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 SEPTEMBER 28, 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 number0-17955 

 

 

SEARS DC CORP.

(Exact Name ofRegistrant 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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to such filingrequirements for the past 90 days.

  

YES
  X
         No
  

  

As of September 28, 2002, theRegistrant had 1,000 shares of common stock, par value $1.00 per share,outstanding, all of which were held by Sears, Roebuck and Co.

  

Registrant meets the conditions setforth in General Instructions H(1) (a) and (b) of Form 10-Q and is thereforefiling this form with the reduced disclosure format.

   

   

 

 
**SEARS DC CORP.Index To Quarterly Report on Form 10-Q13 and 39 Weeks Ended September 28, 2002 

   

   

Part I - Financial      Information  
Page                           
 

Item 1.
Financial Statements
 
                           
 

Statements of Income (unaudited) - 13 and 39 Weeks Ended      September 28, 2002 and September 29, 2001
       1           
 

 

Statements      of Financial Position - September 28, 2002 (unaudited), September 29, 2001      (unaudited) and December 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                           
Item 2.
Management's Discussion and Analysis of Financial      Condition and Results of Operations
      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*
  *(dollars        in thousands)
13        Weeks Ended

39        Weeks Ended

Sept.        28,         2002

Sept.        29,         2001

Sept.        28,         2002

Sept.        29,         2001

Revenues
 
 
 
 
 
 
 
 
 
 
              
Earnings        on notes of Sears
$
1,210
$
4,723
$
4,307
$
14,359
 

Expenses

   Interest        and related expenses
1,194
4,694
4,256
14,271
   Operating        expenses
10

6

29

17

   Total        expenses
1,204
4,700
4,285
14,288
 

Income        before income taxes
6
23
22
71
Income        taxes
2

8

8

25

Net        income
$
4

$
15

$
14

$
46

Ratio        of earnings to fixed charges
1.005
1.005
1.005
1.005See notes to        financial statements.
  

 

 

 

1
**  

 

SEARS DC CORP.Statements of Financial Position**
  

 

 
(Unaudited)
*(dollars      in thousands)
Sept.      28,      2002

Sept.      29,      2001

Dec.      29,      2001

Assets
     Notes      of Sears
$
60,520
$
220,158
$
84,632
     Interest      receivable and other assets
166

202

189

          Total      assets
$
60,686

$
220,360

$
84,821

 

Liabilities
     Medium-term      notes
$
52,800
$
204,525
$
77,525
     Interest      payable and other liabilities
2,430

10,401

1,854

           Total      liabilities
55,230
214,926
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
5,448

5,426

5,434

          Total      stockholder's equity
5,456

5,434

5,442

 

     Total      liabilities and stockholder's equity
$
60,686

$
220,360

$
84,821

See      accompanying notes.
  

 

2
**  

 

SEARS DC CORP.Statements of Cash Flows(Unaudited)
**  **
 
39 Weeks Ended
*(dollars in thousands)
Sept. 28,      2002

Sept. 29,      2001

  

CASH FLOWS FROM OPERATING      ACTIVITIES:
Net income
$
14
$
46
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
 

599

 

4,446

Net cash provided by operating      activities
613

4,492

  

CASH FLOWS FROM INVESTING      ACTIVITIES:
  

Decrease in notes of Sears
24,112

4,008

     Net      cash provided by investing activities
24,112

4,008

  

CASH FLOWS FROM FINANCING      ACTIVITIES:
  

Repayment of Medium-term notes
(24,725)

(8,500)

   Net cash used      in financing activities
(24,725)

(8,500)

  

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

  

Sears DC Corp. ("SDC"), awholly-owned subsidiary of Sears, Roebuck and Co. ("Sears"), wasformed to borrow in domestic and foreign debt markets and lend the proceeds ofsuch borrowings to Sears and certain direct and indirect subsidiaries of Searsin exchange for their unsecured notes. The only current outstanding debts of SDCare two series of medium-term notes. SDC does not plan to issue additional debt.

  

Underan agreement between SDC andSears, the interest rate paid by Sears on its unsecured notes is designed toproduce earnings sufficient to cover SDC's fixed charges at least 1.005 times.Required payments of principal and interest to SDC under the Sears borrowingagreement are intended to be sufficient to allow SDC to make timely payments ofprincipal and interest to the holders of its securities.

  

Certain information and footnotedisclosures normally included in financial statements prepared in conformitywith accounting principles generally accepted in the United States of Americahave been condensed or omitted. The significant accounting policies used in thepresentation of these financial statements are consistent with the summary ofsignificant accounting policies set forth in SDC's Annual Report on Form 10-Kfor the fiscal year ended December 29, 2001, and these financial statementsshould be read in conjunction with the financial statements and notes foundtherein. The interim financial statements reflect all adjustments (consistingonly of normal recurring accruals) which are, in the opinion of management,necessary for a fair statement of the results for the interim periods presented.The results of operations for the interim periods should not be consideredindicative of the results to be expected for the full year.

  

The medium-term notes are generallynot 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 & Co. Incorporated. Selected details of SDC's borrowings areshown below.

  

 

*thousands*
Sept. 28,

2002

Sept. 29,

2001

    
 

 

 

 

  8.55% to      9.26% medium-term notes due through 2012
$   52,800

$   204,525

  

  

 

At September 28, 2002, medium-termnote maturities for the next five fiscal years and thereafter are as follows:

  
*thousands

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

$
52,800

  

 

 

4

  

 

 
**SEARS DC CORP.13 and 39 Weeks Ended September 28, 2002 and September 29, 2001 
**     ***Item 2. Management's Discussion andAnalysis of Financial Condition and Results of Operations*
     
**FINANCIAL CONDITION 

   **
SDC invests funds in promissory notesof Sears, which pay interest sufficient to cover SDC's fixed charges at least1.005 times.

  

The $52.8 million in outstandingmedium-term notes as of September 28, 2002 are generally not redeemable prior totheir stated maturity except under certain circumstances, primarily in the eventof a significant decline in Discover Card receivables of Sears formersubsidiary, Dean Witter, which is now a part of Morgan Stanley & Co.Incorporated.

  

 
**RESULTS OF OPERATIONS

  **
Interest and related expensesdecreased 74.6% from $4.7 million to $1.2 million and decreased 70.2% from $14.3million to $4.3 million for the 13 and 39 weeks ended September 28, 2002 andSeptember 29, 2001, respectively. The decline in interest expense was due tolower outstanding debt. Revenues decreased 74.4% from $4.7 million to $1.2million and decreased 70.0% from $14.4 million to $4.3 million for the 13 and 39weeks ended September 28, 2002 and September 29, 2001, respectively. Theinterest revenue earned by SDC is designed to produce earnings sufficient tocover SDC's fixed charges at least 1.005 times. Consequently, revenues alsoexperienced a decline due to lower outstanding debt.

  

Earnings covered fixed charges 1.005times for the 13 and 39 Weeks Ended September 28, 2002 and September 29, 2001.

 

  
**CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING INFORMATION

  **
Certain statements made in thisReport on Form 10-Q are forward-looking and are made in reliance on the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Assuch they involve risks and uncertainties that could cause actual results todiffer materially. These statements are based on a number of assumptions about avariety of factors, including the ability of Sears to perform under theagreements described herein and general economic conditions (such as interestrates). While SDC believes that these assumptions are reasonable, SDC cautionsthat it is impossible to predict the impact of certain facts that could causeactual results to differ from expected results.

  

 

 

5

  

  

 
**SEARS DC CORP.    ***Item 4. Disclosure Controls andProcedures  

   *
The Company's management, includingLarry R. Raymond, President and Chief Executive Officer (principal executiveofficer) and Keith E. Trost, Vice President and Treasurer (principal financialofficer), have evaluated the effectiveness of the Company's "disclosurecontrols and procedures," as such term is defined in Rules 13a-14 and15d-14 promulgated under the Securities Exchange Act of 1934, as amended, within90 days of the filing date of this Quarterly Report on Form 10-Q. Based upontheir evaluation, the principal executive officer and principal financialofficer concluded that the Company's disclosure controls and procedures areeffective. There were no significant changes in the Company's internal controlsor in other factors that could significantly affect these controls, since thedate the controls were evaluated.

  

 

 6
  

 
**SEARS DC CORP. **
 

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 11.
  
  
  
     
  
  
  
     
 

 

(b)
Reports on Form 8-K.
  
  
  
     
 

 

 

None
 

 

 

7

  

 

 
**SEARS DC CORP. **
  

SIGNATURE

  

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

  

 

 
 

 

Sears DC Corp.        (Registrant)
  
   
  
 
November 12,      2002
By:
/s/ William K. Phelan
 
 

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 Executive Officer 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 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/ Larry R.            Raymond

Larry R. Raymond            President and Chief Executive Officer

  

 

 9
**  **
  
** 

SEARS DC C ORP. 

CERTIFICATIONS

  **
I, Keith E. Trost, Vice President andTreasurer 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 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.              TrostKeith E. Trost              Vice President and              Treasurer
**  **
10
**  

 

 

SEARS DC CORP.E-1

EXHIBIT INDEX

  **
 

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.
   

   

**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. 0-17955

** Filed herewith

  

 

11
**  

 

SEARS DC CORP.EXHIBIT 99(a)**
  

 

 
**CERTIFICATION OF CHIEF EXECUTIVEOFFICER 

 

Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (18 U.S.C. 1350) **
 

 

The undersigned, Larry R. Raymond,President and Chief Executive Officer of Sears DC Corp. (the"Company"), has executed this certification in connection with thefiling with the Securities and Exchange Commission of the Company's QuarterlyReport on Form 10-Q for the quarter ended September 28, 2002 (the"Report"). 

 
**The undersigned hereby certifiesthat: 

 **-  The Report fully complies with the  requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;  and The information contained in the  Report fairly presents, in all material respects, the financial condition and  results of operations of the Company. 
 

IN WITNESS WHEREOF, the undersignedhas executed this certification as of the 12th day of November, 2002. 

 

/s/ Larry R. Raymond
Larry R. Raymond      President and Chief Executive      Officer

** **

 

 

12
**   **
   
**SEARS DC CORP.EXHIBIT 99(b) **
 

 

 
**CERTIFICATION OF CHIEF FINANCIALOFFICER 

 

Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (18 U.S.C. 1350) **
 

 

The undersigned, Keith E. Trost, VicePresident and Treasurer of Sears DC Corp. (the "Company"), hasexecuted this certification in connection with the filing with the Securitiesand Exchange Commission of the Company's Quarterly Report on Form 10-Q for thequarter ended September 28, 2002 (the "Report"). 

 
**The undersigned hereby certifiesthat: 

 **-  The Report fully complies with the  requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;  and The information contained in the  Report fairly presents, in all material respects, the financial condition and  results of operations of the Company. 
 

IN WITNESS WHEREOF, the undersignedhas executed this certification as of the 12th day of November, 2002. 

 

 

/s/ Keith E. Trost 
Keith E. Trost      Vice President and Treasurer
**   **
13*************