SBC COMMUNICATIONS INC
10-Q, 2000-08-10
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 June 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 July 31, 2000, 3,389,562,318 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    Six months ended
                                                       June 30,              June 30,
                                                  ------------------    ------------------
                                                   2000       1999      2000       1999
------------------------------------------------------------------------------------------
<S>                                             <C>       <C>        <C>       <C>
Operating Revenues
Landline local service                          $   5,476 $   4,876  $  10,612 $   9,446
Wireless subscriber                                 1,648     1,444      3,148     2,766
Network access                                      2,673     2,551      5,340     5,060
Long distance service                                 780       902      1,584     1,811
Directory advertising                                 967       849      1,849     1,820
Other                                               1,667     1,646      3,250     3,177
------------------------------------------------------------------------------------------
Total operating revenues                           13,211    12,268     25,783    24,080
------------------------------------------------------------------------------------------
Operating Expenses
Operations and support                              7,896     7,048     15,129    13,867
Depreciation and amortization                       2,317     1,993      4,580     3,935
------------------------------------------------------------------------------------------
Total operating expenses                           10,213     9,041     19,709    17,802
------------------------------------------------------------------------------------------
Operating Income                                    2,998     3,227      6,074     6,278
------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense                                     (416)     (347)      (772)     (704)
Equity in net income of affiliates                    189       182        389       354
Other income (expense) - net                          142       (23)       183      (100)
------------------------------------------------------------------------------------------
Total other income (expense)                          (85)     (188)      (200)     (450)
------------------------------------------------------------------------------------------
Income Before Income Taxes and Cumulative Effect
  of Accounting Change                              2,913     3,039      5,874     5,828
------------------------------------------------------------------------------------------
Income Taxes                                        1,062     1,101      2,201     2,117
------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Accounting
  Change                                            1,851     1,938      3,673     3,711
------------------------------------------------------------------------------------------
Cumulative Effect of Accounting Change, net of tax      -         -          -       207
------------------------------------------------------------------------------------------
Net Income                                      $   1,851 $   1,938  $   3,673 $   3,918
==========================================================================================
Earnings Per Common Share:
Income Before Cumulative Effect of Accounting
  Change                                        $    0.54 $    0.57  $    1.08 $    1.09
Net Income                                      $    0.54 $    0.57  $    1.08 $    1.15
------------------------------------------------------------------------------------------
Earnings Per Common Share - Assuming Dilution:
Income Before Cumulative Effect of Accounting
  Change                                        $    0.54 $    0.56  $    1.07 $    1.07
Net Income                                      $    0.54 $    0.56  $    1.07 $    1.13
------------------------------------------------------------------------------------------
Weighted Average Number of Common
  Shares Outstanding (in millions)                  3,396     3,411      3,396     3,409
------------------------------------------------------------------------------------------
Dividends Declared Per Common Share             $ 0.25375 $ 0.24375  $ 0.50750 $ 0.48750
==========================================================================================
<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
--------------------------------------------------------------------------------
                                                       June 30,    December 31,
                                                   --------------  -------------
                                                         2000            1999
--------------------------------------------------------------------------------
<S>                                                   <C>              <C>
Assets                                                (Unaudited)
Current Assets
Cash and cash equivalents                               $    813       $    495
Accounts receivable - net of allowances for
  uncollectibles of $1,095 and $1,099                      9,538          9,378
Prepaid expenses                                             837            651
Deferred income taxes                                        461            767
Other current assets                                         824            639
--------------------------------------------------------------------------------
Total current assets                                      12,473         11,930
--------------------------------------------------------------------------------
Property, plant and equipment - at cost                  120,756        116,332
  Less: accumulated depreciation and amortization         72,711         69,761
--------------------------------------------------------------------------------
Property, Plant and Equipment - Net                       48,045         46,571
--------------------------------------------------------------------------------
Intangible Assets - Net of Accumulated
  Amortization of $1,357 and $1,115                        5,899          4,737
Goodwill - Net of Accumulated
  Amortization of $314 and $210                            5,168          2,059
Investments in Equity Affiliates                          10,918         10,648
Other Assets                                               8,688          7,270
--------------------------------------------------------------------------------
Total Assets                                            $ 91,191       $ 83,215
================================================================================
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year                           $  9,812       $  3,374
Accounts payable and accrued liabilities                  14,883         15,103
Dividends payable                                            864            836
--------------------------------------------------------------------------------
Total current liabilities                                 25,559         19,313
--------------------------------------------------------------------------------
Long-Term Debt                                            15,927         17,475
--------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes                                      6,018          4,821
Postemployment benefit obligation                          9,781          9,612
Unamortized investment tax credits                           354            389
Other noncurrent liabilities                               4,177          3,879
--------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities   20,330         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                            12,471         12,453
Retained earnings                                         15,764         13,798
Guaranteed obligations of employee stock ownership plans     (46)          (106)
Deferred compensation - LESOP                                (66)           (73)
Treasury shares (at cost)                                 (1,887)        (1,717)
Accumulated other comprehensive loss                      (1,294)        (1,062)
--------------------------------------------------------------------------------
Total shareowners' equity                                 28,375         26,726
--------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity               $ 91,191       $ 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)
--------------------------------------------------------------------------
                                                        Six months ended
                                                            June 30,
                                                       -------------------
                                                          2000      1999
--------------------------------------------------------------------------
<S>                                                    <C>       <C>
Operating Activities
Net income                                             $  3,673  $  3,918
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation and amortization                         4,580     3,935
    Undistributed earnings from investments in
     equity affiliates                                     (142)     (150)
    Provision for uncollectible accounts                    415       403
    Amortization of investment tax credits                  (35)      (41)
    Deferred income tax expense                             558       324
    Cumulative effect of accounting change, net of tax        -      (207)
    Changes in operating assets and liabilities:
      Accounts receivable                                  (575)      401
      Other current assets                                 (371)       (3)
      Accounts payable and accrued liabilities              (99)      291
    Other - net                                          (1,069)   (1,178)
--------------------------------------------------------------------------
Total adjustments                                         3,262     3,775
--------------------------------------------------------------------------
Net Cash Provided by Operating Activities                 6,935     7,693
--------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures                    (5,341)   (4,483)
Investments in affiliates                                  (124)      (38)
Proceeds from short-term investments                          -         5
Dispositions                                                216     1,427
Acquisitions                                             (3,841)   (3,653)
Other                                                         -         2
---------------------------------------------------------------------------
Net Cash Used in Investing Activities                    (9,090)   (6,740)
---------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
  maturities of three months or less                      4,604       512
Issuance of long-term debt                                1,031       738
Repayment of long-term debt                                (794)     (406)
Issuance of common shares                                     -       231
Issuance of preferred shares in subsidiaries                  -         3
Purchase of treasury shares                                (892)        -
Issuance of treasury shares                                 172       145
Dividends paid                                           (1,698)   (1,635)
Other                                                        50         -
--------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities       2,473      (412)
--------------------------------------------------------------------------
Net increase in cash and cash equivalents                   318       541
--------------------------------------------------------------------------
Cash and cash equivalents beginning of year                 495       599
--------------------------------------------------------------------------
Cash and Cash Equivalents End of Period                $    813  $  1,140
==========================================================================
Cash paid during the six months ended June 30 for:
   Interest                                            $    848  $    759
   Income taxes, net of refunds                        $  1,560  $    725
<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  Retained  Employee Stock  Compensation  Treasury Comprehensive
                                      Shares    Par 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                                   -         -      3,673            -           -             -            -
Other comprehensive loss                     -         -          -            -           -             -         (232)
Dividends to shareowners                     -         -     (1,724)           -           -             -            -
Reduction of debt associated with
  Employee Stock Ownership Plans             -         -          -           60           -             -            -
Cost of LESOP trust shares allocated
  to employee accounts                       -         -          -            -           7             -            -
Purchase of treasury shares                  -         -          -            -           -          (892)           -
Issuance of treasury shares                  -       (73)         -            -           -           722            -
Other                                        -        91         17            -           -             -            -
------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000                $  3,433  $ 12,471   $ 15,764    $     (46)    $   (66)     $ (1,887)   $  (1,294)
=======================================================================================================================-
<FN>

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA

At June 30, or for the six months then ended:           2000          1999
---------------------------------------------------  ----------     ----------
<S>                                                    <C>           <C>
   Debt ratio .....................................      46.70%        46.43%
   Network access lines in service (000)...........     61,233        59,948
   Resold lines (000)..............................      1,578         1,330
   Access minutes of use (000,000).................    140,134       129,380
   Wireless customers (000)........................     12,221         9,323
   Number of employees ............................    219,000       201,650
</TABLE>




<PAGE>


SBC COMMUNICATIONS INC.

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 GAAP 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.

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 six
   months ended June 30, 2000 and 1999 include net income and adjustments to
   shareowners' equity for foreign currency translation adjustment and net
   unrealized gain (loss) on securities.

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

   -------------------------------------------------------------------------------------
                                               Three months ended    Six months ended
                                                    June 30,             June 30,
                                              ------------------------------------------
                                                   2000      1999       2000      1999
   -------------------------------------------------------------------------------------
<S>                                            <C>        <C>       <C>        <C>
   Net income                                  $  1,851   $ 1,938   $  3,673   $ 3,918
   Other comprehensive income, net of tax:
     Foreign currency translation adjustment       (101)      (80)      (211)     (490)
     Net unrealized gain (loss) on securities:
      Unrealized gain (loss) on available for
         sale securities                            (24)        1         25         -
      Less: reclassification adjustment for
        gains included in net income                 (8)        -        (46)       (5)
   -------------------------------------------------------------------------------------
      Net unrealized gain (loss) on securities      (32)        1        (21)       (5)
   -------------------------------------------------------------------------------------
   Other comprehensive loss                        (133)      (79)      (232)     (495)
   -------------------------------------------------------------------------------------
   Total comprehensive income                  $  1,718   $ 1,859   $  3,441   $ 3,423
   =====================================================================================
</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 the operations throughout the merged
   company. These reviews included the formation of teams that performed
   comprehensive evaluations of companywide operations. Based on these merger
   integration reviews, we made certain strategic decisions and significant
   integration of operations and consolidation of some administrative and
   support functions occurred 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, as well as costs
   related to the strategic decisions we made. We did not incur any of these
   one-time charges in the second quarter or first six months of 2000 or 1999.
   Remaining accruals for anticipated cash expenditures related to these
   decisions totaled $413 at June 30, 2000 and $755 at December 31, 1999.


<PAGE>

SBC COMMUNICATIONS INC.

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

6. SUBSIDIARY FINANCIAL INFORMATION We do not provide separate financial
   statements and other disclosures for PAC as we have determined that such
   information is not material to the holders of the Trust Originated Preferred
   Securities, which have been guaranteed by SBC. See Note 8 for a discussion of
   conforming items on the segments and subsidiaries. This information is
   provided as a supplement only. The following table presents summarized
   financial information for PAC:

   ------------------------------------------------------------------------
   PAC                                              June 30,   December 31,
                                                     2000         1999
   ------------------------------------------------------------------------
   Balance Sheets
    Current assets                                  $  3,268    $  3,022
    Noncurrent assets                                 15,566      15,334
    Current liabilities                                5,106       4,944
    Noncurrent liabilities                             9,864      10,284
   ========================================================================
   ------------------------------------------------------------------------
   Six months ended June 30,                         2000         1999
   ------------------------------------------------------------------------
   Income Statements
    Operating revenues                              $  5,864    $  5,919
    Operating income                                   1,516       1,481
    Income before cumulative effect of accounting
     changes                                             815         788
    Net income                                           815         570
   ========================================================================

   We do not provide separate financial statements and other disclosures for
   Southwestern Bell Telephone Company (SWBell) or Pacific Bell Telephone
   Company (PacBell) as we have determined that such information is not material
   to the holders of certain SWBell and PacBell outstanding debt securities,
   which have been guaranteed by SBC. See Note 8 for a discussion of conforming
   items on the segments and subsidiaries. This information is provided as a
   supplement only. The following tables present summarized financial
   information for SWBell and PacBell:

   ------------------------------------------------------------------------
   SWBell                                           June 30,   December 31,
                                                      2000        1999
   ------------------------------------------------------------------------
   Balance Sheets
    Current assets                                  $  2,440    $  2,453
    Noncurrent assets                                 13,950      13,978
    Current liabilities                                5,186       5,127
    Noncurrent liabilities                             7,910       8,403
   ========================================================================
   ------------------------------------------------------------------------
   Six months ended June 30,                          2000        1999
   ------------------------------------------------------------------------
   Income Statements
    Operating revenues                              $  5,758    $  5,578
    Operating income                                   1,320       1,553
    Income before cumulative effect of accounting
     changes                                             712         865
    Net income                                           712         592
   ========================================================================



<PAGE>

SBC COMMUNICATIONS INC.

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

   ------------------------------------------------------------------------
   PacBell                                          June 30,  December 31,
                                                     2000         1999
   ------------------------------------------------------------------------
   Balance Sheets
     Current assets                                  $  2,566    $  2,318
     Noncurrent assets                                 14,037      13,620
     Current liabilities                                4,930       4,539
     Noncurrent liabilities                             8,323       8,680
   ========================================================================
   ------------------------------------------------------------------------
   Six months ended June 30,                         2000         1999
   ------------------------------------------------------------------------
   Income Statements
     Operating revenues                              $  5,106    $  4,790
     Operating income                                   1,240       1,232
     Income before cumulative effect of accounting
      changes                                             625         641
     Net income (loss)                                    625        (369)
   ========================================================================

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 six months ended
   June 30, 2000 and 1999 are shown in the table below.

   -----------------------------------------------------------------------------
                                            Three months ended  Six months ended
                                                  June 30,          June 30,
                                            ------------------------------------
                                               2000     1999      2000     1999
   -----------------------------------------------------------------------------
   Numerators
   Numerator for basic earnings per share:
    Income before cumulative effect of
     accounting change                       $ 1,851   $ 1,938  $ 3,673  $ 3,711
   -----------------------------------------------------------------------------
    Dilutive potential common shares:
      Other stock-based compensation               2         1        3        2
   -----------------------------------------------------------------------------
   Numerator for diluted earnings per share  $ 1,853   $ 1,939  $ 3,676  $ 3,713
   =============================================================================
   Denominators
   Denominator for basic earnings per share:
    Weighted average number of common
     shares outstanding (000,000)              3,396     3,411    3,396    3,409
   -----------------------------------------------------------------------------
    Dilutive potential common shares (000,000):
     Stock options                                34        44       31       44
     Other stock-based compensation                8         6        8        6
   -----------------------------------------------------------------------------
   Denominator for diluted earnings per share  3,438     3,461    3,435    3,459
   =============================================================================
   Basic earnings per share:
    Income before cumulative effect of
     accounting change                       $  0.54   $  0.57  $  1.08  $  1.09
    Cumulative effect of accounting change         -         -        -     0.06
 -------------------------------------------------------------------------------
   Net income                                $  0.54   $  0.57  $  1.08  $  1.15
 ===============================================================================
   Diluted earnings per share:
    Income before cumulative effect of
     accounting change                       $  0.54   $  0.56  $  1.07  $  1.07
    Cumulative effect of accounting change         -         -        -     0.06
 -------------------------------------------------------------------------------
   Net income                                $  0.54   $  0.56  $  1.07  $  1.13
 ===============================================================================
<PAGE>

SBC COMMUNICATIONS INC.

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

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

   The effect of goodwill charges, including investments in equity affiliates
   goodwill charges, on diluted earnings per share was $0.03 and $0.08 for the
   three and six months ended June 30, 2000 and $0.01 and $0.02 for the three
   and six months ended June 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.

   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 includes
   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 shown
   separately in the international segment.

   Normalized results for 2000 include the following items:

   o Pension settlement gains of $124 ($80 net of tax) in the second quarter and
     $374 ($241 net of tax) in the first six months primarily related to
     employees who terminated employment during 1999. SBC was required to record
     these second quarter gains as a result of revising our estimates of total
     lump-sum payments to be made during 2000 from a non-management pension
     plan. These second quarter and first six month gains were primarily in the
     wireline segment.
   o Costs of $239 ($153 net of tax) in the second quarter and $380 ($270 net of
     tax) in the first six 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 six 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 include the following items:

   o Elimination of income of $52 ($28 net of tax) in the second quarter and
     $118 ($67 net of tax) in the first six 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 six 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.

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 second quarter of 2000 and 1999 and for the six months ended
   June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>

   ------------------------------------------------------------------------------
                                         Revenues
   For the three months ended          from external  Intersegment  Income before
   June 30, 2000                         customers     revenues      income taxes
   ---------------------------------------------------------------------------
<S>                                      <C>            <C>           <C>
   Wireline                              $   9,929      $    60       $  2,017
   Wireless                                  2,069            -            278
   Information and entertainment             1,060           25            372
   International                               107            -            194
   Corporate, adjustments & eliminations        47          (85)           167
   Normalizing adjustments                      (1)           -           (115)
   ------------------------------------------------------------------------------
   Total                                 $  13,211      $     -       $  2,913
   ==============================================================================

   ------------------------------------------------------------------------------
                                         Revenues
   For the three months ended          from external  Intersegment  Income before
   June 30, 1999                         customers     revenues      income taxes
   ---------------------------------------------------------------------------
   Wireline                              $   9,358      $    87       $  2,287
   Wireless                                  1,618            -            270
   Information and entertainment               959           25            264
   International                                41            3            198
   Corporate, adjustments & eliminations        59         (115)           (32)
   Normalizing adjustments                     233            -             52
   ------------------------------------------------------------------------------
   Total                                 $  12,268      $     -       $  3,039
   ==============================================================================
</TABLE>

<TABLE>
<CAPTION>

   --------------------------------------------------------------------------------------
                                        Revenues
   At June 30, 2000 or for the six    from external Intersegment Income before  Segment
   months ended                         customers     revenues    income taxes    assets
   --------------------------------------------------------------------------------------
   <S>                                   <C>            <C>         <C>         <C>
   Wireline                              $ 19,518       $ 114       $ 4,152     $ 59,743
   Wireless                                 3,930           -           590       12,316
   Information and entertainment            2,069          55           650        3,698
   International                              168           -           433       13,081
   Corporate, adjustments & eliminations       99        (169)          187        2,353
   Normalizing adjustments                     (1)          -          (138)           -
   --------------------------------------------------------------------------------------
   Total                                 $ 25,783       $   -       $ 5,874     $ 91,191
   ======================================================================================

   --------------------------------------------------------------------------------------
                                        Revenues
   At June 30, 1999 or for the six    from external Intersegment Income before  Segment
   months ended                         customers     revenues    income taxes    assets
   --------------------------------------------------------------------------------------
   Wireline                              $ 18,339       $ 159       $ 4,380     $ 52,486
   Wireless                                 3,063           -           403        9,387
   Information and entertainment            2,005          56           588        4,075
   International                              116           8           348       13,339
   Corporate, adjustments & eliminations      113        (223)          (54)        (342)
   Normalizing adjustments                    444           -           163            -
   --------------------------------------------------------------------------------------
   Total                                 $ 24,080       $   -       $ 5,828     $ 78,945
   ======================================================================================
</TABLE>
<PAGE>

SBC COMMUNICATIONS INC.

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


   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. ACQUISITION OF STERLING In March 2000, SBC acquired Sterling, a provider of
   electronic business integration solutions, in an all cash tender offer valued
   at approximately $3.6 billion. 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 $132 in March 2000. We
   included the results of operations in the consolidated financial statements
   from the date of the acquisition.

10.PENDING TRANSACTIONS In April 2000, SBC and BellSouth Corporation
   (BellSouth) announced an agreement to combine their domestic wireless
   operations. Assuming that all of the assets are contributed as provided for
   in the agreement, ownership in the new company will be 60% for SBC and 40%
   for BellSouth with control shared equally. SBC expects to account for its
   interest under the equity method of accounting. SBC expects that the basis of
   its investment will be approximately the same as the book value of SBC's
   domestic wireless assets. The new wireless company will be managed
   independently with a four-seat board of directors (two seats from each
   company). The transaction requires the approval of the Federal Communications
   Commission as well as the review of the United States Department of Justice.
   Divestitures of some overlapping properties will be required. The pending
   acquisitions of properties to be included in the joint venture along with the
   pending dispositions of properties that overlap with BellSouth are not
   expected to have a material effect on SBC's domestic wireless operations. We
   expect to close the transaction by the end of 2000.

   In July 2000, SBC exercised its right to sell its interest in MATAV to
   Deutsche Telekom, SBC's partner in the investment, for approximately $2.2
   billion. The transaction closed in August 2000 with a pre-tax gain of
   approximately $1.1 billion. The proceeds from the sale of SBC's interest
   in MATAV are anticipated to be used to repay commercial paper borrowings.

   Tele Danmark and SBC are in negotiations to sell our interests in Netcom GSM,
   a wireless telecommunications provider in Norway, to a third party.  If we
   accept the outstanding offer, our direct and indirect pre-tax gain would
   exceed $500.

<PAGE>

SBC COMMUNICATIONS INC.

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 second
quarter and first six months of 2000 and 1999 are summarized as follows:

------------------------------------------------------------------------------------------
                                         Second Quarter             Six-Month Period
                                    -------------------------   --------------------------
                                                   Percent                     Percent
                                     2000      1999  Change       2000      1999    Change
------------------------------------------------------------------------------------------
<S>                               <C>       <C>        <C>     <C>        <C>        <C>
Operating revenues                $ 13,211  $ 12,268    7.7%   $ 25,783   $ 24,080    7.1%
Operating expenses                  10,213     9,041   13.0      19,709     17,802   10.7
Operating income                     2,998     3,227   (7.1)      6,074      6,278   (3.2)
Income before income taxes and
 cumulative effect of accounting
  change                             2,913     3,039   (4.1)      5,874      5,828    0.8
Income before cumulative
 effect of accounting change         1,851     1,938   (4.5)      3,673      3,711   (1.0)
Cumulative effect of
 accounting change                       -         -     -            -        207      -
Net income                           1,851     1,938   (4.5)      3,673      3,918   (6.3)
==========================================================================================
</TABLE>

SBC reported net income of $1,851, or $0.54 per share assuming dilution, in the
second quarter of 2000 and $3,673, or $1.07 per share assuming dilution, for the
first six months of 2000 compared to $1,938, or $0.56 per share assuming
dilution, in the second quarter of 1999 and $3,918, or $1.13 per share assuming
dilution, for the first six months of 1999.

The first six 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 second quarter and first six months
of 2000 and 1999 also included several items that SBC normalizes for management
purposes.

Normalized results for 2000 include the following items:

o  Pension settlement gains of $124 ($80 net of tax) in the second quarter and
   $374 ($241 net of tax) in the first six months primarily related to employees
   who terminated employment during 1999. SBC was required to record these
   second quarter gains as a result of revising our estimates of total lump-sum
   payments to be made during 2000 from a non-management pension plan. These
   second quarter and first six month gains were primarily in the wireline
   segment.
o  Costs of $239 ($153 net of tax) in the second quarter and $380 ($270 net of
   tax) in the first six 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 six 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).


<PAGE>


SBC COMMUNICATIONS INC.

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
---------------------------------

Normalized results for 1999 include the following items:

o  Elimination of income of $52 ($28 net of tax) in the second quarter and $118
   ($67 net of tax) in the first six 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 six 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 $1,924, or $0.56 per share assuming dilution, in
the second quarter of 2000 and $3,834, or $1.12 per share assuming dilution, for
the first six months of 2000 compared to $1,910, or $0.55 per share assuming
dilution, in the second quarter of 1999 and $3,617, or $1.05 per share assuming
dilution, for the first six months of 1999.

The primary factors contributing to the increase in revenues were growth in
demand for data communications and wireless services and products. These
increases were offset by increased operating expenses related to the merger
integration process with Ameritech and investments in new products and services,
including the Digital Subscriber Line (DSL) rollout and SBC's national expansion
initiative. The national expansion initiative is SBC's plan to have a local
presence in the top 30 metropolitan markets beyond its traditional regions.

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.

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.

--------------------------------------------------------------------------------
                               Second Quarter            Six-Month Period
                           -----------------------------------------------------
                                              Percent                    Percent
                              2000      1999  Change    2000      1999   Change
--------------------------------------------------------------------------------
Operating revenues
 Local service              $ 5,481  $ 4,885   12.2% $ 10,621  $  9,463    12.2%
 Network access               2,696    2,576    4.7     5,386     5,104     5.5
 Long distance service          727      886  (17.9)    1,491     1,784   (16.4)
 Other                        1,085    1,098   (1.2)    2,134     2,147    (0.6)
---------------------------------------------         ------------------
Total Operating Revenues      9,989    9,445    5.8    19,632    18,498     6.1
---------------------------------------------         ------------------
Operating expenses
 Operations and support       5,795    5,193   11.6    11,221    10,253     9.4
 Depreciation and
  amortization                1,890    1,684   12.2     3,677     3,326    10.6
---------------------------------------------         ------------------
Total Operating Expenses      7,685    6,877   11.7    14,898    13,579     9.7
---------------------------------------------         ------------------
Operating Income              2,304    2,568  (10.3)    4,734     4,919    (3.8)
---------------------------------------------         ------------------
Interest Expense                311      293    6.1       628       585     7.4
---------------------------------------------         ------------------
Other Income (Expense) - Net     24       12      -        46        46       -
---------------------------------------------         ------------------
Income Before Income Taxes  $ 2,017  $ 2,287  (11.8) $  4,152  $  4,380    (5.2)
================================================================================

      Local service revenues increased $596, or 12.2%, in the second quarter and
      $1,158, or 12.2%, for the first six months of 2000. Approximately $272 of
      the increase in the second quarter and $382 in the first six months of
      2000 was attributable to increases in demand for data-related services,
      primarily from business customers. Approximately $140 of the data-related
      revenues in the second quarter and $171 in the first six months of 2000
      were associated with operations of Sterling, acquired in March 2000.
      Wholesale revenues accounted for approximately $81 of the second-quarter
      increase and $142 of the increase in the first six months of 2000.
      Vertical services revenues, which include custom calling services, such as
      Caller ID, Call Waiting, voice mail and other enhanced services, increased
      by approximately 10% in the second quarter and the first six months of
      2000. Vertical services contributed approximately $79 to the
      second-quarter increase in local service revenues and $157 in the first
      six months of 2000.

      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 $58 in the second
      quarter and $112 in the first six months of 2000. However, these
      regulatory actions decreased intrastate network access revenues by
      approximately $36 in the second quarter and $75 in the first six months of
      2000 and decreased long distance revenues by approximately $9 in the
      second quarter and $20 in the first six months of 2000. The Texas Public
      Utility Commission has


<PAGE>

SBC COMMUNICATIONS INC.

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
---------------------------------

      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 increased $120, or 4.7%, in the second quarter and
      $282, or 5.5%, for the first six months of 2000, partially due to growth
      in access demand. Total access minutes of use rose 7.5% to 70.1 billion in
      the second quarter and 8.3% to 140.1 billion in the first six months of
      2000. Higher network usage by alternative providers of intraLATA toll
      services contributed to the increase in network access revenues by
      approximately $36 in the second quarter and $78 in the first six months of
      2000. Demand for special access services increased revenue by
      approximately $112 in the second quarter and $232 in the first six months
      of 2000. Continued demand for higher capacity data line offerings
      increased second-quarter 2000 revenues by approximately $39 and increased
      revenues for the first six months of 2000 by approximately $80.

      Revenues from access-demand growth were largely offset by the impact of
      rate reductions and price caps from both state and federal regulatory
      agencies. These rate reductions and price caps caused a decrease in
      second-quarter revenues of approximately $107 and $196 in the first six
      months of 2000. The state rate reductions were primarily in Texas and
      Michigan.

      Long distance service revenues decreased $159, or 17.9%, in the second
      quarter and $293, or 16.4%, for the first six months of 2000. Long
      distance service revenues decreased by approximately $101 in the second
      quarter and $196 for the first six months of 2000 due to the competitive
      losses as a result of implementing dialing parity, which enables customers
      to make intraLATA toll calls using a competing carrier. The negative
      effect of dialing parity was partially offset by increased network access
      revenues for usage of our network by alternative providers. The decrease
      was also partially offset by an increase of approximately $7 in the second
      quarter and $18 for the first six months of 2000 due to price increases in
      Illinois, Indiana, Michigan and Ohio. The continued introduction of
      extended area service plans, as described above in local service,
      decreased long distance revenues by approximately $9 in the second quarter
      and $20 in the first six months of 2000, which increased local service
      revenues by the same amounts.

      Other operating revenues decreased $13, or 1.2%, in the second quarter and
      $13, or 0.6%, for the first six months of 2000. Equipment sales increases,
      primarily consumer, of approximately $35 in the second quarter and $55 in
      the first six months of 2000 were offset by declines in the payphone
      business of approximately $53 in the second quarter and $43 in the first
      six months of 2000. Sales of other nonregulated products and services were
      flat in the second quarter and down slightly in the first six months of
      2000.

      Operations and support expenses increased $602, or 11.6%, in the second
      quarter and $968, or 9.4%, for the first six months of 2000. Approximately
      $236 of second quarter and $349 of the first six months increases were
      related to costs associated with the DSL rollout. DSL lines in service in
      the second quarter increased by approximately 198,000. Operations and
      support expenses also increased approximately $138 in the second quarter
      and $255 in the first six months of 2000 as a result of costs associated
      with network integration and E-Commerce services, of which $93 for the
      second quarter and $104 for the first six months were related to

<PAGE>

SBC COMMUNICATIONS INC.

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
---------------------------------

      Sterling. In addition, SBC's national expansion initiative increased
      expenses by approximately $71 in the second quarter and $103 in the first
      six months of 2000.

      Depreciation and amortization expenses increased $206, or 12.2%, in the
      second quarter and $351, or 10.6%, for the first six months of 2000.
      Overall higher plant levels increased depreciation expense by $70 in the
      second quarter and $154 in the first six months of 2000. The March 2000
      acquisition of Sterling also caused an increase of approximately $84 in
      the second quarter and $92 in the first six months of 2000. Amortization
      of capitalized software increased approximately $46 in the second quarter
      and $97 in the first six months of 2000.

Wireless

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

--------------------------------------------------------------------------------
                                Second Quarter             Six-Month Period
                             ---------------------------------------------------
                                               Percent                   Percent
                              2000     1999    Change    2000     1999   Change
--------------------------------------------------------------------------------
Operating revenues
  Subscriber revenues      $  1,648  $  1,262   30.6% $  3,148 $  2,415    30.4%
  Other                         421       356   18.3       782      648    20.7
-----------------------------------------------       ------------------
Total Operating Revenues      2,069     1,618   27.9     3,930    3,063    28.3
-----------------------------------------------       ------------------
Operating expenses
  Operations and support      1,373     1,080   27.1     2,567    2,125    20.8
  Depreciation and
   amortization                 288       190   51.6       569      370    53.8
-----------------------------------------------       ------------------
Total Operating Expenses      1,661     1,270   30.8     3,136    2,495    25.7
-----------------------------------------------       ------------------
Operating Income                408       348   17.2       794      568    39.8
-----------------------------------------------       ------------------
Interest Expense                 85        36      -       124       84    47.6
-----------------------------------------------       ------------------
Other Income (Expense) - Net    (45)      (42)  (7.1)      (80)     (81)    1.2
-----------------------------------------------       ------------------
Income Before Income Taxes $    278  $    270    3.0% $    590 $    403    46.4%
================================================================================

      Subscriber revenues increased $386, or 30.6%, in the second quarter and
      $733, or 30.4%, for the first six months of 2000, with approximately half
      of the increase due to the acquisitions of Comcast Cellular Corporation
      (Comcast), Cellular Communications of Puerto Rico, Inc. (Cellular
      Communications) and Radiofone, Inc. Also contributing to the increase was
      the net addition of 537,000 customers. At June 30, 2000, SBC had domestic
      wireless customers totaling 12,221,000.

      Other wireless revenues increased $65, or 18.3%, in the second quarter and
      $134, or 20.7%, for the first six months of 2000. The increase was
      primarily due to increased outcollect roaming revenues (revenues from
      non-SBC wireless customers roaming on SBC's wireless network) due to the
      expanded footprint from acquisitions, which was partially offset by a
      decline in rates and

<PAGE>

SBC COMMUNICATIONS INC.

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
---------------------------------

      usage. Additionally, equipment sales increased due to a 46% increase in
      gross customer additions, mainly in the traditional cellular operations.

      Operations and support expenses increased $293, or 27.1%, in the second
      quarter and $442, or 20.8%, for the first six months of 2000 due primarily
      to the acquisitions and 537,000 net additions of new customers as
      discussed in subscriber revenues. Equipment costs also increased due to
      the increase in equipment sales noted above.

      Depreciation and amortization expenses increased $98, or 51.6%, in the
      second quarter and $199, or 53.8%, for the first six months of 2000. The
      third quarter 1999 acquisitions of Comcast and Cellular Communications
      contributed approximately $80 in the second quarter and $164 in the first
      six months of 2000 to the increase.

Information and Entertainment

Information and entertainment includes directory operations including
advertising, yellow pages, white pages and electronic publishing, electronic
security and cable television operations.
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------
                                 Second Quarter             Six-Month Period
                            -------------------------------------------------------
                                                Percent                    Percent
                               2000     1999    Change    2000     1999    Change
-----------------------------------------------------------------------------------
<S>                         <C>      <C>         <C>   <C>      <C>           <C>
Operating Revenues          $  1,085 $    984    10.3% $ 2,124  $  2,061      3.1%
----------------------------------------------         ------------------
Operating expenses
  Operations and support         638      665    (4.1)   1,327     1,363     (2.6)
  Depreciation and
   amortization                   54       46    17.4      107        92     16.3
----------------------------------------------         ------------------
Total Operating Expenses         692      711    (2.7)   1,434     1,455     (1.4)
----------------------------------------------         ------------------
Operating Income                 393      273    44.0      690       606     13.9
----------------------------------------------         ------------------
Interest Expense                  25       12       -       50        24        -
----------------------------------------------         ------------------
Other Income (Expense) - Net       4        3    33.3       10         6     66.7
----------------------------------------------         ------------------
Income Before Income Taxes  $    372 $    264    40.9% $   650  $    588     10.5%
===================================================================================
</TABLE>

      Information and entertainment operating revenues increased $101, or 10.3%,
      in the second quarter and $63, or 3.1%, for the first six months of 2000.
      The increase in the second quarter was due to a change in the timing of
      the publication of directories. The increase for the first six months of
      2000 was due primarily to growth in demand for directory advertising
      services.

      Operations and support expenses decreased $27, or 4.1%, in the second
      quarter and decreased $36, or 2.6%, for the first six months of 2000.
      These decreases are due primarily to cost savings in the directory
      operations from the merger integration process with Ameritech.


<PAGE>


SBC COMMUNICATIONS INC.

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
---------------------------------

International

--------------------------------------------------------------------------------
                                 Second Quarter             Six-Month Period
                            ----------------------------------------------------
                                               Percent                   Percent
                               2000    1999    Change    2000     1999    Change
--------------------------------------------------------------------------------
Operating Revenues           $  107  $   44        -   $  168  $   124     35.5%
----------------------------------------------        ------------------
Operating Expenses              118      54        -      207      143     44.8
----------------------------------------------        ------------------
Operating Income (Loss)         (11)    (10)   (10.0)%    (39)     (19)       -
----------------------------------------------        ------------------
Interest Expense                 67      71     (5.6)     137      131      4.6
----------------------------------------------        ------------------
Equity in Net Income of
 Affiliates                     198     171     15.8      397      338     17.5
----------------------------------------------        ------------------
Other Income (Expense) - Net     74     108    (31.5)     212      160     32.5
----------------------------------------------        ------------------
Income Before Income Taxes   $  194  $  198     (2.0)% $  433  $   348     24.4%
================================================================================

      Operating revenues increased $63 in the second quarter and $44 for the
      first six months of 2000. Ameritech Global Gateway Services (AGGS), a
      subsidiary which provides global long distance wholesale transport
      services, had increased volume-related long distance revenues which
      contributed to the increase approximately $35 in the second quarter, and
      $62 for the first six months of 2000. Additionally, in the second quarter,
      directory advertising revenues increased approximately $33 due to a change
      in the timing of the publication of directories at SBC's German directory
      investment, Wer Liefert Was (WLW). These increases were partially offset
      by a decrease in management fee revenues.

      Operating expenses increased $64 in the second quarter and for the first
      six months of 2000. The increase in the cost of long distance related to
      AGGS as noted above was $37 for the second quarter and $64 for the first
      six months of 2000. Directory shifts at WLW as described above resulted in
      increased directory advertising expenses of $25 in the second quarter of
      2000.

      Equity in net income of affiliates increased $27, or 15.8%, in the second
      quarter and $59, or 17.5%, for the first six months of 2000. These
      increases were due primarily to increases in equity in net income from
      SBC's investments in Telefonos de Mexico, S.A. de C.V. (Telmex), MATAV-a
      Hungarian telecommunications company, Telkom SA Limited in South Africa,
      and in Bell Canada, which was acquired during the second quarter of 1999,
      for a total increase of approximately $55 in the second quarter and $142
      for the first six months of 2000. Offsetting the increase was an
      investment in ATL-Algar Telecom Leste S.A. (ATL-a Brazilian communications
      company) in the first quarter of 2000, which resulted in losses in equity
      in net income of approximately $27 in the second quarter and $47 in the
      first six months of 2000. Also, the increases were partially offset by
      increased losses in equity in net income of approximately $12 in SBC's
      investment in Switzerland for the first six months of 2000. Additionally,
      SBC's investment in Tele Danmark recognized positive accounting true-ups
      related to pension costs and a stronger currency in the first quarter of
      1999, which offset the increase in equity in net income by approximately
      $24 in the first six months of 2000.

<PAGE>

SBC COMMUNICATIONS INC.

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
---------------------------------

      SBC plans to contribute its economic interest in ATL to a new company
      formed with Telmex and Bell Canada International in Latin America. When
      the contribution is made, SBC will account for its investment in ATL as a
      cost investment.

      SBC exercised its right to sell its interest in MATAV to Deutsche Telekom
      for approximately $2.2 billion in July 2000. The transaction closed in
      August 2000 with a pre-tax gain of approximately $1.1 billion. Equity in
      net income for the second half of 2000 will reflect the disposition of
      MATAV; MATAV contributed approximately $46 of equity in net income in the
      second half of 1999.

Consolidated Results

Interest expense increased $69, or 19.9%, in the second quarter and $68, or
9.7%, for the first six months of 2000. This increase was due to higher
composite rates and increased debt levels, primarily from borrowings to fund the
acquisition of Sterling. The proceeds from the sale of SBC's interest in MATAV
are anticipated to be used to repay commercial paper borrowings, which should
lower interest expense in the second half of 2000.

Other income (expense) - net increased $165, resulting in income of $142 in the
second quarter of 2000 compared with expense of $23 in the second quarter of
1999. For the first six months of 2000, other income increased $283, resulting
in income of $183 compared with expense of $100 during the first six months of
1999. The increases are primarily due to a decline in the market value of Debt
Exchangeable for Common Stock 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 $229 for
the quarter and $288 year to date. Results for the second quarter and first six
months of 2000 also included gains of approximately $65 recognized for market
adjustments on shares of Amdocs Limited (Amdocs), which were used for deferred
compensation. An offsetting deferred compensation expense was recorded in
operations and support expense. Gains on sales of investments were approximately
$25 for the second quarter and $83 for the first six months of 2000.

The second quarter and first six months of 1999 included gains from the sale of
a portion of Amdocs 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
second quarter and first six months of 1999 also included a gain of
approximately $59 recognized from the sale of SBC's investment in a Chilean
telecommunications company. The first six months of 1999 included a gain of
approximately $24 recognized from the sale of discontinued plant.

Income Taxes in 2000 and 1999 reflect the tax effect of one-time charges
previously described in the Overview section. These charges decreased income
taxes by $42 in the second quarter of 2000, increased income taxes by $23 for
the first six months of 2000 and increased income taxes by $24 in the second
quarter and $69 for the first six months of 1999. The net effective tax rate on
these items differed as a result of nondeductible items included in the charges.
Excluding these items, income taxes for the second quarter and first six months
of 2000 would have been $1,104 and $2,178. Income taxes for the second
<PAGE>


SBC COMMUNICATIONS INC.

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

quarter and first six months of 1999 would have been $1,077 and $2,048 excluding
one-time charges. Income taxes were higher due primarily to higher income before
income taxes.

COMPETITIVE AND REGULATORY ENVIRONMENT
--------------------------------------

Coalition for Affordable Local and Long Distance Service (CALLS) In March 2000,
members of CALLS - SBC, Verizon Communications (formerly Bell Atlantic Corp. and
GTE Corp.), BellSouth Corp. (BellSouth), AT&T Corp. (AT&T) and Sprint Corp.
(Sprint) proposed a plan to significantly restructure telecommunications
industry federal price cap regulation. In May 2000, the Federal Communications
Commission (FCC) approved the CALLS proposal with an effective date of July 1,
2000. Significant points of the five-year plan include:
o  reduction of switched access rates in 2000 (these are the rates that long
   distance carriers pay local telephone companies);
o  continuation of a productivity factor after 2000 until a targeted average
   rate for traffic-sensitive charges is achieved;
o  consolidation of the residential and single-line business customers'
   presubscribed interexchange carrier charge with the subscriber line charge
   into one lower charge on customer local telephone bills;
o  creation of an incremental $650 in universal service funding (universal
   service funding helps provide telephone service to economically disadvantaged
   customers, rural customers, schools and libraries).

The plan is expected to produce initial revenue reductions that are somewhat
larger than those under prior price cap requirements, but eliminate mandatory
annual price cap reductions over the life of the plan, resulting in minimal
future effects on net revenues over the life of the plan compared to the prior
price cap formula. SBC expects a net reduction in 2000 revenues of approximately
$300 as a result of this plan (versus approximately $200 that would have
occurred under prior price cap requirements).

Interconnection In July 2000, the Eighth Circuit Court of Appeals (Court of
Appeals) issued an opinion striking down FCC rules governing the rates incumbent
local exchange carriers (ILECs), such as SBC's wireline subsidiaries, charge
competitors for interconnection and for leasing portions of the incumbents'
telephone networks. The opinion rejected FCC pricing rules that required ILECs
to charge competitors rates based on hypothetical costs and held that prices
should instead be based on actual (but not necessarily historical) costs
incurred by carriers to provide interconnection or access to unbundled network
elements. In addition, the opinion rejected FCC rules governing the amount ILECs
must discount services purchased by competitors for resale to end users, holding
that the discount should be based on actual, not hypothetical, avoided costs.
The Court of Appeals remanded the pricing issues back to the FCC. The Court of
Appeals also reaffirmed its prior conclusion that ILECs cannot be required to
create new combinations of unbundled network elements for competitors, nor to
provide competitors better quality interconnection or access to unbundled
network elements than the ILECs provide to themselves. While favorable, this
ruling is not expected to have an immediate material effect on SBC's results of
operations or financial position.

Texas Long Distance In June 2000, the FCC approved SBC's application to provide
interLATA long distance service for calls originating in Texas. Approval was
effective July 10, 2000 and SBC officially launched service under the
Southwestern Bell brand at that time, offering domestic residential and business


<PAGE>


SBC COMMUNICATIONS INC.

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
--------------------------------------------------

long distance services as well as international calling plans. Over the past
several months, SBC's competitors, including AT&T, Sprint and MCI WorldCom Inc.,
began offering residential local service in parts of Texas and SBC expects
increased competition for this service. SBC continues to seek long distance
approval in its other in-region states and has filed applications with state
commissions in Arkansas, California, Kansas, Missouri, Nevada and Oklahoma.

Michigan Telecommunications Legislation In July 2000, the Michigan legislature
amended the Michigan Telecommunications Act, eliminating the monthly intrastate
end-user common line (EUCL) charge and implementing price caps for
telecommunications services to end users, except those covered by individual
contracts, at May 1, 2000 levels for the earlier of four years or until the
Michigan Public Service Commission (MPSC) determines the market for individual
services is competitive. The law authorizes an expansion of local calling areas
so that many short toll calls could be reclassified as local calls. In addition,
the law gives the MPSC more authority to regulate disputes between
telecommunications companies. SBC expects the EUCL and price cap legislation to
reduce revenues approximately $75 in 2000 ($155 annualized). If the local
calling area portion of the law is implemented in a manner that expands
local-calling areas extensively, without any offsetting price increases, SBC
expects an additional reduction in revenues of approximately $160 in 2000 ($320
annualized). In July 2000, SBC filed suit in federal court challenging the
constitutionality of the law.

Ohio Service Quality Ruling In July 2000, the Public Utilities Commission of
Ohio (PUCO) issued an order finding that SBC violated Ohio's minimum telephone
service standards and requiring SBC to issue approximately $5 in customer
credits and to spend an additional $4 on projects that will benefit customers.
The PUCO's findings related to the timeliness of service installation/repair and
inadequate recordkeeping, among other things. The order also places certain
restrictions on the manner in which SBC employees are able to sell basic,
preferred and inside wire maintenance services. Effective October 1, 2000, the
order precludes the payment of dividends by SBC's Ohio subsidiary to the SBC
parent company without prior PUCO approval. The PUCO also suggested that SBC
restore service in Ohio to appropriate levels or face additional penalties of up
to $122. SBC plans to seek rehearing and clarification of the dividend and
marketing restrictions imposed by the order.

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. SBC plans to
adopt FAS 133 on January 1, 2001 as a one-time, non-cash cumulative effect of
accounting change. The adoption impact will be based on market values at that
date, therefore, SBC cannot estimate the impact. However, because of SBC's
minimal use of derivatives, adoption of this standard is not expected to have a
significant effect on SBC's financial position or results of operations.


<PAGE>


SBC COMMUNICATIONS INC.

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
----------------------------------

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. SBC currently is evaluating the impact of SAB 101, but does not
expect it to have a significant effect on net income.

Acquisition See Note 9 of Notes to Consolidated Financial Statements for a
discussion of the acquisition of Sterling.

Pending Transactions See Note 10 of Notes to Consolidated Financial Statements
for a discussion of the agreement with BellSouth, the sale of our interest in
MATAV and the potential sale of our interests in Netcom GSM.

Marketing Agreement 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.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

SBC had $813 in cash and cash equivalents available at June 30, 2000. During the
first six 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 $3,630, all of which may be
used to support commercial paper borrowings. SBC had no borrowings outstanding
under these lines of credit as of June 30, 2000. Commercial paper borrowings as
of June 30, 2000 totaled $6,240. The approximately $2.2 billion of proceeds from
the pending sale of SBC's interest in MATAV are anticipated to be used to repay
commercial paper borrowings.

SBC's investing activities during the first six months of 2000 consisted of
$5,341 in construction and capital expenditures, primarily in the wireline and
wireless segments, and the approximate $3,600 acquisition of Sterling discussed
above.

Short-term borrowings increased $4,604 primarily to fund the acquisition of
Sterling. SBC also spent $892 on the repurchase of shares of its common stock
under the repurchase plan announced in January 2000. As of July 31, 2000, SBC
has repurchased a total of approximately 24 million shares of its common stock
of the 100 million shares authorized to be repurchased. Cash paid for dividends
in the first six months of 2000 was $1,698, or 3.9% higher than in the first six
months of 1999 due to an increase in dividends paid per share to $0.5075 from
$0.4875.

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 6.33%
and is reset quarterly based on the three-month London Interbank Offer Rate
(LIBOR) minus five basis points.


<PAGE>


SBC COMMUNICATIONS INC.

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 agreement with BellSouth Corporation, 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.

PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds
-------------------------------------------------

During the second 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 21,455 SBC shares and DSUs were acquired by non-employee directors at prices
ranging from $42.00 to $46.25, 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 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

Annual Meeting of Shareowners

(a)   The annual meeting of the shareowners of SBC Communications Inc. (SBC) was
      held on April 28, 2000, in San Antonio, Texas. Shareowners representing
      2,810,118,488 shares of common stock as of the February 29, 2000 record
      date were present in person or were represented at the meeting by proxy.

(b)   At the meeting, holders of common shares voted as indicated below to elect
      the following persons to the Board of Directors for a three-year term:

                                   SHARES               SHARES
      DIRECTOR                     FOR                  WITHHELD*
      --------                     ---                  ---------
      Clarence C. Barksdale        2,741,437,263        68,681,225
      Royce S. Caldwell            2,744,936,790        65,181,698
      Martin K. Eby, Jr.           2,744,175,162        65,943,326
      Charles F. Knight            2,728,205,489        81,912,999
      Toni Rembe                   2,744,211,399        65,907,089
      Carlos Slim Helu             2,742,356,310        67,762,178
      Patricia P. Upton            2,742,592,850        67,525,638

      *Includes shares represented at the meeting by proxy where the shareowner
       withheld authority to vote for the indicated director or directors, as
       well as shares present at the meeting which were not voted for such
       director or directors.

(c)   Shareowners ratified the appointment of Ernst & Young LLP as independent
      auditors of SBC for the year ended December 31, 2000. The vote was
      2,768,075,089 FOR and 20,945,516 AGAINST, with 21,097,883 shares
      ABSTAINING.

(d)   Shareowners voted not to adopt a shareowner proposal to limit certain
      existing pension benefits for outside directors. The vote was 909,030,738
      FOR and 1,412,108,724 AGAINST, with 89,804,423 shares ABSTAINING.


<PAGE>


SBC COMMUNICATIONS INC.

PART II - OTHER INFORMATION-Continued

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 April 10, 2000, SBC filed a Form 8-K, reporting on Item 5. Other Events
      and Item 7. Financial Statements and Exhibits. In the report, SBC
      announced an agreement to combine its domestic wireless operations with
      BellSouth Corporation.

      On April 26, 2000, SBC filed a Form 8-K, reporting on Item 5. Other
      Events. In the report, SBC disclosed a press release announcing first
      quarter 2000 earnings and pro forma financial statements relating to the
      wireless joint venture with BellSouth Corporation.

      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.



<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.



                                          /s/ Donald E. Kiernan
August 10, 2000                         --------------------------------
                                          Donald E. Kiernan
                                          Senior Executive Vice President,
                                          Chief Financial Officer and Treasurer




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