[TEXT]
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-17955
SEARS DC CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-3533346
(State of Incorporation) (I.R.S. Employer Identification No.)
3711 Kennett Pike
Greenville, Delaware 19807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 302/888-3190
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 ( )
As of April 30, 1994, the Registrant had 1,000 shares of
capital 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 a reduced disclosure format.
<PAGE>
SEARS DC CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1994
PART I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements
Statements of Financial Position
March 31, 1994 and 1993 (unaudited)
and December 31, 1993 1
Statements of Income
Three Months ended March 31,
1994 and 1993 (unaudited) 2
Statements of Cash Flows
Three Months ended March 31,
1994 and 1993 (unaudited) 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 6. Exhibits and Reports on Form 8-K 6
<PAGE>
SEARS DC CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
STATEMENTS OF FINANCIAL POSITION
<CAPTION>
March 31 December 31
millions 1994 1993 1993*
<S> (unaudited)
Assets
Notes receivable from <C> <C> <C>
Sears, Roebuck and Co. $ 2,055.2 $ 3,567.7 $ 2,194.4
Cash and invested cash 0.1 46.3 0.1
Accrued interest income
and other assets 5.0 32.6 5.6
--------- --------- ---------
Total assets $ 2,060.3 $ 3,646.6 $ 2,200.1
========= ========= =========
Liabilities
Commercial paper (net
of unamortized discount
of $5.9) $ -- $ 717.9 $ --
Medium-term notes 1,990.1 2,379.8 2,147.8
Accrued interest expense
and other liabilities 66.3 88.0 48.5
--------- --------- ---------
Total liabilities 2,056.4 3,185.7 2,196.3
--------- --------- ---------
Stockholder's equity
Capital stock,
par value $1.00 per share: -- -- --
Authorized, issued and
outstanding, 1,000 shares
Capital in excess of par value -- 319.1 --
Retained income 3.9 141.8 3.8
--------- --------- ---------
Total stockholder's equity 3.9 460.9 3.8
--------- --------- ---------
Total liabilities and
stockholder's equity $ 2,060.3 $ 3,646.6 $ 2,200.1
========= ========= =========
<FN>
* The Statement of Financial Position at December 31, 1993, has been taken from the audited
financial statements at that date.
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
SEARS DC CORP.
<TABLE>
STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended
March 31
millions 1994 1993
<S>
Revenues
<C> <C>
Earnings on notes receivable $ 38.2 $ 70.4
Earnings on invested cash -- 2.5
------ ------
Total revenues 38.2 72.9
------ ------
Expenses
Interest and related expenses 37.9 58.0
Operating expenses 0.1 0.3
------ ------
Total expenses 38.0 58.3
------ ------
Income before income taxes 0.2 14.6
Income taxes 0.1 4.9
------- ------
Net income $ 0.1 $ 9.7
======= ======
Ratio of earnings
to fixed charges 1.005 1.25
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
SEARS DC CORP.
<TABLE>
STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
March 31
millions 1994 1993
<S>
Cash flows from operating activities
<C> <C>
Net income $ 0.1 $ 9.7
Adjustments to reconcile net income to
net cash provided by operating activities:
Net change in accrued interest income and
other assets and accrued interest expense
and other liabilities 18.4 44.2
-------- --------
Net cash provided by operating activities 18.5 53.9
-------- --------
Cash flows from investing activities
Decrease in notes of Sears Consumer Financial
Corporation of Delaware -- 4,622.4
(Increase) decrease in notes of
Sears, Roebuck and Co. 139.2 (3,567.7)
-------- --------
Net cash provided by investing activities 139.2 1,054.7
-------- --------
Cash flows from financing activities
Decrease in commercial paper,
primarily 90 days or less -- (1,122.1)
Repayments of medium-term notes (157.7) (25.6)
-------- --------
Net cash used in financing activities (157.7) (1,147.7)
-------- --------
Net increase (decrease) in cash and -- (39.1)
invested cash
Cash and invested cash at beginning of period 0.1 85.4
-------- --------
Cash and invested cash at end of period $ 0.1 $ 46.3
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
SEARS DC CORP.
________________
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Financial Statements
Sears DC Corp. (SDC), a wholly-owned subsidiary of Sears,
Roebuck and Co. (Sears), was principally engaged in the
borrowing in domestic and foreign debt markets and lending
the proceeds of such borrowings to certain direct and
indirect subsidiaries of Sears in exchange for their
unsecured notes. Effective May 26, 1993, the company's
name was changed to Sears DC Corp. from Discover Credit
Corp.
Historically, the proceeds of SDC's borrowings were loaned
to Sears Consumer Financial Corporation of Delaware
(SCFCD), a wholly-owned subsidiary of Dean Witter, Discover
& Co. (DWDC), to finance the accounts receivable generated
by the Discover Card and consumer installment notes
receivable. However, as a result of the strategic
repositioning of Sears, the business of SDC changed
significantly. In the last quarter of 1992, SDC stopped
selling medium-term notes. On March 1, 1993, DWDC, until
then a wholly-owned subsidiary of Sears, completed the sale
of 19.9% of its outstanding capital stock through a primary
initial public offering. Sears spun-off its 80.1%
ownership interest in DWDC to Sears shareholders in June
1993. Also in March 1993, SDC discontinued issuing
commercial paper, and was repaid by SCFCD the amounts
outstanding and owing to SDC.
On March 9, 1993, SDC entered into a loan agreement with
Sears for the investment of funds received upon the
prepayment of the notes of SCFCD. The interest rate paid
to SDC by Sears under this agreement was designed to
produce earnings sufficient to cover SDC's fixed charges
(principally interest on SDC's indebtedness) at least 1.25
times. On March 22, 1994, the agreement was amended to
reduce the fixed charge coverage to 1.005. Required
payments of principal and interest to SDC under the Sears
borrowing agreement will be sufficient to allow SDC to make
timely payments of principal and interest to the holders of
its securities.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. The significant accounting policies
used in the presentation of these financial statements are
consistent with the summary of significant accounting
policies set forth in SDC's Annual Report on Form 10-K for
the year ended December 31, 1993, and these financial
statements should be read in conjunction with the financial
statements and notes found therein. The results of
operations for the interim periods should not be considered
indicative of the results to be expected for the full year.
<PAGE>
SEARS DC CORP.
________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 15, 1993, SDC received funds from DWDC's initial
public offering, and a concurrent debt issuance, through
SCFCD in amounts sufficient to repay the balances on the
notes of SCFCD. SDC used these funds to repay short-term
borrowings and current maturities of medium-term notes.
SDC invested the remainder of these funds in the promissory
notes of Sears, which pay interest sufficient to cover
SDC's fixed charges 1.005 times, and in highly liquid
short-term investments.
In March 1993, SDC discontinued issuing commercial paper.
The last of SDC's commercial paper matured in October 1993.
SDC had discontinued the sale of medium-term notes in the
last quarter of 1992. The $1.99 billion in outstanding
medium-term notes as of March 31, 1994 are not redeemable
prior to their stated maturity except for notes having a
stated maturity at the time of issue of more than seven
years which may be redeemed under certain circumstances in
the event of declining Discover Card receivables.
Results of Operations
Due to the significant reduction in SDC's outstanding debt,
interest and related expenses decreased 34.7% to $37.9
million for the three months ended March 31, 1994 from
$58.0 million for the same period in 1993. SDC's net
income declined due to the decrease in the rate on the
Sears notes from a rate sufficient to cover fixed charges
1.25 times to a rate sufficient to cover fixed charges
1.005 times. Earnings covered fixed charges 1.005 times
for the three months ended March 31, 1994 compared to 1.25
times for the comparable period in 1993.
<PAGE>
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 E-1.
(b) Reports on Form 8-K.
None
<PAGE>
SEARS DC CORP.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Sears DC Corp.
(Registrant)
By: Paul D. Melancon
---------------------
Paul D. Melancon
Vice President and Controller
(authorized officer of
Registrant)
May 13, 1994
<PAGE>
EXHIBIT INDEX
SEARS DC CORP.
Quarter Ended March 31, 1994
Exhibit No.
4 The Registrant hereby agrees to furnish the
commission, upon request, with each instrument
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.
28(a) Current Report on Form 8-K of Sears, Roebuck and
Co. for April 20, 1994 [Incorporated by reference,
File No. 1-416]
28(b) Quarterly Report on Form 10-Q of Sears, Roebuck and
Co., for the quarter ended April 2, 1994.
[Incorporated by reference, File No. 1-416]
