FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 78205-2233
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act: (See attached Schedule A)
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __X___ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes __X___ No _____
Based on the closing price of $25.55 per share on June 30, 2003, the aggregate market value of our voting and
non-voting common stock held by non-affiliates was $84.9 billion.
At February 27, 2004, common shares outstanding were 3,308,243,970.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to Shareowners for the fiscal year ended December 31,
2003 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 2004 Annual Meeting and Proxy Statement dated on March 11,
2004 (Parts III and IV).
SCHEDULE A
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Shares (Par Value $1.00 Per Share) New York, Chicago and Pacific
Stock Exchanges
7.00% Forty Year SBC Communications New York Stock Exchange
Inc. Notes, Due June 1, 2041
TABLE OF CONTENTS
Item Page
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PART I
1. Business.................................................................................... 1
2. Properties.................................................................................. 13
3. Legal Proceedings........................................................................... 13
4. Submission of Matters to a Vote of Security Holders......................................... 13
Executive Officers of the Registrant............................................................ 14
PART II
5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities............................. 15
6. Selected Financial Data..................................................................... 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 15
7A. Quantitative and Qualitative Disclosures about Market Risk.................................. 15
8. Financial Statements and Supplementary Data................................................. 15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................................... 15
9A. Controls and Procedures..................................................................... 16
PART III
10. Directors and Executive Officers of the Registrant.......................................... 16
11. Executive Compensation...................................................................... 16
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................................................. 16
13. Certain Relationships and Related Transactions.............................................. 18
PART IV
14. Principal Accountant Fees and Services...................................................... 18
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 18
PART I
ITEM 1. BUSINESS
GENERAL
SBC Communications Inc. ("SBC" or "we") is a holding company incorporated under the laws of the State of Delaware
in 1983 and has its principal executive offices at 175 E. Houston, San Antonio, Texas 78205-2233 (telephone
number 210-821-4105). We maintain an internet site at http://www.sbc.com. (This website address is for
information only and is not intended to be an active link or to incorporate any website information into this
document.) We make available, free of charge, on our website our annual report on Form 10-K, our quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably
practicable after such reports are electronically filed with the SEC. We also make available on our website, and
in print, if any shareholder or other person so requests, our code of business conduct and ethics entitled "Code
of Ethics" applicable to all employees and Directors, our "Corporate Governance Guidelines", and the charters for
the Audit, Human Resources and Corporate Governance and Nominating Committees of our Board of Directors. Any
changes to our Code of Ethics or waiver of our Code of Ethics for senior financial officers, executive officers
or Directors will be posted on our website.
History
SBC was formed as one of several regional holding companies created to hold AT&T Corp.'s local telephone companies.
On January 1, 1984, SBC was spun-off from AT&T pursuant to an anti-trust consent decree, becoming an independent
publicly traded telecommunications services provider. At formation, we primarily operated in five southwestern
states. Our subsidiaries merged with Pacific Telesis Group in 1997, Southern New England Telecommunications
Corporation in 1998 and Ameritech Corporation in 1999, thereby expanding our wireline operations as the incumbent
local exchange carrier into a total of 13 states. Our services and products are marketed under several brands
including SBC, through our joint venture with BellSouth Corporation (BellSouth), Cingular Wireless (Cingular), and
through our alliance with Yahoo!, SBC Yahoo!.
Scope
We rank among the largest providers of telecommunications services in the U.S. and the world. Through our
subsidiaries, we provide communications services and products in the U.S. and have investments in more than 25
countries. We offer our services and products to businesses and consumers, as well as other providers of
telecommunications services.
The services and products that we offer vary by market, and include: local exchange services, wireless
communications, long-distance services, internet services, telecommunications equipment, and directory
advertising and publishing. In the first quarter of 2004, we began offering satellite television services
through our agreement with EchoStar Communications Corp. (EchoStar). These results will be recorded in our
wireline segment. We group our operating subsidiaries as follows, corresponding to our operating segments for
financial reporting purposes:
o wireline subsidiaries provide primarily land and wire based services,
o wireless subsidiaries hold our investment in Cingular, which provides primarily radio-wave based
services,
o directory subsidiaries provide services related to directory advertising and publishing,
o international subsidiaries hold investments in primarily foreign entities outside of the U.S., and
o other subsidiaries provide primarily corporate operations.
Our principal wireline subsidiaries provide telecommunications services in thirteen states: Arkansas, California,
Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio, Oklahoma, Texas, and Wisconsin
(13-state area). Wireline local exchange services offered in our 13-state area are provided through regulated
subsidiaries which operate within authorized regions subject to regulation by each state in which they operate
and by the Federal Communications Commission (FCC). Additional information relating to regulation is contained
under the heading "Government Regulation" below and in the 2003 SBC Annual Report to Shareowners under the
heading "Operating Environment and Trends of the Business", and is incorporated herein by reference pursuant to
General Instruction G(2).
InterLATA Long-distance
We are authorized to offer wireline interLATA (traditional) long-distance services nationwide but we provide
services primarily to customers in our 13-state area and to customers in selected areas outside our wireline
subsidiaries' operating areas.
Broadband Initiative
In October 1999, we announced plans to upgrade our network to make broadband digital subscriber line (DSL)
services available to approximately 80% of our U.S. wireline customers over the four years through 2003 (Project
Pronto). Due to the weakening U.S. economy and an uncertain and adverse regulatory environment, in October 2001
we announced a scale-back in our broadband deployment plans. As discussed in greater detail below, in August
2003, the FCC released its Triennial Review Order, which appears to provide some relief from unbundling
requirements for broadband and new fiber facilities and equipment used to provide data and high-speed internet
access services. However, because the new broadband rules contain some ambiguities and have been appealed to the
U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), and are subject to petitions for
reconsideration or clarification before the FCC, we continue to face uncertainty regarding the regulatory
treatment of our broadband investments. Nevertheless, due to increasing growth opportunities and competition, we
have resumed a Project Pronto-related limited build-out and expect to have DSL available to nearly 80% of our
wireline customer locations in early 2004, up from 75% at December 31, 2003. Our DSL lines, which provide
broadband internet access, continue to grow and were approximately 3,515,000 at December 31, 2003, compared to
2,199,000 at the end of 2002.
The FCC has begun reviewing the rules governing broadband services offered by cable, satellite and wireless
operators in addition to traditional wireline offerings. The FCC tentatively concluded that wireline broadband
internet access services are "information" services rather than "telecommunications" services, which would result
in less regulation. In October 2003, the United States Court of Appeals for the Ninth Circuit (9th Circuit)
ruled that broadband internet access services provided by cable operators involve both an "information service"
and a "telecommunications" service. If this decision is upheld (the FCC has a request for rehearing pending
before the 9th Circuit), the FCC may change its tentative conclusion that wireline broadband internet access
services are information services, not telecommunications services. It is likely that the FCC will not act in
these proceedings until the 9th Circuit rules on its request for rehearing. We are not certain of the effect the
9th Circuit's decision will have on our operations or financial statements.
Cable operators have no general obligation to provide third-party Internet Service Providers (ISPs) access to
their broadband networks at this time, although the FCC has begun a proceeding to consider the issue. The 9th
Circuit's decision (discussed above) could support the imposition on cable operators of some of the same
regulations applicable to wireline companies but it is unclear at this time whether the decision will have a
significant impact on providers of cable modem services.
In December 2002, the FCC ruled that advanced services, such as DSL, when provided through one of our separate
subsidiaries, are not subject to tariff regulations and cost study requirements. However, we are still required
to retain cost data and offer our retail advanced services for resale at a discount. This ruling should allow us
to respond more quickly to offerings by unregulated competitors. The FCC is expected to complete its broadband
review during 2004. The effect of the review on our results of operations and financial position cannot be
determined at this time.
Voice over Internet Protocol
Voice over Internet Protocol (VoIP) is generally used to describe the transmission of voice and data using
Internet-based technology rather than a traditional wire and switch-based telephone network. As a result, this
technology can provide services, although not necessarily of the same quality, often at a lower cost because a
traditional network need not be constructed and maintained and because it has not been subject to traditional
telephone industry regulation. In early 2004, the FCC opened a rule making proceeding on VoIP. The rulemaking is
expected to address whether and how a wide range of regulations should be applied to VoIP, including issues
related to federal and state jurisdiction, intercarrier compensation, universal service, public safety, consumer
protection and other matters. During 2003, a number of state utility commissions also began proceedings to
examine the regulatory treatment of VoIP.
Notwithstanding the unresolved regulatory questions before the FCC and the state commissions, numerous
communications providers began providing various forms of VoIP in 2003, or announced their intentions to do so in
the near future. These providers include both established companies as well as new entrants. Thus, while the
deployment of VoIP will result in increased competition for our core wireline voice services, it also presents
growth opportunities for us to develop new products for our customers.
Cingular
Cingular, our wireless joint venture with BellSouth, began operations in October 2000. Cingular serves
approximately 24.8 million customers and is the second-largest provider of mobile wireless voice and data
communications services in the U.S., based on the number of wireless customers. Cingular has access to licenses
on the 850 and 1900 MHz bands to provide cellular or PCS wireless communications services covering an aggregate
population of potential customers, referred to as "POPs", of approximately 236 million, or approximately 81% of
the U.S. population, including 45 of the 50 largest U.S. metropolitan areas. See "Recent Developments" below for
a discussion of Cingular's pending acquisition of AT&T Wireless Services, Inc. (AT&T Wireless).
Cingular's wireless networks use equipment with digital transmission technologies known as Global System for
Mobile Communication (GSM) technology and Time Division Multiple Access (TDMA) technology. Cingular
substantially completed upgrading its existing TDMA markets to use GSM technology in order to provide a common
voice standard. Cingular's GSM network now covers approximately 93% of Cingular's POPs. Additionally, through
roaming agreements with other carriers, Cingular customers have GSM coverage in approximately 90% of the U.S.
Also, Cingular is adding high-speed technologies for data services known as General Packet Radio Services (GPRS)
and Enhanced Data Rates for GSM Evolution (EDGE).
Cingular is in the process of upgrading its network to third generation (3G) wireless data technology by using
EDGE. EDGE technology is Cingular's choice for a 3G wireless communications standard that will allow customers
to access the Internet from their wireless devices at higher speeds than even GPRS. At December 31, 2003,
Cingular's EDGE technology covered approximately 20% of its POPs. Cingular expects the GSM/GPRS/EDGE network
overlay to be fully complete by the end of 2004.
BUSINESS OPERATIONS
Operating Segments
Our segments are strategic business units that offer different products and services and are managed
accordingly. Under U. S. generally accepted accounting principles (GAAP) segment reporting rules, we analyze our
various operating segments based on segment income. Interest expense, interest income, other income (expense) -
net and income tax expense are managed only on a total company basis and are, accordingly, reflected only in
consolidated results. Therefore, these items are not included in the calculation of each segment's percentage of
our consolidated results. We have five reportable segments that reflect the current management of our business:
(1) wireline; (2) Cingular; (3) directory; (4) international; and (5) other.
Additional information about our segments, including financial information, is included under the heading
"Segment Results" on pages 9 through 18 and in Note 4 of the 2003 SBC Annual Report to Shareowners and is
incorporated herein by reference pursuant to General Instruction G(2).
Wireline
Wireline is our largest operating segment, providing approximately 65% of 2003 revenues and 46% of income from
all our segments. Our wireline segment operates as both a retail and wholesale seller of communication
services. We provide landline telecommunications services, including local, long-distance voice, switched
access, data, and messaging services. Our landline telecommunications subsidiaries serve approximately 28.8
million retail consumer, 18.3 million retail business, 7.1 million wholesale and 0.5 million other access lines,
for a total of 54.7 million access lines in our 13-state area.
Services and Products
We divide our wireline services into four product-based categories - voice, data, long-distance and other.
Voice - Voice includes traditional local service provided to retail customers and wholesale access to our network
and individual network elements provided to competitors. Voice also includes calling features (described below),
fees to maintain wire located inside customer premises, pay telephones, customer premise equipment and other
equipment sales (described below) and other miscellaneous voice products.
Calling features are enhanced telephone services available to retail customers such as Caller ID, Call Waiting,
and voice mail. Customers that subscribe to these services can have the number and/or name of callers displayed
on their phone, be signaled that additional calls are incoming, and send and receive voice messages. These
services are not regulated by the FCC and are generally more profitable than basic local phone service.
Customer premises equipment and other equipment sales range from single-line and cordless telephones to
sophisticated digital PBX systems. PBX is a private telephone switching system, typically used by businesses and
usually located on a customer's premises, which provides intra-premise telephone services as well as access to
our network.
Data - Data includes traditional products, such as switched and dedicated transport, internet access and network
integration, and data equipment sales.
Switched Transport services transmit data using switching equipment to transfer the data between multiple lines
before reaching its destination. Dedicated Transport services use a single direct line to transmit data between
destinations. Integrated Services Digital Network (ISDN), Dedicated Frame Relay, DSL, Digital Services and
Synchronous Optical Network (SONET) are examples of Dedicated Transport services. ISDN transmits voice, video,
and data over a single line in support of a wide range of applications, including internet access. Frame Relay
is a routing technology that breaks a data signal into individual pieces of data to travel at high speeds and
then recombines the data prior to arriving at its destination. DSL is a digital modem technology that converts
existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications to the
Internet or private networks. DSL allows customers to simultaneously make a phone call and access information
via the Internet or an office local area network. Digital Services use dedicated digital circuits to transmit
digital data at various high rates of speed. SONET provides customer access to our backbone network at various
high speeds.
Network integration services include installation of business data systems, local area networking, and other data
networking offerings. Internet access services include a wide range of products for residences and businesses,
varying by market. Internet services offered include basic dial-up access service, dedicated access, web
hosting, e-mail, and high-speed access services.
EchoStar Agreement
In July 2003, we entered into a co-branded service agreement with EchoStar to offer satellite television service to
customers in our 13-state area. Additional information on this agreement is contained in the 2003 SBC Annual Report
to Shareowners under the heading "Other Business Matters - EchoStar Agreement" beginning on page 29 and is
incorporated herein by reference pursuant to General Instruction G(2).
Yahoo! Alliance
In November 2001, we formed a strategic alliance with Yahoo! to provide co-branded broadband and dial-up service
to residential customers nationwide. During 2003, SBC and Yahoo! expanded the alliance to include co-branded
broadband and dial-up services designed for small businesses.
Long-distance voice - Long-distance voice consists of all interLATA (traditional long-distance) and intraLATA
(local toll) wireline revenues, including calling card and 1-800 services. Prior to 2003, Federal regulations
prohibited us from offering interLATA wireline long-distance services in six of our 13 states. During 2003, we
received regulatory approval to offer these services to customers in these remaining six states. We now may
provide interLATA wireline long-distance to customers nationwide.
Other - Other includes directory and operator assistance, and billing and collection services for other carriers.
Cingular
The Cingular segment reflects 100% of the results reported by Cingular, our wireless joint venture. This segment
replaces our previously titled "wireless" segment, which included 60% of Cingular's revenues and expenses. In our
consolidated financial statements, we report our 60% proportionate share of Cingular's results as equity in net
income (loss) of affiliates. For segment reporting, we report this equity in net income (loss) of affiliates in our
other segment.
While our consolidated operating revenues do not include Cingular's results, we do include 100% of Cingular's
revenues and expenses when we analyze our operating segment results. On that segment basis, the Cingular segment
provided approximately 27% of revenues and 12% of income from all our segments in 2003.
Cingular Wireless Joint Venture
In April 2000, we formed a joint venture with BellSouth to provide domestic wireless services nationally. In
October 2000, most of our and BellSouth's Domestic wireless operations were contributed to Cingular, which then
began operations. Economic ownership in Cingular is held 60% by us and 40% by BellSouth. We have equal voting
rights and representation on the board of directors that controls Cingular. Because we share control equally, we
use the equity method of accounting to account for our interest. Cingular is an SEC registrant by virtue of its
publicly traded debt securities. Accordingly, it files separate Forms 10-K, 10-Q and other reports with the SEC.
Cingular faces substantial competition in all aspects of its business as competition continues to increase in the
wireless communications industry. Under current FCC rules, six or more PCS licensees, two cellular licensees and
one or more enhanced specialized mobile radio licensees may operate in each of Cingular's markets. On average,
Cingular has four to five other wireless competitors in each of its markets and competes for customers based
principally on price, service offerings, call quality, coverage area and customer service.
Cingular's competitors are principally five national (Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel
Communications and T-Mobile) and a larger number of regional providers of cellular, PCS and other wireless
communications services. Cingular also competes with resellers and wireline service providers. Moreover, Cingular
may experience significant competition from companies that provide similar services using other communications
technologies and services. While some of these technologies and services are now operational, others are being
developed or may be developed in the future.
See "Recent Developments" below for a discussion of Cingular's pending acquisition of AT&T Wireless. Cingular
agreed to acquire AT&T Wireless to expand its available spectrum and its network coverage and quality, and to
enhance its ability to offer future high-speed data services.
Additional information on Cingular is contained in the 2003 SBC Annual Report to Shareowners under the heading
"Expected Growth Areas - Wireless" beginning on page 21 and is incorporated herein by reference pursuant to General
Instruction G(2).
Directory
Our directory segment includes advertising, Yellow and White Pages directories and electronic directory
publishing. The directory segment provided approximately 8% of revenues and 26% of income from all our segments
in 2003. Our directory subsidiaries operate primarily in our 13-state area.
International
Our international segment includes all of our investments with primarily international operations. We have
direct or indirect interests in businesses located in more than 25 countries and as of December 31, 2003, have
international investments with a carrying value of approximately $7 billion. Our international investments
include companies that provide local and long-distance telephone services, wireless communications, voice
messaging, data services, internet access, telecommunications equipment, and directory publishing. We report
earnings from this segment as equity in net income of affiliates rather than as operating revenue because this
segment consists almost exclusively of investments where, under GAAP, we have significant influence rather than
control. Because most of our international investments are accounted for on the equity method, revenues from our
international segment were less than 1% of 2003 revenues from all our segments. The international segment
provided approximately 7% of income from all our segments in 2003.
We describe below our foreign equity method investments and significant transactions relating to these
investments. Additional information about this segment is included in Note 6 of the 2003 SBC Annual Report to
Shareowners and is incorporated herein by reference pursuant to General Instruction G(2).
Europe
We hold a 41.6% stake in TDC A/S (TDC), Denmark's primary full-service communications operator. TDC also has
investments in full service communications providers in Switzerland with a 100% investment in TDC Switzerland AG
(Sunrise), and in Belgium with a 15.9% investment in Belgacom S.A. (Belgacom). TDC has investments in wireless
services in Lithuania, Poland, Austria and Germany. TDC also has investments in communications providers in the
Czech Republic, Hungary, Finland, Norway and Sweden. We currently have six representatives on the twelve-member
TDC Board of Directors, including the Chairman, who would cast any tie-breaking vote.
In January 2001, TDC acquired a majority interest in diAx A.G (diAx), a wireless long-distance and internet
service provider in Switzerland. In the first quarter of 2003, TDC acquired the remaining shares from diAx
Holdings, pursuant to an agreement negotiated at the time of the original transaction. Sunrise was merged with
diAx in January 2001.
In Belgium, we hold a 16.9% stake in Belgacom, that country's primary full-service telecommunications operator,
and effectively own 23.5% of Belgacom when our direct stake is combined with the stake we hold indirectly through
TDC. With approximately 4.6 million access lines and more than 3.7 million cellular customers, Belgacom provides
local, long-distance, cellular and other communications services. In October 2003, Belgacom announced that its
shareholders had agreed to proceed with the preparations for a potential initial public offering of Belgacom.
Additional information on this transaction is contained in Note 6 of the 2003 SBC Annual Report to Shareowners
and is incorporated herein by reference pursuant to General Instruction G(2).
In January 2003, we sold to Vodafone Group PLC (Vodafone) our 15% equity interest in Cegetel S.A. (Cegetel), a
joint venture that owns 80% of the second-largest wireless provider in France. Additional information on this
transaction is contained in Note 2 of the 2003 SBC Annual Report to Shareowners and is incorporated herein by
reference pursuant to General Instruction G(2).
Latin America
We own an 8% equity share in Telefonos de Mexico, S.A. de C.V. (Telmex), Mexico's largest national provider of
wireline services. Telmex operates approximately 15.6 million access lines. We are a member of a consortium that
holds all of the class AA shares of Telmex stock, representing voting control of the company. Another member of
the consortium, Carso Global Telecom, S.A. de C.V., has the right to appoint a majority of the directors of Telmex.
In December 2002 and March 2003, a World Trade Organization panel held hearings to investigate the allegation
that Mexico has unfairly kept U.S. companies from competing in its $12 billion telecommunications market. The
final report from the panel is expected in March of 2004.
As of December 31, 2003, Telmex had approximately 75% of the long-distance market in Mexico. Telmex's share of
international long-distance traffic may decline significantly when the "proportional return mechanism" rules
expire. This mechanism guarantees Telmex the same percentage of incoming traffic as outgoing traffic. In 2002,
Telmex and its competitors agreed on new rates. Although these new rates expired in January 2004 the rates
nevertheless will remain in effect until the Mexican government modifies the rules or new agreements are reached
between Telmex and other carriers.
In 2000, Telmex spun-off its wireless and certain other operations to its shareowners as a separate business,
America Movil S.A. de C.V. (America Movil), which serves more than 43.7 million wireless customers in Argentina,
Brazil, Columbia, Ecuador, Guatemala, Mexico, the U. S. and Venezuela. We own a 7.6% interest in America Movil.
We are a member of a consortium that holds all of the class AA shares of America Movil stock, representing voting
control of the company. Another member of the consortium, Americas Telecom S.A. de C. V., has the right to
appoint a majority of the directors of America Movil.
Africa
We hold an 18% indirect ownership stake in Telkom S.A. Limited (Telkom), South Africa's largest local exchange
and long-distance company. Telkom serves nearly 4.8 million access lines in South Africa, and also owns 50% of a
second national wireless network operator serving more than 10.2 million wireless customers through Telkom's
wireless joint venture, Vodacom.
MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of consolidated total reported operating revenues by any class of
service that accounted for 10% or more of our consolidated total operating revenues in any of the last three
fiscal years.
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Percentage of Consolidated Total
Operating Revenues
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2003 2002 2001
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Wireline Segment
Voice 54% 57% 58%
Data 25% 22% 21%
Directory Segment
Directory advertising 1 11% 10% 10%
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1 Approximately 95%, 96% and 96% of directory advertising revenues were recorded in the directory segment for
2003, 2002 and 2001. The remaining directory advertising revenues were recorded in the wireline segment.
Voice and Data are included in the wireline segment and each also exceeds 10% of the wireline segment's total
operating revenues. Our Cingular segment revenues are reported in equity in net income of affiliates in our
consolidated financial statements due to our equity accounting for the joint venture. Directory advertising
revenues are included in our directory segment's results of operations and are approximately 97% of directory's
total operating revenues.
We account for our 60% economic interest in Cingular under the equity method of accounting in our consolidated
financial statements since we share control equally (i.e. 50/50) with our 40% economic partner in the joint
venture. We have equal voting rights and representation on the board of directors that controls Cingular. This
means that our consolidated reported results include Cingular's results in the "Equity in Net Income of
Affiliates" line. We do not report Cingular revenues on our consolidated financial statements. However, when
analyzing our segment results, we evaluate Cingular's results on a stand-alone basis. The table below shows the
effect on our other classes of services (shown in the above table) if we include 100% of Cingular's revenues
added to our total segment operating revenues.
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Percentage of Total
Segment Operating Revenues
(including 100 % of Cingular)
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2003 2002 2001
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Wireline Segment
Voice 39% 43% 44%
Data 18% 17% 16%
Cingular
Wireless subscriber 1 25% 24% 22%
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1 Approximately 99% of wireless subscriber revenues were recorded in the Cingular segment in 2001. The remaining
wireless subscriber revenues were recorded in the other segment
GOVERNMENT REGULATION
In our 13-state area, our wireline subsidiaries are subject to regulation by state commissions which have the power
to regulate intrastate rates and services, including local, long-distance and network access services. Our wireline
subsidiaries are also subject to the jurisdiction of the FCC with respect to interstate and international rates and
services, including interstate access charges. Access charges are designed to compensate our wireline subsidiaries
for the use of their networks by other carriers.
Additional information relating to federal and state regulation of our wireline subsidiaries is contained in the
2003 SBC Annual Report to Shareowners under the heading "Regulatory Developments" beginning on page 22, and is
incorporated herein by reference pursuant to General Instruction G(2).
IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain of our subsidiaries own or have licenses to various patents, copyrights, trademarks and other
intellectual property necessary to conduct business. We also license other companies to use this intellectual
property. We do not believe that the expiration of any of our intellectual property rights, or the nonrenewal of
those rights, would have a material adverse affect on our results of operations.
MAJOR CUSTOMER
No customer accounted for more than 10% of our consolidated revenues in 2003, 2002 or 2001.
COMPETITION
Information relating to competition in each of our operating segments is contained in the 2003 SBC Annual Report
to Shareowners under the heading "Competition" beginning on page 25, and is incorporated herein by reference
pursuant to General Instruction G(2).
RESEARCH AND DEVELOPMENT
The majority of our research and development activities are related to our wireline segment. Applied research,
technology planning and evaluation services are conducted at our subsidiary, SBC Laboratories, Inc. We also have
a research agreement with Telcordia Technologies, formerly Bell Communications Research, Inc. Research and
development expenses were not material in 2003, 2002 or 2001.
EMPLOYEES
As of January 31, 2004, we employed approximately 168,000 persons. Approximately 112,000 of our employees are
represented by the Communications Workers of America (CWA) or the International Brotherhood of Electrical
Workers (IBEW). The four largest collective bargaining agreements between the CWA and our subsidiaries,
covering approximately 95,000 employees, expire April 1, 2004 through April 3, 2004. In an agreement announced
on February 4, 2004, the CWA agreed to give us 30 days notice before taking any strike action if a settlement is
not reached by contract expiration in early April, 2004. In turn, we agreed to continue to provide health care
benefits to employees in the event of a strike. The largest IBEW agreement covering approximately 12,000
employees expires on June 26, 2004.
RECENT DEVELOPMENTS
Cingular Acquisition of AT&T Wireless
On February 17, 2004, Cingular announced an agreement to acquire AT&T Wireless. Under the terms of the
agreement, shareholders of AT&T Wireless will receive cash of $15.00 per common share, or approximately $41
billion. The acquisition is subject to approval by AT&T Wireless shareholders and federal regulators. Cingular
expects to fund the acquisition with contributions from us and BellSouth. Based on our 60% equity ownership of
Cingular, we expect to contribute approximately $25 billion of the purchase price. We expect to pay this amount
primarily with proceeds from debt, as well as cash on hand, cash to be generated from operations and asset
sales. Equity ownership and management control of Cingular will remain unchanged after the acquisition.
The agreement provides that if the conditions to closing are not satisfied by December 31, 2004, it may be
terminated (subject to extension to June 30, 2005 by either party) if, as of December 22, certain regulatory
approvals have not been obtained (in very limited circumstances it may be extended another 60 days thereafter).
If AT&T Wireless enters into or completes certain types of business combination transactions within fifteen
months after certain terminations of the agreement, AT&T Wireless would be obligated to pay to us and BellSouth
an aggregate termination fee equal to $1.4 billion.
The agreement also provides that Cingular and AT&T Wireless are required to use their best efforts to complete
the merger as promptly as reasonably practicable and we and BellSouth are required to use reasonable best efforts
to assist Cingular in obtaining regulatory approval. However, none of us, BellSouth nor Cingular will be
required to take actions required by regulators as a condition to approval of the merger, and we will not be
required to close the merger if the aggregate adverse impacts of required sales of subscribers or spectrum or any
conditions imposed on any of us, BellSouth and/or Cingular would exceed $8.25 billion. For purposes of
calculating the impacts regarding sales of subscribers or spectrum, the parties have agreed that the adverse
impact of (a) any required divestitures of a market would be equal to the number of subscribers in the market
required to be divested multiplied by $825 and (b) any required divestitures of spectrum only would be equal to
the amount of spectrum required to be divested multiplied by $.50 per MHz POP (i.e., the amount of spectrum in a
licensed area measured in MHz multiplied by the population of that licensed area). Any other adverse impacts on
us, BellSouth and/or Cingular would be calculated at the time the conditions are imposed. Each of us and
BellSouth has agreed not to take any action reasonably likely to prevent the closing of the merger. In addition,
each of us and BellSouth have also agreed that prior to the termination date we will not enter into any
definitive agreement to acquire a business providing commercial mobile wireless voice and data services offered
to public on FCC licensed frequencies (other than in de minimis amounts) or take actions that at the time taken
would reasonably be expected to materially interfere with our respective abilities to make funds available to
Cingular to complete the acquisition.
Additional information on expected trends at Cingular is contained in the 2003 SBC Annual Report to Shareowners
under the heading "Operating Environment and Trends of the Business -- Cingular" beginning on page 19 and is
incorporated herein by reference pursuant to General Instruction G(2).
Triennial Review Order Court Proceedings
On March 2, 2004, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit)
overturned significant portions of the FCC's unbundling rules adopted in the Triennial Review Order (TRO). The
D.C. Circuit struck down the rules concerning mass-market unbundled switching (and therefore the UNE-P) and
high-capacity transport. The D.C. Circuit upheld the FCC's decision not to unbundle broadband investment,
including its decision to phase out line-sharing (which allows competitors to offer high-speed internet access
on traditional copper voice lines). The D.C. Circuit's decision will not become effective for at least 60 days
to allow the FCC and other parties to seek reconsideration or a review of the order by all judges on the D.C.
Circuit. Since this decision struck down the FCC's delegation of authority to the state regulators to decide
whether switching and, hence the UNE-P must be made available in specified markets, it is unclear how this
decision will affect the availability of the UNE-P in our 13-state area.
California Audit
On February 26, 2004, the California Public Utility Commission (CPUC) decided several major monetary issues in
the 1997-1999 audit of our California wireline subsidiary. The CPUC ruled that we were in compliance with
regulatory accounting and pension and depreciation rules and that no refunds (i.e., service credits) were owed
by our subsidiary to customers. The CPUC determined, however, that our withdrawal of amounts from a Voluntary
Employee Benefit Association Trust (VEBA) for active employee benefits, as opposed to retiree benefits, should
be refunded back to the VEBA, which will result in a 2004 contribution of approximately $230 million.
Antitrust Litigation
Eight consumer antitrust class actions were filed in 2003 against us in the United States District Court for the
District of Connecticut. The primary claim in these suits was that our wireline subsidiaries, in violation of
federal and state law, maintained monopoly power over local telephone service in all 13 states in which our
subsidiaries are incumbent local exchange companies.
These cases were consolidated under the first filed case Twombly v. SBC Communications Inc. and stayed by
----------------------------------
agreement of the parties pending the United States Supreme Court's (Supreme Court) decision in a similar case
against another incumbent local exchange company. In that case, the Supreme Court held that violations of the
Telecom Act do not support an antitrust claim and that the plaintiff had not stated an antitrust claim and
affirmed dismissal of the plaintiff's antitrust claims. Verizon Communications Inc. v. Law Offices of Curtis V.
--------------------------------------------------------
Trinko LLP, No. 02-682 (Jan. 13, 2004). On February 23, 2004, the court approved a voluntary dismissal in the
----------
eight consolidated consumer antitrust class action suits, thus ending that litigation.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and
uncertainties. We claim 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 our future results to differ materially from those expressed in the
forward-looking statements:
o Adverse economic changes in the markets served by us or in countries in which we have significant
investments.
o Changes in available technology and the effects of such changes including product substitutions and
deployment costs.
o Uncertainty in the U.S. securities market and adverse medical cost trends.
o The final outcome of Federal Communications Commission proceedings and re-openings of such proceedings,
including the Triennial Review and other rulemakings, and judicial review, if any, of such proceedings,
including issues relating to access charges, availability and pricing of, unbundled network elements and
platforms (UNE-Ps) and unbundled loop and transport elements (EELs).
o The final outcome of state regulatory proceedings in our 13-state area and re-openings of such
proceedings, and judicial review, if any, of such proceedings, including proceedings relating to
interconnection terms, access charges, universal service, UNE-Ps and resale and wholesale rates, our
broadband initiative known as Project Pronto, performance measurement plans, service standards and
reciprocal compensation.
o Enactment of additional state, federal and/or foreign regulatory laws and regulations pertaining to our
subsidiaries and foreign investments.
o Our ability to absorb revenue losses caused by UNE-P requirements and increasing competition and to
maintain capital expenditures.
o The extent of competition in our 13-state area and the resulting pressure on access line totals and
wireline and wireless operating margins.
o Our ability to develop attractive and profitable product/service offerings to offset increasing
competition in our wireline and wireless markets.
o The ability of our competitors to offer product/service offerings at lower prices due to adverse
regulatory decisions, including state regulatory proceedings relating to UNE-Ps and non-regulation of
comparable alternative technologies (e.g., VoIP).
o The outcome of current labor negotiations and its effect on operations and financial results.
o The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new
accounting standards or changes to existing standards.
o The impact of the wireless joint venture with BellSouth, known as Cingular, including marketing and
product-development efforts, customer acquisition and retention costs, access to additional spectrum,
technological advancements, industry consolidation including the pending acquisition of AT&T Wireless and
availability and cost of capital.
o Cingular's failure to achieve, in the amounts and within the timeframe expected, the capital and expense
synergies and other benefits expected from its pending acquisition of AT&T Wireless and our incremental
costs, if any, in financing our portion of the merger's purchase price.
o Changes in our corporate strategies, such as changing network requirements or acquisitions and
dispositions, to respond to competition and regulatory and technology developments.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could
materially impact our future earnings.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by character and location of principal units. At December
31, 2003, approximately 99% of our property, plant and equipment was owned by our wireline subsidiaries. Network
access lines represented approximately 39.0% of the wireline subsidiaries' investment in telephone plant; central
office equipment represented approximately 41.5%; land and buildings represented approximately 9.1%; other
equipment, comprised principally of furniture and office equipment and vehicles and other work equipment,
represented approximately 6.7%; and other miscellaneous property represented approximately 3.7%.
Substantially all of the installations of central office equipment are located in buildings and on land that we
own. Many garages, administrative and business offices and telephone centers are in leased quarters.
ITEM 3. LEGAL PROCEEDINGS
We are a party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of
business. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a
material adverse effect on our financial position, results of operations or cash flows. Additional information
regarding litigation is included in the 2003 SBC Annual Report to Shareowners under the heading "Antitrust
Litigation" on page 29, which is incorporated herein by reference pursuant to General Instruction G(2). As of
the date of this report, we do not believe that any pending legal proceedings to which we or our subsidiaries
are subject are required to be disclosed as material legal proceedings pursuant to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareowners in the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 11, 2004)
Name Age Position Held Since
---- --- -------- ----------
Edward E. Whitacre Jr. 62 Chairman and Chief Executive Officer 1/1990
John H. Atterbury III 55 Group President - Operations 11/2002
James W. Callaway 57 Group President 11/1999
William M. Daley 55 President 12/2001
James D. Ellis 60 Senior Executive Vice President and General Counsel 3/1989
Karen E. Jennings 53 Senior Executive Vice President - Human Resources 10/1998
and Communications
James S. Kahan 56 Senior Executive Vice President - Corporate Development 7/1993
Forrest E. Miller 51 Group President - Corporate Planning 10/2002
John T. Stankey 41 Senior Executive Vice President and 3/2004
Chief Information Officer
Randall L. Stephenson 43 Senior Executive Vice President and 8/2001
Chief Financial Officer
Rayford Wilkins, Jr. 52 Group President - SBC Marketing and Sales 6/2002
All of the above executive officers have held high-level managerial positions with SBC or its subsidiaries for
more than the past five years, except for Mr. Daley and Mr. Stankey. Mr. Daley was Vice Chairman and Senior
Managing Director of Evercore Partners Inc. from May 2001 to December 2001. He was Chairman of the
Gore/Lieberman Campaign from July 2000 to December 2000, and he was U. S. Secretary of Commerce from January 1997
to July 2000. Prior to that, he was a partner in the law firm of Mayer, Brown & Platt from 1993 to 1997. Mr.
Stankey became an officer in January 2000. Prior to that, he held responsible managerial positions with SBC.
Executive officers are not appointed to a fixed term of office.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York, Chicago and Pacific stock exchanges as well as the Swiss Exchange.
Our stock is traded on the London Stock Exchange through the SEAQ International Markets facility. The number of
shareowners of record as of December 31, 2003 and 2002 was 968,483 and 1,027,716. The number of shareowners of
record as of February 27, 2004 was 960,050. We declared dividends, on a quarterly basis, totaling $1.41 per
share in 2003 and $1.08 per share in 2002. During 2003, non-employee directors acquired from SBC shares of
common stock pursuant to the 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 2003, an aggregate of 142,996 SBC shares and DSUs were acquired by non-employee directors at prices
ranging from $20.24 to $29.61, 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.
Other information required by this Item is included in the 2003 SBC Annual Report to Shareowners under the
headings "Quarterly Financial Information" on page 59, "Selected Financial and Operating Data" on page 5, and
"Stock Trading Information" on the back cover, which are incorporated herein by reference pursuant to General
Instruction G(2).
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included in the 2003 SBC Annual Report to Shareowners under the heading
"Selected Financial Data" on page 5 which is incorporated herein by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Information required by this Item is included in the 2003 SBC Annual Report to Shareowners on page 6 through
page 33, which is incorporated herein by reference pursuant to General Instruction G(2).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is included in the 2003 SBC Annual Report to Shareowners under the heading
"Market Risk" on page 32, which is incorporated herein by reference pursuant to General Instruction G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the 2003 SBC Annual Report to Shareowners on page 34 through
page 59, which is incorporated herein by reference pursuant to General Instruction G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During our two most recent fiscal years, there has been no change in the independent accountant engaged as the
principal accountant to audit our financial statements and the independent accountant has not expressed reliance
on other independent accountants in its reports during such time period
ITEM 9A. CONTROLS AND PROCEDURES
The registrant maintains disclosure controls and procedures that are designed to ensure that information required
to be disclosed by the registrant is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. The Chief Executive Officer and Chief
Financial Officer have performed an evaluation of the effectiveness of the design and operation of the
registrant's disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the registrant's disclosure controls and procedures
were effective as of December 31, 2003.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate
disclosure at the end of Part I of this report since the registrant did not furnish such information in its
definitive proxy statement prepared in accordance with Schedule 14A. Information regarding directors required by
Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the
registrant's definitive proxy statement, dated on March 11, 2004 ("Proxy Statement") on page 10, beginning under
the heading "Group B Directors to be elected at the 2004 Annual Meeting " on page 16 under the heading
"Compensation of Directors", on page 43 under the heading "Contracts with Management" and on page 27 under the
heading "Audit Committee". Information required by Item 405 of Regulation S-K is included on page 46 of the
Proxy Statement under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" which is incorporated
herein by reference pursuant to General Instruction G(3).
The registrant has a separately-designated standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act of 1934. The members of the committee are Messrs. Barksdale, Eby, Hay and
Ritchey.
The registrant has adopted a code of ethics entitled "Code of Ethics" that applies to the registrant's principal
executive officer, principal financial officer and principal accounting officer or controller or persons
performing similar functions. The additional information required by Item 406 of Regulation S-K is provided in
this report under the heading "General" under Part I, Item 1. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive proxy statement, dated on March 11,
2004, on pages 16 through 46, under the headings "Compensation of Directors", "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation" but not including the Report of the Human Resources
Committee on Executive Compensation, "Pension Plans" and "Contracts with Management", which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 403 of Regulation S-K is included in the registrant's definitive proxy statement,
dated on March 11, 2004, under the heading "Common Stock Ownership of Directors and Officers" on page 18, which
is incorporated herein by reference pursuant to General Instruction G(3).
Equity Compensation Plan Information
The following table provides information as of December 31, 2003, concerning shares of SBC common stock
authorized for issuance under SBC's existing equity compensation plans.
Equity Compensation Plan Information (1)
Number of securities Number of securities remaining
to be issued upon available for future issuance
exercise of under equity compensation plans
outstanding options, Weighted-average exercise (excluding securities reflected in
warrants and rights price of outstanding options, column (a))
Plan Category (a) warrants and rights (b) (c)
-----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans 78,493,744 $36.42 51,709,824 (2)
approved by security holders
Equity compensation plans not
approved by security holders 119,537,614 $39.44 555,980 (3)
-----------------------------------------------------------------------------------------------------------------------------
Total 198,031,358 $38.24 52,265,804
-----------------------------------------------------------------------------------------------------------------------------
(1) In addition to the shares shown in the above table, certain stock options issued by companies acquired by
SBC were converted into options to acquire SBC stock. As of December 31, 2003, there were 32,669,185
shares of SBC common stock subject to the converted options, having a weighted-average exercise price of
$29.04. No further grants may be issued under the assumed plans.
(2) Included in the total are up to 4,560,559 shares that may be issued as restricted stock and 18,663,462
shares that may be issued pursuant to performance shares under the 2001 Incentive Plan and its
predecessor.
Also included are up to 3,456,100 shares that may be purchased under the Stock Savings Plan by mid-level
and above managers through payroll deductions, company matching contributions and reinvested dividends.
Managers who elect to receive matching contributions in the 401(k) cannot receive matching contributions
in this plan. The shares purchased are not delivered to the employee until after retirement, subject to
certain accelerated delivery provisions. Shares relating to restricted stock and performance shares from
the 2001 Incentive Plan may also be deferred under the Stock Savings Plan (but without matching shares).
In addition, managers receive 2 options for every share purchased with employee payroll deductions. The
options have a 10 year term and a strike price equal to the fair market value of the stock on the date of
grant. There are 9,473,452 shares available under the plan for future issuances of options. The Stock
Savings Plan was approved by shareowners in 1994. The plan was amended by the Board of Directors in 2000
to increase the number of shares available for purchase under the plan (including shares from the company
match and reinvested dividend equivalents) and shares subject to options by 8,000,000 and 13,000,000,
respectively. The amounts shown for approved plans in columns (a) and (c) include these additional shares.
Shareowner approval was not required or obtained for the amendment.
(3) Plans that have not been approved by shareowners include the 1995 Management Stock Option Plan (1995
Plan), 2001 Stock Option Grant to Bargained-for and Certain Other Employees (Bargained-For Plan), and the
Non-Employee Director Stock and Deferral Plan (Non-Employee Director Plan). The 1995 Plan and the
Bargained-For Plan provide for grants of stock options to management employees (10 year terms) and
Bargained-For employees (5 year terms), respectively, subject in each case to vesting requirements and
shortened exercise terms upon termination of employment. Under the Non-Employee Director Plan,
participants may elect to receive stock units in lieu of retainers and fees. In addition, each
non-employee director receives an annual award of stock units equal in value to one and one-half times the
annual retainer. Directors who become board members after November 21, 1997, also receive up to 10 annual
grants of stock units equal to $13,000 each. The stock units are paid out in the form of SBC stock only
after the termination of the employment of a director. Under the plan, 555,980 shares remain available for
future issuance and are included in the table.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the registrant's definitive proxy statement, dated on March 11,
2004, under the heading "Compensation of Directors" on page 16 and "Contracts with Management" on page 43, which
are incorporated herein by reference pursuant to General Instruction G(3).
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
Information required by this Item is included in the registrant's definitive proxy statement, dated on March 11,
2004, under the heading "Principal Accountant Fees and Services" on page 28, which is incorporated herein by
reference pursuant to General Instruction G(3).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of the report:
Page
----
(1) Report of Independent Auditors...................................................... *
Financial Statements covered by Report of Independent Auditors:
Consolidated Statements of Income................................................ *
Consolidated Balance Sheets...................................................... *
Consolidated Statements of Cash Flows............................................ *
Consolidated Statements of Shareowners' Equity................................... *
Notes to Consolidated Financial Statements....................................... *
*Incorporated herein by reference to the appropriate portions of the registrant's annual report to
shareowners for the fiscal year ended December 31, 2003. (See Part II.)
Page
----
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts........................................... 22
Financial statement schedules other than those listed above have been omitted because the required
information is contained in the financial statements and notes thereto, or because such schedules are not
required or applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are
incorporated herein by reference as exhibits hereto. Unless otherwise indicated, all exhibits so
incorporated are from File No. 1-8610.
Exhibit
Number
--------
3-a Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on June
30, 2000. (Exhibit 3-a to Form 10-K for 2000.)
3-b Bylaws amended June 30, 2000. (Exhibit 3 to Form 8-K dated June 30, 2000.)
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines the rights of
holders of long-term debt of the registrant or any of its consolidated subsidiaries is filed
herewith. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
4-b Guaranty of certain obligations of Pacific Bell Telephone Co. and Southwestern Bell Telephone
Co. (Exhibit 4-d to Form 10-K for 1999.)
4-c Guaranty of certain obligations of Ameritech Capital Funding Corp., Illinois Bell Telephone
Co., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., The Ohio Bell Telephone Co.,
Pacific Bell Telephone Co., Southern New England Telecommunications Corp., The Southern New
England Telephone Co., Southwestern Bell Telephone Co., Wisconsin Bell, Inc. (Exhibit 4-e to
Form 10-K for 1999.)
10-a Short Term Incentive Plan. (Exhibit 10-a to Form 10-K for 2002.)
10-b Supplemental Life Insurance Plan. (Exhibit 10-b to Form 10-K for 2002.)
10-c Supplemental Retirement Income Plan.
10-d Senior Management Deferred Compensation Plan (effective for Units of Participation Having a
Unit Start Date Prior to January 1, 1988). (Exhibit 10-d to Form 10-K for 2002.)
10-e Senior Management Deferred Compensation Program of 1988 (effective for Units of Participation Having a Unit Start Date
of January 1, 1988 or later). (Exhibit 10-e to Form 10-K for 2002.)
10-f Senior Management Long Term Disability Plan. (Exhibit 10-f to Form 10-K for 1986.)
10-g Salary and Incentive Award Deferral Plan. (Exhibit 10-g to Form 10-K for 2002.)
10-h Executive Health Plan, formerly the Supplemental Health Plan.
10-i Retirement Plan for Non-Employee Directors. (Exhibit 10-k to Form 10-K for 1997.)
10-j Form of Indemnity Agreement, effective July 1, 1986, between SBC and its directors and
officers. (Appendix 1 to Definitive Proxy Statement dated March 18, 1987.)
10-k Forms of Change of Control Severance Agreements for officers of SBC and certain officers of
SBC's subsidiaries (Approved November 21, 1997). (Exhibit 10-n to Form 10-K for 1997.)
10-l Stock Savings Plan. (Exhibit 10-l to Form 10-K for 2002.)
10-m 1992 Stock Option Plan. (Exhibit 10-n to Form 10-K for 2001.)
10-n Officer Retirement Savings Plan. (Exhibit 10-q to Form 10-K for 1997.)
10-o 1996 Stock and Incentive Plan. (Exhibit 10-o to Form 10-K for 2002.)
10-p Non-Employee Director Stock and Deferral Plan.
10-q Pacific Telesis Group Deferred Compensation Plan for Nonemployee Directors. (Exhibit 10gg to
Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609).)
10-q(i) Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-v(i) to Form
10-K for 1997.)
10-r Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan. (Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis
Group (Reg. 1-8609).)
10-s Pacific Telesis Group 1996 Directors' Deferred Compensation Plan. (Exhibit 10qq to Form 10-K for 1996 of Pacific
Telesis Group (Reg. 1-8609).)
10-s(i) Resolutions amending the Plan, effective November 21, 1997. (Exhibit 10-v(i) to Form
10-K for 1997.)
10-t Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to Pacific Telesis Group's 1994
Proxy Statement filed March 11, 1994, and amended March 14 and March 25, 1994.)
10-t(i) Resolutions amending the Plan, effective January 1, 1995. (Attachment A to Pacific
Telesis Group's 1995 Proxy Statement, filed March 13, 1995.)
10-u 2001 Incentive Plan. (Exhibit 10-u to Form 10-K for 2002.)
10-v Employment Agreement between SBC and William M. Daley. (Exhibit 10-x to Form 10-K for 2001.)
10-w Employment Agreement between SBC and Edward E. Whitacre Jr. (Exhibit 10-y to Form 10-K for 2001.)
10-x 2001 Stock Option Grant to Bargained-for and Certain Other Employees. (Exhibit 10-x to Form
10-K for 2002.)
10-y 1995 Management Stock Option Plan. (Exhibit 10-y to Form 10-K for 2002.)
10-z Agreement and Plan of Merger, dated as of February 17, 2004, by and among AT&T Wireless
Services, Inc., a Delaware corporation, Cingular Wireless Corporation, a Delaware corporation,
Cingular Wireless LLC, a Delaware limited liability company, Links I Corporation, a Delaware
corporation and a wholly-owned Subsidiary of Cingular and, solely with respect to Sections 5.3,
6.1(b), 6.5(b) and Article IX of the Agreement, SBC Communications Inc., a Delaware corporation
and BellSouth Corporation, a Georgia corporation (Exhibit 99.1 to Form 8-K/A, filed February
18, 2004).
10-aa Investment Agreement, dated as of February 16, 2004, between SBC Communications Inc. and
BellSouth Corporation.
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to Shareowners for the fiscal year ended December 31, 2003.
Only the information incorporated by reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Financial Officer
32 Section 1350 Certifications
We will furnish to shareowners upon request, and without charge, a copy of the annual report to shareowners and
the proxy statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any
other exhibit at cost.
(b) Reports on Form 8-K:
On October 21, 2003, we furnished a Form 8-K, reporting on Item 12. Results of Operations and Financial Condition.
In the report, we disclosed our third-quarter 2003 earnings release.
On January 27, 2004, we furnished a Form 8-K, reporting on Item 12. Results of Operations and Financial
Condition. In the report, we disclosed our fourth-quarter 2003 earnings release.
On February 17, 2004, we filed a Form 8-K, reporting on Item 5. Other Events, and Item 7. Financial
Statements and Exhibits. In the report, we disclosed Cingular's agreement to acquire AT&T Wireless
Services Inc.
On February 18, 2004, we filed a Form 8-K/A, reporting on Item 7. Financial Statements and Exhibits. In
the report, we replaced, in its entirety, the Merger Agreement which we filed with the Current Report on
Form 8-K on February 17, 2004.
SBC COMMUNICATIONS INC. Schedule II - Sheet 1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Uncollectibles
Dollars in Millions
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2)
Charged Balance
Balance at Charged to Other at End of
Beginning of to Costs and Accounts Deductions Period
Description Period Expenses-Note (a) -Note (b) -Note (c) -Note (e)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Year 2003................................................. $ 1,427 869 386 1,768 $ 914
Year 2002................................................. $ 1,254 1,407 620 1,854 $ 1,427
Year 2001................................................. $ 1,016 1,384 293 1,439(d) $ 1,254
---------------
(a) Excludes direct charges and credits to expense on the statements of income and reinvested earnings related
to interexchange carrier receivables.
(b) Includes amounts previously written off which were credited directly to this account when recovered and
amounts related to long-distance carrier receivables which were billed by SBC.
(c) Amounts written off as uncollectible.
(d) Includes $50 from the sale of Ameritech's security monitoring business.
(e) As discussed in Note 1 to our consolidated financial statements, effective January 1, 2003 we changed
our method of recognizing revenues and expenses related to publishing directories, which partially reduced
our Allowance for Uncollectibles.
SBC COMMUNICATIONS INC. Schedule II - Sheet 2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accumulated Amortization of Intangibles
Dollars in Millions
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COL. A COL. B COL. C COL. D COL. E
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Additions
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(1) (2)
Balance at Charged Balance
Beginning of Charged to Other at End of
Description Period to Expense Accounts Deductions Period
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Year 2003................................................. $ 493 203 - 5 $ 691
Year 2002................................................ $ 771 199 - 477(a) $ 493
Year 2001................................................ $ 746 481 1 457(b) $ 771
(a) Includes $364 related to goodwill which is no longer amortized under Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
(b) Includes $277 from the sale of Ameritech's security monitoring business and $101 transferred to Cingular.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th
day of March, 2004.
SBC COMMUNICATIONS INC.
/s/ Randall Stephenson
---------------------------------------
Randall Stephenson
Senior Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the date indicated.
Principal Executive Officer:
Edward E. Whitacre Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Randall Stephenson
Senior Executive Vice President and
Chief Financial Officer
/s/ Randall Stephenson
-----------------------------------------
Randall Stephenson, as attorney-in-fact
and on his own behalf as Principal
Financial Officer and Principal
Accounting Officer
March 11, 2004
Directors:
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Edward E. Whitacre Jr.* Charles F. Knight*
Gilbert F. Amelio* Lynn M. Martin*
Clarence C. Barksdale* John B. McCoy*
James E. Barnes* Mary S. Metz*
August A. Busch III* Toni Rembe*
William P. Clark* S. Donley Ritchey*
Martin K. Eby Jr.* Joyce M. Roche*
Herman E. Gallegos* Carlos Slim Helu*
Jess T. Hay* Laura D'Andrea Tyson*
James A. Henderson* Patricia P. Upton*
Bobby R. Inman*
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* by power of attorney