UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __ )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
SBC Communications Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
[SBC logo]
Notice Of 2004
Annual Meeting and
Proxy Statement
SBC COMMUNICATIONS INC.
-----------------------------
Notice of
Annual Meeting of Stockholders
-----------------------------
The 2004 Annual Meeting of Stockholders of SBC Communications Inc. ("SBC"),
a Delaware corporation, will be held at 9:00 a.m. Eastern Time on Friday, April
30, 2004, at the Hyatt on Capitol Square, in the Governor's Ballroom, 75 East
State Street, Columbus, Ohio. The items of business are:
1. Elect six Directors to serve three-year terms
2. Ratify the appointment of Ernst & Young LLP as independent auditors of
SBC for 2004
3. Approve an amendment to SBC's Bylaws
4. Act upon certain stockholder proposals
and to act upon such other matters as may properly come before the meeting.
Holders of SBC common stock of record at the close of business on March 2,
2004, are entitled to vote at the meeting and any adjournment of the meeting. A
list of these stockholders will be available for inspection during business
hours from April 15 through April 29, 2004, at 175 E. Houston, San Antonio,
Texas, and will also be available at the Annual Meeting.
By Order of the Board of Directors.
/s/ Joy Rick
Joy Rick
Vice President and Secretary
March 11, 2004
IMPORTANT NOTICE
If you do not plan to attend the Annual Meeting to vote your shares, please
complete, date, sign and promptly mail the enclosed proxy card in the return
envelope provided. No postage is necessary if it is mailed in the United
States. Stockholders of record may also give their proxy by telephone or
through the Internet in accordance with the instructions accompanying the
proxy card. Any person giving a proxy has the power to revoke it at any time,
and stockholders who are present at the meeting may withdraw their proxies and
vote in person.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
--------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of SBC Communications Inc. ("SBC") for use at
the 2004 Annual Meeting of Stockholders of SBC. The meeting will be held at
9:00 a.m. Eastern Time on Friday, April 30, 2004, at the Hyatt on Capitol
Square, in the Governor's Ballroom, 75 East State Street, Columbus, Ohio. The
purposes of the meeting are set forth in the Notice of Annual Meeting of
Stockholders. This Proxy Statement and the accompanying proxy card are being
mailed beginning March 11, 2004, to stockholders of record of SBC's common
stock, $1.00 par value per share, at the close of business on March 2, 2004.
Each share entitles the registered holder to one vote. As of January 31, 2004,
there were 3,307,667,668 shares of SBC common stock outstanding.
All shares represented by proxies will be voted by one or more of the
persons designated on the enclosed proxy card in accordance with the
stockholders' directions. If the proxy card is signed and returned without
specific directions with respect to the matters to be acted upon, the shares
will be voted in accordance with the recommendations of the Board of Directors.
Any stockholder giving a proxy may revoke it at any time before such proxy is
voted at the meeting by giving written notice of revocation to the Vice
President and Secretary of SBC, by submitting a later-dated proxy, or by
attending the meeting and voting in person. The Chairman of the Board and Chief
Executive Officer will announce the closing of the polls during the Annual
Meeting. Proxies must be received prior to the closing of the polls in order to
be counted.
Instead of submitting a signed proxy card, stockholders may submit their
proxies by telephone or through the Internet using the instructions
accompanying the proxy card. Telephone and Internet proxies must be used in
conjunction with, and will be subject to, the information and terms contained
on the proxy card. Similar procedures may also be available to stockholders who
hold their shares through a broker, nominee, fiduciary or other custodian.
The proxy card, or a proxy submitted by telephone or through the Internet,
will also serve as voting instructions to the plan administrator or trustee for
any shares held on behalf of a participant under any of the following employee
benefit plans: the SBC Savings Plan, the SBC Savings and Security Plan, the
DonTech Profit Participation Plan, the Old Heritage
1
Advertising & Publishers, Inc. Profit Sharing Plan, the SBC PAYSOP, the Pacific
Telesis Group Employee Stock Ownership Plan, the Tax Reduction Act Stock
Ownership Plan (the "TRASOP") sponsored by The Southern New England Telephone
Company, the Cingular Wireless 401(k) Savings Plan, and the Cingular Wireless
401(k) Savings Plan for Bargained Employees. Shares in each of the foregoing
employee benefit plans (except the Old Heritage plan) for which voting
instructions are not received, subject to the trustees' fiduciary obligations,
will be voted by the trustees in the same proportion as the shares for which
voting instructions are received from other participants in each such plan. To
allow sufficient time for voting by the trustees and/or administrators of the
plans, your voting instructions must be received by April 27, 2004.
In addition, the proxy card or a proxy submitted by telephone or through
the Internet will constitute voting instructions to the plan administrator
pursuant to The DirectSERVICE Investment Program sponsored and administered by
EquiServe Trust Company, N.A. (SBC's transfer agent) for shares held on behalf
of plan participants.
If a stockholder participates in these plans and/or maintains stockholder
accounts under more than one name (including minor differences in registration,
such as with or without a middle initial), the stockholder may receive more
than one set of proxy materials. To ensure that all shares are voted, please
sign and return every proxy card received or submit a proxy by telephone or
through the Internet for each proxy card.
Only one annual report and one proxy statement are being delivered to
multiple stockholders sharing an address, unless SBC has received contrary
instructions from one or more of the stockholders at that address. Stockholders
may orally or in writing request a separate copy of the most recent annual
report and/or the proxy statement by writing the transfer agent, EquiServe
Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078, or by calling
(800) 351-7221. Stockholders calling from outside the United States may call
(816) 843-4280. Requests will be responded to promptly. Stockholders sharing an
address who desire to receive multiple copies, or who wish to receive only a
single copy, of the annual report and/or the proxy statement may write or call
the transfer agent at the above address or phone numbers to request a change.
A stockholder may designate a person or persons other than those persons
designated on the proxy card to act as the stockholder's proxy. The stockholder
may use the proxy card to give another person authority by
2
striking out the name(s) appearing on the enclosed proxy card, inserting the
name(s) of another person(s) and delivering the signed card to such person(s).
The person(s) designated by the stockholder must present the signed proxy card
at the meeting in order for the shares to be voted.
Where the stockholder is not the record holder, such as where the shares
are held through a broker, nominee, fiduciary or other custodian, the
stockholder must provide voting instructions to the record holder of the shares
in accordance with the record holder's requirements in order to ensure the
shares are properly voted.
The cost of soliciting proxies will be borne by SBC. Officers, agents and
employees of SBC and its subsidiaries and other solicitors retained by SBC may,
by letter, by telephone or in person, make additional requests for the return
of proxies and may receive proxies on behalf of SBC. Brokers, nominees,
fiduciaries and other custodians will be requested to forward soliciting
material to the beneficial owners of shares and will be reimbursed for their
expenses. SBC has retained D. F. King & Co., Inc. to aid in the solicitation of
proxies at a fee of $15,000, plus expenses.
Stockholders who represent 40% of the common stock outstanding and are
entitled to vote must be present or represented by proxy in order to constitute
a quorum to conduct business at the meeting. A list of eligible voters will be
available at the Annual Meeting.
If you plan to attend the meeting in person, please bring the admission
ticket (which is attached to the proxy card) to the Annual Meeting. If you do
not have an admission ticket, you will be admitted upon presentation of
identification at the door.
SBC's executive offices are located at 175 E. Houston, San Antonio, Texas
78205.
Your vote is important. Please sign, date and return your proxy card or
submit your proxy by telephone or through the Internet promptly so that a
quorum may be represented at the meeting.
3
BOARD OF DIRECTORS
--------------------------------------------------------------------------------
The Board of Directors is responsible for the management and direction of
SBC and for establishing broad corporate policies. The Board of Directors and
various committees of the Board regularly meet to receive and discuss operating
and financial reports presented by the Chairman of the Board and Chief
Executive Officer as well as reports by experts and other advisors. Corporate
review sessions are also offered to Directors to help familiarize them with
SBC's businesses, technology, and operations. Members of the Board are
encouraged to attend Board meetings in person, unless the meeting is held by
teleconference. The Board held nine meetings in 2003. Similarly, Directors are
expected to attend the Annual Meeting, absent unusual circumstances, although
SBC has no formal policy on the matter. Each member of the Board attended the
2003 Annual Meeting, except Mr. McCoy.
At least four times a year, the non-employee members of the Board of
Directors meet in executive session, i.e., with no employee Directors or
management personnel present. Jess T. Hay has been appointed the Lead Director
to preside over these meetings. Interested persons may contact the Lead
Director or the non-employee Directors by sending written comments through the
Office of the Secretary of the Company. The Office will either forward the
original materials as addressed or provide Directors with summaries of the
submissions, with the originals available for review at the Directors' request.
Under SBC's Bylaws, the Board of Directors has the authority to determine
the size of the Board, not to exceed 25 Directors, and to fill vacancies.
Currently, the Board is comprised of 21 Directors, one of whom is an executive
officer of SBC. The Board will be reduced to 18 Directors at the Annual Meeting
as a result of the retirement of three Directors. There are no vacancies on the
Board.
SBC's Bylaws also provide for a classified Board of Directors with three
classes of Directors (the Board of Directors has proposed to eliminate the
classified Board, as discussed below). Each class is to consist of an equal
number of Directors or, where an equal number in each class is not possible,
must be as nearly equal as possible. The class to which each Director has been
assigned is designated as Group A, Group B or Group C. The terms of office of
Group B Directors will expire at the 2004 Annual Meeting, terms of Group C
Directors will expire at the 2005 Annual Meeting, and the terms of Group A
Directors will expire at the 2006 Annual Meeting.
4
The Board of Directors has nominated the six persons listed as nominees for
Group B, all of whom are incumbent Directors, for election at the 2004 Annual
Meeting to three-year terms of office expiring at the 2007 Annual Meeting.
The Board of Directors has proposed to eliminate the classified Board
structure and require that all Directors be elected annually, beginning in
2005. To eliminate the classified structure of the Board, the Board will submit
to stockholders, as Item 3 on the agenda for the Annual Meeting, a proposal to
amend the Bylaws to eliminate the classified structure of the Board and require
the annual election of Directors, beginning with the 2005 Annual Meeting. The
proposed amendments would also eliminate provisions relating to the maximum
number of Directors; the limit on Directors is used to ensure that the
authority and purpose of the classified Board may not be diluted by increasing
the size of the Board. The amendments to the Bylaws must be approved by
stockholders representing two-thirds of the outstanding shares to be effective.
Current Group B Directors Herman E. Gallegos, Jess T. Hay, and Bobby R.
Inman will retire from service on the Board of Directors at the 2004 Annual
Meeting and will not stand for re-election. As a result of their upcoming
retirements, the Board voted to reduce the size of the Board of Directors to 18
Directors, effective immediately before the 2004 Annual Meeting. In order to
make the classes as equal in size as possible, as required by SBC's Bylaws, the
Board of Directors has nominated Patricia P. Upton, a Group A Director, and
James E. Barnes, a Group C Director, for election to Group B at the 2004 Annual
Meeting, along with the other persons listed as nominees. Ms. Upton and Mr.
Barnes will resign as Group A and Group C Directors, respectively, upon their
election as Group B Directors.
The Corporate Governance and Nominating Committee is responsible for
identifying candidates who are eligible under the qualification standards set
forth in the Corporate Governance Guidelines to serve as members of the Board.
It is authorized to retain search firms and other consultants to assist it in
identifying candidates and fulfilling its other duties. The Committee is not
limited to any specific process in identifying candidates and will consider
candidates suggested by stockholders. Candidates are recommended to the Board
after consultation with the Chairman of the Board. In recommending Board
candidates, the Committee considers a candidate's: (i) general understanding of
elements relevant to the success of a large publicly traded company in the
current business environment, (ii) understanding of SBC's business, and (iii)
educational and professional background. The Committee
5
also gives consideration to a candidate's judgment, competence, anticipated
participation in Board activities, experience, geographic location and special
talents or personal attributes. Stockholders who wish to suggest qualified
candidates should write to the Vice President and Secretary, SBC Communications
Inc., 175 E. Houston, San Antonio, Texas 78205, stating in detail the
qualifications of such persons for consideration by the Committee.
Biographical information about the Directors is provided on pages X-XX.
Except as otherwise noted, Directors who are shown as officers or partners of
other corporations, institutions or firms have held the positions indicated, or
have been officers of the organizations indicated, for more than five years.
Holdings of SBC common stock by SBC Directors are shown on the table on
page XX.
6
Board Committees
From time to time the Board establishes permanent standing committees and
temporary special committees to assist the Board in carrying out its
responsibilities. The Board has established seven standing committees of
Directors; the principal responsibilities of which are described below. The
charters for each of these committees may be found on SBC's
website: http://www.sbc.com. The biographical information included later in
this Proxy Statement identifies committee memberships held by each Director.
Audit Committee--The Committee met eight times in 2003. It consists of four
non-employee Directors. The Audit Committee oversees the integrity of the
financial statements of SBC, the independent auditor's qualifications and
independence, the performance of the internal audit function and independent
auditors, and the compliance by SBC with legal and regulatory matters. The
Committee is responsible for the appointment, compensation, retention and
oversight of the work of the independent auditor. The independent auditing
firm examines the accounting records of SBC and its subsidiaries.
Corporate Development Committee--The Committee met three times in 2003. It
consists of seven non-employee Directors and one employee Director. The
Committee reviews mergers, acquisitions, dispositions, and similar
transactions.
Corporate Governance and Nominating Committee--This is a new committee that was
created March 1, 2003. The Committee met six times in 2003 and consists of
six non-employee Directors. It is responsible for recommending candidates to
be nominated by the Board for election by the stockholders or to be
appointed by the Board of Directors to fill vacancies consistent with the
criteria approved by the Board; periodically assessing SBC's Corporate
Governance Principles and making recommendations to the Board for
amendments; recommending to the Board the compensation of Directors; taking
a leadership role in shaping corporate governance; and overseeing an annual
evaluation of the Board.
Executive Committee--The Committee did not meet in 2003. It consists of six
non-employee Directors, each of whom is the chairman of a standing
committee, and the Chairman of the Board. The Committee assists the Board of
Directors by acting upon matters when the Board is not in session. The
Committee has the full power and authority of the Board to
7
the extent permitted by law, including the power and authority to declare a
dividend or to authorize the issuance of common stock.
Finance/Pension Committee--The Committee met four times in 2003. It consists of
seven non-employee Directors and one employee Director. The Committee
assists the Board in its oversight of SBC's finances, the payment by SBC of
dividends and SBC's investment policies.
Human Resources Committee--The Committee met six times in 2003. It consists of
five non-employee Directors. The Committee oversees the management of human
resources activities of SBC, including the design of employee benefit plans.
The Committee is also responsible for establishing the compensation of the
Chief Executive Officer and other officers, as determined by the Committee.
Public Policy and Environmental Affairs Committee--The Committee met three
times in 2003. It consists of ten non-employee Directors. The Committee
assists the Board in its oversight of the corporate policies, including
legislative matters and environmental matters.
Independence of Directors
The New York Stock Exchange has recently adopted new independence standards
for companies listed on the Exchange, including SBC. These standards require a
majority of the Board to be independent and every member of each of the Audit
Committee, Human Resources Committee, and Corporate Governance and Nominating
Committee to be independent. A Director is considered independent only if the
Board of Directors "affirmatively determines that the director has no material
relationship with the listed company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
company)." In addition, the Board of Directors has adopted certain additional
standards for determining the independence of its members. The following are
the combined standards of the NYSE and the Board of Directors:
. A Director who is an employee, or whose immediate family member is an
executive officer, of SBC is not independent until three years after the
end of such employment relationship.
. A Director who receives, or whose immediate family member receives, more
than $100,000 per year in direct compensation from SBC other than as a
Director, is not independent until three years after he or she ceases to
receive more than $100,000 per year in such compensation.
8
. A Director who is affiliated with or employed by, or whose immediate
family member is affiliated with or employed in a professional capacity
by, a present or former internal or external auditor of SBC is not
independent until three years after the end of the affiliation or the
employment or auditing relationship.
. A Director who is employed, or whose immediate family member is employed,
as an executive officer of another company where any of SBC's present
executives serve on that company's compensation committee is not
independent until three years after the end of such service or the
employment relationship.
. A Director (a) who is an executive officer or an employee of, or (b)
whose immediate family member is an executive officer of, or (c) who
owns, together with ownership interests of his or her family, ten percent
or more of a company that makes payments to, or receives payments from,
SBC (together with its consolidated subsidiaries) for property or
services in an amount which, in any single fiscal year, exceeds the
greater of $1 million, or 2% of such other company's consolidated gross
revenues, is not independent until three years after falling below such
threshold.
. A Director who is, or whose immediate family member is, a director,
trustee or officer of a charitable organization, or holds a similar
position with such an organization, and SBC (together with its
consolidated subsidiaries) makes contributions to the charitable
organization in an amount which exceeds, in any single fiscal year, the
greater of $50,000 per year or at least 5% of such organization's
consolidated gross revenues, shall not be considered independent until
three years after falling below such threshold.
The Board of Directors, using the above standards for determining the
independence of its members, has determined that the following Directors are
independent: Gilbert F. Amelio, Clarence C. Barksdale, James E. Barnes, August
A. Busch III, William P. Clark, Martin K. Eby, Jr., Jess T. Hay, James A.
Henderson, Bobby R. Inman, Lynn M. Martin, John B. McCoy, Mary S. Metz, S.
Donley Ritchey, Joyce M. Roche, Carlos Slim Helu, Laura D'Andrea Tyson, and
Patricia P. Upton. In addition, the Board has determined that every member of
the Audit Committee, the Human Resources Committee and the Corporate Governance
and Nominating Committee is independent.
9
GROUP B DIRECTORS
(to be elected at the 2004 Annual Meeting)
--------------------------------------------------------------------------------
[PHOTO] JAMES E. BARNES, age 70, retired. Mr. Barnes was Chairman of the
Board and Chief Executive Officer of MAPCO Inc., Tulsa, Oklahoma,
from 1986 until 1998. Mr. Barnes has been a Director of SBC since
November 1990. He is a Director of Parker Drilling Company. He is a
member of the Corporate Development Committee and the Human Resources
Committee.
[PHOTO] JAMES A. HENDERSON, age 69, retired. Mr. Henderson was Chairman of
the Board from 1995 and Chief Executive Officer from 1994 of Cummins
Inc., Columbus, Indiana, until his retirement in December 1999. Mr.
Henderson has been a Director of SBC since October 1999. He served as
a Director of Ameritech Corporation from 1983 to 1999. Mr. Henderson
is a Director of International Paper Company; Nanophase Technologies
Corporation; Rohm and Haas Company; and Ryerson Tull, Inc. He is the Chairman
of the Human Resources Committee and a member of the Executive Committee and
the Finance/Pension Committee.
[PHOTO] JOHN B. MCCOY, age 60, retired. Mr. McCoy was Chairman from November
1999 and Chief Executive Officer from October 1998 of BANK ONE
CORPORATION until his retirement in December 1999, and Chairman and
Chief Executive Officer of its predecessor, BANC ONE CORPORATION,
from 1987 to 1998. Mr. McCoy has been a Director of SBC since October
1999. He served as a Director of Ameritech Corporation from 1991 to 1999. He is
a Director of Cardinal Health, Inc.; ChoicePoint Inc.; and Federal Home Loan
Mortgage Corporation. He is a member of the Corporate Development Committee and
the Corporate Governance and Nominating Committee.
10
GROUP B DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
[PHOTO] S. DONLEY RITCHEY, age 70, is Managing Partner of Alpine Partners,
Danville, California, and has served in this capacity since 1981. Mr.
Ritchey was Chairman of the Board of Lucky Stores, Inc. from 1981
until his retirement in 1986 as well as Chief Executive Officer from
1980 to 1985. Mr. Ritchey has been a Director of SBC since April
1997. He served as a Director of Pacific Telesis Group from 1984 to 1997. Mr.
Ritchey is a Director of The McClatchy Company. He is a member of the Audit
Committee and the Corporate Governance and Nominating Committee.
[PHOTO] JOYCE M. ROCHE, age 56, is President and Chief Executive Officer of
Girls Incorporated, New York, New York, and has held this position
since September 2000. Ms. Roche was an independent marketing
consultant from 1998 to 2000. She was President and Chief Operating
Officer of Carson, Inc. from 1996 to 1998, and Executive Vice
President of Global Marketing of Carson, Inc. from 1995 to 1996. Ms. Roche has
been a Director of SBC since October 1998. She served as a Director of Southern
New England Telecommunications Corporation from 1997 to 1998. She is a Director
of Anheuser-Busch Companies, Inc.; The May Department Stores Company; and
Tupperware Corporation. She is a member of the Finance/Pension Committee and
the Public Policy and Environmental Affairs Committee.
[PHOTO] PATRICIA P. UPTON, age 65, is President and Chief Executive Officer
of Aromatique, Inc., Heber Springs, Arkansas, and has served in this
capacity since 1982. Ms. Upton has been a Director of SBC since June
1993. She is the Chairwoman of the Public Policy and Environmental
Affairs Committee and a member of the Executive Committee and the
Human Resources Committee.
11
GROUP C DIRECTORS
--------------------------------------------------------------------------------
[PHOTO] AUGUST A. BUSCH III, age 66, is Chairman of the Board of
Anheuser-Busch Companies, Inc., St. Louis, Missouri, and has served
in this capacity since 1977. Mr. Busch also served as Chief Executive
Officer of Anheuser-Busch Companies, Inc. from 1975 until June 2002.
Mr. Busch has been a Director of SBC since October 1983. He served as
a Director of Southwestern Bell Telephone Company from 1980 to 1983. Mr. Busch
is a Director of Anheuser-Busch Companies, Inc. and Emerson Electric Co.; and
an Advisory Member of the Board of Directors of Grupo Modelo, S.A. de C.V. He
is a member of the Corporate Development Committee and the Corporate Governance
and Nominating Committee.
[PHOTO] WILLIAM P. CLARK, age 72, is counsel to the law firm of Clark, Cali
and Negranti, LLP, San Luis Obispo, California, and has served in
this capacity since December 1996. He served as Secretary of the
United States Department of Interior from 1983 to 1985 and as a
California Supreme Court Justice from 1973 to 1981. Judge Clark has
been a Director of SBC since April 1997. He served as a Director of Pacific
Telesis Group from 1985 to 1997. He is a member of the Corporate Development
Committee and the Public Policy and Environmental Affairs Committee.
[PHOTO] LYNN M. MARTIN, age 64, is Chair of the Council for the Advancement
of Women and Advisor to the firm of Deloitte & Touche LLP, Chicago,
Illinois, and has served in this capacity since 1993. Ms. Martin
served as U.S. Secretary of Labor from 1991 to 1993, and as a member
of the U.S. House of Representatives from Illinois from 1981 to 1991.
Ms. Martin has been a Director of SBC since October 1999. She served as a
Director of Ameritech Corporation from 1993 to 1999. She is a Director of
Constellation Energy Group, Inc.; certain Dreyfus Funds; The Procter & Gamble
Company; and Ryder System, Inc. She is a member of the Finance/Pension
Committee and the Public Policy and Environmental Affairs Committee.
12
GROUP C DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
[PHOTO] MARY S. METZ, age 66, is President of S. H. Cowell Foundation, San
Francisco, California, and has served in this capacity since 1999.
Dr. Metz was Dean of University Extension of the University of
California, Berkeley, from 1991 until 1998, and is President Emerita
of Mills College. Dr. Metz has been a Director of SBC since April
1997. She served as a Director of Pacific Telesis Group from 1986 to 1997. Dr.
Metz is a Director of Longs Drug Stores Corporation; Pacific Gas and Electric
Company; and UnionBanCal Corporation. She is a member of the Corporate
Governance and Nominating Committee and the Public Policy and Environmental
Affairs Committee.
[PHOTO] LAURA D'ANDREA TYSON, age 56, is Dean of the London Business School,
London, England, and has served in this capacity since January 2002.
Dr. Tyson was Dean of the Walter A. Haas School of Business at the
University of California, Berkeley, from July 1998 to December 2001.
Dr. Tyson served as Professor of Economics and Business
Administration at the University of California, Berkeley, from 1997 to 1998.
She served as National Economic Adviser to the President of the United States
from 1995 to 1996 and as Chair of the White House Council of Economic Advisers
from 1993 to 1995. Dr. Tyson has been a Director of SBC since October 1999. She
served as a Director of Ameritech Corporation from 1997 to 1999. Dr. Tyson is a
Director of Eastman Kodak Company; Human Genome Sciences, Inc.; and Morgan
Stanley. She is a member of the Corporate Development Committee and the
Finance/Pension Committee.
[PHOTO] EDWARD E. WHITACRE, JR., age 62, is Chairman of the Board and Chief
Executive Officer of SBC and has served in this capacity since
January 1990. Mr. Whitacre has been a Director of SBC since October
1986. He is a Director of Anheuser-Busch Companies, Inc.; Burlington
Northern Santa Fe Corporation; Emerson Electric Co.; and The May
Department Stores Company. He is the Chairman of the Executive Committee and a
member of the Corporate Development Committee and the Finance/Pension Committee.
13
GROUP A DIRECTORS
--------------------------------------------------------------------------------
[PHOTO] GILBERT F. AMELIO, age 61, is Senior Partner of Sienna Ventures,
Sausalito, California, and has served in this capacity since April
2001. Dr. Amelio is also Chairman and Chief Executive Officer of each
of Beneventure Capital, LLC and AmTech, LLC, San Francisco,
California, and has served as such since 1999. In 2003, AmTech, LLC,
declared bankruptcy. Dr. Amelio has also been Principal of Aircraft Ventures,
LLC since 1997. He was Partner and Director of The Parkside Group, LLC from
1998 to 1999. Dr. Amelio was elected a Director of SBC in February 2001 and had
previously served as an Advisory Director of SBC from April 1997 to February
2001. He served as a Director of Pacific Telesis Group from 1995 to 1997. He is
a member of the Human Resources Committee and the Public Policy and
Environmental Affairs Committee.
[PHOTO] CLARENCE C. BARKSDALE, age 71, was Vice Chairman, Board of Trustees,
Washington University, St. Louis, Missouri, from July 1989 until
2001, except during the period July 1999 to May 2000. He remains a
member of the Board of Trustees of Washington University. Mr.
Barksdale was Chairman of the Board and Chief Executive Officer of
Centerre Bancorporation from 1978 to 1988 and Chairman of the Board of Centerre
Bank N.A. from 1976 to 1988. Mr. Barksdale was Vice Chairman of Boatmen's
Bancshares, Inc. from January through June 1989. He has been a Director of SBC
since October 1983. Mr. Barksdale served as a Director of Southwestern Bell
Telephone Company from 1982 to 1983. He is the Chairman of the Audit Committee
and a member of the Executive Committee and the Public Policy and Environmental
Affairs Committee.
[PHOTO] MARTIN K. EBY, JR., age 69, is Chairman of the Board of The Eby
Corporation, Wichita, Kansas, and has served in this capacity since
April 1979. He was also Chief Executive Officer of The Eby
Corporation from June 1967 to April 2002. Mr. Eby has been a Director
of SBC since June 1992. He is a member of the Audit Committee and the
Human Resources Committee.
14
GROUP A DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
[PHOTO] CHARLES F. KNIGHT, age 68, is Chairman of the Board of Emerson
Electric Co., St. Louis, Missouri, and has served in this capacity
since 1974. Mr. Knight was also Chief Executive Officer of Emerson
Electric Co. from 1973 to 2000. Mr. Knight has been a Director of SBC
since October 1983. He served as a Director of Southwestern Bell
Telephone Company from 1974 to 1983. Mr. Knight is a Director of Anheuser-Busch
Companies, Inc.; BP p.l.c.; Emerson Electric Co.; International Business
Machines Corporation; and Morgan Stanley. He is the Chairman of the Corporate
Development Committee and a member of the Executive Committee and the
Finance/Pension Committee.
[PHOTO] TONI REMBE, age 67, is a partner in the law firm of Pillsbury
Winthrop LLP, San Francisco, California, and has served in this
capacity since 1971. Ms. Rembe was elected a Director of SBC in
January 1998 and had previously served as an Advisory Director of SBC
from April 1997 to January 1998. She served as a Director of Pacific
Telesis Group from 1991 to 1997. Ms. Rembe is a Director of AEGON N.V. She is a
member of the Corporate Development Committee and the Public Policy and
Environmental Affairs Committee.
[PHOTO] CARLOS SLIM HELU, age 64, is Chairman of the Board of Carso Global
Telecom, S.A. de C.V., Mexico City, Mexico, and is Chairman of the
Board of Telefonos de Mexico, S.A. de C.V., and has held these
positions since 1996 and 1990, respectively. He has also been
Chairman of the Board of America Movil, S.A. de C.V. and America
Telecom, S.A. de C.V. since September 2000 and February 2002, respectively. He
is Chairman Emeritus of Grupo Carso, S.A. de C.V., having served as Chairman of
the Board of Grupo Carso from 1980 to 1998. Ing. Slim has been a Director of
SBC since September 1993. He is a Director of Altria Group, Inc.; America
Movil, S.A. de C.V.; America Telecom, S.A. de C.V.; Carso Global Telecom, S.A.
de C.V.; Grupo Financiero Inbursa, S.A. de C.V.; and Telefonos de Mexico, S.A.
de C.V. He is a member of the Finance/Pension Committee and the Public Policy
and Environmental Affairs Committee.
15
Compensation of Directors
Directors who are also employees of SBC or its subsidiaries receive no
separate compensation for serving as Directors or as members of Board
committees. Directors who are not employees of SBC or its subsidiaries receive
a $60,000 annual retainer, $2,000 for each Board meeting and review session
attended and $1,200 for each committee meeting attended. Excluding employee
Directors, the Chairperson of each committee receives an additional annual
retainer of $5,000, except for the Chairperson of the Audit Committee who
receives an additional annual retainer of $10,000.
Directors may elect to take their retainer in the form of SBC common stock
or cash. Directors may also elect to defer the receipt of their fees and all or
part of their retainers into either Stock Units or into a Cash Deferral
Account. Each Stock Unit is equivalent to a share of common stock and earns
dividend equivalents in the form of additional Stock Units. Stock Units are
converted to common stock and paid out as elected by the Director in up to 15
installments after the Director ceases service with the Board. Each Director
also receives an annual award of Stock Units equal in value to one and one-half
times the annual retainer. In addition, each non-employee Director who joined
the Board after November 21, 1997, receives an annual grant of Stock Units
equal to $13,000, limited to ten annual grants. Deferrals into the Cash
Deferral Account earn interest during the calendar year at a rate equal to the
Moody's Corporate Bond Yield Averages-Monthly Average Corporates for September
of the preceding year ("Moody's"). Annually, Directors may elect to convert
their Cash Deferral Accounts into Stock Units at the fair market value of SBC
stock at the time of the conversion.
SBC provides each non-employee Director with travel accident insurance
while the Director is on SBC business, along with $100,000 of group life
insurance. The total premiums during 2003 for these policies were $1,106 for
travel accident insurance and $9,408 for group life insurance. Directors also
receive certain telecommunications services and equipment from subsidiaries of
SBC. The value of telecommunications services and equipment received, or for
which reimbursement was provided, together with amounts necessary to offset the
Directors' applicable tax liabilities resulting from such services and
benefits, computed at maximum marginal rates, averaged $8,453 per non-employee
Director in 2003. Employee Directors receive similar services and equipment in
connection with their service as officers of SBC.
SBC does not offer non-employee Directors a retirement plan or pension.
However, Directors who joined the Board prior to 1997 have vested
16
rights in a former pension plan no longer offered to Directors. Only benefits
that have already vested are payable under the plan. Each Director who is
vested in the former pension plan, upon retirement, will receive annually 10%
of the annual retainer in effect at the time of his or her retirement
multiplied by the number of years of service, not to exceed 10 years. The
payments will continue for the life of the Director. If the Director dies
before receiving 10 years of payments, the Director's beneficiaries will
receive the payments for the remainder of the 10-year period.
Upon the acquisition of Pacific Telesis Group ("PTG") by SBC on April 1,
1997, several of the PTG Directors joined the SBC Board. As part of their
service with PTG, these Directors previously received stock options and PTG
Deferred Stock Units, the latter of which were issued in exchange for the
waiver by the Directors of certain retirement benefits. The PTG Deferred Stock
Units earn dividend equivalents and are paid out in the form of cash after the
retirement of the Director. After the acquisition of PTG, both the Deferred
Stock Units and the stock options were modified so that their value was based
on SBC stock instead of PTG stock. Service as a Director of SBC is deemed
service with PTG for these benefits. In addition, PTG Directors were allowed to
elect during 1997 to have their prior deferrals of PTG retainers and fees
continued until they leave the SBC Board. These deferrals earn a rate of
interest equal to Moody's plus 4% for deferrals from 1985 through 1992; Moody's
plus 2% for deferrals from 1993 through 1995; and for deferrals after 1995, the
10-year Treasury Note average for the month of September for the prior year
plus 2%.
One member of the immediate family of Mr. Gallegos was employed by a
subsidiary of SBC in 2003 and was paid a total of approximately $113,638.
Amounts paid to this employee were comparable to compensation paid to other
employees performing similar job functions.
In 2003, SBC and/or its subsidiaries obtained legal services from the law
firm of Pillsbury Winthrop LLP, of which Ms. Rembe is a partner, on terms which
SBC believes were as favorable as would have been obtained from unaffiliated
parties.
17
COMMON STOCK OWNERSHIP
OF DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------
The following table sets forth the beneficial ownership of SBC common stock
as of December 31, 2003, held by each Director, nominee and officer named in
the Compensation Table on page XX. As of that date, each Director and officer
listed below, and all Directors and executive officers as a group, owned less
than one percent of the outstanding SBC common stock. Except as noted below,
the persons listed in the table have sole voting and investment power with
respect to the securities indicated.
--------------------------------------------------------------------------------
Total SBC Total SBC
Beneficial Beneficial
Ownership Ownership
Name of (including Name of (including
Beneficial Owner options)(1) Beneficial Owner options)(1)
----------------------- ----------- ------------------------- -----------
Gilbert F. Amelio 5,395 S. Donley Ritchey 17,249
Clarence C. Barksdale 10,977 Joyce M. Roche 2,041
James E. Barnes 6,602 Carlos Slim Helu (5) 5,002,002
August A. Busch III (2) 46,354 Laura D'Andrea Tyson 11,648
William P. Clark 15,401 Patricia P. Upton 12,060
Martin K. Eby, Jr. 26,856 Edward E. Whitacre, Jr. 6,298,177
Herman E. Gallegos 9,724 John H. Atterbury III 775,647
Jess T. Hay (3) 12,010 Rayford Wilkins, Jr. 626,862
James A. Henderson 23,476 James D. Ellis 1,123,494
Bobby R. Inman 7,363 William M. Daley 180,970
Charles F. Knight 24,978
Lynn M. Martin 14,866 All executive officers and
John B. McCoy 31,584 Directors as a group
Mary S. Metz 12,883 (consisting of 30 persons,
Toni Rembe (4) 24,790 including those named
above): 17,100,306
--------------------------------------------------------------------------------
(1) This table includes presently exercisable stock options and stock options
that will become exercisable within 60 days of the date of this table. The
following Directors and officers hold the number of options set forth
following their respective names: Judge Clark--8,772; Mr. Gallegos--8,772;
Dr. Metz--8,772; Ms. Rembe--8,772; Mr. Ritchey--8,772; Mr.
Whitacre--5,760,899; Mr. Atterbury--738,341; Mr. Wilkins--591,363; Mr.
Ellis--1,100,282; Mr. Daley--177,715; and all executive officers and
Directors as a group--11,105,284.
This table also includes shares held in an employee benefit plan for the
following persons, who have sole voting power but no investment power with
respect to the number of shares set forth following their respective names:
Mr. Whitacre--1,154; Mr. Atterbury--1,129; Mr. Wilkins--606 and Mr.
Ellis--1,210. In addition, of the shares shown in the above table, the
following persons share voting and investment power with other persons with
respect to the number of shares set forth following their respective names:
Dr. Amelio--5,380; Mr. Barnes--6,601; Mr. Busch--6,600; Judge Clark--6,191;
Mr. Hay--3,008; Dr. Metz--1,592, Ms. Rembe--2,446; Mr. Ritchey--8,475; Ing.
Slim--5,000,000; Dr. Tyson--11,648; Ms. Upton--5,740; Mr. Whitacre--31,668;
Mr. Wilkins--14,728 and Mr. Ellis--14,132.
(2) Mr. Busch disclaims beneficial ownership of 3,300 shares held in a trust
for a sister.
(3) Mr. Hay disclaims beneficial ownership of 1,008 shares held by spouse.
(4) Ms. Rembe disclaims beneficial ownership of 2,145 shares held in a trust
for her spouse and 301 shares held by her spouse's corporation.
(5) Ing. Slim disclaims beneficial ownership of 5,000,000 shares held by an LLC
except to the extent of his pecuniary interest therein.
18
MATTERS TO BE VOTED UPON
--------------------------------------------------------------------------------
Voting
Each share of SBC common stock represented at the Annual Meeting is
entitled to one vote on each matter properly brought before the meeting.
Directors are elected by a plurality of the votes cast. All other matters will
be determined by a majority of the votes cast, with the exception of Item 3.
Item 3 is a proposal to amend SBC's Bylaws to eliminate the classified Board
structure, which will require a two-thirds majority vote of the total number of
shares of stock outstanding and entitled to vote. Shares represented by proxies
marked to withhold authority to vote with respect to the election of one or
more nominees as Directors, by proxies marked "abstain" on other proposals, and
by proxies marked to deny discretionary authority on other matters will not be
counted in determining the vote obtained on such matters. If no directions are
given and the signed card is returned, the person or persons designated on the
card will vote the shares for the election of the Board of Directors' nominees
and in accordance with the recommendations of the Board of Directors on the
other subjects listed on the proxy card and at their discretion on any other
matter that may properly come before the meeting.
Under the rules of the New York Stock Exchange, on certain routine matters,
brokers may, at their discretion, vote shares they hold in "street name" on
behalf of beneficial owners who have not returned voting instructions to the
brokers. Routine matters include the election of Directors and the ratification
of the appointment of the independent auditors. The proposal to repeal the
classified Board (Item 3) is also deemed to be a "routine matter" by the New
York Stock Exchange. In instances where brokers are prohibited from exercising
discretionary authority (so-called "broker non-votes"), the shares they hold
are not included in the vote totals and, therefore, have no effect on the vote.
At the 2004 Annual Meeting, brokers will be prohibited from exercising
discretionary authority only with respect to stockholder proposals.
Election of Directors (Item 1 on Proxy Card)
The following persons, each of whom is currently a Director of the
Corporation, have been nominated by the Board of Directors on the
recommendation of the Corporate Governance and Nominating Committee for
election to three-year terms of office that would expire at the 2007 Annual
Meeting. However, if the stockholders approve Item 3, which
19
amends the Bylaws to eliminate the staggered Board, all of the terms of the
Directors, including the Directors elected at the 2004 Annual Meeting, will end
at the 2005 Annual Meeting. The amendments to the Bylaws must be approved by
stockholders representing two-thirds of the outstanding shares.
James E. Barnes James A. Henderson
John B. McCoy S. Donley Ritchey
Joyce M. Roche Patricia P. Upton
Shares represented by the accompanying form of proxy will be voted for the
election of the nominees unless other instructions are shown on the proxy card
or provided through the telephone or Internet proxy. If one or more of the
nominees should at the time of the meeting be unavailable or unable to serve as
a Director, the shares represented by the proxies will be voted to elect the
remaining nominees and any substitute nominee or nominees designated by the
Board. The Board knows of no reason why any of the nominees would be
unavailable or unable to serve.
Your Board of Directors Recommends a Vote "FOR"
Its Nominees Listed as Group B Directors.
Ratification of Appointment of Independent Auditors
(Item 2 on Proxy Card)
The Audit Committee of the Board of Directors has appointed the firm of
Ernst & Young LLP to serve as independent auditors of SBC for the fiscal year
ending December 31, 2004. This firm has audited the accounts of SBC since 1983.
If stockholders do not ratify this appointment, the Committee will consider
other independent auditors. One or more members of Ernst & Young LLP are
expected to be present at the Annual Meeting, will be able to make a statement
if they so desire, and will be available to respond to appropriate questions.
Your Board of Directors Recommends a Vote "FOR" Ratification
of the Appointment of Ernst & Young LLP as Independent Auditors.
Amendment to the Bylaws
to Eliminate the Classified Board Structure
(Item 3 on Proxy Card)
Approval of this provision by the stockholders will cause Sections 1, 2 and
3 of Article II of the Bylaws of SBC Communications Inc. to be amended in their
entirety to read as set forth below. This amendment shall
20
be effective immediately before the election of Directors at the Annual Meeting
of Stockholders in 2005.
Text of Amendment:
Section 1. Number and Terms of Office
The business and affairs of the corporation shall be under the
direction of a Board of Directors. The number of Directors shall be set
from time to time by a majority vote of the total number of Directors then
serving in office.
The terms of office of all Directors who are in office immediately
prior to the closing of the polls for the election of Directors at the 2005
annual meeting of stockholders shall expire at such time. At each annual
meeting of stockholders beginning with the 2005 annual meeting of
stockholders, the Directors shall be elected to hold office until the next
annual meeting of stockholders and until their respective successors shall
have been duly elected and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
Section 2. Increases and Decreases in Directors
The Board of Directors may increase or decrease the number of Directors
as provided in Section 1 of this Article II. Any vacancies created by an
increase in the number of Directors shall be filled as provided in Section
3 of this Article II.
Section 3. Vacancies and Newly Created Directorships
Vacancies and newly created directorships resulting from an increase in
the authorized number of Directors may be filled by a majority of Directors
then in office.
* * *
Your Directors have determined that the classified Board structure should
be eliminated. Your Directors believe that all Directors should be equally
accountable at all times for SBC's performance and that the will of the
majority of stockholders should not be impeded by a classified Board.
Approval of the amendments will eliminate the classified structure of the
Board and the term of office of each Director will end with the election
21
of Directors at the 2005 Annual Meeting of Stockholders. In addition, the
amendments eliminate a provision in the Bylaws that limits the size of the
Board to 25 Directors. A limit serves to stop an acquirer from increasing the
size of the Board and electing a majority of the Board at one annual meeting.
With the elimination of the classified Board, the limit is no longer necessary
for this purpose. Moreover, your Directors believe the appropriate size of
SBC's Board, given the Company's size and complexity, is 14 to 16 members.
SBC's Certificate of Incorporation provides that any amendment to the
Bylaws relating to the classified Board or to the maximum number of Directors
that may serve on the Board may only be amended upon the two-thirds majority
vote of the total number of shares of stock then outstanding and entitled to
vote. Passage of these Bylaw amendments is subject to the two-thirds majority
vote requirement.
If the proposed amendment is approved by our stockholders by the requisite
vote, the classified Board will be eliminated, and Directors will thereafter be
elected for one-year terms, beginning with the 2005 Annual Meeting of
Stockholders.
Your Board of Directors Recommends a Vote "FOR"
the Amendments to SBC's Bylaws.
Stockholder Proposals (Items 4 and 5 on Proxy Card)
Certain stockholders have advised the Company that they intend to introduce
at the 2004 Annual Meeting the proposals set forth below. The names and
addresses of, and the number of shares owned by, each such stockholder will be
provided upon request to the Secretary of the Company.
Stockholder Proposal A (Item 4 on Proxy Card)
RESOLVED: That the shareholders of SBC Communications ("SBC" or "Company")
hereby request that the Company prepare and submit to the shareholders of the
Company:
1. A report, updated annually, disclosing its policies for political
contributions (both direct and indirect) made with corporate funds. The
reports shall include, but not be limited to, contributions and donations
to political candidates, political parties, political committees and other
political entities organized and operating under 26 USC Sec. 527. This
report shall be disclosed to shareholders through the Company's web site or
to shareholders in published form.
22
2. A semi-annual report of political contributions, disclosing
monetary and non-monetary contributions to candidates, parties, political
committees and other organizations and individuals described in paragraph
1. This report shall contain the following information:
a. An accounting of the Company's funds contributed or donated to
any of the persons described above;
b. A business rationale for each of the Company's political
contributions or donations; and
c. Identification of the person or persons in the Company who
participated in making the decisions to contribute or donate.
STATEMENT OF SUPPORT: As long-term shareholders of SBC, we support policies
that apply transparency and accountability to corporate political giving. In
our view, such disclosure is consistent with public policy in regard to public
company disclosure.
Company executives exercise discretion over the use of corporate resources
for political purposes.
The result is that shareholders are unaware of how and why the Company
chooses to make corporate contributions, and the political ends being furthered
by the gift of corporate funds.
That is the case with the $1.5 million contributed by SBC in the 2002
election cycle. However, shareholders do not know whether that is the full
extent of the Company's contributions. According to press reports, some
companies make substantial contributions that are not generally known to the
public to political committees associated with certain political figures./1/
Those committees, in turn, use the company's money in ways that could pose
reputational problems and legal risks for the company./2/
Absent a system of accountability, corporate executives will be free to use
the Company's assets for political objectives not shared by and may be inimical
to the interests of shareholders. There is currently no single source of
information providing disclosure to the Company's shareholders on this issue.
That is why we urge your support for this critical governance reform.
--------
/1/ Freed, Bruce, "Pension Funds and the Right". The Hill, at 16 (Sept. 10,
2003).
/2/ Id.
23
YOUR DIRECTORS' POSITION
Political contributions, where permitted, are an important part of the
legislative process. Your Company is subject to legislation that significantly
impacts its operations, including rates it can charge customers, its
profitability and even how it must provide services to competitors. It is
important that your Company participate in the political process to protect
your interests as stockholders. SBC complies with all applicable federal and
state laws concerning political contributions.
Each year, your Board of Directors authorizes maximum aggregate
contributions that can be made by your Company, as permitted by, and in strict
compliance with, applicable law, for the purposes of supporting or opposing any
party, committee, candidate for public office, or ballot measure, or for any
other political purpose. Except for contributions for ballot measures, no
expenditure over $1000 may be made unless approved by the Chief Executive
Officer (lesser amounts may be approved by delegates). All expenditures must be
submitted to the Company's attorneys to confirm that each such contribution is
lawful.
In addition, no Company funds, by law, are expended to make federal
political contributions. Federal law has long prohibited corporate
contributions to federal candidates or their political committees. With the
enactment of the Bipartisan Campaign Finance Reform Act of 2002 (the
"McCain-Feingold Act"), corporate contributions to federal political parties
and Leadership Committees are prohibited, effective November 6, 2002.
As to state and local contributions, state laws determine when and under
what circumstances political contributions are permissible. Moreover, a number
of states in which SBC operates have extensive reporting requirements. These
rules, in general, are applicable to all participants in the political process.
This proposal, on the other hand, which was submitted by the Teamster
Affiliates Pension Plan, would impose a set of rules only on your Company.
The proposal would require an unwarranted expenditure of funds by your
Company and would be uniquely applicable only to your Company and not to our
competitors, unions or any other participants in the process. Your Directors
believe that any reporting requirements that go beyond that required under
existing law should be applicable to all participants in the process, not just
to SBC as the proponent asks.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
24
Shareholder Proposal B (Item 5 on Proxy Card)
Proposal:
I hereby request that the SBC Board of Directors take all necessary and
appropriate action to reduce its Board of Director seats from twenty-one (21)
to fourteen (14) effective on the earliest possible date that would be in
compliance with state law and related regulations.
Supporting Statement:
Despite substantial reductions in its workforce, SBC has maintained the
level of Board of Directors seats at twenty one (21). The usual number of seats
designated by S&P 500 corporations is 10.9, and the average corporate board
size is 9.2 (10/27/03 Wall Street Journal, page R7). In the telecommunications
industry examples are Verizon-fifteen (15) seats, Bell South-twelve (12),
Lucent Technologies-eleven (11), AT&T-nine (9), and AT&T Wireless-nine (9).
In my opinion maintaining a level of twenty-one (21) Director seats is
unwieldy, diffuses accountability, and serves as little more than a
re-employment program for retired CEO's.
YOUR DIRECTORS' POSITION
This proposal calls for SBC to reduce the size of its Board to 14 Directors
at the earliest possible date. Prior to SBC's acquisition of Pacific Telesis
Group in 1997, Southern New England Telecommunications Corporation in 1998 and
Ameritech Corporation in 1999, SBC had only 14 Directors on its Board. However,
pursuant to the terms of the various acquisitions, SBC was required to add six
directors from the Board of Pacific Telesis, four directors from the Ameritech
Board and one from the SNET Board. Two additional Directors from Pacific
Telesis were added as Advisory Directors, who subsequently were elected as
regular Directors. No other Directors have been added to the Board since 1997.
As a result, your Board now has 21 members.
Your Directors have reviewed and discussed the size of the Board and, as
stated in SBC's Corporate Governance Guidelines, your Directors believe 14 to
16 Directors is the appropriate size for SBC. As part of the adoption of its
Corporate Governance Guidelines, the Board believes the size of the Board
should be brought down over the next several years in a manner that would not
be disruptive to the operation of the Board. The elimination of the staggered
Board and the use of an age limit for nominations for reelection
25
would allow the Board to reach its target range in 2006. Three Directors will
be retiring from the Board at the 2004 Annual Meeting, causing the size of the
Board to immediately drop to 18 Directors. Thereafter, two Directors are
expected to retire at the 2005 Annual Meeting and three are expected to retire
at the 2006 Annual Meeting. Assuming no additions to the Board, these
retirements would bring the size of the Board to 13 Directors in 2006, which is
below the size called for by the proposal and by SBC's Corporate Governance
Guidelines.
As a result of its desire to maintain an "audit committee financial expert"
(as described under "Audit Committee," below) on the Board and to ensure the
Board has a broad range of experience and backgrounds, the Board may find it
appropriate to add Directors before 2006. However, it is the intention of your
Directors that any additions during this period would be consistent with the
Board's goal of reducing its size to the target range of 14 to 16 members.
Your Directors believe reaching the 14 to 16 Directors contemplated by the
Corporate Governance Guidelines is best achieved through normal retirements. An
arbitrary reduction that does not take into account the Board's need for
flexibility in managing its size or the potential disruption caused by forced
removals of Directors from the Board could adversely affect the Board without
providing any corresponding benefits to stockholders.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
26
AUDIT COMMITTEE
--------------------------------------------------------------------------------
The Audit Committee oversees the integrity of the financial statements of
SBC, the independent auditor's qualifications and independence, the performance
of the internal audit function and independent auditors, and the compliance by
SBC with legal and regulatory matters. The members of the Audit Committee are
Messrs. Barksdale, Eby, Hay, and Ritchey, each of whom was appointed by the
Board of Directors. The Board has adopted a written charter for the Audit
Committee, which is attached as Appendix A to this Proxy Statement. The Audit
Committee is composed entirely of independent Directors in accordance with the
applicable independence standards of the New York Stock Exchange and SBC.
The Board of Directors has determined that Messrs. Barksdale and Ritchey
are "audit committee financial experts" and are independent as defined in the
listing standards of the New York Stock Exchange and in accordance with SBC's
additional standards. Although the Board of Directors has determined that these
individuals have the requisite attributes defined under the rules of the
Securities and Exchange Commission, their responsibilities are the same as
those of the other Audit Committee members. They are not auditors or
accountants, do not perform "field work" and are not full-time employees. The
Commission has determined that an audit committee member who is designated as
an audit committee financial expert will not be deemed to be an "expert" for
any purpose as a result of being identified as an audit committee financial
expert. The Audit Committee is responsible for oversight of management in the
preparation of SBC's financial statements and financial disclosures. The Audit
Committee relies on the information provided by management and the independent
auditors. The Audit Committee does not have the duty to plan or conduct audits
or to determine that SBC's financial statements and disclosures are complete
and accurate. SBC's Audit Committee charter provides that these are the
responsibility of management and the independent auditors.
Report of the Audit Committee
The Audit Committee: (1) reviewed and discussed with management SBC's
audited financial statements for the year ended December 31, 2003; (2)
discussed with the independent auditors the matters required by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended by
Statement on Auditing Standards No. 90, Audit Committee Communications; (3)
received the written disclosures and the letter from the independent auditors
required by Independence Standards
27
Board Standard No. 1, Independence Discussions with Audit Committees; (4)
considered whether the provision of non-audit services is compatible with
maintaining the auditors' independence; and (5) discussed with the auditors the
auditors' independence.
Based on the review and discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements for the year ended
December 31, 2003, be included in SBC's Annual Report on Form 10-K for filing
with the Securities and Exchange Commission.
February 13, 2004
The Audit Committee:
Clarence C. Barksdale, Chairman Jess T. Hay
Martin K. Eby, Jr. S. Donley Ritchey
Principal Accountant Fees and Services
Ernst & Young LLP acts as the principal auditor for SBC and also provides
certain audit-related, tax and other services. The Audit Committee pre-approves
all services provided by Ernst & Young to SBC. In some cases this pre-approval
is accomplished through policies and procedures adopted by the Audit Committee
in May 2003. These policies and procedures provide a detailed description of
the services that may be performed as well as limits on the fees for the
services. The fees for the services provided by Ernst & Young to SBC in 2003
and 2002 were as follows (dollars in millions):
. Audit Fees were $22.2 and $17.5 for 2003 and 2002, respectively. Included
in this category are fees for the annual financial statement audit,
quarterly financial statement reviews, and audits required by federal and
state regulatory bodies.
. Audit-Related Fees were $4.8 and $5.7 for 2003 and 2002, respectively.
These fees, which are for assurance and related services other than those
included in Audit Fees, include charges for audits of employee benefit
plans, consultations concerning financial accounting and reporting
standards, audits and due diligence in conjunction with proposed or
consummated acquisitions and dispositions, and internal control reviews.
. Tax Fees were $5.9 and $3.8 for 2003 and 2002, respectively. These fees
include charges for tax services for SBC employees
28
working in foreign countries, executive financial counseling and tax
return preparation, and various federal and state tax research projects.
Beginning in 2004, Ernst & Young no longer provides executive financial
counseling and tax return preparation services for SBC.
. All Other Fees were $0 and $2.4 for 2003 and 2002, respectively. These
fees include charges for assisting SBC in state regulatory proceedings,
as well as assessing processes used by SBC to accumulate and analyze
operating data.
29
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
--------------------------------------------------------------------------------
The Human Resources Committee, composed entirely of independent,
non-employee Directors, is responsible for the compensation of SBC's executives
and overseeing the compensation practices of SBC. No employee of SBC serves on
this Committee. During the 2003 fiscal year, two different groups of Directors
served as members of the Human Resources Committee. The current members of the
Committee, who were appointed March 1, 2003, are: James A. Henderson
(Chairman), Gilbert F. Amelio, James E. Barnes, Martin K. Eby, Jr., and
Patricia P. Upton. The members of the Committee prior to that date were: Jess
T. Hay (Chairman), August A. Busch III, Admiral Bobby R. Inman, John B. McCoy,
and S. Donley Ritchey. On March 1, 2003, these Directors were appointed to the
new Corporate Governance and Nominating Committee, which assumed broad
governance functions including those previously assigned to the Human Resources
Committee. Mr. Busch is Chairman of the Board of Anheuser-Busch Companies,
Inc., where Mr. Whitacre also serves as a member of the Board of Directors. In
addition, Mr. Whitacre serves as a Director and, until December 2003, was on
the Compensation and Human Resources Committee of Emerson Electric Co., where
Charles F. Knight, an SBC Director, is Chairman of the Board.
30
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
Report of the Human Resources Committee
on Executive Compensation
The Human Resources Committee is responsible for the compensation of the
Chief Executive Officer and other executives, including the Named Officers
(defined on page XX), as well as overseeing the benefit and compensation plans
of the company. This is the first report of the Committee since it was
reconstituted with all new members on March 1, 2003, consisting of Messrs.
Henderson (Chairman), Amelio, Barnes, Eby, and Ms. Upton. Determinations of
annual base salary amounts and performance objectives for executive officers
for the year 2003 as well as establishment of target awards beginning in 2003
were made by the Committee before it was reconstituted in March 2003.
Information regarding the Committee members is described above under the
caption "Compensation Committee Interlocks and Insider Participation."
Review of SBC's Executive Compensation Program
Upon assuming office in 2003, the new Committee members initially undertook
a comprehensive review of SBC's executive compensation program, including the
strategic use of salaries, short term bonuses and long term incentive awards.
The Committee, assisted by independent consultants, reviewed proxy statements
of other companies, analyzed current compensation trends, studied published
recommendations of respected business organizations on the subject of executive
compensation, and compared SBC's program to those of other leading companies.
The Committee also solicited input from former members of the Committee and the
Board of Directors.
The Committee has adopted the following principles with respect to SBC
executive compensation:
. Maximize the alignment of executive compensation with the long term
interests of stockholders.
. Provide competitive compensation to attract, retain and motivate
executives.
. Base both short term bonuses and long term compensation on performance
measures.
. Balance equity based compensation awarded to executives with the
interests of stockholders concerning dilution.
31
. Establish short term incentives with a view toward achievement of long
term corporate goals.
. Provide opportunities for executives to acquire and hold SBC stock and
establish minimum ownership requirements.
2004 Compensation
The Committee has decided to continue to use base salaries and annual
bonuses tied to performance as a mainstay of the company's compensation program
in 2004. Short term incentive compensation, such as bonuses, will be based on
the achievement of internal objectives, including subsidiary and/or
enterprise-wide financial and/or operational (including customer satisfaction)
results, depending on the officer's responsibilities, and on individual
performance. Achievement of these objectives is to be linked to achievement of
long term goals.
The Committee believes long term compensation should also be based on the
achievement of internal financial and operational goals of the company as well
as be directly linked to the interests of stockholders. While stock options and
restricted stock are linked to the interests of stockholders, they do not have
a performance component or measure. In addition, current accounting rules cause
stock options to be dilutive in calculating earnings per share. Therefore, the
Committee has decided to avoid the use of stock options and time-based
restricted stock, and to rely on performance shares in 2004 as long term
compensation. The value of performance shares fluctuate directly with changes
in the price of SBC stock (each performance share is equal in value to a share
of SBC stock), which ties managers' interests directly to those of
stockholders. The performance shares are paid out only to the extent specific
internal financial and/or operational objectives are achieved. No payout is
made if minimum objectives are not met. Payouts, when earned, will be paid in a
combination of stock and cash. For performance shares granted in 2004 to
executive officers, the target is based on return on invested capital (net
income before extraordinary items plus after-tax interest expense divided by
average debt and average shareholder equity). The performance shares for the
Chief Executive Officer are based 75% on return on invested capital and 25% on
the comparison of SBC's total shareholder return (stock appreciation plus
reinvestment of dividends) compared to companies in the North American Telecom
Index, excluding equipment manufacturers, and adding AT&T Wireless, Cox Cable,
Comcast, and Time-Warner.
32
--------------------------------------------------------------------------------
Comparison of the Compensation Elements Used for
Delivering Value in Long Term Compensation Plans
--------------------------------------------------------------
2002 Long Term 2003 Long Term 2004 Long Term
Compensation Compensation Compensation
-------------------- -------------------- --------------------
. Performance Shares . Performance Shares . Performance Shares
. Stock Options . Stock Options
. Restricted Stock
--------------------------------------------------------------------------------
Stock Ownership Guidelines
During 2003, the Committee established stock ownership guidelines for the
Chief Executive Officer, other executive officers, and all other officer level
employees. The guidelines set a minimum level of ownership of four times base
salary for the Chief Executive Officer, the lesser of three times base salary
or 50,000 shares for other executive officers and the lesser of one times base
salary or 25,000 shares for all other officers. Newly appointed officers are
expected to be in compliance with the ownership guidelines within three years
of their appointments.
To encourage all employees, as well as officers, to acquire and hold SBC
stock, the company offers several ways to invest in SBC through payroll
deductions, a limited portion of which SBC matches in SBC stock. SBC offers a
tax-qualified savings plan that allows employees to invest in SBC stock, among
other investment choices. The company also offers the Stock Savings Plan, where
middle managers and above may receive stock options based on the amount of SBC
stock purchased with payroll deductions.
2003 Compensation
To help properly implement the Committee's policies and to determine
appropriate compensation, the Committee employs independent compensation and
benefits consultants to assist in establishing compensation strategies,
designing compensation plans and analyzing the actual compensation of
executives. The Committee reviews compensation including salaries, short term
incentives and long term incentives at a group of companies (the "Comparator
Group") selected with the advice of an outside independent compensation
consultant. The Comparator Group consists of large companies in diverse
businesses and telecommunications companies, including companies subject to
comparable governmental regulation. Compensation data from the Comparator Group
is adjusted using statistical analysis to eliminate differences arising from
the relative sizes of
33
the companies in the Comparator Group in comparison to SBC. This market data is
then used to establish the target compensation for each executive officer
position.
Annual Base Salaries The Committee determined executive officer salaries
(other than the Chief Executive Officer) for 2003 by targeting the median of
the salary market data and by considering individual performance, level of
responsibility, and experience.
Short Term Incentives In 2003, the Committee used short term incentives in
the form of performance based annual bonuses to compensate executive officers
as well as other executives. The Committee established performance targets for
executive officers, using financial and/or operational goals linked to SBC's
overall performance and/or the business unit to which the officer was assigned.
Target bonuses for executive officers (except the Chief Executive Officer),
were established using the 62nd percentile cash compensation (salary plus
annual bonus) market data. The Committee also considered individual
performance, level of responsibility and experience to determine the final
target bonus amounts. Bonuses are paid in the discretion of the Committee based
on the accomplishment of company and/or business unit performance targets set
at the beginning of the year and individual performance.
The 2003 financial and operational targets for bonuses for executive
officers were based on SBC's net income, free cash flow and customer
satisfaction (weighted 50%, 30% and 20%, respectively); similar targets were
established for non-executive officers. If the objectives are not completely
met, the bonuses are reduced or, if certain minimum targets are not met,
eliminated. The Committee reviewed the performance objectives and corresponding
results for 2003 and determined that the targets for the executive officers,
including all of the Named Officers, had been met, and in the case of free cash
flow, significantly exceeded. The Committee paid bonuses, including
discretionary bonuses based on individual performance, accordingly.
Long Term Incentives In 2003, the Committee granted executive officers
long term incentives in the form of performance shares for the 2003-2005
performance period, stock options, and restricted stock. The Committee
determined the total amount of long term incentives to grant each executive
officer (except the Chief Executive Officer) by using the median long term
market data determined for the Comparator Group and adjusting for individual
performance, level of responsibility and experience.
34
The performance objectives for the performance shares granted in 2003 for
the 2003-2005 performance period are set by the Committee annually, and the
results are averaged over the three-year period. For 2003, the performance
objective was a net income target. If the targets are not met, the awards will
be reduced or eliminated (if the goals are exceeded, up to two times the
performance shares can be paid out for awards with performance periods
beginning 2001 and later). Options were granted with a strike price equal to
the fair market value of SBC stock at the time of the grant.
In 2003, SBC's officers, including the executive officers and the Chief
Executive Officer, received the payout of their performance share awards for
the 2000-2002 performance period, having met the cumulative net income
performance goals set by the Committee. In accordance with a predetermined
formula, the target performance shares were distributed. One Named Officer, who
received performance shares that related to a single year (2002), substantially
met the net income target and received a corresponding payout in 2003. Because
the performance period was only for one year, this award was treated in the
compensation table as a bonus for 2002.
Compensation for the Chief Executive Officer
Employment Agreement In 2001, the Compensation Committee initiated and
approved an Employment Agreement to retain Mr. Whitacre as the Chief Executive
Officer of SBC for a period of five years. The Employment Agreement was
subsequently reviewed and approved by the Board of Directors effective November
16, 2001.
The Employment Agreement specified minimum target levels for base salary,
annual cash compensation (salary plus annual bonus) and long term incentives
during the term of the Employment Agreement. The target compensation levels
were established at the 75th percentile.
During 2004, the Committee conducted a review of the Employment Agreement
with the assistance of two independent outside consultants. The target
compensation established in 2001 was analyzed based on 2001 market data, CEO
employment agreements for other telecommunication companies and current market
data. Based on this review and the competitive demand for CEOs in the
telecommunications industry, the Committee has determined that the 2001 target
compensation levels were appropriate. Further, based on the review of current
competitive compensation for companies of similar size and industry, the target
compensation levels are
35
consistent for CEOs with the experience and performance as demonstrated by Mr.
Whitacre. The Committee has reviewed its findings with the Board of Directors
and reported that the minimum target compensation levels in the Employment
Agreement are appropriate.
2003 Compensation In determining the 2003 compensation for the Chief
Executive Officer, the Committee reviewed Mr. Whitacre's performance, tenure
and accomplishments and how well SBC has progressed in the face of an
extraordinarily difficult regulatory and competitive environment. The Committee
reviewed current market data and external reports on chief executive
compensation at other companies, including the Comparator Group. The Committee
also took note of SBC's 2001 Employment Agreement with Mr. Whitacre. The
Employment Agreement provides that his base salary, target bonus, and the
target value of his long term compensation may not be reduced below the level
set in 2001. Mr. Whitacre's base salary and the present value of each long term
incentive award granted since 2001 has substantially remained the same since
2001, and his target bonus has increased by less than 2% per year.
As a result of this review and its evaluation that Mr. Whitacre had
delivered significant value to the company and its stockholders, the Committee
determined that the base salary, target bonus and present value of his long
term target compensation provided in the Agreement was the appropriate
compensation for 2003 and should be continued at substantially the same levels.
The Committee determined, as with the other executive officers, to grant Mr.
Whitacre long term incentives in the form of stock options, restricted stock
and performance shares. The performance objectives established for his target
bonus and for his performance shares for the 2003-2005 performance period were
the same as those established for the other executive officers.
The Committee determined that in 2003 Mr. Whitacre and the other executive
officers met the net income and customer satisfaction targets and significantly
exceeded the free cash flow target for the annual bonus. After considering his
achievements and performance, the Committee determined to pay Mr. Whitacre his
target bonus. The Committee also determined that for the 2000-2002 performance
period, he met his cumulative income targets under his performance share grant.
Limit On Deductibility Of Certain Compensation
Federal income tax law prohibits publicly held companies, such as SBC, from
deducting certain compensation paid to a Named Officer that
36
exceeds one million dollars during the tax year. To the extent that
compensation is based upon the attainment of performance goals set by the
Committee pursuant to plans approved by the stockholders, the compensation is
not included in the computation of the limit. The Committee intends, to the
extent feasible and where it believes it is in the best interests of SBC and
its stockholders, to attempt to qualify executive compensation as tax
deductible; however, the Committee does not intend to allow this tax provision
to negatively affect the Committee's development and execution of effective
compensation plans. The Committee intends to maintain the flexibility to take
actions it considers to be in the best interests of SBC and its stockholders.
February, 2004
The Human Resources Committee:
James A. Henderson, Chairman Martin K. Eby, Jr.
Gilbert F. Amelio Patricia P. Upton
James E. Barnes
37
SUMMARY
COMPENSATION
TABLE The table below contains information concerning annual and long
term compensation provided to the Chairman of the Board and Chief
Executive Officer and the other most highly compensated executive
officers of SBC (the "Named Officers").
-----------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ---------------------- ----------
Number of
Restricted Securities All Other
Other Annual Stock Underlying LTIP Compensation(2)
Name and Principal Position Year Salary Bonus Compensation(3) Award(s)(1) Options Payouts ---------------
--------------------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. 2003 $2,122,000 $5,700,000 $843,613 $7,197,990 1,352,128 $2,444,000 $ 1,227,272
Chairman of the Board and 2002 $2,100,000 $4,000,000 $523,345 $ 0 1,434,242 $1,827,800 $ 1,653,884
Chief Executive Officer 2001 $2,066,667 $3,800,000 $463,581 $ 0 3,605,814 $4,202,277 $11,646,049
John H. Atterbury III 2003 $ 777,000 $ 950,000 $124,659 $1,199,997 187,239 $ 218,274 $ 67,165
Group President-Operations 2002 $ 712,000 $ 697,000 $ 64,188 $ 0 196,782 $ 239,076 $ 59,413
2001 $ 523,250 $ 566,668 $ 57,631 $ 0 182,869 $ 264,196 $ 385,527
Rayford Wilkins, Jr. 2003 $ 777,000 $ 950,000 $137,536 $1,133,993 174,090 $ 327,423 $ 39,739
Group President-SBC 2002 $ 738,667 $ 650,000 $ 81,089 $ 0 157,046 $ 75,707 $ 38,279
Marketing and Sales 2001 $ 687,000 $ 595,000 $ 42,255 $ 0 229,083 $ 145,327 $ 459,390
James D. Ellis 2003 $ 744,500 $ 925,000 $152,586 $1,334,001 265,712 $ 480,197 $ 219,607
Senior Executive Vice President 2002 $ 727,000 $ 600,000 $102,056 $ 0 215,637 $ 265,616 $ 243,218
and General Counsel 2001 $ 722,000 $ 560,000 $110,027 $ 0 289,683 $ 375,244 $ 2,548,908
William M. Daley 2003 $ 630,000 $ 890,000 $ 97,491 $ 850,008 134,117 $ 0 $ 30,238
President 2002 $ 612,000 $ 809,310 $ 76,567 $ 0 105,000 $ 0 $ 1,171,391
2001 $ 50,000 $ 60,000 $ 0 $ 0 90,000 $ 0 $ 73
-----------------------------------------------------------------------------------------------------------------------------
(1) Amounts shown under Restricted Stock Awards represent the grant date values
of SBC restricted stock (including stock units having the same terms as
restricted stock, but payable in cash) awarded to the Named Officers.
One-third of each grant vests on each anniversary of the grant. The number
of shares granted, and their values as of December 31, 2003, are as
follows: Mr. Whitacre--295,970 restricted shares valued at $7,715,938; Mr.
Atterbury--49,342 restricted shares valued at $1,286,346; Mr.
Wilkins--46,628 restricted shares valued at $1,215,592; Mr. Ellis--54,852
restricted shares valued at $1,429,992; and Mr. Daley has 34,951 restricted
shares valued at $911,173. Dividends or dividend equivalents are paid on
all restricted stock.
(2) All Other Compensation for 2003 includes benefits imputed to the Named
Officers with respect to premiums on SBC-owned life insurance, as
determined in accordance with IRS guidelines. For Messrs. Whitacre,
Atterbury, Wilkins, Ellis, and Daley this amount was $16,790, $1,662,
$1,345, $3,854, and $646, respectively. All other compensation also
includes preferential amounts earned on deferred compensation for Messrs.
Whitacre, Atterbury, Wilkins, and Ellis of $1,109,682, $28,843, $1,734, and
$180,663, respectively. All other amounts reported under this heading
represent employer matching contributions made to employee benefit plans.
Amounts for 2002 and 2001 have been corrected to reflect reportable
interest on deferred compensation that was inadvertently omitted.
(3) Other Annual Compensation for 2002 and 2001 include dividends on restricted
stock units issued in 1997 that did not fully vest until 2002. The
dividends on unvested shares for Messrs. Whitacre, Atterbury, and Ellis
were $52,625, $8,770, and $17,541, respectively, for 2002 and $153,250,
$25,541, and $51,082, respectively, for 2001.
38
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
--------------------------------------------------------------------------------
The purpose of the following table is to report exercises of stock options
and stock appreciation rights ("SARs") by the Named Officers during 2003 and
the value of their unexercised stock options and SARs as of December 31, 2003.
SBC has not issued any SARs to the Named Officers. "Value of Unexercised
In-the-Money Options" figures are based on the year end, December 31, 2003, SBC
common stock price of $26.07.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal the-Money Options at
Acquired Year End Fiscal Year End
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------- -------- -------- ----------- ------------- ----------- -------------
Edward E. Whitacre, Jr. 0 $ 0 4,677,697 4,952,128 $2,221,673 $1,784,402
John H. Atterbury 91,494 $263,732 598,755 350,155 $ 197,535 $ 289,085
Rayford Wilkins, Jr. 298 $ 946 442,219 349,090 $ 178,173 $ 271,129
James D. Ellis 0 $ 0 928,731 469,878 $ 280,659 $ 337,090
William M. Daley 0 $ 0 95,000 234,117 $ 0 $ 205,119
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------
The table below reports performance shares granted to the Named Officers
during the last fiscal year, applicable to the performance periods indicated.
Number
of Performance Estimated Future Payouts
Shares, or Other Under Non-Stock
Units or Period Until Price-Based Plans
Other Maturation -------------------------
Name Rights or Payout Threshold Target Maximum
----------------------- -------- ------------ --------- ------- -------
Edward E. Whitacre, Jr. 295,929 2003-2005 0 295,929 400,000
John H. Atterbury 49,342 2003-2005 0 49,342 98,684
Rayford Wilkins, Jr. 46,587 2003-2005 0 46,587 93,174
James D. Ellis 54,811 2003-2005 0 54,811 109,622
William M. Daley 34,951 2003-2005 0 34,951 69,902
Each performance share is equivalent in value to one share of SBC common stock.
At the end of a performance cycle, a percentage of the performance shares is
converted into cash and/or SBC common stock, based upon the achievement of
certain objectives. The performance objectives are set on a yearly basis, and
the extent to which a performance objective is met or exceeded is expressed as
a percentage. The annual percentages are then averaged over the term of each
performance period to determine the percentage of performance shares that may
be converted and paid out. The maximum number of performance shares that may be
converted at the end of a performance cycle may not exceed 200% of the target
number of performance shares.
39
OPTION GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------
The table below contains the estimated present value of stock options
granted in 2003, as of their issue date. Option grant A vests over a three year
period, with one-third of the options vesting on each anniversary of the grant.
Option grants B and C were issued under a stock purchase plan where middle
level and above managers received options based on the number of SBC shares
they purchased.
Percent of
Total
Number of Options Exercise Grant
Securities Granted to or Base Date
Underlying Employees Price Present
Options in ($/ Expiration Value
Name Grant Granted Fiscal Year Share) Date ($000s)
--------------------------------------------------------------------------------
Edward E. Whitacre, Jr. A 1,028,143 6.95% $24.44 01/31/2013 $3,929
B 40,487 0.27% $25.28 02/01/2013 $ 164
C 283,498 1.92% $25.80 05/31/2013 $1,161
John H. Atterbury A 171,429 1.16% $24.44 01/31/2013 $ 655
B 10,360 0.07% $25.28 02/01/2013 $ 42
C 5,450 0.04% $25.80 05/31/2013 $ 22
Rayford Wilkins, Jr. A 161,857 1.09% $24.44 01/31/2013 $ 618
B 7,691 0.05% $25.28 02/01/2013 $ 31
C 4,542 0.03% $25.80 05/31/2013 $ 19
James D. Ellis A 190,429 1.29% $24.44 01/31/2013 $ 728
B 12,241 0.08% $25.28 02/01/2013 $ 49
C 63,042 0.43% $25.80 05/31/2013 $ 258
William M. Daley A 121,429 0.82% $24.44 01/31/2013 $ 464
B 7,238 0.05% $25.28 02/01/2013 $ 29
C 5,450 0.04% $25.80 05/31/2013 $ 22
--------------------------------------------------------------------------------
The option values in the table represent the estimated present value of the
options as of their issue date. These values were determined in accordance with
a Black-Scholes option valuation model. The significant assumptions
incorporated in the Black-Scholes model in estimating the value of the options
include the following:
. Options were issued with an exercise price equal to the fair market value
of stock on the date of issuance. The term of each option is 10 years
(unless otherwise shortened or forfeited due to termination of
employment). The expected life of the option grants are 7 years for grant
A and 6 years for each of grants B and C.
. In calculating the value of the options, the model assumed an interest
rate of 3.81% for grant A, 3.46% for grant B, and 2.81% for grant C.
These interest rates represent the interest rates on U.S. Treasury
securities on the date of grant with maturity dates corresponding to that
of the expected option lives.
40
. Expected volatility was calculated for each grant using daily stock
prices for the period prior to the grant date corresponding with the
expected option life, resulting in volatility of 21.83% for grant A,
23.18% for grant B, and 24.8% for grant C.
. The model reflected an expected annual dividend yield of 4.42% for grant
A, 4.27% for grant B, and 4.38% for grant C.
The ultimate value of the options will depend on the future market price of
SBC's common stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, that an optionee will realize upon exercise of an option
will depend on the excess of the market value of SBC's common stock over the
exercise price on the date the option is exercised.
41
Pension Plans
SBC has noncontributory pension plans that cover almost all of its
employees. The largest of these plans is the SBC Pension Benefit Plan, which
covers all executive officers, among other employees. Management participants
in the SBC Pension Benefit Plan are generally entitled to receive the greater
of two pension benefits: the Cash Balance Benefit or the Career Average Minimum
(CAM) Benefit, each of which is subject to Internal Revenue Code limitations on
pay used to calculate pensions. A participant's Cash Balance Benefit is equal
to the balance in the participant's cash balance account, which is made up of
(a) an opening account balance as of June 1, 1997, which reflects the lump sum
present value of the participant's approximate age 65 accrued benefit under the
old plan design, (b) subsequent monthly basic benefit credits equal to 5% of
the participant's compensation (generally, base pay, commissions, and group
incentive awards but not individual awards), and (c) monthly interest credits
on the participant's cash balance account. The interest rate is equal to the
published average annual yield for the 30-year Treasury Bond, reset quarterly
as of the middle of the preceding quarter. In addition, over the period June
30, 1997, through May 31, 2002, the participant's account received a monthly
pro-rata share of the participant's transition benefit, which was based on an
estimate of what the participant's account balance would have been if the cash
balance design had been applied throughout the participant's employment with
SBC, plus additional credits for those participants whose age plus service
exceeded 25 on May 1, 1997. The CAM Benefit is equal to the sum of 1.6% of a
participant's average compensation (generally, base pay, commissions, and other
nondiscretionary bonuses such as group incentive awards) for the five years
ended December 31, 1999 (or any prior five-year averaging period if it would
result in a higher benefit), multiplied by the number of years of service
through the end of the participant's averaging period, plus 1.6% of the
participant's pension compensation subsequent to the averaging period.
Pension amounts are not subject to reduction for Social Security benefits
or any other offset amounts. The Internal Revenue Code places certain
limitations on pensions that may be paid under Federal income tax qualified
plans. Benefits that are so limited are restored for officers and certain
senior managers from the general funds of SBC either under the Supplemental
Retirement Income Plan (see paragraph below) or another SBC nonqualified plan.
If they continue in their current positions at their current levels of
compensation and retire at the mandatory retirement age of 65, the total
estimated annual pension amounts from the Pension Benefit
42
Plan and the estimated credited years of service at retirement under the Plan
for Messrs. Whitacre, Atterbury, Wilkins, Ellis, and Daley would be $119,749
(44 years), $155,494 (43 years), $143,854 (42 years), $96,880 (36 years), and
$39,600 (12 years), respectively.
The Supplemental Retirement Income Plan (which is not funded by, nor is it
a part of, the Pension Benefit Plan) establishes a target annual retirement
benefit for all officers and certain senior managers, stated as a percentage of
their annual salaries and annual incentive bonuses averaged over a specified
averaging period described below ("Average Annual Compensation"). The
percentage is increased by .715% for each year of actual service in excess of,
or decreased by 1.43% (.715% for mid-career hires) for each year of actual
service below, 30 years of service for executive officers and other officers
and 35 years of service for certain other senior managers. Average Annual
Compensation is determined by averaging salaries and actual annual incentive
bonus (or such other portion of the target or annual bonus amount as the Human
Resources Committee may determine) earned during the 36-consecutive-month
period out of the last 120 months preceding retirement that generates the
highest average earnings. The target percentages of Average Annual Compensation
are: Chairman of the Board and Chief Executive Officer, 75%; executive
officers, 60% to 70%; other officers, 55% to 60%; and certain other senior
managers, 50%. The Supplemental Retirement Income Plan pays the difference, if
any, between the target amount and what would be payable under the Pension
Benefit Plan if the benefits under the Pension Benefit Plan were paid in the
form of an immediate annuity for life. In the event the participant retires
before reaching his or her 60/th/ birthday, a discount of .5% for each month
remaining until the participant's 60/th/ birthday is applied reducing the
amount payable under this plan, except for officers who have 30 years or more
of service at the time of retirement. If they continue in their current
positions and if they retire at the mandatory retirement age of 65, using their
current Average Annual Compensation, the estimated annual amounts that will be
paid in accordance with the Supplemental Retirement Income Plan for Messrs.
Whitacre, Atterbury, Wilkins, Ellis, and Daley, would be $5,457,746, $814,053,
$855,840, $1,009,366, and $606,732, respectively.
Contracts With Management
On November 21, 1997, the Board of Directors approved revised Change of
Control Severance Agreements (the "Agreements") for the Named Officers in the
"Summary Compensation Table" as well as certain other officers. The purpose of
the Agreements is to reinforce and encourage
43
the officers to maintain objectivity and a high level of attention to their
duties without distraction from the possibility of a change in control of SBC.
These Agreements provide that in the event of a change in control of SBC, as
that term is defined in the Agreements and summarized below, each officer is
entitled to certain benefits (the "Severance Benefits") upon the subsequent
termination or constructive termination of his or her employment, unless such
termination is due to death or disability, or the termination is by SBC for
cause (as defined in the Agreements); or the termination is by the officer for
other than good reason (as defined in the Agreements).
The Severance Benefits include the payment of the officer's full base
salary through the date of termination plus all other amounts to which the
officer is entitled under any compensation plan of SBC in effect immediately
prior to the change in control. Also, each officer is entitled to a lump sum
payment equal to three (in the case of Messrs. Whitacre, Ellis and Daley) or
two (in the case of Messrs. Atterbury, and Wilkins) times the sum of (a) the
officer's annual base salary in effect immediately prior to termination,
(b) the most recently paid amount under the Short Term Incentive Plan or as a
Key Executive Officer Short Term Award under the 2001 Incentive Plan, and (c)
the cash value of the target award of performance shares granted under the 2001
Incentive Plan applicable to each officer for the most current performance
cycle. Additionally, each officer will be provided with life and health
benefits, including supplemental medical, vision and dental benefits, for three
years from the date of termination, if the officer is not otherwise entitled to
the same.
In the event any payment or benefit received or to be received by an
officer in connection with a change in control or the termination of his or her
employment, whether pursuant to his or her Agreement and/or under a benefit
plan (the "Total Payments"), is determined to be an excess parachute payment as
defined in the Internal Revenue Code and thus subject to the 20% Federal excise
tax, SBC will pay the officer an amount equal to the excise tax and all Federal
and applicable state taxes resulting from the payment of the excise tax or from
payment of such Federal and state taxes.
Under the Agreements, in general, change in control is deemed to occur if:
(a) anyone (other than an employee benefit plan of SBC) acquires more than 20%
of SBC's common stock, (b) within a two-year period, the Directors at the
beginning of such period (together with any new Directors elected or nominated
for election by a two-thirds majority of Directors then in office who were
Directors at the beginning of such period or whose
44
election or nomination for election was previously so approved) cease to
constitute a majority of the Board, or (c) SBC's stockholders either approve a
merger or consolidation that results in someone other than the stockholders
immediately prior thereto holding more than 35% of the voting power of the
surviving entity or approve the complete liquidation of SBC or the disposition
of substantially all of SBC's assets.
In 2001, SBC entered into an employment agreement with William M. Daley to
act as President of SBC, beginning December 1, of that year. Under the
agreement, he will receive an annual salary of not less than $600,000 and a
target bonus equal to or greater than his salary. His yearly bonus is
conditioned on attainment of performance objectives set by the Human Resources
Committee. He received a one-time signing bonus of $1,100,000 to recognize the
loss of benefits from his prior employer. Pursuant to the agreement, Mr. Daley
received performance shares and options in 2003 as shown in the above tables.
Mr. Daley will be permitted to participate in the Supplemental Retirement
Income Plan (described under "Pension Plans") with a target percentage of 60%.
In computing Mr. Daley's payments under that plan, his "Average Annual
Compensation" shall not be less than $1,200,000. The employment agreement
terminates when he reaches age 65. If SBC terminates Mr. Daley's employment
before expiration of the agreement without cause, he will receive a payment
equal to his base salary and the greater of his target bonus or his bonus for
the prior year (which shall not be less than $600,000).
In 2001, SBC entered into an employment agreement with Mr. Whitacre to act
as Chairman of the Board and Chief Executive Officer for a five-year term
ending November 15, 2006. The agreement may be terminated by either party at
the end of the third year of the contract. During the term of the contract, his
base salary, the target for his bonus, and the value of his long term awards
shall not be less than that in effect for calendar year 2001. The bonus and
long term award are not guaranteed, but are subject to attainment of
performance objectives. Pursuant to the agreement, SBC granted Mr. Whitacre
options that expire in 2011 to acquire 2,500,000 shares of SBC at $39.13 per
share. Three-fifths of the options vest on the third anniversary of the
agreement and the remaining options vest on the fifth anniversary; the options
also vest if his employment is terminated without cause. SBC will provide Mr.
Whitacre with office facilities and support staff, automobile benefits, limited
access to SBC's aircraft, and health care for the rest of his life. If the
Company terminates his employment without cause before the end of the term or
if he is unable to
45
perform his duties because of disability or accident, he shall be entitled to
continue to receive his salary and other benefits through the end of the term.
Upon retirement, provided that he has completed three years of the
employment term, Mr. Whitacre has agreed to provide consulting services and
advice to SBC for three years after his termination of employment in exchange
for an annual fee equal to 50% of his annual salary at retirement. In the event
Mr. Whitacre receives a change in control payment under the Change of Control
Severance Agreements (described above), his employment term shall immediately
expire, and the consulting term shall be extended by the same period the
employment term was reduced.
One member of the immediate family of Mr. Ellis as well as two members of
the immediate family of each of Mr. Stephenson and Mr. Whitacre were employed
by subsidiaries of SBC and were paid a total of approximately $337,000 in 2003.
Amounts paid to these employees include salary, bonus, option exercises, and
relocation costs, and are comparable to compensation paid to other employees
performing similar job functions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
SBC's executive officers and Directors are required under the Securities
Exchange Act of 1934 to file reports of transactions and holdings in SBC common
stock with the Securities and Exchange Commission and the New York Stock
Exchange and to file a copy of such reports with SBC. Based solely on a review
of the filed reports and written representations that no other reports are
required, SBC believes that during the preceding year all executive officers
and Directors were in compliance with all filing requirements applicable to
such executive officers and Directors, except for one transaction made by Mr.
Daley in the SBC Savings Plan for employees. Mr. Daley had notified the Company
of the transaction, but through administrative error the form was not timely
filed.
46
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
Comparison of Five Year Cumulative Total Return
SBC, S&P 500 and Peer Group
[CHART]
12/98 12/99 12/00 12/01 12/02 12/03
SBC 100 93 93 78 56 57
PEER GROUP 100 105 90 87 69 69
S&P 500 100 121 110 97 76 97
Year End
Assumes $100 invested on December 31, 1998, in SBC common stock, Standard &
Poor's 500 Index ("S&P 500") and a Peer Group of other large U.S.
telecommunications companies (BellSouth Corporation and Verizon, Inc.). The
index of telecommunications companies ("Peer Group") is weighted according to
the market capitalization of its component companies at the beginning of each
period. Total return equals stock price appreciation plus reinvestment of
dividends on a quarterly basis.
47
OTHER BUSINESS
--------------------------------------------------------------------------------
The Board of Directors is not aware of any matters that will be presented
at the meeting for action on the part of stockholders other than those
described herein.
A copy of SBC's Annual Report to the Securities and Exchange Commission on
Form 10-K for the year 2003 may be obtained without charge upon written request
to the Director-External Reporting, 175 E. Houston, 9th Floor, San Antonio,
Texas 78205.
Stockholder Proposals
Proposals of stockholders intended for presentation at the 2005 Annual
Meeting must be received by SBC for inclusion in its Proxy Statement and form
of proxy relating to that meeting by November 11, 2004. Such proposals should
be sent in writing by certified mail to the Vice President and Secretary of SBC
at 175 E. Houston, San Antonio, Texas 78205.
Stockholders whose proposals are not included in the Proxy Statement but
who still intend to submit a proposal at an Annual Meeting and stockholders who
intend to submit nominations for Directors at an Annual Meeting are required to
notify the Vice President and Secretary of SBC of their proposal or nominations
and to provide certain other information not less than 120 days, nor more than
150 days, before the meeting, in accordance with SBC's Bylaws.
48
APPENDIX A
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
SBC COMMUNICATIONS INC.
CHARTER
Purpose
The Audit Committee (the "Committee") is appointed by the Board of Directors of
SBC Communications Inc. to assist the Board in its oversight of: (1) the
integrity of the financial statements of the Company, (2) the independent
auditor's qualifications and independence, (3) the performance of the Company's
internal audit function and independent auditors, and (4) the compliance by the
Company with legal and regulatory requirements. References in this Charter to
"SBC" or the "Company" shall be to SBC Communications Inc. and its consolidated
subsidiaries unless the context requires otherwise.
The Committee shall prepare the report required by the rules of the Securities
and Exchange Commission (the "Commission") to be included in the Company's
proxy statement for the Annual Meeting of Stockholders.
Committee Membership
At the first meeting of the Board of Directors following each Annual Meeting of
Stockholders, the Board, after receiving the recommendations of the Corporate
Governance and Nominating Committee, shall appoint the members of the Committee
and shall determine the Chairperson of the Committee, each to serve at the
pleasure of the Board. Committee members shall not have a fixed term. The
Committee shall consist of no fewer than three members, including the
Chairperson. Each member of the Committee shall meet the independence and
experience requirements of the listing standards of the New York Stock Exchange
and the independence requirements of Section 10A(m)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules of the Commission
thereunder. The Board shall periodically determine (i) whether each Committee
member meets such independence and experience requirements and (ii) whether or
not any member of the Committee is an "audit committee financial expert" as
that term is defined by the rules and regulations of the Commission. Committee
members shall not simultaneously serve on the audit committees of more than two
other public companies. Committee members may not
A-1
accept, directly or indirectly, any consulting, advisory, or other compensatory
fee from the Company other than in their capacity as a Director.
Procedures
The Committee shall meet as often as it determines, but not less than six times
a year. The Committee shall meet periodically with management, the senior
internal auditing executive, the independent auditor and the general counsel in
separate executive sessions. The Committee may request any officer or employee
of the Company or the Company's outside counsel or independent auditor to
attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee. After the Committee meets or otherwise takes
action, it shall, as soon as practicable, make a report of its activities at a
meeting of the Board.
The Committee may form and delegate authority to subcommittees when determined
by the Committee to be necessary or appropriate.
Committee Authority and Responsibilities
The Committee shall have the authority, to the extent it deems necessary or
appropriate, to conduct investigations and to retain independent legal,
accounting or other advisors. The Committee may authorize and direct the
payment of compensation by the Company to the independent auditor for the
purpose of preparing or issuing an audit report or for other services and to
any advisors employed by the Committee as well as the payment of ordinary
administrative expenses of the Committee that are necessary or appropriate in
carrying out its duties.
The Committee shall review and reassess the adequacy of this Charter annually
and recommend any proposed changes to the Corporate Governance and Nominating
Committee. The Committee shall annually evaluate the Committee's own
performance and share such evaluation with the Corporate Governance and
Nominating Committee.
Oversight of the Company's Relationship with the Independent Auditor
1. The Committee shall be directly responsible for the appointment,
compensation, retention and oversight of the work of the independent auditor
employed by the Company for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services (including
A-2
resolution of disagreements between management and the independent auditor
regarding financial reporting). The independent auditor shall report directly
to the Committee.
2. The independent auditor may be engaged by the Company to perform audit
services and, to the extent permitted by applicable Federal securities laws and
rules thereunder, non-audit services, in each case only where the Committee has
pre-approved each such service, subject to the de minimus exception for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act. The
Committee may either approve such audit and non-audit services or adopt
pre-approval policies and procedures provided that the policies and procedures
are detailed as to the particular service provided and the Committee is
informed of each such service. As a part of such policies and procedures, the
Committee may delegate authority to subcommittees consisting of one or more
members to grant pre-approvals of audit and permitted non-audit services.
3. The Committee shall establish policies for the Company's hiring of
employees or former employees of the independent auditor.
4. The Committee shall obtain and review a report from the independent
auditor at least annually regarding: (a) the independent auditor's internal
quality-control procedures, (b) any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or by any inquiry
or investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out by
the firm, (c) any steps taken to deal with any such issues, and (d) all
relationships between the independent auditor and the Company. After reviewing
the foregoing report and the independent auditor's work during the year, the
Committee shall evaluate the qualifications, performance and independence of
the independent auditor, taking into account the opinions of management and the
senior internal auditing executive. As a part of this evaluation, the Committee
shall review and evaluate the performance and qualifications of the lead
partner of the independent auditor.
5. The Committee shall, as appropriate, discuss with management the timing
and process for the rotation of the lead audit partner, the concurring partner
and any other active audit engagement team partner and consider whether, in
order to assure continuing auditor independence, it is appropriate to rotate
the independent auditing firm.
A-3
6. The Committee shall meet with the independent auditor prior to the audit
to discuss the planning and staffing of the audit.
Financial Statement and Disclosure Matters
7. The Committee shall review and discuss with management and the
independent auditor, prior to filing the Company's Form 10-K with the
Commission, the annual audited financial statements, including disclosures made
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
8. The Committee shall review and discuss with management and the
independent auditor, prior to filing the Company's Form 10-Q with the
Commission, the quarterly financial statements, including disclosures made
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the results of the independent auditor's review of the
quarterly financial statements.
9. The Committee shall periodically review and discuss with management and
the independent auditor: (a) any major issues regarding accounting principles
and financial statement presentations, including any significant changes in the
Company's selection or application of accounting principles, and major issues
as to the adequacy of the Company's internal controls and any special audit
steps adopted in light of material control deficiencies; (b) analyses prepared
by management and/or the independent auditor setting forth significant
financial reporting issues and judgments made in connection with the
preparation of the financial statements, including analyses of the effects of
alternative GAAP methods on the financial statements; and (c) the effect of
regulatory and accounting initiatives, as well as off-balance sheet structures,
on the financial statements of the Company.
10. The Committee shall review and discuss with management and the
independent auditor reports from the independent auditor on:
a. All critical accounting policies and practices to be used;
b. All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor; and
A-4
c. Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
11. The Committee shall review and discuss with management the Company's
earnings press releases as well as financial information and earnings guidance
provided to analysts and rating agencies. Such discussion may be done generally
(i.e., discussion of the types of information to be disclosed and the type of
presentation to be made). The Committee need not discuss in advance each
earnings release or each instance in which the Company may provide earnings
guidance.
12. The Committee shall review and discuss with management the Company's
major financial risk exposures and the steps management has taken to monitor
and control such exposures, including the Company's risk assessment and risk
management policies.
13. The Committee shall annually discuss with the independent auditor the
matters required to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit, including any difficulties encountered in
the course of the audit work, any restrictions on the scope of activities or
access to requested information, and any significant disagreements with
management. The discussion shall address, to the extent applicable, any
accounting adjustments that were noted or proposed by the independent auditor
but were "passed" (as immaterial or otherwise), any communications between the
audit team and the auditor's national office with respect to auditing or
accounting issues presented by the engagement and any "management" or "internal
control" letter issued, or proposed to be issued, by the independent auditor.
14. The Committee shall review disclosures made to the Committee by the
Company's Chief Executive Officer and Chief Financial Officer during their
certification process for the Form 10-K and Forms 10-Q about significant
deficiencies or material weaknesses in the design or operation of internal
control over financial reporting and any fraud involving management or other
employees who have a significant role in the Company's internal control over
financial reporting. The Committee shall review with management, the senior
internal auditing executive, and the independent auditor, as appropriate,
attestations and reports by the independent auditor on the assessments made by
management as to internal control over financial reporting.
A-5
Oversight of the Company's Internal Audit Function
15. The Committee shall review with management the appointment and
replacement of the senior internal auditing executive and shall annually
evaluate his or her performance.
16. The Committee shall review with the senior internal auditing executive
the significant reports to management prepared by the internal auditing
department and management's responses.
17. The Committee shall review with the senior internal auditing executive,
the independent auditor and management the internal audit department
responsibilities, budget and staffing and the internal audit plan for the
coming year.
Compliance Oversight Responsibilities
18. The Committee shall obtain from the independent auditor assurance that
Section 10A(b) of the Exchange Act (relating to reports by the independent
auditor made to the Company of illegal acts discovered by the independent
auditor) has not been implicated.
19. The Committee shall establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
20. The Committee shall discuss with management and the independent auditor
any correspondence with regulators or governmental agencies and any published
reports made known to SBC's executive officers that raise material issues
regarding the Company's financial statements or accounting policies.
21. The Committee shall discuss with the Company's General Counsel any
significant legal, compliance or regulatory matters that may have a material
impact on the financial statements or the Company's compliance policies. The
Committee shall oversee the administration and enforcement of the Code of
Business Conduct and Code of Ethics.
Other
22. The Committee shall be responsible for any other matters expressly
delegated to the Committee by the Board from time to time.
A-6
Limitation of Committee's Role
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
A-7
[GRAPHIC]
Printed on recycled paper
Printed entirely on recycled paper
meeting or exceeding the Environmental
Protection Agency minimum requirements
for recycled paper stock.
[X] Please mark your votes as in this example.
SBC COMMUNICATIONS INC. THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Your Directors recommend a vote Your Directors recommend a vote
FOR Items 1, 2 and 3 AGAINST Items 4 and 5
FOR WITHHOLD
ALL ALL EXCEPTION FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election [_] [_] [_] 2. Appointment of [_] [_] [_] 4. Stockholder [_] [_] [_]
of Directors. Independent Proposal A.
Auditors.
* For all, except withhold vote from the following 3. Approve an [_] [_] [_] 5. Stockholder [_] [_] [_]
nominee(s): Amendment to Proposal B.
SBC's Bylaws
--------------------------------------
Discontinue mailing Annual Report for
this account because I already receive
multiple copies at this address.
--------------------------------------
Signature ______________ Signature (joint owner) ______________ Date __________
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney,
executor, administrator, corporate officer, trustee, guardian or custodian,
please give full title.
FOLD AND DETACH HERE
[SBC logo]
Your Vote Is Important!
You can submit your proxy by mail, by telephone, or through the Internet by
following the instructions below.
If you submit your proxy by telephone or through the Internet, you will be
authorizing the voting of your shares as if you marked and returned your proxy
card; therefore, you do not need to mail back your proxy card.
-------------------------------- --------------------------------------- ---------------------------------------
BY MAIL BY TELEPHONE BY INTERNET
Mark, sign and date Please have your proxy card in www.eproxyvote.com/sbc Please
your proxy card and hand and call toll free have your proxy card in hand and
return it in the 1-877-779-8683 on access the above website. Then just
enclosed envelope. any touch-tone telephone. follow the simple instructions. You
Then just follow the simple may access the site 24 hours a day,
instructions. You may call 24 7 days a week.
hours a day, 7 days a week.
-------------------------------- --------------------------------------- ---------------------------------------
THANK YOU FOR VOTING!
[SBC Logo]
PROXY CARD/VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors
for the Annual Meeting on April 30, 2004.
The undersigned hereby appoints Edward E. Whitacre, Jr. and Randall L.
Stephenson, and each of them, proxies, with full power of substitution, to vote
all common shares of the undersigned in SBC Communications Inc. at the Annual
Meeting of Stockholders to be held on April 30, 2004, and at any adjournment
thereof, upon all subjects that may properly come before the meeting, including
the matters described in the proxy statement furnished herewith, in accordance
with the directions indicated on the reverse side of this card or provided
through the telephone or Internet proxy procedures, and at the discretion of
the proxies on any other matters that may properly come before the meeting. If
specific voting directions are not given with respect to the matters to be
acted upon and the signed card is returned, the proxies will vote such shares
(except for shares held in the employee benefit plans noted below) in
accordance with the Directors' recommendations on the matters listed on the
reverse side of this card and at the discretion of the proxies on any other
matters that may properly come before the meeting.
The Board of Directors recommends a vote FOR each of the three Director
proposals (Items 1, 2 and 3) and AGAINST the Stockholder proposals (Items 4 and
5) listed on the reverse side of this card (each of which is described in the
proxy statement). The Board of Directors knows of no other matters that are to
be presented at the meeting.
The nominees for the Board of Directors are:
01 - James E. Barnes 03 - John B. McCoy 05 - Joyce M. Roche
02 - James A. Henderson 04 - S. Donley Ritchey 06 - Patricia P. Upton
Please sign on the reverse side of this card and return promptly in the
enclosed envelope or, if you choose, you can submit your proxy by telephone or
through the Internet.
This proxy card, when signed and returned, or your telephone or Internet proxy,
will also constitute voting instructions to the plan administrator or trustee
for any shares held on your behalf under any of the following employee benefit
plans: the SBC Savings Plan, the SBC Savings and Security Plan, the DonTech
Profit Participation Plan, the Old Heritage Advertising & Publishers, Inc.
Profit Sharing Plan, the SBC PAYSOP, the Pacific Telesis Group Employee Stock
Ownership Plan, the Tax Reduction Act Stock Ownership Plan (the "TRASOP")
sponsored by The Southern New England Telephone Company, the Cingular Wireless
401(k) Savings Plan, and the Cingular Wireless 401(k) Savings Plan for
Bargained Employees. Shares in each of the foregoing employee benefit plans
(except the Old Heritage plan) for which voting instructions are not received,
subject to the trustees' fiduciary obligations, will be voted by the trustees
in the same proportion as the shares for which voting instructions are received
from other participants in each such plan. Similarly, the proxy card or
telephone or Internet proxy will constitute voting instructions to the plan
administrator for any shares held on your behalf pursuant to the DirectSERVICE
Investment Program (dividend reinvestment plan).
(Please mark your proxy and sign on the reverse side.)
FOLD AND DETACH HERE
ADMISSION TICKET
[map] [map]
The ______ is located on the ____________, at the ______________, at the ______.
SBC Communications Inc.
Annual Meeting of Stockholders
Friday, April 30, 2004
Hyatt on Capitol Square
75 East State Street
Governor's Ballroom
Columbus, Ohio 43215
Doors open at 8:00 a.m.
Meeting begins at 9:00 a.m.
[Broker Card]
PROXY CARD
[SBC logo]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON APRIL 30, 2004.
The undersigned hereby appoints Edward E. Whitacre, Jr. and Randall L.
Stephenson, and each of them, proxies, with full power of substitution, to vote
all common shares of the undersigned in SBC Communications Inc. at the Annual
Meeting of Stockholders to be held on April 30, 2004, and at any adjournment
thereof, upon all subjects that may properly come before the meeting, including
the matters described in the proxy statement furnished herewith, in accordance
with the directions indicated on the reverse side of this card or provided
through the telephone or Internet proxy procedures, and at the discretion of
the proxies on any other matters that may properly come before the meeting. IF
SPECIFIC VOTING DIRECTIONS ARE NOT GIVEN WITH RESPECT TO THE MATTERS TO BE
ACTED UPON AND THE SIGNED CARD IS RETURNED, THE PROXIES WILL VOTE SUCH SHARES
IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS ON THE MATTERS LISTED ON THE
REVERSE SIDE OF THIS CARD AND AT THE DISCRETION OF THE PROXIES ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
The Board of Directors recommends a vote FOR each of the three Director
proposals (Items 1, 2 and 3) and AGAINST the Stockholder proposals (Items 4 and
5) listed on the reverse side of this card (each of which is described in the
proxy statement). The Board of Directors knows of no other matters that are to
be presented at the meeting.
The nominees for the Board of Directors are:
01 - James E. Barnes 04 - S. Donley Ritchey
02 - James A. Henderson 05 - Joyce M. Roche
03 - John B. McCoy 06 - Patricia P. Upton
PLEASE SIGN ON THE REVERSE SIDE OF THIS CARD AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE OR, IF YOU CHOOSE, YOU CAN SUBMIT YOUR PROXY BY TELEPHONE OR
THROUGH THE INTERNET.
[X] Please mark your votes as in this example.
SBC COMMUNICATIONS INC. THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Your Directors recommend a vote FOR Items 1, 2 and 3.
1. Election of Directors. (SEE REVERSE) For All [_] Withhold All [_] Exception* [_]
*For all, except withhold vote from the following nominee(s): -------------------------------------------
2. Appointment of Independent Auditors. For [_] Against [_] Abstain [_]
3. Approve an Amendment to SBC's Bylaws For [_] Against [_] Abstain [_]
Your Directors recommend a vote AGAINST Items 4 and 5. For Against Abstain
4. Stockholder Proposal A [_] [_] [_]
5. Stockholder Proposal B [_] [_] [_]
------------------------------------------------------ -------------------------------------
Signature Date