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 APRIL 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 April 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
April 4, 1998
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Position
April 4, 1998 and March 29, 1997 (unaudited)
and January 3, 1998 (audited) 1
Statements of Income (unaudited)
Three Months ended April 4, 1998
and March 29, 1997 2
Statements of Cash Flows (unaudited)
Three Months ended April 4, 1998
and March 29, 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
SEARS ROEBUCK ACCEPTANCE CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
(unaudited)
millions April 4, March 29, Jan. 3,
1998 1997 1998
Assets
Notes of Sears $ 17,418 $ 12,525 $ 16,561
Receivable balances
purchased from Sears 83 79 89
Cash and cash equivalents 16 8 5
Other assets 64 101 61
Total assets $ 17,581 $ 12,713 $ 16,716
Liabilities
Commercial paper (net of
unamortized discount of
$22, $13 and $25) $ 4,119 $ 3,625 $ 5,249
Agreements with bank
trust departments - 92 -
Intermediate-term loans 50 715 50
Medium-term notes 6,236 4,822 6,033
Discrete underwritten debt 4,542 1,603 3,099
Accrued interest and
other liabilities 232 143 123
Total liabilities 15,179 11,000 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
Retained income 1,467 1,328 1,427
Total stockholder's equity 2,402 1,713 2,162
Total liabilities and
stockholder's equity $ 17,581 $ 12,713 $ 16,716
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
millions Three Months Ended
April 4, March 29,
1998 1997
Revenues
Earnings on notes of Sears $ 300 $ 205
Earnings on receivable
balances purchased from Sears 2 2
Earnings on cash equivalents 2 1
Total revenues 304 208
Expenses
Interest and amortization of debt
discount and expense 241 166
Operating expenses 1 1
Total expenses 242 167
Income before income taxes 62 41
Income taxes 22 14
Net income $ 40 $ 27
Ratio of earnings to fixed charges 1.26 1.25
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
millions Three Months Ended
April 4, March 29,
1998 1997
Cash flows from operating activities:
Net income $ 40 $ 27
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 3 2
Decrease(increase)in other assets 8 (5)
Increase in other liabilities 109 78
Net cash provided by operating activities 160 102
Cash flows from investing activities:
Increase in notes of Sears (857) (916)
Decrease (increase) in receivable balances
purchased from Sears 6 (3)
Net cash used in
investing activities (851) (919)
Cash flows from financing activities:
(Decrease) increase in commercial paper,
primarily 90 days or less (1,130) 301
Increase in agreements with
bank trust departments - 10
Proceeds from issuance of long-term debt 1,682 448
Payments for redemption of long-term (50) (162)
Proceeds from capital infusion 200 -
Net cash provided by
financing activities 702 597
Net increase(decrease) in cash and
Cash equivalents 11 (220)
Cash and cash equivalents at beginning
of period 5 228
Cash and cash equivalents at end of period $ 16 $ 8
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 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 commercial paper
outstanding through its investment portfolio and credit
facilities. SRAC's investment portfolio fluctuated from a low of
$3 million to a high of $681 million in the first quarter of 1998
Credit facilities as of April 4, 1998 were as follows:
Expiration Date millions
April 2002 $5,000
November 1998 250
December 1998 250
July 1998 40
$5,540
3. Intermediate-term loans
As of April 4, 1998, SRAC had a $50 million intermediate-term
loan which was prepaid on April 9, 1998. SRAC had a total of $715
million of intermediate-term loans outstanding at the end of the
first quarter of 1997. The rates on most of these variable rate
intermediate-term loans were indexed to LIBOR with a set basis
point spread. The average weighted rate on the intermediate-
term loans in the first quarter of 1998 was 5.80% compared to
5.88% in the comparable 1997 period.
4
4. Medium-term notes
SRAC issued $253 million of medium-term notes in the first
quarter of 1998 with either a floating rate indexed to LIBOR or a
fixed rate. The average weighted rate on medium-term notes in
the first quarter of 1998 was 6.51% as compared to 6.43% in the
first quarter of 1997. Medium term notes outstanding have
original terms ranging from one to ten years.
As of April 4, 1998, medium-term notes maturing in the next five
years were as follows:
millions 1998 1999 2000 2001 2002
Total $535 $610 $1,081 $2,018 $813
5. Discrete underwritten debt
SRAC issued $1,450 million of discrete underwritten debt in the
first quarter of 1998. As of April 4, 1998, SRAC had notes
outstanding in an aggregate principal amount of $4,550 million
and original terms ranging from five to forty years.
As of April 4, 1998, discrete underwritten debt was 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
6.00% Notes, due 2003 $1,000
6.75% Notes, due 2005 $250
6.125% Notes, due 2006 $250
6.70% Notes, due 2006 $300
7.00% Notes, due 2007 $500
6.70% Notes, due 2007 $150
6.875% Notes, due 2017 $300
7.50% Notes, due 2027 $250
6.75% Notes, due 2028 $200
7.00% Notes, due 2038 $250
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 April 4, 1998 and
March 29, 1997, and the related statements of income and cash
flows for the three-month 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.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 17, 1998
6
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS
During the first quarter of 1998, Sears Roebuck Acceptance
Corp.'s ("SRAC") revenues increased 46% to $304 million from
$208 million in the comparable 1997 period. SRAC's income is
derived 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
$5.1 billion or 41% increase in SRAC's average earning assets
compared to the first quarter of 1997 in response to Sears
funding requirements.
SRAC's interest and related expenses increased 45% to
$241 million from $166 million for the first quarter of 1997
due to an increase in average outstanding debt. SRAC's short-term
borrowings averaged $5.1 billion, a 31% increase from the 1997
first quarter average of $3.9 billion. SRAC's cost of short-term
funds averaged 5.63%, a 16 basis point increase from 5.47% for
the first three months of last year. Increases in short-term
costs are attributable to December 1997 placements at higher
"year-end" rates which were reflected in the commercial paper
portolio in the first quarter of 1998. Average outstanding
long-term debt of $9.7 billion in the first quarter of 1998
increased $2.8 billion compared to $6.9 billion in the first
quarter of 1997 period. SRAC's cost of long-term funds averaged
6.58% in the first quarter of 1998 compared to 6.43% for the
first quarter of 1997. Increases in long-term funding costs are
due to the issuance of additional debt with extended maturities
in the first quarter of 1998.
During the first quarter of 1998 SRAC issued three discrete
underwritten debt offerings totaling $1,450 million. SRAC
anticipates that borrowings will increase during 1998 as Sears
continues to refinance a portion of its maturing long-term
borrowings and fund its asset growth.
SRAC provides backup support for its commercial paper portfolio
through its short and long term credit facilities. SRAC manages
its short term bilateral credit facilities and associated costs
in response to changes in its projected short term funding
requirements. On April 17, 1998, SRAC terminated two bilateral
credit agreements totaling $500 million.
SRAC's net income increased 48% for the first quarter of 1998 to
$40 million from $27 million in 1997. SRAC's ratio of earnings
to fixed charges was 1.26 and 1.25 for the first quarter of 1998
and 1997, respectively.
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:
Registrant filed current reports on
Form 8-K dated January 8, 1998,
February 23, 1998, and March 13, 1998
[Item 5].
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)
May 14, 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 April 17, 1998, concerning unaudited financial
information.**
27 - Financial Data Schedule**
*Sec File No. 1040
**Filed herei
10
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
April 4, March 29,
millions 1998 1997
INCOME BEFORE INCOME TAXES $ 62 $ 41
PLUS FIXED CHARGES:
Interest 238 163
Amortization of debt
discount and expense 3 3
Total fixed charges 241 166
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 303 $ 207
RATIO OF EARNINGS TO FIXED
CHARGES 1.26 1.25
11
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 April 4, 1998 and
March 29, 1997, as indicated in our report dated April 17, 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
April 4, 1998, is incorporated by reference in Registration
Statement No. 333-30879 on Form S-3.
We are also aware that the aforementioned report, 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
April 17, 1998
12
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