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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 JUNE 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 June 29, 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 Instructions H(1) (a)and (b) of Form 10-Q and is therefore filing this form with the reduceddisclosure format.

 

 

SEARS DC CORP.Index To Quarterly Report on Form 10-Q13 and 26 Weeks Ended June 29, 2002
** **
Part I - Financial Information  
Page     
Item 1.
Financial Statements       
Statements of Income (unaudited)      - 13 and 26 Weeks Ended June 29, 2002      and June 30, 2001
1      
Statements of Financial      Position - June 29, 2002 (unaudited), June 30, 2001 (unaudited) and      December 29, 2001
2  
Statements of Cash Flows (unaudited)      - 26 Weeks Ended June 29, 2002 and June 30, 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)

Table of Contents

PART I. FINANCIAL INFORMATION
*Item I. Financial Statements*
 
*(dollars in thousands)        
13 Weeks Ended

26 Weeks Ended

June 29,  2002

June 30,  2001

June 29,  2002

June 30,  2001

Revenues      
       Earnings on notes of Sears
$
1,347
$
4,805
$
3,097
$
9,636

Expenses

   Interest and related expenses
1,330
4,776
3,062
9,577
   Operating expenses
    10

5

19

11

   Total expenses
1,340
4,781
3,081
9,588
Income before income taxes
7
24
16
48
Income taxes
3

9

6

17

Net Income
$
4

$
15

$
10

$
31

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

 1
 

 

SEARS DC CORP.Statements of Financial Position
**Table of Contents

 

(Unaudited)

 
*(dollars in thousands)
June 29,
June 30,
Dec. 29,
 

2002

 

2001

 

2001

Assets
     Notes of Sears
$
59,309
$
224,263
$
84,632
     Interest receivable and other assets
173

235

189

          Total      assets
$
59,482

$
224,498

$
84,821

Liabilities
     Medium-term notes
$
52,800
$
213,025
$
77,525
     Interest payable and other liabilities
1,230

6,054

1,854

           Total      liabilities
54,030
219,079
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
5,444

5,411

5,434

          Total      stockholder's equity
5,452

5,419

5,442

     Total liabilities and stockholder's      equity
$
59,482

$
224,498

$
84,821

See accompanying notes.
 

2

 

 

SEARS DC CORP.Statements of Cash Flows(Unaudited)

Table of Contents
** **
26 Weeks Ended
*(dollars in thousands)
June 29,
June 30,
2002

2001

 

CASH FLOWS FROM OPERATING ACTIVITIES:
 

Net income
$
10
$
31
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
 

(608)

 

66

Net cash provided by (used in) operating activities
 

(598)

 

97

CASH FLOWS FROM INVESTING ACTIVITIES:
 

(Increase) decrease in notes of Sears
 

25,323

 

(97)

     Net cash provided by (used in) investing      activities
 

25,323

 

(97)

CASH FLOWS FROM FINANCING ACTIVITIES:
 

Repayment of Medium-term notes
(24,725)

--

   Net cash used in financing activities
 

(24,725)

 

--

 

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)

Table of Contents

Statementsof Income

Statementsof Financial Position

Statementsof Cash Flows

Notes to Financial Statements****
 

Sears DC Corp. ("SDC"), a wholly-owned subsidiary of Sears, Roebuckand Co. ("Sears"), was formed to borrow in domestic and foreign debtmarkets and lend the proceeds of such borrowings to Sears and certain direct andindirect subsidiaries of Sears in exchange for their unsecured notes. The onlycurrent outstanding debts of SDC are two series of medium-term notes. SDC doesnot 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 & Co. Incorporated.Selected details of SDC's borrowings are shown below.

*thousands*
 

June 29,      2002

 

June 30,      2001

   
8.55% to 9.26% medium-term notes due through 2012
 

$   52,800

 

$   213,025

 

 

At June 29, 2002, medium-term note maturities for the next five years andthereafter are as follows:
*thousands*
2002 . . . . . . . . . . .
$
--
2003 . . . . . . . . . . .
9,000
2004 . . . . . . . . . . .
--
2005 . . . . . . . . . . .
--
2006 . . . . . . . . . . .
--
Thereafter   . . . . . . . .
43,800

$
52,800

 

4

 

 

SEARS DC CORP.13 and 26 Weeks Ended June 29, 2002 And June 30, 2001

Table of Contents
*Item 2. Management's Discussion and Analysis of Financial Condition andResults of Operations*
**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 million in outstanding medium-term notes as of June 29, 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 & Co. Incorporated.

 
**RESULTS OF OPERATIONS**
Interest and related expenses decreased 72.2% from $4.8 million to $1.3million and decreased 68% from $9.6 million to $3.1 million for the 13 and 26weeks ended June 29, 2002 and June 30, 2001, respectively. The decline ininterest expense was due to lower outstanding debt. Revenues decreased 72% from$4.8 million to $1.3 million and decreased 67.9% from $9.6 million to $3.1million for the 13 and 26 weeks ended June 29, 2002 and June 30, 2001,respectively. The interest revenue earned by SDC is designed to produce earningssufficient to cover SDC's fixed charges at least 1.005 times. Consequently,revenues also experienced a decline due to lower outstanding debt.

Earnings covered fixed charges 1.005 times for the 13 and 26 Weeks Ended June29, 2002 and June 30, 2001.

 

 
**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.

5

 

 

SEARS DC CORP.13 and 26 Weeks Ended June 29, 2002 And June 30, 2001

Table of Contents

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
 

6

 

 

SEARS DC CORP.13 and 26 Weeks Ended June 29, 2002 And June 30, 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)

August 12, 2002        
By:
/s/ William K. Phelan   William K. Phelan         Vice President and Controller

 

   (Authorized Officer and Principal Accounting           Officer of Registrant)
 

7

 
** 

EXHIBIT INDEX**
 

SEARS DC CORP.13 and 26 Weeks Ended June 29, 2002 And June 30, 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.  
**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

 

E-1*****