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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 January 3, 1998
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, 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 (I)(1)(a)
and (b) of Form 10-K and is therefore filing this report with a reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
None Part of Form 10-K
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 through the issuance of notes
to, and from time to time sells the receivable balances to, SRAC. SRAC obtains
funds through the issuance of short- 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. The 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 are A2 from Moody's, A from Fitch, A from
Duff and Phelps, and A- from Standard & Poor's.
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 documents, 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.
SRAC amended its $5 billion syndicated credit agreement in
April 1997, which included extending its maturity to the year 2002. In
July 1997, Sears and SRAC renewed their joint $40 million credit facility with
49 minority-owned banks. This facility expires in July 1998. In the fourth
quarter of 1997, SRAC signed two $250 million bilateral credit agreements
with terms of one year. As of January 3, 1998, SRAC had backup credit
facilities totaling $5.5 billion. 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 as low as
1.15) without the approval of such banks.
1
SRAC received two capital infusions from Sears totaling
$350 million in 1997 and a capital infusion of $200 million in January 1998.
The capital infusions provide additional strength to SRAC's balance sheet and
allow SRAC to issue additional debt given current covenant restrictions. SRAC
ended 1997 with an equity position of $2.2 billion and a debt-to-equity ratio
of 6.7:1, compared to 6.1:1 at the end of 1996.
As of February 28, 1998, SRAC had 8 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, 1998, 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.
3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Financial Condition
SRAC's investment in Sears notes increased to $16.6 billion at
year-end 1997 from $11.6 billion at the end of 1996. Short-term borrowings
ended 1997 at $5.2 billion, a $1.8 billion increase from last year. Total
debt outstanding increased in 1997 to $14.4 billion from $10.3 billion.
SRAC's investment and debt levels increase as Sears funds its term debt
maturities and asset growth through the issuance of SRAC debt.
In January 1998, SRAC issued $200 million of thirty-year discrete
underwritten debt with a 6.75% coupon. In February 1998, SRAC issued
$250 million of forty-year discrete underwritten debt with a 7.00% coupon.
Results of Operations
SRAC's total revenues of $960 million for 1997 increased
from $689 million in 1996 and $510 million in 1995. The increases in revenue
resulted from higher balances of earning assets during each year.
In 1997, SRAC's average cost of short-term funds increased
10 basis points to 5.60%. Average outstanding short-term debt of $4.0 billion
decreased $0.5 billion from the 1996 level. The average cost of long-term
debt during the year increased 25 basis points to 6.51% due to an extension of
the portfolios average maturity. Average outstanding long-term debt of
$7.9 billion increased by 68% from $4.7 billion in 1996. The growth in total
outstanding debt contributed to increases in interest and related expenses
throughout 1997. SRAC's interest and related expenses of $760 million for
1997 increased from $546 million in 1996 and $405 million in 1995.
SRAC's net income increased to $125 million in 1997 from
$92 million in 1996 and $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 investment in Sears notes are
set to provide fixed charges coverage of at least 1.25 times, thereby
insulating SRAC from the effects of inflation-based interest rate increases.
Year 2000
SRAC has developed and is currently implementing plans to address the
potential problems related to the effect on its computer systems of the Year
2000. Key financial, information, and operation systems are being assessed
and are currently on target to be Year 2000 compliant by December 31, 1999.
If necessary modifications and conversions by SRAC and those with which it
conducts business are not completed on time, the Year 2000 issue may have a
material adverse effect on SRAC's results of operations. The financial effect
of making the required systems changes is not expected to be material to
SRAC's financial position, results of operations, or cash flows.
4
Item 7(a). MARKET RISK (UNAUDITED)
The following table provides information about SRAC's financial instruments
that are sensitive to changes in the interest rates in the United States.
Weighted average variable rates are based on rates in effect at the most
recent reset date.
- -------------------------------------------------------------------------------
There- Fair
dollars in millions 1998 1999 2000 2001 2002 after Total Value
- -------------------------------------------------------------------------------
Liabilities
Commercial Paper 5,249 - - - - - 5,249 5,249
Average Interest Rate 5.89% - - - - - 5.89%
Long Term Debt
Fixed Rate Amount 335 560 1,306 2,018 1,413 3,225 8,857 9,111
Average Interest Rate 6.13% 6.40% 6.32% 6.63% 6.75% 6.85% 6.65%
Variable Rate Amount 250 50 25 - - - 325 325
Average Interest Rate 5.71% 5.81% 5.89% - - - 5.74%
- -------------------------------------------------------------------------------
5
Item 8. Financial Statements and Supplementary Data.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
millions 1997 1996 1995
------- ------- -------
Revenues
- --------
Earnings on notes of Sears $948 $672 $491
Earnings on receivable balances
purchased from Sears 7 7 7
Earnings on cash equivalents 5 10 12
------- ------- -------
Total revenues 960 689 510
Expenses
- --------
Interest and amortization of
debt discount and expense 763 546 405
Operating expenses 4 2 2
------- ------- -------
Total expenses 767 548 407
------- ------- -------
Income before income taxes 193 141 103
Income taxes 68 49 36
------- ------- -------
Net income $125 $92 $67
------- ------- -------
Ratio of earnings to fixed charges 1.25 1.26 1.26
See notes to financial statements.
6
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
millions 1997 1996
--------- ---------
Assets
- ------
Notes of Sears $16,561 $11,609
Receivable balances
purchased from Sears 89 76
Cash and cash equivalents 5 228
Other assets 61 91
--------- ---------
Total assets $16,716 $12,004
--------- ---------
Liabilities
- -----------
Commercial paper (net of unamortized
discount of $25 and $18) $5,249 $3,324
Agreements with bank trust departments - 82
Intermediate-term loans 50 715
Medium-term notes 6,033 4,834
Discrete underwritten debt 3,099 1,298
Accrued interest and other liabilities 123 64
--------- ---------
Total liabilities 14,554 10,317
--------- ---------
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 700 350
Retained income 1,427 1,302
--------- ---------
Total stockholder's equity 2,162 1,687
--------- ---------
Total liabilities and
stockholder's equity $16,716 $12,004
--------- ---------
See notes to financial statements.
7
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
millions 1997 1996 1995
-------- -------- --------
Capital stock $35 $35 $35
-------- -------- --------
Capital in excess of par value:
Beginning of year 350 - -
Capital infusions 350 350 -
-------- -------- --------
End of year $700 $350 $-
-------- -------- --------
Retained income:
Beginning of year $1,302 $1,210 $1,143
Net income 125 92 67
-------- -------- --------
End of year $1,427 $1,302 $1,210
-------- -------- --------
Total stockholder's equity $2,162 $1,687 $1,245
-------- -------- --------
See notes to financial statements.
8
SEARS ROEBUCK ACCEPTANCE CORP
STATEMENTS OF CASH FLOWS
millions 1997 1996 1995
-------- -------- --------
Cash Flows From Operating Activities
- ------------------------------------
Net income $125 $92 $67
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
other noncash items 8 4 1
(Increase) decrease in other assets 47 (60) 3
Increase in other liabilities 59 40 16
-------- -------- --------
Net cash provided by
operating activities 239 76 87
Cash Flows From Investing Activities
- ------------------------------------
Increase in notes of Sears (4,952) (3,212) (1,554)
(Increase) decrease in receivable
balances purchased from Sears (13) 5 -
-------- -------- --------
Net cash used in
investing activities (4,965) (3,207) (1,554)
Cash Flows From Financing Activities
- ------------------------------------
Increase (decrease) in commercial paper,
primarily 90 days or less 1,925 (1,127) (462)
(Decrease) increase in agreements with bank
trust departments (82) (55) 50
Proceeds from issuance of long-term debt 3,442 4,323 1,920
Payments for redemption of long-term debt (1,132) (275) -
Proceeds from cap ital infusion 350 350 -
-------- -------- --------
Net cash provided by
financing activities 4,503 3,216 1,508
-------- -------- --------
Net(decrease)increase
in cash and cash equivalents (223) 85 41
Cash and cash equivalents, beginning of year 228 143 102
-------- -------- --------
Cash and cash equivalents, end of year $5 $228 $143
-------- -------- --------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year
Interest paid $694 $510 $362
Income taxes 66 48 37
See notes to financial statements
9
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 receivable
balances from Sears, using proceeds from its short-term borrowing programs
(primarily the direct placement of commercial paper) and the issuance of long
term debt (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
charges ratio of at least 1.25.
Cash and cash equivalents is defined to include all highly liquid investments
with maturities of three months or less. 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, regardless of whether such benefits would be currently
available on a separate return basis.
SRAC's fiscal year ends on the Saturday closest to December 31. Fiscal
year-ends were January 3, 1998 (53 weeks), December 28, 1996 (52 weeks) and
December 30, 1995 (52 weeks).
2. FEDERAL INCOME TAXES
Federal income taxes provided for by SRAC amounted to $68 million,
$49 million, and $36 million for the fiscal years 1997, 1996, and 1995,
respectively. These amounts represent current income tax provisions calculated
at an effective income tax rate of 35%. No deferred tax provisions were
necessary.
10
3. COMMERCIAL CUSTOMER RECEIVABLE BALANCES
SRAC has purchased commercial customer receivable balances ("CCRB") from Sears.
CCRB are purchased wi th 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 has obtained funds through the direct placement of commercial paper
(issued in maturities of one to 270 days) and from borrowings under agreements
with bank trust departments. Selected details of SRAC's borrowings are shown
below. Weighted average interest rates are based on the actual number of days
in the year and borrowings net of unamortized discount.
millions 1997 1996
-------- --------
Commercial paper outstanding $5,274 $3,342
Less: Unamortized discount 25 18
-------- --------
Commercial paper outstanding (net) 5,249 3,324
Agreements with bank trust departments - 82
-------- --------
Total short-term borrowings $5,249 $3,406
-------- --------
Average and Maximum Balances 1997 1996
------------------- -------------------
Maximum Maximum
millions Average (month-end) Average (month-end)
------------------- -------------------
Commercial paper $3,952 $5,249 $4,388 $5,139
Agreements with bank trust dept. 55 117 98 144
------------------- -------------------
Weighted Average Interest Rates 1997 1996
------------------- -------------------
Average Year-End Average Year-End
------------------- -------------------
Commercial paper 5.60% 5.59% 5.50% 5.58%
Agreements with bank trust dept. 5.63% - % 5.51% 5.83%
------------------- -------------------
11
5. INTERMEDIATE-TERM LOANS
As of January 3, 1998, SRAC had a $50 million intermediate-term loan which
matures in 1999. SRAC had a total of $715 million of intermediate-term loans
outstanding at year-end 1996. The rates on most of these variable rate
intermediate-term loans are indexed to LIBOR with a set basis point spread.
The weighted average rate on the intermediate-term loans throughout 1997 was
5.97% compared to 5.82% in 1996.
6. MEDIUM-TERM NOTES
In 1997, SRAC issued $1,665 million of medium-term notes with either a floating
rate indexed to LIBOR or a fixed rate. As of January 3, 1998, SRAC had
$6,033 million of medium-term notes outstanding with an average weighted
interest rate of 6.53% and terms ranging from one to ten years.
As of January 3, 1998, medium-term notes maturing in the next five years were
as follows:
(millions)
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
$585 $560 $1,081 $2,018 $813
7. DISCRETE UNDERWRITTEN DEBT
SRAC issued $1,800 million of discrete underwritten debt in 1997. As of
January 3, 1998, SRAC had eleven discrete underwritten notes outstanding in an
aggregate principal amount of $3,100 million and original terms ranging from
five to thirty years.
As of January 3, 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
6.75% 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
12
8. 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 $2 million to a high of $720 million in
1997. Credit facilities as of January 3, 1998 were as follows:
Expiration Date (millions)
- -------------------------------------------------------------------
April 2002 $5,000
November 1998 250
December 1998 250
July 1998 40
- -------------------------------------------------------------------
$5,540
===================================================================
Commitment fees are paid on the unused portions of the above credit
facilities. The annualized fees at January 3, 1998 on these credit lines
were $4million.
9. LETTERS OF CREDIT AND OTHER COMMITMENTS
SRAC had been 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. The issue was redeemed in full in
February 1998.
SRAC issues import letters of credit to facilitate Sears purchase of goods from
foreign suppliers. At January 3, 1998, letters of credit totaling
$135 million were outstanding. SRAC has no liabilities with respect to this
program other than the obligation to pay drafts under the letters of credit
that, 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 also issues irrevocable letters of credit to third parties on behalf of
Sears. At January 3, 1998 irrevocable letters of credit totaling
$36 million were outstanding.
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 January 3, 1998, a $119 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 $440 million as of January 3, 1998. The
terms of the loan agreements with SOFNV were negotiated between related
parties; accordingly, the fair value of these instruments is not provided.
13
10. FINANCIAL INSTRUMENTS
In the normal course of business, SRAC invests in certain Notes of Sears and
purchases commercial customer receivable balances from Sears.
SRAC's 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:
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- ---------------------------------------------------------------------------
Medium-term notes $ 6,033 $6,205 $ 4,834 $ 4,884
Discrete underwritten debt 3,099 3,181 1,298 1,277
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997 1996 1997 1996 1997 1996 1997 1996
(millions) ------------- ------------- ------------ -------------
Operating Results
Combined earnings from
Sears notes and CCRB $207 $146 $224 $158 $233 $174 $291 $201
Total Revenues 208 149 225 160 234 177 293 203
Interest & related
expenses 166 117 179 128 187 140 231 161
Total expenses 167 118 179 128 187 140 234 162
Income before
income taxes 41 31 46 32 47 37 59 41
Net income 27 20 29 21 31 24 38 27
Ratio of earnings to
fixed charges 1.25 1.26 1.25 1.25 1.25 1.26 1.25 1.26
(billions)
Averages
Earning assets* $12.5 $6.6 $12.8 $7.5 $13.6 $7.9 $15.9 $9.0
Short-term debt 3.9 4.6 3.9 5.3 3.4 5.2 4.8 5.4
Cost of
short-term debt 5.46% 6.14% 5.58% 6.25% 5.65% 6.00% 5.74% 5.93%
*Notes and receivable balances of Sears and invested cash.
14
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 September 18, 1997
was filed with the Securities and Exchange Commission
on October 14, 1997 [Items 5 and 7].
15
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\ George F. Slook
By George F. Slook*
Vice President, Finance
and Assistant Secretary
March 13, 1998
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) )
)
)
George F. Slook* Director and )
Vice President, Finance ) March 13, 1998
and Assistant Secretary )
(Principal Financial and )
Accounting Officer) )
)
)
James A. Blanda* Director )
)
)
James D. Constantine* Director )
)
)
Gary L. Crittenden* Director )
)
)
Alice M. Peterson* Director )
)
)
Larry R. Raymond* Director )
)
)
*By \s\ George F. Slook Individually and as Attorney-in-Fact
16
SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
STATEMENTS OF INCOME 6
STATEMENTS OF FINANCIAL POSITION 7
STATEMENTS OF STOCKHOLDER'S EQUITY 8
STATEMENTS OF CASH FLOWS 9
NOTES TO FINANCIAL STATEMENTS 10-14
INDEPENDENT AUDITORS' REPORT S-2
S-1
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors of
Sears Roebuck Acceptance Corp.
Greenville, Delaware
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 January 3, 1998 and December 28, 1996, and the related statements
of income, stockholder's equity, and cash flows for each of the three years
in the period ended January 3, 1998. These financial statements are the
responsibility of Sears Roebuck Acceptance Corp.'s man agement. 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 examin ing, 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
January 3, 1998 and December 28, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended January 3, 1998
in conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 23, 1998
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 April 28, 1997
among the Registrant, the Banks listed on the signat ure 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(a) to the
Registrant's Current Report on Form 8-K dated
April 28, 1997*].
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) Fixed Charge Coverage and Ownership Agreement dated
February 20, 1997 between Sears, Roebuck and Co. and the
Registrant [Incorporated by reference to Exhibit 4(b)
to the Registrant's Current Report on Form 8-K
dated April 28, 1997*].
4(k) 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(l) 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(m) 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(n) 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(o) 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(p) 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(q) Indenture dated as of May 15, 1995 between the Registrant
and The Chase Manhattan Bank [Incorporated by reference
to Exhibit 4(b) to Amendment No. 1 to Registration
Statement No. 33-64215].
4(r) 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(s) 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*].
_________________________
* SEC File No. 1-4040.
** Filed herewith.
E-2
EXHIBIT INDEX (cont'd)
4(t) Form of 6.625% Note [Incorporated by reference to Exhibit 4
to the Registrant's Current Report on Form 8-K dated
February 27, 1997*].
4(u) Form of 6.95% Note [Incorporated by reference to Exhibit 4.1
to the Registrant's Current Report on Form 8-K dated
July 9, 1997*].
4(v) Form of 7.00% Note [Incorporated by reference to Exhibit 4.4
to the Registrant's Current Report on Form 8-K dated
July 9, 1997*].
4(w) Form of Fixed-Rate Medium-Term Note Series IV [Incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on
Form 8-K dated July 9, 1997*].
4(x) Form of Floating Rate Medium-Term Note Series IV [Incorporated
by reference to Exhibit 4.3 to the Registrant's Current Report
on Form 8-K dated July 9, 1997*].
4(y) Form of 6.70% Note [Incorporated by reference to Exhibit 4(a)
to the Registrant's Current Report on Form 8-K dated
October 14, 1997*].
4(z) Form of 7.50% Note [Incorporated by reference to Exhibit 4(b)
to the Registrant's Current Report on Form 8-K dated
October 14, 1997*].
4(aa) Form of 6.875% Note [Incorporated by reference to Exhibit 4(c)
to the Registrant's Current Report on Form 8-K dated
October 14, 1997*].
4(bb) Form of 6.75% Note [Incorporated by reference to Exhibit 4(a)
to the Registrant's Current Report on Form 8-K dated
January 8, 1998*].
4(cc) Form of Fixed-Rate Medium-Term Note Series V [Incorporated
by reference to Exhibit 4(a) to the Registrant's Current
Report on Form 8-K dated February 23, 1998*]
4(dd) Form of Floating Rate Medium-Term Note Series V [Incorporated
by reference to Exhibit 4(b) to the Registrant's Current Report
on Form 8-K dated February 23, 1998*].
__________________________
* SEC File No. 1-4040.
** Filed herewith.
E-3
EXHIBIT INDEX (cont'd)
4(ee) Form of Global 7.0% Note [Incorporated by reference to Exhibit
4(c)to the Registrant's Current Report on Form 8-K dated
February 23, 1998*].
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-4
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
1997 1996 1995
(dollars in millions)
INCOME BEFORE INCOME TAXES $193 $141 $ 103
PLUS FIXED CHARGES:
Interest 755 537 399
Amortization of debt
discount and expense 8 9 6
------- ------- -------
TOTAL FIXED CHARGES 763 546 405
------- ------- -------
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $ 956 $ 687 $ 508
======= ======= =======
RATIO OF EARNINGS TO FIXED
CHARGES 1.25 1.26 1.26
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No.333-30879 of Sears Roebuck Acceptance Corp. on Form S-3 of our report dated
January 23, 1998, appearing in this Annual Report on Form 10-K of Sears Roebuck
Acceptance Corp. for the year ended January 3, 1998.
\s\Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 12, 1998