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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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 27, 2003               |  | 

OR

|  |  |                                                          |  | 
|- |  | -------------------------------------------------------- |  | 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |  | 
|  |  | SECURITIES EXCHANGE ACT OF 1934                          |  | 

Commission file number 1-416

SEARS, ROEBUCK AND CO.(Exact name of registrant as specified in its charter)

|                         |  |                                     
|------------------------ |  | ------------------------------------
|New York                 |  | 36-1750680                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

|                                             |  |           
|-------------------------------------------- |  | ----------
|3333 Beverly Road, Hoffman Estates, Illinois |  | 60179     
|(Address of principal executive offices)     |  | (Zip Code)

Registrants telephone number, including area code: (847) 286-2500

Indicate by check mark whether the 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 |  | o |  | 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

| |  |     |  |   |  |    |  |   |  | 
| |  | --- |  | - |  | -- |  | - |  | 
| |  | Yes |  | x |  | No |  | o |  | 

As of October 25, 2003, the Registrant had 253,824,010 common shares, $.75 par value, outstanding.



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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                             |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | Condensed Consolidated Balance Sheets                      
|                                                   |                                                                                               | Condensed Consolidated Statements of Cash Flows (Unaudited)
|                                                   |                                                                                               | Notes to Condensed Consolidated Financial Statements       
|                                                   |                                                                                               | INDEPENDENT ACCOUNTANTS REPORT                            
|                                                   | Item 2. Managements Discussion and Analysis of Operations, Financial Condition and Liquidity
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                   | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 5. Other Information                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURE                                         
|Amend. to Purchase, Sale & Servicing Transfer Agmt
|Amended and Restated Program Agreement            
|Amendment to 2002 Non-Employee Director Stock Plan
|Acknowledgement and Extension Agreement           
|Computation of Ratio of Income to Fixed Charges   
|Acknowledgement of Awareness - Deloitte & Touche  
|Certification of Chief Executive Officer          
|Certification of Chief Financial Officer          
|Certification of CEO and CFO                      



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##### Table of Contents



SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 Weeks and 39 Weeks Ended September 27, 2003

|                               |  |         |  |                                                                                                                            |  |   
|------------------------------ |  | ------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION |  | Page   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 1. |  | Financial Statements                                                                                                       |  |   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  | Condensed Consolidated Statements of Income (Unaudited)
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002    |  | 1 
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  | Condensed Consolidated Balance Sheets
September 27, 2003 (Unaudited), September 28, 2002 (Unaudited)
and December 28, 2002 |  | 2 
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  | Condensed Consolidated Statements of Cash Flows (Unaudited)
39 Weeks Ended September 27, 2003 and September 28, 2002       |  | 3 
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                           |  | 4 
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  | Independent Accountants Report                                                                                            |  | 15
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 2. |  | Managements Discussion and Analysis of Operations, Financial Condition
and Liquidity                                      |  | 16
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 32
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 4. |  | Controls and Procedures                                                                                                    |  | 32
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  |                                                                                                                            |  |   
|                               |  |         |  |                                                                                                                            |  |   
|PART II  OTHER INFORMATION    |  |        
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 1. |  | Legal Proceedings                                                                                                          |  | 33
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 5. |  | Other Information                                                                                                          |  | 34
|                               |  |         |  |                                                                                                                            |  |   
|                               |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                           |  | 35





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SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Income
(Unaudited)




PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |        |       |      | 
|---------------------------------------------------------------------------------------- | ------------------------ | ---------------------------------------------------------------- | ------------------ | ----- | -------------- | ---- | ----- | --------- | ---- | ---- | --------- | ------ | ---- | ---- | ------ | ------ | ----- | ---- | 
|millions, except per common share data                                                   |                          | 13 Weeks Ended                                                   |                    |       | 39 Weeks Ended |     
|                                                                                         |                          |                                                                  |                    |       |                |     
|                                                                                         |                          | Sept. 27,                                                        |                    |       | Sept. 28,      |      |       | Sept. 27, |      |      | Sept. 28, |       
|                                                                                         |                          | 2003                                                             |                    |       | 2002           |      |       | 2003      |      |      | 2002      |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|REVENUES                                                                                 |                          |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |       
|Merchandise sales and services                                                           |                          | $                                                                | 8,409              |       |                | $    | 8,239 |           |      | $    | 24,734    |        |      | $    | 24,639 |       
|Credit and financial products revenues                                                   |                          |                                                                  | 1,385              |       |                |      | 1,430 |           |      |      | 4,136     |        |      |      | 4,209  |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|                                                                                         | Total revenues           |                                                                  |                    | 9,794 |                |      |       | 9,669     |      |      |           | 28,870 |      |      |        | 28,848 |      
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|COSTS AND EXPENSES                                                                       |                          |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |       
|Cost of sales, buying and occupancy                                                      |                          |                                                                  | 6,137              |       |                |      | 5,934 |           |      |      | 18,013    |        |      |      | 17,902 |       
|Selling and administrative                                                               |                          |                                                                  | 2,229              |       |                |      | 2,340 |           |      |      | 6,666     |        |      |      | 6,637  |       
|Provision for uncollectible accounts                                                     |                          |                                                                  | 567                |       |                |      | 603   |           |      |      | 1,511     |        |      |      | 1,685  |       
|Depreciation and amortization                                                            |                          |                                                                  | 226                |       |                |      | 219   |           |      |      | 681       |        |      |      | 650    |       
|Interest                                                                                 |                          |                                                                  | 281                |       |                |      | 298   |           |      |      | 847       |        |      |      | 866    |       
|Special charges and impairments                                                          |                          |                                                                  | 112                |       |                |      |      |           |      |      | 112       |        |      |      | 111    |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|                                                                                         | Total costs and expenses |                                                                  |                    | 9,552 |                |      |       | 9,394     |      |      |           | 27,830 |      |      |        | 27,851 |      
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|Operating income                                                                         |                          |                                                                  | 242                |       |                |      | 275   |           |      |      | 1,040     |        |      |      | 997    |       
|Other income, net                                                                        |                          |                                                                  | 2                  |       |                |      | 10    |           |      |      | 16        |        |      |      | 98     |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|Income before income taxes, minority interest and
cumulative effect of accounting change |                          |                                                                  | 244                |       |                |      | 285   |           |      |      | 1,056     |        |      |      | 1,095  |       
|Income taxes                                                                             |                          |                                                                  | (91                | )     |                |      | (94   | )         |      |      | (392      | )      |      |      | (382   | )     
|Minority interest                                                                        |                          |                                                                  | (6                 | )     |                |      | (2    | )         |      |      | (16       | )      |      |      | 23     |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|Income before cumulative effect of accounting change                                     |                          |                                                                  | 147                |       |                |      | 189   |           |      |      | 648       |        |      |      | 736    |       
|Cumulative effect of a change in accounting for goodwill                                 |                          |                                                                  |                   |       |                |      |      |           |      |      |          |        |      |      | (208   | )     
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|NET INCOME                                                                               |                          | $                                                                | 147                |       |                | $    | 189   |           |      | $    | 648       |        |      | $    | 528    |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|EARNINGS PER COMMON SHARE                                                                |                          |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |       
|                                                                                         | BASIC                    |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |        |      
|                                                                                         |                          | Earnings per share before cumulative effect of accounting
change |                    | $     | 0.53           |      |       | $         | 0.60 |      |           | $      | 2.18 |      |        | $      | 2.32  |     
|                                                                                         |                          | Cumulative effect of change in accounting for goodwill           |                    |       |               |      |       |           |     |      |           |        |     |      |        |        | (0.66 | )   
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|                                                                                         |                          |                                                                  | Earnings per share |       | $              | 0.53 |       |           | $    | 0.60 |           |        | $    | 2.18 |        |        | $     | 1.66 | 
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|                                                                                         | DILUTED                  |                                                                  |                    |       |                |      |       |           |      |      |           |        |      |      |        |        |      
|                                                                                         |                          | Earnings per share before cumulative effect of accounting
change |                    | $     | 0.52           |      |       | $         | 0.59 |      |           | $      | 2.17 |      |        | $      | 2.29  |     
|                                                                                         |                          | Cumulative effect of change in accounting for goodwill           |                    |       |               |      |       |           |     |      |           |        |     |      |        |        | (0.65 | )   
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|                                                                                         |                          |                                                                  | Earnings per share |       | $              | 0.52 |       |           | $    | 0.59 |           |        | $    | 2.17 |        |        | $     | 1.64 | 
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|Cash dividends declared per common share                                                 |                          | $                                                                | 0.23               |       |                | $    | 0.23  |           |      | $    | 0.69      |        |      | $    | 0.69   |       
|                                                                                         |                          |                                                                  |                    |       |                |      |       |           |      |      |           |       
|Average common and common equivalent shares outstanding                                  |                          |                                                                  | 281.0              |       |                |      | 320.1 |           |      |      | 298.7     |        |      |      | 321.7  |       

See accompanying notes.

1



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SEARS, ROEBUCK AND CO.
Condensed Consolidated Balance Sheets

|                                                 |                                                                     |                                           |        |             |               |  |        |              |        |  |        |        |        | 
|------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------------- | ------ | ----------- | ------------- |  | ------ | ------------ | ------ |  | ------ | ------ | ------ | 
|                                                 |                                                                     |                                           |        | (Unaudited) |               |  |        |             
|                                                 |                                                                     |                                           |        |             |               |  |        |             
|millions                                         |                                                                     | September 27,                             |        |             | September 28, |  |        | December 28, |       
|                                                 |                                                                     | 2003                                      |        |             | 2002          |  |        | 2002         |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|ASSETS                                           |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|Current assets                                   |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|                                                 | Cash and cash equivalents                                           |                                           | $      | 1,546       |               |  | $      | 637          |        |  | $      | 1,962  |       
|                                                 | Domestic credit card receivables                                    |                                           |        |            |               |  |        | 29,281       |        |  |        | 30,766 |       
|                                                 | Sears Canada credit card receivables                                |                                           |        | 1,939       |               |  |        | 1,496        |        |  |        | 1,797  |       
|                                                 |                                                                     | Less allowance for uncollectible accounts |        |             | 51            |  |        |              | 1,672  |  |        |        | 1,832  | 
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 |                                                                     | Net credit card receivables               |        |             | 1,888         |  |        |              | 29,105 |  |        |        | 30,731 | 
|                                                 | Other receivables                                                   |                                           |        | 632         |               |  |        | 481          |        |  |        | 891    |       
|                                                 | Merchandise inventories                                             |                                           |        | 6,243       |               |  |        | 5,961        |        |  |        | 5,115  |       
|                                                 | Prepaid expenses and deferred charges                               |                                           |        | 517         |               |  |        | 619          |        |  |        | 535    |       
|                                                 | Deferred income taxes                                               |                                           |        | 818         |               |  |        | 992          |        |  |        | 749    |       
|                                                 | Assets held for sale                                                |                                           |        | 27,818      |               |  |        |             |        |  |        |       |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | Total current assets                                                |                                           |        | 39,462      |               |  |        | 37,795       |        |  |        | 39,983 |       
|Property and equipment, net                      |                                                                     |                                           | 6,660  |             |               |  | 6,748  |              |        |  | 6,910  |       
|Deferred income taxes                            |                                                                     |                                           | 443    |             |               |  | 502    |              |        |  | 734    |       
|Goodwill                                         |                                                                     |                                           | 945    |             |               |  | 940    |              |        |  | 944    |       
|Tradenames and other intangible assets           |                                                                     |                                           | 710    |             |               |  | 704    |              |        |  | 704    |       
|Other assets                                     |                                                                     |                                           | 870    |             |               |  | 1,314  |              |        |  | 1,134  |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | TOTAL ASSETS                                                        |                                           | $      | 49,090      |               |  | $      | 48,003       |        |  | $      | 50,409 |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|LIABILITIES                                      |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|Current liabilities                              |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|                                                 | Short-term borrowings                                               |                                           | $      | 6,179       |               |  | $      | 4,289        |        |  | $      | 4,525  |       
|                                                 | Current portion of long-term debt and capitalized lease
obligations |                                           |        | 2,595       |               |  |        | 4,774        |        |  |        | 4,808  |       
|                                                 | Accounts payable and other liabilities                              |                                           |        | 7,058       |               |  |        | 6,867        |        |  |        | 7,485  |       
|                                                 | Unearned revenues                                                   |                                           |        | 1,245       |               |  |        | 1,189        |        |  |        | 1,199  |       
|                                                 | Other taxes                                                         |                                           |        | 472         |               |  |        | 486          |        |  |        | 580    |       
|                                                 | Liabilities held for sale                                           |                                           |        | 10,602      |               |  |        |             |        |  |        |       |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | Total current liabilities                                           |                                           |        | 28,151      |               |  |        | 17,605       |        |  |        | 18,597 |       
|Long-term debt and capitalized lease obligations |                                                                     |                                           | 12,121 |             |               |  | 20,781 |              |        |  | 21,304 |       
|Pension and postretirement benefits              |                                                                     |                                           | 2,010  |             |               |  | 2,189  |              |        |  | 2,491  |       
|Minority interest and other liabilities          |                                                                     |                                           | 1,319  |             |               |  | 1,214  |              |        |  | 1,264  |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | Total Liabilities                                                   |                                           |        | 43,601      |               |  |        | 41,789       |        |  |        | 43,656 |       
|COMMITMENTS AND CONTINGENT LIABILITIES           |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|SHAREHOLDERS EQUITY                             |                                                                     |                                           |        |             |               |  |        |              |        |  |        |       
|Common shares                                    |                                                                     |                                           | 323    |             |               |  | 323    |              |        |  | 323    |       
|Capital in excess of par value                   |                                                                     |                                           | 3,503  |             |               |  | 3,512  |              |        |  | 3,505  |       
|Retained earnings                                |                                                                     |                                           | 8,945  |             |               |  | 7,723  |              |        |  | 8,497  |       
|Treasury stock  at cost                         |                                                                     |                                           | (6,306 | )           |               |  | (4,489 | )            |        |  | (4,474 | )     
|Deferred ESOP expense                            |                                                                     |                                           | (27    | )           |               |  | (42    | )            |        |  | (42    | )     
|Accumulated other comprehensive loss             |                                                                     |                                           | (949   | )           |               |  | (813   | )            |        |  | (1,056 | )     
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | Total Shareholders Equity                                          |                                           |        | 5,489       |               |  |        | 6,214        |        |  |        | 6,753  |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                          |                                           | $      | 49,090      |               |  | $      | 48,003       |        |  | $      | 50,409 |       
|                                                 |                                                                     |                                           |        |             |               |  |        |              |       
|                                                 | Total common shares outstanding                                     |                                           |        | 263.3       |               |  |        | 316.4        |        |  |        | 316.7  |       

See accompanying notes.

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SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

|                                                                                           |                                                       |                                                   |                                                     |        |                |        |       |        |        |        |  
|------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------- | ------ | -------------- | ------ | ----- | ------ | ------ | ------ | -
|                                                                                           |                                                       |                                                   |                                                     |        | 39 Weeks Ended |       
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|millions                                                                                   |                                                       | September 27,                                     |                                                     |        | September 28,  |       
|                                                                                           |                                                       | 2003                                              |                                                     |        | 2002           |       
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |                                                       |                                                   |                                                     |        |                |        |       |       
|Net income                                                                                 |                                                       | $                                                 | 648                                                 |        |                | $      | 528   |       
|Adjustments to reconcile net income to net cash provided by (used in)
operating activities |                                                       |                                                   |                                                     |        |                |        |       |       
|                                                                                           | Depreciation and amortization                         |                                                   |                                                     | 681    |                |        |       | 650    |       
|                                                                                           | Cumulative effect of a change accounting for goodwill |                                                   |                                                     |       |                |        |       | 208    |       
|                                                                                           | Provision for uncollectible accounts                  |                                                   |                                                     | 1,511  |                |        |       | 1,685  |       
|                                                                                           | Special charges and impairments                       |                                                   |                                                     | 112    |                |        |       | 111    |       
|                                                                                           | Gain on sales of property and investments             |                                                   |                                                     | (4     | )              |        |       | (76    | )     
|                                                                                           | Income tax benefit on nonqualified stock options      |                                                   |                                                     | 5      |                |        |       | 24     |       
|                                                                                           | Change in:                                            |                                                   |                                                     |        |                |        |       |        |       
|                                                                                           |                                                       | Deferred income taxes                             |                                                     |        | 254            |        |       |        | (214   | )     
|                                                                                           |                                                       | Domestic and Sears Canada credit card receivables |                                                     |        | 527            |        |       |        | (2,639 | )     
|                                                                                           |                                                       | Merchandise inventories                           |                                                     |        | (1,088         | )      |       |        | (804   | )     
|                                                                                           |                                                       | Other operating assets                            |                                                     |        | (52            | )      |       |        | 125    |       
|                                                                                           |                                                       | Other operating liabilities                       |                                                     |        | (905           | )      |       |        | (715   | )     
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|                                                                                           |                                                       |                                                   | Net cash provided by (used in) operating activities |        |                | 1,689  |       |        |        | (1,117 | )
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |                                                       |                                                   |                                                     |        |                |        |       |       
|                                                                                           | Acquisition of businesses, net of cash acquired       |                                                   |                                                     |       |                |        |       | (1,840 | )     
|                                                                                           | Proceeds from sales of property and investments       |                                                   |                                                     | 24     |                |        |       | 140    |       
|                                                                                           | Purchases of property and equipment                   |                                                   |                                                     | (567   | )              |        |       | (631   | )     
|                                                                                           | Purchases of long-term investments                    |                                                   |                                                     | (25    | )              |        |       | (12    | )     
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|                                                                                           |                                                       |                                                   | Net cash used in investing activities               |        |                | (568   | )     |        |        | (2,343 | )
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |                                                       |                                                   |                                                     |        |                |        |       |       
|                                                                                           | Proceeds from long-term debt                          |                                                   |                                                     | 2,932  |                |        |       | 5,055  |       
|                                                                                           | Repayments of long-term debt                          |                                                   |                                                     | (4,073 | )              |        |       | (2,257 | )     
|                                                                                           | Increase in short term borrowings                     |                                                   |                                                     | 1,633  |                |        |       | 729    |       
|                                                                                           | Repayments of ESOP note receivable                    |                                                   |                                                     | 2      |                |        |       | 8      |       
|                                                                                           | Common shares repurchased                             |                                                   |                                                     | (1,911 | )              |        |       | (427   | )     
|                                                                                           | Common shares issued for employee stock plans         |                                                   |                                                     | 72     |                |        |       | 150    |       
|                                                                                           | Dividends paid to shareholders                        |                                                   |                                                     | (210   | )              |        |       | (220   | )     
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|                                                                                           |                                                       |                                                   | Net cash (used in) provided by financing activities |        |                | (1,555 | )     |        |        | 3,038  |  
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|Effect of exchange rate changes on cash and cash equivalents                               |                                                       |                                                   | 18                                                  |        |                |        | (5    | )     
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                  |                                                       |                                                   | (416                                                | )      |                |        | (427  | )     
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|BALANCE AT BEGINNING OF YEAR                                                               |                                                       |                                                   | 1,962                                               |        |                |        | 1,064 |       
|                                                                                           |                                                       |                                                   |                                                     |        |                |       
|BALANCE AT END OF PERIOD                                                                   |                                                       | $                                                 | 1,546                                               |        |                | $      | 637   |       
|                                                                                           |                                                       |                                                   |                                                     |        |                |       

See accompanying notes.

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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheets as of September 27, 2003 and
September 28, 2002, the related Condensed Consolidated Statements of Income for
the 13 and 39 weeks ended September 27, 2003 and September 28, 2002, and the
Condensed Consolidated Statements of Cash Flows for the 39 weeks ended
September 27, 2003 and September 28, 2002, are unaudited. 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 condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Sears,
Roebuck and Co. (the Company or Sears) 2002 Annual Report on Form 10-K.
The results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.

Certain reclassifications have been made to the 2002 financial statements to
conform with the current year presentation.

NOTE 2  ASSETS HELD FOR SALE

On July 15, 2003, the Company entered into a definitive agreement to sell
substantially all the assets and liabilities related to its domestic Credit and
Financial Products business, including its clubs and services business, to
Citicorp. The transaction closed on November 3, 2003. See
Note 13 for further discussion.

On September 22, 2003, the Company announced it had entered into a definitive
agreement to sell its National Tire & Battery (NTB) business and related
inventory to TBC Corporation (TBC) for total cash consideration of
approximately $260 million. The transaction, which is subject to customary
regulatory review and closing conditions, is expected to close in the fourth
quarter of 2003. The Company anticipates recognizing an after-tax gain in the
range of $40 to $60 million which will be finalized upon closing.

In accordance with Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
assets and liabilities of the domestic Credit and Financial Products business
to be sold, including its clubs and services business, and the assets and
liabilities of NTB to be sold are reported separately on the Condensed
Consolidated Balance Sheet as of September 27, 2003. The assets and
liabilities of NTB and clubs and services are included in the Retail and
Related Services Segment whereas, the assets and liabilities of the Credit and
Financial Products business are included in the Credit and Financial Products
segment. The major classes of assets and liabilities held for sale for each of
these transactions included in the September 27, 2003 Condensed Consolidated
Balance Sheet are as follows:

|                                             |                                 |          |            |        |     |   |     |       |  |   |        |        | 
|-------------------------------------------- | ------------------------------- | -------- | ---------- | ------ | --- | - | --- | ----- |  | - | ------ | ------ | 
|                                             |                                 |          | Credit and |        |     |   |     |       |  |   |        |       
|                                             |                                 |          | Financial  |        |     |   |     |       |  |   |        |       
|millions                                     |                                 | Products |            |        | NTB |   |     | Total | 
|                                             |                                 |          |            |        |     |   |     |       | 
|Credit card receivables, net                 |                                 | $        | 27,087     |        |     | $ |    |       |  | $ | 27,087 |       
|Inventory                                    |                                 |          |           |        |     |   | 39  |       |  |   | 39     |       
|Property and equipment, net                  |                                 |          | 41         |        |     |   | 157 |       |  |   | 198    |       
|Other assets                                 |                                 |          | 494        |        |     |   |    |       |  |   | 494    |       
|                                             |                                 |          |            |        |     |   |     |       | 
|                                             | Total assets held for sale      |          |            | 27,622 |     |   |     | 196   |  |   |        | 27,818 | 
|                                             |                                 |          |            |        |     |   |     |       | 
|Long-term debt and capital lease
obligations |                                 |          | 10,393     |        |     |   | 8   |       |  |   | 10,401 |       
|Other liabilities                            |                                 |          | 180        |        |     |   | 21  |       |  |   | 201    |       
|                                             |                                 |          |            |        |     |   |     |       | 
|                                             | Total liabilities held for sale |          | $          | 10,573 |     |   | $   | 29    |  |   | $      | 10,602 | 
|                                             |                                 |          |            |        |     |   |     |       | 

4



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 3  ACQUISITION

On June 17, 2002, the Company acquired 100 percent of the outstanding common
shares of Lands End, Inc. (Lands End). The results of Lands Ends
operations have been included in the consolidated financial statements since
that date. Headquartered in Dodgeville, Wisconsin, Lands End is a direct
merchant of traditionally styled, casual clothing for men, women and children,
accessories, footwear, home products and soft luggage.

The following pro forma information presents the results of operations of the
Company as if the Lands End acquisition had taken place at the beginning of
fiscal 2002. Pro forma adjustments have been made to reflect additional
interest expense from the $1.8 billion in debt associated with the acquisition.
The pro forma results of operations include $18 million of non-recurring
transaction costs incurred by Lands End for the 39 weeks ended September 28,
2002.

|                                                     |  |                |        | 
|---------------------------------------------------- |  | -------------- | ------ | 
|                                                     |  | 39 Weeks Ended |       
|millions, except per share data                      |  | Sept. 28, 2002 |       
|                                                     |  |                |       
|Revenues                                             |  | $              | 29,502 | 
|Income before cumulative effect of accounting change |  |                | 703    | 
|Net income                                           |  |                | 495    | 
|Earnings per share:                                  |  |                |        | 
|Basic                                                |  | $              | 1.51   | 
|Diluted                                              |  | $              | 1.49   | 

The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would have
occurred had the Lands End acquisition occurred at the beginning of fiscal
2002.

NOTE 4  BORROWINGS

Total borrowings outstanding at September 27, 2003, September 28, 2002 and
December 28, 2002 were $30.8 billion, $29.3 billion and $30.0 billion,
respectively. Total borrowings are presented on the Condensed Consolidated
Balance Sheet as follows:

|                        |                                          |      |           |        |      |           |        |        |          |   |        |        | 
|----------------------- | ---------------------------------------- | ---- | --------- | ------ | ---- | --------- | ------ | ------ | -------- | - | ------ | ------ | 
|                        |                                          |      | Sept. 27, |        |      | Sept. 28, |        |        | Dec. 28, |  
|millions                |                                          | 2003 |           |        | 2002 |           |        | 2002   |         
|                        |                                          |      |           |        |      |           |        |        |         
|Short-term borrowings:  |                                          |      |           |        |      |           |        |        |          |   |        |       
|                        | Unsecured commercial paper               |      | $         | 3,424  |      |           | $      | 4,214  |          |   | $      | 2,950  | 
|                        | Asset-backed commercial paper            |      |           | 1,300  |      |           |        |       |          |   |        | 1,500  | 
|                        | Asset-backed facility                    |      |           | 1,400  |      |           |        |       |          |   |        |       | 
|                        | Bank loans                               |      |           | 55     |      |           |        | 75     |          |   |        | 75     | 
|                        |                                          |      |           |        |      |           |        |        |         
|                        |                                          |      | 6,179     |        |      |           | 4,289  |        |          |   | 4,525  |       
|Long-term debt (1):     |                                          |      |           |        |      |           |        |        |          |   |        |       
|                        | Notes and debentures outstanding         |      |           | 13,703 |      |           |        | 13,323 |          |   |        | 13,094 | 
|                        | Securitizations (2)                      |      |           | 10,393 |      |           |        | 11,203 |          |   |        | 11,951 | 
|                        | Capital lease obligations                |      |           | 511    |      |           |        | 444    |          |   |        | 458    | 
|                        |                                          |      |           |        |      |           |        |        |         
|Total borrowings        |                                          | $    | 30,786    |        |      | $         | 29,259 |        |          | $ | 30,028 |       
|                        | SFAS No. 133 Hedge Accounting Adjustment |      |           | 510    |      |           |        | 585    |          |   |        | 609    | 
|                        |                                          |      |           |        |      |           |        |        |         
|Total debt              |                                          | $    | 31,296    |        |      | $         | 29,844 |        |          | $ | 30,637 |       
|                        |                                          |      |           |        |      |           |        |        |         
|Memo: Sears Canada debt |                                          | $    | 1,686     |        |      | $         | 1,428  |        |          | $ | 1,478  |       

|    |  |                                                                                                                     |  | 
|--- |  | ------------------------------------------------------------------------------------------------------------------- |  | 
|    |  |                                                                                                                    
|(1) |  | Includes capital lease obligations and current portion of long-term debt.                                           |  | 
|(2) |  | Balance at September 27, 2003 is included in liabilities held for sale on the Condensed Consolidated Balance Sheet. |  | 
|   

5



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company maintains committed credit facilities to support its unsecured
commercial paper borrowings. In February 2003, the Companys domestic wholly
owned financing subsidiary, Sears Roebuck Acceptance Corp. (SRAC), through a
syndicate of banks, obtained an unsecured, 364-day revolving credit facility in
the amount of $3.5 billion. Effective November 3, 2003, SRAC amended the
facility extending the termination date to May 2004 for consenting lenders and
modifying the option to extend the repayment of any borrowings to November
2004. The amendment also provides for the commitment amount under this
facility to be reduced to $2.5 billion 30 days following the sale of the Credit
and Financial Products business. As of September 27, 2003, there have been no
borrowings related to this credit facility.

The Company maintains asset-backed commercial paper programs. In February
2003, programs totaling $2.8 billion were renewed with an expiration date of
February 2004. In March 2003, capacity was expanded by $0.8 billion with an
expiration in March 2004. At September 27, 2003, $1.3 billion was outstanding
under these programs. The program was terminated and amounts outstanding were
repaid concurrent with the sale of the Credit and Financial Products business
on November 3, 2003.

In March 2003, the Company negotiated a $2.0 billion private asset-backed
facility. Borrowings under the facility were scheduled to enter an
amortization period in January 2004 and bore interest at a variable rate based
on LIBOR. The Company had borrowed $1.4 billion through this facility as of
September 27, 2003. This facility also matured and amounts outstanding were
repaid concurrent with the sale of the Credit and Financial Products business
on November 3, 2003.

On September 1, 2003, SRAC redeemed the entire outstanding principal amount of
its $250 million 7% notes due March 1, 2038. On October 23, 2003, SRAC also
redeemed the entire principal amount of its $250 million 6.95% notes due
October 23, 2038.

On October 17, 2003, the Company and its wholly owned subsidiaries, SRAC and
Sears DC Corp., commenced cash tender offers to purchase any and all of their
respective unsecured public term debt securities maturing after 2003, which
includes 214 series of securities with an aggregate principal amount of
approximately $11.8 billion. The offers are expected to expire on November 14,
2003, unless previously terminated or extended.

NOTE 5  SPECIAL CHARGES AND IMPAIRMENTS

On August 28, 2003, the Company announced a refinement of the business strategy
for The Great Indoors (TGI) which included its decision to close three TGI
stores and cease development of four future locations. In addition, the
carrying value of the long-lived assets for the remaining eighteen TGI stores
were reviewed for recoverability. As a result, the Company recorded a pretax
charge of $141 million. The $141 million pretax charge consisted of $99
million related to asset impairments, $29 million related to inventory
clearance costs, $11 million related to other contractual obligations and $2
million related to employee terminations costs. Of the $141 million charge,
$112 million was recorded in special charges and impairments and $29 million
was recorded in cost of sales, both within the Retail and Related Services
segment.

The asset impairment charge of $99 million includes $60 million related to the
write-down of property and equipment to be held and used, and $39 million
related to the write-down of property and equipment to fair value (less costs
to sell and net of estimated salvage value) for the three stores which will be
closed and the four future locations which will not be developed. The review
process which led to the Companys conclusion to close three under-performing
stores also included revising the cash flow projections for all stores. For
certain TGI stores, the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the assets did not exceed the carrying
amount of their assets. Consequently, the Company obtained external
assessments of fair market value for those stores. The impairment charge of $60 million represents
the excess carrying value of the long-lived assets over the estimated fair
value of the related properties.

6



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)



The pretax charge also provided a reserve of $11 million for incremental costs
and contractual obligations for items such as reimbursement to licensed
businesses for facility closures, lease termination costs and other exit costs
incurred as a direct result of the store closures. As a result of the store
closures, along with the decision to modify the TGI merchandise assortment,
certain inventory was written down to its net realizable value. This resulted
in a charge to cost of sales of $29 million. The Company expects that the
three stores will be closed and all related employees terminated by the end of
fiscal 2003.

In the second quarter of 2003, the Company recorded a pretax charge of $28
million for the estimated cost of severance for approximately 650 associates.
Of the $28 million pretax charge, $16 million was recorded as selling and
administrative expenses in the Retail and Related Services segment and $12
million was recorded in the Corporate and Other segment.

During the first quarter of 2002, Sears Canada converted its seven stores
operating under the Eatons banner to Sears Canada stores resulting in
severance, asset impairment and other exit costs amounting to $111 million.
All actions related to this charge were completed by the end of 2002.

Following is a summary of the 2003 activity in the remaining reserves
established in connection with the Companys initiatives noted above:

|                         |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |           |     |   |         |    |    | 
|------------------------ | --------------------------------------- | ---- | -------- | -- | --------- | ---- | --- | ---------- | ----- | - | -------- | ---- | - | ---- | --------- | --- | - | ------- | -- | -- | 
|                         |                                         |      | Ending   |    |           |      |     |            |       |   |          |      |   |      |           |     |   | Ending  |   
|                         |                                         |      | Reserve  |    |           |      |     |            |       |   |          |      |   |      |           |     |   | Reserve |   
|                         |                                         |      | Balance  |    |           |      |     |            |       |   |          |      |   |      |           |     |   | Balance |   
|                         |                                         |      | Dec. 28, |    |           | 2003 |     |            | Asset |   |          | Cash |   |      | Sept. 27, |    
|millions                 |                                         | 2002 |          |    | Additions |      |     | Write-Down |       |   | Payments |      |   | 2003 |          
|                         |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |          
|Productivity initiatives |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |           |     |   |         |    |   
|                         | Employee termination costs              |      | $        | 23 |           |      | $   | 28         |       |   | $        |     |   |      | $         | (32 | ) |         | $  | 19 | 
|The Great Indoors        |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |           |     |   |         |    |   
|                         | Employee termination costs              |      |          |   |           |      |     | 2          |       |   |          |     |   |      |           |    |   |         |    | 2  | 
|                         | Asset impairments                       |      |          |   |           |      |     | 99         |       |   |          | (99  | ) |      |           |    |   |         |    |   | 
|                         | Contractual obligations and other costs |      |          |   |           |      |     | 11         |       |   |          |     |   |      |           |    |   |         |    | 11 | 
|                         |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |           |    
|                         |                                         |      |         |    |           |      | 112 |            |       |   | (99      | )    |   |      |          |     |   |         | 13 |   
|Total                    |                                         | $    | 23       |    |           | $    | 140 |            |       | $ | (99      | )    |   | $    | (32       | )   |   | $       | 32 |   
|                         |                                         |      |          |    |           |      |     |            |       |   |          |      |   |      |          

NOTE 6  SHAREHOLDERS EQUITY

Dividend Payments

Under terms of indentures entered into in 1991 and thereafter, the Company
cannot take specified actions, including the declaration of cash dividends,
that would cause its unencumbered assets, as defined, to fall below 150% of its
liabilities, as defined. At September 27, 2003, approximately $6.0 billion
could be paid in dividends to shareholders under the most restrictive
indentures.

Share Repurchase Program

The Company repurchased 20.6 million common shares at a cost of approximately
$0.9 billion and 55.5 million common shares at a cost of approximately $1.9
billion during the 13 and 39 weeks ended September 27,
2003, respectively, under programs approved by the Board of Directors. As of
September 27, 2003, the Company had remaining authorization to repurchase $0.3
billion of common shares by December 31, 2006.

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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)



On October 8, 2003, the Board of Directors approved a resolution giving the
Company authorization to acquire an additional $3.0 billion of the Companys
common shares by December 31, 2006. The shares will be purchased in the open
market, through self-tender offers or privately negotiated transactions. The
timing will depend on prevailing market conditions, alternative uses of capital
and other factors.

Comprehensive Income and Accumulated Other Comprehensive Loss

The following table shows the computation of comprehensive income:

|                                                    |  |                |     |   |                |   |     |           |  |   |           |   |  |   |     |  
|--------------------------------------------------- |  | -------------- | --- | - | -------------- | - | --- | --------- |  | - | --------- | - |  | - | --- | -
|                                                    |  | 13 Weeks Ended |     |   | 39 Weeks Ended |  
|                                                    |  |                |     |   |                |  
|millions                                            |  | Sept. 27,      |     |   | Sept. 28,      |   |     | Sept. 27, |  |   | Sept. 28, |  
|                                                    |  | 2003           |     |   | 2002           |   |     | 2003      |  |   | 2002      |  
|                                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Net income                                          |  | $              | 147 |   |                | $ | 189 |           |  | $ | 648       |   |  | $ | 528 |  
|Other comprehensive income/(loss):                  |  |                |     |   |                |   |     |           |  |   |           |   |  |   |     |  
|Amounts amortized into interest expense from OCI    |  |                | 4   |   |                |   | 4   |           |  |   | 12        |   |  |   | 12  |  
|Change in fair value of cash flow hedges            |  |                | (2  | ) |                |   | 2   |           |  |   | (1        | ) |  |   | (1  | )
|Foreign currency translation adjustments            |  |                | 5   |   |                |   | (23 | )         |  |   | 96        |   |  |   | 7   |  
|                                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Total accumulated other comprehensive income/(loss) |  |                | 7   |   |                |   | (17 | )         |  |   | 107       |   |  |   | 18  |  
|                                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Total comprehensive income                          |  | $              | 154 |   |                | $ | 172 |           |  | $ | 755       |   |  | $ | 546 |  
|                                                    |  |                |     |   |                |   |     |           |  |   |           |  

The following table displays the components of accumulated other comprehensive loss:

|                                          |  |           |      |   |           |   |      |          |  |   |        |  
|----------------------------------------- |  | --------- | ---- | - | --------- | - | ---- | -------- |  | - | ------ | -
|                                          |  | Sept. 27, |      |   | Sept. 28, |   |      | Dec. 28, | 
|millions                                  |  | 2003      |      |   | 2002      |   |      | 2002     | 
|                                          |  |           |      |   |           |   |      |          | 
|Accumulated derivative loss               |  | $         | (190 | ) |           | $ | (200 | )        |  | $ | (201   | )
|Currency translation adjustments          |  |           | (48  | ) |           |   | (148 | )        |  |   | (144   | )
|Minimum pension liability, net of tax (1) |  |           | (711 | ) |           |   | (465 | )        |  |   | (711   | )
|                                          |  |           |      |   |           |   |      |          | 
|Accumulated other comprehensive loss      |  | $         | (949 | ) |           | $ | (813 | )        |  | $ | (1,056 | )
|                                          |  |           |      |   |           |   |      |          | 

|                                                                                                                      |  | 
|--------------------------------------------------------------------------------------------------------------------- |  | 
|                                                                                                                      |  | 
|(1) Minimum pension liability is calculated annually in the fourth quarter. Changes thereto are recorded at that time |  | 
|                                                                                                                      |  | 

NOTE 7  EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

|                                                        |         |           |                |      |           |                |       |           |  |   |           |      |  |   |       |      | 
|------------------------------------------------------- | ------- | --------- | -------------- | ---- | --------- | -------------- | ----- | --------- |  | - | --------- | ---- |  | - | ----- | ---- | 
|                                                        |         |           | 13 Weeks Ended |      |           | 39 Weeks Ended |      
|                                                        |         |           |                |      |           |                |      
|millions, except per share data                         |         | Sept. 27, |                |      | Sept. 28, |                |       | Sept. 27, |  |   | Sept. 28, |     
|                                                        |         | 2003      |                |      | 2002      |                |       | 2003      |  |   | 2002      |     
|                                                        |         |           |                |      |           |                |       |           |  |   |           |     
|Net income (1)                                          |         | $         | 147            |      |           | $              | 189   |           |  | $ | 648       |      |  | $ | 528   |     
|Average common shares outstanding                       |         |           | 277.1          |      |           |                | 317.1 |           |  |   | 297.1     |      |  |   | 317.4 |     
|Dilutive effect of stock options                        |         |           | 3.9            |      |           |                | 3.0   |           |  |   | 1.6       |      |  |   | 4.3   |     
|                                                        |         |           |                |      |           |                |       |           |  |   |           |     
|Average common and common equivalent shares outstanding |         |           | 281.0          |      |           |                | 320.1 |           |  |   | 298.7     |      |  |   | 321.7 |     
|                                                        |         |           |                |      |           |                |       |           |  |   |           |     
|Earnings per share                                      |         |           |                |      |           |                |       |           |  |   |           |      |  |   |       |     
|                                                        | Basic   |           | $              | 0.53 |           |                | $     | 0.60      |  |   | $         | 2.18 |  |   | $     | 1.66 | 
|                                                        | Diluted |           | $              | 0.52 |           |                | $     | 0.59      |  |   | $         | 2.17 |  |   | $     | 1.64 | 

|                                                                                            |  | 
|------------------------------------------------------------------------------------------- |  | 
|                                                                                            |  | 
|(1) Net income is the same for purposes of calculating basic and diluted earnings per share |  | 
|                                                                                            |  | 

8



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table sets forth the computations of basic and diluted earnings
per share before cumulative effect of changes in accounting:

|                                                         |         |           |                |      |           |   |       |      | 
|-------------------------------------------------------- | ------- | --------- | -------------- | ---- | --------- | - | ----- | ---- | 
|                                                         |         |           | 39 Weeks Ended |     
|                                                         |         |           |                |     
|millions, except per share data                          |         | Sept. 27, |                |      | Sept. 28, |  
|                                                         |         | 2003      |                |      | 2002      |  
|                                                         |         |           |                |      |           |  
|Income before cumulative effect of accounting change (1) |         | $         | 648            |      |           | $ | 736   |     
|Average common shares outstanding                        |         |           | 297.1          |      |           |   | 317.4 |     
|Dilutive effect of stock options                         |         |           | 1.6            |      |           |   | 4.3   |     
|                                                         |         |           |                |      |           |  
|Average common and common equivalent shares outstanding  |         |           | 298.7          |      |           |   | 321.7 |     
|                                                         |         |           |                |      |           |  
|Earnings per share                                       |         |           |                |      |           |   |       |     
|                                                         | Basic   |           | $              | 2.18 |           |   | $     | 2.32 | 
|                                                         | Diluted |           | $              | 2.17 |           |   | $     | 2.29 | 

|    |  |                                                                                                                                    |  | 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | 
|    |  |                                                                                                                                   
|(1) |  | Income before cumulative effect of accounting change is the same for purposes of calculating basic and diluted earnings per share. |  | 
|    |  |                                                                                                                                   

In each period, certain options were excluded from the computation of diluted
earnings per share because they would have been anti-dilutive. At September
27, 2003, options to purchase 5.2 million common shares and 19.1 million common
shares at prices ranging from $41 to $64 and $32 to $64 per share, were
excluded from the 13 and 39 week 2003 calculations, respectively. At September
28, 2002, options to purchase 5.9 million and 4.4 million common shares at
prices ranging from $46 to $64 and $51 to $64 per share were excluded from the
13 and 39 week 2002 calculations, respectively.

NOTE 8- STOCK BASED COMPENSATION

At September 27, 2003, the Company had various stock-based employee
compensation plans, which are described more fully in Note 11 of the Notes to
Consolidated Financial Statements in the Companys 2002 Annual Report on Form
10-K. The Company accounts for those plans in accordance with Accounting
Principles Board Opinion No. 25, Accounting For Stock Issued to Employees,
and related Interpretations. No stock-based employee compensation cost is
reflected in net income, as no options granted under those plans had an
exercise price less than the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

|                                                                                                                                    |             |           |                |      |           |                |     |           |  |   |           |      |  |   |     |      | 
|----------------------------------------------------------------------------------------------------------------------------------- | ----------- | --------- | -------------- | ---- | --------- | -------------- | --- | --------- |  | - | --------- | ---- |  | - | --- | ---- | 
|                                                                                                                                    |             |           | 13 Weeks Ended |      |           | 39 Weeks Ended |    
|                                                                                                                                    |             |           |                |      |           |                |    
|millions, except earnings per share                                                                                                 |             | Sept. 27, |                |      | Sept. 28, |                |     | Sept. 27, |  |   | Sept. 28, |     
|                                                                                                                                    |             | 2003      |                |      | 2002      |                |     | 2003      |  |   | 2002      |     
|                                                                                                                                    |             |           |                |      |           |                |     |           |  |   |           |     
|Net income  as reported                                                                                                            |             | $         | 147            |      |           | $              | 189 |           |  | $ | 648       |      |  | $ | 528 |     
|Less: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related taxes |             |           | 10             |      |           |                | 12  |           |  |   | 33        |      |  |   | 41  |     
|                                                                                                                                    |             |           |                |      |           |                |     |           |  |   |           |     
|Net income  pro forma                                                                                                              |             | $         | 137            |      |           | $              | 177 |           |  | $ | 615       |      |  | $ | 487 |     
|                                                                                                                                    |             |           |                |      |           |                |     |           |  |   |           |     
|Earnings per share  basic                                                                                                          |             |           |                |      |           |                |     |           |  |   |           |      |  |   |     |     
|                                                                                                                                    | As reported |           | $              | 0.53 |           |                | $   | 0.60      |  |   | $         | 2.18 |  |   | $   | 1.66 | 
|                                                                                                                                    | Pro forma   |           |                | 0.49 |           |                |     | 0.56      |  |   |           | 2.07 |  |   |     | 1.53 | 
|Earnings per share  diluted                                                                                                        |             |           |                |      |           |                |     |           |  |   |           |      |  |   |     |     
|                                                                                                                                    | As reported |           | $              | 0.52 |           |                | $   | 0.59      |  |   | $         | 2.17 |  |   | $   | 1.64 | 
|                                                                                                                                    | Pro forma   |           |                | 0.49 |           |                |     | 0.55      |  |   |           | 2.06 |  |   |     | 1.51 | 

9



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 9  IMPLEMENTATION OF NEW ACCOUNTING STANDARD

The Company receives allowances from its vendors through a variety of programs
and arrangements, including
co-operative advertising and markdown reimbursement programs. Given the
promotional nature of the Companys business, the allowances are generally
intended to offset the Companys costs of promoting, advertising and selling
the vendors products in its stores. Vendor allowances are recognized as a
reduction of cost of sales or related selling expense when the purpose for
which the vendor funds were intended to be used has been fulfilled.
Co-operative advertising allowances are reported as a reduction of advertising
expense in the period in which the advertising occurs. Markdown reimbursements
are credited to cost of sales, buying and occupancy during the period in which
the related promotional markdown is taken.

The Financial Accounting Standard Boards Emerging Issues Task Force (EITF)
Issue No. 02-16, Accounting By A Customer (Including A Reseller) For Cash
Consideration Received From A Vendor addressed the accounting treatment for
vendor allowances. The adoption of EITF Issue No. 02-16 in the first quarter
of 2003 did not have a material impact on the Companys consolidated financial
position or results of operations.

NOTE 10  LEGAL PROCEEDINGS

Pending against the Company and certain of its officers and directors are a
number of lawsuits, described below, that relate to the credit and financial
products business and public statements about it between October 24, 2001, and
October 17, 2002. The Company believes that all of these claims lack merit and
is defending them vigorously.

On October 18, 2002, a lawsuit was filed in the United States District Court
for the Northern District of Illinois (the Illinois Federal Court) against
the Company and certain current and former officers alleging that certain
public announcements by the Company concerning its credit card business
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor
followed; these suits are now pending in the Illinois Federal Court (the one
exception, which was pending in the United States District Court for the
Northern District of California, has now been transferred to the Illinois
Federal Court). The plaintiffs purport to represent classes of shareholders
who purchased the Companys common shares between October 24, 2001 and October
17, 2002. These actions have been consolidated and the Department of the
Treasury of the State of New Jersey has been appointed lead plaintiff for the
purported class. On June 16, 2003, the lead plaintiff filed a consolidated
amended complaint. Defendants motion to dismiss the complaint was denied on
October 23, 2003. The Court directed that pretrial proceedings begin and
scheduled trial for August 2004.

A similar lawsuit was filed in the Illinois Federal Court on June 16, 2003,
alleging similar claims as well as claims under Section 11 of the Securities
Act of 1933, against the Company, certain officers, and Sears Roebuck
Acceptance Corp. (SRAC). An amended complaint was filed on October 16, 2003,
naming additional individuals and certain investment banks as defendants. The
plaintiffs purport to represent a class of noteholders who acquired certain
notes issued by SRAC between October 24, 2001, and October 17, 2002, whether by
prospectus or otherwise.

On November 15, 2002, two lawsuits were filed in the Illinois Federal Court
against the Company, certain officers and directors, and alleged fiduciaries of
Sears 401(k) Savings Plan (the Plan), seeking damages and equitable relief
under the Employee Retirement Income Security Act (ERISA). The plaintiffs
purport to represent participants and beneficiaries of the Plan, and allege
breaches of fiduciary duties under ERISA in connection with the Plans
investment in the Companys common shares and alleged communications made to
Plan participants regarding the Companys financial condition. Additional
lawsuits of the same tenor followed. These actions have been consolidated into a
single class action. Plaintiffs filed a consolidated
amended complaint on May 14, 2003. Defendants motion to dismiss the
consolidated amended complaint is pending.

10



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

On October 23, 2002, a purported derivative suit was filed in the Supreme Court
of the State of New York (the New York Court) against the Company (as a
nominal defendant) and certain current and former directors seeking damages on
behalf of the Company. The complaint purports to allege a breach of fiduciary
duty by the directors with respect to the Companys management of its credit
business. Defendants have filed a motion to dismiss an amended complaint. Two
similar suits were subsequently filed in the Circuit Court of Cook County,
Illinois (the Illinois State Court), and a third was filed in the Illinois
Federal Court. Motions have been made to dismiss these actions, or, in the
alternative, to stay them, pending disposition of the action in New York. The
Illinois State Court and Illinois Federal Court actions have been stayed
pending proceedings in the action in the New York Court.

The Company is subject to various other legal and governmental proceedings,
many involving litigation incidental to the businesses. Some matters contain
class action allegations, environmental and asbestos exposure allegations and
other consumer based claims that involve compensatory, punitive or treble
damage claims in very large amounts as well as other types of relief. The
consequences of these matters are not presently determinable but, in the
opinion of management of the Company after consulting with legal counsel and
taking into account insurance and reserves, the ultimate liability is not
expected to have a material effect on annual results of operations, financial
position, liquidity or capital resources of the Company.

NOTE 11  FINANCIAL GUARANTEES

The Company had total financial guarantees of $73 million at September 27,
2003, which primarily included a $69 million guaranty representing a commitment
by the Company to guarantee the performance of certain municipal bonds issued
in connection with the Companys headquarters building. This guaranty expires
in 2012. In addition, the Company had additional guarantees of approximately
$4 million in which the Company guaranteed leases of certain Company
affiliates.

NOTE 12  SEGMENT DISCLOSURES

In response to guidance issued by the Securities and Exchange Commission
related to the use of non-GAAP financial measures, the Company revised its
segment presentation beginning in the first quarter of 2003 to include
noncomparable items within the segment to which it relates for all periods
presented. The following tables set forth operating results and total assets
by segment:

11



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the 13 weeks ended September 27, 2003

|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |       |       |       |   |        |       |       | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | --------- | - | ---------- | ----- | --- | --------- | ------ | --- | --- | ------------ | ----- | ----- | ----- | - | ------ | ----- | ----- | 
|                                       |                                      |                          |        | Retail and |           |   | Credit and |       |     | Corporate |        |     |     |              |       |       |       |   |       
|millions                               |                                      | Related                  |        |            | Financial |   |            | and   |     |           | Sears  |     |     | Consolidated |      
|                                       |                                      | Services                 |        |            | Products  |   |            | Other |     |           | Canada |     |     | GAAP         |      
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      
|Merchandise sales and services         |                                      | $                        | 7,342  |            |           | $ |           |       |     | $         | 107    |     |     | $            | 960   |       |       | $ | 8,409  |      
|Credit and financial products revenues |                                      |                          |       |            |           |   | 1,307      |       |     |           |       |     |     |              | 78    |       |       |   | 1,385  |      
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      
|                                       | Total revenues                       |                          |        | 7,342      |           |   |            | 1,307 |     |           |        | 107 |     |              |       | 1,038 |       |   |        | 9,794 |      
|Costs and expenses                     |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |       |       |       |   |        |      
|                                       | Cost of sales, buying and occupancy  |                          |        | 5,415      |           |   |            |      |     |           |        | 42  |     |              |       | 680   |       |   |        | 6,137 |      
|                                       | Selling and administrative           |                          |        | 1,694      |           |   |            | 157   |     |           |        | 111 |     |              |       | 267   |       |   |        | 2,229 |      
|                                       | Provision for uncollectible accounts |                          |        |           |           |   |            | 550   |     |           |        |    |     |              |       | 17    |       |   |        | 567   |      
|                                       | Depreciation and amortization        |                          |        | 182        |           |   |            | 4     |     |           |        | 13  |     |              |       | 27    |       |   |        | 226   |      
|                                       | Interest                             |                          |        | 24         |           |   |            | 230   |     |           |        |    |     |              |       | 27    |       |   |        | 281   |      
|                                       | Special charges and impairments      |                          |        | 112        |           |   |            |      |     |           |        |    |     |              |       |      |       |   |        | 112   |      
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      
|                                       |                                      | Total costs and expenses |        |            | 7,427     |   |            |       | 941 |           |        |     | 166 |              |       |       | 1,018 |   |        |       | 9,552 | 
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      
|Operating income (loss)                |                                      | $                        | (85    | )          |           | $ | 366        |       |     | $         | (59    | )   |     | $            | 20    |       |       | $ | 242    |      
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      
|Total assets                           |                                      | $                        | 13,456 |            |           | $ | 29,693     |       |     | $         | 1,931  |     |     | $            | 4,010 |       |       | $ | 49,090 |      
|                                       |                                      |                          |        |            |           |   |            |       |     |           |        |     |     |              |      

For the 13 weeks ended September 28, 2002

|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |       |              |     |   |        |       |       | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | -------- | - | ---------- | ----- | ----- | --------- | ------ | --- | ----- | ---- | ----- | ------------ | --- | - | ------ | ----- | ----- | 
|                                       |                                      |                          |        | Retail and |          |   | Credit and |       |       | Corporate |        |     |       |      |       |              |     |   |       
|                                       |                                      |                          |        | Related    |          |   | Financial  |       |       | and       |        |     | Sears |      |       | Consolidated |    
|millions                               |                                      | Services                 |        |            | Products |   |            | Other |       |           | Canada |     |       | GAAP |      
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      
|Merchandise sales and services         |                                      | $                        | 7,261  |            |          | $ |           |       |       | $         | 91     |     |       | $    | 887   |              |     | $ | 8,239  |      
|Credit and financial products revenues |                                      |                          |       |            |          |   | 1,363      |       |       |           |       |     |       |      | 67    |              |     |   | 1,430  |      
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      
|                                       | Total revenues                       |                          |        | 7,261      |          |   |            | 1,363 |       |           |        | 91  |       |      |       | 954          |     |   |        | 9,669 |      
|Costs and expenses                     |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |       |              |     |   |        |      
|                                       | Cost of sales, buying and occupancy  |                          |        | 5,266      |          |   |            |      |       |           |        | 33  |       |      |       | 635          |     |   |        | 5,934 |      
|                                       | Selling and administrative           |                          |        | 1,752      |          |   |            | 233   |       |           |        | 106 |       |      |       | 249          |     |   |        | 2,340 |      
|                                       | Provision for uncollectible accounts |                          |        |           |          |   |            | 588   |       |           |        |    |       |      |       | 15           |     |   |        | 603   |      
|                                       | Depreciation and amortization        |                          |        | 180        |          |   |            | 4     |       |           |        | 11  |       |      |       | 24           |     |   |        | 219   |      
|                                       | Interest                             |                          |        | 21         |          |   |            | 254   |       |           |        |    |       |      |       | 23           |     |   |        | 298   |      
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      
|                                       |                                      | Total costs and expenses |        |            | 7,219    |   |            |       | 1,079 |           |        |     | 150   |      |       |              | 946 |   |        |       | 9,394 | 
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      
|Operating income (loss)                |                                      | $                        | 42     |            |          | $ | 284        |       |       | $         | (59    | )   |       | $    | 8     |              |     | $ | 275    |      
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      
|Total assets                           |                                      | $                        | 12,883 |            |          | $ | 29,430     |       |       | $         | 2,461  |     |       | $    | 3,229 |              |     | $ | 48,003 |      
|                                       |                                      |                          |        |            |          |   |            |       |       |           |        |     |       |      |      

12



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the 39 weeks ended September 27, 2003

|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |       |       |       |   |        |        |        | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | --------- | - | ---------- | ----- | ----- | --------- | ------ | --- | --- | ------------ | ----- | ----- | ----- | - | ------ | ------ | ------ | 
|                                       |                                      |                          |        | Retail and |           |   | Credit and |       |       | Corporate |        |     |     |              |       |       |       |   |       
|millions                               |                                      | Related                  |        |            | Financial |   |            | and   |       |           | Sears  |     |     | Consolidated |      
|                                       |                                      | Services                 |        |            | Products  |   |            | Other |       |           | Canada |     |     | GAAP         |      
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Merchandise sales and services         |                                      | $                        | 21,757 |            |           | $ |           |       |       | $         | 270    |     |     | $            | 2,707 |       |       | $ | 24,734 |       
|Credit and financial products revenues |                                      |                          |       |            |           |   | 3,903      |       |       |           |       |     |     |              | 233   |       |       |   | 4,136  |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|                                       | Total revenues                       |                          |        | 21,757     |           |   |            | 3,903 |       |           |        | 270 |     |              |       | 2,940 |       |   |        | 28,870 |       
|Costs and expenses                     |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |       |       |       |   |        |       
|                                       | Cost of sales, buying and occupancy  |                          |        | 15,991     |           |   |            |      |       |           |        | 107 |     |              |       | 1,915 |       |   |        | 18,013 |       
|                                       | Selling and administrative           |                          |        | 4,978      |           |   |            | 590   |       |           |        | 333 |     |              |       | 765   |       |   |        | 6,666  |       
|                                       | Provision for uncollectible accounts |                          |        |           |           |   |            | 1,467 |       |           |        |    |     |              |       | 44    |       |   |        | 1,511  |       
|                                       | Depreciation and amortization        |                          |        | 552        |           |   |            | 13    |       |           |        | 34  |     |              |       | 82    |       |   |        | 681    |       
|                                       | Interest                             |                          |        | 49         |           |   |            | 717   |       |           |        |    |     |              |       | 81    |       |   |        | 847    |       
|                                       | Special charges and impairments      |                          |        | 112        |           |   |            |      |       |           |        |    |     |              |       |      |       |   |        | 112    |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|                                       |                                      | Total costs and expenses |        |            | 21,682    |   |            |       | 2,787 |           |        |     | 474 |              |       |       | 2,887 |   |        |        | 27,830 | 
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Operating income (loss)                |                                      | $                        | 75     |            |           | $ | 1,116      |       |       | $         | (204   | )   |     | $            | 53    |       |       | $ | 1,040  |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Total assets                           |                                      | $                        | 13,456 |            |           | $ | 29,693     |       |       | $         | 1,931  |     |     | $            | 4,010 |       |       | $ | 49,090 |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      

For the 39 weeks ended September 28, 2002

|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |       |       |       |   |        |        |        | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | --------- | - | ---------- | ----- | ----- | --------- | ------ | --- | --- | ------------ | ----- | ----- | ----- | - | ------ | ------ | ------ | 
|                                       |                                      |                          |        | Retail and |           |   | Credit and |       |       | Corporate |        |     |     |              |       |       |       |   |       
|millions                               |                                      | Related                  |        |            | Financial |   |            | and   |       |           | Sears  |     |     | Consolidated |      
|                                       |                                      | Services                 |        |            | Products  |   |            | Other |       |           | Canada |     |     | GAAP         |      
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Merchandise sales and services         |                                      | $                        | 21,728 |            |           | $ |           |       |       | $         | 241    |     |     | $            | 2,670 |       |       | $ | 24,639 |       
|Credit and financial products revenues |                                      |                          |       |            |           |   | 4,002      |       |       |           |       |     |     |              | 207   |       |       |   | 4,209  |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|                                       | Total revenues                       |                          |        | 21,728     |           |   |            | 4,002 |       |           |        | 241 |     |              |       | 2,877 |       |   |        | 28,848 |       
|Costs and expenses                     |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |       |       |       |   |        |       
|                                       | Cost of sales, buying and occupancy  |                          |        | 15,873     |           |   |            |      |       |           |        | 89  |     |              |       | 1,940 |       |   |        | 17,902 |       
|                                       | Selling and administrative           |                          |        | 4,880      |           |   |            | 725   |       |           |        | 310 |     |              |       | 722   |       |   |        | 6,637  |       
|                                       | Provision for uncollectible accounts |                          |        |           |           |   |            | 1,652 |       |           |        |    |     |              |       | 33    |       |   |        | 1,685  |       
|                                       | Depreciation and amortization        |                          |        | 524        |           |   |            | 14    |       |           |        | 39  |     |              |       | 73    |       |   |        | 650    |       
|                                       | Interest                             |                          |        | 22         |           |   |            | 772   |       |           |        |    |     |              |       | 72    |       |   |        | 866    |       
|                                       | Special charges and impairments      |                          |        |           |           |   |            |      |       |           |        |    |     |              |       | 111   |       |   |        | 111    |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|                                       |                                      | Total costs and expenses |        |            | 21,299    |   |            |       | 3,163 |           |        |     | 438 |              |       |       | 2,951 |   |        |        | 27,851 | 
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Operating income (loss)                |                                      | $                        | 429    |            |           | $ | 839        |       |       | $         | (197   | )   |     | $            | (74   | )     |       | $ | 997    |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      
|Total assets                           |                                      | $                        | 12,883 |            |           | $ | 29,430     |       |       | $         | 2,461  |     |     | $            | 3,229 |       |       | $ | 48,003 |       
|                                       |                                      |                          |        |            |           |   |            |       |       |           |        |     |     |              |      

NOTE 13  SUBSEQUENT EVENTS

On October 17, 2003, the Company and its wholly owned subsidiaries, SRAC and
Sears DC Corp., commenced cash tender offers to purchase any and all of their
respective unsecured public term debt securities maturing after 2003, which
includes 214 series of securities with an aggregate principal amount of
approximately $11.8 billion. The offers are expected to expire on November 14,
2003, unless previously terminated or extended. If all of the $11.8 billion of
debt is retired through the cash tender offers, the Company expects to realize
an after-tax loss of approximately $450 million related to the extinguishment
of that debt in the fourth quarter of 2003. This loss will consist of the
anticipated premium paid to retire the debt and the write-off of unamortized
debt issuance costs. The Company also intends to reduce its outstanding
unsecured commercial paper borrowings which would trigger the write-off of an
accumulated derivative loss of approximately $180 million recorded within accumulated other
comprehensive loss in the Condensed Consolidated Balance Sheet at September 27,
2003.

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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

On November 3, 2003, the Company completed the sale of its domestic Credit and
Financial Products business, including its clubs and services business, to
Citicorp. As part of the transaction, the Company and Citibank (USA) N.A. also
entered into a long-term marketing and servicing alliance with an initial term
of 10 years, with an option to renew. Under the long-term marketing and
servicing alliance, Citibank (USA) N.A. will provide credit and customer
service benefits to the Companys proprietary and Gold MasterCard holders. In
addition, Citibank (USA) N.A. will continue to support the Companys current
zero-percent financing program.

The sale generated total proceeds of $32 billion, consisting of the assumption
of $10 billion of securitized debt by Citicorp and cash proceeds received by
the Company of $22 billion. The Company estimates the pretax gain on the sale
will be approximately $4 billion. The Company anticipates using the
approximately $22 billion of proceeds as follows (all amounts are
approximations): $17 billion earmarked for debt retirement related to the
domestic credit card receivables; $4 billion to be returned to shareholders (of
which $1.4 billion has been returned to shareholders as of October 25, 2003
through the repurchase of the Companys commons shares); $1.5 billion for
income and other taxes due on the sale and transaction expenses; and $0.5
billion for general corporate purposes, including an incremental contribution
to the Companys domestic pension plan.

As a result of the sale of the Credit and Financial Products business, the
Company executed a guarantee of certain indebtedness of SRAC amounting to
approximately $14 billion as of November 3, 2003.

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##### Table of Contents



SEARS, ROEBUCK AND CO.




INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors and Shareholders of
Sears, Roebuck and Co.

We have reviewed the accompanying Condensed Consolidated Balance Sheets of
Sears, Roebuck and Co. as of September 27, 2003 and September 28, 2002, and the
related Condensed Consolidated Statements of Income for the 13 week and 39 week
periods ended September 27, 2003 and September 28, 2002 and the Condensed
Consolidated Statements of Cash Flows for the 39 week periods ended September
27, 2003 and September 28, 2002. These interim financial statements are the
responsibility of the Companys management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the Consolidated Balance Sheet of
Sears, Roebuck and Co. as of December 28, 2002, and the related Consolidated
Statements of Income, Shareholders Equity, and Cash Flows for the year then
ended (not presented herein); and in our report dated February 28, 2003, we
expressed an unqualified opinion (which includes an explanatory paragraph
relating to the adoption of new accounting standards) on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying Condensed Consolidated Balance Sheet as of December 28, 2002 is
fairly stated, in all material respects, in relation to the Consolidated
Balance Sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP

Chicago, Illinois
November 4, 2003

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002




Item 2. Managements Discussion and Analysis of Operations, Financial Condition and Liquidity

Operating results for the Company are reported for three domestic segments and
Sears Canada. The domestic segments include the Companys operations in the
United States and Puerto Rico. The Companys segments as of September 27, 2003
are defined as follows:




    
    Retail and Related
Services consisting of:  -
    
    Full-line Stores which include: -
    
    Home Group primarily consisting of
appliances, electronics, home improvement
and home fashions;-
    
    Apparel and accessories;-
    
    Sears Auto Centers, and;-
    
    Online revenues of Sears.com  -
    
    Specialty Stores (Dealer Stores,
Hardware Stores, National Tire & Battery,
The Great Indoors, Commercial Sales and
Outlet stores)-
    
    Direct to Customer (includes Lands End
online and catalog operations as well as
results of operations for Lands End
retail stores; also includes direct
marketing of goods, clubs and services
and memberships, through specialty
catalogs and other direct channels)-
    
    Product Repair Services (includes
product repair, service contract
protection and installation services for
all major brands of home products; also
sells and services residential heating
and cooling systems)



    
    Credit and Financial Products
includes domestic credit
card operations and related
financial product offerings
(credit protection and
insurance products)
    
    Corporate and Other includes: -
    
    Activities that are of an
overall holding company
nature, primarily consisting
of administrative activities,
the costs of which are not
allocated to the Companys
businesses-
    
    Home improvement services
(primarily siding and windows
through Sears Home
Improvement Services) 
    
    Sears Canada conducts
retail, credit, and corporate
operations in Canada through
Sears Canada Inc. (Sears
Canada), a consolidated,
54.4% owned subsidiary of
Sears.




SALE OF THE CREDIT AND FINANCIAL PRODUCTS BUSINESS

On November 3, 2003, the Company completed the sale of its domestic Credit and
Financial Products business, including its clubs and services business, to
Citicorp. As part of the transaction, the Company and
Citibank (USA) N.A. also entered into a long-term marketing and servicing
alliance with an initial term of 10 years, with an option to renew. Under the
long-term marketing and servicing alliance, Citibank (USA) N.A. will provide
credit and customer service benefits to the Companys proprietary and Gold
MasterCard holders. In addition, Citibank (USA) N.A. will continue to support
the Companys current zero-percent financing program.

The sale generated total proceeds of $32 billion, consisting of the assumption
of $10 billion of securitized debt by Citicorp and cash proceeds received by
the Company of $22 billion. The Company estimates the pretax gain on the sale
will be approximately $4 billion. The Company anticipates using the
approximately $22 billion of proceeds as follows (all amounts are
approximations): $17 billion earmarked for debt retirement related to the
domestic credit card receivables; $4 billion to be returned to shareholders (of
which $1.4 billion has been returned to shareholders as of October 25, 2003
through the repurchase of the Companys commons shares); $1.5 billion for
income and other taxes due on the sale and transaction expenses; and $0.5
billion for general corporate purposes, including an incremental contribution
to the Companys domestic pension plan.

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

CONSOLIDATED OPERATIONS

Total revenuesfor the 13 and 39 weeks ended September 27, 2003 were $9.8
billion and $28.9 billion, respectively, compared to $9.7 billion and $28.8
billion for the 13 and 39 week periods ended September 28, 2002, respectively.



| |  |  | Revenues from merchandise sales and serviceswere $8.4 billion for
the 13 weeks ended September 27, 2003, an increase of 2.1% from the
comparable prior year period. Revenues in the domestic Full-line
Stores were $5.2 billion for the 13 weeks ended September 27, 2003, an
increase of 1.6% from the comparable 2002 period driven by a 1.4%
increase in comparable store sales. Improvements in key apparel
categories, as well as continued strength in lawn and garden and home
appliances, led to the increase.                                                                                                                                                                                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | For the 39 weeks ended September 27, 2003, merchandise sales and services
revenues were $24.7 billion compared to $24.6 billion for the comparable
prior year period. The increase is primarily due to the revenues
generated by the Lands End direct to customer business, which was
acquired in June 2002, partially offset by a decline in domestic retail
store sales, which posted a comparable store sales decrease of 2.9% for
the 39 weeks ended September 27, 2003.                                                                                                                                                                                                                                                                             
|
| |  |  | Credit and financial products revenueswere $1.4 billion for the 13
weeks ended September 27, 2003, a decrease of 3.1% from the comparable
prior year period. For the 39 weeks ended September 28, 2003, credit
and financial products revenues were $4.1 billion compared to $4.2
billion in the prior year period. The declines in credit revenues in
2003 were driven by a decline in the yield, partially offset by an
increase in average receivable balances. The lower yield is
attributable to reduced finance charge revenues on credit products,
lower late fee revenue, a lower interest rate environment, and an
increase in the size of the Sears Gold MasterCard (MasterCard)
portfolio, which has a lower yield than the proprietary card.

Costs and expenseswere $9.6 billion and $27.8 billion for the 13 and 39 weeks
ended September 27, 2003, respectively, compared with $9.4 billion and $27.9
billion, respectively, for the comparable prior year periods.



| |  |  | Cost of sales, buying and occupancyas a percentage of merchandise
sales and services was 73.0% for the 13 weeks ended September 27, 2003,
compared to 72.0% in the prior year quarter. Correspondingly, gross
margin rates were 27.0% and 28.0% for the 13 weeks ended September 27,
2003 and September 28, 2002, respectively. The decline in gross margin
rate was primarily due to an increase in clearance and promotional
activities in the domestic retail stores partially offset by
improvements in vendor sourcing. In addition, the current year
quarter included a $29 million charge, or a 50 basis point impact, for
inventory clearance costs in connection with the refinement of the
business strategy for The Great Indoors (TGI). Gross margin rates
for the 39 weeks ended September 27, 2003 and September 28, 2002 were
27.2% and 27.3%, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Selling and administrativeexpenses as a percentage of total
revenues were 22.8% for the 13 weeks ended September 27, 2003 compared
to 24.2% in the prior year quarter. The decrease is due to a reduction
in compensation related expenses within the Retail and Related Services
and marketing expenses within the Credit and Financial Products
segments. For the 39 weeks ended September 27, 2003 and September 28,
2002, selling and administrative expenses as a percentage of total
revenues were 23.1% and 23.0%, respectively.                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | The provision for uncollectible accounts(provision) was $567
million for the 13 weeks ended September 27, 2003 compared with $603
million in the prior year quarter. Provision expense in the prior year
quarter included a $189 million increase to the domestic allowance for
uncollectible accounts resulting from receivables growth and an
increase in charge-off and delinquency trends. The provision for the
39 weeks ended September 27, 2003 and September 28, 2002 was $1.5
billion and $1.7 billion, respectively. The variance in the 2003
provision to the 2002 provision is due to increases in the current year
domestic net charge-offs being more than offset by the $189 million
increase in the allowance for                                                                                                                                          

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002



| |   |  | uncollectible accounts which occurred in the third quarter of 2002, as
well as the $300 million charge taken in the second quarter of 2002,
which reflected the Companys decision to refine its methodology for
determining its allowance. In addition, the current year provision
benefited from a $93 million gain in the second quarter of 2003 related
to the sale of approximately $2.5 billion of previously charged-off
credit card accounts.                                                                                                                                                                                                                                                                                             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Interestexpense was $281 million for the 13 weeks ended September
27, 2003 compared to $298 million in the prior year quarter. The
slight decrease is primarily due to lower interest costs in a favorable
interest rate environment partially offset by higher debt levels to
support higher average credit card receivables balances and an increase
in cash reserves to partially pre-fund 2003 debt maturities. Interest
expense for the 39 weeks ended September 27, 2003 was $847 million
compared to $866 million in the comparable prior year period.                                                                                                                                                                                     
|
| |  |  | Special charges and impairmentsreflect costs incurred from
strategic actions implemented by the Company to restructure its
operations and costs due to asset impairments. During the third
quarter of 2003, the Company announced a refinement of the business
strategy for TGI which included its decision to close three TGI stores
and cease development of four future locations. In addition, the
carrying value of the long-lived assets for the remaining eighteen TGI
locations were reviewed for recoverability. As a result, the Company
recorded a pretax charge of approximately $141 million. Of the $141
million charge, $112 million was recorded in special charges and
impairments and $29 million was recorded in cost of sales.
|
| |   |  | In the first quarter of 2002, Sears Canada converted its seven stores
operating under the Eatons banner to Sears Canada stores, resulting in
severance, asset impairment and other exit costs amounting to $111
million. This restructuring enabled Sears Canada to better leverage its
buying and advertising efforts, and Sears Canada brand equity.                                                                                                                                                                                                                                                                                                                                                                                            

Other incomewas $2 million and $16 million, respectively, for the 13 and 39
weeks ended September 27, 2003, as compared to $10 million and $98 million for
the comparable prior year periods. The decrease in the 2003 year-to-date other
income was primarily due to a $71 million pretax gain on the sale of a portion
of the Companys holdings in Advance Auto Parts (AAP) in the first quarter of
2002.

Income taxesas a percentage of income before taxes, minority interest and
cumulative effect of accounting change were 37.3% for the 13 weeks ended
September 27, 2003, compared with 33.0% in the prior year quarter. The
increase from the prior year is attributable to a favorable settlement of a
state income tax audit in the third quarter of 2002. The effective income tax
rate for the 39 weeks ended September 27, 2003 was 37.1% compared to 34.9% for
the comparable prior year period. The increase in the effective income tax
rate in the 39 week period of 2003 was attributable to favorability in the
first quarter of 2002 due to the lower tax rate on the sale of a portion of the
Companys investment in AAP, a favorable settlement of a state income tax audit
in the third quarter of 2002, as well as a lower effective tax rate for Sears
Canada in the prior year as a result of the special charge taken related to the
conversion of the Eatons stores.

During 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, resulting in a charge
of $208 million (net of income taxes and minority interest), representing the
cumulative effect of the change in accounting for goodwillas of the beginning
of 2002. The charge reflects goodwill impairment primarily related to National
Tire & Battery (NTB) and Orchard Supply Hardware, offset by the reversal of
negative goodwill related to Sears Canadas purchase of Eatons.

Net incomewas $147 million and $189 million for the 13 weeks ended September
27, 2003 and September 28, 2002, respectively. For the 39 weeks ended
September 27, 2003 and September 28, 2002, net income was $648 million and $528
million, respectively. As noted above, the Companys results of operations for
the 13 weeks ended September 27, 2003 were impacted by the charge related to
the refinement of the business strategy for TGI. In addition, the second
quarter of 2003 was impacted by two significant items, the gain on the sale of
previously charged-off credit card accounts and severance costs related to the
Companys ongoing productivity initiatives. In

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

aggregate, these items reduced net income for the 13 and 39 weeks ended
September 27, 2003 by $89 million and $48 million, respectively.

The Companys first and second quarter 2002 results were also affected by the
adoption of new accounting standards for goodwill, a charge for conversion of
Eatons stores to Sears Canada stores, a gain on the sale of investments and a
change in accounting estimate related to the refinement of the Companys method
for determining its allowance for uncollectible accounts. In aggregate, these
items reduced net income for the 39 weeks ended September 28, 2002 by $381
million.

Due to holiday buying patterns, merchandise sales are typically higher in the
fourth quarter than in other quarterly periods, and a disproportionate share of
operating income is typically earned in the fourth quarter. This business
seasonality results in performance for the 13 and 39 weeks ended September 27,
2003 which is not necessarily indicative of performance for the balance of the
year.

SEGMENT OPERATIONS

The Company is organized into four principal business segments  Retail and
Related Services, Credit and Financial Products, Corporate and Other, and Sears
Canada. Following is a discussion of results of operations by business
segment.

Retail and Related Services

Retail and Related Services results and key statistics were as follows:

|                                           |  |                |       |   |                |   |       |           |  |   |           |  |  |   |        | 
|------------------------------------------ |  | -------------- | ----- | - | -------------- | - | ----- | --------- |  | - | --------- |  |  | - | ------ | 
|                                           |  | 13 Weeks Ended |       |   | 39 Weeks Ended |  
|                                           |  |                |       |   |                |  
|millions except number of stores           |  | Sept. 27,      |       |   | Sept. 28,      |   |       | Sept. 27, |  |   | Sept. 28, | 
|                                           |  | 2003           |       |   | 2002           |   |       | 2003      |  |   | 2002      | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Full-line Stores                           |  | $              | 5,178 |   |                | $ | 5,095 |           |  | $ | 15,291    |  |  | $ | 15,796 | 
|Specialty Stores                           |  |                | 1,268 |   |                |   | 1,261 |           |  |   | 3,757     |  |  |   | 3,819  | 
|Direct to Customer                         |  |                | 337   |   |                |   | 348   |           |  |   | 1,078     |  |  |   | 460    | 
|Product Repair Services                    |  |                | 559   |   |                |   | 557   |           |  |   | 1,631     |  |  |   | 1,653  | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Total Retail and Related Services revenues |  |                | 7,342 |   |                |   | 7,261 |           |  |   | 21,757    |  |  |   | 21,728 | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Cost of sales, buying and occupancy        |  |                | 5,415 |   |                |   | 5,266 |           |  |   | 15,991    |  |  |   | 15,873 | 
|Selling and administrative                 |  |                | 1,694 |   |                |   | 1,752 |           |  |   | 4,978     |  |  |   | 4,880  | 
|Depreciation and amortization              |  |                | 182   |   |                |   | 180   |           |  |   | 552       |  |  |   | 524    | 
|Interest                                   |  |                | 24    |   |                |   | 21    |           |  |   | 49        |  |  |   | 22     | 
|Special charges and impairments            |  |                | 112   |   |                |   |      |           |  |   | 112       |  |  |   |       | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Total costs and expenses                   |  |                | 7,427 |   |                |   | 7,219 |           |  |   | 21,682    |  |  |   | 21,299 | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Operating (loss) income                    |  | $              | (85   | ) |                | $ | 42    |           |  | $ | 75        |  |  | $ | 429    | 
|                                           |  |                |       |   |                |   |       |           |  |   |           | 
|Number of:                                 |  |                |       |   |                |   |       |           |  |   |           |  |  |   |        | 
|Full-line Stores                           |  |                |       |   |                |   |       |           |  |   | 869       |  |  |   | 872    | 
|Specialty Stores                           |  |                |       |   |                |   |       |           |  |   | 1,314     |  |  |   | 1,299  | 
|Lands End Retail Stores                   |  |                |       |   |                |   |       |           |  |   | 16        |  |  |   | 15     | 
|                                           |  |                |       |   |                |   |       |           |  |   |           |  |  |  
|Total Retail Stores                        |  |                |       |   |                |   |       |           |  |   | 2,199     |  |  |   | 2,186  | 
|                                           |  |                |       |   |                |   |       |           |  |   |           |  |  |  

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

|                                                          |                         |  |                |     |   |                |  |       |           |  |  |           |   |  |  |       |  
|--------------------------------------------------------- | ----------------------- |  | -------------- | --- | - | -------------- |  | ----- | --------- |  |  | --------- | - |  |  | ----- | -
|                                                          |                         |  | 13 Weeks Ended |     |   | 39 Weeks Ended | 
|                                                          |                         |  |                |     |   |                | 
|                                                          |                         |  | Sept. 27,      |     |   | Sept. 28,      |  |       | Sept. 27, |  |  | Sept. 28, |  
|                                                          |                         |  | 2003           |     |   | 2002           |  |       | 2003      |  |  | 2002      |  
|                                                          |                         |  |                |     |   |                |  |       |           |  |  |           |  
|Comparable store sales percentage increase (decrease) (1) |                         |  |                |     |   |                |  |       |           |  |  |           |   |  |  |      
|                                                          | Home Group              |  |                | 2.7 | % |                |  | -6.7  | %         |  |  | -2.3      | % |  |  | -4.2  | %
|                                                          | Apparel and Accessories |  |                | 1.7 | % |                |  | -12.9 | %         |  |  | -3.5      | % |  |  | -11.9 | %
|                                                          | Full-line Stores        |  |                | 1.4 | % |                |  | -8.2  | %         |  |  | -3.0      | % |  |  | -6.0  | %
|                                                          | Specialty Stores        |  |                | 0.3 | % |                |  | 0.3   | %         |  |  | -2.6      | % |  |  | 1.6   | %
|                                                          | Total                   |  |                | 1.2 | % |                |  | -6.9  | %         |  |  | -2.9      | % |  |  | -4.8  | %



---

| | (1) | For purposes of determining comparable store sales, a store is considered to be comparable at the beginning of the 13th month
after the store is opened.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------




STRATEGIC INITIATIVES

On August 28, 2003, the Company announced a refinement to the business strategy
for TGI which included its decision to close three TGI stores and cease
development of four future locations. In addition, the carrying value of the
long-lived assets for the remaining eighteen TGI stores were reviewed for
recoverability. As a result, the Company recorded a pretax charge of $141
million. The $141 million pretax charge consisted of $99 million related to
asset impairments, $29 million related to inventory clearance costs, $11
million related to other contractual obligations and $2 million related to
employee termination costs. Of the $141 million charge, $112 million was
recorded in special charges and impairments and $29 million was recorded in
cost of sales, both within the Retail and Related Services segment. The
Company expects that the three stores will be closed and all related employees
terminated by the end of fiscal 2003.

On September 22, 2003, the Company announced it had entered into a definitive
agreement to sell its National Tire & Battery (NTB) business and related
inventory to TBC Corporation (TBC) for total cash consideration of
approximately $260 million. This transaction, which is subject to customary
regulatory review and closing conditions, is expected to close in the fourth
quarter of 2003. The Company anticipates recognizing an after-tax gain in the
range of $40 to $60 million. Upon completion of the transaction, substantially
all of the approximately 3,900 employees of NTB will become employees of TBC.

RESULTS OF OPERATIONS

Retail and Related Services revenues increased 1.1% for the 13 weeks ended
September 27, 2003 as compared to the prior year quarter, primarily due to a
1.4% increase in Full-line comparable store sales for the quarter. Retail and
Related Services revenues for the 39 weeks ended September 27, 2003 and
September 28, 2002 were $21.8 billion and $21.7 billion, respectively. The
slight increase reflects the addition of the Lands End direct to customer
business in June of 2002, offset by a 2.9% decline in total domestic comparable
store sales for the 39 weeks ended September 27, 2003.

Full-line Stores revenues increased 1.6% for the 13 weeks ended September 27,
2003 to $5.2 billion from the prior year quarter as comparable store sales
increased 1.4%. Within the Home Group, comparable store sales increased 2.7%
in the quarter, led by a 30.1% increase in lawn and garden sales and a 3.2%
increase in home appliance sales. In June 2003, the Company announced a
re-launch initiative for the home appliance business which is focused on
capturing market share and accelerating growth of this business. This
comprehensive program is focused on enhanced value, assortment and customer
service. The majority of the elements for this initiative were implemented in
the third quarter of 2003. Sales of home electronics declined in the third
quarter of 2003 as compared to the prior year, with price deflation continuing
to contribute to lower sales results. In Apparel and Accessories, comparable
store sales increased 1.7% in the third quarter of 2003 which reflects
improvements from previous trends in various categories such as womens
ready-to-wear, mens and footwear.

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

Specialty Stores revenues of $1.3 billion for the for the 13 weeks ended
September 27, 2003, and $3.8 billion for the 39 weeks ended September 27, 2003
were relatively flat compared with the prior year periods. Increased revenues
from the addition of three new TGI stores since the third quarter of 2002, as
well as increased revenues within the Dealer Stores were offset by declines in
revenues among the other Specialty store formats.

Direct to Customer revenues for the 13 weeks ended September 27, 2003 decreased
to $337 million from $348 million in the comparable prior year period primarily
due to a decrease in Lands End direct to customer revenues, as well as
declines in our integrated merchandising and specialty catalog businesses. The
slight decline in Lands End direct to customer revenues is attributable to
lower sales in the third quarter of fall and winter merchandise, particularly
outerwear, given the warmer weather in the latter part of summer and early fall
season. Revenues for the 39 weeks ended September 27, 2003 increased over the
prior year primarily due the acquisition of Lands End, which was acquired in
June 2002. Lands End contributed $975 million and $340 million in revenues in
each respective 39-week period.

Product Repair Services revenues for the 13 weeks ended September 27, 2003 were
relatively flat to the prior year while revenues for the 39-week period ended
September 27, 2003 declined from the comparable prior year period. This
decline is primarily due to a decrease in revenues from the cooling and heating
business as a result of the cooler summer weather across most of the U.S.,
partially offset by increases in product repair revenues.

Retail and Related Services gross margin as a percentage of Retail and Related
Services revenues was 26.2% for the 13 weeks ended September 27, 2003 compared
with 27.5% for the prior year quarter. This decrease was due to a significant
increase in clearance and promotional activities due to a higher level of
spring apparel inventory on hand in the beginning of the quarter, as well as
the $29 million charge for inventory clearance costs related to TGI. These
factors were partially offset by continued improvements in sourcing. This
promotional environment also impacted the gross margin rate for the 39 week
period ended September 27, 2003, resulting in a 40 basis point decline as
compared to the comparable prior year period.

Retail and Related Services selling and administrative expense as a percentage
of Retail and Related Services revenues decreased 100 basis points for the 13
weeks ended September 27, 2003 compared to the prior year quarter. The Company realized
reduced operating expenses across virtually all retail formats as a result of
continuing productivity efforts. Selling and administrative expense leverage
was also favorably impacted by the increase in retail store revenues in the 13
week period ended September 27, 2003 compared to the prior year quarter. For
the 39 weeks ended September 27, 2003, selling and administrative expense as a
percentage of Retail and Related Services revenues increased 40 basis points
from the prior year. This is attributable to the inclusion of Lands End
direct to customer business, which has a higher expense ratio, in the entire 39
week period ended September 27, 2003, as well as the decreased leverage related
to the decline in retail store revenues during the current year.

Retail and Related Services reported an operating loss of $85 million for the
13 weeks ended September 27, 2003, compared to operating income of $42 million
in the third quarter of 2002, with lower gross margin rates being offset by
improvements in operating expenses. In addition, the third quarter 2003
results included a pretax charge of approximately $141 million related to the
refinement of the business strategy for TGI. For the 39 weeks ended September
27, 2003, Retail and Related Services reported operating income of $75 million
compared to $429 million in the comparable prior year period. This decrease
from the prior year was primarily caused by the $141 million charge related to
the TGI restructuring, a $16 million severance charge in the second quarter of
2003 related to the Companys productivity initiatives and lower gross margin
rates realized through the first three quarters of 2003.

21



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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

Credit and Financial Products

Credit and Financial Products results were as follows:

|                                       |  |                |       |  |                |   |       |           |  |   |           |  |  |   |       | 
|-------------------------------------- |  | -------------- | ----- |  | -------------- | - | ----- | --------- |  | - | --------- |  |  | - | ----- | 
|                                       |  | 13 Weeks Ended |       |  | 39 Weeks Ended |  
|                                       |  |                |       |  |                |  
|millions                               |  | Sept. 27,      |       |  | Sept. 28,      |   |       | Sept. 27, |  |   | Sept. 28, | 
|                                       |  | 2003           |       |  | 2002           |   |       | 2003      |  |   | 2002      | 
|                                       |  |                |       |  |                |   |       |           |  |   |           | 
|Credit and Financial Products revenues |  | $              | 1,307 |  |                | $ | 1,363 |           |  | $ | 3,903     |  |  | $ | 4,002 | 
|                                       |  |                |       |  |                |   |       |           |  |   |           | 
|Selling and administrative             |  |                | 157   |  |                |   | 233   |           |  |   | 590       |  |  |   | 725   | 
|Provision for uncollectible accounts   |  |                | 550   |  |                |   | 588   |           |  |   | 1,467     |  |  |   | 1,652 | 
|Depreciation and amortization          |  |                | 4     |  |                |   | 4     |           |  |   | 13        |  |  |   | 14    | 
|Interest                               |  |                | 230   |  |                |   | 254   |           |  |   | 717       |  |  |   | 772   | 
|                                       |  |                |       |  |                |   |       |           |  |   |           | 
|Total costs and expenses               |  |                | 941   |  |                |   | 1,079 |           |  |   | 2,787     |  |  |   | 3,163 | 
|                                       |  |                |       |  |                |   |       |           |  |   |           | 
|Operating income                       |  | $              | 366   |  |                | $ | 284   |           |  | $ | 1,116     |  |  | $ | 839   | 
|                                       |  |                |       |  |                |   |       |           |  |   |           | 

A summary of credit information is as follows:

|                                                                         |                  |  |                 |   |                |       |      |                |  |       |           |   |       |           |      |   |       |       |  
|------------------------------------------------------------------------ | ---------------- |  | --------------- | - | -------------- | ----- | ---- | -------------- |  | ----- | --------- | - | ----- | --------- | ---- | - | ----- | ----- | -
|                                                                         |                  |  |                 |   | 13 Weeks Ended |       |      | 39 Weeks Ended | 
|                                                                         |                  |  |                 |   |                |       |      |                | 
|                                                                         |                  |  |                 |   | Sept. 27,      |       |      | Sept. 28,      |  |       | Sept. 27, |   |       | Sept. 28, |     
|                                                                         |                  |  |                 |   | 2003           |       |      | 2002           |  |       | 2003      |   |       | 2002      |     
|                                                                         |                  |  |                 |   |                |       |      |                |  |       |           |   |       |           |     
|Credit share (1)                                                         |                  |  | 41.4            | % |                |       | 46.0 | %              |  |       | 41.9      | % |       |           | 44.9 | %
|Average account balance as of September 27, 2003
and September 28, 2002: |                  |  |                 |   |                |       |      |                |  |       |           |   |       |           |      |  
|                                                                         |                  |  | Sears Card      |   |                |       |      |                |  |       |           | $ | 1,208 |           |      | $ | 1,237 |      
|                                                                         |                  |  | MasterCard      |   |                |       |      |                |  |       |           |   | $     | 1,740     |      |   | $     | 1,517 |  
|                                                                         |                  |  | Total portfolio |   |                |       |      |                |  |       |           |   | $     | 1,401     |      |   | $     | 1,327 |  
|                                                                         | Portfolio yield: |  |                 |   |                |       |      |                |  |       |           |   |       |           |      |   |      
|                                                                         |                  |  | Sears Card      |   |                | 18.80 | %    |                |  | 19.64 | %         |   |       | 18.38     | %    |   |       | 19.54 | %
|                                                                         |                  |  | MasterCard      |   |                | 15.30 | %    |                |  | 15.51 | %         |   |       | 14.92     | %    |   |       | 15.43 | %
|                                                                         |                  |  | Total portfolio |   |                | 17.24 | %    |                |  | 18.26 | %         |   |       | 16.90     | %    |   |       | 18.42 | %



---

| | (1) | Credit share is the percentage of domestic retail sales, excluding Direct to Customer, Orchard Supply Hardware and National Tire & Battery, paid for with a Sears credit product (Sears Card or
MasterCard).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |   |  |   |        |  |  |  |       |  
|-------------------------------- | ---------- | --------- | -------------- | ------ | ----- | -------------- |  | --------- | - |  | ----- | ------ |  | --------- |  | ----- | ----- |  | - | --------- |  |  | ----- | ----- | - |  | - | ------ |  |  |  | ----- | -
|                                 |            |           | 13 Weeks Ended |        |       | 39 Weeks Ended | 
|                                 |            |           |                |        |       |                | 
|millions                         |            | Sept. 27, |                |        | % of  |                |  | Sept. 28, |   |  | % of  |        |  | Sept. 27, |  |       | % of  |  |   | Sept. 28, |  |  | % of  |      
|                                 |            | 2003      |                |        | Total |                |  | 2002      |   |  | Total |        |  | 2003      |  |       | Total |  |   | 2002      |  |  | Total |      
|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |  
|Average credit card receivables: |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |   |  |   |        |  |  |  |      
|                                 | Sears Card |           | $              | 16,219 |       |                |  | 55.6      | % |  | $     | 19,137 |  |           |  | 66.6  | %     |  | $ | 16,961    |  |  |       | 57.3  | % |  | $ | 20,302 |  |  |  | 72.7  | %
|                                 | MasterCard |           |                | 12,973 |       |                |  | 44.4      | % |  |       | 9,579  |  |           |  | 33.4  | %     |  |   | 12,653    |  |  |       | 42.7  | % |  |   | 7,618  |  |  |  | 27.3  | %
|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |  
|                                 | Total      |           | $              | 29,192 |       |                |  | 100.0     | % |  | $     | 28,716 |  |           |  | 100.0 | %     |  | $ | 29,614    |  |  |       | 100.0 | % |  | $ | 27,920 |  |  |  | 100.0 | %
|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |      
|Ending credit card receivables:  |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |   |  |   |        |  |  |  |      
|                                 | Sears Card |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  | $ | 15,930    |  |  |       | 55.0  | % |  | $ | 18,466 |  |  |  | 63.1  | %
|                                 | MasterCard |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   | 13,057    |  |  |       | 45.0  | % |  |   | 10,815 |  |  |  | 36.9  | %
|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |   |  |   |       
|                                 | Total      |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  | $ | 28,987    |  |  |       | 100.0 | % |  | $ | 29,281 |  |  |  | 100.0 | %
|                                 |            |           |                |        |       |                |  |           |   |  |       |        |  |           |  |       |       |  |   |           |  |  |       |       |   |  |   |       

For the 13 weeks ended September 27, 2003, Credit and Financial Products
revenues decreased 4.1% to $1.3 billion compared to the prior year quarter, as
a 1.7% increase in average balances was more than offset by a 102 basis point
decline in portfolio yield. The lower yield is primarily attributable to the
lower interest rate environment, lower late fee revenue and a shift of the
portfolio composition from an average of approximately 33% MasterCard account
balances in the third quarter of 2002 to approximately 44% in the third quarter
of 2003. The MasterCard product generally carries a risk-based finance charge
rate that typically is lower than the finance charge rate on the Sears Card.
In addition, MasterCard accountholders typically repay their account balances
more

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

quickly, which reduces the finance charge revenues generated on the portfolio.
The increase in average balances per card was primarily attributable to the
growth of the MasterCard portfolio, which generally carries a higher average
credit line and outstanding balances, and has greater utility due to its global
acceptance. Credit and Financial Products revenues for the 39 weeks ended
September 27, 2003 and September 28, 2002 were $3.9 billion and $4.0 billion,
respectively.

Interest expense for the 13 weeks ended September 27, 2003 was $230 million
compared with $254 million in the prior year quarter, a decrease of $24
million. The decrease is primarily due to lower funding costs in a lower
interest rate environment, partially offset by higher funding levels to support
higher average receivable balances and an increase in cash
reserves to partially pre-fund 2003 debt maturities. As of
September 27, 2003 and September 28, 2002, approximately 79% and 83%,
respectively, of the Companys funding portfolio was variable rate debt. The
Company allocates domestic debt and interest expense to its Credit and
Financial Products segment, assuming that the segment would be capitalized at a
9 to 1 debt to equity ratio.

Selling and administrative expense decreased $76 million, or 32.6%, for the 13
weeks ended September 27, 2003 from the prior year quarter. The decline is
primarily due to decreased operating costs reflective of ongoing productivity
efforts, lower marketing costs related to the MasterCard product, and increased
reimbursement from the Retail and Related Services segment for zero percent
financing. Selling and administrative expenses for the 39 weeks ended
September 27, 2003, decreased $135 million, or 18.6%, from the comparable prior
year period.

The provision for uncollectible accounts was $550 million for the 13 weeks
ended September 27, 2003 compared to $588 million in the prior year quarter, a
decrease of $38 million. The prior year provision expense included a $189
million increase to the allowance for uncollectible accounts due to increasing
receivable balances and an increase in charge-off and delinquency trends. The
net charge-off rate increased 200 basis points in the third quarter of 2003 as
compared to the prior year quarter driven by the seasoning of the MasterCard
portfolio, an increase in bankruptcies and the ongoing sale of charged off
receivables to a third party. See Discussion of Portfolio Quality below.

Credit and Financial Products operating income increased $82 million from the
prior year quarter to $366 million, as a decline in revenues was more than
offset by lower operating expenses. Operating income for the 39 weeks ended
September 27, 2003 increased $277 million from the prior year to $1.1 billion.
Both 2002 and 2003 results were impacted by significant items. In the second
quarter of 2002, the Company recorded a $300 million pretax charge related to
the refinement of its method for determining the allowance for uncollectible
accounts. In the second quarter of 2003, the Company recognized a $93 million
pretax gain resulting from the sale of previously charged-off receivables.

Discussion of Portfolio Quality

The quality of the Companys credit card portfolio at any time reflects, among
other factors, the credit worthiness of the individual accountholders, general
economic conditions, the success of the Companys account management and
collection activities and the life cycle stage of the portfolio. The Companys
financial results are sensitive to changes in delinquencies and net charge-offs
of the Companys credit card receivable portfolio. During periods of economic
weakness, delinquencies and net charge-offs are more likely to increase.

Portfolio growth since the third quarter of 2002 is primarily attributable to
substitution programs initiated in 2002 in which the Company substituted Sears
Card accounts with MasterCard accounts. As of the end of the third quarters of
2003 and 2002, MasterCard receivables represented approximately 45% and 37%,
respectively, of total ending credit card receivables. The age of the
MasterCard portfolio is an important factor related to the delinquency and loss
levels because delinquencies and charge-offs typically increase as young
portfolios mature (referred to as seasoning).

The average account balance for the MasterCard product has increased from the
prior year, from $1,517 in the third quarter of 2002 to $1,740 in the third
quarter of 2003. Such balance growth is due to the seasoning of the

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

portfolio and the expanded utility of the product, as customers can use the
MasterCard at other merchants. While the expanded utility and higher balances
have generated additional revenues, the Company has experienced an increase in
charge-off rates. The increase in charge-offs is primarily related to the
continuing weak economic environment, the seasoning of the MasterCard portfolio
and increased bankruptcy filing levels.

Delinquencies

The entire balance of an account, including any balances related to
zero-percent sales in that account, is considered delinquent if the minimum
payment is not received by the payment due date. The aging methodology is
based on the number of completed billing cycles during which a customer has
failed to make a required payment. Delinquencies not only have the potential
to reduce earnings by increasing the allowance for uncollectible accounts and
related provision expense, but they also result in additional operating costs
dedicated to resolving the delinquencies. The Company contractually charges
off accounts at 240 days, whereas most bank card issuers charge off at 180
days. As a result, the Companys delinquency rates are not directly comparable
to participants in the bank card industry. The Companys 60-plus day
delinquency rates are presented in the chart below:

(DELINQUENCY 60 PLUS DAY RATES GRAPH)

During the third quarter of 2003, 60-plus day delinquency rates for the
portfolio increased by 38 basis points compared to the third quarter of 2002
with the 60-plus day delinquency rate for the MasterCard portfolio increasing
238 basis points over the prior year to 5.37% at September 27, 2003. The
60-plus day delinquency rate for the Sears Card portfolio decreased 27 basis
points to 9.47% at September 27, 2003. The increase in the MasterCard
portfolio delinquency rate reflects the continued seasoning of the portfolio.
The decline in the Sears Card 60-plus day delinquency rate since the end of
2002 reflects a typical seasonal decline in delinquencies as well as the
stabilization of the portfolio.

Charge-offs

Net charge-offs consist of the principal amount of losses (excluding accrued
finance charges and credit card fees) less current period recoveries. The
Company charges off credit card receivable balances automatically when a
customers number of missed monthly payments outstanding reaches eight.
Accounts may be charged off sooner

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

in the event of customer bankruptcy. The Company has a re-aging policy to cure
delinquent accounts when the customer has demonstrated a pattern of meeting
payment requirements by making two consecutive minimum monthly payments.
Accounts cannot be re-aged more than once in a twelve-month period. For
accounts more than 150 days past due, the Company provides a workout or renewal
program to certain qualified accountholders. Accounts in a current workout
program are considered current upon receipt of the first agreed upon payment
and remain current as long as they abide by the terms of the program.

Gross charge-offs reflect the uncollectible principal of a customer account.
Uncollectible finance charges and fees are recorded as a reduction of revenue
in the period of charge-off. Recoveries reflect the amounts collected on
previously charged-off credit card receivable accounts. The Companys
charge-off activity for the credit card portfolio is summarized below:

|                                               |            |           |                |      |           |                |     |           |   |   |           |       |   |  |     |       |  
|---------------------------------------------- | ---------- | --------- | -------------- | ---- | --------- | -------------- | --- | --------- | - | - | --------- | ----- | - |  | --- | ----- | -
|                                               |            |           | 13 Weeks Ended |      |           | 39 Weeks Ended |    
|                                               |            |           |                |      |           |                |    
|millions                                       |            | Sept. 27, |                |      | Sept. 28, |                |     | Sept. 27, |   |   | Sept. 28, |      
|                                               |            | 2003      |                |      | 2002      |                |     | 2003      |   |   | 2002      |      
|                                               |            |           |                |      |           |                |     |           |   |   |           |       |  
|Gross charge-offs                              |           
|                                               | Sears Card |           | $              | 384  |           |                | $   | 406       |   |   | $         | 1,187 |   |  |     | 1,262 |  
|                                               | MasterCard |           |                | 259  |           |                |     | 90        |   |   |           | 635   |   |  |     | 187   |  
|                                               |            |           |                |      |           |                |     |           |   |   |           |      
|                                               | Total      |           |                | 643  |           |                |     | 496       |   |   |           | 1,822 |   |  |     | 1,449 |  
|Recoveries                                     |           
|                                               | Sears Card |           |                | (68  | )         |                |     | (94       | ) |   |           | (425  | ) |  |     | (306  | )
|                                               | MasterCard |           |                | (25  | )         |                |     | (3        | ) |   |           | (50   | ) |  |     | (6    | )
|                                               |            |           |                |      |           |                |     |           |   |   |           |      
|                                               | Total      |           |                | (93  | )         |                |     | (97       | ) |   |           | (475  | ) |  |     | (312  | )
|Net charge-offs                                |           
|                                               | Sears Card |           |                | 316  |           |                |     | 312       |   |   |           | 762   |   |  |     | 956   |  
|                                               | MasterCard |           |                | 234  |           |                |     | 87        |   |   |           | 585   |   |  |     | 181   |  
|                                               |            |           |                |      |           |                |     |           |   |   |           |      
|                                               | Total      |           | $              | 550  |           |                | $   | 399       |   |   | $         | 1,347 |   |  |     | 1,137 |  
|                                               |            |           |                |      |           |                |     |           |   |   |           |      
|Bankruptcy filings                             |            | $         | 276            |      |           | $              | 231 |           |   | $ | 820       |       |   |  | 654 |      
|Net charge-offs as a % of average receivables: |            |           |                |      |           |                |     |           |   |   |           |       |   |  |     |      
|                                               | Sears Card |           |                | 7.80 | %         |                |     | 6.52      | % |   |           | 5.99  | % |  |     | 6.28  | %
|                                               | MasterCard |           |                | 7.23 | %         |                |     | 3.62      | % |   |           | 6.17  | % |  |     | 3.16  | %
|                                               | Total      |           |                | 7.55 | %         |                |     | 5.55      | % |   |           | 6.07  | % |  |     | 5.43  | %

Net charge-offs as a percent of average balances increased to 7.55% in the
third quarter of 2003, up 200 basis points from the comparable prior year
period. The MasterCard net charge-off rate increase reflects the seasoning of
the portfolio, increased bankruptcies and higher average credit lines on the
MasterCard accounts. The net charge-off rate for both portfolios was also
affected by the increase in both contractual and bankruptcy charge-offs
experienced in 2003. Bankruptcy filing dollars increased $45 million in the
third quarter of 2003 over prior year levels. The increase in bankruptcy
filing dollars was primarily due to an increase in the number of MasterCard
bankruptcy filings and due to MasterCard accounts having higher average credit
lines and account balances. The dollar value of the bankruptcy filings is
expected to increase through 2003, as the MasterCard portfolio continues to
mature.

In the second quarter of 2003, the Company sold approximately $2.5 billion of
previously charged-off credit card receivable accounts. The Company also
contracted to sell a majority of its future charged-off accounts at
contractually agreed recovery rates. The sale of these receivables in the
second quarter, as well as the continued sale of contractually charged-off
receivables during the third quarter, reduced the amount of recovered accounts
in the third quarter, resulting in an overall increase in the net-charge-off
rate in the third quarter.

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

The Companys net charge-off rate is presented in the following chart:

(NET CHARGE OFF GRAPH)

Provision and Allowance for Uncollectible Accounts

The Company maintains an allowance for uncollectible accounts at an amount
estimated to be adequate for probable losses, net of recoveries, inherent in
the existing portfolio. The Company provides for the estimated balance of
uncollectible finance charges and credit card fees in its allowance for
uncollectible accounts. The amount of the allowance necessary is determined
primarily based on a migration analysis of current and past due accounts and
the current and projected level of bankruptcies. In evaluating the adequacy of
the allowance, management also considers recent trends in delinquencies,
recoveries, bankruptcies and charge-offs as well as economic conditions and
other portfolio data. Management believes that the allowance for uncollectible
accounts is adequate to cover anticipated losses in the reported credit card
receivable portfolio under current conditions.

The following table summarizes the activity in the domestic allowance for
uncollectible accounts for the periods indicated:

|                                        |  |                |       |   |                |   |       |            |  |   |           |   |  |          |        |   |  |   |        |  
|--------------------------------------- |  | -------------- | ----- | - | -------------- | - | ----- | ---------- |  | - | --------- | - |  | -------- | ------ | - |  | - | ------ | -
|                                        |  | 13 Weeks Ended |       |   | 39 Weeks Ended |   |       |            | 
|                                        |  |                |       |   |                |   |       | Year Ended | 
|millions                                |  | Sept. 27,      |       |   | Sept. 28,      |   |       | Sept. 27,  |  |   | Sept. 28, |   |  | Dec. 28, |       
|                                        |  | 2003           |       |   | 2002           |   |       | 2003       |  |   | 2002      |   |  | 2002     |       
|                                        |  |                |       |   |                |   |       |            |  |   |           |   |  |          |       
|Balance, beginning of period            |  | $              | 1,900 |   |                | $ | 1,441 |            |  | $ | 1,780     |   |  | $        | 1,115  |   |  | $ | 1,115  |  
|Domestic provision                      |  |                | 550   |   |                |   | 588   |            |  |   | 1,467     |   |  |          | 1,652  |   |  |   | 2,203  |  
|Net charge-offs                         |  |                | (550  | ) |                |   | (399  | )          |  |   | (1,347    | ) |  |          | (1,137 | ) |  |   | (1,538 | )
|                                        |  |                |       |   |                |   |       |            |  |   |           |   |  |         
|Allowance for uncollectible accounts    |  | $              | 1,900 |   |                | $ | 1,630 |            |  | $ | 1,900     |   |  | $        | 1,630  |   |  | $ | 1,780  |  
|                                        |  |                |       |   |                |   |       |            |  |   |           |   |  |          |       
|Allowance as percent of ending balances |  |                |       |   |                |   |       |            |  |   | 6.55      | % |  |          | 5.57   | % |  |   | 5.79   | %

As of September 27, 2003, the Companys allowance for uncollectible accounts as
a percentage of credit card receivables was 6.55% compared with 5.57% as of
September 28, 2002 and 5.79% as of December 28, 2002. The increase from the
third quarter of 2002 is primarily due to increases in the allowance in the
fourth quarter of 2002 as a result of increased delinquencies and bankruptcies
resulting from a weak economy, the seasoning of the MasterCard portfolio, an
increase in receivable balances and the sale of previously charged-off
accounts. An additional $110 million was recorded to the allowance in the
second quarter of 2003. Of this amount, $85 million

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

is related to the sale of previously charged-off receivables discussed earlier.
The remaining $25 million is primarily reflective of the seasoning of the
MasterCard portfolio.

Corporate and Other

Corporate and Other segment results were as follows:

|                                    |  |                |     |   |                |   |     |           |  |   |           |   |  |   |      |  
|----------------------------------- |  | -------------- | --- | - | -------------- | - | --- | --------- |  | - | --------- | - |  | - | ---- | -
|                                    |  | 13 Weeks Ended |     |   | 39 Weeks Ended |  
|                                    |  |                |     |   |                |  
|millions                            |  | Sept. 27,      |     |   | Sept. 28,      |   |     | Sept. 27, |  |   | Sept. 28, |  
|                                    |  | 2003           |     |   | 2002           |   |     | 2003      |  |   | 2002      |  
|                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Home Improvement Services revenues  |  | $              | 107 |   |                | $ | 91  |           |  | $ | 270       |   |  | $ | 241  |  
|                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Cost of sales, buying and occupancy |  |                | 42  |   |                |   | 33  |           |  |   | 107       |   |  |   | 89   |  
|Selling and administrative          |  |                | 111 |   |                |   | 106 |           |  |   | 333       |   |  |   | 310  |  
|Depreciation and amortization       |  |                | 13  |   |                |   | 11  |           |  |   | 34        |   |  |   | 39   |  
|                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Total costs and expenses            |  |                | 166 |   |                |   | 150 |           |  |   | 474       |   |  |   | 438  |  
|                                    |  |                |     |   |                |   |     |           |  |   |           |  
|Operating loss                      |  | $              | (59 | ) |                | $ | (59 | )         |  | $ | (204      | ) |  | $ | (197 | )
|                                    |  |                |     |   |                |   |     |           |  |   |           |  

Revenues from the home improvement services businesses included in the
Corporate and Other segment increased by 17.6% to $107 million for the 13 weeks
ended September 27, 2003 primarily due to increased revenue generated from
cabinet refacing and kitchen remodeling. Segment operating loss for the 13
weeks ended September 27, 2003 of $59 million was flat to the prior year
quarter.

Sears Canada

Sears Canada results were as follows:

|                                                      |  |                |       |   |                |   |      |           |  |   |           |   |  |   |       |  
|----------------------------------------------------- |  | -------------- | ----- | - | -------------- | - | ---- | --------- |  | - | --------- | - |  | - | ----- | -
|                                                      |  | 13 Weeks Ended |       |   | 39 Weeks Ended |  
|                                                      |  |                |       |   |                |  
|millions                                              |  | Sept. 27,      |       |   | Sept. 28,      |   |      | Sept. 27, |  |   | Sept. 28, |  
|                                                      |  | 2003           |       |   | 2002           |   |      | 2003      |  |   | 2002      |  
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Merchandise sales and services                        |  | $              | 960   |   |                | $ | 887  |           |  | $ | 2,707     |   |  | $ | 2,670 |  
|Credit revenues                                       |  |                | 78    |   |                |   | 67   |           |  |   | 233       |   |  |   | 207   |  
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Total revenues                                        |  |                | 1,038 |   |                |   | 954  |           |  |   | 2,940     |   |  |   | 2,877 |  
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Cost of sales, buying and occupancy                   |  |                | 680   |   |                |   | 635  |           |  |   | 1,915     |   |  |   | 1,940 |  
|Selling and administrative                            |  |                | 267   |   |                |   | 249  |           |  |   | 765       |   |  |   | 722   |  
|Provision for uncollectible accounts                  |  |                | 17    |   |                |   | 15   |           |  |   | 44        |   |  |   | 33    |  
|Depreciation and amortization                         |  |                | 27    |   |                |   | 24   |           |  |   | 82        |   |  |   | 73    |  
|Interest                                              |  |                | 27    |   |                |   | 23   |           |  |   | 81        |   |  |   | 72    |  
|Special charges and impairments                       |  |                |      |   |                |   |     |           |  |   |          |   |  |   | 111   |  
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Total costs and expenses                              |  |                | 1,018 |   |                |   | 946  |           |  |   | 2,887     |   |  |   | 2,951 |  
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Operating income (loss)                               |  | $              | 20    |   |                | $ | 8    |           |  | $ | 53        |   |  | $ | (74   | )
|                                                      |  |                |       |   |                |   |      |           |  |   |           |  
|Comparable store sales percentage increase/(decrease) |  |                | 1.3   | % |                |   | -7.3 | %         |  |   | -6.2      | % |  |   | -4.1  | %

Total Sears Canada revenues were $1.0 billion for the 13 weeks ended September
27, 2003, an 8.8% increase compared to the prior year. Sears Canadas total
merchandise sales reported in U.S. dollars increased by 8.2% in the third
quarter of 2003 despite a comparable store sales increase of only 1.3% due to a
favorable variance in the exchange rate. Merchandise sales for the 39 weeks
ended September 27, 2003 increased 1.4% to $2.7 billion as a 6.2% decline in
comparable store sales was more than offset by the impact of foreign exchange
rates. The decline in comparable store sales is reflective of a planned
reduction in unprofitable sales promotions, a substantially lower seasonal
clearance inventory position and continued consumer caution.

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

Credit revenues for the 13 weeks ended September 27, 2003 increased $11
million, or 16.4%, compared to the prior year primarily due to an increase in
balances, specifically for Sears Canada MasterCard. Within Sears Canada credit
operations, the net charge-off rate increased to 5.81% in the 13 week period
ended September 27, 2003 from 4.37% in the third quarter of 2002. Canada
experienced similar economic conditions as the U.S. and as a result,
charge-offs increased. Credit revenues for the 39 weeks ended September 27,
2003 and September 28, 2002 were $233 million and $207 million, respectively.

Sears Canada gross margin rate as a percentage of merchandise sales and
services revenues improved by 80 basis points for the 13 weeks ended September
27, 2003 as compared to the prior year quarter reflecting a favorable
adjustment to inventory shrinkage, as well as favorability on foreign purchase
contracts due to the exchange rate. The gross margin rate for the 39 weeks
ended September 27, 2003 improved by 200 basis points from the comparable prior
year period.

Sears Canada selling and administrative expense increased $18 million for the
13 weeks ended September 27, 2003 as compared to the prior year quarter as
reductions in advertising and payroll expenses were more than offset by the
variance in the exchange rate from the prior year, as noted above. Selling and
administrative expense increased $43 million for the 39 weeks ended September
27, 2003 compared to the prior year quarter.

Sears Canada reported operating income for the 13 weeks ended September 27,
2003 of $20 million, an increase of $12 million over the prior year quarter.
Operating income for the 39 weeks ended September 27, 2003 was $53 million
compared to an operating loss of $74 million for the comparable prior year
period. The first quarter of 2002 included a pretax charge of $111 million for
severance costs, asset impairments and other exit costs associated with the
conversion of seven stores operating under the Eatons banner to Sears Canada
stores.

ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION

Net cash provided by operating activities was $1.7 billion for the 39 weeks
ended September 27, 2003, compared to net cash used in operating activities of
$1.1 billion for the 39 weeks ended September 28, 2002. The cash provided for
the 39 weeks ended September 27, 2003 resulted from the decline of outstanding
balances within the credit card receivables portfolio offset by cash used to
fund inventory increases and operating liabilities.

As of September 27, 2003, the Companys current assets exceeded current
liabilities by $11.3 billion. This working capital surplus primarily results
from the $29.0 billion of credit card receivables outstanding at the end of the
quarter of which $23.8 billion were segregated in securitization entities for
financing purposes.

Net cash used in investing activities was $568 million for the 39 weeks ended
September 27, 2003 compared to $2.3 billion in the comparable prior year
period. The 2002 investing activity includes the $1.8 billion purchase of
Lands End as well as proceeds from the disposition of a portion of the
Companys holdings in Advance Auto Parts.

The Company may from time to time consider selective strategic transactions to
create value and improve performance, which may include acquisitions,
dispositions, restructurings, joint ventures and partnerships.

Financing Activities

The Companys financing activities include net borrowings, dividend payments
and share issuances and repurchases. Net cash used in financing activities
totaled $1.6 billion for the 39 weeks ended September 27, 2003,
compared to net cash provided by financing activities of $3.0 billion for the
comparable prior year period. The 2003 financing activities include the
Companys resumption of share repurchasing and net repayments of long-

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

term debt, whereas the cash provided by financing activities in the comparable
prior year period primarily relates to the debt issued in connection with the
acquisition of Lands End.

The Companys total debt balances were as follows:

|                                     |  |           |        |       |  |           |       |       |  |          |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|------------------------------------ |  | --------- | ------ | ----- |  | --------- | ----- | ----- |  | -------- | ------ | ----- |  |  | ----- | - |  | - | ------ |  |  |  | ----- | -
|                                     |  | Sept. 27, |        | % of  |  | Sept. 28, |       | % of  |  | Dec. 28, |        | % of 
|millions                             |  | 2003      |        | Total |  | 2002      |       | Total |  | 2002     |        | Total
|                                     |  |           |        |       |  |           |       |       |  |          |        |      
|Short-term borrowings                |  | $         | 6,179  |       |  |           | 20.1  | %     |  | $        | 4,289  |       |  |  | 14.7  | % |  | $ | 4,525  |  |  |  | 15.1  | %
|Long-term debt (1) (2)               |  |           | 24,607 |       |  |           | 79.9  | %     |  |          | 24,970 |       |  |  | 85.3  | % |  |   | 25,503 |  |  |  | 84.9  | %
|                                     |  |           |        |       |  |           |       |       |  |          |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|Total borrowings                     |  | $         | 30,786 |       |  |           | 100.0 | %     |  | $        | 29,259 |       |  |  | 100.0 | % |  | $ | 30,028 |  |  |  | 100.0 | %
|                                     |  |           |        |       |  |           |       |       |  |          |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|SFAS 133 hedge accounting adjustment |  |           | 510    |       |  |           |       |       |  |          | 585    |       |  |  |       |   |  |   | 609    |  |  |  |       |  
|                                     |  |           |        |       |  |           |       |       |  |          |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|Total debt                           |  | $         | 31,296 |       |  |           |       |       |  | $        | 29,844 |       |  |  |       |   |  | $ | 30,637 |  |  |  |       |  
|                                     |  |           |        |       |  |           |       |       |  |          |        |       |  |  |       |   |  |   |        |  |  |  |       |  
|Memo: Sears Canada debt              |  | $         | 1,686  |       |  |           |       |       |  | $        | 1,428  |       |  |  |       |   |  | $ | 1,478  |  |  |  |       |  



---

| | (1) |  | Includes capital lease obligations and current portion of long-term debt.                                                                  
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------
| | (2) |  | $10.4 billion of long-term debt is included in liabilities held for sale at September 27, 2003 on the Condensed Consolidated Balance Sheet.

---

The Companys total borrowings increased $0.8 billion during the first three
quarters of 2003 from $30.0 billion at December 28, 2002 to $30.8 billion at
September 27, 2003. During the 39 weeks ended September 27, 2003, the Company
borrowed $1.4 billion of a $2.0 billion private asset-backed facility,
increased its unsecured commercial paper borrowings to $3.4 billion and
decreased its asset-backed commercial paper outstanding to $1.3 billion. In
addition, the Company repurchased $1.9 billion of common shares in the 39-week
period ended September 27, 2003. As of September 27, 2003, the Company had
remaining authorization to repurchase $0.3 billion of common shares by December
31, 2006. On October 8, 2003, the Board of Directors approved a resolution
giving the Company authorization to acquire an additional $3.0 billion of the
Companys common shares by December 31, 2006.

The Company uses interest rate derivatives to synthetically convert fixed rate
debt to variable rate debt. The interest rate derivatives qualify as fair
value hedges in accordance with SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, and as such are recorded on the balance
sheet at market value with an offsetting entry to the underlying hedged item,
which is debt.

Liquidity

Historically, the Company has been an active borrower in various capital
markets due to the funding needs of its domestic credit card receivables
portfolio. As a result of the sale of its Credit and Financial Products
business on November 3, 2003, the Companys need to access capital markets for
borrowings has been greatly reduced. The Companys primary need for liquidity
will be to fund capital expenditures and the seasonal working capital
requirements of its retail business. These needs will primarily be funded
through the Companys liquid investment portfolio and operating cash flows.

In order to ensure liquidity and provide additional capacity, the Company
intends to maintain access to capital markets. Effective November 3, 2003, the
Company, through its domestic wholly-owned financial subsidiary, SRAC, amended
its $3.5 billion unsecured, 364-day revolving credit facility by extending the
termination date to May 2004 for consenting lenders and modifying the option to
extend the repayment of any borrowings to November 2004. The amendment also
provides for the commitment amount under this facility to be reduced to $2.5
billion 30 days following the sale of the Credit and Financial Products
business. In addition, Sears Canada has a $0.5 billion committed credit
facility.

Proceeds from the sale of the Credit and Financial Products business are
intended to be earmarked primarily to retire debt that supported the domestic
credit card receivables, return cash to the Companys
shareholders, and for

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

general corporate purposes, including an incremental contribution to the
Companys domestic pension plan. On November 3, 2003, concurrent with the
sale of the Credit and Financial Products business, the Company repaid the
amounts outstanding under the asset-backed commercial paper program and the
private asset-backed facility. The Company currently has cash debt tender
offers outstanding to purchase approximately $11.8 billion of debt securities.
The offers are expected to expire on November 14, 2003, unless previously
terminated or extended.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The Companys significant accounting policies are discussed in the Notes to the
Consolidated Financial Statements that are included in the Companys 2002
Annual Report on Form 10-K that is filed with the Securities and Exchange
Commission. In most cases, the accounting policies utilized by the Company are
the only policies permissible under U.S. Generally Accepted Accounting
Principles for businesses in our industry. However, the
application of certain of these policies requires significant judgements or a
complex estimation process that can affect the results of operations and
financial position of the Company, as well as the related footnote disclosures.
The Company bases its estimates on historical experience and other assumptions
that it believes are reasonable. If actual amounts are ultimately different
from previous estimates, the revisions are included in the Companys results of
operations for the period in which the actual amounts become known. The
accounting policies and estimates that can have a significant impact on the
operating results, financial position and footnote disclosures of the Company
are described in the Management Discussion and Analysis in the Companys 2002
Annual Report on Form 10-K.

OUTLOOK

The sale of the Companys Credit and Financial Products business is expected to
result in a significant after-tax gain estimated to be in the range of
approximately $2.3 billion to $2.5 billion in the fourth
quarter of 2003. As discussed in Note 13 of the Notes to the Condensed Consolidated
Financial Statements, the Company also expects to realize an after-tax loss of
as much as $630 million related to the retirement
of debt that supported the Credit business and the planned reduction
of its outstanding unsecured commercial paper borrowings. The precise amount of the loss
will not be known until the tender offer process is completed and the
outstanding commercial paper borrowings are reduced. As such, a
fourth quarter earnings per share estimate is not available at this time.
The Companys fourth quarter outlook for the Retail and Related
Services operating income, excluding earnings
from the program agreement with Citigroup, remains unchanged with
operating income expected to increase in the low
double-digit range over the prior year fourth quarter. The Company expects
fourth quarter comparable store sales to range from flat to a low
single digit percentage increase and gross margin to be flat to the prior year fourth quarter.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The above Outlook and certain other statements made in this quarterly report on
Form 10-Q and in other public announcements by the Company are forward-looking
statements that are subject to risks and uncertainties that may cause the
Companys actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Forward-looking statements
include information concerning the Companys future financial performance,
business strategy, plans, goals and objectives. Statements preceded by,
followed by or that otherwise include the words believes, expects,
anticipates, intends, estimates, plans, forecasts, is likely to,
projected and similar
expressions or future or conditional verbs such as will, should, would,
may and could are generally forward-looking in nature and not historical
facts.

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SEARS, ROEBUCK AND CO.
13 and 39 Weeks Ended September 27, 2003 and September 28, 2002

Following are some of the risks and uncertainties that could affect our
financial condition or results of operations, and could cause actual results,
performance or achievements to differ from the future results, performance or
achievements expressed or implied by these forward-looking statements:
Citicorps ability to successfully integrate and operate the Credit and
Financial Products business and the ability of the Company to successfully
integrate its retail businesses with a third-party credit card program, which
involves training and the integration of complex systems and processes;
competitive conditions in retail and credit; changes in consumer confidence and
spending; the success of the Full-line Store strategy and other strategies;
the possibility that the Company will identify new business and strategic
options for one or more of its business segments, potentially including
selective acquisitions, dispositions, restructurings, joint ventures and
partnerships; the Companys ability to integrate and operate Lands End
successfully; the outcome of pending legal proceedings; anticipated cash flow;
social and political conditions such as war, political unrest and terrorism or
natural disasters; the possibility of negative investment returns in the
Companys pension plan; changes in interest rates; the volatility in financial
markets; changes in the Companys debt ratings, credit spreads and cost of
funds; the possibility of interruptions in systematically accessing the public
debt markets; general economic conditions and normal business uncertainty. In
addition, Sears typically earns a disproportionate share of its operating
income in the fourth quarter due to seasonal buying patterns, which are
difficult to forecast with certainty. Additional discussion of these and other
risks and uncertainties is contained elsewhere under Managements Discussion
and Analysis and Quantitative and Qualitative Disclosures About Market Risk.

While the Company believes that its forecasts and assumptions are reasonable,
it cautions that actual results may differ materially. The Company 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.

This report contains a fourth quarter outlook for the operating income of the
Companys Retail and Related Services segment that excludes any effect that may
result from the program agreement with Citigroup following the sale of the
Registrants Credit and Financial Products business. The Retail and Related
Services segments operating income for the fourth quarter will be impacted by
revenues and cost reimbursements resulting from this program agreement.
However, these effects cannot be determined with reasonable certainty at this
time. Sears management believes that an outlook excluding the impact of the
program agreement is useful to investors in that it provides insight into the
Companys expectations for the performance of its core business in a manner
comparable with prior periods.

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SEARS, ROEBUCK AND CO.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The nature of market risks faced by the Company at September 27, 2003 are
disclosed in the Companys Form
10-K for the year ended December 28, 2002. As of September 27, 2003, 79% of
the Companys funding portfolio was variable rate (including current maturities
of fixed-rate long-term debt that will reprice in the next 12 months and
fixed-rate debt synthetically converted to variable rate through the use of
derivative financial instruments). Based on the size of the Companys variable
rate funding portfolio as of September 27, 2003, which totaled $24.2 billion, a
100 basis point change in interest rates would affect pretax funding cost by
approximately $242 million per annum. This estimate assumes that the funding
portfolio remains constant for an annual period and the interest rate change
occurs at the beginning of the period and does not take into account the
results of the Companys cash tender offers, or the Companys ability to call
certain debt securities. This estimate also does not take into account the
effect of changes in revenue resulting from either changes in terms of the
assets or in the index applicable to the variable rate receivables.

The Company primarily uses variable rate funding to match funding costs with
the finance charge revenues generated by its credit card portfolio, as finance
charges on credit card balances vary with the prime rate. The objective of
variable rate funding is to reduce net interest margin risk by better aligning
the Companys funding with its credit card assets. However, the Company is
exposed to basis risk on any differences in the variable rate on the Companys
debt, primarily LIBOR-based, and the prime-based variable rate finance charge
on the Companys credit card portfolio. Additionally, the Companys ability to
increase the finance charge yield of its variable rate credit card assets may
be limited at some point by competitive conditions.

On October 17, 2003, the Company and its wholly owned subsidiaries, SRAC and
Sears DC Corp., commenced cash tender offers to purchase any and all of their
respective unsecured public term debt securities maturing after 2003, which
includes 214 series of securities with an aggregate principal amount of
approximately $11.8 billion. In addition, the Company completed the sale of
its Credit and Financial Products business on November 3, 2003. This sale will
significantly reduce the Companys need to access capital markets for
borrowings, which in turn will reduce the Companys exposure to market risk.




Item 4. Controls and Procedures

The Companys management, including Alan J. Lacy, Chairman of the Board of
Directors, President and Chief Executive Officer (principal executive officer)
and Glenn R. Richter, Senior Vice President and Chief Financial Officer
(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 quarter ended September 27, 2003
that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

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SEARS, ROEBUCK AND CO.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Pending against the Company and certain of its officers and directors are a
number of lawsuits, described below, that relate to the credit and financial
products business and public statements about it between October 24, 2001, and
October 17, 2002. The Company believes that all of these claims lack merit and
is defending them vigorously.

On October 18, 2002, a lawsuit was filed in the United States District Court
for the Northern District of Illinois (the Illinois Federal Court) against
the Company and certain current and former officers alleging that certain
public announcements by the Company concerning its credit card business
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Additional lawsuits of the same tenor
followed; these suits are now pending in the Illinois Federal Court (the one
exception, which was pending in the United States District Court for the
Northern District of California, has now been transferred to the Illinois
Federal Court). The plaintiffs purport to represent classes of shareholders
who purchased the Companys common shares between October 24, 2001 and October
17, 2002. These actions have been consolidated and the Department of the
Treasury of the State of New Jersey has been appointed lead plaintiff for the
purported class. On June 16, 2003, the lead plaintiff filed a consolidated
amended complaint. Defendants motion to dismiss the complaint was denied on
October 23, 2003. The Court directed that pretrial proceedings begin and
scheduled trial for August 2004.

A similar lawsuit was filed in the Illinois Federal Court on June 16, 2003,
alleging similar claims as well as claims under Section 11 of the Securities
Act of 1933, against the Company, certain officers, and Sears Roebuck
Acceptance Corp. (SRAC). An amended complaint was filed on October 16, 2003,
naming additional individuals and certain investment banks as defendants. The
plaintiffs purport to represent a class of noteholders who acquired certain
notes issued by SRAC between October 24, 2001, and October 17, 2002, whether by
prospectus or otherwise.

On November 15, 2002, two lawsuits were filed in the Illinois Federal Court
against the Company, certain officers and directors, and alleged fiduciaries of
Sears 401(k) Savings Plan (the Plan), seeking damages and equitable relief
under the Employee Retirement Income Security Act (ERISA). The plaintiffs
purport to represent participants and beneficiaries of the Plan, and allege
breaches of fiduciary duties under ERISA in connection with the Plans
investment in the Companys common shares and alleged communications made to
Plan participants regarding the Companys financial condition. Additional
lawsuits of the same tenor followed. These actions have been consolidated into
a single class action. Plaintiffs filed a consolidated amended complaint on
May 14, 2003. Defendants motion to dismiss the consolidated amended complaint
is pending.

On October 23, 2002, a purported derivative suit was filed in the Supreme Court
of the State of New York (the New York Court) against the Company (as a
nominal defendant) and certain current and former directors seeking damages on
behalf of the Company. The complaint purports to allege a breach of fiduciary
duty by the directors with respect to the Companys management of its credit
business. Defendants have filed a motion to dismiss an amended complaint. Two
similar suits were subsequently filed in the Circuit Court of Cook County,
Illinois (the Illinois State Court), and a third was filed in the Illinois
Federal Court. Motions have been made to dismiss these actions, or, in the
alternative, to stay them, pending disposition of the action in New York. The
Illinois State Court and Illinois Federal Court actions have been stayed
pending proceedings in the action in the New York Court.

The Company is subject to various other legal and governmental proceedings,
many involving litigation incidental to the businesses. Some matters contain
class action allegations, environmental and asbestos exposure allegations and
other consumer based claims that involve compensatory, punitive or treble
damage claims in
very large amounts as well as other types of relief. The consequences of these
matters are not presently determinable but, in the opinion of management of the
Company after consulting with legal counsel and taking

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SEARS, ROEBUCK AND CO.

into account insurance and reserves, the ultimate liability is not expected to
have a material effect on annual results of operations, financial position,
liquidity or capital resources of the Company.




Item 5. Other Information

On November 3, 2003, the Company and certain subsidiaries of the Company,
including Sears Financial Holding Corporation, Sears National Bank, Sears
Roebuck de Puerto Rico, Inc., Sears Life Holding Corp., SRFG, Inc. and Sears
Intellectual Property Management Company (the Company and all of such
subsidiaries, collectively, Sellers) consummated the sale to Citicorp, a
Delaware corporation, of substantially all of the assets and liabilities
primarily relating to the Companys credit card and financial products
business. The sale was made pursuant to a Purchase, Sale and Servicing
Transfer Agreement, dated as of July 15, 2003, by and among Citicorp and the
Sellers, as amended by Amendment No. 1 thereto dated as of November 3, 2003 (as
so amended, the Agreement). Pursuant to the Agreement, at the closing,
Citicorp paid a purchase price of approximately $32 billion, which represented
the total equity represented on the balance sheet of the business plus a
premium amount equal to 10% of the net customer receivables appearing on a
reference balance sheet, as such terms are defined in the Agreement. The $32
billion purchase price consisted of the assumption of $10 billion of
securitized debt by Citicorp, which constituted all of the outstanding
securitization financing associated with the credit card receivables included
in the sale, and cash proceeds received by the Company of $22 billion.

The foregoing description is qualified in its entirety by reference to the full
text of the Purchase Agreement, including Amendment No. 1. Copies of these
agreements are filed as exhibits to this report and incorporated herein by this
reference.

It is impracticable to provide pro forma financial information relative to the
disposition of the Companys credit card and financial products business at
this time. Such pro forma financial information will be filed as soon as
practicable, but in any event within 60 days after the date of this report.

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SEARS, ROEBUCK AND CO.




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.                                                                                                                                                                                                                                                                           
|   
|    |  | A Current Report on Form 8-K dated July 15, 2003 was filed with the
Securities and Exchange Commission on July 17, 2003 to report, under Item 5,
that the Registrant issued a press release (attached as Exhibit 99 thereto)
concerning the sale of the Credit and Financial Products business.
|   
|    |  | A Current Report on Form 8-K dated July 17, 2003 was filed with the
Securities and Exchange Commission on July 17, 2003 to report, under Item 9
and Item 12, that the Registrant issued a press release (attached as Exhibit
99 thereto) concerning second quarter results.                    

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SEARS, ROEBUCK AND CO.




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, ROEBUCK AND CO.
|                 |  | (Registrant)          
|                 |  |                        |  |                                                                         
|November 4, 2003 |  | By                     |  | /s/ Michael J. Graham                                                   
|                 |  |                        |  |                                                                         
|                 |  |                        |  | Michael J. Graham                                                       
|                 |  |                        |  | Vice President and Controller                                           
|                 |  |                        |  | (Principal Accounting Officer and duly
authorized officer of Registrant)

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SEARS, ROEBUCK AND CO.

E-1
EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                        
|**2(a).     |  | Purchase, Sale and Services Transfer Agreement, dated as of
July 15, 2003, by and among Registrant, certain subsidiaries
of Registrant and Citicorp, a Delaware corporation
(incorporated by reference to Exhibit 10 to the Registrants
Current Report of Form 8-K dated July 15, 2003).                                              
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*,**2(b).   |  | Amendment No. 1, dated as of November 3, 2003, to the
Purchase, Sale and Servicing Transfer Agreement, by and among
Registrant, certain subsidiaries of Registrant and Citicorp, a
Delaware corporation.                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                        
|3(a).       |  | Restated Certificate of Incorporation as in effect on May 13,
1996 (incorporated by reference to Exhibit 3(a) to
Registration Statement No. 333-8141 of the Registrant).                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                        
|3(b).       |  | By-laws, as amended to February 14, 2001 (incorporated by
reference to Exhibit 3.(ii) to Registrants Annual Report on
Form 10-K for the fiscal year ended December 30, 2000).                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                        
|4.          |  | Registrant hereby agrees to furnish the Commission, upon
request, with the instruments defining the rights of holders
of each issue of long-term debt of the Registrant and its
consolidated subsidiaries.                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*10(a).     |  | Amended and Restated Program Agreement, dated as of July 15,
2003, amended and restated as of November 3, 2003, by and
between Registrant, Sears Intellectual Property Management
Company, and Citibank (USA) N.A.                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                        
|* 10(b).    |  | Amendment, as of August 13, 2003, to Registrants 2002
Non-employee Director Stock Plan (as set forth in Appendix B
of Registrants Proxy Statement dated March 27, 2003).                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                        
|* 10(c).    |  | Acknowledgement and Extension Agreement, dated as of August
19, 2003, among Sears Roebuck Acceptance Corp. (SRAC),
Registrant, and Certain Lenders that are parties to the
364-day Credit Agreement dated as of February 24, 2003 (which
is set forth as Exhibit 10(a) to SRACs Current Report on Form
8-K dated February 24, 2003).
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*12.        |  | Computation of ratio of income to fixed charges for Sears and
consolidated subsidiaries for each of the five years ended
December 28, 2002 and for the nine-month period ended
September 27, 2003.                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*15.        |  | Acknowledgement of awareness from Deloitte & Touche LLP, dated
November 4, 2003, concerning unaudited interim financial
information.                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*31(a).     |  | Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*31(b).     |  | Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                        
|*32.        |  | Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. 1350, as adopted by section 906
of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                          



|*  |  | Filed herewith.                                                                                                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** |  | All schedules and exhibits to this Exhibit have been omitted in accordance
with 17 CFR §229.601(b)(2). The Registrant agrees to furnish supplementally a
copy of all omitted schedules and exhibits to the Securities and Exchange
Commission upon its request.

37