UNITED STATES**SECURITIES 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 29, 2003

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
 

Indicate by check mark whether the 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 30, 2003, Registrant had 1,000 shares of common 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 the        reduced disclosure format.

Documents Incorporated By Reference

None
 

 

SEARS DC CORP.**Index To Quarterly Report on Form 10-Q**13 Weeks Ended March 29, 2003

Part I - Financial Information 
Page  
  
Item 1.
Financial Statements   
  Statements of Income (unaudited)        - 13 Weeks Ended March 29, 2003        and March 30, 2002 1  
Statements of Financial Position - March        29, 2003 (unaudited), March 30, 2002 (unaudited) and December 28, 2002 2  
Statements of Cash Flows (unaudited) - 13 Weeks Ended March 29, 2003        and March 30, 2002
3  
   
Notes to Financial Statements (unaudited)
4
  
         Item 2.Management's Discussion and        Analysis of Financial Condition and        Results of Operations
 5

 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
5
  
Item 4.
Disclosure Controls and Procedures
6  
 

Part II - Other Information  
  
Item 1.
Legal Proceedings
 
  
   
None. 
 
Item 6.
Exhibits and Reports on Form 8-K
7  
   
 
 

SEARS DC CORP.Statements of Income(Unaudited)

PART I. FINANCIAL INFORMATION
*Item I. Financial Statements*
13 Weeks Ended*thousands
March 29,
March 30,
2003
2002
Revenues
   Earnings on notes of Sears
$
1,216
$
1,750

Expenses

   Interest and related expenses
1,201
1,732
   Operating expenses
9
9
   Total expenses
1,210
1,741
         
Income before income taxes
6
9
Income taxes
2
3
Net Income
$      ==
4      =======
$      ==
6      =======

See notes to financial statements.

1

 

 

SEARS DC CORP.Statements of Financial Position

 
(Unaudited)   *thousands, except share data
March 29,
March 30,
Dec. 28, 
2003 
2002 
2002

Assets
   Notes of Sears
$
60,559
$
82,473
$
59,344
   Deferred Debt Issuance Costs
155
179
160
   Total assets
$      =
60,714      =========
$      =
82,652      =========
$      =
59,504      ========

Liabilities
   Medium-term notes
$
52,800
$
73,875
$
52,800
   Interest payable and other liabilities
2,450
3,329
1,244
   Total liabilities
55,250
77,204
54,044

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
5,456
5,440
5,452
   Total stockholder's equity
5,464
5,448
5,460
   Total liabilities and stockholder's equity
$      =
60,714      =========
$      =
82,652      =========
$      =
59,504      ========
See accompanying notes.
2

 

SEARS DC CORP.Statements of Cash Flows(Unaudited)

13 Weeks Ended*thousands
March 29,
March 30,
2003
2002       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income
$
4
$
6
Adjustments to reconcile net income to net cash provided by         operating activities:
Net change in deferred debt issuance costs and interest   payable and other liabilities 
1,211  
1,485 
Net cash provided by operating activities 
1,215  
1,491 

CASH FLOWS FROM INVESTING ACTIVITIES:      
(Increase) decrease in notes of Sears 
(1,215)  
2,159 
   Net cash provided by (used in) investing activities 
(1,215)  
2,159 

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.       
3
** **
SEARS DC CORP.Notes To Financial Statements(Unaudited)

 

Notes to Financial Statements*****(thousands)*
 

Sears DC Corp. ("SDC" or the "Company"), a wholly-ownedsubsidiary of Sears, Roebuck and Co. ("Sears"), was formed to borrowin domestic and foreign debt markets and lend the proceeds of such borrowings toSears and certain direct and indirect subsidiaries of Sears in exchange fortheir unsecured notes. The only outstanding debt of SDC is 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 28, 2002,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 not redeemable by SDC except in the event of asignificant decline in Discover Card receivables of Sears former subsidiary,Dean Witter, which is now a part of Morgan Stanley. SDC's borrowings include thefollowing:

 
March 29,      2003 
March 30,      2002
 
 

8.55% to 9.26% Medium-Term Notes due 2003 through 2012 
$ 52,800      ========== 
$ 73,875      ============
At March 29, 2003, medium-term note maturities for the next five years andthereafter are as follows:

2003 . . . . . . . . . . .
$
9,000
2004 . . . . . . . . . . .
--
2005 . . . . . . . . . . .
--
2006 . . . . . . . . . . .
--
2007 . . . . . . . . . . .
--
Thereafter . . . . . . . .
43,800
$      ==
52,800      ======
4

 

SEARS DC CORP.13 Weeks Ended March 29, 2003 And March 30, 2002
*Item 2. Management's Discussion and Analysis of Financial Condition andResults of Operations

(amounts in millions)***FINANCIAL CONDITION**
SDC invests funds in promissory notes of Sears, which pay interest sufficientto cover SDC's fixed charges at least 1.005 times.

The $52.8 in outstanding medium-term notes as of March 29, 2003 are generallynot redeemable prior to their stated maturity. One exception is in the event ofa significant decline in Discover Card receivables of Sears former subsidiary,Dean Witter, which is now a part of Morgan Stanley.
**RESULTS OF OPERATIONS**
Medium-term notes outstanding were $52.8 and $73.9 as of March 29, 2003 andMarch 30, 2002, respectively. Revenues decreased 30.5% to $1.2 in 2003 from $1.8in 2002. The revenue decrease is due to lower levels of interest-earning assetsin 2003. The decrease in the amount of medium-term notes outstanding led tointerest and related expenses decreasing 30.7% to $1.2 in 2003 from $1.7 in2002. Earnings covered fixed charges 1.005 times for the 13 weeks ended March29, 2003 and March 30, 2002.
**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION**
Certain statements made in this Report on Form 10-Q are "forward-lookingstatements" that are subject to risks and uncertainties that could causeresults to be materially different from any future results expressed or impliedby these forward-looking statements. These statements are based on a number ofassumptions about a variety of factors, including the ability of Sears toperform 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. SDCintends the forward-looking statements to speak only as of the time first madeand does not undertake to update or revise them as more information becomesavailable.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk
*(amounts in millions)*
SDC's outstanding debt securities are subject to interest rate risk. All debtsecurities are considered non-trading. At March 29, 2003 and March 30, 2002,100% of SDC's portfolio was fixed rate. For the 13 weeks ended March 29, 2003and March 30, 2002, the carrying value of SDC's debt was $52.8 and $73.9,respectively.

For the period ended March 29, 2003, average interest rates by year ofmaturity were:

2003
8.58%
2004
--  
2005
-- 
2006
-- 
2007
-- 
Thereafter
9.15%
5

 

SEARS DC CORP.13 Weeks Ended March 29, 2003 And March30, 2002*****Item 4. Disclosure Controls and Procedures*
The Company's management, including Larry R. Raymond, President and ChiefExecutive Officer (principal executive officer) and Keith E. Trost, VicePresident and Treasurer (principal financial officer), have evaluated theeffectiveness of the Company's "disclosure controls and procedures,"as such term is defined in Rules 13a-14 and 15d-14 promulgated under theSecurities Exchange Act of 1934, as amended, within 90 days of the filing dateof this Quarterly Report on Form 10-Q. Based upon their evaluation, theprincipal executive officer and principal financial officer concluded that theCompany's disclosure controls and procedures are effective. There were nosignificant changes in the Company's internal controls or in other factors thatcould significantly affect these controls, since the date the controls wereevaluated.

6
** **
SEARS DC CORP.13 Weeks Ended March 29, 2003 And March30, 2002

 

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
7

 

SEARS DC CORP.**13 Weeks Ended March 29, 2003 And March30, 2002**
 

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 09, 2003
By:
/s/ William K. Phelan         Vice President and Controller
 
   (Authorized Officer and Principal Accounting           Officer of Registrant)
  
8
**SEARS DC CORP.

CERTIFICATIONS

 **
I, Larry R. Raymond, President and Chief ExecutiveOfficer of Sears DC Corp., certify that:-  I have reviewed this quarterly report on Form 10-Q of Sears DC Corp.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;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;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:-  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;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"); andpresented in this quarterly report our conclusions about the        effectiveness of the disclosure controls and procedures based on our        evaluation as of the Evaluation Date;- 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):
-  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; andany fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant's internal      controls; and;- The registrant's othercertifying officers and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.
Date: May 09, 2003                      By: /s/ Larry R. RaymondLarry R. Raymond                        President and Chief Executive Officer                      
9
**SEARS DC CORP.

CERTIFICATIONS**
I, Keith E. Trost, Vice President and Treasurer of Sears DC Corp., certifythat:
-  I have reviewed this quarterly report on Form 10-Q of Sears DC Corp.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;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;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:-  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;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"); andpresented in this quarterly report our conclusions about the        effectiveness of the disclosure controls and procedures based on our        evaluation as of the Evaluation Date;- 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):
-  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; andany fraud, whether or not material, that involves management or other        employees who have a significant role in the registrant's internal        controls; and;- 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 09, 2003By: /s/ Keith E. TrostKeith E. TrostVice President and Treasurer
10
** 

EXHIBIT INDEX**
SEARS DC CORP.13 Weeks Ended March 29, 2003 And March30, 2002

 

Exhibit No. 
3(a)
Certificate of Incorporation of Discover Credit Corp. dated January 9,      1987 (Incorporated by reference to Exhibit 3(a) to Form 10 of the      Registrant *). 
 
3(b)
Amendment to Certificate of Incorporation of Discover Credit Corp.      dated April 9, 1987 (Incorporated by reference to Exhibit 3(b) to Form 10      of the Registrant*). 
 
3(c)
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(d)
By-laws of Sears DC Corp. as amended to February 6, 1996 (Incorporated      by reference to Exhibit 3(c) on 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. 
 
99(a)
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 as      adopted by Section 906 of the Sarbanes-Oxley Act of 2002.**
 
99(b)
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350 as      adopted Section 906 of the Sarbanes-Oxley Act of 2002.**
 

_____________________            * Sec File No. 0-17955            ** Filed herewith

E-1

 

**SEARS DC CORP.EXHIBIT 99(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. 1350 as adopted**by Section 906 of theSarbanes-Oxley Act of 2002**
The undersigned, Larry R. Raymond, President and Chief Executive Officer ofSears DC Corp. (the "Company"), has executed this certification inconnection with the filing with the Securities and Exchange Commission of theCompany's Quarterly Report on Form 10-Q for the period ended March 29, 2003 (the"Report").
**The undersigned hereby certifies that:**-  The Report fully complies with the requirements of Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; andThe information contained in the Report fairly presents, in all materialrespects, the financial condition and results of operations of the Company.
 

IN WITNESS WHEREOF, the undersigned has executed this certification as of the9th day of May, 2003.

/s/ Larry R. Raymond
Larry R. Raymond      President and Chief Executive Officer** **
A signed original of this written statement required by Section 906 has beenprovided to Sears DC Corp. and will be retained by  Sears DC Corp. and furnished to the Securities and Exchange Commission or its staff uponrequest.

E-2

 
**SEARS DC CORP.EXHIBIT 99(b)**
 
**CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. 1350 as adopted**by Section 906 of theSarbanes-Oxley Act of 2002**
The undersigned, Keith E. Trost, Vice President and Treasurer of Sears DCCorp. (the "Company"), has executed this certification in connectionwith the filing with the Securities and Exchange Commission of the Company'sQuarterly Report on Form 10-Q for the period ended March 29, 2003 (the"Report").
**The undersigned hereby certifies that:**-  The Report fully complies with the requirements of Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934; andThe information contained in the Report fairly presents, in all materialrespects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as of the9th day of May, 2003.

/s/ Keith E. Trost
Keith E. Trost        Vice President and Treasurer** **
A signed original of this written statement required by Section 906 has beenprovided to Sears DC Corp. and will be retained by Sears DC Corp. and furnished to the Securities and Exchange Commission or its staff uponrequest.

E-3*******