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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4040
SEARS ROEBUCK ACCEPTANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware 51-0080535
(State of Incorporation) (I.R.S. Employer Identification No.)
3711 Kennett Pike, Greenville, Delaware 19807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 302/888-3100
Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of June 28, 1997, the Registrant had 350,000 shares of
capital stock outstanding, all of which were held by Sears,
Roebuck and Co.
Registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form with a reduced disclosure format.
SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 28, 1997
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Position
June 28, 1997 and June 29, 1996 (unaudited)
and December 28, 1996 (audited) 1
Statements of Income (unaudited)
Three and Six Months ended June 28, 1997
and June 29, 1996 2
Statements of Cash Flows (unaudited)
Six Months ended June 28, 1997
and June 29, 1996 3
Notes to Financial Statements (unaudited) 4,5
Independent Accountants' Report 6
Item 2. Analysis of Results of Operations 7
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 8
SEARS ROEBUCK ACCEPTANCE CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(unaudited)
millions June 28, June 29, Dec. 28,
1997 1996 1996
Assets
Notes of Sears $ 12,910 $ 9,806 $ 11,609
Receivable balances
purchased from Sears 82 93 76
Cash and invested cash 12 283 228
Other assets 101 20 91
Total assets $ 13,105 $ 10,202 $ 12,004
Liabilities
Commercial paper (net of
unamortized discount of
$13, $19 and $18) $ 3,298 $ 4,109 $ 3,324
Agreements with bank
trust departments 69 92 82
Intermediate-term loans 715 895 715
Medium-term notes 5,302 2,882 4,834
Discrete underwritten debt 1,902 748 1,298
Accrued interest and
other liabilities 76 40 64
Total liabilities 11,362 8,766 10,317
Stockholder's Equity
Capital stock, par value $100 per share:
500,000 shares authorized
350,000 shares issued and
outstanding 35 35 35
Capital in excess of par value 350 150 350
Retained income 1,358 1,251 1,302
Total stockholder's equity 1,743 1,436 1,687
Total liabilities and
stockholder's equity $ 13,105 $ 10,202 $ 12,004
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
millions Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
Revenues
Earnings on notes of Sears $ 222 $ 156 $ 427 $ 301
Earnings on receivable
balances purchased
from Sears 2 2 4 3
Earnings on invested cash 1 2 2 5
Total revenues 225 160 433 309
Expenses
Interest and amortization of
debt discount and expense 179 128 345 245
Operating expenses - - 1 1
Total expenses 179 128 346 246
Income before income taxes 46 32 87 63
Income taxes 17 11 31 22
Net Income $ 29 $ 21 $ 56 $ 41
Ratio of earnings
to fixed charges 1.25 1.25 1.25 1.26
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
millions Six Months Ended
June 28, June 29,
1997 1996
Cash flows from operating activities:
Net income $ 56 $ 41
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 4 1
Increase in other assets (3) -
Increase in other liabilities 12 16
Net cash provided by operating activities 69 58
Cash flows from investing activities:
Increase in notes of Sears (1,301) (1,409)
Increase in receivable balances
purchased from Sears (6) (12)
Net cash used in
investing activities (1,307) (1,421)
Cash flows from financing activities:
Decrease in commercial paper,
primarily 90 days or less (26) (342)
Decrease in agreements with
bank trust departments (13) (45)
Proceeds from issuance of long-term debt 1,253 1,765
Payments for redemption of long-term debt (192) (25)
Proceeds from capital infusion - 150
Net cash provided by financing activities 1,022 1,503
(Decrease) increase in cash and
invested cash (216) 140
Cash and invested cash at beginning
of period 228 143
Cash and invested cash at end of period $ 12 $ 283
See notes to financial statements
SEARS ROEBUCK ACCEPTANCE CORP.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
The unaudited interim financial statements of Sears Roebuck
Acceptance Corp. ("SRAC"), a wholly-owned subsidiary of Sears,
Roebuck and Co. ("Sears"), reflect all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the
interim periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The significant accounting policies used in the presentation of
these financial statements are consistent with the summary of
significant accounting policies set forth in SRAC's Annual Report
on Form 10-K for the year ended December 28, 1996, and these
financial statements should be read in conjunction with the
financial statements and notes found therein. The results of
operations for the interim periods should not be considered
indicative of the results to be expected for the full year.
2. Credit Facilities as of June 28, 1997
SRAC continued to provide support for 100% of its commercial
paper outstanding through its investment portfolio and a
syndicated $5.0 billion credit facility with a five year term
through April 2002.
3. Intermediate-term loans
At the end of the second quarter of 1997, $715 million in
intermediate-term loans were outstanding compared to $895 million
at the end of the second quarter of 1996. The rates on these
intermediate-term loans are variable rate, indexed to LIBOR with
a set basis point spread. The average weighted rate on the
intermediate-term loans in the first six months of 1997 was 5.97%
compared to 5.83% in the comparable 1996 period.
As of June 28, 1997, the amounts of intermediate-term loans
maturing in the next five years were as follows:
millions 1997 1998 1999 2000 2001
Total $245 $25 $375 $25 $45
4. Medium-term notes
SRAC issued $659 million of medium-term notes in the second
quarter of 1997 with either a floating rate indexed to LIBOR or a
fixed rate. The average weighted rate on medium-term notes in
the first six months of 1997 was 6.46% compared to 6.13% in 1996.
Medium-term notes outstanding have terms ranging from one to ten years.
As of June 28, 1997, the amounts of medium-term notes maturing in the
next five years were as follows:
millions 1997 1998 1999 2000 2001
Total $275 $585 $560 $723 $1,760
5. Discrete underwritten debt
During the first six months of 1997, SRAC issued $600 million in
discrete unsecured underwritten debt. As of June 28, 1997, SRAC had
seven discrete underwritten issues outstanding in an aggregate principal
amount of $1,900 million and original terms ranging from five to ten years.
Discrete underwritten debt pays interest annually or semiannually.
As of June 28, 1997, SRAC's discrete underwritten debt is comprised
of the following:
millions
6.50% Notes, due 2000 $250
6.625% Notes, due 2002 $300
6.95% Notes, due 2002 $300
6.90% Notes, due 2003 $250
6.75% Notes, due 2005 $250
6.125% Notes, due 2006 $250
6.70% Notes, due 2006 $300
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholder of
Sears Roebuck Acceptance Corp.:
We have reviewed the accompanying Statements of Financial
Position of Sears Roebuck Acceptance Corp. (a wholly-owned
subsidiary of Sears, Roebuck and Co.) as of June 28, 1997 and
June 29, 1996, and the related Statements of Income for the three-month
and six-month periods then ended and Cash Flows for the six-month periods
then ended. These financial statements are the responsibility of the
Corporation's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the Statement of Financial Position of Sears
Roebuck Acceptance Corp. as of December 28, 1996, and the related
Statements of Income, Stockholder's Equity and Cash Flows for the
year then ended (not presented herein); and in our report dated
January 22, 1997, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth
in the accompanying Statement of Financial Position as of
December 28, 1996 is fairly stated, in all material respects, in
relation to the Statement of Financial Position from which it has
been derived.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
July 10, 1997
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS
During the second quarter of 1997, Sears Roebuck Acceptance
Corp.'s ("SRAC") revenues increased 41% to $225 million from
$160 million in the comparable 1996 period. For the first six
months of 1997, revenues were up 40% to $433 million from
$309 million for the comparable 1996 period, SRAC's income is
derived primarily from the earnings on its investment in the
notes and receivable balances of Sears, Roebuck and Co. ("Sears")
and invested cash. The increase in revenue is attributable to SRAC's
higher level of average earning assets due to Sears continued
funding needs related to its business growth. SRAC's average assets
were $2.6 billion higher in the second quarter and
$3.4 billion higher in the first half of 1997 when compared to the
same periods in 1996.
SRAC's interest and related expenses increased 40% to
$179 million from $128 million and 41% to $345 million from
$245 million for the second quarter and first half of 1997,
respectively, as compared to the comparable 1996 periods.
Interest and related expenses increased due to increases in
average outstanding long-term debt. SRAC's cost of short-term
funds averaged 5.59% in the second quarter and 5.48% in the first
six months of 1997 compared to 5.42% and 5.50% for the same
periods in 1996. SRAC's short-term borrowings averaged
$3.9 billion for both the second quarter and first half of 1997,
compared to the respective 1996 levels of $4.7 billion and $4.8 billion.
SRAC's average long-term debt of $7.5 billion in the second
quarter of 1997 and $7.2 billion in the first six months of 1997
reflect increases of 83% and 100%, respectively, compared with
$4.1 billion and $3.6 billion for the same periods in 1996.
In early July, SRAC issued a $500 million ten-year global
discrete underwritten debt offering with an annual 7.00% coupon.
Also in July 1997, in anticipation of future borrowing requirements,
SRAC filed an additional registration statement with the Securities
and Exchange Commission for issuance of $4.5 billion in debt securities.
SRAC's net income of $29 million and $56 million for the second
quarter and first half of 1997 reflects increases of 38% and 37%
from the comparable 1996 period amounts of $21 million and $41 million.
SRAC's ratio of earnings to fixed charges for both the second quarter
and first half of 1997 was 1.25 compared to 1.25 and 1.26 for the
comparable 1996 periods.
SEARS ROEBUCK ACCEPTANCE CORP.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed in the "Exhibit
Index" are filed as part of this
report.
(b) Reports on Form 8-K:
Registrant filed a current report on
Form 8-K dated April 28, 1997
[Item 5].
SEARS ROEBUCK ACCEPTANCE CORP.
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934,
the Registrant has duly caused this
report to be signed on its behalf by
the undersigned thereunto duly
authorized.
SEARS ROEBUCK ACCEPTANCE CORP.
(Registrant)
By: /s/ George F. Slook
-------------------
George F. Slook
Vice President,
and Assistant Secretary
(authorized officer of
Registrant)
July 25, 1997
EXHIBIT INDEX
12 - Calculation of ratio of earnings to fixed charges
15 - Acknowledgment of awareness from Deloitte & Touche LLP,
dated July 23, 1997, concerning unaudited financial
information.
27 - Financial Data Schedule
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 28, June 29,
millions 1997 1996
INCOME BEFORE INCOME TAXES $ 87 $ 63
PLUS FIXED CHARGES:
Interest 342 243
Amortization of debt
discount and expense 3 2
Total fixed charges 345 245
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 432 $ 308
RATIO OF EARNINGS TO FIXED
CHARGES 1.25 1.26
EXHIBIT 15
Sears Roebuck Acceptance Corp.
Greenville, Delaware
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of the
unaudited interim financial information of Sears Roebuck
Acceptance Corp. for the periods ended March 29, 1997 and
March 30, 1996 and June 28, 1997 and June 29, 1996, as indicated
in our reports dated April 10, 1997 and July 10, 1997; because
we did not perform an audit, we expressed no opinion on that information.
We are aware that our reports referred to above, which are
included in your Quarterly Reports on Form 10-Q for the quarters
ended March 29, 1997 and June 28, 1997, are incorporated by
reference in Registration Statement No.333-9817 on Form S-3.
We are also aware that the aforementioned reports, pursuant to
Rule 436(c) under the Securities Act of 1933, are not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
July 23, 1997
