// Display of categories with this first letter
$categories = get_categories();
foreach ($categories as $cat) {
    $thecats[strtoupper(substr($cat, 0, 1))] = $cat;
}
if ($thecats) echo '<ul>';
for ($i=65; $i< =90; $i++) {
    $x = chr($i);
    if ($thecats[$x]) {
        echo '<li>' . $x . '<ul>';
        foreach ($thecats[$x] as $c) {
            '<li><a href="' . get_category_link($c->term_id) . '">' . $c->name . '</a></li>';
        }
        echo '</ul></li>';
    }
}
if ($thecats) echo '</ul>';