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 28, 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 make 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 July 31, 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.

 

 

 

SEARS DC CORP.Index To Quarterly Report on Form 10-Q13 and 26 Weeks Ended June 28, 2003

Part I - Financial Information 
Page  
  
Item 1.
Financial Statements   
  Condensed Statements of Income (unaudited)      - 13 and 26 Weeks Ended June 28, 2003 and June 29, 2002
 1
  
Condensed Statements of Financial Position - June 28, 2003 (unaudited),      June 29, 2002 (unaudited) and December 28, 2002
 2

 

 

Condensed Statements of Cash Flows (unaudited) - 13 and 26 Weeks Ended      June 28, 2003 and June 29, 2002
3    
         
Notes to Condensed 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.  Condensed Statements of Income  (Unaudited)

PART I. FINANCIAL INFORMATION
*Item I. Financial Statements*
13        Weeks Ended

26        Weeks Ended
*thousands
June      28,
June      29,
June      28,
June      29,
2003

2002

2003

2002

Revenues
       Earnings        on notes of Sears
$
1,139
$
1,347
$
2,355
$
3,097

Expenses

   Interest        and related expenses
1,124
1,330
2,325
3,062
   Operating        expenses
9
10
18
19
 
 
 
 
 
 
 
 
   Total        expenses
1,133
1,340
2,343
3,081
Income        before income taxes
6
7
12
16
Income taxes
2
3
4
6
 
 
 
 
 
 
 
 
Net Income
$
4

$
4

$
8

$
10

 

       
 

       
 

       
 

 
See accompanying notes.

1

 

 

SEARS DC CORP.Condensed Statements of Financial Position

 
(Unaudited)
*thousands,        except share data
June        28,
June        29,
Dec.        28,
2003

2002

2002

Assets
     Notes        of Sears
$
54,274
$
59,309
$
59,344
     Deferred        Debt Issuance Costs
150

173

160

 
 
 
 
 
 
          Total        assets
$
54,424

$
59,482

$
59,504

 

 
 

 
 

 
Liabilities
     Medium-term        notes
$
47,800
$
52,800
$
52,800
     Interest        payable and other liabilities
1,156

1,230

1,244

 
 
 
 
 
 
           Total        liabilities
48,956
54,030
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
5,460

5,444

5,452

 
 
 
 
 
 
          Total        stockholder's equity
5,468

5,452

5,460

 

 

 

 

 

 

     Total        liabilities and stockholder's equity
$
54,424

$
59,482

$
59,504

 
 
 
 
 
 
See        accompanying notes.
 

2

 

SEARS DC CORP.Condensed Statements of Cash Flows(Unaudited)
****
 
26 Weeks Ended*thousands
June 28,
June 29,
2003
2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
8
$
10
Adjustments to reconcile net income to net cash provided by         operating activities:
Net change in interest receivable and other assets and interest 
(78)
(608)
         payable and other liabilities
 
 
 
Net cash used in operating activities
(70)
(598)
 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes of Sears
5,070
25,323
 
 
 
 
     Net cash provided by investing activities
5,070
25,323
 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Medium-term notes
(5,000)
(24,725)
 
 
 
 
   Net cash used in financing activities
(5,000)
(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 Condensed Financial Statements(Unaudited)

 

Notes to Condensed 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:

 
June 28,      2003 
June 29,      2002
    
8.62% to 9.26% Medium-Term Notes due 2003 through 2012 
$ 47,800 
$ 52,800
 

At June 28, 2003, medium-term note maturities for the next five years andthereafter are as follows:

2003 . . . . . . . . . . .
$
4,000
2004 . . . . . . . . . . .
--
2005 . . . . . . . . . . .
--
2006 . . . . . . . . . . .
--
2007 . . . . . . . . . . .
--
Thereafter . . . . . .
43,800
$
47,800
 

 

4

 

SEARS DC CORP.13 and 26 Weeks Ended June 28, 2003 And June 29, 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 $47.8 in outstanding medium-term notes as of June 28, 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 $47.8 and $52.8 as of June 28, 2003 andJune 29, 2002, respectively. Revenues decreased 24.0% to $2.4 in 2003 from $3.1in 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 24.1% to $2.3 in 2003 from $3.1 in2002. Earnings covered fixed charges 1.005 times for the 13 and 26 weeks endedJune 28, 2003 and June 29, 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 June 28, 2003 and June 29, 2002, 100%of SDC's portfolio was fixed rate. For the 13 and 26 weeks ended June 28, 2003and June 29, 2002, the carrying value of SDC's debt was $47.8 and $52.8,respectively.

For the period ended June 28, 2003, average interest rates by year ofmaturity were:

2003
8.62%
2004
--  
2005
--  
2006
--  
2007
--  
Thereafter
9.15%
5

 

SEARS DC CORP.13 and 26 Weeks Ended June 28, 2003 And June 29, 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 and 26 Weeks Ended June 28, 2003 And June 29, 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 and 26 Weeks Ended June 28, 2003 And June 29, 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)
 
 

 

August 6, 2003        
By:
/s/ William K. PhelanWilliam 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: August 6, 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: August 6, 2003By: /s/ Keith E. TrostKeith E. Trost                          Vice President and Treasurer
 

10
** 

EXHIBIT INDEX**
SEARS DC CORP.13 and 26 Weeks Ended June 28, 2003 And June 29, 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.  
32(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.**  
32(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 32(a)**
 
**CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. 1350 as adopted**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 June 28, 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 the6th day of August, 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 furnishedto the Securities and Exchange Commission or its staff upon request.

 

E-2
**SEARS DC CORP.EXHIBIT 32(b)**
 
**CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. 1350 as adopted**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 June 28, 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 the6th day of August, 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 furnishedto the Securities and Exchange Commission or its staff upon request.

 

E-3*******