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 SEPTEMBER 30, 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 October 31, 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
September 30, 1994
PART I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements
Statements of Financial Position
September 30, 1994 and 1993 (unaudited)
and December 31, 1993 1
Statements of Income
Three and Nine Months ended September 30,
1994 and 1993 (unaudited) 2
Statements of Cash Flows
Nine Months ended September 30,
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
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- 1 -
SEARS DC CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
September 30 December 31
millions 1994 1993 1993*
(unaudited)
Assets
Notes receivable from
Sears, Roebuck and Co. $ 1,580.7 $ 2,730.1 $ 2,194.4
Cash and invested cash 0.1 0.2 0.1
Accrued interest income
and other assets 4.0 6.2 5.6
--------- --------- ---------
Total assets $ 1,584.8 $ 2,736.5 $ 2,200.1
========= ========= =========
Liabilities
Commercial paper $ -- $ 5.5 $ --
Medium-term notes 1,521.4 2,147.8 2,147.8
Accrued interest expense
and other liabilities 59.2 99.3 48.5
--------- --------- ---------
Total liabilities 1,580.6 2,252.6 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 4.2 164.8 3.8
--------- --------- ---------
Total stockholder's equity 4.2 483.9 3.8
--------- --------- ---------
Total liabilities and
stockholder's equity $ 1,584.8 $ 2,736.5 $ 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.
<PAGE>
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SEARS DC CORP.
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
millions 1994 1993 1994 1993
Revenues
Earnings on notes receivable $ 32.5 $ 69.5 $106.8 $200.1
Earnings on invested cash -- -- -- 2.7
------ ------ ------ ------
Total revenues 32.5 69.5 106.8 202.8
------ ------ ------ ------
Expenses
Interest and related expenses 32.3 45.5 106.0 151.2
Operating expenses -- 0.3 0.2 1.3
------ ------ ------ ------
Total expenses 32.3 45.8 106.2 152.5
------ ------ ------ ------
Income before income taxes 0.2 23.7 0.6 50.3
Income taxes 0.1 8.6 0.2 17.6
------ ------ ------ ------
Net income $ 0.1 $ 15.1 $ 0.4 $ 32.7
====== ====== ====== ======
Ratio of earnings
to fixed charges 1.005 1.52 1.005 1.33
See notes to financial statements.
<PAGE>
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SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30
millions 1994 1993
Cash flows from operating activities
Net income $ 0.4 $ 32.7
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 12.3 81.9
-------- --------
Net cash provided by operating
activities 12.7 114.6
-------- --------
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. 613.7 (2,730.1)
-------- --------
Net cash provided by investing activities 613.7 1,892.3
-------- --------
Cash flows from financing activities
Decrease in commercial paper,
primarily 90 days or less -- (1,834.5)
Repayments of medium-term notes (626.4) (257.6)
-------- --------
Net cash used in financing activities (626.4) (2,092.1)
-------- --------
Net decrease in cash and -- (85.2)
invested cash
Cash and invested cash at beginning of period 0.1 85.4
-------- --------
Cash and invested cash at end of period $ 0.1 $ 0.2
======== ========
See notes to financial statements.
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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 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>
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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 $1.52
billion in outstanding medium-term notes as of September 30, 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 29.0% and 29.9% for the three and nine months,
respectively, ended September 30, 1994 from the same periods 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 and nine months ended September 30, 1994
compared to 1.52 and 1.33 times, respectively, for the comparable periods
in 1993.
<PAGE>
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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>
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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)
November 14, 1994
<PAGE>
E-1
EXHIBIT INDEX
SEARS DC CORP.
Quarter Ended September 30, 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 September 29,
1994. (Incorporated by reference, File No. 1-416.)
28(b) Current report on Form 8-K of Sears, Roebuck and Co. for November 10,
1994. (Incorporated by reference, File No. 1-416.)
28(c) Quarterly Report on Form 10-Q of Sears, Roebuck and Co.,
for the quarter ended October 1, 1994. [Incorporated by
reference, File No. 1-416]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF FINANCIAL POSITION, INCOME AND CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 0
<SECURITIES> 0<F1>
<RECEIVABLES> 1581
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 0<F1>
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 1585
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1521
<COMMON> 0<F1>
0<F1>
0<F1>
<OTHER-SE> 4
<TOTAL-LIABILITY-AND-EQUITY> 1585
<SALES> 0<F1>
<TOTAL-REVENUES> 107
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
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<LOSS-PROVISION> 0<F1>
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<NET-INCOME> 0
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not applicable
</FN>
</TABLE>
