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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2002
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: 302/434-3100
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, 2002 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 Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with a reduced
disclosure format.
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SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 WEEKS AND 39 WEEKS ENDED SEPTEMBER 28, 2002
PART I. FINANCIAL INFORMATION: PAGE NO.
Item 1. Financial Statements
Statements of Financial Position
September 28, 2002 (unaudited) and September 29, 2001 (unaudited)
and December 29, 2001 1
Statements of Income (unaudited)
13 Weeks and 39 Weeks ended September 28, 2002
and September 29, 2001 2
Statements of Cash Flows (unaudited)
39 Weeks ended September 28, 2002
and September 29, 2001 3
Notes to Financial Statements (unaudited) 4,5
Independent Accountants' Report 6
Item 2. Analysis of Results of Operations 7
Item 4. Disclosure Controls and Procedures 7
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
(unaudited)
(millions, except share data) Sept.28, Sept.29, Dec. 29,
2002 2001 2001
------- ------- -------
Assets
Cash and cash equivalents $ 377 $ 153 $ 599
Notes of Sears 17,883 16,729 16,014
Other assets 142 47 125
-------- -------- --------
Total assets $ 18,402 $ 16,929 $ 16,738
======== ======== ========
Liabilities
Commercial paper (net of
unamortized discount of
$6, $9 and $9) $ 4,008 $ 3,062 $ 3,225
Medium-term notes (net of
unamortized discount of
$5, $6 and $6) 2,336 3,143 2,762
Discrete underwritten debt (net
of unamortized discount of
$59, $30 and $29) 8,541 7,320 7,321
Accrued interest and
other liabilities 184 199 192
-------- -------- --------
Total liabilities 15,069 13,724 13,500
-------- -------- --------
Shareholder's Equity
Common share, par value $100 per share;
500,000 shares authorized;
350,000 shares issued and
outstanding 35 35 35
Capital in excess of par value 1,150 1,150 1,150
Accumulated other
comprehensive loss (3) - -
Retained income 2,151 2,020 2,053
-------- -------- --------
Total shareholder's equity 3,333 3,205 3,238
-------- -------- --------
Total liabilities and
shareholder's equity $ 18,402 $ 16,929 $ 16,738
======== ======== ========
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME
(unaudited)
(millions, except ratios) 13 Weeks Ended 39 Weeks Ended
Sept.28, Sept.29, Sept.28, Sept.29,
2002 2001 2002 2001
------- ------- ------- -------
Revenues
Earnings on notes of Sears $ 255 $ 256 $ 729 $ 830
Earnings on cash equivalents 2 4 10 10
------- ------- ------- -------
Total revenues 257 260 739 840
Expenses
Interest expense and amortization
of debt discount/premium 205 207 588 668
Operating expenses - - 1 1
------- ------- ------- -------
Total expenses 205 207 589 669
------- ------- ------- -------
Income before income taxes 52 53 150 171
Income taxes 18 19 52 60
------- ------- ------- -------
Net income $ 34 $ 34 $ 98 $ 111
======= ======= ======= =======
Ratios of earnings
to fixed charges 1.25 1.26 1.26 1.26
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(millions) 39 Weeks Ended
Sept.28, Sept.29,
2002 2001
-------- -------
Cash flows from operating activities
Net income $ 98 $ 111
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
noncash items 10 10
(Increase)in other assets (2) (2)
(Decrease)increase in other liabilities (8) 48
-------- -------
Net cash provided by
operating activities 98 167
-------- -------
Cash flows from investing activities
(Increase)decrease in notes of Sears (1,869) 150
-------- -------
Net cash(used in)provided by
investing activities (1,869) 150
-------- -------
Cash flows from financing activities
Increase(decrease) in commercial paper,
primarily 90 days or less 783 (872)
Proceeds from issuance of long-term debt 1,832 1,739
Payments for redemption of long-term debt (1,042) (1,466)
Issue costs paid to issue debt (24) (7)
-------- -------
Net cash provided by (used in)
financing activities 1,549 (606)
-------- -------
Net decrease in cash and
cash equivalents (222) (289)
Cash and cash equivalents at beginning
of period 599 442
-------- -------
Cash and cash equivalents at end of period $ 377 $ 153
======== =======
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 accounting principles generally accepted
in the United States of America have been condensed or omitted. The significant
accounting policies used in the presentation of these financial statements are
consistent with the summary of significant accounting policies set forth in
SRAC's Annual Report on Form 10-K for the 52 weeks ended December 29, 2001, 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 necessarily be considered indicative of the results to be
expected for the full year.
2. Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The following table shows the computation of comprehensive income(loss):
13 Weeks Ended 39 Weeks Ended
(millions) Sept.28, Sept.29, Sept.28, Sept.29,
2002 2001 2002 2001
------- ------- ------- -------
Net income $ 34 $ 34 $ 98 $ 111
Other comprehensive income(loss)
Losses on cash flow hedge,
net of tax - - (3) -
Amounts amortized into interest
expense from OCI - - - -
------- ------- ------- -------
Total other comprehensive loss - - (3) -
------- ------- ------- -------
Total comprehensive income $ 34 $ 34 $ 95 $ 111
======= ======= ======= =======
The following table displays the components of accumulated other comprehensive
loss:
(millions) Sept.28, Sept.29, Dec. 29,
2002 2001 2001
------- -------- -------
Accumulated cash flow hedge loss $ (3) $ - $ -
------- ------- -------
Accumulated other comprehensive loss $ (3) $ - $ -
======= ======= =======
4
3. Back-up Liquidity
SRAC continued to provide support for 100% of its outstanding
commercial paper through its investment portfolio and committed
credit facilities. SRAC's investment portfolio, which consists
of cash and cash equivalents, fluctuated from a low of $196 million
to a high of $1,144 million in the third quarter of 2002.
Credit facilities as of September 28, 2002 were as follows:
Expiration Date (millions)
- ------------------------------------------------------------
April 2003 $4,360
- ------------------------------------------------------------
4. Medium-term Notes and Discrete Underwritten Debt
Medium-term notes and discrete underwritten debt are issued with
either a floating rate indexed to LIBOR or a fixed rate.
(dollars in millions; terms in years)
ISSUANCE
Avg. Avg.
2002 Avg. Orig. 2001 Avg. Orig.
Volume Rate Term Volume Rate Term
------ ------ ---- ------ ------ ----
13 Weeks Ended:
Medium-term notes $ - -% - $ - -% -
Discrete debt $ - -% - $ 950 6.80% 9.9
39 Weeks Ended:
Medium-term notes $ 15 4.50% 2.6 $ - -% -
Discrete debt $1,850 7.03% 24.9 $ 1,750 6.89% 10.0
GROSS OUTSTANDING
Avg. Avg.
09/28/02 Avg. Remain. 09/29/01 Avg. Remain.
Balance Coupon Term Balance Coupon Term
-------- ------ ------ ------- ------ ------
Medium-term notes $2,341 5.88% 1.3 $3,149 6.30% 1.6
Discrete debt $8,600 6.97% 13.2 $7,350 6.68% 10.2
MATURITIES
Medium-term Discrete
Year notes debt
- ---------------------------------
2002 $ 516 $ -
2003 1,246 1,250
2004 317 -
2005 36 250
2006 40 550
Thereafter 186 6,550
- ---------------------------------
Total $2,341 $8,600
================================= 5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholder 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 September 28, 2002 and
September 29, 2001, 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 auditing standards generally accepted in the United
States of America, 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 accounting principles generally
accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the statement
of financial position of Sears Roebuck Acceptance Corp. as of
December 29, 2001 and the related statements of income, shareholder's
equity and cash flows for the year then ended (not presented herein);
and in our report dated January 17, 2002, 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
December 29, 2001 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 8, 2002
6
SEARS ROEBUCK ACCEPTANCE CORP.
Item 2. Analysis of Results of Operations
For the 13 weeks ended September 28, 2002, SRAC revenues decreased
to $257 million from $260 million in the comparable 2001 period. For the
39 week period of 2002, SRAC's revenues declined to $739 million from
$840 million for the comparable 2001 period. The decrease in revenue
resulted from a reduction in the average rates on earning assets.
SRAC's interest and related expenses decreased to $205 million from
$207 million and $588 million from $668 million for the 13 and 39 week
periods ended September 28, 2002, respectively, as compared to the
comparable 2001 periods. Interest and related expenses decreased
during both periods of 2002 due to decreases in the cost of funds.
SRAC's cost of short-term funds averaged 2.13% in the third quarter
and 2.27% in the 39 week period of 2002 compared to 4.02% and 5.29%
for the same periods in 2001. SRAC's cost of long-term funds
averaged 6.53% and 6.54% in the 13 and 39 weeks of 2002 compared
to 6.56% and 6.63% for the same periods in 2001. Reductions in
interest and related expenses attributed to decreases in the cost
of funds were partially offset during these periods by
increases in average debt levels. SRAC's average debt increased to
$14.1 billion and $14.2 billion in the 13 and 39 weeks of 2002,
respectively, compared with $13.7 billion and $13.8 billion
for the same periods in 2001.
SRAC's net income was $34 million and $98 million for the 13 and 39 weeks
ended September 28, 2002 and $34 million and $111 million for the
comparable 2001 periods.
SRAC's ratio of earnings to fixed charges for the 13 and 39 weeks of 2002
was 1.25 and 1.26 compared to 1.26 for both 2001 periods.
Item 4. Disclosure Controls and Procedures
The Company's management, including Keith E. Trost, President (principal
executive officer) and George F. Slook, Vice President, Finance (principal
financial officer), have evaluated the effectiveness of the Company's
"disclosure controls and procedures," as such term is defined in Rules
13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934,
as amended, within 90 days of the filing date of this Quarterly Report
on Form 10-Q. Based upon their evaluation, the principal executive
officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, since the date
the controls were evaluated.
7
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:
Registrant filed Current Report on
Form 8-K dated June 27, 2002[Item
5 and 7].
8
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 12, 2002
9
SEARS ROEBUCK ACCEPTANCE CORP
CERTIFICATIONS
I, Keith E. Trost, President of Sears Roebuck Acceptance Corp.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Sears Roebuck Acceptance Corp.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date");
and presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and;
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
By: /s/Keith E. Trost
-----------------
Keith E. Trost
President (principal executive officer)
10
SEARS ROEBUCK ACCEPTANCE CORP
I, George F. Slook, Vice President, Finance of Sears Roebuck Acceptance Corp.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Sears Roebuck Acceptance Corp.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date");
and presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and;
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
By: /s/George F. Slook
-------------------
George F. Slook
Vice President, Finance (principal financial officer)
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 October 20, 1999
[Incorporated by reference to Exhibit 3(b) to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter ended October 2, 1999**].
4(a) 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(b) Indenture dated as of October 1, 2002 between the Registrant
and BNY Midwest Trust Company.*
4(c) Extension Agreement dated July 16, 2002 between
Sears, Roebuck and Co. and the Registrant[Incorporated
by reference to Exhibit 4(c) of Registration
Statement No. 333-92082].
4(d) Fixed Charge Coverage and Ownership Agreement dated
as of September 24, 2002 between Sears Roebuck
Acceptance Corp. and Sears, Roebuck and Co.
[Incorporated by reference to Exhibit 4(f)
of Registration Statement No. 333-92082].
12 Calculation of ratios of earnings to fixed charges.*
15 Acknowledgment of awareness from Deloitte & Touche LLP,
dated November 12, 2002 concerning unaudited financial
information.*
99(a) Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C.1350)*
99(b) Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C.1350)*
- ----------------------
* Filed herewith.
** SEC File No. 1-4040.
12