UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the fiscal year ended December 28, 1996
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 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: 302/888-3114
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $1.00 per share
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 [ ]
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X]
As of February 28, 1997, the Registrant had 1,000 shares of capital stock
outstanding, all of which was held by Sears, Roebuck and Co.
Registrant meets the conditions set forth in General Instruction (I)(1)(a)
and (b) of Form 10-K and is therefore filing this report with a reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
None
<PAGE>
-2-
PART I
Item 1. Business.
Sears DC Corp. ("SDC"), a wholly-owned subsidiary of Sears, Roebuck
and Co. ("Sears") organized under the laws of Delaware in January 1987, was
formed to borrow in domestic and foreign debt markets and lend the proceeds
of such borrowings to Sears and certain direct and indirect subsidiaries of
Sears in exchange for their unsecured notes. SDC raised funds through the
sale of its medium-term notes and direct placement of commercial paper with
corporate and institutional investors. Commercial paper was sold by Sears
Roebuck Acceptance Corp., an affiliate of SDC, as agent, with expenses, but
no fees, being paid by SDC.
Under an agreement between SDC and Sears, the interest rate paid by
Sears is designed to produce earnings sufficient to cover SDC's fixed
charges at least 1.005 times. Required payments of principal and interest
to SDC under the Sears borrowing agreement are intended to be sufficient to
allow SDC to make timely payments of principal and interest to the holders
of its securities.
The Net Worth Maintenance Agreement between Sears and SDC is still in
effect for the benefit of holders of debt securities issued by SDC. This
agreement provides for Sears to maintain ownership of and positive
stockholder's equity in SDC.
At February 28, 1997, SDC had no employees on its payroll and its
officers and directors consisted of employees of affiliated companies. Its
offices are located at 3711 Kennett Pike, Greenville, Delaware 19807.
Item 2. Properties.
None.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
-3-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no established public trading market for SDC's common
stock. As of February 28, 1997, Sears owned all outstanding shares of SDC's
common stock. During 1996, there were no dividends declared or paid to
Sears by SDC.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Financial Condition
SDC has invested funds in the promissory notes of Sears, which pay
interest sufficient to cover SDC's fixed charges at least 1.005 times
and in highly liquid short-term investments.
The $778.9 million in outstanding medium-term notes as of Decembr 28,
1996 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 of Sears former subsidiary, Dean Witter, Discover & Co.
The financial information appearing in this annual report on Form 10-K
is presented in historical dollars which do not reflect the decline in
purchasing power that results from inflation. As is the case for most
financial companies, substantially all of SDC's assets and liabilities are
monetary in nature. Interest rates on SDC's investment in Sears notes are
set to provide for a ratio of earnings to fixed charges of at least 1.005
times. This maintenance mechanism insulates SDC from bearing the effects of
inflation-based interest rate increases.
Results of Operations
Interest and related expenses decreased 27.3% to $84.4 million in 1996
from $116.1 million in 1995. In 1995 interest and related expenses decreased
15.4% to $116.1 million from $137.3 million in 1994. Earnings covered fixed
charges 1.006 times in 1996, and 1.005 times in 1995 and 1994, respectively.
<PAGE>
-4-
<TABLE>
Item 8. Financial Statements and Supplementary Data.
SEARS DC CORP.
STATEMENTS OF INCOME
<CAPTION>
millions 1996 1995 1994
<S> <C> <C> <C>
Revenues
Earnings on notes of Sears $ 85.0 $ 116.8 $ 138.3
Total revenues 85.0 116.8 138.3
Expenses
Interest and related expense 84.4 116.1 137.3
Operating expenses 0.1 0.1 0.3
Total expenses 84.5 116.2 137.6
Income before income taxes 0.5 0.6 0.7
Income taxes 0.2 0.2 0.2
Net Income $ 0.3 $ 0.4 $ 0.5
Ratio of earnings to fixed charges 1.006 1.005 1.005
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
-5-
<TABLE>
SEARS DC CORP.
STATEMENTS OF FINANCIAL POSITION
<CAPTION>
millions 1996 1995
<S> <C> <C>
Assets
Notes of Sears $ 799.2 $1,258.1
Cash and invested cash 0.1 0.1
Accrued interest and other assets 1.3 2.2
Total assets $ 800.6 $1,260.4
Liabilities
Medium-term notes $ 778.9 $1,228.7
Accrued interest and other liabilities 16.7 27.0
Total liabilities 795.6 1,255.7
Stockholder's Equity
Capital stock, par value $1.00 per share
1,000 shares authorized and outstanding - -
Retained income 5.0 4.7
Total stockholder's equity 5.0 4.7
Total liabilities and stockholder's equity $ 800.6 $1,260.4
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
-6-
<TABLE>
SEARS DC CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
<CAPTION>
millions 1996 1995 1994
<S> <C> <C> <C>
Capital stock $ - $ - $ -
Captial in excess of par value - - -
Retained income
Beginning of year 4.7 4.3 3.8
Net income 0.3 0.4 0.5
Dividend paid to Sears - - -
End of year 5.0 4.7 4.3
Total stockholder's equity $ 5.0 $ 4.7 $ 4.3
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
-7-
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
millions 1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 0.3 $ 0.4 $ 0.5
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 (9.4) (2.2) (15.9)
Net cash used in operating activities (9.1) (1.8) (15.4)
Cash Flows From Investing Activities
Decrease in notes of Sears 458.9 294.5 641.8
Net cash provided by investing activities 458.9 294.5 641.8
Cash Flows From Financing Activities
Repayments of medium-term notes (449.8) (292.7) (626.4)
Net cash used in financing activites (449.8) (292.7) (626.4)
Net increase (decrease) in cash and
invested cash - - -
Cash and invested cash, beginning of year 0.1 0.1 0.1
Cash and invested cash, end of year $ 0.1 $ 0.1 $ 0.1
Supplemental Disclosure of Cash Flow Information
Cash paid during the year
Interest $ 94.1 $ 117.6 $ 141.9
Income taxes 0.2 0.2 11.8
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
-8-
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SDC, a wholly-owned subsidiary of Sears, was principally engaged in
borrowing in domestic and foreign debt markets and lending the proceeds
of such borrowings to Sears and certain direct and indirect subsidiaries
of Sears in exchange for their unsecured notes.
Under an agreement between SDC and Sears, the interest rate paid by Sears
is designed to produce earnings sufficient to cover SDC's fixed charges at
least 1.005 times. Required payments of principal and interest to SDC under
the Sears borrowing agreement are intended to be sufficient to allow SDC to
make timely payments of principal and interest to the holders of its
securities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
The fiscal year for SDC ends on the last Saturday in December. Fiscal year
1996 ended on December 28, fiscal year 1995 ended on December 30, and
fiscal year 1994 ended on December 31.
Cash and invested cash is defined to include all highly liquid investments
with maturities of three months or less.
The results of operations of SDC are included in the consolidated federal
income tax return of Sears. Tax liabilities and benefits are allocated as
generated by SDC, whether or not such benefits would be currently available
on a separate return basis. Taxes are provided based on the statutory
federal income tax rate.
2. BORROWINGS
The medium-term notes are not redeemable 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. The fair market value of medium-term notes approximated
$814.0 million and $1,328.2 million at December 28, 1996 and December 30,
1995, respectively, based on discounted cash flows using interest rates of
comparable borrowings. Selected details of SDC's borrowings are shown below.
<PAGE>
-9-
<TABLE>
<CAPTION>
millions
1996 1995
<S> <C> <C>
7.67% to 9.26% medium-term notes due through 2012 $ 778.9 $1,228.7
</TABLE>
At December 28, 1996, medium-term note maturities for the next five years
were as follows:
1997 $ 335.1
1998 111.3
1999 119.5
2001 135.5
Thereafter 77.5
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
<PAGE>
-10-
PART III
Item 10. Directors and Executive Officers of the Registrant.
Not applicable.
Item 11. Executive Compensation.
Not applicable.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Not applicable.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. An "Index to Financial Statements" has been filed as a part
of this report on page S-1 hereof.
2. No financial statement schedules are included herein because
they are not required or because the information is contained in the financial
statements and notes thereto, as noted in the "Index to Financial Statements"
filed as part of this report.
3. An "Exhibit Index" has been filed as part of this report
beginning on page E-1 hereof.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Registrant
during the 4th Quarter of 1996.
<PAGE>
-11-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: /s/ William K. Phelan
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ ALICE M. PETERSON Director, President and )
Alice M. Peterson* Chief Executive Officer )
(Principal Executive Officer) )
)
)
/s/ WILLIAM K. PHELAN Vice President and Controller ) March 24, 1997
William K. Phelan* (Principal Accounting Officer))
)
)
/s/ LARRY R. RAYMOND Vice President and Treasurer )
Larry R. Raymond* (Principal Financial Officer) )
)
)
/s/ JAMES A. BLANDA Director )
James A. Blanda* )
)
)
/s/ JAMES D. CONSTANTINE Director )
James D. Constantine* )
)
*By: /s/WILLIAM K. PHELAN Individually and as Attorney-in-Fact
William K. Phelan
<PAGE>
SEARS DC CORP.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
PAGE
STATEMENTS OF INCOME 4
STATEMENTS OF FINANCIAL POSITION 5
STATEMENTS OF STOCKHOLDER'S EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8-9
INDEPENDENT AUDITORS' REPORT S-2
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors
Greenville, DE
We have audited the accompanying Statements of Financial Position of Sears
DC Corp. (formerly Discover Credit Corp.) (a wholly-owned subsidiary of
Sears, Roebuck and Co.) as of December 28, 1996 and December 30, 1995, and
the related Statements of Income, Stockholder's Equity and Cash Flows for
each of the three years in the period ended December 28, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Sears DC Corp. as of December 28, 1996
and December 30, 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 10, 1997
S-2
<PAGE>
EXHIBIT INDEX
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 (Form 10)*]
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*]
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.**
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 year
ended December 30, 1995*]
4(a) Net Worth Maintenance Agreement between Discover Credit Corp. and Sears,
Roebuck and Co., dated as of November 13, 1987 [Incorporated by
reference to Exhibit 4 to Form 10*]
4(b) Forms of fixed rate Medium-Term Note and floating rate Medium-Term Note
[Incorporated by reference to Exhibits 4.1 and 4.2 to Current Report
on Form 8-K of the Registrant dated February 9, 1990*]
4(c) Indenture, dated as of June 1, 1991 between Discover Credit Corp. and
Bank of Delaware as Trustee [Incorporated by reference to Exhibit 4 to
Registration Statement No. 33-40056]
4(d) Forms of fixed rate Medium-Term Note Series II and floating rate
Medium-Term Note Series II [Incorporated by reference to Exhibits
4.2 and 4.3 to Current Report on Form 8-K of the Registrant dated
June 20, 1991*]
4(e) Indenture, dated as of February 15, 1992, between Discover Credit Corp.
and Harris Trust Company of New York [Incorporated by reference to
Exhibit 4.1 to Current Report on Form 8-K of the Registrant dated
February 28, 1992*]
4(f) Forms of fixed rate Medium-Term Note Series III and floating rate
Medium-Term Note Series III [Incorporated by reference to Exhibits
4.2 and 4.3 to Current Report on Form 8-K of the Registrant dated
February 28, 1992*]
4(g) 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.
_________________________________________
* SEC File No. 0-17955
** Filed herewith
E-1
<PAGE>
10(a) Letter Agreement dated March 9, 1993 between Sears,Roebuck and Co.
and Discover Credit Corp. [Incorporated by reference to Exhibit
10(g) to Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1992*]
10(b) Amendment dated March 22, 1994 to letter Agreement dated March 9,
1993 between Sears, Roebuck and Co. and Discover Credit Corp.
[Incorporated by reference to Exhibit 10(b) to Annual Report on
Form 10-K of the Registrant for the year ended December 31, 1994*]
12 Calculation of ratio of earnings to fixed charges**
23 Consent of Deloitte & Touche LLP**
24 Power of Attorney**
27 Financial Data Schedule**
99(a) Current Report on Form 8-K of Sears, Roebuck and Co., for January 7,
1997 [Incorporated by reference, File No. 1-416]
99(b) Current Report on Form 8-K of Sears, Roebuck and Co., for January 23,
1997 [Incorporated by reference, File No. 1-416]
99(c) Annual Report on Form 10-K of Sears, Roebuck and Co. for the year
ended December 28, 1996 [Incorporated by reference, File No. 1-416]
______________________________
* SEC File No. 0-17955
** Filed herewith
E-2
<PAGE>
Exhibit 12
SEARS DC CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
millions 1996 1995 1994
<S> <C> <C> <C>
NET INCOME $ 0.3 $ 0.4 $ 0.5
INCOME TAXES 0.2 0.2 0.2
FIXED CHARGES, INTEREST
AND RELATED CHARGES 84.4 116.1 137.3
(i) EARNINGS AVAILABLE FOR
FIXED CHARGES 84.9 116.7 138.1
(ii) FIXED CHARGES 84.4 116.1 137.3
RATIO OF EARNINGS TO
FIXED CHARGES (i/ii) 1.006 1.005 1.005
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-44671 of Sears DC Corp. (formerly Discover Credit Corp.) of our report
dated March 10, 1997 appearing in this Annual Report on Form 10-K of Sears
DC Corp. for the year ended December 28,1996.
/S/ Deloitte & Touche LLP
Chicago, Illinois
March 24, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of SEARS DC CORP., a Delaware corporation
(the "Corporation"), does hereby constitute and appoint JAMES A. BLANDA,
ALICE M. PETERSON, LARRY R.RAYMOND, WILLIAM K. PHELAN, VENRICE R. PALMER
and KEITH E.TROST, with full power to each of them to act alone, as the
true and lawful attorneys and agents of the undersigned, with full power
of substitution and resubstitution to each of said attorneys, to execute,
file and deliver any and all instruments and to do any and all acts and
things which said attorneys and agents, or any of them, deem advisable to
enable the Corporation to comply with the Securities Exchange Act of 1934,
as amended, and any requirements of the Securities and Exchange Commission
in respect thereto, relating to annual reports on Form 10-K, including
specifically, but without limitation of the general authority hereby
granted, the power and authority to sign his or her name in the name and
on behalf of the Corporation or as a director or officer, or both, of
the Corporation, as indicated below opposite his or her signature, to
annual reports on Form 10-K or any amendment or papers supplemental
thereto; and each of the undersigned does hereby fully ratify and confirm
all that said attorneys and agents, or any of them, or the substitute of
any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these
presents, as of this 24th day of March, 1997.
NAME TITLE
/s/ ALICE M. PETERSON Director, President and
Alice M. Peterson Chief Executive Officer
(Principal Executive Officer)
/s/ LARRY R. RAYMOND Vice President and Treasurer
Larry R. Raymond (Principal Financial Officer)
/s/ WILLIAM K. PHELAN Vice President and Controller
William K. Phelan (Principal Accounting Officer)
/s/ JAMES A. BLANDA Director
James A. Blanda
/s/ JAMES D. CONSTANTINE Director
James D. Constantine
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF FINANCIAL POSITION, INCOME AND CASH HFLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 0
<SECURITIES> 0<F1>
<RECEIVABLES> 799
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 0<F1>
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 801
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 779
0<F1>
0<F1>
<COMMON> 0<F1>
<OTHER-SE> 17
<TOTAL-LIABILITY-AND-EQUITY> 796
<SALES> 0<F1>
<TOTAL-REVENUES> 85
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 0
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not applicable
</FN>
</TABLE>
