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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 SEPTEMBER 27, 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 September 27, 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
September 27, 1997
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Position
September 27, 1997 and September 28, 1996 (unaudited)
and December 28, 1996 (audited) 1
Statements of Income (unaudited)
Three and Nine Months ended September 27, 1997
and September 28, 1996 2
Statements of Cash Flows (unaudited)
Nine Months ended September 27, 1997
and September 28, 1996 3
Notes to Financial Statements (unaudited) 4,5
Independent Accountants' Report 6
Item 2. Analysis of Results of Operations 7,8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
SEARS ROEBUCK ACCEPTANCE CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(unaudited)
millions Sept. 27, Sept. 28, Dec. 28,
1997 1996 1996
Assets
Notes of Sears $ 14,162 $ 11,677 $ 11,609
Receivable balances
purchased from Sears 85 96 76
Cash and invested cash 15 342 228
Other assets 122 85 91
Total assets $ 14,384 $ 12,200 $ 12,004
Liabilities
Commercial paper (net of
unamortized discount of
$22, $23 and $18) $ 4,031 $ 4,660 $ 3,324
Agreements with bank
trust departments - 71 82
Intermediate-term loans 300 945 715
Medium-term notes 5,358 3,773 4,834
Discrete underwritten debt 2,550 998 1,298
Accrued interest and
other liabilities 171 93 64
Total liabilities 12,410 10,540 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 550 350 350
Retained income 1,389 1,275 1,302
Total stockholder's equity 1,974 1,660 1,687
Total liabilities and
stockholder's equity $ 14,384 $ 12,200 $ 12,004
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
millions Three Months Ended Nine Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
Revenues
Earnings on notes of Sears $ 232 $ 172 $ 659 $ 473
Earnings on receivable
balances purchased
from Sears 1 2 5 5
Earnings on invested cash 1 3 3 8
Total revenues 234 177 667 486
Expenses
Interest and amortization of
debt discount and expense 187 140 532 385
Operating expenses - - 1 1
Total expenses 187 140 533 386
Income before income taxes 47 37 134 100
Income taxes 16 13 47 35
Net Income $ 31 $ 24 $ 87 $ 65
Ratio of earnings
to fixed charges 1.25 1.26 1.25 1.26
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
millions Nine Months Ended
Sept. 27, Sept. 28,
1997 1996
Cash flows from operating activities:
Net income $ 87 $ 65
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 5 3
Increase in other assets (19) (59)
Increase in other liabilities 107 69
Net cash provided by operating activities 180 78
Cash flows from investing activities:
Increase in notes of Sears (2,553) (3,280)
Increase in receivable balances
purchased from Sears (9) (15)
Net cash used in
investing activities (2,562) (3,295)
Cash flows from financing activities:
Increase in commercial paper,
primarily 90 days or less 707 209
Decrease in agreements with
bank trust departments (82) (66)
Proceeds from issuance of long-term debt 2,111 2,948
Payments for redemption of long-term debt (767) (25)
Proceeds from capital infusion 200 350
Net cash provided by financing activities 2,169 3,416
Net (decrease) increase in cash and
invested cash (213) 199
Cash and invested cash at beginning
of period 228 143
Cash and invested cash at end of period $ 15 $ 342
See notes to financial statements
3
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 September 27, 1997
Expiration Date (millions)
April 2005 $5,000
July 1998 40
Total credit facilities $5,040
3. Intermediate-term loans
At the end of the third quarter of 1997, $300 million in intermediate-term
loans were outstanding compared to $945 million at the end of the
comparable quarter of 1996. The rates on these intermediate-term loans
are variable, indexed to LIBOR with a set basis point spread. The average
weighted rate on the intermediate-term loans in the first nine months of
1997 was 5.97% compared to 5.83% in the comparable 1996 period.
As of September 27, 1997, intermediate-term loans maturing in the next
five years were as follows:
millions 1997 1998 1999 2000 2001
Total $225 $25 $50 $- $-
4
4. Medium-term notes
SRAC issued $217 million of medium-term notes in the third 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 nine months of
1997 was 6.48% compared to 6.21% in 1996. Medium-term notes outstanding
have terms ranging from one to ten years.
As of September 27, 1997, the amounts of medium-term notes maturing in
the next five years were as follows:
millions 1997 1998 1999 2000 2001
Total $115 $585 $560 $723 $1,760
5. Discrete underwritten debt
During the first nine months of 1997, SRAC issued
$1,250 million in discrete unsecured underwritten debt.
As of September 27, 1997, SRAC had nine discrete underwritten
issues outstanding in an aggregate principal amount of
$2,550 million and original terms ranging from five to
ten years. Discrete underwritten debt pays interest annually
or semiannually.
As of September 27, 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
6.70% Notes, due 2007 $150
7.00% Notes, due 2007 $500
$2,550
5
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 September 27, 1997
and September 28, 1996, and the related Statements of Income for
the three-month and nine-month periods then ended and Cash
Flows for the nine-month period 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
October 10, 1997
6
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS
During the third quarter of 1997, Sears Roebuck Acceptance
Corp.'s ("SRAC") revenues increased 32% to $234 million from
$177 million in the comparable 1996 period. For the first nine months
of 1997, revenues were up 37% to $667 million from $486 million for
the comparable 1996 period, SRAC's income is derived primarily from
the earnings on its investment in the notes of Sears, Roebuck and Co.
("Sears"). The increase in revenue is attributable to SRAC's higher
level of average earning assets due to Sears continued funding needs.
SRAC's average assets were $2.8 billion higher in the third quarter
and $3.0 billion higher in the first nine months of 1997 when compared
to the same periods in 1996.
SRAC's interest and related expenses increased 34% to $187 million
from $140 million and 38% to $532 million from $385 million for the
third quarter and first nine months 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 5.65% in the third quarter and 5.53% in the
first nine months of 1997 compared to 5.51% and 5.50% for the same
periods in 1996. SRAC's short-term borrowings averaged $3.4 billion
and $3.7 billion for the third quarter and first nine months of 1997,
compared to the respective 1996 levels of $4.3 billion and $4.6 billion.
SRAC's average long-term debt of $8.3 billion in the third quarter of
1997 and $7.6 billion in the first nine months of 1997 reflect increases
of 66% and 85%, respectively, compared with $5.0 billion and $4.1 billion
for the same periods in 1996.
SRAC's net income of $31 million and $87 million for the third quarter
and first nine months of 1997 reflects increases of 29% and 34% from the
comparable 1996 period amounts of $24 million and $65 million. SRAC's
ratio of earnings to fixed charges for both the third quarter and first
nine months of 1997 was 1.25 compared to 1.26 for both the comparable
1996 periods.
At September 27, 1997, SRAC had backup credit facilities
totaling $5.0 billion. As of July 1997, Sears and SRAC renewed their
joint $40 million credit facility with 49 minority-owned banks expiring
in July 1998.
7
In September 1997, in anticipation of future borrowings,
SRAC received a captial infusion of $200 million from Sears. The
capital infusion provides additional strength to SRAC's balance sheet.
On September 30, SRAC issued a $250 million thirty-year, discrete
underwritten debt offering with a 7.50% coupon, callable after ten years.
Also, in October 1997, SRAC issued a $300 million twenty-year discrete
underwritten debt offering with a 6.875% coupon.
8
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 July 9, 1997
[Items 5 and 7].
9
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)
October 31 1997
10
EXHIBIT INDEX
12 - Calculation of ratio of earnings to fixed charges
15 - Acknowledgment of awareness from Deloitte & Touche LLP,
dated October 10, 1997, concerning unaudited financial
information.
27 - Financial Data Schedule
11
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
Sept. 27, Sept. 28,
millions 1997 1996
INCOME BEFORE INCOME TAXES $ 134 $ 100
PLUS FIXED CHARGES:
Interest 527 382
Amortization of debt
discount and expense 5 3
Total fixed charges 532 385
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 666 $ 485
RATIO OF EARNINGS TO FIXED
CHARGES 1.25 1.26
12
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, June 28, 1997 and June 29, 1996, and
September 27, 1997 and September 28, 1996 as indicated in our
reports dated April 10, 1997, July 10, 1997 and October 10, 1997,
respectively; 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, June 28, 1997, and September 27, 1997, are
incorporated by reference in Registration Statement No.333-30879
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.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
October 10, 1997
13
