SBC AT&T Inc.

Note: SBC's third-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. EDT on Oct. 20, 2005, at www.sbc.com/investor_relations. -- Earnings per diluted share of $0.38 on a reported basis, $0.47 before merger- and hurricane-related costs at Cingular Wireless -- 19.0 percent consolidated operating income margin, up 250 basis points versus the year-earlier third quarter; 15.5 percent operating income growth -- 528,000 net increase in DSL lines, best-ever quarterly result; 6.5 million lines in service -- 10.1 percent growth in wireline data revenues, driven by strength in broadband and business services -- Sixth consecutive quarter of growth in wireline revenues, with consumer revenues up 3.4 percent and business revenues up 2.3 percent -- Further margin expansion at Cingular Wireless combined with solid customer growth; 52.3 million subscribers at quarter's end -- $3.3 billion cash from operations plus $1.4 billion in cash from Cingular in the third quarter -- Share repurchases of $507 million in the third quarter, with at least an additional $1 billion targeted for the fourth quarter SBC Communications Inc. (NYSE: SBC) today reported strong third-quarter results with expanded margins, robust growth in DSL and data services, and continued merger integration progress at Cingular Wireless, the United States' largest wireless provider, which is 60 percent owned by SBC. SBC's third-quarter earnings totaled $1.2 billion, or $0.38 per diluted share, on a reported basis and $1.5 billion, or $0.47 per diluted share, before merger- and hurricane-related costs at Cingular Wireless. "SBC continues to execute well, and the fundamentals of our business are strong," said Edward E. Whitacre Jr., SBC chairman and chief executive officer. "DSL gains accelerated. Cingular Wireless' results are trending better than we had projected. Productivity initiatives have helped reduce costs and expand margins. And cash from operations continues to be strong, which has allowed us to increase activity in our share repurchase program. "Our results demonstrate excellent focus ahead of our planned merger with AT&T," Whitacre added. "In addition to substantial synergy opportunities, AT&T brings world-class IP networks, advanced product sets and a premier reputation for innovation and quality service. Planning for integration has been thorough. We will be ready to move quickly to deliver a seamless experience for customers as soon as we receive final approvals, which we expect in the fourth quarter." Consolidated Third-Quarter Financial Results Results for the quarter ended Sept. 30, 2005, included: (1) SBC's portion of Cingular Wireless' $637 million of merger integration and noncash intangible amortization costs, which amounted to $0.08 per diluted share; and (2) SBC's portion of Cingular's $96 million in costs associated with Hurricanes Katrina and Rita, which amounted to $0.01 per diluted share. -- On a reported basis, SBC's third-quarter earnings from continuing operations totaled $1.2 billion, or $0.38 per diluted share. -- Excluding the items noted above, SBC's third-quarter earnings from continuing operations would have totaled $1.5 billion, or $0.47 per diluted share. -- These results compare with third-quarter 2004 earnings from continuing operations of $1.2 billion, or $0.38 per diluted share. During the third quarter of 2004, SBC sold its interest in directory operations covering 129 directories in Illinois and northwest Indiana, resulting in an after-tax gain of $827 million, or $0.25 per share. Third-quarter comparisons are based on results from continuing operations, which exclude this gain as well as results from the sold directory business in both periods. SBC's third-quarter 2005 revenues totaled $10.3 billion, up 0.3 percent versus the year-earlier quarter. Wireline revenues totaled $9.4 billion, up 0.4 percent from the third quarter of 2004. The third quarter of 2005 was SBC's sixth consecutive quarter of growth in business, consumer and total wireline revenues. Wireline consumer revenues grew 3.4 percent, and business revenues increased 2.3 percent, partially offset by expected declines in wholesale revenues due to a reduction in UNE-P access lines. Third-quarter 2004 results included a net increase in revenues of approximately $60 million from regulatory and other matters, including a September 2004 California Public Utilities Commission decision on UNE-P rates. Third-quarter 2005 operating expenses totaled $8.4 billion, down 2.7 percent from the third quarter of 2004, reflecting progress with productivity initiatives and force reductions. SBC's total workforce declined by approximately 3,100 in the third quarter and by approximately 8,200 over the first three quarters of 2005. SBC expects its force reduction for the full year to approach 10,000. SBC's third-quarter operating income was $2.0 billion, up 15.5 percent versus the year-earlier quarter, and its operating income margin expanded to 19.0 percent, versus 16.5 percent in the year-earlier quarter. In the second quarter of 2005, SBC's operating income margin was 14.7 percent on a reported basis and 17.0 percent excluding a $236 million charge to terminate agreements with WilTel Communications. Excluding the WilTel charge, SBC has now posted three straight quarters with both year-over-year and sequential margin expansion. SBC generated $3.3 billion in cash from operations in the third quarter and received an additional $1.4 billion in cash from Cingular Wireless. Year to date through the third quarter, SBC generated $8.4 billion in cash from operations and received an additional $2.6 billion in cash from Cingular Wireless. During the third quarter, SBC used $507 million of cash to repurchase 20.8 million of its common shares. SBC expects to buy back at least an additional $1 billion in shares during the fourth quarter of 2005, with continuing repurchases in 2006. Wireline Operational Highlights SBC's third-quarter wireline metrics reflect solid operational progress. DSL -- SBC added 528,000 DSL lines in the third quarter, its best-ever quarterly increase and 31 percent better than its net gain of 402,000 in the third quarter a year ago. Over the past four quarters, SBC has added 1.8 million DSL lines and ended September with 6.5 million in service, No. 1 among U.S. telecommunications providers. DSL/Internet revenues grew 22.8 percent versus the third quarter of 2004 and were up 6.0 percent versus the second quarter of this year. Data Revenues -- Wireline data revenues grew 10.1 percent versus results in the year-earlier quarter to $3.0 billion, driven by DSL/Internet growth, along with solid results in transport and integration services for businesses. SBC ranks No. 1 among its immediate peers in total data revenues. Long Distance -- SBC's total long distance lines increased by 554,000 to 23.3 million in service, up 18.0 percent from the third quarter of 2004, and long distance revenues grew 9.7 percent versus the year-earlier quarter. At the end of the third quarter, 62 percent of SBC's retail consumer lines and 45 percent of its retail business voice lines included long distance service. Consumer Retail Connections -- The third quarter was SBC's fifth straight quarter with a net increase in consumer retail connections -- retail access lines, DSL lines and video subscribers. SBC achieved a net increase in these connections of 306,000 in the quarter and 1.1 million over the past four quarters. Access Lines -- SBC's retail business line base declined by less than 2,000 in the third quarter, compared with a decline of 168,000 in the third quarter a year ago. Consumer retail primary lines declined by 114,000, versus 119,000 in the third quarter of 2004. Additional lines declined by 119,000, versus a decline of 140,000 in the third quarter of 2004. As expected, SBC's switched wholesale line total declined by 556,000 -- versus a decline of 213,000 in the third quarter of 2004 -- due to a 643,000 decline in UNE-P lines. SBC ended the third quarter of 2005 with 50.2 million total switched access lines. Cingular Wireless Results As required by Generally Accepted Accounting Principles (GAAP) for joint ventures, SBC reflects Cingular Wireless' results in the Equity in Net Income of Affiliates line of its Consolidated Statements of Income rather than in consolidated revenues and expenses. Cingular's detailed financial results are shown in SBC's Statements of Segment Income. In the third quarter, Cingular Wireless achieved significant improvement in operating income, reflecting progress across a range of integration initiatives while sustaining solid subscriber growth. During the quarter, gross subscriber additions totaled 4.4 million. Cingular has now posted more than 4 million gross adds in each of the four quarters following its acquisition of AT&T Wireless. Cingular's third-quarter net subscriber gain was 867,000, bringing its total to 52.3 million. Average monthly subscriber churn in the third quarter was 2.3 percent, compared with 2.2 percent in the second quarter of this year and pro forma churn of 3.2 percent for the year-earlier third quarter. Third-quarter churn among Cingular's postpaid subscribers was 2.0 percent, compared with 1.8 percent in the second quarter of 2005. Cingular's churn results reflect school-year seasonal patterns and a relatively high number of contract expirations during the quarter. ("Pro forma" results, which are provided to help compare current and prior-period results, reflect acquisitions and dispositions, including the acquisition of AT&T Wireless, as if they had occurred on Jan. 1, 2003.) Cingular's third-quarter revenues totaled $8.7 billion, up 6.2 percent versus pro forma revenue of $8.2 billion for the third quarter of 2004 and up 1.6 percent versus the second quarter of this year. Cingular's third-quarter reported operating expenses totaled $8.1 billion, essentially unchanged from the second quarter of this year. Reported operating income totaled $657 million, up 30.4 percent from $504 million in the second quarter of this year. Cingular's third-quarter operating expenses included $241 million of direct merger integration costs and $96 million in hurricane-related costs. Excluding these costs, operating income would have totaled $994 million, up 40.4 percent from a comparable $708 million in the preceding quarter. Excluding an additional $396 million of noncash expenses for the amortization of intangibles that were acquired as part of Cingular's merger with AT&T Wireless, third-quarter operating income would have been $1.4 billion, up from a comparable $1.2 billion in the second quarter of 2005. Agreement to Acquire AT&T On June 30, 2005, the shareholders of AT&T Corp. voted to approve the merger agreement with SBC. The planned transaction will combine AT&T's global systems capabilities, business and government customers, and fast-growing Internet Protocol (IP)-based business with SBC's local exchange, broadband and wireless capabilities. The acquisition is subject to approval by regulatory authorities and other customary closing conditions. The companies have cleared regulatory hurdles in 33 states and the District of Columbia. Three states with approval authority remain to be completed. Federal and international reviews are also under way. SBC expects approvals to be completed to allow closing by late 2005. SBC Communications Inc. is a Fortune 50 company whose subsidiaries, operating under the SBC brand, provide a full range of voice, data, networking, e-business, directory publishing and advertising, and related services to businesses, consumers and other telecommunications providers. SBC holds a 60 percent ownership interest in Cingular Wireless, which serves more than 52 million wireless customers. SBC companies provide high-speed DSL Internet access lines to more American consumers than any other provider and are among the nation's leading providers of Internet services. SBC companies also offer satellite TV service. Additional information about SBC and SBC products and services is available at www.sbc.com. Cautionary Language Concerning Forward-Looking Statements Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in SBC's filings with the Securities and Exchange Commission. SBC disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise. This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's Web site at www.sbc.com/investor_relations. -0- *T ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Consolidated Statements of Income Dollars in millions except per share amounts ---------------------------------------------------------------------- Unaudited Three Months Ended -------------------------------- 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Operating Revenues Voice $ 4,929 $ 5,286 -6.8% Data 3,009 2,733 10.1% Long-distance voice 949 865 9.7% Directory advertising 961 948 1.4% Other 472 460 2.6% ------------------------------------- ---------- ---------- ---------- Total Operating Revenues 10,320 10,292 0.3% ------------------------------------- ---------- ---------- ---------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 4,352 4,319 0.8% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 2,203 2,386 -7.7% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 1,803 1,889 -4.6% ------------------------------------- ---------- ---------- ---------- Total Operating Expenses 8,358 8,594 -2.7% ------------------------------------- ---------- ---------- ---------- Operating Income 1,962 1,698 15.5% ------------------------------------- ---------- ---------- ---------- Interest Expense 349 238 46.6% ------------------------------------- ---------- ---------- ---------- Interest Income 82 140 -41.4% ------------------------------------- ---------- ---------- ---------- Equity in Net Income of Affiliates 219 210 4.3% ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - net (70) 45 - ------------------------------------- ---------- ---------- ---------- Income Before Income Taxes 1,844 1,855 -0.6% ------------------------------------- ---------- ---------- ---------- Income Taxes 598 610 -2.0% ---------------------------------------------------------------------- Income From Continuing Operations 1,246 1,245 0.1% ---------------------------------------------------------------------- Income From Discontinued Operations, net of tax - 849 - ---------------------------------------------------------------------- Net Income $ 1,246 $ 2,094 -40.5% ====================================================================== Basic Earnings Per Share: Income from Continuing Operations $ 0.38 $ 0.38 - Net Income $ 0.38 $ 0.63 -39.7% Weighted Average Common Shares Outstanding (000,000) 3,296 3,314 -0.5% Diluted Earnings Per Share: Income from Continuing Operations $ 0.38 $ 0.38 - Net Income $ 0.38 $ 0.63 -39.7% Weighted Average Common Shares Outstanding with Dilution (000,000) 3,306 3,325 -0.6% ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Consolidated Statements of Income Dollars in millions except per share amounts ---------------------------------------------------------------------- Unaudited Nine Months Ended -------------------------------- 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Operating Revenues Voice $ 14,989 $ 15,704 -4.6% Data 8,830 8,107 8.9% Long-distance voice 2,772 2,429 14.1% Directory advertising 2,856 2,869 -0.5% Other 1,449 1,391 4.2% ------------------------------------- ---------- ---------- ---------- Total Operating Revenues 30,896 30,500 1.3% ------------------------------------- ---------- ---------- ---------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 13,176 12,902 2.1% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 7,247 7,244 - ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 5,437 5,700 -4.6% ------------------------------------- ---------- ---------- ---------- Total Operating Expenses 25,860 25,846 0.1% ------------------------------------- ---------- ---------- ---------- Operating Income 5,036 4,654 8.2% ------------------------------------- ---------- ---------- ---------- Interest Expense 1,051 705 49.1% ------------------------------------- ---------- ---------- ---------- Interest Income 291 376 -22.6% ------------------------------------- ---------- ---------- ---------- Equity in Net Income of Affiliates 342 1,171 -70.8% ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - net 11 862 -98.7% ------------------------------------- ---------- ---------- ---------- Income Before Income Taxes 4,629 6,358 -27.2% ------------------------------------- ---------- ---------- ---------- Income Taxes 1,498 2,067 -27.5% ------------------------------------- ---------- ---------- ---------- Income From Continuing Operations 3,131 4,291 -27.0% ------------------------------------- ---------- ---------- ---------- Income From Discontinued Operations, net of tax - 908 - ------------------------------------- ---------- ---------- ---------- Net Income $ 3,131 $ 5,199 -39.8% ====================================================================== Basic Earnings Per Share: Income from Continuing Operations $ 0.95 $ 1.30 -26.9% Net Income $ 0.95 $ 1.57 -39.5% Weighted Average Common Shares Outstanding (000,000) 3,300 3,311 -0.3% Diluted Earnings Per Share: Income from Continuing Operations $ 0.95 $ 1.29 -26.4% Net Income $ 0.95 $ 1.57 -39.5% Weighted Average Common Shares Outstanding with Dilution (000,000) 3,311 3,324 -0.4% ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Statements of Segment Income Dollars in millions ---------------------------------------------------------------------- Unaudited Three Months Ended -------------------------------- Wireline 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Segment Operating Revenues Voice $ 4,929 $ 5,286 -6.8% Data 3,009 2,733 10.1% Long-distance voice 949 865 9.7% Other 465 430 8.1% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Revenues 9,352 9,314 0.4% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of sales 4,098 4,090 0.2% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative Selling 1,531 1,633 -6.2% General and administrative 477 645 -26.0% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 2,008 2,278 -11.9% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 1,775 1,857 -4.4% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 7,881 8,225 -4.2% ------------------------------------- ---------- ---------- ---------- Segment Income $ 1,471 $ 1,089 35.1% ====================================================================== Cingular (a) ---------------------------------------------------------------------- Segment Operating Revenues Service revenues $ 7,721 $ 3,873 - Equipment sales 1,025 419 - ------------------------------------- ---------- ---------- ---------- Total Segment Operating Revenues 8,746 4,292 - ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of services and equipment sales 3,667 1,692 - Selling, general and administrative 2,881 1,567 - Depreciation and amortization 1,541 573 - ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 8,089 3,832 - ------------------------------------- ---------- ---------- ---------- Segment Operating Income 657 460 42.8% ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - Net (331) (318) -4.1% ------------------------------------- ---------- ---------- ---------- Segment Income $ 326 $ 142 - ====================================================================== (a) Results reflect 100% of Cingular Wireless' actual results Directory ---------------------------------------------------------------------- Segment Operating Revenues $ 932 $ 935 -0.3% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of sales 271 251 8.0% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative Selling 64 35 82.9% General and administrative 90 95 -5.3% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 154 130 18.5% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 1 2 -50.0% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 426 383 11.2% ------------------------------------- ---------- ---------- ---------- Segment Operating Income 506 552 -8.3% ------------------------------------- ---------- ---------- ---------- Equity in Net Income (Loss) of Affiliates - - - ------------------------------------- ---------- ---------- ---------- Segment Income $ 506 $ 552 -8.3% ====================================================================== International ---------------------------------------------------------------------- Segment Operating Revenues $ 3 $ 6 -50.0% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses 2 1 - ------------------------------------- ---------- ---------- ---------- Segment Operating Income (Loss) 1 5 -80.0% ------------------------------------- ---------- ---------- ---------- Equity in Net Income of Affiliates 85 112 -24.1% ------------------------------------- ---------- ---------- ---------- Segment Income $ 86 $ 117 -26.5% ====================================================================== ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Statements of Segment Income Dollars in millions ---------------------------------------------------------------------- Unaudited Nine Months Ended -------------------------------- Wireline 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Segment Operating Revenues Voice $ 14,989 $ 15,704 -4.6% Data 8,830 8,107 8.9% Long-distance voice 2,772 2,429 14.1% Other 1,427 1,341 6.4% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Revenues 28,018 27,581 1.6% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of sales 12,418 12,202 1.8% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative Selling 4,774 4,940 -3.4% General and administrative 1,950 1,839 6.0% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 6,724 6,779 -0.8% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 5,355 5,618 -4.7% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 24,497 24,599 -0.4% ------------------------------------- ---------- ---------- ---------- Segment Income $ 3,521 $ 2,982 18.1% ====================================================================== Cingular (a) ---------------------------------------------------------------------- Segment Operating Revenues Service revenues $ 22,859 $ 11,289 - Equipment sales 2,725 1,157 - ------------------------------------- ---------- ---------- ---------- Total Segment Operating Revenues 25,584 12,446 - ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of services and equipment sales 10,629 4,672 - Selling, general and administrative 8,835 4,402 - Depreciation and amortization 4,845 1,691 - ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 24,309 10,765 - ------------------------------------- ---------- ---------- ---------- Segment Operating Income 1,275 1,681 -24.2% ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - Net (996) (981) -1.5% ------------------------------------- ---------- ---------- ---------- Segment Income $ 279 $ 700 -60.1% ====================================================================== (a) Results reflect 100% of Cingular Wireless' actual results Directory ---------------------------------------------------------------------- Segment Operating Revenues $ 2,786 $ 2,806 -0.7% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses Cost of sales 826 764 8.1% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative Selling 192 153 25.5% General and administrative 283 294 -3.7% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 475 447 6.3% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 4 7 -42.9% ------------------------------------- ---------- ---------- ---------- Total Segment Operating Expenses 1,305 1,218 7.1% ------------------------------------- ---------- ---------- ---------- Segment Operating Income 1,481 1,588 -6.7% ------------------------------------- ---------- ---------- ---------- Equity in Net Income (Loss) of Affiliates (1) - - ------------------------------------- ---------- ---------- ---------- Segment Income $ 1,480 $ 1,588 -6.8% ====================================================================== International ---------------------------------------------------------------------- Segment Operating Revenues $ 8 $ 17 -52.9% ------------------------------------- ---------- ---------- ---------- Segment Operating Expenses 13 19 -31.6% ------------------------------------- ---------- ---------- ---------- Segment Operating Income (Loss) (5) (2) - ------------------------------------- ---------- ---------- ---------- Equity in Net Income of Affiliates 247 713 -65.4% ------------------------------------- ---------- ---------- ---------- Segment Income $ 242 $ 711 -66.0% ====================================================================== ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Consolidated Balance Sheets Dollars in millions except per share amounts 09/30/05 12/31/04 ------------------------------------------------ ---------- ---------- Unaudited Assets Current Assets Cash and cash equivalents $ 433 $ 760 Accounts receivable - net of allowances for uncollectibles of $832 and $881 5,229 5,480 Prepaid expenses 1,132 746 Deferred income taxes 555 566 Other current assets 753 989 ------------------------------------------------ ---------- ---------- Total current assets 8,102 8,541 ------------------------------------------------ ---------- ---------- Property, plant and equipment - at cost 138,139 136,177 Less: accumulated depreciation and amortization 89,699 86,131 ------------------------------------------------ ---------- ---------- Property, Plant and Equipment - Net 48,440 50,046 ------------------------------------------------ ---------- ---------- Goodwill 1,723 1,625 Investments in Equity Affiliates 1,828 1,798 Investments in and Advances to Cingular Wireless 31,117 33,687 Other Assets 12,894 13,147 ------------------------------------------------ ---------- ---------- Total Assets $ 104,104 $ 108,844 ====================================================================== Liabilities and Stockholders' Equity Current Liabilities Debt maturing within one year $ 5,386 $ 5,734 Accounts payable and accrued liabilities 9,205 10,038 Accrued taxes 2,645 1,787 Dividends payable 1,060 1,065 Liabilities of discontinued operations - 310 ------------------------------------------------ ---------- ---------- Total current liabilities 18,296 18,934 ------------------------------------------------ ---------- ---------- Long-Term Debt 17,822 21,231 ------------------------------------------------ ---------- ---------- Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 14,941 15,621 Postemployment benefit obligation 9,340 9,076 Unamortized investment tax credits 171 188 Other noncurrent liabilities 3,355 3,290 ------------------------------------------------ ---------- ---------- Total deferred credits and other noncurrent liabilities 27,807 28,175 ------------------------------------------------ ---------- ---------- Stockholders' Equity Common shares issued ($1 par value) 3,433 3,433 Capital in excess of par value 13,001 13,350 Retained earnings 28,742 28,806 Treasury shares (at cost) (4,418) (4,535) Additional minimum pension liability adjustment (190) (190) Accumulated other comprehensive income (389) (360) ------------------------------------------------ ---------- ---------- Total stockholders' equity 40,179 40,504 ------------------------------------------------ ---------- ---------- Total Liabilities and Stockholders' Equity $ 104,104 $ 108,844 ====================================================================== ---------------------------------------------------------------------- Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Consolidated Statements of Cash Flows Dollars in millions, increase (decrease) in cash and cash equivalents ---------------------------------------------------------------------- Unaudited Nine Months Ended 9/30/05 9/30/04 ------------------------------------------------ ---------- ---------- Operating Activities Net income $ 3,131 $ 5,199 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,437 5,700 Undistributed earnings from investments in equity affiliates (285) (856) Provision for uncollectible accounts 561 549 Amortization of investment tax credits (17) (22) Deferred income tax (benefit) expense (315) 1,596 Net gain on sales of investments (104) (900) Income from discontinued operations, net of tax - (908) Retirement benefit funding - (2,232) Changes in operating assets and liabilities: Accounts receivable (309) (75) Other current assets (249) 5 Accounts payable and accrued liabilities 73 (1,104) Stock-based compensation tax benefit (3) (2) Other - net 463 583 ------------------------------------------------ ---------- ---------- Total adjustments 5,252 2,334 ------------------------------------------------ ---------- ---------- Net Cash Provided by Operating Activities 8,383 7,533 ------------------------------------------------ ---------- ---------- Investing Activities Construction and capital expenditures (3,743) (3,462) Receipts from (investments in) affiliates - net 2,603 - Purchases of held-to-maturity securities - (134) Maturities of held-to-maturity securities 98 393 Dispositions 126 5,283 Acquisitions (169) (9) Proceeds from note repayment 37 50 ------------------------------------------------ ---------- ---------- Net Cash (Used in) Provided by Investing Activities (1,048) 2,121 ------------------------------------------------ ---------- ---------- Financing Activities Net change in short-term borrowings with original maturities of three months or less (1,656) (610) Issuance of long-term debt - 1,487 Repayment of long-term debt (2,123) (623) Purchase of treasury shares (742) - Issuance of treasury shares 362 151 Dividends paid (3,196) (3,105) Stock-based compensation tax benefit 3 2 ------------------------------------------------ ---------- ---------- Net Cash Used in Financing Activities (7,352) (2,698) ------------------------------------------------ ---------- ---------- Net increase (decrease) in cash and cash equivalents from continuing operations (17) 6,956 ------------------------------------------------ ---------- ---------- Net increase (decrease) in cash and cash equivalents from discontinued operations (310) 1,528 ------------------------------------------------ ---------- ---------- Net increase (decrease) in cash and cash equivalents (327) 8,484 ------------------------------------------------ ---------- ---------- Cash and cash equivalents beginning of year 760 4,806 ------------------------------------------------ ---------- ---------- Cash and Cash Equivalents End of Period $ 433 $ 13,290 ====================================================================== Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Supplementary Operating Data Dollars in millions except per share amounts ---------------------------------------------------------------------- Unaudited Three Months Ended Nine Months Ended ------------------------------------------- 9/30/05 9/30/04 9/30/05 9/30/04 -------------------------- ---------- ---------- ---------- ---------- Switched Access Lines(000) Retail Consumer - Primary 22,922 23,279 Retail Consumer - Additional 3,989 4,441 Retail Business 17,511 17,626 ---------- ---------- Retail 44,422 45,346 ---------- ---------- UNE-P 4,803 6,782 Resale 620 368 ---------- ---------- Wholesale 5,423 7,150 ---------- ---------- Coin (1) 372 440 ---------- ---------- Total Switched Access Lines(000) 50,217 52,936 ===================== Unbundled Loops(000) 1,598 1,558 Long Distance Lines in Service(000) 23,330 19,763 DSL Lines in Service(000) 6,496 4,679 Net DSL Line Additions(000) 528 402 1,392 1,164 Video Subscribers(000) 419 226 Net Video Subscriber Additions(000) 15 105 95 226 Cingular Wireless (2) Wireless Voice Customers(000) 52,292 25,672 Net Customer Additions(000) 867 657 3,186 1,639 M&A Activity, Partitioned Customers and Other Adjs. (17) (29) (26) 6 POPs(000,000) 294 243 ---------------------------------------------------------------------- (1) Coin includes both retail and wholesale access lines. (2) Amounts represent 100% results of Cingular Wireless. ---------------------------------------------------------------------- Non-GAAP Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements Dollars in millions ---------------------------------------------------------------------- Unaudited Three Months Ended ------------------------------------- ---------- ---------- ---------- 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Total Operating Revenues $ 18,846 $ 14,433 30.6% ------------------------------------- ---------- ---------- ---------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 7,799 5,860 33.1% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 5,084 3,953 28.6% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 3,344 2,461 35.9% ------------------------------------- ---------- ---------- ---------- Total Operating Expenses 16,227 12,274 32.2% ------------------------------------- ---------- ---------- ---------- Operating Income 2,619 2,159 21.3% ------------------------------------- ---------- ---------- ---------- Interest Expense 582 348 67.2% ------------------------------------- ---------- ---------- ---------- Interest Income 19 51 -62.7% ------------------------------------- ---------- ---------- ---------- Minority Interest (168) (78) - ------------------------------------- ---------- ---------- ---------- Equity in Net Income (Loss) of Affiliates 87 27 - ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - Net (68) 44 - ------------------------------------- ---------- ---------- ---------- Income Before Income Taxes 1,907 1,855 2.8% ------------------------------------- ---------- ---------- ---------- Income Taxes 661 610 8.4% ------------------------------------- ---------- ---------- ---------- Income From Continuing Operations 1,246 1,245 0.1% Income From Discontinued Operations, net of tax - 849 - ------------------------------------- ---------- ---------- ---------- Net Income $ 1,246 $ 2,094 -40.5% ====================================================================== ---------------------------------------------------------------------- Non-GAAP Financial Data SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements Dollars in millions ---------------------------------------------------------------------- Unaudited Nine Months Ended -------------------------------- 9/30/05 9/30/04 % Chg ------------------------------------- ---------- ---------- ---------- Total Operating Revenues $ 55,873 $ 42,510 31.4% ------------------------------------- ---------- ---------- ---------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 23,198 17,122 35.5% ------------------------------------- ---------- ---------- ---------- Selling, general and administrative 16,082 11,645 38.1% ------------------------------------- ---------- ---------- ---------- Depreciation and amortization 10,282 7,389 39.2% ------------------------------------- ---------- ---------- ---------- Total Operating Expenses 49,562 36,156 37.1% ------------------------------------- ---------- ---------- ---------- Operating Income 6,311 6,354 -0.7% ------------------------------------- ---------- ---------- ---------- Interest Expense 1,768 1,036 70.7% ------------------------------------- ---------- ---------- ---------- Interest Income 84 113 -25.7% ------------------------------------- ---------- ---------- ---------- Minority Interest (208) (379) 45.1% ------------------------------------- ---------- ---------- ---------- Equity in Net Income (Loss) of Affiliates 269 444 -39.4% ------------------------------------- ---------- ---------- ---------- Other Income (Expense) - Net 31 864 -96.4% ------------------------------------- ---------- ---------- ---------- Income Before Income Taxes 4,719 6,360 -25.8% ------------------------------------- ---------- ---------- ---------- Income Taxes 1,588 2,069 -23.2% ------------------------------------- ---------- ---------- ---------- Income From Continuing Operations 3,131 4,291 -27.0% Income From Discontinued Operations, net of tax - 908 - ------------------------------------- ---------- ---------- ---------- Net Income $ 3,131 $ 5,199 -39.8% ====================================================================== As required by GAAP rules for joint ventures, SBC 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 SBC's majority economic ownership of the nation's largest wireless provider and Cingular's increased significance to SBC's overall operations, SBC provides a supplemental consolidated income statement that includes full consolidation of Cingular's operating results. This supplemental information also includes reconciliations to SBC'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 SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements For the Three Months Ended 9/30/2005 Dollars in millions ---------------------------------------------------------------------- Unaudited Reported -------------------------------------- --------------- --------------- SBC Cingular -------------------------------------- --------------- --------------- Total Operating Revenues $ 10,320 $ 8,746 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 4,352 3,667 -------------------------------------- --------------- --------------- Selling, general and administrative 2,203 2,881 -------------------------------------- --------------- --------------- Depreciation and amortization 1,803 1,541 -------------------------------------- --------------- --------------- Total Operating Expenses 8,358 8,089 -------------------------------------- --------------- --------------- Operating Income 1,962 657 -------------------------------------- --------------- --------------- Interest Expense 349 304 -------------------------------------- --------------- --------------- Interest Income 82 8 -------------------------------------- --------------- --------------- Minority Interest - (38) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates 219 1 -------------------------------------- --------------- --------------- Other Income (Expense) - Net (70) 2 -------------------------------------- --------------- --------------- Income Before Income Taxes 1,844 326 -------------------------------------- --------------- --------------- Income Taxes 598 104 -------------------------------------- --------------- --------------- Net Income $ 1,246 $ 222 ====================================================================== For the Three Months Ended 9/30/2004 Dollars in millions ---------------------------------------------------------------------- Unaudited Reported -------------------------------------- --------------- --------------- SBC Cingular -------------------------------------- --------------- --------------- Total Operating Revenues $ 10,292 $ 4,292 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 4,319 1,692 -------------------------------------- --------------- --------------- Selling, general and administrative 2,386 1,567 -------------------------------------- --------------- --------------- Depreciation and amortization 1,889 573 -------------------------------------- --------------- --------------- Total Operating Expenses 8,594 3,832 -------------------------------------- --------------- --------------- Operating Income 1,698 460 -------------------------------------- --------------- --------------- Interest Expense 238 200 -------------------------------------- --------------- --------------- Interest Income 140 1 -------------------------------------- --------------- --------------- Minority Interest - (20) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates 210 (98) -------------------------------------- --------------- --------------- Other Income (Expense) - Net 45 (1) -------------------------------------- --------------- --------------- Income Before Income Taxes 1,855 142 -------------------------------------- --------------- --------------- Income Taxes 610 - -------------------------------------- --------------- --------------- Income From Continuing Operations 1,245 142 Income From Discontinued Operations, net of tax 849 - -------------------------------------- --------------- --------------- Net Income $ 2,094 $ 142 ====================================================================== ---------------------------------------------------------------------- Non-GAAP Financial Data Reconciliation SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements For the Three Months Ended 9/30/2005 Dollars in millions ---------------------------------------------------------------------- Unaudited Non-GAAP -------------------------------------- --------------- --------------- Consolidating Supplemental Adjustments Consolidated -------------------------------------- --------------- --------------- Total Operating Revenues $ (220) $ 18,846 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) (220) 7,799 -------------------------------------- --------------- --------------- Selling, general and administrative - 5,084 -------------------------------------- --------------- --------------- Depreciation and amortization - 3,344 -------------------------------------- --------------- --------------- Total Operating Expenses (220) 16,227 -------------------------------------- --------------- --------------- Operating Income - 2,619 -------------------------------------- --------------- --------------- Interest Expense (71) 582 -------------------------------------- --------------- --------------- Interest Income (71) 19 -------------------------------------- --------------- --------------- Minority Interest (130) (168) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates (133) 87 -------------------------------------- --------------- --------------- Other Income (Expense) - Net - (68) -------------------------------------- --------------- --------------- Income Before Income Taxes (263) 1,907 -------------------------------------- --------------- --------------- Income Taxes (41) 661 -------------------------------------- --------------- --------------- Net Income $ (222) $ 1,246 ====================================================================== For the Three Months Ended 9/30/2004 Dollars in millions ---------------------------------------------------------------------- Unaudited Non-GAAP -------------------------------------- --------------- --------------- Consolidating Supplemental Adjustments Consolidated -------------------------------------- --------------- --------------- Total Operating Revenues $ (151) $ 14,433 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) (151) 5,860 -------------------------------------- --------------- --------------- Selling, general and administrative - 3,953 -------------------------------------- --------------- --------------- Depreciation and amortization (1) 2,461 -------------------------------------- --------------- --------------- Total Operating Expenses (152) 12,274 -------------------------------------- --------------- --------------- Operating Income 1 2,159 -------------------------------------- --------------- --------------- Interest Expense (90) 348 -------------------------------------- --------------- --------------- Interest Income (90) 51 -------------------------------------- --------------- --------------- Minority Interest (58) (78) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates (85) 27 -------------------------------------- --------------- --------------- Other Income (Expense) - Net - 44 -------------------------------------- --------------- --------------- Income Before Income Taxes (142) 1,855 -------------------------------------- --------------- --------------- Income Taxes - 610 -------------------------------------- --------------- --------------- Income From Continuing Operations (142) 1,245 Income From Discontinued Operations, net of tax - 849 -------------------------------------- --------------- --------------- Net Income $ (142) $ 2,094 ====================================================================== ---------------------------------------------------------------------- Non-GAAP Financial Data Reconciliation SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements For the Nine Months Ended 9/30/2005 Dollars in millions ---------------------------------------------------------------------- Unaudited Reported -------------------------------------- --------------- --------------- SBC Cingular -------------------------------------- --------------- --------------- Total Operating Revenues $ 30,896 $ 25,584 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 13,176 10,629 -------------------------------------- --------------- --------------- Selling, general and administrative 7,247 8,835 -------------------------------------- --------------- --------------- Depreciation and amortization 5,437 4,845 -------------------------------------- --------------- --------------- Total Operating Expenses 25,860 24,309 -------------------------------------- --------------- --------------- Operating Income 5,036 1,275 -------------------------------------- --------------- --------------- Interest Expense 1,051 968 -------------------------------------- --------------- --------------- Interest Income 291 44 -------------------------------------- --------------- --------------- Minority Interest (1) (95) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates 342 4 -------------------------------------- --------------- --------------- Other Income (Expense) - Net 12 19 -------------------------------------- --------------- --------------- Income Before Income Taxes 4,629 279 -------------------------------------- --------------- --------------- Income Taxes 1,498 150 -------------------------------------- --------------- --------------- Net Income $ 3,131 $ 129 ====================================================================== For the Nine Months Ended 9/30/2004 Dollars in millions ---------------------------------------------------------------------- Unaudited Reported -------------------------------------- --------------- --------------- SBC Cingular -------------------------------------- --------------- --------------- Total Operating Revenues $ 30,500 $ 12,446 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) 12,902 4,672 -------------------------------------- --------------- --------------- Selling, general and administrative 7,244 4,402 -------------------------------------- --------------- --------------- Depreciation and amortization 5,700 1,691 -------------------------------------- --------------- --------------- Total Operating Expenses 25,846 10,765 -------------------------------------- --------------- --------------- Operating Income 4,654 1,681 -------------------------------------- --------------- --------------- Interest Expense 705 597 -------------------------------------- --------------- --------------- Interest Income 376 3 -------------------------------------- --------------- --------------- Minority Interest - (88) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates 1,171 (301) -------------------------------------- --------------- --------------- Other Income (Expense) - Net 862 2 -------------------------------------- --------------- --------------- Income Before Income Taxes 6,358 700 -------------------------------------- --------------- --------------- Income Taxes 2,067 4 -------------------------------------- --------------- --------------- Income From Continuing Operations 4,291 696 Income From Discontinued Operations, net of tax 908 - -------------------------------------- --------------- --------------- Net Income $ 5,199 $ 696 ====================================================================== ---------------------------------------------------------------------- Non-GAAP Financial Data Reconciliation SBC Communications Inc. ---------------------------------------------------------------------- Supplemental Consolidated Income Statements For the Nine Months Ended 9/30/2005 Dollars in millions ---------------------------------------------------------------------- Unaudited Non-GAAP -------------------------------------- --------------- --------------- Consolidating Supplemental Adjustments Consolidated -------------------------------------- --------------- --------------- Total Operating Revenues $ (607) $ 55,873 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) (607) 23,198 -------------------------------------- --------------- --------------- Selling, general and administrative - 16,082 -------------------------------------- --------------- --------------- Depreciation and amortization - 10,282 -------------------------------------- --------------- --------------- Total Operating Expenses (607) 49,562 -------------------------------------- --------------- --------------- Operating Income - 6,311 -------------------------------------- --------------- --------------- Interest Expense (251) 1,768 -------------------------------------- --------------- --------------- Interest Income (251) 84 -------------------------------------- --------------- --------------- Minority Interest (112) (208) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates (77) 269 -------------------------------------- --------------- --------------- Other Income (Expense) - Net - 31 -------------------------------------- --------------- --------------- Income Before Income Taxes (189) 4,719 -------------------------------------- --------------- --------------- Income Taxes (60) 1,588 -------------------------------------- --------------- --------------- Net Income $ (129) $ 3,131 ====================================================================== For the Nine Months Ended 9/30/2004 Dollars in millions ---------------------------------------------------------------------- Unaudited Non-GAAP -------------------------------------- --------------- --------------- Consolidating Supplemental Adjustments Consolidated -------------------------------------- --------------- --------------- Total Operating Revenues $ (436) $ 42,510 -------------------------------------- --------------- --------------- Operating Expenses Cost of sales (exclusive of depreciation and amortization shown separately below) (452) 17,122 -------------------------------------- --------------- --------------- Selling, general and administrative (1) 11,645 -------------------------------------- --------------- --------------- Depreciation and amortization (2) 7,389 -------------------------------------- --------------- --------------- Total Operating Expenses (455) 36,156 -------------------------------------- --------------- --------------- Operating Income 19 6,354 -------------------------------------- --------------- --------------- Interest Expense (266) 1,036 -------------------------------------- --------------- --------------- Interest Income (266) 113 -------------------------------------- --------------- --------------- Minority Interest (291) (379) -------------------------------------- --------------- --------------- Equity in Net Income (Loss) of Affiliates (426) 444 -------------------------------------- --------------- --------------- Other Income (Expense) - Net - 864 -------------------------------------- --------------- --------------- Income Before Income Taxes (698) 6,360 -------------------------------------- --------------- --------------- Income Taxes (2) 2,069 -------------------------------------- --------------- --------------- Income From Continuing Operations (696) 4,291 Income From Discontinued Operations, net of tax - 908 -------------------------------------- --------------- --------------- Net Income $ (696) $ 5,199 ====================================================================== *T