PART I

Item 1. Business

Sears DC Corp. ("SDC" or the "Company"), 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 29, 2004, 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.

PART II

There is no established public trading market for SDC's common stock. As of February 29, 2004, Sears owned all outstanding shares of SDC's common stock. During 2003 and 2002 there were no dividends declared or paid to Sears by SDC.

Not applicable.

SDC invests funds in promissory notes of Sears, which pay interest sufficient to cover SDC's fixed charges at least 1.005 times.

The $23.3 million in outstanding medium-term notes as of January 3, 2004 are generally not redeemable, at the Company's option, prior to their stated maturity. One exception is 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. On November 17, 2003, the Company completed cash tender offers to purchase any and all of its respective unsecured public term debt securities maturing after 2003, which included securities with an aggregate principal amount of $43.8 million. Approximately $20.5 million of debt was tendered for a cost of $26.4 million. The Company recognized a pre-tax loss of approximately $5.9 million related to the early retirement this debt.

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 the Company's domestic debt securities as of February 29, 2004, appear in the table below:

Medium-term notes outstanding were $23.3 million and $52.8 million as of January 3, 2004 and December 28, 2002, respectively. Average medium-term notes outstanding were $45.3 million, $60.8 million and $183.6 million in 2003, 2002 and 2001, respectively. Revenues increased 83.9% to $10.1 million in 2003 from $5.5 million in 2002. Revenues decreased 66.4% to $5.5 million in 2002 from $16.4 million in 2001. The revenue increase in 2003 is due to the revenue received to cover the loss on early retirement of debt. The decrease in 2002 is due to lower levels of interest-earning assets. The decrease in the average amount of medium-term notes outstanding led to interest and related expenses decreasing 23.8% to $4.2 million in 2003 from $5.5 million in 2002. In 2002, interest and related expenses decreased 66.6% to $5.5 million from $16.3 million in 2001 due to a decrease in the average amount of medium-term notes outstanding. Earnings covered fixed charges 1.005 times in 2003, 2002 and 2001.

Certain statements made in this Annual Report on Form 10-K are "forward-looking statements" that are subject to risks and uncertainties that could cause actual results to be materially different from any future results expressed or implied by these forward-looking statements. 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. SDC intends the forward-looking statements to speak only as of the time first made and does not undertake to update or revise them as more information becomes available.

At year-end 2003 and 2002, 100% of SDC's outstanding debt securities were fixed rate and as such are not subject to interest rate risk. All debt securities are considered non-trading. At year-end 2003 and 2002, the carrying value of SDC's debt was $23.3 million and $52.8 million, respectively. The fair value of SDC's debt was $29.4 million and $55.9 million at year-end 2003 and 2002, respectively.

As of year-end 2003, all of SDC's outstanding Medium Term Notes ("MTN") are scheduled to mature in 2012 and have a fixed average interest rate to maturity of 9.15%.

The financial statements of the Company, including the notes to all such statements, and other information are included in this report beginning on page F-1.

None.

The Company's management, Larry R. Raymond, President and Chief Executive Officer (principal executive officer) and Keith E. Trost, Vice President and Treasurer (principal financial officer), have evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the "SEC") (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company's internal control over financial reporting occurred during the year ended January 3, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART III

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Aggregate fees billed to the Company for the fiscal years ended January 3, 2004 and December 28, 2002 by SDC's principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte & Touche") were as follows:

Sears' Audit Committee must pre-approve all engagements of the independent auditor by Sears and its subsidiaries, including SDC, as required by Sears' Audit Committee's charter and the rules of the Securities and Exchange Commission. Prior to the beginning of each fiscal year, Sears' Audit Committee will approve an annual estimate of fees for engagements by Sears and its subsidiaries, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor's independence from management. In addition, the Audit Committee will evaluate known potential engagements of the independent auditor, including the scope of the proposed work to be performed and the proposed fees, and approve or reject each service. Management may present additional services for approval at subsequent committee meetings. The Audit Committee has delegated to the Audit Committee Chairman the authority to evaluate and approve engagements on behalf of the Audit Committee in the event a need arises for pre-approval between Committee meetings and in the event the engagement for services was within the annual estimate but not specifically approved. If the Chairman so approves any such engagements, he will report that approval to the full Committee at the next Committee meeting.

Since the effective date of the Securities and Exchange Commission's rules regarding strengthening auditor independence, all of the audit, audit-related, and tax services provided by Deloitte & Touche to Sears and its subsidiaries were pre-approved in accordance with the Audit Committee's policies and procedures.

(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 F-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:

A Current Report on Form 8-K dated October 16, 2003 was filed with the Securities and Exchange Commission on October 21, 2003 to report commencing cash tender offer.

A Current Report on Form 8-K dated October 30, 2003 was was filed with the Securities and Exchange Commission on October 31, 2003 to announce pricing information for tender offer.

A Current Report on Form 8-K dated November 17, 2003 was filed with the Securities and Exchange Commission on November 17, 2003 reporting completion of the cash tender offer.

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.

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. 

SEARS DC CORP.
Index to Financial Statements
Years Ended January 3, 2004 and December 28, 2002

 F-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 January 3, 2004 and December 28, 2002, and the related statements of income, stockholder's equity, and cash flows for each of the three years in the period ended January 3, 2004. 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 January 3, 2004 and December 28, 2002, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Chicago, Illinois
March 9, 2004

F-2 

See notes to financial statements.

F-3

See notes to financial statements.

 F-4

See notes to financial statements.

F-5

See notes to financial statements.

   F-6

SEARS DC CORP.
Notes to 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 Sears unsecured notes.

SDC's revenue consists solely of interest income on notes of Sears, recognized on an accrual basis. 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.

SDC's fiscal year ends on the Saturday nearest December 31. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years.

SDC receives certain general and administrative services from affiliated companies. No expense is recognized in the accompanying financial statements for these services.

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.

 F-7

SEARS DC CORP.
Notes to Financial Statements

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. The fair market value of medium-term notes approximated $29,398 and $55,880 at January 3, 2004, and December 28, 2002, respectively, based on discounted cash flows using interest rates currently available to Sears. SDC's borrowings include the following:

On November 17, 2003, the Company completed cash tender offers to purchase any and all of its respective unsecured public term debt securities maturing after 2003, which included securities with an aggregate principal amount of $43,800. Debt in the amount of $20,515 was tendered for a cost of $26,353. The Company recognized a pre-tax loss of $5,905 related to the early retirement of this debt.

At January 3, 2004 medium-term note maturities for the next five years and thereafter were as follows:

 F-8

 Sears DC Corp. Form 10-K
For the Year Ended January 3, 2004