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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 JULY 4, 1998
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 July 4, 1998, 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
13 WEEKS AND 26 WEEKS ENDED JULY 4, 1998
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Position
July 4, 1998 and June 28, 1997 (unaudited)
and January 3, 1998 (audited) 1
Statements of Income (unaudited)
13 Weeks and 26 Weeks Ended July 4, 1998
and June 28, 1997 2
Statements of Cash Flows (unaudited)
26 Weeks Ended July 4, 1998
and June 28, 1997 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
(unaudited)
(millions, except share data) July 4, June 28, Jan. 3,
1998 1997 1998
Assets
Cash and cash equivalents 145 12 5
Notes of Sears $ 16,576 $12,910 $ 16,561
Receivable balances
purchased from Sears 90 82 89
Other assets 70 101 61
Total assets $ 16,881 $ 13,105 $ 16,716
Liabilities
Commercial paper (net of
unamortized discount of
$14, $13 and $25) $ 3,304 $ 3,298 $ 5,249
Agreements with bank
trust departments - 69 -
Intermediate-term loans - 715 50
Medium-term notes 6,436 5,302 6,033
Discrete underwritten debt (net
of unamortized discount(premium)
of $8,($2) and $1) 4,542 1,902 3,099
Accrued interest and
other liabilities 156 76 123
Total liabilities 14,438 11,362 14,554
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 900 350 700
Retained income 1,508 1,358 1,427
Total stockholder's equity 2,443 1,743 2,162
Total liabilities and
stockholder's equity $ 16,881 $ 13,105 $ 16,716
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
(millions) 13 Weeks Ended 26 Weeks Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
Revenues
Earnings on notes of Sears $ 303 $ 222 $ 603 $ 427
Earnings on receivable
balances purchased
from Sears 2 2 4 4
Earnings on cash equivalents 1 1 3 2
Total revenues 306 225 610 433
Expenses
Interest expense and
amortization of debt
discount/premium 243 179 484 345
Operating expenses 1 - 2 1
Total expenses 244 179 486 346
Income before income taxes 62 46 124 87
Income taxes 21 17 43 31
Net income $ 41 $ 29 $ 81 $ 56
Ratio of earnings
to fixed charges 1.26 1.25 1.26 1.25
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(millions) 26 Weeks Ended
July 4, June 28,
1998 1997
Cash flows from operating activities:
Net income $ 81 $ 56
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 5 4
Increase in other assets - (3)
Increase in other liabilities 33 12
Net cash provided by operating activities 119 69
Cash flows from investing activities:
Increase in notes of Sears (15) (1,301)
Increase in receivable balances
purchased from Sears (1) (6)
Net cash used in
investing activities (16) (1,307)
Cash flows from financing activities:
Decrease in commercial paper,
primarily 90 days or less (1,945) (26)
Decrease in agreements with
bank trust departments - (13)
Proceeds from issuance of long-term debt 1,882 1,253
Payments for redemption of long-term debt (100) (192)
Proceeds from capital infusion 200 -
Net cash provided by financing activities 37 1,022
Net increase(decrease) in cash and
cash equivalents 140 (216)
Cash and cash equivalents at beginning
of period 5 228
Cash and cash equivalents at end of period $ 145 $ 12
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 53 weeks ended January 3, 1998, 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. Back-up Liquidity
SRAC continued to provide support for 100% of its commercial
paper outstanding through its investment portfolio and credit
facilities. SRAC's investment portfolio fluctuated from a low of
$1 million to a high of $412 million in the second quarter of
1998. Credit facilities as of July 4, 1998 were as follows:
Expiration Date millions
April 2003 $4,125
April 2002 875
July 1998 40
$5,040
4
3. Medium-term notes
Medium-term notes are issued with either a floating rate
indexed to LIBOR or a fixed rate.
(dollars in millions; term in years)
Avg. Avg.
1998 Avg. Orig. 1997 Avg. Orig.
Notes Issuance Volume Coupon Term Volume Coupon Term
Second Quarter $200 6.01% 4.3 $509 7.02% 6.3
First Half $453 5.99% 4.5 $659 6.83% 5.8
Avg Avg.
07/04/98 Avg. Remain. 06/28/97 Avg. Remain.
Balance Coupon Term Balance Coupon Term
Notes Outstanding $6,436 6.49% 3.1 $5,302 6.50% 3.7
Notes Maturity
1998 $535
1999 $610
2000 $1,231
2001 $2,018
2002 $813
Thereafter $1,229
Total $6,436
4. Discrete underwritten debt
(dollars in millions; term in years)
Avg. Avg.
1998 Avg. Orig. 1997 Avg. Orig.
Notes Issuance Volume Coupon Term Volume Coupon Term
Second Quarter $ - -% - $300 6.95% 5.0
First Half $1,450 6.40% 14.5 $600 6.79% 5.0
Avg Avg.
07/04/98 Avg. Remain. 06/28/97 Avg. Remain.
Balance Coupon Term Balance Coupon Term
Notes Outstanding $4,550 6.69% 10.9 $1,900 6.66% 6.4
Notes Maturity
2000 $250
2002 $600
Thereafter $3,700
Total $4,550
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 July 4, 1998 and
June 28, 1997, and the related statements of income for the
13 week and 26 week periods then ended and cash flows for the
26 week periods then ended. These financial statements are the
responsibility of Sears Roebuck Acceptance Corp.'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 January 3, 1998 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 23, 1998, 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
January 3, 1998 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 16, 1998
6
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS
During the second quarter of 1998, Sears Roebuck Acceptance
Corp.'s ("SRAC") revenues increased 36% to $306 million from
$225 million in the comparable 1997 period. For the first six
months of 1998 revenues were up 41% to $610 million from
$433 million for the comparable 1997 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 a
$4.7 billion increase in SRAC's average earning assets in the
second quarter of 1998 compared to the second quarter of 1997 and
a $4.4 billion increase in the first half of 1998 as compared to
the first half of 1997. Increases in average earning assets
were in response to Sears funding requirements.
SRAC's interest and related expenses increased 36% to
$243 million from $179 million and 40% to $484 million from
$345 million for the second quarter and first half of 1998,
respectively, as compared to the comparable 1997 periods.
Interest and related expenses increased due to increases in
average outstanding long-term debt. SRAC's cost of short-term
funds averaged 5.56% in the second quarter and 5.60% in the first
six months of 1998 compared to 5.59% and 5.48% for the same
periods in 1997. SRAC's short-term borrowings averaged
$3.9 billion and $4.5 billion for the second quarter and first
half of 1998, compared to $3.9 billion for both of the respective
1997 periods. Second quarter decreases in interest expense from
short-term borrowings was more than offset by interest expense
related to increased long-term debt levels. SRAC's average
long-term debt of $10.9 billion in the second quarter of 1998 and
$10.3 billion in the first six months of 1998 reflects increases
of 45% and 43%, respectively, compared with $7.5 billion and
$7.2 billion for the same periods in 1997.
In June 1998, SRAC extended the termination date to
April 2003 on $4,125 million of the commitments in its
$5 billion revolving credit facility. The termination date for
$875 million in commitments remains April 2002.
SRAC's net income of $41 million and $81 million for the
second quarter and first half of 1998 reflects increases of 41%
and 45% from the comparable 1997 period amounts of $29 million
and $56 million. SRAC's ratio of earnings to fixed charges for
both the second quarter and first half of 1998 was 1.26 compared
to 1.25 for the comparable 1997 periods.
7
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:
There were no reports filed on
Form 8-K.
8
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, Finance
and Assistant Secretary
(principal financial
officer and authorized
officer of Registrant)
August 18, 1998
9
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 - 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.
12 - Calculation of ratio of earnings to fixed charges **
15 - Acknowledgment of awareness from Deloitte & Touche LLP,
dated July 16, 1998, concerning unaudited financial
information.**
27 - Financial Data Schedule**
*Sec File No. 1040
**Filed herein
1
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
26 Weeks Ended
July 4, June 28,
(millions) 1998 1997
INCOME BEFORE INCOME TAXES $ 124 $ 87
PLUS FIXED CHARGES:
Interest 479 342
Amortization of debt
discount and expense 5 3
Total fixed charges 484 345
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 608 $ 432
RATIO OF EARNINGS TO FIXED
CHARGES 1.26 1.25
1
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 July 4, 1998 and
June 28, 1997, as indicated in our report dated July 16, 1998;
because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the quarter
ended July 4, 1998, is 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, is 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
July 16, 1998
12