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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 September 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 September 30, 2002, 3,320,203,438 common shares were outstanding.





PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
  Three months ended
September 30, 		  Nine months ended
September 30,
    2002   2001   2002   2001
Operating Revenues                
Voice $ 6,169 $ 6,670 $ 18,804 $ 20,155
Data   2,441   2,395   7,257   7,164
Wireless subscriber   -   38   -   154
Long-distance voice   594   647   1,773   1,937
Directory advertising   868   972   2,640   2,749
Other   484   616   1,447   1,846
Total operating revenues   10,556   11,338   31,921   34,005
Operating Expenses                
Operations and support (exclusive of depreciation and
    amortization shown separately below) 		  6,287   6,316   18,797   18,625
Depreciation and amortization   2,148   2,200   6,440   6,822
Total operating expenses   8,435   8,516   25,237   25,447
Operating Income   2,121   2,822   6,684   8,558
Other Income (Expense)                
Interest expense   (356)   (377)   (1,046)   (1,261)
Interest income   137   144   427   515
Equity in net income of affiliates   729   509   1,616   1,451
Other income (expense) - net   1   99   226   41
Total other income (expense)   511   375   1,223   746
Income Before Income Taxes   2,632   3,197   7,907   9,304
Income taxes   862   1,125   2,582   3,289
Income Before Extraordinary Item and Cumulative Effect of Accounting Change   1,770   2,072   5,325   6,015
Extraordinary item, net of tax   -   -   -   (18)
Cumulative effect of accounting change, net of tax   -   -   (1,810)   -
Net Income $ 1,770 $ 2,072 $ 3,515 $ 5,997
Earnings Per Common Share:                
Income Before Extraordinary Item and
    Cumulative Effect of Accounting Change 		$ 0.53 $ 0.62 $ 1.60 $ 1.79
Net Income $ 0.53 $ 0.62 $ 1.05 $ 1.78
Earnings Per Common Share-Assuming Dilution:                
Income Before Extraordinary Item and
    Cumulative Effect of Accounting Change 		$ 0.53 $ 0.61 $ 1.59 $ 1.77
Net Income $ 0.53 $ 0.61 $ 1.05 $ 1.77
Weighted Average Number of Common Shares Outstanding (in millions)   3,336   3,390   3,353   3,399
Dividends Declared Per Common Share $ 0.27 $ 0.256 $ 0.81 $ 0.769
See Notes to Consolidated Financial Statements.


SBC COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
    September 30,
2002 		  December 31,
2001
Assets   (Unaudited)    
Current Assets        
Cash and cash equivalents $ 873 $ 703
Accounts receivable - net of allowances for uncollectibles of $1,441 and $1,254   8,348   9,376
Prepaid expenses   671   932
Deferred income taxes   730   713
Other current assets   843   856
Total current assets   11,465   12,580
Property, plant and equipment - at cost   130,926   127,524
   Less: accumulated depreciation and amortization   82,190   77,697
Property, Plant and Equipment - Net   48,736   49,827
Goodwill - Net   1,658   3,577
Investments in Equity Affiliates   10,561   11,967
Notes Receivable from Cingular Wireless   5,921   5,924
Other Assets   15,522   12,447
Total Assets $ 93,863 $ 96,322
Liabilities and Shareowners’ Equity        
Current Liabilities        
Debt maturing within one year $ 5,134 $ 9,033
Accounts payable and accrued liabilities   9,634   11,459
Accrued taxes   2,921   2,598
Dividends payable   898   858
Total current liabilities   18,587   23,948
Long-Term Debt   18,933   17,133
Deferred Credits and Other Noncurrent Liabilities        
Deferred income taxes   9,635   8,578
Postemployment benefit obligation   10,409   9,839
Unamortized investment tax credits   248   274
Other noncurrent liabilities   3,662   4,059
Total deferred credits and other noncurrent liabilities   23,954   22,750
Shareowners’ Equity        
Common shares issued ($1 par value)   3,433   3,433
Capital in excess of par value   11,857   11,992
Retained earnings   22,957   22,138
Treasury shares (at cost)   (4,548)   (3,482)
Accumulated other comprehensive loss   (1,310)   (1,590)
Total shareowners’ equity   32,389   32,491
Total Liabilities and Shareowners’ Equity $ 93,863 $ 96,322
See Notes to Consolidated Financial Statements.


SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
  Nine months ended
September 30,
    2002   2001
Operating Activities        
Net income $ 3,515 $ 5,997
Adjustments to reconcile net income to net cash provided by operating activities:        
    Depreciation and amortization   6,440   6,822
    Undistributed earnings from investments in equity affiliates   (1,400)   (677)
    Provision for uncollectible accounts   1,071   886
    Amortization of investment tax credits   (26)   (46)
    Deferred income tax expense   931   855
    Gain on sales of investments   (316)   (301)
    Extraordinary item, net of tax   -   18
    Cumulative effect of accounting change, net of tax   1,810   -
    Changes in operating assets and liabilities:        
        Accounts receivable   (43)   (137)
        Other current assets   250   (466)
        Accounts payable and accrued liabilities   (1,474)   (1,205)
    Other - net   (16)   (1,020)
Total adjustments   7,227   4,729
Net Cash Provided by Operating Activities   10,742   10,726
Investing Activities        
Construction and capital expenditures   (4,998)   (8,096)
Investments in affiliates - net   (138)   1,482
Proceeds from short-term investments   -   510
Dispositions   1,166   864
Acquisitions   (571)   -
Net Cash Used in Investing Activities   (4,541)   (5,240)
Financing Activities        
Net change in short-term borrowings with original maturities of three months or less   (415)   (2,945)
Issuance of other short-term borrowings   4,565   4,361
Repayment of other short-term borrowings   (7,357)   (2,505)
Issuance of long-term debt   1,966   3,731
Repayment of long-term debt   (865)   (3,114)
Early redemption of corporation-obligated mandatorily redeemable
  preferred securities of subsidiary trusts 		  -   (1,000)
Purchase of treasury shares   (1,398)   (1,661)
Issuance of treasury shares   126   277
Redemption of preferred shares of subsidiaries   -   (145)
Dividends paid   (2,660)   (2,591)
Other   7   25
Net Cash Used in Financing Activities   (6,031)   (5,567)
Net increase (decrease) in cash and cash equivalents   170   (81)
Cash and cash equivalents beginning of year   703   643
Cash and Cash Equivalents End of Period $ 873 $ 562
Cash paid during the nine months ended September 30 for:        
   Interest $ 1,186 $ 1,274
   Income taxes, net of refunds $ 1,256 $ 1,449

See Notes to Consolidated Financial Statements.



SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY
Dollars in millions
(Unaudited)
         Nine months ended
       September 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     (164)
Other     29
Balance at end of period   $ 11,857
Retained Earnings      
Balance at beginning of year   $ 22,138
Net income ($1.05 per share)     3,515
Dividends to shareowners ($0.81 per share)     (2,699)
Other     3
Balance at end of period   $ 22,957
Treasury Shares      
Balance at beginning of year (79) $ (3,482)
Purchase of shares (41)   (1,398)
Issuance of shares 7   332
Balance at end of period (113) $ (4,548)
Accumulated Other Comprehensive Income, net of tax      
Balance at beginning of year   $ (1,590)
Other comprehensive income (see Note 3)     280
Balance at end of period   $ (1,310)
See Notes to Consolidated Financial Statements.


SBC COMMUNICATIONS INC.
SEPTEMBER 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. We account for our 60% economic interest in Cingular under the equity method since we share control equally (i.e., 50/50) with our 40% economic partner in the joint venture. We have equal voting rights and representation on the board of directors that controls Cingular. 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 (GAAP) 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.

  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 for all periods presented. The new categories, voice, data and long-distance voice provide a presentation of our revenues that is more closely aligned with how we currently manage the business.

  Extraordinary Item - The first nine 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 corporation-obligated mandatorily redeemable preferred securities of subsidiary trusts (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. This 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 and we expect them to complete their analyses by the end of 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 was included in the equity method amortization line in 2001 since these amounts were recorded by Cingular, a joint venture accounted for under the equity method.

  Three months ended
September 30, 		Nine months ended
September 30,
    2002   2001   2002   2001
Income before extraordinary item and
  cumulative effect of accounting change - as reported 		$ 1,770 $ 2,072 $ 5,325 $ 6,015
Add back: Goodwill amortization, net of tax   -   51   -   156
Add back: Equity method amortization, net of tax   -   66   -   193
Income before extraordinary item and
  cumulative effect of accounting change - as adjusted 		$ 1,770 $ 2,189 $ 5,325 $ 6,364

Net income - as reported $ 1,770 $ 2,072 $ 3,515 $ 5,997
Add back: Goodwill amortization, net of tax   -   51   -   156
Add back: Equity method amortization, net of tax   -   66   -   193
Net income - as adjusted $ 1,770 $ 2,189 $ 3,515 $ 6,346

Basic earnings per share:
  Net income - as reported $ 0.53 $ 0.62 $ 1.05 $ 1.78
  Goodwill amortization   -   0.01   -   0.04
  Equity method amortization   -   0.02   -   0.06
  Net income - as adjusted $ 0.53 $ 0.65 $ 1.05 $ 1.88

Diluted earnings per share:
  Net income - as reported $ 0.53 $ 0.61 $ 1.05 $ 1.77
  Goodwill amortization   -   0.02   -   0.04
  Equity method amortization   -   0.02   -   0.06
  Net income - as adjusted $ 0.53 $ 0.65 $ 1.05 $ 1.87

  The changes in the carrying amount of goodwill as reported on our Consolidated Balance Sheets for the nine months ended September 30, 2002, are as follows:

    Wireline
Segment 		  All
Other 		  Total
Balance, December 31, 2001 $ 3,027 $ 550 $ 3,577
FAS 142 impairment   (1,791)   -   (1,791)
Deferred tax adjustment   (140)