UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------- FORM 11-K ANNUAL REPORT ---------------------------- Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 Commission File Number l-8610 ----------------------------------------------------------- A. Full title of the plan and the address of the plan, if different from that of the issuer named below: SBC PAYSOP ----------------------------------------------------------- B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: SBC COMMUNICATIONS INC. 175 E. Houston, San Antonio, Texas 78205 SBC PAYSOP Financial Statements, Supplemental Schedules and Exhibit Table of Contents Report of Independent Registered Public Accounting Firm..................................................1 Financial Statements: Statements of Net Assets Available for Benefits as of December 31, 2003 and 2002 ....................2 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2003 .....................................................................3 Notes to Financial Statements .......................................................................4 Supplemental Schedules: Schedule H, Line 4i - Schedule of Assets (Held at End of Year) ......................................8 Schedule H, Line 4j - Schedule of Reportable Transactions ...........................................9 Exhibit: 23 - Consent of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm SBC Communications Inc., Plan Administrator for SBC PAYSOP We have audited the accompanying statements of net assets available for benefits of SBC PAYSOP as of December 31, 2003 and 2002, and the related statement of changes in net assets available for benefits for the year ended December 31, 2003. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2003 and 2002, and the changes in its net assets available for benefits for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets (held at end of year) as of December 31, 2003, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. San Antonio, Texas /s/ ERNST & YOUNG LLP June 21, 2004 SBC PAYSOP Statements of Net Assets Available for Benefits (Dollars in Thousands) December 31 2003 2002 ------------------------------------- Assets Investment in common stock of SBC Communications Inc., at fair value $ 82,415 $ 94,770 Cash equivalents 15 18 Interest receivable 1 - ------------------------------------- Net assets available for benefits $ 82,431 $ 94,788 ===================================== See accompanying notes. SBC PAYSOP Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2003 (Dollars in Thousands) Additions: Dividend income $ 4,601 Interest income 22 -------------------- Total additions 4,623 -------------------- Deductions: Net depreciation of SBC Communications Inc. common shares 4,366 Distributions to participants 12,592 Administrative expenses 22 -------------------- Total deductions 16,980 -------------------- Net decrease (12,357) Net assets available for benefits, beginning of year 94,788 -------------------- Net assets available for benefits, end of year $ 82,431 ==================== See accompanying notes. SBC PAYSOP Notes to Financial Statements December 31, 2003 and 2002 (Dollars in Thousands) 1. Plan Description The SBC PAYSOP (the Plan) was established by SBC Communications Inc. (SBC) during 1983 as a result of the disaggregation of the Bell System Employee Stock Ownership Plan. The Plan was established to provide shares of SBC common stock to eligible employees of participating SBC companies. The following description of the Plan provides only general information. The Plan text and prospectus include complete descriptions of Plan provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions for years prior to the 1987 plan year were in amounts equal to the credit claimed by SBC on its consolidated federal income tax return pursuant to Section 41 of the Internal Revenue Code of 1954 (IRC). This credit was one-half of one percent of compensation paid or accrued for all participants during the plan year up to a maximum of $100 per participant. The Tax Reform Act of 1986 repealed the income tax credit on employee stock ownership plan contributions for compensation paid or accrued after December 31, 1986. No contributions were made to the Plan beginning with the 1987 plan year. Employees with a balance in the Plan on December 31, 1986 are eligible for participation in the Plan and continue to maintain a balance in the Plan. Employees who did not have a balance in the Plan at that time are not eligible to participate. Although it has not expressed any intent to do so, SBC has the right under the Plan to terminate the Plan at any time subject to the provisions of ERISA. In the event that the Plan is terminated, subject to the conditions set forth by ERISA, the Plan provides that the net assets be distributed to participants in amounts equal to their respective interests in such assets. 2. Summary of Significant Accounting Policies The fair value of SBC common stock is determined on the basis of the closing price per share on the valuation date as reported at the official close of the New York Stock Exchange. Temporary cash investments are valued at cost, which approximates fair value. Purchases and sales of securities are reflected as of the trade date. Dividend income is recognized on the ex-dividend date. Interest earned on investments is recognized on the accrual basis. The Plan provides for investments in investment securities, which in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances. Expenses incurred to administer the Plan are paid by SBC. A portion of these expenses, up to $100 per year, is reimbursed by the Plan to SBC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. Allocations and Distributions to Participants The Plan maintains an account for each participant. Distribution of the shares allocated to a participant's account is generally made to a participant after termination of employment but no later than April of the plan year following the plan year in which the participant attains age 70 1/2, or to a beneficiary as soon as practicable after the participant's death. If a participant remains an active employee beyond the year the participant turns age 70 1/2, the participant's account will begin to be distributed no later than April of the following year. For each distribution, the participant or beneficiary receives stock. All quarterly dividends for a year earned on shares in participants' accounts are held in an interest-bearing account until paid to participants on an annual basis in November of each year. Effective January 1, 2002, the Plan was amended to allow participants the option to reinvest dividends on SBC common stock held in their accounts. Reinvested dividends are used to purchase SBC common stock. Earnings attributable to dividends pending distribution which exceed administrative expenses paid by the Plan are used to purchase additional shares of SBC common stock. These shares are proportionately allocated to each participant's account. 4. Tax Status The Internal Revenue Service (IRS) issued a determination letter on March 26, 2004, stating that the Plan and related trust are designed in accordance with applicable sections of the IRC. The Plan has been amended since the determination letter was received. The Plan Administrator believes that the Plan is currently designed and is operating in compliance with the applicable requirements of the IRC. 5. Reconciliation of Financial Statements to Form 5500 The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of December 31: 2003 2002 -------------------------------------- Net assets available for benefits per the financial statements $ 82,431 $ 94,788 Less: Distributions payable to participants (780) (989) -------------------------------------- Net assets available for benefits per the Form 5500 $ 81,651 $ 93,799 ====================================== The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the year ended December 31, 2003: Distributions to participants per the financial statements $ 12,592 Add: distributions payable to participants at December 31, 2003 780 Less: distributions payable to participants at December 31, 2002 (989) -------------------- Distributions to participants per the Form 5500 $ 12,383 ==================== Distributions payable to participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date. SBC PAYSOP Schedule H, Line 4i - Schedule of Assets (Held at End of Year) EIN: 43-1301883 Plan No.: 003 December 31, 2003 (Dollars in Thousands) Name of Issue, Borrower, Lessor or Description of Current Similar Party Investment Cost Value ----------------------------------------------------------------------------------------------------------- * SBC Communications Inc. Common Stock 3,161,282 shares $ 21,057 $ 82,415 * Mellon Trust of New England, National Association Pooled Employee Funds Daily Liquidity Fund Temporary cash investment 15 15 ------------------------------------ $ 21,072 $ 82,430 ==================================== *Party-in-Interest. SBC PAYSOP Schedule H, Line 4j - Schedule of Reportable Transactions EIN: 43-1301883 Plan No.: 003 Year Ended December 31, 2003 (Dollars in Thousands) Current Value of Asset on Transaction Net Gain Identity of Description of Purchase Price Selling Cost of Date (Loss) Party Involved Asset Price Asset --------------------------------------------------------------------------------------------------------------------------- Category (iii) - Series of Transactions in Excess of 5 Percent of Plan Assets * Mellon Trust of New Pooled Employee Funds England, National Daily Liquidity Fund Association $ 10,143 $ - $ 10,143 $ 10,143 $ - * Mellon Trust of New Pooled Employee Funds England, National Daily Liquidity Fund Association - 10,146 10,146 10,146 - * All transactions were purchased and sold on the market. There were no Category (i), (ii) or (iv) reportable transactions during the year ended December 31, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator for the Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized. SBC PAYSOP By SBC Communications Inc., Plan Administrator for the Foregoing Plan By /s/ Karen E. Jennings ------------------------------------------------- Karen E. Jennings Senior Executive Vice President - Human Resources and Communications Date: June 23, 2004 EXHIBIT INDEX Exhibit identified below, Exhibit 23 is filed herein as an exhibit hereto. Exhibit Number 23 Consent of Independent Registered Public Accounting Firm EX 23 Form 11-K for 2003 File No. 1-8610 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-99359) pertaining to SBC PAYSOP of our report dated June 21, 2004, with respect to the financial statements and supplemental schedules of SBC PAYSOP included in this Annual Report (Form 11-K) for the year ended December 31, 2003. /s/ ERNST & YOUNG LLP San Antonio, Texas June 21, 2004