SEARS DC CORP
10-Q, 2000-11-03
SHORT-TERM BUSINESS CREDIT INSTITUTIONS
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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 30, 2000
 
       
         
     
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
(State of Incorporation)
36-3533346
(I.R.S. Employer Identification No.)
   
3711 Kennett Pike, Greenville, Delaware
(Address of principal executive offices)
19807
(Zip Code)

Registrant's telephone number, including area code: 302/434-3100






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 September 30, 2000, the Registrant had 1,000 shares of common stock, par value $1.00 per share, 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.


SEARS DC CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 AND 39 WEEKS ENDED SEPTEMBER 30, 2000



 
 
 
 
Part I - Financial Information
Page
       
  Item 1. Financial Statements  
       
    Statements of Income (unaudited) -  
    13 and 39 Weeks Ended September 30, 2000 and October 2, 1999
1
       
    Statements of Financial Position -  
    September 30, 2000 (unaudited), October 2, 1999 (unaudited),  
    and January 1, 2000
2
       
    Statements of Cash Flows (unaudited) -  
    39 Weeks Ended September 30, 2000 and October 2, 1999
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

 

-1-
 
 
 
 
 
 
 
 
 
 
 
 

PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS DC CORP.
STATEMENTS OF INCOME
(Unaudited)



 
 
 

 
13 Weeks Ended
39 Weeks Ended
 
Sept. 30,
 
Oct. 2,
 
Sept. 30,
 
Oct. 2,
(thousands, except ratios)
2000
 
1999
 
2000
 
1999
               
Revenues
Earnings on notes of Sears
$ 4,804
 
$ 4,799
  $ 14,422  
$ 17,264
               
               
Expenses              
               
Interest and related expenses
4,774
4,762
14,321
17,140
Operating expenses
6
 
13
 
29
 
38
               
Total expenses
4,780
 
4,775
 
14,350
 
17,178
               
Income before income taxes
24
 
24
 
72
 
86
               
Income taxes
8
 
8
 
25
 
30
               
Net income
$ 16
 
$ 16
 
$ 47
 
$ 56
 
 
 
 
Ratio of earnings to fixed charges
1.005
 
1.005
 
1.005
 
1.005
               
See notes to financial statements.
 
 

 

-2-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

SEARS DC CORP.
STATEMENTS OF FINANCIAL POSITION


(Unaudited)
Sept. 30,
Oct. 2,
January 1,
(thousands, except share data)
2000
1999
2000
Assets
Cash and cash equivalents
$ - 
$ 56
$ -
Notes of Sears
228,875
219,181
223,993
Interest receivable and other assets
331
453
420
Total assets
$ 229,206
$ 219,690
$ 224,413



Liabilities
Medium-term notes
$ 213,025
$ 213,025
$ 213,025
Interest payable and other liabilities
10,808
1,354
6,062
Total liabilities
223,833
214,379
219,087
Stockholder's Equity
Common stock par value $1.00 per share,
1,000 shares authorized and outstanding
1
1
1
Capital in excess of par value 
7
7
7
Retained income 
5,365
5,303
5,318
Total stockholder's equity
5,373
5,311
5,326
Total liabilities and stockholder's equity
$ 229,206
$ 219,690
$ 224,413



See notes to financial statements.

-3-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

SEARS DC CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)


 
39 Weeks Ended
 
Sept. 30,
 
Oct. 2,
(thousands)
2000
 
1999
       
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 47
$ 56
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
     
Net change in interest receivable and other assets       
and interest payable and other liabilities
4,835
(7,355)
Net cash provided by (used in) operating activities
4,882
 
(7,299)
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
(Increase) decrease in notes of Sears
(4,882)
126,777
Net cash provided by (used in) investing activities
(4,882)
 
126,777
       
CASH FLOWS FROM FINANCING ACTIVITIES:      
       
Repayments of medium-term notes
 
(119,480)
Net cash used in financing activities
 
(119,480)
       
Net increase in cash and cash equivalents
-
 
(2)
       
Cash and cash equivalents at beginning of period
-
 
58
       
Cash and cash equivalents at end of period
$ - 
 
$ 56
 
 
See notes to financial statements.      

 

-4-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

SEARS DC CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)




Notes to Financial Statements (thousands)

Sears DC Corp. ("SDC"), a wholly-owned subsidiary of Sears, Roebuck and Co. ("Sears"), 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. The only current outstanding debts of SDC are two series of medium-term notes. SDC does not plan to issue additional debt.

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 fiscal year ended January 1, 2000, 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.

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, primarily in the event of a significant decline in Discover Card receivables of Sears former subsidiary, Dean Witter, which is now a part of Morgan Stanley Dean Witter & Co. Selected details of SDC's borrowings are shown below.
 
   
Sept.30,
2000
 
Oct. 2,
1999
         
8.52% to 9.26% medium-term notes due through 2012  
$ 213,025
 
$ 213,025


At September 30, 2000, medium-term note maturities for the remainder of 2000, the next four years, and thereafter are as follows:
 
2000 $
-
2001
135,500
2002
24,725
2003
9,000
2004
-
Thereafter
43,800
$
213,025


 
 
 

-5-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEARS DC CORP.
13 AND 39 WEEKS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999

(thousands)

Financial Condition:

SDC invests funds in 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 $213,025 in outstanding medium-term notes as of September 30, 2000 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, primarily in the event of a significant decline in Discover Card receivables of Sears former subsidiary, Dean Witter, which is now a part of Morgan Stanley Dean Witter & Co.

Results of Operations:

Revenues for the 13 weeks ended October 2, 1999 and September 30, 2000 were flat, increasing 0.1% from $4,799 to $4,804, respectively. Interest and related expenses for the 13 weeks ended October 2, 1999 and September 30, 2000 were also flat, increasing 0.3% from $4,762 to $4,774, respectively.

Revenues for the 39 weeks ended October 2, 1999 and September 30, 2000 decreased 16.5% from $17,264 to $14,422, respectively. Interest and related expenses for the 39 weeks ended October 2, 1999 and September 30, 2000 decreased 16.4% from $17,140 to $14,321, respectively.

The year to date decreases in revenues and interest and related expenses are attributable to reductions in the average outstanding notes of Sears and medium-term notes.

Earnings covered fixed charges 1.005 times for the 13 and 39 weeks ended October 2, 1999 and September 30, 2000.

Cautionary Statement Regarding Forward-Looking Information:

Certain statements made in this Report on Form 10-Q are forward-looking and are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. As such they involve risks and uncertainties that could cause actual results to differ materially. These statements are based on a number of assumptions about a variety of factors, including the ability of Sears to perform under the agreements described herein and general economic conditions (such as interest rates). While SDC believes that these assumptions are reasonable, SDC cautions that it is impossible to predict the impact of certain facts that could cause actual results to differ from expected results.
 
 

-6-
















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

-7-



 
 
 
 
 
 
 
 
 
 

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 3, 2000
By:
/s/ KEITH E. TROST  
    Keith E. Trost 
Vice President and Treasurer
 
    (Authorized Officer and Principal 
Financial Officer of Registrant)
 

 
 
 
 
 
 
 
 
 
 
 
 
 

E-1

EXHIBIT INDEX
SEARS DC CORP.
13 AND 39 WEEKS ENDED SEPTEMBER 30, 2000

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) to Form 10-K of the Registrant for the fiscal 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) to Form 10-K of the Registrant for the fiscal year ended December 30, 1995*).
   
4
Registrant hereby agrees to furnish the Securities and Exchange Commission, upon request, with the instruments 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.
   
27
Financial Data Schedule**
   
  _____________________ 
  *Sec File No. 0-17955
  **Filed herewith


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