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UNITED STATES
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 3, 1999
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 30, 1999, 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 ENDED APRIL 3, 1999
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statements of Financial Position
April 3, 1999 and April 4, 1998 (unaudited)
and January 2, 1999 (audited) 1
Statements of Income (unaudited)
13 Weeks Ended April 3, 1999
and April 4, 1998 2
Statements of Cash Flows (unaudited)
13 Weeks Ended April 3, 1999
and April 4, 1998 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, except share data) April 3, April 4, Jan. 2,
1999 1998 1999
------- ------- -------
Assets
Cash and cash equivalents $ 46 $ 16 $ 94
Notes of Sears 17,695 17,418 17,990
Receivable balances
purchased from Sears 87 83 90
Other assets 73 64 73
------- ------- -------
Total assets $17,901 $17,581 $18,247
======= ======= =======
Liabilities
Commercial paper (net of
unamortized discount of
$22, $22 and $25) $ 4,166 $ 4,119 $ 4,243
Intermediate-term loans - 50 -
Medium-term notes 5,614 6,236 5,976
Discrete underwritten debt(net of
unamortitized discount of
$16, $8 and $16) 5,084 4,542 5,084
Accrued interest and
other liabilities 222 232 169
-------- -------- --------
Total liabilities $ 15,086 $ 15,179 $ 15,472
======== ======== ========
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 1,150 900 1,150
Retained income 1,630 1,467 1,590
-------- -------- -------
Total stockholder's equity 2,815 2,402 2,775
-------- -------- -------
Total liabilities and
stockholder's equity $ 17,901 $ 17,581 $18,247
======== ======== =======
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
(millions) 13 Weeks Ended
April 3, April 4,
1999 1998
Revenues -------- --------
Earnings on notes of Sears $ 305 $ 300
Earnings on receivable
balances purchased from Sears 2 2
Earnings on cash equivalents 1 2
-------- --------
Total revenues 308 304
-------- --------
Expenses
Interest expense and amortization of
debt discount/premium 245 241
Operating expenses 1 1
-------- --------
Total expenses 246 242
-------- --------
Income before income taxes 62 62
Income taxes 22 22
-------- --------
Net income $ 40 $ 40
======== ========
Ratio of earnings to fixed charges 1.25 1.26
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(millions) 13 Weeks Ended
April 3, April 4,
1999 1998
-------- --------
Cash flows from operating activities:
Net income $ 40 $ 40
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 3 3
(Increase)decrease in other assets (3) 8
Increase in other liabilities 53 109
------- -------
Net cash provided by operating activities 93 160
Cash flows from investing activities:
Decrease(increase)in notes of Sears 295 (857)
Decrease in receivable balances
purchased from Sears 3 6
------- -------
Net cash provided by (used in)
investing activities 298 (851)
Cash flows from financing activities:
Decrease in commercial paper,
primarily 90 days or less (77) (1,130)
Proceeds from issuance of long-term debt 25 1,682
Payments for redemption of long-term debt (387) (50)
Proceeds from capital contribution - 200
------- -------
Net cash (used in)provided by
financing activities (439) 702
------- -------
Net (decrease) increase in cash and
cash equivalents (48) 11
Cash and cash equivalents at beginning
of period 94 5
------- -------
Cash and cash equivalents at end of period $ 46 $ 16
======= =======
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 52 weeks ended January 2, 1999, 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 committed credit
facilities. SRAC's investment portfolio fluctuated from a low of
$7 million to a high of $242 million in the first quarter of
1999. Credit facilities as of April 3, 1999 were as follows:
Expiration Date (millions)
- ----------------------------------------------------------------
April 2003 $4,185
April 2002 875
November 1999 1,000*
November 1999 40
- ----------------------------------------------------------------
$6,100
================================================================
*Reduced to $500 million on April 19, 1999
3. Intermediate-term Loans
At the end of the first quarter of 1998, SRAC had a
$50 million intermediate-term loan which SRAC prepaid in
April 1998. The rate on this loan was indexed to LIBOR with a
set basis point spread. The average weighted rate on the
intermediate-term loan in the first quarter of 1998 was 5.80%.
4
4. Medium-term Notes and Discrete Underwritten Debt
Medium-term notes and discrete underwritten debt are issued with
either a floating rate indexed to LIBOR or a fixed rate.
(dollars in millions; term in years)
ISSUANCE
Avg. Avg.
1999 Avg. Orig. 1998 Avg. Orig.
Volume Coupon Term Volume Coupon Term
------ ------ ---- ------ ------ ----
First Quarter:
Medium-term notes $ 25 5.90% 10.0 $ 253 5.97% 4.6
Discrete debt - - - $1,450 6.40% 14.5
GROSS OUTSTANDING
Avg. Avg.
04/03/99 Avg. Remain. 04/04/98 Avg. Remain.
Balance Coupon Term Balance Coupon Term
-------- ------ ------ ------- ------ -------
Medium-term notes $5,614 6.59% 2.9 $6,236 6.50% 3.3
Discrete debt $5,100 6.69% 12.8 $4,550 6.79% 11.2
MATURITIES
Medium-term Discrete
Year notes debt
- ---------------------------------
1999 $ 223 $ -
2000 1,231 250
2001 2,018 -
2002 813 600
2003 900 1,250
Thereafter 429 3,000
- ---------------------------------
Total $5,614 $5,100
=================================
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 3, 1999 and
April 4, 1998, and the related statements of income and cash
flows for the 13 week periods then ended. These financial
statements are the responsibility of the 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 2, 1999, 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, 1999, 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 2, 1999 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
April 19, 1999
6
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS
During the first quarter of 1999, Sears Roebuck Acceptance
Corp.'s ("SRAC") revenues increased to $308 million from
$304 million in the comparable 1998 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 resulted from a
$1.0 billion increase in SRAC's average earning assets that was
offset by a reduction in interest rates SRAC received on its
investments.
SRAC's interest and related expenses increased to $245 million
for the first quarter of 1999 from $241 million for the first
quarter of 1998. An increase in the cost of long-term debt was
offset by lower interest expense associated with short-term
borrowings. Average outstanding long-term debt of
$10.9 billion in the first quarter of 1999 increased $1.2 billion
compared to $9.7 billion in the first quarter of 1998. SRAC's
cost of long-term funds averaged 6.63% in the first quarter of
1999 compared to 6.58% for the first quarter of 1998. Increased
average costs of long-term debt resulted from extending the term
of fixed rate debt issued in the latter part of 1998. SRAC's cost
of short-term funds averaged 5.08% in the first quarter of 1999, a
55 basis point decrease from 5.63% for the first three months of
last year. SRAC's short-term borrowings averaged $4.6 billion in
the first quarter of 1999, a 10% decrease from the 1998 first
quarter average of $5.1 billion.
SRAC provides backup support for its commercial paper portfolio
through its committed credit facilities. SRAC manages its credit
facilities and associated costs in response to changes in its
projected short-term funding requirements. On April 19, 1999,
SRAC reduced the commitment amount on the $1 billion revolving
credit facility expiring in November 1999 to $500 million.
On May 6, 1999, SRAC issued a $750 million ten-year discrete
underwritten debt offering with a 6.25% coupon.
SRAC's net income was $40 million for the first quarter of 1999
and 1998. SRAC's ratio of earnings to fixed charges was 1.25 and
1.26 for the first quarter of 1999 and 1998, respectively.
YEAR 2000
A full description of SRAC's Year 2000 project is included
beginning on page 5 of SRAC's filing on Form 10-K for the
fiscal year ended January 2, 1999 (the "10-K").
STATE OF READINESS
Information Systems: SRAC expects to complete in the second
quarter of 1999 the inventorying, assessment, remediation and
initial testing of information systems that are specific to
SRAC. SRAC expects to complete final certification of its
mission critical information systems by the third quarter
of 1999.
Equipment Systems: SRAC has completed its assessment of
equipment systems and, based on assurances from third parties,
believes they present little Year 2000 exposure or risk.
Third Party Areas: See page 6 of the 10-K.
CONTINGENCY PLANS
For many years, SRAC had in place a continuity plan to address
business interruptions. SRAC, with assistance from Sears, is
modifying its continuity plan to address the particular
challenges that would arise if critical systems equipment or
third parties were not Year 2000 compliant. SRAC expects to
finalize these modifications by September 1999.
CAUTIONARY STATEMENT
The foregoing statements relating to SRAC's expectations as to
its Year 2000 efforts are forward looking and are made in
reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. They are based on
SRAC's best estimates and may be updated, as additional
information becomes available. These statements are also
based on assumptions about many important factors, including
the technical skills of employees and independent contractors
and the representations and preparedness of third parties.
While SRAC believes that these assumptions are reasonable,
SRAC cautions that it is impossible to predict the impact of
certain facts that could cause actual results to differ from
expected results.
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:
There were no reports filed on
Form 8-K.
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, Finance
and Assistant Secretary
(authorized officer of
Registrant)
May 10, 1999
10
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 May 6, 1999, concerning unaudited financial
information.
27 Financial Data Schedule.
11
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
13 Weeks Ended
April 3, April 4,
(millions) 1999 1998
------- --------
INCOME BEFORE INCOME TAXES $ 62 $ 62
PLUS FIXED CHARGES:
Interest 242 238
Amortization of debt
discount/premium 3 3
------- ------
Total fixed charges 245 241
------- ------
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 307 $ 303
======= =======
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 April 3, 1999 and
April 4, 1998, as indicated in our report dated April 19, 1999;
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 3, 1999, is incorporated by reference in Registration
Statement Nos. 333-30879 and 333-62847 on Forms 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
May 6, 1999
13
