Part I - Financial Information			Page
	Item 1. Financial Statements
		Statements of Income (unaudited) - 13 and 26 Weeks Ended July 1, 2000 and July 3, 1999	1
		Statements of Financial Position - July 1, 2000 (unaudited), July 3, 1999 (unaudited), and January 1, 2000	2
		Statements of Cash Flows (unaudited) - 26 Weeks Ended July 1, 2000 and July 3, 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

 
 
 
 
 
 
 

	13 Weeks Ended							26 Weeks Ended
	July 1,			July 3,				July 1,			July 3,
(thousands, except ratios)	2000			1999				2000			1999
Revenues
Earnings on notes of Sears	$	4,809		$	5,359		$		9,618		$	12,465
Expenses
Interest and related expenses	4,774			5,320			9,547				12,378
Operating expenses	11			13			23				25
Total expenses	4,785			5,333			9,570				12,403
Income before income taxes	24			26			48				62
Income taxes	9			9			17				22
Net income	$	15		$	17		$		31		$	40
Ratio of earnings to fixed charges	1.005			1.005			1.005				1.005
See notes to financial statements.

 
 
 
 
 
 
 

 
 
 
 
 
 

	(Unaudited)
		July 1,			July 3,					January 1,
(thousands, except share data)		2000			1999					2000
Assets
Cash and cash equivalents	$	-		$	57				$	-
Notes of Sears		224,071			223,921					223,993
Interest receivable and other assets		361			485					420
Total assets	$	224,432		$	224,463				$	224,413
Liabilities
Medium-term notes	$	213,025		$	213,025				$	213,025
Interest payable and other liabilities		6,050			6,143					6,062
Total liabilities		219,075			219,168					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		5,349			5,287					5,318
Total stockholder's equity		5,357			5,295					5,326
Total liabilities and stockholder's equity	$	224,432		$	224,463				$	224,413
See notes to financial statements.

	26 Weeks Ended
	July 1,				July 3,
(thousands)	2000				1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31			$	40
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	47				(2,598)
Net cash provided by (used in) operating activities	78				(2,558)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in notes of Sears	(78)				122,037
Net cash provided by (used in) investing activities	(78)				122,037
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	-				(1)
Cash and cash equivalents at beginning of period	-				58
Cash and cash equivalents at end of period	$                              -				$                      57
See notes to financial statements.

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.
 
 
 

		July 1, 2000		July 3, 1999
8.52% to 9.26% medium-term notes due through 2012	$	213,025	$	213,025

At July 1, 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

 
 
 
 
 
 
 
 
 

(thousands)

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 $213,025 in outstanding medium-term notes as of July 1, 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 decreased 10.3% from $5,359 to $4,809 and 22.8% from $12,465 to $9,618 for the 13 and 26 weeks ended July 3, 1999, and July 1, 2000, respectively. The decrease is a result of the reduction in the average amount of notes of Sears outstanding during 2000 compared to 1999. The decrease in the average amount of medium-term notes outstanding led to interest and related expenses decreasing 10.3% from $5,320 to $4,774 and 22.9% from $12,378 to $9,547 for the 13 and 26 weeks ended July 3, 1999, and July 1, 2000 respectively. Earnings covered fixed charges 1.005 times for the 13 and 26 weeks ended July 3, 1999 and July 1, 2000 respectively.
 
 

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.
 
 

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