524      $  2,560            $  4,960      $  5,021
       Internal revenue                           2             5                   5             9
                                           --------      --------            --------      --------
       Total revenue                       $  2,526      $  2,565            $  4,965      $  5,030
                                           ========      ========            ========      ========

      EBIT                                 $(18,460)     $   (819)           $(18,885)     $ (2,361)
      EBITDA, excluding other income       $    541      $    500            $  1,006      $    894

      OTHER ITEMS
      Capital additions                    $    959      $    949            $  1,707      $  1,859
</TABLE>

<TABLE>
<CAPTION>
                                                AT JUNE 30, 2002               AT DECEMBER 31, 2001
<S>                                             <C>                            <C>
      Total assets                                   $81,816                         $103,060
</TABLE>

      REVENUE

            Broadband revenue declined $39 million, or 1.5%, for the three
      months ended June 30, 2002, compared with the corresponding prior year
      period. Approximately $0.3 billion of the decline was due to 2001 net
      cable dispositions. The decline was largely offset by $0.2 billion of
      growth from advanced services (broadband telephony, HSD and digital video)
      as well as an increase in other basic video services. The increase in
      other basic video services was primarily due to a basic rate increase on
      January 1, 2002, increased pay per view and advertising revenue, partially
      offset by a loss of basic subscribers.

            Broadband revenue declined $65 million, or 1.3%, for the six months
      ended June 30, 2002, compared with the first half of 2001. Approximately
      $0.6 billion of the decline was due to 2001 net cable dispositions. The
      decline was partially offset by $0.4 billion of growth from advanced
      services (broadband telephony, HSD and digital video) as well as a $0.1
      billion increase in other basic video services, primarily due to a rate
      increase in basic cable, increased pay per view and advertising revenue,
      partially offset by a loss of basic subscribers.


                                       42
<PAGE>
            AT&T Broadband continues to experience a decline in the number of
      basic subscribers reflecting the impacts of increased competition and
      current economic conditions. A continued loss of basic subscribers could
      have a significant impact on projected revenue and EBITDA, excluding other
      income, growth. Revenue and EBITDA, excluding other income, growth is also
      largely dependent on AT&T Broadband's ability to offer advanced services
      and the completion of AT&T Broadband's plant upgrade is an important
      factor in offering such services. Failure to complete AT&T Broadband's
      plant upgrade as anticipated could have a significant impact on projected
      revenue and EBITDA, excluding other income, growth.

            At June 30, 2002, Broadband serviced 13.3 million basic cable
      customers, passing 25.1 million homes, compared with 14.4 million basic
      cable customers, passing 25.7 million homes at June 30, 2001. At June 30,
      2002, we provided digital video service to 3.9 million customers, HSD
      service to 1.8 million customers and broadband telephony service to 1.2
      million customers. This compares with 3.1 million digital-video customers,
      1.3 million HSD customers, and 0.8 million broadband telephony customers
      at June 30, 2001.

      EBIT/EBITDA, EXCLUDING OTHER INCOME

            The EBIT deficit for the second quarter of 2002 was $18.5 billion,
      an increase of $17.6 billion compared with the second quarter of 2001. The
      increased deficit was largely due to the recognition of a $12.3 billion
      franchise cost impairment charge and a $4.2 billion goodwill impairment
      charge. In addition, the deficit increased due to higher cost and equity
      method investment impairment charges of $2.1 billion recorded in 2002.
      These impacts were partially offset by lower depreciation and amortization
      expenses of $0.3 billion, primarily as a result of the adoption of SFAS
      No. 142, and income of $0.3 billion related to the revaluation of certain
      financial instruments in 2002.

            The EBIT deficit for the six months ended June 30, 2002 was $18.9
      billion, an increase of $16.5 billion compared with the six months ended
      June 30, 2001. The increased deficit was largely due to the goodwill and
      franchise impairment charges noted above, as well as higher cost and
      equity method investment impairment charges of $2.2 billion recorded in
      2002. These impacts were partially offset by a $1.2 billion charge taken
      in the first quarter of 2001 due to the adoption of SFAS No. 133, lower
      depreciation and amortization expenses of $0.5 billion, primarily as a
      result of the adoption of SFAS No. 142, and income of $0.3 billion related
      to the revaluation of certain financial instruments in 2002.

            EBITDA, excluding other income, was $0.5 billion and $1.0 billion
      for the three and six months ended June 30, 2002, respectively,
      improvements of $41 million, or 8.5%, and $0.1 billion, or 12.6%,
      respectively from the comparable prior year periods. These improvements
      were primarily due to improved EBITDA, excluding other income, of $0.2
      billion and $0.4 billion for advanced services (primarily broadband
      telephony and HSD) driven by revenue growth and operating cost management
      for the three and six month periods ended June 30, 2002 respectively. This
      improvement was mostly offset by higher Comcast merger related costs of
      $0.1 billion in both the three and six month periods ended June 30, 2002
      and the impact of net cable dispositions in 2001 of $0.1 billion and $0.2
      billion in the three and six month periods, respectively.

      OTHER ITEMS

            Capital additions were essentially flat for the three months ended
      June 30, 2002, compared with the same period in 2001. Capital additions
      decreased $0.2 billion, or 8.2%, to $1.7 billion for the six months ended
      June 30, 2002, from $1.9 billion for the comparable prior year period.
      This decrease was primarily driven by a decline in capital expenditures,
      primarily the result of net cable dispositions in 2001, combined with
      decreased infusions into non-consolidated investments. The capital
      spending for the three and six months ended June 30, 2002, was primarily
      related to the growth and support of advanced services and plant upgrade
      expenditures.

            Total assets at June 30, 2002, were $81.8 billion compared with
      $103.1 billion at December 31, 2001. The decrease in total assets was
      primarily due to a $13.7 billion decrease in franchise costs and a $4.2
      billion decrease in goodwill, primarily reflecting the asset impairment
      charges including the impact of adopting SFAS No. 142.

      AT&T Broadband and Bresnan Broadband Holdings, LLC ("Bresnan") continue
      efforts toward closing the transactions contemplated by the Asset Purchase
      Agreement dated as of April 5, 2002, pursuant to which AT&T Broadband will
      sell to Bresnan cable systems in the States of Colorado, Wyoming, Montana
      and Utah. Closing is subject to satisfaction of


                                       43
<PAGE>
      specified conditions, including a requirement that the systems have no
      fewer than 305,000 subscribers, that certain consents of franchising
      authorities and other third parties have been obtained, and that there has
      not occurred (a) a material adverse change in the business, operations,
      financial condition, results of operations or prospects of the systems or
      the business, (b) a material market disruption, or (c) a material change
      in the financial, banking, capital or syndication markets. AT&T Broadband
      currently anticipates that the transaction will close prior to the end of
      2002.

      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 in 2001.

<TABLE>
<CAPTION>
                                         FOR THE THREE MONTHS           FOR THE SIX MONTHS
                                            ENDED JUNE 30,                 ENDED JUNE 30,
      DOLLARS IN MILLIONS                2002           2001             2002         2001
                                         ----           ----             ----         ----
<S>                                    <C>            <C>              <C>          <C>
      External revenue                 $    19        $   128          $    36      $   274
      Internal revenue                     (94)          (163)            (180)        (326)
                                       -------        -------          -------      -------
      Total revenue                    $   (75)       $   (35)         $  (144)     $   (52)
                                       =======        =======          =======      =======

      EBIT                             $  (170)       $(2,057)         $  (365)     $(2,380)

      OTHER ITEMS
      Capital additions                $    14        $    73          $    24      $   260
</TABLE>

<TABLE>
<CAPTION>
                                             AT JUNE 30, 2002         AT DECEMBER 31, 2001
<S>                                          <C>                      <C>
      Total assets                               $15,052                      $19,765
</TABLE>

      REVENUE

            Revenue for corporate and other decreased $40 million in the second
      quarter of 2002 compared with the second quarter of 2001 and $92 million
      in the first half of 2002 compared with the same prior year period. The
      deconsolidation of Excite@Home contributed $0.1 billion and $0.3 billion
      of the decrease for the quarter and year-to-date periods, respectively.
      Partially offsetting the declines in revenue were lower internal revenue
      eliminations of $0.1 billion and $0.2 billion for the quarter and
      year-to-date periods as a result of the split-off of AT&T Wireless on July
      9, 2001, partially offset by increased internal sales from AT&T Business
      Services to AT&T Broadband.

      EBIT

            The EBIT deficit declined $1.9 billion in the second quarter of 2002
      and $2.0 billion in the first half of 2002 compared with the corresponding
      periods in 2001. The decline in both periods was largely due to lower
      losses related to equity investments of approximately $1.2 billion
      primarily related to the impairment of our investment in Net2Phone in the
      second quarter of 2001. The declining deficits were also the result of a
      $0.8 billion loss on the second quarter 2001 Excite@Home put obligation
      settlement with Cox and Comcast. Also contributing to the lower deficits
      was the impact of the deconsolidation of Excite@Home of $0.1 billion for
      the second quarter and $0.4 billion for the year-to-date period as well as
      lower transaction costs associated with AT&T's restructuring announced in
      October of 2000 of $0.1 billion for both periods. The EBIT deficit
      declines were partially offset by higher expense of $0.1 billion for the
      quarter related to on-going valuation activity of certain financial
      instruments and $0.3 billion for the year-to-date period related to the
      on-going valuation activity of certain financial instruments as well as
      greater cost investment impairments. A lower pension credit of $0.1
      billion for both periods, primarily driven by a lower pension trust asset
      base resulting from lower investment returns also partially offset the
      EBIT declines.

      OTHER ITEMS

            Capital additions decreased $0.1 billion, or 80.2% in the second
      quarter of 2002 and $0.2 billion, or 90.8%, in the first half of 2002,
      compared with the corresponding 2001 periods. The decrease in both periods
      was primarily attributable to the impact of the deconsolidation of
      Excite@Home of $0.1 billion. In addition, the first half of 2002 was
      impacted by decreased purchases of non-consolidated investments of $0.1
      billion


                                       44
<PAGE>
            Total assets decreased $4.7 billion at June 30, 2002 to $15.1
      billion. The decrease was primarily driven by a lower cash balance held at
      June 30, 2002.

      LIQUIDITY

<TABLE>
<CAPTION>
      FOR THE SIX MONTHS ENDED JUNE 30,                                      2002           2001
                                                                             ----           ----
                                                                            (DOLLARS IN MILLIONS)
<S>                                                                        <C>             <C>
      CASH FLOWS:
        Provided by operating activities of continuing operations          $ 4,914         $ 4,709
        Used in investing activities of continuing operations               (3,699)           (437)
        Used in financing activities of continuing operations               (6,201)            460
        Provided by discontinued operations                                     --           4,921
</TABLE>

            Net cash provided by operating activities of continuing operations
      of $4.9 billion for the six months ended June 30, 2002, was primarily due
      to $6.3 billion of income from continuing operations, excluding non-cash
      income items, partially offset by net changes in other operating assets
      and liabilities of $1.1 billion and a decrease in accounts payable of $0.4
      billion. Net cash provided by operating activities of continuing
      operations of $4.7 billion for the six months ended June 30, 2001, was
      primarily due to income from continuing operations, excluding non-cash
      income items and the adjustment for net gains on sales of businesses of
      $6.9 billion, partially offset by a net changes in other operating assets
      and liabilities of $1.6 billion and a decrease in accounts payable of $0.8
      billion.

            AT&T's investing activities of continuing operations resulted in a
      net use of cash of $3.7 billion for the six months ended June 30, 2002,
      compared with $0.4 billion for the comparable period in 2001. In the first
      six months of 2002, AT&T spent $3.4 billion on capital expenditures. For
      the six months ended June 30, 2001, AT&T spent approximately $4.7 billion
      on capital expenditures and $0.4 billion on non-consolidated investments,
      primarily infusions into existing cable investments, and received
      approximately $3.1 billion primarily from the net disposition of cable
      systems and approximately $1.6 billion from the sales of various
      investments.

            For the six months ended June 30, 2002, net cash used in financing
      activities of continuing operations was $6.2 billion, compared with $0.5
      billion of net cash provided by financing activities of continuing
      operations for the six months ended June 30, 2001. In the first six months
      of 2002, AT&T made net payments of $8.4 billion to reduce debt and
      received $2.6 billion from the issuance of AT&T common stock. In the first
      six months of 2001, AT&T made net payments of $9.1 billion to reduce debt
      and received $9.8 billion from the issuance of convertible preferred stock
      to NTT DoCoMo.

            At June 30, 2002, we had current assets of $16.5 billion and current
      liabilities of $20.2 billion. The current assets were primarily comprised
      of trade and other receivables of $7.6 billion and cash of $5.6 billion.
      The current liabilities were primarily comprised of debt maturing within
      one year of $5.9 billion, other current liabilities of $4.8 billion,
      accounts payable of $4.3 billion and AT&T's obligation for AT&T Canada of
      $3.7 billion. We expect to fund our operations primarily with cash from
      operations, cash on hand, commercial paper and our securitization program.
      If economic conditions worsen or do not improve and/or competition and
      product substitution accelerate beyond current expectations, our cash flow
      from operations would decrease, negatively impacting our liquidity.

            In November 2001, we completed a $10.0 billion private bond offering
      which includes provisions that would allow bondholders to require AT&T to
      repurchase the notes if certain conditions are not met in conjunction with
      the spin-off or other separation of AT&T Broadband from AT&T at the time
      of notification to bondholders of the intention to separate AT&T
      Broadband. On May 15, 2002, the bondholders were notified that AT&T
      satisfied these conditions and this provision is no longer applicable. In
      June 2002, AT&T registered $7.0 billion of these private placement notes
      and commenced a tender on the private notes for registered notes. The note
      exchange was completed on August 2, 2002.

            On July 1, 2002, AT&T announced it received initial commitments from
      Citibank, Credit Suisse First Boston, Goldman Sachs and JP Morgan for a
      significant portion of a new bank facility of up to $4.0 billion. The
      banks have also agreed to act as lead arrangers to syndicate the balance
      of the 364-day credit facility. The proposed new bank facility will
      replace AT&T's existing undrawn $8.0 billion facility, which matures in
      December 2002. The existing facility currently provides that AT&T could
      not consummate the spin-off of AT&T Broadband given Moody's recent
      downgrade as discussed below. As a result, at or prior to the spin-off of
      AT&T Broadband, AT&T expects to cancel the existing facility and replace
      it with the new facility of up to


                                       45
<PAGE>
      $4.0 billion, of which a significant portion is currently committed. The
      new facility is expected to be in place prior to the spin-off of AT&T
      Broadband and remain in effect following the spin-off. The new facility is
      also expected to be adequate to back up any AT&T commercial paper or other
      short-term debt maturing over the course of the next year. The current
      credit facility agreement contains a financial covenant that requires AT&T
      to maintain a net debt-to-EBITDA ratio (as defined in the credit
      agreement) not exceeding 3.00 to 1.00 for four consecutive quarters ending
      on the last day of each fiscal quarter. At June 30, 2002, we were in
      compliance with this covenant. If AT&T were to become noncompliant, it
      could result in the cancellation of the credit facility with any amounts
      outstanding under the credit facility becoming payable immediately.

            The holders of certain private debt with an outstanding balance of
      $0.8 billion at June 30, 2002, have an annual right to cause AT&T to repay
      the debt upon payment of an exercise fee. In exchange for the elimination
      of this put right for 2002, AT&T posted a cash-collateralized letter of
      credit totaling $0.4 billion. The creditor could accelerate repayment of
      the debt if unfavorable local law changes were to occur in its country of
      operation.

            AT&T has renewed both its AT&T Business Services and AT&T Consumer
      Services customer accounts receivable securitization facilities. Together
      the programs provide up to $2.0 billion of available financing, limited by
      the eligible receivables balance, which varies from month to month.
      Proceeds from the securitization are recorded as a borrowing and included
      in short-term debt. At June 30, 2002, approximately $0.2 billion was
      outstanding. The terms of these facilities have been extended to June
      (Business) and July (Consumer) of 2003.

            In June 2002, AT&T sold 230 million shares of AT&T common stock
      receiving net proceeds of $2.5 billion. We anticipate, and under the
      Comcast merger agreement are limited to, using these funds, which are
      reflected in the cash balance at June 30, 2002, to satisfy a portion
      AT&T's obligation to AT&T Canada shareholders. The remaining portion of
      the obligation will be financed through short-term sources.

            On May 29, 2002, Moody's Investors Service (Moody's) lowered its
      rating of long-term debt issued or guaranteed by AT&T to Baa2 from A3.
      Moody's also confirmed AT&T's short-term rating as Prime-2. Moody's
      ratings outlook for AT&T remains negative but AT&T is not currently on
      review for any additional downgrade by Moody's. On June 3, 2002, Fitch
      Ratings also downgraded AT&T's long-term debt rating to BBB+ from A-, with
      the rating remaining on Rating Watch Negative pending completion of the
      AT&T Comcast transaction. AT&T's long-term debt ratings remain BBB+ and
      Credit Watch with negative implications by Standard & Poor's Ratings Group
      (Standard & Poor's). A recent press release from Standard & Poor's
      confirmed that following the AT&T Comcast transaction Standard & Poor's
      expects AT&T to have a stable outlook. Additional debt rating downgrades
      could require AT&T to pay higher rates on certain existing debt and repay
      certain operating leases. If our ratings were downgraded below investment
      grade, there are provisions in our securitization programs which could
      require the outstanding balances to be paid by the collection of the
      receivables. In addition, there are provisions in several of our debt
      instruments that require us to pay the present value of up to $0.7 billion
      of future interest payments if our credit ratings are downgraded below
      investment grade. We do not believe downgrades below investment grade are
      likely to occur.

            On February 27, 2002, AT&T signed an agreement with AT&T Latin
      America (ALA) that restructured approximately $725 million of ALA's
      short-term and long-term debt, preferred stock and interest dividends held
      by AT&T. At June 30, 2002, the $725 million financing remained
      outstanding. ALA's senior secured vendor financing of $298 million became
      effective on March 27, 2002. The AT&T-provided debt and preferred
      facilities are subordinated to the ALA senior secured vendor financing.
      The agreement between AT&T and ALA, which also took effect on March 27,
      2002, extends the maturity and redemption dates of all ALA debt and
      preferred stock payable to AT&T to October 2008. ALA may be required to
      make earlier prepayments of debt or redemptions of preferred stock out of
      the net proceeds of certain future equity and debt offerings. In addition,
      while the vendor financing is outstanding, the agreement defers interest
      payments on all AT&T debt and dividend payments on AT&T preferred stock
      until October 2008.

            If the proposed spin-off of AT&T Broadband occurs as currently
      structured, the debt of TCI and MediaOne will be included in the net
      assets spun-off and will be included in AT&T Comcast. The amount of this
      third-party debt at June 30, 2002, was $15.5 billion. The amount of
      intercompany debt of AT&T Broadband payable to AT&T that is outstanding at
      the time of the spin-off will be paid immediately prior to the


                                       46
<PAGE>
      spin-off. At June 30, 2002 such intercompany debt amounted to
      approximately $6.5 billion. In addition, AT&T's quarterly convertible
      income preferred securities, which had a book value of $4.7 billion at
      June 30, 2002, will be included in the net assets spun-off and will be
      transferred to AT&T Comcast. These securities will be settled by being
      converted into shares of AT&T Broadband, which will then be converted into
      shares of AT&T Comcast. If the transfer to AT&T Comcast does not occur
      within a specified period as prescribed in the merger agreement, AT&T
      Broadband will pay AT&T an amount equal to the fair value of the
      securities, determined pursuant to an appraisal process.

            If AT&T's debt ratings are further downgraded or any of the risks or
      covenants noted above are triggered, AT&T may not be able to obtain
      sufficient financing in the timeframe required, and/or such replacement
      financing may be more costly or have additional covenants than we had in
      connection with our debt at June 30, 2002. In addition, the market
      environment for financing in general, and within the telecommunications
      sector in particular, has been adversely affected by economic conditions
      and bankruptcies of other telecommunication providers. If the financial
      markets become more cautious regarding the industry/ratings category we
      operate in, our ability to obtain financing would be further reduced. This
      could negatively impact our ability to pursue acquisitions, make capital
      expenditures to expand our network and cable plant or to pay dividends.

      CONTRACTUAL CASH OBLIGATIONS

            At June 30, 2002, AT&T had a 31% equity ownership in AT&T Canada.
      Under the terms of the 1999 merger agreement, AT&T has the right to
      trigger, at any time, the purchase by AT&T or another entity the remaining
      equity of AT&T Canada for the Back-end Price which is the greater of the
      floor price and the fair market value. On June 25, 2002, AT&T provided
      notice triggering the requirement to purchase in cash the outstanding
      shares of AT&T Canada from the public. AT&T has arranged for Tricap
      Investments Corporation, a wholly owned subsidiary of Brascan Financial
      Corporation, to purchase approximately 63% equity interest in AT&T Canada
      and CIBC Capital Partners to acquire an approximate 6% equity interest in
      AT&T Canada. The purchase of AT&T Canada shares is expected to occur in
      the fourth quarter of this year, subject to the terms and conditions of
      the 1999 merger agreement, including obtaining the required regulatory
      approval. The liability at June 30, 2002, of $3.7 billion, is included in
      current liabilities on the balance sheet. The liability reflects foreign
      currency translation adjustments due to fluctuations in the Canadian
      dollar of $0.2 billion pretax. AT&T has a hedge related to this obligation
      and at June 30, 2002, had a realized and unrealized gains of $0.2 billion
      pretax relating to this hedge. AT&T will fund the purchase price of the
      AT&T Canada shares partly with the net proceeds of approximately $2.5
      billion raised in the sale of 230 million shares of AT&T common stock on
      June 11, 2002. The remaining portion of the obligation will be financed
      through short-term sources. Tricap and CIBC Partners will make a nominal
      payment to AT&T upon completion of the transaction. After the transaction
      closes, AT&T will continue to hold a 31% ownership interest.

            AT&T has contractual obligations to utilize network facilities from
      local exchange carriers with terms greater than one year. These contracts
      are based on volumes and have penalty fees if certain volume levels are
      not met. We assessed our minimum exposure based on penalties to exit the
      contracts. At December 31, 2001, penalties to exit these contracts in any
      given year totaled approximately $1.5 billion. At June 30, 2002, this
      amount has increased to approximately $1.7 billion, primarily as a result
      of the company entering into additional contracts.

      FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                  JUNE 30,          DECEMBER 31,
                                                                    2002               2001
                                                                    ----               ----
<S>                                                              <C>                <C>
         DOLLARS IN MILLIONS
         Total assets                                            $ 137,895          $ 165,282
         Total liabilities                                          89,018            105,322
         Total shareowners' equity                                  42,755             51,680
</TABLE>

            Total assets decreased $27.4 billion, or 16.6%, to $137.9 billion at
      June 30, 2002 from $165.3 billion at December 31, 2001. This decrease was
      largely driven by a $13.7 billion decrease in franchise costs and a $4.1
      billion decrease in goodwill, primarily reflecting the asset impairment
      charges recorded related to our AT&T Broadband segment including the
      impact of adopting SFAS No. 142. Also contributing to the decrease was
      $5.4


                                       47
<PAGE>
      billion of lower investments and related advances resulting from
      unfavorable mark-to-market adjustments on monetized investments and other
      than temporary impairments on certain investments, as well as a $5.0
      billion reduction in cash, primarily reflecting the net repayment of debt,
      partially offset by the proceeds of our June 2002 common stock offering.

            Total liabilities decreased $16.3 billion, or 15.5%, to $89.0
      billion at June 30, 2002 from $105.3 billion at December 31, 2001. This
      decrease was primarily a result of $10.3 billion in lower debt, primarily
      reflecting the pay down of short-term debt, as well as favorable
      mark-to-market adjustments on certain derivatives embedded in debt that
      are indexed to various investments, partially offset by unfavorable
      mark-to-market adjustments on foreign debt resulting from fluctuations in
      exchange rates. This decrease also includes $4.2 billion of lower deferred
      income taxes, primarily resulting from the reversal of deferred taxes
      associated with the impairment of franchise costs and certain investments.
      Although not impacting total liabilities, our obligation related to AT&T
      Canada was reclassified from other long-term liabilities and deferred
      credits to a short-term liability "AT&T Canada obligation" in the
      Consolidated Balance Sheet at June 30, 2002 due to the announcement of our
      intention to satisfy the obligation relating to the outstanding common
      shares of AT&T Canada in the fourth quarter of 2002.

            Minority interest decreased $2.2 billion, or 60.8%, to $1.4 billion
      at June 30, 2002, from $3.6 billion at December 31, 2001. This decrease
      was primarily due to the exchange and redemption of all TCI Pacific
      preferred shares for AT&T common shares.

            Total shareowners' equity decreased $8.9 billion, or 17.3%, to $42.8
      billion at June 30, 2002 from $51.7 billion at December 31, 2001. This
      decrease was primarily due to an increase in the accumulated deficit
      resulting from net losses of $13.8 billion, offset by an increase in
      additional paid-in capital and AT&T common stock resulting from our June
      2002 $2.5 billion common stock offering and $2.1 billion resulting from
      the exchange and redemption of all TCI Pacific preferred shares for AT&T
      common shares.

            In March and June 2002, when AT&T declared its quarterly dividends
      to the AT&T Common Stock Group shareowners, the company was in an
      accumulated deficit position. As a result, the company reduced additional
      paid-in capital by $0.3 billion, the entire amount of the dividends
      declared.

            The ratio of total debt to total capital for AT&T (total debt
      divided by total debt and equity) was 47.6% at June 30, 2002, compared
      with 47.7% at December 31, 2001. For purposes of this calculation, equity
      includes the convertible trust preferred securities and subsidiary
      redeemable preferred stock. In addition, included in total debt was
      approximately $6.1 billion and $8.6 billion of notes at June 30, 2002 and
      December 31, 2001, respectively, which are exchangeable into or
      collateralized by securities we own. Excluding this debt, the debt ratio
      at June 30, 2002, was 43.8%, compared with 43.4% at December 31, 2001.

      RISK MANAGEMENT

            We are exposed to market risk from changes in interest and foreign
      exchange rates. In addition, we are exposed to market risk from
      fluctuations in the prices of securities, some of which are monetized
      through the issuance of debt. On a limited basis, we use certain
      derivative financial instruments, including interest rate swaps, options,
      forwards, equity hedges 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.

            We have entered into combined interest rate forward contracts to
      hedge foreign-currency-denominated debt. Assuming a 10% downward shift in
      interest rates, the fair value of the contracts and the underlying hedged
      debt at June 30, 2002, would have changed by $2 million.

            We have certain notes which are indexed to the market price of
      equity securities we own. Certain of these notes contain embedded
      derivatives, while other debt was issued in conjunction with net
      purchased options. Changes in the market prices of these securities
      result in changes in the fair value of the derivatives. Assuming a
      downward 10% change in the market price of these securities, the fair
      value of the combined collars and underlying debt would decrease by $394
      million at June 30, 2002. The change in fair value referenced above does
      not represent the actual change in fair value we would incur under normal
      market conditions because all variables other than the equity prices were
      held constant in the calculations.

      RECENT ACCOUNTING PRONOUNCEMENTS

            In August 2001, the Financial Accounting Standards Board (FASB)
      issued SFAS No. 143,"Accounting for Asset Retirement Obligations." This
      standard requires that obligations associated with the retirement of
      tangible long-lived assets be recorded as liabilities when those
      obligations are incurred, with the amount of the liability initially
      measured at fair value. Upon initially recognizing a liability for an
      asset retirement obligation, an entity must capitalize the cost by
      recognizing an increase in the carrying amount of the related long-lived
      asset. Over time, this liability is accreted to its future value, and the
      capitalized cost is depreciated over the useful life of the related asset.
      Upon settlement of the liability, an entity either settles the obligation
      for its recorded


                                       48
<PAGE>
      amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective
      for financial statements issued for fiscal years beginning after June 15,
      2002. For AT&T, this means that the standard will be adopted on January 1,
      2003. AT&T does not expect that the adoption of this statement will have a
      material impact on AT&T's results of operations, financial position or
      cash flows.

            On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of SFAS
      Statements No. 4, 44, and 64, Amendment of SFAS Statement No. 13 and
      Technical Corrections." SFAS No. 145 eliminates the requirement (in SFAS
      No. 4) that gains and losses from the extinguishments of debt be
      aggregated and classified as extraordinary items, net of the related
      income tax. An entity is not prohibited from classifying such gains and
      losses as extraordinary items, as long as they meet the criteria of APB
      No. 30. In addition, SFAS No. 145 requires sales-lease back treatment for
      certain modifications of a capital lease that result in the lease being
      classified as an operating lease. The rescission of SFAS No. 4 is
      effective for fiscal years beginning after May 15, 2002, which for AT&T
      would be January 1, 2003. Earlier application is encouraged. Any gain or
      loss on extinguishment of debt that was previously classified as an
      extraordinary item would be reclassified to other income (expense). The
      remainder of the statement is generally effective for transactions
      occurring after May 15, 2002. AT&T does not expect that the adoption of
      SFAS No. 145 will have a material impact on AT&T's results of operations,
      financial position or cash flows.

            On June 28, 2002, the FASB issued SFAS No. 146, "Accounting for Exit
      or Disposal Activities". This statement addresses the recognition,
      measurement and reporting of costs that are associated with exit and
      disposal activities. This statement includes the restructuring activities
      that are currently accounted for pursuant to the guidance set forth in
      EITF 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to exit an Activity (including Certain Costs
      Incurred in a Restructuring)", costs related to terminating a contract
      that is not a capital lease and one-time benefit arrangements received by
      employees who are involuntarily terminated- nullifying the guidance under
      EITF 94-3. Under SFAS No. 146 the cost associated with an exit or disposal
      activity is recognized in the periods in which it is incurred rather than
      at the date the company committed to the exit plan. This statement is
      effective for exit or disposal activities initiated after December 31,
      2002 with earlier application encouraged. Previously issued financial
      statements will not be restated. The provisions of EITF 94-3 shall
      continue to apply for exit plans initiated prior to the adoption of SFAS
      No. 146. Accordingly, the initial adoption of SFAS No. 146 will not have
      an effect on AT&T's results of operations, financial position or cash
      flows. Liabilities associated with future exit and disposal activities
      will not be recognized until actually incurred .

      SUBSEQUENT EVENTS

            On July 1, 2002, AT&T completed the sale of its headquarters
      facility and corporate conference center in Basking Ridge, New Jersey, to
      Pharmacia for $0.2 million. The transaction resulted in a pretax gain of
      approximately $40 million.

            AT&T owns a 49% economic interest in Alestra S. de R.L. de C.V., a
      telecommunications company in Mexico. Alestra has announced that it may
      not be able to make a $35 million bond payment due in November 2002 and
      that it is working with Morgan Stanley in analyzing available options to
      address the company's financial condition, including its liquidity
      position. Standard and Poor's has downgraded Alestra's corporate credit
      rating and said it would likely default on its debt obligations during
      financial year 2002, probably by way of a bond restructuring. Moody's also
      downgraded all ratings of Alestra stating that "based upon current long
      distance network asset valuations, Moody's considers that unsecured debt
      holders face poor recovery prospects in a distress scenario." AT&T cannot
      predict what the impact of these developments will be.

            On August 11, 2002, US Airways Group Inc. filed for Chapter 11
      bankruptcy protection. AT&T leases airplanes under leveraged leases to US
      Airways. Under a leveraged lease, the assets are secured with debt, which
      is non-recourse to AT&T. In connection with the bankruptcy filing, US
      Airways can reject or reaffirm its leases. AT&T does not know if US
      Airways will reject or affirm its leases. If it does reject the leases and
      the non-recourse debtholder forecloses on the assets, AT&T could incur an
      after-tax loss of approximately $70 to $80 million (based on June 30, 2002
      balances).

            On August 12, 2002, in connection with the proposed merger between
      AT&T Broadband and Comcast, AT&T filed a preliminary prospectus
      contemplating a potential offer to exchange an aggregate of $11.8 billion
      of AT&T's existing debt securities. The exchange offer involves two types
      of transactions. The first, which is expected to be subject to proration,
      involves an exchange of certain series of AT&T notes for new notes that
      would ultimately become obligations of AT&T Broadband Corp., a newly
      formed company to which AT&T will spin-off its AT&T Broadband unit prior
      to completing the merger. AT&T Comcast and certain of its subsidiaries
      would guarantee these obligations upon completion of the merger. The
      second, which is not expected to be subject to proration, involves an
      exchange of other series of AT&T notes for new notes that would remain
      obligations of AT&T.

            Neither AT&T, AT&T Broadband, nor any other entity would receive any
      proceeds from the issuance of the new notes in the exchange offer. The new
      notes would represent a new offering with respect to those notes that
      ultimately become obligations of AT&T Broadband and would reduce the
      amount that AT&T Broadband would otherwise be required to pay to AT&T upon
      completion of the merger with Comcast. The new notes would represent a
      refinancing with respect to those notes that remain obligations of AT&T
      after the merger.

            The exchange offer would be subject to various conditions as
      described in the prospectus. A decision to proceed with the exchange offer
      will be based on market and business conditions over the next several
      months, finalization of the exchange offer on terms that are mutually
      acceptable to AT&T and Comcast, and other factors. Terms of the exchange
      offer have not yet been determined and will be announced upon launch.


                                       49
<PAGE>
PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

Exhibit
Number

10          Form of Employment Agreement Addendum between AT&T Corp. and Charles
            H. Noski

12          Computation of Ratio of Earnings to Fixed Charges

      (b)   Reports on Forms 8-K

      Form 8-K dated April 13, 2002 was filed pursuant to Item 5 and Item 7 on
      April 16, 2002. Form 8-K dated April 24, 2002 was filed pursuant to Item 5
      and Item 7 on April 25, 2002. Form 8-K dated May 9, 2002 was filed
      pursuant to Item 5 and Item 7 on May 13, 2002. Form 8-K dated May 28, 2002
      was filed pursuant to Item 5 and Item 7 on May 29, 2002. Form 8-K dated
      June 5, 2002 was filed pursuant to Item 5 on June 5, 2002. Form 8-K dated
      June 5, 2002 was filed pursuant to Item 5 and Item 7 on June 11, 2002.



                                       50
<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1034, 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:    August 13, 2002


                                       51
<PAGE>
Exhibit Index

Exhibit
Number

12          Computation of Ratio of Earnings to Fixed Charges

10          Form of Employment Agreement Addendum between AT&T Corp. and Charles
            H. Noski


                                       52