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, 2002
Commission File Number l-8610
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
B. Name of the issuer of the securities held pursuant to the
plan and the address of its principal executive office:
175 E. Houston, San Antonio, Texas 78205
SBC PAYSOP
Financial Statements, Supplemental Schedules and Exhibits
Table of Contents
Report of Independent Auditors Ernst & Young LLP.........................................................1
Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 2002 and 2001 ....................2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 2002 ........................................................................3
Notes to Financial Statements .......................................................................4
Supplemental Schedules:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) ......................................8
Schedule H, Line 4j - Schedule of Reportable Transactions ...........................................9
Exhibits:
23 - Consent of Ernst & Young LLP
99 - Certification of Periodic Financial Reports
Report of Independent Auditors
SBC Communications Inc.,
Plan Administrator for SBC PAYSOP
We have audited the accompanying statements of net assets available for benefits of SBC PAYSOP as of December 31, 2002 and 2001, and
the related statement of changes in net assets available for benefits for the year ended December 31, 2002. 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 of the Plan at December 31, 2002 and 2001, and the changes in its net assets available for benefits for the year ended
December 31, 2002, 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 schedules of assets (held at end of year) as of December 31, 2002, and reportable transactions for the year then ended,
are presented for purposes of additional analysis and are not a required part of the financial statements but are 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. These supplemental schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are
fairly stated in all material respects in relation to the financial statements taken as a whole.
June 16, 2003 /s/ ERNST & YOUNG LLP
SBC PAYSOP
Statements of Net Assets Available for Benefits
(Dollars in Thousands)
December 31
2002 2001
-------------------------------------
Assets
Investment in common stock of SBC Communications Inc., at fair value
$ 94,770 $ 156,497
Cash equivalents 18 42
-------------------------------------
Net assets available for benefits $ 94,788 $ 156,539
=====================================
See accompanying notes.
SBC PAYSOP
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2002
(Dollars in Thousands)
Additions:
Dividend income $ 3,972
Interest income 63
--------------------
Total additions 4,035
--------------------
Deductions:
Net depreciation of SBC Communications Inc. common shares 45,135
Distributions to participants 20,638
Administrative expenses 13
--------------------
Total deductions 65,786
--------------------
Net decrease (61,751)
Net assets available for benefits, beginning of year 156,539
--------------------
Net assets available for benefits, end of year $ 94,788
====================
See accompanying notes.
SBC PAYSOP
Notes to Financial Statements
December 31, 2002 and 2001
(Dollars in Thousands)
1. Plan Description
The SBC PAYSOP (the Plan) was established by SBC Communications Inc. (SBC) during 1983 as a result of the disaggregation of the Bell
System Employee Stock Ownership Plan. The Plan was established to provide shares of SBC common stock to eligible employees of
participating SBC companies.
The following description of the Plan provides only general information. The Plan text and prospectus include complete descriptions
of Plan provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions for years prior to the 1987 plan year were in amounts equal to the credit claimed by SBC on its consolidated federal
income tax return pursuant to Section 41 of the Internal Revenue Code of 1954 (IRC). This credit was one-half of one percent of
compensation paid or accrued for all participants during the plan year up to a maximum of $100 per participant.
The Tax Reform Act of 1986 repealed the income tax credit on employee stock ownership plan contributions for compensation paid or
accrued after December 31, 1986. No contributions were made to the Plan beginning with the 1987 plan year. Employees with a balance
in the Plan on December 31, 1986 are eligible for participation in the Plan and continue to maintain a balance in the Plan.
Employees who did not have a balance in the Plan at that time are not eligible to participate.
Although it has not expressed any intent to do so, SBC has the right under the Plan to terminate the Plan at any time subject to the
provisions of ERISA. In the event that the Plan is terminated, subject to the conditions set forth by ERISA, the Plan provides that
the net assets be distributed to participants in amounts equal to their respective interests in such assets.
2. Summary of Significant Accounting Policies
The fair value of SBC common stock is determined on the basis of the closing price per share on the valuation date as reported at the
official close of the New York Stock Exchange. Temporary cash investments are valued 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.
Expenses incurred to administer the Plan are paid by SBC. A portion of these expenses, up to $100 per year, is reimbursed by the
Plan to SBC.
The preparation of financial statements in conformity with accounting principles generally accepted 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.
3. Allocations and Distributions to Participants
The Plan maintains an account for each participant. Distribution of the shares allocated to a participant's account is generally
made to a participant after termination of employment but no later than April of the plan year following the plan year in which the
participant attains age 70 1/2, or to a beneficiary as soon as practicable after the participant's death. If a participant remains
an active employee beyond the year the participant turns age 70 1/2, the participant's account will begin to be distributed no later
than April of the following year. For each distribution, the participant or beneficiary receives stock.
All quarterly dividends for a year earned on shares in participants' accounts are held in an interest-bearing account until paid to
participants on an annual basis in November of each year. Effective January 1, 2002, the Plan was amended to allow participants the
option to reinvest dividends on SBC common stock held in their accounts. Reinvested dividends are used to purchase SBC common
stock. Earnings attributable to dividends pending distribution which exceed administrative expenses paid by the Plan are used to
purchase additional shares of SBC common stock. These shares are proportionately allocated to each participant's account.
4. Tax Status
The Internal Revenue Service (IRS) issued a determination letter on November 4, 1996, stating that the Plan and related trust are
designed in accordance with applicable sections of the 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.
5. 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:
2002 2001
--------------------------------------
Net assets available for benefits per the financial statements $ 94,788 $ 156,539
Less: Distributions payable to participants (989) (2,767)
--------------------------------------
Net assets available for benefits per the Form 5500 $ 93,799 $ 153,772
======================================
The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the year ended
December 31, 2002:
Distributions to participants per the financial statements $ 20,638
Add: distributions payable to participants at December 31, 2002 989
Less: distributions payable to participants at December 31, 2001 (2,767)
-------------------
Distributions to participants per the Form 5500 $ 18,860
===================
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.
Supplemental Schedules
SBC PAYSOP
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
EIN: 43-1301883 Plan No.: 003
December 31, 2002
(Dollars in Thousands)
Name of Issue, Borrower, Lessor or Description of Current
Similar Party Investment Cost Value
-----------------------------------------------------------------------------------------------------------
* SBC Communications Inc. Common
Stock 3,495,747 shares $ 23,111 $ 94,770
* Boston Safe Deposit and Trust
Company Pooled Employee Funds
Daily Liquidity Fund Temporary cash investment 18 18
------------------------------------
$ 23,129 $ 94,788
====================================
*Party-in-Interest.
SBC PAYSOP
Schedule H, Line 4j - Schedule of Reportable Transactions
EIN: 43-1301883 Plan No.: 003
Year Ended December 31, 2002
(Dollars in Thousands)
Current Value
of Asset on
Transaction Net Gain
Identity of Description of Purchase Price Selling Cost of Date (Loss)
Party Involved Asset Price Asset
---------------------------------------------------------------------------------------------------------------------------
Category (iii) - Series of Transactions in Excess of 5
Percent of Plan Assets
*Boston Safe Deposit and Pooled Employee Funds
Trust Company Daily Liquidity Fund $ 8,176 $ - $ 8,176 $ 8,176 $ -
*Boston Safe Deposit and Pooled Employee Funds
Trust Company Daily Liquidity Fund - 8,201 8,201 8,201 -
* All transactions were purchased and sold on the market.
There were no Category (i), (ii) or (iv) reportable transactions during the year ended December 31, 2002.
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 PAYSOP
By SBC Communications Inc.,
Plan Administrator for the Foregoing Plan
By /s/ Karen E. Jennings
-------------------------------------------------
Karen E. Jennings
Senior Executive Vice President -
Human Resources and Communications
Date: June 20, 2003
EXHIBIT INDEX
Exhibits identified below, Exhibit 23 is filed herein as an exhibit hereto and Exhibit 99 is furnished and attached hereto.
Exhibit
Number
-------------
23 Consent of Independent Auditors Ernst & Young LLP
99 Certification of Periodic Financial Reports