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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 2, 1999
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
6.75% Notes due September 15, 2005 New York Stock Exchange
7.00% Notes due March 1, 2038 New York Stock Exchange
6.95% Notes due October 23, 2038 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 27, 1999, the Registrant had 350,000 shares of capital stock
outstanding, all of which were held by Sears, Roebuck and Co.
Registrant meets the conditions set forth in General Instruction I1(a) and
(b) of Form 10-K and is therefore filing this report with a reduced disclosure
format.
DOCUMENTS INCORPORATED BY REFERENCE
Part I of this Form 10-K incorporates by reference certain information from the
Sears, Roebuck and Co.'s 1998 Annual Report to Shareholders.
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 to, and from time to time sells receivable balances to, SRAC.
SRAC obtains funds through the issuance of commercial paper and long-term debt,
which 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 Rule 2a-7 promulgated by the Securities and Exchange Commission under the
Investment Company Act. The ratings are P-1 from Moody's Investor Services,
Inc.,F-1 from Fitch IBCA, Inc., D-1 from Duff & Phelps Credit Rating Co., and
A-2 from Standard & Poor's. Long-term ratings are A2 from Moody's Investor
Services, Inc., A from Fitch IBCA, Inc., A from Duff & Phelps Credit Rating
Co., and A- from Standard & Poor's.
SRAC and Sears have entered into agreements for the benefit of
certain debtholders of SRAC under which Sears, for so long as required by
the applicable documents, will continue to own all of the outstanding voting
stock of SRAC and will pay SRAC such amounts that, when added to other
available earnings, will be sufficient for SRAC to maintain an earnings to fixed
charges ratio of not less than 1.10.
In June 1998, SRAC extended to April 2003 the termination date on
$4,125 million of the commitments in its $5 billion revolving credit facility.
The termination date for $875 million in commitments remains April 2002. In
October 1998, SRAC and certain banks agreed to increase by $60 million the
portion of the credit facility terminating April 2003. In November 1998, SRAC
entered into a $1 billion 364-day revolving credit facility with a syndicate of
banks. In addition, Sears and SRAC renewed their joint $40 million credit
facility with 42 minority-owned banks. This facility expires in November 1999.
As of January 2, 1999, SRAC had backup credit facilities totaling $6.1 billion
that continued to provide support for 100% of commercial paper outstanding.
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.
2
SRAC received two capital contributions from Sears totaling $450 million
in 1998.The capital contributions provide additional strength to SRAC's
balance sheet and allow SRAC to issue additional debt given current covenant
restrictions. SRAC ended 1998 with an equity position of $2.8 billion and a
debt-to-equity ratio of 5.5:1, compared to 6.7:1 at the end of 1997.
As of February 28, 1999, SRAC had 9 employees.
Item 2. Properties.
The company leases 5,865 square feet of an office building located
in Greenville, Delaware.
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.
None.
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 $18.0 billion at
year-end 1998 from $16.6 billion at the end of 1997. Short-term borrowings
at the end of 1998 were $4.2 billion, a $1.0 billion decrease from the prior
year. Total debt outstanding increased in 1998 to $15.3 billion from
$14.4 billion. SRAC's investment and debt levels increase as Sears funds its
term debt maturities and other cash requirements through SRAC.
Results of Operations
SRAC's total revenues of $1,234 million for 1998 increased from
$960 million in 1997 and $689 million in 1996. The increases in revenue
resulted from higher balances of earning assets during each year.
In 1998, SRAC's average cost of short-term funds decreased 2 basis
points to 5.58%. Average outstanding short-term debt of $4.5 billion increased
$500 million from the 1997 level. The weighted average interest rate on SRAC
term debt issued in 1998 was 6.43% compared to 6.78% for 1997. The decrease in
rate was due to a general decline in interest rates. The following issuances
were placed during 1998:
*$478 million of fixed-rate medium-term notes, with a weighted average
coupon of 6.03% and average term of 5.7 years
*$50 million of variable-rate medium-term notes, with an average term of one
year.
*$2 billion of discrete underwritten notes, with a weighted average coupon
of 6.53% and average term of 20 years.
The growth in total outstanding debt contributed to increases in
interest and related expenses throughout 1998. SRAC's interest and related
expenses of $979 million for 1998 increased from $763 million in 1997 and
$546 million in 1996.
SRAC's net income increased to $163 million in 1998 from
$125 million in 1997 and $92 million in 1996.
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
areset to provide fixed charge coverage of at least 1.25 times, thereby
insulating SRAC from the effects of inflation-based interest rate increases.
4
Year 2000
Year 2000 compliance is the ability of information systems to recognize and
process dates and date-sensitive information including the year 2000 and beyond
(commonly referred to as Year 2000 or Y2K). Year 2000 compliance is critical
to SRAC because SRAC and many of its service providers, as well as other third
parties that facilitate trades in SRAC securities, rely on information systems
to operate their businesses.
SRAC, with assistance from Sears, is in the process of making its operations
Year 2000 compliant. With respect to information systems, equipment and third
party relationships that are specific to SRAC and not otherwise used
corporate-wide at Sears, SRAC is implementing its plan in coordination with
Sears. Pursuant to an agreement between SRAC and Sears, SRAC is relying on
Sears implementation of Sears Year 2000 effort as to information systems,
equipment and third party relationships that SRAC uses in conjunction with
Sears. For a detailed description of Sears Year 2000 plan, see "Year
2000" beginning on page 29 of Sears 1998 Annual Report to Shareholders and
the related "Cautionary Statement Regarding Forward Looking Information" on
page 25 of Sears Annual Report, incorporated herein by reference in response
to Item 7 hereof.
To date, SRAC has only utilized internal resources and Sears resources in
connection with its Year 2000 plan relating to the information systems,
equipment and third party areas that are specific to SRAC. The costs
relating to such effort, together with the SRAC's share of the costs relating
to Sears corporate-wide Year 2000 effort, have not been and are not
anticipated to be material.
SRAC's plan focuses on three areas-information systems, equipment and third
parties- and generally covers six stages:
*Inventorying SRAC's systems (including equipment with embedded
chips), service providers and other third parties;
*Assessing whether a Year 2000 compliance issue exists for each system,
provider and other third party;
*Remediating each system with a Year 2000 compliance issue by performing
any necessary enhancements, upgrades, modifications or replacements;
*Testing each remediated system by using a date simulation testing tool
for future dates that trigger specific processing;
*Certifying each mission critical (vital to business operations)system,
which involves performing final testing for validation of Year 2000
compliance; and
*Contingency planning to mitigate Year 2000 compliance risks.
Only the inventory, assessment and contingency planning stages apply to service
providers and other third parties.
The information systems area includes:
*Proprietary and third party information systems;
*Related hardware, software and data and telephone networks; and,
*Information systems service providers.
SRAC expects the inventorying, assessment, remediation and initial testing of
information systems that are specific to SRAC to be completed by the end of the
first quarter of 1999. SRAC expects to complete final certification of its
mission critical information systems by mid-1999.
5
The equipment area includes equipment and systems that contain embedded computer
technology such as elevators and security systems. SRAC has completed its
assessment of these systems and, based on assurances from third parties,
believes they present little Year 2000 exposure or risk.
The third party area consists of investors that purchase SRAC securities and
the entities that serve as intermediaries between SRAC and those investors.
The intermediaries include banks, issuing agents and electronic transfer
agents. Many of these entities are regulated by the federal government, with
their Year 2000 compliance efforts subject to government oversight. Based
on public disclosures by these entities in documents filed with the
Securities and Exchange Commission, on their company Internet sites or in
response to inquiries from SRAC, SRAC believes that the third party
intermediaries that are vital to SRAC's business will be Year 2000 compliant.
Contingency Plans
SRAC has for many years had in place a continuity plan to address business
interruptions. SRAC, with assistance from Sears, is modifying its continuity
plan to address the particular challenges that would arise if critical
systems, equipment or third parties are not Year 2000 compliant. SRAC
expects to finalize these modifications by July 1999.
Risks
SRAC believes that its most significant Year 2000 risk factors are:
* The failure of SRAC to timely remediate its information systems for
trading securities;
* The failure of any of the following to be Year 2000 compliant: the
securities depository through which trades in SRAC securities are
settled; the participant bank that is SRAC's conduit to the
securities depository; or the federal reserve wire system (which
SRAC's banks use to transfer funds in connection with SRAC's trading
and other activities); or
* The failure of Sears to timely complete its Year 2000 effort to such
an extent that Sears suffers a material adverse effect on its business,
financial condition or results of operations.
Although the occurrence of any of these scenarios could have a material adverse
effect on SRAC, SRAC does not believe that any of these scenarios or any other
Year 2000 compliance issues that would materially affect SRAC's operations are
reasonably likely to occur.
Cautionary Statement Regarding Forward Looking Information
Certain statements made in this Annual Report on Form 10-K are forward looking
statements and are made in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. As such, they involve
risks and uncertainties that could cause actual results to differ materially.
SRAC's forward looking statements are based on assumptions about many
important factors. With respect to the discussion of Year 2000 matters,
these include assumptions about the technical skills of employees and
independent contractors, the representations and preparedness of third
parties, vendors' performance of services required by Sears and the
collateral effects of Year 2000 compliance issues on Sears and SRAC's
business partners and customers. While SRAC believes its assumptions are
reasonable, it cautions that it is impossible to predict the impact of
certain factors which could cause actual results to differ materially
from expected results.
6
Item 7A. MARKET RISK
The following table provides information about SRAC's financial instruments
that are sensitive to changes in interest rates. Interest rate risk is
managed through strategic use of fixed rate and variable rate debt.
Weighted-average variable rates are based on rates in effect at the most
recent reset date. The fair value of SRAC's long-term, fixed rate debt was
estimated by discounting estimated cash flows based on SRAC's current
borrowing rates for debt with similar maturities. The carrying
amount of commercial paper and long-term, variable-rate debt approximates
fair value. All items described in the table below are non-trading.
- -------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------
dollars in millions, except percent There- Fair
1999 2000 2001 2002 2003 after Total Value
- ------------------------------------------------------------------------------
Liabilities
Commercial Paper 4,243 - - - - - 4,243 4,243
Average Interest Rate 5.40% - - - - - 5.40%
Long Term Debt
Fixed Rate Amount 560 1,456 2,018 1,413 2,150 3,404 11,001 11,368
Average Interest Rate 6.40% 6.27% 6.63% 6.75% 6.46% 6.83% 6.61%
Variable Rate Amount 50 25 - - - - 75 75
Average Interest Rate 5.05% 5.28% - - - - 5.12%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------
dollars in millions, except percent There- Fair
1998 1999 2000 2001 2002 after Total Value
- ------------------------------------------------------------------------------
Liabilities
Commercial Paper 5,249 - - - - - 5,249 5,249
Average Interest Rat 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 Rat 5.71% 5.81% 5.89% - - - 5.74%
- ------------------------------------------------------------------------------
7
Item 8. Financial Statements and Supplementary Data.
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(millions, except ratio of earnings to fixed charges)
1998 1997 1996
------ ------ ------
Revenues
- --------
Earnings on notes of Sears $1,221 $948 $672
Earnings on receivable balances
purchased from Sears 8 7 7
Earnings on cash equivalents 5 5 10
----- ----- -----
Total revenues 1,234 960 689
Expenses
- --------
Interest expense and amortization of
debt discount/premium 979 763 546
Operating expenses 4 4 2
----- ----- -----
Total expenses 983 767 548
----- ----- -----
Income before income taxes 251 193 141
Income taxes 88 68 49
----- ----- -----
Net income $163 $125 $92
----- ----- -----
Ratio of earnings to fixed charges 1.26 1.25 1.26
See notes to financial statements.
8
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
(millions, except share data) 1998 1997
------- -------
Assets
- ------
Cash and cash equivalents $ 94 $ 5
Notes of Sears 17,990 16,561
Receivable balances
purchased from Sears 90 89
Other assets 73 61
--------- ---------
Total assets $18,247 $16,716
--------- ---------
Liabilities
- -----------
Commercial paper (net of unamortized
discount of $25 and $25) $4,243 $5,249
Intermediate-term loans - 50
Medium-term notes 5,976 6,033
Discrete underwritten debt(net of
unamoritized discount of $16 and $1) 5,084 3,099
Accrued interest and other liabilities 169 123
--------- ---------
Total liabilities 15,472 14,554
--------- ---------
Commitments and Contingent Liabilities
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 1,150 700
Retained income 1,590 1,427
--------- ---------
Total stockholder's equity 2,775 2,162
--------- ---------
Total liabilities and
stockholder's equity $18,247 $16,716
--------- ---------
See notes to financial statements.
9
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
(millions) 1998 1997 1996
-------- -------- --------
Capital stock $35 $35 $35
-------- -------- --------
Capital in excess of par value:
Beginning of year 700 350 -
Capital contribution 450 350 350
-------- -------- --------
End of year $1,150 $700 $350
-------- -------- --------
Retained income:
Beginning of year $1,427 $1,302 $1,210
Net income 163 125 92
-------- -------- --------
End of year $1,590 $1,427 $1,302
-------- -------- --------
Stockholder's equity $2,775 $2,162 $1,687
-------- -------- --------
See notes to financial statements.
10
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(millions) 1998 1997 1996
-------- -------- --------
Cash Flows From Operating Activities
- ------------------------------------
Net income $163 $125 $92
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
other noncash items 10 8 4
Decrease (increase) in other assets 6 47 (60)
Increase in other liabilities 46 59 40
-------- -------- --------
Net cash provided by
operating activities 225 239 76
Cash Flows From Investing Activities
- ------------------------------------
Increase in notes of Sears (1,429) (4,952) (3,212)
(Increase) decrease in receivable
balances purchased from Sears (1) (13) 5
-------- -------- --------
Net cash used in
investing activities (1,430) (4,965) (3,207)
Cash Flows From Financing Activities
- ------------------------------------
(Decrease)increase in commercial paper,
primarily 90 days or less (1,006) 1,925 (1,127)
Decrease in agreements with bank
trust departments - (82) (55)
Proceeds from issuance of long-term debt 2,484 3,442 4,323
Payments for redemption of long-term debt (634) (1,132) (275)
Proceeds from capital contribution 450 350 350
-------- -------- --------
Net cash provided by
financing activities 1,294 4,503 3,216
-------- -------- --------
Net increase (decrease)
in cash and cash equivalents 89 (223) 85
Cash and cash equivalents, beginning of year 5 228 143
-------- -------- --------
Cash and cash equivalents, end of year $94 $5 $228
-------- -------- --------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year
Interest paid $947 $694 $510
Income taxes 93 66 48
See notes to financial statements
11
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.
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 2, 1999 (52 weeks), January 3, 1998 (53 weeks) and
December 28, 1996 (52 weeks).
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which is required to be adopted in years beginning after June 15, 1999. SRAC
is currently evaluating the effect this statement might have on its financial
position or results of operations.
2. FEDERAL INCOME TAXES
Federal income taxes provided for by SRAC amounted to $88 million,
$68 million, and $49 million for the fiscal years 1998, 1997, and 1996,
respectively. These amounts represent current income tax provisions calculated
at an effective income tax rate of 35%. No deferred tax provisions were
necessary.
3. COMMERCIAL CUSTOMER RECEIVABLE BALANCES
SRAC purchases commercial customer receivable balances ("CCRB") from Sears.
The receivables are purchased, with recourse, and SRAC earns interest on the
outstanding balance. The receivables are made up of credit accounts Sears
has established with merchants and contractors for bulk purchases from Sears
and are predominantly paid within 30 days.
Each month, SRAC purchases new receivables and receives collections
on previously purchased receivables.
12
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, prior to 1998, 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 are net of unamortized
discount.
(millions) 1998 1997
-------- --------
Commercial paper outstanding $4,268 $5,274
Less: Unamortized discount 25 25
-------- --------
Commercial paper outstanding (net) $4,243 $5,249
-------- --------
Average and Maximum Balances(net) 1998 1997
------------------- -------------------
Maximum Maximum
(millions) Average (month-end) Average (month-end)
------------------- -------------------
Commercial paper $4,514 $5,366 $3,952 $5,249
Agreements with bank trust dept. - - 55 117
------------------- -------------------
Weighted Average Interest Rates 1998 1997
------------------- -------------------
Average Year-end Average Year-end
------------------- -------------------
Commercial paper 5.58% 5.40% 5.60% 5.89%
Agreements with bank trust dept. - - 5.63% -
------------------- -------------------
5. INTERMEDIATE-TERM LOANS
At year-end 1997, SRAC had a $50 million intermediate-term loan which
SRAC prepaid in April 1998. The rate on this loan was indexed to LIBOR
with a set basis point spread. The weighted average rate on this loan
for 1998 was 5.87% compared to 5.97% in 1997.
13
6. MEDIUM-TERM NOTES AND DISCRETE UNDERWRITTEN DEBT
Medium-term notes and discrete underwritten debt are issued with either
a floating rate indexed to LIBOR or a fixed rate.
(dollars in millions; term in years)
ISSUANCE
Avg. Avg.
1998 Avg. Orig. 1997 Avg. Orig.
Volume Coupon Term Volume Coupon Term
------ ------ ---- ------ ------ ----
Fourth Quarter:
Medium-term notes $ 30 5.73% 7.3 $ 789 6.29% 4.0
Discrete debt $ 550 6.86% 34.6 $ 550 7.16% 24.6
Year:
Medium-term notes $ 528 6.00% 5.3 $1,665 6.55% 4.9
Discrete debt $2,000 6.53% 20.0 $1,800 6.95% 12.8
GROSS OUTSTANDING
Avg. Avg.
01/02/99 Avg. Remain. 01/03/98 Avg. Remain.
Balance Coupon Term Balance Coupon Term
-------- ------ ------ ------- ------ -------
Medium-term notes $5,976 6.55% 3.9 $6,033 6.53% 3.4
Discrete debt $5,100 6.70% 14.0 $3,100 6.84% 9.9
MATURITIES
Medium-term Discrete
Year notes debt
- ---------------------------------
1999 $ 610 $ -
2000 1,231 250
2001 2,018 -
2002 813 600
2003 900 1,250
Thereafter 404 3,000
- ---------------------------------
Total $5,976 $5,100
=================================
14
7. BACK-UP LIQUIDITY
SRAC continued to provide support for 100% of its outstanding commercial paper
through its investment portfolio and credit facilities. SRAC's investment
portfolio fluctuated from a low of $1 million to a high of $680 million in 1998.
Credit facilities as of January 2, 1999 were as follows:
Expiration Date (millions)
- ----------------------------------------------------------------
April 2003 $4,185
April 2002 875
November 1999 1,000
November 1999 40
- ----------------------------------------------------------------
$6,100
================================================================
SRAC pays commitment fees on the unused portions of the above credit
facilities. The annualized fees at January 2, 1999 on these credit lines
were $4 million.
8. LETTERS OF CREDIT AND OTHER COMMITMENTS
SRAC is the guarantor of a $70 million promissory note issued by Sears, Roebuck
de Puerto Rico, Inc. under the terms of a July 1998 private placement. The
note has a stated maturity of April, 1999.
SRAC issues import letters of credit to facilitate Sears purchase of goods from
foreign suppliers. At January 2, 1999, letters of credit totaling $145 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 2, 1999 irrevocable
letters of credit totaling $27 million were outstanding.
SRAC has issued a standby letter of credit to a financial institution in order
to secure Sears obligation to repurchase defaulted accounts related to the sale
of receivables by a former affiliate. At January 2, 1999, a $91 million letter
of credit was outstanding. The receivables are expected to liquidate by
year-end 1999.
15
9. 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 values of these
financial instruments areas follows:
- ---------------------------------------------------------------------------
1998 1997
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- ---------------------------------------------------------------------------
Medium-term notes $ 5,976 $6,135 $ 6,033 $6,205
Discrete underwritten debt(net) 5,084 5,308 3,099 3,181
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998 1997 1998 1997 1998 1997 1998 1997
(millions) ------------ ------------ ----------- ------------
Operating Results
Combined earnings from
Sears notes and CCRB $302 $207 $305 $224 $303 $233 $319 $291
Total revenues 304 208 306 225 304 234 320 293
Interest & related
expenses 241 166 243 179 241 187 254 231
Total expenses 242 167 244 179 242 187 255 234
Income before
income taxes 62 41 62 46 62 47 65 59
Net income 40 27 41 29 40 31 42 38
Ratio of earnings to
fixed charges 1.26 1.25 1.26 1.25 1.26 1.25 1.26 1.25
(billions)
Averages
Earning assets* $17.6 $12.5 $17.5 $12.8 $17.6 $13.6 $19.0 $15.9
Short-term debt 5.1 3.9 3.9 3.9 4.0 3.4 5.1 4.8
Long-term debt 9.7 6.8 10.9 7.5 11.0 8.3 10.9 8.8
Cost of
short-term debt 5.63% 5.46% 5.56% 5.58% 5.59% 5.65% 5.35% 5.74%
long-term debt 6.58% 6.43% 6.56% 6.49% 6.52% 6.56% 6.58% 6.56%
*Notes and receivable balances of Sears and invested cash.
16
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 24, 1998
was filed with the Securities and Exchange Commission
on December 10, 1998 [Item 7].
17
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 19, 1999
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 19, 1999
and Assistant Secretary )
(Principal Financial and )
Accounting Officer) )
)
)
Jeffrey N. Boyer* Director )
)
)
James D. Constantine* Director )
)
)
Alan J. Lacy* Director )
)
)
Stanley H. Wright* Director )
)
)
Larry R. Raymond* Director )
*\ George F. Slook, Individually and as Attorney-in-Fact
18
SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
STATEMENTS OF INCOME 8
STATEMENTS OF FINANCIAL POSITION 9
STATEMENTS OF STOCKHOLDER'S EQUITY 10
STATEMENTS OF CASH FLOWS 11
NOTES TO FINANCIAL STATEMENTS 12-16
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 2, 1999 and January 3, 1998, and the related statements of
income, stockholder's equity, and cash flows for each of the three years in
the period ended January 2, 1999. 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 January 2, 1999 and January 3, 1998, and
the results of its operations and its cash flows for each of the three years
in the period ended January 2, 1999 in conformity with generally accepted
accounting principles.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 22, 1999
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 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(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*].
________________________
* SEC File No. 1-4040.
** Filed herewith.
E-2
EXHIBIT INDEX (cont'd)
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*].
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 7.00% Note [Incorporated by reference to Exhibit
4(c)to the Registrant's Current Report on Form 8-K dated
February 23, 1998*].
4(ff) Form of Global 6.00% Note [Incorporated by reference to Exhibit
4(c)to the Registrant's Current Report on Form 8-K dated
March 13, 1998*].
4(gg) Form of Global 6.95% Note [Incorporated by reference to Exhibit
4(c)to the Registrant's Current Report on Form 8-K dated
October 16, 1998*].
4(hh) Form of Global 6.50% Note [Incorporated by reference to Exhibit
4(c)to the Registrant's Current Report on Form 8-K dated
November 24, 1998*].
4(ii) $1,000,000,000 Credit Agreement dated as of November 30, 1998
among the Registrant, the Banks listed on the signature pages
thereof, The Chase Manhattan Bank, as Administrative Agent,
Citibank, N.A., as Syndication Agent, and Bank of
America NT&SA and The First National Bank of Chicago, as
Co-Documentation Agents.**
4(jj) Form of Extension Agreement extending the term of aggregate
commitments of $4,125 million under the Amended
and Restated $5,000,000,000 Credit Agreement dated as of
April 28, 1997.**
4(kk) Letter Agreement dated October 30, 1998 between the Registrant
and The Huntington National Bank relating to a $60 million
commitment under the Amended and Restated $5,000,000,000 Credit
Agreement dated April 28, 1997.**
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*].
* SEC File No. 1-4040.
** Filed herewith.
E-4
EXHIBIT INDEX (cont'd)
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.**
27 Financial Data Schedule.**
99 Pages 25, 29 and 31 of the Sears, Roebuck and Co. Annual Report
[Incorporated by reference to Exhibit 13(ii) of the Sears,
Roebuck and Co. Annual Report on Form 10-K for the fiscal
year ended January 2, 1999].***
_______________________
* SEC File No. 1-4040.
** Filed herewith.
***SEC File No. 1-416
E-5
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
1998 1997 1996
(dollars in millions)
INCOME BEFORE INCOME TAXES $251 $193 $ 141
PLUS FIXED CHARGES:
Interest 969 755 537
Amortization of debt
discount/premium 10 8 9
------- ------- -------
TOTAL FIXED CHARGES 979 763 546
------- ------- -------
EARNINGS BEFORE INCOME TAXES
AND FIXED CHARGES $1,230 $ 956 $687
======= ======= =======
RATIO OF EARNINGS TO FIXED
CHARGES 1.26 1.25 1.26
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-30879 and 333-62847 of Sears Roebuck Acceptance Corp. on Forms S-3
of our report dated January 22, 1999, appearing in this Annual Report on
Form 10-K of Sears Roebuck Acceptance Corp. for the year ended January 2, 1999.
\s\Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 18, 1999