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AT&T Quarterly Earnings - 2Q 2008
 

AT&T Quarterly Earnings - 2Q 2008

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    AT&T Quarterly Earnings - 2Q 2008 AT&T Quarterly Earnings - 2Q 2008 Document Transcript

    • InvestorBriefing No. 261 | July 23, 2008 2nd QUARTER 2008 AT&T Delivers Solid Second-Quarter Results Highlighted by Strong Wireless Growth, Double-Digit Increase in IP Data Revenues, Further Ramp in AT&T U-verse TV Subscribers AT&T Inc. reported solid second-quarter results highlighted by Results include continued strong wireless growth, double-digit gains in revenues from solid earnings growth, IP-based data services, and further expansion of consolidated progress on major margins. Second-quarter highlights include the following: growth initiatives and substantial value returned • otal wireless revenues increased 15.8 percent versus the year-earlier quarter, T driven by solid subscriber gains and 52.0 percent growth in wireless data services to shareowners through such as Internet access, e-mail, messaging, data access and media bundles. dividends and • T&T’s second-quarter net gain in total wireless subscribers exceeded A 1.3 million, with continued strong gross add flow share and a reduction share repurchases. in retail postpaid churn to 1.1 percent in the second quarter, the lowest level in the company’s history. • T&T further advanced the significant improvement in wholesale customer A revenue trends it has achieved over the past year. Total wholesale revenues were $3.5 billion, down just 0.2 percent versus the year-earlier quarter. This represents a major step up from a year-over-year decline of 8.3 percent in the second quarter of 2007 and marks the company’s second consecutive quarter of sequential revenue growth in this category. This growth reflects solid demand from wireless carriers, Internet service providers, content providers and other customers. Second-Quarter EPS Reconciliation 2Q08 2Q07 Reported EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.63 $0.47 Adjustments to results: Merger integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03 Noncash merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.13 0.20 Adjusted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.76 $0.70 Pretax adjustments to earnings: in 2Q07, merger integration, noncash intangible amortization and a directory-related purchase accounting effect totaling $2,164 million; in 2Q08, noncash intangible amortization totaling $1,169 million.
    • 2 InvestorBriefing | 2Q 2008 Page TWO Page THREE 3.6 percent compared with second-quarter AT&T ADJUSTED CONSOLIDATED REVENUES 2007 pro forma revenues, which exclude Dollars in billions merger-related accounting impacts on AT&T ADJUSTED OPERATING INCOME MA $30.9 Continued strength $30.7 directory revenues. $30.4 in wireless and $30.3 These increases were driven by strong 24 improvements in $29.8 double-digit growth rates in wireless, stable wholesale contributed 24.0% 23.9% wireline business revenues and improved 23.7% to AT&T’s consolidated growth rates in wholesale. In the second revenue growth in quarter, revenues from wireless and sales the second quarter. to business and wholesale customers represented 80.4 percent of AT&T’s total consolidated revenues. Compared with results for the year-earlier quarter, AT&T’s reported operating expenses 2Q07 3Q07 4Q07 1Q08 2Q08 for the second quarter of 2008 were Revenues for 2007 are adjusted to exclude merger-related directory 2Q07 3Q07 4Q07 1Q $24.3 billion, down from $24.5 billion; 18.1% accounting impacts. Reported 16.8% 17.6% 19 reported operating income was $6.6 billion, Merger integration and amortization costs and ot up from $4.9 billion; and AT&T’s reported • nterprise business revenue trends E are excluded from adjusted operating income ma operating income margin was 21.3 percent, continue to be solid, led by strong up from 16.8 percent. double-digit growth in IP-based data AT&T’s reported second-quarter 2008 services such as virtual private networking net income totaled $3.8 billion, up from (VPN) and managed Internet services. $2.9 billion in the year-earlier quarter, Enterprise fundamentals in terms of and reported earnings per diluted share closed sales, a strong sales funnel and totaled $0.63, up from $0.47 in the new service adoption remain solid. second quarter of 2007. AT&T expects to deliver positive growth in total enterprise revenues for the ADJUSTED RESULTS full year 2008. AT&T’s adjusted results for the second quarter • T&T U-verseSM TV, the company’s next- A of 2008 exclude noncash merger-related generation IP-based video service, amortization expenses. For the second continued its strong ramp during the quarter of 2007, adjusted results excluded second quarter, with a net subscriber merger integration costs, noncash merger- gain of 170,000 to reach 549,000 in related amortization expenses and a service. U-verse network deployment merger-related directory accounting effect. is on schedule, install times continue to Compared with results for the year-earlier decline and the attach rates for broadband quarter, AT&T’s adjusted operating expenses service continue to be high. The company for the second quarter of 2008 totaled is on a trajectory to reach its target of $23.1 billion, versus $22.7 billion; adjusted more than 1 million AT&T U-verse TV operating income was $7.7 billion, up from subscribers by year-end 2008. $7.1 billion; and AT&T’s adjusted operating REPORTED RESULTS income margin was 25.1 percent, up from 23.9 percent. This margin expansion reflects For the quarter ended June 30, 2008, revenue growth along with benefits from AT&T’s consolidated revenues totaled merger synergies and other productivity $30.9 billion, up 4.7 percent versus reported initiatives. results in the year-earlier quarter and up
    • 3 InvestorBriefing | 2Q 2008 Page THREE STRONG BALANCE SHEET AT&T ADJUSTED OPERATING INCOME MARGIN 30.9 AT&T’s balance sheet continues to be strong. Solid revenue growth 25.1% At the end of the second quarter, AT&T’s and progress 24.6% long-term debt was $63.7 billion and on productivity total debt was $80.1 billion. Cash and cash 24.0% 23.9% initiatives combined 23.7% equivalents at the end of the quarter to expand AT&T’s totaled $1.6 billion. AT&T’s second-quarter adjusted consolidated debt-to-total-capitalization ratio was operating income 41.7 percent and the company’s annualized margin in the debt-to-EBITDA was 1.7. second quarter. ADDITIONAL BACKGROUND ON ADJUSTED AND PRO FORMA RESULTS Q08 AT&T’s adjusted earnings for the second ctory 2Q07 3Q07 4Q07 1Q08 2Q08 quarter of 2008 exclude noncash, pretax Reported 16.8% 17.6% 18.1% 19.5% 21.3% amortization costs related to acquisitions Merger integration and amortization costs and other one-time items are excluded from adjusted operating income margins. totaling $1.2 billion, or $0.13 per diluted share. Adjusted results for the second AT&T’s adjusted second-quarter 2008 quarter of 2007 excluded: (1) pretax cash net income totaled $4.5 billion, up from merger-related integration costs totaling $4.3 billion in the year-earlier quarter, and $324 million, or $0.03 per diluted share; adjusted earnings per diluted share totaled (2) noncash, pretax merger-related costs $0.76, up from $0.70 in the second quarter totaling $1.7 billion, or $0.18 per diluted of 2007. share; and (3) a merger-related directory accounting impact of $187 million, or CASH FROM OPERATIONS, $0.02 per diluted share. SHARE REPURCHASES Advertising & Publishing results for 2007 AT&T’s cash from operating activities for the were affected by accounting adjustments second quarter of 2008 totaled $8.5 billion, following AT&T’s late-2006 acquisition of capital expenditures totaled $5.3 billion, and BellSouth. In accordance with purchase free cash flow (cash from operations minus accounting rules, deferred revenues and capital expenditures) totaled $3.2 billion. expenses for all BellSouth directories Year to date through the first half of 2008, delivered prior to the close of the merger cash from operating activities totaled were eliminated from 2007 consolidated $13.5 billion, capital expenditures totaled results. This elimination of amortizations $9.6 billion, and free cash flow totaled reduced second-quarter 2007 consolidated $3.9 billion. revenues by $306 million and consolidated As it invests in the future of its business, operating expenses by $119 million. AT&T continues to return substantial value AT&T manages its print directory business to shareowners through dividends and using amortized results. As a result, 2007 share repurchases. Dividends paid totaled amortized results are shown in the $2.4 billion in the second quarter and Advertising & Publishing segment on $4.8 billion year to date. Shares repurchased AT&T’s Statement of Segment Income. totaled 52.6 million for $2.0 billion in the In 2008, both consolidated and segment second quarter and 164.2 million for results reflect amortization accounting. $6.1 billion through the first half of the year. AT&T ended the second quarter with 5.9 billion shares outstanding.
    • 4 InvestorBriefing | 2Q 2008 Wireless AT&T’s second-quarter AT&T, the U.S. market leader in wireless with 72.9 million subscribers, operates the nation’s largest wireless digital voice and data network, offers the nation’s wireless results were fastest third-generation (3G) network according to data compiled by leading independent wireless research firms, and has the broadest global coverage highlighted by strong of any U.S. provider with roaming available in more than 200 countries. Building on these strengths, in the second quarter AT&T took important double-digit revenue steps to further advance a new era of wireless growth, as it extended its coverage and spectrum depth, expanded its 3G coverage to 300 cities with growth driven by robust plans to expand to nearly 350 by the end of the year, and became the exclusive U.S. network provider for the breakthrough Apple iPhone 3G, increases in wireless which was launched in early July. data services and solid STRONG WIRELESS REVENUE GROWTH AT&T’s total wireless revenues increased 15.8 percent to $12.0 billion in the subscriber gains. second quarter, and wireless service revenues, which exclude handset and accessory sales, grew 14.8 percent to $11.0 billion. Growth was driven by solid subscriber gains and a greater number of customers choosing more advanced smartphones and integrated devices, spurring increased usage of data services such as Internet and data access, e-mail and messaging. Growth trends in ARPU (average monthly revenues per subscriber) also reflect increasing adoption and usage of advanced wireless data services. Total blended wireless service ARPU was $50.60 in the second quarter, in line with results in the year-earlier quarter, with data ARPU up 32.2 percent. Retail postpaid subscriber ARPU was up 3.5 percent versus the year-earlier quarter, with postpaid data ARPU up 36.5 percent. SOLID SUBSCRIBER GAINS WITH REDUCED RETAIL POSTPAID CHURN AT&T’s second-quarter net gain in total wireless subscribers exceeded 1.3 million, down 123,000 versus results in the second quarter of 2007 and up 38,000 compared with the first quarter of this year. AT&T continued its strong record of wireless subscriber flow share with 4.9 million second-quarter gross subscriber additions, up from 4.5 million in the year-earlier quarter. Total average monthly subscriber churn, which includes postpaid, prepaid and reseller subscribers, was 1.6 percent, flat with the year-earlier quarter and down 10 basis points from the first quarter of 2008.
    • USE THESE 5 InvestorBriefing | 2Q 2008 Wireless - Chart ONE Wireless - Chart TW quarter to $2.5 billion. Data now represents AT&T WIRELESS SERVICE REVENUES 22.9 percent of AT&T’s total wireless service AT&T WIRELESS SUBSCRIBERS Dollars in billions revenues, up from 17.3 percent in the AT&T’s wireless In millions $11.0 $10.6 $10.2 second quarter of 2007. $9.9 service revenues $9.5 70.1 Wireless Internet access revenues more grew 14.8 percent in than doubled versus results for the 65.7 year- the second quarter, earlier second quarter, while revenues from reflecting solid 63.7 e-mail, messaging and data access all subscriber gains and delivered greater than 50 percent growth. robust adoption of Text messaging volumes tripled versus totals data services. for the year-earlier quarter, and multimedia message volumes increased more than 170 percent. 2Q07 3Q07 4Q07 1Q08 2Q08 AT&T expects continued2Q07 robust growth in 4Q07 3Q07 wireless data services as more increase in 4Q07 included 1.7 m Subscriber customers Retail postpaid gross adds were in line with through acquisition; 2Q08 increase includes adopt integrated devices that deliver access added via acquisition. totals in the year-earlier quarter at 2.8 million, to a broad array of applications and and retail postpaid net adds totaled 894,000, content. At the end of the second quarter, down 2.0 percent versus the year-earlier approximately 18 percent of AT&T’s postpaid second quarter and up 26.8 percent from wireless subscribers had an integrated results in the first quarter of this year. device, up from 8 percent one year earlier. This sequential postpaid improvement was On average, these subscribers have ARPUs achieved despite reduced iPhone sales roughly double the company average. ahead of the early July iPhone 3G launch. Adoption of 3G-compatible devices is Retail postpaid churn moved down to also a key to driving wireless data growth. 1.1 percent in the second quarter, the At the end of the second quarter, lowest level in the company’s history. approximately 13 million AT&T customers had 3G devices. AT&T’s broad 3G network ROBUST GROWTH IN now includes 300 U.S. metro olitan areas, p WIRELESS DATA SERVICES and the company expects to deliver 3G AT&T’s wireless data revenues continued services to nearly 350 U.S. markets by the Wireless - Chart TH their rapid expansion in the second quarter, Wireless - Chart TWO end of 2008. AT&T also has started doubling growing 52.0 percent versus the year-earlier the data capacity of its 3G markets, and nearly half of all 3G cell sites will receive AT&T WIRELESS DATA REVENUES AT&T WIRELESS SUBSCRIBERS additional capacity by the endbillions year. Dollars in of the In millions 72.9 AT&T increased its 71.4 OPERATING INCOME GROWTH, 70.1 wireless subscriber $2.0 MARGIN EXPANSION base by more than $1.8 Strong growth in wireless revenues, network 65.7 $1.7 9 million over 63.7 efficiencies and operational improvements the past year. continue to drive strong wireless operating income and margins. On a reported basis, AT&T’s second-quarter wireless operating expenses totaled $9.0 billion, and operating income was $3.1 billion, up 91.0 percent from $1.6 billion 2Q07 3Q07 4Q07 1Q08 2Q08 in the second quarter of 2007. Adjusting for 2Q07 3Q07 4Q07 Subscriber increase in 4Q07 included 1.7 million subscribers added merger integration costs, wireless operating through acquisition; 2Q08 increase includes 182,000 subscribers added via acquisition.
    • 6 InvestorBriefing | 2Q 2008 Wireless - Chart FOU Wireless - Chart THREE AT&T ADJUSTED WIRELESS MARGINS (OIBDA service margin is operating income Operating Income Margin OIBD AT&T WIRELESS DATA REVENUES before depreciation and amortization, Dollars in billions AT&T’s wireless divided by total service revenues.) $2.5 $2.3 data revenues grew 29.9% LEADER IN WIRELESS NETWORKS, 52.0 percent year over $2.0 37. ADVANCED DEVICES24.9% year, driven by $1.8 $1.7 AT&T is creating the next generation of increased usage wireless by advancing network capabilities, of wireless Internet offering breakthrough devices and launching and data access, innovative services. Over the past several messaging and weeks, AT&T: media bundles. • nnounced that it will be the exclusive A U.S. provider of the new Apple iPhone 3G, 2Q07 2Q08 2Q Unadjusted 15.4% 25.5% 35. Results which was launched on July 11. The 2Q07 3Q07 4Q07 1Q08 2Q08 iPhone 3G delivers a home broadband-like Merger integration and intangible amortization c ed from adjusted operating income margins: $983 m speed experience and $529 customers surf integration co when million in 2Q08. Merger expenses totaled $8.4 billion, and operating adjusted OIBDA service margins: $163 million in the Internet, share files and use media- income was $3.6 billion, up 38.9 percent from rich Web applications; business-class $2.6 billion in the second quarter of 2007. capabilities, including e-mail, viewed on AT&T’s reported wireless operating a large, touch-screen device and designed income margin was 25.5 percent, up from to meet the needs of companies of all 15.4 percent in the year-earlier quarter, sizes; and the ability for developers, and its adjusted wireless operating income including AT&T, to create customized margin was 29.9 percent, up from consumer and business applications using 24.9 percent in the year-earlier quarter. the Apple software developer’s kit. AT&T AT&T’s second-quarter wireless OIBDA expects that the iPhone 3G’s attractive service margin was 41.2 percent, up from pricing and rich set of features will spur an unadjusted 35.8 percent and an adjusted subscriber growth and expand adoption Wireless - Chart FOUR 37.5 percent in the year-earlier quarter. of advanced wireless data services. In the first 12 days of sales following launch, AT&T ADJUSTED WIRELESS MARGINS sales of the iPhone 3G were nearly double levels achieved in AT&T’s 2007 iPhone Operating Income Margin OIBDA Service Margin AT&T’s wireless launch. Approximately 40 percent of the 41.2% OIBDA service purchasers were new to AT&T. 2.5 margin expanded 29.9% 370 basis points 37.5% versus adjusted 24.9% results for the second quarter of 2007. 2Q08 2Q07 2Q08 2Q07 Unadjusted 41.2% 15.4% 25.5% 35.8% Results Q08 Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
    • 7 InvestorBriefing | 2Q 2008 • ompleted the deployment of High Speed C • oined with MediaFLO USA Inc. to J Uplink Packet Access (HSUPA) technology introduce AT&T Mobile TV with FLO, across AT&T’s entire 3G wireless broadband a mobile television service featuring network, making AT&T the only U.S. carrier high-quality live programming. The to have fully deployed HSPA technology mobile TV service launched in May 2008 in its 3G network. With the new addition on two new exclusive handsets, the LG of HSUPA technology, AT&T 3G users VuTM and the Samsung AccessTM. AT&T can send large files faster and take full Mobile TV delivers full-length television advantage of the latest interactive content and sporting events from top Internet and business applications. networks, including programming from • aunched free Wi-Fi access for qualifying L leading entertainment brands CBS LaptopConnect customers to more than Mobile, Comedy Central, ESPN Mobile 17,000 Wi-Fi hot spots across the TV, FOX Mobile, MTV, NBC 2GO, NBC United States. Users can access Wi-Fi News2Go and Nickelodeon. at nearly 7,000 participating Starbucks locations plus thousands more AT&T Wi-FiSM locations, including restaurants, airports, hotels and other convenient locations across the United States.
    • 8 InvestorBriefing | 2Q 2008 Wireline Second-quarter results in Second-quarter revenues in AT&T’s wireline segment totaled $17.6 billion versus $18.0 billion in the year-earlier quarter. This reflects strong growth in AT&T’s wired operations IP data services across business and consumer customer categories, largely offsetting expected declines in voice and legacy packet-switched data products. were highlighted by Results were highlighted by a significant step up in wholesale growth rates, stable fundamental trends in regional business and enterprise, and a continued double-digit growth in ramp in AT&T U-verse TV subscribers. AT&T expects further stabilization in overall wireline revenue trends during IP data revenues, a the remainder of 2008 as enterprise delivers growth for the full year, wholesale trends show further improvement and AT&T U-verse services continued turnaround in gain additional scale. Compared with results for the year-earlier quarter, on a reported basis, wholesale, and a further second-quarter wireline operating expenses totaled $14.5 billion versus $14.8 billion; operating income was $3.1 billion versus $3.2 billion; and ramp in AT&T U-verse AT&T’s wireline operating income margin was 17.7 percent, which was unchanged versus the second quarter of 2007. TV subscribers. Adjusted wireline results for the second quarter of 2007 exclude merger- related integration and amortization expenses. Adjusted wireline results for the second quarter of 2008 exclude only merger-related amortization expenses. Compared with results for the year-earlier quarter, second-quarter adjusted wireline operating expenses totaled $14.1 billion, down 0.1 percent; adjusted operating income was $3.5 billion versus $3.9 billion; and AT&T’s adjusted wireline operating income margin was 20.1 percent versus 21.7 percent. On a sequential basis, AT&T’s wireline adjusted operating income increased 5.1 percent and its wireline adjusted operating income margin improved 100 basis points. The following wireline highlights include ongoing shifts in customer categories to reflect AT&T’s management of customer relationships. CONTINUED STRENGTH IN ENTERPRISE Over the past two years, AT&T has delivered a major turnaround in enterprise growth rates, and in the second quarter results were highlighted by an 18.4 percent increase in enterprise IP data revenues, including areas such as VPNs, managed Internet services and hosting. Total enterprise revenues in the second quarter were $4.7 billion, down 1.0 percent versus results for the year-earlier quarter, and enterprise service revenues, which exclude CPE sales, were down 0.1 percent.
    • 9 Wireline InvestorBriefing | 2Q 2008 Wireline quarter, leading industry analyst RATES REVENUES — YE AT&T WHOLESALE GROWTH firm AT&T ENTERPRISE IP DATA REVENUES Gartner, Inc. positioned AT&T in the Leaders 0 Dollars in millions Quadrant of its Managed and Professional $851 AT&T sustained strong -1 Network Service Providers, North America enterprise revenues -2 report. The Gartner Magic Quadrant report $802 in the second quarter, -3 $796 is a guide for midsize businesses and large highlighted by -4 companies to identify and evaluate vendors continued strong -5 $738 that deliver IT services in-6support of connec- double-digit growth $719 (7.0)% tivity and communications infrastructure. in IP-based services. -7 -8 WHOLESALE TURNAROUND (8.3)% (8.5)% -9 AT&T is a leading global provider of Enterprise delivering a full portfolio 4Q07 2Q07 3Q07 wholesale services,service revenue growth (3.0)% (0.7)% 0.4% of network, voice, data and IP solutions to 2007 comparisons are to 2006 pro forma 2Q07 3Q07 4Q07 1Q08 2Q08 carriers, wireless operators, cable the former BellSouth and AT results from providers, systems integrators, Internetacquired operations. from service AT&T expects to deliver positive growth providers and content providers. in total enterprise revenues for the full year Through the first half of 2008, AT&T has 2008. Enterprise fundamentals in terms delivered a substantial turnaround in of closed sales, a strong sales funnel and wholesale revenue trends. Total wholesale new service adoption remain solid, and revenues were $3.5 billion in the second the company expects revenues from major quarter, down just 0.2 percent versus the contracts such as its agreements with Royal year-earlier quarter. This represents a major Dutch Shell and with U.S. government step up from a year-over-year decline of agencies will increase in the second half 8.3 percent in the second quarter of 2007 of the year. and marks the company’s second consecutive AT&T is the premier provider for enterprise quarter of sequential revenue growth in customers, delivering networking services this category. Wireline and solutions to multinational corporations, This improvement reflects solid demand U.S. governmental agencies and regionally from wireless carriers, Internet service based domestic companies. The company providers, content providers and other continues to expand its capabilities through Wireline customers, offsetting expectedTOTAL ENTERPRISE REVENUE AT&T declines in network expansion and enhancement of Wireline local voice. AT&T expects 2 that wholesale service capabilities. During the second revenues will continue to stabilize in the 1 remainder of 2008, as traffic migration involving carriers thatAT&T 0 merged CONNECTIONS IN SER U-VERSE TV nears AT&T WHOLESALE REVENUES — YEAR-OVER-YEAR have GROWTH RATES (0.2 In thousands AT&T’s wholesale completion. In addition, last fall AT&T and (0.2)% 0 -1 revenue growth IBM announced an agreement that calls -1 (1.7)% trends continue for AT&T to become the primary global -2 -2 network management services provider to to improve, with 3 -3 -3 IBM. As a result, AT&T expects to receive the second quarter -4 (3.9)% up to $5 billion of additional revenues of 2008 marking (4.0)% -4 -5 over the five-year term of the agreement, 231 the company’s -6 1Q07 2Q07 3Q07 Enterprise service largely in the wholesale customer category (7.0)% second consecutive revenue growth (3.0)% (0.7)% 0.4% -7 at the outset. These revenues comparisons are to 2006 pro form 2007 are 126 expected quarter of -8 to ramp further in the second half of 2008 results from the former BellSouth and A (8.3)% (8.5)% sequential growth. -9 from acquired operations. 51 and in 2009. 2Q07 3Q07 4Q07 1Q08 2Q08 Enterprise service 2Q07 3Q07 4Q07 1 revenue growth (3.0)% (0.7)% 0.4% 1.5% 2.1% 2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
    • 10 Wireline InvestorBriefing | 2Q 2008 Wireline REGIONAL CONSUMER INITIATIVES AT&T AVERAGE MONTHLY CONSUMER REV AT&T U-VERSE TV CONNECTIONS IN SERVICE Second-quarter regional consumer revenues PER HOUSEHOLD SERVED In thousands continued trends of recent quarters, with 549 AT&T accelerated 2)% $60. growth in revenues from broadband and subscriber growth $59.73 $59.43 AT&T U-verse services in large part offsetting in its advanced $58.91 traditional voice access line pressures. IP-based TV service, 379 Regional consumer revenues totaled with a net gain of $5.6 billion, down 2.1 percent versus the 170,000 subscribers year-earlier quarter and down 0.7 percent 231 in the second quarter. sequentially. In addition to operational trends, these comparisons also reflect 126 a change in AT&T’s relationship with 51 Yahoo!® Inc., which provides portal services 08 to AT&T’s more than 14 million total wireline 2Q07 3Q07 4Q07 1Q0 2Q07 3Q07 4Q07 1Q08 2Q08 1% broadband subscribers. Under the new bine arrangement, AT&T no longer pays monthly enues REGIONAL BUSINESS GROWTH portal fees and receives a reduced level of AT&T’s total regional business customer shared advertising revenues from Yahoo! revenues increased 1.6 percent versus the Regional consumer IP revenues, which year-earlier second quarter to $3.2 billion. combine revenues from broadband and Regional business data revenues grew AT&T U-verse services, grew 19.3 percent 5.2 percent year over year, led by robust versus the year-earlier quarter, and revenues growth in Ethernet services and 13.7 percent per consumer household served increased growth in IP data services, including 4.2 percent. Regional consumer revenue double-digit gains in managed Internet connections (retail voice, high speed Internet and VPN. and video) totaled 48.4 million at the end of AT&T’s broad portfolio of communications the quarter, versus 49.5 million at the end of services for its regional business customers the second quarter of 2007 and 49.3 million includes wireless, broadband Internet access, at the end of the first quarter of 2008. Total business e-mail services, Web hosting, consumer broadband and TV connections unified messaging, remote data storage over the past year increased by 2.2 million. and network security options. At the end of the second quarter, AT&T had AT&T continues to expand these offerings. 14.7 million total broadband connections, up For example, in May, AT&T announced the 1.4 million over the past year and up 46,000 immediate availability of the AT&T U-verse in the second quarter of 2008. .2% platform for highspeed Internet access to AT&T U-verse TV, the company’s next- small businesses in more than 40 U.S. generation IP-based video service, continued markets. AT&T High Speed Internet U-verse its strong ramp during the second quarter, Enabled Business Edition offers download with a net subscriber gain of 170,000 to speeds of up to 10 Mbps, which, depending reach 549,000 in service. U-verse network on the applications needed, can serve up to deployment is on schedule, install times 32 Internet access connections over existing continue to decline, and the attach rates telephone wiring in the customer’s business. for broadband service continue to be high. The company is on a trajectory to reach its Q08 target of more than 1 million AT&T U-verse .1% TV subscribers by year-end 2008. mbine venues
    • 11 Wireline InvestorBriefing | 2Q 2008 several quarters, reflecting the 2004 decision AT&T AVERAGE MONTHLY CONSUMER REVENUES to discontinue proactive marketing in this PER HOUSEHOLD SERVED AT&T’s regional space and AT&T’s strategy of migrating 549 $61.40 consumer ARPU has customers within its regional footprint to its $60.57 $59.73 ramped steadily over regional platforms to deliver better service $59.43 $58.91 and a broader array of service options. the past several National mass markets represented quarters, reflecting 3.9 percent of total wireline revenues in growth in broadband the second quarter and accounted for and TV revenues. 80 percent of AT&T’s year-over-year decline in total wireline revenues. PRODUCT CATEGORIES 2Q07 3Q07 4Q07 1Q08 2Q08 Q08 WIRELINE DATA SERVICES Increasingly, AT&T is focused on developing AT&T’s data revenues, which include results services for consumers that combine and from several customer categories, grew integrate the capabilities of its wireless and 5.1 percent versus results for the year-earlier wired networks. For example, in June, the second quarter to $6.3 billion. company launched AT&T Net Reach, a bundle Data growth was led by a 16.1 percent providing home and on-the-go high speed increase in revenues from IP-based services, Internet services for consumers. Net Reach with continued gains in high speed Internet, includes AT&T High Speed Internet and managed Internet, VPN and hosting services. LaptopConnect services, in addition to Data transport service revenues increased free access to more than 17,000 hot spots 1.1 percent, and packet switched data with AT&T Wi-Fi service. Plus, as part of revenues, which include Frame Relay and the LaptopConnect service, new software ATM services, were down 13.5 percent, automatically detects the strongest available consistent with industry trends. AT&T signal from a nearby network — 3G, In the second quarter, 73.2 percent of EDGE, Wi-Fi or one’s AT&T High Speed AT&T’s data revenues came from retail Internet connection at home — making business and consumer customers. These connecting simple and easy. AT&T Net Reach retail data revenues were up 6.6 percent is available to new and existing residential versus results for the year-earlier quarter. customers who subscribe to AT&T High Speed Internet and AT&T LaptopConnect WIRELINE VOICE SERVICES services. Customers must also opt to AT&T’s second-quarter wireline voice combine their wireless and wireline services revenues, which include retail local voice onto one billing statement. and long distance as well as wholesale voice, totaled $9.8 billion, representing a NATIONAL MASS MARKETS decline of 7.8 percent versus results for Revenues from AT&T’s national mass markets the second quarter of 2007. This comparison category, which includes the remainder of is consistent with results in recent quarters, the former AT&T’s standalone long distance reflecting the industrywide migration of voice and local bundled business, totaled usage from wired to wireless platforms, $680 million in the second quarter, customer transitions to broadband and representing a decline of 31.2 percent VoIP services and increased local voice year over year. Results are as expected competition. and consistent with trends over the past
    • 12 InvestorBriefing | 2Q 2008 Advertising & Publishing AT&T is a leader in local AT&T’s Advertising & Publishing segment offers businesses a full suite of local search options including print and Internet Yellow Pages in addition to Web site search with more than design, search engine marketing and mobile search. AT&T’s Advertising & Publishing operations deliver print directories to more 1,250 print directories than 83 million residences and businesses in 22 states and have a premier online presence nationwide with YELLOWPAGES.COM, which offers consumers and YELLOWPAGES.COM, access to local business information, the latest business listings, city guides, maps and driving directions. Combined, these print and online products receive its fast-growing online approximately 5 billion consumer searches a year for local business information and provide more than 1 million advertisers with valuable sales leads to help search service. their businesses grow. Advertising & Publishing revenue trends reflect migration from print to electronic search, including rapid growth at AT&T’s YELLOWPAGES.COM. Advertising & Publishing’s Internet revenues increased 40.2 percent versus the year-earlier second quarter, and total Advertising & Publishing revenues declined 4.8 percent, in part reflecting revenues lost through the sale of a sales agency business that serves independent telephone companies. That transaction closed early in the second quarter. Compared with reported results in the year-earlier quarter, operating expenses totaled $974 million, down 7.7 percent; operating income totaled $433 million, up 2.4 percent; and the segment’s operating income margin was 30.8 percent, up 220 basis points. Adjusted results for Advertising & Publishing exclude merger-related noncash amortization costs in both quarters. Compared with results in the year-earlier quarter, second-quarter 2008 adjusted operating expenses totaled $781 million, down 2.4 percent; adjusted operating income totaled $626 million, down 7.7 percent; and the segment’s adjusted operating income margin was 44.5 percent, down 140 basis points.
    • 13 InvestorBriefing | 2Q 2008 Other AT&T’s Other segment AT&T’s Other segment includes results from AT&T’s Sterling Commerce operations and AT&T’s customer information services operations, both of which are included includes results from its in segment revenues and operating expenses. Customer information services include operator services and directory assistance. Sterling Commerce is one Sterling Commerce unit, of the world’s largest providers of multi-enterprise collaboration solutions. The company serves the retail, consumer packaged goods, manufacturing, customer information financial services, health care and telecommunications industries. The Other segment also includes AT&T’s proportionate share of results from services and equity Telmex, América Móvil and Telmex Internacional, which are shown in the Equity in Net Income of Affiliates line for this segment. AT&T’s equity interest in each investments in Telmex, company is more than 8 percent. América Móvil is one of the leading providers of telecommunications services América Móvil and in Latin America, with more than 159 million wireless subscribers at the end of the first quarter of 2008 in countries throughout the region, including more Telmex Internacional. than 51 million in Mexico. Telmex is the leading telecommunications company in Mexico. Telmex and its subsidiaries provide a wide range of telecommunications services, data and video transmission, Internet access and integrated telecommunications solutions. Telmex Internacional has telecommunications operations in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. On a reported basis, Other segment income totaled $167 million in the second quarter versus $117 million in the year-earlier quarter. Segment revenues totaled $512 million, compared with $558 million for the second quarter of 2007. Equity in Net Income of Affiliates totaled $209 million, up from $202 million in the year-earlier quarter.
    • 14 InvestorBriefing | 2Q 2008 AT&T Inc. Consolidated Statements of Income (Unaudited) (Dollars in Millions, Except per Share Amounts) Three Months Ended Six Months Ended 6/30/08 6/30/08 6/30/07 % Change 6/30/07 % Change Operating Revenues $10,894 $21,499 Wireless service $ 9,513 14.5% $18,583 15.7% 9,519 19,212 Voice 10,378 -8.3% 20,833 -7.8% 6,054 12,026 Data 5,746 5.4% 11,401 5.5% 1,383 2,781 Directory 1,155 19.7% 2,177 27.7% 3,016 6,092 Other 2,686 12.3% 5,453 11.7% Total Operating Revenues 30,866 61,610 29,478 4.7% 58,447 5.4% Operating Expenses Cost of services and sales (exclusive of depreciation 11,900 23,902 and amortization shown separately below) 11,658 2.1% 23,080 3.6% 7,441 15,300 Selling, general and administrative 7,460 -0.3% 14,727 3.9% 4,958 9,861 Depreciation and amortization 5,416 -8.5% 11,032 -10.6% Total Operating Expenses 24,299 49,063 24,534 -1.0% 48,839 0.5% Operating Income 6,567 12,547 4,944 32.8% 9,608 30.6% Interest Expense 854 1,719 879 -2.8% 1,752 -1.9% Equity in Net Income of Affiliates 212 455 210 1.0% 383 18.8% Other Income (Expense) – Net (43) (10) 127 — 631 — Income Before Income Taxes 5,882 11,273 4,402 33.6% 8,870 27.1% Income Taxes 2,110 4,040 1,498 40.9% 3,118 29.6% Net Income $ 3,772 $ 7,233 $ 2,904 29.9% $ 5,752 25.7% Basic Earnings Per Share $ 0.64 $ 1.21 $ 0.47 36.2% $ 0.93 30.1% Weighted Average Common Shares 5,926 5,962 Outstanding (000,000) 6,145 -3.6% 6,184 -3.6% Diluted Earnings Per Share $ 0.63 $ 1.21 $ 0.47 34.0% $ 0.92 31.5% Weighted Average Common Shares 5,962 5,997 Outstanding with Dilution (000,000) 6,195 -3.8% 6,230 -3.7%
    • 15 InvestorBriefing | 2Q 2008 AT&T Inc. Statements of Segment Income (Unaudited) (Dollars in Millions) Three Months Ended Six Months Ended 6/30/08 6/30/08 6/30/07 % Change 6/30/07 % Change Wireless Segment Operating Revenues $10,951 $21,596 Service $ 9,540 14.8% $18,632 15.9% 1,082 2,262 Equipment 855 26.5% 1,760 28.5% Total Segment Operating Revenues 12,033 23,858 10,395 15.8% 20,392 17.0% Segment Operating Expenses 4,162 8,272 Cost of services and equipment sales 3,941 5.6% 7,611 8.7% 3,361 6,640 Selling, general and administrative 3,040 10.6% 5,953 11.5% 1,446 2,926 Depreciation and amortization 1,810 -20.1% 3,701 -20.9% Total Segment Operating Expenses 8,969 17,838 8,791 2.0% 17,265 3.3% Segment Operating Income 3,064 6,020 1,604 91.0% 3,127 92.5% Equity in Net Income of Affiliates 3 5 17 -82.4% 24 -79.2% Minority Interest (69) (129) (67) -3.0% (115) -12.2% Segment Income $ 2,998 $ 5,896 $ 1,554 92.9% $ 3,036 94.2% Wireline Segment Operating Revenues $ 9,757 $19,676 Voice $10,586 -7.8% $21,263 -7.5% 6,287 12,492 Data 5,980 5.1% 11,842 5.5% 1,564 3,064 Other 1,427 9.6% 2,880 6.4% Total Segment Operating Revenues 17,608 35,232 17,993 -2.1% 35,985 -2.1% Segment Operating Expenses 7,818 15,780 Cost of sales 7,817 — 15,618 1.0% 3,409 6,951 Selling, general and administrative 3,685 -7.5% 7,486 -7.1% 3,269 6,439 Depreciation and amortization 3,301 -1.0% 6,742 -4.5% Total Segment Operating Expenses 14,496 29,170 14,803 -2.1% 29,846 -2.3% Segment Income $ 3,112 $ 6,062 $ 3,190 -2.4% $ 6,139 -1.3% Advertising & Publishing Segment Operating Revenues $ 1,407 $ 2,824 $ 1,478 -4.8% $ 2,921 -3.3% Segment Operating Expenses 439 860 Cost of sales 364 20.6% 797 7.9% 332 698 Selling, general and administrative 428 -22.4% 729 -4.3% 203 415 Depreciation and amortization 263 -22.8% 505 -17.8% Total Segment Operating Expenses 974 1,973 1,055 -7.7% 2,031 -2.9% Segment Income $ 433 $ 851 $ 423 2.4% $ 890 -4.4% Other Segment Operating Revenues $ 512 $ 1,056 $ 558 -8.2% $ 1,096 -3.6% Segment Operating Expenses 554 1,442 643 -13.8% 1,155 24.8% Segment Operating Loss (42) (386) (85) 50.6% (59) — Equity in Net Income of Affiliates 209 450 202 3.5% 374 20.3% Segment Income $ 167 $ 64 $ 117 42.7% $ 315 -79.7%
    • 16 InvestorBriefing | 2Q 2008 AT&T Inc. Consolidated Balance Sheets (Dollars in Millions, Except per Share Amounts) 6/30/08 12/31/07 Assets (Unaudited) Current Assets $ 1,631 Cash and cash equivalents $ 1,970 15,971 Accounts receivable – net of allowances for uncollectibles of $1,303 and $1,364 16,185 1,671 Prepaid expenses 1,524 1,407 Deferred income taxes 2,044 2,545 Other current assets 2,963 Total current assets 23,225 24,686 Property, Plant and Equipment – Net 97,368 95,890 Goodwill 71,528 70,713 Licenses 46,771 37,985 Customer Lists and Relationships – Net 12,568 14,505 Other Intangible Assets – Net 5,844 5,912 Investments in Equity Affiliates 2,838 2,270 Postemployment Benefit 17,898 17,291 Other Assets 6,468 6,392 Total Assets $284,508 $275,644 Liabilities and Stockholders’ Equity Current Liabilities $ 16,472 Debt maturing within one year $ 6,860 18,927 Accounts payable and accrued liabilities 21,399 3,573 Advanced billing and customer deposits 3,571 3,782 Accrued taxes 5,027 2,357 Dividends payable 2,417 Total current liabilities 45,111 39,274 Long-Term Debt 63,675 57,255 Deferred Credits and Other Noncurrent Liabilities 25,136 Deferred income taxes 24,939 24,832 Postemployment benefit obligation 24,011 13,817 Other noncurrent liabilities 14,798 Total deferred credits and other noncurrent liabilities 63,785 63,748 Stockholders’ Equity 6,495 Common shares issued ($1 par value) 6,495 91,647 Capital in excess of par value 91,638 35,719 Retained earnings 33,297 (21,420) Treasury shares (at cost) (15,683) (504) Accumulated other comprehensive loss (380) Total stockholders’ equity 111,937 115,367 Total Liabilities and Stockholders’ Equity $284,508 $275,644
    • 17 InvestorBriefing | 2Q 2008 AT&T Inc. Consolidated Statements of Cash Flows (Unaudited) (Dollars in Millions, Increase (Decrease) in Cash and Cash Equivalents) Six Months Ended 6/30/08 6/30/07 Operating Activities $ 7,233 Net income $ 5,752 Adjustments to reconcile net income to net cash provided by operating activities: 9,861 Depreciation and amortization 11,032 (415) Undistributed earnings from investments in equity affiliates (344) 860 Provision for uncollectible accounts 738 1,384 Deferred income tax expense (benefit) (546) (27) Net gain on sales of investments (64) — Gain on license exchange (409) Changes in operating assets and liabilities: (776) Accounts receivable 87 274 Other current assets (665) (5,117) Accounts payable and accrued liabilities (287) (14) Stock-based compensation tax benefit (107) 242 Other – net (108) Total adjustments 6,272 9,327 Net Cash Provided by Operating Activities 13,505 15,079 Investing Activities Construction and capital expenditures (9,320) Capital expenditures (7,460) (257) Interest during construction (78) (10,087) Acquisitions, net of cash acquired (221) 623 Dispositions 520 (73) Proceeds from sale of securities, net of investments 509 41 Other 17 Net Cash Used in Investing Activities (19,073) (6,713) Financing Activities 6,590 Net change in short-term borrowings with original maturities of three months or less (1,993) 10,924 Issuance of long-term debt 5,924 (1,605) Repayment of long-term debt (2,065) (6,077) Purchase of treasury shares (6,904) 310 Issuance of treasury shares 1,252 (4,802) Dividends paid (4,414) 14 Stock-based compensation tax benefit 107 (125) Other (121) Net Cash Provided by (Used in) Financing Activities 5,229 (8,214) (339) Net increase (decrease) in cash and cash equivalents 152 1,970 Cash and cash equivalents beginning of year 2,418 Cash and Cash Equivalents End of Period $ 1,631 $ 2,570
    • 18 InvestorBriefing | 2Q 2008 AT&T Inc. Supplementary Operating and Financial Data (Unaudited) (Dollars in Millions, Except per Share Amounts) Three Months Ended Six Months Ended 6/30/08 6/30/08 6/30/07 % Change 6/30/07 % Change Wireless 72,882 Wireless Customers (000) 63,673 14.5% 1,333 2,628 Net Customer Additions (000) 1,456 -8.4% 2,647 -0.7% 182 202 M&A Activity, Partitioned Customers and Other Adjs. (000) — — 64 — 57,043 Postpaid Customers (000) 51,488 10.8% 894 1,599 Net Postpaid Customer Additions (000) 912 -2.0% 1,592 0.4% 1.1% 1.2% Postpaid Churn 1.2% -10 BP 1.3% -10 BP 304 Licensed POPs (000,000) 299 1.7% In-Region Wireline1 Total Consumer Revenue Connections (000)8 29,349 Retail Consumer Primary Switched/VoIP connections2 32,124 -8.6% 3,703 Retail Consumer Additional Switched/VoIP connections2 4,232 -12.5% 12,581 Consumer Broadband Connections3 11,260 11.7% Video Connections:4 2,235 Satellite Connections 1,846 21.1% 549 U-verse Video Connections 51 — 48,417 Total Consumer Revenue Connections (000) 49,513 -2.2% (923) (1,021) Net Consumer Revenue Connection Changes (000) 248 — 652 — Switched Access Lines (000) 8 29,319 Retail Consumer – Primary 32,124 -8.7% 3,701 Retail Consumer – Additional 4,232 -12.5% 22,428 Retail Business 23,144 -3.1% 55,448 Retail 59,500 -6.8% 3,248 Wholesale5 4,283 -24.2% 164 Coin6 295 -44.4% 58,860 Total Switched Access Lines (000) 64,078 -8.1% (1,555) (2,722) Net Switched Access Line Changes (000) (1,351) -15.1% (2,391) -13.8% 14,693 Total Broadband Connections (000)3,8 13,261 10.8% 46 537 Net Broadband Connection Changes (000)3,8 400 -88.5% 1,091 -50.8% 2,784 Total Video Connections (000)4 1,897 46.8% 173 437 Net Video Connection Changes (000)4 200 -13.5% 387 12.9% AT&T Inc. Construction and capital expenditures $ 5,142 $ 9,320 Captial expenditures $ 4,122 24.7% $ 7,460 24.9% $ 187 $ 257 Interest during construction $ 43 — $ 78 — $0.4000 $ 0.8000 Dividends Declared per Share $0.3550 12.7% $ 0.7100 12.7% 5,892 End of Period Common Shares Outstanding (000,000) 6,107 -3.5% 41.7% Debt Ratio7 35.6% 610 BP 307,550 Total Employees 301,840 1.9% In-region wireline represents access lines served by AT&T’s incumbent local exchange companies. 1 Primarily switched access lines. Also includes VoIP. 2 Broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband. 3 Video connections include sales under agency agreements with EchoStar and DirecTV customers and U-verse connections. 4 Wholesale lines include 0.2 million lines purchased by AT&T Corp. at 06/30/08 and 0.6 million at 06/30/07. 5 Coin includes both retail and wholesale access lines. 6 Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders’ equity. 7 Prior year amounts restated to conform to current period reporting methodology. 8
    • 19 InvestorBriefing | 2Q 2008 AT&T InvestorBriefing Third-Quarter 2008 Earnings Date: Oct. 22, 2008 The AT&T InvestorBriefing is published AT&T will release third-quarter 2008 earnings on Oct. 22, 2008, before the market opens. by the Investor Relations staff of AT&T Inc. Requests for further The company’s InvestorBriefing and related earnings materials will be available on information may be directed to one of the Investor Relations managers the AT&T Web site at www.att.com/investor.relations by 8 a.m. Eastern time. by phone at 210-351-3327 or by fax at 210-351-2071. AT&T will also host a conference call to discuss the results at 10 a.m. Eastern time the same day. Dial-in and replay information will be announced on First Call approximately Correspondence should be sent to: eight weeks before the call, which will also be broadcast live and will be available for Investor Relations AT&T Inc. replay over the Internet at www.att.com/investor.relations. Whitacre Tower 175 E. Houston, Room 8-A-60 San Antonio, TX 78205 Cautionary Language Concerning Forward-Looking Statements E-mail address: investr@att.com Information set forth in this InvestorBriefing contains financial estimates and other Senior Vice President- forward-looking statements that are subject to risks and uncertainties, and actual Investor Relations results may differ materially. A discussion of factors that may affect future results Brooks McCorcle is contained in AT&T’s filings with the Securities and Exchange Commission. Investor Relations Staff AT&T disclaims any obligation to update or revise statements contained in this Ray Carpenter Kim Main InvestorBriefing based on new information or otherwise. Kris Cartagena Shelly Mathews Rosa Escobedo Jerrell Ross This InvestorBriefing may contain certain non-GAAP financial measures. Reconciliations Kent Evans Damon Smith between the non-GAAP financial measures and the GAAP financial measures are Jeff Fancher Blake Steward available on the company’s Web site at www.att.com/investor.relations. Jerry Healy Chris Womack