SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
6 3/4 Notes due September 15, 2005 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 .
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 28, 1997, the Registrant had 350,000 shares of capital stock
outstanding, all of which was held by Sears, Roebuck and Co.
Registrant meets the conditions set forth in General Instruction (I)(1)(a)
and (b) of Form 10-K and is therefore filing this report with a reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
None
PART I
Item 1. Business.
Sears Roebuck Acceptance Corp. ("SRAC") is a wholly-owned
finance subsidiary of Sears, Roebuck and Co. ("Sears"). To meet certain
capital requirements of its businesses, Sears borrows on a short-term basis
through the issuance of notes and, from time to time, the sale of
commercial customer receivables balances to SRAC. SRAC obtains funds
through the issuance of short-term and long-term debt. Short-term
borrowings include commercial paper and agreements with bank trust
departments. Long-term debt includes intermediate-term loans, medium-term
notes and discrete underwritten debt.
SRAC's income is derived primarily from the earnings on its
investment in the notes and receivable balances of Sears. Under a letter
agreement between SRAC and Sears, the interest rate on Sears notes is
calculated so that SRAC maintains an earnings to fixed charges ratio of at
least 1.25. The yield on the investment in Sears notes is related to
SRAC's borrowing costs and, as a result, SRAC's earnings fluctuate in
response to movements in interest rates and changes in Sears borrowing
requirements.
SRAC's commercial paper ratings provide for first tier
eligibility under the Securities and Exchange Commission's regulation 2a-7.
SRAC's commercial paper ratings are P-1 from Moody's, F-1 from Fitch, D-1
from Duff and Phelps, and A-2 from Standard & Poor's.
Long-term ratings advanced to a solid single A level in 1996 as
Standard & Poor's upgraded its rating from BBB to A-. In addition, SRAC has
a long-term rating of A2 from Moody's, A from Fitch, and A from Duff and
Phelps.
Two shelf registration statements totaling $6 billion became
effective with the Securities and Exchange Commission for the issuance of
public term debt securities for a total of $9 billion since SRAC returned
to the public term debt markets in mid-1995. As anticipated, this
expansion into term debt securities has allowed SRAC to leverage its direct
investor relationships developed in the commercial paper market and to
benefit from direct issuance opportunities.
In early 1997, SRAC completed its first discrete unsecured
underwritten debt offering in Europe. The $300 million five-year offering
pays a coupon of 6.625% annually. This introduction of the SRAC name in
Europe is intended to establish a foundation that will allow SRAC to issue
future debt systematically overseas as a complement to its domestic funding
strategy.
SRAC and Sears have entered into agreements for the benefit of
certain debtholders of SRAC under which Sears will, for so long as required
by the applicable indentures, pay SRAC such amounts that, when added to
other available earnings, will be sufficient for SRAC to maintain a fixed
charge ratio of no less than 1.10 and will continue to own all of the
outstanding voting stock of SRAC.
In June of 1996, SRAC amended its $4.7 billion syndicated credit
agreement originally maturing in 2000, increasing the amount to
$5.0 billion and extending the maturity to 2001. This facility is composed
of 49 valued relationship banks. At year-end, 96% of the aggregate
commitments of the credit facility were extended by banks with long-term
debt ratings of at least A2 by Moody's or A from Standard & Poor's. SRAC
continued to provide support for 100% of commercial paper outstanding
through its credit lines and highly liquid investment portfolio.
Pursuant to the syndicated credit agreements between SRAC and
various banks, the letter agreement between SRAC and Sears concerning
SRAC's investment in Sears notes may not be amended, waived, terminated or
modified (except that SRAC's fixed charge coverage ratio may be reduced to
1.15) without the approval of such banks.
SRAC received two capital infusions from Sears totaling
$350 million during 1996. The capital infusions provide additional
strength to SRAC's balance sheet and allow SRAC to issue additional debt
given current covenant restrictions.
SRAC continues to be a strongly capitalized finance company,
with an equity position of $1.7 billion and a debt-to-equity ratio of 6.1:1
at the end of 1996 compared to 5.9:1 at the end of 1995.
At February 28, 1997, SRAC had 10 employees.
Item 2. Properties.
None.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for SRAC's common
stock. As of February 28, 1997, Sears owned all outstanding shares of
SRAC's common stock. SRAC does not intend to pay any cash or other
dividends on its common stock in the foreseeable future.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Financial Condition
SRAC's investment in Sears notes increased to $11.6 billion at
year-end 1996, from $8.4 billion at the end of 1995, due to increased
funding requirements of Sears. Short-term borrowings ended 1996 at
$3.4 billion, a $1.2 billion reduction from last year. However, total debt
outstanding increased in 1996 to $10.3 billion from $7.4 billion. The low
levels of long-term interest rates allowed SRAC to satisfy increased
borrowing needs by extending maturities through the issuance of
cost-efficient, fixed rate unsecured term debt.
SRAC had investments in highly liquid short-term securities of
$228 million at the end of 1996, as part of its liability management
program.
Results of Operations
Under its agreement with Sears, SRAC's earnings on the notes of
Sears provide a ratio of earnings to fixed charges of at least 1.25.
SRAC's total revenues of $689 million for 1996 increased 35% from
$510 million in 1995, a result of the higher balance of earning assets
during the year.
In 1996, SRAC's average cost of short-term funds decreased 56
basis points to 5.50%. Average outstanding short-term debt of
$4,485 million decreased $632 million from the 1995 level. The average
cost of long-term funds during the year decreased 5 basis points to 6.26%
due to the low level of interest rates. Average outstanding long-term debt
of
$4,682 million increased by 287% from $1,211 million in 1995.
The increase in total outstanding debt resulted in a $141 million,
or 35%, increase in interest and related expenses to $546 million in 1996.
SRAC's 1996 net income increased 37% to $92 million in 1996 from
$67 million in 1995.
The financial information appearing in this annual report on
Form 10-K is presented in historical dollars which do not reflect the
decline in purchasing power that results from inflation. As is the case
for most financial companies, substantially all of SRAC's assets and
liabilities are monetary in nature. Interest rates on SRAC's combined
investment in Sears notes (set to provide a fixed charge coverage of at
least 1.25 times) and customer receivable balances help insulate SRAC from
the effects of inflation-based interest rate increases.
Item 8. Financial Statements and Supplementary Data.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
millions 1996 1995 1994
------- ------- -------
Revenues
- --------
Earnings on notes of Sears $672 $491 $258
Earnings on receivable balances
purchased from Sears 7 7 6
Earnings on invested cash 10 12 19
------- ------- -------
Total revenues 689 510 283
Expenses
- --------
Interest and amortization of
debt discount and expense 546 405 219
Operating expenses 2 2 2
------- ------- -------
Total expenses 548 407 221
------- ------- -------
Income before income taxes 141 103 62
Income taxes 49 36 22
------- ------- -------
Net income $92 $67 $40
------- ------- -------
Ratio of earnings to fixed charges 1.26 1.26 1.29
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
millions 1996 1995
--------- ---------
Assets
- ------
Notes of Sears $11,609 $8,397
Commercial customer receivable
balances purchased from Sears 76 81
Cash and invested cash 228 143
Other assets 91 14
--------- ---------
Total assets $12,004 $8,635
--------- ---------
Liabilities
- -----------
Commercial paper (net of unamortized
discount of $18 and $24) $3,324 $4,451
Agreements with bank trust departments 82 137
Intermediate-term loans 715 895
Medium-term notes 4,834 1,384
Discrete underwritten debt 1,298 499
Accrued interest and other liabilities 64 24
--------- ---------
Total liabilities 10,317 7,390
--------- ---------
Commitments
Stockholder's Equity
- --------------------
Capital stock, par value $100 per share
500,000 shares authorized
350,000 shares issued and outstanding 35 35
Capital in excess of par value 350 -
Retained income 1,302 1,210
--------- ---------
Total stockholder's equity 1,687 1,245
--------- ---------
Total liabilities and
stockholder's equity $12,004 $8,635
--------- ---------
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
millions 1996 1995 1994
-------- -------- --------
Capital stock $35 $35 $35
-------- -------- --------
Capital in excess of par value:
Beginning of year - - -
Capital infusions 350 - -
-------- -------- --------
End of year $350 $- $-
-------- -------- --------
Retained income:
Beginning of year $1,210 $1,143 $1,103
Net income 92 67 40
-------- -------- --------
End of year $1,302 $1,210 $1,143
-------- -------- --------
Total stockholder's equity $1,687 $1,245 $1,178
-------- -------- --------
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENT OF CASH FLOWS
millions 1996 1995 1994
-------- -------- --------
Cash Flows From Operating Activities
- ------------------------------------
Net income $92 $67 $40
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
other noncash items 4 1 21
Decrease in deferred federal income taxes - - (3)
(Increase) decrease in other assets (60) 3 (2)
Increase (decrease) in other liabilities 40 16 (3)
-------- -------- --------
Net cash provided by
operating activities 76 87 53
Cash Flows From Investing Activities
- ------------------------------------
Increase in notes of Sears (3,212) (1,554) (3,439)
Decrease in receivable
balances purchased from Sears 5 - 7
-------- -------- --------
Net cash used in
investing activities (3,207) (1,554) (3,432)
Cash Flows From Financing Activities
- ------------------------------------
(Decrease) increase in commercial paper,
primarily 90 days or less (1,127) (462) 2,438
(Decrease) increase in agreements with bank
trust departments (55) 50 (53)
Payments for redemption of zero coupon notes - - (400)
Proceeds from issuance of long-term debt 4,323 1,920 845
Payments for redemption of long-term debt (275) - -
Proceeds from capital infusion 350 - -
-------- -------- --------
Net cash provided by
financing activities 3,216 1,508 2,830
-------- -------- --------
Net increase (decrease)
in cash and invested cash 85 41 (549)
Cash and invested cash, beginning of year 143 102 651
-------- -------- --------
Cash and invested cash, end of year $228 $143 $102
-------- -------- --------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year
Interest paid $510 $362 $231
Income taxes 48 37 22
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sears Roebuck Acceptance Corp. ("SRAC"), a wholly-owned subsidiary of Sears,
Roebuck and Co. ("Sears"), is principally engaged in the business of
acquiring short-term notes of Sears and to a lesser extent purchasing
outstanding commercial customer receivable balances ("CCRB") from Sears,
using proceeds from its short-term borrowing programs (primarily the direct
placement of commercial paper) and issuance of intermediate-term loans,
medium-term notes and discrete underwritten debt.
Under a letter agreement between SRAC and Sears, the interest rate on the
Sears notes is presently calculated so that SRAC maintains an earnings to
fixed charge ratio of at least 1.25.
Cash and invested cash is defined to include all highly liquid investments
with maturities of three months or less. Commercial customer receivables
purchased from Sears are purchased at par and are interest-bearing.
Debt discount and issue expenses are amortized on a straight-line basis
over the terms of the related obligation.
The results of operations of SRAC are included in the consolidated federal
income tax return of Sears. Tax liabilities and benefits are allocated as
generated by SRAC, whether or not such benefits would be currently
available on a separate return basis.
Certain reclassifications have been made in the 1994 cash flow statement to
conform to current accounting classifications.
For 1996 and 1995, SRAC changed its fiscal year-end from December 31 to a
52 or 53 week year ending on the Saturday closest to December 31. Fiscal
year-ends were December 28, 1996 and December 30, 1995. SRAC changed its
fiscal year-end to align itself with the year-end of Sears.
2. FEDERAL INCOME TAXES
millions 1996 1995 1994
------- ------- -------
Current $49 $36 $25
Deferred - - (3)
------- ------- -------
Financial statement income tax provision $49 $36 $22
------- ------- -------
Effective income tax rates 35% 35% 35%
3. COMMERCIAL CUSTOMER RECEIVABLE BALANCES
SRAC has purchased commercial customer receivable balances ("CCRB") from
Sears. CCRB are purchased with recourse at par, with SRAC earning interest
on the receivables. CCRB are made up of credit accounts Sears has
established with merchants and contractors for bulk purchases from Sears.
The CCRB are predominately paid within 30 days.
Each month, SRAC purchases the balance increases in the CCRB accounts
attributable to additional credit sales and receives the collections
related to the previously purchased balances.
4. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
SRAC obtains funds through the direct placement of commercial paper (issued
in maturities of one to 270 days) and borrowings under agreements with bank
trust departments. Selected details of SRAC's borrowings are shown below.
Weighted interest rates are based on the actual number of days in the year
and borrowings net of unamortized discount.
millions 1996 1995
-------- --------
Commercial paper outstanding $3,342 $4,475
Less: Unamortized discount 18 24
-------- --------
Commercial paper outstanding (net) 3,324 4,451
Agreements with bank trust departments 82 137
-------- --------
Total short-term borrowings $3,406 $4,588
-------- --------
Average and Maximum Balances 1996 1995
------------------- -------------------
Maximum Maximum
millions Average (month-end) Average (month-end)
------------------- -------------------
Commercial paper $4,388 $5,139 $4,963 $5,777
Agreements with bank trust dept. 98 144 154 185
------------------- -------------------
Weighted Average Interest Rates 1996 1995
------------------- -------------------
Average Year-End Average Year-End
------------------- -------------------
Commercial paper 5.50% 5.58% 6.07% 5.89%
Agreements with bank trust dept. 5.51% 5.83% 6.01% 5.87%
------------------- -------------------
5. INTERMEDIATE-TERM LOANS
As of December 28, 1996, $715 million in intermediate-term loans were
outstanding with private institutions compared to $895 million at year-end
1995. The rates on most of these variable rate intermediate-term loans are
indexed to LIBOR with a set basis point spread. The average weighted rate
on the intermediate-term loans in 1996 was 5.82% compared to 6.23% in 1995.
As of December 28, 1996, intermediate-term loans maturing in the next five
years were as follows:
(millions)
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
$245 $25 $375 $25 $45
6. MEDIUM-TERM NOTES
Throughout 1996, SRAC issued $3,451 million of medium-term notes with
either a floating rate indexed to LIBOR or a fixed rate. As of
December 28, 1996, SRAC had $4,834 million of medium-term notes outstanding
with an average weighted interest rate of 6.41% and terms ranging from one
to ten years.
As of December 28, 1996, medium-term notes maturing in the next five years
were as follows:
(millions)
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
$467 $535 $560 $723 $1,760
7. DISCRETE UNDERWRITTEN DEBT
SRAC issued $800 million of discrete underwritten debt in 1996. As of
December 28, 1996, SRAC had five discrete underwritten notes outstanding in
an aggregate principal amount of $1,300 million and original terms ranging
from five to ten years. This domestic discrete underwritten debt pays
interest semiannually.
As of December 28, 1996, discrete underwritten debt is comprised of the
following:
(millions)
- -----------------------------------------------------
6.50% Notes, due 2000 $250
6.90% Notes, due 2003 $250
6.75% Notes, due 2005 $250
6.125% Notes, due 2006 $250
6.70% Notes, due 2006 $300
8. BACK-UP LIQUIDITY
SRAC continued to provide support for 100% of commercial paper outstanding
through its investment portfolio and a syndicated $5.0 billion credit
facility with a five year term through June 2001. SRAC's investment
portfolio fluctuated from zero to $720 million in 1996.
Commitment fees are paid on the unused portions of the above credit
facilities. The annualized fees at December 28, 1996 on these credit lines
were $4 million.
9. LETTERS OF CREDIT AND OTHER COMMITMENTS
In November 1996, SRAC became an additional Guarantor under an indenture
dated January 15, 1994 between Orchard Supply Hardware Corporation
("Orchard") and U.S. Trust Company of California. Under this indenture,
Orchard issued $100 million in principal amount of 9 3/8% Senior Notes due
2002.
SRAC issues import letters of credit to facilitate Sears purchase of goods
from foreign suppliers. At December 28, 1996, letters of credit totaling
$151 million were outstanding. SRAC has no liabilities with respect to
this program other than the obligation to pay drafts under the letters of
credit which, if not reimbursed by Sears on the day of the disbursement,
are automatically converted into demand borrowings by Sears from SRAC. To
date, all SRAC disbursements have been reimbursed on a same-day basis.
SRAC issues standby letters of credit on behalf of its affiliate, Western
Auto Supply Company ("Western Auto"), which are used by Western Auto to
secure its obligation to repurchase any defaulted account receivables sold
to a financial institution. At December 28, 1996, a $102 million standby
letter of credit was outstanding.
Under the terms of a 1986 agreement, Sears agreed to make all payments
required to be made by SRAC to Sears Overseas Finance N.V. ("SOFNV") in
accordance with certain loan agreements between SRAC and SOFNV. SRAC
remains liable to SOFNV for such loan agreements, which total
$389 million as of December 28, 1996. The terms of the loan agreements with
SOFNV were negotiated between related parties; accordingly, the fair value
of these instruments is not provided.
10. FINANCIAL INSTRUMENTS
In the normal course of business, SRAC invests in certain Notes of Sears
and purchases commercial customer receivable balances from Sears. These
transactions are negotiated between related parties; accordingly, the fair
value of these instruments is not provided.
SRAC's other financial instruments (both assets and liabilities), with the
exception of medium-term notes and discrete underwritten debt, are
short-term or variable in nature and as such, their carrying value
approximates fair value. Medium-term notes and discrete underwritten debt
are valued based on quoted market prices when available or discounted cash
flows, using interest rates currently available to SRAC on similar
borrowings. The fair value of these financial instruments is as follows:
- ---------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- ---------------------------------------------------------------------------
Medium-term notes $ 4,834 $ 4,884 $ 1,384 $ 1,414
Discrete underwritten debt 1,298 1,277 499 517
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996 1995 1996 1995 1996 1995 1996 1995
(millions) ------------- ------------- ------------ -------------
Operating Results
Combined earnings from
Sears notes and CCRB $146 $101 $158 $123 $174 $129 $201 $146
Total Revenues 149 106 160 125 177 131 203 148
Interest & related
expenses 117 84 128 99 140 103 161 117
Total expenses 118 85 128 100 140 104 162 118
Income before
income taxes 31 21 32 25 37 27 41 30
Net income 20 14 21 16 24 18 27 19
Ratio of earnings to
fixed charges 1.26 1.25 1.25 1.25 1.26 1.26 1.26 1.26
(billions)
Averages
Earning assets* $9.3 $6.6 $10.2 $7.5 $10.8 $7.9 $12.3 $9.0
Short-term debt 4.8 4.6 4.7 5.3 4.3 5.2 4.5 5.4
Cost of
short-term debt 5.57% 6.14% 6.25% 6.25% 5.51% 6.00% 5.50% 5.93%
*Notes and receivable balances of Sears and invested cash.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Not applicable.
Item 11. Executive Compensation.
Not applicable.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. An "Index to Financial Statements" has been filed as a part
of this report on page S-1 hereof.
2. No financial statement schedules are included herein
because they are not required or because the information is
contained in the financial statements and notes thereto, as
noted in the "Index to Financial Statements" filed as part
of this report.
3. An "Exhibit Index" has been filed as part of this report
beginning on page E-1 hereof.
(b) Reports on Form 8-K:
A current report on Form 8-K dated November 19, 1996
was filed with the Securities and Exchange Commission
on November 27, 1996 [Items 5 and 7].
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
\S\ Stephen D. Carp
By Stephen D. Carp*
Vice President, Finance
and Assistant Secretary
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
Keith E. Trost* Director and President )
(Principal Executive )
Officer) )
)
)
Stephen D. Carp* Vice President, Finance ) March 26, 1997
and Assistant Secretary )
(Principal Financial and )
Accounting Officer) )
)
)
James A. Blanda* Director )
)
)
James D. Constantine* Director )
)
)
Alan J. Lacy* Director )
)
)
Alice M. Peterson* Director )
)
)
Larry R. Raymond* Director )
)
)
George F. Slook* Director )
*By \s\ Stephen D. Carp Individually and as Attorney-in-Fact
SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
STATEMENTS OF INCOME 5
STATEMENTS OF FINANCIAL POSITION 6
STATEMENTS OF STOCKHOLDER'S EQUITY 7
STATEMENTS OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9-14
INDEPENDENT AUDITORS' REPORT S-2
S-1
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors
of Sears Roebuck Acceptance Corp.:
We have audited the accompanying Statements of Financial Position of Sears
Roebuck Acceptance Corp. (a wholly-owned subsidiary of Sears, Roebuck and Co.)
as of December 28, 1996 and December 30, 1995, and the related Statements of
Income, Stockholder's Equity, and Cash Flows for each of the three years in the
period ended December 28, 1996. These financial statements are the
responsibility of Sears Roebuck Acceptance Corp.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of Sears Roebuck Acceptance Corp. as of
December 28, 1996 and December 30, 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 28,
1996 in conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 22, 1997
S-2
EXHIBIT INDEX
3(a) Certificate of Incorporation of the Registrant,
as in effect at November 13, 1987 [Incorporated
by reference to Exhibit 28(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1987*].
3(b) By-laws of the Registrant, as in effect at February 6,
1996 [Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the year ended
December 30, 1995*].
4(a) $5,000,000,000 Credit Agreement dated
as of June 28, 1996 among the Registrant, the Banks listed
on the signature pages thereof, the Agent, the Senior
Managing Agent, the Managing Agents, Co-Arrangers, Co-Agents
and Lead Managers referred to therein [Incorporated by
reference to Exhibit 4 to the Registrant's Current Report on
Form 8-K dated June 28, 1996*].
4(b) Form of Registrant's Investment Note Agreement [Incorporated
by reference to Exhibit 4(c) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991*].
4(c) The Registrant hereby agrees to furnish the
Commission, upon request, with each instrument
defining the rights of holders of long-term debt
of the Registrant with respect to which the total
amount of securities authorized does not exceed
10% of the total assets of the Registrant.
4(d) Form of 6.90% Note [Incorporated by reference to Exhibit 4 to
the Registrant's Current Report on Form 8-K dated
August 2, 1996*].
4(e) Form of 6 1/2% Note [Incorporated by reference to Exhibit 4(a)
to the Registrant's Current Report on Form 8-K dated
June 8, 1995*].
4(f) Form of Fixed-Rate Medium-Term Note Series I [Incorporated by
reference to Exhibit 4(b) to the Registrant's Current Report on
Form 8-K dated June 8, 1995*].
4(g) Form of Floating Rate Medium-Term Note Series I [Incorporated
by reference to Exhibit 4(c) to the Registrant's Current Report
on Form 8-K dated June 8, 1995*].
4(h) Form of 6 3/4% Note [Incorporated by reference to Exhibit 4(d)
to the Registrant's Current Report on Form 8-K
dated June 8, 1995*].
- ----------------------------------
* Sec File No. 1-4040
E-1
EXHIBIT INDEX (cont'd)
4(i) Fixed Charge Coverage and Ownership Agreement dated
May 15, 1995 between Sears, Roebuck and Co. and the
Registrant [Incorporated by reference to Exhibit 4(e)
to the Registrant's Current Report on Form 8-K
dated June 8, 1995*].
4(j) Form of 6.70% Note [Incorporated by reference to Exhibit 4
to the Registrant's Current Report on Form 8-K
dated November 19, 1996*].
4(k) Form of 6 1/8% Note [Incorporated by reference to Exhibit 4
to the Registrant's Current Report on Form 8-K
dated January 23, 1996*].
4(l) Form of Fixed-Rate Medium-Term Note Series II [Incorporated by
reference to Exhibit 4(a) to the Registrant's Current Report on
Form 8-K dated March 28, 1996*].
4(m) Form of Floating Rate Medium-Term Note Series II [Incorporated
by reference to Exhibit 4(b) to the Registrant's Current Report
on Form 8-K dated March 28, 1996*].
4(n) Form of Fixed-Rate Medium-Term Note Series III [Incorporated
by reference to Exhibit 4(a) to the Registrant's Current Report
on Form 8-K dated August 22, 1996*]
4(o) Form of Floating Rate Medium-Term Note Series III [Incorporated
by reference to Exhibit 4(b) to the Registrant's Current
Report on Form 8-K dated August 22, 1996*].
4(p) Indenture dated as of May 15, 1995 between the Registrant
and The Chase Manhattan Bank, NA [Incorporated by reference
to Exhibit 4(b) to Amendment No. 1 to Registration
Statement No. 33-64215].
4(q) Extension Agreement dated March 1, 1996, between Sears,
Roebuck and Co. and the Registrant [Incorporated
by reference to Exhibit 4(k) to the Registrant's
Annual Report on Form 10-K dated December 30, 1995*].
4(r) Extension Agreement dated August 22, 1996, between Sears,
Roebuck and Co. and the Registrant [Incorporated by reference
to Exhibit 4(c) to the Registrant's Current Report on Form 8-K
dated August 22, 1996*].
4(s) First Supplemental Indenture dated as of November 27, 1996 to
the Indenture dated as of January 15, 1994 between Orchard
Supply Hardware Corporation, Orchard Supply Hardware Stores,
U.S. Trust Company of California, N.A. and the Registrant.**
__________________________
* SEC File No. 1-4040.
** Filed herewith.
E-2
EXHIBIT INDEX (cont'd)
10(a) Letter Agreement dated as of October 17, 1991
between Registrant and Sears, Roebuck and Co. [Incorporated by
reference to Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991*].
10(b) Letter Agreement dated as of September 2, 1986
between Registrant and Sears, Roebuck and Co. [Incorporated by
reference to Exhibit 10 to the Registrant's Current Report on
Form 8-K dated September 2, 1986*].
10(c)(1) Agreement to Issue Letters of Credit dated
December 3, 1985 between Sears, Roebuck and Co. and
Registrant [Incorporated by reference to Exhibit 10(i)(1) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987*].
10(c)(2) Letter Agreement dated March 11, 1986 amending
Agreement to Issue Letters of Credit dated
December 3, 1985 [Incorporated by reference to
Exhibit 10(i)(2) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1987*].
10(c)(3) Letter Agreement dated November 26, 1986 amending
Agreement to Issue Letters of Credit dated
December 3, 1985 [Incorporated by reference to
Exhibit 10(i)(3) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987*].
12 Calculation of ratio of earnings to fixed charges.**
23 Consent of Deloitte & Touche LLP.**
24 Power of attorney.**
__________________________
* SEC File No. 1-4040.
** Filed herewith.
E-3
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
1996 1995 1994
(dollars in millions)
INCOME BEFORE INCOME TAXES $141 $103 $ 62
PLUS FIXED CHARGES:
Interest 537 399 191
Amortization of debt
discount and expense 9 6 28
------- ------- -------
TOTAL FIXED CHARGES 546 405 219
------- ------- -------
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 687 $ 508 $ 281
======= ======= =======
RATIO OF EARNINGS TO FIXED
CHARGES 1.26 1.26 1.29
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No.333-9817 of Sears Roebuck Acceptance Corp. on Form S-3 of our
report dated January 22, 1997, appearing in this Annual Report on Form 10-K of
Sears Roebuck Acceptance Corp. for the year ended December 28, 1996.
\s\Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 228,000,000
<SECURITIES> 0
<RECEIVABLES> 11,685,000,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,004,000,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,004,000,000
<CURRENT-LIABILITIES> 3,470,000,000
<BONDS> 6,847,000,000
<COMMON> 35,000,000
0
0
<OTHER-SE> 1,652,000,000
<TOTAL-LIABILITY-AND-EQUITY> 12,004,000,000
<SALES> 0
<TOTAL-REVENUES> 689,000,000
<CGS> 0
<TOTAL-COSTS> 548,000,000
<OTHER-EXPENSES> 2,000,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546,000,000
<INCOME-PRETAX> 141,000,000
<INCOME-TAX> 49,000,000
<INCOME-CONTINUING> 92,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,000,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
POWEROFATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned,
being a director or officer, or both, of SEARS ROEBUCK
ACCEPTANCE CORP., a Delaware corporation (the "Corporation"),
does hereby constitute and appoint JAMES A. BLANDA, NANCY K.
BELLIS, STEPHEN D. CARP, GEORGE F. SLOOK and KEITH E. TROST,
with full power to each of them to act alone, as the true and
lawful attorneys and agents of the undersigned, with full power
of substitution and resubstitution to each of said attorneys, to
execute, file and deliver any and all instruments and to do any
and all acts and things which said attorneys and agents, or any
of them, deem advisable to enable the Corporation to comply with
the Securities Exchange Act of 1934, as amended, and any
requirements of the Securities and Exchange Commission in
respect thereto, relating to annual reports on Form 10-K,
including specifically, but without limitation of the general
authority hereby granted, the power and authority to sign his or
her name in the name and on behalf of the Corporation or as a
director or officer, or both, of the Corporation, as indicated
below opposite his or her signature, to annual reports on Form
10-K or any amendment or papers supplemental thereto; and each
of the undersigned does hereby fully ratify and confirm all that
said attorneys and agents, or any of them, or the substitute of
any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed
these presents, as of this 24th day of March, 1997.
NAME TITLE
/S/ Keith E. Trost Director and President
Keith E. Trost (Principal Executive Officer)
/S/ Stephen D. Carp VicePresident,Financeand
Stephen D. Carp Assistant Secretary
(Principal Financialand
Accounting Officer)
/S/ James A. Blanda Director
James A. Blanda
/S/ James D. Constantine Director
James D. Constantine
NAME TITLE
/S/ Alan J. Lacy Director
Alan J. Lacy
/S/ Alice M. Peterson Director
Alice M. Peterson
/S/ Larry R. Raymond Director
Larry R. Raymond
/S/ George F. Slook Director
George F. Slook
ORCHARD SUPPLY HARDWARE CORPORATION, the Company
and
ORCHARD SUPPLY HARDWARE STORES CORPORATION, the Guarantor
$100,000,000
9-3/8% Senior Notes due 2002
FIRST SUPPLEMENTAL INDENTURE
Dated as of November 27, 1996
Supplemental Indenture to Indenture Dated
As of January 15, 1994
U.S. Trust Company of California, N.A., as Trustee
FIRST SUPPLEMENTAL INDENTURE dated as of November 27, 1996
(this "Supplemental Indenture") between ORCHARD SUPPLY HARDWARE
CORPORATION, a Delaware corporation (the "Company"), ORCHARD
SUPPLY HARDWARE STORES CORPORATION, a Delaware corporation
("Orchard"), SEARS ROEBUCK ACCEPTANCE CORP., a Delaware
corporation ("SRAC"), and U.S. TRUST COMPANY OF CALIFORNIA,
N.A., a national banking association validly organized and
existing under the laws of the United States, as Trustee (the
"Trustee").
RECITALS
WHEREAS, the Company entered into an Indenture dated as of
January 15, 1994 with Orchard and the Trustee (the "Indenture")
pursuant to which the Company issued $100,000,000 in principal
amount of 9-3/8% Senior Notes due 2002 (the "Securities"); and
WHEREAS, Sections 9.01(1), 9.01(2) and 9.01(4) of the
Indenture provide that the Company, when authorized by a Board
Resolution, the Guarantor, when authorized by a Guarantor's
Board Resolution, and the Trustee, as applicable, may amend or
supplement the Indenture or the Securities without notice to or
consent of any Securityholder to cure any ambiguity, defect or
inconsistency, to evidence the succession of another Person to
the Guarantor, the Company or any Subsidiary of the Company and
the assumption by such successor of the covenants of the
Guarantor, the Company or such Subsidiary, as the case may be,
or to make any other change that does not have a material
adverse effect on the rights of any Securityholder; and
WHEREAS, the Company, Orchard and the Trustee desire to
supplement the
Indenture to include SRAC as an additional Guarantor under the
Indenture, to amend certain provisions of the Indenture and to
make certain other changes as set forth herein; and
WHEREAS, SRAC has agreed to guarantee the Securities pursuant
to Article Ten of the Indenture; and
WHEREAS, the entry into this Supplemental Indenture by the
parties hereto is in all respects authorized by the provisions
of the Indenture; and
WHEREAS, all things necessary to make this Supplemental
Indenture a valid agreement of the Company, in accordance with
its terms, have been done.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
Intending to be legally bound hereby, the parties agree for
the benefit of each of the parties hereto and for the equal and
ratable benefit of the Holders of the Securities except as
otherwise provided in the Indenture or this Supplemental
Indenture as follows:
SECTION 1. The Indenture is hereby amended as follows:
(a) By amending Section 1.01 to add the following definition
thereto, in the appropriate
alphabetical sequence:
"SRAC" means Sears Roebuck Acceptance Corp., a Delaware
corporation.
"Orchard" means Orchard Supply Hardware Stores Corporation, a
Delaware corporation.
(b) By amending Section 1.01 to delete the definition in the
Indenture of "Guarantor" and add the following definition of
that term:
"Guarantor," except as otherwise provided by Section 4.13,
means each of Orchard and SRAC, until a successor shall have
become such pursuant to the applicable provisions of this
Indenture, and thereafter "Guarantor" shall mean such successor.
(c) By deleting current Section 4.13 and adding as new Section
4.13 the following:
SECTION 4.13 Reports
So long as any of the Securities is outstanding, whether or
not the Guarantor is subject to Section 13(a) or 15(d) of the
Exchange Act, to the extent permitted by the SEC, the Guarantor
shall file with the SEC the annual reports, quarterly reports
and other documents which the Guarantor would have been required
to file with the SEC pursuant to such Sections 13(a) and 15(d)
if the Guarantor were so subject, such documents to be filed
with the SEC on or prior to the respective dates (the "Required
Filing Dates") by which the Guarantor would have been required
so to file such documents. The Guarantor and, if the Company is
then subject to Section 13(a) or 15(d) of the Exchange Act, the
Company shall mail to the Trustee and each Holder copies of the
annual reports, quarterly reports and other documents which the
Guarantor or the Company was required to file with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act or the
Guarantor would have been required to file with the SEC pursuant
to Section 13(a) or 15(d) of the Exchange Act if the Guarantor
were subject to such Sections. The Guarantor and the Company
also shall comply with the other provisions of TIA Section
314(a). For purposes of this Section 4.13, "Guarantor" shall
mean SRAC so long as (i) SRAC remains a Guarantor under this
Indenture and (ii) the rating assigned by Standard & Poor's
Corporation to the long-term debt obligations of SRAC is BBB or
higher. If either clause (i) or (ii) of the preceding sentence
shall fail to be satisfied, "Guarantor" for purposes of this
Section 4.13 shall mean Orchard.
(d) By deleting the first paragraph of Section 11.02 and adding
as the new first paragraph of Section 11.02 the following:
Any notice or communication shall be sufficiently given if in
writing and delivered in Person, by facsimile and confirmed by
telecopy addressed as follows:
if to the Company or Orchard:
Orchard Supply Hardware Corporation
6450 Via Del Oro
San Jose, California 95119
Attention: Chief Financial Officer
Telecopy Number: (408) 629-7174
with copies, in either case, to:
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attention: General Counsel
Telecopy Number: (847) 286-2471
if to SRAC:
Sears Roebuck Acceptance Corp.
3711 Kennett Pike
Greenville, Delaware 19807
Attention: President
Telecopy Number: (302) 888-3156
with copies to:
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attention: General Counsel
Telecopy Number: (847) 286-2471
if to the Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2800
Los Angeles, California 90071
Attention: Corporate Trust Division
Telecopy Number: (213) 488-4029
SECTION 2. Subject to the provisions of Article Ten of the
Indenture, SRAC agrees that it will duly and punctually perform
and observe all of the covenants and conditions in the Indenture
to be performed by a Guarantor as if SRAC had been an original
Guarantor of the Securities. Any Guarantee endorsed on any
Security delivered after the date of this First Supplemental
Indenture in substitution or exchange for any outstanding
Security as provided in the Indenture shall also be executed and
delivered by SRAC substantially in the form attached hereto as
Exhibit A, and each such Guarantee on each such Security shall
constitute an obligation of SRAC; provided, however, that each
Guarantee hereunder shall be effective without such notation.
SECTION 3. Except as specifically supplemented and amended by
this Supplemental Indenture, the terms and provisions of the
Indenture shall remain in full force and effect. The Indenture,
as supplemented and amended by this Supplemental Indenture and
all other indentures supplemental thereto, is in all respects
ratified and confirmed, and the Indenture, this Supplemental
Indenture, and all indentures supplemental thereto shall be
read, taken and construed as one and the same instrument.
SECTION 4. If any provision of this Supplemental Indenture
limits, qualifies or conflicts with another provision hereof
which is required to be included in this Supplemental Indenture
by the TIA, the required provision shall control.
SECTION 5. All agreements of the Company and the Guarantor in
this Supplemental Indenture shall bind their respective
successors. All agreements of the Trustee in this Supplemental
Indenture shall bind its successor.
SECTION 6. In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party
hereto.
SECTION 7. Except for the Indenture, this Supplemental
Indenture may not be used to interpret another indenture, loan
or debt agreement of the Guarantor, the Company or a Subsidiary
of the Company. Any such indenture, loan or debt agreement may
not be used to interpret this Supplemental Indenture.
SECTION 8. The laws of the State of New York shall govern
this Supplemental Indenture without regard to principles of
conflicts of law.
SECTION 9. All terms used in this Supplemental Indenture and
not otherwise defined herein that are defined in the Indenture
shall have the meanings set forth therein.
SECTION 10. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, and their respective
corporate seals to be hereunto affixed and attested, all as of
the date first written above.
ORCHARD SUPPLY HARDWARE CORPORATION
[SEAL]
By: ________________________________
Stephen M. Hilberg
Chief Financial Officer
Attest: ______________________ and Vice President - Finance
ORCHARD SUPPLY HARDWARE STORES
CORPORATION, as Guarantor
[SEAL]
By: ________________________________
Stephen M. Hilberg
Chief Financial Officer
Attest: ______________________ and Vice President - Finance
SEARS ROEBUCK ACCEPTANCE CORP.,
as Guarantor
[SEAL]
By: ________________________________
Stephen D. Carp
Vice President, Finance
Attest: ______________________
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
[SEAL]
By: ________________________________
Name:
Title:
Attest: ______________________
EXHIBIT A
GUARANTEE
Sears Roebuck Acceptance Corp. (hereinafter referred to as the
"Guarantor",
which term includes any successor person under the Indenture
referred to in the Security upon which this notation is
endorsed), has unconditionally guaranteed to the Holder of this
Security the due and punctual payment of the principal of,
premium, if any, and interest on and any other obligation of the
Company with respect to, the Security upon which this notation
is endorsed, when and as the same shall become due and payable,
whether at maturity, by acceleration, redemption, repayment or
otherwise, in accordance with the terms of such Security and of
the Indenture. In the case of the failure of the Company
punctually to pay any such principal, premium, interest or other
obligations under the Security upon which this notation is
endorsed or the Indenture, the Guarantor hereby agrees to cause
any such payment to be made punctually when and as the same
shall become due and payable, whether at maturity, upon
acceleration, redemption, repayment or otherwise, and as if such
payment were made by the Company. The obligations of the
Guarantor to the Holder of the Security upon which this notation
is endorsed are also set forth in the Indenture.
This Guarantee shall not be valid until the Trustee signs the
certificate of authentication on the Security upon which this
notation is endorsed.
SEARS ROEBUCK ACCEPTANCE CORP.
By:_______________________________________
Title:
By:_______________________________________
Title:
CH_DOCS\12637.2
