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FORM 10-Q



United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

or

|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from      to

Commission File Number 1-8610

SBC COMMUNICATIONS INC.

Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883

175 E. Houston, San Antonio, Texas 78205
Telephone Number: (210) 821-4105

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X  No     

At June 30, 2002, 3,325,083,647 common shares were outstanding.





PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

SBC COMMUNCIATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
  Three months ended
June 30, 		  Six months ended
June 30,
    2002   2001   2002   2001
Operating Revenues                
Voice $ 6,282 $ 6,800 $ 12,635 $ 13,485
Data   2,425   2,420   4,816   4,769
Wireless subscriber   -   62   -   116
Long-distance voice   588   628   1,179   1,290
Directory advertising   1,067   947   1,772   1,777
Other   481   620   963   1,230
Total operating revenues   10,843   11,477   21,365   22,667
Operating Expenses                
Operations and support   6,430   6,226   12,510   12,309
Depreciation and amortization   2,156   2,174   4,292   4,622
Total operating expenses   8,586   8,400   16,802   16,931
Operating Income   2,257   3,077   4,563   5,736
Other Income (Expense)                
Interest expense   (340)   (425)   (690)   (884)
Interest income   148   193   290   371
Equity in net income of affiliates   450   541   887   942
Other income (expense) - net   210   (164)   225   (58)
Total other income (expense)   468   145   712   371
Income Before Income Taxes   2,725   3,222   5,275   6,107
Income taxes   880   1,143   1,720   2,164
Income Before Extraordinary Item and
    Cumulative Effect of Accounting Change 		  1,845   2,079   3,555   3,943
Extraordinary item, net of tax   -   (8)   -   (18)
Cumulative effect of accounting change, net of tax   -   -   (1,810)   -
Net Income $ 1,845 $ 2,071 $ 1,745 $ 3,925
Earnings Per Common Share:                
Income Before Extraordinary Item and
    Cumulative Effect of Accounting Change 		$ 0.55 $ 0.62 $ 1.06 $ 1.17
Net Income $ 0.55 $ 0.62 $ 0.52 $ 1.16
Earnings Per Common Share-Assuming Dilution:                
Income Before Extraordinary Item and
    Cumulative Effect of Accounting Change 		$ 0.55 $ 0.61 $ 1.06 $ 1.16
Net Income $ 0.55 $ 0.61 $ 0.52 $ 1.15
Weighted Average Number of Common Shares Outstanding (in millions)   3,333   3,367   3,340   3,372
Dividends Declared Per Common Share $ 0.27 $ 0.25625 $ 0.54 $ 0.5125
See Notes to Consolidated Financial Statements.
SBC COMMUNCIATIONS INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
    June 30,
2002 		  December 31,
2001
Assets   (Unaudited)    
Current Assets        
Cash and cash equivalents $ 543 $ 703
Accounts receivable - net of allowances for uncollectibles of $1,415 and $1,254   8,475   9,376
Receivable from Bell Canada   917   -
Prepaid expenses   837   932
Deferred income taxes   775   713
Other current assets   781   856
Total current assets   12,328   12,580
Property, plant and equipment - at cost   129,982   127,524
   Less: accumulated depreciation and amortization   80,712   77,697
Property, Plant and Equipment - Net   49,270   49,827
Goodwill - Net   1,658   3,577
Investments in Equity Affiliates   9,610   11,967
Notes Receivable From Cingular Wireless   5,905   5,924
Other Assets   15,555   12,447
Total Assets $ 94,326 $ 96,322
Liabilities and Shareowners’ Equity        
Current Liabilities        
Debt maturing within one year $ 7,742 $ 9,033
Accounts payable and accrued liabilities   9,642   11,459
Accrued taxes   2,505   2,598
Dividends payable   896   858
Total current liabilities   20,785   23,948
Long-Term Debt   18,057   17,133
Deferred Credits and Other Noncurrent Liabilities        
Deferred income taxes   9,381   8,578
Postemployment benefit obligation   10,264   9,839
Unamortized investment tax credits   257   274
Other noncurrent liabilities   3,854   4,059
Total deferred credits and other noncurrent liabilities   23,756   22,750
Shareowners’ Equity        
Common shares issued ($1 par value)   3,433   3,433
Capital in excess of par value   11,896   11,992
Retained earnings   22,088   22,138
Treasury shares (at cost)   (4,447)   (3,482)
Accumulated other comprehensive loss   (1,242)   (1,590)
Total shareowners’ equity   31,728   32,491
Total Liabilities and Shareowners’ Equity $ 94,326 $ 96,322
See Notes to Consolidated Financial Statements.


SBC COMMUNCIATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
  Six months ended
June 30,
    2002   2001
Operating Activities        
Net income $ 1,745 $ 3,925
Adjustments to reconcile net income to net cash provided by operating activities:        
    Depreciation and amortization   4,292   4,622
    Undistributed earnings from investments in equity affiliates   (685)   (224)
    Provision for uncollectible accounts   794   575
    Amortization of investment tax credits   (17)   (31)
    Deferred income tax expense   647   648
    Gain on sales of investments   (297)   (224)
    Extraordinary item, net of tax   -   18
    Cumulative effect of accounting change, net of tax   1,810   -
    Changes in operating assets and liabilities:        
        Accounts receivable   107   336
        Other current assets   170   (431)
        Accounts payable and accrued liabilities   (1,886)   (2,003)
    Other - net   (47)   (634)
Total adjustments   4,888   2,652
Net Cash Provided by Operating Activities   6,633   6,577
Investing Activities        
Construction and capital expenditures   (3,496)   (5,744)
Return of investments in affiliates - net   119   1,512
Proceeds from short-term investments   -   510
Dispositions   280   339
Acquisitions   (406)   -
Net Cash Used in Investing Activities   (3,503)   (3,383)
Financing Activities        
Net change in short-term borrowings with original maturities of three months or less   337   (853)
Issuance of other short-term borrowings   4,461   2,688
Repayment of other short-term borrowings   (5,840)   (2,237)
Issuance of long-term debt   993   3,724
Repayment of long-term debt   (352)   (2,415)
Early redemption of corporation-obligated mandatorily redeemable
  preferred securities of subsidiary trusts 		  -   (1,000)
Purchase of treasury shares   (1,223)   (1,465)
Issuance of treasury shares   97   132
Issuance of preferred shares of subsidiaries   -   (60)
Dividends paid   (1,762)   (1,727)
Other   (1)   25
Net Cash Used in Financing Activities   (3,290)   (3,188)
Net increase (decrease) in cash and cash equivalants   (160)   6
Cash and cash equivalents beginning of year   703   643
Cash and Cash Equivalents End of Period $ 543 $ 649
Cash paid during the six months ended June 30 for:        
   Interest $ 801 $ 861
   Income taxes, net of refunds $ 1,120 $ 1,330

See Notes to Consolidated Financial Statements.


SBC COMMUNCIATIONS INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY
Dollars in millions
(Unaudited)
         Six months ended
       June 30, 2002
  Shares   Amount
Common Stock      
Balance at beginning of year 3,433 $ 3,433
Balance at end of period 3,433 $ 3,433
Capital in Excess of Par Value      
Balance at beginning of year   $ 11,992
Issuance of shares     (120)
Other     24
Balance at end of period   $ 11,896
Retained Earnings      
Balance at beginning of year   $ 22,138
Net income ($0.52 per share)     1,745
Dividends to shareowners ($0.54 per share)     (1,799)
Other     4
Balance at end of period   $ 22,088
Treasury Shares      
Balance at beginning of year (79) $ (3,482)
Purchase of shares (35)   (1,223)
Issuance of shares 6   258
Balance at end of period (108) $ (4,447)
Accumulated Other Comprehensive Income, net of tax      
Balance at beginning of year   $ (1,590)
Other comprehensive income (see Note 3)     348
Balance at end of period   $ (1,242)
See Notes to Consolidated Financial Statements.


SELECTED FINANCIAL AND OPERATING DATA

At June 30, or for the six months then ended: 2002   2001  
  Debt ratio 44.8 % 46.4 %
  Network access lines in service (000) 58,255   60,578  
     Wholesale lines (000) 4,400   3,147  
  Access minutes of use (000,000) 135,676   142,738  
  Cingular Wireless customers * (000) 22,183   21,218  
  Number of employees # 186,030   216,600  

*Amounts represent 100% of the customers of Cingular Wireless (Cingular). The 2001 amount also includes the customers of Cellular Communications of Puerto Rico, which was contributed by us to Cingular in September 2001.
# The prior year employee count includes approximately 16,000 employees that became Cingular employees on or before December 31, 2001.

SBC COMMUNICATIONS INC.
JUNE 30, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Basis of Presentation - Throughout this document, SBC Communications Inc. is referred to as “we” or “SBC”. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) that permit reduced disclosure for interim periods. We believe that these consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the interim periods shown. The results for the interim periods are not necessarily indicative of results for the full year. You should read this document in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2001 Annual Report to Shareowners.

  Our subsidiaries and affiliates operate in the communications services industry both domestically and worldwide providing wireline and wireless telecommunications services and equipment as well as directory advertising and publishing services.

  The Consolidated Financial Statements include the accounts of SBC and our majority-owned subsidiaries. All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships, joint ventures, including Cingular Wireless (Cingular), and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign investments accounted for using the equity method are included for periods ended within up to three months of the date of our Consolidated Statements of Income.

  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

  In the second quarter of 2002, we identified a misclassification on our March 31, 2002 Consolidated Balance Sheet of $750 of debt maturing within one year as long-term debt. The $750 of debt matures in February 2003. The amounts are appropriately classified on our June 30, 2002 and December 31, 2001 Consolidated Balance Sheets.

  Revenue Recognition - Revenues and associated expenses related to nonrefundable, up-front activation fees are deferred and recognized over the average customer life of five years. Expenses, though exceeding revenue, are only deferred to the extent of revenue.

  Certain revenues derived from local telephone, long-distance and wireless services are billed monthly in advance and are recognized the following month when services are provided. Other revenues derived from telecommunications services, principally network access, long-distance and wireless airtime usage, are recognized monthly as services are provided.

  We recognize revenues and expenses related to publishing directories on the “issue basis” method of accounting, which recognizes the revenues and expenses at the time the related directory is published. The issue basis method is generally followed in the publishing industry. A change in the timing of the publication of a directory could change the period in which the related revenues and expenses will be recognized. These changes can have a material effect on quarterly revenues.

  In the second quarter of 2002, we began reporting product-based revenue categories. The new categories, voice, data and long-distance voice provide a simpler, clearer presentation of our revenues that is more closely aligned with how we currently manage the business.

  Extraordinary Item - The second quarter of 2001 includes an extraordinary loss of $8 ($14 pre-tax, with taxes of $6) related to the early redemption of $500 of our corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts (TOPrS). The first six months of 2001 includes an extraordinary loss of $18 ($28 pre-tax, with taxes of $10) relating to the early redemption of approximately $1,000 of our TOPrS, leaving none outstanding at December 31, 2001.

  Cumulative Effect of Accounting Change - On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (FAS 142). Adoption of FAS 142 means that we stop amortizing goodwill, and at least annually test the remaining book value of goodwill for impairment. Any future impairments will be recorded in operating expenses.

  During the second quarter of 2002, Cingular completed its analysis of the impact of adopting FAS 142. They determined that an impairment existed. Our portion of Cingular’s impairment was $19, with no income tax effect. As required by FAS 142, we recorded this amount retroactive to January 1, 2002. As a result, we changed our first quarter 2002 net loss from a net loss of $81, or $0.02 per share, to a net loss of $100, or $0.03 per share.

  During the first quarter of 2002, in accordance with FAS 142, we completed our analysis of Sterling Commerce Inc. (Sterling), which is included in our wireline segment. This process included obtaining an independent appraisal of the fair value of Sterling as a whole and of its individual assets. Fair value was determined from the same cash flow forecasts used in December 2001 for the evaluation of Sterling’s carrying value under Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (FAS 121), which was the accounting rule for impairment of goodwill that preceded FAS 142 and was effective through December 31, 2001. The valuation was then benchmarked against other guideline companies; however, because of its diversity in the e-commerce industry, Sterling has no truly comparable public companies. The valuation methodology required by FAS 142 is different than that required by FAS 121, in that it is more likely to result in an impairment because it requires the discounting of forecasted cash flows as compared to the undiscounted cash flow valuation method under FAS 121.

  The allocation of fair values to identifiable tangible and intangible assets resulted in an implied valuation of the goodwill associated with Sterling of $646. This included a reclassification of the previously identified intangible asset of assembled work force into goodwill as required by FAS 142. Comparing this fair value to the carrying value resulted in an impairment of $1,791, with no income tax effect. This impairment is recorded as a cumulative effect of accounting change on the income statement as of January 1, 2002.

  Our international holdings are currently analyzing the value of their goodwill and other unamortizable intangibles under FAS 142. We expect that our international holdings will complete their analysis later in the year. Any FAS 142 impairment resulting from these analyses will be reflected as a cumulative effect of accounting change at January 1, 2002 and will require us to change the first quarter of 2002 results.

  As required by FAS 142, the following table shows our 2001 results, which are presented on a basis comparable to the 2002 results, adjusted to exclude amortization expense related to goodwill and Federal Communications Commission (FCC) wireless licenses. The amortization of these FCC licenses is included in the equity method amortization line since these amounts were recorded by Cingular, a joint venture accounted for under the equity method.

  Three months ended
June 30, 		Six months ended
June 30,
    2002   2001   2002   2001
Income before extraordinary item and
  cumulative effect of accounting change - as reported 		$ 1,845 $ 2,079 $ 3,555 $ 3,943
Add back: Goodwill amortization, net of tax   -   51   -   105
Add back: Equity method amortization, net of tax   -   64   -   127
Income before extraordinary item and
  cumulative effect of accounting change - as adjusted 		$ 1,845 $ 2,194 $ 3,555 $ 4,175

Net income - as reported $ 1,845 $ 2,071 $ 1,745 $ 3,925
Add back: Goodwill amortization, net of tax   -   51   -   105
Add back: Equity method amortization, net of tax   -   64   -   127
Net income - as adjusted $ 1,845 $ 2,186 $ 1,745 $ 4,157

Basic earnings per share:
  Net income - as reported $ 0.55 $ 0.62 $ 0.52 $ 1.16
  Goodwill amortization   -   0.01   -   0.03
  Equity method amortization   -   0.02   -   0.04
  Net income - as adjusted $ 0.55 $ 0.65 $ 0.52 $ 1.23

Diluted earnings per share:
  Net income - as reported $ 0.55 $ 0.61 $ 0.52 $ 1.15
  Goodwill amortization   -