UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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X |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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Commission file number 0-17955
SEARS DC CORP.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
36-3533346 |
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3711 Kennett Pike, Greenville, Delaware |
19807 |
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Registrant's telephone number, including area code: (302)434-3100 |
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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.
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YES |
X |
No |
As of June 29, 2002, 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 Instructions H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
SEARS DC CORP.
Index To Quarterly Report on Form 10-Q
13 and 26 Weeks Ended June 29, 2002
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Part I - Financial Information |
Page |
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Item 1. |
Financial Statements |
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Statements of Income (unaudited)
- 13 and 26 Weeks Ended June 29, 2002 and June 30, 2001 |
1 |
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| Statements of Financial Position - June 29, 2002 (unaudited), June 30, 2001 (unaudited) and December 29, 2001 |
2 |
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| Statements of Cash Flows (unaudited) - 26 Weeks Ended June 29, 2002 and June 30, 2001 |
3 |
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| Notes to Financial Statements (unaudited) |
4 |
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Item 2. |
Management's Discussion and
Analysis of Financial Condition and Results of Operations |
5 |
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Item 1. |
Legal Proceedings |
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None. |
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Item 6. |
Exhibits and Reports on Form 8-K |
6 |
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
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(dollars in thousands) |
13 Weeks Ended |
26 Weeks Ended |
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June 29, |
June 30, |
June 29, |
June 30, |
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Revenues |
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Earnings on notes of Sears |
$ |
1,347 |
$ |
4,805 |
$ |
3,097 |
$ |
9,636 |
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Expenses |
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Interest and related expenses |
1,330 |
4,776 |
3,062 |
9,577 |
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Operating expenses |
10 |
5 |
19 |
11 |
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Total expenses |
1,340 |
4,781 |
3,081 |
9,588 |
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Income before income taxes |
7 |
24 |
16 |
48 |
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Income taxes |
3 |
9 |
6 |
17 |
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Net Income |
$ |
4 |
$ |
15 |
$ |
10 |
$ |
31 |
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Ratio of earnings to fixed charges |
1.005 |
1.005 |
1.005 |
1.005 |
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1
SEARS DC CORP.
Statements of Financial Position
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(Unaudited) |
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(dollars in thousands) |
June 29, |
June 30, |
Dec. 29, |
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2002 |
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2001 |
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2001 |
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Assets |
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Notes of Sears |
$ |
59,309 |
$ |
224,263 |
$ |
84,632 |
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Interest receivable and other assets |
173 |
235 |
189 |
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Total assets |
$ |
59,482 |
$ |
224,498 |
$ |
84,821 |
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Liabilities |
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Medium-term notes |
$ |
52,800 |
$ |
213,025 |
$ |
77,525 |
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Interest payable and other liabilities |
1,230 |
6,054 |
1,854 |
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Total liabilities |
54,030 |
219,079 |
79,379 |
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Stockholder's Equity |
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Common stock par value $1.00 per share,
1,000 |
1 |
1 |
1 |
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Capital in excess of par value |
7 |
7 |
7 |
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Retained income |
5,444 |
5,411 |
5,434 |
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Total stockholder's equity |
5,452 |
5,419 |
5,442 |
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Total liabilities and stockholder's equity |
$ |
59,482 |
$ |
224,498 |
$ |
84,821 |
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| See accompanying notes. | ||||||||
2
SEARS DC CORP.
Statements of Cash Flows
(Unaudited)
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26 Weeks Ended |
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(dollars in thousands) |
June 29, |
June 30, |
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2002 |
2001 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ |
10 |
$ |
31 |
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Adjustments to reconcile net income to net cash provided by |
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Net change in interest receivable and other assets and interest |
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(608) |
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66 |
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Net cash provided by (used in) operating activities |
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(598) |
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97 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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(Increase) decrease in notes of Sears |
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25,323 |
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(97) |
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Net cash provided by (used in) investing activities |
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25,323 |
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(97) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayment of Medium-term notes |
(24,725) |
-- |
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Net cash used in financing activities |
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(24,725) |
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-- |
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Net increase in cash and cash equivalents |
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-- |
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-- |
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Cash and cash equivalents at beginning of period |
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-- |
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-- |
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Cash and cash equivalents at end of period |
$ |
-- |
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$ |
-- |
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| See accompanying notes. | |||||
3
SEARS DC CORP.
Notes To Financial Statements
(Unaudited)
Statements of Financial Position
Notes to Financial Statements
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. 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 conformity with accounting principles generally accepted in the United States of America 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 December 29, 2001, 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 generally not redeemable prior to their stated maturity except 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 & Co. Incorporated. Selected details of SDC's borrowings are shown below.
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thousands |
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June 29, |
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June 30, |
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8.55% to 9.26% medium-term notes due through 2012 |
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$ 52,800 |
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$ 213,025 |
At June 29, 2002, medium-term note maturities for the next five years and thereafter are as follows:
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thousands |
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2002 . . . . . . . . . . . |
$ |
-- |
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2003 . . . . . . . . . . . |
9,000 |
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2004 . . . . . . . . . . . |
-- |
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2005 . . . . . . . . . . . |
-- |
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2006 . . . . . . . . . . . |
-- |
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Thereafter . . . . . . . . |
43,800 |
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$ |
52,800 |
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4
SEARS DC CORP.
13 and 26 Weeks Ended June 29, 2002 And June 30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
The $52.8 million in outstanding medium-term notes as of June 29, 2002 are generally not redeemable prior to their stated maturity except 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 & Co. Incorporated.
RESULTS OF OPERATIONS
Interest and related expenses decreased 72.2% from $4.8 million to $1.3 million and decreased 68% from $9.6 million to $3.1 million for the 13 and 26 weeks ended June 29, 2002 and June 30, 2001, respectively. The decline in interest expense was due to lower outstanding debt. Revenues decreased 72% from $4.8 million to $1.3 million and decreased 67.9% from $9.6 million to $3.1 million for the 13 and 26 weeks ended June 29, 2002 and June 30, 2001, respectively. The interest revenue earned by SDC is designed to produce earnings sufficient to cover SDC's fixed charges at least 1.005 times. Consequently, revenues also experienced a decline due to lower outstanding debt.
Earnings covered fixed charges 1.005 times for the 13 and 26 Weeks Ended June 29, 2002 and June 30, 2001.
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.
5
SEARS DC CORP.
13 and 26 Weeks Ended June 29, 2002 And June 30, 2001
PART II. OTHER INFORMATION
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Item 6. |
Exhibits and Reports on Form 8-K. |
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(a) |
Exhibits. |
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An Exhibit Index has been filed as part of this Report on Page E-1. |
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(b) |
Reports on Form 8-K. |
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None |
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6
SEARS DC CORP.
13 and 26 Weeks Ended June 29, 2002 And June 30, 2001
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.
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Sears DC Corp. |
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August 12, 2002 |
By: |
/s/ William K. Phelan |
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(Authorized Officer and Principal Accounting |
7
SEARS DC CORP.
13 and 26 Weeks Ended June 29, 2002 And June 30, 2001
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Exhibit No. |
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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")*). |
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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*). |
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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*). |
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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*). |
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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. |
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**99(a) |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
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**99(b) |
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
*Sec File No. 0-17955
** Filed herewith
E-1