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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 March 31, 2003

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     

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X  No     

At April 30, 2003,  3,322,405,531 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
March 31,
    2003   2002
Operating Revenues        
Voice $ 5,766 $ 6,353
Data   2,479   2,391
Long-distance voice   578   591
Directory advertising   1,076   705
Other   434   482
Total Operating Revenues   10,333   10,522

Operating Expenses        
Cost of sales (exclusive of depreciation
    and amortization shown separately below) 		  4,041   3,912
Selling, general and administrative   2,398   2,292
Depreciation and amortization   1,996   2,136
Total Operating Expenses   8,435   8,340
Operating Income   1,898   2,182
Other Income (Expense)        
Interest Expense   (317)   (350)
Interest Income   136   142
Equity in net income of affiliates   365   437
Other income (expense) - Net   1,581   16
Total other income (expense)   1,765   245
Income Before Income Taxes   3,663   2,427
Income Taxes   1,208   800
Income Before Cumulative Effect
    of Accounting Changes 		  2,455   1,627
Cumulative Effect of Accounting Changes, net
    of tax 		  2,548   (1,820)
Net Income (Loss) $ 5,003 $ (193)

Earnings Per Common Share:
    Income Before Cumulative Effect
        of Accounting Changes 		$ 0.74 $ 0.49
    Net Income (Loss) $ 1.51 $ (0.06)
Earnings Per Common Share - Assuming Dilution:        
    Income Before Cumulative Effect
        of Accounting Changes 		$ 0.74 $ 0.48
    Net Income (Loss) $ 1.50 $ (0.06)
Weighted Average Number of Common
     Shares Outstanding (in millions) 		  3,320   3,347
Dividends Declared Per Common Share $ 0.3325 $ 0.27
See Notes to Consolidated Financial Statements.


SBC COMMUNCIATIONS INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
    March 31,
2003 		  December 31,
2002
Assets   (Unaudited)    
Current Assets        
  Cash and cash equivalents $ 4,832 $ 3,567
  Accounts receivable - net of allowances for
      uncollectibles of $1,192 and $1,427 		  6,337   8,540
  Prepaid expenses   809   687
  Deferred income taxes   1,490   704
  Other current assets   1,069   591
Total current assets   14,537   14,089
Property, plant and equipment - at cost   131,990   131,755
  Less: accumulated depreciation and amortization   78,591   83,265
Property, Plant and Equipment - Net   53,399   48,490
Goodwill - Net   1,643   1,643
Investments in Equity Affiliates   10,949   10,470
Notes Receivable from Cingular Wireless   5,922   5,922
Other Assets   14,348   14,443
Total Assets $ 100,798 $ 95,057

Liabilities and Shareowners' Equity        
Current Liabilities        
Debt maturing within one year $ 1,805 $ 3,505
Accounts payable and accrued liabilities   9,013   9,413
Accrued taxes   1,542   870
Dividends payable   1,103   895
Total current liabilities   13,463   14,683
Long-Term Debt   18,469   18,536
Deferred Credits and Other Noncurrent Liabilities        
Deferred income taxes   13,465   10,726
Postemployment benefit obligation   13,923   14,094
Unamortized investment tax credits   235   244
Other noncurrent liabilities   3,604   3,575
Total deferred credits and other noncurrent liabilities   31,227   28,639
Shareowners' Equity        
Common shares issued ($1 par value)   3,433   3,433
Capital in excess of par value   12,991   12,999
Retained earnings   27,702   23,802
Treasury shares (at cost)   (4,389)   (4,584)
Additional minimum pension liability adjustment   (1,473)   (1,473)
Accumulated other comprehensive loss   (625)   (978)
Total shareowners' equity   37,639   33,199
Total Liabilities and Shareowners' Equity $ 100,798 $ 95,057
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)
  Three months ended
March 31,
    2003   2002
Operating Activities        
Net income (loss) $ 5,003 $ (193)
Adjustments to reconcile net income (loss)
    to net cash provided by operating activities: 		       
      Depreciation and amortization   1,996   2,136
      Undistributed earnings from investments
         in equity affiliates 		  (345)   (384)
      Provision for uncollectible accounts   282   362
      Amortization of investment tax credits   (9)   (9)
      Deferred income tax expense   215   398
      Gain on sales of investments   (1,574)   (90)
      Cumulative effect of accounting changes, net of tax   (2,548)   1,820
      Retirement benefit funding   (445)   -
      Changes in operating assets and liabilities:        
        Accounts receivable   311   693
        Other current assets   (126)   (216)
        Accounts payable and accrued liabilities   (276)   (2,366)
      Other - net   151   111
Total adjustments   (2,368)   2,455
Net Cash Provided by Operating Activities   2,635   2,262
Investing Activities        
Construction and capital expenditures   (897)   (1,765)
Proceeds from short-term investments   (5)   -
Dispositions   2,270   83
Acquisitions   -   (406)
Net Cash Provided by (Used in) Investing Activities   1,368   (2,088)
Financing Activities        
Net change in short-term borrowings with
  original maturities of three months or less 		  49   1,425
Issuance of other short-term borrowings   -   2,844
Repayment of other short-term borrowings   (1,070)   (3,738)
Issuance of long-term debt   -   994
Repayment of long-term debt   (841)   (151)
Purchase of treasury shares   -   (593)
Issuance of treasury shares   21   32
Dividends paid   (897)   (860)
Net Cash Used in Financing Activities   (2,738)   (47)
Net increase in cash and cash equivalants   1,265   127
Cash and cash equivalents beginning of year   3,567   703
Cash and Cash Equivalents End of Period $ 4,832 $ 830
Cash paid during the three months ended March 31 for:        
    Interest $ 413 $ 486
    Income taxes, net of refunds $ 223 $ 998

See Notes to Consolidated Financial Statements.



SBC COMMUNCIATIONS INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY
Dollars in millions
(Unaudited)
         Three months ended
       March 31, 2003
  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   $ 12,999
Issuance of treasury shares     (67)
Stock option expense     56
Other     3
Balance at end of period   $ 12,991
Retained Earnings      
Balance at beginning of year   $ 23,802
Net income ($1.51 per share)     5,003
Dividends to shareowners ($0.33 per share)     (1,104)
Other     1
Balance at end of period   $ 27,702
Treasury Shares      
Balance at beginning of year (115) $ (4,584)
Purchase of shares -   -
Issuance of shares 4   195
Balance at end of period (111) $ (4,389)
Additional Minimum Pension Liability Adjustment      
Balance at beginning of year   $ (1,473)
Balance at end of period   $ (1,473)
Accumulated Other Comprehensive Income, net of tax      
Balance at beginning of year   $ (978)
Other comprehensive income (see Note 2)     353
Balance at end of period   $ (625)
See Notes to Consolidated Financial Statements.




SBC COMMUNICATIONS INC.
MARCH 31, 2003


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 2002 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. Neither Cingular nor any of our other equity method investments will qualify as a "variable interest entity" as described in Financial Accounting Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51" (FIN 46). Accordingly, none of these investments will qualify for consolidation when FIN 46 becomes effective July 1, 2003 and our current accounting treatment of these entities will remain unchanged. 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.

  Cash Equivalents - Cash and cash equivalents include all highly liquid investments with original maturities of three months or less, and the carrying amounts approximate fair value. In addition to cash, our cash equivalents include municipal securities, money market funds and auction securities (auction rate and/or perpetual preferred securities issued by domestic or foreign corporation, municipalities or closed-end management investment companies). At March 31, 2003, we held approximately $195 in municipal securities, $3,150 in money market funds and $1,175 in auction securities.

  Revenue Recognition - Revenues and associated expenses related to nonrefundable, up-front wireline service 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 and long-distance services (principally fixed fees) are billed monthly in advance and are recognized the following month when services are provided. Other revenues derived from telecommunications services, principally long-distance usage (in excess or in lieu of fixed fees) and network access, are recognized monthly as services are provided.

  Prior to 2003, we recognized revenues and expenses related to publishing directories on the "issue basis" method of accounting, which recognizes the revenues and expenses at the time the initial delivery of the related directory is completed. See the discussion of our 2003 change in directory accounting in the "Cumulative Effect of Accounting Changes" section below.

  Goodwill - Goodwill represents the excess of consideration paid over net assets acquired in business combinations. Goodwill is not amortized, but is tested at least annually for impairment. There was no change in the carrying amount of goodwill from December 31, 2002.

  Cumulative Effect of Accounting Changes

  Directory accounting
Effective January 1, 2003, we changed our method of recognizing revenues and expenses related to publishing directories from the "issue basis" method to the "amortization" method. The issue basis method recognizes revenues and expenses at the time the initial delivery of the related directory is completed. Consequently, quarterly income tends to vary with the number of directory titles published during a quarter. The amortization method recognizes revenues and expenses ratably over the life of the directory, which is typically 12 months. Consequently, quarterly income tends to average out over the course of a year. We decided to change methods because the amortization method has now become the more prevalent method used among significant directory publishers. This change will allow a more meaningful comparison between our directory segment and other publishing companies (or publishing segments of larger companies).

  Our directory accounting change resulted in a noncash charge of $1,136, net of an income tax benefit of $714, recorded as a cumulative effect of accounting change on the Consolidated Statement of Income as of January 1, 2003. Because the number of directory titles published during the first quarter traditionally has been lower than other quarters, the effect of this change was to increase consolidated pre-tax income and our directory segment income in the first quarter of 2003 by approximately $417 ($255 net of tax, or $0.08 per diluted share). However, the effects on future quarters in 2003 will not be the same, as the number of directory titles published in each quarter varies, with the largest number of titles published in the fourth quarter of the year.

  Depreciation accounting
On January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 sets forth how companies must account for the costs of removal of long-lived assets when those assets are no longer used in a company's business, but only if a company is legally required to remove such assets. FAS 143 requires that companies record the fair value of the costs of removal in the period in which the obligations are incurred and capitalize that amount as part of the book value of the long-lived asset. To determine whether we have a legal obligation to remove our long-lived assets, we reviewed state and federal law and regulatory decisions applicable to our subsidiaries, primarily our wireline subsidiaries, which have long-lived assets. Based on this review, we concluded that we are not legally required to remove our long-lived assets, except in a few minor instances.

  However, in November 2002, we were informed that the SEC staff concluded that certain provisions of FAS 143 require that we exclude costs of removal from depreciation rates and accumulated depreciation balances in certain circumstances upon adoption, even where no legal removal obligations exist. In our case, this means that for plant accounts where our estimated costs of removal exceed the estimated salvage value, we are prohibited from accruing removal costs in those depreciation rates and accumulated depreciation balances in excess of the salvage value. For our other long-lived assets, where our estimated costs of removal are less than the estimated salvage value, we will continue to accrue the costs of removal in those depreciation rates and accumulated depreciation balances.

  Therefore, in connection with the adoption of FAS 143 on January 1, 2003, we reversed existing accrued costs of removal to the extent that it exceeded the estimated salvage value for those plant accounts. The noncash gain resulting from this reversal was $3,684, net of deferred taxes of $2,249, recorded as a cumulative effect of accounting change on the Consolidated Statement of Income as of January 1, 2003.

  Beginning in 2003, for those plant accounts where our estimated costs of removal previously exceeded the estimated salvage value, we will now expense costs of removal only as we incur them (previously those costs had been recorded in our depreciation rates). As a result, our depreciation expense will decrease immediately and our operations and support expense will increase as these assets are removed from service. The effect of this change was to increase consolidated pre-tax income and our wireline segment income in the first quarter of 2003 by approximately $70 ($43 net of tax, or $0.01 per diluted share). We expect the effects on future quarters in 2003 to be approximately the same as the impact on the first quarter of 2003. However, over the life of the assets, total operating expenses recognized under this new accounting method will be approximately the same as under the previous method (assuming the cost of removal would be the same under both methods).

  Goodwill and other intangible assets accounting
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 stopped amortizing goodwill, and at least annually we will test the remaining book value of goodwill for impairment. Any impairments subsequent to adoption will be recorded in operating expenses. We also stopped amortizing goodwill recorded on our equity investments. This embedded goodwill will continue to be tested for impairment under the accounting rules for equity investments, which are based on comparisons between fair value and carrying value. Our total cumulative effect of accounting change from adopting FAS 142 was a noncash charge of $1,820, net of an income tax benefit of $5, recorded as of January 1, 2002.

  Adjusted results
The amounts shown below have been adjusted assuming that we had retroactively applied the new directory and depreciation accounting methods discussed above. (FAS 142 did not allow retroactive application of the new impairment accounting method, and did not allow these adjusted results to exclude the cumulative effect of accounting change from adopting FAS 142.)

  Three months ended
March 31,
    2003   2002
Income before cumulative effect of accounting changes - as reported $ 2,455 $ 1,627
Directory change, net of tax   -   187
Depreciation change, net of tax   -   46
Income before cumulative effect of accounting changes - as adjusted $ 2,455 $ 1,860

Basic earnings per share:        
   Income before cumulative effect
       of accounting changes - as reported		 $ 0.74 $ 0.49
   Directory change, net of tax   -   0.06
   Depreciation change, net of tax   -   0.01
   Income before cumulative effect
       of accounting changes - as adjusted		 $ 0.74 $ 0.56

Diluted earnings per share:        
   Income before cumulative effect
       of accounting changes - as reported		 $ 0.74   0.48
   Directory change, net of tax   -   0.06
   Depreciation change, net of tax   -   0.01
   Income before cumulative effect
       of accounting changes - as adjusted		 $ 0.74 $ 0.55

Net income (loss) - as reported $ 5,003 $ (193)
Remove cumulative effect of accounting changes   (2,548)   -
Directory change, net of tax   -   187
Depreciation change, net of tax   -   46
Net income (loss) - as adjusted $ 2,455   40

Basic earnings per share:
   Net income (loss) - as reported $ 1.51 $ (0.06)
   Remove cumulative effect of accounting changes $ (0.77) $ -
   Directory change, net of tax   -   0.06
   Depreciation change, net of tax   -   0.01
   Net income (loss) - as adjusted $ 0.74   0.01

Diluted earnings per share:
   Net income (loss) - as reported $ 1.50   (0.06)
   Remove cumulative effect of accounting changes   (0.76)   -
   Directory change, net of tax   -   0.06
   Depreciation change, net of tax   -   0.01
   Net income (loss) - as adjusted $ 0.74 $ 0.01


2. COMPREHENSIVE INCOME

  The components of our comprehensive income (loss) for the three months ended March 31, 2003 and 2002 include net income (loss) and adjustments to shareowners’ equity for the foreign currency translation adjustment and net unrealized gain (loss) on securities. The foreign currency translation adjustment is due to exchange rate changes in our foreign affiliates’ local currencies, primarily Denmark in 2003 and 2002.

  Following is our comprehensive income (loss):

  Three months ended
March 31,
    2003   2002
Net income (loss) $ 5,003 $ (193)
Other comprehensive income (loss), net of tax:        
  Foreign currency translation adjustment   105   (24)
  Unrealized gain (losses) on available-for-sale securities   248   (28)
Other comprehensive income (loss)   353   (52)
Total comprehensive income (loss) $ 5,356 $ (245)


3. EARNINGS PER SHARE

  A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for income before cumulative effect of accounting changes for the three months ended March 31, 2003 and 2002 is shown in the table below.

  Three months ended
March 31,
    2003   2002
Numerators        
Numerator for basic earnings per share: