EX 99-b
Form 10-K for 1999
File No. 1-8610
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
ANNUAL REPORT
------------------
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number l-8610
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SBC SAVINGS AND SECURITY PLAN
------------------------------------
SBC COMMUNICATIONS INC.
175 E. Houston, San Antonio, Texas 78205
Financial Statements, Supplemental Schedules and Exhibits
Table of Contents
Page
Report of Independent Auditors...............................................1
Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 1999 and 1998.............................................2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1999...........................................3
Notes to Financial Statements..........................................4
Supplemental Schedules:
Schedule H, Line 4i - Schedule of Assets Held for Investment
Purposes at End of Year................................................8
Schedule H, Line 4j - Schedule of Reportable Transactions.............10
Exhibits:
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, 1999 and 1998, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 1999. 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,
1999 and 1998, and the changes in its net assets available for benefits for the
year ended December 31, 1999, 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 for investment purposes at end of year as of December 31, 1999 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 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.
ERNST & YOUNG LLP
San Antonio, Texas
June 16, 2000
SBC SAVINGS AND SECURITY PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(Dollars in Thousands)
December 31,
---------------------------
1999 1998
----------- -----------
ASSETS
Investments (See Note 3) $ 4,886,427 $ 2,289,316
Cash 176 -
Employer contributions receivable 19 -
Dividends and interest receivable 382 160
Transfers receivable from other plans - 818
Receivable for investments sold 92 1,264
----------- -----------
Total Assets 4,887,096 2,291,558
----------- -----------
LIABILITIES
Transfers payable from other plans - 1,974
Payable for investments purchased 10,799 8,353
Administrative expenses payable 413 193
Interest payable 1,290 2,963
Long-term debt:
SBC Communications Inc. 23,768 -
Other 22,380 40,402
Other 6 -
----------- -----------
Total Liabilities 58,656 53,885
----------- -----------
Net Assets Available for Benefits $ 4,828,440 $ 2,237,673
=========== ===========
<FN>
See Notes to Financial Statements.
</FN>
SBC SAVINGS AND SECURITY PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Dollars in Thousands)
Net Assets Available for Benefits,
December 31, 1998 $ 2,237,673
Additions to Net Assets:
Contributions and transfers:
Participant contributions 177,160
Employer contributions 20,490
Transfers from other plans (See Note 1) 3,128,551
-----------
3,326,201
-----------
Investment Income:
Dividends on SBC common shares 60,645
Interest 34,211
-----------
94,856
-----------
Total Net Additions 3,421,057
-----------
Deductions from Net Assets:
Net depreciation in fair value of
investments 333,359
Administrative expenses 5,367
Interest expense 8,999
Distributions 482,565
-----------
Total Deductions 830,290
-----------
Net Assets Available for Benefits,
December 31, 1999 $ 4,828,440
===========
<FN>
See Notes to Financial Statements.
</FN>
SBC SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands, Except per Unit Amounts)
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.
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 due 2005, the repayment of which is guaranteed by SBC. 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 it makes under its guarantee of the
ESOP Notes. Dividends on Financed Shares and employer cash contributions are
used by the Plan to make the required principal and interest payments on the
ESOP Notes. As the ESOP Notes are paid down, the Financed Shares are released
from the collateral. The Financed Shares are 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 are allocated to participants' accounts. The interest rate on the
notes is 8.41%.
To the extent insufficient shares have been released through payments on
outstanding notes net of amounts refinanced, additional employer
contributions are 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 are used to acquire additional shares which are
allocated to participants' accounts in the ESOP. Should shares released
exceed the required company matching contribution, the excess is considered
an additional employer contribution and is allocated to participants'
accounts based on each participant's proportionate share of actual plan year
ESOP contributions.
Bankers Trust Company was the trustee of the Plan until July 5, 1999.
Effective July 6, 1999, the Plan's assets were transferred to a successor
trustee, Boston Safe Deposit and Trust Company, a wholly owned subsidiary of
Mellon Bank, N.A.
Dividends on shares in the SBC Shares Fund (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 1999, Plan
participants elected to receive $27.3 million in dividend distributions. This
amount is included in distributions on the statement of changes in net
assets.
Following the merger of SBC and Southern New England Telecommunications
Corporation (SNET) effective October 26, 1998, the Plan merged with the SNET
Bargaining Unit Retirement Savings Plan (SNET Plan) effective October 1,
1999. In conjunction with the merger, all assets of the SNET Plan (with the
exception of the SBC stock and the guaranteed insurance contracts, which were
transferred directly to the Plan) were sold and the cash was transferred to
the Plan, together with a proportionate amount of the unallocated SBC common
shares and the remaining liability under the loan agreement. $275,272 is
included in transfers from other plans on the statement of changes in net
assets available for benefits related to this plan merger.
Following the merger of SBC and Pacific Telesis Group (PAC) effective
April 1, 1997, the Plan merged with the PAC Supplemental Retirement and
Savings Plan for Nonsalaried Employees (PAC Plan) effective January 1, 1999.
In conjunction with the merger, all assets of the PAC Plan were transferred
to the Plan. In addition, the assets attributable to the accounts of
bargained employees of PAC in the Pacific Telesis Group Supplemental
Retirement and Savings Plan for Salaried and Nonsalaried Employees were
transferred to the Plan, together with a proportionate amount of the
unallocated SBC common shares and the remaining liability under the loan
agreement. $2,853,279 is included in transfers from other plans on the
statement of changes in net assets available for benefits related to these
plan mergers.
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 the Employee Retirement Income Security Act
of 1974 (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 last published sales prices as reported
on the composite tape of the New York Stock Exchange and other exchanges;
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 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 prior year balances have been reclassified to conform to the current
year presentation.
3. Investments - Investments representing 5% or more of Plan net assets at
either December 31, 1999 or 1998 were:
1999 1998
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Employee Stock Ownership Plan*
------------------------------
SBC common shares:
Allocated $ 1,197,257 $ 658,591
Unallocated $ 118,174 $ 124,209
SBC Shares Fund
---------------
SBC common shares $ 2,146,623 $ 1,027,260
Diversified Equity Portfolio
----------------------------
Barclays Global Investors Equity Index Fund $ 549,268 $ 137,537
* Nonparticipant Directed
During 1999, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
Common Stock (453,654)
Common Collective Trusts 120,295
----------
Total $ (333,359)
==========
Contracts with insurance companies are promises by an insurance company to
repay principal plus accrued income at contract maturity, subject to the
creditworthiness of the issuer. Interest crediting rates are generally
established with the contract is purchased and is not reset. For the years
ended December 31, 1999 and 1998, the average interest rates earned on the
Interest Income Fund's investments in contracts with insurance companies and
other
financial institutions were 5.89% and 6.30%. At December 31, 1999, the
fixed crediting interest rates on these contracts ranged from 5.08% to 8.38%.
At December 31, 1998, the fixed crediting interest rates on these contracts
ranged from 5.91% to 7.91%.
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. The 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 are comprised of asset-backed
securities, municipal bonds and units of ownership in group trusts with a
fair value of $104,502 at December 31, 1999. The contract value of the SICs
at December 31, 1999 was $106,498. The Interest Income Fund did not contain
SICs at December 31, 1998.
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:
1999 1998
--------- ----------
Assets
------
SBC common shares:
Allocated $ 1,197,257 $ 658,591
Unallocated 118,174 124,209
Temporary cash investments 19,769 7,454
Dividends and interest receivable 96 32
Receivable for investments sold 92 264
---------- ----------
Total Assets 1,335,388 790,550
---------- ----------
Liabilities
-----------
Administrative expenses payable 107 61
Interest payable 1,290 2,963
Long-term debt 46,148 40,402
---------- ----------
Total Liabilities 47,545 43,426
---------- ----------
Net Assets Available for Benefits $ 1,287,843 $ 747,124
========== ==========
1999
----------
Net Assets Available for Benefits,
December 31, 1998 $ 747,124
Employer contributions 20,490
Transfers from other plans 785,581
Interest income 514
Dividends 23,183
Net depreciation in fair value of investments (178,135)
Administrative expenses (923)
Interest expense (8,864)
Distributions (101,127)
----------
540,719
----------
Net Assets Available for Benefits,
December 31, 1999 $ 1,287,843
==========
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).
At December 31, 1999, the aggregate principal amounts of long-term debt
scheduled for repayment for the year 2000 is $15,856. No additional payments
are due until 2005. The carrying amount and the estimated fair value of the
ESOP and refinancing notes as of December 31 were:
1999 1998
---------- ---------
Carrying Amount $ 46,148 $ 40,402
========== =========
Fair Value $ 46,169 $ 42,257
========== =========
The fair values of the 8.41% ESOP Notes were estimated based on quoted prices
and the fair value of the 9.40% ESOP notes were estimated based on discounted
future cash flows using current interest rates.
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.
7. Reconciliation of Financial Statements to Form 5500 - The following is a
reconciliation of net assets available for plan benefits per the financial
statements to the Form 5500 as of December 31:
1999 1998
----------- ------------
Net assets available for plan benefit per the
financial statements $ 4,828,440 $ 2,237,673
Less: Distribution payable to participants - 423
----------- ------------
Net assets available for plan benefit per the
Form 5500 $ 4,828,440 $ 2,237,250
=========== ============
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 for the year ended December 31, 1999:
1999
-----------
Distributions to participants per the
financial statements $ 482,565
Add: Distributions payable to participants at
December 31, 1999 -
Less: Distributions payable to participants
at December 31, 1998 423
-----------
Distributions to participants per the Form 5500 $ 482,142
===========
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.
SBC SAVINGS AND SECURITY PLAN
EIN 43-1301883, PLAN NO. 004
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT END OF YEAR
December 31, 1999
(Dollars in Thousands)
Description of Current
Identity of Issue Investment Cost Value
- ------------------------------------ --------------------- --------- ----------
Employee Stock Ownership Plan
- -----------------------------
* SBC common shares:
Allocated 24,559,132 shares $ 453,528 $ 1,197,257
Unallocated 2,424,186 shares 49,058 118,174
* Boston Safe Deposit and Trust Temporary cash 19,769 19,769
Company investment --------- ----------
Total Employee Stock Ownership Plan 522,355 1,335,200
--------- ----------
SBC Shares Fund
- ---------------
* SBC common shares: 44,033,301 shares 2,146,623
* Boston Safe Deposit and Trust Temporary cash 44,482
Company investment ----------
Total SBC Shares Fund ** 2,191,105
----------
Bond Fund
- ---------
----------
* Barclays Global Investors Intermediate 2,594,190 units ** 29,698
Government/Corporate Bond Index Fund F ----------
Diversified Equity Portfolio
- ----------------------------
----------
* Barclays Global Investors Equity 28,738,363 units ** 549,268
Index Fund F ----------
Interest Income Fund
- --------------------
Allstate Life Insurance Company 6.80%, 7/5/00 4,567
Canada Life Insurance Company 5.47%, 12/31/01 34,500
Chase Manhattan Bank 6.33%, 7/15/04 10,266
Continental Assurance Company 6.40%, 12/29/00 5,000
GE Life and Annuity Assurance 7.01%, 12/17/01 4,008
Company
Jackson National Life Insurance 6.80% - 6.90%, 4,050
Company 12/29/00 - 12/31/00
John Hancock Insurance Company 5.28% - 6.86%, 48,891
6/29/01 - 2/3/03
Metropolitan Life Insurance Company 5.25% - 6.58%, 40,276
2/17/01 - 4/1/02
Monumental Life Insurance Company 6.25% - 6.28%, 15,193
10/15/01 - 12/31/01
New York Life Insurance Company 5.28% - 6.72%, 29,657
3/2/00 - 2/2/04
Prudential Insurance Company of 6.85%, 6/30/00 4,985
America
SBC SAVINGS AND SECURITY PLAN
EIN 43-1301883, PLAN NO. 004
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT END OF YEAR - (continued)
December 31, 1999
(Dollars in Thousands)
Description of Current
Identity of Issue Investment Cost Value
- ------------------------------------ --------------------- ------- -----------
State Street Bank and Trust 6.13%, 5/15/06 55,856
Travelers Insurance Company 5.29%, 12/31/01 24,057
Allstate Life Insurance Company 5.12%, 10/1/02 1,574
Bank of America 6.61%, 11/15/02 9,762
Bankers Trust 6.02%, 1/3/00 5,978
Chase Manhattan Bank 6.39%, 12/1/09 3,294
Continental Assurance Company 5.21%, 2/1/06 5,974
John Hancock Insurance Company 6.07%, 2/1/02 1,688
Massachusetts Mutual Life 6.50%, 7/5/02 1,241
Insurance Company
Monumental Life Insurance Company 5.87%, 8/16/04 10,055
Prudential Insurance Company of 8.38%, 11/20/00 119
America
State Street Bank and Trust 5.08%, 6/3/08 2,378
Sun America Life Insurance Company 7.81%, 1/2/04 522
United of Omaha Life Insurance 6.87%, 12/14/01 1,007
Company ---------
324,898
* Boston Safe Deposit and Trust Temporary cash 43,845
Company investment ---------
Total Interest Income Fund ** 368,743
---------
Asset Allocation Fund
- ---------------------
---------
* Barclays Global Investors U.S. 11,532,540 units ** 193,982
Tactical Asset Allocation Fund F ---------
Global Equity Fund
- ------------------
* Barclays U.S. Equity Market Fund F 745,991 units 24,452
* Barclays EAFE Equity Index Fund E 320,138 units 7,483
---------
Total Global Equity Fund ** 31,935
---------
Loan Fund
- ---------
---------
* Loans to Plan Participants 8.75%-9.50% ** 186,496
---------
TOTAL $ 4,886,427
==========
<FN>
* Party-in-Interest
** Participant-directed investment, cost not required.
</FN>
SBC SAVINGS AND SECURITY PLAN
EIN 43-1301883, PLAN NO. 004
SCHEDULE H, LINE 4j - SCHEDULE OF REPORTABLE TRANSACTIONS
For the year ended December 31, 1999
(Dollars in Thousands)
Current
Value
of Asset on
Identity of Party Description of Purchase Selling Cost of Transaction Net Gain
Involved Asset Price Price Asset Date or (Loss)
--------------------- -------------------- ----------- ---------- ----------- ----------- ----------
Category (i) transactions
-------------------------
Bankers Trust Company SBC Communications $ 740,861 $ - $ 740,861 $ 740,861 $ -
Inc. Common Stock
Bankers Trust Company SBC Communications $ 740,828 $ - $ 740,828 $ 740,828 $ -
Inc. Common Stock
Category (iii) transactions
---------------------------
Bankers Trust Company Pyramid Directed $ 630,887 $ - $ 630,887 $ 630,887 $ -
Account Cash Fund
Bankers Trust Company Pyramid Directed $ - $ 705,815 $ 705,815 $ 705,815 $ -
Account Cash Fund
Bankers Trust Company SBC Communications $ 1,623,324 $ - $ 1,623,324 $ 1,623,324 $ -
Inc. Common Stock
Bankers Trust Company SBC Communications $ - $ 278,599 $ 175,787 $ 278,599 $ 102,812
Inc. Common Stock
Boston Safe Deposit TBC Inc. Daily $ 649,029 $ - $ 649,029 $ 649,029 $ -
and Trust Company Liquidity Cash Fund
Boston Safe Deposit TBC Inc. Daily $ - $ 543,517 $ 543,517 $ 543,517 $ -
and Trust Company Liquidity Cash Fund
<FN>
There were no category (ii) or (iv) transactions.
Trustee was not able to break out the nonparticipant directed transactions
from the participant directed transactions.
</FN>
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, 2000
EXHIBIT INDEX
Exhibit identified below, is filed herein as exhibit hereto.
Exhibit
Number
---------
23-a Consent of Independent Auditors Ernst & Young LLP.
EX 23-a
Form 11-K for 1999
File No. l-8610
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8, No. 333-88667 and 333-66105) pertaining to the SBC
Savings and Security Plan of our report dated June 16, 2000, with respect
to the financial statements and supplemental schedules of the SBC Savings
and Security Plan included in this Annual Report (Form 11-K) for the year
ended December 31, 1999.
ERNST & YOUNG LLP
San Antonio, Texas
June 23, 2000