UNITED STATES
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 27, 1997
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: 302/888-3114
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, 1997 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 27, 1997
Page
Part I - Financial Information.
Item 1. Financial Statements.
Statements of Income (unaudited) -
Three and Nine Months Ended September 27, 1997 and
September 28, 1996. 1
Statements of Financial Position -
September 27, 1997 (unaudited), September 28, 1996 (unaudited)
and December 28, 1996. 2
Statements of Cash Flows (unaudited) -
Nine Months Ended September 27, 1997 and September 28, 1996. 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-
<TABLE>
SEARS DC CORP.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
(millions, except ratios) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Earnings on notes of Sears $ 9.9 $ 19.3 $ 37.4 $ 68.2
Total revenues 9.9 19.3 37.4 68.2
Expenses
Interest and related expenses 9.9 19.2 37.2 67.8
Total expenses 9.9 19.2 37.2 67.8
Income before income taxes - 0.1 0.2 0.4
Income taxes - - 0.1 0.2
Net income $ - $ 0.1 $ 0.1 0.2
Ratio of earnings to fixed
charges 1.005 1.005 1.005 1.005
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS DC CORP.
STATEMENTS OF FINANCIAL POSITION
<CAPTION>
(Unaudited)
Sept. 27, Sept. 28, Dec. 28,
(millions) 1997 1996 1996
<S> <C> <C> <C>
Assets
Notes of Sears $ 469.3 $ 825.5 $ 799.2
Cash and invested cash 0.1 0.1 0.1
Accrued interest and other assets 1.0 1.5 1.3
Total assets $ 470.4 $ 827.1 $ 800.6
Liabilities
Medium-term notes $ 444.8 $ 788.5 $ 778.9
Accrued interest and other
liabilities 20.5 33.7 16.7
Total liabilities 465.3 822.2 795.6
Shareholders' Equity
Capital stock, par value $1.00 per
share, 1,000 shares authorized and
outstanding - - -
Capital in excess of par - - -
Retained income 5.1 4.9 5.0
Total stockholder's equity 5.1 4.9 5.0
Total liabilities and shareholders'
equity $ 470.4 $ 827.1 $ 800.6
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
Sept. 27, Sept. 28,
(millions) 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 0.1 $ 0.2
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 4.2 7.4
Net cash provided by operating activities 4.3 7.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes of Sears 329.8 432.6
Net cash provided by investing activities 329.8 432.6
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of medium-term notes (334.1) (440.2)
Net cash used in financing activities (334.1) (440.2)
Net (increase) decrease in cash and invested cash - -
Cash and invested cash at beginning of period 0.1 0.1
Cash and invested cash at end of period $ 0.1 $ 0.1
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
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SEARS DC CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 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 charge
coverage 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.
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 28, 1996, and
these financial statements should be read in conjunction with the financial
statements and notes found therein. The interim financial statements
reflect all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. 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
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
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 $445 million in outstanding medium-term notes as of September 27, 1997
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, now
known as Morgan Stanley Dean Witter, Discover and Company.
Results of Operations
Interest and related expenses decreased 48.4% to $9.9 million and 45.1% to
$37.2 million for the three and nine-month periods ended September 27, 1997,
respectively, from the comparable 1996 periods, primarily as a result of the
decrease in medium term notes outstanding since the prior year. Earnings
covered fixed charges 1.005 and 1.005 times for the three- and nine-months
ended September 27, 1997 and September 28, 1996, respectively.
<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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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)
November 4, 1997 By /s/ William K. Phelan
William K. Phelan
Vice President and Controller
(Authorized Officer of Registrant)
<PAGE>
E-1
SEARS DC CORP.
EXHIBIT INDEX
THREE MONTH PERIOD ENDED SEPTEMBER 27, 1997
Exhibit No.
4 Registrant hereby agrees to furnish the Commission, upon request,
with the instruments defining the rights of holders of long-term
debt of the Registrant which respect to which the total amount of
securities authorized does not exceed 10% of the total assets of
the Registrant.
27 Financial Data Schedule.
28 Quarterly Report on Form 10-Q of Sears, Roebuck and Co., for the
quarter ended September 27, 1997. [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> 1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-END> SEP-27-1997
<CASH> 0
<SECURITIES> 0<F1>
<RECEIVABLES> 469
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 0<F1>
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 470
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 445
0<F1>
0<F1>
<COMMON> 0<F1>
<OTHER-SE> 25
<TOTAL-LIABILITY-AND-EQUITY> 470
<SALES> 0<F1>
<TOTAL-REVENUES> 37
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 37
<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>
