AT&T (T) 8-K AT&T Delivers Strong Second-Quarter Earnings Growth Driven by Merger Integration Progress, Solid Wireline Execution, Advances at Cingular Wireless

Financial Data

AT&T Inc.

Consolidated Statements of Income

Dollars in millions except per share amounts

Unaudited Three Months Ended Six Months Ended

	6/30/20	06	6/30/20	05	% C	hg	6/30/20	06	6/30/20	05	% C	hg
Operating Revenues
Voice	$  8,618		$  5,760		49	.6%	$17,340		$11,612		49	.3%
Data	4,477		2,438		83	.6%	8,919		4,829		84	.7%
Directory	909		901		0	.9%	1,810		1,806		0	.2%
Other	1,806		1,218		48	.3%	3,536		2,304		53	.5%
Total Operating Revenues	15,810		10,317		53	.2%	31,605		20,551		53	.8%
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	6,928		4,401		57	.4%	14,056		8,789		59	.9%
Selling, general and administrative	3,792		2,589		46	.5%	7,776		5,054		53	.9%
Depreciation and amortization	2,486		1,809		37	.4%	4,978		3,634		37	.0%
Total Operating Expenses	13,206		8,799		50	.1%	26,810		17,477		53	.4%
Operating Income	2,604		1,518		71	.5%	4,795		3,074		56	.0%
Interest Expense	472		349		35	.2%	936		702		33	.3%
Interest Income	95		100		-5	.0%	180		209		-13	.9%
Equity in Net Income of Affiliates	455		181			-	789		123			-
Other Income (Expense) - Net	15		34		-55	.9%	26		81		-67	.9%
Income Before Income Taxes	2,697		1,484		81	.7%	4,854		2,785		74	.3%
Income Taxes	889		484		83	.7%	1,601		900		77	.9%
Net Income	$  1,808		$  1,000		80	.8%	$  3,253		$  1,885		72	.6%
Basic Earnings Per Share:
Net Income	$    0.47		$    0.30		56	.7%	$    0.84		$    0.57		47	.4%
Weighted Average Common
Shares Outstanding (000,000)	3,886		3,302		17	.7%	3,884		3,303		17	.6%
Diluted Earnings Per Share:
Net Income	$    0.46		$    0.30		53	.3%	$    0.83		$    0.57		45	.6%
Weighted Average Common
Shares Outstanding with Dilution (000,000)	3,905		3,312		17	.9%	3,903		3,314		17	.8%

Financial Data

AT&T Inc.

Statements of Segment Income

Dollars in millions

Unaudited

Three Months Ended Six Months Ended

Wireline	6/30/200	6	6/30/200	5	%	Chg	6/30/200	6	6/30/200	5	%	Chg
Segment Operating Revenues
Voice	$   8,618		$ 5,760		49	.6%	$ 17,340		$ 11,612		49	.3%
Data	4,477		2,438		83	.6%	8,919		4,829		84	.7%
Other	1,655		1,059		56	.3%	3,230		1,998		61	.7%
Total Segment Operating Revenues	14,750		9,257		59	.3%	29,489		18,439		59	.9%
Segment Operating Expenses
Cost of sales	6,655		4,139		60	.8%	13,511		8,262		63	.5%
Selling, general and administrative	3,534		2,314		52	.7%	7,235		4,484		61	.4%
Depreciation and amortization	2,427		1,757		38	.1%	4,857		3,530		37	.6%
Total Segment Operating Expenses	12,616		8,210		53	.7%	25,603		16,276		57	.3%
Segment Income	$   2,134		$ 1,047			-	$   3,886		$   2,163		79	.7%
Cingular *
Segment Operating Revenues
Service revenues	$   8,295		$ 7,719		7	.5%	$ 16,300		$ 15,138		7	.7%
Equipment sales	923		890		3	.7%	1,898		1,700		11	.6%
Total Segment Operating Revenues	9,218		8,609		7	.1%	18,198		16,838		8	.1%
Segment Operating Expenses
Cost of services and equipment sales	3,846		3,523		9	.2%	7,493		6,962		7	.6%
Selling, general and administrative	2,757		2,953		-6	.6%	5,603		5,954		-5	.9%
Depreciation and amortization	1,598		1,629		-1	.9%	3,278		3,304		-0	.8%
Total Segment Operating Expenses	8,201		8,105		1	.2%	16,374		16,220		0	.9%
Segment Operating Income	1,017		504			-	1,824		618			-
Other Income (Expense) - Net	(335	)	(333	)	-0	.6%	(664	)	(665	)	0	.2%
Segment Income (Loss)	$      682		$    171			-	$   1,160		$     (47	)		-
* Results reflect 100% of Cingular Wireless' actual results
Directory
Segment Operating Revenues	$      925		$    925			-	$   1,848		$   1,854		-0	.3%
Segment Operating Expenses
Cost of sales	288		276		4	.3%	576		556		3	.6%
Selling, general and administrative	147		156		-5	.8%	306		320		-4	.4%
Depreciation and amortization	-		1			-	1		3		-66	.7%
Total Segment Operating Expenses	435		433		0	.5%	883		879		0	.5%
Segment Operating Income	490		492		-0	.4%	965		975		-1	.0%
Equity in Net Income (Loss) of Affiliates	(6	)	-			-	(11	)	(1	)		-
Segment Income	$      484		$    492		-1	.6%	$      954		$      974		-2	.1%
Other **
Segment Operating Revenues	$      197		$    178		10	.7%	$      400		$      347		15	.3%
Segment Operating Expenses	218		198		10	.1%	457		410		11	.5%
Segment Operating Income (Loss)	(21	)	(20	)	-5	.0%	(57	)	(63	)	9	.5%
Equity in Net Income of Affiliates	461		182			-	800		124			-
Segment Income	$      440		$    162			-	$      743		$        61			-

** Equity in Net Income of Affiliates includes our 60% proportionate share of Cingular's results

Financial Data

AT&T Inc.

Consolidated Balance Sheets

Dollars in millions except per share amounts

6/30/06
Unaudited  12/31/05

Assets
Current Assets
Cash and cash equivalents	$     1,097		$     1,224
Accounts receivable - net of allowances for
uncollectibles of $1,039 and $1,176	8,484		9,351
Prepaid expenses	1,144		1,029
Deferred income taxes	1,876		2,011
Other current assets	1,034		1,039
Total current assets	13,635		14,654
Property, plant and equipment - at cost	151,716		149,238
Less: accumulated depreciation and amortization	93,365		90,511
Property, Plant and Equipment - Net	58,351		58,727
Goodwill	13,433		14,055
Intangible Assets - Net	7,978		8,503
Investments in Equity Affiliates	2,147		2,031
Investments in and Advances to Cingular Wireless	32,656		31,404
Other Assets	16,150		16,258
Total Assets	$ 144,350		$ 145,632
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year	$     3,314		$     4,455
Accounts payable and accrued liabilities	15,472		17,088
Accrued taxes	2,955		2,586
Dividends payable	1,291		1,289
Total current liabilities	23,032		25,418
Long-Term Debt	27,159		26,115
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	14,886		15,713
Postemployment benefit obligation	18,461		18,133
Unamortized investment tax credits	195		209
Other noncurrent liabilities	5,148		5,354
Total deferred credits and other noncurrent liabilities	38,690		39,409
Stockholders' Equity
Common shares issued ($1 par value)	4,065		4,065
Capital in excess of par value	27,217		27,499
Retained earnings	29,771		29,106
Treasury shares (at cost)	(5,002	)	(5,406	)
Additional minimum pension liability adjustment	(218	)	(218	)
Accumulated other comprehensive income	(364	)	(356	)
Total stockholders' equity	55,469		54,690
Total Liabilities and Stockholders' Equity	$ 144,350		$ 145,632

Financial Data

AT&T Inc.

Consolidated Statements of Cash Flows

Dollars in millions, increase (decrease) in cash and cash equivalents

Unaudited          Six Months Ended

	6/30/06		6/30/05
Operating Activities
Net income	$ 3,253		$ 1,885
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization	4,978		3,634
Undistributed earnings from investments in equity affiliates	(752	)	(87	)
Provision for uncollectible accounts	320		413
Amortization of investment tax credits	(14	)	(11	)
Deferred income tax (benefit) expense	65		(264	)
Net gain on sales of investments	(10	)	(75	)
Changes in operating assets and liabilities:
Accounts receivable	545		217
Other current assets	(84	)	(14	)
Accounts payable and accrued liabilities	(1,431	)	(1,123	)
Stock-based compensation tax benefit	(5	)	(3	)
Other - net	288		465
Total adjustments	3,900		3,152
Net Cash Provided by Operating Activities	7,153		5,037
Investing Activities
Construction and capital expenditures	(4,042	)	(2,329	)
Receipts from (investments in) affiliates - net	(717	)	1,179
Maturities of held-to-maturity securities	3		98
Dispositions	55		86
Acquisitions	(115	)	(169	)
Proceeds from note repayment	-		37
Other	4		-
Net Cash Used in Investing Activities	(4,812	)	(1,098	)
Financing Activities
Net change in short-term borrowings with
original maturities of three months or less	1,020		(882	)
Repayment of other short-term borrowings	(3	)	-
Issuance of long-term debt	1,491		-
Repayment of long-term debt	(2,540	)	(1,037	)
Purchase of treasury shares	(148	)	(235	)
Issuance of treasury shares	236		298
Dividends paid	(2,581	)	(2,130	)
Stock-based compensation tax benefit	5		3
Other	52		-
Net Cash Used in Financing Activities	(2,468	)	(3,983	)
Net increase (decrease) in cash and cash equivalents
from continuing operations	(127	)	(44	)
Net Cash Used in Operating Activities from Discontinued Operations	-		(310	)
Net increase (decrease) in cash and cash equivalents	(127	)	(354	)
Cash and cash equivalents beginning of year	1,224		760
Cash and Cash Equivalents End of Period	$ 1,097		$    406

Financial Data

AT&T Inc.

Supplementary Operating Data

Dollars in millions

Unaudited Three Months Ended Six Months Ended

	6/30/2006	6/30/2005	6/30/20	06	6/30/20	05
In-Region1
Total Consumer Retail Connections (000)
Retail Consumer Access Lines			25,990		27,144
Consumer DSL Lines			6,570		4,908
Video Subscribers2			533		404
Total Consumer Retail Connections (000)			33,093		32,456
Switched Access Lines (000)
Retail Consumer - Primary			22,310		23,036
Retail Consumer - Additional			3,680		4,108
Retail Business			17,282		17,513
Retail			43,272		44,657
Wholesale3			4,358		5,977
Coin4			281		398
Total Switched Access Lines (000)			47,911		51,032
Unbundled Loops (000)			1,640		1,526
DSL Lines in Service (000)			7,774		5,968
Net DSL Line Additions (000)	342	360	853		864
Video Subscribers (000)2			533		404
Net Video Subscriber Additions (000)2	42	10	76		81
Cingular Wireless5, 6
Wireless Voice Customers (000)			57,308		51,442
Net Customer Additions (000)	1,498	952	3,177		2,319
M&A Activity, Partitioned Customers and Other Adjs.	-	140	(13	)	(9	)
POPs (000,000)			296		294

¹  In-region represents access lines served by AT&T's incumbent local exchange companies.

²  Video Subscribers include sales under agency agreement with EchoStar.

³  Wholesale lines at 6-30-06 include approximately 1.39 million lines purchased by AT&T Corp.

⁴  Coin includes both retail and wholesale access lines.

⁵  Amounts represent 100% of the results from Cingular Wireless.

⁶  Prior year amounts restated to conform to current period reporting methodology.

Non-GAAP Financial Data

AT&T Inc.

Supplemental Consolidated Income Statements

Dollars in millions

Unaudited

Three Months Ended     Six Months Ended

	6/30/06		6/30/05		% C	hg	6/30/06		6/30/05		% C	hg
Total Operating Revenues	$ 24,663		$ 18,721		31	.7%	$ 49,056		$ 37,002		32	.6%
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	10,409		7,719		34	.8%	20,802		15,364		35	.4%
Selling, general and administrative	6,549		5,542		18	.2%	13,379		11,008		21	.5%
Depreciation and amortization	4,084		3,438		18	.8%	8,256		6,938		19	.0%
Total Operating Expenses	21,042		16,699		26	.0%	42,437		33,310		27	.4%
Operating Income	3,621		2,022		79	.1%	6,619		3,692		79	.3%
Interest Expense	695		586		18	.6%	1,389		1,186		17	.1%
Interest Income	23		29		-20	.7%	45		65		-30	.8%
Minority Interest	(358	)	(111	)		-	(550	)	(40	)		-
Equity in Net Income of Affiliates	131		94		39	.4%	253		182		39	.0%
Other Income (Expense) - Net	19		50		-62	.0%	36		99		-63	.6%
Income Before Income Taxes	2,741		1,498		83	.0%	5,014		2,812		78	.3%
Income Taxes	933		498		87	.3%	1,761		927		90	.0%
Net Income	$   1,808		$   1,000		80	.8%	$   3,253		$   1,885		72	.6%

As required by GAAP rules for joint ventures, AT&T reflects Cingular’s results in the Equity in Net Income of Affiliates line of its Consolidated Statements of Income rather than in revenues and expenses. To facilitate peer comparisons, and in recognition of AT&T's majority economic ownership of the nation’s largest wireless provider and Cingular’s increased significance to AT&T’s overall operations, AT&T provides a supplemental consolidated income statement that includes full consolidation of Cingular’s operating results. This supplemental information also includes reconciliations to AT&T's Consolidated Statements of Income on the following page.

Certain amounts in prior-period supplemental financial information have been reclassified to conform to the current period's presentation.

Non-GAAP Financial Data Reconciliation

AT&T Inc.

Supplemental Consolidated Income Statements

For the Three Months Ended 6/30/06
Dollars in millions

Unaudited Reported Non-GAAP

	AT&T		Cingular		Consolidat Adjustme	ing nts	Supplem Consolid	ental ated
Total Operating Revenues	$ 15,810		$ 9,218		$(365	)	$ 24,663
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	6,928		3,846		(365	)	10,409
Selling, general and administrative	3,792		2,757		-		6,549
Depreciation and amortization	2,486		1,598		-		4,084
Total Operating Expenses	13,206		8,201		(365	)	21,042
Operating Income	2,604		1,017		-		3,621
Interest Expense	472		298		(75	)	695
Interest Income	95		3		(75	)	23
Minority Interest	(1	)	(43	)	(314	)	(358	)
Equity in Net Income of Affiliates	455		-		(324	)	131
Other Income (Expense) - Net	16		3		-		19
Income Before Income Taxes	2,697		682		(638	)	2,741
Income Taxes	889		142		(98	)	933
Net Income	$   1,808		$    540		$(540	)	$   1,808

For the Three Months Ended 6/30/05
Dollars in millions

Unaudited Reported Non-GAAP

	AT&T		Cingular		Consolidat Adjustme	ing nts	Supplem Consolid	ental ated
Total Operating Revenues	$ 10,317		$ 8,609		$(205	)	$ 18,721
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	4,401		3,523		(205	)	7,719
Selling, general and administrative	2,589		2,953		-		5,542
Depreciation and amortization	1,809		1,629		-		3,438
Total Operating Expenses	8,799		8,105		(205	)	16,699
Operating Income	1,518		504		-		2,022
Interest Expense	349		326		(89	)	586
Interest Income	100		18		(89	)	29
Minority Interest	(1	)	(41	)	(69	)	(111	)
Equity in Net Income of Affiliates	181		1		(88	)	94
Other Income (Expense) - Net	35		15		-		50
Income Before Income Taxes	1,484		171		(157	)	1,498
Income Taxes	484		24		(10	)	498
Net Income	$   1,000		$    147		$(147	)	$   1,000

Non-GAAP Financial Data Reconciliation

AT&T Inc.

Supplemental Consolidated Income Statements

For the Six Months Ended 6/30/06
Dollars in millions

Unaudited Reported Non-GAAP

	AT&T		Cingular		Consolidat Adjustme	ing nts	Supplem Consolid	ental ated
Total Operating Revenues	$ 31,605		$ 18,198		$  (747	)	$ 49,056
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	14,056		7,493		(747	)	20,802
Selling, general and administrative	7,776		5,603		-		13,379
Depreciation and amortization	4,978		3,278		-		8,256
Total Operating Expenses	26,810		16,374		(747	)	42,437
Operating Income	4,795		1,824		-		6,619
Interest Expense	936		595		(142	)	1,389
Interest Income	180		7		(142	)	45
Minority Interest	(2	)	(84	)	(464	)	(550	)
Equity in Net Income of Affiliates	789		-		(536	)	253
Other Income (Expense) - Net	28		8		-		36
Income Before Income Taxes	4,854		1,160		(1,000	)	5,014
Income Taxes	1,601		266		(106	)	1,761
Net Income	$   3,253		$      894		$  (894	)	$   3,253

For the Six Months Ended 6/30/05
Dollars in millions

Unaudited Reported Non-GAAP

	AT&T		Cingular		Consolidat Adjustme	ing nts	Supplem Consolid	ental ated
Total Operating Revenues	$ 20,551		$ 16,838		$(387	)	$ 37,002
Operating Expenses
Cost of sales (exclusive of depreciation
and amortization shown separately below)	8,789		6,962		(387	)	15,364
Selling, general and administrative	5,054		5,954		-		11,008
Depreciation and amortization	3,634		3,304		-		6,938
Total Operating Expenses	17,477		16,220		(387	)	33,310
Operating Income	3,074		618		-		3,692
Interest Expense	702		664		(180	)	1,186
Interest Income	209		36		(180	)	65
Minority Interest	(1	)	(57	)	18		(40	)
Equity in Net Income of Affiliates	123		3		56		182
Other Income (Expense) - Net	82		17		-		99
Income (Loss) Before Income Taxes	2,785		(47	)	74		2,812
Income Taxes	900		46		(19	)	927
Net Income (Loss)	$   1,885		$     (93	)	$   93		$   1,885