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 APRIL 4, 1998
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) (ZipCode)
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 April 30, 1998 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
April 4, 1998
Page
Part I - Financial Information.
Item 1. Financial Statements.
Statements of Income (unaudited) -
Three Months Ended April 4, 1998 and March 29, 1997. 1
Statements of Financial Position -
April 4, 1998 (unaudited), March 29, 1997 (unaudited),
and January 3, 1998. 2
Statements of Cash Flows (unaudited) -
Three Months Ended April 4, 1998 and March 29, 1997. 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>
13 Weeks Ended
April 4, March 29,
1998 1997
<S> <C> <C>
(thousands, except ratios)
Revenues
Earnings on notes of Sears $ 9,755 $ 16,036
Expenses
Interest and related expenses 9,673 15,935
Operating Expenses 33 22
Total expenses 9,706 15,957
Income before income taxes 49 79
Income taxes 17 27
Net income $ 32 $ 52
Ratio of earnings to fixed charges 1.005 1.005
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
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SEARS DC CORP.
STATEMENTS OF FINANCIAL POSITION
<CAPTION>
(Unaudited)
Apr. 4, Mar. 29, Jan. 3,
1998 1997 1998
(thousands)
<S> <C> <C> <C>
Assets
Cash and invested cash $ 59 $ 55 $ 55
Notes of Sears 349,688 659,758 459,455
Accrued interest and other assets 772 1,129 853
Total assets $350,519 $660,942 $460,362
Liabilities
Medium-term notes $343,780 $ 628,460 $443,780
Accrued interest and other liabilities 1,556 27,434 11,431
Total liabilities 345,336 655,894 455,211
Stockholder's Equity
Capital stock, par value $1.00 per share, 1,000
shares authorized and outstanding 1 1 1
Capital in excess of par 7 7 7
Retained income 5,175 5,040 5,143
Total stockholder's equity 5,183 5,048 5,151
Total liabilities and stockholder's equity $350,519 $660,942 $460,362
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
-3-
<TABLE>
SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
13 Weeks Ended
Apr. 4, Mar. 29,
1998 1997
(thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32 $ 52
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 (9,794) 10,906
Net cash provided by (used in ) operating activities (9,762) 10,958
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes of Sears 109,767 139,462
Net cash provided by investing activities 109,767 139,462
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of medium-term notes (100,000) (150,420)
Net cash used in financing activities (100,000) (150,420)
Net increase (decrease) in cash and invested cash 5 -
Cash and invested cash at beginning of period 55 55
Cash and invested cash at end of period $ 59 $ 55
<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 on its unsecured notes 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.
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 January 3, 1998, 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
13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997
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 $344 million in outstanding medium-term notes as of April 4,
1998 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 & Company.
Results of Operations
Interest and related expenses decreased 39.3% to $9.7 million
for the 13 weeks ended April 4, 1998, from the comparable 1997
period, primarily as a result of the decrease in medium term
notes outstanding since the prior year. Earnings covered fixed
charges 1.005 times for the 13 weeks ended April 4, 1998.
<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)
May 11, 1998 By /s/ William K. Phelan
William K. Phelan
Vice President and Controller
(Principal Accounting Officer
and Authorized Officer of Registrant)
<PAGE>
E-1
SEARS DC CORP.
EXHIBIT INDEX
13 WEEKS ENDED APRIL 4, 1998
Exhibit No.
3.1 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)*]
3.2 Amendment to Certificate of Incorporation of Discover Credit
Corp. dated April 9, 1987 [Incorporated by reference to Exhibit
3(b) to Form 10*]
3.3 Certificate of Amendment of Certificate of Incorporation
dated May 21, 1993 to change the name of Discover Credit Corp.
to Sears DC Corp. [Incorporated by reference to exhibit 3(c) on
Form 10-K of the Registrant for the year ended December 28,
1996*]
3.4 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 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.
* Sec File No. 0-17955
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT
OF FINANCIAL POSITION, INCOME AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-END> APR-4-1998
<CASH> 59
<SECURITIES> 0 <F1>
<RECEIVABLES> 349,688
<ALLOWANCES> 0 <F1>
<INVENTORY> 0 <F1>
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0 <F1>
<DEPRECIATION> 0 <F1>
<TOTAL-ASSETS> 350,519
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 343,780
0 <F1>
0 <F1>
<COMMON> 1 <F1>
<OTHER-SE> 5,182
<TOTAL-LIABILITY-AND-EQUITY> 350,519
<SALES> 0 <F1>
<TOTAL-REVENUES> 9,755
<CGS> 0 <F1>
<TOTAL-COSTS> 0 <F1>
<OTHER-EXPENSES> 33
<LOSS-PROVISION> 0 <F1>
<INTEREST-EXPENSE> 9,673
<INCOME-PRETAX> 49
<INCOME-TAX> 17
<INCOME-CONTINUING> 0
<DISCONTINUED> 0 <F1>
<EXTRAORDINARY> 0 <F1>
<CHANGES> 0 <F1>
<NET-INCOME> 32
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1>NOT APPLICABLE
</FN>
</TABLE>
