-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pvg/FQXScQ5hZK8eyjyICXUEGHA3kmoYozcZh4zldxxYs9imb+zzJQhN7nrKqLqA xcv7R0kn5l3sYUOxwAGxdg== 0000088255-97-000013.txt : 19970327 0000088255-97-000013.hdr.sgml : 19970327 ACCESSION NUMBER: 0000088255-97-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEARS ROEBUCK ACCEPTANCE CORP CENTRAL INDEX KEY: 0000088255 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 510080535 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04040 FILM NUMBER: 97563158 BUSINESS ADDRESS: STREET 1: 3711 KENNETT PIKE CITY: GREENVILLE STATE: DE ZIP: 19807 BUSINESS PHONE: 3028883112 10-K 1 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 EX-27 2
5 12-MOS DEC-28-1996 DEC-28-1996 228,000,000 0 11,685,000,000 0 0 12,004,000,000 0 0 12,004,000,000 3,470,000,000 6,847,000,000 35,000,000 0 0 1,652,000,000 12,004,000,000 0 689,000,000 0 548,000,000 2,000,000 0 546,000,000 141,000,000 49,000,000 92,000,000 0 0 0 92,000,000 0 0
EX-24 3 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 EX-4 4 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 -----END PRIVACY-ENHANCED MESSAGE-----