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 MARCH 29, 2003
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__
Indicate by check mark whether Registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). Yes [ ] No [ X ]
As of April 26, 2003 the Registrant had 350,000 shares of capital stock
outstanding, all of which were held by Sears, Roebuck and Co.
Registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with a reduced disclosure
format.
SEARS ROEBUCK ACCEPTANCE CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 WEEKS ENDED MARCH 29, 2003
PART I. FINANCIAL INFORMATION: PAGE NO.
Item 1. Financial Statements
Statements of Financial Position
March 29, 2003 (unaudited) and March 30, 2002 (unaudited)
and December 28, 2002 1
Statements of Income and Comprehensive Income (unaudited)
13 Weeks ended March 29, 2003
and March 30, 2002 2
Statements of Cash Flows (unaudited)
13 Weeks ended March 29, 2003
and March 30, 2002 3
Notes to Financial Statements (unaudited) 4, 5
Independent Accountants' Report 6
Item 2. Management's Discussion and Analysis of Operations
and Financial Condition 7
Item 4. Disclosure Controls and Procedures 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF FINANCIAL POSITION
(unaudited)
--------------------
(millions, except share data) March 29, March 30, Dec.28,
2003 2002 2002
-------- -------- -------
Assets
Cash and cash equivalents $ 3,413 $ 548 $ 1,563
Notes of Sears 13,991 16,343 15,352
Other assets 172 46 139
------- ------- -------
Total assets $ 17,576 $ 16,937 $ 17,054
======= ======= =======
Liabilities
Commercial paper (net of
unamortized discount of
$3, $6 and $5) $ 2,951 $ 3,319 $ 2,869
Medium-term notes (net of
unamortized discount of
$4, $6 and $5) 3,233 2,566 2,118
Discrete underwritten debt(net
of unamortized discount of
$57, $32 and $58) 7,793 7,618 8,542
Accrued interest and
other liabilities 200 164 160
------ ------ ------
Total liabilities 14,177 13,667 13,689
------ ------ ------
Commitments and contingent liabilities
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) (3)
Retained earnings 2,217 2,085 2,183
------ ------ ------
Total shareholder's equity 3,399 3,270 3,365
------ ------ ------
Total liabilities and
shareholder's equity $ 17,576 $ 16,937 $ 17,054
====== ====== ======
See notes to financial statements.
1
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(millions, except ratios)
13 Weeks Ended
March 29, March 30,
2003 2002
-------- --------
Revenues
Earnings on notes of Sears $ 251 $ 234
Earnings on cash equivalents 7 3
------- -------
Total revenues 258 237
------- -------
Expenses
Interest expense and amortization of
debt discount/premium 206 188
Operating expenses - -
------- -------
Total expenses 206 188
------- -------
Income before income taxes 52 49
Income taxes 18 17
------- -------
Net income $ 34 $ 32
======= =======
Total other comprehensive income(loss)
Losses on cash flow hedge,
net of tax - -
------- -------
Total comprehensive income $ 34 $ 32
======= =======
Ratio of earnings to fixed charges 1.25 1.26
See notes to financial statements.
2
SEARS ROEBUCK ACCEPTANCE CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(millions) 13 Weeks Ended
March 29, March 30,
2003 2002
--------- --------
Cash flows from operating activities:
Net income $ 34 $ 32
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
non-cash items 5 4
(Increase)decrease in other assets (19) 79
Increase(decrease)in other liabilities 40 (28)
----- -----
Net cash provided by operating activities 60 87
----- -----
Cash flows from investing activities:
Decrease(increase) in notes of Sears 1,361 (329)
----- -----
Net cash provided by(used in)
investing activities 1,361 (329)
----- -----
Cash flows from financing activities:
Increase in commercial paper,
primarily 90 days or less 82 94
Proceeds from issuance of long-term debt 1,780 611
Payments for redemption of long-term debt (1,415) (511)
Issue costs paid to issue debt (18) (3)
----- -----
Net cash provided by
financing activities 429 191
----- -----
Net increase(decrease)in cash and
cash equivalents 1,850 (51)
Cash and cash equivalents at beginning
of period 1,563 599
----- -----
Cash and cash equivalents at end of period $ 3,413 $ 548
===== =====
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 28, 2002, and these financial statements
should be read in conjunction with the financial statements and
notes found therein. The results of operations for the interim
periods should not be considered indicative of the results to be
expected for the full year.
2. Back-up Liquidity
SRAC continued to provide support for 100% of its outstanding
commercial paper through its investment portfolio and committed
credit facilities. SRAC's investment portfolio fluctuated from a
low of $1.3 billion to a high of $3.6 billion in the first
quarter of 2003. On March 29, 2003, SRAC's committed credit
facilities consisted of a $3.5 billion 364-day revolving credit
facility expiring February 23, 2004 which includes an option
to extend the repayment of borrowings, if any, through
February 2005.
4
3. 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
2003 2002
--------------------- ---------------------
Avg. Avg.
Avg. Orig. Avg. Orig.
Volume Coupon Term Volume Coupon Term
--------------------- ---------------------
First Quarter:
Medium-term notes $1,530 5.53% 3.5 $ 15 4.50% 2.7
Discrete debt $ 250 7.40% 40.0 $ 600 6.70% 10.0
GROSS OUTSTANDING
3/29/03 3/30/02
--------------------- ---------------------
Avg. Avg.
Avg. Remain. Avg. Remain.
Balance Coupon Term Balance Coupon Term
--------------------- ---------------------
Medium-term notes $3,237 2.65% 2.8 $2,572 5.97% 1.6
Discrete debt $7,850 6.82% 15.2 $7,650 6.67% 10.1
MATURITIES
Medium-term Discrete
Year notes debt Total
---------------------------------------------------
2003 $ 830 $ 250 $ 1,080
2004 819 - 819
2005 204 250 454
2006 433 550 983
2007 103 - 103
Thereafter 848 6,800 7,648
---------------------------------------------------
Total $3,237 $7,850 $11,087
===================================================
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 March 29, 2003 and
March 30, 2002, and the related statements of income and
comprehensive income and cash flows for the 13 week periods then
ended. These financial statements are the responsibility of the
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 28, 2002, and the related statements of income and
comprehensive income, shareholder's equity and cash flows for the
year then ended (not presented herein); and in our report dated
February 14, 2003, except for Note 5, as to which the date is
February 24, 2003, 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 28, 2002 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
April 15, 2003
6
SEARS ROEBUCK ACCEPTANCE CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
During the first quarter of 2003, Sears Roebuck Acceptance Corp.'s ("SRAC")
revenues increased to $258 million from $237 million in the comparable 2002
period. SRAC's income is derived primarily from the earnings on its
investment in the notes of Sears, Roebuck and Co. ("Sears") and invested cash.
The increase in revenue resulted primarily from a $1 billion increase in
average earning asset levels in the first quarter of 2003 versus the 2002
period.
SRAC's interest and related expenses increased to $206 million for the first
quarter of 2003 from $188 million for the first quarter of 2002 as a result of
higher average long-term interest rates and debt levels. SRAC's cost of long-
term funds averaged 6.57% in the first quarter of 2003 from 6.54% for the
first quarter of 2002. Average outstanding long-term debt of $11.3 billion in
the first quarter of 2003 increased $1.4 billion compared to $9.9 billion in
the first quarter of 2002. Increases in interest and related expenses
attributed to long term debt activity were partially offset by reductions in
average costs and debt levels related to short-term funding. SRAC's cost of
short-term funds averaged 1.77% in the first quarter of 2003, a 73 basis point
decrease from 2.50% for the first three months of last year. SRAC's short-term
borrowings averaged $3.1 billion in the first quarter of 2003, a slight
decrease from the 2002 first quarter average of $3.5 billion.
On April 23, 2003, SRAC entered into a new selling agent agreement that
provides for the continuous issuance of up to $3 billion of medium-term notes
through a program targeted at retail investors. This agreement replaced the
December 6, 2002 agreement under which SRAC issued $1.4 billion in notes.
SRAC's net income was $34 million for the first quarter of 2003 and
$32 million for the first quarter of 2002. SRAC's ratio of earnings to fixed
charges was 1.25 and 1.26, respectively for the first quarter of 2003 and
2002.
7
Financial Condition
SRAC's investment in Sears notes declined by $1.4 billion to $14.0 billion at
the end of the first quarter 2003 from $15.4 billion at year-end 2002.
Offsetting this decrease was a $1.8 billion increase in SRAC's cash and cash
equivalents. Changes in SRAC's assets were primarily the result of Sears
activity in the first quarter of 2003. In this quarter, Sears announced plans
to evaluate strategic alternatives for its Credit and Financial Products
segment, including the possible sale of all or a portion of the segment. Due
to the uncertainty regarding the future of its Credit and Financial Products
segment stemming from that evaluation as well as the economic and geopolitical
uncertainties, Sears believed it prudent to arrange short-term asset-backed
funding capacity in the first quarter of 2003 to ensure liquidity and
partially pre-fund 2003 debt maturities. As a result, Sears used acquired
funds to pay down a portion of the Sears note resulting in an increase in cash
and cash equivalents for SRAC.
SRAC's total debt outstanding rose by $400 million to $13.9 billion in the
first quarter of 2003 from $13.5 billion at year-end 2002. SRAC issued
$1.8 billion of term debt in the first quarter of 2003 of which proceeds from
this issuance and commercial paper were used to fund SRAC's maturing debt and
provide excess cash liquidity.
SRAC ended the 2003 quarter with an equity position of $3.4 billion and a
debt-to-equity ratio of 4.2:1 compared to 4.1:1 at year-end 2002.
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.
8
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 reports on
Form 8-K dated February 7, 2003 and
February 24, 2003[Items 5 and 7].
9
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
(authorized officer of
Registrant)
May 8, 2003
10
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
(c) 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 functions):
(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: May 8, 2003
By: /s/ Keith E. Trost
------------------
Keith E. Trost
President (principal executive officer)
11
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
(c) 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 functions):
(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: May 8, 2003
By: /s/ George F. Slook
-----------------------
George F. Slook
Vice President, Finance (principal financial
officer)
12
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) Form of 7.40% Note [Incorporated by reference to
Exhibit 4 to the Registrant's Current Report on Form 8-K
dated February 7, 2003*].
4(c) Indenture dated as of October 1, 2002 between the Registrant
and BNY Midwest Trust Company.[Incorporated by reference to
Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 28, 2002*].
4(d) Form of Fixed-Rate InterNotes [Incorporated by reference to
Exhibit 4 to the Registrant's Current Report on Form 8-K
dated April 23, 2003*].
10(a) $3,500,000,000 364-day Credit Agreement dated as of
February 24, 2003 among the Registrant, the banks
financial institutional lenders listed on the
signature pages thereof, BANK ONE, NA, as syndication
agent, BARCLAYS BANK PLC and BANK OF AMERICA, N.A. as
documentation agents, SALOMON SMITH BARNEY INC. and
BANC ONE CAPITAL MARKETS, INC., as joint lead arrangers
and joint bookrunners, and CITIBANK, N.A., as agent for
the Lenders.[Incorporated by reference to Exhibit 10(a)
to the Registrant's Current Report on Form 8-K dated
February 24, 2003*].
10(b) Credit Agreement Support Letter dated February 24, 2003
between Sears, Roebuck and Co. and the Registrant
[Incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated
February 24, 2003*].
12 Calculation of ratio of earnings to fixed charges.
15 Acknowledgement of awareness from Deloitte & Touche LLP,
dated May 8, 2003, 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)
-----------------------
* SEC File No. 1-4040.
13