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 JUNE 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 July 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
June 30, 1994
PART I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements
Statements of Financial Position
June 30, 1994 and 1993 (unaudited)
and December 31, 1993 1
Statements of Income
Three and Six Months ended June 30,
1994 and 1993 (unaudited) 2
Statements of Cash Flows
Six Months ended June 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
<PAGE>
- 1 -
SEARS DC CORP.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30 December 31
millions 1994 1993 1993*
(unaudited)
<S>
Assets
Notes receivable from <C> <C> <C>
Sears, Roebuck and Co. $ 1,818.3 $ 3,080.7 $ 2,194.4
Cash and invested cash 0.1 31.5 0.1
Accrued interest income
and other assets 4.4 9.9 5.6
--------- --------- ---------
Total assets $ 1,822.8 $ 3,122.1 $ 2,200.1
========= ========= =========
Liabilities
Commercial paper (net
of unamortized discount
of $1.6) $ -- $ 230.1 $ --
Medium-term notes 1,787.1 2,366.8 2,147.8
Accrued interest expense
and other liabilities 31.6 56.4 48.5
--------- --------- ---------
Total liabilities 1,818.7 2,653.3 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 4.1 149.7 3.8
--------- --------- ---------
Total stockholder's equity 4.1 468.8 3.8
--------- --------- ---------
Total liabilities and
stockholder's equity $ 1,822.8 $ 3,122.1 $ 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>
- 2 -
SEARS DC CORP.
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
millions 1994 1993 1994 1993
<S>
Revenues
<C> <C> <C> <C>
Earnings on notes receivable $ 36.1 $ 60.2 $ 74.3 $130.6
Earnings on invested cash -- 0.2 -- 2.7
------ ------ ------ ------
Total revenues 36.1 60.4 74.3 133.3
------ ------ ------ ------
Expenses
Interest and related expenses 35.8 47.7 73.7 105.7
Operating expenses 0.1 0.7 0.2 1.0
------ ------ ------ ------
Total expenses 35.9 48.4 73.9 106.7
------ ------ ------ ------
Income before income taxes 0.2 12.0 0.4 26.6
Income taxes -- 4.1 0.1 9.0
------- ------ ------ ------
Net income $ 0.2 $ 7.9 $ 0.3 $ 17.6
======= ====== ======= ======
Ratio of earnings
to fixed charges 1.006 1.25 1.006 1.25
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
- 3 -
SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
millions 1994 1993
Cash flows from operating activities
<S> <C> <C>
Net income $ 0.3 $ 17.6
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Net change in accrued interest income and
other assets and accrued interest expense
and other liabilities (15.7) 35.3
-------- --------
Net cash provided by (used in) operating
activities (15.4) 52.9
-------- --------
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. 376.1 (3,080.7)
-------- --------
Net cash provided by investing activities 376.1 1,541.7
-------- --------
Cash flows from financing activities
Decrease in commercial paper,
primarily 90 days or less -- (1,609.9)
Repayments of medium-term notes (360.7) (38.6)
-------- --------
Net cash used in financing activities (360.7) (1,648.5)
-------- --------
Net increase (decrease) in cash and -- (53.9)
invested cash
Cash and invested cash at beginning of period 0.1 85.4
-------- --------
Cash and invested cash at end of period $ 0.1 $ 31.5
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE> - 4 -
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>
- 5 -
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 $1.79 billion in outstanding
medium-term notes as of June 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 24.9% and 30.3% for
the three and six months, respectively, ended June 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 1.006 times for the three and six
months ended June 30, 1994 compared to 1.25 times for the
comparable periods in 1993.
<PAGE>
- 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 E-1.
(b) Reports on Form 8-K.
None
<PAGE>
- 7 -
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)
August 15, 1994
<PAGE>
E-1
EXHIBIT INDEX
SEARS DC CORP.
Quarter Ended June 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) 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]
