-----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, EpAbNquek+y5lzGjrkYEQ2cctC9Uu5/mCfd5N4aKJESj8aG7MPEfUhpEgijR2yir jm82BvgJ+Dws6dzJYRhwIg== 0000088255-98-000051.txt : 19981110 0000088255-98-000051.hdr.sgml : 19981110 ACCESSION NUMBER: 0000088255-98-000051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981109 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-Q SEC ACT: SEC FILE NUMBER: 001-04040 FILM NUMBER: 98740791 BUSINESS ADDRESS: STREET 1: 3711 KENNETT PIKE CITY: GREENVILLE STATE: DE ZIP: 19807 BUSINESS PHONE: 3028883112 EX-27 1
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10-Q 2 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 OCTOBER 3, 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 October 31, 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 39 WEEKS ENDED OCTOBER 3, 1998 Page No. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Statements of Financial Position October 3, 1998 and September 27, 1997 (unaudited) and January 3, 1998 (audited) 1 Statements of Income (unaudited) 13 Weeks and 39 Weeks Ended October 3, 1998 and September 27, 1997 2 Statements of Cash Flows (unaudited) 39 Weeks Ended October 3, 1998 and September 27, 1997 3 Notes to Financial Statements (unaudited) 4,5 Independent Accountants' Report 6 Item 2. Analysis of Results of Operations 7-9 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 10 SEARS ROEBUCK ACCEPTANCE CORP. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION (unaudited) (millions, except share data) Oct. 3, Sept. 27, Jan. 3, 1998 1997 1998 Assets Cash and cash equivalents $ 3 $ 15 $ 5 Notes of Sears 18,592 14,162 16,561 Receivable balances purchased from Sears 94 85 89 Other assets 67 122 61 Total assets $ 18,756 $ 14,384 $ 16,716 Liabilities Commercial paper (net of unamortized discount of $20, $22 and $25) $ 5,129 $ 4,031 $ 5,249 Intermediate-term loans - 300 50 Medium-term notes 6,385 5,358 6,033 Discrete underwritten debt(net of unamortized discount of $8,$- and $1) 4,542 2,550 3,099 Accrued interest and other liabilities 217 171 123 Total liabilities 16,273 12,410 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 900 550 700 Retained income 1,548 1,389 1,427 Total stockholder's equity 2,483 1,974 2,162 Total liabilities and stockholder's equity $ 18,756 $ 14,384 $ 16,716 See notes to financial statements. 1 SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF INCOME (unaudited) (millions) 13 Weeks Ended 39 Weeks Ended Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1998 1997 1998 1997 Revenues Earnings on notes of Sears $ 302 $ 232 $ 905 $ 659 Earnings on receivable balances purchased from Sears 1 1 5 5 Earnings on cash equivalents 1 1 4 3 Total revenues 304 234 914 667 Expenses Interest expense and amortization of debt discount/premium 241 187 725 532 Operating expenses 1 - 3 1 Total expenses 242 187 728 533 Income before income taxes 62 47 186 134 Income taxes 22 16 65 47 Net Income $ 40 $ 31 $ 121 $ 87 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) 39 Weeks Ended Oct. 3, Sept. 27, 1998 1997 Cash flows from operating activities: Net income $ 121 $ 87 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other noncash items 8 5 Decrease(increase) in other assets 2 (19) Increase in other liabilities 94 107 Net cash provided by operating activities 225 180 Cash flows from investing activities: Increase in notes of Sears (2,031) (2,553) Increase in receivable balances purchased from Sears (5) (9) Net cash used in investing activities (2,036) (2,562) Cash flows from financing activities: (Decrease)increase in commercial paper, primarily 90 days or less (120) 707 Decrease in agreements with bank trust departments - (82) Proceeds from issuance of long-term debt 1,924 2,111 Payments for redemption of long-term debt (195) (767) Proceeds from capital infusion 200 200 Net cash provided by financing activities 1,809 2,169 Decrease in cash and cash equivalents (2) (213) Cash and cash equivalents at beginning of period 5 228 Cash and cash equivalents at end of period $ 3 $ 15 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 $282 million in the third quarter of 1998. Credit facilities as of October 3, 1998 were as follows: Expiration Date millions April 2003 $4,125 April 2002 875 November 1998 250 $5,250 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 Issued Volume Coupon Term Volume Coupon Term Third Quarter $ 45 6.27% 11.9 $213 6.66% 5.6 Year to Date $498 6.00% 5.1 $872 6.79% 5.7 Avg Avg. 10/03/98 Avg. Remain. 09/27/97 Avg. Remain. Balance Coupon Term Balance Coupon Term Notes Outstanding $6,385 6.47% 3.9 $5,358 6.53% 3.6 As of October 3, 1998, medium-term notes were scheduled to mature as follows: 1998 $ 439 1999 610 2000 1,231 2001 2,018 2002 813 Thereafter 1,274 Total $6,385 4. Discrete underwritten debt (dollars in millions; term in years) Avg. Avg. 1998 Avg. Orig. 1997 Avg. Orig. Notes Issued Volume Coupon Term Volume Coupon Term Third Quarter $ - -% - $650 6.93% 10.0 Year to Date $1,450 6.40% 14.5 $1,250 6.86% 7.6 Avg Avg. 10/03/98 Avg. Remain. 09/27/97 Avg. Remain. Balance Coupon Term Balance Coupon Term Notes Outstanding $4,550 6.69% 10.7 $2,550 6.73% 7.1 As of October 3, 1998, discrete underwritten debt was scheduled to mature as follows: 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 October 3, 1998 and September 27, 1997, and the related statements of income for the 13 week and 39 week periods then ended and cash flows for the 39 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 October 14, 1998 6 SEARS ROEBUCK ACCEPTANCE CORP. ITEM 2. ANALYSIS OF RESULTS OF OPERATIONS During the third quarter of 1998, Sears Roebuck Acceptance Corp.'s ("SRAC") revenues increased 30% to $304 million from $234 million in the comparable 1997 period. For the 39 weeks ended October 3, 1998, revenues were up 37% to $914 million from $667 million for the comparable 1997 period. SRAC's income is derived primarily from the earnings on its investment in the notes of Sears, Roebuck and Co. ("Sears")and to a lessor extent, receivable balances purchased from Sears and invested cash. The increase in revenue is attributable to a $4.1 billion increase in SRAC's average earning assets in the third quarter of 1998 compared to the third quarter of 1997 and a $4.5 billion increase in the 39 weeks ended October 3, 1998 as compared to the comparable 1997 period. Increases in average earning assets were in response to Sears funding requirements. SRAC's interest and related expenses increased 29% to $241 million from $187 million and 36% to $725 million from $532 million for the third quarter of 1998 and 39 weeks ended October 3, 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 5.59% in the third quarter of 1998 and 5.61% in the 39 weeks ended October 3, 1998 compared to 5.65% and 5.53% for the same periods in 1997. SRAC's short-term borrowings averaged $4.0 billion and $4.3 billion for the third quarter and 39 weeks ended October 3, 1998, compared to the respective 1997 levels of $3.4 billion and $3.7 billion. SRAC's average long-term debt of $11.0 billion in the third quarter of 1998 and $10.5 billion in the 39 weeks ended October 3, 1998 reflect increases of 33% and 38%, respectively, compared with $8.3 billion and $7.6 billion for the same periods in 1997. In the third quarter of 1998, SRAC entered into a $250 million credit facility expiring in November 1998. In October 1998, SRAC elected to increase the aggregate amount of the commitments under the Amended and Restated Credit Agreement dated as of April 28, 1997 by $60 million. Also in October 1998, SRAC issued a $250 million 40 year, discrete underwritten debt offering with a 6.95% coupon, callable after five years. SRAC's net income of $40 million and $121 million for the third quarter and 39 weeks ended October 3, 1998, respectively, reflects increases of 29% and 39% from the comparable 1997 period amounts of $31 million and $87 million. SRAC's ratio of earnings to fixed charges for both the third quarter and first nine months of 1998 was 1.26 compared to 1.25 for the comparable 1997 periods. 7 On November 2, 1998, in anticipation of future borrowings, SRAC received a capital infusion of $250 million from Sears. The capital infusion provides additional strength to SRAC's balance sheet. YEAR 2000 SRAC, with the assistance of Sears, has implemented a comprehensive risk-based plan designed to make its operations Year 2000 compliant. The implementation of the SRAC plan, which is modeled after a plan designed and being implemented by Sears to make its operations Year 2000 compliant, is being coordinated with the Sears corporate-wide effort. Sears has established a corporate project office, which reports to an executive management team, to oversee, monitor and coordinate the corporate-wide Year 2000 effort. Both the Sears plan and the SRAC plan focus on three areas: (i)informations systems, (ii)business management and (iii)vendor relations and generally cover four stages:(i)inventory, (ii)assessment, (iii)remediation and (iv)testing and certification. The remediation and testing and certification stages do not apply to the vendor relations area. The SRAC plan is composed primarily of two components. For information systems, equipment and vendor relations that SRAC shares with Sears, SRAC is relying on the implementation by Sears of its Year 2000 effort. For information systems, equipment and vendor relations that are specific to SRAC and not otherwise used corporate-wide at Sears, SRAC is implementing its plan in coordination with Sears. As of the date hereof, SRAC has only utilized internal resources in connection with its Year 2000 plan relating to the information systems, equipment and vendor relations areas that are specific to SRAC. The costs relating to such effort have not been, and are not anticipated to be, material. SRAC has not incurred, and does not anticipate incurring, expenses in connection with the Sears corporate-wide effort to make Sears Year 2000 compliant. The information systems area includes proprietary and third party computer systems and related hardware, software and data and telephone networks. Approximately 50% of the Sears corporate-wide information systems are presently Year 2000 compliant. Remediation of the majority of Sears remaining systems is in process, with substantial completion anticipated by mid-1999. The testing and certification stage for these areas is targeted to be largely completed by mid-1999. As of the date hereof, the remediation, testing and certification of information systems that are specific to SRAC are predominately done and are expected to be completed by the end of the first quarter of 1999. 8 The business management area includes equipment and systems that contain embedded computer technology such as elevators and security systems. SRAC has completed its assessment of these systems. Based on assurances from third parties, these systems present little Year 2000 exposure or risk. SRAC has identified those vendor relations, including investment sources, banks, issuing agents and electronic transfer agents, that are critical to its business. SRAC has either obtained or is negotiating to obtain appropriate assurances from these vendors as to their Year 2000 effort. SRAC anticipates obtaining all such assurances by mid-1999. Sears is developing contingency plans, such as alternative sourcing, and identifying what actions would need to be taken if a critical system or service provider were not Year 2000 compliant. Sears expects these plans to be finalized by July 1999. Despite significant efforts by Sears and SRAC to make their systems and facilities Year 2000 compliant, the ability of third party service providers, vendors and certain other third parties, including governmental entities and utility companies, to be Year 2000 compliant is beyond the control of Sears and SRAC. Accordingly, neither Sears nor SRAC can give any assurances that the systems of other companies on which Sears or SRAC's systems rely will be timely converted or compatible with Sears or SRAC's systems. The failure of these entities to comply on a timely basis could have a material adverse effect on Sears and SRAC. At the present time, SRAC does not expect Year 2000 issues to have a material adverse effect on its business, results of operations or financial condition. The foregoing statements relating to Sears and SRAC's expectations as to their 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 Sears and 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. 9 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. 10 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) November 9, 1998 11 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 October 14, 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 39 Weeks Ended Oct. 3, Sept. 27, (millions) 1998 1997 INCOME BEFORE INCOME TAXES $ 186 $ 134 PLUS FIXED CHARGES: Interest 717 527 Amortization of debt discount/premium 8 5 Total fixed charges 725 532 EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $ 911 $ 666 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 October 3, 1998 and September 27, 1997, as indicated in our report dated October 14, 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 October 3, 1998, is incorporated by reference in Registration Statement No.333-62847 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 October 14, 1998 14 -----END PRIVACY-ENHANCED MESSAGE-----