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

      At AprilJuly 29, 2005, the following shares of stock were outstanding: AT&T common stock — 800,989,478.802,018,306.

AT&T accounts for treasury stock as retired stock. The amount attributable to treasury stock at March 31,June 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 Form 10-Q for the quarter ended March 31, 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. The acquisition, which is subject to approval by our shareowners and regulatory authorities, and other customary closing conditions, is expected to close in late 2005 or early 2006. 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. While the merger agreement prohibits us from soliciting competing acquisition proposals, we may accept a superior proposal prior to the effective date of the merger, subject to compliance with the terms of the merger agreement and payment of a $560 million termination fee and all documented out-of-pocket fees incurred by SBC, up to $40 million. 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 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 123 (revised 2004), “Share-Based Payment,” beginning in the first quarter of 2006 (see note 11)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 first quarter ofthree and six months ended June 30, 2005, was $26 million and $53 million, respectively. Amortization expense for the three and six months ended June 30, 2004, was $27$28 million and $33$61 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 $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 7)8).

      Recorded within other current liabilities were $539$411 million and $281 million of income taxes payable as of March 31,June 30, 2005 and December 31, 2004, respectively.

      In the first quarter ofMay 2005, we entered into an agreement to sell our payphone business, which is partcompleted the sale of the AT&T Business Services segment. As a result of this agreement, we reclassified the assets and liabilities related to this business as held-for-sale at fair market value, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The assets and liabilities that were reclassified consisted of $43 million of goodwill, $28 million of net accounts receivable, $12 million of property, plant and equipment, $7 million of prepaid expenses and $2 million of current liabilities. The goodwill was determined based on the relative fair value of the payphone business to that of AT&T Business Services. We recorded a $9 million charge within other income (expense), net to write down the assets to fair market value. It is currently expected that this sale will close by the end of the second quarter of 2005. Also reclassified to assets held-for-sale was $81 million related to an administrative building which we actively marketed in the first quarterwas classified as an asset held-for-sale as of 2005 and entered into an agreement to sell in AprilMarch 31, 2005. It is anticipated that we will record a gain on the sale of the building of approximately $40 million. Since we will beare leasing back a portion of the building, back from the buyer,majority of the approximately $40 million gain was deferred, with $6 million recorded within other (expense) income, net, upon closing. In addition, in June 2005, we completed the sale of the gain is expected to be recognizedour payphone business which was also classified as an asset held-for-sale at the time of sale (within the Corporate and Other group), which is currently anticipated to occur in the second quarter ofMarch 31, 2005. The remaining gain will be deferredsale resulted in a loss of $14 million and amortized over the lease period (up to 5 years). The reclassification of the assets and liabilities discussed above to held-for-sale (included inwas recorded within other current assets and other current liabilities, respectively) represented non-cash activity for the first quarter of 2005.(expense) income, net.

      Basic earnings per common share (EPS) is computed by dividing net income 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

      Asset impairment and net restructuring and other charges of $36 million for the three and six months ended June 30, 2005, consisted of $45 million of facility closing reserves and a related $5 million asset impairment charge in connection with leasehold improvements in these facilities. These activities were partially offset by the net reversal of $14 million of excess preexisting business restructuring liabilities.

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

      Deductions primarily reflected total cash payments of $151$270 million. These cash payments includeincluded cash termination benefits of $134$234 million and $17$36 million of facility closing reserve payments, which were funded primarily through cash from operations.

      Asset impairment and net restructuring and other charges of $213$54 million infor the first quarterthree months ended June 30, 2004, consisted primarily of business restructuring activities associated with employee separations related to AT&T Business Services. This activity resulted from the continued integration and automation of various functions within network operations, as well as reorganizations throughout our non-U.S. operations. This exit plan impacted approximately 625 employees (more than half of which were involuntary), approximately 35% of whom were managers.

      Asset impairment and net restructuring and other charges of $267 million for the six months ended June 30, 2004, were comprised of business restructuring obligations of $145 million, primarily related to AT&T Business Services and real estate impairment charges of $121$122 million included in the Corporate and Other group andgroup.

      The business restructuring obligations of $92 million, of which $91 million related to AT&T Business Services and $1 million related to AT&T Consumer Services. The real estate impairment charges resulted from 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. The impairment charges were recorded to reduce the book value of the five properties to fair market value, based on third party assessments (including broker appraisals). The sales of the properties were completed in 2004. The $92 million related to business restructuring activities consisted of $52$104 million of separation costs and $40$41 million of facility closing obligations associated with the consolidationobligations. The separations, of our real estate portfolio. The separationswhich slightly less than half were managers, were primarily involuntary and impacted approximately 780 employees.1,405 employees as a result of integration and automation of various functions within network operations, as well as reorganizations throughout our non-U.S. operations. The facility closing reserves were primarily associated with the consolidation of our real estate portfolio and reflected the present value of contractual lease obligations, net of estimated sublease income, associated with vacant facilities resulting from workforce reductions and network equipment space that will not be used.

      The real estate impairment charges resulted from 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. The impairment charge was recorded to reduce the book value of the five properties to fair market value based on third party assessments (including broker appraisals). The sale of the properties was completed in 2004.

      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 March 31,June 30, 2005 and December 31, 2004,

      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 currencyinterest-rate foreign-currency swap agreements for foreign-currency-denominated debt, which hedge our risk to both interest rate and currency movements. As of March 31,June 30, 2005, the notional amount and fair value of these contracts werewas $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 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 of 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.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) costcosts for our U.S. plans:

      On January 21, 2005, the Department of Health and Human Services/ Centers for Medicare and Medicaid Services (CMS) released final regulations implementing major provisions ofIn 2003, the Medicare Prescription Drug,Drug. Improvement and Modernization Act of 2003, (the Act). Pursuant to these final

      In the second quarter of 2005, we determined that their prescription drug benefits provided under the plan. With respect to the impact of the Act to the remaining plan participants are also actuarially equivalent to the Medicare Part D benefits and therefore, we are assessing appropriate integration ofexpect to be entitled to the federal subsidy. The impact of such expected federal subsidy into the plan benefits. We continue to review the regulations releasedwill not have a significant effect on January 21, 2005, and the subsequent implementation guidance, to determine the impact to our accumulated postretirement benefit obligation and 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 March 31,June 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 final approval is currently expected to occur in September 2005. The settlement of this lawsuit, did not have a material impact to the results of operations for the three and six months ended June 30, 2005.

In 2004, following ana Federal Communications Commission (FCC) ruling against a petition we filed in which we asked the FCC to decide the issue of whether certain phone-to-phone IPInternet protocol (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, other carriers, including BellSouth Telecommunications, Inc (BellSouth) have filed similar lawsuits in various jurisdictions. These claims did not specify damages.

      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 sizedvarious-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

      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 primarilyprimary 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.