UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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 30, 2002
 
 
 
 
 
 
 
 
 
 
 
 
 
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 0-17955

SEARS DC CORP.(Exact Name of Registrant as Specified in Its Charter)
 

Delaware(State of Incorporation)
36-3533346( I.R.S. Employer Identification No.)
 
 
3711 Kennett Pike, Greenville, Delaware(Address of Principal Executive Offices)
19807(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 or15(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 March 30, 2002, the Registrant had 1,000 shares of common stock, parvalue $1.00 per share, outstanding, all of which were held by Sears, Roebuck andCo.

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 the reduced disclosureformat.

 

 

 

SEARS DC CORP.Index To Quarterly Report on Form 10-Q13 Weeks Ended March 30, 2002
**  

Part I - Financial Information   
Page
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
Statements of Income (unaudited) - 13 Weeks Ended March 30, 2002      and March 31, 2001
1
 
 
 
 
 
 
Statements of Financial Position - March 30, 2002 (unaudited), March      31, 2001 (unaudited) and December 29, 2001
2
 
 
Statements of Cash Flows (unaudited) - 13 Weeks Ended March 30, 2002      and March 31, 2001
3

 
 
 
 
 
 
Notes to Financial Statements (unaudited)
4
Item 2.
Management's Discussion and Analysis of Financial Condition and      Results of Operations
5
 
 
 
 
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
 
 
 
 
None.
 
 
 
 
 
 
Item 6.
Exhibits and Reports on Form 8-K
6
 
 
 
 
 
 
 
 
 

 

 

SEARS DC CORP.Statements of Income(Unaudited)

 

PART I. FINANCIAL INFORMATION
*Item I. Financial Statements*
 

13      Weeks Ended
*(thousands, except ratios)
March      30,
March      31,
2002

2001

Revenues
           Earnings      on notes of Sears
$
1,750
$
4,831

Expenses

      Interest and related expenses
1,732
4,801
           Operating expenses
9

6

      Total expenses
1,741
4,807
Income before income taxes
9
24
Income      taxes
3

8

Net      Income
$
6

$
16

Ratio of earnings to fixed charges
1.005
1.005
 

 

See notes to financial statements.

  
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SEARS DC CORP.Statements of Financial Position

 

 
(Unaudited)

 
 
 *(thousands,      except share data)
March      30,
March      31,
Dec.      29,
 
2002

 
2001

 
2001

Assets
           Notes of Sears
$
82,473
$
228,998
$
84,632
           Interest receivable and other assets
179

267

189

               Total assets
$
82,652

$
229,265

$
84,821

Liabilities
           Medium-term notes
$
73,875
$
213,025
$
77,525
           Interest payable and other liabilities
3,329

10,836

1,854

               Total liabilities
77,204
223,861
79,379
Stockholder's      Equity
           Common stock par value $1.00 per share, 1,000                shares authorized      and outstanding
1
1
1
           Capital in excess of par value
7
7
7
           Retained income
5,440

5,396

5,434

               Total stockholder's equity
5,448

5,404

5,442

           Total liabilities and stockholder's equity
$
82,652

$
229,265

$
84,821

See      accompanying notes.
 

 

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SEARS DC CORP.Statements of Cash Flows(Unaudited)

 

13      Weeks Ended
*(thousands)
March      30,
March      31,
2002

2001

 
 
 
 
 
 
 
CASH      FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net      income
$
6
$
16
Adjustments      to reconcile net income to net cash provided by            operating activities:
Net      change in interest receivable and other assets and interest            payable and other liabilities
 
      1,485

 
 
      4,816

 
Net      cash provided by operating activities
 
1,491

 
 
4,832

 
CASH      FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
(Increase)      decrease in notes of Sears
 
2,159

 
 
(4,832)

 
Net      cash provided by (used in) investing activities
 
2,159

 
 
(4,832)

 
CASH      FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
Repayment      of Medium-term notes
(3,650)

--

           Net cash used in financing activities
 
(3,650)

 
 
--

 
 
 
 
 
 
 
 
Net      increase in cash and cashequivalents
 
--
 
 
--
 
 
 
 
 
 
 
 
Cash      and cash equivalents at beginning of period
 
--

 
 
--

 
 
 
 
 
 
 
 
Cash      and cash equivalents at end of period
 
--

 
 
--

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See      accompanying notes.
 
 
 
 
 
 
 
 

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** 

 

 

 **
SEARS DC CORP.Notes To Financial Statements(Unaudited)

 

Notes to Financial Statements*****(thousands)*
Sears DC Corp. ("SDC"), a wholly-owned subsidiaryof Sears, Roebuck and Co. ("Sears"), was formed to borrow in domesticand foreign debt markets and lend the proceeds of such borrowings to Sears andcertain direct and indirect subsidiaries of Sears in exchange for theirunsecured notes. The only current outstanding debts of SDC are two series ofmedium-term notes. SDC does not plan to issue additional debt.

Under an agreement between SDC and Sears, the interest rate paid by Sears onits unsecured notes is designed to produce earnings sufficient to cover SDC'sfixed charges at least 1.005 times. Required payments of principal and interestto SDC under the Sears borrowing agreement are intended to be sufficient toallow SDC to make timely payments of principal and interest to the holders ofits securities.

Certain information and footnote disclosures normally included in financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America have been condensed or omitted. The significantaccounting policies used in the presentation of these financial statements areconsistent with the summary of significant accounting policies set forth inSDC's Annual Report on Form 10-K for the fiscal year ended December 29, 2001,and these financial statements should be read in conjunction with the financialstatements and notes found therein. The interim financial statements reflect alladjustments (consisting only of normal recurring accruals) which are, in theopinion of management, necessary for a fair statement of the results for theinterim periods presented. The results of operations for the interim periodsshould not be considered indicative of the results to be expected for the fullyear.

The medium-term notes are generally not redeemable prior to their statedmaturity except under certain circumstances, primarily in the event of asignificant decline in Discover Card receivables of Sears former subsidiary,Dean Witter, which is now a part of Morgan Stanley Dean Witter & Co.Selected details of SDC's borrowings are shown below.

 
March      30,      2002

 
March      31,      2001

 

 
 
 
 
8.52%      to 9.26% medium-term notes due through 2012
 
$      73,875

 
$      213,025

 

 

At March 30, 2002, medium-term note maturities for the next five years andthereafter are as follows:

2002      . . . . . . . . . . .
$
21,075
2003      . . . . . . . . . . .
9,000
2004      . . . . . . . . . . .
--
2005      . . . . . . . . . . .
--
2006      . . . . . . . . . . .
--
Thereafter      . . . . . . . .
43,800

$
73,875

 

 

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SEARS DC CORP.13 Weeks Ended March 30, 2002 And March 31, 2001
** ***Item 2. Management's Discussion and Analysis of Financial Condition andResults of Operations(thousands)*** 

FINANCIAL CONDITION**
SDC invests funds in promissory notes of Sears, which pay interest sufficientto cover SDC's fixed charges at least 1.005 times, and in highly liquidshort-term investments.

The $73,875 in outstanding medium-term notes as of March 30, 2002 aregenerally not redeemable prior to their stated maturity except under certaincircumstances, primarily in the event of a significant decline in Discover Cardreceivables of Sears former subsidiary, Dean Witter, which is now a part ofMorgan Stanley Dean Witter & Co.

 

 
**RESULTS OF OPERATIONS**
Interest and related expenses decreased 63.9% from $4,801 to $1,732 for the13 weeks ended March 30, 2002. The decline in interest expense was due to loweroutstanding debt. Revenues decreased 63.8% from $4,831 to $1,750 for the 13weeks ended March 30, 2002. Interest revenue earned by SDC is contractuallyrequired to produce earnings sufficient to cover SDC's fixed charges at least1.005 times. Consequently, the decline in revenues was also due to loweroutstanding debt.

Earnings covered fixed charges 1.005 times for the 13 weeks ended March 30,2002.

 

 
**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION**
Certain statements made in this Report on Form 10-Q are forward-looking andare made in reliance on the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. As such they involve risks and uncertainties thatcould cause actual results to differ materially. These statements are based on anumber of assumptions about a variety of factors, including the ability of Searsto perform under the agreements described herein and general economic conditions(such as interest rates). While SDC believes that these assumptions arereasonable, SDC cautions that it is impossible to predict the impact of certainfacts that could cause actual results to differ from expected results.

 

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SEARS DC CORP.13 Weeks Ended March 30, 2002 And March 31, 2001

 

PART II. OTHER INFORMATION

Item      6.
Exhibits      and Reports on Form 8-K.
 
 
 
 
 
 
(a)
Exhibits.
 
 
 
 
 
 

 
An      Exhibit Index has been filed as part of this Report on Page E-1.
 
 
 
 
 
 
(b)
Reports      on Form 8-K.
 
 
 
 
 
 
 

None
 

 

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SEARS DC CORP.13 Weeks Ended March 30, 2002 And March 31, 2001

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
 
Sears DC Corp.      (Registrant)
May 7, 2002        
By:
/s/ William K. PhelanWilliam K. Phelan      Vice President and Controller      (Authorized Officer and Principal Accounting      Officer of Registrant) 
 
 
 

 

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** 

EXHIBIT INDEX**
SEARS DC CORP.13 Weeks Ended March 30, 2002 And March 31, 2001

 

 

Exhibit No.
 
3.1        
Certificate of Incorporation of Discover Credit Corp. dated January 9,      1987 (Incorporated by reference to Exhibit 3(a) to Form 10 of the      Registrant ("Form 10")*).
 
 
3.2        
Amendment to Certificate of Incorporation of Discover Credit Corp.      dated April 9, 1987 (Incorporated by reference to Exhibit 3(b) to Form      10*).
 
 
3.3        
Certificate of Amendment of Certificate of Incorporation dated May 21,      1993 to change the name of Discover Credit Corp. to Sears DC Corp.      (Incorporated by reference to Exhibit 3(c) to Form 10-K of the Registrant      for the fiscal year ended December 28, 1996*).
 
 
3.4        
By-laws of Sears DC Corp. as amended to February 6, 1996 (Incorporated      by reference to Exhibit 3(c) to Form 10-K of the Registrant for the fiscal      year ended December 30, 1995*).
 
 
4        
Registrant hereby agrees to furnish the Securities and Exchange      Commission, upon request, with the instruments 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.
 

_____________________        *Sec File No. 0-17955

 

E-1*****