SBC COMMUNICATIONS INC
10-Q, 2000-11-13
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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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, 2000

                                       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 October 31, 2000, 3,384,971,128 common shares were outstanding.


<PAGE>


<TABLE>

<CAPTION>

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      Nine months ended
                                                     September 30,          September 30,
                                                     2000     1999         2000      1999
--------------------------------------------------------------------------------------------
<S>                                             <C>         <C>        <C>        <C>
Operating Revenues
Landline local service                          $   5,721   $   4,938  $  16,333  $  14,384
Wireless subscriber                                 1,749       1,639      4,897      4,405
Network access                                      2,492       2,535      7,832      7,595
Long distance service                                 807         869      2,391      2,680
Directory advertising                                 912         926      2,761      2,746
Other                                               1,773       1,638      5,023      4,815
--------------------------------------------------------------------------------------------
Total operating revenues                           13,454      12,545     39,237     36,625
--------------------------------------------------------------------------------------------
Operating Expenses
Operations and support                              8,245       7,640     23,374     21,507
Depreciation and amortization                       2,363       2,443      6,943      6,378
--------------------------------------------------------------------------------------------
Total operating expenses                           10,608      10,083     30,317     27,885
--------------------------------------------------------------------------------------------
Operating Income                                    2,846       2,462      8,920      8,740
--------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense                                     (422)       (365)    (1,194)    (1,069)
Equity in net income of affiliates                    267         220        656        574
Other income (expense) - net                        2,013         (29)     2,196       (129)
--------------------------------------------------------------------------------------------
Total other income (expense)                        1,858        (174)     1,658       (624)
--------------------------------------------------------------------------------------------
Income Before Income Taxes                          4,704       2,288     10,578      8,116
--------------------------------------------------------------------------------------------
Income Taxes                                        1,705       1,153      3,906      3,270
--------------------------------------------------------------------------------------------
Income Before Cumulative Effect of
 Accounting Change                                  2,999       1,135      6,672      4,846
--------------------------------------------------------------------------------------------
Cumulative Effect of Accounting Change,
 net of tax                                             -           -          -        207
--------------------------------------------------------------------------------------------
Net Income                                      $   2,999   $   1,135  $   6,672  $   5,053
============================================================================================
Earnings Per Common Share:
Income Before Cumulative Effect of
 Accounting Change                              $    0.89   $    0.33  $    1.97  $    1.42
Net Income                                      $    0.89   $    0.33  $    1.97  $    1.48
--------------------------------------------------------------------------------------------
Earnings Per Common Share - Assuming Dilution:
Income Before Cumulative Effect of
 Accounting Change                              $    0.88   $    0.33  $    1.95  $    1.40
Net Income                                      $    0.88   $    0.33  $    1.95  $    1.46
--------------------------------------------------------------------------------------------
Weighted Average Number of Common
  Shares Outstanding (in millions)                  3,387       3,414      3,393      3,411
Dividends Declared Per Common Share             $ 0.25375   $ 0.24375  $ 0.76125  $ 0.73125
============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
============================================================================================
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
SBC COMMUNICATIONS INC.
---------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
---------------------------------------------------------------------------------------
                                                          September 30,    December 31,
                                                           -------------   ------------
                                                              2000               1999
---------------------------------------------------------------------------------------
<S>                                                        <C>                <C>
Assets                                                     (Unaudited)
Current Assets
Cash and cash equivalents                                   $     545         $    495
Accounts receivable - net of allowances for
  uncollectibles of $1,039 and $1,099                          10,142            9,378
Prepaid expenses                                                  950              651
Deferred income taxes                                             590              767
Other current assets                                            1,585              639
---------------------------------------------------------------------------------------
Total current assets                                           13,812           11,930
---------------------------------------------------------------------------------------
Property, plant and equipment - at cost                       124,044          116,332
  Less: accumulated depreciation and amortization              74,347           69,761
---------------------------------------------------------------------------------------
Property, Plant and Equipment - Net                            49,697           46,571
---------------------------------------------------------------------------------------
Intangible Assets - Net of Accumulated
  Amortization of $1,472 and $1,115                             7,149            4,737
Goodwill - Net of Accumulated
  Amortization of $362 and $210                                 4,998            2,059
Investments in Equity Affiliates                                9,937           10,648
Other Assets                                                    8,983            7,270
---------------------------------------------------------------------------------------
Total Assets                                                $  94,576         $ 83,215
=======================================================================================
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year                               $   9,413         $  3,374
Accounts payable and accrued liabilities                       12,137           11,717
Accrued taxes                                                   4,248            3,386
Dividends payable                                                 861              836
---------------------------------------------------------------------------------------
Total current liabilities                                      26,659           19,313
---------------------------------------------------------------------------------------
Long-Term Debt                                                 15,890           17,475
---------------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                           6,532            4,821
Postemployment benefit obligation                               9,875            9,612
Unamortized investment tax credits                                336              389
Other noncurrent liabilities                                    4,094            3,879
---------------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities        20,837           18,701
---------------------------------------------------------------------------------------
Corporation-Obligated Mandatorily Redeemable
  Preferred Securities of Subsidiary Trusts*                    1,000            1,000
---------------------------------------------------------------------------------------
Shareowners' Equity
Common shares issued ($1 par value)                             3,433            3,433
Capital in excess of par value                                 12,356           12,453
Retained earnings                                              17,905           13,798
Guaranteed obligations of employee stock ownership
  plans (ESOP)                                                    (33)            (106)
Deferred compensation  leveraged ESOP (LESOP)                     (62)             (73)
Treasury shares (at cost)                                      (2,163)          (1,717)
Accumulated other comprehensive loss                           (1,246)          (1,062)
---------------------------------------------------------------------------------------
Total shareowners' equity                                      30,190           26,726
---------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity                   $  94,576         $ 83,215
=======================================================================================
<FN>
* The trusts contain $1,030 in principal amount of the Subordinated Debentures of Pacific Telesis Group.
  See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
SBC COMMUNICATIONS INC.
--------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
--------------------------------------------------------------------------------------
                                                                Nine months ended
                                                                  September 30,
                                                            --------------------------
                                                                 2000         1999
--------------------------------------------------------------------------------------
<S>                                                            <C>           <C>
Operating Activities
Net income                                                     $  6,672      $  5,053
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation and amortization                                 6,943         6,378
    Undistributed earnings from investments in equity
      affiliates                                                   (344)         (343)
    Provision for uncollectible accounts                            604           824
    Amortization of investment tax credits                          (53)          (64)
    Deferred income tax expense                                     996           662
    Cumulative effect of accounting change, net of tax                -          (207)
    Gain on sales of investments                                 (2,160)         (268)
    Changes in operating assets and liabilities:
      Accounts receivable                                        (1,368)           56
      Other current assets                                         (713)           30
      Accounts payable and accrued liabilities                    1,442          (271)
    Other - net                                                  (1,073)         (351)
--------------------------------------------------------------------------------------
Total adjustments                                                 4,274         6,446
--------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                        10,946        11,499
--------------------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures                            (9,202)       (7,006)
Investments in affiliates                                          (140)          (32)
Purchase of short-term investments                                 (533)          (26)
Proceeds from short-term investments                                  -             6
Dispositions                                                      3,534         1,448
Acquisitions                                                     (5,306)       (4,792)
Other                                                                 -             2
--------------------------------------------------------------------------------------
Net Cash Used in Investing Activities                           (11,647)      (10,400)
--------------------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
  maturities of three months or less                              4,278         2,214
Issuance of long-term debt                                        1,039           738
Repayment of long-term debt                                        (921)       (2,140)
Issuance of common shares                                             -           307
Issuance of preferred shares in subsidiaries                          -             3
Purchase of treasury shares                                      (1,457)          (21)
Issuance of treasury shares                                         307           197
Dividends paid                                                   (2,560)       (2,464)
Other                                                                65             -
--------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities                 751        (1,166)
--------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 50           (67)
--------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year                         495           599
--------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                        $    545      $    532
======================================================================================
Cash paid during the nine months ended September 30 for:
   Interest                                                    $  1,298      $  1,200
   Income taxes, net of refunds                                $  2,113      $  1,929
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

SBC COMMUNICATIONS INC.
----------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Dollars in millions
(Unaudited)
---------------------------------------------------------------------------------------------------------=-----------------------
                                                                               Guaranteed                            Accumulated
                                                    Capital in                Obligations of  Deferred                 Other
                                         Common    Excess of Par  Retained   Employee Stock  Compensation Treasury  Comprehensive
                                          Shares      Value        Earnings  Ownership Plans   - LESOP     Shares      Loss
----------------------------------------------------------------------------------------------------------=----------------------
<S>                                      <C>       <C>           <C>         <C>              <C>         <C>       <C>
Balance, December 31, 1999               $  3,433  $  12,453     $ 13,798    $     (106)      $    (73)   $ (1,717) $   (1,062)
Net income                                      -          -        6,672             -              -           -           -
Other comprehensive loss                        -          -            -             -              -           -        (184)
Dividends to shareowners                        -          -       (2,583)            -              -           -           -
Reduction of debt associated with ESOP          -          -            -            73              -           -           -
Cost of LESOP trust shares allocated
  to employee accounts                          -          -            -             -             11           -           -
Purchase of treasury shares                     -          -            -             -              -      (1,457)          -
Issuance of treasury shares                     -       (222)           -             -              -       1,011           -
Other                                           -        125           18             -              -           -           -
---------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000              $  3,433  $  12,356     $ 17,905    $      (33)      $    (62)   $ (2,163) $   (1,246)
=================================================================================================================================
<FN>
See Notes to Consolidated Financial
Statements.
</FN>
</TABLE>

<TABLE>
<CAPTION>

SELECTED FINANCIAL AND OPERATING DATA

At September 30, or for the nine months then ended:    2000         1999
---------------------------------------------------------------------------
   <S>                                               <C>           <C>
   Debt ratio.......................................   44.79%       47.54%
   Network access lines in service (000)............  61,287       60,383
   Resold lines (000)...............................   1,616        1,422
   Access minutes of use (000,000).................. 210,927      196,393
   Wireless customers (000).........................  13,025       10,693
   Number of employee............................... 223,260      203,270
</TABLE>



<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

1. 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 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 these
   consolidated financial statements in conjunction with the consolidated
   financial statements and accompanying notes included in SBC's 1999 Annual
   Report to Shareowners.

   The preparation of financial statements in conformity with accounting
   principles generally accepted in the United States requires us to make
   estimates and assumptions that affect the amounts reported in the financial
   statements and accompanying notes. 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.

2. CONSOLIDATION 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 and less than majority-owned subsidiaries are
   principally accounted for under the equity method. Earnings from certain
   foreign investments accounted for using the equity method are included for
   periods ended within three months of the date of SBC's Consolidated
   Statements of Income.

3. CUMULATIVE EFFECT OF CHANGE IN DIRECTORY ACCOUNTING Prior to January 1, 1999,
   Ameritech Corporation's (Ameritech) directory publishing subsidiary
   recognized revenues and expenses related to publishing directories using the
   "amortization" method, under which revenues and expenses were recognized over
   the lives of the directories, generally one year. Effective January 1, 1999,
   we changed the method of accounting to the "issue basis", which recognizes
   revenues and expenses at the time the related directory is published. We
   changed the methodology because the issue basis method is generally followed
   in the publishing industry, including our other directory subsidiaries, and
   better reflects the operating activity of the business. The cumulative
   after-tax effect of applying the changes in method to prior years was
   recognized as of January 1, 1999 as a one-time, non-cash gain of $207, or
   $0.06 per share, net of deferred taxes of $125. Had we used the current
   method during prior periods, income before extraordinary items and cumulative
   effect of accounting change would not have been materially affected.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

4. COMPREHENSIVE INCOME The components of SBC's comprehensive income for the
   third quarter and nine months ended September 30, 2000 and 1999 include net
   income and adjustments to shareowners' equity for foreign currency
   translation adjustment and net unrealized gain (loss) on securities.

<TABLE>
<CAPTION>
   Following is SBC's comprehensive income:

   ------------------------------------------------------------------------------------------
                                                     Three months ended   Nine months ended
                                                       September 30,       September 30,
                                                    -----------------------------------------
                                                      2000     1999       2000      1999
   ------------------------------------------------------------------------------------------
   <S>                                             <C>        <C>        <C>        <C>
   Net income                                      $   2,999  $ 1,135    $  6,672   $  5,053
   Other comprehensive income, net of tax:
     Foreign currency translation adjustment            (259)     122        (470)      (368)
     Reclassification adjustment to net income for
         cumulative translation adjustment on
         securities sold                                 323        -         323          -
     Net unrealized gain (loss) on securities:
      Unrealized gain (loss) on available for
        sale securities                                  (18)      18           7         18
      Less: reclassification adjustment for (gain)
        loss included in net income                        2        -         (44)        (5)
   ------------------------------------------------------------------------------------------
      Net unrealized gain (loss) on securities           (16)      18         (37)        13
   ------------------------------------------------------------------------------------------
   Other comprehensive income (loss)                      48      140        (184)      (355)
   ------------------------------------------------------------------------------------------
   Total comprehensive income                      $   3,047  $ 1,275    $  6,488   $  4,698
   ==========================================================================================
</TABLE>

5. COMPLETION OF MERGERS Upon completion of the mergers with Ameritech, Southern
   New England Telecommunications Corporation (SNET), and Pacific Telesis Group
   (PAC), we reviewed operations throughout the merged company. Based on these
   merger integration reviews, we made strategic decisions to significantly
   integrate operations and consolidate some administrative and support
   functions resulting in one-time charges.

   One-time charges incurred include costs related to various regulatory and
   legal issues, merger approval costs and other related costs. We did not incur
   any of these one-time charges in the third quarter or for the first nine
   months of 2000. In the third quarter and first nine months of 1999, we
   incurred costs of $884 ($883 net of tax) related to the merger with
   Ameritech. Remaining accruals for anticipated cash expenditures related to
   these decisions totaled $343 at September 30, 2000 and $755 at
   December 31, 1999.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

6. SUBSIDIARY FINANCIAL INFORMATION We have fully and unconditionally guaranteed
   certain outstanding debt securities of PAC, Pacific Bell Telephone Company
   (PacBell), and Southwestern Bell Telephone Company (SWBell), each of which is
   a wholly owned subsidiary of SBC. In August 2000, the SEC issued new rules
   for reporting parent company guarantees of subsidiary securities. In
   accordance with these new rules, we are providing the following condensed
   consolidating financial information.

   The Parent column presents investments in all subsidiaries under the equity
   method of accounting. PAC, PacBell and SWBell are listed separately because
   each has issued debt that we have guaranteed. PacBell is a wholly owned
   subsidiary of PAC, and the new rules require that its financial information
   also be included in the PAC column. All other subsidiaries that do not have
   securities guaranteed by us are presented in the Other column. The
   consolidating adjustments column (Adjs.) eliminates the intercompany balances
   and transactions between our subsidiaries, as well as removing the double
   presentation of PacBell in order to reconcile to the SBC consolidated
   financial information. See Note 8 for a discussion of conforming items on the
   segments and subsidiaries.

<TABLE>
<CAPTION>
   Condensed Consolidating Statements of Income
   For the Three Months Ended September 30, 2000

                                        Parent     PAC   PacBell    SWBell   Other     Adjs.    Total
   -----------------------------------------------------------------------------------------------------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Total operating revenues            $     -   $3,016  $ 2,619   $ 2,904  $ 7,851  $ (2,936) $ 13,454
   Total operating expenses                (88)   1,982    1,793     2,109    6,922    (2,110)   10,608
   -------------------------------------------------------------------------------------------- --------
   Operating income                         88    1,034      826       795      929      (826)    2,846
   -------------------------------------------------------------------------------------------- --------
   Interest expense                       (158)    (106)     (94)      (91)    (377)      404      (422)
   Equity in net income of affiliates    2,882       21        -         -      272    (2,908)      267
   Other income (expense) - net            234      (24)      (1)        2    2,088      (286)    2,013
   -------------------------------------------------------------------------------------------- --------
   Income before income taxes            3,046      925      731       706    2,912    (3,616)    4,704
    ------------------------------------------------------------------------------------------- --------
   Income taxes                             47      361      293       260    1,037      (293)    1,705
   -------------------------------------------------------------------------------------------- --------
   Net Income                          $ 2,999   $  564  $   438   $   446  $ 1,875  $ (3,323) $  2,999
   ============================================================================================ ========
</TABLE>

<TABLE>
<CAPTION>

   Condensed Consolidating Statements of Income
   For the Three Months Ended September 30, 1999

                                        Parent     PAC   PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                    <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Total operating revenues            $     -   $2,920  $ 2,455   $ 2,797  $ 7,056  $ (2,683) $ 12,545
   Total operating expenses                (27)   2,092    1,792     2,044    6,202    (2,020)   10,083
   -------------------------------------------------------------------------------------------- --------
   Operating income                         27      828      663       753      854      (663)    2,462
   -------------------------------------------------------------------------------------------- --------
   Interest expense                        (42)     (94)     (84)      (95)    (393)      343      (365)
   Equity in net income of affiliates    1,185        -        -         -      237    (1,202)      220
   Other income (expense) - net            169        2        4         1       41      (246)      (29)
   -------------------------------------------------------------------------------------------- --------
   Income before income taxes            1,339      736      583       659      739    (1,768)    2,288
   -------------------------------------------------------------------------------------------- --------
   Income taxes                            204      287      231       242      420      (231)    1,153
   -------------------------------------------------------------------------------------------- --------
   Net Income                          $ 1,135   $  449  $   352   $   417  $   319  $ (1,537) $  1,135
   ============================================================================================ ========
</TABLE>


<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

<TABLE>
<CAPTION>

   Condensed Consolidating Statements of Income
   For the Nine Months Ended September 30, 2000

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- -------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Total operating revenues            $      -  $ 8,880 $  7,725  $ 8,662  $ 22,561 $ (8,591) $ 39,237
   Total operating expenses                (135)   6,330    5,659    6,547    18,441   (6,525)   30,317
   -------------------------------------------------------------------------------------------- --------
   Operating income                         135    2,550    2,066    2,115     4,120   (2,066)    8,920
   -------------------------------------------------------------------------------------------- --------
   Interest expense                        (359)    (338)    (297)    (283)   (1,079)   1,162    (1,194)
   Equity in net income of affiliates     6,353       55        -        -       664   (6,416)      656
   Other income (expense) - net             624       (5)       -        3     2,379     (805)    2,196
   -------------------------------------------------------------------------------------------- --------
   Income before income taxes             6,753    2,262    1,769    1,835     6,084   (8,125)   10,578
   -------------------------------------------------------------------------------------------- --------
   Income taxes                              81      883      706      677     2,265     (706)    3,906
   --------------------------------------------------------------------------------
   Net Income                          $  6,672  $ 1,379 $  1,063  $ 1,158  $  3,819 $ (7,419) $  6,672
   ============================================================================================ ========
</TABLE>
<TABLE>
<CAPTION>

   Condensed Consolidating Statements of Income
   For the Nine Months Ended September 30, 1999

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Total operating revenues            $     -   $ 8,839 $  7,245  $ 8,375  $ 20,105 $ (7,939) $ 36,625
   Total operating expenses                (38)    6,530    5,350    6,069    16,018   (6,044)   27,885
   -------------------------------------------------------------------------------------------- --------
   Operating income                         38     2,309    1,895    2,306     4,087   (1,895)    8,740
   -------------------------------------------------------------------------------------------- --------
   Interest expense                       (150)     (341)    (287)    (284)   (1,043)   1,036    (1,069)
   Equity in net income of affiliates    5,102         -        -        -       591   (5,119)      574
   Other income (expense)- net             169        82       35        5       347     (767)     (129)
   -------------------------------------------------------------------------------------------- --------
   Income before income taxes            5,159     2,050    1,643    2,027     3,982   (6,745)    8,116
   -------------------------------------------------------------------------------------------- --------
   Income taxes                             99       813      650      745     1,613     (650)    3,270
   -------------------------------------------------------------------------------------------- --------
   Income before cumulative effect
     of accounting change                5,060     1,237      993    1,282     2,369   (6,095)    4,846
   -------------------------------------------------------------------------------------------- --------
   Cumulative effect
     of accounting change                   (7)     (218)  (1,010)    (273)      705    1,010       207
   -------------------------------------------------------------------------------------------- --------
   Net Income                          $ 5,053   $ 1,019 $    (17) $ 1,009  $  3,074 $ (5,085) $  5,053
   ============================================================================================ ========
</TABLE>


<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

<TABLE>
<CAPTION>

   Condensed Consolidating Balance Sheets
   September 30, 2000

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Cash and cash  equivalents          $   334   $    10 $      9  $    42  $    159 $     (9) $    545
   Accounts receivable - net             9,061     2,839    2,280    2,191    12,155  (18,384)   10,142
   Other current assets                    687       566      443      619     1,253     (443)    3,125
   -------------------------------------------------------------------------------------------- --------
   Total current assets                 10,082     3,415    2,732    2,852    13,567  (18,836)   13,812
   -------------------------------------------------------------------------------------------- --------
   Property, plant and equipment - net     144    13,275   12,862   14,387    21,891  (12,862)   49,697
   -------------------------------------------------------------------------------------------- --------
   Intangible assets - net                   -       803        -        -    11,344        -    12,147
   -------------------------------------------------------------------------------------------- --------
   Investments in equity affiliates     29,810       181        -        -     5,660  (25,714)    9,937
   -------------------------------------------------------------------------------------------- --------
   Other assets                          2,703     1,694    1,525       26    11,408   (8,373)    8,983
   -------------------------------------------------------------------------------------------- --------
   Total Assets                        $42,739   $19,368 $ 17,119  $17,265  $ 63,870 $(65,785) $ 94,576
   ============================================================================================ ========

   Debt maturing within one year       $ 8,472   $ 1,568 $  1,827  $ 2,433  $ 10,316 $(15,203) $  9,413
   Other current liabilities             1,348     3,826    3,406    3,443    11,357   (6,134)   17,246
   -------------------------------------------------------------------------------------------- --------
   Total current liabilities             9,820     5,394    5,233    5,876    21,673  (21,337)   26,659
   -------------------------------------------------------------------------------------------- --------
   Long-term debt                          568     4,353    4,293    3,976    13,755  (11,055)   15,890
   -------------------------------------------------------------------------------------------- --------
   Postemployment benefit obligation        87     2,922    2,740    2,967     3,899   (2,740)    9,875
   -------------------------------------------------------------------------------------------- --------
   Other noncurrent liabilities          2,074     1,575    1,278    1,103     6,296   (1,364)   10,962
   -------------------------------------------------------------------------------------------- --------
   Corporation-obligated mandatorily
    redeemable preferred securities of
    subsidiary trusts                        -     1,000        -        -         -        -     1,000
   -------------------------------------------------------------------------------------------- --------
   Total shareowners' equity            30,190     4,124    3,575    3,343    18,247  (29,289)   30,190
   -------------------------------------------------------------------------------------------- --------
   Total Liabilities
    and Shareowners' Equity            $42,739   $19,368 $ 17,119  $17,265  $ 63,870 $(65,785) $ 94,576
   ============================================================================================ ========
</TABLE>


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
<TABLE>
<CAPTION>

   Condensed Consolidating Balance Sheets
   December 31, 1999

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Cash and cash equivalents           $   101   $    13 $     12  $    49  $    332 $    (12) $     495
   Accounts receivable - net             8,012     2,538    1,929    1,913    13,374  (18,388)     9,378
   Other current assets                    223       471      377      491       872     (377)     2,057
   -------------------------------------------------------------------------------------------- --------
   Total current assets                  8,336     3,022    2,318    2,453    14,578  (18,777)    11,930
   -------------------------------------------------------------------------------------------- --------
   Property, plant and equipment - net      89    12,628   12,213   13,958    19,896  (12,213)    46,571
   -------------------------------------------------------------------------------------------- --------
   Intangible assets - net                   -       824        -        -     5,972        -      6,796
   -------------------------------------------------------------------------------------------- --------
   Investments in equity affiliates     23,461       199        -        -     8,347  (21,359)    10,648
   -------------------------------------------------------------------------------------------- --------
   Other assets                          2,203     1,683    1,407       20    10,158   (8,201)     7,270
   -------------------------------------------------------------------------------------------- --------
   Total Assets                        $34,089   $18,356 $ 15,938  $16,431  $ 58,951 $(60,550) $  83,215
   ============================================================================================ ========

   Debt maturing within one year       $ 3,364   $ 1,869 $  1,674  $ 2,086  $ 10,861 $(16,480) $   3,374
   Other current liabilities             1,347     3,075    2,865    3,041    10,129   (4,518)    15,939
   -------------------------------------------------------------------------------------------- --------
   Total current liabilities             4,711     4,944    4,539    5,127    20,990  (20,998)    19,313
   -------------------------------------------------------------------------------------------- --------
   Long-term debt                          685     4,551    4,491    4,211    14,796  (11,259)    17,475
   -------------------------------------------------------------------------------------------- --------
   Postemployment benefit obligation       111     2,888    2,703    3,049     3,564   (2,703)     9,612
   -------------------------------------------------------------------------------------------- --------
   Other noncurrent liabilities          1,856     1,845    1,486    1,143     4,271   (1,512)     9,089
   -------------------------------------------------------------------------------------------- --------
   Corporation-obligated mandatorily
    redeemable preferred securities of
    subsidiary trusts                        -     1,000        -        -         -        -      1,000
   -------------------------------------------------------------------------------------------- --------
   Total shareowners' equity            26,726     3,128    2,719    2,901    15,330   (24,078)   26,726
   -------------------------------------------------------------------------------------------- --------
   Total Liabilities
    and Shareowners' Equity           $ 34,089   $18,356 $ 15,938  $16,431  $ 58,951 $ (60,550)$  83,215
   ============================================================================================ ========
</TABLE>

<TABLE>
<CAPTION>

   Condensed Consolidating Statements of Cash Flows
   Nine Months Ended September 30, 2000

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                 <C>       <C>     <C>       <C>               <C>       <C>
   Net cash from operating activities  $ 3,149   $ 2,959 $ 2,287   $ 2,444  $  3,699 $ (3,592) $ 10,946
   Net cash from investing activities   (4,261)   (2,108) (2,035)   (2,483)   (2,464)   1,704   (11,647)
   Net cash from financing activities    1,345      (854)   (255)       32    (1,408)   1,891       751
   -------------------------------------------------------------------------------------------- --------
   Net Increase (Decrease) in Cash     $   233   $    (3)$    (3)  $    (7) $   (173)$      3  $     50
    =========================================================================================== ========
</TABLE>

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

<TABLE>
<CAPTION>

   Condensed Consolidating Statements of Cash Flows
   Nine Months Ended September 30, 1999

                                        Parent      PAC  PacBell    SWBell   Other     Adjs.    Total
   -------------------------------------------------------------------------------------------- --------
   <S>                                 <C>       <C>     <C>       <C>      <C>      <C>       <C>
   Net cash from operating activities  $ 1,005   $ 2,084 $  2,293  $ 2,988  $  5,687 $ (2,558) $ 11,499
   Net cash from investing activities      (22)   (1,880)  (1,665)  (2,075)   (6,424)   1,666   (10,400)
   Net cash from financing activities   (1,248)     (188)    (614)    (886)      892      878    (1,166)
   -------------------------------------------------------------------------------------------- --------
   Net Increase (Decrease) in Cash     $  (265)  $    16 $     14  $    27  $    155 $    (14) $    (67)
   ============================================================================================ ========
</TABLE>



<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

7. 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 change for the three and nine months ended
   September 30, 2000 and 1999 are shown in the table below.

<TABLE>
<CAPTION>

   -------------------------------------------------------------------------------
                                            Three months ended  Nine months ended
                                               September 30,      September 30,
                                               2000      1999    2000      1999
   -------------------------------------------------------------------------------
  <S>                                         <C>      <C>      <C>     <C>
   Numerators
   Numerator for basic earnings per share:
     Income before cumulative effect of
       accounting change                      $ 2,999  $ 1,135  $6,672  $ 4,846
   -------------------------------------------------------------------------------
     Dilutive potential common shares:
     Other stock-based compensation                 1        1       4        3
   -------------------------------------------------------------------------------
   Numerator for diluted earnings per share   $ 3,000  $ 1,136  $6,676  $ 4,849
   ===============================================================================
   Denominators (000,000)
   Denominator for basic earnings per share:
    Weighted average number of common
      shares outstanding                        3,387    3,414   3,393    3,411
   -------------------------------------------------------------------------------
    Dilutive potential common shares:
      Stock options                                30       42      31       43
      Other stock-based compensation                8        7       7        7
   -------------------------------------------------------------------------------
   Denominator for diluted earnings per share   3,425    3,463   3,431    3,461
   ===============================================================================
   Basic earnings per share:
    Income before cumulative effect of
     accounting change                        $  0.89  $  0.33  $ 1.97  $  1.42
    Cumulative effect of accounting change          -        -       -     0.06
   -------------------------------------------------------------------------------
   Net income                                 $  0.89  $  0.33  $ 1.97  $  1.48
   ===============================================================================
   Diluted earnings per share:
    Income before cumulative effect of
     accounting change                        $  0.88  $  0.33  $ 1.95  $  1.40
    Cumulative effect of accounting change          -        -       -     0.06
   -------------------------------------------------------------------------------
   Net income                                 $  0.88  $  0.33  $ 1.95  $  1.46
   ===============================================================================
</TABLE>

   Under the Financial Accounting Standards Board's proposed Exposure Draft
   issued in September 1999, "Business Combinations and Intangible Assets", SBC
   would begin reporting on the income statement an earnings per share amount
   which excludes all goodwill charges (amortization expense and impairment
   losses). Goodwill charges related to investments in equity affiliates are
   currently included in equity in net income of affiliates on the income
   statement.

   The diluted earnings per share before goodwill charges for net income was
   $0.90 and $2.05 for the three and nine months ended September 30, 2000 and
   $0.43 and $1.59 for the three and nine months ended September 30, 1999.

8. SEGMENT INFORMATION SBC's segments are strategic business units that offer
   different products and services and are managed accordingly. We evaluate
   performance based on income before income taxes adjusted for normalizing
   (i.e. one-time) items.
<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

   We have four reportable segments that reflect the current management of our
   business: (1) wireline; (2) wireless; (3) information and entertainment; and
   (4) international. The wireline segment provides landline telecommunications
   services, including local, network access and long distance services,
   messaging and Internet services and sells customer premise and private
   business exchange equipment. The wireless segment provides wireless
   telecommunications services, including local and long distance services, and
   sells wireless equipment. The information and entertainment segment consists
   of directory operations including advertising, yellow pages, white pages and
   electronic publishing and Ameritech's electronic security and cable
   television operations. All international investment operations are disclosed
   separately in the international segment.

   Normalized results for 2000 exclude the following items:

   o  Gains of $1,699 ($1,125 net of tax) in the third quarter and for the first
      nine months related to the sale of direct and indirect interests in MATAV
      and Netcom GSM, two international equity investments.

   o  Gains of $238 ($155 net of tax) in the third quarter and for the first
      nine months on the sale of Telefonos de Mexico, S.A. de C.V. L shares
      associated with SBC's purchase of a Mandatorily Exchangeable Debt
      Securities note with characteristics that will essentially offset future
      mark to market adjustments on the Debt Exchangeable for Common Stock.

   o  Pension settlement gains of $29 ($19 net of tax) in the third quarter
      associated with pension litigation and $403 ($260 net of tax) for the
      first nine months primarily related to employees who terminated employment
      during 1999. These third quarter and first nine month gains were primarily
      in the wireline segment.

   o  Costs of $400 ($258 net of tax) in the third quarter and $780 ($528 net of
      tax) for the first nine months primarily in the wireline segment
      associated with strategic initiatives and other adjustments resulting from
      the merger integration process with Ameritech.

   o  A charge of $132 in the first nine months (with no tax effect) in the
      wireline segment related to in-process research and development from the
      March 2000 acquisition of Sterling Commerce, Inc. (Sterling).

   Normalized results for 1999 exclude the following items:

   o  Costs of $884 ($883 net of tax) in the third quarter and for the first
      nine months related to conforming accounting estimation techniques and
      valuation assumptions, the impairment of a portion of the accounting
      goodwill associated with Ameritech's security business and costs
      associated with strategic initiatives resulting from the merger
      integration process with Ameritech.

   o  Income of $73 ($47 net of tax) in the third quarter and $191 ($114 net of
      tax) for the first nine months in the wireless segment from the
      incremental impacts of overlapping wireless properties sold in October
      1999.

   o  A reduction of $45 ($27 net of tax), primarily in the wireless segment, in
      the first nine months for a portion of a first quarter 1998 charge to
      cover the cost of consolidating security monitoring centers and
      company-owned wireless retail stores.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

   Segment results, including a reconciliation to our consolidated results, for
   the third quarter of 2000 and 1999 and for the nine months ended September
   30, 2000 and 1999 are as follows:

   --------------------------------------------------------------------------
                                      Revenues
   For the three months ended       from external   Intersegment  Income before
   September 30, 2000                 customers      revenues      income taxes
   --------------------------------------------------------------------------
   Wireline                           $  10,074      $    52       $  1,766
   Wireless                               2,214            1            370
   Information and entertainment          1,042           17            368
   International                             77            2            209
   Corporate, adjustments &
    eliminations                             46          (72)           425
   Normalizing adjustments                    1            -          1,566
   --------------------------------------------------------------------------
   Total                              $  13,454      $     -       $  4,704
   ==========================================================================

   --------------------------------------------------------------------------
                                      Revenues
   For the three months ended       from external   Intersegment  Income before
   September 30, 1999                 customers      revenues      income taxes
   --------------------------------------------------------------------------
   Wireline                           $   9,425      $    80       $  2,189
   Wireless                               1,882            -            317
   Information and entertainment          1,055           16            352
   International                             56            3            150
   Corporate, adjustments &
    eliminations                             43          (99)            91
   Normalizing adjustments                   84            -           (811)
   --------------------------------------------------------------------------
   Total                              $  12,545      $     -       $  2,288
   ==========================================================================
<TABLE>
<CAPTION>

   -------------------------------------------------------------------------------------
                                      Revenues
   At September 30, 2000 or for     from external  Intersegment  Income before   Segment
   the nine months ended              customers      revenues    income taxes     assets
   -------------------------------------------------------------------------------------
   <S>                                <C>            <C>          <C>          <C>
   Wireline                           $ 29,592       $ 166        $  5,918     $ 61,444
   Wireless                              6,144           1             960       13,872
   Information and entertainment         3,111          72           1,018        3,787
   International                           245           2             642       12,096
   Corporate, adjustments &
    eliminations                           145        (241)            612        3,377
   Normalizing adjustments                   -           -           1,428            -
   -------------------------------------------------------------------------------------
   Total                              $ 39,237       $   -       $  10,578     $ 94,576
   =====================================================================================
</TABLE>


<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

<TABLE>
<CAPTION>

   -------------------------------------------------------------------------------------
                                      Revenues
   At September 30, 1999 or for     from external  Intersegment  Income before   Segment
   the nine  months ended             customers      revenues    income taxes     assets
   -------------------------------------------------------------------------------------
   <S>                                <C>            <C>          <C>          <C>
   Wireline                           $ 27,764       $  239       $  6,569     $ 52,876
   Wireless                              4,945            -            720       12,642
   Information and entertainment         3,060           72            940        3,638
   International                           172           11            498       13,542
   Corporate, adjustments &
    eliminations                           156         (322)            37         (852)
   Normalizing adjustments                 528            -           (648)           -
   -------------------------------------------------------------------------------------
   Total                              $ 36,625       $    -       $  8,116     $ 81,846
   =====================================================================================
</TABLE>

   Corporate, adjustments and eliminations include corporate activities, the
   elimination of intersegment transactions and other adjustments. Included in
   other adjustments are differences in accounting between subsidiaries and
   consolidated financial statements for pension and postretirement benefits and
   the treatment of conforming accounting adjustments arising out of the pooling
   of interests transactions with Ameritech, SNET and PAC that were required to
   be treated as cumulative effect of accounting changes by the subsidiaries.

9. ACQUISITIONS AND DISPOSITIONS In March 2000, SBC acquired Sterling, a
   provider of electronic business integration solutions, in an all cash tender
   offer valued at approximately $3,576. We accounted for the transaction under
   the purchase method of accounting. The valuation of assets acquired includes
   certain intangible assets such as developed technology, tradename, assembled
   workforce, customer relationships and goodwill, which will be amortized over
   their remaining useful lives of between 3 and 20 years. We expensed the
   acquired in-process research and development of approximately $132 in March
   2000. We included the results of operations in the consolidated financial
   statements from the date of the acquisition.

   In July 2000, SBC exercised its right to sell its interest in MATAV, a
   Hungarian telecommunications company, to Deutsche Telekom, SBC's partner in
   the investment, for approximately $2,199. The transaction closed in August
   2000 with a pre-tax gain of approximately $1,153.

   In August 2000, Tele Danmark and SBC sold their interests in Netcom GSM, a
   wireless telecommunications provider in Norway, to a third party with a
   pre-tax gain of approximately $546.

10.WIRELESS TRANSACTIONS In August 2000, SBC acquired wireless properties in
   Texas and Washington from GTE Corporation for approximately $1,349. The
   properties acquired cover a population of more than 7.4 million people and
   included approximately 318,000 customers, and were included in the
   contribution to the wireless joint venture with BellSouth Corporation
   (BellSouth).

   In October 2000, SBC and BellSouth began contributions of their wireless
   properties and formally began operations of their wireless joint venture,
   Cingular Wireless (Cingular), formed in April 2000. Cingular serves more than
   19 million customers, the second largest wireless operator in the United
   States, and has approximately 190 million potential customers in 38 states,
   the District of Columbia, Puerto Rico and the United States Virgin Islands.
   Ownership in Cingular is held 60% by SBC and 40% by BellSouth, with control
   shared equally. SBC will account for its interest under the equity

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

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

   method of accounting. Cingular will be managed independently with a four-seat
   board of directors (two seats from each company). The contributions to
   Cingular were made after we received the approval of the United States
   Department of Justice and the Federal Communications Commission.

   At the contribution date we were required to sell our overlapping properties
   in Indianapolis, Indiana and selected Radiofone properties in New Orleans and
   Baton Rouge, Louisiana. We received approximately $930 in proceeds from these
   sales and will record pre-tax gains of more than $300 in the fourth quarter
   of 2000.

11.VOLUNTARY ENHANCED PENSION AND RETIREMENT PROGRAM In October 2000, we
   implemented a voluntary enhanced pension and retirement benefit program to
   reduce the number of management employees. The program offers eligible
   management employees who decide to terminate employment with SBC an enhanced
   pension and increased eligibility for post-retirement medical and dental
   benefits. Most of the employees who accepted this offer should terminate
   employment before the end of the year, however, under the program, SBC may
   retain employees for up to one year. If our cost savings targets are not met
   through the voluntary program, there may be involuntary personnel reductions
   in the fourth quarter of 2000.

   We are still evaluating the results of the program, but we expect to report
   in the fourth quarter significant costs attributable to the enhanced benefits
   and significant pension settlement gains. We currently anticipate that the
   pension settlement gains will exceed the enhanced benefits costs and any
   collateral severance costs.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

Overview Financial results for SBC Communications Inc. (SBC) for the third
quarter and the first nine months of 2000 and 1999 are summarized as follows:

--------------------------------------------------------------------------------------
                                       Third Quarter           Nine-Month Period
                                                   Percent                    Percent
                                   2000     1999   Change     2000     1999   Change
--------------------------------------------------------------------------------------
<S>                             <C>      <C>        <C>    <C>      <C>         <C>
Operating revenues              $ 13,454 $ 12,545    7.2%  $ 39,237 $ 36,625     7.1%
Operating expenses                10,608   10,083    5.2%    30,317   27,885     8.7%
Operating income                   2,846    2,462   15.6%     8,920    8,740     2.1%
Income before income taxes and
  cumulative effect of
  accounting change                4,704    2,288      -     10,578    8,116    30.3%
Income before cumulative effect
  of accounting change             2,999    1,135      -      6,672    4,846    37.7%
Cumulative effect of accounting
  change                               -        -      -          -      207       -
Net income                         2,999    1,135      -      6,672    5,053    32.0%
======================================================================================
</TABLE>

SBC reported net income of $2,999, or $0.88 per share assuming dilution, in the
third quarter of 2000 and $6,672, or $1.95 per share assuming dilution, for the
first nine months of 2000 compared to $1,135, or $0.33 per share assuming
dilution, in the third quarter of 1999 and $5,053, or $1.46 per share assuming
dilution, for the first nine months of 1999.

The first nine months of 1999 included a cumulative effect of accounting change
related to accounting for directory revenues and expenses (see Note 3 of Notes
to Consolidated Financial Statements). The third quarter and first nine months
of 2000 and 1999 also included several items that SBC normalizes for management
purposes.

Normalized results for 2000 exclude the following items:

o  Gains of $1,699 ($1,125 net of tax) in the third quarter and for the first
   nine months related to the sale of direct and indirect interests in MATAV and
   Netcom GSM, two international equity investments.

o  Gains of $238 ($155 net of tax) in the third quarter and for the first nine
   months on the sale of Telefonos de Mexico, S.A. de C.V. (Telmex), L shares
   associated with SBC's purchase of a Mandatorily Exchangeable Debt Securities
   note with characteristics that will essentially offset future mark to market
   adjustments on the Debt Exchangeable for Common Stock (DECS).

o  Pension settlement gains of $29 ($19 net of tax) in the third quarter
   associated with pension litigation and $403 ($260 net of tax) for the first
   nine months primarily related to employees who terminated employment during
   1999. These third quarter and first nine month gains were primarily in the
   wireline segment.

o  Costs of $400 ($258 net of tax) in the third quarter and $780 ($528 net of
   tax) for the first nine months primarily in the wireline segment associated
   with strategic initiatives and other adjustments resulting from the merger
   integration process with Ameritech Corporation (Ameritech).


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

o  A charge of $132 in the first nine months (with no tax effect) in the
   wireline segment related to in-process research and development from the
   March 2000 acquisition of Sterling Commerce, Inc. (Sterling).

Normalized results for 1999 exclude the following items:

o  Costs of $884 ($883 net of tax) in the third quarter and for the first nine
   months related to conforming accounting estimation techniques and valuation
   assumptions, the impairment of a portion of the accounting goodwill
   associated with Ameritech's security business and costs associated with
   strategic initiatives resulting from the merger integration process with
   Ameritech.

o  Income of $73 ($47 net of tax) in the third quarter and $191 ($114 net of
   tax) for the first nine months in the wireless segment from the incremental
   impacts of overlapping wireless properties sold in October 1999.

o  A reduction of $45 ($27 net of tax), primarily in the wireless segment, in
   the first nine months for a portion of a first quarter 1998 charge to cover
   the cost of consolidating security monitoring centers and company-owned
   wireless retail stores.

Excluding the 2000 and 1999 normalizing items, SBC's income before cumulative
effect of accounting change was $1,958, or $0.57 per share assuming dilution, in
the third quarter of 2000 and $5,792, or $1.69 per share assuming dilution, for
the first nine months of 2000 compared to $1,971, or $0.57 per share assuming
dilution, in the third quarter of 1999 and $5,588, or $1.62 per share assuming
dilution, for the first nine months of 1999.

The primary factors contributing to the increase in consolidated revenues were
growth in demand for data communications and wireless services and products.
These increases were partially offset by increased operating expenses related to
the buildout of our broadband network, and investments in new products and
services, including Digital Subscriber Line (DSL), national expansion and long
distance service. The national expansion initiative is SBC's plan to enter the
top 30 metropolitan markets beyond its traditional regions by October 2001.
InterLATA long distance service was launched in Texas on July 10, 2000.

Segment Results

The following tables show components of normalized results of operations by
segment. A discussion of significant segment results is also presented.
Intercompany interest affects the segment results of operations but is not
discussed as it is eliminated in consolidation. The consolidated results section
discusses interest expense, other income (expense) - net and income taxes.


<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

Wireline

Wireline provides landline telecommunications services, including local, network
access and long distance services, messaging and Internet services and sells
customer premise and private business exchange equipment.

--------------------------------------------------------------------------------
                                  Third Quarter            Nine-Month Period
                                              Percent                   Percent
                               2000      1999  Change    2000      1999  Change
--------------------------------------------------------------------------------
Operating revenues
  Local service              $ 5,721 $  5,006   14.3%  $16,342 $ 14,469   12.9%
  Network access               2,515    2,571   (2.2)    7,901    7,675    2.9
  Long distance service          750      843  (11.0)    2,241    2,627  (14.7)
  Other                        1,140    1,085    5.1     3,274    3,232    1.3
---------------------------------------------         ------------------
Total Operating Revenues      10,126    9,505    6.5    29,758   28,003    6.3
---------------------------------------------         ------------------
Operating expenses
  Operations and support       6,111    5,320   14.9    17,332   15,573   11.3
  Depreciation and
   amortization                1,959    1,725   13.6     5,636    5,051   11.6
---------------------------------------------         ------------------
Total Operating Expenses       8,070    7,045   14.5    22,968   20,624   11.4
---------------------------------------------         ------------------
Operating Income               2,056    2,460  (16.4)    6,790    7,379   (8.0)
---------------------------------------------         ------------------
Interest Expense                (297)    (292)   1.7      (925)    (877)   5.5
---------------------------------------------         ------------------
Other Income (Expense) - Net       7       21  (66.7)       53       67  (20.9)
---------------------------------------------         ------------------
Income Before Income Taxes   $ 1,766 $  2,189  (19.3)% $ 5,918 $  6,569   (9.9)%
================================================================================

   Local service revenues increased $715, or 14.3%, in the third quarter and
   $1,873, or 12.9%, for the first nine months of 2000. Excluding the operations
   of Sterling, acquired in March 2000, the increases were approximately 11.7%
   in the third quarter and 10.9% for the first nine months of 2000.
   Approximately $179 of the increase in the third quarter and $390 for the
   first nine months of 2000 was attributable to increased demand from business
   customers for network integration and Internet services. Wholesale revenues
   accounted for approximately $122 of the third-quarter increase and $264 of
   the increase for the first nine months of 2000. Increased demand for vertical
   services such as Caller ID, Call Waiting, voice mail and other enhanced
   services increased revenue by approximately $103 in the third quarter and
   $260 for the first nine months of 2000. Demand for data services in the
   residential market increased local service revenues by approximately $67 in
   the third quarter and $103 for the first nine months of 2000. Directory
   assistance revenues increased approximately $33 in the third quarter and $56
   for the first nine months of 2000, primarily due to price increases in
   California, Illinois and Texas.

   The introduction of extended area service plans and the September 1999 Texas
   Universal Service Fund (TUSF) rate rebalancing collectively increased local
   service revenues by approximately $19 in the third quarter and $131 for the
   first nine months of 2000. However, these regulatory actions had only a

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

   nominal effect on overall revenue because they decreased intrastate network
   access revenues by approximately $23 in the third quarter and $98 for the
   first nine months of 2000 and decreased long distance revenues by
   approximately $2 in the third quarter and $22 for the first nine months of
   2000. The Texas Public Utility Commission has stated that the TUSF is
   intended, among other things, to help support the provision of basic local
   telephone service to high-cost rural areas.

   Network access revenues decreased $56, or 2.2%, in the third quarter and
   increased $226, or 2.9%, for the first nine months of 2000. The third quarter
   decline was primarily due to the July 2000 implementation of the Coalition
   for Affordable Local and Long Distance Service (CALLS) proposal, which
   required reduction of carrier switched access rates. Implementation of CALLS
   reduced third quarter network access revenues by approximately $167.
   Additionally, intrastate access rate reductions in Texas resulted in a
   decrease in network access revenues of approximately $70 in the third quarter
   and $184 for the first nine months of 2000. These decreases in access rates
   were largely offset by continued demand for special access and switched data
   transport services, as well as higher network usage by alternative providers
   of intraLATA toll services.

   Long distance service revenues decreased $93, or 11.0%, in the third quarter
   and $386, or 14.7%, for the first nine months of 2000. Long distance service
   revenues decreased by approximately $69 in the third quarter and $265 for the
   first nine months of 2000 due to competitive losses resulting from dialing
   parity implementation. This decrease was partially offset by an increase of
   approximately $6 in the third quarter and $24 for the first nine months of
   2000 due to price increases in Illinois, Indiana, Michigan and Ohio. The
   decrease was also offset by approximately $18 in the third quarter and for
   the first nine months of 2000 from entry into the Texas long distance market.
   The continued introduction of extended area service plans, as described above
   in local service, decreased long distance revenues by approximately $2 in the
   third quarter and $22 for the first nine months of 2000, which increased
   local service revenues by the same amounts.

   Other operating revenues increased $55, or 5.1%, in the third quarter and
   $42, or 1.3%, for the first nine months of 2000. Equipment sales increases,
   primarily residential, of approximately $50 in the third quarter and $105 for
   the first nine months of 2000, were partially offset by declines in the
   payphone business of approximately $28 in the third quarter and $71 for the
   first nine months of 2000. Sales of other nonregulated products and services
   increased in the third quarter and were up slightly for the first nine months
   of 2000.

   Operations and support expenses increased $791, or 14.9%, in the third
   quarter and $1,759, or 11.3%, for the first nine months of 2000.
   Approximately $259 of third quarter and $608 of the first nine months
   increases were related to costs associated with the continued rollout of DSL.
   Personnel increases, particularly in the residential and business channels,
   increased operations and support expenses by approximately $150 in the third
   quarter and $353 for the first nine months of 2000. Operations and support
   expenses also increased approximately $247 in the third quarter and $502 for
   the first nine months of 2000 due to costs associated with network
   integration and E-Commerce services, including costs of Sterling. In
   addition, SBC's national expansion initiative increased expenses by
   approximately $119 in the third quarter and $222 for the first nine months of
   2000.

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

   Depreciation and amortization expenses increased $234, or 13.6%, in the third
   quarter and $585, or 11.6%, for the first nine months of 2000. Overall higher
   plant levels increased depreciation expense by approximately $85 in the third
   quarter and $239 for the first nine months of 2000. The acquisition of
   Sterling caused an increase of approximately $86 in the third quarter and
   $178 for the first nine months of 2000. Amortization of capitalized software
   also increased approximately $56 in the third quarter and $153 for the first
   nine months of 2000.

Wireless

<TABLE>
<CAPTION>

Wireless provides wireless telecommunications services, including local and long
distance services, and sells wireless equipment.

------------------------------------------------------------------------------------
                                   Third Quarter            Nine-Month Period
                                                 Percent                    Percent
                                2000     1999    Change    2000     1999    Change
------------------------------------------------------------------------------------
<S>                          <C>       <C>        <C>   <C>      <C>          <C>
Operating revenues
  Subscriber revenues        $  1,749  $  1,457   20.0% $  4,897 $  3,872     26.5%
  Other                           466       425    9.6     1,248    1,073     16.3
-----------------------------------------------         ------------------
Total Operating Revenues        2,215     1,882   17.7     6,145    4,945     24.3
-----------------------------------------------         ------------------
Operating expenses
  Operations and support        1,429     1,191   20.0     3,996    3,316     20.5
  Depreciation and
   amortization                   248       262   (5.3)      817      632     29.3
-----------------------------------------------         ------------------
Total Operating Expenses        1,677     1,453   15.4     4,813    3,948     21.9
-----------------------------------------------         ------------------
Operating Income                  538       429   25.4     1,332      997     33.6
-----------------------------------------------         ------------------
Interest Expense                 (143)      (68)     -      (267)    (152)    75.7
-----------------------------------------------         ------------------
Equity in Net Income of
 Affiliates                         7        12  (41.7)        7       28    (75.0)
-----------------------------------------------         ------------------
Other Income (Expense) - Net      (32)      (56) (42.9)     (112)    (153)   (26.8)
-----------------------------------------------         ------------------
Income Before Income Taxes   $    370  $    317   16.7% $    960 $    720     33.3%
====================================================================================
</TABLE>

   Subscriber revenues increased $292, or 20.0%, in the third quarter and
   $1,025, or 26.5%, for the first nine months of 2000. Approximately $40 of the
   increase in the third quarter and $385 for the first nine months of 2000 was
   due to acquisitions of wireless properties. The remaining increases were
   primarily due to the net additions of 486,000 customers in the third quarter
   and 1,361,000 customers for the first nine months of 2000. Average revenue
   per customer declined by approximately 2.0% in the third quarter but was flat
   for the first nine months of 2000. At September 30, 2000, domestic wireless
   customers totaled 13,025,000.

   Other wireless revenues increased $41, or 9.6%, in the third quarter and
   $175, or 16.3%, for the first nine months of 2000. The increase was primarily
   due to increased equipment sales of approximately $49 in the third quarter
   and $104 for the first nine months of 2000, related to the increase in gross
   customer additions of 43% in the third quarter and 37% for the first nine
   months of 2000.

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

   Additionally, in the third quarter, outcollect roaming revenues (revenues
   from non-SBC wireless customers roaming on SBC's wireless network) decreased
   by approximately $7, due to reduced rates and usage, but increased for the
   first nine months of 2000 by approximately $76, due to acquisitions.

   Operations and support expenses increased $238, or 20.0%, in the third
   quarter and $680, or 20.5%, for the first nine months of 2000 due primarily
   to the net additions of customers discussed in subscriber revenues. Equipment
   costs also increased as a result of the increase in equipment sales noted
   above.

   Depreciation and amortization expenses decreased by $14, or 5.3%, in the
   third quarter and increased by $185, or 29.3%, for the first nine months of
   2000. The third quarter of 2000 includes approximately a $35 decrease
   resulting from a purchase price allocation true-up adjustment related to the
   third quarter 1999 acquisition of Comcast Cellular Corporation (Comcast) and
   Cellular Communications of Puerto Rico (Cellular Communications). The nine
   month increase was primarily related to these third quarter 1999
   acquisitions.

Under the terms of our joint venture agreement with BellSouth Corporation
(BellSouth) (see Note 10 of Notes to Consolidated Financial Statements), we will
begin accounting for our interest in Cingular Wireless (Cingular) using the
equity method of accounting in the fourth quarter of 2000. However, we currently
anticipate using proportional consolidation in evaluating the results of
Cingular internally. Consequently, our prospective wireless segment results will
reflect 60% of the results of Cingular.

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

Information and Entertainment
<TABLE>
<CAPTION>

Information and entertainment consists of directory operations including
advertising, yellow pages, white pages and electronic publishing, electronic
security and cable television operations.

-----------------------------------------------------------------------------------
                                  Third Quarter            Nine-Month Period
                                                Percent                    Percent
                               2000     1999    Change    2000     1999    Change
-----------------------------------------------------------------------------------
<S>                         <C>      <C>         <C>   <C>      <C>          <C>
Operating Revenues          $  1,059 $  1,071    (1.1)%$  3,183 $  3,132      1.6%
----------------------------------------------         ------------------
Operating expenses
  Operations and support         618      659    (6.2)    1,945    2,022     (3.8)
  Depreciation and
   amortization                   54       49    10.2       161      141     14.2
----------------------------------------------         ------------------
Total Operating Expenses         672      708    (5.1)    2,106    2,163     (2.6)
----------------------------------------------         ------------------
Operating Income                 387      363     6.6     1,077      969     11.1
----------------------------------------------         ------------------
Interest Expense                 (25)     (13)   92.3       (75)     (37)       -
----------------------------------------------         ------------------
Other Income (Expense)
 - Net                             6        2       -        16        8        -
----------------------------------------------         ------------------
Income Before Income Taxes  $    368 $    352     4.5% $  1,018 $    940      8.3%
===================================================================================
</TABLE>

   Information and entertainment operating revenues decreased $12, or 1.1%, in
   the third quarter and increased $51, or 1.6%, for the first nine months of
   2000. A change in the timing of the publication of directories to the fourth
   quarter caused a decrease of approximately $48 in the third quarter,
   partially offset by an increase of approximately $29 related to increased
   demand for directory advertising services. Increased demand for directory
   advertising services contributed approximately $93 to the increase for the
   first nine months of 2000, offset by a decrease of approximately $66 related
   to the change in the timing of directory publications. Also contributing to
   the nine month increase was approximately $29 from growth in subscribers at
   Ameritech's cable business.

   Operations and support expenses decreased $41, or 6.2%, in the third quarter
   and $77, or 3.8%, for the first nine months of 2000. Of these decreases
   approximately $11 in the third quarter and $13 for the first nine months were
   due to changes in the timing of directory publications noted above, and the
   remaining reductions are primarily related to cost savings in the directory
   operations from the merger integration process with Ameritech.

<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

<TABLE>
<CAPTION>

International

-----------------------------------------------------------------------------------
                                  Third Quarter            Nine-Month Period
                                                Percent                    Percent
                               2000     1999    Change    2000     1999    Change
-----------------------------------------------------------------------------------
<S>                           <C>     <C>         <C>   <C>      <C>        <C>
Operating Revenues            $   79  $   59      33.9% $   247  $  183     35.0%
----------------------------------------------         ------------------
Operating Expenses               144      77      87.0      351     220     59.5
----------------------------------------------         ------------------
Operating Income (Loss)          (65)    (18)        -     (104)    (37)      -
----------------------------------------------         ------------------
Interest Expense                 (36)    (42)    (14.3)    (173)   (173)      -
----------------------------------------------         ------------------
Equity in Net Income of
Affiliates                       207     208      (0.5)     604     546     10.6
----------------------------------------------         ------------------
Other Income (Expense) - Net     103       2         -      315     162     94.4
----------------------------------------------         ------------------
Income Before Income Taxes    $  209  $  150      39.3% $   642  $  498     28.9%
===================================================================================
</TABLE>

   Operating revenues increased $20, or 33.9%, in the third quarter and $64, or
   35.0%, for the first nine months of 2000. The increase was primarily from
   increased volume-related long distance revenues.

   Operating expenses increased $67, or 87.0%, in the third quarter and $131, or
   59.5%, for the first nine months of 2000. The increase was partly due to the
   costs associated with the increased long distance volumes as noted above and
   partly due to an increase in parent allocated charges.

   Equity in net income of affiliates decreased $1, or 0.5%, in the third
   quarter and increased $58, or 10.6%, for the first nine months of 2000. In
   the third quarter of 2000, SBC sold investments in the Aurec companies in
   Israel and MATAV, a Hungarian telecommunications company, which resulted in
   reductions in equity in net income totaling approximately $3 in the third
   quarter of 2000. Additionally, SBC's investments in ATL-Algar Telecom Leste
   S.A., a Brazilian communications company (ATL) and Amdocs Limited (Amdocs)
   had equity losses as compared to the prior year, totaling a decrease of
   approximately $43 in the third quarter and $87 for the first nine months of
   2000. TeleDanmark had lower equity income in the third quarter and for the
   first nine months of 2000 due primarily to the decline in the value of the
   Danish Kroner, which resulted in reductions of approximately $8 in the third
   quarter and $25 for the first nine months. Offsetting these decreases were
   increases in equity in net income from SBC's investments in Telmex and Bell
   Canada, for a total increase of approximately $50 in the third quarter and
   $169 for the first nine months of 2000.


<PAGE>

SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

RESULTS OF OPERATIONS - Continued

Consolidated Results

Interest expense increased $57, or 15.6%, in the third quarter and $125, or
11.7%, for the first nine months of 2000. This increase was primarily due to
higher composite rates and increased debt levels in 2000.

Other income (expense) - net increased $2,042 to income of $2,013 in the third
quarter of 2000 from expense of $29 in the third quarter of 1999. Other income
increased $2,325 to income of $2,196 for the first nine months of 2000 from
expense of $129 for the first nine months of 1999. The increases in the third
quarter and first nine months of 2000 are primarily due to gains on the sale of
our interests in MATAV and Netcom GSM totaling approximately $1,699.
Additionally, the increases are due to a decline in the market value of the DECS
redeemable in Telmex L shares in 2000 as compared to an increase in 1999, net of
gains recognized from the sale of Telmex L shares, resulting in a year over year
increase totaling approximately $210 in the third quarter and $498 for the first
nine months. Gains of approximately $7 in the third quarter and $72 for the
first nine months of 2000 were recognized for market adjustments on shares of
Amdocs used for deferred compensation. An offsetting deferred compensation
expense was recorded in operations and support expense.

The third quarter and first nine months of 1999 included charges of
approximately $22 to write down several of Ameritech's cost investments to
conform with SBC methodology. The first nine months of 1999 included gains from
the sale of a portion of Amdocs shares of approximately $92 in a secondary
offering, as well as gains of $52 representing market adjustments on Amdocs
shares used for contributions to the SBC Foundation and deferred compensation.
Results for the first nine months of 1999 also included a gain of approximately
$59 recognized from the sale of SBC's investment in Chile and a gain of
approximately $24 recognized from the sale of discontinued plant.

Other income (expense) - net in future periods will not reflect changes in the
market value of the DECS. See liquidity and capital resources for a discussion
of the sale of Telmex L shares.

Income Taxes in 2000 and 1999 reflect the tax effect of the normalizing items
previously described in the Overview section. These charges increased income
taxes by $525 in the third quarter and by $548 for the first nine months of 2000
and by $25 in the third quarter and $94 for the first nine months of 1999. The
net effective tax rate on these one-time items differed as a result of
nondeductible items included in the charges. Excluding these items, income taxes
for the third quarter and first nine months of 2000 would have been $1,180 and
$3,358. Income taxes for the third quarter and first nine months of 1999 would
have been $1,128 and $3,176 excluding one-time charges. Income taxes were higher
due primarily to higher income before income taxes and an increase in the
effective tax rate due to higher nondeductible items in 2000.

COMPETITIVE AND REGULATORY ENVIRONMENT

Kansas and Oklahoma Long Distance In September 2000, the Oklahoma Corporation
Commission approved SBC's application to provide interLATA long distance service
for calls originating in Oklahoma.

<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

COMPETITIVE AND REGULATORY ENVIRONMENT - Continued

In October 2000, the Kansas Corporation Commission approved SBC's application to
provide such service for calls originating in Kansas. On October 26, 2000, both
applications were filed with the Federal Communications Commission (FCC) for
approval and the FCC has 90 days to rule on the applications. SBC continues to
seek long distance approval in its other in-region states and has filed
applications with state commissions in Arkansas, California, Missouri and
Nevada.

Illinois Service Standards SBC expects the Illinois Commerce Commission to
impose a $30 fine for failure to satisfy a service repair standard imposed by
the merger with Ameritech. The fine is related to calendar year 2000 performance
and will be imposed through credits to customer bills. SBC expects to begin
issuing the credits in February 2001 and accrued operating expense of $30 in the
second and third quarters of 2000 for that purpose.

Missouri Interconnection Agreement In September 2000, SBC reached a settlement
agreement with MCI WorldCom Inc. (MCI) concerning reciprocal compensation for
calls to Internet service providers under interconnection agreements with
various MCI companies. The settlement did not exceed amounts previously accrued.

Ohio Service Quality Ruling In September 2000, the Public Utilities Commission
of Ohio (PUCO) upheld, in most respects, its July order imposing marketing
restrictions; SBC's request for relief from dividend restrictions remains
pending. In October 2000, the PUCO ordered an outside audit of Ameritech Ohio
service quality covering the period August 1999 to December 2001. In addition,
SBC will be required to pay certain on-going expenses of the PUCO staff in
relation to the Ohio service quality investigation. SBC does not expect the
payment of these expenses to have a material effect on SBC's results of
operations or financial position.

Ameritech Customer Credits In October 2000, SBC announced, as part of both a
voluntary credit program as well as negotiations with a state utility commission
to resolve ongoing service issues in Ameritech areas, that it will provide
credits for lost dial tone or delays in obtaining new service to certain
residential customers in the Ameritech region. Such credits will be recorded as
operating expense as incurred and are expected to total approximately $25 in
2000.

SecurityLink In October 2000, under terms of a consent decree reached with the
FCC, we agreed to enter into an agreement to divest SecurityLink by February
2001 or pay a $1 penalty to the United States government. The FCC found that
certain 1996 and 1997 acquisitions by SecurityLink violated provisions of the
Telecommunications Act of 1996 that prohibit local telephone companies from
owning alarm monitoring businesses. Certain aspects of a potential SecurityLink
divestiture, such as a general decline in the market value of companies in the
security industry and sale under order by the FCC, could negatively impact the
sales price such that proceeds could be less than the carrying value.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

OTHER BUSINESS MATTERS

Cumulative Effect of Change in Accounting See Note 3 of Notes to Consolidated
Financial Statements for a discussion of the change in directory accounting at
Ameritech.

New Accounting Standards In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133), which will require all derivatives to be recorded on the
balance sheet at fair value, and will require changes in the fair value of the
derivatives to be recorded in net income or comprehensive income. We plan to
adopt FAS 133 on January 1, 2001 as a one-time, non-cash cumulative effect of
accounting change. However, because of our minimal use of derivatives, we do not
expect that adoption of this standard will have a significant effect on our
financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
must be adopted by the fourth quarter of 2000. SAB 101 addresses, among other
items, when revenue relating to nonrefundable, up-front fees should be
recognized. We expect to defer the recognition of revenue and direct expenses
related to up-front fees with no significant effect on operating or net income.

Acquisitions and Dispositions See Note 9 of Notes to Consolidated Financial
Statements for a discussion of acquisitions and dispositions made during 2000.

Wireless Transactions See Note 10 of Notes to Consolidated Financial Statements
for a discussion of the wireless joint venture with BellSouth.

Voluntary Enhanced Pension and Retirement Program See Note 11 of Notes to
Consolidated Financial Statements for a discussion of the Voluntary Enhanced
Pension and Retirement Program.

Pending Transactions In August 2000, SBC and SpectraSite Communications, Inc.
(SpectraSite) announced an agreement under which we will grant the exclusive
rights to sublease space on our 3,900 communications towers to SpectraSite.
SpectraSite has also agreed to build or buy an estimated 800 new towers for us
over the next five years. We will receive total consideration of $1,308 in a
combination of cash and SpectraSite common stock. The transaction will close
incrementally beginning in the fourth quarter and continuing for over one year.
The payments we receive at closing will represent prepayments on the operating
leases with SpectraSite and will be recognized in revenue over the life of the
leases. Cingular (see Note 10 of Notes to Consolidated Financial Statements)
will sublease space on the towers from SpectraSite and will have expansion
rights on a majority of the existing towers.

In September 2000, SBC, Bell Canada International Inc. (BCI) and Telmex
announced revisions to the June 2000 agreement between Telmex and BCI governing
the formation of a new, facilities-based communications company which will serve
as the three companies' principal vehicle for expansion in Latin America. We
will take an 11.4% stake in the new company by contributing our investment in
ATL. When the contribution is made, we will account for our investment in the
new company as a cost investment. The agreement is expected to close in the
fourth quarter.

<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

OTHER BUSINESS MATTERS - Continued

Marketing Agreements In April 2000, SBC entered into a strategic marketing and
sales alliance with Cisco Systems, Inc. (Cisco) to accelerate delivery of
broadband services to customers. Through joint marketing and sales efforts, SBC
will package Cisco equipment with advanced voice, broadband data and network
integration services. The alliance also consists of a series of joint research
and product development activities.

In September 2000, SBC announced an agreement making Covad Communications
(Covad) an in-region and out-of-region DSL provider for SBC. SBC will begin
marketing both symmetric business service DSL and asymmetric consumer service
DSL provided by Covad throughout the United States. The companies will work
together on network, provisioning and product planning activities needed to
support the agreement. In November 2000, SBC purchased a minority ownership
position (approximately 6%) in Covad, after receiving regulatory approval.

LIQUIDITY AND CAPITAL RESOURCES

SBC had $545 in cash and cash equivalents available at September 30, 2000.
During the first nine months of 2000, as in 1999, SBC's primary source of funds
continued to be cash provided by operating activities. SBC has entered into
agreements with several banks for committed lines of credit totaling $4,000, all
of which may be used to support commercial paper borrowings. SBC had no
borrowings outstanding under these lines of credit as of September 30, 2000.
Commercial paper borrowings as of September 30, 2000 and December 31, 1999
totaled $5,915 and $2,623.

SBC's investing activities during the first nine months of 2000 consisted of
$9,202 in construction and capital expenditures, primarily in the wireline and
wireless segments. Investing activities during the first nine months of 2000
also included asset dispositions of $3,534, primarily related to the sale of
SBC's interests in MATAV and Netcom GSM, and asset acquisitions of $5,306,
primarily the approximate $3,600 acquisition of Sterling discussed above.
Investing activities during the first nine months of 1999 included asset
dispositions of $1,448, primarily related to additional proceeds from the sale
of Telecom Corp of New Zealand Limited shares, and asset acquisitions of $4,792
related to Bell Canada, Comcast and Cellular Communications.

In September 2000, proceeds of $520 were received on the sale of Telmex L
shares. The proceeds were primarily used to purchase a mandatorily exchangeable
debt securities note issued by a financial institution with characteristics that
will essentially offset future mark to market adjustments on the DECS. SBC
recorded a pre-tax gain of $238 on the sale.

Short-term borrowings increased $4,278 primarily to fund the acquisition of
Sterling. SBC also spent $1,457 on the repurchase of shares of its common stock
under the repurchase plan announced in January 2000. As of October 31, 2000, SBC
has repurchased a total of approximately 41 million shares of its common stock
of the 100 million shares authorized to be repurchased. Financing activities
during the first nine months of 1999 included new short-term borrowings and
long-term debt proceeds to finance SBC's investment in Bell Canada and the
acquisition of Comcast and Cellular Communications. In 1999, subsequent to the
completion of the acquisitions of Comcast and Cellular Communications, SBC
retired


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 2. Management's Discussion and Analysis of Financial Condition and Results
 of Operations
Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES - Continued

virtually all of Comcast's and Cellular Communications' long-term debt
in the amount of $1,415. Cash paid for dividends in the first nine months of
2000 was $2,560, or 3.9% higher than in the first nine months of 1999 due to an
increase in dividends paid per share to $0.76125 from $0.73125.

In the second quarter of 2000, SBC issued approximately $2,015 of one-year
variable rate notes with interest payable quarterly. The interest rate is reset
quarterly based on the three-month London Interbank Offer Rate (LIBOR) minus
five basis points. At the end of the third quarter, the three-month LIBOR rate
was 6.81%.

<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts

There has been no material change in SBC's market risks related to financial
instruments since December 31, 1999.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that
are subject to risks and uncertainties. SBC claims the protection of the safe
harbor for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995.

The following factors could cause SBC's future results to differ materially from
those expressed in the forward-looking statements:

o  Adverse economic changes in the markets served by SBC, or countries in which
   SBC has significant investments.

o  Changes in available technology.

o  The final outcome of FCC rulemakings and judicial review, if any, of such
   rulemakings, including issues relating to jurisdiction.

o  The final outcome of state regulatory proceedings in SBC's 13-state area, and
   judicial review, if any, of such proceedings, including proceedings relating
   to interconnection terms, access charges, universal service, unbundled
   network elements and resale rates, and reciprocal compensation.

o  Enactment of additional state, Federal and/or foreign regulatory laws and
   regulations pertaining to SBC's subsidiaries and foreign investments.

o  The timing of entry and the extent of competition in the local and intraLATA
   toll markets in SBC's 13-state area and SBC's entry into the in-region long
   distance market.

o  The impact of the Ameritech transaction, including performance with respect
   to regulatory requirements and merger integration efforts.

o  The timing and cost of deployment of SBC's broadband initiative also known as
   Project Pronto, its effect on the carrying value of the existing wireline
   network and the level of consumer demand for offered services.

o  The impact of the wireless joint venture with BellSouth Corporation, known as
   Cingular Wireless, including marketing and product development efforts and
   financial capacity.

Readers are cautioned that other factors discussed in this report, although not
enumerated here, also could materially impact SBC's future earnings.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds
Dollars in millions except per share amounts

During the third quarter of 2000, non-employee directors acquired from the
Company shares of common stock pursuant to the Company's Non-Employee Director
Stock and Deferral Plan. Under the plan, a director may make an annual election
to receive all or part of his or her annual retainer or fees in the form of SBC
shares or deferred stock units (DSUs) that are convertible into SBC shares. Each
Director also receives an annual grant of DSUs. During this period, an aggregate
of 5,522 SBC shares and DSUs were acquired by non-employee directors at prices
ranging from $40.81 to $50.00, in each case the fair market value of the shares
on the date of acquisition. The issuances of shares and DSUs were exempt from
registration pursuant to Section 4(2) of the Securities Act.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

    Exhibit 12     Computation of Ratios of Earnings to Fixed Charges.

    Exhibit 27     Financial Data Schedule.

(b) Reports on Form 8-K

    On July 6, 2000, SBC filed a Form 8-K, reporting on Item 5. Other Events and
    Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
    In the report, SBC disclosed that it had filed a Certificate of Ownership
    and Merger to merge its capital funding subsidiary, SBC Communications
    Capital Corporation, with and into SBC.

    On July 7, 2000, SBC filed a Form 8-K, reporting on Item 2. Acquisition or
    Disposition of Assets. In the report, SBC disclosed that it had exercised
    its right to sell its 50% ownership in MagyarCom to Deutsche Telekom.

    On July 28, 2000, SBC filed a Form 8-K, reporting on Item 5. Other Events
    and Item 7. Financial Statements and Exhibits.  In the report, SBC disclosed
    a press release announcing second quarter 2000 earnings.

    On August 17, 2000, SBC filed a Form 8-K, reporting on Item 7. Financial
    Statements and Exhibits. In the report, SBC disclosed pro forma financial
    statements relating to the wireless joint venture with BellSouth
    Corporation.

    On August 28, 2000, SBC filed a Form 8-K, reporting on Item 5. Other Events
    and Item 7. Financial Statements, Pro Forma Financial Information and
    Exhibits. In the report, SBC disclosed that it had commenced a new
    Medium-Term Notes program for the sale of up to $7,500 Medium-Term Notes.

    On October 3, 2000, SBC filed a Form 8-K, reporting on Item 5. Other Events.
    In the report, SBC disclosed that SBC and BellSouth Corporation closed a
    transaction to combine their domestic wireless operations.


<PAGE>


SBC COMMUNICATIONS INC.
SEPTEMBER 30, 2000

Item 6. Exhibits and Reports on Form 8-K - Continued
Dollars in millions except per share amounts

    On October 12, 2000, SBC filed a Form 8-K, reporting on Item 2. Acquisition
    or Disposition of Assets and Item 7. Financial Statements and Exhibits. In
    the report, SBC disclosed that SBC and BellSouth Corporation closed a
    transaction to contribute to their joint venture called Cingular Wireless
    substantially all of their respective domestic wireless voice and wireless
    data businesses.


<PAGE>




                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          SBC Communications Inc.



November 9, 2000                          /s/ Donald E. Kiernan
                                          ---------------------
                                          Donald E. Kiernan
                                          Senior Executive Vice President
                                          and Chief Financial Officer





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