**
UNITED STATESSECURITIES AND EXCHANGECOMMISSION 
Washington, D.C. 20549 FORM 10-Q    X QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 FOR THEQUARTERLY PERIOD ENDED SEPTEMBER29, 2001             OR         TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGEACT OF 1934 
Commission file number 1-416  
SEARS, ROEBUCK AND CO.(Exact name of registrantas specified in its charter)                          New York                          (State of Incorporation)36-1750680(I.R.S. Employer IdentificationNo.)      3333 Beverly Road, Hoffman Estates, Illinois                   (Address of principal executive offices)60179(Zip Code)Registrant's telephonenumber, including area code: (847) 286-2500
Registrant [1] has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months and [2] has been subjectto such filing requirements for the past 90 days.Yes XNo As of October 27, 2001,the Registrant had 322,596,707 common shares, $.75 par value, outstanding.
  
SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORTON FORM 10-Q13 AND 39 WEEKS ENDED SEPTEMBER29, 2001PARTI - FINANCIAL INFORMATIONPage   Item 1.FinancialStatements     CondensedConsolidated Statements of Income (Unaudited) 13 Weeks and 39 Weeks EndedSeptember 29, 2001 and September 30, 2000 1 CondensedConsolidated Balance Sheets September 29, 2001 (Unaudited),September 30, 2000 (Unaudited)and December 30, 20002    CondensedConsolidated Statements of Cash Flows (Unaudited) 39 Weeks Ended September29, 2001 and September 30, 20003    Notesto Condensed Consolidated Financial Statements (Unaudited)4    IndependentAccountants' Review Report13      Item 2.Management'sDiscussion and Analysis of Operations, Financial Condition and Liquidity14      Item 3.Quantitativeand Qualitative Disclosures about Market Risk23    PARTII - OTHER INFORMATION   Item 1.LegalProceedings24      Item 6.Exhibitsand Reports on Form 8-K25         
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.CONDENSED CONSOLIDATED STATEMENTSOF INCOME(Unaudited)
*(millions, except pershare data)*13 Weeks Ended39 Weeks EndedSept. 29,Sept. 30,Sept. 29,Sept. 30,2001200020012000Merchandisesales and services$8,371 $8,480 $25,002 $25,121 Creditand financial products revenues1,3821,1133,8343,442    Total revenues9,753 9,593 28,836 28,563 Costsand expenses Cost of sales, buying and occupancy6,201 6,284 18,519 18,595  Selling and administrative2,197 2,152 6,484 6,297  Depreciation and amortization209 209 649 634  Provision for uncollectible accounts377 200 929 660  Provision for previously securitized receivables-- -- 522 --  Interest378 305 1,094 931  Special charges and impairments-- -- 287--     Total costs and expenses9,3629,15028,48427,117Operatingincome391 443 352 1,446 Otherincome 221307Incomebefore income taxes and minority interest 413 444 382 1,453 Incometaxes(150)(159)(136)(531)Minorityinterest(1)(7)(5)(21)Netincome$262$278$241$901Earningsper share:  Basic$0.81$0.82$0.74$2.58 Diluted$0.80$0.81$0.73$2.57Cashdividends declared per share$0.23$0.23$0.69$0.69Averagecommon and common equivalent shares outstanding326.9 341.8 329.5 350.1 Seeaccompanying notes.
-1-    
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCESHEETS
  *(millions)*(Unaudited)   Sept. 29,Sept. 30,December 30, 20012000 2000Assets Currentassets          Cash and cash equivalents$449  $497  $842  Retained interest in transferred credit card receivables --   3,847   3,105   Credit card receivables, net 26,720   15,899   17,317   Other receivables 631   406   506   Merchandise inventories 6,002   6,323   5,618   Prepaid expenses and deferred charges 516 507 486   Deferred income taxes 911  651 920    Total current assets 35,229   28,130   28,794          Propertyand equipment, net 6,684   6,391   6,653 Deferredincome taxes 256   352   174 Otherassets 1,119  1,477  1,278    Total assets$43,288 $36,350 $36,899         Liabilities         Currentliabilities          Short-term borrowings$3,503  $4,238  $4,280   Current portion of long-term debt and capitalized lease     obligations  3,246   2,490   2,560   Accounts payable and other liabilities 6,825   6,736   7,336   Unearned revenues 1,130   1,049   1,058   Other taxes 424  436  562    Total current liabilities 15,128   14,949   15,796           Long-termdebt and capitalized lease obligations 18,918   11,523   11,020  Post-retirementbenefits 1,812   2,017   1,951  Minorityinterest and other liabilities 1,299  1,420  1,363    Total liabilities 37,157   29,909   30,130          Commitmentsand Contingent Liabilities                 Shareholders'Equity  Common shares 323   323   323   Capital in excess of par value 3,519   3,540   3,538   Retained earnings  6,991   6,613   6,979   Treasury stock - at cost (4,143)   (3,620)   (3,726)   Deferred ESOP expense (69)   (105)   (96)   Accumulated other comprehensive loss (490)  (310)  (249)    Total shareholders' equity 6,131   6,441  6,769              Total liabilities and shareholders' equity$43,288  $36,350  $36,899              Total common shares outstanding  322.1   336.7   333.2                   Seeaccompanying notes.         
-2-    
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(Unaudited)
*(millions)*39 Weeks EndedSept. 29,Sept. 30,20012000CASHFLOWS FROM OPERATING ACTIVITIES:           Netincome$241 $901  Adjustmentsto reconcile net income to net cash      providedby operating activities:     Depreciation, amortizationand other non-cash items 675  691  Provision for uncollectibleaccounts 929  660  Provision for previouslysecuritized receivables 522  --  Special charges and impairments 287  --  Gains on sale of propertyand investments --  (1)  Income tax benefit on nonqualifiedstock options11 3 Change in (net of acquisitions):        Deferred incometaxes 74  78     Credit cardreceivables and retained interests 306  805     Merchandiseinventories (420)  (1,268)     Other operatingassets (232)  (34)     Other operatingliabilities (895) (437) Net cash provided by operatingactivities 1,498  1,398              CASHFLOWS FROM INVESTING ACTIVITIES:           Proceedsfrom sales of property and investments 19  22  Purchasesof property and equipment (896)  (663)  Purchasesof long-term investments (16) (28) Netcash used in investing activities (893)  (669)              CASHFLOWS FROM FINANCING ACTIVITIES:           Proceedsfrom long-term debt 2,874  376  Repaymentsof long-term debt (2,488)  (1,393)  (Decrease)/increasein short term borrowings, primarily 90 days or less   (761)  1,253  Repaymentsof ESOP note receivable 33  115  Commonshares purchased(501) (1,109) Commonshares issued for employee stock plans 53  41  Dividendspaid to shareholders (227) (243)                              Net cash used in financing activities (1,017) (960)       Effectof exchange rate on cash and invested cash  19  (1)       Netdecrease in cash and cash equivalents   (393)  (232)       Balanceat beginning of year  842  729             Balanceat end of period$449$497             Seeaccompanying notes.     
-3-   
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

1. Condensed ConsolidatedFinancial StatementsThe Condensed ConsolidatedBalance Sheets as of September 29, 2001 and September 30, 2000, the relatedCondensed Consolidated Statements of Income for the 13 and 39 weeks endedSeptember 29, 2001 and September 30, 2000, and the Condensed ConsolidatedStatements of Cash Flows for the 39 weeks ended September 29, 2001 andSeptember 30, 2000, are unaudited. The interim financial statements reflectall adjustments (consisting only of normal recurring accruals) which are,in the opinion of management, necessary for a fair statement of the resultsfor the interim periods presented. The condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto included in the Sears, Roebuck and Co. (the"Company" or "Sears") 2000 Annual Report to Shareholders and Annual Reporton Form 10-K. The results of operations for the interim periods shouldnot be considered indicative of results to be expected for the full year.
Certain reclassificationshave been made to the 2000 financial statements to conform with the currentyear presentation. In addition, as discussed in Notes 8 and 9, the Companyadopted Statement of Financial Accounting Standards ("SFAS") No. 140 andSFAS No. 133 in 2001. 2. Shareholders' EquityOn August 9, 2000, theBoard of Directors approved a common share repurchase program to acquire$1.0 billion of the Company's common shares by December 31, 2002. Duringthe third quarter of 2001, the Company repurchased 3.0 million shares ata cost of $101 million under this program. The shares are purchased onthe open market or through privately negotiated transactions. As of September29, 2001, approximately 19.5 million common shares have been acquired underthis repurchase program at a cost of approximately $698 million, and $302million is available for future repurchases.
-4-   
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
3. Earnings Per ShareThe following tablesets forth the computations of basic and diluted earnings per share:*(millions,except per share data)*13 Weeks Ended39 Weeks EndedSept. 29, Sept. 30, Sept. 29, Sept. 30,   2001 2000 2001 2000Basic:Netincome$262 $278 $241 $901 Averageshares outstanding324.5340.6327.6348.8*Earningsper share - basic**$**0.81**$**0.82**$**0.74**$**2.58*Diluted:Netincome $262 $278 $241 $901 Averageshares outstanding324.5 340.6 327.6 348.8 Dilutiveeffect of stock options2.41.21.91.3Averageshares and equivalent shares outstanding326.9341.8329.5350.1*Earningsper share - diluted**$**0.80**$**0.81**$**0.73**$**2.57* In each period, certainoutstanding options were excluded from the computation of diluted earningsper share because they would have been antidilutive. As of September 29,2001, options to purchase 6.4 and 9.8 million shares of stock at pricesranging from $43 to $64 and $40 to $64 per share were excluded from the13 and 39 week 2001 calculations, respectively. As of September 30, 2000,options to purchase 10.9 million shares of stock at prices ranging from$33 to $64 per share were excluded from the 13 and 39 week 2000 calculations.-5-   
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

4. Comprehensive Incomeand Accumulated Other Comprehensive LossThe following table showsthe computation of comprehensive income:13 Weeks Ended39 Weeks Ended*(millions)*Sept. 29,Sept. 30,Sept. 29,Sept. 30,2001200020012000Netincome$262 $278 $241 $901 Othercomprehensive income (loss):Aftertax cumulative effect of a change in accounting for derivatives -- -- (262) -- Amountsreclassified into interest expense from OCI5 -- 13 -- Changein fair value of cash flow hedges-- -- 34 -- Unrealizedgain (loss) on investments(1) (5) 4 (14) Foreigncurrency translation adjustments(23)(6)(30)(9)Totalother comprehensive loss(19)(11)(241)(23)Totalcomprehensive income $243 $267 $-- $878 The following table displaysthe components of accumulated other comprehensive loss:September 29,September 30,December 30,200120002000Accumulatedderivative loss$(215) $-- $-- Foreigncurrency translation adjustments(148) (120) (118) Minimumpension liability (1)(132) (195) (132) Unrealizedgain on investments5 5 1 Accumulatedother comprehensive loss$(490)$(310)$(249)
(1) Minimum pensionliability is calculated annually in the fourth quarter. Changes theretoare recorded at that time.
-6-     
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

5. Segment DisclosuresThe following tables setforth revenue, expenses, operating income (loss) and total assets by segment:
For the 13 weeks ended September29, 2001:**Reconciling Items***(millions)***Retail and****Related****Services****Credit and****Financial****Products****Corporate and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$7,333 $1,309 $108 $1,003 $9,753 $-- $-- $9,753 Costsand expenses                         Costof sales, buying and occupancy  5,455   --   48   698   6,201  --  --   6,201  Sellingand administrative  1,620   202   125   250   2,197   --   --   2,197  Depreciationand amortization  169   5   15   20   209   --   --   209  Provisionfor uncollectible accounts  --   366   --   11   377   --   --   377  Provisionfor previously securitizedreceivables  --   --   --   --   --   --   --   --  Interest  7   343   --   28   378   --   --   378  Specialcharges and impairments  --  --  --  --   --  --  --  -- Totalcosts and expenses7,2519161881,007 9,362----9,362Operatingincome (loss)$82$393$(80)$(4)$391$--$--$391Totalassets$11,676$26,245$1,990 $3,377 $43,288$43,288
For the 13 weeks ended September30, 2000: **Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$7,471 $1,297 $94$986 $9,848 $(255) $-- $9,593 Costsand expenses                         Costof sales, buying and occupancy  5,579   --   36   669   6,284   --   --   6,284  Sellingand administrative  1,644   195   105   242   2,186   (34)   --  2,152  Depreciationand amortization  174   4   15   16   209   --   --   209  Provisionfor uncollectible accounts  --   327   --   10   337   (137)   --   200  Provisionfor previously securitizedreceivables  --   --   --   --   --   --   --   --  Interest  5   382   --   28   415   (110)   --   305  Specialcharges and impairments  --  --  --   --  --  --   --  -- Totalcosts and expenses7,402908156 9659,431(281)--9,150Operatingincome (loss)$69$389$(62)$21$417$26 $--$443Totalassets$11,753$19,273$1,969 $3,355$36,350$36,350
-7-     
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

For the 39 weeks ended September29, 2001: **Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate****and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$21,942 $3,885$304 $2,980 $29,111 $(275) $-- $28,836 Costsand expenses                         Costof sales, buying and occupancy  16,325   --   131   2,063   18,519   --   --   18,519  Sellingand administrative  4,827   608   347   741   6,523   (39)   --   6,484  Depreciationand amortization  530   14   44   61   649   --   --   649  Provisionfor uncollectible accounts  --   1,050   --   32   1,082   (153)   --   929  Provisionfor previously securitizedreceivables  --   --   --   --   --   --   522   522  Interest  21   1,110   --   86   1,217   (123)   --   1,094  Specialcharges and impairments  --  --  --   --   --  --   287   287 Totalcosts and expenses21,7032,782522 2,983 27,990(315)809 28,484Operatingincome (loss)$239$1,103$(218)$(3)$1,121$40 $(809)$352Totalassets$11,676$26,245$1,990 $3,377 $43,288$43,288  
For the 39 weeks ended September30, 2000: **Reconciling Items***(millions)***Retail and RelatedServices****Credit and FinancialProducts****Corporate****and ****Other****Sears Canada****Total****Securitization Impact****Non-comparable items****Consolidated GAAP**Totalrevenues$22,189 $3,940 $259 $2,894 $29,282 $(719) $-- $28,563 Costsand expenses                         Costof sales, buying and occupancy  16,531   --   106   1,958   18,595   --   --   18,595  Sellingand administrative  4,795   590   307   703   6,395   (98)   --   6,297  Depreciationand amortization  532   12   39   51   634   --   --   634  Provisionfor uncollectible accounts  --   1,019   --   29   1,048   (388)   --   660  Provisionfor previously securitizedreceivables  --   --   --   --   --  --   --   --  Interest  16   1,146   --   84   1,246   (315)   --   931  Specialcharges and impairments  --  --  --   --  --  --  --  -- Totalcosts and expenses21,8742,767452 2,82527,918(801)--27,117Operatingincome (loss)$315$1,173$(193)$69$1,364$82$--$1,446Totalassets$11,753$19,273$1,969 $3,355$36,350$36,350
Effective in the first quarterof 2001, the Company modified its externally reported segments to reflectthe Company's integrated Retail and Related Services strategy and to alignexternally reported business segments with changes in the Company's internalstructure. Segmented financial data for the 13 and 39 weeks ended September30, 2000 has been restated to reflect the new segment reporting structure.
-8-   
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

6.  HomeLife Contingenciesand OtherDuring the second quarterof 2001, the Company recorded a special pretax charge of approximately$185 million ($116 million after-tax) to reflect the Company's estimatedpotential obligations and asset impairments relative to a formerly ownedbusiness, HomeLife Corporation. The Company also recorded a pretax impairmentof $20 million to write-off an investment unrelated to HomeLife.
The Company sold its HomeLifefurniture division to Citicorp Venture Capital, Ltd. in early 1999. Aspart of the sale, Sears took a 19 percent equity interest in the new HomeLifeCorporation. Additionally, the Company assigned certain store leases toHomeLife in connection with the sale. Subsequently, the Company has guaranteedcertain indebtedness related to the new HomeLife Corporation, and alsohas obtained secured interests in certain HomeLife assets. In the secondquarter of 2001, HomeLife's financial condition deteriorated and in earlyJuly, Homelife ceased operations and subsequently filed for Chapter 11bankruptcy protection. The pretax charge includes an accrual for net futurelease obligations ($150 million) reduced by estimated sublease income,early terminations and lease mitigation costs ($50 million), indebtednessguarantees, contingent obligations, and other costs ($69 million), andasset write-offs ($16 million). 7. Store Closing and OtherExit Costs*2000 Store Closures*In December 2000, the Companyannounced the planned closure of 89 under-performing stores consistingof 53 NTB, 30 Hardware and four Full-line stores (two include Sears AutoCenters). In connection with the 2000 store closings, the Company recognizeda special pretax charge of $150 million in the fourth quarter of 2000 whichrelated to asset impairments, goodwill impairments, and inventory liquidationlosses of $90 million, as well as lease and holding costs and severancecosts of $60 million.
As of September 29, 2001,89 stores have been closed and 1,008 employees have been terminated.
*Exit of Cosmetics Business*During the second quarter,the Company committed to a plan to exit its skin care and color cosmeticsbusiness. A special pretax charge of $82 million ($53 million after-tax)was recorded in the second quarter. The pretax charge includes asset write-downsassociated with the Company's Circle of Beauty brand and store cosmeticsfixtures of $36 million, as well as contractual obligations and other exitcosts of $46 million.
-9-
         SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)
Following is a summaryof the activity in the reserves established for store closures and otherexit costs:Ending Reserve Balance12/30/002001 ChargesOther AdjustmentsCash PaymentsEnding Reserve Balance09/29/01**2000Store Closures** Lease and holding   costs$57 $-- $3 $(17) $43  Severance Costs3----(3)--60 -- 3 (20) 43 **CosmeticsExit Costs** Contractual obligations and other costs--46--(34)12TotalCosts$60$46$3$(54)$55
8. Accounting for SecuritizationsIn September 2000, theFinancial Accounting Standards Board ("FASB") issued SFAS No. 140, "Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities". The guidance in SFAS No. 140 supercedes SFAS No. 125. UnderSFAS No. 125, the Company's securitization transactions were accountedfor as sales of receivables. SFAS No. 140 establishes new conditions fora securitization to be accounted for as a sale of receivables. Specifically,SFAS No. 140 changes the requirements for an entity to be a qualifyingspecial purpose entity and modifies under what conditions a transferorhas retained effective control over transferred assets. The updated rulesare effective for transfers occurring after March 31, 2001.
The addition to the securitizationtrust of previously uncommitted assets in April 2001 required the Companyto consolidate the securitization structure for financial reporting purposeson a prospective basis. Accordingly, the Company recognized approximately$8.1 billion of previously off-book securitized credit card receivablesand $8.1 billion of related debt. In addition, approximately $3.9 billionof assets were reclassified to credit card receivables from retained interestin transferred credit card receivables. All future securitization activitywill be accounted for as secured borrowings. This accounting is reflectedin the Company's consolidated statement of cash flows as a non-cash transaction.
In connection with the consolidationof the securitization structure, the Company's second quarter results includeda one-time, non-cash, pretax charge of $522 million to establish an allowancefor uncollectible accounts related to the $8.1 billion of previously soldreceivables and the $3.9 billion of receivables that were previously accountedfor as securities (retained interest in transferred credit card receivables).
As of September 29, 2001,$11.7 billion of domestic credit card receivables included in the balancesheet are segregated in a trust. The trust has issued $8.4 billion of trustcertificates which are included in debt.
-10-     
SEARS, ROEBUCK AND CO.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

9. Derivatives and HedgingActivityThe only significant derivativeinstruments the Company holds are interest rate swaps, which the Companyuses as a cost effective means to manage the interest rate risk associatedwith its borrowings and to manage the Company's allocation of fixed andvariable-rate debt. As of September 29, 2001, the Company's balance sheetincluded $148 million representing the fair value of swaps, designatedand qualifying as fair value hedges of certain of the Company's fixed-ratedebt instruments. Because the terms of these swaps match those of the designatedunderlying hedged debt instruments, the change in fair value of these swapswas offset by a corresponding change in fair value recorded on the hedgeddebt and resulted in no net earnings impact.
Effective for the first quarterof 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instrumentsand Hedging Activities", as amended by SFAS No. 138, "Accounting for CertainDerivative Instruments and Certain Hedging Activities". SFAS No. 133 setsforth accounting and reporting standards for derivative instruments andhedging activities, requiring the recognition of all derivative instruments(including certain derivatives embedded in other contracts) as either assetsor liabilities in the balance sheet measured at fair value. SFAS No. 133also establishes criteria for a derivative to qualify as a hedge for accountingpurposes.
The adoption of SFAS No.133 did not affect earnings. The cumulative effect of this change in accountingprinciple reduced other comprehensive income (OCI) by $262 million of which$228 million ($389 million pretax) related to previously terminated swapsand $34 million ($56 million pretax) related to a cash flow hedge. Consistentwith prior years, approximately $16 million ($25 million pretax) of thedeferred losses on the previously terminated swaps will be amortized intoearnings during 2001. During the second quarter of 2001, the Company terminatedits cash flow hedge. This termination had no impact on earnings.  10. Effect of AccountingStandards not Adopted In July 2001, the FASB issuedSFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill andOther Intangible Assets". The guidance in SFAS No. 141 supersedes APB 16and is applicable to business combinations initiated after June 30, 2001.Upon adoption of SFAS No. 142, goodwill will cease to be amortized andwill instead be subject to periodic impairment reviews as set forth inthe new standard. The Company is currently evaluating the Statement's impairmentprovisions and has not yet determined what effect, if any, they might haveon the consolidated financial position and results of operations of theCompany.
The Company has approximately$375 million in positive goodwill, and $84 million in negative goodwillrecorded in its consolidated balance sheet as of September 29, 2001, aswell as approximately $120 million in positive goodwill related to an equitymethod investment. Amortization of both positive and negative goodwillis generally not subject to taxes. Under the provisions of SFAS No. 142,positive goodwill will cease to be amortized for fiscal years beginningafter December 15, 2001 (fiscal 2002 for the Company) and any existingnegative goodwill will be recognized as a one-time increase to income asthe cumulative effect of a change in accounting principle upon adoptionof the Statement. The Company recorded approximately $16 million in amortizationexpense related to positive goodwill and $20 million (before minority interestof $9 million) of income from negative goodwill amortization for the ninemonths ended September 29, 2001. The Company intends to adopt SFAS No.142 for the 2002 fiscal year.
-11-      
SEARS, ROEBUCK AND CO.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

  11. Commitmentsand Contingent Liabilities The Company is subject tovarious legal and governmental proceedings, many involving routine litigationincidental to the business. Other matters contain allegations that arenon-routine and involve compensatory, punitive or treble damage claimsin very large amounts, as well as other types of relief. The consequencesof these matters are not presently determinable but, in the opinion ofmanagement of the Company, after consulting with legal counsel, the ultimateliability in excess of reserves currently recorded is not expected to havea material effect on annual results of operations, financial position,liquidity or capital resources of the Company.
The Company leases certainstores, office facilities, warehouses, computers and office equipment forwhich it has contractual obligations that span several years. Additionally,as discussed in Note 6, the Company has outstanding obligations relatingto certain store leases and indebtedness in conjunction with the HomeLifematter. The Company also has secured interests in certain HomeLife assets.  12. Subsequent EventsOn October 24, 2001, theCompany announced initiatives primarily designed to revitalize Full-linestores and reduce operating expenses. Such actions include the eliminationof 4,900 full-time positions. It is management's expectation that theseinitiatives, including the elimination of positions, will necessitate additionalspecial charges in the fourth quarter and possibly thereafter. The Companyis in the process of estimating these charges.
On October 1, 2001, the Companycompleted the sale of certain assets of its wholly owned subsidiary SearsTermite and Pest Control, Inc. ("STPC") to the ServiceMaster Company. Underthe terms of the transaction, Sears will provide certain transition servicesand may share in the cost of remediating termite damage claims in excessof defined amounts, if any, for a limited period of time. This transactiondid not materially affect results of operations or consolidated financialcondition. -12-    
SEARS, ROEBUCK AND CO.
INDEPENDENT ACCOUNTANTS'REVIEW REPORT

To the Shareholders and Boardof Directorsof Sears, Roebuck and Co.
We have reviewed the accompanyingCondensed Consolidated Balance Sheets of Sears, Roebuck and Co. as of September29, 2001 and September 30, 2000, and the Condensed Consolidated Statementsof Income for the 13-week and 39-week periods ended September 29, 2001and September 30, 2000 and the Condensed Consolidated Statements of CashFlows for the 39-week periods ended September 29, 2001 and September 30,2000. These condensed consolidated financial statements are the responsibilityof the Company's management.
We conducted our reviewsin accordance with standards established by the American Institute of CertifiedPublic Accountants. A review of interim financial information consistsprincipally of applying analytical procedures to financial data and ofmaking inquiries of persons responsible for financial and accounting matters.It is substantially less in scope than an audit conducted in accordancewith auditing standards generally accepted in the United States of America,the objective of which is the expression of an opinion regarding the financialstatements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, weare not aware of any material modifications that should be made to suchcondensed consolidated financial statements for them to be in conformitywith accounting principles generally accepted in the United States of America.
We have previously audited,in accordance with auditing standards generally accepted in the UnitedStates of America, the Consolidated Balance Sheet of Sears, Roebuck andCo. as of December 30, 2000, and the related Consolidated Statements ofIncome, Shareholders' Equity, and Cash Flows for the year then ended (notpresented herein); and in our report dated February 12, 2001, we expressedan unqualified opinion on those consolidated financial statements. In ouropinion, the information set forth in the accompanying Condensed ConsolidatedBalance Sheet as of December 30, 2000, is fairly stated, in all materialrespects, in relation to the Consolidated Balance Sheet from which it hasbeen derived. 
Deloitte & Touche LLPChicago, Illinois
November 2, 2001  
-13-      
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 and 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

Operating results for theCompany are reported for three domestic segments and one internationalsegment. The domestic segments include the Company's operations in theUnited States and Puerto Rico. The Company's segments are defined as follows:  s*Retailand Related Services*consisting of: s*Corporateand Other*consisting of: -Full-linestores (includes online revenues of sears.com)  -Administrativeactivities of a holding company nature, the costs of which are not allocatedto the Company's businesses      -Specialtystores (Hardware stores, Dealer stores, Commercial Sales, The Great Indoors,Automotive and Outlet stores)  -HomeImprovement Services  -Directto Customer (catalog, proprietary clubs and services and online infrastructure)    -SearsRepair Services (Service contracts, product installation and repair, heatingventilation and air conditioning services) s*SearsCanada*consisting of retail, services, credit, corporate and onlineoperations conducted in Canada through Sears Canada, Inc. ("Sears Canada"),a 54.4% owned consolidated subsidiarys*Creditand Financial Products*includes domestic credit card operationsand related financial product offerings (credit protection and insuranceproducts).    
**Results of Operations**
For the 13 weeks ended September29, 2001, the Company reported net income of $262 million or $0.80 pershare, compared with $278 million or $0.81 per share for the comparable2000 period. For the 39 weeks ended September 29, 2001, the Company reportednet income of $241 million or $0.73 per share compared with $901 millionor $2.57 per share for the comparable 2000 period. The effects of non-comparableitems on net income and earnings per share are summarized in the tablebelow. *(millions,except per share data)*13 Weeks Ended39 Weeks EndedSeptember 29, 2001September 30, 2000September 29, 2001September 30, 2000Net IncomeEarnings per shareNet IncomeEarnings per shareNet IncomeEarningsper shareNet IncomeEarnings per shareExcludingnon-comparable items$262 $0.80 $261 $0.76 $728 $2.21 $849 $2.43 Provisionfor previously securitized receivables-- -- -- -- (331) (1.01) -- -- Securitizationincome-- -- 17 0.05 26 0.08 52 0.14 HomeLifeclosure and other-- -- -- -- (129) (0.39) ---- Exitof cosmetics business--------(53)(0.16)---- Asreported $262 $0.80 $278 $0.81 $241  $0.73  $901 $2.57
-14-       
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 and 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

Description of Non-ComparableItems
Third quarter year-to-date2001 results include a non-cash pretax charge of $522 million ($331 millionafter-tax) to establish an allowance for uncollectible accounts relatedto approximately $12 billion of securitized credit card receivables reinstatedon the Company's balance sheet as a result of the Company's adoption ofSFAS No. 140 in April 2001. In addition, effective in the second quarterof 2001, the Company's securitization transactions are accounted for assecured borrowings and the Company ceased recording securitization income.Third quarter 2001 results include no after-tax securitization income comparedwith $17 million after-tax income in third quarter 2000.
During the second quarterof 2001, the Company recorded a pretax charge of $185 million ($116 millionafter-tax) relating to the formerly owned HomeLife business which was soldto Citicorp Venture Capital, Ltd. in early 1999. HomeLife filed for bankruptcyon July 16, 2001. The charge reflects the net estimated costs associatedwith certain property leases assigned to HomeLife and other obligationsrelated to HomeLife in connection with which Sears may incur losses. TheCompany also recorded a pretax charge of $20 million ($13 million after-tax)to recognize the impairment of another unrelated investment.
During the second quarterof 2001, the Company recorded a pretax charge of $82 million ($53 millionafter-tax) in connection with its exit of the skin care and color cosmeticsbusiness. The charge includes asset write-downs and vendor cancellationpayments.
Analysis of ConsolidatedResults Excluding Non-comparable Items
For the 13 weeks ended September29, 2001, net income excluding non-comparable items was $262 million or$0.80 per share, compared with $261 million or $0.76 per share for thecomparable 2000 period. For the 39 weeks ended September 29, 2001, netincome excluding non-comparable items was $728 million or $2.21 per sharecompared with $849 million or $2.43 per share for the comparable 2000 period.The decrease in earnings per share year-to-date is due to decreased operatingincome across all segments partially offset by a reduction in shares outstandingdue to the Company's share repurchase program.
The Company's consolidatedeffective tax rate for the 13 and 39 weeks ended September 29, 2001 was36.3% and 35.6%, respectively, compared with 35.8% and 36.5%, respectively,in the comparable prior year periods. The effective domestic tax rate isapproximately 36.5% in all periods presented. Variations in consolidatedeffective tax rates are primarily due to lower Sears Canada income.
Due to holiday buying patterns,merchandise sales are traditionally higher in the fourth quarter than otherquarterly periods and a disproportionate share of operating income is typicallyearned in the fourth quarter. This business seasonality results in performancefor the 13 and 39 weeks ended September 29, 2001 which is not necessarilyindicative of performance for the balance of the year. The Company makesavailable by phone a recorded message on the sales performance of its domesticstores. The message is updated weekly and can be heard by calling (847)286-6111.
-15-   
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

The following segment discussionsexclude non-comparable items.
**Retail and RelatedServices**
Retail and Related Servicesrevenues decreased 1.8% to $7.3 billion and 1.1% to $21.9 billion for the13 and 39 weeks ended September 29, 2001, respectively, from the comparable2000 periods. Retail and Related Services revenues and related informationare as follows: 13 Weeks Ended39 Weeks EndedSept. 29, Sept. 30,    Sept. 29, Sept. 30,    2001 2000 Change 2001 2000 ChangeRevenues:Full-linestores (includes sears.com)$5,082 $5,284 -3.8%$15,438 $15,879 -2.8%Specialtystores1,667 1,614 3.3%4,803 4,622 3.9%RepairServices and Direct to Customer5845731.9%1,7011,6880.8%TotalRetail and Related Services revenues$7,333$7,471-1.8%$21,942$22,189-1.1%Numberof Full-line stores861 862 Numberof Specialty stores2,1352,180TotalRetail stores2,996 3,042 Comparablestore salespercentage increase/decrease-2.9% 3.5%-1.8% 2.9%   
For the 13 week period, Full-linestores revenues decreased 3.8% compared with the third quarter of 2000. sHardlinesrevenues decreased 1.6% in the third quarter of 2001. Revenue increasesin appliances and lawn and garden were more than offset by declines inelectronics, home office and sporting goods revenues.  sSoftlinesrevenues decreased 7.5% in the third quarter of 2001, reflecting weaknessesacross most softlines categories.
For the 39 week period, Full-linestore revenues decreased 2.8% over 2000 as hardlines decreased 0.7% andsoftlines decreased 6.2%.
For the 13 week period endedSeptember 29, 2001, Specialty stores revenues increased 3.3% from the comparable2000 period primarily due to revenue increases in The Great Indoors, Dealerstores, Outlet stores and Hardware stores, which were partially offsetby revenue declines in Commercial Sales and Automotive stores. The GreatIndoors added eight new stores since third quarter 2000. Sears Dealer storesrevenues benefited from 19 net new store openings since third quarter 2000and comparable store revenue gains over the prior year period. Hardwarestores also experienced comparable store revenue gains over the 2000 period.
For the 39 week period endedSeptember 29, 2001, Specialty stores revenues increased 3.9% from the comparable2000 period primarily due to revenue increases in The Great Indoors, Dealerstores, Outlet stores, Automotive stores and Hardware stores, which werepartially offset by a decline in Commercial Sales.
-16-    
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

For the 13 week period endedSeptember 29, 2001, revenue increases in Sears Repair Services were partiallyoffset by a decline in Direct to Customer revenues. For the 39 week periodended September 29, 2001, revenues for Sears Repair Services and Directto Customer were essentially flat as increases in Sears Repair Serviceswere largely offset by a decline in Direct to Customer.
Retail and Related Servicesgross margin as a percentage of Retail and Related Services revenues forthe third quarter of 2001 improved to 25.6%, an increase of 30 basis pointsfrom the third quarter of 2000. Full-line store margins improved with bothhardlines and softlines contributing to the increase. The increase is alsodue to improvement within Hardware stores as well as increased sales ofhigher margin Repair Services. For the 39 week period, Retail and RelatedServices gross margin improved to 25.6%, an increase of 10 basis pointsfrom the third quarter of 2000. The year-to-date increase is primarilydue to margin improvement within Sears Automotive Group. 
Retail and Related Servicesselling and administrative spending for the third quarter 2001 was 1.5%lower than the comparable prior year period due to decreases in expensesin the Full-line stores and Direct to Customer partially offset by higherinvestment in The Great Indoors. As a percentage of Retail and RelatedServices revenues for the third quarter of 2001, Retail and Related Servicesselling and administrative expense increased 10 basis points from the thirdquarter of 2000 as lower than anticipated revenues constrained expenseleverage. For the 39 week period, Retail and Related Services selling andadministrative expense rate increased 40 basis points primarily due tolower revenues. 
Retail and Related Servicesdepreciation and amortization expense for the third quarter decreased 2.9%or $5 million from the comparable 2000 period. For the 39 week period,Retail and Related Services depreciation and amortization expense decreased0.4% or $2 million.
For the 13 week period endedSeptember 29, 2001, Retail and Related Services operating income increasedby $13 million from the prior year as improvements in margin rate and sellingand administrative spending more than offset the decline in revenue. Retailand Related Services operating income for the 39 week period ended September29, 2001 declined $76 million primarily due to lower than anticipated revenuesand pressures on expense leverage.  
**Credit and FinancialProducts**
Credit and Financial Productsrevenues increased 0.9% to $1.3 billion for the 13 weeks ended September29, 2001 from the comparable prior year period largely because higher averagereceivable balances offset a lower yield. The portfolio yield declinedfrom third quarter 2000 by 36 basis points as the lower annual percentagerate for the Sears Gold MasterCard product and lower late fees more thanoffset the increased yields on certain Sears Card and SearsCharge Plusaccounts resulting from a change in terms implemented in the third quarterof this year. Credit and Financial Products revenues decreased 1.4% to$3.9 billion for the 39 weeks ended September 29, 2001 primarily due toa 70 basis point decline in portfolio yield. A summary of Credit information(for the managed portfolio) is as follows:  13 Weeks Ended 39 Weeks EndedSept. 29,Sept. 30,Sept. 29,Sept. 30, 2001 2000 2001 2000
Searscredit cards as a % of sales 48.7%  48.9%  47.6%  47.5%Averageaccount balance(as of September 29, 2001and September 30, 2000)      $1,161 $1,175            Averagemanaged credit card receivables (*millions*)$26,089 $25,453 $26,138 $25,657
-17-     
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

Credit and Financial Productsselling and administrative expense as a percentage of Credit and FinancialProducts revenues increased to 15.4%, an increase of 40 basis points inthe third quarter of 2001 from the comparable 2000 period. The increasepartly represents higher costs related to the Company's Sears Gold MasterCardproduct. Year-to-date selling and administrative expenses as a percentof revenues increased 60 basis points primarily due to higher Sears GoldMasterCard and customer notification expenses partially offset by higherzero percent financing reimbursement from Retail and Related Services.
The domestic provision foruncollectible accounts and related information is as follows:   13 Weeks Ended 39 Weeks Ended*(millions)*Sept. 29,Sept. 30,Sept. 29,Sept. 30,  2001 2000 2001 2000             Provisionfor uncollectible accounts (1)$366$327$1,050$1,019 Netcredit charge-offs as a percentage ofaverage managed credit cardreceivables (2) 5.62%  4.97%  5.36%  5.24%   20012000Sept. 29,June 30,March 31,Dec. 30,Sept. 30,20012001200120002000Domesticmanaged credit card receivables - delinquencyrate (2)7.41%7.26%7.50%7.56%7.47%Allowancefor uncollectible accounts (3)$1,089$1,089$567$649$624Allowance% of domestic on-bookcredit card receivables4.15%4.19%4.14%4.03%4.18%(1)2001provision amounts exclude the $522 million charge for previously sold receivablesreinstated on the Company's balance sheet. (2)Thenet charge-off and delinquency rates are affected by seasonality, periodicsales of uncollectible accounts to third parties, bankruptcy trends andother general economic factors. (3) June30, 2001 and Sept. 29, 2001 balances reflect the additional provision of$522 million recorded in April 2001.
The domestic provision foruncollectible accounts increased by $39 million to $366 million for the13 weeks ended September 29, 2001 primarily reflecting the increase inthe charge-off rate to 5.62% from 4.97% in the prior year. For the 39 weeksended September 29, 2001, the domestic provision for uncollectible accountsincreased by $31 million to $1,050 million from the comparable prior yearperiod. These increases are primarily due to higher credit customer bankruptcyfilings this year.
The domestic allowance foruncollectible accounts remained unchanged at $1,089 million, reflectingstable credit portfolio quality. Bankruptcy filings moderated during thequarter from second quarter levels. The 60-plus day delinquency rate declinedto 7.41% from 7.47% in the prior year.
-18-    
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

Interest expense is discussedwithin the Credit and Financial Products segment since the majority ofthe Company's interest expense is allocated to this segment. Total fundingcosts are as follows:   13 Weeks Ended 39 Weeks Ended  Sept. 29, Sept. 30, Sept. 29, Sept. 30,  2001 2000 2001 2000Consolidatedinterest expense (1)$378 $305 $1,094 $931 Fundingcost on securitized receivables(1)--110123315 Totalfunding costs$378$415$1,217$1,246
(1) Beginning inthe second quarter of 2001, funding costs on securitized receivables areincluded in consolidated interest expense.
Funding costs decreased primarilydue to a lower funding rate environment. The average funding rate in thethird quarter was 82 basis points below last year's quarter primarily dueto lower interest rates and a higher proportion of variable rate debt.
For the 13 week period, operatingincome from Credit and Financial Products excluding non-comparable itemsand securitization income increased by $4 million as favorable fundingcosts and higher revenues more than offset higher provision expense. Forthe 39 week period, operating income from Credit and Financial Productsexcluding non-comparable items and securitization income declined by $70million primarily due to the combination of lower revenues and higher provisionfor uncollectible accounts more than offsetting favorable funding rates.
**Corporate and Other**
Revenues from the home improvementservices businesses included in the Corporate and Other segment increasedby 14.9% to $108 million and 17.4% to $304 million, respectively, for the13 and 39 weeks ended September 29, 2001 from the comparable prior yearperiods. Segment operating loss worsened $18 million and $25 million, respectively,for the 13 and 39 week periods, with improved profit from the segment'shome services businesses partially offsetting higher corporate office expenses.Corporate headquarters spending increased $31 million and $55 million,respectively, for the 13 and 39 week periods. The increases in 2001 areprimarily due to consulting expenses related to the Company's Full-linestore and home office strategic reviews. The Company completed the saleof Sears Termite and Pest Control on October 1, 2001. This transactiondid not materially affect results of operations or consolidated financialcondition.
**Sears Canada**
Sears Canada revenues forthe third quarter of 2001 increased 1.7% from the same period a year agoas sales increases from new stores were partially offset by a four percentdecline in the value of the Canadian dollar relative to the U.S. dollar.For the 39 week period, revenues increased 3.0%.
Sears Canada gross marginas a percentage of Sears Canada merchandise and services revenues decreased200 basis points in the third quarter of 2001 from the comparable prioryear quarter. For the 39 week period, Sears Canada gross margin decreased160 basis points. These declines are primarily due to increased promotionalactivity.
-19-    
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

Sears Canada selling andadministrative expense as a percentage of Sears Canada revenues increased40 basis points in the third quarter of 2001 from the comparable 2000 period.For the 39 week period, Sears Canada selling and administrative rate increased60 basis points. SG&A as a percent of revenues increased primarilydue to higher infrastructure costs to support additional stores partiallyoffset by the absence of prior year Eatons integration costs.
Operating income declinedby $25 million and $72 million, respectively, for the 13 and 39 weeks endedSeptember 29, 2001 from the comparable 2000 periods as a result of sluggishsales coupled with increased markdowns and higher expenses to support storesopened in 2000. 
**Financial Condition**
A summary of the Company'scredit card receivables follows: *(millions)*September 29,September 30,December 30,200120002000DomesticManagedcredit card receivables$26,264 $25,825 $27,001 Securitizedbalances sold--  (7,054)  (7,834)Retainedinterest in transferred creditcard receivables (1)--  (3,840) (3,051)Othercustomer receivables624959Domesticowned credit card receivables26,326  14,980 16,175 SearsCanada credit card receivables1,5151,5761,828Consolidatedon-book credit card receivables27,841  16,556  18,003 Less:Allowance for uncollectible accounts1,121657686Creditcard receivables, net$26,720$15,899$17,317
**(1)**Theretained interest amount as of December 30, 2000, is shown before the unamortizedtransferred allowance for uncollectible accounts of $82 million, and interestonly strip balances of $136 million. The September 30, 2000 retained interestamount is shown before the unamortized transferred allowance for uncollectibleaccounts of $99 million and interest only strip balances of $106 million.
Domestic managed credit cardreceivables increased $439 million from the third quarter of 2000 as growthfrom the Sears Gold MasterCard product was partially offset by lower SearsCard receivables. The Sears Gold MasterCard product, which was launchedin the second quarter of 2000, had $3.1 billion in outstanding balancesat September 29, 2001 compared with $1.1 billion at September 30, 2000.Compared to 2000 year-end, domestic managed credit card receivables decreased$737 million. This decrease in managed credit card receivables is largelydue to seasonal factors.
-20-   
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

As of September 29, 2001,consolidated merchandise inventories on the first-in, first-out (FIFO)basis were $6.6 billion, compared with $7.0 billion at September 30, 2000and $6.2 billion at December 30, 2000. The decrease as compared with lastyear's third quarter primarily reflects lower domestic hardlines and softlinesinventories. Sears Canada inventory decreased due to continued focus onmanaging inventory levels, as well as the improved seasonal content ofthe inventory.
Total funding for the Companyat September 29, 2001 was $25.7 billion compared with $25.3 billion a yearearlier primarily resulting from increases in managed credit card receivablebalances. Total funding includes debt recorded on the balance sheet and,prior to second quarter, investor certificates related to credit card receivablessold through securitizations as follows:   Sept. 29, Sept. 30, December 30, *(millions)*2001 2000 2000          Short-termborrowings$3,503 $4,238 $4,280 Long-termdebt and capitalized lease obligations22,164 14,013 13,580 Securitizedbalances sold--7,0547,834Totalfunding$25,667$25,305$25,694
The Company accesses a varietyof capital markets to preserve flexibility and diversify its funding sources.The primary funding sourcesutilized include unsecured commercial paper, medium term notes, underwrittenterm debt and credit card receivable securitizations.
**Liquidity**
Based upon the expected cashflow to be generated from future operations and the Company's ability tocost-effectively access multiple sources of funding, the Company believessufficient resources will be available to maintain its planned level ofoperations, capital expenditures, dividends and share repurchases for theforeseeable future. 
**Outlook**
In the fourth quarter, theCompany announced plans to improve its financial performance, primarilybased on the results of a review of Full-line stores' merchandise offeringsand business processes. The plans include initiatives to improve merchandiseofferings and presentation, rebalance marketing spending, enhance customers'in-store experience, and streamline store, supply chain and home officeoperations. In connection with the improvements in operations, the Companyannounced its intention to eliminate 4,900 full-time positions. The Companyexpects that the initiatives, including the elimination of positions, willresult in additional special charges in the fourth quarter and possiblythereafter.
-21-   
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OFOPERATIONS, FINANCIAL CONDITIONAND LIQUIDITY FOR THE13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000

**Cautionary StatementRegarding Forward-Looking Information**
This report contains forward-lookingstatements, including the Outlook. The statements are based on assumptionsabout the future, which are subject to risks and uncertainties, such ascompetitive conditions in retail, the effects of the current economic climateincluding changes in consumer confidence, changes in interest rates, delinquencyand charge-off trends in the credit card receivables portfolio, customerreactions to the Company's strategic initiatives, and normal business uncertainty.In addition, Sears typically earns a disproportionate share of its operatingincome in the fourth quarter due to seasonal buying patterns, which aredifficult to forecast with certainty. The Company believes its forward-lookingstatements are reasonable but cautions that actual results could differmaterially. The Company intends these forward-looking statements to speakonly at the time of this report and does not undertake to revise or confirmthem as more information becomes available.
-22-   
SEARS, ROEBUCK AND CO.
ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURESABOUT MARKET RISK

The nature of market risksfaced by the Company at September 29, 2001 are disclosed in the Company'sForm 10-K for the year ended December 30, 2000. As of September 29, 2001,58% of the Company's funding portfolio was variable rate (including currentmaturities of fixed-rate long-term debt that will reprice in the next 12months and fixed-rate debt converted to variable rate through the use ofderivative financial instruments). Based on the Company's funding portfolioas of September 29, 2001, which totaled $25.7 billion, a 100 basis pointchange in interest rates would affect pretax funding cost by approximately$150 million per annum. The calculation assumes the funding portfolio balanceat September 29, 2001, remains constant for a 12 month period and thatthe 100 basis point change occurs at the beginning of the period.
-23-    
SEARS, ROEBUCK AND CO.
PART II. OTHER INFORMATION

Item 1. Legal ProceedingsThere have been no materialdevelopments in any material legal proceedings since the Company's disclosurein its Annual Report on Form 10-K for the fiscal year ended December 30,2000.
-24-  
SEARS, ROEBUCK AND CO.
PART II. OTHER INFORMATION
  Item6.Exhibitsand Reports on Form 8-K.    (a)Exhibits.     AnExhibit Index has been filed as part of this Report on Page E-1.    (b)Reportson Form 8-K.     TheRegistrant filed a Current Report on Form 8-K dated July 12, 2001 to report,under Item 5, that the Registrant issued a press release (attached as Exhibit99 thereto).     TheRegistrant filed a Current Report on Form 8-K dated July 18, 2001 to report,under Item 5, that the Registrant issued a second quarter earnings release(attached as Exhibit 99 thereto).
-25-   SEARS, ROEBUCK AND CO.
SIGNATURE
 Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized. Sears,Roebuck and Co.(Registrant)  November9, 2001By/s/Glenn R. RichterGlennR. RichterSenior Vice President -Finance(Principal Accounting Officerand duly authorized officer of Registrant)
-26-    
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.13 AND 39 WEEKS ENDED SEPTEMBER29, 2001 AND SEPTEMBER 30, 2000
  ExhibitNo. 3(a).RestatedCertificate of Incorporation as in effect on May 13, 1996 (incorporatedby reference to Exhibit 3(a) to Registrant's Statement No. 333-8141).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 December30, 2000).4.Registranthereby agrees to furnish the Commission, upon request, with the instrumentsdefining the rights of holders of each issue of long-term debt of the Registrantand its consolidated subsidiaries.*12.Computationof ratio of income to fixed charges for Sears and consolidated subsidiariesfor each of the five years ended December 30, 2000 and for the nine-monthperiod ended September 29, 2001.*15.Acknowledgementof awareness from Deloitte & Touche LLP, dated November 9, 2001, concerningunaudited interim financial information. *Filedherewith. 

**