Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No o

At July 29,October 31, 2005, the following shares of stock were outstanding: AT&T common stock — 802,018,306.803,449,166

AT&T accounts for treasury stock as retired stock. The amount attributable to treasury stock at JuneSeptember 30, 2005 and December 31, 2004, was $(17,011) million.

We have 100 million authorized shares of preferred stock at $1 par value.

      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 of a normal and recurring nature 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 FormForms 10-Q for the quarterquarters ended March 31, 2005 and June 30, 2005, and Form 10-K/ A for the year ended December 31, 2004.

      On January 31, 2005, AT&T and SBC Communications Inc. (SBC) announced an agreement for SBC to acquire AT&T. Under the terms of the agreement, each AT&T share will be exchanged for 0.77942 of a share of SBC common stock. In addition, at the time of closing, we will pay our shareowners a special dividend of $1.30 per share. At the time of the announcement, this consideration was valued at $19.71 per share, or approximately $16.0 billion. The stock consideration in the transaction is expected to be tax-free to our shareowners. On June 30, 2005, AT&T shareowners voted to approve the proposed merger agreement with SBC. In October 2005, the Department of Justice and the Federal Communications Commission (FCC) approved the merger. The acquisition, which isremains subject to approval by other regulatory authorities and other customary closing conditions, is expected to close in late 2005 or early 2006.by the end of 2005. However, it is possible that factors outside of our control could require us to complete the merger at a later time or not to complete it at all. The terms of certain of our agreements, including contracts, employee benefit arrangements and debt instruments, have provisions which could result in changes to the terms or settlement amounts of these agreements upon a change in control of AT&T. On June 30, 2005, AT&T shareholders voted to approve the proposed merger agreement with SBC.

      We have a Long Term Incentive Program under which stock options, performance shares, restricted stock and other awards in common stock are granted, as well as an Employee Stock Purchase Plan (ESPP). Employee purchases of company stock under the ESPP were suspended in 2003. Effective January 1, 2003, we adopted the fair valuefair-value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and we began to record stock-based compensation expense for all employee awards (including stock options) granted or modified after January 1, 2003. For awards issued prior to January 1, 2003, we apply Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for our plans. Under APB Opinion No. 25, no compensation expense has been recognized for stock options, other than for certain occasions when we have modified the terms of the stock option vesting schedule.

      Pro forma stock-based compensation expense reflected above may not be indicative of future compensation expense that may be recorded. Future compensation expense may differ due to various factors, such as the number of awards granted and the market value of such awards at the time of grant, as well as the planned adoption of SFAS No. 123 (revised 2004), “Share-Based Payment,” beginning in the first quarter of 2006 (see note 12).

      For a detailed discussion of significant accounting policies, please refer to our Form 10-K/ A for the year ended December 31, 2004.

      Amortization expense associated with purchased intangible assets for the three and sixnine months ended JuneSeptember 30, 2005, was $26 million and $53$79 million, respectively. Amortization expense for the three and sixnine months ended JuneSeptember 30, 2004, was $28 million and $61$89 million, respectively. Amortization expense for purchased intangible assets is estimated to be approximately $110 million for each of the years ending December 31, 2005 and 2006, and approximately $80 million for each of the years ending December 31, 2007 and 2008, at which time the purchased intangible assets will be fully amortized.

      Recorded within other current assets as of December 31, 2004, was restricted cash of $546 million relating to debt that matured in February 2005 (see note 8).

      Recorded within other current liabilities were $411$574 million and $281 million of income taxes payable as of JuneSeptember 30, 2005 and December 31, 2004, respectively.

      Basic earnings (losses) per common share (EPS) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution (considering the combined income and share impact) that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The potential issuance of common stock is assumed to occur at the beginning of the year (or at the time of issuance if later), and the incremental shares are included using the treasury stock method. The proceeds utilized in applying the treasury stock method consist of the amount, if any, to be paid upon exercise, the amount of compensation cost attributed to future service not yet recognized, and any tax benefits credited to paid-in-capital related to the exercise. These proceeds are then assumed to be used to purchase common stock at the average marketaverage-market price during the period. The incremental shares (difference between the shares assumed to be issued and the shares assumed to be purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. Potentially dilutive securities for all periods presented were stock options, restricted stock units and performance shares. No adjustments were made to income for the computation of diluted EPS. Since AT&T recorded a loss for the three and nine months ended September 30, 2004, diluted loss per share is the same as basic loss per share, as any potentially dilutive securities would be antidilutive.

      Asset impairment and net restructuring and other charges of $36 million for the three and six months ended JuneSeptember 30, 2005, consistedwere a net credit of $45 million$1 million. During the third quarter of facility closing2005, management reevaluated preexisting restructuring reserves and a related $5 million asset impairment charge in connection with leasehold improvements indetermined the actual or revised estimated obligations under these facilities. These activities were partially offset by the net reversal of $14 million of excess preexisting business restructuring liabilities.reserves differed

      The net facilities closing and other reserves of $55 million for the nine months ended September 30, 2005, primarily reflected a $45 million charge recorded in the second quarter of facility closing reserves were2005 associated with the continued consolidation of our real estate portfolio and reflected the present value of contractual lease obligations, net of estimated sublease income, associated with vacant facilities primarily resulting from workforce reductions. FacilityIn addition, we recorded a $10 million net charge in the third quarter of 2005 based on a reevaluation of preexisting facilities closing and other reserves as discussed above. Facilities closing and other charges of $43$53 million were recorded in the Corporate and Other group and $2 million in AT&T Business Services. Additionally, the Corporate and Other group and AT&T Business Services recorded $2 million and $3 million, respectively, of leasehold improvement impairment charges.

      The net reversal of $25 million of excess preexisting businessemployee separation restructuring reserves andliabilities for the nine months ended September 30, 2005, was the result of management’s reevaluation of employee separation restructuring reserves. Management determined the actual or revised estimates of separation and related benefit payments differed from the estimates initially made, resulting in a net reversal of $14$25 million. AT&T Business Services recorded $23 million of the reversal and the Corporate and Other group recorded $1$12 million. AT&T Consumer Services recorded an additional $10 million charge as a result of this review. The adjustment to these reserves did not result from changes to the actual or planned headcount separations.

      The following table displays the activity and balances of the restructuring reserve accounts:account:

      DeductionsNet deductions primarily reflected total cash payments of $270$368 million. These cash payments includedinclude cash termination benefits of $234$310 million and $36$58 million of facility closing reserve payments, which were funded primarily through cash from operations.

      Asset impairment and net restructuring and other charges of $54$12,469 million for the three months ended JuneSeptember 30, 2004, were comprised of $11,389 million of asset impairment charges and $1,080 million of net business restructuring and other obligations.

      We calculated the fair value of our asset group using discounted cash flows. The discounted cash flows calculation was made utilizing various assumptions and estimates regarding future revenue, expenses and cash flows projections through 2012. The time horizon was determined based on the estimated remaining useful life of the primary assets in the asset group; the primary assets are those from which the most significant cash flows are generated, principally consisting of the transport central office equipment. Pursuant to SFAS No. 144, the forecasts were developed without contemplation of investments in new products. The 10% discount rate utilized was determined using a weighted-average cost of capital (debt and equity) and was more heavily weighted towards debt given that the asset group, which primarily consisted primarily of tangible assets, can be financed with a larger proportion of debt. When allocating the impairment to the asset categories, market values were utilized, to the extent determinable, to ensure that no asset category was impaired below its fair value.

      This exit plan covered separation costs for approximately 11,200 employees (the majority of which were involuntary), approximately 60% of whom were managers. This activity resulted from the continued integration and automation of various functions within network operations, as well as reorganizations throughoutand our non-U.S. operations. This exit plan impacted approximately 625 employees (more than halfstrategic change in focus away from traditional consumer services and towards business markets and emerging technologies.

      Facility closing reserves of which were involuntary), approximately 35% of whom were managers.

      Asset impairment and net restructuring and other charges of $12,736 million for the nine months ended September 30, 2004, were comprised of $11,511 million of asset impairments and $1,225 million in net business restructuring and other obligations.

The asset impairment charges of $11,511 million primarily reflect the third quarter asset impairments of $11,389 million as discussed above. In addition, we recorded real estate impairment charges resulted fromof $122 million related to the decision made during the first quarter of 2004 to divest five owned properties in an effort to further reduce costs and consolidate our real estate portfolio. TheIn accordance with SFAS No. 144, an impairment charge was recorded, within the Corporate and Other group, to reduce the book value of the five properties to fair marketfair-market value based on third partythird-party assessments (including broker appraisals). The salesales of these properties have been completed.

      The net restructuring obligations of $1,225 million for the properties was completednine months ended September 30, 2004, were primarily comprised of $1,147 million of net employee separations (of which $339 million related to benefit plan curtailment costs) and $78 million of facility closing obligations. These exit plans covered separation costs for approximately 12,600 employees (the majority of which were involuntary), nearly one-half of whom were managers. These activities resulted from the continued integration and automation of various functions within network operations, reorganizations throughout our non-U.S. operations, and our strategic change in 2004.

      Approximately 80%90% of headcount reductions associated with all of our 2004 exit plans were completed as of JuneSeptember 30, 2005. As of JuneSeptember 30, 2005, we had approximately 41,50039,500 employees compared with approximately 47,600 employees at December 31, 2004.

      In May 2005, we repaid $125 million of short-term borrowings outstanding under the AT&T Consumer Services accounts receivable securitization facility and subsequently terminated the facility.

      In April 2005, we completed the early retirement of $1.25 billion of our outstanding 7.30% Notes maturing in November 2011, which carried an interest rate of 9.05% at the time of retirement. The notes were

      In the normal course of business, we use various financial instruments, including derivative financial instruments, to manage our market risk associated with changes in interest rates and foreign exchange rates. We do not use financial instruments for trading or speculative purposes. The following information pertains to financial instruments with significant activity since December 31, 2004.

      Letters of credit are guarantees we purchase, which ensure our performance or payment to third parties in accordance with specified terms and conditions. Management has determined that our letters of credit do not create additional risk to us. The notional amounts outstanding at JuneSeptember 30, 2005 and December 31, 2004, were $0.3 billion and $1.2 billion, respectively. The decrease in the notional amount of the letters of credit was primarily related to the maturity of debt in February 2005. In addition, restricted cash of $546 million, recorded within other current assets as of December 31, 2004, which collateralized these letters of credit, was released upon maturity of this debt.

      We enter into interest rate swap agreements to manage the fixed/floating mix of our debt portfolio in order to reduce aggregate risk of interest rate movements. These agreements involve the exchange of floating-rate for fixed-rate payments or the exchange of fixed-rate for floating-rate payments without the exchange of the underlying notional amount. Floating-rate payments and receipts are primarily tied to the London Inter-Bank Offered Rate (LIBOR). During the first quarter of 2005, all of our floating-rate to fixed-rate swaps (notional amount of $108 million), designated as cash flow hedges, matured.

      In addition, we have combined interest-rate foreign-currency swap agreements for foreign-currency-denominated debt, which hedge our risk to both interest rate and currency movements. As of JuneSeptember 30, 2005, the notional amount and fair value of these contracts was $0.6 billion and $0.3 billion, respectively, compared with $1.4 billion and $0.7 billion, respectively, at December 31, 2004. The decreases in the notional amount and fair value of these agreements were primarily related to the maturity in February 2005 maturity of $0.7 billion notional amount of contracts relating to debt that also matured in February 2005.

      We entered into equity options and equity swap contracts, which were undesignated, to manage our exposure to changes in equity prices associated with various equity awards oftied to previously affiliated companies. During the first quarter of 2005, all of the previously outstanding equity awards and the related equity option and equity swap contracts expired (notional amount of $29 million).

      We sponsor noncontributory defined benefit pension plans covering the majority of our U.S. employees. Our postretirement benefit plans for current and certain future retirees include health-care benefits, life insurance coverage and telephone concessions.

      The following table shows the components of net periodic benefit (credit) costscost for our U.S. plans:

      In 2003, the Medicare Prescription Drug.Drug Improvement and Modernization Act of 2003 was signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D,D), as well as a federal subsidy to sponsors of retiree health-care benefits. In 2004, we determined that the prescription drug benefit provided to a specific portion of our postretirement benefit plan participants wasis actuarially equivalent to Medicare Part D.

      In the second quarter of 2005, we determined that theirthe prescription drug benefitsbenefit provided to the remaining plan participants areis also actuarially equivalent to the Medicare Part D benefits and therefore, we expect to be entitled to the federal subsidy. The impact of such expected federal subsidy will not have a significant effect on our accumulated postretirement benefit obligation andor net periodic postretirement benefit cost.

      Certain non-U.S. operations have varying types of pension programs providing benefits for substantially all of their employees.

      In the normal course of business we are subject to proceedings, lawsuits and other claims, including proceedings under laws and regulations related to disputes with other carriers, environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at JuneSeptember 30, 2005. However, if these matters are adversely settled, such amounts could be material to our consolidated financial statements.

      During the second quarter of 2005, we reached a settlement for $29 million, subject to final approval by the Court, of the class action claims brought by participants in our Long Term Savings Plan for Management Employees (the Plan). The lawsuit alleged we breached our fiduciary duties to the Plan and Plan participants by making materially false and misleading statements and omitting to state material facts concerning our future business prospects. A hearing for finalFinal approval is currently expected to occurwas received in September 2005. The settlement of this lawsuit did not have a material impact to theon our results of operations for the three and six months ended June 30, 2005.operations.

      In 2004, following a Federal Communications Commission (FCC)an FCC ruling against a petition we filed in which we asked the FCC to decide the issue of whether certain phone-to-phone Internet protocol (IP)(“IP”) telephony services are exempt from paying access charges, SBC filed a lawsuit in federal district court in Missouri asserting claims that we avoided interstate and intrastate access charges. During the first quarter of 2005, AT&T and SBC settled a variety of claims and disputes between the parties, including this litigation. The settlement of all matters resulted in AT&T paying SBC approximately $60 million, which did not have a material impact on our results of operations. Recently, otherOther carriers, including BellSouth Telecommunications, IncInc. (BellSouth) have filed similar lawsuits in various jurisdictions. These claims did not specify damages.

      During the second quarter of 2005, we settled and paid lawsuits brought by the trustee for the bondholders’ liquidating trust, as well as a preference claim brought by creditors of At Home Corporation (At Home). Under the terms of the settlement agreement, the bondholders were paid $340 million, in addition to AT&T and Comcast Corporation (Comcast) relinquishing claims held in reserve by the At Home estate. Under the terms of a separation agreement with our former broadband subsidiary, which was spun off to Comcast in 2002, the settlement was shared equally between the two parties. The settlement of this litigation did not have a material impact on our results of operations for the three and six months ended June 30, 2005.operations.

      Class action lawsuits filed in California on behalf of At Home shareholders, which alleged AT&T breached fiduciary obligations, have been dismissed and are on appeal.

      In February 2005, the FCC ruled against AT&T and itsour petition for a declaratory ruling that our enhanced prepaid card services is an interstate information service. Following this decision, Qwest CommunicationCommunications International, Inc. (Qwest) filed a lawsuit against us asserting claims for breach of federal and state tariffs, unjust enrichment, fraudulent misrepresentation and breach of contract. Qwest seeks unspecified

      Our results are segmented according to the customers we service: AT&T Business Services and AT&T Consumer Services.

      AT&T Business Services provides a variety of communication services to various-sized businesses and government agencies including long distance, international, toll-free and local voice, including wholesale transport services, as well as data services and Internet protocol and enhanced (IP&E) services, which includes the management of network servers and applications. AT&T Business Services also provides outsourcing solutions and other professional services.

      AT&T Consumer Services provides a variety of communication services to residential customers. These services include traditional long distance voice services, such as domestic and international dial services (long distance or local toll calls where the number “1” is dialed before the call) and calling card services. Transaction services, such as prepaid card and operator-assisted calls, are also offered. Collectively, these services represent stand-alone long distance services and are not offered in conjunction with any other service. AT&T Consumer Services also provides dial-up Internet services, and all distance services, which generally bundle long distance, local and local toll.

      The balance of our operations is included in a “Corporate and Other” group. This group primarily reflects corporate staff functions and the elimination of transactions between segments.

      Total assets for each segment include all assets, except intercompany receivables. Nearly all prepaid pension assets, taxes and corporate-owned or leased real estate are 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, additions to internal-use software (included in other assets) and additions to nonconsolidated investments. We evaluate performance based on several factors, of which the primary financial measure is operating income.

      AT&T Business Services sells services to AT&T Consumer Services at cost-based prices. These sales are recorded by AT&T Business Services as contra-expense.