EX 99-b
Form 10-K for 2001
File No. 1-8610
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission File Number l-8610
175 E. Houston, San Antonio, Texas 78205
Financial Statements, Supplemental Schedule and Exhibit Table of Contents Page Report of Independent Auditors.............................................. 1 Financial Statements: Statements of Net Assets Available for Benefits as of December 31, 2001 and 2000........................................... 2 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2001......................................... 3 Notes to Financial Statements........................................ 4 Supplemental Schedule: Schedule H, Line 4i - Schedule of Assets (Held at End of Year)....... 9 Exhibit: 23-a Consent of Ernst & Young LLP REPORT OF INDEPENDENT AUDITORS SBC Communications Inc., Plan Administrator for the SBC Savings and Security Plan We have audited the accompanying statements of net assets available for benefits of the SBC Savings and Security Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits at December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2001 is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to auditing procedures applied in our audits of the financial statements, and in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. ERNST & YOUNG LLP San Antonio, Texas June 21, 2002 SBC SAVINGS AND SECURITY PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS (Dollars in Thousands) December 31, --------------------------- 2001 2000 ----------- ----------- ASSETS Investments (See Note 3) $ 3,999,240 $ 4,634,699 Cash 115 - Participant contributions receivable - 7 Dividends and interest receivable 116 437 Receivable for investments sold 371 224 Other receivables 73 52 ----------- ----------- Total Assets 3,999,915 4,635,419 ----------- ----------- LIABILITIES Administrative expenses payable 1,408 1,054 Long-term debt: SBC Communications Inc. - 644 ----------- ----------- Total Liabilities 1,408 1,698 ----------- ----------- Net Assets Available for Benefits $ 3,998,507 $ 4,633,721 =========== =========== See Notes to Financial Statements. SBC SAVINGS AND SECURITY PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 2001 (Dollars in Thousands) Net Assets Available for Benefits, December 31, 2000 $ 4,633,721 Additions to Net Assets: Contributions and transfers: Participant contributions 215,993 Employer contributions 110,917 Transfers from other plans (See Note 1) 6,012 ----------- 332,922 Investment Income: Dividends on SBC common shares 67,139 Interest 44,627 ----------- 111,766 Total Net Additions 444,688 ----------- Deductions from Net Assets: Net depreciation in fair value of investments 637,835 Administrative expenses 4,422 Distributions 430,339 Transfers to other plans (See Note 1) 7,306 ----------- Total Deductions 1,079,902 ----------- Net Assets Available for Benefits, December 31, 2001 $ 3,998,507 =========== See Notes to Financial Statements. SBC SAVINGS AND SECURITY PLAN NOTES TO FINANCIAL STATEMENTS (Dollars in Thousands) 1. Plan Description - The SBC Savings and Security Plan (Plan) was established by SBC Communications Inc. (SBC) to provide a convenient way for eligible employees to save for retirement on a regular and long-term basis. The majority of eligible employees are represented by the Communications Workers of America. The following description of the Plan provides only general information. The Plan has detailed provisions covering participant eligibility, participant allotments from pay, participant withdrawals, participant loans, employer contributions and related vesting of contributions and Plan expenses. The Plan text and prospectus include complete descriptions of these and other Plan provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Participants can invest their contributions in one or more of the following funds in 1% increments: the SBC Shares Fund, the Bond Fund, the Diversified Equity Portfolio, the Interest Income Fund, the Asset Allocation Fund and the Global Equity Fund. Company matching contributions are made solely in the form of shares of SBC's common stock held in a leveraged Employee Stock Ownership Plan (ESOP) which is a separate investment account of this Plan. The Plan prefunded the ESOP by borrowing Guaranteed Non-Salaried Employees' ESOP Notes that were due in 2005, the repayment of which is guaranteed by SBC. The notes were paid in full during 2001. Funds borrowed by the Plan were used to purchase shares of SBC's common stock held in the open market (Financed Shares), which act as collateral for reimbursement to SBC for any payments made under its guarantee of the ESOP Notes. The interest rate on the notes at December 31, 2000 was 7.78%. Dividends on Financed Shares and employer cash contributions were used by the Plan to make the required principal and interest payments on the ESOP Notes. As the ESOP Notes were paid down, the Financed Shares were released from the collateral. The Financed Shares were allocated to participants' accounts in the form of a company matching contribution. In lieu of dividends on Financed Shares previously allocated to participants, additional Financed Shares were allocated to participants' accounts. To the extent insufficient shares had been released through payments on outstanding notes net of amounts refinanced, additional employer contributions were made to the ESOP to purchase shares necessary to meet any shortfall in the company match or in the shares issued in lieu of dividends. Dividends on these shares were used to acquire additional shares, which were allocated to participants' accounts in the ESOP. Should shares released exceed the required company matching contribution, the excess was considered an additional employer contribution and was allocated to participants' accounts based on each participant's proportionate share of actual plan year ESOP contributions. Dividends on shares in the SBC Shares Fund are paid into a separate fund known as a Dividend Fund Account (DFA). At the end of the year, dividends held in the DFA are paid out to the participant. The participant may elect reinvestment and have the special Deferred-Tax Allotment offset the payout through the purchase of additional units. Interest earned on dividends held in the DFA will be paid into the SBC Shares Fund. During 2001, Plan participants elected to receive $18,800 in dividend distributions. This amount is included in distributions on the statement of changes in net assets. On November 5, 2001, the Woodbury Telephone Company Union 401(k) Plan (Woodbury Plan) was merged into the SBC Savings and Security Plan. Approximately $6,012 from the Woodbury Plan merger is included in transfers from other plans on the statement of changes in net assets available for benefits. In 2000, SBC entered into the Cingular Wireless (Cingular) joint venture agreement with BellSouth Corporation. As a result of this agreement, certain SBC employees were leased to Cingular. In December 2001 these employees became Cingular employees and on December 3, 2001 the Plan distributed approximately $7,306 to State Street Bank and Trust related to those former employees that were transferred to Cingular. Although it has not expressed any intent to do so, SBC has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event that the Plan is terminated, subject to the conditions set forth by ERISA, the account balances of all participants shall be 100% vested. 2. Accounting Policies - The values of investments are determined as follows: SBC common shares on the basis of the closing price as reported on the New York Stock Exchange; contracts with insurance companies and other financial institutions at principal plus reinvested interest which approximates fair value; common collective trust funds at values obtained from fund managers; and temporary cash investments at cost which approximates fair value. Purchases and sales of securities are reflected as of the trade date. Dividend income is recognized on the ex-dividend date. Interest earned on investments is recognized on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which requires all derivatives to be recorded on the statement of net assets available for benefits at fair value, and requires changes in the fair value of the derivatives to be recorded on the statement of changes in net assets available for benefits. The Plan adopted FAS 133 on January 1, 2001, as a one-time, noncash cumulative effect of accounting change. However, because of the Plan's minimal use of derivatives, the adoption of this standard did not have a significant effect on the Plan's financial position or results of operations 3. Investments - Investments representing 5% or more of Plan net assets at either December 31, 2001 or 2000 were: 2001 2000 ---------- --------- Employee Stock Ownership Plan * ------------------------------- SBC common shares: Allocated $ 1,028,960 $ 1,209,908 Unallocated $ 9 $ 3 SBC Shares Fund --------------- SBC common shares $ 1,530,316 $ 1,941,683 Diversified Equity Portfolio ---------------------------- Barclays Global Investors Equity Index Fund F $ 434,521 $ 516,372 * Nonparticipant-directed During 2001, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value as follows: Common Stock $(561,179) Common Collective Trusts (76,656) ---------- Total $(637,835) ========== The Interest Income Fund consists of contracts with various financial institutions and insurance companies that promise to repay principal plus accrued income at contract maturity, subject to the creditworthiness of the issuer. Interest crediting rates are generally established when the contract is purchased and are not reset. For the years ended December 31, 2001 and 2000, the average interest rates earned on these contracts were 6.13% and 6.15%. At December 31, 2001, the fixed crediting interest rates on these contracts ranged from 3.76% to 8.00%. At December 31, 2000, the fixed crediting interest rates on these contracts ranged from 5.18% to 8.00%. No valuation reserves were recorded to adjust contract amounts as of December 31, 2001 or 2000. The Interest Income Fund invests in both guaranteed investment contracts (GICs) and synthetic investment contracts (SICs). SICs differ from GICs in that the assets supporting the SICs are owned by the Plan. A bank or insurance company issues a wrapper contract that allows participant directed transactions to be made at contract value. Wrapper contracts are valued as the difference between the fair value of the supporting assets and the contract value. The assets supporting the SICs generally consist of high quality fixed income securities. 4. Nonparticipant-Directed Investments - Information about the net assets and the significant components of the changes in net assets relating to the nonparticipant-directed investments as of December 31 is as follows: 2001 2000 --------- ---------- Assets ------ SBC common shares: Allocated $ 1,028,960 $ 1,209,908 Unallocated 9 3 Temporary cash investments 2,958 2,300 Dividends and interest receivable 3 24 Receivable for investments sold 370 224 Other receivables 2 1 --------- ---------- Total Assets 1,032,302 1,212,460 --------- ---------- Liabilities ----------- Administrative expenses payable 368 248 Long-term debt - 644 --------- ---------- Total Liabilities 368 892 --------- ---------- Net Assets Available for Benefits $ 1,031,934 $ 1,211,568 ========= ========== 2001 ---------- Net Assets Available for Benefits, December 31, 2000 $ 1,211,568 Employer contributions 110,917 Interest income 90 Dividends 26,114 Net depreciation in fair value of investments (220,877) Administrative expenses (1,086) Distributions (92,314) Transfers to other plans (2,478) ---------- (179,634) ---------- Net Assets Available for Benefits, December 31, 2001 $ 1,031,934 ========== 5. Long-Term Debt - Long-term debt consists of the ESOP Notes issued in connection with the ESOP and the refinancing notes (as discussed in Note 1). The remaining balance due on the notes was paid off in 2001. The carrying amount and the estimated fair value of the ESOP and refinancing notes as of December 31, 2000 was: 2000 --------- Carrying Amount $ 644 ========= Fair Value $ 644 ========= At December 31, 2000, the fair value of the ESOP Note was estimated based on quoted prices. 6. Tax Status - The Internal Revenue Service issued a determination letter on March 10, 1997, stating that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since the determination letter was received. The Plan Administrator believes that the Plan is currently designed and is operating in compliance with the applicable requirements of the IRC. On February 28, 2002, the Plan filed for, but has not yet received, a new tax determination letter from the IRS to reflect legally required changes and other changes made to the Plan since the previous determination letter was issued. 7. Reconciliation of Financial Statements to Form 5500 - The following is a reconciliation of Net Assets Available for Benefits per the financial statements to the Form 5500 as of December 31: 2001 2000 ----------- ----------- Net Assets Available for Benefits per the financial statements $ 3,998,507 $ 4,633,721 Less: Distribution payable to participants 369 1,583 ----------- ----------- Net Assets Available for Benefits per the Form 5500 $ 3,998,138 $ 4,632,138 =========== =========== The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the year ended December 31, 2001: 2001 ----------- Distributions to participants per the financial statements $ 430,339 Add: Distributions payable to participants at December 31, 2001 369 Less: Distributions payable to participants at December 31, 2000 1,583 ----------- Distributions to participants per the Form 5500 $ 429,125 =========== Distributions payable to participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date. 7. Subsequent Events - Effective January 1, 2002, the Plan was amended to change the vesting schedule from five years to three years, increase the maximum employee contributions from 16% to 30%, allow dividends from the SBC Shares Fund and the LESOP to be made available for cash payment to the participant or reinvested in the SBC Shares Fund and allow employees immediate eligibility to make contributions. Additionally, the Mid and Small Cap Stock Fund and the International Stock Fund were added as investment options effective January 1, 2002. SBC SAVINGS AND SECURITY PLAN EIN 43-1301883, PLAN NO. 004 SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR) December 31, 2001 (Dollars in Thousands) Description of Current Identity of Issue Investment Cost Value ------------------------------------ --------------------- --------- --------- Employee Stock Ownership Plan ----------------------------- * SBC common shares: Allocated 26,269,092 shares $ 568,425 $ 1,028,960 Unallocated 233 shares 6 9 * Boston Safe Deposit and Trust Temporary cash Company investment 2,958 2,958 --------- --------- Total Employee Stock Ownership Plan 571,389 1,031,927 --------- --------- SBC Shares Fund --------------- * SBC common shares 39,068,579 shares 1,530,316 * Boston Safe Deposit and Trust Temporary cash Company investment 30,409 --------- Total SBC Shares Fund ** 1,560,725 --------- Bond Fund --------- * Barclays Global Investors Intermediate Government/Credit --------- Bond Index Fund F 5,830,257 units ** 81,332 --------- Diversified Equity Portfolio ---------------------------- --------- * Barclays Global Investors Equity 28,381,525 units ** 434,521 Index Fund F --------- Interest Income Fund -------------------- Allstate Life Insurance Company 7.10%, 10/15/03 11,980 Bank of America National Synthetic contract Association wrapper #99-086, 5.03%, *** (1,117) Federal Home Loan Mortgage Corporation Agency Debenture 7,816 Providian Master Trust Monoline Credit Card 5,119 AmeriCredit Auto Receivables Trust Sub Prime Auto 3,231 Capital One Master Trust Monoline Credit Card 6,859 Federal National Mortgage Association Agency Debenture 5,602 Prime Credit Card Master Trust Retail Credit Card 5,298 Federal National Mortgage Association PAC 5,218 WFS Financial Owners Trust Sub Prime Auto 3,218 Nordstrom Private Label Monoline Credit Credit Card Master Card 4,911 Commercial Mortgage Asset Trust Conduit 4,352 TIAA Retail Commercial Trust Conduit 3,753 WFS Financial Owners Trust Sub Prime Auto 3,045 Federal National Mortgage FHA/VA Association Reperforming Pas 2,877 HomeEq Asset Backed Certificates Home Equity Senior Sub 2,530 Bank of America National Association Cash on Hand 197 --------- 62,909 Business Men's Assurance Company of America 7.44%, 7/29/03 6,104 CDC Financial Products Inc. 7.00% - 7.01%, 8/29/05 - 10/17/05 8,085 JPMorgan Chase Bank Synthetic contract wrapper #401792-L2, 6.09%, *** (115) INVESCO Group Trust for Retirement Savings Group Trust: Lambda II 2,826 --------- 2,711 JPMorgan Chase Bank Synthetic contract wrapper #426424-T, 5.61%, *** (1,877) Federal Home Loan Mortgage Company Agency Debenture 3,928 United States Treasury Treasury Note 6,645 American Express Credit Account Monoline Credit Card 3,308 Fleet Credit Card Master Trust Bank Credit Card 2,799 CIT Equipment Collateral Small Equipment Lease 6,453 AmeriCredit Automobile Receivables Trust Sub Prime Auto 7,070 Credit Suisse First Boston Mortgage Sec. Conduit 5,904 Nissan Auto Receivables Owners Trust Prime Auto 5,602 Ford Credit Auto Owners Trust Prime Auto 5,394 Ford Credit Auto Owners Trust Prime Auto 4,034 Chase Credit Card Master Trust Bank Credit Card 3,675 Honda Auto Receivables Owner Trust Prime Auto 3,632 Caterpillar Financial Asset Trust Large Equipment Loan 3,273 JPMorgan Chase Bank Cash on Hand 258 --------- 60,098 Continental Assurance Company Synthetic contract wrapper #630-05574, 5.43%, *** (91) INVESCO Group Trust for Retirement Sav. Group Trust Beta 3,511 --------- 3,420 GE Life and Annuity Assurance 7.45% - 8.00%, Company 12/17/01 - 7/7/04 7,764 Jackson National Life Insurance Company 7.50%, 1/5/04 8,080 John Hancock Life Insurance 3.76% - 6.28%, Company 2/1/02 - 2/3/03 22,733 Metropolitan Life Insurance 5.25% - 6.16%, Company 4/1/02 - 5/13/02 14,523 Monumental Life Insurance 7.17%, 7/25/05 Company 4,872 Monumental Life Insurance Synthetic contract Company wrapper #00292TR, 4.94%, *** (1,340) Federal National Mortgage FHA/VA Reperforming Association Pass 4,401 Household Automotive Trust Sub Prime Auto 10,299 Federal Home Loan Mortgage Corporation Agency Debenture 9,379 United States Treasury Treasury Note 1,279 Copelco Capital Funding Corp Small Equipment Lease 535 First USA Credit Card Master Trust Bank Credit Card 1,037 American Express Credit Account Master Trust Monoline Credit Card 870 Federal Home Loan Mortgage Corporation Agency Debenture 8,424 United States Treasury Treasury Note 5,537 Residential Asset Securities Corporation Home Equity Senior Sub 5,110 Residential Asset Securities Corporation Home Equity Senior Sub 5,084 Onyx Acceptance Grantor Trust Sub Prime Auto 4,255 AmeriCredit Automobile Receivables Trust Sub Prime Auto 4,199 WFS Financial Owners Trust Sub Prime Auto 2,145 Federal National Mortgage Associaiton Agency Debenture 1,569 Honda Auto Receivables Owner Trust Prime Auto 1,292 Sears Credit Account Master Trust Retail Credit Card 1,037 Monumental Life Insurance Company Cash on Hand 317 --------- 65,429 New York Life Insurance Company 5.28% - 6.06%, 6/28/02 - 2/2/04 18,632 Pruco Life Insurance Company 6.99% - 7.48%, 9/7/04 - 11/30/05 22,349 Security Life of Denver 7.39% - 7.65%, Insurance Company 2/11/03 - 10/4/04 12,193 State Street Bank and Trust Synthetic contract Company wrapper #99035-LB1, 5.22%, *** (36) INVESCO Group Trust for Retirement Savings Group Trust: Lambda I 1,739 --------- 1,703 State Street Bank and Trust Synthetic contract Company wrapper #99039, 6.61%, *** (2,249) MBNA Master Credit Card Trust USA Monoline Credit Card 3,827 Delta Funding Home Equity Loan Trust Home Equity Monoline 5,168 Federal National Mortgage Association FHA/VA Reperforming Pas 5,075 American Express Credit Account Master Trust Monoline Credit Card 5,239 Fleet Credit Card Master Trust II Bank Credit Card 4,306 Federal Home Loan Mortgage Corporation Agency Debenture 4,169 Sears Credit Account Master Trust Retail Credit Card 4,235 Sears Credit Account Master Trust Retail Credit Card 2,208 Sears Credit Account Master Trust Retail Credit Card 4,273 Citibank Credit Card Master Trust II Bank Credit Card 4,279 Citibank Credit Card Master Trust II Bank Credit Card 3,141 Federal Home Loan Mortgage Corporation Agency Hybrid ARM 3,043 Capital One Master Trust Bank Credit Card 2,023 United States Treasury Treasury Note 15,437 Keycorp Conduit 5,977 Honda Auto Receivables Owner Trust Prime Auto 1,002 United States Treasury Treasury Note 448 State Street Bank and Trust Company Cash on Hand 358 Pending Settlements (15,451) --------- 56,508 SunAmerica Life Insurance 7.14%, - 7.57% Company 1/2/04 - 9/22/05 9,334 * Boston Safe Deposit and Trust Temporary cash Company investment 43,195 --------- Total Interest Income Fund ** 442,622 --------- Asset Allocation Fund --------------------- * Barclays Global Investors U.S. Tactical Asset --------- Allocation Fund F 10,950,685 units ** 176,197 --------- Global Equity Fund ------------------ * Barclays Global Investors U.S. Equity Market Fund F 1,622,924 units 43,089 * Barclays Global Investors EAFE Equity Index Fund E 761,716 unit 11,921 --------- Total Global Equity Fund ** 55,010 --------- Loan Fund --------- --------- * Loans to Plan Participants 5.75% - 10.00% ** 216,906 --------- TOTAL $ 3,999,240 ========= * Party-in-Interest. ** Participant-directed investment, cost not required. *** Synthetic Insurance Contracts, no stated maturity. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator for the Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized. SBC SAVINGS AND SECURITY PLAN By SBC Communications Inc., Plan Administrator for the Foregoing Plan By /s/ Karen E. Jennings Karen E. Jennings Senior Executive Vice President- Human Resources Date: June 27, 2002 > EXHIBIT INDEX Exhibit identified below, is filed herein as exhibit hereto. Exhibit Number 23 Consent of Independent Auditors Ernst & Young LLP.