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 fiscal year ended December 31, 1999
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 78205-2233
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. ( )
Based on composite closing sales price of $43.375 per share on March 6, 2000,
the aggregate market value of all voting and non-voting stock held by
non-affiliates was $147,398,900,000.
As of March 6, 2000, 3,399,389,663 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to Shareowners for the
fiscal year ended December 31, 1999 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 2000 Annual Meeting and
Proxy Statement dated March 10, 2000 (Parts III and IV).
<PAGE>
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 New York, Chicago and
Share) Pacific Stock Exchanges
7.75% Exchangeable Notes, New York Stock Exchange
Due March 15, 2001
7.56% Pacific Telesis Group New York Stock Exchange
Corporation-obligated mandatorily
redeemable preferred securities of
subsidiary trusts
8.50% Pacific Telesis Group New York Stock Exchange
Corporation-obligated mandatorily
redeemable preferred securities of
subsidiary trusts
6.875% Fifty Year Southwestern Bell New York Stock Exchange
Telephone Company Debentures,
Due March 31, 2048
6.875% Forty Year Southwestern Bell American Stock Exchange
Telephone Company Debentures,
Due February 1, 2011
<PAGE>
TABLE OF CONTENTS
Item Page
- ----- ----
PART I
1. Business....................................................... 4
2. Properties..................................................... 17
3. Legal Proceedings.............................................. 17
4. Submission of Matters to a Vote of Security Holders............ 17
Executive Officers of the Registrant.............................. 18
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 19
6. Selected Financial and Operating Data.......................... 19
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 19
7A. Quantitative and Qualitative Disclosures about Market Risk..... 19
8. Financial Statements and Supplementary Data.................... 19
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 19
PART III
10. Directors and Executive Officers of the Registrant............. 20
11. Executive Compensation......................................... 20
12. Security Ownership of Certain Beneficial Owners and Management. 20
13. Certain Relationships and Related Transactions................. 20
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
SBC Communications Inc. (SBC) 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). SBC
maintains an Internet site at http://www.sbc.com.
History
SBC was formed as one of several regional holding companies (RHCs) created to
hold AT&T Corp.'s (AT&T) 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,
SBC primarily operated in 5 southwestern states. SBC subsidiaries merged with
Ameritech Corporation (Ameritech) in 1999, Southern New England
Telecommunications Corporation (SNET) in 1998 and Pacific Telesis Group (PAC) in
1997, thereby expanding SBC's wireline operations into a total of 13 states.
Since SBC was formed, it has implemented plans to develop and expand into
innovative new service and product offerings and to deliver those offerings,
along with many other new services, to new national and global markets. Its
strategy to enter new markets has been through mergers and acquisitions of
complementary businesses, strategic partnerships, and the development of its
global communications network. The services and products of SBC are marketed
under several established brands including Ameritech, CellularOne, Nevada Bell,
Pacific Bell, SBC Telecom, SNET, and Southwestern Bell.
Scope
SBC ranks among the largest providers of telecommunications services in the
United States and the world. Through its subsidiaries, SBC provides a
comprehensive offering of communications services and products in the United
States and has investments in 23 other countries around the world. SBC offers
its services and products to businesses and consumers, as well as other
providers of telecommunications services.
The services and products that SBC offers vary by market, and include: local
exchange services, wireless communications, long distance services, Internet
services, cable and wireless television services, security monitoring,
telecommunications equipment, messaging, paging, and directory advertising and
publishing. SBC groups its operating subsidiaries as follows:
o wireline subsidiaries provide primarily land and wire based services,
o wireless subsidiaries provide primarily radio wave based services,
o information and entertainment subsidiaries provide services primarily
related to directory advertising and publishing, cable television, and
security monitoring services, and
o international subsidiaries hold investments in foreign entities outside
of the United States.
SBC's principal wireline subsidiaries provide telecommunications services in
California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana,
Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada (13-state area). Certain
wireline local exchange services offered in the 13-state area are provided
through regulated subsidiaries which operate within authorized regions
(in-region) 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 1999 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).
<PAGE>
National-Local
In 1999, SBC began to implement a "National-Local" strategy in conjunction with
its acquisition of Ameritech. Under the "National-Local" strategy, SBC will seek
to become a competitive local exchange carrier (CLEC) and offer local exchange
services in 30 new markets across the country in combination with other major
national and international operations. SBC expects to introduce service in nine
new markets in 2000, and another 21 during the following two years. This
"National-Local" strategy is part of SBC's overall strategy to expand from a
regional company to a company that provides communications services and products
nationally and globally.
Business Combinations
Ameritech Corporation
On October 8, 1999, SBC and Ameritech completed the merger of an SBC subsidiary
with Ameritech, in a transaction in which each share of Ameritech common stock
was exchanged for 1.316 shares of SBC common stock (equivalent to approximately
1,446 million shares). Ameritech became a wholly-owned subsidiary of SBC
effective with the merger, and the transaction has been accounted for as a
pooling of interests and a tax-free reorganization.
The FCC approved the merger in October 1999, subject to certain conditions,
including accelerated entry into new markets, so that SBC will offer wireline
services in 30 new markets within 30 months after the merger closing date. In
addition, SBC established a separate subsidiary to provide advanced services
such as Digital Subscriber Line (DSL) and agreed not to charge residential
customers minimum monthly long distance fees for at least three years after
entering the long distance business in that market. SBC will also offer a
low-income Lifeline universal service plan to low-income residential customers
in each state in its 13-state area. The FCC conditions require specific
performance and reporting provisions and contain enforcement provisions.
As a condition of the merger, Ameritech sold on October 8, 1999, 20 Midwestern
cellular properties including the competing cellular licenses in Chicago,
Illinois and St. Louis, Missouri.
Additional information on the Ameritech merger is contained in the 1999 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
Southern New England Telecommunications Corporation
In October 1998, SBC and SNET completed the merger of an SBC subsidiary with
SNET, in a transaction in which each share of SNET common stock was exchanged
for 1.7568 shares of SBC common stock (equivalent to approximately 120 million
shares). SNET became a wholly-owned subsidiary of SBC effective with the merger
and the transaction has been accounted for as a pooling of interests and a
tax-free reorganization. Additional information on this matter is contained in
Note 2 of the 1999 SBC Annual Report to Shareowners, and is incorporated herein
by reference pursuant to General Instruction G(2).
Pacific Telesis Group
In April 1997, SBC and PAC completed the merger of an SBC subsidiary with PAC,
in a transaction in which each outstanding share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to approximately 626
million shares). With the merger, PAC became a wholly-owned subsidiary of SBC.
The transaction has been accounted for as a pooling of interests and a tax-free
reorganization. Additional information on this matter is contained in Note 2 of
the 1999 SBC Annual Report to Shareowners, and is incorporated herein by
reference pursuant to General Instruction G(2).
<PAGE>
Post-merger initiatives
Several strategic decisions resulted from the Ameritech, SNET, and PAC merger
integration processes. The decisions resulted from extensive reviews of
operations throughout each of the merged companies and included significant
integration of operations and consolidation of some administrative and support
functions. SBC recognized charges during 1999, 1998 and 1997 in connection with
the Ameritech, SNET and PAC merger initiatives. Charges arising out of the
mergers relating to relocation, retraining and other effects of consolidating
certain operations are being recognized in the periods those charges are
incurred.
Additional information on this matter is contained in Note 2 of the 1999 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
Reorganization
SBC is centralizing several key functions that will support the wireline
operations including network planning, strategic marketing and procurement. It
is also consolidating a number of corporate-wide support activities, including
research and development, information technology, financial transaction
processing and real estate management. These initiatives continue to result in
the creation of some jobs and the elimination and realignment of others, with
many of the affected employees changing job responsibilities, and in some cases
assuming positions in other locations.
Additional information on these matters is contained in Note 2 of the 1999 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
<PAGE>
BUSINESS OPERATIONS
Operating Segments
As a result of the merger with Ameritech and to better reflect the broadened
scope of its operations, SBC adjusted its segment reporting structure. SBC now
has four reportable segments that reflect the current management of its
business: Wireline, Wireless, Information and Entertainment, and International.
The Information and Entertainment segment expands on what was previously the
Directory segment, and includes all directory operations and Ameritech's
electronic security and cable television operations. All international
investment operations have been removed from the Other segment and are shown
separately in the International segment. The miscellaneous items that formerly
were included in the Other segment are immaterial and have been moved to
Corporate, Adjustments, and Eliminations. SBC evaluates performance based on
income before income taxes adjusted for normalized (i.e. one-time) items.
Financial information about reportable segments is included in Note 7 of the
1999 SBC Annual Report to Shareowners, and are incorporated herein by reference
pursuant to General Instruction G(2).
Wireline
Wireline is SBC's largest operating segment, providing approximately 77 percent
of SBC's normalized operating revenues in 1999. The Wireline segment provides
landline telecommunications services, including local, network access and long
distance services, messaging, Internet services and sells customer premises and
private branch exchange (PBX) equipment, and markets satellite television
services. The Wireline segment provides its services to residential and business
customers through SBC's wireline telecommunications subsidiaries. The wireline
telecommunications subsidiaries provide services to approximately 37.2 million
residential and 22.7 million business access lines in the 13-state area. During
1999 total access lines grew by 3.1 percent, of which 33 percent of the increase
was due to growth in California, 19 percent in Texas and 9 percent in Illinois.
Access lines in California, Texas and Illinois account for approximately 60
percent of SBC's access lines.
Services and Products
Local exchange services - Local exchange services include traditional dial tone
primarily used to make or receive voice, fax, or analog modem calls from a
residence or business. The local exchange process transports the caller's signal
from the caller's telephone over an SBC transport facility and through an SBC
central office switching facility to another local telephone service location or
a long distance carrier selected by the caller. SBC also offers this service on
a wholesale basis to CLECs. At December 31, 1999, SBC provided wholesale
services to approximately 1.6 million access lines. Other local services include
certain extended area service, directory assistance, and operator services.
Vertical services include custom calling services provided by SBC's central
office facilities, such as Caller ID, Call Waiting, voice mail and other
enhanced services. These features allow the telephone users to manage their
local services with enhanced features such as displaying the number and/or name
of callers, signaling to the telephone user that additional calls are incoming,
and to send and receive voice messages.
Data services - Revenues from data services may be classified in local, network
access or long distance revenues and include high-speed data communication
services used for transporting digital traffic from one computer system to
another. Data services include digital products categorized into three basic
categories:
o Switched Transport services such as Integrated Services Digital Network
(ISDN), Frame Relay, and DSL;
<PAGE>
o Dedicated Transport services such as Digital Services and Synchronous
Optical Network (SONET); and
o Application and Data Communications services which include Internet access
and network integration.
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 fast packet
switching technology. Packet switching allows data to travel in individual
packets, or pieces, of information. DSL is a new 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 are high-speed
dedicated digital circuits offered with various speeds of transport. SONET
provides access to SBC's backbone network at very high speeds. Network
integration services include installation of business data systems, local area
networking, and other data networking solutions.
Network access services - Network access services connect a customer's telephone
or other equipment to the transmission facilities of other carriers that provide
long distance and other communications services.
Wireline long distance - Wireline long distance services primarily result from
the transport of intraLATA (Local Access Transport Area) telecommunications
traffic that is outside of a local calling area. SBC has been restricted from
providing interLATA long distance services within most of the in-region areas
due to historical regulatory restrictions. SBC provides wireline interLATA long
distance to its in-region customers in Connecticut, but is prohibited from
originating interLATA long distance calls from SBC's other in-region states.
Long distance services also include other services such as Wide Area
Telecommunications Service (WATS or 800 services) and other special services. In
addition, since 1996, SBC has offered wireline interLATA long distance services
to customers in selected areas outside the wireline subsidiaries' authorized
regions (out-region).
Customer premises equipment (CPE) - CPE and other equipment sales range from
single-line and cordless telephones to sophisticated digital PBX systems, all of
which can be offered with the wireline subsidiaries' central office based
services and products. PBX is a private telephone switching system, usually
located on a customer's premises, which provides intra-premise telephone
services as well as access to the public switched network.
Cable Television - SBC also operates a cable television system under the SNET
brand in Connecticut that is currently included in the Wireline segment. SNET
began offering cable television service in the first quarter of 1997. As of
December 31, 1999, SNET provided cable television services to approximately
31,000 households in Connecticut.
Internet Services - SBC offers a range of Internet services and products for
residences and businesses, varying by market, from basic dial-up access to
high-bandwidth connections. Internet services offered include basic dial-up
access service, dedicated access, web hosting, e-mail, and high-speed access
services.
Broadband Initiative
In October 1999, as the first post-Ameritech merger initiative, SBC announced
plans to offer broadband services to approximately 80 percent of SBC's United
States wireline customers over the next three years (Project Pronto). SBC will
invest an estimated $6 billion in fiber, electronics and other technology for
this broadband initiative. The build-out will include moving many customers from
the existing copper network to a new fiber network. Over the deployment period,
marketing costs will be incurred depending on the rate of customer sign-ups and
installations. An ongoing assessment of the carrying value and economic useful
life of the existing network facilities will continue. Additional information on
this matter is contained in Note 5 of the 1999 SBC Annual Report to Shareowners,
and are incorporated herein by reference pursuant to General Instruction G(2).
<PAGE>
Prodigy Agreement
In November 1999, SBC and Prodigy Communications Corporation (Prodigy) announced
an agreement to form a partnership that will join their consumer and small
business Internet operations. Under the terms of the agreement, which is
expected to close in the second quarter of 2000, SBC will make Prodigy its
exclusive retail consumer and small business Internet access service for
customers in SBC's service area. Prodigy will assume management of approximately
650,000 SBC subscribers of dial-up, ISDN and basic DSL Internet access services,
increasing Prodigy's total managed subscriber base to more than 2 million.
Subject to specific exceptions, SBC will exclusively market Prodigy service
through its extensive marketing channels with a commitment to deliver a minimum
of 1.2 million new customers over the next three years to the Prodigy member
base. The agreement provides SBC with a 43 percent ownership stake in the
partnership and a similar voting interest in Prodigy. Under certain
circumstances, this may translate into a direct ownership interest in Prodigy.
Required approvals for the transaction have been received from certain Federal
regulatory agencies that had jurisdiction to consider the transaction. The
agreement is subject to approval at a meeting of the shareholders of Prodigy,
which is anticipated in early 2000.
Sterling Commerce
In February 2000, SBC entered a definitive agreement to acquire Sterling
Commerce, Inc. (Sterling), a provider of electronic business integration
solutions, in an all cash tender offer valued at approximately $3.9 billion in
which Sterling would merge with an SBC subsidiary. Sterling specializes in
creating, powering and managing secure "e-Marketplace communities" where
multiple buyers and sellers can conduct real-time transactions, exchange goods
and services, facilitate business-to-business opportunities, and share
information faster and at lower costs. The transaction is expected to be
completed by the end of the second quarter of 2000.
DIRECTV Agreement
In July 1999, SBC entered into a strategic marketing and distribution agreement
with DIRECTV, Inc. that will make high-quality digital satellite television
service available to certain SBC wireline residential customers. SBC, through
DIRECTV, Inc., will offer customers a digital video entertainment service.
Williams Communications
In October 1999, SBC acquired approximately 4 percent of Williams Communications
Group, Inc. (Williams Communications), a subsidiary of Williams Cos., Inc. for
an investment of approximately $439 million. Williams Communications provides a
national network of fiber optic cable for telecommunications traffic transport.
SBC and Williams Communications have entered into various service agreements for
utilization of their modern, high-speed telecommunications network.
Wireless
The Wireless segment provides domestic wireless telecommunications services,
including local, long distance and roaming services. Wireless services and
products offered also include certain enhanced services, paging services and
wireless equipment. The Wireless operating segment provided approximately 14
percent of SBC's operating revenues in 1999. Services and products are provided
to consumer and business customers through SBC's domestic wireless subsidiaries.
As of December 31, 1999, SBC provides wireless services to approximately 11.2
million customers domestically.
<PAGE>
SBC offers wireless services in many markets across the nation using both
traditional cellular and new personal communication services (PCS) networks.
SBC's network facility-based wireless service areas cover approximately 117
million persons and its markets include 23 of the largest 35 metropolitan areas
across the nation.
Services and Products
Wireless local services involve the transport of wireless local area traffic
between wireless telephones or equipment and other telephones or equipment.
Wireless long distance services provide subscribers the ability to call
destinations outside of the subscriber's home area. Roaming services allow
subscribers to use their wireless telephone equipment whenever they travel
outside of their home area. SBC has numerous roaming agreements with other
wireless carriers allowing SBC subscribers to use their wireless telephone
equipment throughout the United States and Canada where SBC does not operate
networks or hold wireless licenses.
Wireless subscribers' home service areas vary from market to market and from
provider to provider, but generally are based upon metropolitan area boundaries
and travel patterns, licenses, and available network facilities. Home service
areas for wireless services may not equate to wireline local service areas,
which are established by different government regulation. SBC also provides
wireless services to non-SBC wireless telephone users roaming on SBC's wireless
networks. With the increased popularity and rapid growth of wireless services
and the number of providers, including PCS, across the nation, SBC has
experienced increased utilization of its wireless networks from non-SBC wireless
customers and corresponding growth in wireless roaming revenues.
Since certain regulatory restrictions were removed in 1996, SBC began offering
wireless long distance services to its traditional cellular customers. At
December 31, 1999, SBC had been selected as the long distance carrier by
approximately 86 percent of its traditional cellular customers. SBC provides
long distance services to all of its PCS wireless customers.
SBC offers digital wireless service, including enhanced features, in most of the
metropolitan areas where it is licensed to provide wireless service. SBC first
began providing commercial digital service in Chicago in July 1993. Digital
service improves sound quality, provides a greater degree of privacy on
individual calls, increases call-handling capacity of the networks, allows
additional service offerings, extends wireless telephone battery lives, and
increases security against cloning.
SBC currently provides local and nationwide paging services to approximately 1.5
million customers, most in the Midwest. SBC paging offers features such as fax
notification, voice mail, and numeric and alpha paging.
Comcast Acquisition
In July 1999, SBC completed the acquisition of Comcast Cellular Corporation
(Comcast), the wireless subsidiary of Comcast Corporation. Comcast offers analog
and digital wireless services to subscribers in Pennsylvania, Delaware, New
Jersey and Illinois. With the acquisition, SBC added approximately 862,000
subscribers.
Puerto Rico Acquisition
During 1999, SBC and Telefonos de Mexico, S.A. de C.V. (Telmex) completed the
acquisition of Cellular Communications of Puerto Rico (Cellular Communications)
adding approximately 375,000 subscribers in Puerto Rico and the United States
Virgin Islands. SBC owns a 50 percent equity stake in Cellular Communications.
Cellular Communications offers wireless services under the Cellular One brand
name. The company also offers paging and long distance service in Puerto Rico
and is planning to offer wireline phone service in San Juan as a CLEC.
<PAGE>
Radiofone Acquisition
In March 2000, SBC completed the acquisition of Radiofone, Inc. (Radiofone).
Radiofone serves more than 200,000 wireless customers in Louisiana and Michigan,
and approximately 300,000 paging customers in 11 states.
Licenses
The FCC authorizes the licensing of multiple wireless carriers in each
geographic market. SBC's domestic cellular, paging and PCS services are provided
under various licenses granted by the FCC in each geographic market SBC serves.
Cellular and paging licenses are issued for a standard duration of ten years.
PCS licenses are issued for five years. Licenses are renewed upon demonstration
of compliance with the FCC's regulations and continued service to the public.
Information and Entertainment
The Information and Entertainment segment includes advertising, yellow and white
pages directories, electronic publishing, security monitoring services and cable
television services, excluding cable television services by SNET. The
Information and Entertainment operating segment provided approximately 10
percent of SBC's operating revenues in 1999.
Directory and Electronic Advertising Services
SBC's principal advertising, directory, yellow and white pages subsidiaries
operate primarily in the 13-state region. SBC, through its Information and
Entertainment subsidiaries publishes more than 122 million books representing
approximately 882 directories.
The Southwestern Bell and Ameritech branded directories are printed by R.R.
Donnelley & Sons. Pacific Bell and SNET branded directories are printed by
Quebecor World (USA) Inc.
In addition to traditional printed directories, SBC Interactive offers
SMARTpages on the Internet, located at http://www.smartpages.com providing
customers with national business listings, searchable by individual company name
and by topic category. The Ameritech Internet Yellow Pages, located at
http://www.yellowpages.net provides coverage of over 10 million United States
businesses and includes theme-oriented specialty guides.
Security Monitoring Services
SecurityLink offers a full array of electronic security products and services
for homes and businesses, including monitored burglar and fire alarm systems,
personal emergency response service, closed circuit television and electronic
access control.
Cable Television Services
SBC offers enhanced cable television services in the Chicago, Cleveland,
Columbus and Detroit metropolitan areas. As of December 31, 1999, SBC provides
cable services to approximately 281,000 customers in approximately 100
Midwestern communities. SBC has scaled back its expansion plans for new cable
franchises and is evaluating how the cable TV business fits strategically with
the rest of the business.
<PAGE>
Cable Television Licenses
SBC's cable television systems are subject to Federal, state and local
regulation, including regulation by the FCC and local franchising authorities,
concerning rates, service and programming access. SBC has entered into
approximately 115 cable television franchise agreements with local government
authorities. Generally, these franchise agreements are in effect for a period of
15 years, and are transferable with regulatory approval.
International
The International segment includes all of SBC's international investments. SBC
has direct or indirect interests in businesses located in 23 countries outside
the United States, and as of December 31, 1999, has investments of approximately
$10.3 billion in international affiliates. SBC's international investments are
key to its global strategy. Businesses include local and long distance telephone
services, wireless communications, voice messaging, data services, video
services, Internet access, telecommunications equipment, and directory
publishing.
Europe
Through its various subsidiaries, SBC is the largest non-European
telecommunications investor in Europe and is positioned to access this large
telecommunications market.
SBC holds a 41.6 percent stake in Tele Danmark A/S (Tele Danmark), Denmark's
primary full-service communications operator. Tele Danmark serves approximately
3.5 million access lines, 1.1 million cellular customers and 825,000 cable
television customers. Tele Danmark has a 16.5 percent investment in Belgacom
S.A. (Belgacom) as well as investments in wireless services in Poland, the
Ukraine, Lithuania, Austria, Germany and Norway. It has investments in
competitive communications providers in Sweden, Germany, Switzerland, and the
Czech Republic. Tele Danmark also has investments in local telephone operations
in Hungary and an international digital transmission link through Russia, and
Korea and Japan. In addition, since 1998, Belgacom and Tele Danmark, through a
joint venture, have offered cellular service throughout the Netherlands.
In Belgium, SBC holds a 17.5 percent stake in Belgacom, the country's primary
full-service telecommunications operator and effectively controls 24.4 percent
of Belgacom when combined with its stake in Tele Danmark. With approximately 5.1
million access lines and more than 1.9 million cellular customers, Belgacom
provides local, long distance, cellular and other communications services and
offers directories and security services. Belgacom also has telecommunications
investments in France, the Netherlands, and Russia.
SBC holds a 15 percent equity interest in Cegetel S.A. (Cegetel), a holding
company, through a joint venture with France's Vivendi, a French diversified
public company. Cegetel owns 80 percent of Societe Francaise de Radiotelephone,
a nationwide cellular company with over 6.4 million customers.
In Germany, SBC, through its investment in Tele Danmark, indirectly owns 41.6
percent of Talkline Group, a cellular service provider and reseller. SBC also
owns Wer Liefert Was (WLW), a leading German-based publisher of
business-to-business directories for Germany, Austria, Switzerland, Belgium,
Luxembourg, the Netherlands, Croatia, Slovenia, Slovakia, and the Czech
Republic.
In Hungary, through a joint venture with Deutsche Telekom (DT), SBC and DT each
hold a 29.8 percent stake in MATAV, the country's primary full-service
telecommunications operator. MATAV provides local, long distance and
international telephone service and is the controlling shareowner in certain
cellular ventures. MATAV has approximately 2.9 million access lines in a country
of 10.5 million people and serves over 867,000 cellular subscribers.
<PAGE>
In Norway, SBC has a direct 19.6 percent stake and effectively controls 27.9
percent in NetCom GSM (NetCom), through SBC's investment in Tele Danmark. NetCom
is one of the country's leading wireless telecommunications providers. With
approximately 720,000 customers, NetCom has a mobile infrastructure network
covering over 4.4 million persons.
SBC owns a 40 percent interest in diAx A.G (diAx), a consortium formed with
Switzerland's 6 largest electric utilities and other businesses, which offers
long distance, Internet and wireless services. Long distance services were
launched in May 1998 and wireless services in December 1998, and at year end
1999, diAx provided long distance services to 559,000 access lines (via equal
access) and 413,000 wireless subscribers.
Asia
Data traffic between Asia and North America is growing rapidly, driven in large
part by the increased popularity of the Internet. SBC has a 5.7 percent
investment in a consortium with China Telecom and twelve other
telecommunications companies that have laid high-speed undersea cable between
mainland China and the United States. SBC also has an approximate 5 percent
equity stake in a project to lay an undersea cable between Japan and the United
States. These cable networks are expected to meet trans-Pacific data and voice
traffic needs well into the future. The China cable project was made ready for
service in January 2000. The Japan cable project is scheduled to be completed in
2000.
SBC owns a 19.4 percent stake in TransAsia Telecommunications Inc. (TransAsia),
a consortium formed to provide cellular services in Taiwan's southern region,
headquartered in Kaohsiung. TransAsia serves over 478,000 cellular customers.
North America
Beyond its large United States presence, SBC is well positioned throughout North
America. The company has a 20 percent stake in Bell Canada, Canada's premier
telecommunications provider. Bell Canada offers a full range of services to more
than 11.2 million residential and business customers, including local, long
distance and wireless communications, Internet access, high-speed data services
and directories.
SBC also owns nearly a 9 percent equity share in Mexico's largest national
telecommunications provider of wireline and wireless services, Telmex, which
operates some 10.5 million access lines and serves more than 4.1 million
wireless customers. Through this relationship, SBC has worked with Telmex to
develop an advanced network, and has helped Telmex achieve its goal of enhanced
telephone service throughout Mexico.
South America
In January 2000, SBC and Telmex acquired a stake in Brazilian wireless provider
ATL - Algar Telecom Leste S.A. (ATL), which serves customers in Brazil's Rio de
Janeiro and Espirito Santo states. As part of the transaction, Williams
Communications will reduce its stake to a 50 percent economic interest in ATL.
SBC and Telmex will have the opportunity to subsequently increase their
investment to a 50 percent stake in ATL, but cannot do so until 2004; until
then, Algar retains an investment in ATL as well as voting and board control of
ATL in accordance with Brazilian regulations.
In June 1999, SBC sold its remaining investment interests in Chile.
<PAGE>
Africa/Middle East
In 1997, SBC made a significant investment on the African continent when it
acquired an 18 percent ownership stake in Telkom, S.A. Limited (Telkom), South
Africa's state-owned local exchange, long distance, and cellular company.
Currently, Telkom serves 5.2 million access lines in South Africa, and also is
developing a second national wireless network, serving more than 2.1 million
wireless customers through Telkom's wireless subsidiary, Vodacom.
In Israel, SBC owns a 50 percent equity stake in the AUREC Group, a cable
television and publishing company. SBC also owns a 21.5 percent stake in Amdocs
Limited (Amdocs), a major supplier of billing and customer service software used
by telecommunications companies worldwide, and a 22 percent stake in a
consortium offering long distance service in Israel.
Financial information about foreign and domestic operations are included in Note
7 of the 1999 SBC Annual Report to Shareowners, and are incorporated herein by
reference pursuant to General Instruction G(2).
MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of consolidated total operating
revenues by any class of service that accounted for 10 percent or more of SBC's
consolidated total operating revenues in any of the last three fiscal years.
- ----------------------------------------- -------------------------------------
Percentage of Consolidated Total
Operating Revenues
- ----------------------------------------- -------------------------------------
1999 1998 1997
- ----------------------------------------- ----------- ------------ ------------
Landline local service 38% 37% 37%
Wireless subscriber 12% 11% 11%
Network access 20% 21% 22%
- ----------------------------------------- ----------- ------------ ------------
Landline local service and network access revenues are included in the Wireline
segment's results of operations and each also exceeds 10 percent of Wireline's
total operating revenues. Wireless subscriber revenues are included in the
Wireless segment's results of operations and also exceeds 10 percent of
Wireless' total operating revenues.
GOVERNMENT REGULATION
In the in-region states, certain wireline subsidiaries are subject to regulation
by state commissions which have the power to regulate, in varying degrees,
intrastate rates and services, including local, long distance and network access
services. Certain 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
the wireline subsidiaries for the use of their facilities for the origination or
termination of long distance and access services by other carriers. Cable
television operations are also subject to certain FCC and state or local
jurisdiction with respect to service requirements.
Additional information relating to Federal and state regulation of the wireline
subsidiaries is contained in the 1999 SBC Annual Report to Shareowners under the
heading "Regulatory Environment" beginning on page 12, and is incorporated
herein by reference pursuant to General Instruction G(2).
<PAGE>
IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain SBC subsidiaries own or have licenses to various patents, copyrights,
trademarks and other intellectual property necessary to conduct business. SBC
also licenses other companies to use this intellectual property. SBC does not
believe that the expiration of any of its intellectual property rights, or the
nonrenewal of those rights, would have a material adverse affect on its results.
MAJOR CUSTOMER
No customer accounted for more than 10 percent of SBC's consolidated revenues in
1999, 1998 or 1997.
COMPETITION
Wireline and Wireless
Information relating to wireline and wireless competition is contained in the
1999 SBC Annual Report to Shareowners under the heading "Competition" beginning
on page 16, and is incorporated herein by reference pursuant to General
Instruction G(2).
Information and Entertainment
Information relating to directory and electronic advertising and publishing, and
cable television competition is contained in the 1999 SBC Annual Report to
Shareowners under the heading "Competition" beginning on page 16, and is
incorporated herein by reference pursuant to General Instruction G(2).
International
Information relating to international competition is contained in the 1999 SBC
Annual Report to Shareowners under the heading "Competition" beginning on page
16, and is incorporated herein by reference pursuant to General Instruction
G(2).
Customer Premises Equipment, Wireless Equipment and Other Equipment Sales
SBC faces significant competition from numerous companies in marketing its
telecommunications equipment.
RESEARCH AND DEVELOPMENT
The majority of the research and development activities are related to the
Wireline and Wireless segments of SBC. Applied research is conducted at SBC
Technology Resources, Inc. (TRI), a subsidiary of SBC. TRI provides research,
technology planning and evaluation services to SBC and its subsidiaries.
Certain company-sponsored basic and applied research was also conducted at
Telcordia Technologies (Telcordia), formerly Bell Communications Research, Inc.
(Bellcore). SBC had owned a three-seventh interest in Bellcore, with the
remainder being owned by other RHCs. In November 1997, the RHCs sold Bellcore to
a third party but continue to have a research agreement with Telcordia. The RHCs
have retained the activities of Telcordia that coordinate the Federal
Government's telecommunications requirements for national security and emergency
preparedness.
<PAGE>
EMPLOYEES
As of December 31, 1999, SBC employed 204,530 persons. Approximately two-thirds
of the employees are represented by the Communications Workers of America (CWA)
and the International Brotherhood of Electrical Workers (IBEW). Collective
bargaining agreements between the CWA or the IBEW and SBC's subsidiaries are in
effect with varying dates of expiration in the years 2001 and 2002. Among other
items, the agreements specify an average 11 percent increase in wages over the
life of the contracts.
RECENT DEVELOPMENTS
In-Region Long Distance
On December 16, 1999, the Texas Public Utility Commission voted unanimously to
endorse SBC's application to enter the Texas interLATA long distance market. SBC
must also receive FCC approval and has filed its long distance application to
provide interLATA long distance with the FCC on January 10, 2000. The FCC has 90
days after filing to act on the application.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this form 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.
Readers are cautioned that other factors discussed in this report, although not
enumerated here, also could materially impact SBC's future earnings.
<PAGE>
ITEM 2. PROPERTIES
The properties of SBC do not lend themselves to description by character and
location of principal units. At December 31, 1999, 92 percent of the property,
plant and equipment of SBC was owned by the Wireline subsidiaries. Outside plant
facilities, including telephone poles, cabling, wiring and conduits represented
41 percent of the Wireline subsidiaries' investment in telephone plant; central
office equipment represented 40 percent; land and buildings represented 9
percent; other equipment, comprised principally of furniture and office
equipment, vehicles and other work equipment, represented 8 percent; and other
miscellaneous property represented 2 percent.
ITEM 3. LEGAL PROCEEDINGS
SBC is a party to various legal and regulatory proceedings arising in the
ordinary course of business. While there can be no assurance as to the ultimate
outcome of any pending proceedings, as of the date of this report, SBC does not
believe that any pending legal proceedings to which SBC or its 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.
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position Held Since
---- --- -------- ----------
<S> <C> <C>
Edward E. Whitacre Jr. 58 Chairman and Chief Executive Officer 1/1990
Royce S. Caldwell 61 Vice Chairman and President - SBC Operations 11/1999
James W. Callaway 53 Group President - SBC Services 11/1999
Cassandra C. Carr 55 Senior Executive Vice President - External Affairs 10/1998
James D. Ellis 56 Senior Executive Vice President and General Counsel 3/1989
Charles E. Foster 63 Group President - SBC 7/1995
Karen E. Jennings 49 Senior Executive Vice President - Human Resources 10/1998
James S. Kahan 52 Senior Executive Vice President - Corporate 7/1993
Development
Donald E. Kiernan 59 Senior Executive Vice President, Chief Financial 7/1993
Officer and Treasurer
Edward A. Mueller 52 President - SBC International Operations 11/1999
Stanley T. Sigman 52 Group President - SBC National Operations 11/1999
<FN>
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 Ms.
Jennings, who has held high-level managerial positions since 1995. Prior to
that, Ms. Jennings held responsible managerial positions with SBC. Executive
officers are not appointed to a fixed term of office.
</FN>
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1999 and 1998 were
1,038,807 and 1,005,621. During the fourth quarter of 1999, the Company sold
shares of common stock to non-employee directors 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 annual retainer or fees in
the form of SBC shares or deferred stock units (DSUs) that are convertible into
SBC shares. During this period, an aggregate of 3,270 SBC shares and DSUs were
purchased by non-employee directors at prices ranging from $47.50 to $52.00, in
each case the fair market value of the shares on the date of purchase. The
issuance of shares and DSUs were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933. Other information required by this Item is
included in the 1999 SBC Annual Report to Shareowners under the headings
"Quarterly Financial Information" on page 40, "Selected Financial and Operating
Data" on page 4, and "Stock Trading Information" on the back cover, which are
incorporated herein by reference pursuant to General Instruction G(2).
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
Information required by this Item is included in the 1999 SBC Annual Report to
Shareowners under the heading "Selected Financial and Operating Data" on page 4
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 1999 SBC Annual Report to
Shareowners on page 5 through page 20, 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 1999 SBC Annual Report to
Shareowners under the heading "Market Risk" on page 19 through page 20, 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 1999 SBC Annual Report to
Shareowners on page 21 through page 40, 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
No changes in or disagreements with accountants have occurred on any accounting
or financial disclosure matters during the period covered by this report.
<PAGE>
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. Other information required
by this Item 10 is included in the registrant's definitive proxy statement,
dated March 10, 2000, under the heading "Board of Directors" beginning on page 4
and "Section 16(a) Beneficial Ownership Reporting Compliance" beginning on page
32 which is incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 10, 2000, under the headings "Compensation of
Directors" from page 14 through page 15, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 20 through page 31, which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 10, 2000, under the heading "Common Stock Ownership
of Directors and Officers" on page 16, which is incorporated herein by reference
pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 10, 2000, under the heading "Compensation of
Directors" from page 14 through page 15 and "Contracts with Management" from
page 30 through 31, which are incorporated herein by reference pursuant to
General Instruction G(3).
<PAGE>
PART IV
ITEM 14. 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, 1999. (See Part II.)
Page
---
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts............................. 25
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 April 28, 1998. (Exhibit 3-a to Form 10-Q dated
March 31, 1998.)
3-b Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.(Exhibit 3-b to Form 10-K for 1997.)
3-c Bylaws dated June 26, 1998. (Exhibit 3-c to Form 10-K for 1998.)
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 Support Agreement dated November 10, 1986, between SBC and SBC
Communications Capital Corporation. (Exhibit 4-b to Registration
Statement No. 33-11669.)
<PAGE>
4-c Resolutions guaranteeing certain obligations of Pacific Telesis
Group. (Exhibit 4-g to Form 10-K for 1997.)
4-d Guaranty of certain obligations of Pacific Bell Telephone Company and
Southwestern Bell Telephone Company.
4-e Guaranty of certain obligations of Ameritech Capital Funding
Corporation, Illinois Bell Telephone Company, Indiana Bell Telephone
Company, Inc., Michigan Bell Telephone Company, The Ohio Bell
Telephone Company, Pacific Bell Telephone Company, Southern New
England Telecommunications Corporation, The Southern New England
Telephone Company, Southwestern Bell Telephone Company, Wisconsin
Bell, Inc.
10-a Short Term Incentive Plan. (Exhibit 10-a to Form 10-K for 1997.)
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to Form
10-K for 1992.)
10-c Supplemental Life Insurance Plan. (Exhibit 10-c to Form 10-K for
1997.)
10-d Supplemental Retirement Income Plan. (Exhibit 10-d to Form 10-K
for 1997.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement No.
33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program. (Exhibit 10-i to Form 10-K for
1997.)
10-j Supplemental Health Plan. (Exhibit 10-j to Form 10-K for 1997.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-k to Form
10-K for 1997.)
10-l 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-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form 10-K
for 1988.)
10-n 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-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan. (Exhibit 10-q to Form 10-K for
1997.)
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan. (Exhibit 10-s to
Form 10-K for 1997.)
<PAGE>
10-t 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-t(i)Resolutions amending the Plan, effective November 21,
1997. (Exhibit 10-v(i) to Form 10-K for 1997.)
10-u 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-v Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-v(i)Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to Form 10-K for 1997.)
10-w 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-w(i)Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-x Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-x(i)Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1994 of Pacific Telesis
Group (Reg. 1-8609).)
10-y Agreement Regarding Change in Control, dated as of January 19, 1994,
between Ameritech and Richard C. Notebaert, together with a schedule
identifying another agreement in the same form (Exhibit 10mm to Form
10-K for 1993, File No. 1-8612).
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, 1999. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27-a Financial Data Schedule - December 31, 1999.
27-b Restated Financial Data Schedule - September 30, 1999.
27-c Restated Financial Data Schedule - June 30, 1999.
27-d Restated Financial Data Schedule - March 31, 1999.
27-e Restated Financial Data Schedule - December 31, 1998.
27-f Restated Financial Data Schedule - September 30, 1998.
27-g Restated Financial Data Schedule - June 30, 1998.
<PAGE>
27-h Restated Financial Data Schedule - March 31, 1998.
27-i Restated Financial Data Schedule - December 31, 1997.
99-a Report of Independent Accountants Arthur Andersen LLP.
99-b Annual Report on Form 11-K for the SBC Savings Plan for the year 1999
to be filed under Form 10-K/A.
99-c Annual Report on Form 11-K for the SBC Savings and Security Plan for
the year 1999 to be filed under Form 10-K/A.
99-d Annual report on Form 11-K for the Ameritech Savings Plan for
Salaried Employees for the year 1999 to be filed under Form 10-K/A.
99-e Annual report on Form 11-K for the Ameritech Savings and Security
Plan for Non-Salaried Employees for the year 1999 to be filed under
Form 10-K/A.
SBC 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. SBC will furnish any other exhibit
at cost.
(b) Reports on Form 8-K:
On October 12, 1999, SBC filed a Form 8-K, reporting on Item 2.
Acquisition or Disposition of Assets. In the report, SBC announced the
close of the merger with Ameritech Corporation on October 8, 1999.
On October 19, 1999, 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 the launch of a $6 billion broadband
initiative.
On October 29, 1999, 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 third quarter earnings and containing
unaudited pro forma combined financial statements reflecting the merger of
a subsidiary of SBC and Ameritech Corporation.
<PAGE>
<TABLE>
<CAPTION>
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 at Charged to Other Balance
Beginning of to Costs and Accounts Deductions at End of
Description Period Expenses-Note -Note (b) -Note (c) Period
(a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1999.............................. $ 810 1,136 596 1,443 $ 1,099
Year 1998.............................. $ 737 896 603 1,426 $ 810
Year 1997.............................. $ 659 938 809 1,669 $ 737
<FN>
(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 are being billed by SBC.
(c) Amounts written off as uncollectible.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBC COMMUNICATIONS INC. Schedule II - Sheet 2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accumulated Amortization of Intangibles
Dollars in Millions
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance at Charged Balance
Beginning of Charged to Other at End of
Description Period to Expense Accounts Deductions Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1999.............................. $ 1,111 378 8 172 $ 1,325
Year 1998.............................. $ 1,485 275 3 652(a) $ 1,111
Year 1997.............................. $ 971 504 62 52 $ 1,485
<FN>
(a) Primarily related to the disposition of SBC Media Ventures, Inc. and an impairment of
an investment in wireless video.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBC COMMUNICATIONS INC. Schedule II - Sheet 3
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserve for Restructuring
Dollars in Millions
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance at Charged Charged Balance
Beginning of to Costs and to Other Deductions at End of
Description Period Expenses Accounts -Note (a) Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1999.............................. $ 123 5 - 114 $ 14
Year 1998.............................. $ 86 104 - 67 $ 123
Year 1997.............................. $ 226 - - 140 $ 86
<FN>
(a) Includes $99 in 1999 and $30 in 1998 that was reversed to other operating
expenses for amounts no longer required.
</FN>
</TABLE>
<PAGE>
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 10th day of
March, 2000.
SBC COMMUNICATIONS INC.
By /s/ Donald E. Kiernan
-----------------------------
(Donald E. Kiernan
Senior Executive Vice President,
Chief Financial Officer and Treasurer)
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:
Donald E. Kiernan
Senior Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Donald E. Kiernan
-----------------------------
(Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Financial Officer and Principal
Accounting Officer)
March 10, 2000
Directors:
- --------------------------------------- ----------------------------------------
Edward E. Whitacre, Jr.* Charles F. Knight*
Clarence C. Barksdale* Lynn M. Martin*
James E. Barnes* John B. McCoy*
August A. Busch III* Mary S. Metz*
Royce S. Caldwell* Toni Rembe*
Ruben R. Cardenas* S. Donley Ritchey*
William P. Clark* Joyce M. Roche'*
Martin K. Eby, Jr.* Richard M. Rosenberg*
Herman E. Gallegos* Carlos Slim Helu'*
Jess T. Hay* Laura D'Andrea Tyson*
James A. Henderson* Patricia P. Upton*
Bobby R. Inman*
- --------------------------------------- ----------------------------------------
* by power of attorney
<PAGE>
EXHIBIT INDEX
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 April 28, 1998. (Exhibit 3-a to Form 10-Q dated
March 31, 1998.)
3-b Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.(Exhibit 3-b to Form 10-K for 1997.)
3-c Bylaws dated June 26, 1998. (Exhibit 3-c to Form 10-K for 1998.)
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 Support Agreement dated November 10, 1986, between SBC and SBC
Communications Capital Corporation. (Exhibit 4-b to Registration
Statement No. 33-11669.)
4-c Resolutions guaranteeing certain obligations of Pacific Telesis
Group. (Exhibit 4-g to Form 10-K for 1997.)
4-d Guaranty of certain obligations of Pacific Bell Telephone Company and
Southwestern Bell Telephone Company.
4-e Guaranty of certain obligations of Ameritech Capital Funding
Corporation, Illinois Bell Telephone Company, Indiana Bell Telephone
Company, Inc., Michigan Bell Telephone Company, The Ohio Bell
Telephone Company, Pacific Bell Telephone Company, Southern New
England Telecommunications Corporation, The Southern New England
Telephone Company, Southwestern Bell Telephone Company, Wisconsin
Bell, Inc.
10-a Short Term Incentive Plan. (Exhibit 10-a to Form 10-K for 1997.)
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to Form
10-K for 1992.)
10-c Supplemental Life Insurance Plan. (Exhibit 10-c to Form 10-K for
1997.)
10-d Supplemental Retirement Income Plan. (Exhibit 10-d to Form 10-K
for 1997.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement No.
33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program. (Exhibit 10-i to Form 10-K for
1997.)
10-j Supplemental Health Plan. (Exhibit 10-j to Form 10-K for 1997.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-k to Form
10-K for 1997.)
10-l 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-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form 10-K
for 1988.)
10-n 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-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan. (Exhibit 10-q to Form 10-K for
1997.)
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan. (Exhibit 10-s to
Form 10-K for 1997.)
10-t 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-t(i)Resolutions amending the Plan, effective November 21,
1997. (Exhibit 10-v(i) to Form 10-K for 1997.)
10-u 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-v Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-v(i)Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to Form 10-K for 1997.)
10-w 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-w(i)Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-x Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-x(i)Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1994 of Pacific Telesis
Group (Reg. 1-8609).)
10-y Agreement Regarding Change in Control, dated as of January 19, 1994,
between Ameritech and Richard C. Notebaert, together with a schedule
identifying another agreement in the same form (Exhibit 10mm to Form
10-K for 1993, File No. 1-8612).
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, 1999. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27-a Financial Data Schedule - December 31, 1999.
27-b Restated Financial Data Schedule - September 30, 1999.
27-c Restated Financial Data Schedule - June 30, 1999.
27-d Restated Financial Data Schedule - March 31, 1999.
27-e Restated Financial Data Schedule - December 31, 1998.
27-f Restated Financial Data Schedule - September 30, 1998.
27-g Restated Financial Data Schedule - June 30, 1998.
27-h Restated Financial Data Schedule - March 31, 1998.
27-i Restated Financial Data Schedule - December 31, 1997.
99-a Report of Independent Accountants Arthur Andersen LLP.
99-b Annual Report on Form 11-K for the SBC Savings Plan for the year 1999
to be filed under Form 10-K/A.
99-c Annual Report on Form 11-K for the SBC Savings and Security Plan for
the year 1999 to be filed under Form 10-K/A.
99-d Annual report on Form 11-K for the Ameritech Savings Plan for
Salaried Employees for the year 1999 to be filed under Form 10-K/A.
99-e Annual report on Form 11-K for the Ameritech Savings and Security
Plan for Non-Salaried Employees for the year 1999 to be filed under
Form 10-K/A.
EXHIBIT 4-d
GUARANTEE UNDERTAKING
OF
SBC COMMUNICATIONS, INC.
I, the Assistant Treasurer of SBC Communications Inc. (the "Corporation"),
pursuant to the authority granted to me in the Schedule of Authorizations of the
Corporation, dated as of December 19, 1997, hereby undertake on behalf of the
Corporation for the benefit of the respective holders of the Debt Securities (as
defined below), as follows:
(1) The Corporation hereby unconditionally and irrevocably guarantees the
punctual and full payment of all amounts payable by each of Pacific Bell
("PacBell") and Southwestern Bell Telephone Company ("SWBell") under each of the
outstanding Debt Securities as and when the same shall become due and payable
(whether at stated maturity, by declaration of acceleration, call for
redemption, repayment at the option of the holder or otherwise, in accordance
with the terms of each Debt Security and of each indenture under which such
security was issued) (the "Guarantee").
(2) The Guarantee with respect to each outstanding Debt Security will
continuously remain in effect until the entire principal of (and premium, if
any) and interest, if any, on such Debt Security shall have been paid in full.
(3) The Guarantee will constitute the direct, absolute and unconditional,
unsubordinated and unsecured obligation of the Corporation ranking pari passu
with all of its unsecured and unsubordinated obligations.
(4) The holders of each Debt Security are entitled to enforce their rights
under the indenture relating to such security directly against the Corporation,
without first instituting a proceeding against the issuer of such security or
any other person or entity, upon any event of default in payment of principal,
or premium, if any, or interest, if any, on such security (whether at stated
maturity, by declaration of acceleration, call for redemption, repayment at the
option of the holder or otherwise).
(5) This Guarantee undertaking is enforceable to the fullest extent
permitted by law.
<PAGE>
(6) For the purposes of this Guarantee undertaking, the term "Debt
Securities" shall mean the following: (a) Pacbell's Ten Year 7 1/4% Notes due
July 1, 2002, Twelve Year 6 1/4% Notes due March 1, 2005, Thirty Year 6 7/8%
Debentures due August 15,2023, Thirty-Three Year 7 1/8% Debentures due March 15,
2026, Forty Year 7 1/2% Debentures due February 1, 2033, Forty-One Year 6 5/8%
Debentures due October 15, 2034, Thirty-Six Year 6% Debentures due November 1,
2002 and the Thirty-Five Year 6 1/2% Debentures due July 1, 2003; and (b)
SWBell's Seven Year 6 1/8% Notes due March 1, 2000, Eight Year 6 3/8% Notes due
April 1, 2001, Twelve Year 6 5/8% Notes due April 1, 2005, Forty Year 6 7/8%
Debentures due February 1, 2011, Twenty-two Year 7% Debentures due July 1, 2015,
Thirty Year 7 5/8% Debentures due March 1, 2023, Thirty-Two Year 7 1/4%
Debentures due July 15, 2025, its Fifty Year 6 7/8% Debentures due March 31,
2048, Thirty-Six Year 5 7/8% Debentures due June 1, 2003, Forty Year 5 3/8%
Debentures due June 1, 2006 and it Forty Year 6 3/4% Debentures due June 1,
2008.
(7) The Guarantee is effective on the date hereof.
IN WITNESS WHEREOF, I have executed this Guarantee undertaking.
Dated: November 8, 1999
/s/ Roger Wohlert
----------------------------------
Name: Roger Wohlert
Title: Assistant Treasurer
EXHIBIT 4-e
GUARANTEE UNDERTAKING
OF
THE ASSISTANT TREASURER
OF
SBC COMMUNICATIONS, INC.
I, the Assistant Treasurer of SBC Communications Inc. (the "Corporation"),
pursuant to the authority granted to me in the Schedule of Authorizations of the
Corporation, dated as of November 19, 1999, hereby undertake on behalf of the
Corporation for the benefit of the respective holders of the Subject Debt
Securities (as defined below), as follows:
(1) The Corporation hereby unconditionally and irrevocably guarantees, as
long as all of the outstanding shares of stock of a Subsidiary, as defined
below, are owned, directly or indirectly, by the Corporation the punctual and
full payment of all amounts payable by such Subsidiary Southwestern Bell
Telephone Company, Pacific Bell Telephone Company, The Southern New England
Telephone Company, Southern New England Telecommunications Corporation,
Ameritech Capital Funding Corporation, The Ohio Bell Telephone Company,
Wisconsin Bell, Inc., Michigan Bell Telephone Company, Indiana Bell Telephone
Company Inc., and Illinois Bell Telephone Company (each, a "Subsidiary"), under
each of the outstanding Debt Securities as and when the same shall become due
and payable (whether at stated maturity, by declaration of acceleration, call
for redemption, repayment at the option of the holder or otherwise, in
accordance with the terms of each Debt Security and of each indenture under
which such security was issued) (the "Guarantee"). In the event the Corporation
sells, transfers or otherwise disposes of any percentage of its stock ownership
of a Subsidiary, and, as a result of such sale, transfer or other disposition,
such Subsidiary is no longer a wholly-owned subsidiary of the Corporation, then
this Guarantee shall expire immediately and the Corporation shall be released
immediately from any and all of its obligations hereunder.
(2) Subject to the provision of Section (1) hereof, the Guarantee with
respect to each outstanding Debt Security will continuously remain in effect
until the entire principal of (and premium, if any) and interest, if any, on
such Debt Security shall have been paid in full.
(3) The Guarantee will constitute the direct, absolute and unconditional,
unsubordinated and unsecured obligation of the Corporation ranking pari passu
with all of its unsecured and unsubordinated obligations.
<PAGE>
(4) The holders of each Debt Security are entitled to enforce their rights
under the indenture relating to such security directly against the Corporation,
without first instituting a proceeding against the issuer of such security or
any other person or entity, upon any event of default in payment of principal,
or premium, if any, or interest, if any, on such security (whether at stated
maturity, by declaration of acceleration, call for redemption, repayment at the
option of the holder or otherwise).
(5) This Guarantee undertaking is enforceable to the fullest extent
permitted by law.
(6) For the purposes of this Guarantee undertaking, the term "Debt
Securities" shall mean the following:
See enclosed Exhibit A
(7) The Guarantee is effective on the date hereof.
IN WITNESS WHEREOF, I have executed this Guarantee undertaking.
Dated: January 5, 2000
/s/ Roger Wohlert
------------------------------
Name: Roger Wohlert
Title: Assistant Treasurer
EXHIBIT 10-h
SBC Communications Inc.
SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
Effective: January 1, 1984
Revisions Effective: November 19, 1999
<PAGE>
6
SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose............................ 1
2. Definitions........................ 1
3. Eligibility........................ 1
4. Participation...................... 1
5. Deferred Accounts.................. 2
6. Distribution....................... 3
7. Amendment and Termination.......... 6
8. Miscellaneous...................... 6
<PAGE>
SBC SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
1. Purpose. The purpose of the Salary and Incentive Award Deferral Plan
(the "Plan") is to provide Eligible Employees with a means for deferring
the receipt of income.
2. Definitions. For purposes of this Plan, the following words and phrases
shall have the meanings indicated, unless the context clearly indicates
otherwise:
Base Salary. "Base Salary" or "Salary" shall mean the Eligible
Employee's annual base salary, excluding commissions, lump-sum merit
payments in lieu of salary, and TEAM Awards, and before reduction due
to any contribution pursuant to this Plan or reduction pursuant to
any other deferral plan of SBC.
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Committee. "Committee" shall mean the Human Resources Committee of
the Board of SBC Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer or a
non-Officer employee of any SBC company who is designated by the
Chairman as eligible to participate in the Plan.
Officer. "Officer" shall mean an individual who is designated by
the Chairman as eligible to participate in the Plan who is an
elected officer of SBC or of any SBC subsidiary (direct or
indirect).
SBC. "SBC" shall mean SBC Communications Inc.
SBC Shares. "SBC Shares" shall mean shares of SBC common stock.
3. Eligibility. Each Eligible Employee shall be eligible to participate in
the Salary and Incentive Award Deferral Plan (the "Plan").
4. Participation.
(a) Prior to the beginning of any calendar year, an Eligible Employee may
elect to participate in the Plan by directing that up to 50% of his
or her Base Salary and/or all or part of his or her short-term and/or
long-term awards under the Short Term Incentive Plan and/or under the
Senior Management Long Term Incentive Plan and/or its successor plan,
the 1996 Stock and Incentive Plan, which would otherwise be paid
currently to the employee in such calendar year, shall be credited to
a deferred account subject to the terms of the Plan. In no event,
however, shall the part of Salary or of any award credited to the
Plan during any calendar year be less than $1,000 (which in the case
of an award shall be based on valuation at the time the award would
otherwise be paid). Any Base Salary deferral hereunder is conditioned
upon a 30% Base Salary deferral election in the Stock Savings Plan.
(b) Such an election to participate in the Plan shall be in the form of a
document executed by the employee and filed with SBC. An election
related to Salary or awards otherwise payable currently in any
calendar year shall become irrevocable on the last day prior to the
beginning of such calendar year. A new election to participate in the
Plan shall be made annually.
5. Deferred Accounts.
(a) Deferred amounts related to Salary or awards which would otherwise
have been distributed to the Eligible Employee in cash shall be
credited to the employee's account and shall bear interest at the
applicable Declared Rate on the balance from month-to-month in such
account. The interest will be credited monthly to the account at
one-twelfth of the annual Declared Rate for that calendar year
compounded quarterly. The Declared Rate for each calendar year will
be determined by the Senior Vice President-Human Resources, with the
concurrence of the Senior Vice President, Treasurer and Chief
Financial Officer, and will be announced on or before January 1 of
the applicable calendar year. However, in no event will the Declared
Rate for any calendar year be less than the Moody's Corporate Bond
Yield Average-Monthly Average Corporates as published by Moody's
Investor's Service, Inc. (or any successor thereto for the month of
September before the calendar year in question, or, if such yield is
no longer published, a substantially similar average selected by the
Senior Vice President-Human Resources).
In addition, if the employee's account under the Bell System Senior
Management Incentive Award Deferral Plan ("Predecessor Plan") was
transferred to an account under this Plan as of January 1, 1984, the
effective date of this Plan, then the employee's account under this
Plan shall be credited as of such date with the amount credited to
the employee's account under the Predecessor Plan as of December 31,
1983, and such amount shall bear interest in accordance with the
terms of this Plan.
(b) Deferred amounts related to awards which would otherwise have been
distributed in SBC shares shall be credited to the employee's account
as deferred SBC Shares. The employee's account shall also be credited
on each dividend payment date for SBC Shares with an amount
equivalent to the dividend payable on the number of SBC Shares equal
to the number of deferred SBC Shares in the employee's account on the
record date for such dividend. Such amount shall then be converted to
a number of additional deferred SBC shares determined by dividing
such amount by the price of SBC Shares, as determined in the
following sentence. The price of SBC Shares related to any dividend
payment date shall be the closing price on the New York Stock
Exchange ("NYSE") for SBC Shares on the dividend payment date, or the
trading day immediately preceding such dividend payment date if the
NYSE is closed on the dividend payment date.
(c) In the event of any SBC common stock dividend or split occurring
after January 1, 1987, employees' accounts will automatically be
credited with additional SBC Shares necessary to reflect such stock
dividend or split. In the event of any other change in outstanding
SBC common stock by reason of any recapitalization, merger,
consolidation, combination or exchange of shares or other similar
corporate change, the Board of Directors shall make such adjustments,
if any, that it deems appropriate in the number of deferred SBC
Shares then credited to employees' accounts. Any and all such
adjustments shall be conclusive and binding upon all parties
concerned.
6. Distribution.
(a) At the time an Eligible Employee makes an election to participate in
the Plan, the employee shall also make an election with respect to
the distribution (during the employee's lifetime or in the event of
the employee's death) of the amounts to be credited to the employee's
deferred account during the upcoming calendar year. Such an election
related to awards otherwise payable currently in any calendar year
shall become irrevocable on the last day prior to the beginning of
such calendar year. Amounts credited as cash plus accumulated
interest shall be distributed in cash; amounts credited as deferred
SBC Shares shall be distributed in the form of an equal number of SBC
Shares; provided, however, any fractional shares shall be credited as
federal tax withholding.
(b) An employee may elect to receive the amounts credited to the
employee's account with respect to Salary or with respect to each
award to be paid in the upcoming calendar year in one payment or in
some other number of approximately equal annual installments (not
exceeding 15). The first installment (or the single payment if the
employee has so elected) shall be paid within 60 days following the
date specified in such election.
(c) Notwithstanding an election pursuant to Paragraph (b) of this Section
6, all amounts then credited to the employee's accounts shall be paid
immediately in a single payment if an employee is discharged for
cause by his or her employing company, or if an employee otherwise
ceases to be employed by his or her employing company and engages in
competition with SBC or any direct or indirect subsidiary thereof or
with any business with which a subsidiary of SBC or an affiliated
company has a substantial interest (collectively referred to herein
as an "Employer Business"), or becomes employed by a governmental
agency having jurisdiction over the activities of SBC or any of its
subsidiaries. For purposes hereof, engaging in competition with any
Employer business shall mean engaging by the employee in any business
or activity in the same geographical market where the same or
substantially similar business or activity is being carried on as an
Employer business. Such term shall not include owning a
nonsubstantial publicly traded interest as a shareholder in a
business that competes with an Employer business. However, engaging
in competition with an Employer business shall include representing
or providing consulting services to, or being an employee of, any
person or entity that is engaged in competition with any Employer
business or that takes a position adverse to any Employer business.
Further, engaging in competition with an Employer business would
result if the employee either engages directly in competitive
activity or in any capacity in any location becomes employed by,
associated with, or renders service to any company, or parent or
affiliate thereof, or any subsidiary of any of them, if any of them
is engaged in competition with an Employer business, regardless of
the position or duties the employee takes and regardless of whether
or not the employing company, or the company that the employee
becomes associated with or renders service to, is itself engaged in
direct competition with an Employer business.
(d) An employee may designate pursuant to the SBC Rules for Employee
Beneficiary Designations as may hereafter be amended from time to
time ("Rules") that, in the event the employee should die before full
payment of all amounts credited to the employee's accounts, the
balance of all deferred amounts shall be distributed in one payment
or in some other number of approximately equal annual installments
(not exceeding 5) to the beneficiary or beneficiaries designated in
writing by the employee. If no designation has been made or if all
designated beneficiaries predecease the employee or die prior to
complete distribution of all of the employee's amounts hereunder,
then the balance of such amounts be shall be distributed according to
the Rules. The first installment (or single payment if the employee
has so elected) shall be paid within 60 days following the month of
death.
(e) Installments subsequent to the first installment to the employee, or
to a beneficiary, shall be paid on the date established in 6(b) or
6(d) in each succeeding calendar year until the entire amount
credited to the employee's deferred account shall have been paid.
Deferred amounts held pending distribution shall continue to be
credited with interest or additional deferred SBC Shares, as
applicable, determined in accordance with Section 5(a) or 5(b).
(f) The obligation to make distribution of deferred amounts credited to
an employee's account during any calendar year, plus the additional
amounts credited on such deferred amounts pursuant to Section 5(a) or
5(b), shall be borne by SBC or the applicable employing company which
otherwise would have paid the related award currently. However, the
obligation to make distributions with respect to deferred amounts
which are related to amounts credited to an employee's account as of
the effective date of the Plan pursuant to Section 5(a), and with
respect to which no SBC company would otherwise have paid the related
award currently, shall be borne by the company which employed the
employee on the effective date of the Plan.
(g) For the purpose of this Section 6, an election described in Paragraph
(a) or a beneficiary designation described in Paragraph (d) made
under the comparable provisions of the Predecessor Plan shall be
considered as an election or beneficiary designation, respectively,
made under this Section 6.
(h) Notwithstanding the previous provisions of this Section 6, at any
time during the calendar year prior to the calendar year during which
an award deferred under the provisions of the Plan is scheduled for
distribution, a participant my change his or her previous election(s)
applicable to such award to further defer the commencement of
distribution of such award to a subsequent calendar year, and in such
case to also change the number of installments applicable to the
distribution of the award. Amounts with respect to which the
participant's election(s) are modified in accordance with the
provisions of this Section 6(h) shall continue to be subject to all
provisions of this Plan including further distribution modifications
in accordance with the provisions of this Section 6(h).
7. Amendment and Termination. This Plan may be modified or terminated at any
time in accordance with the provision of SBC's Schedule of Authorizations,
but such changes or termination shall not adversely affect the rights of
any Eligible Employee, without his or her consent, to any benefit under
the Plan to which such employee may have previously become entitled prior
to the effective date of such change or termination.
8. Miscellaneous.
(a) Unsecured General Creditor. The amounts deferred hereunder shall
be held in the general funds of SBC. SBC shall not be required to
reserve, or otherwise set aside, funds for the payment of such
amounts.
(b) Non-Assignability. The rights of an employee to any deferred amounts
plus the additional amounts credited pursuant to Section 5(a), 5(b)
and 5(c) shall not be subject to assignment by the employee.
(c) Administration. The Committee shall be the sole administrator of the
Plan and will administer the Plan, interpret, construe and apply its
provisions in accordance with its terms. The Committee shall further
establish, adopt or revise such rules and regulations as it may deem
necessary or advisable for the administration of the Plan. All
decisions of the Committee shall be binding unless the Board of
Directors should determine otherwise.
EXHIBIT 10-o
SBC Communications Inc.
STOCK SAVINGS PLAN
Plan Effective: January 1, 1991
As amended through January 1, 2000
<PAGE>
INDEX
Section 1 - Statement of Purpose..................................1
Section 2 - Definitions...........................................1
Section 3 - Administration of the Plan............................5
Section 4 - Participation.........................................5
4.1 Election to Commence a Savings Unit....................5
4.2 Termination of Election................................6
Section 5 - Pre-Tax Contributions/After-Tax Contributions/Company Match 6
5.1 After-Tax and/or Pre-Tax Account(s)....................6
5.2 Company Matching Account...............................6
5.3 Dividends..............................................7
5.4 Vesting of Matching Account............................7
5.5 Statement of Accounts..................................7
Section 6 - Retirement Alternative................................8
6.1 Retirement Distribution................................8
6.2 Termination Distribution...............................9
6.2(a) Termination of Employment Before Retirement....9
6.2(b) Termination of a Savings Unit..................9
6.2(c) Loss of Eligibility............................9
6.3 Disability.............................................9
6.4 Survivor Distribution.................................10
Section 7 - Specified Date Alternative...........................11
7.1 Specified Date Distribution...........................11
7.2 Termination Distribution..............................12
7.2(a) Termination of Employment Prior to Specified Date 12
7.2(b) Termination of a Savings Unit.................12
7.2(c) Loss of Eligibility...........................12
7.3 Disability............................................12
7.4 Survivor Distribution.................................12
Section 8 - Beneficiary Designation..............................13
Section 9 - Options..............................................13
9.1 Grants................................................13
9.2 Term of Options.......................................13
9.3 Exercise Price........................................14
9.4 Issuance of Options...................................14
9.5 Exercise and Payment of Options.......................15
9.6 Restrictions on Exercise and Transfer.................16
9.7 Termination by Death..................................16
9.8 Termination by Disability.............................16
9.9 Retirement or Other Termination of Employment.........17
Section 10 - Discontinuation, Termination, Amendment.............17
10.1 Company's Right to Discontinue Offering Savings Units17
10.2 Company's Right to Terminate Plan....................17
10.3 Amendment............................................17
Section 11 - Miscellaneous.......................................18
11.1 Additional Benefit....................................18
11.2 Small Distribution....................................18
11.3 Emergency Distribution................................18
11.4 Commencement of Payments..............................19
11.5 Tax Withholding.......................................19
11.6 Reserved..............................................19
11.7 Transfer to a RWAC....................................19
11.8 Leave of Absence......................................19
11.9 Ineligible Participant................................20
11.10Unsecured General Creditor............................20
11.11Offset................................................20
11.12Non-Assignability.....................................21
11.13Employment Not Guaranteed.............................21
11.14Gender, Singular and Plural...........................21
11.15Captions..............................................21
11.16Applicable Law........................................21
11.17Validity..............................................21
11.18Notice................................................21
11.19Successors and Assigns................................21
11.20Limitations and Adjustments...........................22
11.21Distribution Alternative..............................22
Section 12 - Participation in Other Plan(s)......................23
12.1 Participation in Predecessor Plans....................23
12.2 Pacific Telesis Group 1996 Executive Deferred Compensation Plan or
the Pacific Telesis Group Non-Qualified Savings Plan..23
<PAGE>
STOCK SAVINGS PLAN
Section 1 - Statement of Purpose
The purpose of the Stock Savings Plan ("Plan") is to increase employee
stock ownership and to provide retirement and short-term savings
distributions to a select group of management employees consisting of
Eligible Employees of SBC Communications Inc. (the "Company") and its
Subsidiaries ("Participating Companies").
Section 2 - Definitions
For the purposes of this Plan, the following words and phrases shall have
the meanings indicated, unless the context clearly indicates otherwise:
After-Tax Account. "After-Tax Account" means the account maintained on an
after-tax basis on the books of account of the Company for each
Participant for each Savings Unit to which After-Tax Amounts are credited.
After-Tax Accounts are available only for Savings Units commenced prior to
January 1, 1995.
After-Tax Amount. "After-Tax Amount" means contributions made on an
After-Tax basis with respect to a Savings Unit commenced prior to January
1, 1995 under this Plan.
Agreement. "Agreement" means the written agreement entitled "Stock Savings
Plan Enrollment Form" and/or, effective on or after January 1, 1995, the
written agreement entitled "Short Term Contribution Form" that shall be
entered into by the Company and a Participant to carry out the Plan with
respect to such Participant. The Company may adopt any form for such use
or modify any such form.
Base Compensation. "Base Compensation" is comprised of the following types
of the Employee's compensation, before reduction due to any contribution
pursuant to this Plan or reduction pursuant to any deferral plan of
Employer, including but not limited to a plan that includes a qualified
cash or deferred arrangement under Section 401(k) of the Internal Revenue
Code ("Code"), all as determined by the Company:
(a) annual base salary;
(b) commissions; and
(c)the annual award identified as a "Team Award" by the Company,
including any individual award identified by the Company as an
"Individual Discretionary Award" made in connection therewith (the
"IDA"), or any comparable awards, if any, identified by the Company to
be used in lieu of the Team Award and the IDA.
Notwithstanding the foregoing, Base Compensation does not include:
(a) zone allowances or any other geographical differential and (b)
payments made for unused vacation or other paid days off that were
not used.
Beneficiary. "Beneficiary" means the person or persons designated as
-----------
such in accordance with Section 8 of this Plan.
Chairman. "Chairman" means the Chairman of the Board of SBC
---------
Communications Inc.
<PAGE>
Company Match Rate Expressed as a Percent. "Company Match Rate Expressed
as a Percent" means eighty percent (80%), or such higher percentage as may
be determined by the HRC, in its sole discretion, at any time, or such
lower percentage as may be determined by the HRC, in its sole discretion,
and announced to affected Eligible Employees prior to the Unit Start Date
with respect to a Savings Unit.
Disability. "Disability" means inability to work due to being
----------
physically disabled.
Eligible Employee. "Eligible Employee" means an Employee of Employer who
(a) is in active service on a regular, full-time salaried basis (excluding
term or contract Employees), (b) is, as determined by the Company, a
member of Employer's "select group of management or highly compensated
employees" within the meaning of the Employment Retirement Income Security
Act of 1974, as amended, and regulations thereunder ("ERISA"), (c) (i)
holds a 3rd level or higher management position, all as determined by the
Company, and satisfies any employment status required by the HRC or the
Chairman, or (ii) has an employment status which has been approved by the
Chairman to be eligible to participate in this Plan, and (d) continuously
maintains the employment status upon which eligibility to participate in
this Plan was based; provided, however, the HRC or the Chairman may, from
time to time, include or exclude any Employee or group of Employees from
being deemed an "Eligible Employee" under this Plan.
In addition, any Employee that holds options to acquire shares of AirTouch
Communications, Inc., or ordinary shares or American Depository Shares of
Vodafone AirTouch plc (or any similar rights), under the Pacific Telesis
Group Stock Option and Stock Appreciation Rights Plan or any other stock
option plan of Employer as of December 15 of a particular year shall not
be eligible to participate in this Plan for the following calendar year,
and any previously executed Agreement shall be voided. Any employee of
Ameritech Corporation, or any corporation, partnership, venture or other
entity in which Ameritech Corporation holds at least a 50% interest, shall
not be an Eligible Employee until otherwise provided by the HRC or the
Chairman.
Employee. "Employee" means any person employed by Employer on a regular
full-time salaried basis, excluding Employees hired for a fixed maximum
term and excluding Employees who are neither citizens nor permanent
residents of the United States, all as determined by the Company.
Employer. "Employer" means SBC Communications Inc. or any of its
--------
Subsidiaries.
Fair Market Value or FMV. "Fair Market Value" or "FMV" means the closing
price on the New York Stock Exchange ("NYSE") for the Stock on the
relevant date, or if such date was not a trading day, the next preceding
trading date, all as determined by the Company. A trading day is any day
that the Stock is traded on the NYSE. In lieu of the foregoing, the HRC
may select any other index or measurement to determine the FMV of the
Stock under the Plan.
HRC. "HRC" means the Human Resources Committee of the Board of
---
Directors of SBC.
Options. "Options" shall mean the options to purchase Stock which shall
-------
be issued to a Participant pursuant to Section 9.
Participant. "Participant" means an Employee or former Employee
-----------
participating in the Plan.
<PAGE>
Plan Year. "Plan Year" means the calendar year.
---------
Pre-Tax Account. "Pre-Tax Account" means the account maintained on a
pre-tax basis on the books of account of the Company for each Participant
for each Savings Unit to which Pre-Tax Amounts are credited.
Pre-Tax Amount. "Pre-Tax Amount" means the contributions made by a
Participant on a pre-tax basis with respect to a Savings Unit under this
Plan.
Retirement. "Retirement" means the termination of a Participant's
employment with Employer, for reasons other than death, on or after the
earlier of the following dates: (1) the date Participant is eligible to
retire with an immediate pension pursuant to the SBC Supplemental
Retirement Income Plan ("SRIP"); or (2) the date the Participant has
attained one of the following combinations of age and service at
termination of employment on or after April 1, 1997, except as otherwise
indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service Pension under
and pursuant to the provisions of the SBC Pension Benefit Plan -
Nonbargained Program upon termination of Employment, the term "Retirement"
shall include such Participant's termination of employment.
Retirement Alternative. "Retirement Alternative" means, with respect to
any Savings Unit, the distributions described in Section 6 that the Plan
provides based upon a selection of such alternative.
Retirement Distribution. "Retirement Distribution" means the
--------------------------
distribution described in Section 6.1.
Rotational Work Assignment Company. "RWAC" shall mean any entity with
----------------------------------------
which SBC Communications Inc. or any of its Subsidiaries may have an
agreement to provide an employee for a rotational work assignment.
Savings Unit. "Savings Unit" means the Participant's Pre-Tax Amount and/or
After-Tax Amount, and associated Company matching contributions, which
provide stated distributions pursuant to Section 6 or Section 7 of this
Plan in accordance with the Participant's Agreement for such Savings Unit.
<PAGE>
Shares. "Shares" means an accounting entry representing a number of
------
equivalent shares of Stock
Short Term Incentive Award. An award paid under the Short Term Incentive
Plan or an award under a similar plan intended by the Committee to be in
lieu of an award under such Short Term Incentive Plan, including (a) the
Key Executive Officer Short Term Award paid under the 1996 Stock and
Incentive Plan and (b) payments made in 1998 under the Pacific Telesis
Group Short Term Incentive Plan ("PTGSTIP") to persons identified as
"Officer level employees" by the HRC for purposes of this Plan.
Specified Date. "Specified Date" means, with respect to any Savings Unit
for which the Participant elects the Specified Date Alternative, the fixed
date specified in the Agreement on which the Specified Date Distribution
will commence.
Specified Date Alternative. "Specified Date Alternative" means, with
respect to any Savings Unit, the distributions described in Section 7 that
the Plan provides based upon a selection of such alternative.
Specified Date Distribution. "Specified Date Distribution" means the
----------------------------
distribution described in Section 7.1.
Stock. "Stock" means the common stock of SBC Communications Inc.
-----
Subsidiary. A "Subsidiary" of the Company is any corporation, partnership,
venture or other entity in which the Company has at least a 50% ownership
interest. The HRC may at its sole discretion designate any other
corporation, partnership, venture or other entity a Subsidiary for the
purpose of participating in this Plan.
Team Award. The annual award identified as a "Team Award" by the Company
(or any comparable award identified by the Company as a replacement
therefor), excluding any individual award made in connection therewith.
Payments under the PTGSTIP made during 1998 to persons who are not
identified as "Officer level employees" by the HRC for purposes of this
Plan shall be deemed Team Awards under this Plan.
Unit Period. "Unit Period" means the calendar year with respect to which
the Participant elects to participate in the Plan on a pre-tax basis
and/or an after-tax basis. The Unit Period for a Savings Unit will
commence on the Unit Start Date and end upon the earliest to occur of the
following: (i) the last day of the calendar year which includes the Unit
Start Date, (ii) when the Participant terminates employment or ceases to
be an Eligible Employee, or (iii) upon termination of the Savings Unit.
<PAGE>
Unit Start Date. "Unit Start Date" means the date for commencement of a
given Savings Unit. The Unit Start Date will be January 1, and for a
Savings Unit comprised of all or a portion of a Participant's Short Term
Incentive Award, the Unit Start Date shall be the day the Award would
otherwise have been paid.
Section 3 - Administration of the Plan
The HRC shall be the sole administrator of the Plan and will administer
the Plan, interpret, construe and apply its provisions in accordance with
its terms. The HRC shall further establish, adopt or revise such rules and
regulations as it may deem necessary or advisable for the administration
of the Plan. All decisions of the HRC shall be final and binding.
Section 4 - Participation
4.1 Election to Commence a Savings Unit. Any Eligible Employee may elect
to commence a Savings Unit on a pre-tax basis by filing a completed
Agreement with the Company prior to the Unit Start Date. Pursuant to said
Agreement, the Eligible Employee shall elect the percentage of Base
Compensation that shall comprise Participant's Pre-Tax Amount. Such
percentage shall remain in effect for the duration of the Unit Period even
if Base Compensation should change. Such Agreement shall continue to be
regarded as, and shall apply as, the Eligible Employee's election to
commence each successive Savings Unit until the Company is advised in
writing in accordance with the aforesaid time requirements by the Eligible
Employee to the contrary. In the Agreement, the Participant shall also
elect either the Retirement Alternative or the Specified Date Alternative
and the timing of distribution of Stock.
The Participant's percentage of Base Compensation applicable to a Savings
Unit shall be a whole percentage and must be at least six percent (6%) and
not more than thirty percent (30%).
<PAGE>
A Participant shall be permitted to contribute all or a portion of his
Short Term Incentive Award as follows. A Participant's election to
contribute all or a portion of his Short Term Incentive Award which may be
paid to a Participant by an Employer, shall be filed with the Company (on
a form to be provided by the Company for such purpose) prior to the
beginning of the calendar year during which such Award is earned (for
Savings Units with Unit Start Date of January 1, 1998, or later, and for
PTGSTIP payments that constitute Short Term Incentive Awards, the election
must be filed prior to the beginning of the calendar year during which
such Award is paid), or such earlier time as may be established by the
Chairman. The contribution shall be deemed to have taken place on the day
the Award would otherwise have been paid. In the Agreement relating to the
Award, the Participant shall also elect either the Retirement Alternative
or the Specified Date Alternative and the timing of distribution of Stock.
This election is independent of the election for distribution of
contributions associated with deferrals of Base Compensation. Such
contribution of all or a portion of Participant's Short Term Incentive
Award shall comprise a separate Savings Unit. Notwithstanding the
foregoing, Short Term Incentive Awards or any portion thereof contributed
to the Plan prior to January 1, 1995, shall be credited into a 1994 or
prior Savings Unit(s) as specified by the Participant.
4.2 Termination of Election. A Participant's election to participate in
the Plan for the duration of the Unit Period is irrevocable upon the
filing of his Agreement with the Company; provided, however, such election
may be terminated with respect to Base Compensation not yet paid by mutual
agreement in writing between the Participant and the Company. Such
termination if approved shall be effective beginning the first day of the
month following the execution of such mutual agreement.
Section 5 - Pre-Tax Contributions/After-Tax Contributions/Company Match
5.1 After-Tax and/or Pre-Tax Account(s). The Company shall establish and
maintain a separate After-Tax Account (for contributions pursuant to
Savings Units commenced prior to January 1, 1995 only) and/or Pre-Tax
Account for each Participant for each Savings Unit. On the first business
day of each month, the Company shall credit each Participant's Pre-Tax
Account with the number of Shares found by dividing the Participant's
Pre-Tax Amount for the previous month by the FMV on the last day of such
previous month. Annual base salary shall be deemed contributed when
earned; all other amounts shall be deemed contributed when paid.
Shares credited to Participant's Pre-Tax Account and/or After-Tax Account
are 100% vested at all times.
Such Pre-Tax Account and/or After-Tax Account, as applicable, shall be
reduced by the number of Shares corresponding to the number of shares of
Stock distributed by the Company to the Participant or the Participant's
Beneficiary with respect to such Savings Unit pursuant to this Plan.
<PAGE>
5.2 Company Matching Account. The Company shall also establish and
maintain a separate Matching Account for each Participant. The Matching
Account will hold the Company's matching contribution to the Plan.
Immediately following the computation of the Shares to be added to each
Participant's Pre-Tax Account each month, the Company shall credit each
Participant's Matching Account with the number of Shares found by taking
the Company Match Rate Expressed as a Percent times the Participant's
Pre-Tax Amount for the previous month, and dividing the resulting figure
by the FMV of the Stock on the last day of such previous month; provided,
however, if the Participant is concurrently participating in this Plan and
(a) the match eligible (basic) portion of the SBC Savings Plan or (b) the
match eligible portion of any other qualified plan of Employer, the
matching contribution shall be credited, pursuant to this Plan, with
respect to no more than six percent (6%) of the Participant's monthly Base
Compensation less the basic (match eligible) election percentage in such
plan; and provided further, however, Company matching contributions shall
be paid, pursuant to this Plan and all plans of Employer combined, with
respect to no more than six percent (6%) of Participant's monthly Base
Compensation. Company Match shall only be paid on Base Compensation.
5.3 Dividends. Additional Shares shall be credited to each Participant's
Pre-Tax Account, After-Tax Account, and Matching Account, respectively,
for dividends on Stock, on the basis of the number of Shares credited to
each such Account on the record date for such dividend.
The number of additional Shares to be credited to each Account for any
dividend payment date shall be determined by dividing the total dividends
which would have otherwise been payable on the number of Shares recorded
in each Account, by the FMV on the last day of the month containing the
dividend record date. The additional Shares shall be credited to each
Account, as appropriate, on the last day of the month containing the
dividend record date.
5.4 Vesting of Matching Account. A Participant's interest in his Matching
Account shall vest at such time as Participant shall have five (5) years
of service as reflected on the records of Employer; provided, however, the
Matching Account of any Participant who was employed by Employer on
December 31, 1988 shall be 100% vested at all times. Shares in the
Matching Account relating to a Savings Unit shall not be available for
distribution to the Participant until vested and: (i) for ten (10) years
after the Unit Period for such Savings Unit has ended and until the
Participant is at least fifty-five (55) years of age, or (ii) until
Participant's Retirement or other termination of employment (including
death). Upon termination of employment, all unvested Shares shall be
forfeited.
5.5 Statement of Accounts. Each Participant will receive annual statements
in such form as the Company deems desirable setting forth the balance of
Shares standing to the credit of each of the Participant's Pre-Tax,
After-Tax and Matching Accounts.
Section 6 - Retirement Alternative
Section 6 shall apply to the portions of all Savings Units for which the
Retirement Alternative is elected. (Section 7 shall have no application to
such portions of such Savings Units.) The distributions specified in this
Section 6 shall be provided under the Retirement Alternative.
<PAGE>
6.1 Retirement Distribution. Upon Retirement or, effective for Savings
Units commenced on or after January 1, 1995, the calendar year following
Retirement if so elected by the Participant, with respect to a Savings
Unit, the Company shall distribute to the Participant each year for up to
fifteen (15) years, the number of years to be selected by Participant in
his Agreement, beginning on the first day of the month next following the
date of Retirement or during February of the year following Retirement if
the calendar year following Retirement is elected for commencing
distribution of Savings Units commenced on or after January 1, 1995, and
annually on such date thereafter, from Participant's Pre-Tax Account,
After-Tax Account, and Matching Account, shares of Stock corresponding to
the number of Shares in each such Account on such date divided by the
number of distributions to be made immediately prior to each such
distribution. During the payout period, each such Account shall be
credited with dividends in accordance with Section 5.3.
The Participant shall elect the number of years of distribution of a
Retirement Distribution no later than the end of the calendar year
immediately preceding the first distribution. If a Participant's Agreement
fails to show an election as to the number of years of distribution of a
Retirement Distribution, and an election is not made no later than the end
of the calendar year immediately preceding the first distribution, such
Participant will receive distribution in two annual installments beginning
on the first of the month next following the date of Retirement or during
February of the year following Retirement, whichever commencement date was
previously elected by the Participant.
In the event that a final determination shall be made by the Internal
Revenue Service or any court of competent jurisdiction that, by reason of
Retirement, a Participant has recognized gross income for Federal income
tax purposes in excess of the Retirement Distribution installment actually
distributed by the Company to which such gross income is attributable, the
Company shall make a lump sum distribution to the Participant of shares of
Stock corresponding to the remaining Shares of his Pre-Tax, After-Tax and
Matching Accounts for any affected Savings Units. If a distribution is
made to a Participant pursuant to this paragraph for any Savings Unit, no
other distributions shall thereafter be made under this Plan with respect
to such Savings Unit.
Notwithstanding any election made by the Participant, the Company will
distribute the Participant's Retirement Distribution in the form of a lump
sum distribution if the FMV of his Pre-Tax plus After-Tax plus Matching
Accounts for a Savings Unit is less than $10,000 when distribution of the
Retirement Distribution for such Savings Unit would otherwise commence.
6.2 Termination Distribution.
6.2(a) Termination of Employment Before Retirement. Upon any termination
of employment of the Participant for reasons other than death or
Disability or Retirement, the Company shall distribute to the Participant,
with respect to a Savings Unit, in a lump sum, shares of Stock
corresponding to the vested portion of the Shares standing credited to his
Pre-Tax, After-Tax and Matching Accounts for such Savings Unit determined
as of the date of such termination of service ("Termination
Distribution").
<PAGE>
6.2(b) Termination of a Savings Unit. A Participant shall terminate a
Savings Unit if he terminates his election to participate in the Plan with
respect to a Savings Unit pursuant to Section 4.2. Notwithstanding any
other provision of the Plan, upon such discontinuance, the Participant
shall immediately cease to be eligible for any distribution other than his
Termination Distribution with respect to that Savings Unit (which shall be
distributed upon his severance of employment) except as provided under
Section 11.1. The Participant shall continue to be credited with dividends
on the Shares standing credited to his Pre-Tax, After-Tax and Matching
Accounts as provided under Section 5.3 and to vest in Shares as provided
under Section 5.4 while he remains in employment with the Employer until
payment of his Termination Distribution. However, no further Participant
pre-tax or after-tax or Company contributions to this Plan shall be made
pursuant to Sections 5.1 or 5.2 with respect to a Savings Unit after a
Participant terminates such Savings Unit.
6.2(c) Loss of Eligibility. In the event that the Participant ceases to be
an Eligible Employee by reason of a change to an employment status which
is not eligible to participate in this Plan, the Participant shall
nevertheless continue participation in this Plan while he remains in
employment with Employer; however, no further Participant pre-tax
contributions or after-tax contributions, or Company matching
contributions shall be made to this Plan pursuant to Sections 5.1 or 5.2
subsequent to the date of such loss of eligibility.
6.3 Disability. In the event that a Participant suffers a Disability,
pre-tax contributions and/or after-tax contributions and Company matching
contributions that otherwise would have been credited to Participant's
Pre-Tax Account, After-Tax and Matching Accounts, as applicable, in
accordance with Sections 5.1 and 5.2 will continue to be credited to such
Accounts out of his disability payments (as used in this Plan, disability
payments and disability benefits shall refer to only to Employer payments)
at the same time and in the same amounts as they would have been credited
if the Participant had not suffered a Disability for as long as he is
eligible to receive monthly disability benefits equal to 100 percent of
his monthly base salary at the time of his Disability. At such time as the
Participant is not eligible to receive monthly disability benefits equal
to 100 percent of his monthly Base Compensation at the time of his
Disability, Participant pre-tax contributions and/or after-tax
contributions and Company matching contributions that otherwise would have
been credited to the Accounts of the Participant in accordance with
Section 5.1 and 5.2 shall cease.
If the Participant recovers from his Disability and returns within sixty
(60) days thereafter to employment with Employer in an employment status
which would make him eligible to participate in this Plan and prior to the
end of the original Unit Period, the Participant shall continue or resume
making pre-tax contributions and/or after-tax contributions, as the case
may be, in accordance with Section 5.1 and the Company shall continue or
resume making matching contributions, as the case may be, in accordance
with Section 5.2 until the end of the original Unit Period.
<PAGE>
If the Participant recovers from his Disability, the Participant shall be
treated as terminating service with Employer on the date of his recovery,
unless within sixty (60) days thereafter he returns to employment with
Employer in an employment status which makes him eligible to participate
in this Plan.
If a Participant's Disability terminates by reason of his death, the
rights of his Beneficiary shall be determined pursuant to Section 6.4 as
if the Participant had not been disabled but rather had been in service on
the date of his death and died on such date. If a Participant's Disability
terminates by reason of attainment of age 65, the Participant shall upon
the attainment of age 65 be entitled to a Retirement Distribution
determined pursuant to Section 6.1. If a Participant's Disability
terminates by reason of Retirement, the Participant shall be treated as
having a Retirement on the date elected by the Participant and shall be
entitled to a Retirement Distribution determined pursuant to Section 6.1.
6.4 Survivor Distribution.
6.4(a) If a Participant dies while in service with Employer (or while
suffering from a Disability) prior to eligibility for Retirement with
respect to a Savings Unit, upon the Participant's death the Company will
distribute to the Participant's Beneficiary with respect to such Savings
Unit, shares of Stock corresponding to all of the Shares in Participant's
Pre-Tax, After-Tax and Matching Accounts. Distribution shall occur in the
month following the date of death.
6.4(b) If a Participant dies while in service after eligibility for
Retirement with respect to a Savings Unit, but prior to commencement of
distribution of a Retirement Distribution with respect to such Savings
Unit, the Company will distribute to the Participant's Beneficiary the
Stock that such Participant's Beneficiary would have received with respect
to such Savings Unit had the Participant retired and commenced to receive
a Retirement Distribution on the day prior to such Participant's death.
Such distributions shall be made in accordance with the number of
installments which the Participant had elected for distribution of his
Retirement Distribution.
6.4(c) If a Participant dies after Retirement but before commencement of
distribution of a Retirement Distribution with respect to a Savings Unit,
the Company will distribute to the Participant's Beneficiary the
installments that Participant would have received with respect to such
Savings Unit had the Participant survived. Payments will commence
effective with the Participant's death. Such distributions shall be made
in accordance with the method of distribution which the Participant had
elected for distribution of his Retirement Distribution.
6.4(d) If a Participant dies after the commencement of payment of a
Retirement Distribution with respect to a Savings Unit, the Company will
distribute to the Participant's Beneficiary the remaining installments
that would have been distributed to the Participant had the Participant
survived.
<PAGE>
Section 7 - Specified Date Alternative
Section 7 shall apply to the portions of all Savings Units for which the
Specified Date Alternative is elected. (Section 6 shall have no
application to such portions of such Savings Units.) The distributions
specified in this Section 7 shall be provided under the Specified Date
Alternative.
7.1 Specified Date Distribution. If a Participant elects the Specified
Date Alternative with respect to a Savings Unit, the Company shall
distribute to the Participant each year for up to four (4) years, the
number of years to be selected by Participant in his Agreement, beginning
on the first day of the month selected in his Agreement for commencement
of distributions, and annually on such date thereafter, from Participant's
Pre-Tax Account, After-Tax Account, and Matching Account (to the extent
available for distribution), shares of Stock corresponding to the number
of Shares in each such Account on such date divided by the number of
distributions to be made immediately prior to each such distribution.
During the payout period, each such Account shall be credited with
dividends in accordance with Section 5.3. Shares of Stock corresponding to
Shares in the Matching Account which are not immediately available for
distribution shall be distributed to the Participant in a lump sum
distribution as soon as practicable after such Shares become available for
distribution. While such Shares remain in the Matching Account, such
Account shall be credited with dividends on such Shares in accordance with
Section 5.3.
A Participant may elect, as the Specified Date for a Savings Unit, the
first day of any month after the January following the calendar year
during which the Savings Unit commences. If the Participant elects an
annual distribution, the Savings Unit shall be paid out in February
following the end of the Unit Period or as soon thereafter as is
practicable.
Notwithstanding any election made by the Participant, the Company will
distribute the Participant's Specified Date Distribution in the form of a
lump sum distribution if the FMV of his Pre-Tax plus After-Tax plus
Matching Accounts for a Savings Unit is less than $10,000 when
distribution of a Specified Date Distribution for such Savings Unit would
otherwise commence.
7.2 Termination Distribution.
7.2(a) Termination of Employment Prior to Specified Date. Upon any
termination of employment of the Participant for reasons other than death
or Disability or Retirement before the Specified Date selected for a
Savings Unit, the Company shall distribute to the Participant, with
respect to such Savings Unit, in a lump sum, shares of Stock corresponding
to the vested portion of the Shares standing credited to his Pre-Tax,
After-Tax and Matching Accounts for such Savings Unit determined as of the
date of such termination of service ("Termination Distribution").
<PAGE>
7.2(b) Termination of a Savings Unit. The provisions of Section 6.2(b)
shall apply with respect to the termination of any Savings Unit for which
the Specified Date Alternative is selected.
7.2(c) Loss of Eligibility. The provisions of Section 6.2(c) shall apply
with respect to the loss of eligibility under any Savings Unit for which
the Specified Date Alternative is selected.
7.3 Disability. In the event that a Participant suffers a Disability, the
provisions of Section 6.3 shall apply except that the provisions of the
following paragraphs shall govern.
If a Participant's Disability terminates by reason of his death prior to
the Specified Date, the rights of his Beneficiary shall be determined
pursuant to Section 7.4 as if the Participant had not been disabled but
rather had been in service on the date of his death and died on such date.
If a Participant suffering from a Disability attains the Specified Date
for a Savings Unit, the Participant shall be entitled to the Specified
Date Distribution determined pursuant to Section 7.1.
7.4 Survivor Distribution.
7.4(a) If a Participant dies prior to the commencement of distribution of
the Specified Date Distribution with respect to a Savings Unit, upon the
Participant's death the Company will distribute to the Participant's
Beneficiary with respect to such Savings Unit, shares of Stock
corresponding to all of the Shares in Participant's Pre-Tax, After-Tax and
Matching Accounts. Distribution shall occur in the month following the
date of death.
7.4(b) If a Participant dies after the commencement of payment of an
Specified Date Distribution with respect to a Savings Unit, the Company
will distribute to the Participant's Beneficiary the remaining
installments of any such distribution that would have been distributed to
the Participant had the Participant survived.
Section 8 - Beneficiary Designation
<PAGE>
Each Participant shall have the right, at any time, to designate pursuant
to the SBC Rules for Employee Beneficiary Designations as may hereafter be
amended from time to time ("Rules"), which Rules shall apply hereunder and
are incorporated herein by this Reference, any person or persons as his
Beneficiary or Beneficiaries (both primary as well as contingent) to whom
distributions of Stock under this Plan shall be made in the event of his
death prior to complete distribution to Participant of the distributions
due him under the Plan. Each Beneficiary designation shall become
effective only when filed in writing with the Company during the
Participant's lifetime on a form prescribed by the Company with written
acknowledgment of receipt.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. The spouse of a married
Participant domiciled in a community property jurisdiction shall join in
any designation of Beneficiary or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as provided above, or if
all designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's distributions, then the Company
shall direct the distribution of such distributions according to the
Rules.
Section 9 - Options
9.1 Grants. The HRC shall determine at its discretion whether the Options
issued pursuant to this Plan shall be non-qualified stock Options or
incentive stock Options within the meaning of Section 422 of the Code. Any
Options issued hereunder shall be non-qualified Options unless the HRC
specifies prior to the Unit Start Date that they shall be incentive stock
Options. Notwithstanding any other provision of the Plan, any incentive
stock Options issued under this Plan shall be issued and exercised in
accordance with Section 422 of the Code. The Options may be issued in
definitive form or recorded on the books and records of the Company for
the account of the Participant, at the discretion of the Company. If the
Company elects not to issue the Options in definitive form, they shall be
deemed issued, and the Participants shall have all rights incident thereto
as if they were issued on the dates provided herein, without further
action on the part of the Company or the Participant. In addition to the
terms herein, all Options shall be subject to such additional provisions
and limitations as provided in any Administrative Procedures adopted by
the HRC prior to the issuance of such Options. The number of Options
issued to a Participant shall be reflected on the Participant's annual
statement of account.
9.2 Term of Options. The Options may only be exercised: (a) after the
earlier of (i) the expiration of one year from date of issue or (ii) the
Participant's termination of employment (only for Options issued on or
after August 1, 1998), and (b) no later than the tenth anniversary of
their issue, and shall be subject to earlier termination as provided
herein.
9.3 Exercise Price. The price per share of Stock purchasable under an
Option shall be the Fair Market Value of the Stock on the date of
issuance of the Options.
<PAGE>
9.4 Issuance of Options. February 1 and August 1 of each year shall each
be an Option issuance date, unless Stock is not traded on the NYSE on such
day in which event the immediate following day in which Stock is so traded
shall be the Option issuance date. On each Option issuance date, each
Participant shall receive two Options, or such higher number as may be
determined by the HRC, in its sole discretion, at any time, or such lower
number as may be determined by the HRC, in its sole discretion, and
announced to Participants prior to the Unit Start Date with respect to a
Savings Unit, for each Share credited to the Participant's Pre-Tax Account
during the preceding six month periods. The number of Options to be
received shall be determined by multiplying the number of Shares by the
number of Options to be received for each Share and rounding up to the
next whole number; provided, however, that no more than 200,000 Options
shall be issued to any individual during the calendar year. No Share may
be counted more than once for the issuance of Options and Options shall
only be issued for Shares credited to a Savings Unit with respect to its
Unit Period.
In addition to the foregoing, the HRC may, at any time and in any manner,
limit the number of Options which may be acquired as a result of the Short
Term Incentive Award being contributed to the Plan. Further, except as
otherwise provided by the HRC, in determining the number of Options to be
issued to a Participant with respect to a Participant's contribution of a
Short Term Incentive Award to the Plan and subsequent crediting of Shares,
Options may be issued only with respect to an amount which does not exceed
the target amount of such award (or such other portion of the award as may
be determined by the HRC).
Accordingly, the following rules shall apply:
Options To Be Issued With Respect To A Short Term Incentive Award
Contributed To The Plan.
A Participant shall be permitted to contribute his Short Term
Incentive Award, although paid after Retirement, into the Stock
Savings Plan; and, subject to application of the rule in the
following sub paragraph, Options may be issued thereon and on the
dividends that would accumulate thereon applicable to the calendar
year when the Short Term Award was placed into the Plan.
Participants Who Retire, Terminate Employment Or Terminate A
Savings Unit.
<PAGE>
Options are calculated on August 1 and February 1, in each case for
the preceding six month periods based on the Shares posted to the
Participant's accounts. The August 1 options are for January through
June contributions plus 1st quarter and 2nd quarter dividend
equivalents. The February 1 options are for July through December
contributions plus the 3rd quarter and 4th quarter dividend
equivalents. If a Participant retires, terminates employment or
terminates a Savings Unit during an ongoing savings period, since the
Unit Period ends upon Retirement, termination, etc., a dividend
equivalent shall be treated as being paid with respect to a Unit
Period (i.e., for purposes of receiving Options on such dividend
equivalent) only if the Participant is employed on any day of the
last month of the quarter preceding payment of the dividend, e.g.,
one must be employed at least one day in December in order to receive
Options on the fourth quarter dividend equivalent paid the following
February 1. A retiree shall thus receive Options on dividends issued
with respect to his/her last quarter if he or she worked at any time
during the last month of such quarter. The same shall apply if a
Savings Unit is terminated. However, if a Participant terminates
employment other than as a result of Retirement or for any reason
other than death or Disability, no further options shall be issued to
the Participant on or after the last day of employment.
9.5 Exercise and Payment of Options. Options shall be exercised by
providing notice to the designated agent selected by the Company (if no
such agent has been designated, then to the Company), in the manner and
form determined by the Company, which notice shall be irrevocable, setting
forth the exact number of shares of Stock with respect to which the Option
is being exercised and including with such notice payment of the Exercise
Price. When Options have been transferred, the Company or its designated
agent may require appropriate documentation that the person or persons
exercising the Option, if other than the Participant, has the right to
exercise the Option. No Option may be exercised with respect to a fraction
of a share of Stock.
The Exercise Price shall be paid in full at the time of exercise. No Stock
shall be issued or transferred until full payment has been received
therefor.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and subject to
such additional terms and conditions and/or modifications as the Committee
or the Company may impose from time to time, and further subject to
suspension or termination of this provision by the Committee or the
Company at any time, by:
(i) delivery of Stock owned by the Participant in partial (if in
partial payment, then together with cash) or full payment; provided,
however, as a condition to paying any part of the Exercise Price in
Stock, at the time of exercise of the Option, the Participant must
establish to the satisfaction of the Company that the Stock tendered
to the Company must have been held by the Participant for a minimum
of six (6) months preceding the tender; or
<PAGE>
(ii) if the Company has designated a stockbroker to act as the
Company's agent to process Option exercises, issuance of an exercise
notice to such stockbroker together with instructions irrevocably
instructing the stockbroker: (A) to immediately sell (which shall
include an exercise notice that becomes effective upon execution of a
limit order) a sufficient portion of the Stock to pay the Exercise
Price of the Options being exercised and the required tax
withholding, and (B) to deliver on the settlement date the portion of
the proceeds of the sale equal to the Exercise Price and tax
withholding to the Company. In the event the stockbroker sells any
Stock on behalf of a Participant, the stockbroker shall be acting
solely as the agent of the Participant, and the Company disclaims any
responsibility for the actions of the stockbroker in making any such
sales. No Stock shall be issued until the settlement date and until
the proceeds (equal to the Exercise Price and tax withholding) are
paid to the Company.
If payment is made by the delivery of Stock, the value of the Stock
delivered shall be equal to the Fair Market Value of the Stock on the day
preceding the date of exercise of the Option.
Restricted Stock may not be used to pay the Option exercise price.
9.6 Restrictions on Exercise and Transfer. During the optionee's lifetime
(for purposes of Paragraphs 9.6 through 9.9, "optionee" shall only refer
to the original recipient of an Option), the optionee's Options shall be
exercisable only by the optionee or by the optionee's guardian or legal
representative. After the death of the optionee, except as otherwise
provided by the Company's Rules for Employee Beneficiary Designations, an
Option shall only be exercised by the holder thereof (including, but not
limited to, an executor or administrator of a decedent's estate) or his or
her guardian or legal representative.
No Option shall be transferable except: (a) upon the death of the optionee
in accordance with the Company's Rules for Employee Beneficiary
Designations; and (b) in the case of any holder after the optionee's
death, only by will or by the laws of descent and distribution.
9.7 Termination by Death. If an optionee's employment with Employer
terminates by reason of death, the Option may thereafter be exercised, to
the extent then exercisable, for a period of three (3) years from the date
of such death or until the expiration of the stated term of such Option,
whichever period is shorter.
9.8 Termination by Disability. If an optionee's employment with Employer
terminates by reason of Disability, any Option held by such optionee may
thereafter be exercised, to the extent it was exercisable at the time of
such termination (or on such accelerated basis as the HRC shall determine
at the time of grant), for a period of three (3) years from the date of
such termination of employment or the expiration of the stated term of
such Option, whichever period is shorter.
<PAGE>
9.9 Retirement or Other Termination of Employment. Except as otherwise
provided in this paragraph, if an optionee's employment with Employer
terminates as a result of Retirement or for any reason other than death or
Disability, the Option may be exercised until the earlier of three months
(one year for options granted on or after August 1, 1998) from the date of
termination or three years (five years for options granted on or after
August 1, 1998) from the date of Retirement, as applicable, or the
expiration of the term of such Option; provided, however, that a transfer
to a RWAC shall not be considered a termination of employment to the
extent the term of employment at a RWAC is equal to or less than five
years.
Section 10 - Discontinuation, Termination, Amendment
10.1 Company's Right to Discontinue Offering Savings Units. The HRC or the
Chairman may at any time discontinue offerings of additional Savings Units
with respect to any or all future Plan Years. Any such discontinuance
shall have no effect upon the pre-tax contributions or after-tax
contributions or the terms or provisions of this Plan as applicable to any
then previously existing Savings Units.
10.2 Company's Right to Terminate Plan. No Savings Unit may be commenced
after December 31, 2004. The HRC may terminate the Plan at any earlier
time. Termination of the Plan shall mean that (1) there shall be no
further offerings of additional Savings Units with respect to any future
Plan Year; (2) pre-tax contributions and after-tax contributions shall
prospectively cease with respect to all Savings Units for the then Plan
Year and thereafter; and (3) all then currently existing Savings Units
shall be treated as follows:
The Participant's Matching Accounts shall be 100% vested. The
Participant shall receive or continue to receive all distributions
under this Plan at such time as provided in and pursuant to the terms
and conditions of his Agreement(s) and as described in this Plan;
provided, however, any distributions under a Savings Unit that is not
completed due to a termination of the Plan under this Section 10.2
shall be based upon only the actual pre-tax contributions plus
after-tax contributions plus Company contributions made with respect
to such Savings Unit prior to such termination, and dividends on same
thereafter.
<PAGE>
10.3 Amendment. The HRC may at any time amend the Plan in whole or in part
including, but not limited to, changing the formulas for determining the
amount of Company contributions under Section 5 or the number of Options
to be issued under Section 9; provided, however, that no amendment,
including an amendment to this Section 10, shall be effective, without the
written consent of a Participant, to alter, to the detriment of such
Participant, the distributions described in this Plan as applicable to a
Savings Unit of the Participant or to decrease the number of Shares
standing credited to such Participant's Pre-Tax, After-Tax and Matching
Accounts under the Plan. For purposes of this Section 10.3, an alteration
to the detriment of a Participant shall mean a reduction in the period of
time over which stock is distributable under a Participant's Agreement, or
any reduction in the number of Options, increase in Exercise Price or
decrease in the term of an Option. Written notice of any amendment shall
be given to each Participant.
Notwithstanding anything to the contrary contained in this section of the
Plan, the HRC may modify this Plan with respect to any person subject to
the provisions of Section 16 of the Securities Exchange Act of 1934 as
amended ("Exchange Act") to place additional restrictions on the exercise
of any Option or the transfer of any Stock not yet issued under the Plan.
Section 11 - Miscellaneous.
11.1 Additional Benefit. The reduction of any benefit payable under the
SBC Pension Benefit Plan (or comparable plan identified by the Company as
a replacement therefore), which results from participation in this Plan,
will be restored as an additional benefit ("make-up piece") under this
Plan. The Participant shall elect prior to commencement of payment of the
make-up piece whether to receive such benefit in cash in a lump sum
(consisting of the present value equivalent of the pension retirement
benefit (life annuity) make-up piece) or such benefit in an annuity form
of payment. Notwithstanding the proceeding provisions of this Section
11.1, if all or a portion of the make-up piece is paid pursuant to SRIP or
another non-qualified plan, then such amount shall not be payable pursuant
to this Plan.
11.2 Small Distribution. Notwithstanding any election made by the
Participant, the Company will distribute any shares of Stock corresponding
to Shares in the form of a lump sum distribution if the Shares in
Participant's Pre-Tax Account plus After-Tax Account plus Matching Account
have a FMV of less than $10,000 when such distribution would otherwise
commence.
11.3 Emergency Distribution. In the event that the HRC, upon written
petition of the Participant, determines in its sole discretion, that the
Participant has suffered an unforeseeable financial emergency, the Company
shall distribute to the Participant, as soon as practicable following such
determination, Stock corresponding to the number of Shares ordered by the
HRC from his Pre-Tax, After-Tax and Matching Accounts for one or more
Savings Units as necessary to meet the emergency (the "Emergency
Distribution"). For purposes of this Plan, an unforeseeable financial
emergency is an unexpected need for cash arising from an illness, casualty
loss, sudden financial reversal, or other such unforeseeable occurrence.
Cash needs arising from foreseeable events such as the purchase of a house
or education expenses for children shall not be considered to be the
result of an unforeseeable financial emergency. Upon receipt of an
Emergency Benefit, a Participant shall not be permitted to commence a new
Savings Unit until the next enrollment after one whole year has elapsed.
<PAGE>
11.4 Commencement of Payments. Except as otherwise provided in this Plan,
commencement of a distribution under this Plan shall begin sixty (60) days
following the event which entitles a Participant (or a Beneficiary) to
such distribution, or at such earlier date as may be determined by the
HRC.
11.5 Tax Withholding. Upon distribution of Stock, including but not
limited to, shares of Stock issued upon the exercise of an Option, the
Company shall withhold sufficient shares of Stock having a Fair Market
Value on the date the taxes are determined necessary to satisfy the
minimum amount of Federal, state, and local taxes required by law to be
withheld as a result of such distribution.
Any fractional share of Stock payable to a Participant shall be withheld
as additional Federal withholding, or, at the option of the Company, paid
in cash to the Participant.
Unless otherwise determined by the Committee, when the method of payment
for the Exercise Price is from the sale by a stockbroker pursuant to
Section 9.5(b)(ii), hereof, of the Stock acquired through the Option
exercise, then the tax withholding shall be satisfied out of the proceeds.
For administrative purposes in determining the amount of taxes due, the
sale price of such Stock shall be deemed to be the Fair Market Value of
the Stock.
11.6 Reserved
11.7 Transfer to a RWAC. If a Participant transfers to a RWAC, all of the
Participant's Savings Units shall be frozen upon transfer, unless
otherwise determined by the Company. No further Participant pre-tax
contributions, after-tax contributions or Company contributions shall be
made subsequent to the transfer. During the period of employment at a RWAC
(for a period not to exceed five (5) years), the Participant shall
continue to be credited with dividends on his Pre-Tax, After-Tax and
Matching Accounts, as applicable, as provided under Section 5.3 and to
vest in such amounts as provided under Section 5.4, and all distributions
shall continue to be payable to the Participant and his Beneficiaries in
accordance with Section 6 and/or Section 7 hereof, as applicable. If the
Participant has not resumed employment with Employer in an employment
status which makes him eligible to participate in this Plan within five
(5) years from the date of transfer, a Termination Distribution based on
the amounts credited to the Participant's Pre-Tax, After-Tax and Matching
Accounts, as applicable, shall be paid upon termination of employment with
a RWAC or the expiration of such five (5) year period, whichever is
earlier.
<PAGE>
11.8 Leave of Absence. If a Participant absents himself from employment on
a formally granted leave of absence (i.e., the absence is with formal
permission in order to prevent a break in the continuity of the Employee's
term of employment, which permission is granted in conformity with the
rules of the Employer which employs the individual, as adopted from time
to time), all of the Participant's Savings Units shall automatically be
frozen upon such leave of absence, unless otherwise determined by the HRC.
No Participant pre-tax contributions or after-tax contributions or Company
contributions shall be made during the leave of absence. However, during
the leave of absence, the Participant shall continue to be credited with
dividends on his Pre-Tax, After-Tax and Matching Accounts, as applicable,
as provided under Section 5.3 and to vest in such amounts as provided
under Section 5.4, and all distributions shall continue to be payable to
the Participant and his Beneficiaries in accordance with Section 6 and/or
Section 7 hereof, as applicable. If the Participant returns to employment
with Employer in an employment status which makes him eligible to
participate in this Plan before completion of or immediately upon the
expiration of the leave of absence, Participant pre-tax contributions and
Company matching contributions will resume until the end of the original
Unit Period. If the Participant has not resumed employment with Employer
in an employment status which makes him eligible to participate in this
Plan before completion of or immediately upon the expiration of the leave
of absence, a Termination Distribution based on the amounts credited to
the Participant's Pre-Tax, After-Tax and Matching Accounts shall be paid
to the Participant.
This Section 11.8 shall not apply with respect to any period during which
a Participant is suffering from a Disability, and such period of
Disability shall not be included under this Section 11.8 as a portion of a
period of leave of absence.
11.9 Ineligible Participant. Notwithstanding any other provisions of this
Plan to the contrary, if any Participant is determined not to be a
"management or highly compensated employee" within the meaning of ERISA,
such Participant will not be eligible to participate in this Plan and
shall receive an immediate lump sum distribution of shares of Stock
corresponding to the vested portion of the Shares standing credited to his
Pre-Tax plus After-Tax plus Matching Accounts. Upon such payment no other
distribution shall thereafter be payable under this Plan either to the
Participant or any Beneficiary of the Participant, except as provided
under Section 11.1.
11.10 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights,
interest, or claims in any property or assets of Employer. No assets of
Employer shall be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors, or assigns, or held in any way as
collateral security for the fulfilling of the obligations of Employer
under this Plan. Any and all of the Employer's assets shall be, and
remain, the general, unpledged, unrestricted assets of Employer. The only
obligation of Employer under the Plan shall be merely that of an unfunded
and unsecured promise of the Company to distribute shares of Stock
corresponding to Shares, and Options, under the Plan in the future.
11.11 Offset. If a Participant becomes entitled to a distribution of Stock
under the Plan, the Company may offset against the amount of Stock
otherwise distributable, any claims to reimbursement for intentional
wrongdoing by the Participant against the Employer or an affiliate as well
as any overpayment made under this Plan. Such determination shall be made
by the Company.
<PAGE>
11.12 Non-Assignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, shares of Stock corresponding to Shares under
the Plan, if any, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No part
of the Stock distributable shall, prior to actual distribution, be subject
to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any other person,
nor be transferable by operation of law in the event of a Participant's or
any other person's bankruptcy or insolvency.
11.13 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or
as giving any Employee any right to be retained in the employ of Employer
or to serve as a director.
11.14 Gender, Singular and Plural. All pronouns and any variations there
of shall be deemed to refer to the masculine or feminine, as the identity
of the person or persons may require. As the context may require, the
singular may be read as the plural and the plural as the singular.
11.15 Captions. The captions of the articles, sections, and paragraphs of
this Plan are for convenience only and shall not control nor affect the
meaning or construction of any of its provisions.
11.16 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas, to the extent not
preempted by ERISA. Any action seeking to enforce an Employee's or
Beneficiary's rights under this Plan, including but not limited to the
terms of any Agreement or Option issued hereunder, may only be brought in
Bexar County, Texas.
11.17 Validity. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
11.18 Notice. Any notice or filing required or permitted to be given to
the Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the principal
office of the Company, directed to the attention of the Vice
President-Human Resources of the Company. Such notice shall be deemed
given on the date of delivery or, if delivery is made by mail, on the date
shown on the postmark on the receipt for registration or certification.
11.19 Successors and Assigns. This Plan shall be binding upon the Company
and its successors and assigns.
<PAGE>
11.20 Limitations and Adjustments. The number of shares of Stock which may
be distributed pursuant to the Plan, exclusive of Section 9, is 6,500,000.
The number of stock Options and shares of Stock which may be issued
pursuant to Section 9 of the Plan is 10,500,000 each. Of the foregoing
stock options, the number of incentive stock Options which may be issued
pursuant to the Plan is 10,500,000.
In the event of a merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, stock split, share combination,
or other change in the corporate structure of the Company affecting the
shares of Stock, such adjustment shall be made in the number and class of
shares of Stock which may be delivered under the Plan, and in the number
and class of and/or price of shares of Stock subject to outstanding
Options granted under the Plan, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights.
11.21 Distribution Alternative. Effective November 17, 1995,
notwithstanding the provisions of Section 6 and of Section 7, at any time
during the calendar year prior to the calendar year during which a
distribution(s) pursuant to a Savings Unit is scheduled to commence, a
Participant may change his or her previous election(s) applicable to such
Savings Unit to further defer the commencement of the distribution(s)
pursuant to such Savings Unit to a subsequent calendar year, and in such
case to also change the number of installments applicable to the
distribution of the Savings Unit as follows: (a) the new election(s)
applicable to such Savings Unit must conform with either Section 6, if the
Retirement Alternative is the new selection for such Savings Unit, or
Section 7, if the Specified Date Alternative is the new selection for such
Savings Unit; (b) either the Retirement Alternative or the Specified Date
Alternative may be selected for the new election(s) for a Savings Unit
irrespective of the Alternative originally selected for such Savings Unit;
(c) the commencement date for payments pursuant to such Savings Unit may
be delayed to any point in time in a subsequent calendar year - the
commencement date for payments may not be advanced to an earlier point in
time; and (d) any number of installments may be selected pursuant to the
new election(s) for a Savings Unit irrespective of the number of
installments originally selected for such Savings Unit. Provided, however,
in the event a Participant is involuntarily terminated from employment
(which shall be deemed to include termination by reason of death), and
such termination is for a reason other than for cause (i.e., willful and
gross misconduct on the part of the Participant that is materially and
demonstrably detrimental to the Company or any subsidiary thereof), and
such termination is a Retirement (or in the case of Participant's death,
Participant was Retirement eligible), then Participant (or Participant's
Beneficiary(ies)) may make the change(s) to Participant's previous
election(s) pursuant to this Section 11.21 at the time of Participant's
termination of employment. Amounts with respect to which the Participant's
election(s) are modified in accordance with the provisions of this Section
11.21 shall continue to be subject to all provisions of this Plan
including further distribution modifications in accordance with the
provisions of the Section 11.21.
<PAGE>
Section 12 - Participation in Other Plan(s)
12.1 Participation in Predecessor Plans. Effective November 21, 1997, the
plans of the Stock Savings Program shall be merged into the Stock Savings
Plan. All Savings Units under the Stock Based Savings Plan or the
Management Stock Savings Plan shall be transferred to this Plan as of that
date and shall be governed by the terms of this Plan.
12.2 Pacific Telesis Group 1996 Executive Deferred Compensation Plan or
the Pacific Telesis Group Non-Qualified Savings Plan. If an Eligible
Employee elects to participate in this Plan with respect to contributions
during 1998, the Employee may not defer, under the Pacific Telesis Group
1996 Executive Deferred Compensation Plan or the Pacific Telesis Group
Non-Qualified Savings Plan, any compensation otherwise payable in 1998,
and such election under this Plan shall operate as a termination of
participation in such Pacific Telesis Group plans to the extent it relates
to any deferrals of compensation otherwise payable in 1998.
EXHIBIT 10-p
SBC Communications Inc.
1992 STOCK OPTION PLAN
Plan Effective: January 1, 1996
As amended through: November 19, 1999
<PAGE>
1992 Stock Option Plan
TABLE OF CONTENTS
1.1 Purpose................................................1
1.2 Additional Definitions.................................1
1.3 Effective Date.........................................2
2.1 The Committee..........................................2
2.2 Authority of the Committee.............................2
3.1 Number of Shares.......................................3
3.2 Lapsed Options.........................................3
3.3 Adjustments in Authorized Shares.......................3
4.1 Grant of Options.......................................3
4.2 Form of Issuance.......................................4
4.3 Option Price...........................................4
4.4 Duration of Option.....................................4
4.5 Vesting of Options.....................................4
4.6 Exercise of Options....................................4
4.7 Payment................................................5
4.8 Termination of Employment..............................6
4.9 Transfers..............................................6
4.10 Restrictions on Exercise and Transfer of Options.......6
4.11 Change in Control......................................7
5.1 Amendment, Modification, and Termination...............7
5.2 Awards Previously Granted..............................8
6.1 Tax Withholding........................................8
7.1 Employment.............................................8
7.2 Participation..........................................8
7.3 Successors.............................................8
7.4 Governing Law..........................................8
1992 Stock Option Plan
<PAGE>
SBC 1992 STOCK OPTION PLAN
ARTICLE 1. PURPOSE, DEFINITIONS AND EFFECTIVE DATE
1.1 Purpose. The purpose of the SBC 1992 Stock Option Plan ("Plan") is to
promote the success and enhance the value of SBC Communications Inc. (the
"Company") by linking the personal interests of the Employees of the
Company and its Subsidiaries to the interests of the Company's
shareowners, and by providing Employees with an additional incentive for
outstanding performance. To achieve this purpose, Options to purchase
common stock of the Company may be granted to Employees of the Company and
its Subsidiaries pursuant to the Plan.
1.2 Additional Definitions. In addition to definitions set forth elsewhere
-----------------------
in the Plan, for purposes of the Plan:
(a) "Cause" shall mean willful and gross misconduct on the part of a
Participant that is materially and demonstrably detrimental to the
Company or any Subsidiary as determined by the Committee in its sole
discretion.
(b) "Employee" shall mean any management employee of the Company or of
one of its Subsidiaries in the third (3rd) level of management or
above. Directors who are not otherwise employed by the Company or any
of its Subsidiaries shall not be considered Employees under the Plan.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Act thereto.
(d) "Fair Market Value" shall mean the closing price on the New York
Stock Exchange ("NYSE") for Shares on the relevant date, or if such
date was not a trading day, the next preceding trading date, all as
determined by the Company. A trading day is any day that the Shares
are traded on the NYSE. In lieu of the foregoing, the Committee may
select any other index or measurement to determine the Fair Market
Value of Shares under the Plan.
(e) "Option" shall mean the right to purchase one or more shares of the
common stock of SBC Communications Inc. on the terms and conditions
contained in this Plan, the rules of the Committee, and the terms of
the Option.
<PAGE>
(f) "Retirement" shall mean the termination of a Participant's employment
with the Company or one of its Subsidiaries, for reasons other than
death, disability (as that term is used in the SBC Senior Management
Long Term Disability Plan) or for Cause, on or after the earlier of
the following dates: (1) the date Participant is eligible to retire
with an immediate pension pursuant to the SBC Supplemental Retirement
Income Plan; or (2) the date the Participant has attained one of the
following combinations of age and service at termination of
employment on or after April 1, 1997, except as otherwise indicated
below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service
Pension under and pursuant to the provisions of the SBC Pension
Benefit Plan - Nonbargained Program upon termination of Employment,
the term "Retirement" shall include such Participant's termination of
employment.
(g) "Rotational Work Assignment Company" or "RWAC" shall mean Bell
Communications Research, Inc., formerly the Central Services
Organization, Inc., and/or any other entity with which SBC
Communications Inc. or any of its subsidiaries may enter into an
agreement to provide an employee for a rotational work assignment.
(h) "Shares" or "Stock" or "Shares of Stock" shall mean the common stock
of SBC Communications Inc.
(i) "Subsidiary" shall mean any corporation in which the Company owns
directly, or indirectly through subsidiaries, more than fifty percent
(50%) of the total combined voting power of all classes of Stock, or
any other entity (including, but not limited to, partnerships and
joint ventures) in which the Company owns more than fifty percent
(50%) of the combined equity thereof.
1.3 Effective Date. The Plan shall be effective on the date it is approved
---------------
by the Company's shareowners.
ARTICLE 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a Committee or
--------------
Committees (the "Committee") appointed by the Board of Directors.
<PAGE>
2.2 Authority of the Committee. The Committee shall have full power, except as
limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions of this Plan, to select the
recipients of Options ("Participants"); determine the sizes of grants of
Options under the Plan; determine the exercise price, duration, vesting
requirements, and period of exercisability of each Option; determine the
terms and conditions of such Option grants in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and, subject to the provisions
of Article 5 - Amendment, Modification, and Termination, herein, amend the
terms and conditions of any outstanding Option to the extent such terms
and conditions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan.
All determinations and decisions made by the Committee pursuant to
the provisions of the Plan, and all related orders and resolutions of the
Board shall be final, conclusive, and binding on all persons, including
the Company, its shareowners, Employees, Participants, and their estates
and beneficiaries.
ARTICLE 3. SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to adjustment as provided in Section 3.3
Adjustments in Authorized Shares, herein, the total number of Shares of
Stock for which Options may be granted under the Plan may not exceed
9,000,000 Shares. These Shares may be either authorized but unissued or
reacquired Shares.
3.2 Lapsed Options. If any Option granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such
Option again shall be available for the grant of an Option under the Plan.
3.3 Adjustments in Authorized Shares. In the event of a merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, stock split, share combination, or other change in the
corporate structure of the Company affecting the Shares, such adjustment
shall be made in the number and class of Shares which may be delivered
under the plan, and in the number and class of and/or price of Shares
subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided
that the number of Shares subject to any Option shall always be a whole
number.
ARTICLE 4. STOCK OPTIONS
<PAGE>
4.1 Grant of Options. Subject to the terms and provisions of the Plan, Options
may be granted to such Employees, at such times and on such terms and
conditions, as shall be determined by the Committee; provided, however, no
Options may be granted after the 10th anniversary of the effective date of
the Plan. The Committee shall have discretion in determining the number of
Options and the number of Shares subject to each Option granted to each
Participant. Without limiting the generality of the foregoing, the
Committee shall have the authority to establish guidelines setting forth
anticipated grant levels which correspond to various salary grades or the
equivalent thereof.
4.2 Form of Issuance. Options may be issued in the form of a certificate or
may be recorded on the books and records of the Company for the account of
the Participant. If an Option is not issued in the form of a certificate,
then the Option shall be deemed granted upon issuance of a notice of the
grant addressed to the recipient. The terms and conditions of an Option
shall be set forth in the certificate, in the notice of the issuance of
the grant, or in such other documents as the Committee shall determine.
The Committee may require a Participant to enter into a written agreement
containing terms and conditions relating to the Option and its exercise.
4.3 Option Price. The Option Price for each grant of an Option shall be
determined by the Committee; provided, however, that the minimum Option
Price shall be one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted.
4.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date
of its grant.
4.5 Vesting of Options. Options shall vest at such times and under such terms
and conditions as determined by the Committee. The Committee shall have
the authority to accelerate the vesting of any Option; provided, however,
that the Senior Executive Vice President - Human Resources, or his
successor, or such other person designated by the Committee, shall have
the authority to accelerate the vesting of Options for any Participant who
is in the fifth level of management or below and who is not a Director or
an officer (as that term is defined in Section 16 of the Exchange Act).
4.6. Exercise of Options. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for
each grant or for each Participant. However, in no event may any Option
granted under this Plan become exercisable prior to the first anniversary
of the date of its grant, except as provided in Section 4.11 Change in
Control.
<PAGE>
Options shall be exercised by providing notice to the designated
agent selected by the Company (if no such agent has been designated, then
to the Company), in the manner and form determined by the Company, which
notice shall be irrevocable, setting forth the exact number of Shares with
respect to which the Option is being exercised and including with such
notice payment of the Option Price. When Options have been transferred,
the Company or its designated agent may require appropriate documentation
that the person or persons exercising the Option, if other than the
Participant, has the right to exercise the Option. No Option may be
exercised with respect to a fraction of a Share.
4.7 Payment. The Option Price shall be paid in full at the time of exercise.
No Shares shall be issued or transferred until full payment has been
received therefor.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and subject
to such additional terms and conditions and/or modifications as the
Committee or the Company may impose from time to time, and further
subject to suspension or termination of this provision by the
Committee or the Company at any time, by:
(i) delivery of Shares of Stock owned by the Participant in partial
(if in partial payment, then together with cash) or full payment;
provided, however, as a condition to paying any part of the
Option Price in Stock, at the time of exercise of the Option, the
Participant must establish to the satisfaction of the Company
that the Stock tendered to the Company must have been held by the
Participant for a minimum of six (6) months preceding the tender;
or
(ii)if the Company has designated a stockbroker to act as the
Company's agent to process Option exercises, issuance of an
exercise notice to such stockbroker together with instructions
irrevocably instructing the stockbroker: (A) to immediately sell
(which shall include an exercise notice that becomes effective
upon execution of a limit order) a sufficient portion of the
Shares to pay the Option Price of the Options being exercised and
the required tax withholding, and (B) to deliver on the
settlement date the portion of the proceeds of the sale equal to
the Option Price and tax withholding to the Company. In the event
the stockbroker sells any Shares on behalf of a Participant, the
stockbroker shall be acting solely as the agent of the
Participant, and the Company disclaims any responsibility for the
actions of the stockbroker in making any such sales. No Stock
shall be issued until the settlement date and until the proceeds
(equal to the Option Price and tax withholding) are paid to the
Company.
If payment is made by the delivery of Shares of Stock, the value of
the Shares delivered shall be equal to the Fair Market Value of the Shares
on the day preceding the date of exercise of the Option.
Restricted Stock may not be used to pay the Option Price.
<PAGE>
4.8 Termination of Employment.
-------------------------
(a) Termination by Reason of Death or Disability. In the event the
employment of a Participant is terminated by reason of death or
disability (as that term is used in the SBC Senior Management Long
Term Disability Plan), any outstanding Options granted to the
Participant shall vest as of the date of termination of employment
and may be exercised, if at all, no more than one (1) year following
termination of employment, unless the Options, by their terms, expire
earlier.
(b) Termination by Retirement. In the event the employment of a
Participant is terminated by reason of Retirement, any outstanding
Options granted to the Participant which are vested as of the date of
termination of employment may be exercised, if at all, no more than
three (3) years following termination of employment, unless the
Options, by their terms, expire earlier.
(c) Termination of Employment for Other Reasons. If the employment of a
Participant shall terminate for any reason other than the reasons set
forth in (a) or (b), above, and other than for Cause, all outstanding
Options granted to the Participant which are vested as of the date of
termination of employment may be exercised by the Participant within
the period beginning on the effective date of termination of
employment and ending three (3) months after such date, unless the
Options, by their terms, expire earlier.
(d) Termination for Cause. If the employment of a Participant shall
terminate for Cause, all outstanding Options held by the Participant
shall immediately terminate and be forfeited to the Company, and no
additional exercise period shall be allowed.
(e) Options not Vested at Termination. Any outstanding Options not vested
as of the effective date of termination of employment shall expire
immediately and shall be forfeited to the Company.
4.9 Transfers. For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or
between Subsidiaries) or between the Company or a Subsidiary and a RWAC,
to the extent the term of employment at a RWAC is equal to or less than
five years shall not be deemed a termination of employment.
<PAGE>
4.10 Restrictions on Exercise and Transfer of Options. During the Participant's
lifetime, the Participant's Options shall be exercisable only by the
Participant or by the Participant's guardian or legal representative.
After the death of the Participant, except as otherwise provided by the
Company's Rules for Employee Beneficiary Designations, an Option shall
only be exercised by the holder thereof (including, but not limited to, an
executor or administrator of a decedent's estate) or his or her guardian
or legal representative.
No Option shall be transferable except: (a) in the case of the
Participant, only upon the Participant's death and in accordance with the
Company's Rules for Employee Beneficiary Designations; and (b) in the case
of any holder after the Participant's death, only by will or by the laws
of descent and distribution.
4.11 Change in Control. Upon the occurrence of a Change in Control, all Options
held by Participants hereunder shall immediately become vested and
exercisable, notwithstanding the provisions of Section 4.6 Exercise of
Options to the contrary. A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareowners of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the total voting power
represented by the Company's then outstanding voting securities, or (ii)
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
and any new Director whose election by the Board of Directors or
nomination for election by the Company's shareowners was approved by a
vote of at least two-thirds (2/3) of the Directors then still in office
who either were Directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareowners of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least eighty
percent (80%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareowners of the Company
approve a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all the
Company's assets.
ARTICLE 5. AMENDMENT, MODIFICATION, AND TERMINATION
5.1 Amendment, Modification, and Termination. The Board or the Committee may
at any time and from time to time, terminate, amend, or modify the Plan.
However, no such amendment, modification, or termination of the Plan may
be made without the approval of the shareowners of the Company, if such
approval is required by the Internal Revenue Code, by the insider trading
rules of Section 16 of the Exchange Act, by any national securities
exchange or system on which the Shares are then listed or reported, or by
a regulatory body having jurisdiction with respect hereto.
<PAGE>
5.2 Awards Previously Granted. No termination, amendment, or modification of
the Plan shall in any material manner adversely affect any Option
previously granted under the Plan, without the written consent of the
Participant holding such Option.
ARTICLE 6. WITHHOLDING
6.1 Tax Withholding. Upon exercise of an Option, the Company shall withhold
sufficient Shares having a Fair Market Value on the date the taxes are
determined in an amount necessary to satisfy the minimum amount of
Federal, state, and local taxes required by law to be withheld as a result
of such exercise.
Any fractional share of Stock payable to a Participant shall be
withheld as additional Federal withholding, or, at the option of the
Company, paid in cash to the participant.
Unless otherwise determined by the Committee, when the method of
payment for the Option Price is from the sale by a stockbroker pursuant to
Section 4.7(b)(ii), hereof, of the Stock acquired through the Option
exercise, then the tax withholding shall be satisfied out of the proceeds.
For administrative purposes in determining the amount of taxes due, the
sale price of such Stock shall be deemed to be the Fair Market Value of
the Stock.
ARTICLE 7. MISCELLANEOUS
7.1 Employment. Nothing in the Plan shall interfere with or limit in any way
the right of the Company or any Subsidiary thereof to terminate any
Participant's employment at any time, nor confer upon any Participant any
right to continue in the employment of the Company or any Subsidiary
thereof.
7.2 Participation. No Employee shall have the right to be selected to receive
an Option under the Plan, or, having been so selected, to be selected to
receive a future Option.
7.3 Successors. All obligations of the Company under the Plan shall be binding
on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of
the Company.
7.4 Governing Law. The Plan, and any and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Missouri.
EXHIBIT 10-r
SBC Communications Inc.
1996 STOCK AND INCENTIVE PLAN
Plan Effective: January 1, 1996
As amended through: November 19, 1999
<PAGE>
TABLE OF CONTENTS
Article 1 Establishment and Purpose..........................................1
1.1 Establishment of the Plan.............................................1
1.2 Purpose of the Plan...................................................1
1.3 Effective Date of the Plan............................................1
Article 2 Definitions........................................................1
Article 3 Administration.....................................................5
3.1 The Committee.........................................................5
3.2 Authority of the Committee............................................6
Article 4 Shares Subject to the Plan.........................................6
4.1 Number of Shares......................................................6
4.2 Lapsed Awards.........................................................7
4.3 Adjustments in Authorized Plan Shares.................................7
Article 5 Eligibility and Participation......................................7
5.1 Eligibility...........................................................7
5.2 Actual Participation..................................................8
Article 6 Stock Options......................................................8
6.1 Grant of Options......................................................8
6.2 Form of Issuance......................................................8
6.3 Exercise Price........................................................9
6.4 Duration of Options...................................................9
6.5 Vesting of Options....................................................9
6.6 Exercise of Options...................................................9
6.7 Payment...............................................................9
6.8 Termination of Employment............................................11
6.9 Employee Transfers...................................................12
6.10 Restrictions on Exercise and Transfer of Options.....................12
6.11 Competition..........................................................12
Article 7 Restricted Stock..................................................13
7.1 Grant of Restricted Stock............................................13
7.2 Restricted Stock Agreement...........................................13
7.3 Transferability......................................................13
7.4 Other Restrictions...................................................13
7.5 Removal of Restrictions..............................................14
7.6 Voting Rights, Dividends and Other Distributions.....................14
7.7 Termination of Employment Due to Death or Disability.................14
7.8 Termination of Employment for Other Reasons..........................14
7.9 Employee Transfers...................................................14
7.10 Other Grants.........................................................15
Article 8 Performance Units and Performance Shares..........................15
8.1 Grants of Performance Units and Performance Shares...................15
8.2 Value of Performance Shares and Units................................15
8.3 Performance Period...................................................16
8.4 Performance Goals....................................................16
8.5 Dividend Equivalents on Performance Shares...........................18
8.6 Form and Timing of Payment of Performance Units and Performance
Shares.............................................................18
8.7 Termination of Employment Due to Death, Disability, or Retirement....19
8.8 Termination of Employment for Other Reasons..........................19
8.9 Termination of Employment for Cause..................................19
8.10 Nontransferability...................................................19
Article 9 Beneficiary Designation...........................................20
Article 10 Deferrals........................................................20
10.1 Deferrals............................................................20
10.2 Deferral of Performance Unit and Performance Share Distributions.....20
Article 11 Employee Matters.................................................21
11.1 Employment Not Guaranteed............................................21
11.2 Participation........................................................21
11.3 Claims and Appeals...................................................21
Article 12 Change in Control................................................22
Article 13 Amendment, Modification, and Termination.........................22
13.1 Amendment, Modification, and Termination.............................22
13.2 Awards Previously Granted............................................22
Article 14 Withholding......................................................22
14.1 Tax Withholding......................................................22
14.2 Share Withholding....................................................23
Article 15 Successors.......................................................23
Article 16 Legal Construction...............................................23
16.1 Gender and Number....................................................23
16.2 Severability.........................................................23
16.3 Requirements of Law..................................................24
16.4 Securities Law Compliance............................................24
16.5 Governing Law........................................................24
<PAGE>
SBC Communications Inc.
1996 Stock and Incentive Plan
Article 1 Establishment and Purpose.
1.1 Establishment of the Plan. SBC Communications Inc., a Delaware
corporation (the "Company" or "SBC"), hereby establishes an
incentive compensation plan (the "Plan"), as set forth in this
document.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal
interests of Participants to those of the Company's shareowners, and
by providing Participants with an incentive for outstanding
performance.
The Plan is further intended to attract and retain the services of
Participants upon whose judgment, interest, and special efforts the
successful operation of SBC and its subsidiaries is dependent.
1.3 Effective Date of the Plan. The Plan shall become effective on
January 1, 1996; however, grants may be made before that time subject
to becoming effective on or after that date. During the first year
this Plan is effective, Awards shall be issued only to the extent the
potential payout of Shares shall not exceed 10% of the Shares
approved for issuance under this Plan.
Article 2 Definitions.
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock
Options, Restricted Stock, Performance Units, or Performance
Shares.
(b) "Award Agreement" means an agreement which may be entered
into by each Participant and the Company, setting forth the
terms and provisions applicable to Awards granted to
Participants under this Plan.
(c) "Board" or "Board of Directors" means the SBC Board of
Directors.
(d) "Cause" shall mean willful and gross misconduct on the part
of an Employee that is materially and demonstrably
detrimental to the Company or any Subsidiary as determined by
the Committee in its sole discretion.
(e) "Change in Control" shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly
by the shareowners of the Company in substantially the same
proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the
Company representing twenty percent (20%) or more of the
total voting power represented by the Company's then
outstanding voting securities, or (ii) during any period of
two (2) consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the
Company and any new Director whose election by the Board of
Directors or nomination for election by the Company's
shareowners was approved by a vote of at least two-thirds
(2/3) of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute a majority thereof, or (iii) the
shareowners of the Company approve a merger or consolidation
of the Company with any other corporation, other than a
merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least eighty percent (80%) of the
total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareowners of the
Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the committee or committees, as specified
in Article 3, appointed by the Board to administer the Plan
with respect to grants of Awards.
(h) "Director" means any individual who is a member of the SBC
Board of Directors.
(i) "Disability" shall mean the Participant's inability to
perform the Participant's normal Employment functions due to
any medically determinable physical or mental disability,
which can last or has lasted 12 months or is expected to
result in death.
(j) "Employee" means any management employee of the Company or of
one of the Company's Subsidiaries. "Employment" means the
employment of an Employee by the Company or one of its
Subsidiaries. Directors who are not otherwise employed by the
Company shall not be considered Employees under this Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.
(l) "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(m) "Fair Market Value" shall mean the closing price on the New
York Stock Exchange ("NYSE") for Shares on the relevant
date, or if such date was not a trading day, the next
preceding trading date, all as determined by the Company. A
trading day is any day that the Shares are traded on the
NYSE. In lieu of the foregoing, the Committee may select any
other index or measurement to determine the Fair Market
Value of Shares under the Plan.
(n) "Incentive Stock Option" or "ISO" means an option to purchase
Shares from SBC, granted under this Plan, which is designated
as an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(o) "Insider" shall mean an Employee who is, on the relevant
date, an officer, director, or ten percent (10%) beneficial
owner of the Company, as those terms are defined under
Section 16 of the Exchange Act.
(p) "Key Executive Officer Short Term Award" means a
Performance Unit expressed in dollars.
(q) "Nonqualified Stock Option" or "NQSO" means the option to
purchase Shares from SBC, granted under this Plan, which is
not intended to be an Incentive Stock Option.
(r) "Option" or "Stock Option" shall mean an Incentive Stock
Option or a Nonqualified Stock Option, and shall include a
Restoration Option.
(s) "Participant" means a person who holds an outstanding Award
granted under the Plan.
(t) "Performance Unit" and "Performance Share" shall each mean an
Award granted to an Employee pursuant to Article 8 herein.
(u) "Plan" means this 1996 Stock and Incentive Plan. The Plan
may also be referred to as the "SBC 1996 Stock and
Incentive Plan" or as the "SBC Communications Inc. 1996
Stock and Incentive Plan."
(v) "Restricted Stock" means an Award of Stock granted to an
Employee pursuant to Article 7 herein.
(w) "Restriction Period" means the period during which Shares of
Restricted Stock are subject to restrictions or conditions
under Article 7.
(x) "Retirement" or to "Retire" shall mean the termination of a
Participant's employment with the Company or one of its
Subsidiaries, for any reason other than death, Disability or
for Cause, on or after the earlier of the following dates, or
as otherwise provided by the Committee: (1) the date the
Participant would be eligible to retire with an immediate
pension under the rules of the SBC Supplemental Retirement
Income Plan, whether or not actually a participant in such
plan; or (2) the date the Participant has attained one of the
following combinations of age and service at termination of
employment on or after April 1, 1997, except as otherwise
indicated below:
Net Credited Service Age
-------------------- ---
10 Years of more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service
Pension under and pursuant to the provisions of the SBC
Pension Benefit Plan - Nonbargained Program upon termination
of employment, the terms "Retirement" or to "Retire" shall
include such Participant's termination of employment.
(y) "Rotational Work Assignment Company ("RWAC") shall mean any
entity with which SBC Communications Inc. or any of its
Subsidiaries may enter into an agreement to provide an
employee for a rotational work assignment.
(z) "Shares" or "Stock" means the shares of common stock of the
Company.
(aa)"Subsidiary" shall mean any corporation in which the Company
owns directly, or indirectly through subsidiaries, more than
fifty percent (50%) of the total combined voting power of all
classes of Stock, or any other entity (including, but not
limited to, partnerships and joint ventures) in which the
Company owns more than fifty percent (50%) of the combined
equity thereof.
(bb)"Window Period" means the period beginning on the third
business day following the date of public release of the
Company's quarterly sales and earnings information, and ending
on the twelfth business day following such date.
Article 3 Administration.
3.1 The Committee. Administration of the Plan shall be bifurcated as
follows:
(a) With respect to Insiders, the Plan and all Awards hereunder
shall be administered only by the Human Resources Committee
of the Board or such other Committee as may be appointed by
the Board for this purpose (the "Disinterested Committee"),
where each Director on such Disinterested Committee is a
"Disinterested Person" (or any successor designation for
determining who may administer plans, transactions or awards
exempt under Section 16(b) of the Exchange Act), as that term
is used in Rule 16b-3 under the Exchange Act, as that rule
may be modified from time to time.
(b) The Disinterested Committee and such other Committee as the
Board may create, if any, specifically to administer the Plan
with respect to non-Insiders (the "Non-Insider Committee")
shall each have full authority to administer the Plan and all
Awards hereunder with respect to all persons who are not
Insiders, except as otherwise provided herein or by the
Board. Either Committee may be replaced by the Board at any
time.
3.2 Authority of the Committee. The Committee shall have full power
except as limited by law and subject to the provisions herein, to
select the recipients of Awards, to determine the size and types of
Awards; to determine the terms and conditions of such Awards in a
manner consistent with the Plan; to construe and interpret the Plan
and any agreement or instrument entered into under the Plan; to
establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 13 herein)
to amend the terms and conditions of any outstanding Award to the
extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make
all other determinations which may be necessary or advisable for the
administration of the Plan.
No Award other than Restoration Options may be made under the Plan
after December 31, 2010.
All determinations and decisions made by the Committee pursuant to
the provisions of the Plan and all related orders or resolutions of
the Board shall be final, conclusive, and binding on all persons,
including the Company, its stockholders, Employees, Participants, and
their estates and beneficiaries.
Subject to the terms of this Plan, the Committee is authorized,
and shall not be limited in its discretion, to use any of the
Performance Criteria specified herein in its determination of Awards
under this Plan.
Article 4 Shares Subject to the Plan.
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the number of Shares available for grant under the Plan shall
not exceed 30 million Shares of Stock. No more than 10% of the Shares
approved for issuance under this Plan may be Shares of Restricted
Stock. No more than 40% of the Shares approved for issuance under
this Plan may be issued to Participants as a result of Performance
Share or Restricted Stock Awards. The Shares granted under this Plan
may be either authorized but unissued or reacquired Shares. The
Disinterested Committee shall have full discretion to determine the
manner in which Shares available for grant are counted in this Plan.
Without limiting the discretion of the Committee under this
section, unless otherwise provided by the Committee, the following
rules will apply for purposes of the determination of the number of
Shares available for grant under the Plan or compliance with the
foregoing limits:
(a) The grant of a Stock Option or a Restricted Stock Award shall
reduce the Shares available for grant under the Plan by the
number of Shares subject to such Award. However, to the
extent the Participant uses previously owned Shares to pay
the Exercise Price or any taxes, or Shares are withheld to
pay taxes, these Shares shall be available for regrant under
the Plan.
(b) With respect to Performance Shares, the number of Performance
Shares granted under the Plan shall be deducted from the
number of Shares available for grant under the Plan. The
number of Performance Shares which cannot be, or are not,
converted into Shares and distributed (including deferrals)
to the Participant (after any applicable tax withholding)
following the end of the Performance Period shall increase
the number of Shares available for regrant under the Plan by
an equal amount.
(c) With respect to Performance Units representing a fixed dollar
amount that may only be settled in cash, the Performance
Units Award shall not affect the number of Shares available
under the Plan.
4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason, Shares subject to such
Award shall be again available for the grant of an Award under the
Plan.
4.3 Adjustments in Authorized Plan Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, Stock dividend, split-up, Share combination, or other
change in the corporate structure of the Company affecting the
Shares, an adjustment shall be made in the number and class of Shares
which may be delivered under the Plan (including individual limits),
and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and/or the number of
outstanding Options, Shares of Restricted Stock, and Performance
Shares constituting outstanding Awards, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion,
to prevent dilution or enlargement of rights.
Article 5 Eligibility and Participation.
5.1 Eligibility. All management Employees are eligible to participate
in this Plan.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees,
those to whom Awards shall be granted and shall determine the nature
and amount of each Award. No Employee is entitled to receive an Award
unless selected by the Committee.
Article 6 Stock Options.
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to
time, and under such terms and conditions, as shall be determined by
the Committee. The Committee shall have discretion in determining the
number of Shares subject to Options granted to each Employee;
provided, however, that the maximum number of Shares subject to
Options which may be granted to any single Employee during any
calendar year shall not exceed 2% of the Shares approved for issuance
under this Plan. The Committee may grant ISOs, NQSOs, or a
combination thereof; provided, however, that no ISO may be issued
after January 1, 2006. The Committee may authorize the automatic
grant of additional Options ("Restoration Options") when a
Participant exercises already outstanding Options, or options granted
under a prior option plan of the Company, on such terms and
conditions as it shall determine. Unless otherwise provided by the
Committee, the number of Restoration Options granted to a Participant
with respect to the exercise of an option (including an Option under
this Plan) shall not exceed the number of Shares delivered by the
Participant in payment of the Exercise Price of such option, and/or
in payment of any tax withholding resulting from such exercise, and
any Shares which are withheld to satisfy withholding tax liability
arising out of such exercise. A Restoration Option shall have an
Exercise Price of not less than 100% of the per Share Fair Market
Value on the date of grant of such Restoration Option, and shall be
subject to all the terms and conditions of the original grant,
including the expiration date, and such other terms and conditions as
the Committee in its sole discretion shall determine.
6.2 Form of Issuance. Each Option grant may be issued in the form of an
Award Agreement and/or may be recorded on the books and records of
the Company for the account of the Participant. If an Option is not
issued in the form of an Award Agreement, then the Option shall be
deemed granted as determined by the Committee. The terms and
conditions of an Option shall be set forth in the Award Agreement, in
the notice of the issuance of the grant, or in such other documents
as the Committee shall determine. Such terms and conditions shall
include the Exercise Price, the duration of the Option, the number of
Shares to which an Option pertains (unless otherwise provided by the
Committee, each Option may be exercised to purchase one Share), and
such other provisions as the Committee shall determine, including,
but not limited to whether the Option is intended to be an ISO or a
NQSO.
6.3 Exercise Price. Unless a greater Exercise Price is determined by the
Committee, the Exercise Price for each Option Awarded under this Plan
shall be equal to one hundred percent (100%) of the Fair Market Value
of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant (which duration may be
extended by the Committee); provided, however, that no Option shall
be exercisable later than the tenth (10th) anniversary date of its
grant.
6.5 Vesting of Options. Options shall vest at such times and under such
terms and conditions as determined by the Committee; provided,
however, unless a later vesting period is provided by the Committee
at or before the grant of an Option, one-third of the Options will
vest on each of the first three anniversaries of the grant; if one
Option remains after equally dividing the grant by three, it will
vest on the first anniversary of the grant, if two Options remain,
then one will vest on each of the first two anniversaries. The
Committee shall have the right to accelerate the vesting of any
Option; however, the Chairman of the Board or the Senior Vice
President-Human Resources, or their respective successors, or such
other persons designated by the Committee, shall have the authority
to accelerate the vesting of Options for any Participant who is not
an Insider.
6.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which
need not be the same for each grant or for each Participant.
Options shall be exercised by providing notice to the designated
agent selected by the Company (if no such agent has been designated,
then to the Company), in the manner and form determined by the
Company, which notice shall be irrevocable, setting forth the exact
number of Shares with respect to which the Option is being exercised
and including with such notice payment of the Exercise Price. When
Options have been transferred, the Company or its designated agent
may require appropriate documentation that the person or persons
exercising the Option, if other than the Participant, has the right
to exercise the Option. No Option may be exercised with respect to a
fraction of a Share.
6.7 Payment. The Exercise Price shall be paid in full at the time of
exercise. No Shares shall be issued or transferred until full payment
has been received therefor.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and
subject to such additional terms and conditions and/or
modifications as the Committee or the Company may impose from
time to time, and further subject to suspension or
termination of this provision by the Committee or Company at
any time, by:
(i) delivery of Shares of Stock owned by the Participant in
partial (if in partial payment, then together with cash)
or full payment; provided, however, as a condition to
paying any part of the Exercise Price in Stock, at the
time of exercise of the Option, the Participant must
establish to the satisfaction of the Company that the
Stock tendered to the Company must have been held by the
Participant for a minimum of six (6) months preceding
the tender; or
(ii) if the Company has designated a stockbroker to act as
the Company's agent to process Option exercises,
issuance of an exercise notice together with
instructions to such stockbroker irrevocably instructing
the stockbroker: (A) to immediately sell (which shall
include an exercise notice that becomes effective upon
execution of a limit order) a sufficient portion of the
Shares to pay the Exercise Price of the Options being
exercised and the required tax withholding, and (B) to
deliver on the settlement date the portion of the
proceeds of the sale equal to the Exercise Price and tax
withholding to the Company. In the event the stockbroker
sells any Shares on behalf of a Participant, the
stockbroker shall be acting solely as the agent of the
Participant, and the Company disclaims any
responsibility for the actions of the stockbroker in
making any such sales. No Stock shall be issued until
the settlement date and until the proceeds (equal to the
Option Price and tax withholding) are paid to the
Company.
If payment is made by the delivery of Shares of Stock, the value
of the Shares delivered shall be equal to the Fair Market Value of
the Shares on the day preceding the date of exercise of the Option.
Restricted Stock may not be used to pay the Option Price.
6.8 Termination of Employment.
Unless otherwise provided by the Committee, the following
limitations on exercise of Options shall apply upon termination of
Employment:
(a) Termination by Death or Disability. In the event the
Employment of a Participant shall terminate by reason of
death or Disability, all outstanding Options granted to that
Participant shall immediately vest as of the date of
termination of Employment and may be exercised, if at all, no
more than three (3) years from the date of the termination of
Employment, unless the Options, by their terms, expire
earlier. However, in the event the Participant was eligible
to Retire at the time of termination of Employment,
notwithstanding the foregoing, the Options may be exercised,
if at all, no more than five (5) years from the date of the
termination of Employment, unless the Options, by their
terms, expire earlier.
(b) Termination for Cause. If the Employment of a Participant
shall be terminated by the Company for Cause, all outstanding
Options held by the Participant shall immediately be
forfeited to the Company and no additional exercise period
shall be allowed, regardless of the vested status of the
Options.
(c) Retirement or Other Termination of Employment. If the
Employment of a Participant shall terminate for any reason
other than the reasons set forth in (a) or (b), above, all
outstanding Options which are vested as of the effective date
of termination of Employment may be exercised, if at all, no
more than five (5) years from the date of termination of
Employment if the Participant is eligible to Retire, or one
(1) year from the date of the termination of Employment if
the Participant is not eligible to Retire, as the case may
be, unless in either case the Options, by their terms, expire
earlier. In the event of the death of the Participant after
termination of Employment, this paragraph (c) shall still
apply and not paragraph (a), above.
(d) Options not Vested at Termination. Except as provided in
paragraph (a), above, all Options held by the Participant
which are not vested on or before the effective date of
termination of Employment shall immediately be forfeited to
the Company (and shall once again become available for grant
under the Plan).
(e) Notwithstanding the foregoing, the Committee may, in its sole
discretion, establish different terms and conditions
pertaining to the effect of termination of Employment, but no
such modification shall shorten the terms of Options issued
prior to such modification.
6.9 Employee Transfers. For purposes of the Plan, transfer of employment
of a Participant between the Company and any one of its Subsidiaries
(or between Subsidiaries) or between the Company or a Subsidiary and
a RWAC, to the extent the period of employment at a RWAC is equal to
or less than five (5) years, shall not be deemed a termination of
Employment. Provided, however, for purposes of this Article 6,
termination of employment with a RWAC without a concurrent transfer
to the Company or any of its Subsidiaries shall be deemed a
termination of Employment as that term is used herein. Similarly,
termination of an entity's status as a Subsidiary or as a RWAC shall
be deemed a termination of Employment of any Participants employed by
such Subsidiary or RWAC.
6.10 Restrictions on Exercise and Transfer of Options. Unless otherwise
provided by the Committee:
(a) During the Participant's lifetime, the Participant's Options
shall be exercisable only by the Participant or by the
Participant's guardian or legal representative. After the
death of the Participant, except as otherwise provided by
SBC's Rules for Employee Beneficiary Designations, an Option
shall only be exercised by the holder thereof (including, but
not limited to, an executor or administrator of a decedent's
estate) or his or her guardian or legal representative.
(b) No Option shall be transferable except: (i) in the case of
the Participant, only upon the Participant's death and in
accordance with the SBC Rules for Employee Beneficiary
Designations; and (ii) in the case of any holder after the
Participant's death, only by will or by the laws of descent
and distribution.
6.11 Competition. Notwithstanding anything in this Article 6 to the
contrary, prior to a Change in Control, in the event the Committee
determines, in its sole discretion, that a Participant is engaging in
competitive activity with the Company, any Subsidiary, or any
business in which any of the foregoing have a substantial interest
(the "SBC Businesses"), the Committee may cancel any Option granted
to such Participant, whether or not vested, in whole or in part. Such
cancellation shall be effective as of the date specified by the
Committee. Competitive activity shall mean any business or activity
in the same geographical market where a substantially similar
business activity is being carried on by an SBC Business, including,
but not limited to, representing or providing consulting services to
any person or entity that is engaged in competition with an SBC
Business or that takes a position adverse to an SBC Business.
However, competitive activity shall not include, among other things,
owning a nonsubstantial interest as a shareholder in a competing
business.
The determination of whether a Participant has engaged in
competitive activity with the Company shall be determined by the
Committee in good faith and in its sole discretion.
Article 7 Restricted Stock.
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant
Shares of Restricted Stock to eligible Employees in such amounts and
upon such terms and conditions as the Committee shall determine. In
addition to any other terms and conditions imposed by the Committee,
vesting of Restricted Stock may be conditioned upon the attainment of
Performance Goals based on Performance Criteria in the same manner as
provided in Section 8.4, herein, with respect to Performance Shares.
No Employee may receive, in any calendar year, in the form of
Restricted Stock more than one-third of 1% of the Shares approved for
issuance under this Plan.
7.2 Restricted Stock Agreement. The Committee may require, as a condition
to an Award, that a recipient of a Restricted Stock Award enter into
a Restricted Stock Award Agreement, setting forth the terms and
conditions of the Award. In lieu of a Restricted Stock Award
Agreement, the Committee may provide the terms and conditions of an
Award in a notice to the Participant of the Award, on the Stock
certificate representing the Restricted Stock, in the resolution
approving the Award, or in such other manner as it deems appropriate.
7.3 Transferability. Except as otherwise provided in this Article 7, the
Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Restriction Period
established by the Committee, which shall not be less than a period
of three years.
7.4 Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase
price for each Share of Restricted Stock and/or restrictions under
applicable Federal or state securities laws; and may legend the
certificates representing Restricted Stock to give appropriate notice
of such restrictions.
The Company shall also have the right to retain the certificates
representing Shares of Restricted Stock in the Company's possession
until such time as all conditions and/or restrictions applicable to
such Shares have been satisfied.
7.5 Removal of Restrictions. Except as otherwise provided in this Article
7, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the
Participant after the last day of the Restriction Period and
completion of all conditions to vesting, if any. However, unless
otherwise provided by the Committee, the Committee, in its sole
discretion, shall have the right to immediately waive all or part of
the restrictions and conditions with regard to all or part of the
Shares held by any Participant at any time.
7.6 Voting Rights, Dividends and Other Distributions. During the
Restriction Period, Participants holding Shares of Restricted Stock
granted hereunder may exercise full voting rights and shall receive
all regular cash dividends paid with respect to such Shares. Except
as provided in the following sentence, in the sole discretion of the
Committee, other cash dividends and other distributions paid to
Participants with respect to Shares of Restricted Stock may be
subject to the same restrictions and conditions as the Shares of
Restricted Stock with respect to which they were paid. If any such
dividends or distributions are paid in Shares, the Shares shall be
subject to the same restrictions and conditions as the Shares of
Restricted Stock with respect to which they were paid.
7.7 Termination of Employment Due to Death or Disability. In the event
the Employment of a Participant shall terminate by reason of death or
Disability, all Restriction Periods and all restrictions imposed on
outstanding Shares of Restricted Stock held by the Participant shall
immediately lapse and the Restricted Stock shall immediately become
fully vested as of the date of termination of Employment.
7.8 Termination of Employment for Other Reasons. If the Employment of a
Participant shall terminate for any reason other than those
specifically set forth in Section 7.7 herein, all Shares of
Restricted Stock held by the Participant which are not vested as of
the effective date of termination of Employment immediately shall be
forfeited and returned to the Company.
7.9 Employee Transfers. For purposes of the Plan, transfer of employment
of a Participant between the Company and any one of its Subsidiaries
(or between Subsidiaries) or between the Company or a Subsidiary and
a RWAC, to the extent the period of employment at a RWAC is equal to
or less than five (5) years, shall not be deemed a termination of
Employment. Provided, however, for purposes of this Article,
termination of employment with a RWAC without a concurrent transfer
to the Company or any of its Subsidiaries shall be deemed a
termination of Employment as that term is used herein. Similarly,
termination of an entity's status as a Subsidiary or as a RWAC shall
be deemed a termination of Employment of any Participants employed by
such Subsidiary or RWAC.
7.10 Other Grants. Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may make grants of cash
or other property to eligible Employees in such amounts and upon such
terms and conditions as the Committee shall determine. If the grant
is in the form of stock or shares in a company other than SBC: (a)
the award shall be subject to tax withholding in accordance with
Article 14, hereof, in the same manner as Stock, and (b) for purposes
of deferrals under Article 10, hereof, the award shall be treated as
Shares except that any dividends or dividend equivalents thereon
shall be paid out unless otherwise provided by the Committee, which
may, among other things, provide that the dividends or dividend
equivalents be deferred in the same manner as a cash award.
Article 8 Performance Units and Performance Shares.
8.1 Grants of Performance Units and Performance Shares. Subject to the
terms of the Plan, Performance Shares and Performance Units may be
granted to eligible Employees at any time and from time to time, as
determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Units and/or
Performance Shares Awarded to each Participant.
8.2 Value of Performance Shares and Units.
(a) A Performance Share is equivalent in value to a Share of
Stock. In any calendar year, no individual may be Awarded
Performance Shares having a potential payout of Shares of
Stock exceeding two-thirds of 1% of the Shares approved for
issuance under this Plan.
(b) A Performance Unit shall be equal in value to a fixed dollar
amount determined by the Committee. In any calendar year, no
individual may be Awarded Performance Units having a
potential payout equivalent exceeding the Fair Market Value
of two-thirds of 1% of the Shares approved for issuance under
this Plan. The number of Shares equivalent to the potential
payout of a Performance Unit shall be determined by dividing
the maximum cash payout of the Award by the Fair Market Value
per Share on the effective date of the grant. In the event
the Committee denominates a Performance Unit Award in dollars
instead of Performance Units, the Award may be referred to as
a Key Executive Officer Short Term Award. In all other
respects, the Key Executive Officer Short Term Award will be
treated in the same manner as Performance Units under this
Plan.
8.3 Performance Period. The Performance Period for Performance Shares and
Performance Units is the period over which the Performance Goals are
measured. The Performance Period is set by the Committee for each
Award; however, in no event shall an Award have a Performance Period
of less than one year.
8.4 Performance Goals. For each Award of Performance Shares or
Performance Units, the Committee shall establish performance
objectives ("Performance Goals") for the Company, its Subsidiaries,
and/or divisions of any of foregoing, based on the Performance
Criteria and other factors set forth in (a) through (d), below.
Performance Goals shall include payout tables, formulas or other
standards to be used in determining the extent to which the
Performance Goals are met, and, if met, the number of Performance
Shares and/or Performance Units which would be converted into Stock
and/or cash (or the rate of such conversion) and distributed to
Participants in accordance with Section 8.6. All Performance Shares
and Performance Units which may not be converted under the
Performance Goals or which are reduced by the Committee under Section
8.6 or which may not be converted for any other reason after the end
of the Performance Period shall be canceled at the time they would
otherwise be distributable. When the Committee desires an Award to
qualify under Section 162(m) of the Code, as amended, the Committee
shall establish the Performance Goals for the respective Performance
Shares and Performance Units prior to or within 90 days of the
beginning of the service relating to such Performance Goal, and not
later than after 25% of such period of service has elapsed. For all
other Awards, the Performance Goals must be established before the
end of the respective Performance Period.
(a) The Performance Criteria which the Committee is authorized to
use, in its sole discretion, are any of the following
criteria or any combination thereof:
(1) Financial performance of the Company (on a consolidated
basis), of one or more of its Subsidiaries, and/or a
division of any of the foregoing. Such financial
performance may be based on net income and/or Value Added
(after-tax cash operating profit less depreciation and
less a capital charge).
(2) Service performance of the Company (on a consolidated
basis), of one or more of its Subsidiaries, and/or of a
division of any of the foregoing. Such service
performance may be based upon measured customer
perceptions of service quality.
(3) The Company's Stock price; return on shareholders'
equity; total shareholder return (Stock price
appreciation plus dividends, assuming the reinvestment of
dividends); and/or earnings per share.
(4) With respect to the Company (on a consolidated basis), to
one or more of its Subsidiaries, and/or to a division of
any of the foregoing: sales; costs; market share of a
product or service; return on net assets; return on
assets; return on capital; profit margin; and/or
operating revenues, expenses or earnings.
(b) If the performance of more than one Subsidiary is being
measured to determine the attainment of performance goals,
then a weighted average of the Subsidiaries' results shall be
used, as determined by the Committee, including, but not
limited to, basing such weighting upon the revenues, assets
or net income for each Subsidiary for any year prior to the
Performance Period or by using budgets to weight such
Subsidiaries.
(c) Except to the extent otherwise provided by the Committee in
full or in part, if any of the following events occur during
a Performance Period and would directly affect the
determination of whether or the extent to which Performance
Goals are met, they shall be disregarded in any such
computation: changes in accounting principles; extraordinary
items; changes in tax laws affecting net income and/or Value
Added; natural disasters, including floods, hurricanes, and
earthquakes; and intentionally inflicted damage to property
which directly or indirectly damages the property of the
Company or its Subsidiaries. No such adjustment shall be made
to the extent such adjustment would cause the Performance
Shares or Performance Units to fail to satisfy the
performance based exemption of Section 162(m) of the Code.
8.5 Dividend Equivalents on Performance Shares. Unless reduced or
eliminated by the Committee, a cash payment in an amount equal to the
dividend payable on one Share will be made to each Participant for
each Performance Share which on the record date for the dividend had
been awarded to the Participant and not converted, distributed (or
deferred) or canceled.
8.6 Form and Timing of Payment of Performance Units and Performance
Shares. As soon as practicable after the applicable Performance
Period has ended and all other conditions (other than Committee
actions) to conversion and distribution of a Performance Share and/or
Performance Unit Award have been satisfied (or, if applicable, at
such other time determined by the Committee at or before the
establishment of the Performance Goals for such Performance Period),
the Committee shall determine whether and the extent to which the
Performance Goals were met for the applicable Performance Units and
Performance Shares. If Performance Goals have been met, then the
number of Performance Units and Performance Shares to be converted
into Stock and/or cash and distributed to the Participants shall be
determined in accordance with the Performance Goals for such Awards,
subject to any limits imposed by the Committee. Unless the
Participant has elected to defer all or part of his Performance Units
or Performance Shares as provided in Article 10, herein, payment of
Performance Units and Performance Shares shall be made in a single
lump sum, as soon as reasonably administratively possible following
the determination of the number of Shares or amount of cash to which
the Participant is entitled. Performance Units will be distributed to
Participants in the form of cash. Performance Shares will be
distributed to Participants in the form of 50% Stock and 50% Cash, or
at the Participant's election, 100% Stock or 100% Cash. In the event
the Participant is no longer an Employee at the time of the
distribution, then the distribution shall be 100% in cash, provided
the Participant may elect to take 50% or 100% in Stock. At any time
prior to the distribution of the Performance Shares and/or
Performance Units (or if distribution has been deferred, then prior
to the time the Awards would have been distributed), unless otherwise
provided by the Committee, the Committee shall have the authority to
reduce or eliminate the number of Performance Units or Performance
Shares to be converted and distributed or to mandate the form in
which the Award shall be paid (i.e., in cash, in Stock or both, in
any proportions determined by the Committee).
Unless otherwise provided by the Committee, any election to take a
greater amount of cash or Stock with respect to Performance Shares
must be made in the calendar year prior to the calendar year in which
the Performance Shares are distributed (or if distribution has been
deferred, then in the year prior to the year the Performance Shares
would have been distributed absent such deferral). In addition, if
required in order to exempt the transaction from the provisions of
Section 16(b) of the Exchange Act, any election by an Insider to take
a greater amount in cash must be made during a Window Period and
shall be subject to Committee approval.
For the purpose of converting Performance Shares into cash and
distributing the same to the holders thereof (or for determining the
amount of cash to be deferred), the value of a Performance Share
shall be the average of the Fair Market Values of Shares for the
period of five (5) trading days ending on the valuation date. The
valuation date shall be the first business day of the second month in
the year of distribution (or the year it would have been distributed
were it not deferred), except that in the case of distributions due
to death or Disability, the valuation date shall be the first
business day of the month in which the Committee determines the
distribution. Performance Shares to be distributed in the form of
Stock will be converted at the rate of one (1) Share of Stock per
Performance Share.
8.7 Termination of Employment Due to Death, Disability, or Retirement. If
the Employment of a Participant shall terminate by reason of death or
Disability, the Participant shall receive a lump sum payout of all
outstanding Performance Units and Performance Shares calculated as if
all unfinished Performance Periods had ended with 100% of the
Performance Goals achieved, payable in the year following the date of
termination of Employment. In the event of Retirement, the full
Performance Units and Performance Shares shall be converted and
distributed based on and subject to the achievement of the
Performance Goals and in accordance with all other terms of the Award
and this Plan.
8.8 Termination of Employment for Other Reasons. If the Employment of a
Participant shall terminate for other than a reason set forth in
Section 8.7 (and other than for Cause), the number of Performance
Units and Performance Shares to be converted and distributed shall be
converted and distributed based upon the achievement of the
Performance Goals and in accordance with all other terms of the Award
and the Plan; however, the Participant may receive no more than a
prorated payout of all Performance Units and Performance Shares,
based on the portions of the respective Performance Periods that have
been completed.
8.9 Termination of Employment for Cause. In the event that a
Participant's Employment shall be terminated by the Company for
Cause, all Performance Units and Performance Shares shall be
forfeited by the Participant to the Company.
8.10 Nontransferability. Performance Units and Performance Shares may not
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than in accordance with the SBC Rules for
Employee Beneficiary Designations.
Article 9 Beneficiary Designation.
In the event of the death of a Participant, distributions or
Awards under this Plan, other than Restricted Stock, shall pass in
accordance with the SBC Rules for Employee Beneficiary Designations.
Article 10 Deferrals.
10.1 Deferrals. Unless otherwise provided by the Committee, a Participant
may defer all or part of the Stock or cash to be received upon
conversion and distribution of Performance Units or Performance
Shares. In the event of the termination of Employment of a
Participant prior to becoming eligible for Retirement, no deferrals
under this Article shall be permitted and any previously deferred
Performance Shares or Performance Units, and earnings thereon, shall
be distributed as soon as administratively possible.
10.2 Deferral of Performance Unit and Performance Share Distributions.
Prior to the calendar year in which Performance Units or Performance
Shares are to be distributed (or if deferred, prior to the calendar
year the Awards would have been distributed), Participants may elect
to defer the receipt of a Performance Unit or Performance Share
distribution upon such terms as the Committee deems appropriate.
Unless otherwise provided by the Committee, Participants may elect to
defer receipt of all or part of a Performance Unit or Performance
Share for distribution in a lump sum in February of any calendar year
following the year in which the Awards would otherwise be
distributed, or to be distributed in up to 15 annual installments
(each installment shall be equal to the total Shares or cash in the
Award divided by the number of remaining installments), payable each
calendar year in the month determined by the Participant, beginning
as soon as administratively possible after Retirement or in a later
month in the calendar year of Retirement, or in the calendar year
immediately thereafter.
(a) Deferred amounts which would otherwise have been distributed
in cash shall be credited to the Participant's account and
shall bear interest from the date the Awards would otherwise
have been paid. The interest will be credited quarterly to
the account at the declared rate determined by the Company
from time to time, which shall not be less than one-fourth of
the annual Moody's Corporate Bond Yield Average-Monthly
Average Corporates, as published by Moody's Investor Service,
Inc., (or successor thereto) for the month of September
before the calendar year in question.
(b) Deferred amounts which would otherwise have been distributed
in Shares by the Company shall be credited to the
Participant's account as deferred Shares. The Participant's
account shall also be credited on each dividend payment date
for Shares with an amount equivalent to the dividend payable
on the number of Shares equal to the number of deferred
Shares in the Participant's account on the record date for
such dividend. Such amount shall then be converted to a
number of additional deferred Shares determined by dividing
such amount by the price of Shares, as determined in the
following sentence. The price of Shares related to any
dividend payment date shall be the average of the Fair Market
Values of Shares for the period of five (5) trading days
ending on such dividend payment date, or the period of five
(5) trading days immediately preceding such dividend payment
date if the New York Stock Exchange is closed on the dividend
payment date.
(c) At any time during the calendar year prior to the calendar
year during which an Award deferred under the provisions of
this Article 10 is scheduled for distribution, a Participant
may further defer the commencement of the distribution of
such Award to a subsequent calendar year and upon such
further deferral, change the number of installments
applicable to the distribution of the Award. Amounts that are
further deferred pursuant to this Article 10 shall continue
to be subject to all provisions of this Plan including
further distribution modifications as provided herein.
Article 11. Employee Matters.
11.1 Employment Not Guaranteed. Nothing in the Plan shall interfere with
or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's Employment at any time, nor confer upon
any Participant any right to continue in the employ of the Company or
one of its Subsidiaries.
11.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
11.3 Claims and Appeals. Any claim under the Plan by a Participant or
anyone claiming through a Participant shall be presented to the
Committee. Any person whose claim under the Plan has been denied may,
within sixty (60) days after receipt of notice of denial, submit to
the Committee, a written request for review of the decision denying
the claim. The Committee shall determine conclusively for all parties
all questions arising in the administration of the Plan.
Article 12 Change in Control.
Upon the occurrence of a Change in Control:
(a) Any and all Options granted hereunder immediately shall
become vested and exercisable;
(b) Any Restriction Periods and all restrictions imposed on
Restricted Shares shall lapse and they shall immediately
become fully vested;
(c) The 100% Performance Goal for all Performance Units and
Performance Shares relating to incomplete Performance Periods
shall be deemed to have been fully achieved and shall be
converted and distributed in accordance with all other terms
of the Award and this Plan; provided, however,
notwithstanding anything to the contrary in this Plan, no
outstanding Performance Unit or Performance Share may be
reduced.
Article 13. Amendment, Modification, and Termination.
13.1 Amendment, Modification, and Termination. The Board may at any time
suspend or terminate the Plan in whole or in part; the Disinterested
Committee may at any time and from time to time, alter or amend the
Plan in whole or in part.
13.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
Article 14 Withholding.
14.1 Tax Withholding. The Company shall deduct or withhold an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's employment tax obligations) required by law to be
withheld with respect to any taxable event arising or as a result of
this Plan ("Withholding Taxes").
14.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted
Stock, upon the distribution of Performance Shares in the form of
Stock, or upon any other taxable event hereunder involving the
transfer of Stock to a Participant, the Company shall withhold Stock
having a Fair Market Value on the date the tax is to be determined in
an amount equal to the Withholding Taxes on such Stock.
Any fractional Share of Stock payable to a Participant shall be
withheld as additional Federal withholding, or, at the option of the
Company, paid in cash to the Participant.
Unless otherwise determined by the Committee, when the method of
payment for the Exercise Price is from the sale by a stockbroker
pursuant to Section 6.7(b)(ii), herein, of the Stock acquired through
the Option exercise, then the tax withholding shall be satisfied out
of the proceeds. For administrative purposes in determining the
amount of taxes due, the sale price of such Stock shall be deemed to
be the Fair Market Value of the Stock.
Prior to the end of any Performance Period a Participant may elect
to have a greater amount of Stock withheld from the distribution of
Performance Shares to pay withholding taxes; provided, however, the
Committee may prohibit or limit any individual election or all such
elections at any time. In addition, if required in order to exempt
the transaction from the provisions of Section 16(b) of the Exchange
Act, any such election by an Insider must be made during a Window
Period and shall be subject to Committee approval.
Article 15 Successors.
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation, or otherwise, of
all or substantially all of the business and/or assets of the
Company.
Article 16 Legal Construction.
16.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the
plural.
16.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not
been included.
16.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required.
16.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions
or Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the plan or action by the Committee fails to comply
with a condition of Rule 16b-3 or its successors, it shall not apply
to the Insiders or transactions thereby.
16.5 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Texas.
<TABLE>
<CAPTION>
EXHIBIT 12
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Items and Cumulative
Effect of Accounting Changes* $ 10,382 $ 11,859 $ 6,356 $ 8,789 $ 8,139
Add: Interest Expense 1,430 1,605 1,550 1,418 1,513
Dividends on Preferred Securities 118 114 98 68 6
1/3 Rental Expense 236 228 202 188 152
------------ ----------- ----------- ----------- -----------
Adjusted Earnings $ 12,166 $ 13,806 $ 8,206 $ 10,463 $ 9,810
============ =========== =========== =========== ===========
Total Interest Charges $ 1,511 $ 1,691 $ 1,700 $ 1,589 $ 1,533
Dividends on Preferred Securities 118 114 98 68 6
1/3 Rental Expense 236 228 202 188 152
------------ ----------- ----------- ----------- -----------
Adjusted Fixed Charges $ 1,865 $ 2,033 $ 2,000 $ 1,845 $ 1,691
============ =========== =========== =========== ===========
Ratio of Earnings to Fixed Charges 6.52 6.79 4.10 5.67 5.80
<FN>
* Undistributed earnings on investments accounted for under the equity method have been excluded.
</FN>
</TABLE>
<TABLE>
Selected Financial and Operating Data
Dollars in millions except per share amounts
- --------------------------------------------------------------------------------------------------
At December 31 or for the year ended: 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Data 1
Operating revenues $ 49,489 $ 46,207 $ 43,106 $ 40,510 $ 37,134
- --------------------------------------------------------------------------------------------------
Operating expenses $ 37,891 $ 34,984 $ 35,504 $ 30,461 $ 27,976
- --------------------------------------------------------------------------------------------------
Operating income $ 11,598 $ 11,223 $ 7,602 $ 10,049 $ 9,158
- --------------------------------------------------------------------------------------------------
Interest expense $ 1,430 $ 1,605 $ 1,550 $ 1,418 $ 1,513
- --------------------------------------------------------------------------------------------------
Equity in net income of affiliates $ 912 $ 613 $ 437 $ 470 $ 216
- --------------------------------------------------------------------------------------------------
Income taxes $ 4,280 $ 4,380 $ 2,451 $ 3,368 $ 2,858
- --------------------------------------------------------------------------------------------------
Income before extraordinary items and
cumulative effect of accounting change $ 6,573 $ 7,735 $ 4,087 $ 5,705 $ 5,362
- --------------------------------------------------------------------------------------------------
Net income (loss) 2 $ 8,159 $ 7,690 $ 4,087 $ 5,795 $ (1,347)
- --------------------------------------------------------------------------------------------------
Earnings per common share:
Income before extraordinary items and
cumulative effect of accounting change $ 1.93 $ 2.27 $ 1.21 $ 1.67 $ 1.57
- --------------------------------------------------------------------------------------------------
Net income (loss) 2 $ 2.39 $ 2.26 $ 1.21 $ 1.70 $ (0.39)
- --------------------------------------------------------------------------------------------------
Earnings per common share-assuming dilution:
Income before extraordinary items and
cumulative effect of accounting change $ 1.90 $ 2.24 $ 1.20 $ 1.66 $ 1.56
- --------------------------------------------------------------------------------------------------
Net income (loss) 2 $ 2.36 $ 2.23 $ 1.20 $ 1.69 $ (0.39)
- --------------------------------------------------------------------------------------------------
Total assets $ 83,215 $ 74,966 $ 69,917 $ 65,765 $ 62,197
- --------------------------------------------------------------------------------------------------
Long-term debt $ 17,475 $ 17,170 $ 17,787 $ 16,536 $ 16,105
- --------------------------------------------------------------------------------------------------
Construction and capital expenditures $ 10,304 $ 8,882 $ 8,856 $ 8,304 $ 6,891
- --------------------------------------------------------------------------------------------------
Free cash flow 3 $ 6,274 $ 4,099 $ 2,723 $ 2,964 $ 3,946
- --------------------------------------------------------------------------------------------------
Dividends declared per common share 4 $ 0.975 $ 0.935 $ 0.895 $ 0.860 $ 0.825
- --------------------------------------------------------------------------------------------------
Book value per common share $ 7.87 $ 6.69 $ 5.26 $ 4.94 $ 4.26
- --------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 6.52 6.79 4.10 5.67 5.80
- --------------------------------------------------------------------------------------------------
Debt ratio 42.9% 47.3% 54.9% 55.6% 59.8%
- --------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding (000,000) 3,409 3,406 3,391 3,409 3,412
- --------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding with dilution (000,000) 3,458 3,450 3,420 3,429 3,430
- --------------------------------------------------------------------------------------------------
End of period common shares
outstanding (000,000) 3,395 3,406 3,398 3,389 3,418
- --------------------------------------------------------------------------------------------------
Operating Data
- --------------------------------------------------------------------------------------------------
Network access lines in service (000) 60,682 58,845 56,616 53,891 51,532
- --------------------------------------------------------------------------------------------------
Access minutes of use (000,000) 264,010 247,597 228,300 208,230 184,384
- --------------------------------------------------------------------------------------------------
Wireless customers (000) 5 11,151 8,686 7,556 6,018 4,814
- --------------------------------------------------------------------------------------------------
Number of employees 204,530 200,380 202,440 185,400 182,610
- --------------------------------------------------------------------------------------------------
</TABLE>
[FN]
1 Certain one-time adjustments are included in the results for each year
presented. See Results of Operations for a summary of the 1999, 1998 and 1997
one-time adjustments and the impact of these items on income before
extraordinary items and cumulative effect of accounting change and net
income. In 1996, results include the incremental operating impacts
attributable to the operations of the overlapping Ameritech Corporation
(Ameritech) wireless properties sold in 1999. Excluding these items, SBC
Communications Inc. (SBC) reported an adjusted income before cumulative
effect of accounting changes of $5,643, or $1.65 diluted earnings per share,
and an adjusted net income of $5,733, or $1.67 diluted earnings per share.
The 1995 results include (i) work force restructuring credit, (ii) gain on
exchange of cellular interests and (iii) incremental operating impacts
attributable to the operations of the overlapping Ameritech wireless
properties sold in 1999. Excluding these items, SBC reported an adjusted
income before extraordinary loss of $5,216, or $1.52 diluted earnings per
share, and an adjusted net loss of $1,493, or $0.43 diluted loss per share.
2 Amounts include the following extraordinary items and cumulative effect of
accounting change: 1999, gain on sale of overlapping cellular properties and
change in directory accounting at Ameritech; 1998, early retirement of debt
and change in directory accounting at Southern New England Telecommunications
Corporation (SNET); 1996, change in directory accounting at Pacific Telesis
Group (PAC); and 1995, discontinuance of regulatory accounting.
3 Free cash flow is net cash provided by operating activities less construction
and capital expenditures.
4 Dividends declared by SBC's Board of Directors; these amounts do not include
dividends declared and paid by Ameritech, SNET and PAC prior to their
respective mergers.
5 All periods exclude customers from the overlapping Ameritech wireless
properties sold in 1999.
</FN>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations Dollars in millions except per share amounts
SBC Communications Inc. (SBC) is a holding company whose subsidiaries and
affiliates operate in the communications services industry. SBC's subsidiaries
and affiliates provide wireline and wireless telecommunications services and
equipment, directory advertising, electronic security services and cable
television services both domestically and worldwide.
The consolidated financial results reflect mergers of SBC subsidiaries with
Ameritech Corporation (Ameritech) in 1999, Southern New England
Telecommunications Corporation (SNET) in 1998 and Pacific Telesis Group (PAC) in
1997 as pooling of interests (see Note 2 of Notes to Consolidated Financial
Statements).
This discussion should be read in conjunction with the consolidated financial
statements and the accompanying notes.
Results of Operations
Summary
Financial results, including percentage changes from the prior year, are
summarized as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
-------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 49,489 $ 46,207 $ 43,106 7.1% 7.2%
Operating expenses 37,891 34,984 35,504 8.3 (1.5)
Income before extraordinary items and
cumulative effect of accounting change 6,573 7,735 4,087 (15.0) 89.3
Extraordinary items 1,379 (60) - - -
Cumulative effect of accounting change 207 15 - - -
Net income 8,159 7,690 4,087 6.1 88.2
=================================================================================================
</TABLE>
In 1999 and 1998, SBC reflected a cumulative effect of accounting change related
to accounting for directory revenues and expenses (see Note 1 of Notes to
Consolidated Financial Statements). In 1999, SBC recognized an extraordinary
gain from the sale of overlapping cellular properties sold in October (see Note
15 of Notes to Consolidated Financial Statements). In 1998, SBC incurred an
extraordinary loss related to the early retirement of debt.
Reported results for 1999, 1998 and 1997 also include one-time items that SBC
normalizes for management purposes. Normalized results in 1999 include the
following adjustments:
o After-tax charges totaling $1.5 billion including, among other items,
recognition of impairment of long-lived assets, adjustments to the estimate
of allowance for doubtful accounts at Ameritech, estimation of deferred
taxes on international investments, wireless conversion costs and other
merger integration costs as discussed in Note 2 of Notes to Consolidated
Financial Statements.
o Elimination of income of $119 from the incremental impacts of overlapping
wireless properties sold in October 1999.
o After-tax pension settlement gains of $368 recorded in the fourth quarter
associated with lump sum pension payments that exceeded the projected
service and interest costs.
o After-tax gains of $77 recognized from the sale of property by an
international equity affiliate.
o Reduction of a portion of a first quarter 1998 after-tax charge of $27 to
cover the cost of consolidating security monitoring centers and
company-owned cellular retail stores.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued
Dollars in millions except per share amounts
Normalized results in 1998 include the following adjustments:
o After-tax gain of $1,012 from the sale of Telecom Corporation of New Zealand
Limited (TCNZ) shares.
o After-tax charges related to strategic initiatives totaling $268 resulting
from the merger integration process with SNET.
o After-tax gains of $219 from the sale of certain non-core businesses,
principally the required disposition of SBC's investment in Mobile Telephone
Networks (MTN), a cellular company in South Africa.
o Elimination of income of $123 from the incremental impacts of overlapping
wireless properties sold in October 1999.
o After-tax charge of $64 to cover the cost of consolidating security
monitoring centers and company-owned wireless retail stores.
o After-tax gain of $102 from the sale of certain telephone and directory
assets.
Normalized results in 1997 include the following adjustments:
o After-tax charges of $1.6 billion related to strategic initiatives resulting
from the merger integration process with PAC.
o After-tax charge of $87 for SBC's share of the costs of a work force
restructuring at Belgacom SA (Belgacom).
o After-tax charges of $304 for ongoing merger integration costs (see Note 2
of Notes to Consolidated Financial Statements).
o After-tax first quarter settlement gains of $90 at PAC associated with lump
sum pension payments that exceeded the projected service and interest costs
for 1996 retirements.
o After-tax gain of $58 from the sale of SBC's interests in Bell
Communications Research, Inc. (Bellcore).
o Elimination of income of $88 from the incremental impacts of overlapping
wireless properties sold in October 1999.
Excluding these items, 1999 income before extraordinary gain and cumulative
effect of accounting change would have been $7,439, or 12.5% higher than 1998
earnings of $6,611. The corresponding diluted per share amounts would be $2.15
in 1999, or 12.0% higher than $1.92 in 1998. In 1998, income before
extraordinary loss and cumulative effect of accounting change would have been
13.3% higher than 1997 earnings of $5,836. The corresponding diluted per share
amounts would have been 12.3% higher than $1.71 in 1997.
Excluding these items, the 1999 and 1998 increases in income before
extraordinary items and cumulative effect of accounting change were due
primarily to broad-based growth in demand across SBC's operations. Results for
1999 include operations related to the third quarter acquisitions of Comcast
Cellular Corporation (Comcast) and Cellular Communications of Puerto Rico, Inc.
(Cellular Communications). In addition, SBC's international investments
experienced growth due to the acquisitions of Bell Canada in June 1999 and Tele
Danmark A/S (Tele Danmark) in January 1998, as well as growth in 1999 and 1998
from SBC's investment in Telefonos de Mexico, S.A. de C.V. (Telmex).
Segment Results
As a result of the Ameritech merger and to better reflect the broadened scope of
its operations, SBC adjusted its segment reporting structure in 1999. SBC now
has four reportable segments that reflect the current management of its
business: wireline, wireless, information and entertainment, and 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 expands on what was previously the directory segment, and
includes all directory operations from advertising, yellow pages, white pages
and electronic publishing and Ameritech's electronic security and cable
television operations. All international investment operations have been removed
from the other segment and are shown separately in the international segment.
The miscellaneous items that formerly were included in the other segment are
immaterial and have been reclassified to corporate, adjustments and eliminations
(see Note 7 of Notes to Consolidated Financial Statements).
The normalized segment results include the 1999 effects of conforming accounting
methodologies between SBC and Ameritech. Among other items, non-cash adjustments
were made to conform accounting for pension and postretirement benefits between
the companies and to immediately expense certain items routinely deferred and
amortized by Ameritech, including sales commissions and leased customer security
and paging equipment. The pension and postretirement adjustments include the
effects of conforming the adoption date for postretirement accounting, methods
of recognizing actuarial gains and synchronization of estimates related to the
current year's benefit plans. The conforming accounting changes for 1999 and
prior were recorded as a cumulative effect of accounting change at the segments.
This cumulative effect of accounting change was retroactively restated to the
appropriate year in SBC's consolidated results. Segment results for periods
after 1999 also will include these conforming entries and be comparable to 1999
results.
Normalized income before income taxes, extraordinary items and cumulative effect
of accounting change for each segment for 1999, 1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
---------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 8,052 $ 7,318 $ 6,558 10.0% 11.6%
Wireless 918 564 372 62.8 51.6
Information and entertainment 1,641 1,590 1,350 3.2 17.8
International 706 453 512 55.8 (11.5)
Corporate, adjustments & eliminations 364 435 375 - -
- ----------------------------------------------------------------------------
Normalized Income Before Income Taxes,
Extraordinary Items and Cumulative
Effect of Accounting Change $ 11,681 $ 10,360 $ 9,167 12.8% 13.0%
=================================================================================================
</TABLE>
Changes in income before income taxes in the wireline, wireless and information
and entertainment segments primarily reflect increases in operating income
discussed below. Changes in income before income taxes for the international
segment result primarily from the changes in equity in net income of affiliates
and other income (expense) - net discussed below; changes in this line also
impacted the wireline segment.
The normalizing items impacting the wireline segment include the 1999 one-time
adjustments to the estimate of allowance for doubtful accounts, strategic
initiatives resulting from the merger integration process and other items offset
by 1999 pension settlement gains. One-time adjustments in 1998 include charges
for merger integration costs related to the SNET merger, gain from the sale of
certain telephone and directory assets and the first quarter consolidation of
certain Ameritech operations. The 1997 one-time adjustments include costs for
strategic initiatives related to the merger integration process with PAC,
pension settlement gains and gains from the sale of SBC's interests in Bellcore.
The wireless segment's normalizing items include 1999 adjustments to convert
Ameritech's wireless customers to SBC's network platform and merger integration
costs offset by recognition of pension settlement gains, the 1999, 1998 and 1997
incremental impacts of the overlapping cellular properties, the 1998 charge to
cover the costs of consolidating company-owned cellular retail stores and the
1999 reduction of this charge. In addition, one-time items affecting the
wireless segment in 1997 include PAC merger integration costs. The information
and entertainment segment includes one-time charges in 1999, including
recognition of impairment of long-lived assets, adjustments to the estimate of
allowance for doubtful accounts and other merger integration costs offset by the
recognition of pension settlement gains, the 1998 charge to cover the costs of
consolidating security monitoring centers and the 1999 reduction of this charge.
In addition, 1997 one-time items included PAC merger integration costs.
The international segment's normalizing items include the 1999 gains related to
sales by an international equity affiliate, 1998 gains on sales of certain
non-core businesses, principally the required disposition of SBC's MTN
investment, and the sale of TCNZ shares. Also, 1997 included a one-time item for
SBC's share of the costs of a work force restructuring at Belgacom.
The following table provides a summary by segment of the net increase (decrease)
of the normalizing items on income before income taxes, extraordinary items and
cumulative effect of accounting change for 1999, 1998 and 1997:
- ----------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------
Wireline $ 73 $ 178 $ 1,966
Wireless 6 (99) (60)
Information and entertainment 523 (23) 75
International 129 (1,811) 86
Corporate, adjustments & eliminations 97 - 562
- ----------------------------------------------------------------------------
Total Normalizing Impacts $ 828 $ (1,755) $ 2,629
============================================================================
Operating Income Components of normalized operating income by segment for 1999,
1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
---------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 9,125 $ 8,588 $ 7,702 6.3% 11.5%
Wireless 1,280 931 647 37.5 43.9
Information and entertainment 1,684 1,624 1,384 3.7 17.3
International (8) (78) (43) (89.7) 81.4
Corporate, adjustments & eliminations 442 422 458 - -
- ----------------------------------------------------------------------------
Total Normalized Operating Income $ 12,523 $ 11,487 $ 10,148 9.0% 13.2%
=================================================================================================
</TABLE>
Components of segment operating revenues and expenses and discussion of the
segment results for 1999, 1998 and 1997 follow.
Operating Revenues SBC's normalized operating revenues increased $3,637, or
8.0%, in 1999 and $2,890, or 6.8%, in 1998. Components of operating revenues by
segment for 1999, 1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
---------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 37,576 $ 35,419 $ 33,656 6.1% 5.2%
Wireless 6,764 5,629 5,023 20.2 12.1
Information and entertainment 4,777 4,345 3,819 9.9 13.8
International 147 149 122 (1.3) 22.1
Corporate, adjustments & eliminations (304) (219) (187) - -
- ----------------------------------------------------------------------------
Total Normalized Operating Revenues $ 48,960 $ 45,323 $ 42,433 8.0% 6.8%
=================================================================================================
</TABLE>
Wireline
Wireline normalized operating revenues increased $2,157, or 6.1%, in 1999 and
$1,763, or 5.2%, in 1998. Components of wireline operating revenues for 1999,
1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
---------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Local service $ 19,126 $ 17,239 $ 15,864 10.9% 8.7%
Network access:
Interstate 7,544 6,960 6,939 8.4 0.3
Intrastate 2,645 2,717 2,762 (2.6) (1.6)
Long distance service 3,471 3,679 3,616 (5.7) 1.7
Other 4,790 4,824 4,475 (0.7) 7.8
- ----------------------------------------------------------------------------
Total Wireline Revenues $ 37,576 $ 35,419 $ 33,656 6.1% 5.2%
=================================================================================================
</TABLE>
Local service revenues increased $1,887, or 10.9%, in 1999 and $1,375, or
8.7%, in 1998 due primarily to increases in demand, which totaled
approximately $1,245 in 1999 and $1,270 in 1998, including increases in
access lines, vertical services and data-related services revenues. In
addition, revenues from two network integration companies acquired by SBC
in the fourth quarter of 1998 and the second quarter of 1999 contributed
approximately $578 to the increase in 1999 and $25 in 1998. The number of
access lines increased by 3.1% in 1999 and by 3.9% in 1998. Approximately
39% of access line growth in 1999 and 35% in 1998 was due to sales of
additional access lines to existing residential customers. In 1999 and
1998, approximately 33% and 31% of the access line growth was in
California, 19% and 23% was in Texas and 9% and 12% was in Illinois.
Access lines in California, Texas and Illinois account for approximately
60% of SBC's access lines in both 1999 and 1998. Vertical services
revenues, which include custom calling services, such as Caller ID, Call
Waiting, voice mail and other enhanced services, increased by
approximately 14% and totaled more than $3.3 billion in 1999 and increased
by approximately 20% and totaled more than $2.9 billion in 1998.
Local service revenues also increased as a result of regulatory actions
that decreased one or more other types of operating revenues. In 1999, the
introduction of extended area service plans, the introduction of the
California High Cost Fund (CHCF) and the September 1999 Texas Universal
Service Fund (TUSF) rate rebalancing collectively increased local service
revenues by approximately $185 and decreased long distance revenues by
approximately $112 and intrastate network access revenues by approximately
$87, with a net decrease on wireline operating revenues of approximately
$14. In 1998, the introduction of extended area service plans and the CHCF
increased local service revenues by approximately $73 and decreased long
distance revenues by approximately $43 and intrastate network access
revenues by approximately $24, with a net increase on wireline operating
revenues of approximately $6. The state public utility commissions (PUCs)
have stated that the CHCF and the TUSF are intended to directly subsidize
the provision of service to high-cost areas and allow Pacific Bell
Telephone Company (PacBell) and Southwestern Bell Telephone Company
(SWBell) to set competitive rates for other services. The increases in
local service revenues were partially offset by decreases due to rate
reductions under various PUC price cap orders of approximately $194 in
1999 and $53 in 1998.
Network access Interstate network access revenues increased $584, or 8.4%,
in 1999 and $21, or 0.3%, in 1998. Included in the results is a decrease
of approximately $66 due to a conforming item related to costs routinely
deferred by Ameritech (see discussion under Segment Results above for
further information on the effect of these conforming items). Excluding
this conforming item, interstate network access revenues increased $650,
or 9.3%, in 1999 and $21, or 0.3%, in 1998 due largely to increases in
special access, demand for access services by interexchange carriers and
growth in revenues from end-user charges attributable to an increasing
access line base, which collectively resulted in an increase of
approximately $795 in 1999 and $521 in 1998. In addition, customer number
portability cost recovery, net of a Federal Communications Commission
(FCC) retroactive rate decrease in the second quarter of 1999, contributed
approximately $183 in 1999. Partially offsetting these increases were the
effects of rate reductions of approximately $296 in 1999 and $336 in 1998
related to the FCC's productivity factor adjustment and access reform.
Additional decreases in 1998 totaling approximately $114 resulted from an
increase in universal service fund net payments implemented in the first
quarter of 1998 that exceeded the 1997 net payments of long-term support.
The net federal universal fund payments and receipts will be exogenous
factors in future federal price cap filings.
Intrastate network access revenues decreased $72, or 2.6%, in 1999 and
$45, or 1.6%, in 1998. These decreases were due largely to state
regulatory rate reductions, including reduction of cellular
interconnection rates and the intrastate rate reduction by the Texas
legislature as discussed under Regulatory Environment, of approximately
$144 in 1999 and $105 in 1998 and the effects of the TUSF and CHCF
described in local service above totaling approximately $87 in 1999 and
$24 in 1998. These decreases were partially offset by increases in demand,
including usage by alternative intraLATA, toll carriers of approximately
$200 in 1999 and $179 in 1998.
Long distance service revenues decreased $208, or 5.7%, in 1999 and
increased $63, or 1.7%, in 1998. Long distance service revenues decreased
in 1999 and 1998 by approximately $202 and $36 due to price competition
from alternative intraLATA toll carriers and the effects of implementing
dialing parity. Decreases also resulted from the effects of regulatory
shifts of approximately $112 in 1999 and approximately $43 in 1998
discussed in local service above related to the TUSF, CHCF and
introduction of extended area service plans and rate reductions in Kansas
and California of approximately $24 in 1999. These decreases were
partially offset by approximately $128 in 1999 and $133 in 1998 due to
increased demand at Ameritech's long distance unit, certified to provide
long distance service outside SBC's region, increased demand and toll
messages for SNET All Distance and increased demand at PacBell in 1998.
Other operating revenues decreased $34, or 0.7%, in 1999 and increased
$349, or 7.8%, in 1998. Other operating revenues increased due to sales
from nonregulated products and services, including customer premise
equipment and network integration sales totaling approximately $91 in 1999
and $263 in 1998 and revenues from other wireline business initiatives,
primarily Internet services totaling approximately $59 in 1999 and $83 in
1998. These increases were offset in 1999 and partially offset in 1998 by
a decline in the public telephone business totaling approximately $133 in
1999 and $36 in 1998. In addition, 1999 results include a decrease for the
shift of certain directory revenues to the information and entertainment
segment in the first quarter of 1999 totaling approximately $30.
Wireless
Wireless normalized operating revenues increased $1,135, or 20.2%, in 1999 and
$606, or 12.1%, in 1998. Components of wireless operating revenues for 1999,
1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
----------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Subscriber $ 5,307 $ 4,538 $ 4,121 16.9% 10.1%
Other 1,457 1,091 902 33.5 21.0
- ---------------------------------------------------------------------------
Total Wireless Revenues $ 6,764 $ 5,629 $ 5,023 20.2% 12.1%
=================================================================================================
</TABLE>
Subscriber revenues consist of local service, incollect roaming (revenues
from SBC wireless customers roaming outside their home area) and wireless
long distance. Wireless subscriber revenues increased $769, or 16.9%, in
1999 and $417, or 10.1%, in 1998 due primarily to growth in the number of
customers of 28.4% in 1999 and 15.0% in 1998. The growth in customers
includes approximately 1,237,000 customers of Comcast and Cellular
Communications acquired in 1999. California Personal Communications
Services (PCS) operations also contributed to the customer growth. These
increases were partially offset by declines in average revenue per
customer. SBC had domestic wireless customers totaling 11,151,000 and
8,686,000 at December 31, 1999 and 1998.
Other wireless revenues relate primarily to outcollect roaming (revenues
from non-SBC wireless customers roaming on SBC's wireless network) and
equipment sales and increased $366, or 33.5%, in 1999 and $189, or 21.0%,
in 1998. The increases were primarily attributable to growth in outcollect
roaming revenues, as well as equipment sales in the California PCS
operations.
Information and Entertainment
Information and entertainment normalized operating revenues increased $432, or
9.9%, in 1999 and $526, or 13.8%, in 1998. Information and entertainment
operating revenues for 1999, 1998 and 1997 are as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------
Percent Change
----------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Information and
Entertainment Revenues $ 4,777 $ 4,345 $ 3,819 9.9% 13.8%
=================================================================================================
</TABLE>
Information and entertainment operating revenues increased in 1999 and 1998
primarily from increased demand for directory advertising services. The 1999
increase also includes approximately $107 related to the change in directory
accounting at Ameritech and approximately $57 for changes in the directory
publishing schedule. In addition, 1999 directory revenues increased due to the
shift of certain directory revenues from the wireline segment totaling
approximately $30. Cable revenues increased approximately $51 in 1999 due
primarily to customer growth. Growth in the number of customers, including
through acquisitions, increased security revenues approximately $179 in 1998. In
addition, 1998 directory revenues increased approximately $150 due to revision
of a partnership agreement covering the publication of directories.
Operating Expenses SBC's normalized operating expenses, which include operations
and support and depreciation and amortization expenses, increased $2,601, or
7.7%, in 1999 and $1,551, or 4.8%, in 1998. Components of operating expenses by
segment for 1999, 1998 and 1997 are as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------
Percent Change
------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 28,451 $ 26,831 $ 25,954 6.0% 3.4%
Wireless 5,484 4,698 4,376 16.7 7.4
Information and entertainment 3,093 2,721 2,435 13.7 11.7
International 155 227 165 (31.7) 37.6
Corporate, adjustments & eliminations (746) (641) (645) - -
- ----------------------------------------------------------------------------------
Total Normalized Operating Expenses $ 36,437 $ 33,836 $ 32,285 7.7% 4.8%
====================================================================================================
</TABLE>
Operations and support SBC's normalized operations and support expenses
increased $1,979, or 7.5%, in 1999 and $1,112, or 4.4%, in 1998. Components of
operations and support expenses by segment for 1999, 1998 and 1997 are as
follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------
Percent Change
------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 21,625 $ 20,391 $ 19,796 6.1% 3.0%
Wireless 4,557 3,991 3,769 14.2 5.9
Information and entertainment 2,899 2,520 2,286 15.0 10.2
International 138 209 147 (34.0) 42.2
Corporate, adjustments & eliminations (920) (791) (790) - -
- ----------------------------------------------------------------------------------
Total Normalized Operations and
Support $ 28,299 $ 26,320 $ 25,208 7.5% 4.4%
====================================================================================================
</TABLE>
Wireline operations and support expenses increased $1,234, or 6.1%, in
1999 and $595, or 3.0%, in 1998. The 1999 results include $91 related to
the treatment of conforming accounting methodologies between SBC and
Ameritech. The conforming items include non-cash adjustments made to
conform accounting for pension and postretirement benefits between the
companies and to immediately expense certain items routinely deferred and
amortized by Ameritech, including sales commissions (see discussion under
Segment Results above for further information of the effect of these
conforming items). The increase includes costs of approximately $460 in
1999 and $21 in 1998 associated with business initiatives and other
products, primarily Digital Subscriber Lines (DSL), Internet and voice
mail. Additionally, operations and support expenses increased
approximately $341 in 1999 and $214 in 1998 as a result of increased wages
and salaries, materials and operating taxes, and by approximately $575 in
1999 primarily as a result of the acquisition of two network integration
companies in 1998 and 1999. Operations and support expenses also increased
by approximately $83 in 1999 related to costs associated with software
right-to-use fees including digital network deployment initiatives and by
approximately $288 in 1999 and $297 in 1998 as a result of costs
associated with reciprocal compensation for the termination of Internet
traffic.
Operations and support expense increases were partially offset by
approximately $278 in 1999 and $317 in 1998 due to lower contract labor
costs, employee benefits and costs associated with customer number
portability. These reductions primarily resulted from the realization of
merger initiative benefits. The 1998 decrease was partially offset by
costs of approximately $262 related to progress in the PAC and SNET merger
implementation process including centralizing support functions and other
merger initiatives. Also partially offsetting the increases in operations
and support was the change in accounting for software costs (see Note 16
of Notes to Consolidated Financial Statements) which required
approximately $345 of software costs to be capitalized rather than
expensed in 1999. The 1997 results include the recognition of 1997 pension
settlement gains relating to 1997 retirees since the merger with PAC
totaling approximately $136.
Wireless operations and support expenses increased $566, or 14.2%, in 1999
and $222, or 5.9%, in 1998 due primarily to growth in the number of
customers, including the acquisitions of Comcast and Cellular
Communications discussed in subscriber revenues above. The 1999 results
also were impacted by increased incollect roaming expenses and software
costs capitalized rather than expensed in 1999.
Information and entertainment operations and support expenses increased
$379, or 15.0%, in 1999 and $234, or 10.2%, in 1998. The 1999 results
include $116 of conforming charges related to sales commissions and leased
customer equipment that SecurityLink from Ameritech, Inc. (SecurityLink)
previously deferred and amortized (see discussion of conforming items
under Segment Results above). The change in directory accounting at
Ameritech discussed in information and entertainment operating revenues
above caused expenses to increase by approximately $103. Electronic
security and cable television expenses increased in 1999 and 1998 due
primarily to growth-related employee increases, while directory
employee-related expenses declined partially offsetting the costs of
increased demand and changes in the schedule of published directories.
Depreciation and amortization SBC's normalized depreciation and amortization
expense increased $622, or 8.3%, in 1999 and $439, or 6.2%, for 1998. Components
of normalized depreciation and amortization expense by segment for 1999, 1998
and 1997 are as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------
Percent Change
------------------
1999 vs. 1998 vs.
1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireline $ 6,826 $ 6,440 $ 6,158 6.0% 4.6%
Wireless 927 707 607 31.1 16.5
Information and entertainment 194 201 149 (3.5) 34.9
International 17 18 18 (5.6) -
Corporate, adjustments & eliminations 174 150 145 - -
- ----------------------------------------------------------------------------------
Total Depreciation and Amortization $ 8,138 $ 7,516 $ 7,077 8.3% 6.2%
====================================================================================================
</TABLE>
Depreciation and amortization expense is primarily in the wireline and wireless
segments. In 1999, overall higher plant levels increased depreciation expense by
$326 in the wireline segment and $67 in the wireless segment. Depreciation and
amortization expenses also increased by $142 due to the third quarter
acquisitions of Comcast and Cellular Communications. A new software accounting
standard (see Note 16 of Notes to Consolidated Financial Statements) also
contributed $52 to the increase in 1999. Overall higher plant levels in 1998
increased depreciation expense by $329 in the wireline segment and $88 in the
wireless segment. Amortization expense at SecurityLink increased $38 in 1998 due
to acquisitions. The increase in 1998 was partially offset by reduced
depreciation of $42 on certain wireline analog switching equipment written off
in 1997.
A full year of operations from the wireless acquisitions, along with additional
capital expenditures as a part of the rapid deployment of advanced data
services, is expected to increase depreciation and amortization expense by
approximately $250 in 2000.
Interest expense on a consolidated basis for 1999 decreased by $175, or 10.9%,
in 1999 and increased by $55, or 3.5%, in 1998. The 1999 decrease was due
primarily to reductions in interest expense resulting from lower average debt
levels due to debt retirements in 1998 and early 1999. The 1998 increase was due
primarily to higher average debt levels early in 1998 and lower capitalized
interest in the wireless segment in 1998 than in 1997.
Equity in net income of affiliates increased $299 in 1999 and $176 in 1998. The
1999 increase includes $131 of gains related to the sale of property by SBC's
Israeli equity affiliate and reflects increased equity in net income of $108
from investments in Telmex and Tele Danmark. The new investment in Bell Canada
along with increased earnings at MATAV contributed $71 to the increase. These
increases were partially offset by $83 of reduced earnings from the sale of
SBC's investment in TCNZ and lower earnings from Telkom SA Limited (Telkom) and
Belgacom. Investments in domestic wireless partnerships contributed $17 to the
increase.
The 1998 increase includes $132 from inclusion of the first year of earnings
from Tele Danmark and earnings growth at Belgacom, offset by reduced earnings
from TCNZ, which was sold in April 1998. Also contributing to the increase was
$92 from Telmex, Telkom, domestic wireless partnerships and MATAV. These
increases were partially offset by increased losses of $53 from wireless start
up costs in Switzerland and long distance start up costs in Switzerland, France
and Israel.
SBC's earnings from foreign affiliates will continue to be sensitive to exchange
rate changes in the value of the respective local currencies. SBC's foreign
investments are recorded under United States' generally accepted accounting
principles, which include adjustments for the purchase method of accounting and
exclude certain adjustments required for local reporting in specific countries,
such as inflation adjustments. Equity earnings in 2000 will reflect a full year
of operations from SBC's investment in Bell Canada (see Note 15 of Notes to
Consolidated Financial Statements for discussion of the Bell Canada investment).
Other income (expense) - net in 1999, 1998 and 1997 includes amounts that SBC
management normalized for evaluating results. Normalizing adjustments for the
incremental impacts of overlapping wireless properties sold in October 1999 were
$24 in 1999, $31 in 1998 and $21 in 1997. Amounts for 1998 include gains of
$2,071 related to various sales of investments and assets, primarily the sale of
TCNZ and the required disposition of MTN. Amounts for 1997 also reflect gains of
$96 from the sale of SBC's interests in Bellcore and $26 in charges related to
strategic initiatives, primarily writeoffs of nonoperating plant. Excluding
these items, other income (expense) - net was expense of $205 in 1999, $156 in
1998 and $0 in 1997.
Results for 1999 include a gain from the sale of a portion of Amdocs Limited
(Amdocs), an SBC equity investee, of approximately $92 and gains of
approximately $63 representing dividends and market adjustments on Amdocs shares
used for contributions to the SBC Foundation and deferred compensation. Results
for 1999 also include a gain of approximately $59 recognized from the sale of
SBC's investment in Chile and a gain of approximately $81 recognized from the
sales of certain discontinued plant and other investments. These gains were
offset by increased expenses related to higher appreciation in the market value
of Telmex L shares underlying certain SBC debt redeemable in either cash or
Telmex L shares than in the comparable periods of 1998, net of gains recognized
from the sale of certain Telmex L shares, of approximately $296 and
approximately $76 in dividends paid on preferred securities issued by Ameritech
subsidiaries, losses on forward exchange contracts and other nonoperating items.
In addition, higher wireless minority interest and lower interest income
resulted in approximately $160 net expense.
During 1998, SBC recognized expenses of approximately $237 related to an
impairment of an international investment and investments in certain wireless
technologies, primarily wireless video, and approximately $154 related to the
combination of dividends paid on preferred securities owned by Ameritech
subsidiaries, losses on forward exchange contracts and debt redemption costs.
Partially offsetting these expenses was other income related to a special
dividend of approximately $158 received from Amdocs and gains of approximately
$127 recognized on the sale and the charitable contribution of SBC's
available-for-sale investment in Telewest Communications plc.
Results for 1997 include gains of approximately $95 recognized from the sale of
all or portions of certain international investments and royalty payments
associated with software developed by Amdocs and other investment gains totaling
approximately $82. Partially offsetting these gains was the net activity related
to market movement on Telmex L shares of approximately $47 and the combination
of dividends paid on preferred securities owned by Ameritech subsidiaries and
losses on forward exchange contracts totaling approximately $34. In addition,
higher minority interest and lower interest income resulted in approximately $96
net expense.
Income taxes for 1999, 1998 and 1997 reflect the tax effect of certain one-time
charges related to strategic initiatives resulting from SBC's comprehensive
review of operations after completion of the Ameritech, SNET and PAC mergers,
gains related to the sale of various assets and businesses and other items, and
pension settlement gains (see further discussion of these items under Segment
Results). The net effective tax rate on these items differed as a result of
nondeductible items included in the charges and valuation adjustments to certain
deferred tax assets. Excluding these items, income taxes for 1999, 1998 and 1997
would have been $4,242, $3,749 and $3,331. Income taxes for 1999, 1998 and 1997
were higher due primarily to higher income before income taxes.
Extraordinary items In 1999, SBC recorded an extraordinary gain of $1,379, net
of taxes of $960, related to the sale of overlapping wireless properties in
October (see Note 15 of Notes to Consolidated Financial Statements). In 1998,
SBC recorded an extraordinary loss of $60 related to the repurchase of $684 of
long-term debt.
Cumulative effect of accounting change As discussed in Note 1 of Notes to
Consolidated Financial Statements, Ameritech's directory publishing subsidiary,
effective January 1, 1999, and SNET effective January 1, 1998, changed their
methods of recognizing directory publishing revenues and related expenses (see
Note 1 of Notes to Consolidated Financial Statements). The cumulative after-tax
effect of applying the new method to prior years was recognized as of January 1,
1999 and 1998 as a one-time, non-cash gain applicable to continuing operations
of $207, or $0.06 per share and $15, or $0.01 per share, net of deferred taxes
of $125 and $11.
Operating Environment and Trends of the Business
Regulatory Environment
Overview
The telecommunications industry is in a period of dynamic transition from a
tightly regulated industry overseen by multiple regulatory bodies to a
market-driven industry monitored by state and federal agencies. SBC's wireline
telecommunications subsidiaries remain subject to regulation by state regulatory
commissions for intrastate services and by the FCC for interstate services.
Consolidation of companies is occurring within the marketplace for local
telephone service and across other communications services, such as long
distance, wireless, electronic security, cable television, Internet and other
data transmission. Companies operating in some of these markets also are
expanding into others, such as the provision of local service by long distance
companies, and companies in previously unrelated industries, such as
entertainment, are expanding into communications and communications companies
are expanding into these unrelated industries. Additionally, new technologies
also are affecting the way people view and use communications services.
The telecommunications industry also is changing internationally, as
government-owned telephone monopolies are being privatized in many countries and
competitive entrants are authorized. United States-controlled companies have
acquired or formed investments, joint ventures or strategic relationships with
these newly privatized companies or their new competitors involving any or all
of the range of telecommunications services. Foreign-controlled companies have
also acquired or formed such relationships with United States companies.
SBC is aggressively representing its interests before federal and state
regulatory bodies, courts, Congress and state legislatures. SBC will continue to
evaluate the competitive nature of its business and develop appropriate
competitive, legislative and regulatory strategies.
Trends
National-Local
In 1999, SBC began to implement a "National-Local" strategy in conjunction with
its acquisition of Ameritech. Under the "National-Local" strategy SBC will seek
to become a competitive local exchange carrier (CLEC) and offer local exchange
services in 30 new markets across the country in combination with other major
national and international operations. SBC expects to introduce service in nine
new markets in 2000, and is required by the FCC to enter the remaining 21
markets by midyear 2002 (see Ameritech Merger discussion below). This
"National-Local" strategy is part of SBC's overall strategy to expand from a
regional company to a company that provides communications services and products
nationally and globally.
Broadband Initiative
In October 1999, as the first post-Ameritech merger initiative, SBC announced
plans to offer broadband services to approximately 80% of SBC's United States
wireline customers over the next three years (Project Pronto). SBC will invest
an estimated $6 billion in fiber, electronics and other technology for this
broadband initiative. The build-out will include moving many customers from the
existing copper network to a new fiber network. Over the deployment period,
marketing costs will be incurred depending on the rate of customer sign-ups and
installations. An ongoing assessment of the carrying value and economic useful
life of the existing network facilities will continue (see Note 5 of Notes to
Consolidated Financial Statements).
Wireline
Federal Regulation
Through affiliates, SBC offers landline interLATA long distance services to
customers in selected areas outside its wireline subsidiaries' operating areas.
Further, through a subsidiary, SBC offers interLATA long distance services to
customers in Connecticut. Under the Telecommunications Act of 1996 (Telecom
Act), before being permitted to offer landline interLATA long distance service
in any state within the 12-state region encompassed by the regulated operating
areas of SWBell, PacBell, Ameritech and Nevada Bell (these areas with the
addition of SNET are referred to as SBC's 13-state area), SBC must apply for and
obtain state-specific approval from the FCC. The FCC's approval, which involves
consultation with the United States Department of Justice and the appropriate
state commission, requires favorable determinations that SBC's wireline
subsidiaries have entered into interconnection agreement(s) that satisfy a
14-point "competitive checklist" with predominantly facilities-based carrier(s)
that serve residential and business customers or, alternatively, the
subsidiaries have a statement of terms and conditions effective in that state
under which they offer the "competitive checklist" items. The FCC also must make
favorable public interest and structural separation determinations in connection
with each application. See "State Regulation" for status of the state
applications.
Ameritech Merger On October 8, 1999, SBC and Ameritech completed the merger of
an SBC subsidiary with Ameritech (see Note 2 of Notes to Consolidated Financial
Statements for a discussion of the merger with Ameritech).
The FCC issued an order approving the transaction, subject to certain
conditions, including fostering out-of-region competition, promoting advanced
services, opening local markets to competition and improving residential
services. These FCC conditions require specific performance and reporting
provisions and contain enforcement provisions that could potentially trigger
more than $2 billion in payments, as described below, if certain goals are not
met. The following is a brief summary of the major conditions:
Out-of-Region Competition - Within 30 months from the merger closing, SBC
must enter 30 new markets as a facilities-based competitive provider of
local services to business and residential customers. Failure to achieve
entrance into 30 markets within the 30-month time frame could result in a
fine of $40 for each market missed.
Promoting Advanced Services - SBC established separate subsidiaries to
provide advanced services, such as DSL. These subsidiaries are required to
use the same processes for the ordering and provisioning of SBC wireline
services as competitors, pay an equivalent price for facilities and services
and locate at least 10% of their advanced service facilities in low-income
areas. In addition, SBC will provide data CLECs the economic equivalent of
line sharing by providing them a second line at a 50% discount for the
purposes of providing advanced services.
Opening Local Markets to Competition - SBC will file performance measurement
data reflecting 20 different categories for each state in its 13-state area
with the FCC and relevant state commissions on a monthly basis. These
performance measurements address functions that may have a particularly
direct effect on SBC's local competitors and their customers such as SBC's
response to competitors' requests for information and interconnection. If
these performance goals are not met, payments of up to $1.1 billion over
three years could be triggered.
SBC will develop and deploy, with CLEC input, uniform electronic operational
support systems (OSS) throughout its 13-state area that support the
pre-ordering, ordering, provisioning, maintenance, repair and billing of
resold local services and unbundled network elements. The OSS will include
uniform application-to-application interfaces and graphical user interfaces.
Payments of up to $20 could be triggered if deployment targets are not met.
SBC will restructure OSS charges to eliminate any flat rate upfront charge
for the right to use SBC's standard interfaces for accessing OSS. In
addition, SBC will provide free training and OSS expert teams for CLECs with
annual revenues under $300.
Improving Residential Service - SBC will not charge residential customers
minimum monthly long distance fees for at least three years after entering
the long distance business in that market. In addition, SBC will offer a
low-income Lifeline universal service plan to low-income residential
customers in each state in its 13-state area.
The effects of these conditions on results of operations is still being
evaluated. However, SBC expects to incur approximately $500 in additional
expenses, exclusive of potential penalty payments, in 2000 to comply with these
conditions.
Unbundled Network Elements In August 1996, the FCC issued rules by which
competitors could connect with local exchange companies' (LECs) networks,
including those of SBC's subsidiaries. Among other items, the rules addressed
unbundling of network elements, pricing for interconnection and unbundled
elements and resale of retail telecommunications services. The FCC rules were
appealed by numerous parties, including SBC. In January 1999, the United States
Supreme Court (Supreme Court) ruled that the Telecom Act gives the FCC the
authority to set guidelines for states to follow in setting prices under the
Telecom Act, reinstated the FCC rules allowing those seeking to interconnect to
"pick and choose" specific provisions from previous interconnection agreements
and upheld FCC rules forbidding incumbent LECs from separating already combined
network elements. The Supreme Court also ordered the FCC to review its
unbundling rules that required major local telephone carriers, such as SBC's
subsidiaries, to lease to competitors, at a discount, parts of their phone
networks, including the telephone lines that run to customers' homes, switching
equipment that routes calls and directory and operator assistance.
In November 1999, the FCC adopted an order providing that the major local
telephone carriers must continue leasing certain parts of their phone network to
competitors at a discount. This order provides revised rules that expand the
definitions of certain unbundled network elements. The FCC did rule that
directory and operator assistance no longer has to be leased at a discount. The
order also limits discounted access to switches serving customers with four or
more lines under certain conditions. In addition, the FCC declined to expand its
regulation to include mandatory leasing of high speed Internet and data
equipment. Although the effect of this order on SBC's results of operations and
financial position cannot be determined at this time, it is expected to be
unfavorable.
Reciprocal Compensation is billed to SBC's wireline subsidiaries by CLECs for
the termination of certain local exchange traffic to CLEC customers. SBC
believes that under the Telecom Act the state commissions have authority to
order reciprocal compensation only for intrastate local traffic, while the FCC
has authority over interstate and interexchange traffic. SBC believes most
Internet traffic is interexchange and interstate. Several state commissions have
taken the position that a connection to the Internet is intrastate or local
traffic and ordered SBC to pay reciprocal compensation to certain CLECs pursuant
to existing contracts. In February 1999, the FCC declared that Internet traffic
is not intrastate or local traffic, but instead is primarily interstate, subject
to interstate jurisdiction. However, the FCC found that existing federal law
does not address to what extent, if any, compensation should be paid to CLECs
that deliver Internet traffic to Internet service providers and initiated a
proceeding to establish such rules. Pending the completion of that proceeding,
the FCC held that state commissions, interpreting existing contracts and
consistent with federal law, might nevertheless order payment of reciprocal
compensation for Internet traffic in certain circumstances. The FCC's February
1999 decision was appealed by MCI WorldCom, Inc. (MCI), US West, Inc. (US West)
and GTE Corporation (GTE). In its appeal, MCI disputed that a connection to the
Internet is part of interstate communication. US West and GTE appealed the FCC's
conclusion that states may require reciprocal compensation for such traffic
pending completion of FCC rulemaking. These appeals are pending in the United
States Court of Appeals for the District of Columbia Circuit.
In June 1999, the United States Court of Appeals for the Seventh Circuit (7th
Circuit) issued an opinion affirming an order of the Illinois Commerce
Commission (ICC) directing Ameritech to pay reciprocal compensation on Internet
traffic under existing interconnection agreements. The 7th Circuit only reviewed
whether the ICC's determination that the parties intended that calls to Internet
Service Providers would be subject to reciprocal compensation violated federal
law. The 7th Circuit declined to review any contract issues and concluded that
the ICC's determination did not violate federal law as it was expressly
permitted under the February 1999 FCC ruling regarding reciprocal compensation.
SBC has sought a rehearing of the 7th Circuit Court decision.
Other appeals of reciprocal compensation decisions currently are pending before
the United States Circuit Courts of Appeals for the Fifth and Tenth Circuits,
the United States Circuit Court of Appeals for the Sixth Circuit (6th Circuit)
and United States District Courts in Indiana, Ohio and California. In August
1999, the Michigan District Court affirmed an order of the Michigan Public
Service Commission (MPSC) directing Ameritech to pay reciprocal compensation
under existing interconnection agreements. Relying upon the FCC's declaratory
ruling, the Michigan District Court concluded that the FCC had left the issue of
reciprocal compensation to be determined by state commissions and therefore
deferred to the MPSC's decision. SBC has appealed that decision to the 6th
Circuit. In July 1999, the United States District Court in Wisconsin dismissed
SBC's appeal without deciding the merits of the case. SBC appealed that
dismissal to the 7th Circuit.
SBC records expense for amounts sought by certain CLECs for the termination of
Internet traffic to Internet service providers.
Digital Subscriber Line is a high-speed data service principally used for
Internet access. In June 1998, SBC filed a petition with the FCC requesting
relief for DSL from pricing, unbundling and resale regulatory restrictions. The
FCC denied the petition and declared that incumbents, such as the SBC's wireline
subsidiaries, must offer such services for resale at a discount and must offer
unbundled access to the equipment used in DSL provisioning to the extent
possible. SBC filed a petition with the FCC for reconsideration of this order.
In November 1999, the FCC issued an order requiring the regional holding
companies (RHCs), such as SBC, to share phone lines with data CLECs. Using a
technology called line sharing, the RHCs split the frequency of a telephone line
so the Internet service is carried on a portion of it. This ruling is not
expected to have a material effect on SBC's financial position or results of
operations.
Federal Access Rates In May 1999, the United States Court of Appeals for the
District of Columbia Circuit (Court of Appeals) ruled that the FCC failed to
adequately explain certain changes to part of the price cap formula used to
calculate the access rates local carriers, such as SBC's subsidiaries, charge
long distance carriers. In a subsequent order, the Court of Appeals stayed this
decision until April 1, 2000. In November 1999, the FCC issued a further notice
of proposed rulemaking (FNPR) and SBC and numerous other local exchange and
interexchange carriers have proposed a solution to the issues in this docket
that would temporarily maintain the current price cap formula and reduce it
markedly after traffic sensitive rates are reduced. The effect of any future
final decision on SBC's results of operations and financial position cannot be
determined at this time.
Pricing Flexibility In August 1999, the FCC adopted an order and an FNPR on
interstate access charge reform issues. Under the order, Phase I flexibility
will permit a LEC, such as one of SBC's subsidiaries, to offer volume and term
discounts under contract for certain access services after the LEC has
demonstrated that competitors have made substantial investments in facilities in
the LEC's market areas. Phase II flexibility will permit a LEC to have special
access and dedicated transport services removed from price caps entirely after
the LEC demonstrates that a greater level of competitive investment exists.
Although the effect of this order and FNPR on SBC's results of operations and
financial position cannot be determined at this time, it is expected to be
favorable.
Acquisitions of Security Services Assets In 1998, the FCC issued a Memorandum
Opinion and Order to Show Cause relating to four asset acquisitions by
SecurityLink in 1996 and 1997. The FCC found that Ameritech had gained
"financial control" over the entities from which SecurityLink acquired the
security services assets, in violation of the 1996 Act, and required that,
within 30 days after issuance of the Order, Ameritech show cause why the FCC
should not require SecurityLink to divest the assets acquired in this
transaction. Previously, the FCC had ruled that the 1996 transaction was
permissible under the Telecom Act, and the District of Columbia Circuit Court
(D.C. Circuit Court) had vacated and remanded this decision to the FCC.
Ameritech filed a response with the FCC, contending that divestiture would not
be an appropriate remedy. The FCC's decision on these Orders to Show Cause is
pending.
The effects of the FCC decisions on the above topics are dependent on many
factors including, but not limited to, the ultimate resolution of the pending
appeals; the number and nature of competitors requesting interconnection,
unbundling or resale; and the results of the state regulatory commissions'
review and handling of related matters within their jurisdictions. Accordingly,
SBC is not able to assess the impact of the FCC orders and proposed rulemaking
at this time.
<PAGE>
State Regulation
The following provides an overview of state regulation in the 13 states in which
SBC's wireline subsidiaries operated at December 31, 1999:
<TABLE>
- -----------------------------------------------------------------------------------------------
Number of
Signed
Alternative Wireline Long Distance Application
State Regulation 1 Dialing Parity 2 Interconnection Status
Agreements 3
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arkansas Yes Yes 66 Decision expected in 2000 4
- -------------------------------- ------------------- ---------------- ----------------------------
California Yes, through Yes 140 Decision expected in 2000 4
12/2001
- -------------------------------- ------------------- ---------------- ----------------------------
Connecticut Yes, through Yes 18 Long distance service
3/2001 provided 5
- -------------------------------- ------------------- ---------------- ----------------------------
Illinois Yes Yes 48 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
Indiana Yes, interim Yes 45 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
Kansas Yes Yes 60 Decision expected in 2000 4
- -------------------------------- ------------------- ---------------- ----------------------------
Michigan Yes Yes 27 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
Missouri Yes Yes 74 Decision expected in 2000 4
- -------------------------------- ------------------- ---------------- ----------------------------
Nevada Yes Yes 31 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
Ohio Yes Yes 51 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
Oklahoma Pending Yes 74 Decision expected in 2000 4
- -------------------------------- ------------------- ---------------- ----------------------------
Texas Yes Yes 204 State approval received in
1999; FCC decision
expected in 2000
- -------------------------------- ------------------- ---------------- ----------------------------
Wisconsin Yes Yes 35 Filing planned in 2000 6
- -------------------------------- ------------------- ---------------- ----------------------------
</TABLE>
Notes:
1 Alternative regulation is other than rate of return regulation.
2 In a January 1999 decision, the Supreme Court ruled that the FCC had the
authority to issue rules implementing intrastate and intraLATA dialing
parity. Dialing parity allows customers to subscribe to an intraLATA toll
carrier just as they do for long distance services.
3 Interconnection agreements are signed with CLECs for the purpose of allowing
the CLECs to exchange local calls with the incumbent telephone company and,
at the CLEC's option, to resell services and obtain unbundled network
elements.
4 Awaiting determination by state commissions on SBC's compliance with the
14-point competitive checklist. FCC approval is required subsequent to state
determination.
5 Restricted from providing interLATA long distance service originating in any
of the other 12 states in its 13-state area.
6 Will require approval by the state commission and the FCC.
The following presents highlights of certain regulatory developments:
Texas Long Distance Application In December 1999, the Texas Public Utility
Commission (TPUC) unanimously approved SWBell's interLATA long distance
application and formally declared that the local phone market in Texas is open
to competition, noting that SWBell has met the 14-point checklist requirements
of the Telecom Act. SWBell's long distance application was filed with the FCC in
January 2000 and the FCC has 90 days from that time to rule on the application.
Texas Legislation In May 1999, the Texas legislature adopted Senate Bill 560, as
amended. The bill, which became law on September 1, 1999, extends incentive
regulation indefinitely, provides more pricing flexibility on certain products
offered by SWBell, such as Caller ID, operator service and directory assistance,
and allows SWBell to package some services in ways attractive to customers. The
bill also required SWBell to reduce the intrastate switched access rate it
charges to long distance carriers by 1 cent on September 1, 1999 and by 2
additional cents on the earlier of either SWBell's entry into the long distance
market or July 1, 2000. The 2-cent reduction in intrastate access rates,
assuming a July 1, 2000 effective date, is expected to result in a reduction of
intrastate network access revenues of approximately $72 for 2000.
California Property Tax Investigation In 1992, PacBell entered into a settlement
with tax authorities and others, which fixed a specific methodology for valuing
utility property for tax purposes for a period of eight years. As a result, the
California Public Utilities Commission (CPUC) opened an investigation to
determine if any property tax savings that may result from the settlement
agreement should be returned by PacBell to its customers. In January 2000, the
CPUC ruled the property tax changes resulting from the settlement are not
subject to refund. This ruling is not expected to have a material effect on
SBC's financial position or results of operations.
California Ruling In December 1999, a CPUC administrative judge ruled that
PacBell must pay $44 in penalties and contact customers for potential refunds
for alleged overly aggressive and deceptive marketing practices related to
packages of enhanced services such as Caller ID and call forwarding. SBC
believes the findings in this decision are unwarranted and appealed the ruling
to the CPUC in January 2000.
Competition
Wireline
Competition continues to increase for telecommunications and information
services. Recent changes in legislation and regulation have increased the
opportunities for alternative communications service providers. Technological
advances have expanded the types and uses of services and products available. As
a result, SBC faces increasing competition as well as new opportunities in
significant portions of its business.
Recent state legislative and regulatory developments allow increased competition
for local exchange services. Companies wishing to provide competitive local
service have filed numerous applications with each of the state commissions
throughout SBC's 13-state area and the commission of each state has been
approving these applications since late 1995. Under the Telecom Act, companies
seeking to interconnect to SBC's wireline subsidiaries' networks and exchange
local calls must enter into interconnection agreements with SBC. These
agreements are then subject to approval by the appropriate state commission. SBC
has reached approximately 873 wireline interconnection agreements with
competitive local service providers, and most have been approved by the relevant
state commission. AT&T Corp. (AT&T), MCI and other competitors are reselling SBC
local exchange services, and as of December 31, 1999, there were approximately
1.6 million SBC access lines supporting services of resale competitors
throughout SBC's 13-state area, primarily in Texas, California and Illinois.
Many competitors have placed facilities in service and have begun advertising
campaigns and offering services. SBC also was granted facilities-based and
resale operating authority in certain territories served by other LECs and
expects to begin offering local exchange service to these areas in late 2000.
In California, the CPUC authorized facilities-based local services competition
effective January 1996 and resale competition effective March 1996. While the
CPUC has established local competition rules and interim prices, several issues
still remain to be resolved, including final rates for resale. PacBell has
incurred substantial costs implementing local competition and number
portability. In November 1998, the CPUC issued a decision authorizing PacBell to
recover local competition implementation costs and a proceeding is pending to
determine the amount of those costs that are recoverable. In June 1999, the CPUC
issued a ruling recategorizing certain PacBell services, including the
maintenance of inside wiring, calling card, collect and person to person calls
and the provisioning of directory assistance to interexchange carriers, as
competitive products thereby allowing greater pricing flexibility. In its
ruling, the CPUC approved an increase in the maximum price for both inside wire
repair services and interexchange directory assistance.
In Texas, the TPUC set rates in December 1997 that SWBell may charge for access
and interconnection to its telephone network. The TPUC decision set pricing for
dozens of network components and completed a consolidated arbitration between
SWBell and six of its wholesale customers, including AT&T and MCI.
In Illinois, the ICC approved Advantage Illinois in 1994, providing a framework
for regulating Ameritech by capping prices for noncompetitive services. In this
order, the ICC approved a price cap on the monthly line charge for residential
customers and residential calling rates within local calling areas for an
initial five year period that ended in October 1999. Per the order, an
application for review was submitted in March 1998. This review is pending. The
price cap on residential rates will remain in effect until the review is
completed or the price cap is overridden by legislation.
In Missouri, the Missouri Public Service Commission (MSC) issued orders on a
consolidated arbitration hearing with AT&T and MCI and in a separate arbitration
on selected items with Metropolitan Fiber Systems (which is now owned by MCI).
Among other terms, the orders established discount rates for resale of SWBell
services and prices for unbundled network elements. SWBell appealed the
interconnection agreement resulting from the first AT&T/MCI arbitration
proceeding in November 1997. A second arbitration process to address other
interconnection issues with AT&T has concluded, and the MSC ordered that a
conforming interconnection agreement be filed. SWBell appealed this second order
in April 1998. In a consolidated decision issued in August 1999, affecting both
appeals, a federal district court in Missouri affirmed most portions of the
MSC's orders, finding, among other things, that the MSC's pricing decisions were
not unlawful and remanding decisions on certain fiber and unbundling issues back
to the MSC. In September 1999, SWBell appealed this decision to the United
States Court of Appeals for the Eighth Circuit.
In Oklahoma, the Oklahoma Corporation Commission (OCC) approved a rule in
October 1999 creating alternative regulation for companies who opt into the
alternative regulation rule, including SWBell. Under the rule, which was
approved as an emergency rule and signed by the governor of Oklahoma, SWBell, in
order to opt into alternative regulation, was required to file an application
with the OCC for approval of its transition plan. The plan was approved by the
OCC in December 1999. When SWBell opts into the alternative regulation rule,
SWBell will be regulated under price cap regulation instead of rate of return
regulation. Under the emergency rule, SWBell plans to implement one element of
the transition plan, network infrastructure deployment, including DSL and switch
replacement. The cost of full deployment is currently estimated at $200 in total
capital expenditures over the next three years. Other items under SWBell's
transition plan will be implemented only if the Oklahoma legislature adopts the
alternative regulation rule and the rule becomes law. These other items include
promotional discounts on unbundled network elements provided to competitors,
pricing flexibility and ratepayer benefits. The ratepayer benefits include
SWBell's obligation to pay $30 into an education information technology fund as
well as waiver of the Oklahoma universal access fund surcharge for five years.
SWBell's current fund surcharge is approximately $2 annually and SWBell will pay
the current assessment into the fund even though it has waived collection of
this amount from customers. The OCC alternative regulation rule has been
submitted to the Oklahoma legislature for approval in the session that begins in
February 2000. If the rule is not approved into law, SWBell will not be
obligated to complete the infrastructure deployment and, at that time, will
determine if implementation will continue.
In Indiana, the Indiana Court of Appeals (Indiana Court) issued a decision in
October 1999 reversing a portion of the 1997 Indiana Utility Regulatory
Commission (IURC) Opportunity Indiana (OI) order, which had directed Ameritech
to reduce rates for basic residential and business services and remanded the
rate issue to the IURC. In addition, the Indiana Court affirmed the IURC's order
requiring Ameritech to comply with the infrastructure investment commitments
made in OI. Ameritech has sought rehearing of this portion of the Indiana
Court's decision. Ameritech will continue to operate under the other provisions
of the OI order and will continue charging basic local rates at current levels.
SBC's wireline subsidiaries expect increased competitive pressure in 2000 and
beyond from multiple providers in various markets, including facilities-based
CLECs, interexchange carriers and resellers. At this time, management is unable
to assess the effect of competition on the industry as a whole, or financially
on SBC, but expects both losses of market share in local service and gains
resulting from new business initiatives, vertical services and new service
areas. Competition also continues to intensify in SBC's intraLATA long distance
markets. For example, it is estimated that providers other than PacBell now
serve more than half of the business intraLATA long distance customers in
PacBell's service areas. In addition, intraLATA toll dialing parity, implemented
throughout SBC's 13-state area, will continue to increase competition in
intraLATA long distance markets.
Wireless
SBC's wireless subsidiaries currently provide analog and digital wireless
products and services to approximately 11.2 million customers across the nation,
making SBC one of the three largest wireless providers in the United States. SBC
offers service in 23 of the 35 largest United States' metropolitan areas.
Companies that were granted licenses in areas where SBC also provides wireless
service include subsidiaries and affiliates of AT&T, Sprint Corporation and
other RHCs. Significant competition from PCS providers exists in SBC's major
markets. Competition has been based upon both price and service packaging, such
as unlimited calling plans, and has contributed to SBC's decline in average
subscriber revenue per wireless customer.
Under the Telecom Act of 1996, SBC may offer interLATA long distance over its
wireless network both inside and outside the regulated operating areas. SBC has
entered the wireless long distance markets, and offers wireless long distance
service in all of its wireless service areas.
SBC also has state-approved interconnection agreements to receive reciprocal
compensation from interexchange carriers and other local service providers
accessing its wireless networks in all states where it provides wireless
services.
Information and Entertainment
SBC's directory subsidiaries face competition from over 100 publishers of
printed directories in their operating areas. Direct and indirect competition
also exists from other advertising media, including newspapers, radio,
television and direct mail providers, as well as from directories offered over
the Internet.
SBC's cable subsidiary offers cable television service in more than 80
communities in the Midwest and faces competition from other cable television
providers in those areas.
SBC's SecurityLink competes with other companies across North America as a
provider of security systems.
International
Telmex was granted a concession in 1990, which expired in August 1996, as the
sole provider of long distance services in Mexico. Several large competitors
have received licenses to compete with Telmex and have begun operations. As of
December 31, 1999, Telmex had approximately 84% of the long distance market in
Mexico. Telmex's share of international long distance traffic is expected to
decline significantly when the proportional return mechanism, which guarantees
Telmex the same percentage of incoming traffic as outgoing traffic, expires.
Mexican regulators postponed the elimination of the proportional return
mechanism, which had been scheduled for year-end 1999. The mechanism may expire
in 2000, but regulators have not yet provided a definitive time frame for the
expiration. Aggressive local competition is expected in 2000, primarily in the
business segment.
SBC has an investment in the Hungarian telecommunications company, MATAV. MATAV
provides domestic and international long distance telephone service throughout
Hungary and local telephone service in certain designated areas of Hungary.
MATAV has a concession agreement that provides for exclusivity until December
2001. There are discussions taking place with the Hungarian government to
shorten the exclusivity period; this would require MATAV's approval. Once the
exclusivity period expires, MATAV will experience aggressive competition,
especially in the domestic and international long distance markets.
Other Business Matters
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. FAS 133 must
be adopted for years beginning after June 15, 2000, with earlier adoption
permitted. SBC currently is evaluating the impact of the change in accounting
required by FAS 133, but is not able to quantify the effect at this time (see
Note 16 of Notes to Consolidated Financial Statements for a discussion of the
new accounting standard on software costs).
Acquisitions During 1999, SBC and Telmex each acquired a 50% interest in
Cellular Communications. The total transaction was valued at $827, including
assumption of approximately $370 in debt.
In November 1999, SBC announced it has agreed to acquire Radiofone, Inc.
(Radiofone) for approximately 8 million shares of SBC common stock. The
transaction is expected to be completed in the second quarter of 2000, pending
regulatory approvals. Radiofone serves more than 200,000 wireless customers in
Louisiana and Michigan and approximately 300,000 paging customers in 11 states.
In January 2000, SBC and Telmex acquired a stake in Brazilian wireless provider
ATL - Algar Telecom Leste S.A. (ATL), which serves customers in the Brazilian
states of Rio de Janeiro and Espirito Santo. As part of the transaction,
Williams Communications Group Inc. will reduce its stake to a 50% economic
interest in ATL. SBC and Telmex will have the opportunity to subsequently
increase their investment to a 50% stake in ATL, but cannot do so until 2004.
Until then, Algar Telecom retains an investment in ATL, as well as voting and
board control of ATL, in accordance with Brazilian regulations.
See Note 15 of Notes to Consolidated Financial Statements for a discussion of
the Comcast and Bell Canada acquisitions.
SBC's Year 2000 Project SBC performed a four-step methodology to address the
Year 2000 issue consisting of inventory and assessment, hardware and software
fixes, testing and deployment. All phases of the Year 2000 project were
completed by December 31, 1999. SBC's network and operating systems successfully
passed through the Year 2000 date change. Employees monitored the network and
supporting systems and experienced no Year 2000-related problems. SBC spent
approximately $475 on the entire project, with approximately $227 spent in 1999.
Liquidity and Capital Resources
SBC had $495 of cash and cash equivalents available at December 31, 1999.
Commercial paper borrowings as of December 31, 1999 totaled $2,623 out of $6
billion authorized. SBC has entered into agreements with several banks for
committed lines of credit totaling $2,880, all of which may be used to support
commercial paper borrowings (see Note 8 of Notes to Consolidated Financial
Statements). SBC had no borrowings outstanding under these lines of credit as of
December 31, 1999.
Cash From Operating Activities During 1999, as in 1998 and 1997, SBC's primary
source of funds continued to be cash generated from operations, as shown in the
Consolidated Statements of Cash Flows. Net cash provided by operating activities
exceeded SBC's construction and capital expenditures during 1999, 1998 and 1997;
this excess is referred to as free cash flow, a supplemental measure of
liquidity. SBC generated free cash flow of $6,274, $4,099 and $2,723 in 1999,
1998 and 1997.
In addition, SBC will incur additional expenses totaling approximately $2
billion in 2000 related to the FCC merger conditions, the merger initiatives,
including Project Pronto and obtaining approval to begin offering long distance.
Cash From Investing Activities To provide high-quality communications services
to its customers, SBC, particularly its wireline and wireless operations, must
make significant investments in property, plant and equipment. The amount of
capital investment is influenced by demand for services and products, continued
growth and regulatory commitments.
SBC's capital expenditures totaled $10,304, $8,882 and $8,856 for 1999, 1998 and
1997. Capital expenditures in the wireline segment increased by 17.2% in 1999
compared with 1998 due primarily to DSL, digital and broadband network upgrades,
capitalized software accounting rule changes and regulatory commitments. The
wireline segment's capital expenditures were relatively unchanged in 1998. The
wireless segment's capital expenditures were relatively unchanged in 1999 and
decreased in 1998 due primarily to completion of the 1997 initial build-out of
the PCS network and conversion of SBC's largest cellular markets to digital
during 1997.
See Note 15 of Notes to Consolidated Financial Statements for a discussion of
the acquisitions and dispositions.
In 2000, management expects total capital spending to be between $13 billion and
$14 billion. Capital expenditures in 2000 will be used to continue the evolution
of the wireline subsidiaries' networks, including amounts estimated for Project
Pronto, SBC's broadband initiative, and continued build-out of SBC's wireless
markets.
Cash From Financing Activities Dividends declared by the Board of Directors of
SBC were $0.975 per share in 1999, $0.935 per share in 1998, and $0.895 per
share in 1997. These per share amounts do not include dividends declared and
paid by Ameritech, SNET and PAC prior to their respective mergers. The total
dividends paid by SBC, Ameritech, SNET or PAC were $3,312 in 1999, $3,177 in
1998 and $3,015 in 1997. SBC's dividend policy considers both the expectations
and requirements of shareowners, internal requirements and long-term growth
opportunities.
In December 1999, SBC called approximately $31 of debt that was scheduled to
mature in December 2004. During 1999, subsequent to the completion of the
acquisitions of Comcast and Cellular Communications, SBC retired $1,415 of
Comcast's and Cellular Communications' long-term debt with no effect on net
income. In May 1999, SBC issued $750 of 6.25% unsecured Eurodollar notes, due
May 2009, with proceeds used to fund its investment in Bell Canada.
During 1998, SBC redeemed $2,789 of long-term debt, including mortgage bonds.
Also in 1998, SBC issued $2,150 of notes and debentures. In February 1998, SBC
also issued $750 of 5.88% unsecured Eurodollar notes, due February 2003, with
proceeds used primarily to fund its investment in Tele Danmark.
Total debt increased during 1997 due primarily to the issuance of medium-term
notes and debentures and debt redeemable either in cash or Telmex L shares.
In April 1998, an SBC subsidiary issued, through private placement, 3,250 shares
of stated rate auction preferred stock (STRAPS) in four separate series. Net
proceeds from these issuances totaled $322.
In June 1997 and December 1999, one of SBC's wholly owned subsidiaries issued
$250 and $100 of preferred stock in private placements. In January 2000, SBC's
Board of Directors authorized the repurchase of up to 100 million shares of
SBC's common stock.
SBC expects to fund ongoing capital expenditures, the repurchase of stock and
merger initiative expenses with cash provided by operations and incremental
borrowings.
Other SBC's total capital consists of debt (long-term debt and debt maturing
within one year), Trust Originated Preferred Securities and shareowners' equity.
Total capital increased $3,453 in 1999 and $3,292 in 1998. The increase in 1999
was due to 1999 earnings, partially offset by lower debt levels. The increase in
1998 was primarily due to 1998 earnings, partially offset by lower debt levels.
SBC's debt ratio was 42.9%, 47.3% and 54.9% at December 31, 1999, 1998 and 1997.
The debt ratio is affected by the same factors that affect total capital.
Market Risk
SBC is exposed to market risks primarily from changes in interest rates, foreign
currency exchange rates, and certain equity stock prices. In managing exposure
to these fluctuations, SBC may engage in various hedging transactions that have
been authorized according to documented policies and procedures. SBC does not
use derivatives for trading purposes, to generate income or to engage in
speculative activity. SBC's capital costs are directly linked to financial and
business risks. SBC seeks to manage the potential negative effects from market
volatility and market risk. The majority of SBC's financial instruments are
medium- and long-term fixed rate notes and debentures. Fluctuations in market
interest rates can lead to significant fluctuations in the fair value of these
notes and debentures. It is the policy of SBC to manage its debt structure and
foreign exchange exposure in order to manage capital costs, control financial
risks and maintain financial flexibility over the long term. Where appropriate,
SBC will take actions to limit the negative effect of interest and foreign
exchange rates, liquidity and counterparty risks on shareowner value.
Quantitative Information About Market Risk
- ------------------------------------------------------------------------
Foreign Exchange Risk Sensitivity Analysis
- ----------------------------------------------------------------------
U.S. Dollar Value Net Underlying
of Net Foreign Foreign Currency
Exchange Transaction
December 31, 1999 Contracts Exposures
- ----------------------------------------------------------------------
Total Exposure - Japanese Yen $ 142 $ 142
======================================================================
Note: There is no net exposed long/short currency position and no foreign
exchange loss from a 10% depreciation of the U.S. dollar.
The preceding table describes the effects of a change in the value of the
Japanese yen given a hypothetical 10% depreciation of the U.S. dollar. Since the
identified exposure is fully covered with forward contracts, changes in the
value of the U.S. dollar which affect the value of the underlying foreign
currency commitment are fully offset by changes in the value of the foreign
currency contract. If the underlying currency transaction exposure changed, the
resulting mismatch would expose the company to currency risk of the foreign
exchange contract. For this reason, all contracts are related to firm
commitments and matched by maturity and currency.
Interest Rate Sensitivity The principal amount by expected maturity, average
interest rate and fair value of SBC's liabilities that are exposed to interest
rate risk are described in Notes 8 and 9 of Notes to Consolidated Financial
Statements. Following are SBC's interest rate derivatives subject to interest
rate risk:
<TABLE>
- ----------------------------------------------------------------------------------------------------
Maturity
- ----------------------------------------------------------------------------------------------------
Fair
After Value
2000 2001 2002 2003 2004 2004 Total 12/31/99
- ----------------------------------------------------------------------------------------------------
Interest Rate Derivatives
- ----------------------------------------------------------------------------------------------------
Interest Rate Swaps:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Variable
Notional Amount - - $130 $315 $200 $150 $795 $(20)
Variable Rate Payable 1 6.3% 6.9% 7.0% 7.1% 7.1% 7.2%
Weighted Average Fixed
Rate Receivable 6.1% 6.1% 6.1% 6.1% 6.0% 6.0%
- ----------------------------------------------------------------------------------------------------
Receive Variable/Pay Fixed
Notional Amount $10 $120 $5 - - $250 $385 $6
Fixed Rate Payable 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%
Weighted Average Variable
Rate Receivable 2 6.4% 7.0% 7.1% 7.1% 7.2% 7.3%
- ----------------------------------------------------------------------------------------------------
Lease Obligations:
- ----------------------------------------------------------------------------------------------------
Variable Rate Leases 3 - $42 - - $81 - $123 $123
Average Interest Rate 3 6.7% 7.1% 7.2% 7.3% 7.3% -
====================================================================================================
<FN>
1 Interest payable based on Three Month London Interbank Offer Rate (LIBOR)
plus or minus a spread.
2 Interest receivable based on Three Month Commercial Paper Index published by
Federal Reserve.
3 Average interest rate based on current and implied forward rates for One
Month LIBOR plus 30 basis points. The lease obligations require interest
payments only until maturity.
</FN>
</TABLE>
In 1999, a $50 interest rate swap contract, linked to the variable rate debt,
matured and interest rate swap contracts of $13 linked to variable rate lease
obligations were exited with minimal effect on net income.
There has been no material change in the updated market risks since December 31,
1998.
Qualitative Information About Market Risk
Foreign Exchange Risk From time to time SBC makes investments in businesses in
foreign countries, is paid dividends, receives proceeds from sales or borrows
funds in foreign currency. Before making an investment, or in anticipation of a
foreign currency receipt, SBC often will enter into forward foreign exchange
contracts. The contracts are used to provide currency at a fixed rate. SBC's
policy is to measure the risk of adverse currency fluctuations by calculating
the potential dollar losses resulting from changes in exchange rates that have a
reasonable probability of occurring. SBC covers the exposure that results from
changes that exceed acceptable amounts. SBC does not speculate in foreign
exchange markets.
Equity Risk SBC has equity price risk exposure from certain outstanding employee
stock options linked to Vodafone AirTouch ADRs which are not significant (see
Note 13 of Notes to Consolidated Financial Statements).
Interest Rate Risk SBC issues debt in fixed and floating rate instruments.
Interest rate swaps are used for the purpose of controlling interest expense by
managing the mix of fixed and floating rate debt. SBC does not seek to make a
profit from changes in interest rates. SBC manages interest rate sensitivity by
measuring potential increases in interest expense that would result from a
probable change in interest rates. When the potential increase in interest
expense exceeds an acceptable amount, SBC reduces risk through the issuance of
fixed rate instruments and purchasing derivatives.
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.
Readers are cautioned that other factors discussed in this report, although not
enumerated here, also could materially impact SBC's future earnings.
<PAGE>
<TABLE>
<CAPTION>
SBC Communications Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Landline local service $ 19,003 $ 17,196 $ 15,961
Wireless subscriber 5,851 5,265 4,852
Network access 10,094 9,575 9,491
Long distance service 3,456 3,673 3,616
Directory advertising 4,266 3,929 3,615
Other 6,819 6,569 5,571
- ----------------------------------------------------------------------------------------------------
Total operating revenues 49,489 46,207 43,106
- ----------------------------------------------------------------------------------------------------
Operating Expenses
Operations and support 29,338 27,143 27,727
Depreciation and amortization 8,553 7,841 7,777
- ----------------------------------------------------------------------------------------------------
Total operating expenses 37,891 34,984 35,504
- ----------------------------------------------------------------------------------------------------
Operating Income 11,598 11,223 7,602
- ----------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense (1,430) (1,605) (1,550)
Equity in net income of affiliates 912 613 437
Other income (expense) - net (227) 1,884 49
- ----------------------------------------------------------------------------------------------------
Total other income (expense) (745) 892 (1,064)
- ----------------------------------------------------------------------------------------------------
Income Before Income Taxes, Extraordinary Items and
Cumulative Effect of Accounting Change 10,853 12,115 6,538
- ----------------------------------------------------------------------------------------------------
Income taxes 4,280 4,380 2,451
- ----------------------------------------------------------------------------------------------------
Income Before Extraordinary Items and Cumulative
Effect of Accounting Change 6,573 7,735 4,087
- ----------------------------------------------------------------------------------------------------
Extraordinary items, net of tax 1,379 (60) -
Cumulative effect of accounting change, net of tax 207 15 -
- ----------------------------------------------------------------------------------------------------
Net Income $ 8,159 $ 7,690 $ 4,087
====================================================================================================
Earnings Per Common Share:
Income Before Extraordinary Items and Cumulative
Effect of Accounting Change $ 1.93 $ 2.27 $ 1.21
Net Income $ 2.39 $ 2.26 $ 1.21
====================================================================================================
Earnings Per Common Share-Assuming Dilution:
Income Before Extraordinary Items and Cumulative
Effect of Accounting Change $ 1.90 $ 2.24 $ 1.20
Net Income $ 2.36 $ 2.23 $ 1.20
====================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBC Communications Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
- -----------------------------------------------------------------------------------------------------
December 31,
-------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 495 $ 599
Accounts receivable - net of allowances for uncollectibles of
$1,099 and $810 9,378 9,783
Prepaid expenses 651 843
Deferred income taxes 767 685
Other current assets 639 787
- -----------------------------------------------------------------------------------------------------
Total current assets 11,930 12,697
- -----------------------------------------------------------------------------------------------------
Property, Plant and Equipment - Net 46,571 44,194
- -----------------------------------------------------------------------------------------------------
Intangible Assets - Net of Accumulated Amortization of
$1,325 and $1,111 6,796 5,161
- -----------------------------------------------------------------------------------------------------
Investments in Equity Affiliates 10,648 7,412
- -----------------------------------------------------------------------------------------------------
Other Assets 7,270 5,502
- -----------------------------------------------------------------------------------------------------
Total Assets $ 83,215 $ 74,966
- -----------------------------------------------------------------------------------------------------
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 3,374 $ 4,178
Accounts payable and accrued liabilities 15,103 13,253
Dividends payable 836 809
- ------------------------------------------------------------------------------------------------------
Total current liabilities 19,313 18,240
- ------------------------------------------------------------------------------------------------------
Long-Term Debt 17,475 17,170
- ------------------------------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 4,821 2,846
Postemployment benefit obligation 9,612 9,193
Unamortized investment tax credits 389 474
Other noncurrent liabilities 3,879 3,269
- ------------------------------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities 18,701 15,782
- ------------------------------------------------------------------------------------------------------
Corporation-Obligated Mandatorily Redeemable Preferred
Securities Of Subsidiary Trusts# 1,000 1,000
- ------------------------------------------------------------------------------------------------------
Shareowners' Equity
Preferred shares ($1 par value, 10,000,000 authorized: none issued) - -
Common shares ($1 par value, 7,000,000,000 authorized: issued
3,433,124,836 at December 31, 1999 and 3,433,762,063 at December 31, 1998) 3,433 3,434
Capital in excess of par value 12,453 12,439
Retained earnings 13,798 8,948
Guaranteed obligations of employee stock ownership plans (ESOP) (106) (261)
Deferred compensation - leveraged ESOP (LESOP) (73) (82)
Treasury shares (37,752,621 at December 31, 1999 and
28,217,018 at December 31, 1998, at cost) (1,717) (882)
Accumulated other comprehensive income (1,062) (822)
- ------------------------------------------------------------------------------------------------------
Total shareowners' equity 26,726 22,774
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $ 83,215 $ 74,966
======================================================================================================
<FN>
#The trusts contain assets of $1,030 in principal amount of the Subordinated Debentures of Pacific Telesis
Group.
The accompanying notes are an integral part of the 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
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 8,159 $ 7,690 $ 4,087
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,553 7,841 7,777
Undistributed earnings from investments in equity affiliates (471) (256) (172)
Provision for uncollectible accounts 1,136 896 938
Amortization of investment tax credits (85) (96) (115)
Deferred income tax expense 1,061 840 553
Gain on sale of Telecom Corporation of New Zealand shares - (1,543) -
Extraordinary items, net of tax (1,379) 60 -
Cumulative effect of accounting change, net of tax (207) (15) -
Changes in operating assets and liabilities:
Accounts receivable (731) (2,257) (1,281)
Other current assets 335 310 (661)
Accounts payable and accrued liabilities 2,054 1,175 1,994
Other - net (1,847) (1,664) (1,541)
- -------------------------------------------------------------------------------------------------------------
Total adjustments 8,419 5,291 7,492
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 16,578 12,981 11,579
- -------------------------------------------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures (10,304) (8,882) (8,856)
Investments in affiliates 51 (77) (29)
Purchase of short-term investments (26) (42) (916)
Proceeds from short-term investments 31 355 1,029
Dispositions 4,867 2,727 1,000
Acquisitions (5,198) (3,261) (2,190)
Other 2 11 13
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (10,577) (9,169) (9,949)
- -------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less (787) (589) (761)
Issuance of other short-term borrowings - 2 1,079
Repayment of other short-term borrowings - (8) (805)
Issuance of long-term debt 738 2,890 2,246
Repayment of long-term debt (2,301) (2,860) (999)
Early extinguishment of debt and related call premiums (31) (765) (6)
Purchase of fractional shares - - (15)
Issuance of common shares 313 464 308
Issuance of preferred shares 103 322 250
Purchase of treasury shares (1,169) (498) (87)
Issuance of treasury shares 318 308 293
Dividends paid (3,287) (3,131) (2,966)
Other (2) 3 13
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (6,105) (3,862) (1,450)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (104) (50) 180
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 599 649 469
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Year $ 495 $ 599 $ 649
=============================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBC Communications Inc.
Consolidated Statements of Shareowners' Equity
Dollars and shares in millions except per share amounts
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Balance at beginning of year 3,434 $ 3,434 3,428 $ 3,428 3,430 $ 3,430
Purchase of shares (8) (8) (13) (13) (25) (25)
Issuance of shares 7 7 19 19 23 23
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year 3,433 $ 3,433 3,434 $ 3,434 3,428 $ 3,428
===============================================================================================================
Capital in Excess of Par Value
Balance at beginning of year $ 12,439 $ 12,375 $ 12,468
Purchase of shares (398) (487) (576)
Issuance of shares 215 370 406
Other 197 181 77
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 12,453 $ 12,439 $ 12,375
===============================================================================================================
Retained Earnings
Balance at beginning of year $ 8,948 $ 4,429 $ 3,338
Net income ($2.39, $2.26 and $1.21 per share) 8,159 7,690 4,087
Dividends to shareowners
($0.975, $0.935 and $0.895 per share) (3,312) (3,177) (3,015)
Other 3 6 19
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 13,798 $ 8,948 $ 4,429
===============================================================================================================
Guaranteed Obligations of ESOP
Balance at beginning of year $ (261) $ (409) $ (535)
Reduction of debt associated with ESOP 155 148 126
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ (106) $ (261) $ (409)
===============================================================================================================
Deferred Compensation - LESOP
Balance at beginning of year $ (82) $ (119) $ (161)
Cost of LESOP trust shares allocated to employees 9 37 42
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ (73) $ (82) $ (119)
===============================================================================================================
Treasury Shares
Balance at beginning of year (28) $ (882) (30) $ (730) (41) $ (985)
Purchase of shares (23) (1,169) (12) (498) (3) (87)
Issuance of shares 13 334 14 346 14 335
Other - - - - - 7
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year (38) $ (1,717) (28) $ (882) (30) $ (730)
===============================================================================================================
Accumulated Other Comprehensive Income,
net of tax
Balance at beginning of year $ (822) $ (1,111) $ (821)
Foreign currency translation adjustment,
net of taxes of $290, $37 and $(38) (336) 224 (287)
Reclassification adjustment to net income for
cumulative translation adjustment on securities sold - 56 -
Unrealized gains (losses) on available-for-sale securities 113 69 (3)
Less reclassification adjustment for gains
included in net income (17) (60) -
- ---------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (240) 289 (290)
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ (1,062) $ (822) $ (1,111)
===============================================================================================================
Total Comprehensive Income
Net income $ 8,159 $ 7,690 $ 4,087
Other comprehensive income (loss) per above (240) 289 (290)
- ---------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 7,919 $ 7,979 $ 3,797
===============================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Dollars in millions except per share amounts
Note 1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of SBC Communications Inc. and its majority-owned subsidiaries
(SBC). The statements reflect mergers of SBC's subsidiaries with Pacific
Telesis Group (PAC), Southern New England Telecommunications Corporation
(SNET) and Ameritech Corporation (Ameritech) as poolings of interests (see
Note 2). SBC's subsidiaries and affiliates operate in the communications
services industry, providing wireline and wireless telecommunications
services and equipment, directory advertising, electronic security services
and cable television services both domestically and worldwide.
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
SBC's year end.
The preparation of financial statements in conformity with United States'
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Certain amounts in prior period financial statements have been
reclassified to conform to the current year's presentation.
Income Taxes - Deferred income taxes are provided for temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes.
Investment tax credits earned prior to their repeal by the Tax Reform Act of
1986 are amortized as reductions in income tax expense over the lives of the
assets which gave rise to the credits.
Cash Equivalents - Cash and cash equivalents include all highly liquid
investments with original maturities of three months or less and the
carrying amounts approximate fair value.
Deferred Charges - Directory advertising costs are deferred until the
directory is published and advertising revenues related to these costs are
recognized.
Revenue Recognition/Cumulative Effect of Accounting Change - SBC recognizes
revenues as earned. Certain revenues derived from local telephone and
wireless services are billed monthly in advance and are recognized the
following month when services are provided. Revenues derived from other
telecommunications services, principally network access, long distance and
wireless airtime usage, are recognized monthly as services are provided.
Ameritech's directory publishing subsidiary, prior to January 1, 1999, and
SNET prior to January 1, 1998, 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, for Ameritech and January 1, 1998, for
SNET the accounting was changed to the "issue basis" method of accounting,
which recognizes the revenues and expenses at the time the related directory
is published. The change in methodology was made because the issue basis
method is generally followed in the publishing industry, including by SBC's
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 and 1998 as
one-time, non-cash gains of $207, or $0.06 per share and $15, or $0.01 per
share, net of deferred taxes of $125 and $11. Had the current method been
applied during prior periods, income before extraordinary items and
cumulative effect of accounting change would not have been materially
affected.
<PAGE>
Notes to Consolidated Financial Statements, continued
Dollars in millions except per share amounts
Property, Plant and Equipment - Property, plant and equipment is stated at
cost. The cost of additions and substantial improvements to property, plant
and equipment is capitalized. The cost of maintenance and repairs of
property, plant and equipment is charged to operating expenses. Property,
plant and equipment is depreciated using straight-line methods over their
estimated economic lives, generally ranging from 3 to 50 years. Certain
subsidiaries follow composite group depreciation methodology; accordingly,
when a portion of their depreciable property, plant and equipment is retired
in the ordinary course of business, the gross book value is charged to
accumulated depreciation; no gain or loss is recognized on the disposition
of this plant.
Intangible Assets - Intangible assets consist primarily of wireless cellular
and Personal Communications Services (PCS) licenses, customer lists and the
excess of consideration paid over net assets acquired in business
combinations. These assets are being amortized using the straight-line
method, over periods generally ranging from 5 to 40 years. At December 31,
1999 and 1998, amounts included in net intangible assets for licenses were
$3,713 and $2,660. Management periodically reviews the carrying value and
lives of all intangible assets based on expected future cash flows.
Advertising Costs - Costs for advertising products and services or corporate
image are expensed as incurred.
Foreign Currency Translation - Local currencies generally are considered the
functional currency for SBC's share of foreign investments, except in
countries considered highly inflationary. SBC translates its share of
foreign assets and liabilities at current exchange rates. Revenues and
expenses are translated using average rates for the year. The resulting
foreign currency translation adjustments are recorded as a separate
component of accumulated other comprehensive income. Other transaction gains
and losses resulting from exchange rate changes on transactions denominated
in a currency other than the local currency are included in earnings as
incurred.
Derivative Financial Instruments - SBC does not invest in derivatives for
trading purposes. From time to time, as part of its risk management
strategy, SBC uses derivative financial instruments, including interest rate
swaps, to hedge exposures to interest rate risk on debt obligations, and
foreign currency forward exchange contracts to hedge exposures to changes in
foreign currency rates for transactions related to its foreign investments.
Derivative contracts are entered into for hedging of firm commitments only.
SBC currently does not recognize the fair values of these derivative
financial investments or their changes in fair value in its financial
statements. Interest rate swap settlements are recognized as adjustments to
interest expense in the consolidated statements of income when paid or
received. Foreign currency forward exchange contracts are set up to coincide
with firm commitments. Gains and losses are deferred until the underlying
transaction being hedged occurs, and then are recognized as part of that
transaction (see Note 9).
Note 2. Completion of Mergers
In October 1999, SBC and Ameritech completed the merger of an SBC subsidiary
with Ameritech in a transaction in which each share of Ameritech common
stock was exchanged for 1.316 shares of SBC common stock (equivalent to
approximately 1,446 million shares). Ameritech became a wholly owned
subsidiary of SBC effective with the merger and the transaction has been
accounted for as a pooling of interests and a tax-free reorganization.
Financial statements for prior periods have been restated to include the
accounts of Ameritech. Transaction costs related to the merger were $77 ($48
net of tax). Of this total $25 ($16 net of tax) is included in expenses in
1999 and $52 ($32 net of tax) in 1998.
Operating revenues, income before extraordinary items and cumulative effect
of accounting change and net income of the separate companies on a
pre-merger basis for the last three periods are presented below:
<TABLE>
-------------------------------------------------------------------------------------------
Nine Months
Ended
September 30, Year Ended December 31,
---------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
SBC $ 22,477 $ 28,777 $ 26,681
Ameritech 13,912 17,154 15,998
Adjustments 203 276 427
-------------------------------------------------------------------------------------------
Combined $ 36,592 $ 46,207 $ 43,106
===========================================================================================
Income before extraordinary items and
cumulative effect of accounting change:
SBC $ 3,569 $ 4,068 $ 1,674
Ameritech 1,438 3,606 2,296
Adjustments (161) 61 117
-------------------------------------------------------------------------------------------
Combined $ 4,846 $ 7,735 $ 4,087
===========================================================================================
Net income:
SBC $ 3,569 $ 4,023 $ 1,674
Ameritech 1,645 3,606 2,296
Adjustments (161) 61 117
-------------------------------------------------------------------------------------------
Combined $ 5,053 $ 7,690 $ 4,087
===========================================================================================
</TABLE>
Combined results include the effect of retroactively conforming accounting
methodologies between SBC and Ameritech. Among other items, non-cash
adjustments were made to conform accounting for pension and postretirement
benefits between the companies and to immediately expense certain items
routinely deferred and amortized by Ameritech, including sales commissions
and leased customer security and paging equipment. The pension and
postretirement adjustments include the effects of conforming the adoption
date for postretirement accounting, methods of recognizing actuarial gains
and conforming the estimate methods used related to the current year's
benefit plans.
In October 1998, SBC and SNET completed the merger of an SBC subsidiary with
SNET in a transaction in which each share of SNET common stock was exchanged
for 1.7568 shares of SBC common stock (equivalent to approximately 120
million shares). SNET became a wholly owned subsidiary of SBC effective with
the merger, and the transaction was accounted for as a pooling of interests
and a tax-free reorganization.
In April 1997, SBC and PAC completed the merger of an SBC subsidiary with
PAC in a transaction in which each outstanding share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to approximately
626 million shares). With the merger, PAC became a wholly owned subsidiary
of SBC. The transaction was accounted for as a pooling of interests and a
tax-free reorganization.
Post-Merger Initiatives
Upon completion of each merger, SBC performed an evaluation and review of
operations throughout the merged company. These reviews included the
formation of teams that performed comprehensive evaluations of companywide
operations (review teams). Based on these merger integration reviews,
certain strategic decisions were made and significant integration of
operations and consolidation of some administrative and support functions
occurred resulting in one-time charges. The following table summarizes the
charges incurred for each merger related to these reviews and decisions:
<TABLE>
--------------------------------------------- --- ----------- --- --------- -- ---------
Pre-tax charges Ameritech SNET PAC
--------------------------------------------- --- ----------- --- --------- -- ---------
<S> <C> <C> <C>
Reorganization $ 582 $ 82 $ 839
Impairments/asset valuation 690 321 965
Wireless conversion 220 - -
Regulatory and legal 164 - 165
Merger approval costs 31 - 281
Other items and estimates of other
obligations 79 - -
Pacific and Southwestern video
curtailment/purchase commitments - - 698
--------------------------------------------- --- ----------- --- --------- -- ---------
Total one-time charges $ 1,766 $ 403 $ 2,948
============================================= === =========== === ========= == =========
After-tax charges Ameritech SNET PAC
--------------------------------------------- --- ----------- --- --------- -- ---------
Reorganization $ 379 $ 50 $ 517
Impairments/asset valuation 472 199 667
Wireless conversion 143 - -
Regulatory and legal 102 - 101
Merger approval costs 19 - 176
Other items and estimates of other
obligations 342 - -
Pacific and Southwestern video
curtailment/purchase commitments - - 438
--------------------------------------------- --- ----------- --- --------- -- ---------
Total one-time charges $ 1,457 $ 249 $ 1,899
============================================= === =========== === ========= == =========
</TABLE>
One-time charges incurred in the third and fourth quarter of 1999 totaled
$1,766 ($1,457 net of tax). These charges included costs related to various
regulatory and legal issues, merger approval costs and other related costs
of $274 ($174 net of tax). In addition, these charges included costs related
to strategic decisions reached by the review teams of $1,492 ($1,283 net of
tax) in 1999. Charges in the fourth quarter of 1998 for the SNET merger and
the second quarter of 1997 for the PAC merger of $403 ($249 net of tax) and
$2 billion ($1.3 billion net of tax) also related to the strategic decisions
reached by the review teams. At December 31, 1999, 1998 and 1997, remaining
accruals for anticipated cash expenditures related to the PAC and SNET
decisions were approximately $52, $323 and $432. Anticipated cash
expenditures related to the decisions for the Ameritech merger totaled $703
at December 31, 1999.
Reorganization - SBC is centralizing several key functions that will support
the wireline operations including network planning, strategic marketing and
procurement. It also is consolidating a number of corporatewide support
activities, including research and development, information technology,
financial transaction processing and real estate management. These
initiatives continue to result in the creation of some jobs and the
elimination and realignment of others, with many of the affected employees
changing job responsibilities and in some cases assuming positions in other
locations.
SBC recognized net charges of approximately $582 ($379 net of tax) during
the fourth quarter of 1999, $82 ($50 net of tax) during the fourth quarter
of 1998 and $839 ($517 net of tax) during 1997 in connection with these
initiatives. The charges were comprised mainly of postemployment benefits,
primarily related to severance, and costs associated with closing duplicate
operations, primarily contract cancellations. Other charges arising out of
the mergers related to relocation, retraining and other effects of
consolidating certain operations are being recognized in the periods those
charges are incurred. The fourth quarter 1999 charge is net of $45 ($29 net
of tax) of reversals of accruals made in connection with the SNET and PAC
mergers that were related to plans now superseded by the current
reorganization plans.
Impairments/Asset Valuation - As a result of SBC's merger integration plans,
strategic review of domestic operations and organizational alignments, SBC
reviewed the carrying values of the long-lived assets in the third and
fourth quarter of 1999, the fourth quarter of 1998 and the second quarter of
1997. The reviews were conducted companywide, although the 1998 review
focused primarily on SNET and the 1999 review focused primarily on
Ameritech. These reviews included estimating remaining useful lives and cash
flows and identifying assets to be abandoned. Where this review indicated
impairment, fair market values, including, in some cases, discounted cash
flows as an estimate of fair value, related to those assets were analyzed to
determine the amount of the impairment. As a result of these reviews, SBC
wrote off certain assets and recognized impairments to the value of other
assets with a combined charge of $690 ($472 net of tax) in the third and
fourth quarter of 1999, $321 ($199 net of tax) in the fourth quarter of 1998
and $965 ($667 net of tax) in the second quarter of 1997.
The 1999 adjustments include an impairment of $300 ($224 net of tax) related
to Ameritech's security business. This impairment adjustment, taken as a
reduction in goodwill of $300, reflects a reduction of the investment to
fair market value based upon the value of comparable businesses. In
connection with this adjustment, SBC shortened the estimated life of the
remaining goodwill on the security business from 40 to 15 years. As a result
of these adjustments, SBC estimates amortization expense will increase by
$10 to $15 annually for the remaining life of the goodwill. Also in 1999,
SBC performed a review of the allowance for doubtful accounts at the
Ameritech subsidiaries and recognized a charge of $212 ($135 after tax).
This charge resulted from adjusting Ameritech's estimation methods to the
method utilized by SBC. Other 1999 adjustments consist primarily of
valuation adjustments on certain analog switching equipment at Ameritech and
certain cost investments.
The 1998 impairments and writeoffs primarily related to recognition of an
impairment of the assets supporting SNET's video and telephony operations,
and also included charges for required changes in wireless equipment,
inventory and sites. The 1997 impairments and writeoffs related primarily to
the wireless digital television operations in southern California, certain
analog switching equipment in California, certain rural and other
telecommunications equipment in Nevada, selected wireless equipment,
duplicate or obsolete equipment, cable within commercial buildings in
California, certain nonoperating plant and other assets.
Wireless Conversion - In December 1999, Ameritech notified its wireless
customers that the current wireless network platform (Code Division Multiple
Access or CDMA) would be converted to the network platform utilized by SBC
(Time Division Multiple Access or TDMA). As part of the conversion, SBC sold
the CDMA network assets and is leasing it back over the conversion period. A
charge of $220 ($143 net of tax) was recognized in the fourth quarter to
recognize the loss on the sale and leaseback and to replace the customers'
CDMA handsets.
Other Items and Estimates of Other Obligations - SBC performed reviews of
Ameritech's and PAC's accounting operations and applied consistent
accounting techniques between the merging companies. As a result, SBC
recognized charges in 1999 and 1997 related to the impact of several
regulatory and legal rulings of $164 ($102 net of tax) and $165 ($101 net of
tax). Also in 1997, SBC recognized a charge of $281 ($176 net of tax) for
PAC merger approval costs. In 1999 SBC incurred a charge of $31 ($19 net of
tax) for Ameritech merger approval costs. In 1999 charges for deferred taxes
on Ameritech's international investments of $289, net charges related to the
routine deferral of certain costs and revenues by Ameritech of $62 ($40
after tax) and other miscellaneous items of $17 ($13 net of tax) were
recognized.
Pacific and Southwestern Video Curtailment/Purchase Commitments - SBC also
announced in 1997 that it was scaling back its limited direct investment in
video services in the areas also served by Pacific Bell Telephone Company
(PacBell) and Southwestern Bell Telephone Company (SWBell). As a result of
this curtailment, SBC halted construction on the Advanced Communications
Network (ACN) in California. As part of an agreement with the ACN vendor,
SBC paid the liabilities of the ACN trust that owned and financed ACN
construction, incurred costs to shut down all construction previously
conducted under the trust and received certain consideration from the
vendor. In the second quarter of 1997, SBC recognized net expense of $553
($346 net of tax) associated with these activities. During the third quarter
of 1997, SBC recorded the corresponding short-term debt of $610 previously
incurred by the ACN trust on its balance sheet.
Additionally, SBC curtailed certain other video-related activities including
discontinuing its broadband network video trials in Richardson, Texas, and
San Jose, California, substantially scaling back its involvement in the
Tele-TV joint venture and withdrawing its operations in territory served by
SWBell from the Americast venture. During 1999, SBC negotiated a settlement
with its Americast partners related to the withdrawal. The settlement did
not have a material impact on SBC's financial condition or results of
operations. The collective impact of these decisions and actions by SBC
resulted in a charge of $145 ($92 net of tax) in the second quarter of 1997.
Note 3. Subsidiary Financial Information
SBC has not provided separate financial statements and other disclosures for
PAC as management has determined that such information is not material to
the holders of the Trust Originated Preferred Securities (TOPrS) (see Note
9), which have been guaranteed by SBC. See Note 7 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 at December 31, or for the year then ended:
<TABLE>
------------------------------------------------------------------------------------
PAC 1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheets
Current assets $ 3,022 $ 3,037 $ 2,835
Noncurrent assets 15,334 15,428 14,150
Current liabilities 4,944 5,278 4,513
Noncurrent liabilities 10,284 10,482 10,413
====================================================================================
Income Statements
Operating revenues $ 11,747 $ 11,305 $ 10,101
Operating income (loss) 2,866 2,612 (166)
Income (loss) before extraordinary loss and
cumulative effect of accounting changes 1,521 1,240 (546)
Net income (loss) 1,303 1,180 (224)
=====================================================================================
</TABLE>
SBC has not provided separate financial statements and other disclosures for
SWBell or PacBell as management has 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 7 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:
<TABLE>
--------------------------------------------------------------------------------------------
SWBell 1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheets
Current assets $ 2,453 $ 2,538 $ 2,452
Noncurrent assets 13,978 13,241 12,562
Current liabilities 5,127 4,679 3,686
Noncurrent liabilities 8,403 7,838 8,310
============================================================================================
Income Statements
Operating revenues $ 11,173 $ 10,752 $ 10,116
Operating income 2,815 2,794 2,192
Income before cumulative effect of accounting change 1,540 1,527 1,187
Net income 1,267 1,527 1,187
============================================================================================
--------------------------------------------------------------------------------------------
PacBell 1999 1998 1997
--------------------------------------------------------------------------------------------
Balance Sheets
Current assets $ 2,318 $ 2,431 $ 2,337
Noncurrent assets 13,620 12,662 12,002
Current liabilities 4,539 4,445 3,599
Noncurrent liabilities 8,680 7,388 7,953
============================================================================================
Income Statements
Operating revenues $ 9,718 $ 9,406 $ 8,726
Operating income 2,259 2,299 483
Income before extraordinary loss and
cumulative effect of accounting changes 1,161 1,137 -
Net income 151 1,077 345
============================================================================================
</TABLE>
Note 4. Earnings Per Share
A reconciliation of the numerators and denominators of basic earnings per
share and diluted earnings per share for income before extraordinary items
and cumulative effect of accounting change for the years ended December 31,
1999, 1998 and 1997 are shown in the table below:
<TABLE>
-------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerators
Numerator for basic earnings per share:
Income before extraordinary items and
cumulative effect of accounting change $ 6,573 $ 7,735 $ 4,087
Dilutive potential common shares:
Other stock-based compensation 4 4 3
-------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $ 6,577 $ 7,739 $ 4,090
===========================================================================================
Denominators
Denominator for basic earnings per share:
Weighted average number of common
shares outstanding (000,000) 3,409 3,406 3,391
Dilutive potential common shares
(000,000):
Stock options 42 38 25
Other stock-based compensation 7 6 4
-------------------------------------------------------------------------------------------
Denominator for diluted earnings per share 3,458 3,450 3,420
===========================================================================================
Basic earnings per share
Income before extraordinary items and
cumulative effect of accounting change $ 1.93 $ 2.27 $ 1.21
Extraordinary items 0.40 (0.02) -
Cumulative effect of accounting change 0.06 0.01 -
-------------------------------------------------------------------------------------------
Net income $ 2.39 $ 2.26 $ 1.21
===========================================================================================
Diluted earnings per share
Income before extraordinary items and
cumulative effect of accounting change $ 1.90 $ 2.24 $ 1.20
Extraordinary items 0.40 (0.02) -
Cumulative effect of accounting change 0.06 0.01 -
-------------------------------------------------------------------------------------------
Net income $ 2.36 $ 2.23 $ 1.20
===========================================================================================
</TABLE>
Note 5. Property, Plant and Equipment
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Land $ 589 $ 590
Buildings 10,284 10,269
Central office equipment 43,335 40,874
Cable, wiring and conduit 48,785 46,499
Other equipment 11,241 9,626
Under construction 2,098 1,920
--------------------------------------------------------------------------
116,332 109,778
Accumulated depreciation and amortization 69,761 65,584
--------------------------------------------------------------------------
Property, plant and equipment-net $ 46,571 $ 44,194
==========================================================================
</TABLE>
SBC's depreciation expense as a percentage of average depreciable plant was
7.4%, 7.2% and 7.4% for 1999, 1998 and 1997.
Certain facilities and equipment used in operations are leased under
operating or capital leases. Rental expenses under operating leases for
1999, 1998 and 1997 were $707, $683 and $606. At December 31, 1999, the
future minimum rental payments under noncancelable operating leases for the
years 2000 through 2004 were $366, $304, $220, $160 and $165 and $623
thereafter. Capital leases are not significant.
In October 1999, as the first post-Ameritech merger initiative, SBC launched
an initiative to provide advanced broadband services to many of its United
States wireline customers (Project Pronto) over the next three years. Since
the launch of Project Pronto, SBC has incurred $20 ($13 net of tax) related
to network placement costs. The launch of Project Pronto and the Federal
Communications Commission's recent rulings on data services and unbundled
network element pricing led SBC to review and evaluate the carrying value of
its network plant in its traditional wireline operations in the fourth
quarter of 1999 and determine that an impairment did not exist. Project
Pronto will result in the migration of certain customers to new network
services. As this migration occurs, SBC will monitor, review and assess both
the carrying value and economic useful lives of the currently existing
network facilities. This assessment may result in an impairment of the
future carrying value of the existing facilities or the shortening of some
of its economic lives. Should that occur, material charges to future
operations in the wireline segment may be required.
Note 6. Equity Investments
Investments in equity affiliates are accounted for under the equity method
and include the June 1999 purchase of a 20% interest of Bell Canada, the
largest supplier of telecommunications services in Canada, and the 1998
acquisition of a 41.6% equity interest of Tele Danmark A/S (Tele Danmark),
the national communications provider in Denmark (see Note 15). SBC currently
is able to elect six of twelve members of the Tele Danmark Board of
Directors, including the Chairman, who would cast any tie-breaking vote.
Investments in equity affiliates also includes SBC's investment in Telefonos
de Mexico, S.A. de C.V. (Telmex), Mexico's national telecommunications
company. SBC is a member of a consortium that holds all of the 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. SBC also owns L shares which have
limited voting rights. Throughout 1999, 1998 and 1997, SBC sold portions of
its L shares mainly in response to open market share repurchases by Telmex,
so that its total equity investment remained below 10% of Telmex's total
equity capitalization. At December 31, 1999 and 1998 SBC held an approximate
8.9% and 9.8% equity interest in Telmex.
Other major equity investments held by SBC include a 17.5% interest in
Belgacom S.A. (Belgacom), the national communications provider in Belgium,
an 18% interest in Telkom SA Limited (Telkom), the state-owned
telecommunications company of South Africa, a 29.8% interest in MATAV, the
national communications provider in Hungary, a 15% interest in Cegetel, a
joint venture providing a broad range of telecommunications offerings in
France and minority ownership of several domestic wireless properties.
The following table is a reconciliation of SBC's investments in equity
affiliates:
<TABLE>
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year $ 7,412 $ 4,453 $ 4,226
Additional investments 3,702 3,159 1,076
Equity in net income 912 613 437
Dividends received (445) (344) (254)
Currency translation adjustment (707) 169 (476)
Reclassifications and other adjustments (226) (638) (556)
-------------------------------------------------------------------------------------
End of year $ 10,648 $ 7,412 $ 4,453
=====================================================================================
</TABLE>
The currency translation adjustment for 1999 primarily reflects the effect
of exchange rate fluctuations on SBC's investment in Tele Danmark and
Belgacom. Other adjustments for 1999 reflect the sale of Telmex L shares and
the sale of SBC's investment in Chile.
The currency translation adjustment for 1998 primarily reflects the effect
of exchange rate fluctuations on SBC's investment in Tele Danmark partially
offset by exchange rate fluctuations on SBC's investment in Telkom. Other
adjustments for 1998 reflect the sale of Telecom Corporation of New Zealand
Limited (TCNZ) shares, a write-down of an international investment and the
sale of Telmex L shares.
Currency translation adjustments for 1997 primarily reflect the effect of
the exchange rate fluctuations on SBC's investments in Telkom, Belgacom and
MATAV. Other adjustments for 1997 reflect the sale of Telmex L, TCNZ and
MATAV shares, and the change to the cost method of accounting for SBC's 1995
investment in Mobile Telephone Networks (MTN), which was sold during the
third quarter of 1998 (see Note 15).
Undistributed earnings from equity affiliates were $1,788 and $1,317 at
December 31, 1999 and 1998.
The following table presents summarized financial information of significant
investments accounted for using the equity method taking into account all
adjustments necessary to conform to United States' generally accepted
accounting principles, but excluding SBC's purchase adjustments including
goodwill, at December 31, or for the year then ended:
<TABLE>
----------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statements
Operating revenues $ 32,776 $ 24,232 $ 21,293
Operating income 8,941 6,383 5,254
Net income 4,892 3,515 2,327
============================================================================
Balance Sheets
Current assets $ 13,961 $ 9,793
Noncurrent assets 40,616 29,675
Current liabilities 13,395 12,323
Noncurrent liabilities 23,376 13,500
============================================================================
</TABLE>
At December 31, 1999, SBC had goodwill, net of accumulated amortization, of
approximately $5.9 billion related to investments in equity affiliates.
Based on the December 31, 1999 quoted market price, the aggregate market
value of SBC's investment in Tele Danmark was approximately $6.8 billion and
MATAV was approximately $2.2 billion. SBC's investment in Telmex consists of
both publicly traded and nonpublicly traded securities and therefore does
not have a quoted market price. SBC's weighted average share of operating
revenues shown above was 19% in 1999 and 1998 and 17% in 1997.
Note 7. Segment Information
SBC's segments are strategic business units that offer different products
and services and are managed accordingly. SBC evaluates performance based on
income before income taxes adjusted for normalizing (i.e. one-time) items.
Transactions between segments are reported at fair value and the accounting
policies of the segments are the same as those described in Note 1.
As a result of the merger with Ameritech and to better reflect the broadened
scope of its operations, SBC adjusted its segment reporting structure in
1999. SBC now has four reportable segments that reflect the current
management of its business: wireline, wireless, information and
entertainment, and 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 expands on what was previously the directory segment,
and includes all directory operations of the combined company including
advertising, yellow pages, white pages and electronic publishing and
Ameritech's electronic security and cable television operations. All
international investment operations have been removed from the other segment
and are shown separately in the international segment. The miscellaneous
items that formerly were included in the other segment are immaterial and
have been moved to corporate, adjustments and eliminations.
Normalized results in 1999 include the following adjustments:
o After-tax charges totaling $1.5 billion including, among other items,
recognition of impairment of long-lived assets, adjustments to the
estimate of allowance for doubtful accounts, estimation of deferred
taxes on international investments, wireless conversion costs and other
items as discussed in Note 2.
o Elimination of income of $119 from the incremental impacts of
overlapping wireless properties sold in October 1999.
o After-tax pension settlement gains of $368 associated with lump sum
pension payments that exceeded the projected service and interest costs.
o After-tax gains of $77 recognized from the sale of property by an
international equity affiliate.
o An after-tax reduction of $27 of a portion of a first quarter 1998
charge to cover the cost of consolidating security monitoring centers
and company-owned wireless retail stores.
For 1998, normalizing items included the following items:
o After-tax gain of $1,012 for the sale of TCNZ shares.
o After-tax charges of $268 related to strategic initiatives resulting
from the merger integration process with SNET.
o After-tax gains of $219 from the sale of certain non-core businesses,
principally the required disposition of SBC's investment in MTN, a
cellular company in South Africa.
o Elimination of income of $123 from the incremental impacts of
overlapping wireless properties sold in October 1999.
o After-tax gain of $102 from the sale of certain telephone and
directory assets.
o After-tax charge of $64 to cover the cost of consolidating security
monitoring centers and company-owned wireless retail stores.
Normalizing items in 1997 included the following adjustments:
o After-tax charges of $1.6 billion related to strategic initiatives
resulting from the merger integration process with PAC.
o After-tax charge of $87 for SBC's share of the costs of a work force
restructuring at Belgacom.
o After-tax charges of $304 for ongoing merger integration costs (see
Note 2).
o After-tax first quarter settlement gains of $90 at PAC associated
with lump sum pension payments that exceeded the projected service and
interest costs for 1996 retirements.
o Elimination of income of $88 from the incremental impacts of
overlapping wireless properties sold in October 1999.
o After-tax gain of $58 from the sale of SBC's interests in Bell
Communications Research, Inc.
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.
<PAGE>
<TABLE>
<CAPTION>
Segment results, including a reconciliation to SBC consolidated results, for
1999, 1998 and 1997 are as follows:
- ----------------------------------------------------------------------------------------------------------------
Information Corporate,
At December 31, 1999 or for and Adjustments Normalizing
the year ended Wireline Wireless Entertainment International & Eliminations Adjustments Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $ 37,254 $ 6,759 $ 4,686 $ 137 $ 124 $ 529 $ 49,489
Intersegment revenues 322 5 91 10 (428) - -
Depreciation and
amortization 6,826 927 194 17 174 415 8,553
Equity in net income of
affiliates (2) 42 - 739 2 131 912
Interest expense 1,188 227 53 312 (362) 12 1,430
Income before income taxes 8,052 918 1,641 706 364 (828) 10,853
Segment assets 53,692 11,593 4,015 12,615 1,300 - 83,215
Investment in equity method
investees 31 216 48 10,372 (19) - 10,648
Expenditures for additions
to long-lived assets 8,754 988 232 1 329 - 10,304
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
Information Corporate,
At December 31, 1998 or for and Adjustments Normalizing
the year ended Wireline Wireless Entertainment International & Eliminations Adjustments Total
- ----------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 35,114 $ 5,628 $ 4,263 $ 132 $ 186 $ 884 $ 46,207
Intersegment revenues 305 1 82 17 (405) - -
Depreciation and
amortization 6,440 707 201 18 150 325 7,841
Equity in net income of
affiliates (6) 25 - 588 6 - 613
Interest expense 1,250 189 42 282 (179) 21 1,605
Income before income taxes 7,318 564 1,590 453 435 1,755 12,115
Segment assets 50,948 9,183 4,193 11,230 (588) - 74,966
Investment in equity method
investees 47 244 34 7,106 (19) - 7,412
Expenditures for additions
to long-lived assets 7,471 978 193 13 227 - 8,882
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
Information Corporate,
At December 31, 1997 or for and Adjustments Normalizing
the year ended Wireline Wireless Entertainment International & Eliminations Adjustments Total
- ----------------------------------------------------------------------------------------------------------------
Revenues from external
customers $ 33,282 $ 5,022 $ 3,728 $ 103 $ 298 $ 673 $ 43,106
Intersegment revenues 374 1 91 19 (485) - -
Depreciation and
amortization 6,158 607 149 18 145 700 7,777
Equity in net income of
affiliates (4) 9 - 528 (9) (87) 437
Interest expense 1,198 165 54 104 (16) 45 1,550
Income before income taxes 6,558 372 1,350 512 375 (2,629) 6,538
Expenditures for additions
to long-lived assets 7,314 1,066 238 2 236 - 8,856
================================================================================================================
</TABLE>
Geographic Information
SBC's investments outside of the United States are primarily accounted for
under the equity method of accounting and do not record in operating
revenues and expenses the revenues and expenses of the individual companies
in which SBC invests. Specifically, less than 1% of total operating revenues
for all years presented are from outside the United States. Long-lived
assets outside the United States consist primarily of the book value of
these investments:
---------------------------------------------------------
December 31, 1999 1998
---------------------------------------------------------
United States $ 48,924 $ 45,493
Canada 3,770 -
Denmark 3,019 3,401
Mexico 906 836
Belgium 831 892
South Africa 708 694
Hungary 532 534
France 459 557
Other foreign countries 129 199
---------------------------------------------------------
Total $ 59,278 $ 52,606
=========================================================
Note 8. Debt
Long-term debt of SBC and its subsidiaries, including interest rates and
maturities, is summarized as follows at December 31:
<TABLE>
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Notes and debentures
4.37%-6.00% 1999-2007 1 $ 3,056 $ 3,366
6.03%-7.85% 1999-2048 2 13,990 13,568
8.00%-10.50% 1999-2031 577 646
----------------------------------------------------------------------------
17,623 17,580
Unamortized discount-net of premium 236 (101)
----------------------------------------------------------------------------
Total notes and debentures 17,859 17,479
----------------------------------------------------------------------------
Guaranteed obligations of ESOP 3
8.10%-9.40% 2000 88 164
----------------------------------------------------------------------------
Capitalized leases 258 268
----------------------------------------------------------------------------
Total long-term debt, including current maturities 18,205 17,911
Current maturities (730) (741)
----------------------------------------------------------------------------
Total long-term debt $ 17,475 $ 17,170
============================================================================
<FN>
1 Includes $250 of 5.9% debentures maturing in 2038 with a put option by holder in 2005.
2 Includes $125 of 6.35% debentures maturing in 2026 with a put option by holder in 2006.
3 See Note 12.
</FN>
</TABLE>
At December 31, 1999, the aggregate principal amounts of long-term debt and
weighted average interest rate scheduled for repayment for the years 2000
through 2004 were $730 (6.4%), $1,466 (6.7%), $1,107 (6.6%), $1,722 (6.0%),
$1,154 (6.5%) with $11,790 (6.9%) due thereafter. As of December 31, 1999,
SBC was in compliance with all covenants and conditions of instruments
governing its debt. Substantially all of SBC's outstanding long-term debt is
unsecured.
In January 2000, SBC guaranteed existing publicly issued debt securities
issued by Ameritech Capital Funding Corporation, Illinois Bell Telephone
Company, Indiana Bell Telephone Company, Inc., Michigan Bell Telephone
Company, The Ohio Bell Telephone Company, PacBell, Southern New England
Telecommunications Corporation, The Southern New England Telephone Company,
SWBell and Wisconsin Bell, Inc. Each guarantee will apply as long as the
individual company remains a wholly owned subsidiary of SBC.
Financing Activities - In December 1999, SBC called approximately $31 of
debt that was scheduled to mature in December 2004. The net income effect of
retiring this debt did not materially impact SBC's financial statements.
During 1999, subsequent to the completion of the acquisitions of Comcast
Cellular Corporation (Comcast) and Cellular Communications of Puerto Rico,
Inc. (Cellular Communications), SBC retired $1,415 of Comcast's and Cellular
Communications' long-term debt with no effect on net income. In May 1999,
SBC issued $750 of 6.25% unsecured Eurodollar notes, due May 2009.
In 1998, SBC issued approximately $2,150 in notes and debentures. The notes
and debentures bear interest rates ranging from 5.65% to 6.88% and mature
between 2001 and 2048. Also, in 1998, SBC issued $750 of 5.88% unsecured
Eurodollar notes, due February 2003. SBC used proceeds from these borrowings
primarily to fund its investment in Tele Danmark.
Debt maturing within one year consists of the following at December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Commercial paper $ 2,623 $ 3,412
Current maturities of long-term debt 730 741
Other short-term debt 21 25
----------------------------------------------------------------------------
Total $ 3,374 $ 4,178
============================================================================
The weighted average interest rate on commercial paper debt at December 31,
1999 and 1998 was 5.72% and 5.43%. SBC has entered into agreements with
several banks for committed lines of credit totaling $2,880 all of which may
be used to support commercial paper borrowings. SBC had no borrowings
outstanding under these lines of credit as of December 31, 1999 or 1998.
Note 9. Financial Instruments
The carrying amounts and estimated fair values of SBC's long-term debt,
including current maturities, and other financial instruments, are
summarized as follows at December 31:
<TABLE>
---------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes and debentures $ 17,859 $ 17,086 $ 17,479 $ 18,656
TOPrS 1,000 924 1,000 1,029
Preferred stock of subsidiaries 820 820 717 717
Guaranteed obligations of ESOP1 88 94 164 169
=============================================================================================
<FN>
1 See Note 12.
</FN>
</TABLE>
The fair values of SBC's notes and debentures, including ESOP obligations,
were estimated based on quoted market prices, where available, or on the net
present value method of expected future cash flows using current interest
rates. The fair value of the TOPrS was estimated based on quoted market
prices. The carrying amounts of preferred stock of subsidiaries and
commercial paper debt approximate fair values. SBC's short-term investments
and customer deposits are recorded at amortized cost and the carrying
amounts approximate fair values.
Preferred Stock Issuances by Subsidiaries - In April 1998, an SBC subsidiary
issued through private placement 3,250 shares of stated rate auction
preferred stock (STRAPS). Net proceeds from these issuances totaled $322.
Dividends accrue on the STRAPS at varying rates, which are adjusted
periodically through separate auctions on each series. Dividends are
cumulative from the date of issuance. The dividend rates for each series
ranged from 4.39% to 5.05% as of December 31, 1999.
In June 1997 and December 1999, one of SBC's wholly owned subsidiaries
issued $250 and $100 of preferred stock in private placements. The holders
of the preferred stock may require SBC's subsidiary to redeem the shares
after May 20, 2004. Holders receive quarterly dividends based on a rolling
three-month London Interbank Offer Rate (LIBOR). The dividend rate for the
December 31, 1999 payment was 6.28%.
As of December 31, 1999, a wholly owned subsidiary had outstanding $85 of
Series A Preferred Stock (7.04%, subject to mandatory redemption in 2001)
and $60 of Series B Preferred Stock (variable rate, 4.60% as of December 31,
1999, not subject to mandatory redemption).
The preferred stock of subsidiaries discussed above is included in other
noncurrent liabilities on the consolidated balance sheet.
Pacific Telesis Financing I and II (the Trusts) were formed in 1996 for the
exclusive purpose of issuing preferred and common securities representing
undivided beneficial interests in the Trusts and investing the proceeds from
the sales of TOPrS in unsecured subordinated debt securities of PAC. Under
certain circumstances, dividends on TOPrS could be deferred for up to a
period of five years. As of December 31, 1999, the Trusts held subordinated
debt securities of PAC in principal amounts of $516 and $514 with interest
rates of 7.56% and 8.50%. The TOPrS are priced at $25 per share, have an
original 30-year maturity that may be extended up to 49 years, are callable
in 2001 at par and are included on the balance sheet as
corporation-obligated mandatorily redeemable preferred securities of
subsidiary trusts. The proceeds were used to retire short-term indebtedness,
primarily commercial paper. SBC has guaranteed payment of the obligations of
the TOPrS.
Derivatives - SBC enters into foreign currency contracts to hedge exposure
to adverse exchange risk. SBC also uses interest rate swaps to manage
interest rate exposure. Related gains and losses are reflected in net
income. The carrying amounts and estimated fair values of SBC's derivative
financial instruments are summarized as follows at December 31:
<TABLE>
---------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------------------
Carrying/ Carrying/
Notional Fair Notional Fair
Amount Value Amount Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts-long $ - $ 142 $ - $ -
Foreign exchange contracts-short - - - 765
Interest rate swaps 1,180 (14) 458 (27)
Equity swaps - - 13 26
=============================================================================================
</TABLE>
Prior to its merger with an SBC subsidiary, PAC issued stock options to its
employees during a spinoff of certain wireless properties. Some of these
options were still outstanding when PAC merged with an SBC subsidiary in
1997 (see Note 13). SBC had used equity swaps to hedge the equity price risk
related to these spunoff operations employee stock options. However, in 1999
SBC evaluated the related risk level and exited all of its related equity
swap contracts, receiving cash for the appreciated value of the contracts
and recognizing a minimal gain.
Note 10. Income Taxes
Significant components of SBC's deferred tax liabilities and assets are as
follows at December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Depreciation and amortization $ 6,865 $ 6,104
Equity in foreign affiliates 540 457
Deferred directory expenses 524 383
Other 1,254 216
----------------------------------------------------------------------------
Deferred tax liabilities 9,183 7,160
----------------------------------------------------------------------------
Employee benefits 2,418 2,416
Currency translation adjustments 586 333
Allowance for uncollectibles 222 168
Unamortized investment tax credits 147 132
Other 1,850 1,631
----------------------------------------------------------------------------
Deferred tax assets 5,223 4,680
----------------------------------------------------------------------------
Deferred tax assets valuation allowance 99 143
----------------------------------------------------------------------------
Net deferred tax liabilities $ 4,059 $ 2,623
============================================================================
The decrease in the valuation allowance is the result of an evaluation of
the uncertainty associated with the realization of certain deferred tax
assets. The valuation allowance is maintained in deferred tax assets for
certain unused federal and state loss carryforwards.
The components of income tax expense are as follows:
---------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------
Federal:
Current $ 2,883 $ 3,151 $ 1,781
Deferred-net 814 671 363
Amortization of investment tax credits (85) (96) (115)
---------------------------------------------------------------------------
3,612 3,726 2,029
---------------------------------------------------------------------------
State and local:
Current 421 485 232
Deferred-net 247 169 190
---------------------------------------------------------------------------
668 654 422
---------------------------------------------------------------------------
Total $ 4,280 $ 4,380 $ 2,451
===========================================================================
A reconciliation of income tax expense and the amount computed by applying
the statutory federal income tax rate (35%) to income before income taxes,
extraordinary items and cumulative effect of accounting change is as
follows:
<TABLE>
--------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes computed at federal statutory rate $ 3,798 $ 4,240 $ 2,288
Increases (decreases) in income taxes resulting from:
Amortization of investment tax credits over the life of
the plant that gave rise to the credits (55) (62) (75)
State and local income taxes-net of federal income tax benefit 440 424 274
Other-net 97 (222) (36)
--------------------------------------------------------------------------------------------------
Total $ 4,280 $ 4,380 $ 2,451
==================================================================================================
</TABLE>
Note 11. Employee Benefits
Pensions - Substantially all employees of SBC are covered by one of various
noncontributory pension and death benefit plans. Management employees
participate in either cash balance or defined lump sum pension plans. The
pension benefit formula for most nonmanagement employees is based on a flat
dollar amount per year according to job classification. Most employees can
elect to receive their pension benefits in either lump sum or annuity.
SBC's objective in funding the plans, in combination with the standards of
the Employee Retirement Income Security Act of 1974 (as amended), is to
accumulate funds sufficient to meet its benefit obligations to employees
upon their retirement. Contributions to the plans are made to a trust for
the benefit of plan participants. Plan assets consist primarily of stocks,
U.S. government and domestic corporate bonds, index funds and real estate.
Effective with the Ameritech merger, SBC performed a midyear valuation for
all pension plans. The amounts that follow reflect the impacts and
assumptions of the midyear valuation.
The following table presents the change in the pension plan benefit
obligation for the years ended December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Benefit obligation at beginning of the year $ 27,528 $ 26,235
Service cost - benefits earned during the
period 584 548
Interest cost on projected benefit obligation 1,831 1,813
Amendments 460 224
Actuarial (gain)/loss (1,121) 1,170
Special termination benefits 32 53
Benefits paid (3,629) (2,515)
----------------------------------------------------------------------------
Benefit obligation at end of year $ 25,685 $ 27,528
============================================================================
The following table presents the change in pension plan assets for the years
ended December 31 and the pension plans' funded status at December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Fair value of plan assets at beginning of the
year $ 41,794 $ 38,703
Actual return on plan assets 8,065 5,593
Benefits paid (3,901) (2,502)
----------------------------------------------------------------------------
Fair value of plan assets at end of year 1 $ 45,958 $ 41,794
============================================================================
Funded status $ 20,273 $ 14,266
Unrecognized prior service cost 1,898 1,653
Unrecognized net gain (17,926) (12,487)
Unamortized transition asset (1,036) (1,352)
----------------------------------------------------------------------------
Prepaid pension cost $ 3,209 $ 2,080
============================================================================
1 Plan assets include SBC common stock of $34 at December 31, 1999 and $71
at December 31, 1998.
The following table presents amounts recognized in SBC's Consolidated
Balance Sheets at December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Prepaid pension cost $ 3,539 $ 2,512
Accrued pension liability (330) (432)
----------------------------------------------------------------------------
Net amount recognized $ 3,209 $ 2,080
============================================================================
Net pension cost is composed of the following:
<TABLE>
-----------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the
period $ 584 $ 548 $ 481
Interest cost on projected benefit obligation 1,831 1,813 1,789
Expected return on plan assets (2,951) (2,722) (2,527)
Amortization of prior service cost (35) (57) (69)
Recognized actuarial gain (273) (161) (157)
-----------------------------------------------------------------------------------------
Net pension benefit $ (844) $ (579) $ (483)
=========================================================================================
</TABLE>
Significant weighted-average assumptions used in developing pension
information include:
<TABLE>
----------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for determining projected benefit obligation 7.75% 7.0% 7.2%
Long-term rate of return on plan assets 8.50% 8.5% 8.5%
Composite rate of compensation increase 4.25% 4.2% 4.2%
==============================================================================================
</TABLE>
The projected benefit obligation is the actuarial present value of all
benefits attributed by the pension benefit formula to previously rendered
employee service. It is measured based on assumptions concerning future
interest rates and employee compensation levels. Should actual experience
differ from the actuarial assumptions, the benefit obligation will be
affected.
In April 1997, management amended the SBC Pension Benefit Plan to a cash
balance pension plan effective June 1, 1997. Under the new plan,
participants accrue benefits based on a percentage of pay plus interest. In
addition, a transition benefit is phased in over five years. The new plan
also requires computation of a grandfathered benefit using the old formula
for five years. Participants receive the greater of the cash balance benefit
or the grandfathered benefit. The new cash balance plan allows lump sum
benefit payments in addition to annuities. This change did not have a
significant impact on SBC's net income for 1997.
During 1997, a significant amount of lump sum pension payments resulted in a
partial settlement of PAC's pension plans. Therefore, net settlement gains
in the amount of $299 were recognized in 1997. Of this amount, $152 was
recognized in the first quarter of 1997 and related primarily to managers
who terminated employment in 1996. These gains are not included in the net
pension cost shown in the table above.
In addition to the net periodic benefit costs reported in the above tables,
SBC recognized $566 in net settlement gains in the fourth quarter of 1999.
These settlement gains resulted from a significant amount of lump sum
pension payments that caused a partial settlement of Ameritech's pension
plans. SBC is currently evaluating whether additional lump sum payments will
require the recognition of additional settlement gains in 2000.
In December 1999, under the provisions of Section 420 of the Internal
Revenue Code, SBC transferred $280 in pension assets to a health care
benefit account for the reimbursement of retiree health care benefits paid
by SBC.
Supplemental Retirement Plans - SBC also provides senior and middle
management employees with nonqualified, unfunded supplemental retirement and
savings plans. These plans include supplemental defined pension benefits as
well as compensation deferral plans, some of which include a corresponding
match by SBC based on a percentage of the compensation deferral. Expenses
related to these plans were $146, $114 and $97 in 1999, 1998 and 1997.
Liabilities of $1,287 and $1,022 related to these plans have been included
in other noncurrent liabilities in SBC's Consolidated Balance Sheets at
December 31, 1999 and 1998.
Postretirement Benefits - SBC provides certain medical, dental and life
insurance benefits to substantially all retired employees under various
plans and accrues actuarially determined postretirement benefit costs as
active employees earn these benefits. SBC's postretirement benefit cost in
1998 and 1997 for certain plans reflects an estimate of potential future
cost sharing by retirees. SBC maintains Voluntary Employee Beneficiary
Association trusts to fund postretirement benefits. Assets consist
principally of stocks and U.S. government and corporate bonds.
The following table sets forth the change in the benefit obligation for the
years ended December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Benefit obligation at beginning of the year $ 15,489 $ 12,978
Service cost - benefits earned during the period 260 193
Interest cost on projected benefit obligation 1,050 904
Amendments (2) 2,008
Actuarial (gain)/loss (515) 109
Benefits paid (771) (703)
----------------------------------------------------------------------------
Benefit obligation at end of year $ 15,511 $ 15,489
============================================================================
The following table sets forth the change in plan assets for the years ended
December 31 and the plans' funded status at December 31:
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
Fair value of plan assets at beginning of the
year $ 6,869 $ 5,583
Actual return on plan assets 1,199 1,114
Employer contribution 93 442
Benefits paid (290) (270)
----------------------------------------------------------------------------
Fair value of plan assets at end of year 1 $ 7,871 $ 6,869
============================================================================
Funded status $ (7,640) $ (8,620)
Unrecognized prior service cost 960 1,119
Unrecognized net gain (2,460) (1,245)
----------------------------------------------------------------------------
Accrued postretirement benefit obligation $ (9,140) $ (8,746)
============================================================================
1 Plan assets include SBC common stock of $10 at December 31, 1999 and 1998.
Postretirement benefit cost is composed of the following:
<TABLE>
------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 260 $ 193 $ 187
Interest cost on accumulated postretirement
benefit obligation (APBO) 1,050 904 876
Expected return on assets (504) (419) (351)
Amortization of prior service cost 157 (260) (280)
Recognized actuarial gain (13) (12) (27)
------------------------------------------------------------------------------------
Postretirement benefit cost $ 950 $ 406 $ 405
====================================================================================
</TABLE>
The fair value of plan assets restricted to the payment of life insurance
benefits was $1,277 and $1,323 at December 31, 1999 and 1998. At December
31, 1999 and 1998, the accrued life insurance benefits included in the APBO
benefit obligation were $540 and $322.
The assumed medical cost trend rate in 2000 is 8.0%, decreasing linearly to
5.0% in 2006, prior to adjustment for cost-sharing provisions of the medical
and dental plans for active and certain recently retired employees. The
assumed dental cost trend rate in 2000 is 5.5%, reducing to 5.0% in 2002. A
one percentage-point change in the assumed health care cost trend rate would
have the following effects:
----------------------------------------------------------------------------
One Percentage- One Percentage-
Point Increase Point Decrease
----------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 186 $ 148
Effect on postretirement
benefit obligation 1,632 1,402
----------------------------------------------------------------------------
Significant assumptions for the discount rate, long-term rate of return on
plan assets and composite rate of compensation increase used in developing
the APBO and related postretirement benefit costs were the same as those
used in developing the pension information. Due to the Ameritech merger, a
midyear valuation also was performed for all postretirement benefit plans.
Note 12. Other Employee Benefits
Employee Stock Ownership Plans - SBC maintains contributory savings plans
that cover substantially all employees. Under the savings plans, SBC matches
a stated percentage of eligible employee contributions, subject to a
specified ceiling.
SBC has six leveraged ESOPs as part of the existing savings plans. Two of
the ESOPs were funded with notes issued by the savings plans to various
lenders, the proceeds of which were used to purchase shares of SBC's common
stock in the open market. These notes are unconditionally guaranteed by SBC
and therefore presented as a reduction to shareowners' equity and an
increase in long-term debt. They will be repaid with SBC contributions to
the savings plans, dividends paid on SBC shares and interest earned on funds
held by the ESOPs.
One ESOP purchased PAC treasury shares in exchange for a promissory note
from the plan to PAC. Since PAC is the lender, this note is not reflected as
a liability and the remaining cost of unallocated trust shares is carried as
a reduction of shareowners' equity. Principal and interest on the note are
paid from employer contributions and dividends received by the trust. All
PAC shares were exchanged for SBC shares effective with the merger April 1,
1997. The provisions of the ESOP were unaffected by this exchange. Another
ESOP acquired SNET shares with the proceeds of notes issued by the savings
plans, which SNET guaranteed, through a third party. The SNET common stock
was acquired through open market purchases in exchange for a promissory note
from the plan to SNET. SNET periodically makes cash payments to the ESOP
that, together with dividends received on shares held by the ESOP, are used
to make interest and principal payments on both loans. All SNET shares were
exchanged for SBC shares effective with the merger October 26, 1998. The
provisions of the ESOP were unaffected by this exchange.
Two ESOPs were funded with notes issued by the savings plans which Ameritech
guaranteed, the proceeds of which were used to purchase, at fair market
value, shares of Ameritech common stock held in treasury. As a result of
Ameritech's unconditional guarantee, the notes are presented as a reduction
to shareowners' equity and an increase in long-term debt. Ameritech
periodically made cash payments that, together with dividends received on
shares held by the ESOPs, were used to make interest and principal payments
on the loan. All Ameritech shares were exchanged for SBC shares effective
with the merger on October 8, 1999. The provisions of the ESOP were
unaffected by this exchange.
SBC's match of employee contributions to the savings plans is fulfilled with
shares of stock allocated from the ESOPs and with purchases of SBC's stock
in the open market. Shares held by the ESOPs are released for allocation to
the accounts of employees as employer-matching contributions are earned.
Benefit cost is based on a combination of the contributions to the savings
plans and the cost of shares allocated to participating employees' accounts.
Both benefit cost and interest expense on the notes are reduced by dividends
on SBC's shares held by the ESOPs and interest earned on the ESOPs' funds.
Information related to the ESOPs and the savings plans is summarized below:
<TABLE>
-----------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit expense-net of dividends and interest income $ 90 $ 77 $ 73
Interest expense-net of dividends and interest income 10 25 36
-----------------------------------------------------------------------------------------
Total expense $ 100 $ 102 $ 109
=========================================================================================
Company contributions for ESOPs $ 104 $ 142 $ 141
=========================================================================================
Dividends and interest income for debt service $ 75 $ 100 $ 104
=========================================================================================
</TABLE>
SBC shares held by the ESOPs are summarized as follows at December 31:
<TABLE>
-----------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C>
Unallocated 16,030,695 24,501,561
Allocated to participants 101,257,366 95,069,009
-----------------------------------------------------------------------------------------
Total 117,288,061 119,570,570
=========================================================================================
</TABLE>
Note 13. Stock-Based Compensation
Under various SBC plans, senior and other management employees and
non-employee directors have received stock options, stock appreciation
rights (SARs), performance stock units and nonvested stock units. Stock
options issued through December 31, 1999 carry exercise prices equal to the
market price of the stock at the date of grant and have maximum terms
ranging from five to ten years. Beginning in 1994 and ending in 1999,
certain Ameritech employees were awarded grants of nonqualified stock
options with dividend equivalents. Depending upon the grant, vesting of
stock options may occur up to four years from the date of grant. Performance
stock units are granted to key employees based upon the common stock price
at date of grant and are awarded in the form of common stock and cash at the
end of a two- or three-year period, subject to the achievement of certain
performance goals. Nonvested stock units are valued at market price of the
stock at date of grant and vest over a three- to five-year period. Up to 310
million shares may be issued under these plans.
SBC measures compensation cost for these plans using the intrinsic
value-based method of accounting as allowed in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123). Accordingly, no compensation cost for SBC's stock option plans has
been recognized. Had compensation cost for stock option plans been
recognized using the fair value-based method of accounting at the date of
grant for awards in 1999, 1998 and 1997 as defined by FAS 123, SBC's net
income would have been $7,969, $7,537 and $3,962, and basic net income per
share would have been $2.34, $2.21 and $1.17. The compensation cost that has
been charged against income for SBC's other stock-based compensation plans
totaled $36, $83 and $65 for 1999, 1998 and 1997.
For purposes of these pro forma disclosures, the estimated fair value of the
options granted is amortized to expense over the options' vesting period.
The fair value for these options was estimated at the date of grant, using a
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: risk-free interest rate
of 5.31%, 5.69% and 6.47%; dividend yield of 1.65%, 2.38% and 2.98%;
expected volatility factor of 15%, 18% and 19%; and expected option life of
4.5, 5.0 and 4.9 years.
As of December 31, 1998, 29,390 shares of nonperformance-based restricted
stock issued to Ameritech employees were outstanding under the Ameritech
plans. Shareowners' equity reflects deferred compensation for the unvested
stock awarded. This amount was reduced and charged against operations
(together with any change in market price) as the employees vested in the
stock. All restricted stock under Ameritech plans vested as a result of the
Ameritech merger with an SBC subsidiary in 1999.
Information related to options and SARs is summarized below:
<TABLE>
------------------------------------------------------------------------------------------------
Weighted-
Average Exercise
Number Price
------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 126,464,343 $20.03
Granted 56,229,919 25.52
Exercised (27,891,733) 18.49
Forfeited/Expired (10,567,550) 22.85
------------------------------------------------------------------------------
Outstanding at December 31, 1997
(60,656,487 exercisable at weighted-average price of $19.36) 144,234,979 22.27
Granted 34,516,726 39.46
Exercised (25,767,038) 20.61
Forfeited/Expired (6,747,545) 29.64
------------------------------------------------------------------------------
Outstanding at December 31, 1998
(73,187,564 exercisable at weighted-average price of $20.85) 146,237,122 26.26
Granted 26,139,492 48.70
Exercised (19,095,315) 23.13
Forfeited/Expired (4,118,769) 39.06
------------------------------------------------------------------------------
Outstanding at December 31, 1999
(116,276,298 exercisable at weighted-average price of $26.91) 149,162,530 $30.24
================================================================================================
</TABLE>
Information related to options and SARs outstanding at December 31, 1999:
<TABLE>
------------------------------------------- ------------- -------------- ------------- -------------
Exercise Price Range $10.90-$17.39 $17.40-$29.99 $30.00-$35.49 $35.50-$59.00
------------------------------------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Number of options and SARs:
Outstanding 13,145,846 82,990,276 9,845,528 43,180,880
Exercisable 13,145,846 74,948,465 9,845,528 18,336,459
Weighted-average exercise price:
Outstanding $15.07 $23.93 $34.16 $46.10
Exercisable $15.07 $23.53 $34.16 $45.30
Weighted-average remaining contractual life 3.93 years 6.29 years 8.30 years 8.83 years
=========================================== ============= ============== ============= =============
</TABLE>
The weighted-average, grant-date fair value of each option granted during
1999, 1998 and 1997 was $9.31, $8.71 and $5.36.
As of December 31, additional shares available under stock options with
dividend equivalents were 1,526,514 in 1999, 1,505,625 in 1998 and 1,325,201
in 1997.
Options and SARs held by the continuing employees of PAC at the time of the
AirTouch Communications, Inc. (AirTouch) spinoff were supplemented with an
equal number of options and SARs for common shares of spunoff operations.
The exercise prices for outstanding options and SARs held by continuing
employees of PAC were adjusted downward to reflect the value of the
supplemental spunoff operations' options and SARs. The balance sheet
reflects a related liability equal to the difference between the current
market price of spunoff operations stock and the exercise prices of the
supplemental options outstanding. The spunoff operations options and SARs
have been adjusted for Vodafone's acquisition of AirTouch and for Vodafone's
five-for-one stock split in 1999. As of December 31, 1999, 404,825
supplemental spunoff operations options and SARs were outstanding with
expiration dates ranging from 2000 to 2003. Outstanding options and SARs
that were held by employees of the wireless operations at the spinoff date
were replaced by options and SARs for common shares of spunoff operations.
The spunoff operations assumed liability for these replacement options and
SARs.
Note 14. Shareowners' Equity
From time to time, SBC repurchases shares of common stock for distribution
or to offset shares distributed through its employee benefit plans or in
certain acquisitions. In 1999, the Board of Directors approved the
repurchase of approximately 23 million shares of SBC's common stock, which
has been completed.
In January 2000, SBC's Board of Directors authorized the repurchase of up to
100 million shares of SBC's common stock.
Note 15. Acquisitions and Dispositions
Acquisitions - In July 1999, SBC completed the acquisition of Comcast, the
wireless subsidiary of Comcast Corporation, in a transaction valued at
approximately $1.8 billion, including assumption of $1.4 billion in debt.
With the acquisition, SBC added approximately 862,000 wireless subscribers
in Pennsylvania, Delaware, New Jersey and Illinois.
In June 1999, SBC acquired 20% of Bell Canada, a subsidiary of BCE Inc.
(BCE), a publicly traded Canadian communications company, for approximately
$3.4 billion. As part of the investment, SBC has the option to sell its
shares to BCE at fair market value plus 25% in 2002 and 2004. BCE has the
option to repurchase the shares on the same terms. SBC also has the right to
sell its shares at a premium to BCE if a change in control of BCE occurs
before June 2004. After June 2004, the sales price would be the higher of
fair market value or the implied value in the transaction that gave rise to
the change in control at BCE. Similarly, BCE may repurchase the shares at
fair market value any time if there is a change in control of SBC. The
investment agreement also provides for rights of first refusal and rights of
first offer.
In January 1998, SBC purchased a 34% interest in Tele Danmark, the national
communications provider in Denmark, from the Kingdom of Denmark for
approximately $3.1 billion. As part of the investment agreement, Tele
Danmark repurchased and retired all remaining shares owned by the Danish
government, effectively increasing SBC's equity ownership to 41.6% of Tele
Danmark.
In May 1997, a consortium made up of SBC and Telekom Malaysia Berhad, 60%
owned by SBC, completed the purchase of 30% of Telkom. SBC invested
approximately $760, approximately $600 of which remained in Telkom.
During 1997, SBC also acquired assets of several companies engaged in
electronic security services for approximately $1 billion in cash and stock.
These above acquisitions were accounted for under the purchase method of
accounting. The purchase prices in excess of the underlying fair value of
identifiable net assets acquired are being amortized over periods not
exceeding 40 years. Results of operations of the acquisitions have been
included in the consolidated financial statements from their respective
dates of acquisition.
The above developments did not have a significant impact on consolidated
results of operations for 1999, 1998 or 1997, nor would they, had they
occurred on January 1 of the respective periods.
Dispositions - In October 1999, SBC completed the required disposition, as a
condition of the Ameritech merger, of 20 Midwestern cellular properties
including the competing cellular licenses in several markets including, but
not limited to, Chicago, Illinois, and St. Louis, Missouri. SBC recorded an
extraordinary gain of $1,379, or $0.40 per share on this sale net of taxes
of $960. Results of operations for 1999 up to the date of disposition, 1998
and 1997 include revenues of $705, $891 and $861, net income of $119, $123
and $88 and diluted earnings per share of $0.03, $0.04 and $0.03 related to
these cellular properties.
During the third quarter of 1998, SBC sold its interest in MTN to the
remaining shareholders of MTN for $337. The sale fulfilled SBC's obligation
to divest MTN as a requirement of the acquisition of Telkom. The effect on
other income (expense) - net and net income from the sale of MTN was $250
and $162.
In April 1998, SBC sold substantially all of its remaining interest in TCNZ
in a global stock offering. Net proceeds received in two installment
payments in April 1998 and March 1999 were approximately $2.1 billion
resulting in an after-tax gain of approximately $1 billion in 1998.
Pending Transaction - In November 1999, SBC and Prodigy Communications
Corporation (Prodigy) announced an agreement to form a partnership that will
join their consumer and small business Internet operations. Under the terms
of the agreement, which is expected to close in the second quarter of 2000,
SBC will make Prodigy its exclusive retail consumer and small business
Internet access service for customers in SBC's service area. Prodigy will
assume management of approximately 650,000 SBC subscribers of dial-up, ISDN
and basic DSL Internet access services, increasing Prodigy's total managed
subscriber base to more than 2 million. Subject to specific exceptions, SBC
will exclusively market Prodigy service through its extensive marketing
channels with a commitment to deliver a minimum of 1.2 million new customers
over the next three years to the Prodigy member base. The agreement provides
SBC with a 43% ownership stake in the partnership and a similar voting
interest in Prodigy. Under certain circumstances, this may translate into a
direct ownership interest in Prodigy. Required approvals for the transaction
have been received from certain Federal regulatory agencies that had
jurisdiction to consider the transaction. The agreement is subject to
approval at a meeting of the shareholders of Prodigy, which is anticipated
in early 2000.
Note 16. Software Costs
The American Institute of Certified Public Accountants issued a Statement of
Position (SOP) that requires capitalization of certain computer software
expenditures beginning in 1999. The SOP, which prescribed prospective
application, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software beginning in
1999. Capitalized software costs are being amortized over three years. Prior
to the adoption of the SOP, the costs of computer software purchased or
developed for internal use were generally expensed as incurred. However,
initial operating system software costs were, and continue to be,
capitalized.
With comparable levels of software expenditures, the SOP would tend to
increase net income when compared with SBC's former method of accounting for
software costs. However, the increases would be largest in the year of
adoption with diminishing levels of increases compared with current
accounting throughout the amortization period. Consequently, given otherwise
comparable income levels excluding software, and otherwise comparable
software expenditures, the effect of the SOP would be to increase income in
the first year and decrease income in each subsequent year until the number
of years affected by the SOP equals the amortization period. The effect of
adopting the SOP was to increase net income by approximately $274, or $0.08
per share, assuming dilution, for the year ended December 31, 1999.
Note 17. Additional Financial Information
<TABLE>
-----------------------------------------------------------------------------------------------
December 31,
---------------------------
Balance Sheets 1999 1998
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable and accrued liabilities:
Accounts payable $ 4,834 $ 4,726
Accrued taxes 3,386 2,611
Advance billing and customer deposits 1,481 1,255
Compensated future absences 711 677
Accrued interest 427 432
Accrued payroll 800 536
Other 3,464 3,016
-----------------------------------------------------------------------------------------------
Total $ 15,103 $ 13,253
===============================================================================================
-----------------------------------------------------------------------------------------------
Statements of Income 1999 1998 1997
-----------------------------------------------------------------------------------------------
Advertising expense $ 812 $ 814 $ 844
===============================================================================================
Interest expense incurred $ 1,511 $ 1,691 $ 1,700
Capitalized interest (81) (86) (150)
-----------------------------------------------------------------------------------------------
Total interest expense $ 1,430 $ 1,605 $ 1,550
===============================================================================================
-----------------------------------------------------------------------------------------------
Statements of Cash Flows 1999 1998 1997
-----------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 1,516 $ 1,713 $ 1,676
Income taxes, net of refunds 2,638 2,676 1,640
===============================================================================================
</TABLE>
No customer accounted for more than 10% of consolidated revenues in 1999,
1998 or 1997.
Approximately two-thirds of SBC employees are represented by collective
bargaining agreements with varying dates of expiration in the years 2001
through 2002.
Note 18. Quarterly Financial Information (Unaudited)
<TABLE>
-------------------------------------------------------------------------------------------------
Total Stock Price
----------------------------------
Diluted
Calendar Operating Operating Net Earnings
Quarter Revenues Income Income Per Share High Low Close
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
First $ 11,802 $ 3,051 $ 1,980 $ 0.57 $ 59.938 $ 46.063 $ 47.188
Second 12,256 3,227 1,938 0.56 58.000 48.000 58.000
Third 12,534 2,462 1,135 0.33 59.875 45.375 51.063
Fourth 12,897 2,858 3,106 0.90 55.500 44.063 48.750
----------------------------------------------------
Annual $ 49,489 $ 11,598 $ 8,159 $ 2.36
=================================================================================================
1998
First $ 11,038 $ 2,685 $ 1,483 $ 0.43 $ 46.563 $ 35.375 $ 43.375
Second 11,398 3,017 2,750 0.80 44.938 37.125 40.000
Third 11,606 2,994 1,926 0.56 44.875 35.000 44.375
Fourth 12,165 2,527 1,531 0.44 54.875 41.125 53.625
----------------------------------------------------
Annual $ 46,207 $ 11,223 $ 7,690 $ 2.23
=================================================================================================
</TABLE>
The first quarter of 1999 includes a cumulative effect of accounting change
of $207, or $0.06 per share from a change in accounting for directory
operations at Ameritech. The fourth quarter of 1999 includes an
extraordinary gain of $1,379, or $0.40 per share on the sale of the
overlapping wireless properties. The first quarter of 1998 includes a
cumulative effect of accounting change of $15, or $0.01 per share from a
change in accounting for directory operations at SNET. The fourth quarter of
1998 includes an extraordinary loss on retirement of debt of $60, or $0.02
per share.
There were also normalizing (i.e. one-time) items which are included in the
information above, but are excluded from the information that management
uses to evaluate the performance of each segment of the business (see Note
7). The after-tax impact of the 1999 normalizing items was as follows:
o An expense reduction of $27 in the first quarter related to a first
quarter 1998 charge to cover the cost of consolidating security
monitoring centers and company-owned cellular retail stores.
o Charges of $883 in the third quarter and $574 in the fourth quarter
related to strategic initiatives resulting from the merger integration
process with Ameritech (see Note 2).
o Gains of $368 in the fourth quarter related to lump sum pension
settlement gains for 1999 retirements.
o Gains of $77 in the fourth quarter related to sales by an international
equity affiliate.
o Incremental impacts of overlapping wireless properties required to be
sold in October 1999 of $39 in the first quarter, $28 in the second
quarter, $47 in the third quarter and $5 in the fourth quarter.
The after-tax impact of the 1998 normalizing items was as follows:
o Charges of $64 in the first quarter to cover the cost of consolidating
security monitoring centers and company-owned cellular retail stores.
o Gain of $1,012 in the second quarter on the sale of TCNZ shares.
o Gains of $219 in the third quarter on sales of certain non-core
businesses, principally the required disposition of MTN, due to SBC's
investment in Telkom.
o Charges of $268 in the fourth quarter related to strategic initiatives
resulting from the merger integration process with SNET.
o Gain of $102 in the fourth quarter from the sale of certain telephone
and directory assets.
o Incremental impacts of overlapping wireless properties required to be
sold in October 1999 of $19 in the first quarter, $30 in the second
quarter, $28 in the third quarter and $46 in the fourth quarter.
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareowners
SBC Communications Inc.
We have audited the accompanying consolidated balance sheets of SBC
Communications Inc. (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareowners' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1998 and 1997
financial statements of Ameritech Corporation, a wholly owned subsidiary, which
statements reflect total assets constituting approximately 40% of the Company's
related 1998 consolidated financial statement total and which reflect total
operating revenues constituting approximately 37% of the Company's related
consolidated financial statement totals for the years ended December 31, 1998
and 1997. Those statements were audited by other auditors whose report has been
furnished to us. Our opinion, insofar as it relates to the 1998 and 1997 data
included for Ameritech Corporation, is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of SBC Communications
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
San Antonio, Texas
February 11, 2000
<PAGE>
Report of Management
The consolidated financial statements have been prepared in conformity with
United States' generally accepted accounting principles. The integrity and
objectivity of the data in these financial statements, including estimates and
judgments relating to matters not concluded by year end, are the responsibility
of management, as is all other information included in the Annual Report, unless
otherwise indicated.
The financial statements of SBC Communications Inc. (SBC) have been audited by
Ernst & Young LLP, independent auditors. Management has made available to Ernst
& Young LLP all of SBC's financial records and related data, as well as the
minutes of shareowners' and directors' meetings. Furthermore, management
believes that all representations made to Ernst & Young LLP during its audit
were valid and appropriate.
Management has established and maintains a system of internal accounting
controls that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial reporting.
The concept of reasonable assurance recognizes that the costs of an internal
accounting controls system should not exceed, in management's judgment, the
benefits to be derived.
Management also seeks to ensure the objectivity and integrity of its financial
data by the careful selection of its managers, by organizational arrangements
that provide an appropriate division of responsibility and by communication
programs aimed at ensuring that its policies, standards and managerial
authorities are understood throughout the organization. Management continually
monitors the system of internal accounting controls for compliance. SBC
maintains an internal auditing program that independently assesses the
effectiveness of the internal accounting controls and recommends improvements
thereto.
The Audit Committee of the Board of Directors, which consists of 11 directors
who are not employees, meets periodically with management, the internal auditors
and the independent auditors to review the manner in which they are performing
their respective responsibilities and to discuss auditing, internal accounting
controls and financial reporting matters. Both the internal auditors and the
independent auditors periodically meet alone with the Audit Committee and have
access to the Audit Committee at any time.
Edward E. Whitacre Jr.
Chairman of the Board and
Chief Executive Officer
Donald E. Kiernan
Senior Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
Stock Trading Information
SBC is listed on the New York, Chicago and Pacific stock exchanges and
The Swiss Exchange. SBC is traded on the London Stock Exchange through
the SEAQ International Markets facility.
Ticker symbol (NYSE): SBC
Newspaper stock listing: SBC or SBC Comm
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF
SBC COMMUNICATIONS INC.
AS OF DECEMBER 31, 1999
State of Conducts
Name Incorporation Business Under
Ameritech Corporation Delaware Same
Pacific Telesis Group Nevada Same
SBC International, Inc. Delaware Same
Southern New England Connecticut Same
Telecommunications
Corporation
Southwestern Bell Dually incorporated in Same
Mobile Systems, Inc. Delaware and Virginia
Southwestern Bell Missouri Same
Telephone Company
Southwestern Bell Missouri Same
Yellow Pages, Inc.
Exhibit 23-a
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SBC Communications Inc. (SBC) of our report dated February 11, 2000, included
in the 1999 Annual Report to Shareowners of SBC.
Our audits also include the financial statement schedules of SBC listed in Item
14(a). These schedules are the responsibility of SBC's management. Our
responsibility is to express an opinion based on our audits. We did not audit
the 1998 and 1997 financial statements of Ameritech Corporation, a wholly owned
subsidiary, which statements reflect total assets constituting approximately 40%
of the Company's related 1998 consolidated financial statement total and which
reflect total operating revenues constituting approximately 37% of the Company's
related consolidated financial statement totals for the years ended December 31,
1998 and 1997. Those statements and schedules were audited by other auditors
whose report has been furnished to us. In our opinion, based on our audits and
the report of other auditors, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the SBC Savings Plan and the SBC Savings and Security
Plan and certain other plans (Nos. 333-24295, 333-66105 and 333-88667), the
Stock Savings Plan (Nos. 33-37451 and 33-54291), the 1992 Stock Option Plan (No.
33-49855), the 1995 Management Stock Option Plan (Nos. 33-61715 and 333-49343),
the 1996 Stock and Incentive Plan (No. 333-30669), and in the Registration
Statements (Form S-3) pertaining to the SBC Communications Inc. Direct Stock
Purchase and Reinvestment Plan (Nos. 333-08979, 333-44553, and 333-02587
(originally filed on Form S-4), and SBC Communications Capital Corporation and
SBC Communications Inc. (Nos. 33-45490 and 33-56909), and in the Registration
Statement (Form S-4) pertaining to SBC Communications Inc. (No. 333-45837), and
in the related Prospectuses, of our report dated February 11, 2000, with respect
to the consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) for the year
ended December 31, 1999.
ERNST & YOUNG LLP
San Antonio, Texas
March 7, 2000
Exhibit 23-b
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Form 10-K of our report dated January 21, 1999 (Exhibit 99-a), as included in
Ameritech Corporation's annual report on Form 10-K for the year ended December
31, 1998. It should be noted that we have not audited any financial statements
of the company subsequent to December 31, 1998 or performed any audit procedures
subsequent to the date of our report.
Arthur Andersen LLP
Chicago, Illinois
March 7, 2000
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is an officer and a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James D.
Ellis, Donald E. Kiernan, Liam S. Coonan, Roger W. Wohlert, or any one of them,
all of the City of San Antonio and State of Texas, his attorneys for him and in
his name, place and stead, and in each of his offices and capacities in the
Corporation, to execute and file such annual report, and thereafter to execute
and file any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and concerning the
premises, as fully to all intents and purposes as the undersigned might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
28th day of January 2000.
/s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.
Chairman of the Board, Director
and Chief Executive Officer
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is an officer and a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E.
Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Liam S. Coonan, Roger W.
Wohlert, or any one of them, all of the City of San Antonio and State of Texas,
his attorneys for him and in his name, place and stead, and in each of his
offices and capacities in the Corporation, to execute and file such annual
report, and thereafter to execute and file any amendment or amendments thereto,
hereby giving and granting to said attorneys full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney
the 28th day of January 2000.
/s/ Royce S. Caldwell
Royce S. Caldwell
Vice Chairman of the Board, Director
and President-SBC Operations
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is an officer of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E.
Whitacre, Jr., James D. Ellis, Liam S. Coonan, Roger W. Wohlert, or any one of
them, all of the City of San Antonio and State of Texas, his attorneys for him
and in his name, place and stead, and in each of his offices and capacities in
the Corporation, to execute and file such annual report, and thereafter to
execute and file any amendment or amendments thereto, hereby giving and granting
to said attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and concerning the
premises, as fully to all intents and purposes as the undersigned might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
28th day of January 2000.
/s/ D. E. Kiernan
- -----------------
D. E. Kiernan
Senior Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, an annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E.
Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Liam S. Coonan, Roger W.
Wohlert, or any one of them, all of the City of San Antonio and State of Texas,
the undersigned's attorneys for the undersigned and in the undersigned's name,
place and stead, and in the undersigned's office and capacity in the
Corporation, to execute and file such annual report, and thereafter to execute
and file any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and concerning the
premises, as fully to all intents and purposes as the undersigned might or could
do if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
28th day of January 2000.
/s/ Clarence C. Barksdale /s/ James E. Barnes
- ---------------------------- ---------------------------
Clarence C. Barksdale James E. Barnes
Director Director
/s/ August A. Busch III /s/ Ruben R. Cardenas
- ---------------------------- ---------------------------
August A. Busch III Ruben R. Cardenas
Director Director
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
PAGE 2
/s/ William P. Clark /s/ Martin K. Eby, Jr.
- ---------------------------- ---------------------------
William P. Clark Martin K. Eby, Jr.
Director Director
/s/ Herman E. Gallegos /s/ Jess T. Hay
- ---------------------------- ---------------------------
Herman E. Gallegos Jess T. Hay
Director Director
/s/ James A. Henderson /s/ Bobby R. Inman
- ---------------------------- ---------------------------
James A. Henderson Bobby R. Inman
Director Director
/s/ Charles F. Knight /s/ Lynn M. Martin
- ---------------------------- ---------------------------
Charles F. Knight Lynn M. Martin
Director Director
/s/ John B. McCoy /s/ Mary S. Metz
- ---------------------------- ---------------------------
John B. McCoy Mary S. Metz
Director Director
/s/ Toni Rembe /s/ S. Donley Ritchey
- ---------------------------- ---------------------------
Toni Rembe S. Donley Ritchey
Director Director
/s/ Joyce M. Roche /s/ Richard M. Rosenberg
- ---------------------------- ---------------------------
Joyce M. Roche Richard M. Rosenberg
Director Director
/s/ Carlos Slim Helu /s/ Laura D'Andrea Tyson
- ---------------------------- ---------------------------
Carlos Slim Helu Laura D'Andrea Tyson
Director Director
/s/ Patricia P. Upton
- ----------------------------
Patricia P. Upton
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S DECEMBER 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 495
<SECURITIES> 1
<RECEIVABLES> 10,477
<ALLOWANCES> 1,099
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 11,930
<PP&E> 116,332
<DEPRECIATION> 69,761
<TOTAL-ASSETS> 83,215
<CURRENT-LIABILITIES> 19,313
<BONDS> 17,475
0
0
<COMMON> 3,433
<OTHER-SE> 23,293
<TOTAL-LIABILITY-AND-EQUITY> 83,215
<SALES> 0<F2>
<TOTAL-REVENUES> 49,489
<CGS> 0<F3>
<TOTAL-COSTS> 11,048
<OTHER-EXPENSES> 8,553
<LOSS-PROVISION> 1,136
<INTEREST-EXPENSE> 1,430
<INCOME-PRETAX> 10,853
<INCOME-TAX> 4,280
<INCOME-CONTINUING> 6,573
<DISCONTINUED> 0
<EXTRAORDINARY> 1,379
<CHANGES> 207
<NET-INCOME> 8,159
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.36
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X, RULE
5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S SEPTEMBER 30, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 532
<SECURITIES> 27
<RECEIVABLES> 9,946
<ALLOWANCES> 1,043
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 11,977
<PP&E> 115,375
<DEPRECIATION> 69,335
<TOTAL-ASSETS> 81,846
<CURRENT-LIABILITIES> 20,056
<BONDS> 17,418
0
0
<COMMON> 3,433
<OTHER-SE> 21,875
<TOTAL-LIABILITY-AND-EQUITY> 81,846
<SALES> 0<F2>
<TOTAL-REVENUES> 36,592
<CGS> 0<F3>
<TOTAL-COSTS> 7,754
<OTHER-EXPENSES> 6,378
<LOSS-PROVISION> 824
<INTEREST-EXPENSE> 1,069
<INCOME-PRETAX> 8,116
<INCOME-TAX> 3,270
<INCOME-CONTINUING> 4,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 207
<NET-INCOME> 5,053
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.46
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S JUNE 30, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,140
<SECURITIES> 1
<RECEIVABLES> 9,810
<ALLOWANCES> 832
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,669
<PP&E> 113,221
<DEPRECIATION> 68,251
<TOTAL-ASSETS> 78,945
<CURRENT-LIABILITIES> 19,142
<BONDS> 17,507
0
0
<COMMON> 3,434
<OTHER-SE> 21,428
<TOTAL-LIABILITY-AND-EQUITY> 78,945
<SALES> 0<F2>
<TOTAL-REVENUES> 24,058
<CGS> 0<F3>
<TOTAL-COSTS> 5,076
<OTHER-EXPENSES> 3,935
<LOSS-PROVISION> 403
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> 5,828
<INCOME-TAX> 2,117
<INCOME-CONTINUING> 3,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 207
<NET-INCOME> 3,918
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.13
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,214
<SECURITIES> 1
<RECEIVABLES> 9,837
<ALLOWANCES> 839
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,796
<PP&E> 111,367
<DEPRECIATION> 66,869
<TOTAL-ASSETS> 75,040
<CURRENT-LIABILITIES> 17,461
<BONDS> 16,925
0
0
<COMMON> 3,433
<OTHER-SE> 20,247
<TOTAL-LIABILITY-AND-EQUITY> 75,040
<SALES> 0<F2>
<TOTAL-REVENUES> 11,802
<CGS> 0<F3>
<TOTAL-COSTS> 2,567
<OTHER-EXPENSES> 1,942
<LOSS-PROVISION> 206
<INTEREST-EXPENSE> 357
<INCOME-PRETAX> 2,789
<INCOME-TAX> 1,016
<INCOME-CONTINUING> 1,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 207
<NET-INCOME> 1,980
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S DECEMBER 31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 599
<SECURITIES> 6
<RECEIVABLES> 10,593
<ALLOWANCES> 810
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,697
<PP&E> 109,778
<DEPRECIATION> 65,584
<TOTAL-ASSETS> 74,966
<CURRENT-LIABILITIES> 18,240
<BONDS> 17,170
0
0
<COMMON> 3,434
<OTHER-SE> 19,340
<TOTAL-LIABILITY-AND-EQUITY> 74,966
<SALES> 0<F2>
<TOTAL-REVENUES> 46,207
<CGS> 0<F3>
<TOTAL-COSTS> 10,339
<OTHER-EXPENSES> 7,841
<LOSS-PROVISION> 896
<INTEREST-EXPENSE> 1,605
<INCOME-PRETAX> 12,115
<INCOME-TAX> 4,380
<INCOME-CONTINUING> 7,735
<DISCONTINUED> 0
<EXTRAORDINARY> (60)
<CHANGES> 15
<NET-INCOME> 7,690
<EPS-BASIC> 2.26
<EPS-DILUTED> 2.23
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S SEPTEMBER 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,183
<SECURITIES> 37
<RECEIVABLES> 9,912
<ALLOWANCES> 760
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,934
<PP&E> 109,076
<DEPRECIATION> 65,242
<TOTAL-ASSETS> 74,905
<CURRENT-LIABILITIES> 16,764
<BONDS> 19,371
0
0
<COMMON> 3,440
<OTHER-SE> 18,783
<TOTAL-LIABILITY-AND-EQUITY> 74,905
<SALES> 0<F2>
<TOTAL-REVENUES> 34,042
<CGS> 0<F3>
<TOTAL-COSTS> 7,473
<OTHER-EXPENSES> 5,661
<LOSS-PROVISION> 629
<INTEREST-EXPENSE> 1,223
<INCOME-PRETAX> 9,635
<INCOME-TAX> 3,491
<INCOME-CONTINUING> 6,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 15
<NET-INCOME> 6,159
<EPS-BASIC> 1.82
<EPS-DILUTED> 1.79
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S JUNE 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 907
<SECURITIES> 91
<RECEIVABLES> 9,870
<ALLOWANCES> 753
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,678
<PP&E> 107,610
<DEPRECIATION> 64,066
<TOTAL-ASSETS> 74,177
<CURRENT-LIABILITIES> 17,134
<BONDS> 19,706
0
0
<COMMON> 3,437
<OTHER-SE> 17,338
<TOTAL-LIABILITY-AND-EQUITY> 74,177
<SALES> 0<F2>
<TOTAL-REVENUES> 22,436
<CGS> 0<F3>
<TOTAL-COSTS> 4,910
<OTHER-EXPENSES> 3,745
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 840
<INCOME-PRETAX> 6,598
<INCOME-TAX> 2,380
<INCOME-CONTINUING> 4,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 15
<NET-INCOME> 4,233
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.23
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S MARCH 31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 836
<SECURITIES> 176
<RECEIVABLES> 8,847
<ALLOWANCES> 792
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 11,362
<PP&E> 105,991
<DEPRECIATION> 62,974
<TOTAL-ASSETS> 72,534
<CURRENT-LIABILITIES> 17,845
<BONDS> 19,924
0
0
<COMMON> 3,434
<OTHER-SE> 15,288
<TOTAL-LIABILITY-AND-EQUITY> 72,534
<SALES> 0<F2>
<TOTAL-REVENUES> 11,038
<CGS> 0<F3>
<TOTAL-COSTS> 2,434
<OTHER-EXPENSES> 1,851
<LOSS-PROVISION> 216
<INTEREST-EXPENSE> 431
<INCOME-PRETAX> 2,323
<INCOME-TAX> 855
<INCOME-CONTINUING> 1,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 15
<NET-INCOME> 1,483
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.43
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S DECEMBER 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 649
<SECURITIES> 320
<RECEIVABLES> 9,159
<ALLOWANCES> 737
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 12,096
<PP&E> 104,596
<DEPRECIATION> 61,665
<TOTAL-ASSETS> 69,917
<CURRENT-LIABILITIES> 18,268
<BONDS> 17,787
0
0
<COMMON> 3,428
<OTHER-SE> 14,435
<TOTAL-LIABILITY-AND-EQUITY> 69,917
<SALES> 0<F2>
<TOTAL-REVENUES> 43,106
<CGS> 0<F3>
<TOTAL-COSTS> 10,249
<OTHER-EXPENSES> 7,777
<LOSS-PROVISION> 938
<INTEREST-EXPENSE> 1,550
<INCOME-PRETAX> 6,538
<INCOME-TAX> 2,451
<INCOME-CONTINUING> 4,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,087
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.20
<FN>
<F1> THIS AMOUNT IS IMMATERIAL
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGUALTION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN
THE "TOTAL REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN OPERATIONS AND SUPPORT IN THE
FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION S-X,
RULE 5-03(B).
</FN>
</TABLE>
Exhibit 99-a
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors, Ameritech Corporation
We have audited the consolidated balance sheet of Ameritech Corporation (a
Delaware corporation) and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, shareowners' equity and cash flows for each
of the two years in the period ended December 31, 1998, as included in
Ameritech's annual report on Form 10-K for the year ended December 31, 1998.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ameritech
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule included
in Item 14(a)(2) of Ameritech's Form 10-K for the year ended December 31, 1998
is the responsibility of Ameritech's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
January 21, 1999
