<PAGE>   1
                                  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 March 31, 2001

                                       OR

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

          For the transition period from _____________to _____________


                          Commission file number 1-1105

                                   AT&T CORP.

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

           AT&T common stock - 3,746,483,877 shares
           Liberty Media Group Class A common stock - 2,375,751,504 shares
           Liberty Media Group Class B common stock - 212,045,288 shares
           AT&T Wireless Group common stock - 363,392,125 shares
<PAGE>   2
                         PART I - FINANCIAL INFORMATION
                          AT&T CORP. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                             For the Three
                                                                                                              Months Ended
                                                                                                                March 31,
                                                                                                        2001                  2000
<S>                                                                                                   <C>                   <C>
Revenue                                                                                               $16,763               $15,901

Operating Expenses
Costs of services and products (excluding depreciation of $1,540 and $1,178 included below)             4,837                 3,915
Access and other connection                                                                             3,286                 3,588
Selling, general and administrative                                                                     3,868                 3,289
Depreciation and other amortization                                                                     2,141                 1,566
Amortization of goodwill, franchise costs and other purchased intangibles                                 846                   368
Net restructuring and other charges                                                                       808                   773
Total operating expenses                                                                               15,786                13,499

Operating income                                                                                          977                 2,402

Other (expense) income                                                                                 (2,419)                  668
Interest expense                                                                                          969                   589
Income before income taxes, minority interest, (losses) earnings from equity investments and
    cumulative effect of accounting change                                                             (2,411)                2,481

(Benefit) provision for income taxes                                                                     (335)                  509
Minority interest income (expense)                                                                        650                   (44)
Equity (losses) earnings from Liberty Media Group                                                        (697)                  942
Net losses from other equity investments                                                                  136                   187
(Losses) income before cumulative effect of accounting change                                          (2,259)                2,683
Cumulative effect of accounting change - net of income taxes of $1,205                                  1,915                     -

Net (losses) income                                                                                      (344)                2,683
Dividend requirements of preferred stock                                                                  181                     -

Net (losses) income available to common shareowners                                                   $  (525)              $ 2,683

AT&T Common Stock Group - per basic share:
(Losses) earnings - before cumulative effect of accounting change                                     $ (0.46)              $  0.55
Cumulative effect of accounting change                                                                   0.36                     -
AT&T Common Stock Group (losses) earnings                                                             $ (0.10)              $  0.55

AT&T Common Stock Group - per diluted share:
(Losses) earnings - before cumulative effect of accounting change                                     $ (0.46)              $  0.54
Cumulative effect of accounting change                                                                   0.36                     -
AT&T Common Stock Group (losses) earnings                                                             $ (0.10)              $  0.54

Dividends declared                                                                                    $0.0375               $  0.22

AT&T Wireless Group - per basic and diluted share:
AT&T Wireless Group losses                                                                            $  0.02               $     -

Liberty Media Group - per basic and diluted share:
(Losses) earnings - before cumulative effect of accounting change                                     $ (0.27)              $  0.37
Cumulative effect of accounting change                                                                   0.21                     -
Liberty Media Group (losses) earnings                                                                 $ (0.06)              $  0.37
</TABLE>


                 See Notes to Consolidated Financial Statements
<PAGE>   3
                          AT&T CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                              (Dollars in Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   March 31,            December 31,
                                                                                                     2001                  2000
<S>                                                                                                <C>                   <C>
ASSETS

Cash and cash equivalents                                                                          $    136              $    126

Receivables, less allowances of $1,373 and $1,379                                                    10,633                11,144

Other receivables                                                                                     1,805                 1,703

Investments                                                                                           1,676                 2,102

Deferred income taxes                                                                                   855                   812

Other current assets                                                                                  1,148                 1,200

TOTAL CURRENT ASSETS                                                                                 16,253                17,087

Property, plant and equipment, net of accumulated depreciation of $34,239 and $32,871                52,265                51,161

Franchise costs, net of accumulated amortization of $1,921 and $1,664                                47,924                48,218

Licensing costs, net of accumulated amortization of $1,856 and $1,762                                13,568                13,626

Goodwill, net of accumulated amortization of $1,218 and $850                                         30,525                31,478

Investment in Liberty Media Group and related receivables, net                                       34,072                34,290

Other investments and related advances                                                               34,287                34,261

Prepaid pension costs                                                                                 3,092                 3,003

Other assets                                                                                          9,155                 9,099

TOTAL ASSETS                                                                                       $241,141              $242,223
</TABLE>


                                   (CONTINUED)
<PAGE>   4
                          AT&T CORP. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (CONT'D)
                              (Dollars in Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   March 31,            December 31,
                                                                                                     2001                  2000
<S>                                                                                                <C>                  <C>
LIABILITIES
Accounts payable                                                                                   $  4,905              $  6,455
Payroll and benefit-related liabilities                                                               1,882                 2,423
Debt maturing within one year                                                                        17,225                31,947
Liability under put options                                                                           2,627                 2,564
Other current liabilities                                                                             7,805                 7,478

TOTAL CURRENT LIABILITIES                                                                            34,444                50,867

Long-term debt                                                                                       39,004                33,092
Long-term benefit-related liabilities                                                                 3,654                 3,670
Deferred income taxes                                                                                36,665                36,713
Other long-term liabilities and deferred credits                                                      5,114                 5,090
TOTAL LIABILITIES                                                                                   118,881               129,432

Minority Interest                                                                                     4,222                 4,883

Company-Obligated Convertible Quarterly Income Preferred Securities of Subsidiary Trust
    Holding Solely Subordinated Debt Securities of AT&T                                               4,713                 4,710

Convertible Preferred Stock                                                                           9,362                     -

SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and
    outstanding 3,809,487,226 shares (net of 416,033,726 treasury shares) at
    March 31, 2001 and 3,760,151,185 shares (net of 416,887,452 treasury shares)
    at December 31, 2000                                                                              3,809                 3,760

AT&T Wireless Group Common Stock, $1 par value, authorized 6,000,000,000 shares;
    issued and outstanding 363,203,425 shares at March 31, 2001 and 361,802,200
    shares at December 31, 2000                                                                         363                   362

Liberty Media Group Class A Common Stock, $1 par value, authorized 4,000,000,000
    shares; issued and outstanding 2,376,748,041 shares (net of 53,732,514
    treasury shares) at March 31, 2001 and 2,363,738,198 shares (net of
    59,512,496 treasury shares) at December 31, 2000                                                  2,377                 2,364

Liberty Media Group Class B Common Stock, $1 par value, authorized 400,000,000
    shares; issued and outstanding 212,045,288 shares (net of 10,607,776
    treasury shares) at March 31, 2001 and 206,221,288 shares (net of 10,607,776
    treasury shares) at December 31, 2000                                                               212                   206
Additional paid-in capital                                                                           92,045                90,496
Retained earnings                                                                                     6,732                 7,408
Accumulated other comprehensive income                                                               (1,575)               (1,398)
TOTAL SHAREOWNERS' EQUITY                                                                           103,963               103,198
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY                                                          $241,141              $242,223
</TABLE>


                 See Notes to Consolidated Financial Statements
<PAGE>   5
                          AT&T CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
                              (Dollars in Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 For the Three
                                                 Months Ended
                                                   March 31,
                                               2001        2000
<S>                                           <C>        <C>
AT&T Common Shares
  Balance at beginning of year                $ 3,760    $ 3,196
  Shares issued (acquired), net:
    Under employee plans                            4          1
    For acquisitions                               44          -
    Other                                           1        (50)
Balance at end of period                        3,809      3,147

AT&T Wireless Group Common Stock
  Balance at beginning of year                    362          -
  Shares issued under employee plans                1          -
Balance at end of period                          363          -

Liberty Media Group Class A Common Stock
  Balance at beginning of year                  2,364      2,314
  Shares issued, net:
    For acquisitions                                -         49
    Other                                          13          -
Balance at end of period                        2,377      2,363

Liberty Media Group Class B Common Stock
  Balance at beginning of year                    206        217
  Shares issued (acquired), net:
    Other                                           6        (11)
Balance at end of period                          212        206

Additional Paid-In Capital
  Balance at beginning of year                 90,496     59,526
  Shares issued (acquired), net:
    Under employee plans                          107         50
    For acquisitions                              827        737
    Other                                         290     (2,619)
  Gain on issuance of common stock
    by affiliates                                  25        (95)
  Beneficial conversion value of preferred
    stock                                         295          -
  Other                                             5         37
Balance at end of period                       92,045     57,636

Guaranteed ESOP Obligation
  Balance at beginning of year                      -        (17)
  Amortization                                      -         17
Balance at end of period                            -          -

Retained Earnings
  Balance at beginning of year                  7,408      6,712
  Net (losses) income                            (344)     2,683
  Dividends declared - common stock              (143)      (692)
  Dividends declared - preferred stock           (181)         -
Treasury shares issued at less
    than cost                                      (8)      (150)
Balance at end of period                        6,732      8,553
</TABLE>

                                   (CONTINUED)
<PAGE>   6
                          AT&T CORP. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONT'D)
                              (Dollars in Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        For the Three
                                                        Months Ended
                                                          March 31,
                                                      2001       2000
<S>                                                 <C>         <C>
Accumulated Comprehensive Income
  Balance at beginning of year                        (1,398)     6,979
  Other comprehensive income                            (177)     1,821
Balance at end of year                                (1,575)     8,800
Total Shareowners' Equity                           $103,963    $80,705

Summary of Total Comprehensive Income:
(Losses) income before cumulative
  effect of accounting change                       $ (2,259)   $ 2,683
Cumulative accounting change                           1,915          -
Net (losses) income                                     (344)     2,683
Dividend requirements of preferred stock                 181          -
Net (losses) income available to common
  shareowners                                       $   (525)   $ 2,683
Net foreign currency translation adjustment
  (net of income taxes of $(136) and $(34))             (192)       (58)
Net revaluation of securities:
  Unrealized (losses) gain (net of income
  taxes of $(178) and $260)                             (309)       401
  Recognition of previously unrealized losses
  (gains) on available-for-sale securities
  (net of income taxes of $198 and $967)                 324      1,478
Comprehensive Income                                $   (702)   $ 4,504
</TABLE>

In the first quarter of 2001, AT&T adopted Statement of Financial Accounting
Standard (SFAS) No. 133 which impacted the results of other comprehensive
income (see note j).

In the first quarter of 2001, other comprehensive income included Liberty Media
Group's(LMG) foreign currency translation adjustments totaling $(149), net of
applicable taxes, revaluation of LMG's available-for-sale securities totaling
$50, net of applicable taxes, the recognition of previously unrecognized
available-for-sale securities of $4 and the impact of adopting SFAS No. 133 of
$(87).

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

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

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


                 See Notes to Consolidated Financial Statements
<PAGE>   7
                          AT&T CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Millions)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                             For the Three
                                                             Months Ended
                                                               March 31,
                                                           2001          2000
<S>                                                      <C>           <C>

OPERATING ACTIVITIES
Net (losses) income                                      $   (344)     $  2,683
Adjustments to reconcile net (losses) income to net
  cash provided by operating activities:
    Cumulative effect of accounting change -
      net of tax                                           (1,915)           --
    Net gains on sales of businesses
      and investments                                        (218)         (594)
    Net restructuring and other charges                       796           748
    Depreciation and amortization                           2,987         1,934
    Provision for uncollectible receivables                   424           284
    Deferred income taxes                                    (877)         (477)
    Minority interest (income) expense                       (665)           39
    Net equity losses (earnings) from Liberty
      Media Group                                             697          (942)
    Net losses from other equity investments                  238           301
    Increase in receivables                                   (24)         (890)
    Decrease in accounts payable                           (1,078)          (73)
    Net revaluation of trading securities                   2,582            --
    Net change in other operating assets and
      liabilities                                            (820)         (483)
    Other adjustments, net                                    155            (2)
NET CASH PROVIDED BY OPERATING ACTIVITIES                   1,938         2,528

INVESTING ACTIVITIES
Capital expenditures and other additions                   (3,923)       (3,236)
Proceeds from sale or disposal of property,
  plant and equipment                                          11           143
Increase in other receivables                                 (34)         (980)
Net acquisitions of licenses                                  (39)          (82)
Sales of marketable securities                                 88            --
Equity investment distributions and sales                     742           417
Equity investment contributions and purchases                (733)       (1,059)
Net disposition (acquisitions) of businesses
  net of cash disposed/acquired                               613          (188)
Other investing activities, net                                91           (16)
NET CASH USED IN INVESTING ACTIVITIES                      (3,184)       (5,001)

FINANCING ACTIVITIES
Proceeds from long-term debt issuances                      6,345           739
Retirement of long-term debt                                 (130)       (1,007)
Issuance of convertible preferred securities
   and warrants                                             9,811            --
Redemption of redeemable securities                            --          (152)
Issuance of AT&T common shares                                 61            --
Issuance of AT&T Wireless Group common shares                  31            --
Net issuance (acquisition) of treasury shares                  15          (393)
Dividends paid on common stock                               (141)         (703)
Dividends paid on preferred securities                        (22)          (97)
(Decrease) increase in short-term borrowings, net         (14,715)        3,179
Other financing activities, net                                 1           (15)
NET CASH PROVIDED BY FINANCING ACTIVITIES                   1,256         1,551

Net increase (decrease) in cash and cash
  equivalents                                                  10          (922)
Cash and cash equivalents at beginning of year                126         1,024
Cash and cash equivalents at end of period               $    136      $    102
</TABLE>

The notes are an integral part of the consolidated financial statements.
<PAGE>   8
                          AT&T CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Dollars in Millions Except Per Share Amounts)
                                   (Unaudited)

(a)      BASIS OF PRESENTATION

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

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

(b)      RESTRUCTURING OF AT&T

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

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

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

         AT&T expects that these transactions will be tax-free to U.S.
         shareholders. AT&T's restructuring plan is complicated and involves a
         substantial number of steps and transactions, including obtaining
         various conditions, such as Internal Revenue Service rulings. In
         addition, future financial conditions, superior alternatives or other
         factors may arise or occur that make it inadvisable to proceed with
         part or all of AT&T's restructuring plans. Any or all of the elements
         of
<PAGE>   9
         AT&T's restructuring plan may not occur as we currently expect or in
         the time frames that we currently contemplate, or at all. Alternative
         forms of restructuring, including sales of interests in these
         businesses, would reduce what is available for distribution to
         shareholders in the restructuring.

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

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

(c)      MERGER WITH MEDIAONE, INC (MEDIAONE)

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

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

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

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

<TABLE>
<CAPTION>
                                                               (Unaudited)
Shares in millions
For the Three Months Ended March 31,                              2000
<S>                                                            <C>
Revenue                                                         $ 16,607
Net income                                                         3,505

Weighted-average AT&T common shares                                3,788
Weighted-average AT&T common shares
 and potential common shares                                       3,863
Weighted-average Liberty Media Group Shares                        2,563

AT&T Common Stock Group (losses) earnings per common share:
  Basic                                                         $   0.68
  Diluted                                                       $   0.67

Liberty Media Group earnings (losses) per common share:
  Basic and diluted                                             $   0.37
</TABLE>

Pro forma data may not be indicative of the results that would have been
obtained had these events actually occurred at the beginning of the periods
presented, nor does it intend to be a projection of future results.
<PAGE>   11
(d)      OTHER ACQUISITIONS, EXCHANGES AND DISPOSITIONS

         COX AND COMCAST

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

         CABLEVISION

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

         INSIGHT COMMUNICATIONS COMPANY LP

         Effective January 1, 2001, AT&T sold to Insight Communications Company
         LP (Insight) several Illinois cable-systems serving approximately 98
         thousand customers for $392. Insight subsequently contributed the
         purchased cable-system and additional cable-systems serving
         approximately 177 thousand customers to Insight Midwest L.P. in which
         AT&T has a 50% interest. AT&T also contributed entities owning
         cable-systems serving approximately 248 thousand customers in Illinois
         to Insight Midwest L.P. The transactions resulted in pretax gains of
         $179, which were deferred due to a keep well agreement with Insight
         Midwest, L.P.
<PAGE>   12
(e)      NET RESTRUCTURING AND OTHER CHARGES

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

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

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

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

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

                                  Type of Cost

<TABLE>
<CAPTION>
                                         Employee      Facility
                                        Separations    Closings    Other   Total
<S>                                     <C>            <C>         <C>     <C>
         Balance at January 1, 2001       $   259      $   173     $  36   $ 468
         Additions                             59            6         4      69
         Deductions                          (108)         (14)        0    (122)
         Balance at March 31, 2001        $   210      $   165     $  40   $ 415
</TABLE>


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

         During the first quarter of 2000, AT&T recorded $773 of net
         restructuring and other charges, which included $682 for restructuring
         and exit costs associated with AT&T's initiative to reduce costs by the
<PAGE>   13
         end of 2000, and $91 related to the government-mandated disposition of
         AT&T Communications (U.K.) Ltd., which would have competed directly
         with Concert.

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

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

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


(f)      EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE

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

<TABLE>
<CAPTION>
                                                         AT&T Common Stock Group     AT&T Wireless Group     Liberty Media Group
         For the three months ended March 31,              2001            2000       2001         2000       2001         2000
<S>                                                      <C>              <C>        <C>           <C>       <C>          <C>
         (Losses) income before cumulative effect of
              accounting change                          $(1,555)         $1,741     $  (7)        $  -      $(697)       $  942
         Cumulative effect of accounting change            1,370               -         -            -        545             -

         Net (losses) income                                (185)          1,741        (7)           -       (152)          942
         Dividend requirements of preferred stock            181              -          -            -          -             -
         Net (losses) income available to common
              shareowners                                $  (366)         $1,741     $  (7)        $  -      $(152)       $  942
</TABLE>

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

         Since AT&T recorded losses for the three months ended March 31, 2001,
         diluted losses per share are the same as basic, as any potentially
         dilutive securities would be antidilutive. Diluted earnings per share
         (EPS) for AT&T Common Stock Group for the three months ended March 31,
         2000, was computed by dividing AT&T Common Stock Group income, adjusted
         for the conversion of securities, by the weighted-average number of
         shares and dilutive potential shares outstanding during the period,
         assuming conversion of the potential shares at the beginning of the
         periods presented. Shares issuable upon conversion of preferred stock
<PAGE>   14
         of subsidiaries, convertible debt securities of a subsidiary, stock
         options and other performance awards have been included in the diluted
         calculation of weighted-average shares to the extent that the assumed
         issuance of such shares would have been dilutive, as illustrated below.

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

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


<TABLE>
<CAPTION>
         For the three months ended March 31,                    2000
<S>                                                             <C>
         AT&T Common Stock Group:
         Income                                                 $1,741
         Income impact of assumed conversion of
           preferred stock of subsidiary                             8
         Income adjusted for conversion of
           securities                                           $1,749

         Shares in millions
         Weighted-average common shares                          3,185
         Stock options                                              31
         Preferred stock of subsidiary                              40
         Weighted-average common shares and
           potential common shares                               3,256
</TABLE>

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

         Basic (losses) income per share for LMG were computed by dividing the
         LMG (losses) income by the weighted-average number of shares
         outstanding of LMG of 2,574 million and 2,563 million, for the three
         months ended March 31, 2001 and 2000, respectively. Potentially
         dilutive securities, including fixed and nonvested performance awards
         and stock options, have not been factored into the dilutive
         calculations because past history has indicated that these contracts
         are generally settled in cash. There were 99 million of these
         potentially dilutive securities outstanding at March 31, 2000. Since
         LMG recorded losses for the three months ended March 31, 2001, diluted
         losses per share are the same as basic, as any potentially dilutive
         securities would be antidilutive. There were 101 million potentially
         dilutive LMG securities outstanding at March 31, 2001.
<PAGE>   15
(g)      LONG-TERM DEBT

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

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

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

(h)      CONVERTIBLE PREFERRED STOCK

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

         In the event that AT&T has not split-off AT&T Wireless by specified
         dates beginning January 1, 2002, DoCoMo will have the right, at its
         election, to require AT&T to repurchase the preferred shares at NTT
         DoCoMo's original purchase price plus a carrying cost of approximately
         7% up to date of payment. In addition to the approximate 7% carrying
         cost we accrue on the DoCoMo convertible preferred stock, there is an
         intrinsic value embedded in the conversion feature of the preferred
         stock that is accreted over the period that DoCoMo can put the shares
         back to us. This intrinsic value, referred to as the beneficial
         conversion feature, represents the difference in the fair value
         assigned to the preferred stock and the fair market value equivalent of
         the Wireless tracking stock. The total of the carrying costs and the
         accretion of the beneficial conversion feature was $0.2 billion and is
         treated as a preferred stock dividend recorded as a reduction of AT&T
         Common Stock Group earnings. At March 31, 2001, the preferred stock had
         a liquidation value of $9.4 billion.
<PAGE>   16
(i)      RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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

         Included in "Other current liabilities" at March 31, 2001 was $25
         payable to LMG. Included in "Investment in Liberty Media Group and
         related receivables, net" was $155 receivable from LMG at December 31,
         2000. These amounts primarily related to taxes pursuant to a
         tax-sharing agreement between LMG and Broadband. That agreement existed
         prior to the TCI merger.
<PAGE>   17
(j)      STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133 "ACCOUNTING FOR
         DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"

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

         The adoption of SFAS No. 133 on January 1, 2001, resulted in a pretax
         cumulative-effect increase to income of $3.1 billion ($1.9 billion
         net-of-tax). $2.2 billion ($1.37 billion net-of-tax) and $0.9 billion
         ($0.5 billion net-of-tax) were attributable to AT&T Group and Liberty
         Media Group, respectively.

         AT&T Group

         AT&T Group's cumulative-effect increase to net income of $1.37 billion
         was attributable primarily to derivative instruments that are not
         designated as hedging instruments. The undesignated instruments include
         exchangeable notes mandatorily redeemable at AT&T's option into shares
         of Comcast, Microsoft and Vodafone securities, other option agreements
         to hedge our exposure on debt that is collateralized by securities we
         own, and warrants held in both public and private companies. The
         exchangeable notes contain embedded options that hedge the market risk
         of a decline in the value of Comcast, Microsoft and Vodafone
         securities.

         Included in the after tax cumulative effect benefit of $1.37 billion,
         was a $1.2 billion benefit which was reclassified from OCI for changes
         in the value of options for fair value hedges, $2.2 benefit for changes
         in the value of swaps and foreign currency transactions and $172
         benefit for changes in the fair value of warrants.

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

         Upon adoption, AT&T Group, as permitted by SFAS 133, also reclassified
         $9.3 billion of securities from "available-for-sale" to "trading".
         This reclassification resulted in a pretax charge of $2.8 billion
         ($1.72 billion net-of-tax) recorded in other income. This $1.72 billion
         represents the net revaluation of securities to fair market value which
         was accounted for in OCI prior to the adoption of SFAS 133.
<PAGE>   18
         Foreign Currency Risk

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


         Collars and Equity Securities Price Risk

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


         Interest Rate Swap Agreements

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

         Other Derivatives

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

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

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

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

         Liberty Media Group (LMG)

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

         Derivative instruments

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

         For derivatives designed either as fair value or cash flow hedges,
         changes in the time value of the derivatives are excluded from the
         assessment of hedge effectiveness and are recognized in earnings.
         Hedge ineffectiveness, determined in accordance with SFAS No. 133, had
         no impact on LMG's earnings for the three months ended March 31, 2001.
         No fair value hedges or cash flow hedges were derecognized or
         discontinued during the three months ended March 31, 2001.
<PAGE>   19
(k)      COMMITMENTS

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

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

(l)      SEGMENT REPORTING

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

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

         REVENUE

<TABLE>
<CAPTION>
         For the Three Months Ended March 31,             2001        2000
<S>                                                    <C>        <C>
           Business services external revenue           $ 6,940      $7,094
           Business services internal revenue               228         158
         Total Business Services revenue                  7,168       7,252
         Consumer Services external revenue               4,007       5,037
         Wireless Services external revenue               3,212       2,198
           Broadband external revenue                     2,461       1,557
           Broadband internal revenue                         4           0
         Total Broadband revenue                          2,465       1,557

           Total reportable segments                     16,852      16,044

         Corporate and Other (a)                            (89)       (143)
         Total revenue                                  $16,763     $15,901
</TABLE>

(a)      Includes $143 Excite@Home revenue in first quarter 2001.
<PAGE>   20
         RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO INCOME
         BEFORE INCOME TAXES

<TABLE>
<CAPTION>
         For the Three Months Ended March 31,            2001        2000
<S>                                                    <C>          <C>
         Business services                             $ 1,018      $1,146
         Consumer services                               1,318       1,658
         Wireless services                                 118         111
         Broadband                                        (508)        236
           Total reportable segments                     1,946       3,151
         Corporate and Other (a)                        (3,062)       (453)
         Deduct: Pretax minority interest
           income (expense)                                563         (70)
         Add: Pretax losses from
           other equity investments                        237         302
         Interest expense                                  969         589
           Total (losses) income before
             income taxes                              $(2,411)     $2,481
</TABLE>

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

         ASSETS

<TABLE>
<CAPTION>
                                                   At Mar. 31,     At Dec. 31,
                                                       2001           2000
<S>                                                  <C>            <C>
         Business services                           $ 42,562       $ 42,747
         Consumer services                              2,768          3,150
         Wireless services                             46,930         35,184
         Broadband                                    114,191        114,848
           Total reportable segments                  206,451        195,929

         Corporate and Other:
           Other segments                               1,161          1,174
           Prepaid pension costs                        3,092          3,003
           Deferred income taxes                          388            406
           Other corporate assets(a)                   (4,023)         7,421
         Investment in Liberty Media Group
           and related receivables, net                34,072         34,290

         Total assets                                $241,141       $242,223
</TABLE>


         (a) Includes $1,705 and $2,541 related to Excite@Home at March 31, 2001
         and December 31, 2000, respectively.
<PAGE>   21
(m)      GUARANTEE OF PREFERRED SECURITIES

         TCI Securities:

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

         MediaOne Securities:

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

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

<PAGE>   22
                                   AT&T CORP.
                    CONSOLIDATING CONDENSED INCOME STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                              (DOLLARS IN MILLIONS)



<TABLE>
<CAPTION>
                                 GUARANTOR     GUARANTOR     GUARANTOR       TCI          TCI          TCI
                                   AT&T        SUBSIDIARY   SUBSIDIARY    FINANCING    FINANCING    FINANCING
                                  PARENT          TCI        MEDIAONE         I            II          IV
                                  ------          ---        --------         -            --          --
<S>                              <C>           <C>          <C>           <C>          <C>          <C>
Revenue.......................    $4,975       $    --         $  --         $ --         $ --        $ --

Operating Expenses
Costs of services and products       855
Access and other connection...     1,682
Selling, general and
  administrative..............       467           (46)            4
Depreciation and other
  amortization................       404            13             1
Amortization of goodwill,
  franchise costs and other
  purchased intangibles.......        23                         125
Net restructuring and other
  charges.....................
Total operating expenses......     3,431           (33)          130

Operating income (losses).....     1,544            33          (130)

Other income (expense)........      (504)            1             2           11           12           4
Interest expense (benefit)....     1,319           478            88           11           12           4
Income (losses) before income
  taxes, minority interest
  and earnings (losses) from
  equity investments and
  cumulative effect of
  accounting change...........      (279)         (444)         (216)

Provision (benefit) for
  income taxes................      (114)         (228)          (23)
Minority interest income
  (expenses)..................       (40)           (1)           (1)
Equity losses from Liberty
  Media Group.................                    (697)
Net earnings (losses) from
  other equity investments....     1,759        (1,778)          (65)
Income (losses) before
  cumulative effect of
  accounting change...........     1,554        (2,692)         (259)

Cumulative effect of
  accounting change...........       508           545
Net income (losses) ..........     2,062        (2,147)         (259)
Dividend requirements on
  preferred stock.............       181
Net income (losses) available
  to common shareowners.......    $1,881       $(2,147)        $(259)        $ --         $ --        $ --
</TABLE>


<TABLE>
<CAPTION>
                                  MEDIAONE   MEDIAONE   MEDIAONE   MEDIAONE                   ELIMINATION AND
                                 FINANCING  FINANCING   FINANCE    FINANCE   NON-GUARANTOR     CONSOLIDATION    CONSOLIDATED
                                     I         II          II        III     SUBSIDIARIES       ADJUSTMENTS       AT&T CORP.
                                     -         --          --        ---     ------------       -----------       ----------
<S>                              <C>        <C>         <C>        <C>       <C>              <C>               <C>
Revenue.......................     $ --        $ --       $ --       $ --        $12,386         $ (598)          $ 16,763

Operating Expenses
Costs of services and products                                                     4,523           (541)             4,837
Access and other connection...                                                     1,660            (56)             3,286
Selling, general and
  administrative..............                                                     3,444             (1)             3,868
Depreciation and other
  amortization................                                                     1,723                             2,141
Amortization of goodwill,
  franchise costs and other
  purchased intangibles.......                                                       698                               846
Net restructuring and other
  charges.....................                                                       808                               808
Total operating expenses......                                                    12,856           (598)            15,786

Operating income (losses).....                                                      (470)                              977

Other income (expense)........        1           1          5         11           (689)        (1,274)            (2,419)
Interest expense (benefit)....        1           1          5         11            271         (1,232)               969
Income (losses) before income
  taxes, minority interest
  and earnings (losses) from
  equity investments and
  cumulative effect of
  accounting change...........                                                    (1,430)           (42)            (2,411)

Provision (benefit) for
  income taxes................                                                        30                              (335)
Minority interest income
  (expenses)..................                                                       692                               650
Equity losses from Liberty
  Media Group.................                                                                                        (697)
Net earnings (losses) from
  other equity investments....                                                      (135)            83               (136)
Income (losses) before
  cumulative effect of
  accounting change...........                                                      (903)            41             (2,259)

Cumulative effect of
  accounting change...........                                                       862                             1,915
Net income (losses) ..........                                                       (41)            41               (344)
Dividend requirements on
  preferred stock.............                                                        42            (42)               181
Net income (losses) available
  to common shareowners.......     $ --        $ --       $ --       $ --        $   (83)        $   83           $   (525)
</TABLE>
<PAGE>   23
                                   AT&T CORP.
                     CONSOLIDATING CONDENSED BALANCE SHEETS
                              AS OF MARCH 31, 2001
                              (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                 GUARANTOR   GUARANTOR     GUARANTOR        TCI          TCI          TCI
                                    AT&T     SUBSIDIARY    SUBSIDIARY    FINANCING     FINANCING    FINANCING
                                   PARENT       TCI         MEDIAONE         I            II           IV
                                   ------       ---         --------         -            --           --
<S>                              <C>         <C>           <C>           <C>           <C>          <C>
ASSETS
Cash and cash equivalents.....   $      --    $     --       $    --        $  --        $  --       $  --
Other current assets..........      12,773       3,380           237
TOTAL CURRENT ASSETS..........      12,773       3,380           237

Property, plant & equipment,
  net.........................       9,066          86            22
Franchise costs, net..........       1,610          30
Goodwill, net.................         158                    19,774
Investment in Liberty Media
  Group and related
  receivables, net............                  34,072
Other investments and related
  advances....................     170,979      34,265        28,457
Other assets..................       7,123           1                        527          514         204
TOTAL ASSETS..................    $201,709    $ 71,834       $48,490        $ 527        $ 514       $ 204

LIABILITIES
Debt maturing within one year.   $  49,335    $    383       $ 1,892        $  --        $  --       $  --
Other current liabilities.....       9,371         941            96
TOTAL CURRENT LIABILITIES.....      58,706       1,324         1,988

Long-term debt................      20,811      30,292         2,355          527          514         204
Deferred income taxes.........         634                       230
Other long-term liabilities
  and deferred credits........       7,317         982           189
TOTAL LIABILITIES.............      87,468      32,598         4,762          527          514         204

Minority interest.............                   1,461         1,149
Company-Obligated Convertible
  Quarterly Income Preferred
  Securities of Subsidiary
  Trust Holding Solely
  Subordinated Debt
  Securities of AT&T..........       4,713

Convertible preferred stock          9,362

SHAREOWNERS' EQUITY
AT&T Common Stock.............       4,225
AT&T Wireless Group common
  stock.......................         363
Liberty Media Group Class A
  Common Stock................       2,377
Liberty Media Group Class B
  Common Stock................         212
Other shareowners' equity.....      92,989      37,775        42,579
TOTAL SHAREOWNERS' EQUITY.....     100,166      37,775        42,579
TOTAL LIABILITIES AND
  SHAREOWNERS' EQUITY.........   $ 201,709    $ 71,834       $48,490        $ 527        $ 514       $ 204
</TABLE>
<TABLE>
<CAPTION>
                                                                                                    ELIMINATION
                                   MEDIAONE    MEDIAONE    MEDIAONE     MEDIAONE                        AND
                                   FINANCING   FINANCING   FINANCE      FINANCE    NON-GUARANTOR   CONSOLIDATION    CONSOLIDATED
                                       I          II          II          III      SUBSIDIARIES     ADJUSTMENTS       AT&T CORP.
                                       -          --          --          ---      ------------     -----------       ----------
<S>                                <C>         <C>         <C>          <C>        <C>             <C>              <C>
ASSETS
Cash and cash equivalents.....       $ --        $ --      $  --        $ --         $   136       $       --         $     136
Other current assets..........                                                        64,383          (64,656)           16,117
TOTAL CURRENT ASSETS..........                                                        64,519          (64,656)           16,253

Property, plant & equipment,
  net.........................                                                        43,094               (3)           52,265
Franchise costs, net..........                                                        46,284                             47,924
Goodwill, net.................                                                        10,593                             30,525
Investment in Liberty Media
  Group and related
  receivables, net............                                                                                           34,072
Other investments and related
  advances....................                                                        49,622         (249,036)           34,287
Other assets..................         51          44        230         516          29,296          (12,691)           25,815
TOTAL ASSETS..................       $ 51        $ 44      $ 230       $ 516       $ 243,408       $ (326,386)        $ 241,141

LIABILITIES
Debt maturing within one year.       $ --        $ --      $  --        $ --         $ 7,396       $  (41,781)        $  17,225
Other current liabilities.....                                                        15,603           (8,792)           17,219
TOTAL CURRENT LIABILITIES.....                                                        22,999          (50,573)           34,444

Long-term debt................         30          28        214         504          10,197          (26,672)           39,004
Deferred income taxes.........                                                        35,801                             36,665
Other long-term liabilities
  and deferred credits........                                                           359              (79)            8,768
TOTAL LIABILITIES.............         30          28        214         504          69,356          (77,324)          118,881

Minority interest.............                                                         1,612                              4,222
Company-Obligated Convertible
  Quarterly Income Preferred
  Securities of Subsidiary
  Trust Holding Solely
  Subordinated Debt
  Securities of AT&T..........
                                                                                                                          4,713
Convertible preferred stock                                                            3,000           (3,000)            9,362

SHAREOWNERS' EQUITY
AT&T Common Stock.............                                                          (416)                             3,809
AT&T Wireless Group common
  stock.......................                                                                                              363
Liberty Media Group Class A
  Common Stock................                                                                                            2,377
Liberty Media Group Class B
  Common Stock................                                                                                              212
Other shareowners' equity.....         21          16         16          12         169,856         (246,062)           97,202
TOTAL SHAREOWNERS' EQUITY.....         21          16         16          12         169,440         (246,062)          103,963
TOTAL LIABILITIES AND
  SHAREOWNERS' EQUITY.........       $ 51        $ 44      $ 230       $ 516       $ 243,408        $(326,386)         $241,141
</TABLE>
<PAGE>   24
                                   AT&T CORP.
                CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                              (DOLLARS IN MILLIONS)


<TABLE>
<CAPTION>
                                       GUARANTOR       GUARANTOR     GUARANTOR          TCI               TCI             TCI
                                         AT&T         SUBSIDIARY     SUBSIDIARY      FINANCING         FINANCING       FINANCING
                                        PARENT           TCI          MEDIAONE           I                 II              IV
                                        ------           ---          --------           -                 --              --
<S>                                   <C>             <C>            <C>             <C>               <C>             <C>
NET CASH PROVIDED BY (USED
  IN) OPERATING ACTIVITIES....        $  (173)        $   501         $  (582)         $ --             $ --             $ --

INVESTING ACTIVITIES
Capital expenditures and
  other additions.............           (254)             (6)             (1)
Other.........................           (692)           (739)            841
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES.....           (946)           (745)            840

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances...................                                            187
Proceeds from debt from AT&T..            101             337
Issuance of convertible
  preferred securities
  and warrants................          9,811
Increase (decrease) in
  short-term borrowings, net..         (9,911)            (50)           (445)
Other.........................          1,118             (43)
NET CASH PROVIDED BY (USED
  IN) FINANCING ACTIVITIES....          1,119             244            (258)

Net (decrease) increase in
  cash and cash equivalents...
Cash and cash equivalents at
  beginning of year...........
Cash and cash equivalents at
  end of period...............        $    --         $    --         $    --          $ --             $ --             $ --
</TABLE>


<TABLE>
<CAPTION>
                                                                                                      ELIMINATION
                                     MEDIAONE    MEDIAONE    MEDIAONE    MEDIAONE                         AND
                                     FINANCING   FINANCING    FINANCE     FINANCE    NON-GUARANTOR   CONSOLIDATION    CONSOLIDATED
                                         I           II          II         III       SUBSIDIARIES    ADJUSTMENTS       AT&T CORP.
                                         -           --          --         ---       ------------    -----------       ----------
<S>                                  <C>         <C>         <C>         <C>         <C>             <C>              <C>
NET CASH PROVIDED BY (USED
  IN) OPERATING ACTIVITIES....         $ --        $ --        $ --         $--          $2,192          $  --            $1,938

INVESTING ACTIVITIES
Capital expenditures and
  other additions.............                                                           (3,662)                          (3,923)
Other.........................                                                           (3,525)         4,854               739
NET CASH (USED IN) PROVIDED
  BY INVESTING ACTIVITIES.....                                                           (7,187)         4,854            (3,184)

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances...................                                                            6,158                            6,345
Proceeds from debt from AT&T..                                                             (337)          (101)
Issuance of convertible
  preferred securities
  and warrants................                                                                                             9,811
Increase (decrease) in
  short-term borrowings, net..                                                              540         (4,849)          (14,715)
Other.........................                                                           (1,356)            96              (185)
NET CASH PROVIDED BY (USED
  IN) FINANCING ACTIVITIES....                                                            5,005         (4,854)            1,256

Net (decrease) increase in
  cash and cash equivalents...                                                               10                               10
Cash and cash equivalents at
  beginning of year...........                                                              126                              126
Cash and cash equivalents at
  end of period...............         $ --        $ --        $ --         $--          $  136          $  --            $  136
</TABLE>
<PAGE>   25
                                   AT&T CORP.
                    CONSOLIDATING CONDENSED INCOME STATEMENTS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2000
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                             GUARANTOR  GUARANTOR      TCI        TCI        TCI                    ELIMINATION AND
                                AT&T    SUBSIDIARY  FINANCING  FINANCING  FINANCING  NON-GUARANTOR   CONSOLIDATION   CONSOLIDATED
                               PARENT      TCI          I          II         IV      SUBSIDIARIES     ADJUSTMENTS     AT&T CORP.
                               ------      ---          -          --         --      ------------     -----------     ----------
<S>                          <C>        <C>         <C>        <C>        <C>        <C>            <C>              <C>
Revenue....................    $5,922     $ --         $ --      $ --      $ --         $10,431        $  (452)        $15,901

Operating Expenses
Costs of services
  and products....                742                                                     3,548           (375)          3,915
Access and other connection     1,874                                                     1,789            (75)          3,588
Selling, general
  and administrative.......       664       28                                            2,599             (2)          3,289
Depreciation and
  other amortization.......       513       14                                            1,039                          1,566
Amortization of goodwill,
  franchise costs and other
  purchased intangibles....         8                                                       360                            368
Net restructuring and
  other charges............       663       16                                               94                            773
Total operating expenses...     4,464       58                                            9,429           (452)         13,499

Operating income (losses)..     1,458      (58)                                           1,002                          2,402

Other income (expense).....       304                     9        10         4           1,195           (854)            668
Interest expense (benefit).       956      354            9        10         4             110           (854)            589
Income (losses) before
  income taxes, minority
  interest and earnings
  (losses) from equity
  investments..............       806     (412)                                           2,087                          2,481

Provision (benefit)
  for income taxes.........       376      (66)                                             199                            509
Minority interest
  income (expense)                (40)      (5)                                               1                            (44)
Equity earnings from
  Liberty Media Group......                942                                                                             942
Net earnings (losses) from
  other equity investments      1,702                                                      (186)        (1,703)           (187)

Net income (losses)........    $2,092    $ 591         $ --      $ --      $ --         $ 1,703        $(1,703)        $ 2,683
</TABLE>
<PAGE>   26
                                   AT&T CORP.
                     CONSOLIDATING CONDENSED BALANCE SHEETS
                             AS OF DECEMBER 31, 2000
                              (DOLLARS IN MILLIONS)


<TABLE>
<CAPTION>
                                  GUARANTOR     GUARANTOR     GUARANTOR        TCI          TCI          TCI
                                    AT&T        SUBSIDIARY    SUBSIDIARY    FINANCING     FINANCING   FINANCING
                                   PARENT          TCI         MEDIAONE         I            II          IV
                                   ------          ---         --------         -            --          --
<S>                               <C>           <C>           <C>           <C>           <C>         <C>
ASSETS
Cash and cash equivalents.....    $     --       $    --       $    --        $  --        $  --       $  --
Receivables...................      11,424         2,577            78
Investments...................
Deferred income taxes.........         811
Other current assets..........       1,103            11
TOTAL CURRENT ASSETS..........      13,338         2,588            78

Property, plant & equipment,
  net.........................       9,064            93            22
Franchise costs, net..........         838
Licensing costs, net..........                        30
Goodwill, net.................         161                      19,786
Investment in Liberty Media
  Group and related
  receivables, net............                    34,290
Other investments and related
  advances....................     164,844        35,358        29,325
Other assets..................       5,500                                      528          514         204
TOTAL ASSETS..................    $193,745       $72,359       $49,211        $ 528        $ 514       $ 204

LIABILITIES
Debt maturing within one year.    $ 52,556       $   435       $ 2,337        $  --        $  --       $  --
Liability under put options...
Other current liabilities.....       9,535         1,166            76
TOTAL CURRENT LIABILITIES.....      62,091         1,601         2,413

Long-term debt................      21,333        30,096         2,168          528          514         204
Deferred income taxes.........         569                         230
Other long-term liabilities
  and deferred credits........       7,341           939           129
TOTAL LIABILITIES.............      91,334        32,636         4,940          528          514         204

Minority interest.............                     1,462         1,147
Company-Obligated Convertible
  Quarterly Income Preferred
  Securities of Subsidiary
  Trust Holding Solely
  Subordinated Debt
  Securities of AT&T..........       4,710

SHAREOWNERS' EQUITY
AT&T Common Stock.............       4,176
AT&T Wireless Group common
  stock.......................         362
Liberty Media Group Class A
  Common Stock................       2,364
Liberty Media Group Class B
  Common Stock................         206
Other shareowners' equity.....      90,593        38,261        43,124
TOTAL SHAREOWNERS' EQUITY.....      97,701        38,261        43,124
TOTAL LIABILITIES AND
  SHAREOWNERS' EQUITY.........    $193,745       $72,359       $49,211        $ 528        $ 514       $ 204
</TABLE>

<TABLE>
<CAPTION>
                                                                                                ELIMINATION
                                  MEDIAONE    MEDIAONE   MEDIAONE   MEDIAONE       NON-             AND
                                  FINANCING   FINANCING  FINANCE    FINANCE     GUARANTOR      CONSOLIDATION      CONSOLIDATED
                                      I          II         II        III      SUBSIDIARIES     ADJUSTMENTS        AT&T CORP.
                                      -          --         --        ---      ------------     -----------        ----------
<S>                               <C>         <C>        <C>        <C>        <C>             <C>                <C>
ASSETS
Cash and cash equivalents.....      $ --        $ --      $  --     $  --       $    126        $       --         $    126
Receivables...................                                                    50,788           (52,020)          12,847
Investments...................                                                     2,102                              2,102
Deferred income taxes.........                                                         1                                812
Other current assets..........                                                        90                (4)           1,200
TOTAL CURRENT ASSETS..........                                                    53,107           (52,024)          17,087

Property, plant & equipment,
  net.........................                                                    41,985                (3)          51,161
Franchise costs, net..........                                                    47,380                             48,218
Licensing costs, net..........                                                    13,596                             13,626
Goodwill, net.................                                                    11,531                             31,478
Investment in Liberty Media
  Group and related
  receivables, net............                                                                                       34,290
Other investments and related
  advances....................                                                    23,059          (218,325)          34,261
Other assets..................        51          44        230       516         17,020           (12,505)          12,102
TOTAL ASSETS..................      $ 51        $ 44      $ 230     $ 516       $207,678        $ (282,857)        $242,223

LIABILITIES
Debt maturing within one year.      $ --        $ --      $  --     $  --         $6,409          $(29,790)        $ 31,947
Liability under put options...                                                     2,564                              2,564
Other current liabilities.....                                                    13,972            (8,393)          16,356
TOTAL CURRENT LIABILITIES.....                                                    22,945           (38,183)          50,867

Long-term debt................        30          28        214       504          3,895           (26,422)          33,092
Deferred income taxes.........                                                    35,914                             36,713
Other long-term liabilities
  and deferred credits........                                                       431               (80)           8,760
TOTAL LIABILITIES.............        30          28        214       504         63,185           (64,685)         129,432

Minority interest.............                                                     2,274                              4,883
Company-Obligated Convertible
  Quarterly Income Preferred
  Securities of Subsidiary
  Trust Holding Solely
  Subordinated Debt
  Securities of AT&T..........
                                                                                                                      4,710

SHAREOWNERS' EQUITY
AT&T Common Stock.............                                                     (416)                              3,760
AT&T Wireless Group common
  stock.......................                                                                                          362
Liberty Media Group Class A
  Common Stock................                                                                                        2,364
Liberty Media Group Class B
  Common Stock................                                                                                          206
Other shareowners' equity.....        21          16         16        12        142,635          (218,172)          96,506
TOTAL SHAREOWNERS' EQUITY.....        21          16         16        12        142,219          (218,172)         103,198
TOTAL LIABILITIES AND
  SHAREOWNERS' EQUITY.........      $ 51        $ 44      $ 230     $ 516       $207,678         $(282,857)        $242,223
</TABLE>
<PAGE>   27
                                   AT&T CORP.
                CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED MARCH 31, 2000
                              (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                     GUARANTOR      GUARANTOR      TCI          TCI            TCI
                                       AT&T        SUBSIDIARY   FINANCING    FINANCING      FINANCING
                                      PARENT           TCI          I           II             IV
                                      ------           ---          -           --             --
<S>                                  <C>           <C>          <C>          <C>            <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES............    $  (260)      $   381        $  11        $ 12          $  5

INVESTING ACTIVITIES
Capital expenditures and other
  additions.......................        (19)
Equity investment distributions
  and sales.......................         57
Equity investment contributions
  and purchases...................        (16)       (7,409)
Net (acquisitions) dispositions
  of businesses net of cash
  acquired/disposed...............       (197)
Other.............................       (708)         (105)
NET CASH (USED IN) PROVIDED BY
  INVESTING ACTIVITIES............       (883)       (7,514)

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances.......................        739
Proceeds from debt from AT&T......                    7,648
Retirement of long-term debt......       (487)         (258)
Dividends paid on common stock....       (703)
Increase (decrease) in short-term
  borrowings, net.................      7,889          (257)
Other.............................     (6,295)                       (11)        (12)           (5)
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES............      1,143         7,133          (11)        (12)           (5)

Net decrease in cash and cash
  equivalents.....................
Cash and cash equivalents at
  beginning of year...............
Cash and cash equivalents at end
  of period.......................    $    --       $    --        $  --        $ --          $ --
</TABLE>

<TABLE>
<CAPTION>
                                                          ELIMINATION AND
                                        NON-GUARANTOR      CONSOLIDATION       CONSOLIDATED
                                         SUBSIDIARIES        ADJUSTMENTS        AT&T CORP.
                                         ------------        -----------        ----------
<S>                                     <C>               <C>                  <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES............         $ 2,379            $     --          $  2,528

INVESTING ACTIVITIES
Capital expenditures and other
  additions.......................          (3,217)                               (3,236)
Equity investment distributions
  and sales.......................             360                                  417
Equity investment contributions
  and purchases...................          (1,043)              7,409            (1,059)
Net (acquisitions) dispositions
  of businesses net of cash
  acquired/disposed...............               9                                  (188)
Other.............................          (4,832)              4,710              (935)
NET CASH (USED IN) PROVIDED BY
  INVESTING ACTIVITIES............          (8,723)             12,119            (5,001)

FINANCING ACTIVITIES
Proceeds from long-term debt
  issuances.......................                                                   739
Proceeds from debt from AT&T......          (7,648)
Retirement of long-term debt......            (262)                               (1,007)
Dividends paid on common stock....                                                  (703)
Increase (decrease) in short-term
  borrowings, net.................             257              (4,710)            3,179
Other.............................          13,075              (7,409)             (657)
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES............           5,422             (12,119)            1,551

Net decrease in cash and cash
  equivalents.....................            (922)                                 (922)
Cash and cash equivalents at
  beginning of year...............           1,024                                 1,024
Cash and cash equivalents at end
  of period.......................         $   102            $     --          $    102
</TABLE>
<PAGE>   28

(n)      CONSOLIDATING CONDENSED FINANCIAL INFORMATION

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

         AT&T Wireless Group purchases long distance and other network-related
         services from AT&T at market-based prices and accordingly such amounts
         are eliminated. Prior to the offering of AT&T Wireless Group tracking
         stock, the capital structure of AT&T Wireless Group had been assumed
         based upon AT&T's historical capital ratio adjusted for certain items.
         Intercompany interest rates are intended to be substantially equivalent
         to the interest rate that AT&T Wireless Group would be able to obtain
         or receive if it were a stand-alone entity. General corporate overhead
         related to AT&T's corporate headquarters and common support divisions
         has been allocated to AT&T Wireless Group based on the ratio of AT&T
         Wireless Group's external costs and expenses to AT&T's consolidated
         external costs and expenses, adjusted for any functions that AT&T
         Wireless Group performs on its own. The consolidated income tax
         provision or benefit, related tax payments or refunds, and deferred tax
         balances of AT&T have been allocated to AT&T Wireless Group based
         principally on the taxable income or losses and tax credits directly
         attributable to AT&T Wireless Group.

         Pursuant to the Inter-Group agreement, AT&T does not allocate general
         overhead expenses to Liberty Media Group (LMG) and only charges LMG for
         specific services that LMG receives from AT&T pursuant to service
         agreements or similar arrangements. Additionally, as LMG operates
         independent of AT&T, there is no cash or debt allocated to them.
<PAGE>   29
                                      AT&T
                     CONSOLIDATING CONDENSED INCOME STATEMENT
                   For the three months ended March 31, 2001
                                  (In millions)

<TABLE>
<CAPTION>
                                          AT&T            AT&T
                                      Common Stock      Wireless      Liberty Media    Eliminations/    Consolidated
                                         Group            Group           Group         Reclasses(1)      AT&T Corp.
                                         -----            -----           -----         ------------      ----------
<S>                                   <C>               <C>           <C>              <C>              <C>
External Revenue                       $ 13,551         $ 3,212         $    --                           $ 16,763
Inter-group revenue                         101                                         $  (101)
Total Revenue                            13,652           3,212                            (101)          $ 16,763

Operating expenses:

Costs of services and products            3,624           1,348                            (135)             4,837
Access and other connection               3,151                                             135              3,286
Selling, general and
administrative                            2,858           1,010                                              3,868
Depreciation and other
amortization                              1,702             576                            (137)             2,141
Amortization of goodwill,
franchise costs and other
purchased intangibles                       709                                             137                846
Net restructuring and other
charges                                     808                                                                808
Inter-group expenses                        (36)            137                            (101)
Total operating expenses                 12,816           3,071                            (101)            15,786
Operating income                            836             141                                                977
Other income (expense)                   (2,422)              7                              (4)            (2,419)
Inter-group interest income                  82              77                            (159)
Interest expense                            962               7                                                969
Inter-group interest expense                 77              40                            (117)

Income (loss) before income
taxes, minority interest,
earnings (losses) from equity
investments and cumulative
effect of accounting change              (2,543)            178                             (46)            (2,411)
(Benefit) provision for income
taxes                                      (414)             79                                               (335)
Minority interest income
(expense)                                   646                                               4                650
Equity (losses) from Liberty
Media Group                                                                (697)                              (697)
Net losses from other equity
investments                                 (37)            (99)                                              (136)
Income (losses) before
cumulative effect of accounting
change                                   (1,520)              0            (697)            (42)            (2,259)
Cumulative effect of accounting
change                                    1,370                             545                              1,915
Net (losses) income                        (150)              0            (152)            (42)              (344)
Dividend requirements on
preferred stock                             181              42                             (42)               181
Net income (losses) available
to common shareowners                  $   (331)        $   (42)        $  (152)        $    --         $     (525)
                                       ========         =======         =======         =======           =========
</TABLE>

         (1) Includes the elimination of inter-group transactions, consolidating
entries as well as reclassifications and adjustments related to the AT&T
Wireless Group tracking stock financial statements.
<PAGE>   30
                                      AT&T
                      CONSOLIDATING CONDENSED BALANCE SHEET
                                At March 31, 2001
                                  (In Millions)

<TABLE>
<CAPTION>
                                        AT&T                AT&T         Liberty
                                    Common Stock          Wireless        Media            Eliminations/     Consolidated
                                       Group                Group         Group             Reclasses(1)       AT&T Corp.
                                       -----                -----         -----             ------------       ----------
<S>                                 <C>                   <C>            <C>               <C>               <C>
    ASSETS:
    Cash and cash
    equivalents                      $     102            $     34       $                    $                $    136
    Other current assets                13,781               2,567                                (231)          16,117
    Short-term note due from
    related party                                           10,588                             (10,588)
    TOTAL CURRENT ASSETS             $  13,883            $ 13,189                             (10,819)          16,253

    Property, plant and equipment,
    net                                 41,540              10,725                                               52,265
    Franchise costs, net                47,924                                                                   47,924
    Goodwill, net                       25,839               5,653                                (967)          30,525
    Investment in Liberty Media
    Group and related receivables,
    net                                                                    34,072                                34,072
    Other investments and related
    advances                            30,383               3,904                                               34,287
    Other assets                        11,278              13,568                                 969           25,815
    Long-term assets due from
    related party                        4,800                                                  (4,800)
    TOTAL ASSETS                     $ 175,647            $ 47,039       $ 34,072             $(15,617)       $ 241,141

    LIABILITIES:
    Debt maturing within one year    $  17,076            $    103       $                    $     46         $ 17,225
    Short-term debt due to related
    party                               10,588                                                 (10,588)
    Other current liabilities           14,891               2,641                                (313)          17,219
    TOTAL CURRENT LIABILITIES           42,555               2,744                             (10,855)          34,444

    Long-term debt                      32,514               6,487                                   3           39,004
    Long-term debt due to related
    party                                                    1,800                              (1,800)
    Deferred income taxes               31,926               4,739                                               36,665
    Other long-term liabilities
    and deferred credits                 8,478                 290                                                8,768
    TOTAL LIABILITIES                  115,473              16,060                             (12,652)         118,881
                                       =======              ======                             =======          =======
</TABLE>


(1)      Includes the elimination of inter-group transactions, consolidating
         entries as well as reclassifications and adjustments related to the
         AT&T Wireless Group tracking stock financial statements.
<PAGE>   31
                                      AT&T
                      CONSOLIDATING CONDENSED BALANCE SHEET
                                At March 31, 2001
                                  (In Millions)

<TABLE>
<CAPTION>
                                        AT&T               AT&T         Liberty
                                    Common Stock         Wireless        Media       Eliminations/      Consolidated
                                       Group               Group         Group       Reclasses(1)        AT&T Corp.
                                       -----               -----         -----       ------------        ----------
<S>                               <C>                  <C>            <C>          <C>                <C>
   Minority interest                   4,180                  42                                              4,222

   Company-obligated convertible
   quarterly income preferred
   securities of subsidiary
   trust holding solely
   subordinated debt securities
   of AT&T                             4,713                                                                  4,713
   Convertible Preferred Stock         9,362                                                                  9,362

   Other shareowners' equity
   due to related party                                    3,000                          (3,000)
   AT&T common stock                                                                       3,809              3,809

   AT&T Wireless Group common
   stock                                                                                     363                363

   Liberty Media Group Class A                                                             2,377              2,377
   Liberty Media Group Class B                                                               212                212

   Other shareowners'
   equity                             41,919              27,937         34,072           (6,726)            97,202

   Total shareowners' equity          41,919              30,937         34,072           (2,965)           103,963

   Total liabilities and
   shareowners' equity              $175,647           $  47,039       $ 34,072         $(15,617)         $ 241,141
                                    ========           =========       ========         ========          =========
</TABLE>

(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to the AT&T Wireless Group
tracking stock financial statements.
<PAGE>   32
                                   AT&T CORP.
                 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                    For the three months ended March 31, 2001
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                           AT&T            AT&T
                                       Common Stock      Wireless      Liberty Media    Eliminations/    Consolidated
                                          Group            Group           Group         Reclasses(1)      AT&T Corp.
                                          -----            -----           -----         ------------      ----------
<S>                                    <C>              <C>            <C>             <C>               <C>
   NET CASH PROVIDED BY (USED IN)
   OPERATING ACTIVITIES                 $ 2,050         $   655            $           $   (767)           $ 1,938

   INVESTING ACTIVITIES

   Capital expenditures and other
   additions                             (2,516)         (1,407)                                            (3,923)

   Other                                  1,223         (11,112)                         10,628                739

   NET CASH (USED IN) INVESTING
   ACTIVITIES                            (1,293)        (12,519)                         10,628             (3,184)

   FINANCING ACTIVITIES

   Proceeds from long-term debt
   issuance                                               6,345                                              6,345

   Issuance of convertible
   preferred securities and warrants      3,670           6,141                                              9,811

   Increase (decrease) in
   short-term borrowings, net            (4,174)           (638)                         (9,903)           (14,715)
   Other                                   (215)            (12)                             42               (185)

   NET CASH PROVIDED BY (USED IN)
   FINANCING ACTIVITIES                    (719)         11,836                          (9,861)             1,256
   Net (decrease) increase in cash
   and cash equivalents                      38             (28)                                                10

   Cash and cash equivalents at
   beginning of year.                        64              62                                                126


   Cash and cash equivalents at
   end of period.                       $   102         $    34            $            $                  $   136
                                        =======         =======            =====        =======            =======
</TABLE>


(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to the AT&T Wireless Group
tracking stock financial statements.
<PAGE>   33
                                      AT&T
                    CONSOLIDATING CONDENSED INCOME STATEMENT
                   For the three months ended March 31, 2000
                                  (In millions)

<TABLE>
<CAPTION>
                                          AT&T            AT&T
                                       Common Stock     Wireless      Liberty Media    Eliminations/    Consolidated
                                          Group          Group           Group         Reclasses(1)       AT&T Corp.
                                          -----          -----           -----         ----------       ----------
<S>                                    <C>              <C>           <C>              <C>              <C>
   External Revenue                     $13,703         $2,198             $  --           $ --            $ 15,901
   Inter-group revenue                       70                                             (70)
   Total Revenue                         13,773          2,198                              (70)             15,901

   Operating expenses:

   Costs of services and products         3,002          1,001                              (88)              3,915
   Access and other connection            3,506                                              82               3,588
   Selling, general and
   administrative                         2,652            637                                                3,289
   Depreciation and other
   amortization                           1,270            369                              (73)              1,566
   Amortization of goodwill,
   franchise costs and other
   purchased intangibles                    301                                              67                 368
   Net restructuring and other
   charges                                  773                                                                 773
   Inter-group expenses                     (95)           165                              (70)
   Total operating expenses              11,409          2,172                              (82)             13,499
   Operating income                       2,364             26                               12               2,402
   Other income (expense)                   648             24                               (4)                668
   Inter-group interest income               85                                             (85)

   Interest expense                         610            (21)                                                 589
   Inter-group interest expense                             72                              (72)

   Income (loss) before income
   taxes, minority interest,
   earnings (losses) from equity
   investments and cumulative
   effect of accounting change            2,487             (1)                              (5)              2,481
   (Benefit) provision for income
   taxes                                    490             (2)                              21                 509
   Minority interest income
   (expense)                                (48)                                              4                 (44)
   Equity (losses) from Liberty
   Media Group                                                              942                                 942
   Net losses from other equity
   investments                             (224)            25                               12                (187)
   Income (losses) income                 1,725             26              942             (10)              2,683
   Dividend requirements on
   preferred stock                                          13                              (13)
   Net (losses) income available to
   common shareowners                   $ 1,725         $   13             $ 942          $   3             $ 2,683
                                        =======         ======             =====          =====             =======
</TABLE>

         (1) Includes the elimination of inter-group transactions, consolidating
entries as well as reclassifications and adjustments related to the AT&T
Wireless Group tracking stock financial statements.
<PAGE>   34
                                      AT&T
                      CONSOLIDATING CONDENSED BALANCE SHEET
                             As of December 31, 2000
                                  (In Millions)

<TABLE>
<CAPTION>
                                       AT&T            AT&T          Liberty
                                   Common Stock      Wireless         Media        Eliminations/     Consolidated
                                       Group           Group          Group        Reclasses(1)       AT&T Corp.
                                       -----           -----          -----        ------------       ----------
<S>                                <C>               <C>             <C>           <C>               <C>
   ASSETS:
   Cash and cash
   equivalents                       $     64         $    62        $               $                  $    126
   Other receivables                   11,053           2,010                           (216)             12,847
   Deferred income taxes                  719              93                                                812
   Investments                          2,102                                                              2,102
   Other current assets                   788             417                             (5)              1,200
   Short-term note due from
   related party                          638                                           (638)
   Total current assets                15,364           2,582                           (859)             17,087

   Property, plant and equipment,
   net                                 41,269           9,892                                             51,161
   Franchise costs, net                48,218                                                             48,218
   Licensing costs, net                                13,627                             (1)             13,626
   Goodwill, net                       26,782           5,816                         (1,120)             31,478
   Investment in Liberty Media
   Group and related receivables,
   net                                                                34,290                              34,290
   Other investments and related
   advances                            30,876           3,385                                             34,261
   Other assets                        10,984                                          1,118              12,102
   Long-term assets due from
   related party                        4,800                                         (4,800)
   Total assets                      $178,293         $35,302        $34,290         $(5,662)           $242,223

   LIABILITIES:
   Debt maturing within one year     $ 31,838         $   109        $               $                  $ 31,947
   Short-term debt due to related
   party                                                  638                           (638)
   Liability under put options          2,564                                                              2,564
   Other current liabilities           13,709           2,907                           (260)             16,356

   Total current liabilities           48,111           3,654                           (898)             50,867

   Long-term debt                      33,089                                              3              33,092
   Long-term debt due to related
   party                                                1,800                         (1,800)
   Deferred income taxes               32,054           4,659                                             36,713
   Other long-term liabilities and
   deferred credits                     8,493             271                             (4)              8,760
   Total liabilities                  121,747          10,384                         (2,699)            129,432
                                      =======          ======                         ======             =======
</TABLE>


         (1) Includes the elimination of inter-group transactions, consolidating
entries as well as reclassifications and adjustments related to the AT&T
Wireless Group tracking stock financial statements.
<PAGE>   35
                                      AT&T
                      CONSOLIDATING CONDENSED BALANCE SHEET
                              At December 31, 2000
                                  (In Millions)


<TABLE>
<CAPTION>
                                         AT&T
                                     Common Stock      AT&T Wireless    Liberty Media    Eliminations/      Consolidated
                                        Group              Group            Group         Reclasses(1)        AT&T Corp.
                                        -----              -----            -----         ------------        ----------
<S>                                  <C>               <C>              <C>              <C>                <C>
   LIABILITIES (cont):

   Minority interest                     4,842                41                                                 4,883

   Company-obligated convertible
   quarterly income preferred
   securities of subsidiary
   trust holding solely
   subordinated debt securities
   of AT&T                               4,710                                                                   4,710

   AT&T common stock                                                                         3,760               3,760

   AT&T Wireless Group common
   stock                                                                                       362                 362

   Liberty Media Group Class A
   Tracking stock                                                                            2,364               2,364
   Liberty Media Group Class B
   tracking stock                                                                              206                 206

   Other shareowners' equity            46,994            21,877           34,290           (6,655)             96,506
   Other shareowners' equity
   due to related party                                    3,000                            (3,000)
   Total shareowners' equity            46,994            24,877           34,290           (2,963)            103,198

   Total liabilities and
   shareowners' equity                $178,293         $  35,302          $34,290          $(5,662)          $ 242,223
                                      ========         =========          =======          =======           =========
</TABLE>


(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to the AT&T Wireless Group
tracking stock financial statements.
<PAGE>   36
                                   AT&T CORP.
                 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                      For three months ended March 31, 2000
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                        AT&T              AT&T
                                    Common Stock        Wireless       Liberty Media   Eliminations/    Consolidated
                                        Group             Group            Group       Reclasses(1)       AT&T Corp.
                                        -----             -----            -----       ------------       ----------
<S>                                 <C>                 <C>            <C>             <C>              <C>
   NET CASH PROVIDED BY (USED IN)
   OPERATING ACTIVITIES                $ 2,314            $ 228            $             $  (14)           $ 2,528

   INVESTING ACTIVITIES

   Capital expenditures and other
   additions                            (2,418)            (818)                                            (3,236)

   Equity investment distributions
   and sales                               391               26                                                417
   Equity investment contribution
   and purchases                          (985)             (74)                                            (1,059)
   Net acquisitions of businesses
   net of cash acquired/disposed          (188)                                                               (188)
   Other                                (1,153)             (82)                            300               (935)

   NET CASH (USED IN) PROVIDED BY
   INVESTING ACTIVITIES                 (4,353)            (948)                            300             (5,001)

   FINANCING ACTIVITIES

   Proceeds from long-term debt
   issuance                                739                                                                 739

   Retirement of long-term debt         (1,009)                                               2             (1,007)

   Dividends paid on common stock         (703)                                                               (703)

   Increase (decrease) in
   short-term borrowings, net            3,179                                                               3,179

   Other                                (1,094)             725                            (288)              (657)

   NET CASH PROVIDED BY (USED IN)
   FINANCING ACTIVITIES                  1,112              725                            (286)             1,551

   Net (decrease) increase in cash
   and cash equivalents                   (927)               5                                               (922)


   Cash and cash equivalents at
   beginning of year.                    1,019                5                                              1,024


   Cash and cash equivalents at
   end of period.                      $    92            $  10            $             $                 $   102
                                       =======            =====            =====         ======            =======
</TABLE>


(1) Includes the elimination of inter-group transactions, consolidating entries
as well as reclassifications and adjustments related to the AT&T Wireless Group
tracking stock financial statements.
<PAGE>   37
(o)      NEW ACCOUNTING PRONOUNCEMENT

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

(p)      SUBSEQUENT EVENTS

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

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

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

         On April 26, 2001, AT&T initiated a 364-day accounts receivable
         securitization program providing for up to $0.5 billion of funding.
         Under the program, a small percentage of consumer accounts receivable
         will be sold on a discounted, revolving basis, to a special purpose,
         wholly-owned subsidiary, which assigns interests in such receivables to
         unrelated third-party financing entities. The proceeds will be used for
         general corporate purposes, including the repayment of commercial
         paper.
<PAGE>   38
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

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

TRACKING STOCKS

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

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

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

You should consider that as a result of the flexibility provided to our board of
directors, it may be difficult for investors to assess the future prospects of a
tracking stock group based on that group's past performance.
<PAGE>   39
RESTRUCTURING OF AT&T

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

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

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

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

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

By mid-2001, AT&T plans to convert the LMG tracking stock into an asset-based
security and launch Liberty Media Corporation as an independent,
publicly-traded company.
<PAGE>   40
FORWARD-LOOKING STATEMENTS

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

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

-        the risks associated with the implementation of AT&T's restructuring
         plan, which is complicated and involves a substantial number of
         different transactions each with separate conditions, any or all of
         which may not occur as we currently intend, or which may not occur in
         the timeframe we currently expect,

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

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

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

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

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

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

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

-        the availability and cost of capital and the consequences of
         increased leverage,
<PAGE>   41
-        the successful execution of plans to dispose of non-strategic assets as
         part of an overall corporate deleveraging plan,

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

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

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

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

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

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

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

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

The words "estimate," "project," "intend," "expect," "believe," "plan" and
similar expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this document. Moreover, in the future, AT&T,
through its senior management, may make forward-looking statements about the
matters described in this document or other matters concerning AT&T.

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


<PAGE>   42

CONSOLIDATED RESULTS OF OPERATIONS

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

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

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

REVENUE

<TABLE>
<CAPTION>
                                            For the Three Months
                                               Ended March 31,

                                                2001      2000
Dollars in Millions
<S>                                          <C>       <C>
Business services                            $ 7,168   $ 7,252
Consumer services                              4,007     5,037
Wireless services                              3,212     2,198
Broadband                                      2,465     1,557
Corporate and Other                              (89)     (143)
Total revenue                                $16,763   $15,901
</TABLE>

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

Revenue by segment is discussed in more detail in the segment results section.
<PAGE>   43
OPERATING EXPENSES

<TABLE>
<CAPTION>
<S>                                           <C>       <C>
For the Three Months Ended March 31,            2001      2000
Dollars in Millions
Costs of services and products                $4,837    $3,915
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000

<S>                                           <C>       <C>
Dollars in Millions
Access and other connection                   $3,286    $3,588
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                           <C>       <C>
Dollars in Millions
Selling, general and administrative           $3,868    $3,289
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000

<S>                                           <C>       <C>
Dollars in Millions
Depreciation and other amortization           $2,141    $1,566
</TABLE>

Depreciation and other amortization expenses increased $0.6 billion, or 36.8%,
to $2.1 billion in the first quarter of 2001 compared with the corresponding
prior-year period. Approximately half of the increase was due to a higher asset
base resulting from continued infrastructure investment, and the remaining
increase resulted from acquisitions activity, primarily MediaOne. Capital
expenditures were $3.3 billion for the first quarter of 2001 compared with $2.8
billion for the same period in 2000. The primary focus for capital expenditures
in 2001 continues to be on the core growth areas of wireless, broadband, data
and IP, and local.
<PAGE>   44
<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>       <C>
Dollars in Millions
Amortization of goodwill, franchise costs
  and other purchased intangibles               $846      $368
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>       <C>
Dollars in Millions
Net restructuring and other charges             $808      $773
</TABLE>

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

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

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

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

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

During the first quarter of 2000, AT&T recorded $773 million of net
restructuring and other charges, which included $682 million for restructuring
and exit costs associated with AT&T's initiative to reduce costs by the end of
2000, and $91 million related to the government-mandated disposition of AT&T
Communications (U.K.) Ltd., which would have competed directly with Concert.
<PAGE>   45
Included in restructuring and exit costs was $458 million of cash termination
benefits associated with the involuntary separation of approximately 6,200
employees. Approximately one-half of the individuals were management employees
and one-half were non-management employees. Nearly 60% of the affected employees
have left their positions as of March 31, 2001, and the remaining employees will
leave the company during 2001.

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

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>     <C>
Dollars in Millions
Operating Income                                $977    $2,402
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                          <C>          <C>
Dollars in Millions
Other (expense) income                       $(2,419)     $668
</TABLE>

Other (expense) income for the first quarter of 2001 was an expense of $2.4
billion, compared with income of $0.7 billion in the first quarter of 2000, an
increase in expense of $3.1 billion. Effective January 1, 2001, in conjunction
with the adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," we reclassified certain investment securities, which
support debt that is indexed to those securities, from "available-for-sale" to
"trading." As a result of the reclassification, we recorded a pretax charge of
$2.6 billion. Also contributing to the increase in expense were lower net gains
on sale of businesses and investments of approximately $0.4 billion.

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>       <C>
Dollars in Millions
Interest Expense                                $969      $589
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                            <C>        <C>
Dollars in Millions
(Benefit) provision for income taxes           $(335)     $509
</TABLE>
<PAGE>   46
The (benefit) provision for income taxes was a benefit of $0.3 billion in the
first quarter of 2001 compared with an expense of $0.5 billion in the first
quarter of 2000. The decrease in expense was primarily due to a net loss before
income taxes in the first quarter of 2001, compared with earnings before income
taxes in the first quarter of 2000. The effective tax rate for the quarter was
13.9%, compared with 20.5% for the first quarter of 2000. The first quarter 2001
effective tax rate was impacted by a charge associated with the adoption of SFAS
No. 133, as well as a non tax-deductible asset impairment charge recorded
related to Excite@Home. The first quarter of 2001 effective tax rate was also
negatively impacted by the consolidation of operational losses of Excite@Home,
which is unable to record tax benefits on its pretax losses, and higher non
tax-deductible goodwill amortization. The first quarter 2000 effective tax rate
was positively impacted by a tax-free gain resulting from an exchange of AT&T
stock for an entity owning certain cable-systems and other assets with Cox, and
the benefit of the write-off of the related deferred tax liability.

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>       <C>
Dollars in Millions
Minority interest income (expense)              $650      $(44)
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                            <C>        <C>
Dollars in Millions
Equity (losses) earnings from Liberty
  Media Group                                  $(697)      $942
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                             <C>       <C>
Dollars in Millions
Net losses from other equity
  Investments                                   $136      $187
</TABLE>

Net losses from other equity investments, which were recorded net of income
taxes, were $0.1 billion in the first quarter of 2001, a 27.0% decrease compared
with the first quarter of 2000. This decrease was primarily due to the
consolidation of Excite@Home and higher earnings related to Cablevision Systems
Corp. reflecting a gain associated with the swap of cable properties, partially
offset by higher losses from its normal business operations. Partially
offsetting these decreases were higher equity losses from various investments
<PAGE>   47
including Concert, as well as equity earnings in the first quarter of 2000 from
investments sold in 2000. The income tax benefit recorded on net losses from
other equity investments were $102 million and $115 million for the first
quarter of 2001 and the first quarter of 2000, respectively.

<TABLE>
<CAPTION>
For the Three Months Ended March 31,            2001      2000
<S>                                           <C>         <C>
Dollars in Millions
Cumulative effect of accounting change        $1,915      $  -
</TABLE>

Cumulative effect of accounting change, net of applicable income taxes, was
$1.4 billion, in the first quarter of 2001 for AT&T Group. It represented fair
value adjustments of debt instruments including those acquired in conjunction
with the MediaOne merger, as well as to our warrant portfolio due to the
adoption of SFAS No. 133. In addition, we also reclassified certain investment
securities, which support debt that is indexed to those securities, from
"available-for-sale" to "trading." The impact of reclassification was recorded
as a reduction to other income.

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                 2001           2000
<S>                                                <C>             <C>
Dollars in Millions
Dividend requirements of preferred stock           $ 181           $  -
</TABLE>

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

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                2001           2000
AT&T Common Stock Group:
<S>                                                <C>            <C>
(Losses) income                                    $ (366)        $1,741
</TABLE>

<TABLE>
<CAPTION>
<S>                                                <C>            <C>
(Dollars in Millions, except per share
  amounts)
AT&T Common Stock Group - per basic share:
(Losses) earnings - before cumulative effect
  of accounting change                             $(0.46)        $ 0.55
Cumulative effect of accounting change               0.36              -
AT&T Common Stock Group (losses) earnings          $(0.10)        $ 0.55

AT&T Common Stock Group - per diluted share:
(Losses) earnings - before cumulative effect
  of accounting change                             $(0.46)        $ 0.54
Cumulative effect of accounting change               0.36              -
AT&T Common Stock Group (losses) earnings          $(0.10)        $ 0.54

AT&T Wireless Group:
Losses                                             $    7             -
Losses per basic and diluted                       $ 0.02             -

Liberty Media Group:
(Losses) earnings                                  $ (152)        $  942

Liberty Media Group - per basic and diluted share:
(Losses) earnings - before cumulative effect
  of accounting change                             $(0.27)        $ 0.37
Cumulative effect of accounting change               0.21              -
Liberty Media Group (losses) earnings              $(0.06)        $ 0.37
</TABLE>
<PAGE>   48
Losses per diluted share attributable to the AT&T Common Stock Group were $0.10
in the first quarter of 2001 compared with EPS on a diluted basis of $0.54 in
the first quarter of 2000. The decrease was primarily driven by lower operating
income, lower gains on the sales of businesses and investments, and the net
impact of the adoption of SFAS No. 133, which includes a 0.42 per share charge
relating to the revaluation of certain securities reclassified from
"available-for-sale" to "trading" and a benefit of $0.36 per share relating to
the cumulative effect of adoption. Also contributing to the decrease in earnings
was increased interest expense, partially offset by higher minority
interest income.

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

SEGMENT RESULTS

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

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

EBIT is the primary measure used by AT&T's chief operating decision makers to
measure AT&T's operating results and to measure segment profitability and
performance. AT&T calculates EBIT as earnings before interest, taxes, the
cumulative effect of accounting changes and dividend requirements on preferred
stock. In addition, management also uses EBITDA as a measure of segment
profitability and performance, and is defined as EBIT, excluding depreciation
and amortization, minority interest (expense) income other than Excite@Home's
minority (expense) interest. Interest and taxes are not factored into the
<PAGE>   49
segment profitability measure used by the chief operating decision makers;
therefore, trends for these items are discussed on a consolidated basis.
Management believes EBIT is meaningful to investors because it provides analysis
of operating results using the same measures used by AT&T's chief operating
decision makers and provides a return on total capitalization measure. We
believe EBITDA is meaningful to investors as a measure of each segment's
liquidity consistent with the measure utilized by our chief operating decision
makers. In addition, we believe that both EBIT and EBITDA allow investors a
means to evaluate the financial results of each segment in relation to total
AT&T. EBIT for AT&T was deficit of $1.1 billion and earning of $2.7 billion for
the quarters ended March 31, 2001 and 2000, respectively. EBITDA for AT&T was
$1.9 billion and $4.8 billion for the three months ended March 31, 2001 and
2000, respectively. Our calculation of EBIT and EBITDA may or may not be
consistent with the calculation of these measures by other public companies.
EBIT and EBITDA should not be viewed by investors as an alternative to generally
accepted accounting principles (GAAP) measures of income as a measure of
performance or to cash flows from operating, investing and financing activities
as a measure of liquidity. In addition, EBITDA does not take into account
changes in certain assets and liabilities as well as interest and taxes which
can affect cash flow.

In connection with our corporate restructuring program set forth in late 2000,
our existing segments reflect certain managerial changes enacted since the
publication of our 2000 annual results. The changes are as follows: The Business
Services segment was expanded to include the results of international operations
and ventures. In addition, certain corporate costs that were previously recorded
within the Corporate and Other Group have been allocated to the respective
segments in an effort to ultimately have the results of these businesses reflect
all direct corporate costs as well as overhead for shared services. All prior
period results have been restated to reflect these changes. Total assets for our
reportable segments generally include all asset, except intercompany
receivables. However, our Wireless Services Segment included intercompany
receivables from AT&T and the related interest income since these assets relate
to the results of the AT&T Wireless Group tracked businesses.

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

BUSINESS SERVICES

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

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

<TABLE>
<CAPTION>
                                          Three months
                                             ended
                                            March 31,
Dollars in Millions                     2001         2000
<S>                                  <C>          <C>
External revenue                     $ 6,940      $ 7,094
Internal revenue                         228          158
Total revenue                          7,168        7,252
</TABLE>
<PAGE>   50
<TABLE>
<CAPTION>
<S>                                  <C>          <C>
EBIT                                   1,018        1,146
EBITDA                                 2,036        2,152

OTHER ITEMS

Capital additions                    $ 1,287      $ 1,366
</TABLE>

<TABLE>
<CAPTION>
                                   At March 31,   At Dec. 31,
                                        2001         2000
<S>                                  <C>          <C>
Total assets                         $42,562      $42,747

</TABLE>

REVENUE

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

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

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

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

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

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

EBIT/EBITDA

EBIT and EBITDA declined $0.1 billion, or 11.2% and 5.4%, respectively, in the
first quarter of 2001 compared with the same period last year. The decline
primarily reflects the impact of pricing pressure within the long distance voice
business as well as the shift from higher margin long distance services to lower
margin growth services. The decline also reflects the impact of equity losses
recorded for Concert in the first quarter of $0.1 billion, representing a
decrease of approximately $0.2 billion compared to the first quarter of 2000.
Mostly offsetting the overall decrease was lower restructuring charges of $0.4
billion in the first quarter of 2001. For the remainder of 2001, Concert is
expected to continue to generate operating losses. Currently, Concert is
considering restructuring its business in order to return to profitability.
These actions could result in significant restructuring charges. In addition,
AT&T and BT are discussing ways to improve the performance of the Concert
business. These discussions include a variety of strategic alternatives,
including the acquisition of, or other business combination of our business
services operations with BT's business services unit. We have also considered
narrowing the scope of Concert's business, as well as its termination as a
joint venture.
<PAGE>   51
OTHER ITEMS

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

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

CONSUMER SERVICES

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

<TABLE>
<CAPTION>
                                          Three months
                                             ended
                                            March 31,
Dollars in Millions                     2001         2000
<S>                                   <C>          <C>
Revenue                               $4,007       $5,037
EBIT                                   1,318        1,658
EBITDA                                 1,365        1,715

OTHER ITEMS

Capital additions                     $   22       $   23
</TABLE>

<TABLE>
<CAPTION>
                                   At March 31,   At Dec. 31,
                                        2001         2000
<S>                                   <C>          <C>
Total assets                          $2,768       $3,150
</TABLE>

REVENUE

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

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

EBIT/EBITDA

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

OTHER ITEMS

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

Total assets declined $0.4 billion in the first quarter to $2.8 billion at March
31, 2001. The decline was primarily driven by lower accounts receivables,
reflecting lower revenue.
<PAGE>   52
WIRELESS SERVICES
Our Wireless Services segment offers wireless voice and data services and
products to customers in our 850 megahertz (cellular) and 1900 megahertz
(Personal Communications Services, or PCS) markets. Wireless Services also
includes certain interests in partnerships and affiliates that provide wireless
services in the United States and internationally, aviation-communications
services and fixed wireless. Fixed wireless services provide high-speed Internet
access and any-distance voice services using wireless technology to residential
and small business customers.

<TABLE>
<CAPTION>
                               Three months
                                  Ended
                                March 31,
Dollars in millions            2001      2000
<S>                         <C>       <C>
Revenue                     $ 3,212   $ 2,198
EBIT                            118       111
EBITDA*                         717       401

OTHER ITEMS

Capital additions           $ 1,904     1,390
</TABLE>

<TABLE>
<CAPTION>
                          At March 31,  At December 31,
                              2001        2000
<S>                         <C>         <C>
Total assets                $46,930     $35,184
</TABLE>

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

REVENUE

Wireless Services revenue grew $1.0 billion, or 46.2%, to $3.2 billion in the
first quarter of 2001 compared with the first quarter of 2000. Approximately
$0.5 billion of the growth was due to acquisitions, primarily Bay Area
Properties acquired in June 2000 and the Los Angeles market acquired in December
2000. The remaining increase was due to subscriber growth, slightly offset by a
decline in average monthly revenue per user (ARPU).

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

EBIT/EBITDA

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

EBITDA, which excludes net pretax (losses) earnings of equity investments and
other income, increased $0.3 billion, or 78.9%, in the first quarter of 2001 to
$0.7 billion compared with the prior year quarter. The improvement was primarily
driven by revenue growth associated with the mobility business. These
improvements were partially offset by related increase in expenses associated
with subscriber growth.
<PAGE>   53
OTHER ITEMS
Capital additions increased $0.5 billion in the first quarter of 2001 to $1.9
billion compared with the first quarter of 2000. The increase was primarily
driven by capital expenditures to upgrade and increase network capacity and
improve network quality.

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

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

<TABLE>
<CAPTION>
                                   Three months     Three month
                                       ended          ended
                                     March 31,      March 31,
Dollars in Millions                     2001           2000
<S>                                  <C>            <C>
Revenue                              $ 2,465        $ 1,557
EBIT                                    (508)           236
EBITDA excluding other income            394            329

OTHER ITEMS

Capital additions                    $   910        $ 1,344
</TABLE>

<TABLE>
<CAPTION>
                                   At March 31,     At Dec. 31,
                                      2001           2000
<S>                                 <C>            <C>
Total assets                        $114,191       $114,848
</TABLE>

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

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

REVENUE

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

At March 31, 2001, Broadband serviced approximately 15.9 million basic cable
customers, passing approximately 28.1 million homes, compared with 11.1 million
basic cable customers, passing approximately 19.2 million homes at March 31,
2000. At March 2001, we provided digital video service to approximately 3.1
million customers, high-speed data service to approximately 1.3 million
customers and broadband telephony service to approximately 0.7 million
customers. This compares with nearly 2.0 million digital-video customers,
approximately 0.3 million high-speed data customers, and nearly 40,000 broadband
telephony customers at March 31, 2000.
<PAGE>   54
EBIT/EBITDA

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

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

OTHER ITEMS

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

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

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

<TABLE>
<CAPTION>
                                          Three months
                                             ended
                                            March 31,
Dollars in Millions                     2001         2000
<S>                                  <C>           <C>
Revenue                              $   (89)      $ (143)
EBIT                                  (3,062)        (453)
EBITDA                                (2,877)        (308)

OTHER ITEMS

Capital additions                    $   183      $    30
</TABLE>

<TABLE>
<CAPTION>
                                   At March 31,  At Dec. 31,
                                        2001         2000
<S>                                  <C>          <C>
Total assets                         $   618      $12,004
</TABLE>

REVENUE

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

EBIT/EBITDA

EBIT and EBITDA each declined $2.6 billion to deficits of $3.1 billion and $2.9
billion, respectively, in the first quarter of 2001 compared with the first
<PAGE>   55
quarter of 2000. The decline was primarily due to the adoption of SFAS 133 in
the quarter, which resulted in a charge of approximately $2.6 billion. Also
contributing to the decline was asset impairment charges, net of minority
interest, of $0.3 billion recorded by Excite@Home and AT&T related
to Excite@home.

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

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

LIBERTY MEDIA GROUP RESULTS

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

LIQUIDITY

<TABLE>
<CAPTION>
For the Three Months Ended March 31,                2001      2000
Dollars in millions

CASH FLOWS:
<S>                                               <C>       <C>
  Provided by operating activities                $1,938    $2,528
  Used in investing activities                    (3,184)   (5,001)
  Provided by financing activities                 1,256     1,551
</TABLE>

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

AT&T's investing activities resulted in a net use of cash of $3.2 billion for
the first quarter of 2001, compared with use of cash of $5.0 billion for the
first quarter of 2000. During the first quarter of 2001, AT&T paid approximately
$3.9 billion for capital expenditures and received approximately $0.6 billion
primarily related to the net dispositions of businesses. During the first
quarter of 2000, AT&T spent approximately $3.2 billion on capital expenditures,
$1.1 billion primarily for investments in cable and wireless businesses and
loaned $1.0 billion to Concert.
<PAGE>   56
During the first quarter of 2001, net cash provided by financing activities was
$1.3 billion, compared with $1.6 billion for the first quarter of 2000. During
the first quarter of 2001, AT&T received $9.8 billion from the issuance of
convertible preferred stock to NTT DoCoMo and $6.5 billion from the bond
offering completed by AT&T Wireless, proceeds which in part were used to repay
short-term debt of $14.7 billion. During the first quarter of 2000, AT&T
received $3.2 billion from the issuance of short-term notes. This source of cash
was partially offset by the repayment of long-term debt of $1.0 billion and the
payment of dividends of $0.8 billion.

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

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

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

AT&T is in a joint venture with Alaska Native Wireless (ANW), which participated
in the Federal Communication Commission's recent auction of license spectrum. In
January 2001, the auction was completed, and ANW was the highest bidder on
approximately $2.9 billion in licenses. AT&T has committed to contribute $2.6
billion to fund this purchase. As of March 31, 2001, AT&T Wireless Group funded
approximately $309 of the commitment and has committed to provide the remaining
approximate $2.3 billion when such licenses are granted.

Since the announced restructuring plans to create four new businesses, AT&T's
debt ratings have been under review by the applicable rating agencies. As a
result of this review, AT&T's ratings have been either downgraded and/or put on
credit watch with negative outlook. These actions will result in an increased
cost of future borrowings and will limit our access to the capital markets.
<PAGE>   57
AT&T is pursing various measures to reduce its debt level. However, there can be
no assurance that we will be able to obtain financing on terms that are
acceptable to us. If these efforts cannot be completed successfully or on terms
and within the timeframe contemplated, AT&T's financial condition would be
materially adversely affected. Some of these adverse conditions include the
company's ability to pursue acquisitions or make capital expenditures to expand
its network and cable plant, or pay dividends.

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

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

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

FINANCIAL CONDITION

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

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


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


Minority Interest decreased $0.7 billion, or 13.5%, to $4.2 billion at March 31,
2001 from $4.9 billion at December 31, 2000. This decrease primarily reflects
the losses of Excite@Home, primarily driven by an asset impairment charge.
<PAGE>   58
Total shareowners' equity increased $0.8 billion, or 0.7%, to $104.0 billion at
March 31, 2001 from $103.2 billion at December 31, 2000. This increase primarily
resulted from the issuance of stock to acquire cable-systems from Cablevision,
and an increase in additional paid-in capital related to the NTT DoCoMo
warrants, as well as issuance of stock in connection with our employee
benefit plans.


Net debt-to-annualized EBITDA was 3.51x at March 31, 2001 as compared with 3.28x
at December 31, 2000, reflecting lower EBITDA partially offset by lower debt.
The debt ratio (debt divided by total debt and equity) was 39.5% at March 31,
2001 as compared with 46.2% at December 31, 2000. For purposes of this
calculation, equity includes the convertible quarterly trust preferred
securities, redeemable preferred stock of subsidiary as well as convertible
preferred stock. The decrease in debt-to-capital was driven by the repayment of
short-term debt offset somewhat by the issuance of wireless bonds.


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

RISK MANAGEMENT

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

Assuming a 10% downward shift in interest rates at March 31, 2001, the fair
value of unhedged debt would have increased by approximately $0.6 billion.
<PAGE>   59
NEW ACCOUNTING PRONOUNCEMENTS

In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -
a Replacement of FASB Statement No. 125." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. Under these standards, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after March 31, 2001. AT&T does not
expect that the adoption of SFAS No. 140 will have a material impact on AT&T's
results of operations, financial position or cash flows.
<PAGE>   60
SUBSEQUENT EVENTS

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

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

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

On April 26, 2001, AT&T initiated a 364-day accounts receivable securitization
program providing for up to $0.5 billion of funding. Under the program, a small
percentage of consumer accounts receivable will be sold on a discounted,
revolving basis, to a special purpose, wholly-owned subsidiary, which assigns
interests in such receivables to unrelated third-party financing entities. The
proceeds will be used for general corporate purposes, including the repayment of
commercial paper.
<PAGE>   61
           AT&T WIRELESS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

AT&T WIRELESS GROUP OVERVIEW

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

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

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

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

On April 27, 2000, AT&T completed an offering of 15.6%, or 360 million shares,
of AT&T Wireless Group tracking stock at an offering price of $29.50 per share.
AT&T Wireless Group tracking stock is a class of AT&T common stock, which is
intended to provide holders with financial returns based on the financial
performance and economic value of AT&T's wireless services' businesses. AT&T
Wireless Group tracking stock issued in the offering reflected only a portion of
the authorized shares. The remaining 84.4% was reserved for the benefit of AT&T
Common Stock Group (which consists of the operations of AT&T other than those
attributed to AT&T tracking stocks) and is intended to be reflected in AT&T
common stock. See below for discussion of the investment by NTT DoCoMo which
closed in January 2001. As a result of the DoCoMo investment, assuming
conversion, AT&T Common Stock Group would retain an approximate 70% economic
interest in AT&T Wireless Group.
<PAGE>   62
The combined financial statements of AT&T Wireless Group primarily include the
legal entity results of AT&T Wireless Services, Inc. and its subsidiaries (AWS)
and AT&T Wireless Group, LLC (AWG), both of which were direct subsidiaries of
AT&T Corp., as of March 31, 2001. AWG will be transferred to AWS prior to
the split-off.

On October 25, 2000, as part of its restructuring plan, AT&T announced its
decision to present an exchange offer to AT&T common shareowners to allow them
to exchange any portion of shares of AT&T common stock for shares of AT&T
Wireless Group tracking stock, subject to pro-ration. AT&T released details of
its exchange offer on April 18, 2001 and anticipates that the exchange offer
will be completed during the second quarter of 2001. Under the terms of the
exchange offer, AT&T will issue 1.176 shares of AT&T Wireless Group tracking
stock in exchange for each share of AT&T common stock validly tendered and not
withdrawn, subject to specified conditions. AT&T Wireless Group will continue to
be a part of AT&T following the completion of the exchange offer. This exchange
offer will result in an increase in the percentage of outstanding shares held by
public shareholders and a decrease to the percentage reserved for the benefit of
AT&T Common Stock Group.

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

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

DOCOMO INVESTMENT

In January 2001, NTT DoCoMo, a leading Japanese wireless communications company,
invested $9.8 billion in a security of AT&T that, like AT&T Wireless Group
tracking stock, is intended to reflect a portion of the financial performance
and economic value of AT&T Wireless Group. AT&T Wireless Group, through AWS and
AWG, was allocated $6.2 billion of the gross proceeds from DoCoMo's $9.8 billion
investment in AT&T. Additionally, AT&T Wireless Group was allocated $18 of costs
associated with the transaction. AT&T retained the remaining $3.6 billion of the
DoCoMo investment proceeds as consideration for the reduction in AT&T's retained
portion of AT&T Wireless Group's value. Following the split-off, this investment
will be converted into approximately 16% of AT&T Wireless Services' common
shares. DoCoMo also received warrants at an exercise price of $35 per AT&T
Wireless Group tracking share equivalent that would represent an approximate
additional 1.6% of AT&T Wireless Services' common shares after the split-off. As
part of this investment, AT&T Wireless Group, through AWS, has entered into a
strategic alliance with DoCoMo to develop mobile multimedia services on a
global-standard, high-speed wireless network. DoCoMo may require the repurchase
of its investment at DoCoMo's original purchase price, plus interest, if AT&T
does not complete the split-off by specified dates beginning January 1, 2002, or
if AT&T Wireless Group fails to meet specified technological milestones.
<PAGE>   63
AT&T WIRELESS GROUP FORWARD-LOOKING STATEMENTS

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

AT&T WIRELESS GROUP COMBINED RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2001
COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 2000

Revenue

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

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

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

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

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

AT&T Wireless Group's ARPU for the three months ended March 31, 2001, was
$62.20, an decrease of $5.00, or 7.4%, compared with the same period in 2000.
<PAGE>   64
The decline in ARPU is primarily a result of competitive pricing pressures,
expansion into a broader base of consumer segments, including prepaid wireless,
and the impact of acquisitions which closed subsequent to the first quarter
of 2000.

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

Costs of services

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

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

Costs of equipment sales

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

Selling, general and administrative

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

Depreciation and amortization

Depreciation and amortization expenses for the three months ended March 31,
2001, were $576 million, an increase of $207 million, or 56.1%, compared with
the three months ended March 31, 2000. The increase primarily resulted from the
growth in the AT&T Wireless Group's depreciable asset base resulting from
capital expenditures and property, plant and equipment acquired with
<PAGE>   65
acquisitions that closed subsequent to the first quarter of 2000. Additionally,
effective January 1, 2001, AT&T Wireless Group shortened the depreciable lives
of certain wireless communications equipment which resulted in approximately $36
million of additional depreciation expense for the three months ended March 31,
2001. Total capital expenditures were $1,252 million for the three months ended
March 31, 2001. Amortization expense increased from the prior year quarter as a
result of an increase in the amortization expense of licensing costs, goodwill,
and other acquisition related intangibles as a result of acquisitions that
closed subsequent to the first quarter of 2000. As a result of AT&T Wireless
Group's evaluation of recent changes in the wireless telecommunications industry
and the views of regulatory authorities, effective January 1, 2001, AT&T
Wireless Group will use an amortization period for all licensing costs and
goodwill associated with newly acquired wireless operations not to exceed 25
years. This change did not have a material impact to AT&T Wireless Group's
results of operations for the three months ended March 31, 2001.

Other income

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

Interest expense

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

Provision (benefit) for income taxes

The provision (benefit) for income taxes for the three months ended March 31,
2001, was a provision of $79 million compared with $2 million of benefit for the
same period in 2000. The increase was due primarily to the increase in income
before net equity earnings (losses) in the current year quarter compared with
the prior year quarter. The effective income tax rate for the three months ended
March 31, 2001, was 44.4% and was primarily impacted by goodwill associated with
acquisitions that closed during 2000. Excluding a one-time gain recorded in the
first quarter of 2000, the effective income tax rate for the prior year quarter
was 48.9% and was also impacted primarily by goodwill associated with the
2000 acquisitions.

Net equity (losses) earnings from investments

Net equity (losses) earnings from investments, net of tax, were $99 million of
losses for the three months ended March 31, 2001, compared with $25 million of
earnings for the respective period in 2000. The decrease was primarily due to
equity earnings from CMT Partners and AB Cellular during the first quarter of
2000. AT&T Wireless Group acquired the remaining interest in CMT partners that
they did not own in June 2000, and therefore, this entity was consolidated
subsequent to the acquisition. Additionally, AT&T Wireless Group's equity
interest in AB Cellular was redeemed in December 2000. In addition, equity
losses increased associated with AT&T Wireless Group's affiliate and
international investments in the first quarter of 2001 compared with the first
quarter of 2000.
<PAGE>   66
Dividend requirements on preferred stock held by AT&T

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

AT&T WIRELESS GROUP LIQUIDITY AND CAPITAL RESOURCES

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

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

The continued expansion of AT&T Wireless Group's network and footprint,
including spectrum auctions and the marketing and distribution of its products
and services, will continue to require substantial capital. Prior to 2001, AT&T
Wireless Group funded its operations with proceeds from the April 2000 offering
of AT&T Wireless Group tracking stock attributed from AT&T, intercompany
borrowings from AT&T, internally generated funds, as well as capital
contributions from AT&T prior to the April 2000 offering. Capital contributions
from AT&T prior to the April 2000 offering included acquisitions made by AT&T
that have been attributed to AT&T Wireless Group. Noncash capital contributions
from AT&T to AT&T Wireless Group related to acquisitions and initial investments
funded by AT&T totaled $552 million for the three months ended March 31, 2000.

The April 2000 offering of AT&T Wireless Group tracking stock resulted in net
proceeds to AT&T after deducting underwriter's discount and related fees and
expenses of $10.3 billion. AT&T attributed $7.0 billion of the net proceeds to
<PAGE>   67
AT&T Wireless Group in the form of an intercompany note receivable, which was
repaid by December 31, 2000, and was used primarily to fund acquisitions and
capital expenditures.

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

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

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

On March 23, 2001, AT&T Wireless Group, through AWS, entered into Competitive
Advance and Revolving Credit Facilities (the "Facilities") in the aggregate
amount of $2.5 billion consisting of an up to $1.25 billion 364-day Competitive
Advance and Revolving Credit Facility and an up to $1.25 billion Five-Year
Competitive Advance and Revolving Credit Facility. The Facilities are subject to
a facility fee ranging from 8 to 30 basis points, payable quarterly on the total
commitment, used or unused. The facility fees are based on the respective
agreement and will fluctuate based on AT&T Wireless Group's Senior Notes rating.
The Facilities are also subject to a utilization fee of 12.5 basis points if
borrowings exceed certain levels as defined in the agreement. The Facilities
bear interest at variable rates based upon, in various cases, (i) LIBOR plus
32.5 to 100 basis points depending on AT&T Wireless Group's Senior Notes rating,
or (ii) the greater of the prime rate or the Federal funds effective rate plus
50 basis points. The Facilities are to be used for general corporate purposes
and are subject to customary covenants, representations and warranties and
events of default. In addition, the Facilities contain financial covenants
requiring AT&T Wireless Group to maintain certain financial ratios and prohibit
AWS from declaring and/or paying dividends prior to the split-off. The
Facilities also specifies limitations on AT&T's and AT&T Wireless Group's
ability to consummate the split-off including a provision that it will
constitute an event of default if the split-off is consummated without obtaining
a favorable tax ruling from the IRS or an unqualified tax opinion that the
split-off will qualify as a tax-free transaction. In addition, the existence of
an obligation by AT&T Wireless Group to repurchase equity interests from DoCoMo
may under certain circumstances constitute an event of default. No amounts had
been borrowed under the Facilities at March 31, 2001.
<PAGE>   68
In association with the intended split-off of AT&T Wireless Group from AT&T
announced on October 25, 2000, AT&T and AT&T Wireless Services, Inc. anticipate
that they will enter into a separation and distribution agreement that will
govern the terms of the split-off. As part of this agreement, AT&T Wireless
Services will agree, upon completion of the split-off, to repay the full amount
of the principal and accrued but unpaid interest or face value and accrued but
unpaid dividends, of all outstanding indebtedness owned by AT&T Wireless Group
to AT&T, and all preferred stock in AT&T Wireless Group held by AT&T.

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

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

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

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

For the Mobility business, EBITDA for the three months ended March 31, 2001, was
$788 million compared with $431 million for the same period in 2000.
<PAGE>   69
For the Fixed Wireless business, EBITDA for the three months ended March 31,
2001, was a deficit of $68 million compared with a deficit of $34 million for
the same period in 2000.

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

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

AT&T WIRELESS GROUP FINANCIAL CONDITION

Total assets were $47,039 million as of March 31, 2001, an increase of $11,737
million, or 33.2%, compared with December 31, 2000. The increase was due
primarily to an increase in the intercompany note receivable from AT&T of
$10,588 million which resulted from AT&T attributing $6.1 billion of the DoCoMo
investment net proceeds to AT&T Wireless Group, and AT&T Wireless Group loaning
the $6.3 billion of net proceeds from the Senior Notes to AT&T. Partially
offsetting these proceeds were the repayment of the $638 million of short-term
debt due to AT&T, as well as capital expenditures and contributions made to
non-consolidated investments during the first quarter of 2001.

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - A Replacement of FASB No. 125". This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Under these standards,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. AT&T Wireless Group does not expect that the adoption of SFAS No. 140 will
have a material impact on its results of operations, financial position or
cash flows.
<PAGE>   70
AT&T WIRELESS GROUP SUBSEQUENT EVENTS

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

During the first quarter of 2001, AT&T Wireless Group, through AWS, made
unsecured term loans to Rogers Wireless to pay for spectrum it successfully bid
upon in the recently completed Canadian spectrum auctions. In April 2001, Rogers
Wireless effected a rights offering of its equity securities in which AT&T
Wireless Group's joint venture with British Telecommunications, JVII,
participated. The participation increased JVII's ownership interest in Rogers
Wireless to 34.36%. AT&T Wireless Group funded the purchase on behalf of JVII by
offsetting it against the unsecured, interest bearing note made by AWS. This
transaction resulted in AT&T Wireless Group obtaining a controlling interest of
JVII, as well as increasing the indirect ownership percentage in Rogers
Wireless. As a result of the consolidation of JVII, which holds the equity
interest in Rogers Wireless, AT&T Wireless Group's investments in unconsolidated
subsidiaries, as well as minority interest liability, increased approximately
$420 million in April 2001.
<PAGE>   71
                           PART II - OTHER INFORMATION

Item 2c.  Changes in Securities and Use of Proceeds

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

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

Consulting fees associated with the transaction of approximately $35 million
were paid to our financial advisors, Salomon Smith Barney and Credit Suisse
First Boston Corporation, in association with the deal. The fees were discounted
from the proceeds from the convertible preferred stock and will be accreted
monthly for thirteen months. The company allocated $6.1 billion of the net
proceeds to AT&T Wireless Group which will be used to continue executing its
strategy to expand its capacity, enlarge its footprint, create an advanced
mobile Internet, and invest in other strategic growth initiatives, as well as to
satisfy intercompany obligations. The remaining proceeds from the deal was used
to reduce AT&T's debt.
<PAGE>   72
Item 6. Exhibits and Reports on Form 8-K.

(a)           Exhibits

              Exhibit Number

                      12       Computation of Ratio of Earnings to Fixed Charges

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

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

(b)      Reports on Form 8-K


                     Form 8-K dated February 16, 2001 was filed pursuant to Item
                     5 (Other Events) and Item 7 (Financial Statements and
                     Exhibits) on February 16, 2001. Form 8-K dated February 28,
                     2001 was filed pursuant to Item 5 on March 1, 2001. Form
                     8-K dated March 28, 2001 was filed pursuant to Item 7 on
                     March 28, 2001. Form 8-K dated March 28, 2001 was filed
                     pursuant to Item 5 and Item 7 on March 29, 2001.
<PAGE>   73
                                     SIGNATURES

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

                                   AT&T Corp.



                                   /s/  N. S. Cyprus
                                   ------------------------------
                                   By:  N. S. Cyprus
                                        Vice President and Controller

                                       (Principal Accounting Officer)



Date:  May 15, 2001
<PAGE>   74
                                  Exhibit Index

Exhibit
Number

12                             Computation of Ratio of Earnings to Fixed Charges

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

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