Washington, D.C. 20549

FORM 10-K

PART I

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. The only outstanding debt of SDC is 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.

A Net Worth Maintenance Agreement exists between Sears and SDC which requires Sears to maintain ownership of and positive stockholder's equity in SDC.

At February 28, 2002, 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.

None.

Not applicable.

There is no established public trading market for SDC's common stock. As of February 28, 2002, Sears owned all outstanding shares of SDC's common stock. During 2001 and 2000 there were no dividends declared or paid to Sears by SDC.

Not applicable.

2

PART II.

SDC has invested funds in the unsecured notes of Sears, which pay interest sufficient to cover SDC's fixed charges at least 1.005 times.

The $77,525 in outstanding medium-term notes as of December 29, 2001 are not redeemable by SDC prior to their stated maturity except 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.

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.

The ratings of Sears debt securities as of December 29, 2001 appear in the table below:

Medium-term notes outstanding were $77,525 and $213,025 as of December 29, 2001 and December 30, 2000, respectively. Average medium-term notes outstanding were $183,602, $213,025 and $266,276 in 2001, 2000 and 1999, respectively. Revenues decreased 14.7% to $16,421in 2001 from $19,252 in 2000. Revenues decreased 12.8% to $19,252 in 2000 from $22,076 in 1999. The revenue decreases are due to lower levels of interest earning assets in each period. The decrease in the average amount of medium-term notes outstanding led to interest and related expenses decreasing 14.7% to $16,316 in 2001 from $19,122 in 2000. In 2000 interest and related expenses decreased 12.8% to $19,122 from $21,916 in 1999 due to a decrease in the average amount of medium-term notes outstanding. Earnings covered fixed charges 1.005 times in 2001, 2000 and 1999.

Certain statements made in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Such 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.

3

SDC's outstanding debt securities are subject to interest rate risk. All debt securities are considered non-trading. At year-end 2001 and 2000, 100% of SDC's portfolio was fixed rate. At year-end 2001 and 2000, the carrying value of SDC's debt was $77,525 and $213,025, respectively. The fair value of SDC's debt was $85,756 and $224,863 at year-end 2001 and 2000, respectively.

As of year-end 2001, average interest rates by year of maturity were:

4

 See notes to financial statements.

5

See notes to financial statements

6

See notes to financial statements

7

See notes to financial statements

8

SEARS DC CORP.
Notes to Financial Statements

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 Sears unsecured notes.

Under an agreement between SDC and Sears, the interest rate Sears pays on the unsecured notes to SDC 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 accounting principles generally accepted in the United States of America 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.

Cash and cash equivalents includes all highly liquid investments with maturities of three months or less at the date of purchase.

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.

Certain reclassifications have been made to prior year financial statements and the notes to conform with the 2001presentation.

9

(thousands)

NOTE 2 - BORROWINGS

The medium-term notes are not redeemable by SDC except in the event of a significant decline in Discover Card receivables of Sears former subsidiary, Dean Witter, which is now part of Morgan Stanley Dean Witter & Co. The fair market value of medium-term notes approximated $85,756 and $224,863 at December 29, 2001, and December 30, 2000, respectively, based on discounted cash flows using interest rates currently available to Sears. SDC's borrowings include the following:

At December 29, 2001 medium-term note maturities for the next five years and thereafter were as follows:

10

PART III

None.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

11

PART IV

(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:

 None.

12

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)

 

 

/s/ William K. Phelan

---

By: William K. Phelan

       Vice President and Controller

 

       March 27, 2002

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.

13

Years Ended December 29, 2001 and December 30, 2000

S-1

To the Board of Directors and Stockholder of

Sears DC Corp.

Greenville, Delaware

We have audited the accompanying statements of financial position of Sears DC Corp. (a wholly-owned subsidiary of Sears, Roebuck and Co.) as of December 29, 2001 and December 30, 2000, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 29, 2001. 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 auditing standards generally accepted in the United States of America. 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 29, 2001 and December 30, 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Chicago, Illinois

March 22, 2002

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EXHIBIT INDEX

Sears DC Corp. Form 10-K

For the Year Ended December 29, 2001

______________________________

*        SEC File No. 0-17955

**     Filed herewith

E-1